-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQc5sNwAQEKeLlrBUDhQqadIt41GH645LXiuO/pfA/yEABVCkVQ0MNhP98LlwywT GxClR0Bukd80Q9kdkuZJMA== 0000798538-00-000004.txt : 20000203 0000798538-00-000004.hdr.sgml : 20000203 ACCESSION NUMBER: 0000798538-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 20000126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADEN ENTERPRISES INC CENTRAL INDEX KEY: 0000798538 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 870447215 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18140 FILM NUMBER: 513006 BUSINESS ADDRESS: STREET 1: 13314 I STREET CITY: OMAHA STATE: NE ZIP: 68137 BUSINESS PHONE: 4023345556 MAIL ADDRESS: STREET 1: 13314 I STREET CITY: OMAHA STATE: NE ZIP: 68137 10-K 1 ANNUAL REPORT UNDER FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended April 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 00-18140 ADEN ENTERPRISES, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 87-0447215 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13314 "I" Street, Omaha, Nebraska 68137 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (402) 334-5556 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / / No /X/ 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/ The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of December 31, 1999, was $198,482,869.20 based on the closing price of $3.08 per share as of such date. As of December 31, 1999, 81,000,000 shares of the registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Registration Statement on Form S-18 and all amendments thereto (Registration No. 33-7494-LA) (the "Registration Statement") are incorporated by reference in Parts I and IV of this Report. PART I ITEM 1. BUSINESS (a) Introduction Aden Enterprises, Inc. was incorporated in Nevada on May 22, 1986, and was reincorporated in California effective August 12, 1988. Unless the context otherwise requires, the term "Company" means Aden Enterprises, Inc. and its subsidiaries, collectively. The original business purpose of the Company and the circumstances surrounding its reincorporation are more fully described in the Registration Statement. On January 31, 1995, a group of investors based in Omaha, Nebraska, acquired from the Company's principal shareholder 19.8% of the Company's outstanding Common Stock and options to acquire an additional 21.8% of such Common Stock (which options were not exercised). Concurrent with this transaction, the selling shareholder (being the sole director of the Company at the time) designated members of this group of investors as directors of the Company, who thereupon assumed control of the Company. Since then, the Company has undertaken to locate and negotiate with selected business entities for the purpose of acquiring, or entering into business combinations, with the selected businesses. The Company has adopted a strategy of seeking opportunities to realize gains through the selective sale of investments or having separate subsidiaries or affiliates sell minority interests to outside investors. The Company believes that this strategy provides the ability to increase shareholder value as well as provide capital to support the growth in the Company. The Company expects to continue to develop and refine the products and services of its businesses, with the goal of increasing revenue as new products are commercially introduced, and to continue to pursue the acquisition of or the investment in, additional internet and fulfillment services companies. The Company will initially conduct its internet-related businesses through three operating subsidiaries. Cheapfares.com Incorporated is a newly-formed Nevada corporation which will provide online travel services. Navlet.com, Inc. is a newly-formed Delaware corporation which will develop certain proprietary technology described below. Leftbid.com, Inc. is a newly-formed Nevada corporation which will provide an internet bid/ask system in the fine arts and collectibles marketplace. At the present time, the Company uses certain intellectual property rights the Company has acquired to operate a travel web site that allows participants to bid for travel services in an environment that informs the consumer of a potential ask price. The Company believes that the informational aspect of the system is superior to a name your price type system because it may foster an informed expectation in the consumer's mind of the reasonableness of a particular bid which in turn may facilitate higher order fulfillment and greater consumer satisfaction than possible with the name your price type bid system. The Company has an improved version of its proprietary technology under development and plans to continue to improve system and product offerings. The Company has acquired ownership of a confidential proprietary technology that, among other things, may provide a new way to navigate the Internet. Developed by employees of the Company, the Company acquired its ownership interest in this proprietary technology by causing the assignment of all right, title and interest therein from the original inventors to the Company's majority owned subsidiary, Navlet.com, Inc. ("Navlet"). Navlet will develop the technology and bring the technology to market in a commercial product. At the present time, the Company is maintaining the new technology as a confidential trade secret. The new technology is, however, the subject of four (4) pending patent applications, which if the Company is successful in protecting the technology through the issuance of patent(s), may provide the Company the right to exclude others from using the technology. At the present time, however, the Company does not have sufficient capital or internal resources to fully develop the new technology into a commercial product. There can be no assurance that the Company will be successful at bringing a commercial product based on the new technology to market nor whether the Company will successfully overcome the technical challenges required to implement the new technology. There can be no assurance that the company will be able to continue to maintain the new technology as a trade secret nor whether the Company will be ultimately successful at protecting the new technology through the issuance of patent(s). Also, in January of 1999, the Company announced that it had entered into a license agreement with MercExchange LLC ("MercExchange") under which the Company would obtain a perpetual, exclusive right to use the MercExchange patent, pending patents and proprietary plans and strategies ("the MercExchange intellectual property") for the travel services industry subject to certain restrictive terms and conditions. That agreement was not consummated and the Company and MercExchange subsequently negotiated and executed revised agreements which restructured the arrangement in its entirety. There are three agreements. Under the first agreement, the Company will acquire all of the issued and outstanding shares of MercTravel Incorporated ("MercTravel"), a wholly owned subsidiary of MercExchange. The Company will issue and deliver 58,000,000 shares of the Company's common stock to MercExchange (when and if the Company's shareholders approve an amendment to the Company's articles of incorporation increasing the number of authorized shares of common stock). Prior to this exchange agreement, MercExchange granted to MercTravel an exclusive license to utilize MercExchange's patents in the online travel sector. It is anticipated that this agreement will be completed in the fourth quarter of fiscal year 2000. Under the second agreement, the Company agreed to purchase a ten percent ownership interest in MercExchange for the sum of $4,000,000 evidenced by two promissory notes, the first note being in the amount of $1,000,000 due and payable 30 days after the effective date of the agreement and the second note for the balance due and payable 120 days after the effective date. This agreement gives the Company a two-year option to acquire an additional five percent ownership interest in MercExchange for the sum of $3,000,000. The effective date of this agreement is October 30, 1999. As of the date of this report, the Company has only paid a portion of the principal amount of the first note; however, to date MercExchange has not given any notice of default under the agreement. If and when a notice of default is given, the Company has 2 months within which to cure the default. If it fails to cure the default, the agreement will be terminated and all of the Company's interests in MercExchange will revert to MercExchange. Under the third agreement, MercExchange granted to the Company an option to acquire a non-exclusive license for use MercExchange's patents for internet markets and auctions for a variety of vertical sectors. MercExchange received the sum of $35,000 for such option and, upon exercise of such option, the Company will make an annual payment to MercExchange the greater of (1) the first $50,000 of any of the gross transactions collected or earned by the Company from any third party or (2) a 1.5% continuing royalty of the gross transactions generated by each vertical sector. The term "vertical sector" means the industry and service classifications of customary usage and categories of commerce as defined by the United States Department of Commerce eight digit Standard Industrial Classification codes. The agreement further provides that, in the event of a joint venture, marketing agreement, acquisition or any other business combination between the Company and a third party, the Company and MercExchange shall negotiate an equity position for MercExchange in such venture or business combination and in no event shall this equity position be less than 15% on a fully diluted basis for the venture. Each of the foregoing agreements is filed as an exhibit to this report. The foregoing summary of these agreements is qualified in its entirety by the more detailed information appearing in the agreements themselves. At the present time, the Company does not have the financial resources necessary to exercise its rights and meets its obligations under the agreements or to exercise its options to purchase an additional interest in MercExchange or to acquire a license in any vertical sector. There can be no assurance that the Company will have the necessary funds to meet its obligations in the time periods required by the agreements. A failure to meet its obligation will have a material adverse effect on the Company. The MercExchange intellectual property was assigned to MercExchange by the original inventor, Thomas G. Woolston. Mr. Woolston joined the Company as its Chief Technology Officer (CTO) in September 1999 subject to certain terms and conditions and an acknowledgment by the Company that Woolston can continue to manage the MercExchange and that this may cause a conflict of interest and impact on Woolston's availability to devote the time that may be required to serve as an effective Company CTO. At the present time, Mr. Woolston devotes a substantial portion of his time to the Company, although he continues to manage MercExchange. Despite the licensing arrangement and Woolston's employment with the Company, the MercExchange may pursue other business activities which may be competitive to the Company and there can be no assurance that the demands of managing the MercExchange will not place increasing demands on Mr. Woolston's time and on his availability to act as CTO for the Company. The Company's management believes that the MercExchange intellectual property may permit the Company to offer a number of Internet-based products for the travel industry exclusively. The MercExchange intellectual property is the subject of one issued patent, U.S. Patent No. 5,845,265, and nine (9) pending patent applications all of which are exclusively licensed for use in the travel service industry to the Company. There can be no assurance that subsequent MercExchange patents will issue or that the Company will be successful in enforcing the patents against the travel industry nor in obtaining an exclusive provider position in the market. A competitor, Priceline.com, operates a system under which consumers go to an Internet site and name the price they are willing to pay for airline tickets, hotel rooms and other items. Priceline.com then tries to find an airline or other company willing to accept that price. Priceline.com has a patent for its system which Priceline purports covers its "name your price" bid system for items like airline tickets over the Internet (U.S. Patent No. 5,794,207, the "Walker '207 Patent"). On December 1, 1998, MercExchange filed a petition for interference with the United States Patent Office contending that the MercExchange patent application was filed more than 16 months before the application for the Walker '207 Patent and that under the laws of the United States, the Walker '207 Patent should be cancelled and that certain claims of the Walker '207 patent should be awarded in a patent assigned to the MercExchange. Under the terms of its agreement with MercExchange, the Company has agreed to underwrite the cost of litigation against Priceline.com and to compensate the MercExchange for a portion of the fair and reasonable value of an injunction (should one be obtained) against the continued operation of Priceline.com's "name your price" bid system. Subject to the terms and conditions of the Company's agreement with MercExchange to acquire MercTravel, the Company has the exclusive right to use and enforce any patent issuing to the MercExchange from an interference proceeding against Priceline.com. While the Company believes that the petition for interference is well founded in fact and law, the Company cannot estimate when the dispute will be resolved, nor what the outcome of the dispute will be. There can be no assurance that the dispute will be resolved favorably to MercExchange and the Company. If the dispute is not resolved favorably to MercExchange and the Company, there could be a material adverse effect on the Company's travel business. The Company is currently in discussions with several companies that offer a bid type system in the travel sector or are developing bid type systems for use in the travel sector or may wish to participate in bid type systems for the on-line travel sector. There can be no assurance that the Company will reach an agreement with one or more of these companies or that their relationships with the Company will remain non-adversarial. There can be no assurance that the Company will ultimately prevail if required to enforce its intellectual property against infringement by third parties. (b) Business Strategy The Company's business strategy is to identify industries where it can profitably deploy its proprietary technology. The Company intends to engage in additional internet-related and other businesses on a case-by-case basis which may not utilize this proprietary technology. In order to bring this new technology to the market, the Company will require significant capital spending and investment in technology resources. This initiative will include both hiring skilled employees and engaging third-party developers. There can be no assurance that the Company will be able to raise sufficient capital to deploy its proprietary technology in the travel business or additional industries. (c) Intellectual Property and Technology The Company uses patents, copyrights, trade secrets and common law rights to protect its intellectual property. The Company has acquired ownership of a confidential proprietary technology that, among other things, provides a new way to navigate the Internet. The Company acquired its ownership interest by assignment of all rights, title and interest through employment agreements and written assignment agreements. At the present time, the Company is maintaining this intellectual property as a trade secret through the use of non-disclosure and confidentiality agreements. The new technology is also the subject of four (4) pending patent applications, which if the Company is successful at perfecting the issuance of patent(s) covering the new technology, may provide the Company the right to exclude others from using the technology. There can be no assurance that the Company's efforts to maintain the new technology a trade secret will be successful nor whether the Company could obtain an adequate remedy by the enforcement of the non-disclosure and confidentiality agreements governing the confidential subject matter. (d) Competition As of the date of this report, the Company's primary activities relate to the online travel services market. The online travel services market is new, rapidly evolving and intensely competitive, and the Company expects competition to increase. The Company will compete on the basis of service, merchandising, reliability, amount and accessibility of information and breadth of products and services offered. The Company makes available, or intends to offer, to its customers a wide range of products and prices offered by its travel suppliers. The Company will compete primarily with online travel services and with traditional travel agent distribution channels. In the online travel services market, the Company competes with other entities that maintain commercial websites providing online travel services, such as Expedia (an affiliate of Microsoft Corporation), Travelocity (operated by Sabre), Preview Travel, CheapTickets.com, Cendant Corporation, TravelWeb (operated by Pegasus), GetThere.com, Biztravel.com (operated by Rosenbluth Travel) and Trip.com. The Company also competes with companies that offer travel as part of a larger electronic commerce portfolio, such as Priceline.com and Yahoo. Several traditional large travel agencies such as Uniglobe Travel and Carlson Wagonlit Travel, have established, or may establish in the future, commercial websites offering online travel services. The Company also competes with many of these same parties and others in the licensing of technology to airlines and corporate travel agencies. (e) Government Regulation The laws and regulations applicable to the travel industry will affect the Company and the Company's travel suppliers. The Company will be subject to laws and regulations relating to the sale of travel services, including those prohibiting unfair and deceptive practices and requiring the Company to register as a seller of travel, comply with disclosure requirements and participate in state restitution funds. In addition, many of the Company's travel suppliers and computer reservation systems providers will be heavily regulated by the United States and other governments. The Company's services will be indirectly affected by regulatory and legal uncertainties affecting the businesses of the Company's travel suppliers and computer reservation systems providers. The Company also will be subject to laws and regulations applicable to businesses generally and online commerce specifically. Currently, few laws and regulations apply directly to the Internet and commercial online services. Moreover, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. It is possible that laws and regulations may be adopted to address these and other issues. Further, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws. New laws or different applications of existing laws would likely impose additional burdens on companies conducting business online and may decrease the growth of the Internet or commercial online services. In turn, this could decrease the demand for the Company's products and services, increase the Company's cost of doing business or otherwise adversely effect the Company's business. Federal legislation imposing limitations on the ability of states to impose taxes on Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, as this legislation is known, exempts certain types of sales transactions conducted over the Internet from multiple or discriminatory state and local taxation through October 21, 2001. It is possible this legislation will not be renewed when it terminates in October 2001. Failure to renew this legislation could allow state and local governments to impose taxes on Internet-based sales, and these taxes could hurt the Company's business. (f) Year 2000 Issues In the year 2000, the Company could encounter system and processing failures of date-related data because the Company's computer-controlled systems may use two digits rather than four to define the applicable year. This could result in system failure or miscalculations. If this were to happen, the Company would experience disruptions of the Company's operations including a temporary inability to process reservations on the Company websites or to engage in similar normal business activities. The Company's operations could also be harmed if the information technology systems or other systems that the Company operates or that are operated by third parties are not year 2000 compliant. The Company is not aware of any year 2000 problems relating to the Company's systems or third parties' systems that would have a material effect on the Company's business, results of operations or financial condition. The Company anticipates that costs associated with fixing any information technology or other systems will be insignificant. To date, the Company's costs for assessing, remediating and developing a remediation plan relating to year 2000 issues have been negligible. The Company does not currently expect that the Company's financial condition or results of operations will be adversely affected by the year 2000 issue. However, the Company's financial condition or results of operations could be adversely affected if: * the Company's systems are not converted in a timely manner * the systems of other companies on which the Company's systems rely are not converted in a timely manner * other companies do not convert their systems at all or in a manner compatible with the Company's systems If the Company's assessment is finalized and there are no additional material systems the Company operates or that are operated by third parties that are found to be non-compliant, the worst case year 2000 scenario is a systemic failure beyond the Company's control. This failure could include a prolonged telecommunications, Internet or electrical failure. Such a failure could affect the Company's business by: * preventing the Company from operating the Company's business * preventing users from accessing the Company's websites * changing the behavior of advertising customers or persons accessing the Company's websites If such a failure were to happen, the Company believe that the primary business risks would include any or all of the following: * lost sales * increased operating costs * loss of customers or persons accessing the Company's websites * business interruptions of a material nature * claims of mismanagement, misrepresentation or breach of contract Any of the above business risks could have a material adverse effect on the Company's business, results of operations and financial condition. The Company has not made any contingency plans to address such risks. As of the date of this report, the Company has experienced no year 2000 problems. (g) Employees As of December 31, 1999, the Company had approximately 21 full-time employees, none of whom is subject to collective bargaining agreements. The Company believes that it enjoys good relations with its employees. (h) Forward-Looking and Cautionary Statements Forward-looking and Cautionary Statements: Certain statements contained in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("Reform Act"). The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, the Company's representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes, "expects," "estimates," "intends," "plans," "projects," and similar expressions, may identify such forward-looking statements. In accordance with the Reform Act, set forth below are cautionary statements that accompany those forward-looking statements. Readers should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. The following cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this report, in the Company's filings with the Securities and Exchange Commission or in materials incorporated herein or therein by reference. Because the Company has a limited operating history, it is difficult to evaluate the Company's business. Factors that may cause the Company to fail to meet its business goals include the following: * the inability to obtain new customers at reasonable cost, retain existing customers or encourage repeat purchases * decreases in the number of visitors to the Company's websites or the Company's inability to convert visitors to the Company's websites into customers * the Company's inability to adequately maintain, upgrade and develop the Company's websites, the systems that we use to process customers' orders and payments or the Company's computer network * the Company's inability to retain existing airlines, hotels, rental car companies and other suppliers of travel services ("travel suppliers") or to obtain new travel suppliers * the Company's inability to obtain travel products on satisfactory terms from the Company's travel suppliers * the ability of the Company's competitors to offer new or enhanced websites, services or products * fluctuating gross margins due to a changing mix of revenues * the termination of existing relationships with key service providers or failure to develop new ones * the amount and timing of operating costs relating to expansion of the Company's operations * economic conditions specific to the Internet, online commerce and the travel industry * the Company's inability to attract additional travel suppliers and consumers to our service * the Company's inability to establish, maintain and enhance its brands * the Company's inability to expand its service offerings * the Company's inability to operate, expand and develop its operations and systems efficiently * the Company's inability to maintain adequate control of our expenses * the Company's inability to raise additional capital * the Company's inability to respond to competitive market conditions The Company's stock price is also affected by a number of other factors, including quarterly variations in results, the competitive landscape, general economic and market conditions and estimates and projections by the investment community. As a result, like other technology companies, the Company's stock price is subject to significant volatility. Much of the future success of the Company depends on the continued service and availability of skilled personnel, including technical, marketing and staff positions. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense. There can be no assurance that the Company will be able to successfully retain and attract the key personnel it needs. The Company has made and expects to continue to make acquisitions or enter into alliances from time to time. Acquisitions and alliances present significant challenges and risks relating to the integration of the business into the Company, and there can be no assurances that the Company will manage acquisitions and alliances successfully. (i) Reported Events. During the fiscal year ended April 30, 1999, the Company reported certain events through press releases or through filings with the Securities and Exchange Agreement under Form 8-K or otherwise. The following supplements or corrects information pertaining to such events. On September 4, 1998, the Company announced that it had entered into a two (2) year Marketing Exclusivity Agreement with SellectSoft, L.L.C., an Arizona Limited Liability Corporation in exchange for ten (10) million shares of the Company Enterprises, Inc. common stock. Under the terms of such agreement Company was granted sole and complete access and availability to all current and future related components required in the marketing and distribution of the SellectSoft patented processes. On February 12, 1999, the Company announced that it entered into a Rescission Agreement by and between SellectSoft L.L.C., an Arizona Limited Liability Company. In connection with the Agreement, 10 million shares of the Company's common stock were returned. On January 13, 1999, the Company announced that it had entered into an agreement with Government Payment Services, Inc., and Synergy Media, Inc., to assume 100% ownership of Government Payment Services, Inc. As of the date of this report, the transactions contemplated in this agreement have not been consummated. On January 11, 1999, the Company announced that it had expanded the services it will market to consumers on the Internet to include long distance and local telephone service, electricity and gas service. These services were to be offered in certain geographic regions through an agreement with Massachusetts based TelEnergy Inc. The Company has not actively pursued this agreement, although it is still in effect. On September 24, 1998, the Company announced that it executed a letter term sheet setting forth the terms and conditions whereby Luther & Company, or its designee, would provide Alcohol Sensors International, LTD. (ASI), with principal offices located in Islandia, New York, and other consideration set forth in such letter term sheet in exchange for an exclusive worldwide three-year license and other considerations. An affiliate of the Company provided funds to ASI on behalf of the Company in the amount of $40,000. These funds are due and payable to the Company, but are deemed to be uncollectible as ASI has entered into Chapter 11 proceedings. On February 16, 1998, the Company announced it had entered into a binding Letter of Intent for a proposed merger with Engineered Medical Concepts, Inc., (EMC) a two year old Florida corporation which has one extended care treatment facility located in Palm Beach Gardens Florida. This agreement has been terminated. In conjunction with this agreement, certain parties advanced funds on behalf of the Company to EMC and these funds are due and payable from EMC. However, the Company has determined that these funds are not collectable and they have been written off. (j) Recent Activities. The Company acquired the Internet domain name "Cheapfares.com" on June 24, 1999, from Roy Flanders in exchange for 3,000,000 shares of the Company's Common Stock. The Company informally agreed to register shares of Mr. Flanders stock, but has not yet done so. At the present time, the Company is employing proprietary technology on the Cheapfares.com site. During this same time period, the Company entered into an agreement to purchase several Internet domain names from Rene Fidler, a resident of Colorado, which included the domain name "Cheapfares.to." Terms of the agreement called for an initial payment of $50,000 with a subsequent payment of $250,000 and the issuance of 5,000,000 shares of the Company's Common Stock and warrants to purchase an additional 5,000,000 shares of Common Stock. Owing to a dispute which arose between Fidler and the Company, this transaction was not consummated and litigation ensued. The parties reached a settlement whereby Fidler was paid an additional $50,000, the warrants were cancelled and the shares of Common Stock were returned to the Company. Furthermore, the Company was released from all liability related to the use of the words "Cheapfares.com" and derivations thereof. See "LEGAL PROCEEDINGS." On October 7, 1999, the Company caused the formation of Leftbid.com, Inc. ("Leftbid") under the laws of the State of Nevada on October 7, 1999. Leftbid will be engaged in the business of selling fine art and collectibles to the public via the Internet. The Company presently owns 61% of Leftbid's voting stock. Based in New York, New York, Leftbid is in the process of entering into contracts with selected auction firms, but it has not yet commenced operations. On October 8, 1999, MercExchange entered into a license agreement with Leftbid under which Leftbid was granted a non-exclusive license (with no right of sublicense) to use the MercExchange patents in the fine art sector. MercExchange acquired 7.5% of Leftbid's issued and outstanding voting stock. In addition, Leftbid agreed to pay MercExchange an annual payment of the greater of (1) the first $50,000 of the gross transactions collected or earned by Leftbid or (2) a 1.5% continuing royalty of the gross transactions generated in the fine arts sector. On October 30, 1999, the Company entered into an agreement and plan of exchange with Data Duplicating Corporation ("DDC") and all its shareholders (the "DDC Shareholders"), which agreement was revised on December 31, 1999. Based in Omaha, Nebraska, DDC provides services related to the duplication of data stored on electronic media. Under the terms of this agreement, the Company will acquire all of the issued and outstanding capital stock of DDC in exchange for which the Company shall deliver 7,622,491 shares of its common stock to the DDC Shareholders. In addition, the Company shall make a capital contribution to DDC in the amount of $700,000 in no event later than January 31, 2000. The effective date of the agreement is as of the close of business on December 31, 1999; however, the issuance and delivery of the Company's capital stock is subject to the Company's articles of incorporation being amended to increase the number of authorized shares of common stock. On January 14, 2000, the Company consummated the acquisition of certain assets owned by Rose Lancaster d/b/a Rose Lancaster Tours, a travel agency based in Edgewater, Florida. The Company paid Rose Lancaster a total of $147,855.07 in cash and delivered a warrant to purchase 700,000 shares of common stock having a total agreed value of $100,000. The warrant is exercisable at any time on or before January 14, 2002, without further payment on the part of the warrant holder. The exercise of the warrant is subject to the Company's articles of incorporation being amended to increase the number of authorized shares of common stock. In April of 1999, the Company entered into an agreement to acquire all of the capital stock of Azumano Travel, Inc. ("Azumano"), a travel agency based in Portland, Oregon. The transactions contemplated in this agreement have not been consummated and the Company is renegotiating the terms of this agreement. As of the date of this report, the parties have agreed, subject to execution of a definitive amendment to the agreement, under which the Company will deliver to the selling shareholder a promissory note in the principal amount of $3,000,000 (secured by a pledge of Azumano capital stock acquired by the Company), payable in two installments of $1,000,000 due and payable 30 days following execution of the note and the balance due and payable 90 days following execution of the note. Interest will accrue on the outstanding balance of the note at a rate of 9% per annum. In addition, the Company will issue and deliver to the selling shareholder 33,500,000 shares of the Company's capital stock, subject to the Company's articles of incorporation being amended to increase the number of authorized shares of common stock. The Company is negotiating the acquisition of all the capital stock of Corporate Travel Consultants II, Inc. ("CTC"), a travel agency based in Miami, Florida. As of the date of this report, the parties have agreed, subject to execution of a definitive agreement, under which the Company will deliver to the selling shareholders (i) cash in the amount of $1,250,000 ($250,000 of which has been heretofore advanced), (ii) a promissory note in the amount of $4,000,000 payable in three installments of $1,000,000 thirty days following delivery of the note, $2,000,000 sixty days following delivery of the note and $1,000,000, (iii) a convertible promissory note in the principal amount of $3,000,000 (convertible into 12,500,000 shares of the Company's common stock), and (iv) a five-year warrant to purchase 3,000,000 shares of the Company's common stock at $0.25 per share. The promissory note and the convertible note will be secured by a pledge of CAC's capital stock acquired by the Company. The outstanding principal balance of the promissory note will accrue interest at a rate of 6% per annum. No interest will accrue on the outstanding principal balance of the convertible note. The exercise of the warrant and the conversion of the convertible promissory note are subject to the Company's articles of incorporation being amended to increase the number of authorized shares of common stock. ITEM 2. PROPERTIES As of December 31, 1999, the Company operated at three offices, all of which are leased. The Company owns no real property at this time. ITEM 3. LEGAL PROCEEDINGS On October 16, 1998, the Company was named as a co-defendant in an action brought in the District Court of Douglas County, Nebraska, captioned Copper Canyan [sic] Ventures, L.L.C., Plaintiff, vs. Michael S. Luther, Aden Enterprises, Inc. and Capstone Group, Inc., Defendants, Doc. 976 No. 824. The action seeks to recover on a promissory note. On September 25, 1999, the parties entered into a settlement agreement under which certain payments will be made in exchange for the release and dismissal of all claims against the Company and the other defendants. As of the date of this report, such payments have not been made and the action remains pending. On August 6, 1999, the Company entered into a settlement agreement with Rene Fidler with respect to the aborted acquisition of Cheapfares.to. Under the terms of this agreement, the Company paid Ms. Fidler the sum of $100,000 and Ms. Fidler returned 5,000,000 shares of the Company's common stock delivered to her (which were returned to treasury) and released the Company from all liability related to the use of the words "Cheapfares.com" and derivations thereof. A stipulated order of dismissal with prejudice was filed in the United States District Court for the District of Colorado on September 21, 1999. On October 13, 1999, the Internal Revenue Service filed a federal tax lien upon the assets of the Company. This tax lien relates to the unpaid balance of a tax assessment in the amount of $311,109.86 in connection with unpaid employment taxes for employees of Smart Pay Processing, Inc. ("Smart Pay"). The lien was placed upon the Company's assets by reason of Mr. Luther and the Company being "responsible parties" for Smart Pay. As of the date of this report, no efforts have been made to pay this assessment (or any penalties or accrued interest) or to have it discharged. As of the date of this annual report, the Company has certain judgments outstanding which are described at Note 6 to "FINANCIAL STATEMENTS." Except as set forth in this Item 3, the Company is not currently subject to any material legal proceedings. The Company may from time to time become a party to various legal proceedings arising in the ordinary course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a shareholder vote from April 30, 1998 through April 30, 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Market Information. Until July 2, 1999, the Company's Common Stock was quoted on the OTC Bulletin Board (trading symbol "ADEN") operated by the National Association of Securities Dealers. As of that date, the Company's Common Stock was ineligible for further quotation on the OTC Bulletin Board because the Company was not current in its reports with the United States Securities and Exchange Commission (the "SEC"). Since July 2, 1999, the Company's Common Stock has been quoted on the so-called "pink sheets" maintained by the National Quotation Bureau. The following table sets forth the high and low bid information for each quarter during the two-year period beginning May 1, 1997, as reported by the OTC Bulletin Board:
High Low Year ended April 30, 1998 First Quarter ....................... $ 0.08 $ 0.01 Second Quarter ...................... 0.08 0.01 Third Quarter ....................... 0.08 0.01 Fourth Quarter ...................... 0.65 0.01 Year ended April 30, 1999 First Quarter ....................... 0.437 0.031 Second Quarter ...................... 0.125 0.031 Third Quarter ....................... 0.25 0.031 Fourth Quarter ...................... 0.75 0.062
Such over-the-counter market quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not necessarily represent actual transactions. The Company's management does not believe that the quotations on the OTC Bulletin Board or the "pink sheets," as the case may be, accurately reflect the value of the Company's Common Stock for two reasons. First, the Common Stock is thinly traded amongst a relatively small number of holders. Second, because the Company has been delinquent in filing its reports with the SEC, there has been inadequate information available to the public respecting the business and financial condition of the Company. With respect to private placements of its Common Stock subject to the restrictions of Rule 144 under the Securities Act of 1933, the Company's management has applied a discount of 84% for sales effected prior to January 1, 1999, and of 74% for sales effected on or after January 1, 1999. Such discount is applied as of the date of issuance based upon the average closing price of each share of Common Stock for the immediately preceding sixty (60) days. (b) Holders. As of December 31, 1999, the Company's Common Stock was held by approximately 223 holders. (c) Dividends. The Company has never paid cash dividends on its Common Stock, and anticipates that it will continue to retain its earnings, if any, to finance the growth of its business. (d) Recent Sales of Unregistered Securities. (i) Sales of Common Stock During the fiscal year ended April 30, 1999, the Company issued shares of its Common Stock which were not registered under the Securities Act of 1933, as amended (the "Securities Act"), which are described as follows: On May 21, 1998, the Company issued 1,142,857 and 1,714,286 shares of its Common Stock to Mr. Rokusek and Mrs. Sundberg, respectively, for services previously rendered. The Company's management valued such shares at $34,286 and $51,429, respectively. On May 21, 1998, the Company issued in the aggregate 10,000,000 shares of its Common Stock to Mr. Luther and Capstone Group, Inc. in exchange for their holdings in Liberty Court Travel, Inc. All of Capstone's shares of Common Stock were then transferred to Mr. Luther in consideration of his personally assuming certain indebtedness of Capstone. The Company's management valued such shares at $300,000. On June 10, 1998, the Company issued 25,000,000 shares of its Common Stock to Mr. Luther. These shares were issued to Mr. Luther in consideration of Mr. Luther guaranteeing the Company's indebtedness in the amount of $4,000,000 and for the assumption and indemnification of the Company's liabilities stemming from certain litigation claims. The Company's management valued such shares at $750,000. On October 2, 1998, the Company issued 2,000,000 shares of its Common Stock to Mr. Luther. These shares were issued to Mr. Luther in consideration of his services to the Company. The Company's management valued such shares at $40,000. On October 14, 1998, the Company issued 10,000,000 shares of its Common Stock to Sellectsoft LLC as consideration for entering into an exclusive marketing agreement. This transaction was rescinded on March 1, 1999, and all of these shares were returned. On November 20, 1998, the Company issued 1,407,600 shares of its Common Stock to Tim Banghart. These shares were issued to Mr. Banghart in consideration of his forbearance of collection of a loan made to the Company having an outstanding balance as of such date of approximately $43,225. The Company's management valued such shares at $21,058. On November 20, 1998, the Company issued 13,366,188 shares of its Common Stock to Daniel Koch. These shares were issued to Mr. Koch in consideration of his arranging a loan to the Company in the principal amount of $100,000, repaying such loan on behalf of the Company and paying additional expenses in the amount of $40,000 on behalf of Liberty Court. The Company's management valued such shares at $199,958. On November 20, 1998, the Company issued 2,580,000 shares of its Common Stock to William Person. These shares were issued to Mr. Person in consideration of his forbearance of collection of a loan made to the Company having an outstanding balance as of such date of $100,000. The Company's management valued such shares at $32,198. On March 3, 1999, the Company issued 5,000,000 shares of its Common Stock to Rene Fidler in exchange for all of Ms. Fidler's interest in Cheapfares.to. This transaction was subsequently rescinded and all of these shares were returned. See Item 3 of this annual report under the caption "Legal Proceedings." On April 9, 1999, the Company issued 2,000,000 shares of its Common Stock to Joseph Haller. These shares were issued to Mr. Haller in consideration of his forbearance of collection of a loan made to the Company having an outstanding balance as of such date of approximately $322,000. The Company's management valued such shares at $40,000. (ii) Issuance of Warrants During the fiscal year ended April 30, 1999, the Company issued, or became committed to issue, warrants to purchase shares of its Common Stock to various creditors and vendors of the Company as described in the table below. Except as otherwise indicated, the fulfillment of the Company's obligations is subject to the shareholders of the Company approving an amendment to the Company's articles of incorporation increasing the number of authorized shares.
Date of Average No. of Shares Issuance or Expiration Exercise (1) Commitment Date Price Valuation (2) 10,000 6/30/98 6/29/00 $ 0.010 $ 5 230,000 11/15/98 11/14/00 $ 0.173 $ 467 86,469,527 11/15/98 11/14/00 $ 0.001 $ 175,066 200,000 1/10/99 1/31/01 $ 0.050 $ 2,640 1,500,000 2/1/99 1/31/01 $ 0.084 $ 9,897
(1) Of the foregoing warrants or commitments to issue warrants, Mr. Koch and Mr. Ulegard received warrants to purchase 43,000,000 and 20,000,000 shares of Common Stock, respectively, at $0.125 per share. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" (2) See subparagraph (iii) of this paragraph (d) below. (iii)Claimed Exemption and Method of Valuation The issuance of securities described above in this paragraph (d) of Item 5 were deemed exempt from registration under the Securities Act in reliance on Section 4 (2) of the Securities Act as transactions by an issuer not involving any public offering. Such securities are subject to the restrictions of Rule 144 under the Securities Act. All of such securities were valued in accordance with the method described at paragraph (a) of this Item 5. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read together with the Company's financial statements and notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this annual report. The statement of operations data for the years ended April 30, 1998 and 1999 and the balance sheet data as of April 30, 1998 and 1999 are derived from our audited financial statements included elsewhere in this annual which have been audited by Schvaneveldt and Company, independent auditors, whose report thereon is also included elsewhere in this annual report. The statement of operations data for the years ended April 30, 1995, 1996 and 1997 and the balance sheet data as of April 30, 1995, 1996 and 1997 are derived from financial statements not included herein. The 1996 and 1997 financial statements are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results for these periods.
Years ended April 30, 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (in thousands, except per share data) Operating Revenues ........... $ -- $ 152.1 $ 0.3 $ -- $ 98.1 Investment Losses ............ -- (3,246.1) (544.5) (137.0) (25.0) Forebearance and Settlement .. -- (228. 7) (970.5) (1,404.9) (431.0) Costs Warrants Issued Expense ...... -- (403.5) (8.3) -- (188.1) Payroll Taxes Assumed ........ -- (317.2) (140.8) (37.7) -- Other Operating Expenses ..... (98.2) (1,485.3) (1,098.1) (1,508.2) (3,259.5) Net Loss ..................... (98.2) (5,528.7) (2,736.9) (3,087.8) (3,805.5) Total Assets ................. 1.4 243.1 0.3 -- 378.9 Notes Payable ................ -- 2,044.8 2,640.1 3,281.5 3,381.5 Judgments Payable ............ -- 972.4 981.4 1,906.9 1,906.9 Stockholders' Equity (Deficit) (88.6) (3,811.4) (6,165.8) (8,773.5) (10,719.3) Dividends Declared Per Common Share ........................ -- -- -- -- -- Net Loss Per Share ........... ($ 0.19) ($ 0.16) ($ 0.05) Shares Used in Computing Net Loss Per Share ............... 14,646,602 19,039,069 73,625,767
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section has been derived from the Company's financial statements and should be read together with the financial statements and related notes included elsewhere in this annual report. The discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including those set forth under Item 1(h) captioned "Forward-Looking and Cautionary Statements" and elsewhere in this annual report. (a) Overview During the fiscal year ended April 30, 1999, the Company did not engage in any significant operations. The Company's management has decided to engage in the electronic commerce area, primarily as it relates to the sale or facilitation of the sale of travel services. For accounting purposes, the Company is a development stage enterprise. As such the Company's planned principal operations have not commenced or, having commenced, have not generated significant revenue. Therefore, the reported financial information is not necessarily indicative of the Company's future operating results or of its future financial condition. The Company's independent auditors have expressed substantial doubts as to whether the Company is a going concern (i.e., that the Company will remain in operation long enough to carry out all of its current plans). See Note 15 to "FINANCIAL STATEMENTS." The Company believes that over the short-term a substantial majority of its revenues will be derived from airline ticket transactions. Airline ticket commissions are determined by individual airlines and billed and collected through the Airline Reporting Corporation, an industry-administered clearinghouse. As is customary in the travel industry, travel suppliers are not obligated to pay any specified commission rate for bookings made through our websites. The Company anticipates that commission revenues will be recognized when the reservation is made, net of allowances for cancellations. Cost of revenues will consist primarily of fees paid to the Company's fulfillment vendors for the costs associated with issuing airline tickets and related customer services, fees paid to third party vendors for use of their computer reservation and information services systems, allocated and direct costs for the operation of the Company's data operations and costs related to insertion of banner and other advertisements. The Company's direct product development expenses consist primarily of compensation for personnel. Its direct sales and marketing expenses consist primarily of personnel-related costs as well as advertising, distribution and public relations expenses. The Company has incurred and expects to continue to incur substantial losses and negative cash flows on both an annual and interim basis. In particular, the Company intends to increase its focus and spending on brand development, sales and marketing, product development, website content and strategic relationships. Additionally, the Company's revenues are impacted by the seasonality of the travel industry, particularly leisure travel. These factors could adversely affect the Company's future financial condition and operating results. The Company's fiscal years end on April 30 of each year. References to a fiscal year, such as fiscal 1999, are to the twelve months ended April 30 of that year. (b) Results of Operations The following table sets forth the Company's results of operations for fiscal 1997, 1998 and 1999.
Years ended April 30, 1997 1998 1999 ---- ---- ---- (Amounts in $000s) Net Revenues ..................................... $ 0.3 $ -- $ 98.1 Cost of Revenues ................................. -- -- -- --------- --------- -------- Gross Profit ..................................... 0.3 -- 98.1 Operating Expenses: Investment Losses ....................... 544.5 137.0 25.0 Forebearance and Settlement Costs ................................... 970.5 1,404.9 431.0 Warrants Issued Expense ................. 8.3 -- 188.1 Payroll Taxes Assumed ................... 140.8 37.7 -- Other Operating Expenses ................ 1,098.1 1,508.2 3,259.5 ------- ------- ------- Total Operating Expenses 2,762.2 3,087.8 3,903.6 ------- ------- ------- Loss from Operations ............................. (2,761.9) (3,087.8) (3,805.5) Other Income ..................................... 25 -- -- Provision for Income Taxes ....................... -- -- -- --------- --------- -------- Net Loss ......................................... $ (2,736.9) $ (3,087.8) $ (3,805.5) ---------- ---------- ----------
Net Revenues. Our net revenues decreased 100% from $300 in fiscal 1997 to $0 in fiscal 1998 but increased to $98,100 in fiscal 1999. Because the Company was conducting no material operations during these time periods, the decrease in revenues from 1997 to 1998 were attributable to decreases in other income. The increase in revenues from 1998 to 1999 were due to increases in commissions and related revenues. These increases were primarily attributable to increases in the number of airline-related transactions. Cost of Revenues. The cost of revenues (which was $0) remained unchanged during the periods indicated. Operating Expenses. Operating expenses increased 11.8% from $2,762,200 in 1997 to $3,087,800 in 1998 and increased a further 23.2% in 1999 to $3,805,500. From 1998 to 1999, this increase was primarily attributable to increased warrants issued expenses (from $0 to $188,073), consultant fees (from $855,000 to $1,910,296),wages (from $0 to $181,481), administrative and general expenses (from $8,505 to $308,272), professional fees (from $6,318 to $126,387), payroll taxes and penalties (from $37,677 to $50,462)and interest (from $638,370 to $665,525). From 1997 to 1998, this increase was primarily attributable to increased consultant fees (from $96,088 to $855,000) and settlement costs (from $525,279 to $1,194,052). Except for consultant fees, professional fees, wages, and administrative and general expenses, management does not believe that the increases in the foregoing categories represent a known trend as to future operating expenses. Income Taxes. The Company files consolidated returns for federal income tax purposes with its subsidiaries. In certain states it may file unitary or combined tax returns with its subsidiaries. The Company will realize certain tax benefits stemming from its net operating losses to date. (c) Liquidity and Capital Resources Historically, the Company financed its activities through private placements of its securities or borrowing from individuals or private organizations. The Company had negative working capital and had an accumulated deficit of $10,719,300 at April 30, 1999. This includes $3,381,520 for notes payable, $1,906,939 for outstanding judgments and $628,409 for collected, but unpaid, employment taxes. See "LEGAL PROCEEDINGS" and Notes 5 and 6 to "FINANCIAL STATEMENTS." Because the Company has not realized significant revenues since April 30,1999, the Company's independent auditors have expressed substantial doubts as to whether the Company is a going concern. See Note 15 to "FINANCIAL STATEMENTS." The Company anticipates that its liquidity needs over the next twelve months will be met with proceeds generated from private offerings of its securities or those of its subsidiaries. However, the Company's ability to issue securities to meet such liquidity needs from the sale of its securities is subject to the shareholders of the Company approving a proposed amendment to its articles of incorporation increasing the number of authorized shares of capital stock. If such approval is not given, the Company will be required to obtain funds by alternative methods. There can be no assurances that such alternative methods will be available under commercially reasonable terms or adequate to meet the Company's needs. The Company does not have a credit facility and is not currently negotiating with any party to obtain a credit facility. The Company has had no net cash available for operations. At April 30, 1999, the Company had no material commitments for capital expenditures, but the Company expects a substantial increase in capital expenditures for fiscal 2000. The Company also expects a substantial increase in merger and acquisition related costs for fiscal 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditor's Report Board of Directors Aden Enterprises, Inc. (A Development Stage Company) I have audited the accompanying balance sheets of Aden Enterprises, Inc., as of April 30, 1999 and 1998, and the related statements of operations, stockholders' equity, and cash flows for the fiscal years ended April 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Aden Enterprises, Inc., as of April 30, 1999 and 1998, and the results of its operations and its cash flows for the fiscal years ended April 30, 1999 and 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note #15 to the financial statements, the Company has an accumulated deficit and a negative net worth at April 30, 1999 and 1998. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note #15. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Salt Lake City, Utah October 13, 1999 Aden Enterprises, Inc. (A Development Stage Company) Balance Sheets April 30, 1999 and 1998
April April 30, 1999 30, 1998 Assets Current Assets Cash in Bank $ -0- $ -0- Accounts Receivable Officer . 5,756 -0- Other Receivables ........... 296,700 -0- ------- ------- Total Current Assets ........ 302,456 -0- Property & Equipment Furniture & Fixtures - Cost . 34,395 -0- Less Accumulated Depreciation (13,181) -0- ------- ------- Net Property & Equipment .... 21,214 -0- Other Assets Goodwill - Net .............. 55,217 -0- ------- ------- Total Assets ................ $ 378,887 $ -0- ========= =======
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Balance Sheets -Continued- April 30, 1999 and 1998
April April 30, 1999 30, 1998 Liabilities & Stockholders' Equity Current Liabilities Cash in Bank Overdraft $ 17,630 $ -0- Accounts Payable - Trade ....................... 469,652 360,092 Accounts Payable - Employees ................... 137,834 -0- Payroll Taxes Payable .......................... 628,409 495,621 Accrued Payables - Services .................... 106,530 -0- State Franchise Taxes Payable .................. 5,729 5,729 Accrued Interest Payable ....................... 2,589,254 1,842,730 Accrued Forbearance Fees Payable ............... 1,264,662 773,862 Notes Payable .................................. 3,453,574 3,353,574 Judgments Payable .............................. 1,906,939 1,906,939 Unissued Common Stock .......................... 518,000 35,000 ------- ------ Total Current Liabilities ...................... 11,098,213 8,773,547 Stockholders' Equity Common Stock, 100,000,000 Shares at No Par Value Authorized; 97,000,000 Shares and 32,789,069 Shares Issued at No Par Value, Respectively ........... 4,055,293 2,383,564 Paid In Capital ................................ 723,002 534,929 Deficit Accumulated in the Development Stage (15,497,621) (11,692,040) ----------- ----------- Total Stockholders' Equity ..................... (10,719,326) (8,773,547) ----------- ---------- Total Liabilities & Stockholders' Equity ....... $ 378,887 $ -0- =========== ==========
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Operations Accumulated for the Period May 22, 1986 (Inception) to April 30, 1999 and the Years Ended April 30, 1999, 1998 and 1997
Accumulated 1999 1998 1997 Revenues Travel Commissions ........ $ 98,140 $ 98,140 $ -0- $ -0- Other Income .............. 82,492 -0- -0- 300 ------ - - --- Total Revenues ............ 180,632 98,140 -0- 300 Operating Expenses Amortization & Depreciation 39,679 17,125 -0- -0- Warrants Issued Expenses .. 723,002 188,073 -0- 8,339 Consultant Fees ........... 3,488,219 1,910,296 855,000 96,088 Interest .................. 2,882,394 665,525 638,370 857,670 Wages ..................... 191,081 181,481 -0- -0- Professional Fees ......... 636,788 126,387 6,318 54,289 Payroll Taxes & Penalties . 550,460 50,462 37,677 140,783 Forbearance ............... 740,066 84,000 210,841 445,225 Administrative & General Expenses .......... 696,181 308,271 8,505 90,008 Settlement Costs .......... 2,295,071 347,000 1,194,052 525,279 Investment Losses ......... 3,975,563 25,100 137,000 544,544 --------- ------ ------- ------- Total Operating Expenses .. 16,218,504 3,903,720 3,087,763 2,762,225 Loss from Operations ...... ( 16,037,872) ( 3,805,580)( 3,087,763) ( 2,761,925) Other Income Interest Income ........... 152,251 -0- -0- 25,000 Litigation Settlement ..... 388,000 -0- -0- -0- ------- - - - Total Other Income ........ 540,251 -0- -0- 25,000 ------- - - ------ Net Loss Before Taxes ..... ( 15,497,621) ( 3,805,580)( 3,087,763) ( 2,736,925) Provisions for Taxes ...... -0- -0- -0- -0- - - - - Net Loss After Taxes ...... ($ 15,497,621) ($ 3,805,580)($ 3,087,763) ( 2,736,925) ============= ============== =============== ============== Loss Per Share ............ ($ 0.05)($ 0.16) ($ 0.19) Weighted Average Shares Outstanding ........ 73,625,767 19,039,069 14,646,602
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Stockholders' Equity For the Period May 22, 1986 (Inception) to April 30, 1999
Common Stock Paid In Accumulated Shares Amount Capital Deficit --------------------------------------------- Beginning Balance, May 22, 1986 .............. -0- $ -0- $ -0- $ -0- Common Stock Issued for Cash May 22, 1986 ......... 100,000 12,500 Cash Contributed by Public Investors .......... 14,322 Net Loss for Year Ended April 30, 1987 ............ ( 532) --------------------------------------------- Balance, April 30, 1987 ... 100,000 26,822 -0- ( 532) Net Loss for Year Ended April 30, 1988 ............ ( 20,472) --------------------------------------------- Balance, April 30, 1988 ... 100,000 26,822 -0- ( 21,004) Cash Contributed by Officer -0- 10,691 Common Stock Issued for Cash February 28, 1989 .... 240,600 71,428 Net Loss for Year Ended April 30, 1989 ............ ( 89,362) --------------------------------------------- Balance, April 30, 1989 ... 340,600 108,941 -0- ( 110,366) Net Income for Year Ended April 30, 1990 ...... 194,573 --------------------------------------------- Balance, April 30, 1990 ... 340,600 108,941 -0- 84,207 Net Loss for Year Ended April 30, 1991 ............ ( 85,269) --------------------------------------------- Balance, April 30, 1991 ... 340,600 108,941 -0- ( 1,062)
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Stockholders' Equity -Continued- For the Period May 22, 1986 (Date of Inception) through April 30, 1999
Common Stock Paid In Accumulated Shares Amount Capital Deficit --------------------------------------------- Dividend of No Par Shares 340,600 Net Loss for Year Ended April 30, 1992 ........... ( 57,653) --------------------------------------------- Balance, April 30, 1992 .. 681,200 108,941 -0- (58,715) Reverse Split of Shares Outstanding One for Two .. (340,600) Net Loss for Year Ended April 30, 1993 ........... ( 37,074) --------------------------------------------- Balance, April 30, 1993 .. 340,600 108,941 -0- ( 95,789) Net Loss for Year Ended April 30, 1994 ........... ( 21,520) --------------------------------------------- Balance, April 30, 1994 .. 340,600 108,941 -0- (117,309) Capital Contributed by Stockholder .............. 17,917 Capital Contributed by Default of Public Investor 128 Warrants Issued .......... 123,095 Net Loss for Year Ended April 30, 1995 ........... ( 221,340) --------------------------------------------- Balance, April 30, 1995 .. 340,600 126,986 123,095 ( 338,649) Shares Issued for Cash at $0.333 Per Share ......... 600,000 200,000
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Stockholders' Equity -Continued- For the Period May 22, 1986 (Date of Inception) through April 30, 1999
Common Stock Paid In Accumulated Shares Amount Capital Deficit --------------------------------------------- Shares Issued for Note Receivable $0.291 Per Share 1,082,143 315,000 Shares Issued for Cash at $0.486 Per Share .......... 300,000 146,000 Shares Issued for Cash at $0.50 Per Share ........ 1,100,000 550,000 Shares Issued for Services at $0.35 Per Share ........ 100,000 35,000 Shares Issued for Services at $0.162 Per Share ....... 460,845 75,000 Shares Issued for Debt Reduction ................. 197,505 32,140 Shares Issued for Cash $0.001 Per Share .......... 3,900,889 39,008 Shares Returned to Company for Contribution at $0.01 Per Share ................. ( 90,000) ( 900) Shares Issued for Service at $0.01 Per Share ........ 1,110,000 11,100 Warrants Issued ........... 403,495 Net Loss for Year Ended April 30, 1996 ............ ( 5,528,702) --------------------------------------------- Balance, April 30, 1996 .. 9,101,982 1,529,334 526,590 ( 5,867,352) Shares Issued for Cash at $0.01 Per Share ........... 658,333 6,583
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Stockholders' Equity -Continued- For the Period May 22, 1986 (Date of Inception) through April 30, 1999
Common Stock Paid In Accumulated Shares Amount Capital Deficit -------------------------------------------------- Shares Issued for Services at $0.01 Per Share ....... 116,667 1,167 Shares Issued for Cash at $0.05 Per Share .......... 5,000,000 250,000 Shares Issued for Forbearance at $0.04 Per Share ................ 290,000 11,600 Shares Issued for Forbearance at $0.04 Per Share ................ 2,622,087 104,883 Cost of Warrants Issued .. 8,339 Net Loss for Year Ended April 30, 1997 ........... (2,736,925) -------------------------------------------------- Balance, April 30, 1997 .. 17,789,069 1,903,567 534,929 (8,604,277) Shares Issued for Services at $0.32 Per Share ....... 15,000,000 480,000 Net Loss for Year Ended April 30, 1998 ........... ( 3,087,763) -------------------------------------------------- Balance, April 30, 1998 .. 32,789,069 2,383,567 534,929 (11,692,040) Shares Issued to Acquire Liberty Court Travel ..... 10,000,000 300,000 Shares Issued for Services at $.03000 Per Share ..... 27,857,143 1,135,715 Shares Issued for Services at $0.01248 Per Share .... 2,580,000 32,198 Shares Issued for Services at $0.02 Per Share ....... 4,000,000 80,000
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Stockholders' Equity -Continued- For the Period May 22, 1986 (Date of Inception) through April 30, 1999
Common Stock Paid In Accumulated Shares Amount Capital Deficit -------------------------------------------------- Shares Issued for Services at $0.014960 Per Share 14,773,788 221,016 Shares Issued for Stock at $0.04056 Per Share 5,000,000 202,800 Cost of Warrants Issued 188,073 Net Loss for Year Ended April 30, 1999 ( 3,805,580) -------------------------------------------------- Balance, April 30, 1999 97,000,000 $4,055,296 $723,002 ($15,497,621) =====================================================
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Statements of Cash Flows Accumulated for the Period Amy 22, 1986 (Inception) to April 30, 1999 and for the Years Ended April 30, 1999, 1998 and 1997
Accumulated 1999 1998 1997 ----------- ---- ---- ---- Cash Flows from Operating Activities Net Loss ............................................ ($ 15,497,621) ($3,805,581) ($ 3,087,763) ($2,736,925) Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities; Amortization & Depreciation ......................... 39,679 17,125 -0- -0- Non Cash Expenses ................................... 2,755,708 1,789,459 480,000 117,650 Warrants Issued ..................................... 723,002 188,073 -0- 8,339 Rounding ............................................ -0- -0- -0- ( 3) Changes in Operating Assets & Liabilities; (Increase) Decrease in Accounts Receivable ( 296,700) (296,700) -0- 243,085 Increase (Decrease) in Accounts Payable Trade ....... 469,652 109,560 8,814 200,151 Increase (Decrease) in Accounts Payable Employees ... 137,834 137,834 -0- -0- Increase (Decrease) in Payroll Taxes Payable ........ 628,409 132,788 37,677 140,783 Increase (Decrease) in Franchise Taxes Payable ...... 5,729 -0- 5,729 -0- Increase (Decrease) in Accrued Interest ............. 2,589,254 746,524 543,269 805,528 Increase (Decrease) in Accrued Forbearance .......... 1,264,662 490,800 445,120 328,742 Increase (Decrease) in Unissued Common Stock ........ 518,000 438,000 -0- 35,000 Increase (Decrease) in Judgements Payable ........... 1,906,939 -0- 925,495 981,444 --------- -------- ------- ------- Net Cash (Used) Provided in Operating Activities ... ( 4,755,383) ( 52,118) ( 641,659) 123,794 Cash Flows from Investing Activities Organization Costs .................................. ( 160) -0- -0- -0- Purchase of Equipment ............................... ( 34,235) ( 20,318) -0- -0- --------- -------- ------- ------- Net Cash (Used) Provided in Investing Activities .... ( 34,395) ( 20,318) -0- -0- Cash Flows from Financing Activities Increase in Cash in Bank Overdraft .................. 17,630 17,630 -0- -0- Sale of Common Stock ................................ 1,318,574 -0- -0- 256,583 Increase (Decrease) in Notes Payable ................ 3,453,574 54,806 641,379 (380,097) --------- -------- ------- ------- Net Cash Provided (Used) in Financing Activities .... 4,789,778 72,436 641,379 ( 123,514) --------- -------- ------- ------- Increase (Decrease) Cash & Cash Equivalents ......... -0- -0- ( 280) 280 Cash & Cash Equivalents Beginning of Period ......... -0- -0- 280 -0- --------- -------- ------- ------- Cash & Cash Equivalents End of Period $ ............. -0- $ -0- $ -0- $ 280 ========= ============ ============= ============ Disclosures for Operating Activities Interest $ .......................................... 2,882,394 $ 665,525 $ 638,370 $ 857,670 Taxes ............................................... -0- -0- -0- -0-
The accompanying notes are an integral part of these financial statements Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements NOTE #1 - Corporate History Organization of Business The Company was organized on May 22, 1986 under the laws of the state of Nevada. During August 1988, the Company merged with Aden Enterprises, Inc., a California Corporation, changing the Company's corporate domicile to the state of California. The Company has not commenced planned principal operations and is considered to be a development stage enterprise. The Company's principal business activity is investing in all forms of investments or lawful business activities. NOTE #2 - Significant Accounting Policies A. The Company uses the accrual method of accounting. B. Revenues and directly related expenses are recognized in the period when the services are performed for the customer. C. The Company considers all short term, highly liquid investments that are readily convertible, within three months, to known amounts as cash equivalents. The Company currently has no cash equivalents. D. Primary Earnings Per Share amounts are based on the weighted average number of shares outstanding at the dates of the financial statements. Fully Diluted Earnings Per Share shall be shown on stock options and other convertible issues that may be exercised within ten years of the financial statement dates. E. Inventories: Inventories are stated at the lower of cost, determined by the FIFO method or market. F. Depreciation: The cost of property and equipment is depreciated over the estimated useful lives of the related assets. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related assets or the estimated lives of the assets. Depreciation is computed on the straight line method for reporting purposes and for tax purposes. G. Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates H. Consolidation Policy; The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned and majority owned subsidiaries. Intercompany transactions and balances have been eliminated in the consolidation. I. New Technical Pronouncements; In February 1997, SFAS No. 129, "Disclosure of Information about Capital Structure" was issued effective for periods ending after December 15, 1997. The Company has adopted the disclosure provisions of SFAS No. 129 effective with the fiscal year ended April 30, 1999. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #2 - Significant Accounting Policies In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued effective for fiscal years beginning after December 31, 1997, with earlier application permitted. The Company has elected to adopt SFAS No. 130 effective with the fiscal year ended April 30, 1999. Adoption of SFAS No. 130 did not have a material impact on the Company's financial statements. In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued for fiscal year beginning after December 31, 1997, with earlier application permitted. The Company has elected to adopt SFAS No. 131, effective with the fiscal years ended April 30, 1999. Adoption of SFAS No. 131 did not have a material impact on the Company's financial statements. J. Forbearance Amounts: The Company calculates forbearance amounts at 10- 20% of the indebtedness. NOTE #3 - Property, Equipment and Depreciation Capitalized amounts are depreciated over the useful life of the assets using the straight line method of depreciation. At December 31, 1999 and 1998, the Company had property and equipment as follows;
Depreciation Accumulated Cost Cost Expenses Depreciation Assets 1999 1998 Life 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------ Computer Equipment . $20,318 $ -0- 3-5 $10,366 $ -0- $10,366 $ -0- Furniture & Fixtures 14,077 -0- 2 2,815 -0- 2,815 -0- -------------------------------------------------------------------------------- Total .............. $34,395 $ -0- $13,181 $ -0- $13,181 $ -0- ================================================================================
NOTE #4 - Consolidation The Company issued 10,000,000 shares of its common stock to its President to acquire Liberty Court Travel. During the year ended April 30, 1999, Liberty Court Travel operated as a wholly owned subsidiary of Aden Enterprises, Inc. Subsequent to its year end, Liberty Court Travel, suspended operations, but plans to renew operations as part of the Company's Internet travel business. All intercompany transactions were eliminated in consolidation. The discounted value of the stock exchanged exceeded the net book value of the assets of Liberty Court Travel by $59,161. This amount has been recorded as goodwill and is being amortized over a period of ten years. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #5 - Notes Payable The Company has notes payable to a commercial bank, and twenty seven individual lenders as follows;
1999 1998 ---- ---- Commercial Bank, Due August 21, 1995, Interest Rate 10.5%. $ 165,732 $ 165,732 Individual #1, Interest Rate 15%, Due August 12, 1996 .... 300,000 300,000 Individual #2, Interest Rate 15%, Due October 31, 1996 ... 395,101 395,101 Individual #3, Interest Rate 15%, Due January 15, 1996 ... 145,000 145,000 Individual #4, Interest Rate 22%, Due April 15, 1997 ..... 345,000 345,000 Individual #5, Interest Rate 11%, Due on Demand .......... 37,500 37,500 Individual #6, Interest Rate 12.%, Due on Demand ......... 81,330 81,330 Individual #7, Interest Rate 12.5%, Due on Demand ........ 82,200 82,200 Individual #8, Interest Rate 12.%, Due on Demand ......... 7,100 7,100 Individual #9, Interest Rate 15%, Due on Demand .......... 5,000 5,000 Individual #10, Interest Rate 15%, Due on Demand ......... 160,000 160,000 Individual #11, Interest Rate 10%, Due on Demand ......... 350,000 350,000 Individual #12, Interest Rate 12.5%, Due on Demand ....... 20,000 20,000 Individual #13, Interest Rate 11%, Due on Demand ......... 10,000 10,000 Individual #14, Interest Rate 11%, Due on Demand ......... 5,000 5,000 Individual #15, Interest Rate 11%, Due on Demand ......... 8,000 8,000 Individual #16, Interest Rate 11%, Due on Demand ......... 5,000 5,000 Individual #17, Interest Rate 11%, Due on Demand ......... 8,000 8,000 Individual #18, Interest Rate 11%, Due on Demand ......... 5,000 5,000 Individual #19, Interest Rate 10%, Due on Demand ......... 100,000 -0- Individual #20, Interest Rate12%, Due on Demand .......... 109,279 109,279 Individual #21 , Due on Demand ........................... 5,000 5,000 Individual #22, Interest Rate 12%, Due on Demand ......... 257,000 257,000 Individual #23, Due on Demand ............................ 150,000 150,000 Individual #24, Interest Rate 7%, Due on Demand .......... 100,000 100,000 Individual #25, Interest Rate 12%, Due on Demand ......... 104,286 104,286 Individual #26, Interest Rate 12%, Due on Demand ......... 420,992 420,992 Individual #27, Interest Rate 15% Due on Demand .......... 72,054 72,054 --- -- ------ ------ Total .................................................... $3,453,574 $3,353,574 ========== ==========
Conversion Applicable to Individual #27 At any time after the issue date hereof and on or before the due date, or such earlier date as the principal amount due hereunder may be paid, the registered owner is entitled to convert all, but not less than all, of the unpaid principal amount of this debenture into fully paid and non-assessable shares of its common stock of Aden Enterprises, Inc., at the applicable conversion price, or at such conversion price as may be adjusted from time to time. The conversion price represents the principal amount of this debenture which may be converted into a share of common stock. The conversion price is equal to 70% of the fair market value of each share of common stock, subject to the following limitations. 1. If the note is converted within 90 days following the issue date, inclusive, the conversion price will be $1.00 per share. 2. If the note is converted at any time after the 90 day period, but on or before the first anniversary of the issue date, the conversion price shall not exceed $1.50 per share. 3. The conversion price shall in no event be less that $0.70 per share. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #6- Litigation On October 16, 1998, the Company was named as a co-defendant in an action brought in the District Court of Douglas County, Nebraska, captioned Copper Canyon Ventures, L.L.C., Plaintiff, vs. Michael S. Luther, Aden Enterprises, Inc. and Capstone Group, Inc., Defendants, Doc. 976 No. 824. The action seeks to recover on a promissory note, effective January 1, 1998, with interest thereon at 12.5% per annum. On September 25, 1999, the parties entered into a settlement agreement under which certain payments will be made in exchange for the release and dismissal of all claims against the Company and the other defendants. As of the date of this report, such payments have not been made and the action remains pending. The Company has been a defendant in legal proceedings at various times in the past and has outstanding balances as follows;
1999 1998 ---- ---- Judgment in the United States District Court of Nebraska, Douglas County, Doc. #97, No. 465, Invest L' Inc., Plaintiff vs. Aden Enterprises, Inc., Et Al., Petition filed September 23, 1997............................. $ 437,924 $ 437,924 Judgment in the United States District Court of Nebraska, Douglas County, Doc. #97, No. 465, Invest L' Inc., Bridge Fund Plaintiff vs. Aden Enterprises, Inc., Et Al., Petition Filed September 23, 1997 ............................ 398,970 398,970 Judgment in the District Court of Nebraska, Douglas County, Doc. #964, No. 98, Fredrick W. Weidinger Plaintiff, vs. Aden Enterprises, Inc., Defendant, Petition Filed August 18, 1997 ............................... 88,600 88,600 Judgment in the District Court of Nebraska, Douglas County, Doc. #959 No. 864, Russell Barger Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed April 2, 1997 ................................................ 119,932 119,932 Judgment in the District Court of Nebraska, Douglas County, Doc. #956, No. 36, Matthew A. Gohd Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed November 27, 1996, Judgment includes Accrued Interest of $41,891 ................................................... 200,000 200,000 Judgment in the District Court of Nebraska, Douglas County, Doc., 958, No. 177, Value Partners LTD., Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed February 12, 1997 ............................................ 482,773 482,773 Judgment in the United States Eighteenth Judicial Circuit, County of Du Page State of Illinois, Doc., 0256, Primary Resources, Inc., Plaintiff vs. Aden Enterprises, Inc., Et. Al., Filed March 8, 1996 ................................. 178,740 178,740 ------- ------- Total ........................................................... $1,906,939 $1,906,939 ========== ==========
NOTE #7 - Payroll Taxes Resulting from a failed acquisition in 1996 the Company has been identified as a responsible party by the Internal Revenue Service for unpaid payroll taxes of $311,020 and Liberty Court Travel has $124,176 in unpaid payroll taxes. Penalties and interest of $193,233 have been accrued on these taxes. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #8 - Unissued Common Stock In 1997, the Company received $35,000 for payment of 100,000 shares of common stock and in 1999 $483,000 was received for payment of approximately 5,800,000 of shares of common stock. The Company has not directed its transfer agent to issue the shares and currently does not have authorized but unissued shares available to issue the purchaser. NOTE #9 - Interest Payable The Company has not paid the accrued interest on the notes payable presented in Note #5. Interest at the debt rate and penalty interest has been accrued and represents $2,589,254 at April 30, 1999 and $1,842,730 at April 30, 1998. These amounts have been personally guaranteed by the Company's President. NOTE #10 - Forbearance Fees Payable The notes payable as disclosed in Note #5, have all been defaulted upon by the Company. The Company has made commitments to the note holders of additional amounts to be repaid for an extension of the payment of accrued interest and principal of the notes. These forbearance fees commitments are $1,264,662 for April 30, 1999 and $773,862 for April 30, 1998. NOTE #11 - Income Taxes The Company has adopted FASB 109 to account for income taxes. The Company currently has no issues that create timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty as to the utilization of net operating loss carryforwards an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. The Company has incurred losses that can be carried forward to offset future earnings if conditions of the Internal revenue Codes are met. These losses are as follows:
Year of Loss Amount Expiration Date ------------------------------------------------ 1991 $ 1,062 2006 1992 57,653 2007 1993 37,074 2008 1994 21,520 2009 1995 221,340 2010 1996 5,528,703 2011 1997 2,736,925 2017 1998 3,087,763 2018 1999 3,805,580 2019
1999 1998 ---- ---- Deferred Tax Assets Balance Beginning of Year $ -0- $ -0- Net Operating Loss Carryforwards 15,537,620 11,732,040 ========== ========== Tax at Current Rate $ 5,282,791 $ 3,988,894 Valuation Allowance ( 5,282,791) (3,988,894) ----------- ----------- Net Deferred tax Assets $ -0- $ -0- ============= =========== Deferred Tax Liability -0- -0-
Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #12 - Stockholders' Equity Common Stock The total authorized stock of the Corporation is 100,000,000 shares of common stock with no par value. All stock when issued shall be deemed fully paid and non-assessable. No cumulative voting on any matter to which stockholders shall be entitled to vote, shall be allowed for any purpose. Shareholders have no pre-emptive rights to acquire unissued shares of stock of the Corporation. Common Shares Issued for Non Cash Investing and Financing Activities The Company issued shares for non cash investing and financing activities as follows; 04-30-96 Issued 1,082,143 Shares for a Note Receivable of $315,000 04-30-97 Issued 116,667 Shares for Services of $1,167 04-30-97 Issued 2,912,087 Shares for Forbearance Expense of $116,483 04-30-98 Issued 15,000,000 Shares Valued at $480,000 to the President of the Company for Personal Guarantee of the Notes Payable, Related Interest Accrued and Forbearance Fee Outstanding 04-30-99 Issued 10,000,000 Shares Valued at $300,000 to the Company's President for 100% of the Outstanding Shares of Liberty Court Travel, Inc 04-30-99 Issued 2,580,000 Shares to a Consultant for Services Valued at $32,198 04-30-99 Issued 4,000,000 Shares to Two Consultants for Services Valued at $80,000 04-30-99 Issued 5,000,000 Shares to a Consultant for Web Page Address Services Valued at $202,800, (subsequent to the year end, the Consultant returned the shares as part of a negotiated settlement of a dispute). The price of the shares issued was computed as follows; The market quote price on the day of the transaction multiplied by a financial risk and liquidity risk discount of 50% prior to January 1, 1999 and 40% after January 1, 1999 and a lack of marketability risk discounts of 34%. The Company used an outside valuation service to obtain the two discounts described above. Warrants The Company has issued warrants to purchase shares of its stock at various prices over a two year period from the date of issue. The warrants have been valued at the difference between the stock price on the date of issue and the present value on a 5% discount for two years multiplied by the valuation study discount of 50% prior to January 1, 1999 and 40% after January 1, 1999 for financial risk and liquidity and 34% for lack of marketability. The resultant cost has been expensed to the operations in the year the warrants were issued and paid in capital in the stockholders' equity section of the balance sheet has been correspondingly increased. Upon issue of the shares the paid in capital will be relieved of the warrant cost and the value of the no par stock will be increased. If the warrants are not exercised they remain as paid in capital and no reduction to warrant expense will be made. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #12 - Stockholders' Equity-Continued- Warrants Issued are as follows;
Warrants Expiration Fiscal Year Ended Issued Date Expense - ---------------------------------------------------------------------- 04-30-96 9,725,334 04-30-98 $ 526,570 04-30-97 2,150,000 04-30-99 8,339 04-30-99 88,179,527 04-30-01 188,073 ---------------------------------------- Total 100,054,861 $ 723,002 ======================================== Subsequent Issued 04-30-2000 142,860,441 $ 1,806,496
NOTE #13 - Segments Accounting Segment disclosure for the Company and its wholly owned subsidiaries are as follows;
Aden Enterprises, Inc. Liberty Court Travel ---------------------- -------------------- Total Current Assets ..... $ 302,456 $ -0- Property & Equipment - Net -0- 21,214 Other Assets ............. 55,217 -0- ----------- ---------- Total Assets ............. $ 357,673 $ 21,214 =========== ========== Current Liabilities $ .... 10,925,931 $183,482 =========== ========== Total Revenues $ ......... -0- $ 98,140 Operating Expenses ....... 3,299,875 603,846 ----------- ---------- Loss from Operations ..... ($ 3,299,875) ($505,706) =========== ==========
NOTE #14 - Lease Obligation At April 30, 1999, the Company had no operating leases. Subsequent to its year end the Company leased three commercial office sites which require lease payments as follows; Year End Amount April 30, 2000 $ 46,952 April 30, 2001 47,003 April 30, 2002 14,645 -------- Total $108,600 ======== Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #15 - Going Concern The accompanying financial statements of Aden Enterprises, Inc., have been prepared on a going concern basis, which contemplates profitable operations and the satisfaction of liabilities in the normal course of business. There are uncertainties that raise substantial doubt about the ability of the Company to continue as a going concern, as shown in the statements of operations. In addition the Company has no assets with which to conduct profitable operations and has an inordinately high amount of current debt. These items raise substantial doubt about the ability of the Company to continue as a going concern. Subsequent to its year end the Company is commencing new operations in the electronics commerce industry where it will sell, or facilitate the sale, of travel services through the Internet utilizing the Company's proprietary technology in a web site. The Company presently is working on an improved version of the web site systems. The Company has accrued ownership of a technology that among other things provides a new way to navigate the Internet. The Company entered into a License Agreement whereby the Company acquired an exclusive right to certain patents, pending patents and proprietary plans and strategies to operate in the travel service industry subject to certain restrictive terms and conditions. The Company has also entered into negotiations to acquire traditional type travel agencies and four providers. In addition to its efforts in the travel industry the Company has formed a Nevada Corporation, as a wholly owned subsidiary, to establish and maintain web sites pertaining to the offer and sale of artwork and related merchandise. The Company's continuation as a going concern is dependent upon its ability to satisfactorily meet its obligations, generate cash flows from operations for current operating costs and to raise capital to fund the planned ventures. As of the date of this report, the Company has received subscription proceeds in the amount of approximately $2,400,000. The Company's President has personally guaranteed the Company's current debt and accumulated interest. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE #16 - Acquisition and Rescission On February 7, 1997, the Company entered into a letter of intent with Advanced Business Sciences, Inc., a Nebraska Corporation to purchase 21,750 shares, a minority interest in the Company. The letter of intent was publically reported on Form 8-K. The Company did not acquire the shares or the minority interest in Advanced Business Sciences, Inc. On July 24, 1997, the Company filed an 8-K announcing the acquisition of a minority position in Focused Energy International, for approximately 10,000,000 shares of common stock. The shares were never issued and no acquisition occurred. On February 17, 1998, the Company issued and 8-K announcing the acquisition or Engineer Medical Concepts, Inc. The Company failed to make the required cash investments and no acquisition occurred. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #16 - Acquisition and Rescission -Continued- On September 4, 1998, the Company issued an 8-K announcing the acquisition of a two year marketing agreement with SelectSoft LLC an Arizona Limited Liability Corporation. The Company issued 10,000,000 shares of its common stock. On February 26, 1999 the Company issued and 8-K announcing the recission of its agreement of SelectSoft, LLC and received its 10,000,000 shares back. On January 13, 1999, the Company announced that it has entered into an agreement with Government Payment Services, Inc., and Synergy Media, Inc., to assume 100% ownership of Government Payment Services, Inc. Subsequently, the Company elected not to proceed with the transaction and no stock was issued. On January 11, 1999, the Company announced that it has expanded the services it will market to consumers on the Internet to include long distance and local telephone service, electricity and gas services. These services will be offered in certain geographic regions through an agreement with Massachusetts based TelEnergy, Inc. At the date of this report, the Company has not actively pursued this agreement, although it is still in effect. On September 24, 1998, the Company announced that it had entered into a letter term setting forth the terms and conditions whereby Luther & Company, or its Designee, would provide Alcohol Sensors International, LTD., with principal offices located in Islandia, New York, prepaid royalties and other consideration set forth in such letter term sheet in exchange for an exclusive worldwide three-year license for the Company's product(s) and three year's warrants. An affiliate of the Company provided funds to ASI on behalf of the Company in the amount of $40,000. These funds are due and payable to the Company, but are deemed to be uncollectible as ASI has entered into Chapter 11 proceedings. On February 16, 1998, the Company announced it had entered into a binding Letter of Intent for a proposed merger with Engineered Medical Concepts, Inc., (EMC) a two year old Florida corporation which has one esthetic care treatment facility located in Palm Beach Gardens, Florida. This agreement was not acted upon and is considered null and void. In conjunction with this agreement, certain parties advanced funds on behalf of the Company to EMC and these funds are due and payable. However, the Company has determined these funds are not collectable and they have been written off. Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #17 - Subsequent Events Subsequent to April 30, 1999, the Company entered into a license agreement with MercExchange LLC (MercExchange) whereby the Company obtained a perpetual, exclusive right to use the MercExchange patent, pending patents and proprietary plans and strategies, (the MercExchange intellectual property), for the travel services industry subject to certain restrictive terms and conditions. In addition to the license agreement, Aden purchased a ten percent (10%) ownership interest in MercExchange, LLC and the Company acquired an option to purchase an additional five percent (5%). In October 1999, the Company entered into a revised agreement with MercExchange whereby it obtained a right to enforce the MercExchange intellectual property in the travel service industry and a right to non-exclusively license the MercExchange intellectual property to other business opportunities that the Company may pursue. Subject to the terms of the revised agreement and the issuance of certain warrants for the Company's stock, the MercExchange acquired a substantial financial and equity interest in the Company. At the present time, the Company does not have the financial resources necessary to perform its rights and obligations under the agreement or to perfect its ownership interest in the MercExchange, LLC. The Company acquired the Internet domain name "Cheapfares.com" on June 24, 1999, from Roy Flanders in exchange for 3,000,000 shares of the Company's common stock . The Company formally agreed to register shares of Mr. Flanders stock, but has not yet done so. At the present time, the Company is employing proprietary technology on the Cheapfares.com site. During this same time period, the Company entered into an agreement to purchase several Internet domain names from Rene Fidler, a resident of Colorado, which included the domain name Cheapfares.to. Terms of this agreement called for an initial payment of $50,000 with a subsequent payment of $250,000 and the issuance of 5,000,000 shares of the Company's common stock and warrants to purchase an additional 5,000,000 shares of common stock. Owing to a dispute which arose between Fidler and the Company, this transaction was not consummated and litigation ensued. The parties reached a settlement whereby Fidler was paid an additional $50,000, the warrants were canceled and the shares of common stock were returned to Aden. The Company has entered into a letter of intent to acquire another traditional travel agency, Corporate Travel Consultants II, Inc., based in Miami, Florida. The letter of intent was accompanied by a payment of $50,000 and the issuance of 1,000,000 shares of the Company's common stock. It is anticipated that this acquisition will be completed by the fiscal year ending April 30, 2000, although there can be no assurance the Company will have the funds to fulfill the acquisition agreement. The Company has formed a Nevada Corporation under the name Leftbid.com, Inc. The Company will own sixty-one percent (61%) of Leftbid's issued and outstanding capital stock. Leftbid will develop, establish and maintain websites pertaining to the offer and sale of artworks and related merchandise. As of the date of this annual report, Leftbid has not conducted any business operations. In April of 1999, the Company entered into an agreement to acquire all of the capital stock of Azumano Travel, Inc., ("Azumano"). The transactions contemplated in this agreement have not been consummated and the Company is renegotiating the terms of this agreement. As of the date of this report, the parties have agreed, subject to execution of a definitive amendment to the agreement under which the Company will deliver to the selling shareholders a promissory note in the principal amount of $3,000,000 (secured by a pledge of Azumano capital stock acquired by the Company), payable in two installments of $1,000,000, due and payable 30 days following execution of the note, and the balance due and payable 90 days following execution of the note. In addition, Aden Enterprises, Inc. (A Development Stage Company) Notes to Financial Statements -Continued- NOTE #17 - Subsequent Events -Continued- the Company will issue and deliver to the selling shareholder 33,500,000 shares of the Company's capital stock, subject to the Company's articles of incorporation being amended to increase the number of authorized shares of common stock. In October of 1999, the Company caused the formation of Navlet.com, Inc., ("Navlet") under the laws of the state of Delaware. Navlet will be engaged in holding and licensing certain intellectual property rights related to electronic commerce. The Company will hold a majority interest in Navlet's voting stock. As of the date of this report, the Company has received subscription proceeds in the amount of approximately $2,400,000. See note #8. The Company anticipates further infusions of capital; however, as of the date of this report, all or substantially all of the Company's authorized capital stock has been issued. While the Company anticipates that, subject to shareholder approval, its articles of incorporation will be amended to increase the number of authorized shares, there can be no assurances that such an amendment will be completed. Furthermore, there can be no assurances that additional infusions of capital will be forthcoming, under commercially reasonable terms. The Company anticipates that its principal shareholder, Mr. Luther, may loan some of his holdings to the Company for the purpose of raising additional funding. In order to issue shares of common stock with respect to certain commitments made to various third parties, the company redeemed 38,438,316 of its common stock from Mr. Luther and 13,366,188 shares of its common stock from Mr. Koch. Note #18 - Related Party Transactions The Company has issued stock to officers, directors and others for various services as follows: Michael S. Luther, an officer and director of the Company - 25,000,000 shares in consideration of his guaranteeing $4,000,000 of the Company's indebtedness and for the assumption and indemnification of the Company's liabilities arising from certain litigation claims. - 2,000,000 shares in consideration of unspecified services to the Company. Judith E. Sundberg, an officer and director of the Company - 1,714,286 shares in consideration of services rendered. Donald E. Rokusek, a director of the Company - 1,142,857 shares in consideration of services rendered. Daniel A. Koch - 13,366,188 shares in consideration of his arranging a $100,000 loan to the Company, repaying such loan and paying $40,000 of additional expenses on behalf of Liberty Court. The Company has paid commissions to Quaestus Ltd for sale of the Company's stock. Anders Ulegard, who is a significant stockholder for the Company, is a principal in Quaestus, Ltd. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the age, current positions with the Company, and term of office as a director and period of service as such, for all of the directors of the Company, as of April 30, 1999:
Year Became a Name Age Director Office and Title - ---- --- -------- ---------------- Michael S. Luther 41 1995 Chairman of the Board of Directors; Chief Executive Officer Judith E. Sundberg 58 1998 Director; Secretary Donald E. Rokusek 62 1998 Director
All of the directors hold their office until the next annual meeting of the shareholders and their respective successors shall qualify. Michael S. Luther has been associated with the Company as its Chief Executive Officer since February 1995. From August, 1993 to November, 1994, Mr. Luther was a registered representative of the investment banking firm of Kirkpatrick, Pettis, Smith & Polian, Inc. of Omaha, Nebraska. Mr. Luther is a graduate of the University of Maryland with a Bachelor of Science degree in accounting and he is a certified public accountant. Mr. Luther is a director of Synergy Media, Inc. Mr. Luther and his brother, Mark Luther, were named as defendants in an action brought in the United States District Court for the District of Nebraska by the United States Secretary of Labor on March 17, 1999, captioned Alexis M. Herman, Secretary of Labor, United States Department of Labor, Plaintiff, v. Michael S. Luther, Mark E. Luther, and SmartPay Processing, Inc. 401(k) Profit Sharing Plan, Defendants, Civil Action No. 8:99-CV-00093. The complaint alleged that the defendants failed to exercise their responsibilities as fiduciaries of the SmartPay Processing, Inc. 401(k) Profit Sharing Plan (the "Plan"). On September 9, 1999, a consent judgment was entered against the defendants which ordered and adjudged that (1) Messrs. Luther, their agents, servants, employees, and attorneys and those persons (having notice of such order) in active concert or participation with them be permanently enjoined and restrained from violating the provisions of Sections 403-406, inclusive, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and (2) Messrs. Luther be permanently enjoined and restrained from (a) exercising any discretionary authority or discretionary control respecting management of any ERISA-covered pension or welfare benefit plan or exercising any authority or control respecting management or disposition of any such plan's assets and (b) having any discretionary authority or discretionary responsibility in the administration of any such plans. Messrs. Luther were further ordered to pay the sum of $23,500 to the independent trustee of the Plan within thirty (30) days of the entry of the judgment for distribution to the Plan's participants and/or beneficiaries. The Company has made this payment on behalf of Mr. Luther. Mr. Luther does not currently exercise any discretionary authority or responsibility respecting any ERISA-covered pension or welfare benefit plan pertaining to the Company. Judith E. Sundberg has been associated with the Company since November 1995. Mrs. Sundberg has no experience in the management of a public company. Mrs. Sundberg is also a director of Synergy Media, Inc. Donald E. Rokusek has been associated with the Company since 1997. Mr. Rokusek has also been associated with (1) Concepts, Inc. from 1980 to date as its vice president, (2) Digital Products Corporation from 1997 to date as its director of contracts administration, and (3) Sewing Concepts from 1985 to 1997 as its operations and financial manager. Mr. Rokusek has no experience in the management of a public company. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth information concerning the compensation of each of the Company's last three completed fiscal years, at April 30, 1999, of the principal executive officer. There were no other persons serving in an executive capacity for the Company during such time period SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------ --------------------- SECURITIES NAME AND SALARY UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR ($) BONUS($) OPTIONS(#) COMPENSATION($) ------------------ ---- ------- ----------- ------------ --------------- Michael S. Luther 1999 0 0 0 0 Chairman of the Board and 1998 0 0 0 0 Chief Executive Officer 1997 0 0 0 0
The Company has no retirement, pension, profit-sharing, insurance, or medical reimbursement plan covering its officers or employees. The Company has not entered into any employment agreements with any of the named executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners. As of December 31, 1999, there were 81,000,000 shares of the Company's common stock outstanding. The following table sets forth information regarding the beneficial ownership of the Company's common shares by shareholders holding or controlling five percent (5%) or more of its outstanding voting securities.
Amount of Beneficial Ownership of Common Stock as Percent of Name and Address of 12/31/199 Total - ---------------- ------------ ----- Michael S. Luther (1) 9,414,353 11.62% 1611 So. 91st Avenue Omaha, Nebraska 68124 Daniel A. Koch (2) 143,169 0.18% 12905 Lafayette Ave Omaha, Nebraska 68154 MercExchange, LLC(3) 0 0.00% 8408 Washington Avenue Alexandria, VA 22309 Anders Ulegard (4) 4,085,278 5.04% c/o Quaestus Ltd. 38 Route de Malagnon CH-1208 Geneva, Switzerland
(b)Security Ownership of Management. The following table sets forth information regarding the beneficial ownership of the Company's common shares by its directors, the Company's Chief Executive Officer and the Company's only other executive officer, and the directors and executive officers as a group.
Amount of Beneficial Ownership of Common Stock as Percent of Name and Address of 12/31/1999 Total - ---------------- ------------- ----- Michael S. Luther (1) 9,414,353 11.62% Chairman and Chief Executive Officer 1611 So. 91st Avenue Omaha, Nebraska 68124 Judith E. Sundberg 1,771,853 2.19% Director c/o 13314 "I" Street Omaha, Nebraska 68137 Donald E. Rokusek 1,142,857 1.41% Director c/o 13314 "I" Street Omaha, Nebraska 68137 Thomas Woolston (3) 0 0.00% Chief Technology Officer 8408 Washington Avenue Alexandria, VA 22309 Directors and Executive Officers 12,329,063 15.22% as a group (4individuals)
(1) In order to issue shares of Common Stock with respect to certain commitments made to various third parties, the Company redeemed 38,438,316 shares of its Common Stock from Mr. Luther. The Company committed to reissue such shares to Mr. Luther subject to the approval of the amendment to Article IV of its Articles of Incorporation. Furthermore, on September 21, 1999, the Company agreed to issue a warrant to Mr. Luther which grants him the right to purchase 50,000,000 shares of Common Stock at an exercise price of $0.15 per share. This warrant expires on September 21, 2001. At the time this warrant was issued, the fair market value of each share of Common Stock was determined by the Company's board of directors to be $0.038. This warrant is also subject to the approval of the amendment to Article IV of the Company's Articles of Incorporation. (2) In order to issue shares of Common Stock with respect to certain commitments made to various third parties, the Company redeemed 13,366,188 shares of its Common Stock from Mr. Koch. The Company committed to reissue such shares to Mr. Koch subject to the approval of the amendment to Article IV of its Articles of Incorporation as set forth herein. On November 15, 1998, the Company agreed to issue a warrant to Mr. Koch which grants him the right to purchase 43,000,000 shares of Common Stock at an exercise price of $0.001 per share. At the time this warrant was issued, the fair market value of each share of Common Stock was determined by the Company's board of directors to be $0.011. This warrant expires on November 14, 2000. On September 21, 1999, the Company agreed to issue a warrant to Mr. Koch which grants him the right to purchase 50,000,000 shares of common stock at an exercise price of $0.15 per share. At the time this warrant was issued, the fair market value of each share of Common Stock was determined by the Company's board of directors to be $0.038. This warrant expires on September 21, 2001. Each of the warrants is also subject to the approval of the amendment to Article IV of the Company's Articles of Incorporation. (3) Subject to the approval of the amendment to Article IV of the Company's Articles of Incorporation as set forth herein, MercExchange, LLC will receive 58,000,000 shares of the Company's Common Stock in consideration for the conveyance of certain intellectual property rights. MercExchange, LLC is a Virginia limited liability company owned and controlled by Thomas Woolston, the Company's Chief Technology Officer. (4) Mr. Ulegard beneficially owns directly 1,128,611 shares of Common Stock. Mr. Ulegard's affiliates, Quaestus Ltd. and Quaestus Life International Ltd. ("Quaestus Life"), beneficially own 1,220,000 and 1,736,667 shares of Common Stock, respectively. On November 15, 1998, the Company agreed to issue to Mr. Ulegard a warrant to purchase in the aggregate 20,000,000 shares of Common Stock at an exercise price of $0.001 per share. At the time this warrant was issued, the fair market value of each share of Common Stock was determined by the Company's board of directors to be $0.011. This warrant expires on November 14, 2000. In addition, the Company agreed on November 1, 1999, to issue to affiliates of Mr. Ulegard, Quaestus S.A. and Quaestus Life, warrants to purchase in the aggregate 3,842,096 shares of Common Stock at $0.20 per share and warrants to purchase in the aggregate 522,000 shares of Common Stock at $0.15 per share. At the time these warrants were issued, the fair market value of each share of Common Stock was determined by the Company's board of directors to be $0.044. These warrants expire on October 31, 2001. Each of these warrants is subject to the approval of the amendment to the Company's Articles of Incorporation increasing the number of authorized shares of capital stock. Under agreements dated as of December 31, 1999, Quaestus Ltd. has also acted as agent for certain investors in the Company who purchased in the aggregate 30,788,383 shares of Common Stock at $0.24087643454 per share, 19,000,000 of which shares will be issued from the Company's currently authorized shares and the balance will be issued subject to approval of the proposed amendment to the Company's Articles of Incorporation increasing the number of authorized shares of capital stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On November 13, 1998, the Company announced it had received funding and services from a corporation controlled by its Chairman, Michael S. Luther, and another shareholder, Daniel Koch. In conjunction with the funding, services and joint venture agreement, Mr. Koch was issued 13,366,188 shares of restricted common stock in Aden Enterprises, Inc. For purposes of the stock issuance to Mr. Koch, the services rendered were estimated at a value of $199,958. Funds advanced by him were approximately $350,000. The joint venture agreement with Emerald Technologies Corporation, dba NETWorks Direct ("Emerald") was for Internet-based advertising programs to recruit independent travel agents. Emerald is not currently conducting any operations. Mr. Luther is a Director of Synergy Media, Inc. During the previous fiscal year, Liberty Court Travel, Inc. and certain affiliates of the Company advanced funds to Synergy Media. Furthermore, Liberty Court Travel, Inc. utilized a subsidiary of Synergy, GPS for the processing of credit card transactions for travel customers. In a series of transactions in the second half of calendar year 1999, the Company redeemed (without any cash consideration therefor)38,438,276 shares of its Common Stock from Mr. Luther and 13,366,188 shares of its Common Stock from Mr. Koch. These shares were then issued to meet the Company's commitments to certain third parties in exchange for cash consideration therefor. The Company is committed to reissue such shares to Messrs. Luther and Koch subject to approval by its shareholders of an amendment of its articles of incorporation increasing the number of authorized shares of capital stock. The parties have characterized the foregoing series of transactions as a loan of securities. In October 1999 Mr. Koch loaned the Company the sum of $1,200,000. This loan is not evidenced by a loan agreement, promissory note or any other instrument. There are no agreed terms as to when this loan is due or whether any interest accrues thereon. There is an oral agreement between Mr. Koch and Mr. Luther, however, under which Mr. Koch will assign the Company's obligations to Mr. Luther if and when Mr. Luther has sufficient personal funds to pay Mr. Koch the amount due. There can be no assurances that this proposed assignment will occur. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules The financial statements as set forth under Item 8 of this report on Form 10-K are incorporated herein by reference. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. (b) Reports on Form 8-K The following reports on Form 8-K were filed during the last quarter of the Company's fiscal year ending April 30, 1999: On February 1, 1999, a report under Form 8-K was filed respecting the agreement between Liberty Court Travel, Inc. and MercExchange LLC for the license to use its patent in the travel services industry. On February 26, 1999, a report under Form 8-K was filed respecting the rescission of the agreement between the Company and SellectSoft L.L.C. as of September 4, 1998. (c) Exhibit Listing EXHIBIT NUMBER DESCRIPTION 3.1 Articles of Incorporation (1) 3.2 Bylaws (1) 10.1 Exchange Agreement between MercExchange LLC and the Company 10.2 Transfer Agreement between MercExchange LLC and MercTravel, Inc. 10.3 Option Agreement between MercExchange LLC and the Company 10.4 Capital Contribution and Sale Agreement between MercExchange LLC and the Company 21.1 Subsidiaries of Company 27.1 Financial Data Schedule (1) Incorporated by reference to Registration Statement under Form S-18 (No. 33-7494-LA). SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OMAHA, STATE OF NEBRASKA, ON JANUARY 24, 2000. ADEN ENTERPRISES, INC. By: /s/ Michael S. Luther Michael S. Luther Chief Executive 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 INDICATED ON JANUARY 24, 2000. SIGNATURE TITLE /s/ Michael S. Luther Chairman of the Board of Directors and - -------------------------------------- Chief Executive Officer Michael S. Luther /s/ Judith E. Sundberg Director; Secretary - -------------------------------------- Judith E. Sundberg /s/ Donald. E. Rokusek Director - -------------------------------------- Donald. E. Rokusek EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 3.1 Articles of Incorporation (1) 3.2 Bylaws (1) 10.1 Exchange Agreement between MercExchange LLC and the Company 10.2 Transfer Agreement between MercExchange LLC and MercTravel, Inc. 10.3 Option Agreement between MercExchange LLC and the Company 10.4 Capital Contribution and Sale Agreement between MercExchange LLC and the Company 21.1 Subsidiaries of Company 27.1 Financial Data Schedule (1) Incorporated by reference to the Company's Registration Statement under Form S-18 (No. 33-7494-LA). EX-10 2 EXHIBIT 10.1 Exhibit 10.1 EXCHANGE AGREEMENT THIS EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of the 24th day of January, 2000, by and between Aden Enterprises, Inc., a California corporation, with its principal place of business at 13314 I Street, Omaha, NE 68137 ("Aden"), and MercExchange, LLC, a Virginia limited liability company, with its principal place of business at 114 N. Alfred Street, Alexandria, VA 22314 ("MercExchange"). WHEREAS, MercTravel, Incorporated, a Delaware corporation ("MercTravel"), is a wholly owned subsidiary of MercExchange; and WHEREAS, Aden desires to acquire all of the issued and outstanding shares of common stock of MercTravel on the terms and conditions hereinafter set forth; and WHEREAS, the parties desire that the transactions contemplated by this Agreement constitute an exchange of property as provided in Section 351 of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth herein, the parties agree as follows: 1. Representations of MercExchange. a. To the knowledge of MercExchange, the authorized capital stock of MercTravel consists of 1,000 shares of common stock, par value $.01 per share, of which 1,000 shares are issued and outstanding. MercExchange is the sole shareholder. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require such corporation to issue, sell or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to such corporation. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of such corporation. b. To the knowledge of MercExchange, MercTravel is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, and is duly qualified to do business as a foreign corporation, if required, and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business require such qualification, except where the failure to be so qualified would not have a material adverse effect on the assets, business, results of operations or conditions (financial or otherwise) of each of such corporation. MercTravel has previously delivered to Aden true, complete and correct copies of its charter and by-laws, as currently in effect. c. To the knowledge of MercExchange, MercTravel has no subsidiaries, or any direct or indirect interest, whether by way of stock ownership or otherwise, in any corporation, firm, association or business enterprise. d. To the knowledge of MercExchange, MercTravel owns and possesses, or is duly licensed in respect of, all licenses, trademarks, trademark rights, applications for trademarks, trade names, trade name rights, processes, and formulas, necessary for the operation of its business, with no known material conflict with the rights of others, and the same are subject to no liens, encumbrances, claims, or charges. e. As of the date of this Agreement, to the knowledge of MercExchange, there are no actions, suits, or proceedings pending or, to the knowledge of MercExchange, threatened, against MercTravel, at law or in equity, or before or by any federal, state, municipal, or other governmental agency or instrumentality, domestic or foreign, except for those actions, suits, or proceedings which would not have a material and adverse effect on the financial condition of MercTravel. MercTravel is not in default with respect of any order or decree of any court or of any such governmental agency or instrumentality. f. Neither the execution and delivery of this Agreement nor the consummation of the transactions herein contemplated, will conflict with or result in the breach of, or accelerate the performance required by, any terms of any agreement to which either of MercTravel or MercExchange are now a party, or constitute a default thereunder, or result in the creation of any lien, charge, or encumbrance upon any of the properties or assets of MercTravel. g. To the knowledge of MercExchange, MercTravel is not a party to any agreement or instrument subject to any charter or other corporate restriction materially and adversely effecting the business, property, or assets, operations or condition (financial or otherwise) of such corporation. h. To the knowledge of MercExchange, MercTravel and MercExchange have timely filed all tax returns and reports required to be filed by each, including without limitation all federal, state, local and foreign tax returns, and all such tax returns and reports are true, complete and correct in all material respects. MercTravel has paid in full or made adequate provision by the establishment of reserves for all such taxes and other charges which have become due or have been asserted in writing by any taxing authority to be due, relating to each such corporation, including, if such corporation was an S Corporation prior to the consummation of the transactions contemplated by this Agreement, taxes and other charges attributable to the S Corporation election by each such corporation, and has withheld with respect to their employees all federal and state income taxes, FICA, FUTA and any other taxes or charges required to be withheld except for those taxes or other charges the failure of which to pay or withhold would not have a material and adverse effect on the financial condition of MercTravel. To the knowledge of MercExchange, there is no tax deficiency proposed or threatened against MercTravel. To the knowledge of MercExchange, MercTravel has made all payments of estimated taxes, if any, when due in amounts sufficient to avoid the imposition of any penalty except where such penalty would not have a material and adverse effect on the financial condition of MercTravel. There are no outstanding agreements, waivers, or arrangements extending the statutory period of limitation applicable to any claim for, or the period for the collection or assessment of, taxes due from or with respect to MercTravel for any taxable period, and no power of attorney granted by or with respect to MercTravel relating to taxes is currently in force. No closing agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended, (or any predecessor provision) or any similar provision of any state, local, or foreign law has been entered into by or with respect to MercTravel that could materially and negatively effect the future liability for taxes of MercTravel. No audit or other proceeding by any governmental authority has formally commenced and no written notification has been given that such an audit or other proceeding is pending or threatened with respect to any taxes due from or with respect to MercTravel that could materially and negatively affect the future liability for taxes of MercTravel. No unpaid assessment of tax has been proposed in writing against MercTravel other than assessment of a type that arise on a recurring basis in the ordinary course of business. i. To the knowledge of MercExchange, MercTravel has no direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, accrued, absolute, contingent or otherwise ("Liabilities"), which would be required by generally accepted accounting principles to be disclosed in their respective financial statements (including, without limitation, in the notes thereto), other than liabilities fully and adequately reflected or reserved against their respective balance sheet, prepared in accordance with generally accepted accounting principles. To the knowledge of MercExchange, since December 13, 1999, MercTravel has incurred no liabilities which would be required by generally accepted accounting principles to be disclosed in its financial statements (including, without limitation, in the notes thereto), other than Liabilities incurred since December 13, 1999 in the ordinary course of business. j. To the knowledge of MercExchange, MercTravel is in compliance in all material respects with all applicable laws (including, but not limited to, rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of all federal, state or local governments, or any agency or instrumentality of the foregoing, domestic or foreign, in respect of the conduct of its business and ownership or leasing of its properties, except where the failure to so comply would not have a material adverse effect on the assets, business, results of operations or condition (financial or otherwise) of such corporation. To the knowledge of MercExchange, MercTravel has all licenses, permits, orders or approvals of all federal, state or local governmental bodies, quasi-governmental bodies or authorities, domestic or foreign, which are material to, or necessary for, the conduct of the operations of such corporation. To the knowledge of MercExchange, no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against MercTravel alleging any failure so to comply, except where the failure to so comply would not have a material and adverse effect on the assets, business, results of operations or condition (financial or otherwise) of such corporation. k. Since December 13, 1999, there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of MercTravel. l. MercTravel has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown in its balance sheet, or acquired after the date thereof, free and clear of all liens, claims, encumbrances, charges, and assessments, except for properties and assets disposed of in the ordinary course of business since December 13, 1999. m. MercExchange further represents and warrants that: i. The Aden Shares (as defined below) are being acquired for investment for MercExchange's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and MercExchange has no present intention of selling, granting any participation in, or otherwise distributing the same. MercExchange does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Aden Shares. ii. MercExchange believes it has received all information it considers necessary or appropriate for deciding whether to purchase the Aden Shares. MercExchange has had an opportunity to ask questions and receive answers from Aden regarding the terms and conditions of the offering of the Aden Shares. iii.MercExchange has previously invested in companies in the development stage, can bear the economic risks of the investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of its investment in the Aden Shares. iv. MercExchange is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, of the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended. v. MercExchange understands that the Aden Shares it is purchasing pursuant to this Agreement are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from Aden in a transaction not involving a public offering and that under such laws and applicable regulations the Aden Shares may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, MercExchange is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. vi. MercExchange will not dispose of any of the Aden Shares (other than pursuant to SEC Rules 144 or 144A or any similar or analogous rule or rules) unless and until (A) MercExchange shall have notified Aden of the proposed disposition and the circumstances surrounding the proposed disposition and, if reasonably requested by Aden, MercExchange shall have furnished Aden with an opinion of counsel reasonably satisfactory in form and substance to Aden to the effect that such disposition will not require registration under the Securities Act; or (B) there is in effect a registration statement under the Securities Act covering the proposed disposition and the proposed disposition is made in accordance with such registration statement. vii.The certificates evidencing the Aden Shares may bear the restrictive legends set forth below, except that such certificates shall not bear the legends set forth below if: (x) the transfer was made in compliance with Rule 144; (y) there is in effect a registration statement under the Securities Act covering the proposed disposition and the proposed disposition is made in accordance with such registration statement; or (z) if the opinion of counsel, if any, delivered pursuant to this Section is to the effect that such legend is not required in order to establish compliance with any provisions of the Securities Act: (A) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"). THE SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR SUCH TRANSFER IS MADE PURSUANT TO RULES 144 OR 144A OF THE ACT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THE ACT." (B) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID ACT." (C) Any legend required by the laws of any applicable state or other jurisdiction governing the Aden Shares. 2. Exchange of Stock. a. On the Closing Date, as hereinafter fixed, MercExchange shall deliver to Aden certificates representing all of the issued and outstanding shares of common stock of MercTravel, as the same shall be constituted on the Closing Date, duly endorsed in blank by the owner of record, or accompanied by duly executed stock powers in blank, and accompanied by requisite revenue stamps evidencing the payment of the transfer tax, if any. b. On the Closing Date, as hereinafter fixed, Aden shall deliver to MercExchange fifty-eight million (58,000,000) shares of restricted common stock in Aden Enterprises, Inc. (the "Aden Shares"). 3. Closing. The consummation of the transactions contemplated herein (the "Closing") shall take place at the offices of Erickson & Sederstrom, P.C. at 10330 Regency Parkway Drive, Omaha, Nebraska 68114, at 10:00 a.m. (local time) on February 25, 2000 (the "Closing Date"), or at such other time and place as the parties may agree. 4. Indemnity for Damages. MercExchange shall indemnify, fully defend and save and hold harmless Aden at all times from and against all demands, claims, actions, causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses, but net of any tax savings and insurance proceeds actually received by the indemnitee as a result of the matter giving rise to the indemnification, asserted against, resulting to, imposed upon or incurred by Aden, by reason of or resulting from any inaccurate representation made by MercExchange in this Agreement, breach of any of the warranties made by MercExchange in this Agreement and breach or default in performance by MercExchange of any of the covenants which it is to perform hereunder. 5. Conditions to Obligations of Aden. The obligations of Aden hereunder are, except as may be waived in writing by Aden, subject to the conditions that: a. Certificates representing 100% of the issued and outstanding shares of common stock of MercTravel, as such stock shall then be constituted, shall be tendered for exchange at the Closing by MercExchange. b. The representations contained in Sections 1 and 7 hereof shall be true on and as of the Closing Date with the same effect as though such representations had been made on and as of the Closing Date, and there shall be delivered to Aden at the Closing, if requested, a certificate, in form and substance satisfactory to Aden and its counsel, duly signed by MercExchange to that effect. 6. Conditions to Obligations of MercExchange. The obligation of MercExchange hereunder to deliver to Aden shares of common stock of MercTravel is, except as may be waived in writing by MercExchange, subject to the conditions that: a. Aden is a duly organized and existing corporation in good standing under the laws of the State of California; b. A certificate or certificates representing the Aden Shares are delivered to MercExchange according to the provisions of Section 2; c. A duly executed Registration Rights Agreement in substantially the form of Exhibit "A" hereto is delivered at the Closing; and d. This Agreement has been duly executed and delivered by Aden, and constitutes the legal, valid, and binding obligation of Aden, enforceable in accordance with its terms. 7. Survival of Representations. The representations and warranties of the parties hereto shall survive the making of this agreement, any examination on behalf of such parties, and the Closing hereunder. Any waiver of any term or condition of this agreement shall not operate as a waiver of any other breach of such term or condition, or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. 8. Notices. All communications hereunder shall be in writing and delivered or mailed to Aden, Aden Enterprises, Inc., Attn: Michael Luther, and to MercExchange, MercExchange, LLC, Attn: Thomas Woolston, or at such other address as each party may specify in writing. 9. Broker. Aden and MercExchange represent to each other that no broker has been employed in connection with any transaction or transactions involved in this Agreement. 10. Entire Agreement. This Agreement constitutes the entire contract between the parties hereto and no party shall be liable or bound to another in any manner by any warranties, representations or guarantees except as specifically set forth herein. 11. Modification. This Agreement may not be changed or modified except by an agreement in writing by Aden and by MercExchange or by any person authorized to act on their behalf. 12. Benefit. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective legal representatives, successors, and assigns of the parties hereto. 13. Governing Law. This Agreement is made pursuant to and shall be construed under the laws of the State of Nebraska, without regard to any applicable conflicts of law provisions. 14. Counterparts. This Agreement may be executed and endorsed in one or more counterparts, and each of such counter parts shall, for all purposes, be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF the parties hereto have duly caused this Agreement to be executed as of the day and year first above written. Aden: MercExchange: By: /s/ Michael S. Luther By: /s/ Thomas Woolston EXHIBIT "A" REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of ___, 2000, by and between Aden Enterprises, Inc., a California corporation (the "Company") and MercExchange, LLC, a Virginia limited liability company (the "Shareholder"). WHEREAS, the Company and the Shareholder are parties to that certain Exchange Agreement, dated January 24, 2000 (the "Exchange Agreement"); and WHEREAS, the issuance of Company's Common Stock to the Shareholder in the Exchange Agreement is conditioned upon the registration rights being extended to the Shareholder, NOW THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of execution of this Agreement and the Exchange Agreement by the Company and the Shareholder. "Commission" shall mean the Securities and Exchange Commission of the United States or any other U.S. federal agency at the time administering the Securities Act. "Common Stock" shall mean shares of the Company's Common Stock. "Holder" shall mean any person holding Registrable Securities. "Other Holders" shall mean persons other than Holders who, by virtue of agreements with the Company, are entitled to include their securities in certain registrations hereunder. "Registrable Securities" means (i) the Common Stock issued pursuant to the Exchange Agreement and (ii) any shares of Common Stock issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event; provided that none of such shares of Common Stock are, at the time of Holders' exercise of any rights hereunder, subject to a repurchase option in favor of Company. Shares of Common Stock shall only be treated as Registrable Securities if they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or (B) sold or, in the opinion of counsel to the Company, are available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register, "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 2 and 3 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company (but not fees and disbursements of special counsel for Holders, if any, that is not also counsel for the Company), Blue Sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar United States federal statute. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by Holders. 2. COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a Commission Rule 145 transaction, or (iii) a registration on any registration form that does not permit secondary sales, the Company will: (i) promptly give to each Holder written notice thereof, and (ii) include in such registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting-involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder, (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2(a)(i). In such event the right of any Holder to registration pursuant to this Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall, together with the Company and Other Holders, if any, enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities and other securities to be included in such registration. The Company shall so advise all Holders and Other Holders and the number of shares that may be included in the registration and underwriting by all Holders and Other Holders shall be allocated among them, as nearly as practicable, first, to the Company (or, if applicable, to the holders for whose account the Company is registering the securities), second, among the Other Holders of securities in proportion to the respective amounts of securities proposed to be included in the registration by such Other Holders, and, third, among the Holders in proportion to the number of Registrable Securities proposed to be included in such registration by such Holders. If any Holder or Other Holder disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2 prior to the effectiveness of such registration whether or not any Holder or has elected to include Registrable Securities in such registration. 3. REGISTRATION ON FORM S-3. (a) Request for Registration. If any Holder or Holders request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which would exceed $500,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as the Holder or Holders may reasonably request. The substantive provisions of Section 2(b) shall be applicable to each registration initiated under this Section 3. (b) Limitations. Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 3:(i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within ten (10) days of the receipt of the request of the initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within thirty (30) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities); (iii) during the period starting with the date thirty (30) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following, the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (iv) if the Company shall furnish to such Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for registration statements to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed sixty (60) days from the receipt the request to file such registration by such Holder, provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (v) if in a given twelve-month period, the Company has effected one (1) such registration in such period; or (vi) after the Company has effected two (2) registration statements pursuant to this Section 3. 4. EXPENSES OF REGISTRATION. (a) Registration Expenses. The Company shall bear all Registration Expenses incurred in connection with all registrations pursuant to Section 2 and Section 3. (b) Selling Expenses. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and Other Holders shall be borne by the Holders and Other Holders pro rata on the basis of the number of shares so registered. 5. REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company will: (a) keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof, (b) prepare and file with the Commission a registration statement and any amendments thereto with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred twenty (120) days or until the distribution described in the Registration Statement has been completed; and (c) furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. 6. INDEMNIFICATION. (a) By Company. The Company will indemnify each Holder with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation or alleged violation by the Company of the Securities Act, or the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any rule or regulation promulgated under the Securities Act or the 1934 Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. If the Holders are represented by counsel other than counsel for the Company, the Company will not be obligated under this Section 6(a) to reimburse legal fees and expenses of more than one separate counsel for Holders. (b) By Holders. Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the foregoing, the liability of each Holder under this subsection (b) shall be limited in an amount equal to the public offering price of the shares sold by such Holder, unless such registration liability arises out of or is based on willful conduct by such Holder. (c) Procedures. Each party entitled to indemnification under this Section 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 7. INFORMATION BY HOLDER. Holders including any Registrable Securities in any registration shall furnish to the Company such information regarding such Holders as shall be necessary to enable the Company to comply with the provisions hereof in connection with any registration, qualification or compliance referred to in this Agreement. 8. RESTRICTIONS ON TRANSFERABILITY; RESTRICTIVE LEGEND. (a) Each Holder agrees not make any disposition of all or any portion of the Registrable Securities unless and until the transferee has agreed in writing for the benefit of the Company to be by bound by this Section 8. (b) Each certificate representing Registrable Securities shall be stamped or otherwise imprinted with a legend substantially in the following form, in addition to any legend that may now or hereafter be required by the California Department of Corporations or any other state securities law or regulation: "THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON SALE, TRANSFER, AND HYPOTHECATION AS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST. COPIES OF SUCH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER CORPORATION AND WILL BE FURNISHED UPON REQUEST TO SUCH REGISTERED HOLDER." 9. MISCELLANEOUS. (a) Governing Law. This Agreement will be governed by and construed under the laws of Nebraska as applied to agreements among Nebraska residents entered into and to be performed entirely within Nebraska. (b) Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of a majority of the Registrable Securities, voting as a class. Any amendment or waiver effected in accordance with this paragraph will be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. (c) Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegally invalid, unenforceable or void, this Agreement shall continue in full force and effect without said provision. In such event, the parties shall negotiate, in good faith, a legal, valid and binding substitute provision which most nearly effects the intent of the parties in entering into this Agreement. (d) Notices. All notices to Holders will be mailed by registered or certified mail to the addresses maintained in the Company's records for such Holders. Notices will be effective three (3) days after deposit in the U.S. Mail. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (f) Titles, Subtitles and Table of Contents. The titles, subtitles and table of contents used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. ADEN ENTERPRISES, INC. MERCEXCHANGE, LLC By: By: EX-10 3 EXHIBIT 10.2 Exhibit 10.2 TRANSFER AGREEMENT By and Between MercTravel, Incorporated and MercExchange, LLC THIS AGREEMENT TO TRANSFER PATENT RIGHTS FOR THE ONLINE TRAVEL SECTOR, (hereinafter the "Agreement") is entered into this 7th day of January, 2000 by and between MercTravel, Incorporated, a Delaware corporation ("MercTravel"), having a principal place of business at 114 N. Alfred Street, Alexandria, VA 22314 and MercExchange, LLC, ("MercExchange") a limited liability company under Delaware law, having a principal place of business at 114 N. Alfred Street, Alexandria, VA 22314. RECITALS WHEREAS, MercTravel is embarking on the development and industry initiative to build and deploy Internet Markets and Auctions that employ the pending and issued Subject Patents; and WHEREAS, MercTravel agrees that patent protection provides an important commercial advantage and agrees to consult and confer with MercExchange to assure a tight nexus between the commercial embodiments of the aforesaid Internet Markets and Auctions and the claims of the pending and issued Subject Patents; and WHEREAS, MercExchange desires to transfer rights in its pending and issued Subject Patents for the online travel services industry sector subject to the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereby agree as follows: ARTICLE I TRANSFER OF RIGHTS IN THE ONLINE TRAVEL SECTOR 1.1 Transfer. MercExchange hereby grants to MercTravel, during the term of this Agreement, an exclusive License Grant to make, use and sell the inventions as disclosed and claimed in the pending and issued Subject Patents within the field of use of the Online Travel Sector. 1.2 Nexus. MercTravel shall use best efforts to develop Internet Markets and Auctions that employ the pending and issued Subject Patents for use in the Online Travel Sector. MercTravel shall confer with MercExchange to assure a tight nexus between the commercial embodiment of the aforesaid Internet Markets and Auctions with the claims of the pending and issued Subject Patents. 1.3 Legal Fees. MercTravel shall pay all reasonable legal and administrative fees associated with the continuing prosecution and maintenance of the Subject Patents before the U.S. Patent and Trademark Office. MercTravel shall also pay all legal, administrative and filing fees associated with any Interference Proceeding before the U.S. Patent and Trademark Office and any related litigation in Federal or State Court. The parties shall confer on strategies concerning the prosecution, enforcement and exploitation of the Subject Patents. 1.4 Stock. MercTravel hereby grants 1,000 shares of MercTravel, which is 100% of its issued and outstanding shares, to MercExchange. ARTICLE II NON-MONETARY REMUNERATION If the Subject Patents are licensed to third parties and MercExchange receives non-monetary remuneration for any said license, including but not limited to, web easements, discounted or free advertisement and linking agreements, then MercTravel shall purchase in cash or equity said non-monetary remunerative benefit from MercExchange at one-third the fair market value for said non-monetary remunerate benefit within 60 days of the written offer of said non-monetary remuneration from MercExchange to MercTravel. ARTICLE III ENFORCEMENT 3.1 Right to Enforce Within The Online Travel Sector. MercExchange hereby assigns a non-exclusive right to MercTravel to enforce the Subject Patents, in its own name, and at its own expense, in the Online Travel Sector. MercExchange agrees to cooperate and join in said enforcement action if deemed a necessary party and enter into all further agreements necessary to enforce the Subject Patents. MercTravel shall reimburse MercExchange for expenses incurred by MercExchange under this section. Nothing in this Article shall confer any rights on MercTravel that prevents MercExchange from enforcing or continuing to enforce the Subject Patents in the name of MercExchange. If any right granted in this Article is construed so as to prevent MercExchange from enforcing the subject Patents in the name of MercExchange against any third party then this Article shall be null and void. ARTICLE IV DEFINITIONS 4.1 Definitions. For the purpose of this Agreement only, the following terms shall have the meanings indicated: 4.1.1 The term "Subject Patents" means the following patents, patent applications and all continuing patent applications that seek priority therefrom: A. U.S. Patent Application No. 08/427,820, Entitled: "Consignment Nodes" B. U.S. Patent Application No. 08/554,704, Now U.S. Patent No. 5,845,265, Entitled: "Consignment Nodes" C. U.S. Patent Application No. 09/203,286 (Petition for Interference with U.S. Patent No. 5,794,207) Entitled: "Consignment Nodes" D. U.S. Patent Application No. 09/166,779, Entitled "Method and Apparatus for Facilitate Internet Commerce with Binding Offers to Sell and Binding Counter-Offers to Buy in an Electronic Market" E. U.S. Patent Application No. 09/253,014, Entitled: "Method and Apparatus for Facilitating Electronic Commerce Through Internet Auctions" F. U.S. Patent Application No.09/253,021, Entitled: "Method and Apparatus for Facilitating Internet Commerce Through Inter-networked Markets and Auctions" G. U.S. Patent Application No.09/253,015, Entitled: "Methods and Apparatus for Automatically Distributing Internet Advertising" H. U.S. Patent Application No. 09/253,057, Entitled: "Method and Apparatus for Facilitating Electronic Commerce Through Two-Tiered Electronic Markets and Auctions" I. U.S. Patent Application No. 09/264,573, Entitled: "Method and Apparatus for Using Search Agents to Search Plurality of Markets for Items" 4.1.2 The term "Online Travel Sector" means the right to make and use the inventions as claimed and disclosed in the Subject Patents relating to the Internet Market and Auctions in the travel service industry, including without limitation, car rental, hotel booking, airline tickets, cruise, rail and travel packages. 4.1.3 The term "License Grant" means the transfer of patent rights including the right to make and use and sub-license the inventions as claimed and disclosed in the Subject Patents, subject to this Agreement, in the Online Travel Sector. 4.1.4 The "Term" of this Agreement, unless earlier terminated as provided under this Agreement, shall remain in full force and effect until the last claim of any patent included in the Subject Patents expires. ARTICLE V OTHER PROVISIONS 5.1 Termination for Cause. If MercTravel shall materially breach any of its obligations pursuant to this Agreement and shall fail to adequately correct such breach within two (2) months from the effective date of the first written notice to MercTravel, MercExchange may terminate License Grant pursuant to this Article by written notice. The termination shall immediately cause the License Grant to revert to MercExchange with no further step or action at law or equity required by MercExchange 5.2 No Joint Venture. The relationship between the parties shall be limited to the performance of their respective obligations as set forth in this Agreement. Nothing in this Agreement shall be construed to create a partnership or joint venture between the parties or to authorize either party to act as general agent for the other party, or to permit either party to bind or otherwise bind the other party. No party shall be liable for any of the actions, omissions, or indebtedness of the other party. 5.3 Assignability. Except as otherwise provided herein, the rights granted by each party to the other in this Agreement are personal to each party and may not be assigned or otherwise transferred by one party without the prior written consent of the other party. In the event of the sale and dissolution of MercTravel or of all the outstanding shares of MercTravel, the acquiring party shall take all rights, duties and obligations of this Agreement. The acquiring party shall have no further rights to sell or assign this Agreement without the prior written consent of MercExchange. 5.4 No Implied License. Nothing contained in this Agreement shall be construed as granting by implication, estoppel or otherwise, any licenses, warranties (implied in fact or law) or rights other than those expressly granted herein, or creating any obligation other than those expressly granted herein. 5.5 No Warranty. Nothing in this Agreement shall be construed as a warranty or representation by MercExchange as to the validity or scope of the Subject Patents or that the exercise of the license rights under the Subject Patents will not infringe upon the rights of any Third Party. 5.6 No Indemnification. MercExchange does not indemnify, warrant or otherwise guarantee or hold harmless MercTravel from enforcement and/or legal action brought by any Third Party. MercExchange make no warranties that any products made under this Agreement are materially fit for their purpose or comport with any other provision of the Uniform Commercial Code. 5.7 Notification. The parties shall notify each other in writing at the following address which may be amended from time to time upon written notification: MercExchange: Thomas G. Woolston Managing Member MercExchange, LLC 114 N. Alfred Street Alexandria, VA 22314 MercTravel: Thomas G. Woolston President MercTravel, Incorporated 114 N. Alfred Street Alexandria, VA 22314 5.8 Controlling Law. This Agreement shall be construed and enforced in accordance with, and shall be governed by the laws of the Commonwealth of Virginia without giving effect to the provision, policies, or principles thereof relating to choice or conflict of laws. 5.9 Severability. Any provision of this Agreement that is illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 5.10 Waiver. The failure of any party to enforce any of the provisions of this Agreement, or of any rights with respect thereto, shall not be considered a waiver thereof or in any way affect the validity of this Agreement. The failure by any party hereto to enforce any of said provisions, rights or elections shall not prejudice said party from later enforcing or exercising the same or any other provisions, rights, of elections which it may have under this Agreement. 5.11 Integration. This Agreement contains the entire and only understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreement and understandings, whether oral or written, with respect thereto. No modification or wavier of this Agreement or any of its provisions shall be binding unless in writing and signed by a duly authorized representative of each of the parties hereto. 5.12 Bankruptcy or liquidation. The License Grant hereunder shall immediately revert to MercExchange if MercTravel seeks protection under Bankruptcy laws or is subject to liquidation under the laws of the United States. 5.13 Headings. Headings and section titles are for organization purposes only and shall have no effect on the interpretation of this Agreement. 5.14 Legal Fees. All fees payable hereunder, such as legal fees for continuing patent prosecution, shall be tendered by MercTravel within thirty (30) days of receipt of notice from MercExchange. 5.15 Remedy for Breach. If MercTravel materially breaches any condition of this Agreement and does not cure said breach within two (2) months notice of material breach, then the License Grant of patent rights to the online travel sector granted hereunder shall immediately become null and void and shall immediately revert to MercExchange, or its lawful successor in interest. 5.16 This Agreement shall be binding to all parties and may be executed in part by facsimile. This Agreement is entered into the date and year first above written. MercTravel, Incorporated By /s/ Thomas G. Woolston Thomas G. Woolston President & Chief Executive Officer MercExchange, LLC By /s/ Thomas G. Woolston Thomas G. Woolston Managing Member EX-10 4 EXHIBIT 10.3 Exhibit 10.3 OPTION AGREEMENT By and Between Aden Enterprises, Inc. and MercExchange, LLC THIS OPTION AGREEMENT, (hereinafter the "Agreement") is entered into this 7th day of January, 2000 by and between Aden Enterprises, Inc., a California corporation ("Aden" or the "Company"), having a principal place of business at 13314 I Street, Omaha, Nebraska 68137 and MercExchange, LLC, ("MercExchange") a limited liability company under Delaware law, with a principal place of business at 114 N. Alfred Street, Alexandria, VA 22314. RECITALS WHEREAS, Aden is embarking on a major development and industry initiative to build and deploy Internet Markets and Auctions that employ the pending and issued Subject Patents; and WHEREAS, Aden agrees that patent protection provides an important commercial advantage and agrees to consult and confer with MercExchange to assure a tight nexus between the commercial embodiments of the aforesaid Internet Markets and Auctions and the claims of the pending and issued Subject Patents; WHEREAS, MercExchange desires to license the pending and issued Subject Patents subject to the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereby agree as follows: ARTICLE I VERTICAL SECTOR LICENSE OPTION 1.1 In partial consideration of the license option granted herein, Aden agrees to pay MercExchange the sum of $35,000 within five (5) days of the execution of this agreement, receipt of which is hereby acknowledged. 1.2 The parties anticipate application of the aforesaid Internet Markets and Auctions for a variety of Vertical Sectors. The parties hereby mutually agree to the following terms and conditions regarding these Vertical Sectors. 1.3 MercExchange hereby grants an option to the Company to a non-exclusive license for the pending and issued Subject Patents to Vertical Sectors. For each Vertical Sector, the Company shall pay MercExchange an annual payment of the greater of (1) the first $50,000 of any of the Gross Transactions collected or earned by the Company from any third party or (2) a 1.5% (one point five percent) continuing royalty of Gross Transactions generated by each Vertical Sector. 1.4 In the event of a joint venture, marketing agreement, acquisition or any other business combination between the Company and a third party, the Company and MercExchange shall negotiate an equity position for MercExchange in said venture or business combination, and in no event shall this equity position be less that 15% (fifteen percent) on a fully diluted basis of said venture for MercExchange. 1.5 Aden shall use best efforts to develop Internet Markets and Auctions that employ the pending and issued Subject Patents for use in each Vertical Sector. Aden shall confer with MercExchange to assure a tight nexus between the commercial embodiment of the aforesaid Internet Markets and Auctions with the claims of the pending and issued Subject Patents. ARTICLE II PAYMENT AND ROYALTY REPORTS 2.1 Within forty-five days (45) following the end of each Fiscal Quarter, beginning with the first Fiscal Quarter in which Company commences activity in any Vertical Sector, the Company shall send to MercExchange reports of the Gross Transactions conducted by Aden, in the preceding Fiscal Quarter, showing their respective descriptions or other descriptive characteristics, including total quantities for transaction, and the sale price of any products or goods sold hereunder. 2.2 Each report shall be accompanied by the required payment in U.S. Dollars. For the Purpose of calculating the royalties payable hereunder, respective currencies for the Gross Transactions shall be converted to U.S. Dollars at the rate of exchange quoted in The Wall Street Journal in force on the last working day of the period for which payment of royalty is being made. 2.3 The Company shall maintain complete and accurate records of the Gross Transactions conducted under this Agreement, showing their respective descriptions or other descriptive characteristics, including model numbers, if any, quantities, and calculations of unit royalties dues and payable thereon. These records shall be maintained for a period of at least three (3) years subsequent to Company's latest quarterly royalty report. Periodically during the term of this Agreement and subsequent to the expiration or termination of this Agreement for any reason, upon 30 days prior written notice to Company and upon execution of a Confidentiality Agreement in Company's favor, MercExchange's independent duly appointed Certified Public Accountant may inspect Company's records which pertain to Gross Transactions during regular business hours for the purpose of verifying the completeness and accuracy of all reports to MercExchange. Such inspection shall occur no more frequently than once any Contract Year. If said audit determines that there has been a shortfall in royalties paid to MercExchange in excess of three percent (3%) of the amount actually due for the period under audit, then Company shall reimburse MercExchange for the reasonable expenses actually incurred by it for the audit. ARTICLE III NON-MONETARY REMUNERATION If the Subject Patents are Licensed to third parties and MercExchange receives non-monetary remuneration for said License, including but not limited to, web easements, discounted or free advertisement and any linking agreements, then Aden shall purchase in cash or equity said non-monetary remunerative benefit from MercExchange at one-third the fair market value for said non-monetary remunerate benefit within 60 days of the written offer of said non-monetary remuneration from MercExchange to Aden. ARTICLE IV ENFORCEMENT 4.1 Right to Enforce Subject Patents. MercExchange retains the sole right to enforce and control the enforcement of the Subject Patents against third parties. The Company agrees to cooperate and join in said enforcement action if deemed a necessary party. 4.2 Non-Monetary Recovery. In any enforcement proceeding to which MercExchange enjoins a third party, Aden and MercExchange shall mutually determine the value of said injunction to Aden or the aforesaid business combination. Aden shall pay MercExchange 25% of the value of said injunction, in cash or equity to MercExchange. ARTICLE V DEFINITIONS 5.1 Definitions. For the purpose of this Agreement only, the following terms shall have the meanings indicated: 5.1.1 The term "Subject Patents" means the following patents, patent applications and all continuing patent applications that seek priority therefrom: A. U.S. Patent Application No. 08/427,820, Entitled: "Consignment Nodes" B. U.S. Patent Application No. 08/554,704, Now U.S. Patent No. 5,845,265, Entitled: "Consignment Nodes" C. U.S. Patent Application No. 09/203,286 (Petition for Interference with U.S. Patent No. 5,794,207) Entitled: "Consignment Nodes" D. U.S. Patent Application No. 09/166,779, Entitled "Method and Apparatus for Facilitate Internet Commerce with Binding Offers to Sell and Binding Counter-Offers to Buy in an Electronic Market" E. U.S. Patent Application No. 09/253,014, Entitled: "Method and Apparatus for Facilitating Electronic Commerce Through Internet Auctions" F. U.S. Patent Application No.09/253,021, Entitled: "Method and Apparatus for Facilitating Internet Commerce Through Inter-networked Markets and Auctions" G. U.S. Patent Application No.09/253,015, Entitled: "Methods and Apparatus for Automatically Distributing Internet Advertising" H. U.S. Patent Application No. 09/253,057, Entitled: "Method and Apparatus for Facilitating Electronic Commerce Through Two-Tiered Electronic Markets and Auctions" I. U.S. Patent Application No. 09/264,573, Entitled: "Method and Apparatus for Using Search Agents to Search Plurality of Markets for Items" 5.1.2 The term "Vertical Sector" means industry and service classifications of customary usage and categories of commerce as defined by the United States Department of Commerce eight digit SIC codes. 5.1.3 The term "Gross Transactions" means the gross transactional revenues collected or earned by the Company for the operation of said Internet Markets and Auctions in any and all Vertical Sectors. The transactional revenues for transactions under this Agreement, for the purpose of calculating this amount, shall be based on the actual amount charged, exclusive of any freight, handling, duties, commissions, clearance network costs and taxes. 5.1.4 The term "Fiscal Quarter" means any period of three consecutive months beginning on January 1, April 1, July 1, or October 1 in any year. 5.1.5 The term "Contract Year" shall means the first full twelve-month period of four consecutive fiscal quarters, beginning May 1 and ending April 30 and each like period thereafter during the term of this Agreement. 5.1.6 The "Term" of this Agreement, unless earlier terminated as provided under this Agreement, shall remain in full force and effect until the last claim of any patent included in the Subject Patents expires. ARTICLE VI OTHER PROVISIONS 6.1 Termination for Cause. If Aden shall materially breach any of its obligations pursuant to this Agreement and shall fail to adequately correct such breach within two (2) months from the effective date of the first written notice to Aden, MercExchange may terminate this Agreement pursuant to this Article by written notice. 6.2 No Joint Venture. The relationship between the parties shall be limited to performance of their respective obligations as set forth in this Agreement. Nothing in this Agreement shall be construed to create a partnership or joint venture between the parties or to authorize either party to act as general agent for the other party, or to permit either party to bind or otherwise bind the other party. No party shall be liable for any of the actions, omissions, or indebtedness of the other party. 6.3 Assignability. Except as otherwise provided herein, the rights and licenses granted by each party to the other in this Agreement are personal to each party and may not be assigned, sub-licensed or otherwise transferred by one party without the prior written consent of the other party. 6.4 No Implied License. Nothing contained in this Agreement shall be construed as granting by implication, estoppel or otherwise, any licenses, warranties (implied in fact or law) or rights other than those expressly granted herein, or creating any obligation other than those expressly granted herein. 6.5 No Warranty. Nothing in this Agreement shall be construed as a warranty or representation by MercExchange as to the validity or scope of the Subject Patents or that the exercise of the license rights under the Subject Patents will not infringe upon the rights of any Third Party. 6.6 No Indemnification. MercExchange does not indemnify, warrant or otherwise guarantee or hold harmless Aden from enforcement and/or legal action brought by any Third Party. MercExchange make no warranties that any products made under this Agreement are materially fit for their purpose or comport with any other provision of the Uniform Commercial Code. 6.7 Notification. The parties shall notify each other in writing at the following address which may be amended from time to time upon written notification: MercExchange: Thomas G. Woolston Managing Member MercExchange, LLC 114 N. Alfred Street Alexandria, VA 22314 Aden: Michael S. Luther Aden Enterprises, Inc. 13314 I Street Omaha, NE 68137 6.8 Controlling Law. This Agreement shall be construed and enforced in accordance with, and shall be governed by the laws of the Commonwealth of Virginia without giving effect to the provision, policies, or principles thereof relating to choice or conflict of laws. 6.9 Severability. Any provision of this Agreement that is illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 6.10 Waiver. The failure of any party to enforce any of the provision of this Agreement, or of any rights with respect thereto, shall not be considered a waiver thereof or in any way affect the validity of this Agreement. The failure by any party hereto to enforce any of said provisions, rights or elections shall not prejudice said party from later enforcing or exercising the same or any other provisions, rights, of elections which it may have under this Agreement. 6.11 Integration. This Agreement contains the entire and only understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreement and understandings, whether oral or written, with respect thereto. No modification or wavier of this Agreement or any of its provisions shall be binding unless in writing and signed by a duly authorized representative of each of the parties hereto. 6.12 Bankruptcy or liquidation. The license options granted hereunder shall immediately revert to MercExchange if the Company seeks protection under the Bankruptcy laws or is subject to liquidation under the laws of the United States. 6.13 Non-refundable. All funds, payments and distributions made to MercExchange hereunder are non-refundable. 6.14 Headings. Headings and section titles are for organizational purposes only and shall have no effect on the interpretation of this Agreement. 6.15 Remedy for Breach. If the Company materially breaches any condition of this Agreement and does not cure said breach within two (2) months notice of material breach, then all licenses granted hereunder shall immediately become null and void and these licenses, shall immediately revert to MercExchange, or its lawful successor in interest. 6.16 This Agreement shall be binding to all parties and may be executed in part by facsimile. This Agreement is entered into the date and year first above written. Aden Enterprises, Inc. By /s/ Michael S. Luther Michael S. Luther President & Chief Executive Officer MercExchange, LLC By /s/ Thomas G. Woolston Thomas G. Woolston Managing Member EX-10 5 EXHIBIT 10.4 Exhibit 10.4 Capital Contribution and Sale Agreement By and Between Aden Enterprises, Inc. and MercExchange, LLC THIS SALE AGREEMENT, (hereinafter the "Agreement") is effective on 30th day of October, 1999 by and between Aden Enterprises, Inc., a California corporation ("Aden" or the "Company"), having a principal place of business at 13314 I Street, Omaha, Nebraska 68137 and MercExchange, LLC, ("MercExchange"), a limited liability company under Delaware law, with a principal place of business at 114 N. Alfred Street, Alexandria, VA 22314. RECITALS WHEREAS, MercExchange seeks capital contribution and Aden desires to purchase a percentage of the membership units of MercExchange subject to the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereby agree as follows: ARTICLE I AGREEMENT Aden hereby purchases 10% (ten percent) ownership of MercExchange in consideration of two notes in a total amount of $4 million ($4,000,000), said notes payable by wire transfer wherein the first note in the amount of $1 million ($1,000,000) shall be due and paid within thirty (30) days of the effective date of this Agreement, and the second note in the amount of $3 million ($3,000,000) shall be due and paid within one hundred twenty (120) days of the effective date of this Agreement. MercExchange hereby also grants an option to Aden to purchase an additional 5% of MercExchange for $3 million ($3,000,000) within two years of the effective date of this Agreement. ARTICLE II OTHER PROVISIONS 2.1 Termination for Cause. If Aden shall materially breach any of its obligations pursuant to this Agreement and shall fail to adequately correct such breach within two (2) months from the effective date of the first written notice to Aden, MercExchange may terminate this Agreement pursuant to this Article by written notice. The termination of the agreement shall immediately cause the membership interest and option in MercExchange to revert to MercExchange with no further step or action at law or equity required by MercExchange. 2.2 No Joint Venture. The relationship between the parties shall be limited to the performance of their respective obligations as set forth in this Agreement. Nothing in this Agreement shall be construed to create a partnership or joint venture between the parties or to authorize either party to act as general agent for the other party, or to permit either party to bind or otherwise bind the other party. No party shall be liable for any of the actions, omissions, or indebtedness of the other party. 2.3 Assignability. Except as otherwise provided herein, the rights granted by each party to the other in this Agreement are personal to each party and may not be assigned, sub-licensed or otherwise transferred by one party without the prior written consent of the other party. 2.4 No Implied License. Nothing contained in this Agreement shall be construed as granting by implication, estoppel or otherwise, any licenses, warranties (implied in fact or law) or rights other than those expressly granted herein, or creating any obligation other than those expressly granted herein. 2.5 No Indemnification. MercExchange does not indemnify, warrant or otherwise guarantee or hold harmless Aden from enforcement and/or legal action brought by any Third Party. 2.6 Notification. The parties shall notify each other in writing at the following address which may be amended from time to time upon written notification: MercExchange: Thomas G. Woolston Managing Member MercExchange, LLC 114 N. Alfred Street Alexandria, VA 22314 Aden: Michael S. Luther Aden Enterprises, Inc. 13314 I Street Omaha, NE 68137 2.7 Controlling Law. This Agreement shall be construed and enforced in accordance with, and shall be governed by the laws of the Commonwealth of Virginia without giving effect to the provision, policies, or principles thereof relating to choice or conflict of laws. 2.8 Severability. Any provision of this Agreement that is illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 2.9 Waiver. The failure of any party to enforce any of the provision of this Agreement, or of any rights with respect thereto, shall not be considered a waiver thereof or in any way affect the validity of this Agreement. The failure by any party hereto to enforce any of said provisions, rights or elections shall not prejudice said party from later enforcing or exercising the same or any other provisions, rights, of elections which it may have under this Agreement. 2.10 Integration. This Agreement contains the entire and only understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreement and understandings, whether oral or written, with respect thereto. No modification or wavier of this Agreement or any of its provisions shall be binding unless in writing and signed by a duly authorized representative of each of the parties hereto. 2.11 Bankruptcy or liquidation. The membership interest and option granted hereunder shall immediately revert to MercExchange if the Company seeks protection under the Bankruptcy laws or is subject to liquidation under the laws of the United States. 2.12 Non-refundable. Any payments made hereunder by Aden to MercExchange are non-refundable. 2.13 Headings. Headings and section titles are for organization purposes only and shall have no effect on the interpretation of this Agreement. 2.14 Remedy for Breach. If the Company materially breaches any condition of this Agreement and does not cure said breach within 60 days of notice of material breach, then all membership units and option in MercExchange shall immediately revert to MercExchange, or its lawful successor in interest. 2.15 Counterparts. This Agreement shall be binding to all parties and may be executed in part by facsimile. This Agreement is entered into the date and year first above written. Aden Enterprises, Inc. By /s/ Michael S. Luther Michael S. Luther President& Chief Executive Officer MercExchange, LLC By /s/ Thomas G. Woolston Thomas G. Woolston Managing Member EX-21 6 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF COMPANY The following corporations are the registrant's significant subsidiaries as of the date of this report under Form 10-K.
Name of Corporation State or Other Jurisdiction of Incorporation - ------------------- -------------------------------------------- Leftbid.com, Inc. Nevada Navlet.com, Inc. Delaware Cheapfares.com Incorporated Nevada Liberty Court Travel, Inc. Nebraska
EX-27 7 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADEN ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS APR-30-1999 MAY-01-1998 APR-30-1999 0 0 302 0 0 302 34 13 378 11,098 0 0 0 4,055 (14,725) 378 98 98 0 0 3,237 0 666 (3,805) 0 (3,805) 0 0 0 (3,805) (0.05) (0.05) REFLECTS BASIC EPS ACCORDING TO SFAS 128
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