UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
ANNUAL REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December
31, 2008
r
TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from_______________________
Commission
file number 001-15931
|
ABLEAUCTIONS.COM,
INC.
|
|
(Name
of registrant in its charter)
|
|
Florida
(State
or other jurisdiction of incorporation or organization)
|
59-3404233
(I.R.S.
Employer Identification No.)
|
|
1963 Lougheed Highway, Coquitlam, British
Columbia, Canada
(Address
of principal executive offices)
|
V3K 3T8
(Zip
Code)
|
Issuer’s telephone number 604-521-3369
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
Common Stock, $0.001 par
value
|
NYSE
Alternext US
|
Securities
registered pursuant to Section 12(g) of the Act:
|
Common
Stock - $0.001 par value
|
|
(Title
of Class)
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. r Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. r Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the last 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.
Large
accelerated filer r Accelerated
filer r
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 Act). r Yes x No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter: $4,860,211
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of March 16, 2009 the number of
shares of the registrant’s classes of common stock outstanding was
5,906,957.
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (eg., Part 1, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents
should be clearly described for identification purposes.
Table of Contents
|
Page
|
||||
|
|
||||
|
3
|
||||
|
|
||||
| Part 1 | ||||
|
|
||||
|
Item
1
|
3
|
|||
|
Item
1A
|
8
|
|||
|
Item
1B
|
15
|
|||
|
Item
2
|
15
|
|||
|
Item
3
|
16
|
|||
|
Item
4
|
16
|
|||
|
|
||||
|
Part
II
|
||||
|
|
||||
|
Item
5
|
17
|
|||
|
Item
6
|
18
|
|||
|
Item
7
|
18
|
|||
|
Item
7A
|
24
|
|||
|
Item
8
|
24
|
|||
|
Item
9
|
24
|
|||
|
Item
9A
|
24
|
|||
|
Item
9B
|
25
|
|||
|
|
||||
| Part III | ||||
|
|
||||
|
Item
10
|
26
|
|||
|
Item
11
|
28
|
|||
|
Item
12
|
29
|
|||
|
Item
13
|
30
|
|||
|
Item
14
|
31
|
|||
| Item 15 | Exhibits |
32
|
||
| Signatures |
33
|
|||
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.
3
PART
I
Item 1. Description of
Business
Overview
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 segement 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 stores
located in California and British Columbia and through auctions we conduct in
the United States and Canada. We also generate revenues by providing
inventory brokerage services at www.unlimitedcloseouts.com and
www.unlimitedcloseouts.ca.
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
December 31, 2008, our loan and real estate segments included the following
investments:
|
Investment
|
Amount
|
|||
|
Loans
|
$ | 2,294,745 | ||
|
Real
Property (raw land)
|
$ | 2,193,475 | ||
|
Real
Property held for development
|
$ | 8,520,055 | ||
| Investment in joint venture | $ | 1,223,728 | ||
|
Investment
in Surrey City Central Holdings Ltd.
|
$ | 1,671,638 | ||
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.
History
We were
incorporated under the laws of the state of Florida as J. B. Financial Services,
Inc. on September 30, 1996. We changed our name to Ableauctions.com,
Inc. on July 19, 1999. From the date of our incorporation until
August 24, 1999, we had no material business and no material revenues, expenses,
assets or liabilities.
On August
24, 1999, in exchange for shares of our common stock and cash, we acquired all
of the assets and the business operations of Able Auctions (1991) Ltd., a
British Columbia corporation engaged in the business of auctioning used
equipment, office furnishings and other merchandise. We acquired all
of the issued and outstanding common stock of Able Auctions (1991) Ltd. from
Dexton Technologies Corporation, a British Columbia corporation. Our
intent in acquiring the assets and business operations of Able Auctions (1991)
Ltd. was to expand its bricks and mortar operations and to develop an on-line
auction technology.
Because
of the significant costs related to traditional auction businesses, such as
maintaining a physical auction site and employees necessary to staff the
auctions, we decided to abandon our plan to expand our bricks and mortar
operations through continued acquisitions of auction
businesses. Furthermore, we no longer staff or operate our bricks and
mortar auction businesses.
While our
business has evolved away from conducting auctions through bricks and mortar
operations, we have expanded our on-line auction operations and branched out
into excess inventory liquidation.
Liquidation
Services
During
2008, most of our business involving the liquidation of excess inventory was
carried out by our wholly owned subsidiary, Unlimited Closeouts, Inc., which
contacts major manufacturers and importers to purchase overstocks, order
cancellations and discontinued products. Unlimited Closeouts then
sells the merchandise to major retail chains, other resellers or the
public.
We earn
commissions ranging from 10% to 25% on the inventory that we
sell. During the 2008 fiscal year, revenue from our liquidation
business totaled $1,653,902, or approximately 59% of all the revenue we
earned.
Our
liquidation operations are currently dependant on one key
individual. If we were to lose our current operator, the loss could
have a material adverse effect on this sector of our business and on our results
of operations.
Auction
Broadcast Services
We now
provide technology and related services to auction houses and galleries to
enable them to broadcast auctions live over the Internet through the use of our
proprietary technology.
In a
traditional bricks and mortar auction setting, prior to the auction bidders must
register to qualify as bidders. Up until the start of an auction,
bidders are able to preview the merchandise and submit absentee
bids. Once the auction begins, the registered bidders bid against
each other for merchandise auctioned at a physical location with the auctioned
merchandise being sold to the highest bidder. A typical auction may
draw 500 people and have 1,000 lots of merchandise.
Through
our auction broadcast services, as used with our proprietary technology
platform, auction houses and galleries are now empowered with technology that
enables them to broadcast their auctions over the Internet in real-time,
allowing online bidders to bid against bidders physically present at the
location. Like a traditional bricks and mortar auction, bidders
register on-line before the auction begins in order to qualify, to preview the
merchandise and to place absentee bids. Once the auction begins,
online bidders bid from their computers in real-time against bidders present at
the location (“floor bidders”) and against each other. Online bidders
are invoiced electronically for their winning bids and are able to remit payment
electronically. We believe that our technology and services make the
online purchase of auction merchandise more convenient for
consumers. For auction businesses, we believe that this technology
can increase the size of auction audiences by increasing exposure to auctions,
increase the final hammer price for merchandise sold and lower overall
transaction costs.
We have
also developed technology that manages the “back-end” of the auction, enabling
auctioneers to run auctions more efficiently, providing them with tools to
automate invoicing, collect payment, track lot popularity, view bidder
statistics and demographics, and print graphic reports.
iCollector
Through
our subsidiary, iCollector.com Technologies Ltd., we broadcast auctions live
over the Internet using our proprietary technology
platform. iCollector represents antique, fine art and premium
collectible auction houses and galleries, whose inventories typically include
fine and decorative arts, modern and contemporary art, memorabilia, wine, fine
furniture and collectibles that are obtained primarily from Europe, Canada and
the United States. iCollector catalogues its client’s inventory and
features it on its website located at www.icollector.com. iCollector
also provides back-end auction-related products and services to galleries and
auction houses for a fee, so that the auctions can be conducted more
efficiently. We provide galleries and auction houses with tools to
automate invoicing, collect payment, track lot popularity, view bidder
statistics and demographics, and print graphic reports.
During
the 2008 fiscal year, our iCollector operations declined by approximately
35%. We facilitated 891 auction sessions as compared to 1,373 auction
sessions during the 2007 fiscal year. Revenue from our iCollector
operations totaled $521,793 during the 2008 fiscal year, or approximately 19% of
all the revenue we earned. The fee charged to our auction house clients
was approximately $1,500 per auction plus approximately 5% of the value of
the merchandise sold online, which we shared equally between us and
eBay.
NAALive
We have
partnered with the National Auctioneers Association (“NAA”) to serve as its
exclusive online auction contractor to broadcast business and industrial
equipment auctions for its members on the website www.NAALive.com. We
promote these services to NAA’s estimated 7,000 members with technology that we
have developed. This platform is the only web cast technology for
live online auctions endorsed by the National Auctioneers
Association.
Founded
in 1948, the NAA membership is comprised of approximately 7,000 auctioneers
worldwide with members in every state in the United States. NAA
members represent every facet of the auction industry, including, but not
limited to, real estate, automotive, fine art, livestock, equipment and
manufacturing.
During
the 2008 fiscal year, our NAALive operations declined by approximately
31%. We facilitated 188 auction sessions as compared to 271 auctions
sessions during the 2007 fiscal year. Revenue from these operations
totaled $177,203, or approximately 6% of all the revenue we earned during the
2008 fiscal year. The fee charged to our auction house clients was
approximately $300 per auction plus approximately 2.0% of the value of the
merchandise sold online. We pay the NAA up to 20% of the fees we collect
for joint marketing.
As with
our iCollector operations, we have developed similar technology, systems and
processes to manage the back-end of the auction operations we conduct for NAA
and to broadcast these auctions live over the Internet, applying our experience
in managing and operating auction houses with Internet broadcasting
capabilities. Our technology enables auctioneers to manage auctions
more efficiently, providing them with tools to automate invoicing, collect
payment, track lot popularity, view bidder statistics and demographics, and
print graphic reports.
Point
of Sale (POS) Software and Services
We also
earn revenues from our subsidiary, Rapidfusion Technologies,
Inc. Rapidfusion has developed point-of-sale software and services
for retailers. Users of these products and services may select from
the following packages that we offer:
|
·
|
The
Rapidfusion POS (Point-of-Sale) 2007 Professional Single-User (Retail
$3,000) is our full-featured product for medium to large stores needing a
comprehensive, standalone point of sale product. This software
may be upgraded to add other users, as
necessary.
|
|
·
|
The
Rapidfusion POS (Point-of-Sale) 2007 Professional Multi-User (Retail
$3,750) is for medium to large stores requiring two or more terminals (for
example, one terminal for inventory management and one terminal for sales)
in one complete point of sale
product.
|
|
·
|
The
Rapidfusion POS (Point-of-Sale) 2007 Professional Head Office Solution
(Retail $4,000) is designed to manage multiple store branches from one
central terminal. This product includes functionality of
warehouse or store split-purchase orders, full inventory control with
inter-store transfers, customer database management, and the ability to
consolidate and track all sales data for multiple store
branches.
|
In early
2007, we released an enhanced version of Rapidfusion’s point of sale software
that includes integrated gift registry functions. We became certified
by Paymentech Solutions to use its software and, as a result, were able to
integrate credit card and debit card transactions into our software through
advanced Paymentech Pin-Pads, replacing existing separate point of sale credit
card and debit card terminals with simple pin-pad card readers.
Revenue
from sales of our Rapidfusion products totaled $302,585, or approximately 11% of
all the revenue we earned during the 2008 fiscal year.
Real
Property Development
In an
effort to expand our business we created Axion Investment Corporation, referred
to in this discussion as “Axion”, to develop real estate and make short term
loans.
Gruv
Development
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 $20.9
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 $17.4 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 $301,108 ($366,749 CAD) to Macdonald Realty for its
services to date. We have budgeted an additional $566,299 ($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
$13.48 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 $3.97 million
($4.84 million CAD) toward the development including the cost of the land, and
fixed price contracts for at least 50% of Phase I’s hard construction costs
prior to the initial draw and 80% by December 2008. By November 10,
2008, Axion had fulfilled all the obligations of the construction credit
facility.
Construction
Progress as of February 27, 2009: ($ CAD)
|
Project
costs of work completed to date:
|
$
|
12,258,987
|
||
|
Project
costs of remaining work:
|
$ |
8,998,882
|
||
|
Estimated
total project costs:
|
$ |
21,257,869
|
||
|
Variance
from original construction budget:
|
$ |
(150,718
|
) | |
|
Current
outstanding principal balance of loan from the Royal Bank of
Canada:
|
$ |
7,422,117
|
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 February 27, 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. Because the
purchase of the lot was completed after the acquisition of our interest in
Surrey was consummated, this transaction did not trigger an adjustment to the
purchase price.
We agreed
to pay one-half 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. 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.
Township
Holdings Ltd.
Through
Township Holdings Ltd., Axion also holds a 1/3 interest in two vacant lots
located in Langley, British Columbia. The lots are comprised of approximately
4.72 acres and are commonly known as 20514 - 80th Avenue and 20542 - 80th
Avenue, Langley, British Columbia V3T 2V3. The properties were
purchased on August 14, 2006 for a purchase price of $3.42 million and are
currently being offered for sale.
Loans
Axion
also provides short term loans to various businesses and individuals in
Canada. The loans typically have terms of one year, earn interest at
the rate of approximately 10% and are secured by real estate, general security
agreements and personal guarantees, as appropriate. At December 31,
2008, Axion had approximately $2,294,745 outstanding in loans.
Other
(Investment)
Investment
of our cash and marketable securities is managed by Ableauctions.com,
Inc.
Competition
Online Auction
Companies
We face competition from
traditional auctioneers and from online auction companies that use the Internet
to sell or auction surplus capital assets, equipment, art or
collectibles. The Internet auction industry is rapidly
evolving, and intensely competitive, and we expect competition to intensify in
the future. A variety of auction web sites are presently available on
the Internet that are dedicated to facilitating person-to-person and
business-to-person transactions on a bid-based format. These auction
services allow sellers to post merchandise on their web sites and buyers to
locate items and submit bids online. These services generally
organize merchandise by categories and provide descriptions, pictures, or video
clips of merchandise offered for sale.
Most of
our current and potential competitors have larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do and may enter into strategic or commercial relationships with larger,
more established companies. Some of our competitors may be able to
secure alliances with customers and affiliates on more favorable terms, devote
greater resources to marketing and promotional campaigns and devote
substantially more resources to systems development than we do. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on us.
We cannot
assure you that we will be able to compete successfully against current or
future competitors, and competitive pressures faced by us could harm our
business, operating results and financial condition. We do not
currently represent a significant competitive presence in the on-line auction
industry.
Real Estate
Development
The real
estate industry is highly competitive, with developers and homebuilders
competing for desirable properties, financing, raw materials and skilled
labor. We do not represent a significant competitive presence in the
real estate development industry and we do not believe that we will ever have a
competitive presence in that industry. We have only one real estate
development project and one real estate development project in the planning
stage.
Government
Regulation
Online Auction
Companies
There are
currently few laws or regulations that directly apply to access to, or commerce
on, the Internet. Governing bodies have, and may continue to, adopt
laws and regulations governing issues such as user privacy on the Internet and
the pricing, characteristics, and quality of products and services offered over
the Internet. It is also possible that government authorities will
adopt sales or other taxes involving Internet businesses. The passage
of any such laws may make the cost of doing business much higher for us, which
may adversely impact our results of operations. Currently we have no
significant expenses associated with legal or regulatory
compliance.
Real Estate
Development
To date,
our real estate development activities have been centered in the general area of
Vancouver, British Columbia. In order to develop property in British
Columbia, we must comply with various regulations promulgated by the British
Columbia Superintendent of Real Estate. These regulations include,
but are not limited to, the Real Estate
Development Marketing Act of British Columbia. To date, we have not
found these regulations burdensome to comply with.
Intellectual
Property
We have
developed the majority of our software internally. We have taken
measures to protect our intellectual property, ranging from confidentiality and
non-disclosure agreements for contractors and employees to deploying a modular
development schedule where individual modules of software developed or coded by
employees or contractors have no stand-alone benefits until they are integrated
with the other modules.
We have
registered several Internet domain names.
We
attempt to enter into confidentiality and invention assignment agreements with
our employees and contractors, and nondisclosure agreements with parties with
which we conduct business in order to limit access to and disclosure of our
proprietary information. There can be no assurance that these contractual
arrangements or the other steps we take to protect our intellectual property
will prove sufficient to prevent misappropriation of our technology or to deter
independent third party development of similar technologies.
Employees
As of
March 16, 2009 we have a total of 26 people employed, including 22 full time
staff, 3 consultants and 1 part-time employee. In addition to
management, we employ sales people, administrative staff, and development and
technical personnel. From time to time, to further reduce expenses,
we may employ independent consultants or contractors to support our research and
development, marketing, sales and support, and administrative
organizations. No collective bargaining units represent our
employees. We believe our relations with our employees are
good.
Item 1A. Risk Factors
In
addition to the factors discussed elsewhere in this Annual Report, the following
risks and uncertainties could materially adversely affect our business,
financial condition and results of operations. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and financial condition.
Our
revenues have declined each quarter over the past two fiscal
years. We are not sure if we will ever be profitable.
Over the
past two fiscal years our revenues have declined each quarter. Our
net loss for the fiscal year ended December 31, 2007 was $693,258 and our net
loss for the fiscal year ended December 31, 2008 was $2,771,826. We
are not certain that we will ever be profitable.
The
effects of the recent economic crisis have impacted our business, operating
results, or financial condition. We are not certain when this
crisis will end.
The
recent economic crisis has caused disruptions and extreme volatility in
financial markets and increased rates of default and bankruptcy, and has
impacted levels of consumer and business spending. These developments
have negatively affected our business, operating results, or financial condition
in a number of ways. For example, the downturn in consumer spending
has resulted in lower sales of the overstock we purchase for resale to other
businesses. Furthermore, the deterioration in the real estate market
may make it unprofitable to develop our real estate projects and the tightening
credit market may make it impossible for us to sell the units once the projects
are built out. We are not sure when this economic crisis will
end
As
of December 31, 2008, we had a working capital deficiency of
$4,208,436. Our revenues are not adequate to support our
operations. We do not expect this to change in the near
term. This may require us to curtail or cease our
operations.
As of
December 31, 2008 we had a working capital deficiency of $4,208,436 and our
operating expenses exceeded our revenues by approximately
$136,000. Our revenues are not adequate to support our operations and
we do not expect this to change in the near term. While we are taking
measures to cut costs, if revenues continue to decline we may have to severely
curtail, or even cease, our operations.
Our
operating results fluctuate significantly and may be impacted by factors that
are beyond our control. This makes it difficult to accurately predict
what the revenues from our operations will be.
Our
operating results have varied on a quarterly basis during our operating history
and may fluctuate significantly as a result of a variety of factors, many of
which are outside of our control. Factors that may affect our
quarterly operating results include
|
·
|
our
ability to attract new clients to use our
services;
|
|
·
|
the
announcement or introduction of new sites, services and products by our
competitors;
|
|
·
|
the
success of our marketing campaigns;
|
|
·
|
price
competition;
|
|
·
|
the
level of use of the Internet and online
services;
|
|
·
|
our
ability to upgrade and develop our systems and infrastructure to
accommodate growth;
|
|
·
|
the
amount and timing of operating costs and capital expenditures relating to
our business, operations and infrastructure;
and
|
|
·
|
general
economic conditions as well as economic conditions specific to the
Internet and online commerce
industries.
|
Due to
the foregoing factors, our quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons
of our operating results may not be meaningful and should not be relied upon as
an indication of future performance.
Our
auction business is done through the Internet and requires us to be able to
include all the bidders that care to bid at the auctions we
facilitate. However, we may be subject to capacity constraints and
system development risks that could damage our customer relations or inhibit our
possible growth.
Our
business of facilitating on-line auctions means that anyone, anywhere in the
world, could log onto the auction website to bid. We cannot be sure
how many bidders will attend an auction on-line. Our success and our
ability to provide high quality customer service largely depends on the
efficient and uninterrupted operation of our computer and servers, Internet and
communications systems and the computers and communication systems of third
party vendors in order to accommodate any significant numbers or increases in
the numbers of consumers and businesses using our services. Our
success also depends on our abilities, and that of our vendors, to rapidly
expand transaction-processing systems and network infrastructure without any
systems interruptions in order to accommodate any significant increases in the
use of our service.
We cannot
assure you that the vendors or partners we have selected and will select in the
future will be capable of accommodating any significant number or increases in
the number of consumer and auction houses using our services. Such
failures will have a material adverse affect on our business and results of
operations. We may experience periodic systems interruptions and down
time caused by traffic to our web site and technical difficulties, which may
cause customer dissatisfaction and may adversely affect our results of
operations. Limitations of our technology infrastructure and that of
our vendors may prevent us from maximizing our business
opportunities.
Substantially
all of the computer hardware for operating our service is currently located in
British Columbia. These systems and operations are vulnerable to
damage or interruption from earthquakes, floods, fires, power loss,
telecommunication failures, break-ins, sabotage, intentional acts of vandalism
and similar events. We do not presently have fully redundant systems,
a formal disaster recovery plan or alternative providers of hosting services and
we do not carry sufficient business interruption insurance to compensate for
losses that may occur. Any damage to or failure of the systems could
result in reductions in, or terminations of, the Ableauctions service, which
could have a material adverse effect on our business, results of operations and
financial condition.
Changing
technology may render our equipment, software, and programming obsolete or
irrelevant.
The
market for Internet-based products and services is characterized by rapid
technological developments, frequent new product introductions, and evolving
industry standards. The emerging character of these products and
services and their rapid evolution will require that we continually improve the
performance, features, and reliability of our Internet-based products and
services, particularly in response to competitive offerings. We
cannot guarantee that we will be successful in responding quickly, cost
effectively, and sufficiently to these developments. In addition, the
widespread adoption of new Internet technologies or standards could require
substantial expenditures by us to modify or adapt our Internet sites and
services and could fundamentally affect the character, viability, and frequency
of Internet-based advertising, either of which could have a material adverse
effect on our business, financial condition, and operating
results. In addition, new Internet-based products, services, or
enhancements offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of customer confidence, either
of which could have a material adverse effect on our business, financial
condition, and operating results.
Our
inventory liquidation business, Unlimited Closeouts, Inc., is dependent on a
small number of customers.
Unlimited
Closeouts, Inc., our inventory liquidation business, accounted for approximately
59% of our revenues during the 2008 fiscal year. Ten customers
accounted for approximately 70% of these revenues, with the largest customer
accounting for approximately 50% of the revenues. If we were to
lose any one of these customers, it could have a material adverse effect on the
business of Unlimited Closeouts, Inc. and on our results of
operations.
If
we cannot protect our Internet domain names, our ability to conduct our
operations may be impeded.
Our
Internet domain names, particularly “ableauctions.com” and “icollector.com”, are
an extremely important part of our business and the business of our
subsidiaries. Governmental agencies and their designees generally
regulate the acquisition and maintenance of domain names. The
regulation of domain names in the United States and in foreign countries may be
subject to change. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars, or modify the
requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. We may be unable to prevent third parties from
acquiring domain names that are similar to, infringe on, or otherwise decrease
the value of our trademarks and other proprietary rights. Third
parties have acquired domain names that include “auctions” or other variations
both in the United States and elsewhere.
Our
success depends on the services of Abdul Ladha and Erick Richardson, the key
employees of Ableauctions.com, Inc. and Unlimited Closeouts Inc.
respectively
Our
future success will depend on Abdul Ladha, our chief executive officer and
president and Erick Richardson, manager of Unlimited Closeouts
Inc. The loss of any one of these individuals could have an adverse
effect on our operations. We do not maintain insurance to cover the
loss that may result from the death of either of these individuals.
The
e-commerce industry is highly competitive, and we cannot assure you that we will
be able to compete effectively.
The
market for broadcasting auctions, providing auction technology, liquidating
inventory over the Internet and point of sale services is rapidly evolving and
intensely competitive and we expect competition to intensify further in the
future.
We
believe that the principal competitive factors in the online auction and
liquidation markets are volume and selection of goods, population of buyers,
customer service, reliability of delivery and payment by users, brand
recognition, web site convenience and accessibility, price, quality of search
tools, and system reliability. Many of our current and potential
competitors have longer operating histories, larger customer bases, greater
brand recognition, and significantly greater financial, marketing, technical,
and other resources than we have.
Certain
of our competitors may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies, and devote
substantially more resources to web site and systems development than we can or
may try to attract traffic by offering services for free. We cannot
assure you that we will be able to compete successfully against current and
future competitors. Further, as a strategic response to changes in
the competitive environment, we may, from time to time, make certain pricing,
service, or marketing decisions that could have a material adverse effect on our
business, results of operations, and financial condition.
Our
business may be subject to government regulation and legal uncertainties that
may increase the costs of our operations or limit our ability to generate
revenues.
We are
subject to the same federal, state, and local laws as other companies conducting
business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the
increasing popularity and use of the Internet and online services, it is
possible that many laws and regulations will be adopted regarding the Internet
or online services. These laws and regulations could cover issues
such as online contracts, user privacy, freedom of expression, pricing, fraud,
content and quality of products and services, taxation, advertising,
intellectual property rights, and information security. Applicability
to the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity,
and personal privacy is sometimes uncertain. In addition, numerous
states have regulations regarding the manner in which auctions may be conducted
and the liability of auctioneers in conducting such auctions.
Due to
the global nature of the Internet, it is possible that the governments of other
countries might attempt to regulate our transmissions or prosecute us for
violations of their laws. We might unintentionally violate such
laws. Such laws may be modified, or new laws may be enacted, in the
future. Any such development could damage our business.
Our
business may be subject to sales and other taxes, which may cause administrative
difficulties and increase our cost of operations.
We
collect sales and other similar taxes on goods sold on our web site, as
applicable. One or more states may seek to impose additional sales
tax collection obligations on companies such as ours that engage in or
facilitate online commerce. Several proposals have been made at the
state and local level that would impose additional taxes on the sale of goods
and services through the Internet. These proposals, if adopted, could
substantially impair the growth of electronic commerce and could diminish our
opportunity to derive financial benefit from our activities.
In
the future, laws making us liable for the activities of users of our services
could be passed, which would adversely affect our business, operations and
financial condition.
The law
relating to the liability of providers of online services for activities of
their users of the service is currently unsettled. There can be no
assurance that we will be able to prevent the unlawful exchange of goods on our
service or that we will successfully avoid civil or criminal liability for
unlawful activities carried out by users of our services. The
imposition of potential liability on us for unlawful activities of users of our
services could require us to implement measures to reduce our exposure to such
liability, which may require us, among other things, to spend substantial
resources and/or or to discontinue certain service offerings. Any
costs incurred as a result of such liability or asserted liability could have a
material adverse effect on our business, results of operations and financial
condition.
In
addition, our success depends largely on sellers reliably delivering and
accurately representing the working condition of auctioned goods and buyers
paying the auctioned price. While we can suspend the accounts of
users who fail to fulfill their obligations, beyond crediting sellers with the
amount of their fees in certain circumstances, we do not have the ability to
otherwise require users to make payments or deliver goods and we do not
compensate users who believe they have been defrauded by other
users. Any resulting litigation could be costly for us, divert
management’s attention from our business and could result in increased costs of
doing business, or otherwise have a material adverse effect on our business,
results of operations and financial condition.
We
conduct a significant amount of our business online, however such activities may
not be secure. If a breach of security occurred, our reputation could
be damaged and we could be sued.
A
significant barrier to online commerce and communications is the secure
transmission of confidential information over public
networks. Currently, a significant number of Ableauctions’ users
authorize us to bill their credit card accounts directly for all transaction
fees charged by us. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. There can be no
assurance that advances in computer capabilities, new discoveries in the field
of cryptography, or other events or developments will not result in a compromise
or breach of the technology used by us to protect customer transaction
data. If any such compromise of our security were to occur, it could
have a material adverse effect on our reputation and, therefore, on our
business, results of operations and financial condition.
A
significant portion of our income resulted from loans we made to third
parties. While we try to adequately secure the loans we make, we
cannot guarantee you that these loans will always be recovered if a default were
to occur.
In 2005
we expanded our business to include loaning funds to individuals and businesses
in the Vancouver, British Columbia area. During 2008, revenues from
these loans totaled $207,781. The loans we make are always secured,
generally by real property. We generally obtain appraisals or
assessments of the property prior to making the loans. However, as a
result of the economic downturn, the value of the property could decline and the
loan become unsecured. If that were to happen, and a default in
payment occurred, we may be unable to recover the funds that were
loaned. This could have a material, adverse affect on our
revenues.
Adverse
economic conditions could significantly reduce the amount of income we earn on
our commercial and residential real estate loans.
Adverse
economic conditions have caused us to experience an increase in the number of
commercial and residential real estate loans that could result in loan
delinquencies, foreclosures and non performing assets and a decrease in the
value of the property or other collateral which secures our real estate loans,
all of which could adversely affect our results of operations. Loan defaults
result in a decrease in interest income and may require the establishment of, or
an increase in, loan loss reserves. The decrease in interest income resulting
from a loan default or defaults may be for a prolonged period of time as we seek
to recover, primarily through legal proceedings, the outstanding principal
balance, accrued interest and default interest due on a defaulted loan, plus the
legal costs incurred in pursuing our legal remedies. Legal proceedings, which
may include foreclosure actions and bankruptcy proceedings, are expensive and
time consuming. The decrease in interest income, and the costs involved in
pursuing our legal remedies will reduce the amount of cash available to meet our
expenses and adversely impact our liquidity and operating results.
Our
borrowers may increasingly be unable to achieve their business plans due to the
economic environment and strain on commercial real estate, which may cause
stress in our real estate loan portfolio.
Many of
our commercial real estate loans are made to borrowers who have a business plan
to improve the collateral property. The current economic environment has created
a number of obstacles to borrowers attempting to achieve their business plans,
including lower occupancy rates and lower lease rates across all property types,
which continues to be exacerbated by rising unemployment and overall financial
uncertainty. If borrowers are unable to achieve their business plans, the
related commercial real estate loans could go into default and severely impact
our operating results and cash flows.
Loan
repayments may be less likely in the current market environment.
In the
past, a source of liquidity for us was the voluntary repayment of loans. Because
financial lending institutions have drastically curtailed new lending activity,
real estate owners are having difficulty refinancing their assets at maturity.
If borrowers are not able to refinance loans at their maturity, the loans could
go into default and the liquidity that we would receive from such repayments
will not be available. Furthermore, without a functioning real estate finance
market, borrowers that are performing on their loans will almost certainly
extend such loans if they have that right, which will further delay our ability
to access liquidity through repayments.
Higher
loan loss reserves are expected if economic conditions do not
improve.
If the
declines in the Canadian and U.S. economies do not stabilize and reverse in
2009, we will likely experience significant increases in loan loss reserves,
potential defaults and asset impairment charges in the
future.
During
2005 we further expanded our business to include property
development. In order to develop property, we must advance
significant funds which – if the development fails – we may not be able to
recover.
We are
currently developing one property for mixed commercial and residential use and
planning for the development of a second property. As
opportunities arise, we may develop other properties in the
future. In order to develop property, we must spend a significant
amount of time and money. We must acquire the property, have plans
prepared, obtain zoning approvals and permits and build and sell the
project. During any phase of the project we could experience delays
(such as in obtaining permits) or unforeseen problems (such as labor disputes,
increasing materials costs, or an inability to obtain adequate
financing). Even if we are able to build the project, the market for
the units we build could decline. We cannot guarantee you that our
building projects will be successful or that we will be able to recover the
money we put into them. If our building projects are unsuccessful,
our business and our cash flow will be materially adversely
affected.
Even
though we will obtain homeowner warranties for our building project from a
registered insurer, we will still be liable for up to $2.05 million ($2.5
million CAD) in the event that significant warranty claims are
made. If we were required to pay this entire amount, it could have a
material adverse effect on our cash flow and results of operations.
We are
currently developing the property located at 9655 King George Highway for mixed
commercial and residential use in British Columbia. Under the
Homeowner Protection Act in British Columbia (1999), we are required to provide
warranties (commonly referred to as a 2-5-10 Home Warranty Certificate) for new
home buyers through a registered insurer or warranty provider. For
our development located at 9655 King George Highway, we have paid approximately
$150,000 to register for the home warranty program with Travelers
Warranty. In the event one or more purchasers of the condominium
units makes a claim during the warranty period, the insurer can require us to
repair any deficiencies at our expense or deny the claim. The
comprehensive 2-5-10 Home Warranty Certificate provides new home buyers with
protection and coverage on new homes for the following:
- Year 1
– Any defect in materials and labor
- Year 2
– Defects in materials and labor supplied for:
gas,
electrical, plumbing, heating ventilation and air-conditioning delivery and
distribution systems;
exterior
cladding, caulking, windows and doors that may lead to detachment or material
damage to the new home;
coverage
for any defects in materials and labor rendering the new home unfit to live in;
and
subject
to certain conditions, coverage for non-compliance or a violation of the
building code
5 Year
Building Envelope Warranty - coverage for the building envelope for up to five
years for defects in the building envelope of a new home, including a defect
which permits unintended water penetration such that it causes, or is likely to
cause, material damage to the new home.
10 Year
Structural Defects Warranty - coverage for structural defects for up to ten
years for any defect in materials and labor that results in the failure of a
load bearing part of the new home; and any defect which causes structural damage
that materially and adversely affects the use of the new home for residential
occupancy.
Our
liability, once the development is complete and we sell the condominium units,
is $82,051 ($100,000 CAD) per unit to a maximum of $2.05 million ($2.5 million
CAD) for the entire project. If there were major defects in the
construction of the condominium units and we were required to pay the entire
$2.52 million ($2.5 million CAD), our cash flows and results of operations could
be materially adversely affected.
Despite
the insurance that we carry for the development of our properties, we could
still be liable for the activities of our general contractor or the
sub-contractors hired by our general contractor. If we were found to
be liable for the acts or omissions of our general contractor or a
subcontractor, our business, operations and financial condition could be
materially adversely affected.
We carry
course of construction insurance in the amount of $14.5 million CAD and a
wrap-around liability policy in the amount of $5 million CAD for the
construction of the Gruv Development. Despite our best efforts to
cover any foreseeable losses related to our acts or omissions, we could be found
liable for the acts or omissions of our general contractor or any of our
sub-contractors. For example, if a crane at the building site were to
fall and injure or kill someone, we might be held liable for the damages
sustained by the plaintiff on the theory that we were negligent in failing to
adequately investigate the background of the general contractor. If
our insurance did not cover the loss and we were required to pay damages to the
plaintiff, our business, results of operations and financial condition could be
materially adversely affected.
The
economic downturn and lack of financing may result in defaults to our Gruv
Development presale contracts. If there are too many defaults, we
could be forced to resell units substantially below cost resulting in a material adverse effect on
our operations.
We
entered into agreements to pre-sell 100% of the 111 Gruv Development 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. Despite the legal
obligations incurred by those who entered into pre-sale contracts, if a
substantial number of purchasers do not complete their purchases when the
development is completed, due to either financing, changes in unit styles, or
any other reason, we could be forced to resell the units at prices substantially
below the cost of building them, resulting in a significant and material adverse
impact on our operations.
The
credit facilities that we use may require us to provide additional collateral,
which could significantly impact our liquidity position.
We have
used credit facilities to finance some of our operations and short-term cash
flow needs. Although our secured credit facility is with a major financial
institution, if the market value of the commercial real estate pledged by us
declines in value, we may be required by the lending institution to provide
additional collateral or pay down a portion of the funds advanced. In the event
we do not have sufficient liquidity to meet such requirements, lending
institutions can accelerate our indebtedness and foreclose upon the assets
securing the credit facilities, which could have a material adverse effect on
our business and operations.
If
we are unable to extend or renew our existing secured credit facilities, our
results of operations, financial condition and business could be significantly
harmed.
Credit
facilities are critical to our business. If we are unable to extend or renew our
existing secured credit facilities, our results of operations, financial
condition and business could be significantly harmed.
Our
stock price is subject to extreme volatility.
The
trading price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to factors such as actual or
anticipated variations in our quarterly operating results, announcements of
technological innovations, or new services offered by us or by our competitors,
changes in financial estimates by securities analysts, conditions or trends in
the Internet and online commerce industries, changes in the market valuations of
other Internet or online service companies, announcements by us or our
competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments, additions or departures of key personnel, sales of our
common stock or other securities in the open market and other events or factors,
many of which are beyond our control. Further, the stock markets in
general, and the market for Internet-related and technology companies in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies’ stocks do
not accurately reflect the valuations of these companies. There can
be no assurance that trading prices and valuations will be
sustained. These broad market and industry factors may materially and
adversely affect the market price of our common stock, regardless of our
operating performance. Market fluctuations, as well as general
political and economic conditions such as recession or interest rate or currency
rate fluctuations, may also adversely affect the market price of the common
stock.
The
posting of inventory on auction websites using our own technology may expose us
to certain liabilities.
The
posting of inventory on auction websites using our own technology may expose us
to certain liabilities. The inventory posted for sale, whether it
belongs to us or to a client, may not be free of liens or encumbrances, may
violate laws, may cause damage, death or harm, may be unsuitable for the use
suggested, may be counterfeited, misrepresented, damaged, illustrated
incorrectly or not authentic, or may be damaged during delivery or
shipment. In addition, the posting of the image may illustrate or
describe the inventory incorrectly or violate trademarks or copyrights belonging
to others. Further, the parties to the auction may fail to consummate
the transaction or act fraudulently or dishonestly. Finally, we may
make errors in posting a catalogue for a client such as missing an item,
incorrectly uploading the information, posting erroneous starting times,
inadvertently (or through equipment malfunctions, data crashes, viruses,
hackers, etc.) omitting the catalogue altogether or losing the client’s
data. Any such occurrences could cause harm to our reputation or
result in a loss of clients or customers, any of which could adversely impact
our results of operations.
We
have invested our assets in securities such as stocks, bonds, mortgage loans,
real estate and income trusts. If these investments decline in value,
we may suffer significant losses.
As of
December 31, 2008, our holdings included the following:
|
Type
|
Carrying
Amount
|
%
of Total Assets
|
||||||
|
Cash
& Current Assets
|
$ |
1,747,383
|
10
|
% | ||||
|
Other
Assets
|
$ |
439,270
|
2
|
%
|
||||
|
Real
Estate (head office)
|
$ |
2,193,475
|
12
|
%
|
||||
|
Real
Estate (development)
|
$ |
8,520,055
|
47
|
% | ||||
|
Real
Estate (Joint Venture)
|
$ |
1,223,728
|
7
|
% | ||||
|
Real
Estate (Surrey City Central)
|
$ |
1,671,638
|
9
|
% | ||||
|
Loans
|
$ |
2,294,745
|
|
13
|
% | |||
|
Total
|
$ |
18,090,294
|
100
|
% | ||||
All of
our investments are subject to market risks and their values may increase or
decrease daily depending on factors affecting their respective markets, which we
cannot control. Dividends and distributions are not guaranteed and
may be terminated or reduced at any time. Even if dividends or
distributions are maintained, the gains made from the dividends or distributions
may be lost by a decline in the price of the security. Price changes
may occur in the market as a whole, or they may occur in only a particular
company, industry, or sector of the market. Real estate values and
mortgage loans can be seriously affected by factors such as interest rate
fluctuations, bank liquidity, the availability of financing, and by factors such
as a zoning change or an increase in property taxes. Since the
majority of our investments are held in Canadian funds, currency fluctuations
may affect the value of our portfolio significantly. There can be no
assurance that the securities and other assets in which we have invested will
increase, or even maintain, their value.
A
majority of our obligations, investments and expenditures with respect to our
operations are incurred in a foreign currency.
While our
financial results are quantified in U.S. dollars, a majority of our obligations,
investments and expenditures with respect to our operations may be incurred in
Canadian dollars. We may have market risks relating to our operations
resulting from foreign exchange rates if we enter into financing or other
business arrangements denominated in currency other than the U.S.
dollar. Variations in the exchange rate may give rise to foreign
exchange gains or losses that may be significant.
Unexpected
rate hikes in insurance premiums could adversely affect our business and results
of operations.
Our
business may be subject to significant insurance rate increases, which may make
it difficult for us to obtain the appropriate risk coverage or liability
insurance, creating administrative difficulties in keeping board members and
increasing the cost of our operations.
Due to
the risks involved with insuring Internet related businesses, it is possible
that we could be denied insurance coverage or not be able to afford
it. Lack of insurance coverage could make it difficult to retain key
employees and board members or to attract suitable employees, which could
seriously impede our performance and profitability and our ability to conduct
our business.
If
the NYSE Alternext US determines that our common stock does not meet its listing
criteria, our stock could be delisted.
We are
not under any immediate threat to be delisted from the NYSE Alternext US
(formerly the American Stock Exchange and referred to herein as the “Exchange”)
and the Exchange has not taken any action in notifying us of any concerns
surrounding the listing. However, the Exchange may change its listing
requirements or we may not be able to meet the listing criteria. If
our common stock were delisted from the Exchange, it would likely be traded on
the Over-the-Counter Bulletin Board, which is merely a quotation system, not an
issuer listing service. Buying and selling securities on the
Over-the-Counter Bulletin Board is not as efficient as buying and selling
securities on an exchange, therefore, if our common stock ceased to be traded on
the Exchange it would likely be more difficult for you to sell your stock or to
receive the best price for your stock.
In
2002 we acquired iCollector PLC. This business eventually
failed. We cannot guarantee that we will be able to successfully
incorporate into our business model the acquisitions that we make, or that the
acquisitions we make will be profitable.
In 2002
we acquired iCollector PLC, which eventually failed. However, we may
still, in the future, acquire businesses, technologies, services or products
that we believe are strategic. There can be no assurance that we will
be able to identify, negotiate or finance future acquisitions successfully, or
to integrate such acquisitions with our current business. The process
of integrating an acquired business, technology, service or product into our
operations may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of our business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition will be
realized. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and other intangible assets, which could materially adversely affect our
business, results of operations and financial condition. Any such
future acquisitions of other businesses, technologies, services or products
might require us to obtain additional equity or debt financing, which might not
be available on terms favorable to us, or at all, and such financing, if
available, might be dilutive.
We
may be unable to adequately protect our intellectual property. Our
failure to protect our intellectual property could adversely effect our
business.
We own
the trademarks Ableauctions, Unlimited Closeouts, iTrustee and iCollector. The Company regards the
protection of its copyrights, service marks, trademarks, trade dress and trade
secrets as critical to its future success and relies on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect its proprietary rights in products and
services. The Company attempts to enter into confidentiality and invention
assignment agreements with its employees and contractors, and nondisclosure
agreements with parties with which it conducts business in order to limit access
to and disclosure of its proprietary information. There can be no assurance that
these contractual arrangements or the other steps taken by the Company to
protect its intellectual property will prove sufficient to prevent
misappropriation of the Company’s technology or to deter independent third party
development of similar technologies. The Company continues to rely on
common law to protect its intellectual property. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which the Company’s services are made available
online. The Company has licensed in the past and expects that it may
license in the future, certain of its proprietary rights, such as trademarks or
copyrighted material, to third parties. While the Company attempts to ensure
that the quality of the Ableauctions or iCollector brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company’s proprietary
rights or reputation, which could have a material adverse effect on the
Company’s business, results of operations and financial
condition.
We
may infringe on the proprietary rights of others, which could have a material
adverse effect on our business, results of operations and financial
condition.
There can
be no assurance that third parties will not claim infringement by the Company
with respect to past, current or future technologies. The Company expects that
participants in its markets will be increasingly subject to infringement claims
as the number of services and competitors in the Company’s industry segment
grows. Any such claim, whether meritorious or not, could be time consuming,
result in costly litigation, cause service upgrade delays or require the Company
to enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at all.
As a result, any such claim could have a material adverse effect upon the
Company’s business, results of operations and financial condition.
We
have been sued for claims relating to our discontinued operations and we may
have more such claims.
In 2002
it was determined that iCollector PLC could not sustain its operations based on
its existing cash resources and infrastructure. iCollector PLC then
ceased operations and a restructuring plan was adopted. In January
2002 iCollector PLC was placed into formal bankruptcy proceedings pursuant to
the laws of the United Kingdom. In 2002, Ableauctions.com
(Washington) Inc., our wholly owned subsidiary, ceased its bricks and mortar
operations in San Mateo and San Francisco. In connection with the
termination of these operations, we have received a number of claims from
various alleged creditors. We cannot assure you that no additional
claims will arise from these discontinued operations. Furthermore,
subsequent claims may force Ableauctions.com (Washington) Inc. to declare
bankruptcy.
Item 1B. Unresolved Staff
Comments
As a
smaller reporting company we are not required to provide this
information.
Item
2. Properties
We invest
in real property and real property development when we find opportunities that
we believe will provide us with a reasonable rate of return with only moderate
or low risk. Thus far, with the exception of our corporate office,
which is partially rented to an unrelated third party, we have acquired these
assets solely for capital gain, and not with a view toward deriving income from
them on a long-term basis. Currently, our investments in real estate
include the following:
1963 Lougheed Highway - On
February 24, 2005 we purchased the building located at 1963 Lougheed Highway,
Coquitlam, British Columbia, in which our corporate headquarters are
located. 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 purchase price
was $2,221,316 and the effective date of the transaction was January 1,
2005. A portion of the property continues to be leased to two
tenants. We occupy approximately 11,000 square feet. These
premises are in good condition and suitable for our operations. We
believe that the property is adequately insured. We have listed the
property for sale for approximately $3,500,000 CAD.
On
October 11, 2006, we arranged for a credit facility (the “Credit Facility”) from
the Royal Bank of Canada (the “Bank”) for our subsidiary, Axion Investment
Corp. The amount of the Credit Facility is currently $1,995,000 CAD
and bears interest at the prime rate as announced by the Bank, plus 0.50% per
year. Payments of interest and principal in the amount of $14,914 CAD
are due each month. Repayment of the Credit Facility is secured by a
mortgage on this property, which includes an assignment of rents, recorded
against the property and by a guarantee and a postponement of claim signed by us
in favor of the Bank. (A postponement of claim prevents us from
making any claim against the borrower until the Bank is paid in
full.) The Bank may exercise its rights and remedies under the
mortgage upon default in the payment of the Credit Facility.
9655 King George Highway - On
August 19, 2005, we completed the purchase of real property located at 9655 King
George Highway, Surrey, British Columbia V3T 2V3 from Imara Venture
Ltd. The total purchase price was $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
of approximately 91,132 square feet. Information relating to this
development is included in the section of this Annual Report titled “Item 1 –
Business”.
Properties
belonging to Surrey Central City Holdings Ltd.
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 owned four properties adjacent to
Phase I of our Gruv Development at that time. 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. The total investment amount
of $1,671,638 has been recorded as “Investment in Surrey City Central” on the
balance sheet as of December 31, 2008, with an amount of $1,363,765 owing to the
director as of December 31, 2008.
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. Information relating to the Development
Agreement is included in the section of this Annual Report titled “Item 1 –
Business”.
Township Holdings Ltd. (“THL”) -
20514 - 80th Avenue and 20542 - 80th Avenue, Langley, British Columbia -
On July 14, 2006 Axion Investment Corp. entered into a Joint Venture
Agreement (“Agreement”) with two unrelated parties, Canitalia Industries Ltd.
and 449991 B.C. Ltd., for the purpose of purchasing two vacant lots for
development. The lots are comprised of approximately 4.72 acres and
are commonly known as 20514 - 80th Avenue and 20542 - 80th Avenue, Langley,
British Columbia V3T 2V3 (the “Property”). The Property was
purchased on August 14, 2006 for a purchase price of $2.66 million ($2.99
million CAD).
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 shareholders, 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 Mr.
Ladha will have responsibility for payments of the Loan and that THL, Axion and
Mr. Ladha will be fully indemnified for any expenses or payments they become
liable for thereunder. In exchange for the Loan, ECU received a
promissory note from THL requiring the payment of interest only at the rate of
prime plus 1% per annum until ECU demands payment of the
principal. The loan is secured with a mortgage against the Property
and a security interest in the personal property of THL. ECU also
required Axion and Mr. Ladha to enter into a Debt Service
Agreement.
Pursuant
to the Debt Service Agreement, Mr. Ladha and Axion agree that they will be
responsible for the monthly interest payments required by the promissory note in
the event that 449991 and Canitalia fail to make the payments as
required.
If 449991
and Canitalia default on the loan obligation to ECU, Axion will be entitled, but
not obligated, to purchase the shares of stock in THL that are owned by the
responsible parties at a price discount to market. If Axion exercises
its right to purchase the stock owned by the responsible parties, then it will
have no further recourse against 449991 and Canitalia for payment of the
Loan. If Axion does not exercise its right to purchase the stock
owned by the responsible parties, then the responsible parties agree that they
shall indemnify and hold 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, Mr. Ladha or THL.
Other
Property
We lease
approximately 1,000 square feet of office space located at Suite 217, 323 East
Matilija Street, Ojai, California. The monthly payments are $1,713
and the lease term is five years. The lease term began in April
2006. The facility serves as the operating office for Unlimited
Closeouts Inc. The
premises are in good condition and suitable for the operations of Unlimited
Closeouts Inc.
Item 3. Legal
Proceedings
Not
applicable
Item 4. Submission of Matters to a
Vote of Security Holders
The
annual meeting of our shareholders was held on December 17, 2008. At
the meeting, the following matters were approved by our shareholders, as
described below:
Proposal
1. The
number of shares cast for, against and withheld with respect to the nominees for
election to the Board of Directors to serve until the annual meeting of
shareholders to be held in the year 2009 was as follows:
|
FOR
|
|
AGAINST
|
ABSTAIN
|
|||||||||
|
Abdul
Ladha
|
44,387,809
|
13,452,003 | 584,994 | |||||||||
|
Barrett
Sleeman
|
45,025,988
|
12,212,027 | 1,186,790 | |||||||||
|
Dr.
David Vogt
|
44,964,352
|
12,277,358 | 1,183,096 | |||||||||
|
Michael
Boyling
|
45,762,488
|
11,474,050 | 1,188,267 |
Proposal
2. The
number of shares cast for, against and withheld with respect to confirmation of
Cinnamon Jang Willoughby & Company, Chartered Accountants, as our
independent auditors for the fiscal year ending December 31, 2008 was as
follows:
|
FOR
|
AGAINST
|
ABSTAIN
|
||||||||
| 52,837,197 | 5,182,673 | 404,935 |
Proposal
3. The
number of shares cast for, against and withheld with respect to authorizing an
amendment to our articles of incorporation to effect a 1-for-12 reverse split of
our common stock was as follows:
|
FOR
|
AGAINST
|
ABSTAIN
|
||||||||
| 40,847,706 | 17,290,920 | 286,180 |
Proposal
4. The
number of shares cast for, against and withheld with respect to approving the
acquisition of a 50% interest in Surrey Central City Holdings Ltd. and issuing
shares of our common stock in accordance with the terms of a convertible
promissory note signed in conjunction therewith was as follows:
|
FOR
|
AGAINST
|
ABSTAIN
|
||||||||
| 21,612,677 | 3,134,420 | 122,899 |
For
purposes of determining whether the affirmative vote of a majority of the shares
present at the meeting and entitled to vote on a proposal had been obtained,
abstentions and shares held in “street name” by brokers or nominees who
indicated on their proxies that they did not have discretionary authority to
vote such shares as to certain matters (“broker non-votes”) were included in the
number of shares present and entitled to vote but had no effect on the
vote.
PART
II
Item 5. Market
for Common Equity and Related Stockholder Matters
Our
common stock has traded on the NYSE Alternext US (formerly the American Stock
Exchange) since June 29, 2000 under the symbol “AAC”. Prior to June
29, 2000 our common stock traded on the Over-the-Counter Bulletin Board (OTCBB)
under the symbol “ABLC”. The range of high and low sale prices per
share for our common stock for each quarter during the period from January 1,
2007 through December 31, 2008, as published by the NYSE Alternext US, is set
forth below. The table gives effect to a 1-for-12 stock split that we
effected on January 15, 2009.
Quarterly
Common Stock Price Ranges
(Adjusted
for reverse stock split)
|
2007
|
||||||||
|
Quarter
Ended
|
High
|
Low
|
||||||
|
March
31
|
$ | 2.28 | $ | 2.16 | ||||
|
June
30
|
$ | 2.28 | $ | 2.04 | ||||
|
September
30
|
$ | 2.52 | $ | 2.40 | ||||
|
December
31
|
$ | 1.80 | $ | 1.56 | ||||
|
2008
|
||||||||
|
Quarter
Ended
|
High
|
Low
|
||||||
|
March
31
|
$ | 1.80 | $ | 1.56 | ||||
|
June
30
|
$ | 0.96 | $ | 0.96 | ||||
|
September
30
|
$ | 0.72 | $ | 0.48 | ||||
|
December
31
|
$ | 0.36 | $ | 0.24 | ||||
There
were 576 record holders of our common stock as of March 16,
2009. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.
We have
not paid dividends on our common stock since our inception. The
decision to pay dividends on common stock is within the discretion of the Board
of Directors.
Recent
Sales of Unregistered Securities
Not
applicable.
Securities
authorized for issuance under equity compensation plans
The Board
of Directors has authorized the following equity compensation
plans:
Ableauctions.com,
Inc. 2002 Stock Option Plan for Directors.
In 2002,
the Board of Directors adopted the Ableauctions.com, Inc. 2002 Stock Option Plan
for Directors (the “Directors Plan”). The purpose of the Directors
Plan is to attract and retain the services of experienced and knowledgeable
individuals to serve as our directors. On the date the Directors Plan
was adopted, the total number of pre-split shares of common stock subject to it
was 2,653,631. This number of shares may be increased on the first
day of January of each year so that the common stock available for awards will
equal 5% of the common stock outstanding on that date, provided, however, that
the number of shares included in the Directors Plan may not exceed more than 10%
of all shares of common stock outstanding. The Directors Plan is
administered by the Board of Directors, or any Committee that may be authorized
by the Board of Directors, so long as any such Committee is made up of
Non-Employee Directors, as that term is defined in Rule 16(b)-3(b) of the
Securities Exchange Act of 1934. The grant of an option under the
Directors Plan is discretionary. The exercise price of an option must
be the fair market value of the common stock on the date of grant. An
option grant may be subject to vesting conditions. Options may be
exercised in cash, or with shares of the common stock of the Company already
owned by the person. The term of an option granted pursuant to the
Directors Plan may not be more than 10 years.
Ableauctions.com,
Inc. 2002 Consultant Stock Plan.
In 2002 the Board of
Directors adopted the Ableauctions.com, Inc. 2002 Consultant Stock Plan (the
“Consultants Plan”). The purpose of the Consultants Plan is to
be able to offer consultants and others who provide services to the Company the
opportunity to participate in the Company’s growth by paying for such services
with equity awards. The total number of pre-split shares of common
stock subject to the Consultants Plan was increased from 6,500,000 to 16,000,000
as approved by the Board of Directors in 2003. The Consultants Plan
is administered by the Board of Directors, or any Committee that may be
authorized by the Board of Directors. Persons eligible for awards
under the Consultants Plan may receive options to purchase common stock, stock
awards or stock restricted by vesting conditions. The exercise price
of an option must be no less than 85% of the fair market value of the common
stock on the date of grant. An option grant may be subject to vesting
conditions. Options may be exercised in cash, or with shares of the
common stock of the Company already owned by the person or with a fully recourse
promissory note, subject to applicable law. The term of an option
granted pursuant to the Consultants Plan may not be more than 10
years.
Ableauctions.com,
Inc. 1999 Stock Option Plan.
In 1999 the Board of
Directors adopted the Ableauctions.com, Inc. 1999 Stock Option Plan (the “Option
Plan”). The purpose of the Option Plan is to be able to retain
the services of employees and consultants and others who are valuable to the
Company and to offer incentives to such persons to achieve the objectives of the
Company’s shareholders. The total number of pre-split shares of
common stock subject to the Option Plan is 10,900,000. The Option
Plan is administered by the Board of Directors, or any Committee that may be
authorized by the Board of Directors, so long as any such Committee is made up
of Non-Employee Directors, as that term is defined in Rule 16(b)-3(b) of the
Securities Exchange Act of 1934. Employees eligible for awards under
the Option Plan may receive incentive options to purchase common
stock. If a recipient does not receive an incentive option, he or she
will receive a non-qualified stock option. The exercise price of an
option must be no less than the fair market value of the common stock on the
date of grant, unless the recipient of an award owns 10% or more of the
Company’s common stock, in which case the exercise price of an incentive stock
option must not be less than 110% of the fair market value. An option
grant may be subject to vesting conditions. Options may be exercised
in cash, or with shares of the common stock of the Company already owned by the
recipient of the award. The term of an option granted pursuant to the
Option Plan may not be more than five years if the option is an incentive option
granted to a recipient who owns 10% or more of the Company’s common stock, or 10
years for all other recipients and for recipients of non-qualified stock
options.
The
following table illustrates, as of December 31, 2008, information relating to
all of our equity compensation plans.
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
2
|
||||||||||
|
Equity
Compensation Plan Approved by Security Holders – 2002 Consultant Stock
Plan
|
187,500
|
$ |
4.80
|
1,145,833
|
||||||||
|
Equity
Compensation Plan Approved by Security Holders – 1999 Stock Option
Plan
|
351,186
|
$ |
4.80
|
557,147
|
||||||||
|
Equity
Compensation Plan Not Approved by Security Holders – 2002 Stock Option
Plan for Directors
|
95,833
|
$ |
4.80
|
125,302
|
||||||||
Repurchase
of Common Stock
Not
applicable
Item
6. Selected
Financial Data
As a
smaller reporting company we are not required to provide this
information.
Item
7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments. Management bases
its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Overview
Our
business operates in 4 segments. We operate an excess inventory liquidation
business, facilitate on-line auctions and sell point-of-sale software and
services; we are engaged in the development of real property; we provide
generally small, short term loans to Canadian residents; and we manage our cash
and marketable securities and undertake other corporate
activities. Our headquarters are in Coquitlam, British Columbia
although our liquidation business is located in California.
Our plan
when we acquired Able Auctions (1991) Ltd. in August 1999 was to expand its
operations by purchasing bricks and mortar auction businesses throughout North
America and developing the technology to allow them to broadcast their call
auctions over the Internet. However, after making several
acquisitions we decided to abandon this strategy, due to the high cost of
maintaining the auction businesses. Instead, we turned our efforts to
developing software that would allow us to host auctions
on-line. This technology has been developed. During 2004
we entered into an agreement with the National Auctioneers Association to host
on-line auctions for its members and we use this technology for those
auctions. In 2003, we began a relationship with
eBay. Prior to December 31, 2008, our subsidiaries, iCollector.com
Technologies Ltd. and iCollector International Ltd., used eBay’s Live Auction
Platform to provide services to arts, collectible and antique auction houses to
broadcast their auctions over the Internet. The fees we earned from
these auction broadcasts were split equally with eBay. On December 31, 2008 eBay
stopped providing its auction platform technology. Since that date,
we have provided these auction broadcast services using our proprietary
technology platform through our website, www.iCollector.com.
In 2004
we entered the business of liquidating excess inventory. Depending on
the service we provide, we can either purchase the inventory and re-sell it, or
we can act as a broker between the seller and a purchaser. Our sales
revenues during the 2004 fiscal year increased significantly, primarily as a
result of our liquidation business. We are currently dependent on two
individuals to operate our liquidation business. If we were to lose
the services of these individuals, it could have a material adverse effect on
this sector of our business and on our results of operations.
During
2004 we also acquired Rapidfusion Technologies, Inc. Rapidfusion
Technologies, Inc. has developed point-of-sale software and services for
retailers.
During
2005 we merged two of our subsidiaries, iTrustee.com Technologies Ltd. and Able
Auctions (1991) Ltd. The new entity was named Stanford Development
Corporation. On September 7, 2006 Stanford Development Corporation
changed its name to Axion Investment Corporation. Axion Investment
Corporation develops real estate and makes short term loans.
It has
been our intention to continue to expand our business by increasing the number
of auctions we hold on-line, and by finding lucrative liquidation
opportunities. We continually contact auction houses, art galleries
and dealers throughout the world in an effort to increase the number of auctions
we host. Liquidation opportunities come through bankruptcies, credit
foreclosures, and importers, manufacturers and other liquidators who need to
dispose of merchandise quickly. However, our business has been
adversely affected by the recession in the United States, from which we derived
most of our revenues during the 2008 fiscal year. The recession in
the United States has affected the capital available for purchasing goods that
are not necessities. The impact of this is evident in our liquidation
operations, where revenues are 53% lower and in our live auction business, where
revenues have decreased by 28%. There can be no assurance that we
will be able to increase our revenues from our operations.
One
segment of our business invests in and develops real property. We are
currently developing one project and we are preparing for the development of the
second project. We cannot guarantee that these projects will be
successful or that the property, once developed, will increase, or even
maintain, its value. During the 2008 fiscal year, we intend to review
this segment of our operations to determine whether continuing these operations
is in our best interests and those of our shareholders.
Another
segment of our business provides short term loans to various businesses and
individuals in Canada. The loans typically have terms of one year,
earn interest at the rate of approximately 10% and are secured by real estate,
general security agreements and personal guarantees, as
appropriate. At December 31, 2008, we had outstanding approximately
$2,294,745 in loans.
As
discussed below, we have already seen a reduction in our revenues as a result of
the recession in the U.S. and, if the economy continues to decline, this loss of
revenue may continue indefinitely. The decline in the U.S. economy
may adversely affect our future liquidity.
We have
no off-balance sheet arrangements, special purpose entities or financing
partnerships.
We
currently have no commitments for capital expenditures.
Other
than as described herein, we know of no trends, events or uncertainties that
could impact our revenues or liquidity.
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". 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 stockholder’s 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 2008 fiscal year, our investment in loans generated approximately $207,781
in revenues. Currently, 13% of the value of our assets is held in the
form of loans and 75% of the value of our assets is held in the form of real
estate.
|
Type
|
Carrying
Amount
|
%
of Total Assets
|
||||||
|
Cash
& Current Assets
|
$
|
1,747,383
|
10
|
% | ||||
|
Other
Assets
|
$
|
439,270 | 2 | % | ||||
|
Real
Estate (head office)
|
$ | 2,193,475 | 12 | % | ||||
|
Real
Estate (development)
|
$ | 8,520,055 | 47 | % | ||||
|
Real
Estate (Joint Venture)
|
$ | 1,223,728 | 7 | % | ||||
|
Real
Estate (Surrey City Central)
|
$ | 1,671,638 | 9 | % | ||||
|
Loans
|
$ | 2,294,745 | 13 | % | ||||
|
Total
|
$ | 18, 090,294 |
100
|
% | ||||
Revenue
Recognition
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.
Segmented
information
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.
Stock
Based Compensation
The
granting of stock options represents a very 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 have evaluated the
impact of the adoption of SFAS 123(R) and based on contractual obligations,
recurring customary grants such as those to the Board of Directors, and vested
options in place, we believe the impact will not be significant to our overall
results of operations and financial position.
Income
Taxes
Income
taxes are provided for in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting and net operating loss carry forwards. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
We have
net operating losses carried forward of approximately $7,300,000 which expire in
years ranging from 2009 to 2028. We have provided a full valuation
allowance of approximately $2,740,686 on the deferred tax asset because of the
uncertainty of realizability.
Contractual
Obligations
We are
committed under the following contractual obligations
|
Contractual
Obligations
|
Payments
Due By Period
|
||||||||||||||||
|
Total
|
Less
than 1 year
|
1
to 3 Years
|
3
to 5 Years
|
Over
5 Years
|
|||||||||||||
|
Operating
lease obligations
|
$ |
49,451
|
$ |
23,756
|
$ |
25,695
|
-
|
||||||||||
As noted
in Item 2 of this Annual Report, we are committed to payments with respect to an
agreement to lease office premises.
Results
of Operations
Year ended December 31, 2008 compared
to the Year ended December 31, 2007, factoring in discontinued
operations.
Revenues. During
the year ended December 31, 2008, we had revenues of $2,806,136 as compared to
$4,938,918 during the year ended December 31, 2007, a decrease of
43%. The decrease in revenues is a result of a 54% decrease in
revenues from our liquidation services. Our liquidation business accounted for
$1,653,902 for the 2008 fiscal year (59% of total revenue), compared to revenue
of $3,574,616 for the 2007 fiscal year (72% of total
revenue). Specifically, the decrease in revenue from our
liquidation service is the result of a decrease in demand of liquidation
inventory from top retailers. In order to weather the loss of
revenues during the recession in the U.S., we have implemented strong cost
control measures in order to reduce recurring operating expenditures and we are
expanding in other areas to supplement revenue. For example, we have
downsized our staffing and reduced the overhead at our Canadian operations
while, at the same time, we have established an efficient and cost effective
drop-shipment facility in Ojai, California.
During
the 2008 fiscal year, revenues from our iCollector and NAALive operations
decreased 28% to $698,996 compared to $974,948 for the 2007 fiscal year. This
decrease was a direct result of the slowdown in the U.S. economy and a 35%
decrease in the number of overall auction sessions facilitated by iCollector and
NAALive, which fell from 1,373 and 271, respectively, in 2007 to 891 and 188,
respectively, in 2008.
Our
liquidation services accounted for 59% of total revenue for
2008. 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 are directly related to
the strength of the economy of the U.S., and that the current recession in the
U.S. could continue to have an adverse effect on our revenues in these two areas
of our business.
During
the year ended December 31, 2008, we had investment income of $207,781 compared
to $397,977 for the year ended December 31, 2007. The decrease in
investment income is a result of our shift in investment strategy towards real
estate property development and away from marketable securities. The
investment in property development is longer term in nature and, as a result,
returns will be realized on completion of projects. As of December
31, 2008, our holdings in real estate totalled approximately $13,608,896,
representing the lower of cost or market for these assets.
Operating
Expenses. Operating expenses, which include but are not
limited to employee salaries and benefits, management fees, rent, utilities,
expenses for accounting and legal services and insurance, totalled $2,942,138,
or 105% of net revenues, for the year ended December 31, 2008 as compared to
$2,994,064, or 61% of net revenues, for the year ended December 31,
2007. Operating expenses remained substantially
unchanged. As a percentage of revenues, operating expenses increased
significantly due to the decrease in revenue we experienced in
2008. As noted above, management has implemented cost control
measures in order to reduce recurring operating expenditures and at the same
time has expanded operations in other areas to supplement revenue.
Gross Profit and Cost of
Revenues. Cost of revenues was $2,065,759 or 74% of our
revenues for the year ended December 31, 2008, compared to $2,980,221 or 60% of
our revenues during the same period in 2007. Cost of sales for 2008
decreased as a result of lower revenues and also included a write-down of
inventory in the amount of $553,731.
Gross
profit was $740,377 or 26% of total revenue for the year ended December 31,
2008, compared to gross profit of $1,958,697 or 40% of total revenue for the
year ended December 31, 2007. The decrease in gross profit as a
percentage of revenue reflects the performance of our liquidation services,
which realized lower gross profit margins in 2008 compared to 2007.
Net Loss. We
realized a net loss of $2,771,826 or $(0.53) per share for the year ended
December 31, 2008 as compared to a net loss of $693,258 or $(0.13) per share for
the year ended December 31, 2007. The loss for the year ended
December 31, 2008 is partially attributed to write-downs as a result of the
decline in the economy and eBay’s decision to wind down its live auction
platform. Specifically, the losses are comprised of:
|
-
|
a
write-down of inventory in the amount of
$553,731
|
|
-
|
impairment
of intangible assets in the amount of
$321,612
|
|
-
|
impairment
of property and equipment in amount of
$273,432
|
|
-
|
settlement
of legal claim in the amount of
$65,035
|
|
-
|
depreciation
in the amount of $135,664,
|
|
-
|
a
write-down of $86,143 to accounts receivable primarily due to the
bankruptcy of an auction house located in the US,
and
|
|
-
|
operating
loss of $1,336,209 (net of items indicated above)
|
Liquidity
and Capital Resources
Set forth
below are our estimated cash operating and capital budgets for operations for
the remainder of the fiscal year ending December 31, 2009:
|
Marketing
|
$ |
150,000
|
||
|
Working
Capital
|
500,000
|
|||
|
Investor
Relations
|
200,000
|
|||
|
Property
Development
|
9,000,000
|
|||
|
Required
Capital:
|
$ |
9,850,000
|
As of
December 31, 2008, we had working capital deficiency of $4,208,436.
We cannot
assure you that our actual expenditures for the 2009 fiscal year will not exceed
our estimated operating budget. Actual expenditures will depend on a
number of factors, some of which are beyond our control, including, among other
things, unexpected costs related to our business, additional property
development costs, acquisition and/or expansion costs, reliability of the
assumptions of management in estimating costs and certain economic
factors.
In the
event we determine that we may be unable to meet our on-going capital
commitments, we may take some or all of the following actions:
|
·
|
reduce
sales and marketing expenditures;
|
|
·
|
reduce
general and administrative expenses through lay offs or consolidation of
our operations;
|
|
·
|
suspend
property development and liquidate
holdings;
|
|
·
|
suspend
or sell operations that are not economically profitable;
or
|
|
·
|
sell
assets, including licenses to our
technologies.
|
Since
1999, we have funded our activities principally from any cash flow generated
from our operations and our investments, loans from our chief executive officer,
the private placement of our securities and the exercise of stock
options.
In 2007,
we had working capital of $4,238,590. In 2008, we had a deficiency in
our working capital of $4,202,436. We had cash and cash equivalents of $223,592,
accounts receivables of $545,740, employee receivable of $248,072, loans
receivable of $2,294,745, inventory of $666,138 and prepaid expenses of $63,841
minus current liabilities of $8,250,564 at December 31, 2008.
Cash flow
used in operating activities was $1,370,384 during the year ended December 31,
2008 as compared to cash from operating activities of $238,727 during the year
ended December 31, 2007. The change in operating cash flow between
2007 and 2008 was primarily due to impairment of assets and write down of
inventory from operations in 2008. 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 achieve positive cash flow from our business
through 2009.
Cash flow
used in investing activities during the fiscal year ended December 31, 2008 was
$9,480,730. Cash was used for loan advances and to increase our
investment in property held for development. Cash flow from financing
activities was $9,580,932, which primarily resulted from proceeds from bank
loans and advances from a director.
As of
December 31, 2008, our holdings included the following:
|
Type
|
Carrying
Amount
|
%
of Total Assets
|
||||||
|
Cash
& Current Assets
|
$ |
1,747,383
|
10
|
% | ||||
|
Other
Assets
|
$ |
439,270
|
|
2
|
% | |||
|
Real
Estate (head office)
|
$ |
2,193,475
|
12
|
% | ||||
|
Real
Estate (development)
|
$ |
8,520,055
|
47
|
% | ||||
|
Real
Estate (Joint Venture)
|
$ |
1,223,728
|
7
|
% | ||||
|
Real
Estate (Surrey City Central)
|
$ |
1,671,638
|
9
|
% | ||||
|
Loans
|
$ |
2,294,745
|
13
|
% | ||||
|
Total
|
$ |
18,
090,294
|
|
100
|
% | |||
As noted
above, during the fiscal year ended December 31, 2008, we received income of
$207,781 from investments in
loans.
The
guarantees, commitments,
lease and debt agreements or other agreements that could trigger an adverse
change in our credit rating, earnings, cash flows or stock price, including
requirements to perform under standby agreements, are as follows:
a)
We are committed to payments with respect to an agreement to lease office
premises. Future minimum payments required under the lease are as
follows:
|
2009
|
23,756
|
|||
|
2010
|
20,556
|
|||
|
2011
|
5,139
|
|||
| $ |
49,451
|
|
b)
|
We
are committed to additional commissions and bonuses to be paid in the
amount of $600,082 ($689,750 CAD) upon the successful completion of the
sale and transfer of strata lots related to the Gruv Development as
described in Note 7 to our consolidated financial
statements.
|
|
c)
|
We
have unconditionally guaranteed the interest and repayment of a demand
loan to Envision Credit Union (“ECU”) related to Township Holdings Ltd.
The guarantee continues until the loans, including accrued interest and
fees, have been paid in full, with the final loan amount due upon
demand. We estimated a value of $40,535 for this guarantee, and
we have provided a provision of $40,535 for the guarantee liability, which
is included in accounts payable and accrued liabilities at December 31,
2008.
|
We do not
have off-balance sheet arrangements.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk
As a
smaller reporting company we are not required to provide this
information.
Item
8. Financial
Statements and Supplementary Data
Reference
is made to the financial statements, the reports thereon, the notes thereto, and
supplementary data commencing at page F-1 of this Form 10-K, which financial
statements, reports, notes, and data are incorporated herein by
reference.
Item
9.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item
9A. Disclosure
Controls and Procedures.
Regulations
under the Securities Exchange Act of 1934 require public companies to maintain
“disclosure controls and procedures,” which are defined to mean a company’s
controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms. Our chief
executive officer (“CEO”), who is also our 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.
Based on those evaluations, as of the Evaluation Date, our CEO, president, and
CFO believe that:
|
(i)
|
our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and that
such information is accumulated and communicated to our management,
including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure; and
|
|
(ii)
|
our
disclosure controls and procedures are
effective.
|
Internal
Control over Financial Reporting
(a)
Management’s annual report on
internal control over financial reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of,
the Company’s principal executive and principal financial officers and effected
by the Company’s Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, the Company’s internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework. Based on
management’s assessment, management has concluded that, for the reasons set
forth below, as of December 31, 2008 our internal control over financial
reporting was effective with some weaknesses in the areas of segregation of
duties and monitoring of control procedures at the subsidiary
level.
Our
business is a small and efficient operation with only 6 management
employees. As a result, we do not have excess management to
adequately segregate each and every duty in certain areas. This is
also true of our subsidiaries, many of which have only a limited number of
employees.
In order
to remediate this weakness, we will need to hire a number of additional
employees. Until we are able to hire additional employees to
remediate this weakness, management has determined to report more frequently to
our audit committee and to have members of our audit committee review our
control procedures on a regular basis.
This
Annual Report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this Annual Report.
(b)
Changes in internal control over financial reporting
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 fourth quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other
Information.
Not
applicable.
PART
III
Item
10. Directors,
Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
Officers
and Directors
Abdul
Ladha, Age 47
Abdul
Ladha has been a director, president, and chief executive officer of the company
since August 24, 1999. He also currently serves as the chief
financial officer. In addition, Mr. Ladha is president of all of the
company’s wholly owned subsidiaries. Mr. Ladha holds an honors degree
in Electrical Engineering and Mathematics from the University of British
Columbia. In 1985 he founded Dexton Enterprises Inc., a subsidiary of
Dexton Technologies Corporation, which was a company engaged in the business of
the development and provision of web-based business solutions to small to
mid-size retail and business-to-business customers, and the marketing and sale
of personal computer hardware and network systems to corporate and retail
customers, as well as computer training and after-sales upgrade and support
services. Mr. Ladha was president, chief executive officer, and a
director of Dexton Technologies from December 1994 to July 2001. In
1997, Dexton Technologies acquired Able Auctions (1991) Ltd., which Dexton sold
to the Company on August 24, 1999.
Mr. Ladha
is the executive director of CITA, the Canadian Institute for Technological
Advancement, a non-profit organization dedicated to developing Canada’s
technological entrepreneurs. CITA is sponsored by the University of
British Columbia, Simon Fraser University, the World Trade Centre, Ernst &
Young, and some 60 corporations and institutions.
Barrett
E.G. Sleeman, Age 68
Barrett
Sleeman, a director since August 24, 1999, is a professional
engineer. He has also been a director of Crystal Graphite
Corporation, a graphite property development company, from February 1999 to
February 2004, and the chief executive officer of THEMAC Resources Group Limited
from October 2001 to the present. From April 1997 to September 2001,
he was a director of Dexton Technologies Corporation, a technology
company. From May 1988 to May 2000, he was a director and the
president of Omicron Technologies Inc., whose focus is the acquisition, research
and development, and marketing of leading edge technologies for the aerospace,
telecommunications, defense, and consumer electronics industries, as well as
Internet-based business concepts. Mr. Sleeman served as a director of
Java Group Inc., an oil and gas company, from November 1997 to March
2000. Mr. Sleeman also served as president (October 1996 to October
1997) and a director (August 1996 to October 1997) of White Hawk Ventures Inc.,
and president (August 1995 to April 1997) and a director (March 1995 to January
1998) of International Bravo Resources Inc., both mining exploration
companies.
Dr.
David Vogt, Age 52
Dr. David
Vogt, a director since April 17, 2000, is a seasoned technology innovator with
experience in the corporate, research and development and academic
sectors. In September 2006 he founded, and since that date he has
been the chief executive officer of, CrowdTrust Technologies Inc., a web-based
company offering personal knowledge and identity management
solutions. Since October 2004 he has also
served as executive director of the Mobile MUSE Network, an applied research
collaborative serving as an innovation engine for the emerging mobile media
industry. Since August 1999 Dr. Vogt has also served as the director
of Digital Learning Projects for the University of British Columbia’s Faculty of
Education. Dr. Vogt began his career with a Ph.D. in astronomy and
was Director of Observatories at the University of British
Columbia. He then became Director of Science at Science World, a
public science museum. In 1996 he founded and became chief executive
officer of Brainium Technologies Inc., a pioneer of Internet-based learning
products for K through 12 students. More recently, Dr. Vogt was chief
research officer at the New Media Innovation Centre (NewMIC) in Vancouver,
British Columbia. Dr. Vogt lives in Vancouver and contributes to a
number of public and private boards.
Michael Boyling, Age 50
Michael
Boyling, a director since 2002, is vice president of Rogers Associate Partners
Inc., a position he has held since January
1999. Rogers Associate Partners Inc., the stock of which is traded on
the Toronto Securities Exchange, is an insurance and financial services company
based in Vancouver, British Columbia with offices in Edmonton Alberta,
Calgary Alberta and Winnipeg Manitoba. Rogers Associate
Partners Inc. provides insurance and financial services to high net worth
individuals and medium sized companies.
Since
August 1999 Mr.
Boyling has also provided consulting services through West Coast Global Equity
Ventures Inc., a company he founded, which provides debt financing and investing
services to private clients. Since 1999 he has worked as a consultant
and broker with foreign and domestic companies arranging non-traditional equity
and debt financing. In this capacity, Mr. Boyling has brokered debt
and equity financing over the previous two years in excess of CDN$63
million.
Mr.
Boyling served with the Canadian Military (Army) from the age of 17 to the age
of 38.
There are
no family relationships among our directors or executive officers.
During
the past five years, except as described below, none of our directors or
executive officers has been involved in any of the following
events:
|
·
|
Any
bankruptcy petition filed by or against any business of which a director
or executive officer was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
|
|
·
|
Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
·
|
Being
subject to any order, judgment or decree not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
and
|
|
·
|
Being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not
been reversed, suspended or
vacated.
|
In 2002
it was determined that our subsidiary, iCollector PLC, could not sustain its
operations and it was eventually placed into formal bankruptcy proceedings
pursuant to the laws of the United Kingdom. In 2002, Ableauctions.com
(Washington) Inc., our wholly owned subsidiary, ceased its bricks and mortar
operations in San Mateo and San Francisco. Our current officers and
directors also served as our officers and directors during this
period.
Corporate
Governance
There
have been no material changes to the procedures by which security holders may
recommend nominees to our Board of Directors.
The Board
of Directors has an audit committee that was established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit
committee members include Mr. Barrett Sleeman and Dr. David Vogt.
While we
believe that members of our audit committee each have some of the attributes of
an audit committee financial expert, no single individual possesses all of the
attributes therefore, no one on our audit committee can be deemed to be an audit
committee financial expert. However, we believe that the collective
experience and education of the members of our audit committee provide us with
the expertise that an audit committee financial expert could
provide.
Section
16(a) Compliance
Section
16(a) of the Securities Exchange Act requires our directors, executive officers
and persons who own more than 10% of our common stock to file reports of
ownership and changes in ownership of our common stock with the Securities and
Exchange Commission. Directors, executive officers and persons who
own more than 10% of our common stock are required by Securities and Exchange
Commission regulations to furnish to us copies of all Section 16(a) forms they
file.
To our
knowledge, based solely upon review of the copies of such reports received or
written representations from the reporting persons, we believe that during our
2008 fiscal year our directors, executive officers and persons who own more than
10% of our common stock complied with all Section 16(a) filing
requirements.
Code
of Ethics
We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. Our code of ethics will be
provided to any person without charge, upon request. Requests should
be addressed to Mr. Abdul Ladha, c/o Ableauctions.com, Inc. 1963 Lougheed
Highway, Coquitlam, British Columbia V3K 3T8.
Item 11. Executive
Compensation
The table
below shows, for the last two fiscal years, compensation paid or accrued to the
Company’s chief executive officer and the two most highly paid executive
officers while serving in their designated capacity at fiscal year end, whose
total compensation exceeded $100,000. These officers are referred to
as the “named executive officers.”
|
Summary
Compensation Table
|
|||||||||||||||||||||||||||||||||
|
Name
and principal position
|
Year(1)
|
Salary
($) |
Bonus
or Commissions
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compen-sation
($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
All
Other
Compensation(2) ($) |
Total
($)
|
|||||||||||||||||||||||
|
Abdul
Ladha
President
and CEO
|
2008
|
156,000
|
0
|
0
|
0
|
0
|
0
|
0
|
156,000
|
||||||||||||||||||||||||
|
Abdul
Ladha
President
and CEO
|
2007
|
156,000
|
0
|
0
|
0
|
|
0
|
0
|
0
|
156,000
|
|||||||||||||||||||||||
Disclosure
to Summary Compensation Table
Our
compensation program consists of the following three components:
|
·
|
base
salary;
|
|
·
|
bonuses;
and
|
|
·
|
awards
of options to purchase common stock from our 1999 Stock Option
Plan.
|
We
believe that a combination of cash and options will allow us to attract and
retain the services of the individuals who will help us achieve our business
objectives, thereby increasing value for our shareholders.
In
setting the compensation for our sole executive officer, our Board of Directors
looked primarily at his responsibilities, at salaries paid to others in
businesses comparable to ours, at his experience and at our ability to replace
him. We expect the salary of our executive officer to remain
relatively constant unless his responsibilities are materially
changed.
Bonuses
are used to reward performance, either by the individual or by the
company. Bonuses are discretionary. No bonuses were
granted to our executive officers during the 2008 fiscal year.
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows the outstanding equity awards granted to our highest paid
executive officers as of December 31, 2008. Equity awards granted to
Mr. Ladha were granted in connection with his service as a
director.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|||||||||||||||||||||||||||||||||
|
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||||||||||||||
|
Name
|
Number
of securities underlying unexercised options (#)
Exercisable
|
Number
of securities underlying unexercised options (#)
Unexercis-able
|
Equity
Incentive Plan Awards: Number of Securities underlying unexercised
unearned options (#)
|
Option
exercise price ($)
|
Option
expiration date
|
Number
of shares or units of stock that have not vested (#)
|
Market
value of shares or units of stock that have not vested ($)
|
Equity
incentive plan awards: number of unearned shares, units or other rights
that have not vested (#)
|
Equity
incentive plan awards: Market or payout value of unearned shares, units or
other rights that have not vested (#)
|
||||||||||||||||||||||||
|
Abdul
Ladha
|
121,186
|
0
|
0
|
$ |
4.80
|
11/16/2014
|
0
|
|
0
|
0
|
|
0
|
|
||||||||||||||||||||
Employment
Agreements
We have
an employment agreement with our Chief Executive Officer, Abdul Ladha, that is
dated April 1, 2002. The term of the agreement commenced as of April
1, 2002 and will continue until Mr. Ladha dies or is permanently disabled, we
terminate the agreement for cause, we and Mr. Ladha mutually agree to terminate
the agreement, Mr. Ladha elects to terminate the agreement or we elect to
terminate the agreement. If Mr. Ladha elects to terminate the
agreement, he must give us at least 90 days written notice of his intent to
terminate. If we elect to terminate the agreement, we must give Mr.
Ladha written notice equal to no less than the greater of one year or two months
for each year of completed service. In lieu of such notice, we can
pay Mr. Ladha compensation for the notice period. Mr. Ladha’s cash
compensation is $156,000 per year, which may be increased by the
board. Mr. Ladha also receives an automobile allowance of $500 per
month and, upon execution of the agreement, he was granted options to purchase
1,000,000 shares of our common stock.
Compensation
Paid to Members of our Board of Directors
We did
not compensate our directors during the 2008 fiscal year.
Item 12. Security Ownership
of Certain Beneficial Owners and Management
The
following table sets forth information, as of March 16, 2009 regarding the
beneficial ownership of the Company’s common stock by any person known to the
Company to be the beneficial owner of more than 5% of the outstanding common
stock, by directors and certain executive officers, and by all directors and
executive officers of the Company as a group.
|
Name
and Address(1)
|
Amount
and Nature of Beneficial Ownership of Securities
|
Percent
of Class(2)
|
||||||
|
Abdul
Ladha, Director and Executive Officer
|
4,550,289 | (3)(4)(5) | 49.4 | % | ||||
|
Barrett
Sleeman, Director
|
37,500 | (4) | 0.64 | % | ||||
|
Dr.
David Vogt, Director
|
37,500 | (4) | 0.64 | % | ||||
|
Michael
Boyling
|
37,500 | (4) | 0.64 | % | ||||
|
Renaissance
Technologies LLC(6)
|
364,600 | (7) | ||||||
|
James
H. Simons(6)
|
364,600 | (7) | ||||||
|
All
current directors and executive officers as a group
(4
persons)
|
4,662,789 | 51.32 | % | |||||
(1) The
address of each of our officers and directors is c/o Ableauctions.com, Inc.,
1963 Lougheed Highway, Coquitlam, British Columbia V3K 3T8.
(2) Based
on an aggregate of 5,906,957 shares outstanding as of March 16,
2009. Beneficial ownership is determined under the rules of the
Securities and Exchange Commission. The number of shares shown as beneficially
owned in the tables below are calculated pursuant to Rule 13d-3(d)(1) of the
Securities Exchange Act of 1934. Under Rule 13d-3(d)(1), shares not outstanding
that are subject to options, warrants, rights or conversion privileges
exercisable within 60 days are deemed outstanding for the purpose of calculating
the number and percentage owned by such person, but not deemed outstanding for
the purpose of calculating the percentage owned by each other person listed.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, we believe that each stockholder identified in the
table possesses sole voting and investment power over all of the shares of
common stock.
(3) Abdul
Ladha, President of the Company, is a beneficiary of the Ladha (1999) Family
Trust. Hamilton Trust Company Limited is the trustee of the Ladha
(1999) Family Trust. Mr. Ladha disclaims beneficial ownership of the
3,006,875 shares held by the Ladha (1999) Family Trust.
(4)
Consists of stock, warrants and options exercisable to acquire shares of common
stock.
(5)
Includes 2,370,941shares which may be acquired through the exercise of a
convertible loan held by Bullion Reef Holdings Ltd.
6) The
address for Renaissance Technologies LLC and James H. Simons is 800 Third
Avenue, New York, New York 10022.
(7)
Information regarding the holdings of Renaissance Technologies LLC and James H.
Simons was obtained from a Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2009. We have not verified this
information. Mr. Simons controls Renaissance Technologies LLC and is
deemed to be the beneficial owner of securities owned by Renaissance
Technologies LLC.
To our
knowledge, none of the Company’s directors, officers or affiliates, or any 5% or
greater shareholder of the Company, or any associate or any such directors,
officers or affiliates, is a party that is adverse to the Company in any
material legal proceeding.
Item 13. Certain Relationships and
Related Transactions and Director Independence
On
January 1, 2007 we entered into a three year lease of approximately 2,851 square
feet of storage space from Bullion Reef Holdings Ltd., a private company
controlled by our executive officer and director, Abdul 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 monthly rent on the property, located at
3112 Boundary Road, Coquitlam, British Columbia, was approximately $1,777 based
on a triple-net lease. In 2007 the building was sold and the lease was
terminated with no penalty.
We market
the condominium units being developed by our subsidiary, Axion, using the brand
name “Overture LivingTM”. The
mark, “Overture Living™” belongs to Abdul Ladha, an officer and
director. Mr. Ladha has received no compensation for the use of this
mark.
On April
9, 2007 Abdul Ladha entered into a Securities Purchase Agreement with us
pursuant to which he purchased units consisting of one share of our common
stock, $0.001 par value, and a warrant to purchase three shares of our common
stock. The purchase price was $0.20 per unit (pre-split), the last sale
price of our common stock on Thursday, April 5, 2007, the last trading day prior
to the purchase. Mr. Ladha purchased a total of 2,941,175 units
(pre-split), representing 2,941,175 shares of common stock and warrants
(pre-split) to purchase an additional 8,823,525 shares (pre-split). The
total purchase price for the investment was $588,000. The warrants
have an exercise price of $0.20 (pre-split), a term of 10 years and will expire,
if not exercised, on April 9, 2017.
From
October 2007 through December 2007, we rented approximately 1,681 square feet of
residential property adjacent to our Gruv Development from Surrey Central City
Holdings Ltd., a private company wholly-owned by Bullion Reef Holdings Ltd,
which, as described above, is a company controlled by Mr. Ladha and owned by the
Ladha Family Trust. The rent for the three month period was $5,043
($5,000 CAD), or approximately $1,680 ($1,666 CAD) per month. We
believe that we received fair value for the rent and that if we had paid an
independent party, we would have paid approximately the same amount per month,
based on market rents at the time.
During
the year ended December 31, 2007, we received a payment of $12,661 from Bullion
Reef Holdings Ltd. as reimbursement of office and personnel
expenses.
On August
19, 2008, we entered into an Agreement to Convert Debt with Mr.
Ladha. Pursuant to the Agreement, Mr. Ladha 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 us totaling
$384,000. Pursuant to the Agreement, Mr. Ladha 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 the 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
Alternext US (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 Mr. Ladha, resulting in the issuance of a total
of 1,000,000 shares of common stock to him.
On
October 6, 2008 our Bard of Directors approved a Development Agreement between
us and Mr. Ladha, Overture Development Corporation, Surrey Central City Holdings
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. Both Surrey and Bullion are controlled by Mr.
Ladha. We agreed to purchase one-half of the shares of “Class A”
common stock issued and outstanding in Surrey from Bullion for the purchase
price of $1,347,440. One-half of the purchase price will be paid with
a promissory note. Bullion may, at its election, accept shares of our
common stock in payment of up to $1 million in principal amount and the interest
accrued thereon. The purchase price may be adjusted upward in the
event of either of the following occurrences. The purchase price may
be increased to reflect the increase in value that will accrue to the property
owned by Surrey if Surrey decides to develop the property with a 6-storey
complex rather than a 4-storey complex. The purchase price may also
be increased to reflect the increase in value that will accrue to the property
if Surrey is able to acquire an adjacent lot owned by an unrelated third
party. On October 23, 2008, Surrey entered into an agreement to
acquire the adjacent lot for $701,668 and in December 2008 the purchase of this
lot was completed. This acquisition increased the value of our 50% interest in
Surrey to $1,671,638.
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 related to our Gruv Development that occasionally result
from timing issues that may temporarily prevent us from borrowing against the
credit facility. As of March 16, 2009, we had borrowed approximately
$1,110,000 from Mr. Ladha, all of which has been repaid. Loans made
to us from January 1, 2007 to the present from Mr. Ladha or his affiliates
include the following:
|
Beginning
US Balance
|
US$
|
Days
|
5% Interest |
End
Balance
|
|||||||||||||||||
|
May
23, 2008
|
Abdul
Ladha
|
0 | $ | 100,190.00 | 4 | $ | 54.90 | $ | 100,244.90 | ||||||||||||
|
May
27, 2008
|
Abdul
Ladha
|
$ | 100,244.90 | $ | 100,190.00 | 23 | $ | 315.84 | $ | 200,750.74 | |||||||||||
|
June
19, 2008
|
Abdul
Ladha
|
$ | 200,750.74 | $ | (100,190.00 | ) | 5 | $ | 137.50 | $ | 100,698.24 | ||||||||||
|
June
24, 2008
|
Abdul
Ladha
|
$ | 100,698.24 | $ | (100,190.00 | ) | 21 | $ | 289.68 | $ | 797.92 | ||||||||||
|
July
15, 2008
|
Abdul
Ladha
|
$ | 797.92 | $ | 125,237.50 | 9 | $ | 0.98 | $ | 126,036.40 | |||||||||||
|
July
24, 2008
|
Abdul
Ladha
|
$ | 126,036.40 | $ | 375,712.50 | 26 | $ | 448.90 | $ | 502,197.80 | |||||||||||
|
August
19, 2008
|
Payment
of Loans with Common Stock
|
$ | 502,197.80 | $ | (384,000.00 | ) | 23 | $ | 1,582.27 | $ | 119,780.07 | ||||||||||
|
September
11, 2008
|
Abdul
Ladha
|
$ | 119,780.07 | $ | 409,222.48 | 21 | $ | 344.57 | $ | 529,347.12 | |||||||||||
|
October
2, 2008
|
Abdul
Ladha
|
$ | 529,347.12 | $ | (529,347.12 | ) | 0 | $ | - | $ | (0.00 | ) | |||||||||
Director
Independence
Messrs.
Barrett Sleeman and Michael Boyling and Dr. David Vogt are independent, as that
term is defined in Section 803 of the Rules of the NYSE Alternext
US. Mr.
Barrett Sleeman and Dr. David Vogt are members of our audit
committee. We do not have a compensation committee or a nominating
committee.
ITEM 14
- PRINCIPAL
ACCOUNTANT FEES AND SERVICES
AUDIT
FEES
The
aggregate fees billed for the fiscal years ended December 31, 2008 and December
31, 2007 for professional services rendered by our principal accountants for the
audit of our annual financial statements, review of financial statements
included in our quarterly filings and other services provided by the accountant
in connection with statutory and regulatory filings are approximately as
follows: Fiscal Year Ended December 31, 2008: $73,250. Fiscal Year Ended
December 31, 2007: $67,255.
ALL OTHER
ACCOUNTANT FEES
The aggregate fees billed for
the fiscal years ended December 31, 2008 and December 31, 2007 for other
professional services rendered by our principal accountants are approximately as
follows: Fiscal Year Ended December 31, 2008: $45,250; Fiscal Year Ended
December 31, 2007: $49,755.
ITEM 15. Exhibits
|
3.1
|
Articles
of Incorporation, as amended (incorporated by reference to Exhibits 3.1,
3.2, 3.3, 3.4 and 3.5 of the registrant’s Registration Statement on Form
10-SB).(1)
|
|
3.2
|
Bylaws
(Incorporated by reference to Exhibit 3.6 of the registrant’s Registration
Statement on Form 10-SB).(1)
|
|
10.1
|
1999
Stock Option Plan (Incorporated by reference to Exhibit 4.2 of the
registrant’s Registration Statement on Form S-8.(3).
|
|
10.2
|
2002
Stock Option Plan for Directors (Incorporated by reference to Exhibit
10.32 of the registrant’s Annual Report on Form 10-KSB)
(2)
|
|
10.3
|
2002
Consultant Stock Plan (Incorporated by reference to Exhibit 10.1 of the
registrant’s Registration Statement on Form S-8) (4)
|
|
10.4
|
Agreement
between the National Auctioneers Association and iCollector.com,
Technologies Inc dated March 18, 2004 (The registrant has omitted certain
portions of this exhibit pursuant to a request for confidential
treatment. The omitted material has been filed separately with
the Securities and Exchange Commission.)(9)
|
|
10.5
|
Joint
Venture Agreement dated July 28, 2006 between Stanford Development
Corporation, Canitalia Industries Ltd. and 44991 B.C.
Ltd.(10)
|
|
10.6
|
Employment
Agreement dated April 1, 2002 between Abdul Ladha and the registrant*
**
|
|
10.7
|
Securities
Purchase Agreement dated April 9, 2007 between Abdul Ladha and the
registrant(12) **
|
|
10.8
|
Warrant
Agreement dated April 9, 2007 between Abdul Ladha and the registrant(12)
**
|
|
10.9
|
Letter
Agreement between Axion Investment Corp. and Royal Bank of
Canada(13)
|
|
10.10
|
Development
Agreement dated October 6, 2008 between the registrant, Abdul Ladha,
Overture Development Corporation, Surrey Central City Holdings Ltd. and
Bullion Reef Holdings Ltd.(14)**
|
|
10.11
|
First
Amendment dated October 22, 2008 to Development Agreement dated October 6,
2008(15)**
|
|
10.12
|
Second
Amendment dated October 27, 2008 to Development Agreement dated October 6,
2008(16)**
|
|
10.13
|
Third
Amendment dated January 13, 2009 to Development Agreement dated October 6,
2008(17)**
|
|
21
|
|
|
23.1
|
|
|
23.2
|
|
|
31.1
|
|
|
31.2
|
|
|
32
|
* Filed
herewith.
**
Denotes an agreement with management.
(1)
Incorporated by reference to the Form 10-SB filed by the registrant with the
Securities and Exchange Commission by the registrant on November 18,
1999.
(2)
Incorporated by reference to the Form 10-KSB for the fiscal year ended December
31, 2002 filed by the registrant with the Securities and Exchange Commission on
March 27, 2003.
(3)
Incorporated by reference to the Form S-8 Registration Statement filed by the
registrant with the Securities and Exchange Commission on June 13,
2003.
(4)
Incorporated by reference to the Form S-8 Registration Statement filed by the
registrant with the Securities and Exchange Commission on May 8,
2002.
(5)
Incorporated by reference to the Form 10-QSB for the quarter ended March 31,
2003 filed by the registrant with the Securities and Exchange Commission on May
15, 2003.
(6)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on October 24,
2003.
(7)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on February 28,
2005.
(8)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on March 18,
2005.
(9)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on May 14,
2004.
(10)
Incorporated by reference to the Quarterly Report on Form 10-QSB for the period
ended September 30, 2006 filed by the Registrant on November 13,
2006.
(11)
Incorporated by reference to the Annual Report on Form KSB for the fiscal year
ended December 31, 2003 filed by the Registrant on March 30, 2004.
(12)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on April 11,
2007.
(13)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on July 30,
2007.
(14)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on October 9,
2008.
(15)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on October 23,
2008.
(16)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on November 3,
2008.
(17)
Incorporated by reference to the Current Report on Form 8-K filed by the
registrant with the Securities and Exchange Commission on January 15,
2009.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Date: March
25, 2009
|
/s/
Abdul
Ladha
|
|
Abdul
Ladha, President and Chief Financial
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
Abdul
Ladha
Abdul Ladha
|
Chairman
of the Board, Chief Executive Officer and Director
(Principal
Executive Officer)
|
March
25, 2009
|
||
|
/s/
Abdul
Ladha
Abdul Ladha
|
Chief
Financial Officer
(Principal
Financial Officer and Accounting Officer)
|
March
25, 2009
|
||
|
/s/
Barrett
Sleeman
Barrett Sleeman
|
Director
|
March
25, 2009
|
||
|
/s/
Dr. David
Vogt
Dr. David Vogt
|
Director
|
March
25, 2009
|
||
|
/s/ Michael
Boyling
Michael Boyling
|
Director
|
March
25,
2009
|
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of Ableauctions.com, Inc.:
We have
audited the accompanying consolidated balance sheet of Ableauctions.com, Inc. as
of December 31, 2008, and the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash flows for the year ended
December 31, 2008. Ableauctions.com, Inc.’s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. The
consolidated financial statements of Ableauctions.com, Inc. as of December 31,
2007, were audited by other auditors whose report dated March 26, 2007,
expressed an unqualified opinion on those statements.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ableauctions.com, Inc. as of
December 31, 2008, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/
“Cinnamon Jang Willoughby
& Company”
Chartered
Accountants
Burnaby,
Canada
February
26, 2009
MetroTower
II - Suite 900 - 4720 Kingsway, Burnaby, BC Canada V5H
4N2. Telephone: +1 604 435 4317. Fax: +1 604 435
4319.
HLB
Cinnamon Jang Willoughby & Company is a member of International. A
world-wide organization of accounting firms and business advisors
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Ableauctions.com, Inc.:
We have
audited the accompanying consolidated balance sheet of Ableauctions.com, Inc. as
of December 31, 2007, and the related consolidated statements of operations,
comprehensive income, cash flows and stockholders’ equity for the year then
ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, based on our audit, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Ableauctions.com, Inc. as at December 31, 2007, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
/s/ STS PARTNERS
LLP
CHARTERED
ACCOUNTANTS
Vancouver
BC
March 24,
2008
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
BALANCE SHEET
|
DECEMBER
31
|
||||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
|
||||||||
|
Cash
and cash equivalents
|
$ | 223,592 | $ | 1,594,657 | ||||
|
Accounts
receivable – trade, net of allowance
|
545,740 | 888,199 | ||||||
|
Employee
receivable
|
248,072 | 298,464 | ||||||
|
Mortgages
and loans receivable
|
2,294,745 | 1,009,846 | ||||||
|
Inventory
|
666,138 | 817,448 | ||||||
|
Prepaid
expenses
|
63,841 | 37,055 | ||||||
| 4,042,128 | 4,645,669 | |||||||
|
Other
receivable
|
- | 215,067 | ||||||
|
Deposits
|
320,558 | 388,212 | ||||||
|
Intangible
Assets
|
- | 355,759 | ||||||
|
Property
and Equipment
|
2,312,187 | 3,183,055 | ||||||
|
Property
Held for Development
|
8,520,055 | 4,124,221 | ||||||
|
Investment
in Joint Venture
|
1,223,728 | 1,507,403 | ||||||
|
Investment
in Surrey City Central
|
1,671,638 | - | ||||||
| $ | 18,090,294 | $ | 14,419,386 | |||||
|
LIABILITIES
|
||||||||
|
Current
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 519,043 | $ | 398,629 | ||||
|
Deferred
revenue
|
- | 8,450 | ||||||
|
Due
to Director
|
1,363,765 | - | ||||||
|
Bank
loan
|
6,367,756 | - | ||||||
| 8,250,564 | 407,079 | |||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Capital
Stock
|
||||||||
|
Authorized:
|
||||||||
|
100,000,000
common shares with a par value of $0.001
|
||||||||
|
Issued
and outstanding:
|
||||||||
|
5,906,957
common shares at December 31, 2008
|
||||||||
|
5,445,668
common shares at December 31, 2007
|
5,907 | 5,446 | ||||||
|
Additional
paid-in capital
|
37,903,221 | 37,941,538 | ||||||
|
Deficit
|
(28,152,681 | ) | (25,380,855 | ) | ||||
|
Accumulated
Other Comprehensive Income
|
83,283 | 2,115,740 | ||||||
|
Treasury Stock, at cost
(2007: 298,781 shares)
|
- | (669,562 | ) | |||||
| 9,839,730 | 14,012,307 | |||||||
|
Contingent
Liabilities
|
||||||||
|
Commitments
|
$ | 18,090,294 | $ | 14,419,386 | ||||
Approved
By The Directors:
“Abdul
Ladha” “Barrett
Sleeman”
The accompanying notes are an integral
part of these consolidated financial statements
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
|
YEAR
ENDED DECEMBER 31
|
||||||||
|
2008
|
2007
|
|||||||
|
Net
Revenues
|
||||||||
|
Sales
& Commissions
|
$ | 2,806,136 | $ | 4,938,918 | ||||
|
Cost
of Revenues
|
2,065,759 | 2,980,221 | ||||||
|
Gross
Profit
|
740,377 | 1,958,697 | ||||||
|
Investment
Income
|
207,781 | 397,977 | ||||||
| 948,158 | 2,356,674 | |||||||
|
Operating
Expenses
|
||||||||
|
Accounting
and legal
|
266,878 | 124,973 | ||||||
|
Advertising
and promotion
|
29,181 | 60,990 | ||||||
|
Automobile
and travel
|
110,094 | 77,056 | ||||||
|
Bad
debts
|
86,143 | 225,111 | ||||||
|
Commission
|
195,049 | 423,564 | ||||||
|
Depreciation
and amortization of fixed assets
|
135,664 | 194,737 | ||||||
|
Insurance
|
28,250 | 37,615 | ||||||
|
Interest
and penalties
|
206,244 | 52,012 | ||||||
|
Investor
relations and shareholder information
|
149,821 | 111,906 | ||||||
|
Management
fees, salaries and benefits
|
1,364,465 | 1,243,207 | ||||||
|
Office
and administration
|
102,787 | 112,821 | ||||||
|
Rent,
utilities and maintenance
|
148,209 | 170,070 | ||||||
|
Telephone
and internet
|
119,353 | 160,002 | ||||||
| 2,942,138 | 2,994,064 | |||||||
|
Loss
from Operations
|
(1,993,980 | ) | (637,390 | ) | ||||
|
Other
Items
|
||||||||
|
Foreign
exchange loss
|
(96,411 | ) | (67,221 | ) | ||||
|
Share
of net income (Loss) of joint venture
|
(21,356 | ) | 11,353 | |||||
|
Impairment
of intangible assets
|
(321,612 | ) | ||||||
|
Impairment
of property and equipment
|
(273,432 | ) | - | |||||
|
Settlement
of legal claim
|
(65,035 | ) | - | |||||
| (777,846 | ) | (55,868 | ) | |||||
|
Loss
for the Year
|
$ | (2,771,826 | ) | $ | (693,258 | ) | ||
|
Basic
loss per Share
|
$ | (0.53 | ) | $ | (0.13 | ) | ||
|
Diluted
loss per Share
|
$ | (0.53 | ) | $ | (0.13 | ) | ||
|
Weighted
Average Number of Shares Outstanding:
|
||||||||
|
Basic
|
5,194,037 | 5,314,628 | ||||||
|
Diluted
|
5,194,037 | 5,314,628 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF COMPREHENSIVE (LOSS) INCOME
|
YEAR
ENDED DECEMBER 31
|
||||||||
|
2008
|
2007
|
|||||||
|
Loss
for the Year
|
$ | (2,771,826 | ) | $ | (693,258 | ) | ||
|
Other Comprehensive Income
(Loss), net of tax
|
||||||||
|
Foreign
currency translation adjustments
|
(2,032,457 | ) | 1,919,436 | |||||
|
Consolidated
Comprehensive Income (Loss)
|
$ | (4,804,283 | ) | $ | 1,226,178 | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
YEAR
ENDED DECEMBER 31
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
Flows from Operating Activities
|
||||||||
|
Loss
for the year from continuing operations
|
$ | (2,771,826 | ) | $ | (693,258 | ) | ||
|
Non-cash
items included in net loss:
|
||||||||
|
Depreciation
and amortization
|
135,664 | 194,737 | ||||||
|
Bad
debt expense
|
86,741 | - | ||||||
|
Stock-based
compensation
|
20,625 | 37,224 | ||||||
|
Inventory
write down
|
553,731 | - | ||||||
|
Impairment
of assets
|
595,044 | - | ||||||
|
Joint
Venture Income
|
21,356 | (11,353 | ) | |||||
| (1,358,665 | ) | (472,650 | ) | |||||
|
Changes
in operating working capital items:
|
||||||||
|
(Increase)
Decrease in accounts receivable
|
255,718 | 599,478 | ||||||
|
(Increase)
Decrease in inventory
|
(408,606 | ) | 126,418 | |||||
|
(Increase)Decrease
in prepaid expenses
|
(26,332 | ) | 13,256 | |||||
|
(Increase)
Decrease in employee receivable
|
50,392 | (256,902 | ) | |||||
|
Increase
(Decrease) in accounts payable and accrued liabilities
|
125,559 | 221,939 | ||||||
|
Increase
(Decrease) in deferred revenue
|
(8,450 | ) | 7,188 | |||||
|
Net
cash from (used in) operating activities
|
(1,370,384 | ) | 238,727 | |||||
|
Cash
Flows from Investing Activities
|
||||||||
|
Purchase
of property and equipment, net
|
(21,014 | ) | (34,267 | ) | ||||
|
Purchase
of property held for development
|
(6,206,805 | ) | (1,816,545 | ) | ||||
|
Loan
advances
|
(2,173,130 | ) | (186,464 | ) | ||||
|
Loan
repayments
|
394,596 | 3,420,332 | ||||||
|
Investment
in Surrey
|
(1,671,638 | ) | - | |||||
|
Investment
in joint venture
|
(17,806 | ) | - | |||||
|
Other
receivables
|
215,067 | (82,977 | ) | |||||
|
Deposits
|
- | (361,435 | ) | |||||
|
Note
receivable
|
- | 1,931 | ||||||
|
Net
cash from (used in) Investing Activities
|
(9,480,730 | ) | 940,575 | |||||
|
Cash
Flows from Financing Activities
|
||||||||
|
Proceed
from bank loan
|
7,606,086 | - | ||||||
|
Repayment
of Bank Loan
|
- | (548,694 | ) | |||||
|
Advances
from Director
|
1,747,765 | - | ||||||
|
Proceeds
from issuance of capital stock, net
|
601,385 | 528,235 | ||||||
|
Purchase
of treasury stock
|
(374,304 | ) | (669,562 | ) | ||||
| 9,580,932 | (690,021 | ) | ||||||
|
Change
in Cash and Cash Equivalents for the Year
|
(1,270,182 | ) | 489,281 | |||||
|
Cash
and Cash Equivalents, Beginning Of Year
|
1,594,657 | 1,004,558 | ||||||
|
Effect
of Exchange Rates on Cash
|
(100,883 | ) | 100,818 | |||||
|
Cash
and Cash Equivalents, End of Year
|
$ | 223,592 | $ | 1,594,657 | ||||
Supplemental
Disclosures With Respect To Cash Flows (Note 14)
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
DECEMBER
31, 2008
|
COMMON
STOCK
|
ADDITIONAL
PAID-IN
CAPITAL
|
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
|
TREASURY
STOCK,
AT
COST
|
DEFICIT
|
TOTAL
STOCKHOLDERS’
EQUITY
|
|||||||||||||||||||||||
|
Balance,
December 31, 2006
|
5,200,570 | $ | 5,201 | $ | 37,376,324 | $ | 196,304 | $ | - | $ | (24,687,597 | ) | $ | 12,890,232 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Issuance
of capital stock
|
245,098 | 245 | 527,990 | 528,235 | ||||||||||||||||||||||||
|
Repurchase
of treasury stock
|
(669,562 | ) | (669,562 | ) | ||||||||||||||||||||||||
|
Stock-based
compensation
|
37,224 | 37,224 | ||||||||||||||||||||||||||
|
Translation
adjustment
|
1,919,436 | 1,919,436 | ||||||||||||||||||||||||||
|
Income
(loss) for the year
|
(693,258 | ) | (693,258 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
5,445,668 | $ | 5,446 | $ | 37,941,538 | $ | 2,115,740 | $ | (669,562 | ) | $ | (25,380,855 | ) | $ | 14,012,307 | |||||||||||||
|
|
||||||||||||||||||||||||||||
|
Issuance
of capital stock
|
1,000,000 | 1,000 | 984,385 | 985,385 | ||||||||||||||||||||||||
|
Fractional
share adjustment
Repurchase
of treasury stock
|
591 | (374,304 | ) | (374,304 | ) | |||||||||||||||||||||||
|
Cancellation
of treasury stock
|
(539,302 | ) | (539 | ) | (1,043,327 | ) | 1,043,866 | - | ||||||||||||||||||||
|
Stock-based
compensation
|
20,625 | 20,625 | ||||||||||||||||||||||||||
|
Translation
adjustment
|
(2,032,457 | ) | (2,032,457 | ) | ||||||||||||||||||||||||
|
Income
(loss) for the year
|
(2,771,826 | ) | (2,681,826 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
5,906,957 | $ | 5,907 | $ | 37,903,221 | $ | 83,283 | $ | - | $ | (28,152,681 | ) | $ | 9,839,730 | ||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
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 22.
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
Effective
December 31, 2007, two of the subsidiaries, Axion Investment Corp. and Gruv
Holdings Corp. were amalgamated retaining the name of Axion Investment
Corp.
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
a)
Principles
of Consolidation
These
consolidated financial statements include the accounts of Ableauctions.com, Inc.
and its wholly-owned subsidiaries, from the dates of acquisition. Any
significant inter-company balances and transactions have been
eliminated.
b)
Foreign
Currency Translation
The
Company accounts for foreign currency transactions and translation of foreign
currency financial statements under Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation" ("SFAS 52"). The Company uses the
current rate method as the functional currency is the Canadian dollar. All
assets and liabilities are translated at the current rates, while stockholder’s
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 the Company's Canadian subsidiaries (see Note 1) are translated
into U.S. dollars using the exchange rate at the balance sheet date for assets
and liabilities. The Company's 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.
c)
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amount of revenues and expenses during the period. Actual results
could differ from those estimates.
2.
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
d)
Cash and
Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with
original maturities of three months or less.
e)
Accounts
Receivable
The
Company's accounts receivable primarily include amounts due from its customers.
The carrying value of each account is carefully monitored to assess the
likelihood of collection. An allowance for doubtful accounts is provided for as
an estimate of losses that could result from customers defaulting on their
obligations to the Company. In assessing the amount of allowance required, a
number of factors are considered including the age of the account, the credit
worthiness of the customer, payment terms, the customer's historical payment
history and general economic conditions. Activity in the following allowance for
doubtful accounts was as follows:
|
2008
|
2007
|
|||||||
|
Balance,
beginning of period
|
$ | (57,680 | ) | $ | 167,431 | |||
|
Written
off during the year
|
143,823 | - | ||||||
|
Charge
to costs and expenses
|
(86,143 | ) | (225,111 | ) | ||||
|
Balance,
end of period
|
$ | - | $ | (57,680 | ) | |||
f)
Fair
Value of Financial Instruments
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements
("SFAS 157"). SFAS 157 provides a definition of fair value, establishes a
hierarchy for measuring fair value under generally accepted accounting
principles, and requires certain disclosures about fair values used in the
financial statements. SFAS 157 defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value under SFAS 157
must maximize the use of observable inputs and minimize the use of unobservable
inputs. The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value, which are the
following:
|
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
|
|
Level
2 – Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
|
|
Level
3 — Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
The
Company uses the following methods and significant assumptions to estimate fair
values:
Loans:
The Company does not record loans at their fair value on a recurring basis.
However, the Company evaluates certain loans for impairment when it is probable
the payment of interest and principal will not be made in accordance with the
contractual terms of the loan agreement. Once a loan has been determined to be
impaired, it is measured to establish the amount of the impairment, if any,
based on the present value of expected future cash flows discounted at the
loan’s effective interest rate, except that collateral-dependent loans may be
measured for impairment based on the fair value of the collateral, less cost to
sell. If the measure of the impaired loan is less than the recorded investment
in the loan, a valuation allowance is recognized. At December 31, 2008, the
Company has determined that there has been no impairment of its
loans.
The fair
value of cash and cash equivalents, accounts receivable, employee receivable,
inventory, deposits, accounts payable, due to director and bank loan for all
periods presented approximates their respective carrying amounts due to the
short-term nature of these balances.
Fair
Value of Financial Instruments:
SFAS No.
107, “Disclosures about Fair Value of Financial Instruments”, requires
disclosure of the estimated fair value of financial instruments. A portion of
the Company’s assets and liabilities are considered financial instruments as
defined in SFAS No. 107. Many of the Company’s financial instruments, however,
lack an available, or readily determinable, trading market as characterized by a
willing buyer and willing seller engaging in an exchange
transaction.
2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The
Company can use significant estimations and present value calculations for the
purposes of estimating fair values. Accordingly, fair values are based on
various factors relative to current economic conditions, risk characteristics,
and other factors. The assumptions and estimates used in the fair value
determination process are subjective in nature and involve uncertainties and
significant judgment and, therefore, fair values cannot be determined with
precision. Changes in assumptions could significantly affect these estimated
values.
g)
Inventory
Inventory
is stated at the lower of cost and estimated net realizable value using the
average cost method. The Company incurred an inventory write down of
$553,731 for the year ended December 31, 2008 (2007: $163,415).
h)
Software
Development
The
Company has adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", as its
accounting policy for internally developed computer software
costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer
software costs incurred during the application development stage are capitalized
and amortized over the software's estimated useful life.
i)
Property
and Equipment
Property
and equipment are recorded at cost. The cost of property and
equipment is depreciated using the declining balance method at the following
annual rates:
|
Building
|
4 | % | ||
|
Furniture
and fixtures
|
20 | % | ||
|
Server
equipment
|
10 | % | ||
|
Computer
equipment
|
30 | % | ||
|
Computer
software
|
10 | % | ||
|
Vehicles
|
30 | % |
Leasehold
improvements are amortized using the straight-line method over the terms of the
leases.
j)
Intangible
Assets
Intangible
assets are recorded at cost and amortized on a straight-line basis over the life
of the agreement.
k)
Impairment
of Long-Lived Assets
The
Company periodically evaluates potential impairments of its long-lived assets,
including property and equipment, and intangibles with definite
lives. The Company tests the recoverability of the assets whenever
events or changes in circumstances indicate that the carrying amounts may not be
recoverable.
When the
Company determines that the carrying value of long-lived assets may not be
recoverable based upon the existence of one or more indicators of impairment,
the Company evaluates the projected undiscounted cash flows related to the
assets. If these cash flows are less
than the
carrying value of the assets, the Company measures the impairment using
discounted cash flows or other methods of determining fair value.
Long-lived
assets to be disposed of are carried at the lower of cost or fair value less
estimated costs of disposal.
l)
Investment
in Joint Venture
The
Company accounts for its investment in joint venture on an equity
basis.
2. SIGNIFICANT
ACCOUNTING POLICIES (Continued)
m)
Warranty
The
Company provides all of its home buyers with a limited warranty as to
workmanship and mechanical equipment. The Company also provides many
of its home buyers with a limited ten-year warranty as to structural integrity.
The Company accrues for expected warranty costs at the time each home is closed
and title and possession have been transferred to the buyer.
n)
Revenue
Recognition
Auction/ liquidation and
technology business
The
Company's 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.
The
Company generally earns revenues from its auction activities either through
consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees
charged to consignees, and buyer's premiums charged to purchasers, determined as
a percentage of the sale price. For inventory sales, the Company
earns a profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each
type of auction revenue, an invoice is rendered to the purchaser, and revenue is
recognized by the Company, at the date of the auction. The auction
purchase creates a legal obligation upon the purchaser to take possession of,
and pay for the merchandise. This obligation generally provides the
Company with reasonable assurance of collection of the sale proceeds, from which
the Company's earnings are derived, including the fees from consignees and
purchasers, as well as resale profits.
Mortgages and
Loans
|
(a)
|
Mortgages
are stated at cost which includes amounts advanced and
applicable charges, less
repayments.
|
|
(b)
|
Interest
is accounted for on the accrual basis for amounts advanced unless a
mortgage is identified as impaired. For amounts committed but
unadvanced,
|
recognition
of such fees as revenue would be deferred until the advance of the
loan.
|
(c)
|
A
mortgage is classified as impaired when, in the opinion of management,
there is reasonable doubt as to the ultimate collectibility of principal
and interest.
|
|
(d)
|
When
a mortgage is identified as impaired, the accrual of interest is
discontinued. A provision for estimated losses is recorded when
the principal and accrued interest exceed the estimated net underlying
value of the security or if management otherwise feels a provision would
be prudent.
|
Real property and property
development
a) Real
estate rental
Rental
income in respect to commercial and residential property leases is recognized on
a straight-line basis over the lease term.
b) Real
property sale
2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)
For condominium development projects, profit is recognized on the percentage-of-completion method in respect to individual units sold on a pre-sale basis, when all the following criteria are met:
|
i.
|
Construction
is beyond a preliminary stage.
|
|
ii.
|
The
buyer may only receive a refund in the circumstances of non-delivery of
the unit.
|
|
iii.
|
Sufficient
units have already been sold to assure that the entire property will not
revert to rental property.
|
|
iv.
|
Sales
prices are collectible. Pursuant to EITF 06-8, the
collectibility of the sales price is assessed by the Company primarily
based on the adequacy of the buyer’s continuing investment in the form of
non-refundable deposits, and the age and location of the
property. The credit standing of the buyer is taken
into account if known.
|
|
v.
|
Aggregate
sales proceeds and costs can be reasonably
estimated.
|
Deposits
received in respect to sales which do not meet the criteria for revenue
recognition described above shall be accounted for as deposits until the
criteria are met.
No
revenue related to condominium sales has been recognized by the Company as at
December 31, 2008.
All
revenue and costs related to the project are deferred until the completion of
the development and the successful completion of the sales and transfer of
Strata lots
o)
Acquisitions
and Goodwill
All
business acquisitions have been accounted for under the purchase method and,
accordingly, the excess of the purchase price over the fair value of the net
assets acquired has been recorded as goodwill in the consolidated balance
sheet. The results of operations, changes in equity and cash flows of
acquired companies are included in operations only for the period between the
date of acquisition and the end of the financial year. All goodwill arising from
acquisitions of businesses was written off in previous periods.
p)
Advertising
Costs
The
Company recognizes advertising expenses in accordance with Statement of Position
98-7, "Reporting on Advertising Costs". As such, the Company expenses
the cost of communicating advertising in the period in which the advertising
space or airtime is used.
q)
Earnings
Per Share
In
February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
r)
Income
Taxes
Income
taxes are provided in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting and net operating loss carry forwards. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance when, based upon currently
available information, it is more likely than not that some portion or all of
the deferred tax
assets
will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
s)
Accounting
for Uncertainty in Income Tax
In June
2006, the FASB issued FASB interpretation No.48. Accounting for Uncertainty in
Income Tax – an interpretation of FASB Statement No. 109(“Fin 48”), which
clarifies the accounting for uncertainty in income tax
positions. This interpretation requires that the Company recognize in
the consolidated financial statements the tax benefits related to tax positions
that are more likely than not to be sustained upon examination based on the
technical merits of the position. The provisions of Fin 48 became
effective to Ableauctions.Com Inc. as of the beginning of the Company’s 2007
fiscal year. The guidance has had no cumulative impact on the
accumulated deficit of the company as at January 1, 2007.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
To the
extent interest and penalties may be assessed by taxing authorities on any
underpayment of income tax, such amounts would be accrued and classified as a
component of income tax expense in our Consolidated Statements of Operations.
The Company elected this accounting policy, which is a continuation of our
historical policy, in connection with our adoption of FIN 48.
t)
Segmented
information
Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information", establishes standards for reporting
information about the operating and geographic segments of the Company's
business. Effective January 1, 2006, the nature and extent of the
Company's operations are such that it operates in three reportable segments, as
an auction house and liquidator, a property developer and an investment
company. Information regarding the Company's geographic segments is
set forth in Note 22.
u) Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized as of December 31,
2006 includes compensation cost for all share-based payments granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of Statement
123. Results for prior periods have not been restated.
The fair
value at grant date of stock options is estimated using the Black-Scholes-Merton
option-pricing model. Compensation expense is recognized on a
straight-line basis over the stock option vesting period based on the estimated
number of stock options that are expected to vest.
v)
Reclassifications
Certain
reclassifications of prior year’s balances have been made to conform to the
current format on the consolidated financial statement.
w)
Direct
Costs
Direct
costs incurred in connection with the issuance of debt measured under the fair
value option and revolving credit facilities are expensed as
incurred. Direct costs incurred in connection with the issuance of
debt not measured under the fair value option are presented as a deferred charge
on the balance sheet and are amortized over the term of the
debt.
3. MORTGAGES & LOANS
RECEIVABLE
|
December
31, 2008
|
December
31, 2007
|
|||||||
|
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.
|
102,627 | 116,010 | ||||||
|
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.
|
188,834 | 232,018 | ||||||
|
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.
|
45,156 | 55,482 | ||||||
|
iv)
Loan advanced in the amount of $237,000 CAD, bears interest at 10% per
annum (receivable at $1,851 ($1,975 CAD) per month), with the principal
due for repayment on May 27, 2007, and secured by a mortgage on the
property of the borrower. The loan is extended month-to-month
pending renewal. The loan was repaid on August 13,
2008.
|
- | 239,080 | ||||||
|
v)
Loan advanced in the amount of $179,060 CAD, bears interest at 10% per
annum (receivable at $1,398 ($1,492 CAD) per month), with the principal
due for repayment on May 1, 2008, and secured by a mortgage on the
property of the borrower. The loan was subsequently renewed
under the same terms and is due for repayment on May 1, 2009. On
August 1, 2008, the loan was repaid in full.
|
- | 180,632 | ||||||
|
vi)
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.
|
114,943 | 141,229 | ||||||
|
vii)
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.
|
36,946 | 45,395 | ||||||
|
viii)
Loan advanced in the amount of $450,000 CAD, bears interest at 9.5% per
annum (receivable at $3,685 ($3,932 CAD) per month), with the principal
due for repayment on January 27, 2009, and secured by a mortgage on the
property of the borrower. The loan has been extended
month-to-month pending renewal.
|
369,458 | - | ||||||
|
ix)
Loan advanced in the amount of $1,750,000 CAD, bears interest at 12% per
annum (receivable at $16,400 ($17,500 CAD) per month), with the principal
due for repayment on July 17, 2009, and secured by a mortgage on the
property of the borrower.
|
1,436,781 | - | ||||||
| $ | 2,294,745 | $ | 1,009,846 | |||||
4. OTHER
RECEIVABLE
i) Included
in Other receivable at December 31, 2007 is a balance of $121,053 ($120,000 CAD)
owing from Charan Singh, a director of THL and the project coordinator for the
Gruv Development. The loan balance, which is unsecured and interest
free, was due on May 1, 2008. This was deemed to be paid in full as
it was offset against amounts owing to Charan Singh for services related to the
Gruv Development that were provided in accordance with the terms of a consulting
agreement.
ii)
Included in Other receivable at December 31, 2007 is a balance of $94,014
($93,196 CAD) outstanding from a third party related to a prior licensing
agreement. As per the agreement, the Company has agreed to accept inventory
goods from the party for an equivalent value in settlement of the
balance.
5. INTANGIBLE
ASSETS
Intangible
assets are comprised of the following:
|
2008
|
||||||||||||||||
|
ACCUMULATED
|
||||||||||||||||
|
COST
|
AMORTIZATION
|
IMPAIRMENT
|
NET
|
|||||||||||||
|
Affiliate
related relationship
|
100,000 | 30,833 | 69,167 | - | ||||||||||||
|
Intellectual
property
|
338,034 | 85,589 | 252,445 | - | ||||||||||||
| $ | 438,034 | $ | 116,422 | $ | 321,612 | $ | ||||||||||
| 2007 | ||||||||||||
|
ACCUMULATED
|
||||||||||||
|
COST
|
AMORTIZATION
|
NET
|
||||||||||
|
Non-competition
agreement
|
$ | 150,000 | $ | 150,000 | $ | - | ||||||
|
Affiliate
related relationship
|
100,000 | 25,833 | 74,167 | |||||||||
|
Intellectual
property
|
338,034 | 56,442 | 281,592 | |||||||||
| $ | 588,034 | $ | 232,275 | $ | 355,759 | |||||||
Non-competition
agreement consists of payments made to three former principals of a company that
was a direct competitor of Ableauctions. In consideration of payments
received in 2004 for $150,000, the former principals agreed to cease any
activities that directly compete with Ableauctions for a period of three
years. The cost is amortized on a straight-line basis over three
years.
On June
1, 2005, the Company made a cash payment in the amount of $100,000 to an
unrelated third party as consideration for exclusive rights relating to that
party’s auction services. The cost is amortized on a straight-line
basis over ten years.
During
the 2007 and 2006 years, the Company incurred development costs to enhance the
current on-line auction technology. These costs include fees paid to
programmers to develop the systems, software and processes related to the
enhancement. The Company completed the final stage in July 2007, and
has started to amortize the costs over the estimated useful life of the
technology of three years beginning in July 2007.
At
December 31, 2008, the Company determined a net recoverable amount of $0 for
these intangible assets, thus the carrying cost of the intangible assets was
written off, and an impairment loss of $321,612 was charged to operations for
the 2008 year.
6. PROPERTY
AND EQUIPMENT
|
2008
|
||||||||||||||||
|
COST
|
ACCUMULATED DEPRECIATION |
IMPAIRMENT
|
NET
BOOK VALUE |
|||||||||||||
|
Land
|
1,380,788 | - | 1,380,788 | |||||||||||||
|
Building
|
936,975 | 124,288 | 812,687 | |||||||||||||
|
Leasehold
improvements
|
107,175 | 80,746 | 26,429 | |||||||||||||
|
Furniture
and fixtures
|
124,502 | 79,618 | 44,884 | |||||||||||||
|
Server
equipment
|
1,162,532 | 930,021 | 232,511 | - | ||||||||||||
|
Computer
equipment
|
104,670 | 59,687 | 44,983 | |||||||||||||
|
Computer
software
|
189,865 | 155,313 | 34,552 | - | ||||||||||||
|
Vehicles
|
22,163 | 13,378 | 6,369 | 2,416 | ||||||||||||
| $ | 4,028,670 | 1,443,051 | 273,432 | $ | 2,312,187 | |||||||||||
|
2007
|
||||||||||||
|
ACCUMULATED
|
NET
BOOK
|
|||||||||||
|
COST
|
DEPRECIATION
|
VALUE
|
||||||||||
|
Land
|
1,696,560 | - | 1,696,560 | |||||||||
|
Building
|
1,151,205 | 106,172 | 1,045,033 | |||||||||
|
Leasehold
improvements
|
107,175 | 70,028 | 37,147 | |||||||||
|
Furniture
and fixtures
|
116,121 | 69,445 | 46,676 | |||||||||
|
Server
equipment
|
1,162,532 | 911,169 | 251,363 | |||||||||
|
Computer
equipment
|
99,082 | 42,836 | 56,246 | |||||||||
|
Computer
software
|
189,865 | 152,512 | 37,353 | |||||||||
|
Vehicles
|
27,232 | 14,555 | 12,677 | |||||||||
| $ | 4,549,772 | 1,366,717 | $ | 3,183,055 | ||||||||
At
December 31, 2008, the Company determined a net recoverable amount of $0 for the
server equipment and computer software, and a lower net recoverable amount for
vehicles, thus the carrying cost of these assets was written off or down, and an
impairment loss of $273,432 was charged to operations for the 2008
year.
7. 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.
7. PROPERTY
HELD FOR DEVELOPMENT (continued)
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 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.
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
December 31, 2008 draws totalling $4,729,825 ($5,760,926 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.
8. 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 partners. 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 unrelated
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 the agreement of 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
rate 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 shareholders, 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 the president of the Company will
have responsibility for payments of the Loan and that THL, Axion and the
president will be fully indemnified for any expenses or payments they
become liable for thereunder.
|
8. INVESTMENT IN
JOINT VENTURE (Continued)
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.
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 December 31, 2008. 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
December 31, 2008 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:
|
|
2008
|
2007
|
|||||||
|
Balance
Sheet
|
||||||||
|
Assets
|
$ | 2,850,416 | $ | 3,256,580 | ||||
|
Liabilities
|
- | - | ||||||
|
Equity
|
2,850,416 | 3,256,580 | ||||||
|
Statement
of Operations
|
||||||||
|
Revenue
|
$ | 5,937 | 36,887 | |||||
|
Expenses
|
70,005 | 2,924 | ||||||
|
Net
Income(Loss)
|
(64,068 | ) | 33,963 | |||||
9. INVESTMENT
IN SURREY CITY CENTRAL
On
October 6, 2008 the board of directors approved a Development Agreement with the
company’s CEO 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.
Surrey
has no assets other than the Property and no liabilities. Surrey
currently has 299 shares of common stock issued and outstanding, all of which
are owned by Bullion. The Company has agreed to purchase 149.5 of
these shares from Bullion and has agreed to pay $1,347,440 for these
shares. The purchase price is based on an appraisal provided to the
Company by an independent appraiser 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
Company intends to pay one-half of the purchase price in cash and the remainder
of the purchase price with a promissory note. The promissory note
will be due on demand and will accrue simple interest at the rate of prime plus
2% per annum. The promissory note will include a provision that will
allow 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
purchase price of $1,671,638 has been recorded as “Investment in Surrey City
Central” on the balance sheet as of December 31, 2008, with an amount of
$1,363,765 owing to the director as of December 31, 2008.
10.
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 December 31, 2008, the amount of the loan
was $1,637,931.
|
Bank
Loan #1 (Note 7)
|
$ | 4,729,825 | ||
|
Bank Loan #2
|
1,637,931 | |||
|
Total
Bank Loan
|
6,367,756 |
11. SETTLEMENT
OF LEGAL CLAIM
On April
2, 2008, a former employee and agent, Mr. Steve Gold and Gold Network, Inc.
(collectively, the “Plaintiffs”), filed a legal action against the Company for
breach of contract relating to commissions they alleged were not paid to
them. The action was filed in the Superior Court of Ventura County,
California. On May 2, 2008 the Company reached an agreement with the
Plaintiffs regarding the dispute and paid the sum of $65,000 to the Plaintiffs
in exchange for a release of their claims. The Company has
recorded the full amount as “settlement of legal claim” in the Statement of
Operations for the year ended December 31, 2008.
12. WARRANTS
The
Company has issued warrants entitling the holders to acquire common shares of
the Company. All warrant prices and numbers presented below have been
adjusted to give effect to the 1 for 12 common share consolidation as described
in Note 19. A summary of changes in unexercised warrants during the 2008 and
2007 years is presented below:
|
Warrants
|
Warrants
|
Warrants
|
Warrants
|
|
||||||||||||||||
|
|
@$6.48
|
@$9.60
|
@$2.40
|
@$1.08
|
||||||||||||||||
|
|
(1) | (2) | (3) |
(4)
|
Total
|
|||||||||||||||
|
Outstanding,
|
||||||||||||||||||||
|
Dec
31, 2006
|
8,333 | 74,615 | - | - | 82,948 | |||||||||||||||
|
Expired
|
||||||||||||||||||||
|
during
year
|
(8,333 | ) | (8,333 | ) | - | - | (16,666 | ) | ||||||||||||
|
Granted
|
||||||||||||||||||||
|
during
year
|
- | - | 735,294 |
-
|
735,294
|
|||||||||||||||
|
Outstanding,
|
||||||||||||||||||||
|
Dec
31, 2007
|
- | 66,282 | 735,294 | - | 801,576 | |||||||||||||||
|
Expired
|
||||||||||||||||||||
|
during
year
|
- | (66,282 | ) | - | - | (66,282 | ) | |||||||||||||
|
Granted
|
||||||||||||||||||||
|
during
year
|
- | - | - | 600,000 | 600,000 | |||||||||||||||
|
Exercised
|
||||||||||||||||||||
|
during
year
|
- | - | - | (600,000 | ) | (600,000 | ) | |||||||||||||
|
Outstanding,
|
||||||||||||||||||||
|
Dec
31, 2008
|
- | - | 735,294 | - | 735,294 | |||||||||||||||
(1)
Exercisable until September 23, 2007, granted pursuant to private
placement.
(2) Of
the 74,615 warrants, 8,333 warrants are exercisable until December 30, 2007, and
the remaining 66,282 warrants are exercisable until January 4,
2008.
(3)
Exercisable until April 9, 2017, granted pursuant to the private placement as
described in Note
19.
(4)
Exercisable until October 2, 2013, granted pursuant to the debt conversion
agreement as described in Note 19.
13.
INVESTMENT
INCOME
All investment income earned for the 2008 and 2007 years relates to loan
interest.
14. SUPPLEMENTAL
DISCLOSURES WITH RESPECT TO CASH FLOWS
|
2008
|
2007
|
|||||||
|
Cash
paid for income taxes
|
$ | - | $ | - | ||||
|
Cash
paid for arrangement of construction financing
|
10,000 | 38,000 | ||||||
|
Cash
paid for interest
|
$ | 116,244 | $ | 52,012 | ||||
During
the year ended December 31, 2008, the Company incurred the following non-cash
transactions:
a) The
Company recorded $20,625 as stock-based compensation expense.
b)
On August
19, 2008, the president entered into an Agreement to Convert Debt with 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 loans.
During
the year ended December 31, 2007, the Company incurred the following non-cash
transactions:
c)
The
Company recorded $37,224 as stock-based compensation expense.
d) The
Company recorded a balance of $40,535 in “Investment in joint venture” related
to the estimate of guarantee liability as described in Note 8, with the
offsetting balance included in “Accounts payable and accrued
liabilities”.
15.
INCOME
TAXES
At
December 31, 2008, the Company has net operating losses carried forward of
approximately $7,300,000 which expire in years ranging from 2009 to
2028. The Company has provided a full valuation allowance of
$2,771,600 on the deferred tax asset because of the uncertainty of
realizability.
A
reconciliation of the Company’s effective income tax rate to the approximate
combined federal, provincial and state statutory income tax rates of 34% [2007–
34%] is as follows:
|
2008
$ |
2007
$ |
|||||||
|
Income
tax recovery computed at statutory rates
|
(942,422 | ) | (235,708 | ) | ||||
|
Effect
of reduction in tax rates
|
88,940 | - | ||||||
|
Non
capital losses expiring in the year
|
(65,282 | ) | - | |||||
|
Losses
carried forward for which tax benefits were recognized
|
- | 223,052 | ||||||
|
Stock
based compensation not deductible for tax purposes
|
7,013 | 12,656 | ||||||
|
Tax
benefit from share issuance costs not recognized
|
(15,849 | ) | - | |||||
|
Increase
(decrease) in valuation allowance
|
927,600 | - | ||||||
|
Income
tax (recovery) expense
|
— | — | ||||||
Significant
components of the Company’s deferred tax assets are as follows:
|
2008
$ |
2007
$ |
|||||||
|
Operating
losses carried forward
|
2,442,932 | 2,006,000 | ||||||
|
Tax
value of share issuance costs in excess of book value
|
12,680 | |||||||
|
Tax
value of property and equipment in excess of book value
|
217,153 | (140,000 | ) | |||||
|
Tax
value of intangible assets in excess of book value
|
98,835 | (22,000 | ) | |||||
|
Total
deferred tax assets
|
2,771,600 | 1,844,000 | ||||||
|
Less:
Valuation allowance
|
(2,771,600 | ) | (1,844,000 | ) | ||||
|
Net
deferred tax assets (liabilities)
|
— | — | ||||||
Of the
net operating tax losses carried forward, approximately $3,200,000 (deferred tax
asset of $1,000,000) are available for Canadian tax purposes.
16.
CONCENTRATION OF RISK
Following
is a description of certain areas of concentration of risk to which management
considers the Company vulnerable to near-term severe impact. This is
not a complete analysis of risks faced by the Company, which are listed in other
regulatory filings of the Company.
Credit and Economic
Dependency Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of accounts receivable and loans
receivable.
The
majority of the Company’s trade receivables are derived from fees and revenue
associated with Internet based listing fees and auction
activities. The Company’s largest customer accounted for 21% of net
revenue for the 2008 year, and 40% for the 2007 year. At December 31, 2008,
the largest customer accounted for 14% of net accounts receivable (15% of net
accounts receivable at December 31, 2007). Management believes that the
receivable balance from this customer does not represent a significant credit
risk based on past collection experience.
Property development
risk
Approximately
74% (December 31, 2007: 58%) of the Company’s assets on December 31, 2008 were
invested in various real properties. Real estate values can be
seriously affected by factors such as bank liquidity, the availability of
financing, and by factors such as a zoning change or an increase in property
taxes and the general economic outlook.
Interest rate
risk
Approximately
13% (December 31, 2007: 7%) of the Company’s assets on December 31, 2008 were
invested in various mortgage loans receivable. The value of the
mortgage loans can be seriously affected by factors such as interest rate
fluctuations, bank liquidity, and the availability of financing.
Reliance on
suppliers
Substantially
all of the computer hardware for operating the Company’s service is located at
the facilities of Telus in British Columbia. Any damage to or failure
of the systems could result in reductions in, or terminations of, the Company’s
service.
On April
15, 2008, the Company was notified by eBay that eBay intends to wind down the
operations of its eBay Live Auctions platform effective December 31,
2008. This event may cause the Company to suspend the live auction
segment of its business. The Company’s subsidiary, iCollector.com,
currently derives approximately $520,000 in annual revenue (or 17% of the
Company’s total revenues) from auctions broadcast on the eBay Live Auctions
platform.
Foreign currency
risk
While the
Company’s financial statements are presented in U.S. dollars, a majority of the
Company’s obligations, investments and expenditures with respect to the
operations were incurred in Canadian dollars. Variations in the
exchange rate may give rise to foreign exchange gains or losses that may be
significant.
17.
RELATED
PARTY TRANSACTIONS
|
a)
|
During
the year ended December 31, 2008, the Company incurred $156,000 (2007:
$156,000) in management fees to a director of the
Company.
|
|
b)
|
At
December 31, 2008, a balance of $248,072 (December 31, 2007: $298,464) 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 years ended December 31, 2008 and 2007, 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
the 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 Alternext US (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,
resulting in a balance of $1,363,765 owing to the director as of December
31, 2008.
|
|
f)
|
During
the year ended December 31, 2007, the Company incurred rent expense of
$27,715 to a private company owned by a trust the beneficiaries of which
are members of the family of the Company’s
president.
|
On July
31, 2007, pursuant to the sale of the property, the rental agreement was
reassigned to an unrelated company, 796257 BC Ltd.
|
g)
|
At
December 31, 2007, included in “other receivable” is a balance of $121,053
($120,000 CAD) owing from Charan Singh, a director of Township Holdings
Ltd, and the project coordinator for the Gruv Development (see Note
4). The Company’s wholly-owned subsidiary, Axion Investment
Corp. is a shareholder of Township Holdings Ltd. The loan
balance that was due on May 1, 2008 was deemed to be paid in full as it
was offset against amounts owing to Charan Singh for services related to
the Gruv Development.
|
|
h)
|
During
the year ended December 31, 2007, the Company incurred rent expense
related to office space of $4,655 to a private company owned by Bullion
Reef Holding, a company controlled by Abdul
Ladha.
|
|
17.
|
RELATED PARTY TRANSACTIONS
(Continued)
|
|
i)
|
On
April 9, 2007, the Company completed a private placement of 245,098 units
consisting of one common share and three share purchase warrants (the
"Warrants") priced at $2.40 per Unit, with the President and director of
the Company, as described in Note
19.
|
|
j)
|
During
the year ended December 31, 2007, the Company received a payment of
$12,661 from Bullion Reef Holdings Ltd., a private company wholly-owned by
a trust created for the family of Abdul Ladha, as reimbursement of office
and personnel expenses.
|
|
18.
|
STOCK-BASED
COMPENSATION
|
|
|
All
option prices and numbers presented below have been adjusted to give
effect to the 1 for 12 common share consolidation as described in Note
19.
|
During
the 2007 year, the Company issued options to consultants to acquire 20,833
common shares of the Company at an exercise price of $3.60 per share,
exercisable for a period of 2 years. The estimated fair value of
these options, totalling $10,000 is recognized in the statement of
operations.
During
the 2006 year, the Company issued options to employees to acquire 133,333 common
shares of the Company at an exercise price of $4.20. The estimated
fair value of these options, totalling $64,000 is recognized over the 2 year
vesting period. Of the total amount, $20,625 (2007: $27,224) is
recognized in the 2008 year.
During
the year ended December 31, 2008, the SFAS 123R share-based compensation expense
recorded for awards under the stock option plans was $20,625 (2007: $37,224),
net of estimated forfeitures.
A summary
of the Company's stock option plan and changes during 2008 and 2007 are
presented below:
|
2008
|
2007
|
|||||||||||||||
|
WEIGHTED
|
WEIGHTED
|
|||||||||||||||
|
NUMBER
|
AVERAGE
|
NUMBER
|
AVERAGE
|
|||||||||||||
|
OF
|
EXERCISE
|
OF
|
EXERCISE
|
|||||||||||||
|
SHARES
|
PRICE
|
SHARES
|
PRICE
|
|||||||||||||
|
Outstanding,
beginning of year
|
911,352 | $ | 4.66 | 890,519 | $ | 4.68 | ||||||||||
|
Granted
|
- | 20,833 | 3.60 | |||||||||||||
|
Exercised
|
- | - | ||||||||||||||
|
Expired
|
(276,833 | ) | 4.06 | - | ||||||||||||
|
Outstanding,
end of year
|
634,519 | 4.91 | 911,352 | 4.66 | ||||||||||||
|
Weighted
average fair value of options granted during the year
|
$ | 0.48 | ||||||||||||||
18. STOCK-BASED COMPENSATION
(Continued)
The fair
value of consultant and employee options granted during the 2007 and 2006 years
respectively was estimated using the Black-Scholes option pricing model assuming
a dividend yield of 0.0%, expected volatility of 62%, risk free interest rate of
4.6% and weighted average expected option terms of 2 years.
The
following table summarizes information about stock options outstanding and
exercisable at December 31, 2008:
|
AVERAGE
|
||||||||||||
|
RANGE
OF
|
WEIGHTED
|
REMAINING
|
|
|||||||||
|
EXERCISE
|
NUMBER
|
CONTRACTUAL
|
NUMBER
|
|||||||||
|
PRICE
|
OUTSTANDING
|
LIFE
|
EXERCISABLE
|
|||||||||
| $ | 1.80 | 33,333 |
4
years
|
33,333 | ||||||||
| 3.00 – 3.60 | 26,250 |
1
year
|
26,250 | |||||||||
| 4.32
4.80 |
29,167
183,686 |
1
year
6
years
|
29,167
183,686 |
|||||||||
| 5.04 – 6.00 | 362,083 |
1
year
|
362,083 | |||||||||
| 634,519 | 634,519 | |||||||||||
19. CAPITAL
STOCK
Common Share
Consolidation
On
January 12, 2009, the Company received regulatory approval for a 1 for 12
consolidation of its outstanding common shares effective January 15,
2009. The Company’s shares began trading on a consolidated basis on
January 15, 2009. All references to share and per-share data
(including warrants and options) for all periods presented in the consolidated
financial statements have been adjusted to give effect to the 1 for 12 common
share consolidation. As a result of the common share consolidation,
the number of shares of the Company outstanding as of December 31, 2008 was
reduced from 70,876,378 to 5,906,957 after taking into account fractional share
adjustment, without any change in par value per common share.
Issuance of Capital
Stock
On April
9, 2007, the Company completed a private placement of 245,098 units consisting
of one common share and three share purchase warrants (the "Warrants") priced at
$2.40 per Unit, with the President and director of the Company. Each
Warrant entitles the holder to purchase three additional common shares at an
exercise price of $2.40 for a term of 10 years expiring, if not exercised, on
April 9, 2017. The total purchase price of the Units was $588,235 with share
issuance costs incurred by the Company of $60,000.
Based on
the market trading price at the time of the offering the fair market value of
each share was calculated to be $2.40 and the fair market value of each warrant
was calculated to be $1.08. The Black-Scholes model was used to determine the
fair market value of each warrant with an exercise price of $2.40, an expected
exercise term of 5 years, a volatility of 44% based on price fluctuations over a
prior one year period and a risk adjusted market interest rate of
4%.
19. CAPITAL STOCK
(Continued)
On
October 6, 2008, 400,000 common shares were issued as a result of the debt
conversion agreement described in Note 17(d). On the same day,
600,000 additional common shares were issued due to the exercise of warrants
granted pursuant to the debt conversion agreement described in Note
17(d).
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
year ended December 31, 2007, the Company repurchased 298,781 shares for a total
cost of $669,562, but the shares have not been cancelled as of December 31,
2007.
For the
year ended December 31, 2008, the Company repurchased an additional 240,521
shares for a total cost of $374,304. The total number of 539,302 shares
repurchased were subsequently cancelled and returned to the authorized capital
stock of the Company during the 2008 year.
20.
CONTINGENT
LIABILITIES
The
Company is ordinarily involved in claims and lawsuits which arise in the normal
course of business. In management's opinion none of these claims will
have a significant effect on the Company's financial position.
21. COMMITMENTS
a)
The Company is committed to payments with respect to an agreement to lease
office premises. Future minimum payments required under the lease are
as follows:
|
2009
|
23,756 | |||
|
2010
|
20,556 | |||
|
2011
|
5,139 | |||
| $ | 49,451 |
b) 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 strata lots related to the development of its condominium
project in Surrey as described in Note 7.
c) The
Company is committed to a payment of $103,342 ($111,000 CAD) for 2/5/10 year
home warranty insurance coverage related to its condominium development project
in Surrey as described in Note 7.
21. COMMITMENTS
(Continued)
|
d)
|
The
Company has unconditionally guaranteed the interest and repayment of a
demand loan to Envision Credit Union (“ECU”) related to its Township
Holdings Joint Venture. The guarantee continues until the loans, including
accrued interest and fees, have been paid in full, with the final loan
amount due upon demand. The Company estimated a value of
$40,535 for this guarantee, and has provided a provision of $40,535 for
the guarantee liability, which is included in Accounts payable and accrued
liabilities at December 31, 2008.
|
22.
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.
|
22.
|
SEGMENTED INFORMATION
(Continued)
|
|
|
Following
is the segmented information for the year ended December 31,
2008:
|
|
Real Property
&
Property Development
|
Mortgages
&
Loans
|
Auction,
Liquidation
& Technology Businesses
|
Other
|
Total
|
||||||||||||||||
|
External
revenue by market
|
||||||||||||||||||||
|
US
|
- | - | 2,256,264 | - | 2,256,264 | |||||||||||||||
|
Canada
|
150,653 | - | 364,269 | - | 514,922 | |||||||||||||||
|
Other
|
- | - | 34,950 | - | 34,950 | |||||||||||||||
|
Total
Revenue From External Customer
|
150,653 | - | 2,655,483 | - | 2,806,136 | |||||||||||||||
|
Investment
income
|
- | 207,781 | - | - | 207,781 | |||||||||||||||
|
Interest
expense
|
46,560 | 65,498 | 1,011 | 3,175 | 116,244 | |||||||||||||||
|
Depreciation
and amortization
|
38,650 | - | 97,014 | - | 135,664 | |||||||||||||||
|
Impairment
of asset
|
595,044 | 595,044 | ||||||||||||||||||
|
Segment
profit(loss)
|
(129,781 | ) | 181,664 | (1,810,678 | ) | (1,013,031 | ) | (2,771,826 | ) | |||||||||||
|
Segment
assets
|
114,342,434 | 931,942 | 1,347,418 | 1,468,500 | 18,090,294 | |||||||||||||||
|
Expenditures
on long-lived assets
|
6,206,805
|
21,014 | 6,227,819 | |||||||||||||||||
|
Investment
in joint venture
Investment
in Surrey City Central
|
1,223,728
1,671,638 |
- | - | 1,223,728 1,671,638 | ||||||||||||||||
Following
is the segmented information for the year ended December 31,
2007:
|
Real Property
&
Property Development
|
Mortgages
&
Loans
|
Auction,
Liquidation
& Technology Businesses
|
Other
|
Total
|
||||||||||||||||
|
External
revenue by market
|
||||||||||||||||||||
|
US
|
- | - | 4,329,617 | - | 4,329,617 | |||||||||||||||
|
Canada
|
143,050 | - | 417,504 | - | 560,554 | |||||||||||||||
|
Other
|
- | - | 48,747 | - | 48,747 | |||||||||||||||
|
Total
Revenue From External Customer
|
143,050 | - | 4,795,868 | - | 4,938,918 | |||||||||||||||
|
Investment
income
|
- | 397,977 | - | - | 397,977 | |||||||||||||||
|
Interest
expense
|
52,012 | - | - | - | 52,012 | |||||||||||||||
|
Depreciation
and amortization
|
39,765 | - | 154,972 | - | 194,737 | |||||||||||||||
|
Segment
profit
|
(132,378 | ) | 511,253 | (425,807 | ) | (646,326 | ) | (693,258 | ) | |||||||||||
|
Segment
assets
|
8,951,031 | 2,172,035 | 2,955,711 | 340,609 | 14,419,386 | |||||||||||||||
|
Expenditures
on long-lived assets
|
1,816,545 | 34,267 | 1,850,812 | |||||||||||||||||
|
Investment
in joint venture
|
1,507,403 | - | - | - | 1,507,403 | |||||||||||||||
During
the 2008 year, the revenue of the Company from one customer of the Auction,
Liquidation and Technology Businesses segment exceeded 10% of its total
revenue. Revenue from the customer totalled $602,263.
During
the 2007 year, the revenue of the Company from one customer of the Auction,
Liquidation and Technology Business segment exceeded 10% of its total
revenue. Revenue from the customer totalled $1,932,241.
22. SEGMENTED INFORMATION
(Continued)
Geographic
Information
The
external sales and long-lived assets of the Company's businesses by geographical
region are summarized below:
|
2008
|
2007
|
|||||||
|
External
Sales
|
||||||||
|
United
States
|
$ | 2,256,264 | $ | 4,329,617 | ||||
|
Canada
|
514,922 | 560,554 | ||||||
|
Other
|
34,950 | 48,747 | ||||||
| $ | 2,806,136 | $ | 4,938,918 | |||||
|
Long-Lived
Assets
|
||||||||
|
United
States
|
$ | 8,845 | $ | 12,752 | ||||
|
Canada
|
10,823,397 | 7,650,283 | ||||||
| $ | 10,832,242 | $ | 7,663,035 | |||||
23.SUBSEQUENT
EVENTS
a) Subsequent
to December 31, 2008, the Company repurchased additional 78,276 shares of its
common stock for a cost of $18,867.
24.RECENT
ACCOUNTING PRONOUNCEMENTS
(i) In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“FAS”) No. 141 (Revised 2007),
“Business Combinations” (“FAS 141(R)”). FAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired,
liabilities assumed, and any noncontrolling interests in the acquiree, as well
as the goodwill acquired. Significant changes from current practice resulting
from FAS 141(R) include the expansion of the definitions of a “business” and a
“business combination.” For all business combinations (whether partial, full or
step acquisitions), the acquirer will record 100% of all assets and liabilities
of the acquired business, including goodwill, generally at their fair values;
contingent consideration will be recognized at its fair value on the acquisition
date and, for certain arrangements, changes in fair value will be recognized in
earnings until settlement; and acquisition-related transaction and restructuring
costs will be expensed rather than treated as part of the cost of the
acquisition. FAS 141(R) also establishes disclosure requirements to enable users
to evaluate the nature and financial effects of the business combination. FAS
141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. Earlier adoption is not permitted. We are
currently evaluating the potential impact of this
statement.
(ii) In
December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An amendment of ARB No. 51” (“FAS 160”). FAS
160 amends Accounting Research Bulletin 51, “Consolidated Financial Statements,”
to establish accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary, which is sometimes referred to as
minority interest, is a third-party ownership interest in the consolidated
entity that should be reported as a component of equity in the consolidated
financial statements. Among other requirements, FAS 160 requires the
consolidated statement of income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. FAS 160
also requires disclosure on the face of the consolidated statement of income of
the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. FAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is not permitted. We are currently evaluating the potential
impact of this statement.
(iii) In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective
Date of FASB Statement No. 157” (“FSP 157-2”), to partially defer FASB Statement
No. 157, “Fair Value Measurements” (“FAS 157”). FSP 157-2 defers the effective
date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually), to fiscal years, and interim periods
within those fiscal years, beginning after November 15, 2008. We are currently
evaluating the impact of adopting the provisions of FAS 157 as it relates to
non-financial assets and liabilities.
24. RECENT ACCOUNTING PRONOUNCEMENTS
(Continued)
(iv) In
March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 amends and expands the
disclosure requirements of FAS 133, “Accounting for Derivative Instruments and
Hedging Activities” and requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. This statement
is effective for financial statements issued for fiscal periods beginning after
November 15, 2008. Earlier adoption is not permitted. We do not believe the
adoption of FAS 161 will have a material impact on our consolidated financial
statements.
(v) In
April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3,
“Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS
142-3 amends the factors that should be considered in developing the renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS
142-3 also requires expanded disclosure related to the determination of
intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008. Earlier adoption is not permitted. We are
currently evaluating the potential impact the adoption of FAS FSP 142-3 will
have on our consolidated financial statements.
(vi) In
May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (FSP APB 14-1). FSP APB 14-1 requires recognition of both the
liability and equity components of convertible debt instruments with cash
settlement features. The debt component is required to be recognized at the fair
value of a similar instrument that does not have an associated equity component.
The equity component is recognized as the difference between the proceeds from
the issuance of the note and the fair value of the liability. FSP APB 14-1 also
requires an accretion of the resulting debt discount over the expected life of
the debt. Retrospective application to all periods presented is
required. APB 14-1 is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the potential
impact the adoption of FSP APB 14-1 will have on our consolidated financial
statements.
(vii) In
June 2008, the FASB ratified FSP No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities” (FSP No. EITF 03-6-1), which addresses whether instruments
granted in share-based payment awards are participating securities prior to
vesting and, therefore, must be included in the earnings allocation in
calculating earnings per share under the two-class method described in
SFAS No. 128, “Earnings per Share” (SFAS No. 128). FSP
No. EITF 03-6-1 requires that unvested share-based payment awards that
contain non-forfeitable rights to dividends or dividend-equivalents be treated
as participating securities in calculating earnings per share. FSP
No. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and shall be applied retrospectively to all prior
periods. We are currently evaluating the effects, if any that FSP
No. EITF 03-6-1 may have on earnings per share.
(viii) In
October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active ("FSP
157-3"). FSP 157-3 clarifies the application of SFAS 157 in a market that is not
active, and demonstrates how the fair value of a financial asset is determined
when the market for the financial assets is inactive. FSP 157-3 was
effective upon issuance, including prior periods for which financial statements
had not been issued. The implementation of this standard did not have
an impact on our Consolidated Financial Statements.