-----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, QpXq4aCC9eyG86ZsSX/OUA8EoJXFsadW1FBxTLYtsdOC23Tw64+bkKuJRrhp4lvR ItIEgKVhVAXmU4fFZObTiQ== 0001164150-04-000060.txt : 20040507 0001164150-04-000060.hdr.sgml : 20040507 20040507101449 ACCESSION NUMBER: 0001164150-04-000060 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIDVILLE INC CENTRAL INDEX KEY: 0001081275 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 980224958 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-31477 FILM NUMBER: 04787152 BUSINESS ADDRESS: STREET 1: 601 CLEVELAND STREET STREET 2: SUITE 120 CITY: CLEARWATER STATE: FL ZIP: 33755 BUSINESS PHONE: 7274429669 MAIL ADDRESS: STREET 1: 625 N FLAGLER DRIVE STREET 2: SUITE 509 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN RECREATIONAL ENTERPRISES INC DATE OF NAME CHANGE: 20011003 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN AMMUNITION INC DATE OF NAME CHANGE: 20010905 FORMER COMPANY: FORMER CONFORMED NAME: GREATESTESCAPES COM INC DATE OF NAME CHANGE: 20000807 10KSB/A 1 bid-10ksba_12312003.txt AMENDED ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-KSB/A - -------------------------------------------------------------------------------- (Mark one) [_] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended _____________. [X] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from March 1, 2003 to December 31, 2003. - -------------------------------------------------------------------------------- Commission File Number: 000-31477 Bidville, Inc. --------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 98-0224958 - -------------------------- -------------------------- (State of incorporation) (IRS Employer ID Number) 601 Cleveland Street, Suite 120 Clearwater, Florida 33755 ----------------------------------------- (Address of principal executive offices) (727) 442-9669 ----------------------------------------- (Issuer's telephone number) N/A ----------------------------------------- (Former name, former address and former fiscal year, if changed since last report) - -------------------------------------------------------------------------------- Securities registered under Section 12 (b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: None - -------------------------------------------------------------------------------- Check whether the issuer has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_] The issuer's proforma revenues for the fiscal year ended December 31, 2003 was $45,627. These revenues are proforma due to the change in control of the operating subsidiary in August 2003. The aggregate market value of voting common equity held by non-affiliates as of March 22, 2004 was approximately $22,704,000. As of December 31, 2003, there were 29,770,007 shares of Common Stock issued and outstanding. Transitional Small Business Disclosure Format: Yes [_] No [X] Bidville, Inc. Index to Contents Page Number Part I Item 1 Description of Business Item 2 Description of Property Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders Part II Item 5 Market for Company's Common Stock and Related Stockholders Matters Item 6 Management's Discussion and Analysis or Plan of Operation Item 7 Financial Statements Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Item 8A Controls and Procedures Part III Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Item 10 Executive Compensation Item 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12 Certain Relationships and Related Transactions Item 13 Exhibits and Reports on 8-K Item 14 Principal Accountant Fees and Services Signatures Caution Regarding Forward-Looking Information Certain statements contained in this annual filing, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings. Given these uncertainties, readers of this Form 10-KSB and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. PART I Item 1 - Description of Business Bidville, Inc. ("Bidville") was originally formed as Greatestescapes.Com Inc. on February 10, 1999, under the laws of the State of Nevada. The Company was originally in the business of operating a multi-media travel-related publishing enterprise. Greatestescapes.Com Inc. marketed travel-related products based on the content of its print publications as well as its digital Internet magazine. Products included a wide range of goods through its online store, www.GreatestEscapesStore.com. The Company intended to develop other travel products to be sold and distributed through its on-line department store, two websites, www.GreatestEscapesStore.com and www.LiteraryTrips.com, and other more traditional outlets. Pursuant to an Agreement and Plan of Reorganization dated October 12, 2000, Greatestescapes.Com acquired one hundred percent (100%) of the issued and outstanding shares of common stock of Capstra Capital, Corp. ("Capstra"), a Washington corporation, from the shareholders thereof in an exchange of an aggregate of 450,000 shares of common stock of Greatestescapes.Com and other consideration consisting of cash and payments of certain fees and expenses equal to $30,000 ("the Acquisition"). Immediately following the acquisition, the Company formed Greatestescapes Corp. ("Subco"), a newly-formed Washington corporation, formed solely for the purpose of being a wholly-owned subsidiary of the Company. Subco then merged with Capstra ("the Merger"). The Acquisition was approved by the unanimous consent of the Board of Directors of Capstra and its shareholders on October 12, 2000 and became effective as of that same date. The Merger was approved by unanimous consent of the respective Board of Directors of Subco and the Company on October 12, 2000, effective October 16, 2000. The Acquisition and Merger was intended to qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Upon effectiveness of the Acquisition and Merger, pursuant to Rule 12g-3(a) of the General Rules and Regulations of the Securities and Exchange Commission ("SEC"), the Company elected to become the successor issuer to Capstra for reporting purposes under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and elected to report under the Exchange Act effective October 16, 2000. On December 1, 2000, Greatestescapes.com, Inc. entered into an agreement with its controlling shareholders and officers whereby the officers would acquire all the assets and operations of the Company in exchange for the assumption of liabilities related thereto. Further, a controlling shareholder surrendered 5,000 shares of common stock to the Company for no consideration. As a result of this transaction, Greatestescapes.com, Inc. had no assets, liabilities or operations. On July 17, 2001, the Company changed its name from Greatestescapes.com, Inc., to American Ammunition, Inc., and approved authorization in its Articles of Incorporation to issue 50,000,000 shares, par value of $0.001, of preferred 5 stock of the Corporation upon such terms, conditions, privileges and limitations as the Board of Directors deems appropriate. These two (2) transactions were approved by the shareholders by consent and the Amended Articles of Incorporation were filed with the State of Nevada on July 23, 2001. On that same date, the Company also authorized a reverse split of its common stock at a rate of 1 for 200, with the proviso that no shareholder holding more than 500 shares of stock have their stock reduced below 500 shares of stock and that no shareholder holding less than 500 shares of stock have any such reduction in the amount of stock owned by such shareholder. This reverse split is effective for all shareholders of record on July 17, 2001, and was implemented on electronic and other quotation systems at the close of business on August 13, 2001. After the effect of the reverse split, the Company had 110,007 shares of common stock issued and outstanding, as rounded. The effect of the reverse split is presented in the accompanying financial statements as of the first day of the first period presented. On July 20, 2001, the Company entered into a Share Exchange Agreement, to be completed on or before August 31, 2001, whereby the Company would acquire one hundred percent (100%) of the issued and outstanding capital stock of F&F Equipment, Inc. ("F&F"), a privately-owned Florida corporation, in exchange for 25,000,000 post-reverse split shares of the Company's common stock. This transaction was to effect a reverse acquisition of F&F. On August 31, 2001, F&F and the Company agreed that there was a failure of consideration on the part of one or both of the parties to the Agreement. F&F and the Company agreed that it was in the best interest of both parties to void, cancel and terminate the Agreement ab initio and to release any claims F&F had or may have against the Company, as well as any claims that the Company had or may have against F&F in consideration of such release. Subsequent to the termination of the F&F transaction, the Company changed its corporate name to American Recreational Enterprises, Inc. ("AREP"). On February 14, 2003, concurrent with a change in control, the Company initiated a new business plan. On April 23, 2003, the Company formed a new wholly-owned subsidiary, Lenders/Investors, Inc., a Florida corporation, for the purpose of (a) making medium to high risk unsecured loans to third party individuals, corporations and/or other entities; (b) equity investments in early-stage, early-growth, pre-IPO companies with a primary objective of both long-term appreciation as well as short-term profits; and c) general asset management. From the time it was formed until the subsidiary was subsequently spun off to the Company's shareholders, Lenders/Investors, Inc. had not conducted any business. On December 10, 2003, the Company, NoBidding, Inc. ("NoBidding"), a New Jersey corporation formed on April 19, 1999, and the individual holders of the outstanding capital stock of NoBidding, consummated a reverse acquisition (the "Reorganization") pursuant to a certain Share Exchange Agreement ("Agreement") of such date. The Agreement provided for one hundred percent (100%) of the shares of NoBidding to be acquired by the Company in exchange for 20,000,000 6 shares of common stock of the Company and $50,000 cash and for the establishment of a new Board of Directors of the Company consisting entirely of NoBidding directors. The Agreement also mandated that the total issued and outstanding shares of the Company immediately after the closing of the transaction be 25,360,007 shares. The Company's subsidiary, Lenders/Investors, Inc. was spun off to the Company's shareholders prior to the Agreement and Reorganization, leaving NoBidding as the only wholly-owned operating subsidiary of the Company after effecting the Agreement. The Reorganization was accounted for as a reverse acquisition. The Board of Directors of the Company (the "Board") appointed Gerald C. Parker, Michael Palandro, Robert W. Pearce, C. John Dewey and Edward Orlando to serve as members of the Board until the next meeting of the shareholders in which directors are elected. Subsequently, Jorge Elias, the existing president of the Company, tendered his resignation in accordance with the terms of the Agreement and Gerald C. Parker was elected Chairman of the Board. The Company amended its Articles of Incorporation to change its name from American Recreational Enterprises, Inc. to Bidville, Inc. on December 10, 2003. The total issued and outstanding common stock after effecting the Share Exchange Agreement was 25,360,007 shares. Effective January 7, 2004, the Company changed its symbol on the OTCBB from "AREP" to "BVLE." In addition, concurrent with the acquisition of NoBidding, the Company's management elected to change the Company's fiscal year-end from February 28 to December 31. The Company's subsequent periodic filing, in accordance with the Securities Exchange Act of 1934, as amended, was the present Form 10-KSB for the transition period from March 1, 2003 to December 31, 2003, which was filed with the Securities and Exchange Commission ("SEC") on March 30, 2004. On March 24, 2004, Bidville acquired 321 Play, Inc. ("321"), a New York corporation, and its subsidiary Buy Sell Connect.com, Inc., also a New York corporation, to operate as subsidiaries of the Company. In exchange for 100% of the common stock of 321, we agreed to issue the existing 321 shareholders five hundred thousand (500,000) shares of Bidville restricted common stock ("purchase price") and up to an additional three million (3,000,000) shares of restricted common stock payable upon 321 reaching certain performance goals, as defined in the agreement, payable over a period of up to three years from the date of the agreement. Subsequent to the acquisition but on the same date, 321 executed an executive employment agreement with Alina Mezhbovski, who is to serve as 321's Chief Executive Officer for a period of three (3) years. 321 also executed on the same date a three-year consulting agreement with Mezhcorp LLC. For additional information about these agreements, see "Employee and Consultants". 7 Online Auction Industry Background Overview Within the last decade, the shape of the consumer marketplace has undergone a dramatic change, primarily due to the emergence of the Internet as a commercial medium. The Internet has evolved into the fastest-growing electronic communications tool in history, with the potential to provide more connective power, purchasing capability, and knowledge resources than print and telephonic media combined. In the United States alone, the number of people with regular Internet access has expanded from roughly 86 million persons in March 2000, to 126 million in August 2003. Sources: UCLA Center for Communication Policy, UCLA Internet Report: Surveying the Digital Future (2000); America's Online Pursuits: The Changing Picture of Who's Online and What They Do, Internet & American Life Project, December 22, 2003. Consumers worldwide are now taking part in a phenomenon known as "e-commerce," where goods are bought and sold at the click of a button in a global electronic marketplace. Online shopping, or "e-purchasing," has been growing steadily in the United States, despite the recent economic slump and decline in consumer confidence. Published reports vary, however, as of December 2002, more than 67 million Americans had bought products online, representing a growth of 63% from the 41 million Americans who had bought products online as of March 2000. The number of Americans who made online purchases on a typical day doubled (from 3 million to 6 million) between 2000 and 2002. Source: America's Online Pursuits, Internet & American Life Project, December 22, 2003. As researchers from the Internet Project noted in a December 2002 report, "this increase in e-purchasing occurred alongside a substantial decrease in overall consumer confidence in the whole U.S. economy during the same period. Consumer comfort levels and satisfaction in the online world appeared to be rising, even as the offline markets were sagging; in September 2002, 85% of those who had ever bought products online said that they `always' or `most of the time' were able to find and buy the products they were seeking. However, it is important to note that while most Internet users have embraced the transition to e-commerce, the overall volume of online sales has generally constituted a very small portion of the total retail market in America." 8 In addition, researchers have attributed the growth of online consumer activity between 2000 and 2002 to the fact that the Internet population was still in the process of maturing. "Our research has repeatedly shown that as Internet users gain experience, they are increasingly at ease with making online purchases and are more likely to spend money on the Web. For example, while 67% of Internet users with 4-5 years of experience had bought products online as of December 2002, just 45% of those who had been online for 2-3 years had done so." Source: Counting on the Internet, Internet & American Life Project, December 29, 2002. The Forrester Group estimates that e-commerce will approximate $6.7 trillion by 2004, a marked increase from the $657 billion reported by International Data Corporation for the year ended 2000. In addition, despite the fact that the overall growth of the Internet population seemed to be stabilizing in 2002, e-commerce is expected to continue to develop at an extraordinary pace, with projected growth increases of 71% and 67% by the end of 2004 and 2005 respectively. The Online Auction Market One form of e-commerce that has experienced tremendous growth in recent years is the online auction format, nearly doubling its number of users between the beginning of 2000 and the end of 2002. "In March 2000, 13 million American Internet users had placed a bid, bought an item, or sold an item through an auction website. But by December 2002, there were 24 million Americans who had exchanged their wares online." Source: America's Online Pursuits, Internet & American Life Project, December 22, 2003. Contributing to this growth has been the successful online auction format first introduced by eBay, which created a person-to-person Web-based trading community that allows sellers to list items for sale, buyers to bid on items of interest and all users to browse through all of the items listed in any given category. Popularity of Online Auctions Online auctions have become particularly popular because the Internet serves as a global marketplace for consumers - a single place where a person can find anything they are looking for and easily compare prices, regardless of where they live. For sellers, online auctions provide access to a much larger pool of potential customers than traditional means, at a much lower cost of access. Online auctions not only make selling easier for businesses, they also provide a place for individuals to offer their goods and services to the global Internet population. In addition, the auction format itself creates a sense of urgency among buyers to bid for goods before an auction ends, creating an exciting and captivating trading environment. As part of an effort to educate auction-goers about how to take advantage of this new marketplace and minimize potential problems, the National Consumer League (the "NCL") conducted a survey at the end of 2000 to determine how and why people participate in online auctions. Overall, most of the survey 9 respondents who participated in online auctions indicated that they did so only as bidders. The study found that bidders were attracted to online auctions because they were looking for either: bargains (43%), hard to find items (23%), or things they collect (21%). In addition, of those who had participated as bidders in online auctions, eighty-three percent (83%) actually bought something. The average value of most purchases was $100 or less (75 %), but twenty-one percent (21%) of buyers said the average value of their auction purchases was between $101 and $500. Source: National Consumer League, Online Auction Survey Summary, January 31, 2001. Despite having such a large group of current and potential customers, the online auction marketplace has historically been highly fragmented, dominated by one or two online auction companies without any real competition. The online auction market is growing and is highly responsive to simplicity, new marketing ideas and online innovation. No expensive infrastructure or inventory is required to enter the market. Skilled personnel and technology are the only barriers to entry that exist. As a result, Bidville was created in 1999 by Dr. Edward Orlando, offering a wide range of online auction services that present a viable alternative to eBay. Bidville's website provides a venue for buying and selling activities to take place between its users on a consumer-to-consumer, business-to-consumer and business-to-business basis. The range of products offered on Bidville's website is expansive, allowing users to browse through many categories and find new or used listed items that would normally be difficult to locate through conventional means. As the portion of the population with Internet access continues to grow, online auction companies such as Bidville should enjoy a a more diverse and active membership base. Bidville: The Market Alternative Bidville provides Internet users with an active website that facilitates auctions and fixed-price e-commerce between unrelated third parties. The Company's website may be accessed through the URL: www.bidville.com. Bidville currently has approximately 185,000 active members, with over 5,000 active sellers. In addition, Bidville has developed an aggressive marketing plan to help grow its membership in the future. See "Marketing and Distribution" below. Bidville's on-line auction and fixed price offering allows buyers and sellers to bypass traditionally expensive, regionally fragmented intermediaries and provides a venue to transact business twenty-four hours a day, seven days a week, and 365 days a year. In this manner, the buyer has access to a marketplace where business is conducted by negotiating with sellers through an open bidding process and allows buyers to make purchases based on targeted prices. The seller has the luxury of displaying products for sale to a virtually infinite marketplace of buyers. Therefore, the seller is able to reliably sell at competitive prices, due to lower cost of sales. 10 Bidville currently features approximately 1.4 million daily listings, ranging from electronics to baseball cards, and supports a growing community, evidenced by its active message boards. In order to attract sellers and expand revenue-producing parameters, Bidville recently initiated a "Final Success Fee" ("FSF") (described in greater detail below) as a transition from its previous membership-based monthly fee structure. Bidville does not currently charge sellers listing fees and there is no charge to persons wishing to bid on any of the items posted on our website. In the normal course of business, Bidville charges sellers for online auction activities through both a FSF format and a listing "Enhancement Fee" format. Sellers are only charged a Final Success Fee (not a "listing fee") when an item is successfully sold. This FSF is charged as a percentage of the final value of a successfully completed auction. The FSF percentage ranges from a straight 5% to 1% plus a calculated price range based on percentage closing fees accrued from higher level closing values. The current Bidville model derives revenues from sellers through Final Success Fees, as well as under a schedule of optional charges should a seller choose to use certain features to enhance their product listings (known as "Enhancement Fees"). The existing Bidville seller base, which was previously subject to a monthly membership fee for listing items for sale on the Bidville site, will gradually be matriculated into the recently implemented FSF structure. Bidville's Business Approach and Development The Bidville website has been designed around an intuitive and easy to use trading platform. After completing a short online registration form, sellers can list one or many items for sale on the website. A seller can create listings with attractive and professional descriptions without having to know how to use HTML programming. Bidville also offers additional tools to help sellers with their listings, such as a bulk loader, photo gallery and tracking services. During the course of the auction, bidders are first notified by e-mail that they have placed the highest bid and immediately notified if they are outbid. In addition, both sellers and successful bidders are automatically notified when an auction or "Take-It Listing" has been completed. Bidville offers members further assistance through a comprehensive "Help" section, as well as customer service geared toward helping experienced as well as novice "auctioneers." Bidville has developed a number of features designed to make users more comfortable when dealing with an unknown trading partner over the web. The ratings section encourages every Bidville member to provide comments and feedback on other Bidville members with whom they have completed a transaction. In addition, we plan to implement a fraud insurance program in the near future, at no cost to the user, which would cover select items sold on the site up to a value of $300 (minus a $20 deductible), for members with non-negative feedback 11 ratings. In addition to the proposed fraud insurance coverage, Bidville's expanded safety program offers tips and guidelines for safe trading, responds to reports concerning misuse of the Bidville service and if necessary, warns or suspends users who violate the terms of Bidville's "User Agreement". Bidville's ongoing trust and safety initiatives, including credit card requirements for sellers, insurance and integrated escrow payment services through use of a qualified and reputable third party, are all intended to assist Bidville in maintaining as safe a place to conduct trades as possible. We are also in the process of developing a comprehensive set of rules and guidelines specifically prohibiting the sale of illegal, infringing or pirated items. Bidville currently allows its sellers to offer multiple options for payment. The Company may also investigate the development of its own online payment system. In the event Bidville develops its own online payment system, it is anticipated that this feature will generate additional revenue for Bidville. Bidville's Strategy Our business strategy is to develop into an alternative online auction marketplace, in an environment dominated by eBay, by using Bidville's website to provide a conduit for our online auction and fixed price format offering. This strategy is dependent upon our continuing to have sufficient cash flow from operations and/or obtaining sufficient additional financing with which to enhance existing and future services. Our revenues to date have been marginal and therefore our business strategy has been based almost entirely upon raising capital both to fund operations and to make those investments in our company which we believe will increase future revenues. We expect future revenues to be based upon the Final Success Fees charged to sellers when their items are successfully sold on the Bidville website, as well as from any Enhancement Fees collected from sellers who choose to use them. Due to our limited operating history, however, there can be no assurance that these revenues will be sufficient to sustain our operations or that we will be profitable in the future. Accordingly, our revenues are dependent on the volume of sales of goods on our website. Revenues from sales are recognized in the period in which revenues are earned. Our gross profit margin will be determined in part by our ability to estimate and control direct and indirect costs of operations and our ability to incorporate such costs into the FSF structure and the enhancement fees charged to sellers. Bidville receives sellers' payments through the online use of credit cards processed through a third-party paymaster. As such, we recognize revenue on the date a payment is received from sellers for any items that are successfully sold 12 in any of our auctions. Accordingly, Bidville's only short-term reportable accounts receivable are those that exist at the end of any reporting period. Unlimited access rights are granted to registered buyers and sellers on the Bidville website. Provisions for doubtful accounts and authorized credits to sellers are made at the time of revenue recognition based upon Bidville's historical experience in this area. Bidville Services and Procedures Bidville has created a business entity with a revenue structure and plan of operations closely aligned with the highly successful model originated by eBay. However, because Bidville sellers are not charged listing fees, Bidville offers sellers a distinct advantage over other Internet auction venues. Registration Anyone can visit the Bidville website and look through the more than 2,600 categories listing items for sale in an auction at any given time. In order to place a bid, however, a new Bidville user must first complete a simple online registration form. Users must be at least 18 years of age to register on our site. During registration, a user is required to choose a "nickname" or User ID, as well as give their contact information (such as name, address, phone number and email address). This information is later used to contact the user about services on our site for which they may have expressed an interest. After completing the registration form, new users must confirm their registration before using the new account by reading and accepting the terms of our User Agreement and finally, creating a password for their account. Once a password has been chosen, the account is immediately activated and the new user can then proceed to bid on any of the items listed on our site. Auction Types There are two basic types of auctions conducted on the BidVille site: English Auctions English auctions are probably the most common type. Users bid the highest price they are willing to pay for an item and bidding activity stops when the auction time expires. The item is sold to the highest bidder at their last posted bid price. In addition, English auctions allow sellers to specify a "Reserve Bid" for an item. A Reserve Bid is a set price below which an item will not be sold. If the Reserve Bid is not reached by the time the auction ends, the item will not be sold. The seller must then re-list the item in a new auction in order to sell it. 13 Dutch Auctions Dutch auctions are a special type of auction designed to handle cases where a seller may have a number of identical items to sell. Sellers should specify a minimum price (starting bid) and the exact number of items that are available at that price. Bidders place bids at or above that minimum price and the number of items that they are interested in buying. At the end of the auction, the highest bidders win the right to purchase those items at the minimum successful bid amount. For example, if twenty-five (25) widgets are being sold at $75.00 and forty-five (45) bidders bid $75.00 for one widget each, in this case, only the first twenty-five (25) people would be able to successfully buy a widget. Since the bid amounts are the same, earlier bids will take precedence and those bidders will take the merchandise. If one of those people were to bid $100 for one widget, however, that person would certainly be one of the bidders to get the merchandise, since their bid would be higher than all the rest. If bidders continue to place bids higher than the starting price enough times, then the final bidding price will also increase proportionately. In another example, if less than twenty-five (25) people bid in our example "widget" auction, only that number of widgets would be sold at the opening price of $75.00. For the selling price to increase past the opening price specified by the seller, there must be an equal or higher level of demand than the supply indicated. In our example, the selling price would only increase if twenty-four (24) or more widgets were bid on, no matter what the amount of each bid. In cases where a user bids for multiple quantities of an item, the bidder who bids the lowest will not necessarily get all of the merchandise that they bid on. Take for instance an auction where the user who made the lowest bid requested a quantity of four (4) widgets. If twelve (12) other higher bidders each bought two (2) widgets, there would only be one (1) widget left. In this case, the lowest bidder would only be entitled to one (1) widget, even though they had originally bid for four (4) widgets. To avoid this problem, a bidder must ensure that they are not the lowest successful bidder. (Note: In this type of auction, an item's value is determined by the total number of items bid on, multiplied by the bid price). Bidding Types Proxy Bids All bids on English Auctions are proxy bids. A proxy bid is the maximum amount a bidder is willing to pay for a particular item. The proxy bid system takes advantage of the computer in an online auction environment. By entering a proxy bid amount, Bidville software will automatically advance the bidding if someone bids more than the current bid and less than that buyer's proxy bid. 14 Once the price of an item has gone above the bidder's proxy amount, our system automatically sends an email to that user to notify them that they have been outbid. It is then up to the user to increase the amount of their proxy bid through our website in order to continue participating in the auction. Proxy bids will also automatically advance the bidding to the level of the reserve or the buyer's maximum proxy bid, whichever is lower. Thus, a user's bid might increase quickly if another bidder has placed a high maximum bid, but not as high as the original user's maximum proxy bid. Our system will automatically place a bid, up to the user's set maximum bid, on the user's behalf. The system will not allow users to place a bid against themselves, and so, although a user can raise their maximum proxy bid by placing another bid, the user's current bid will not be affected. Regular Bids All bids on Dutch Auctions are regular bids. The amount that a buyer places in a particular field will be the amount of the bid that they are making. The necessity of having to continually update one's bid is a drawback to this type of bid. Reserve Bid When a seller sets a Reserve Bid amount, they are stating that this value, which is not disclosed to the bidders, is the lowest bid that they will accept as a successful auction. This allows sellers to set a minimum amount for which they will sell a given item. Setting a reserve price too high will likely result in an item not selling. However, if a user is bidding in a Reserve auction and they set their maximum bid at a price that is equal to or higher than the seller's reserve price, their bid will automatically be raised to meet it. For example, a seller sets a minimum bid of $20 and a reserve price of $50 for an item. If the buyer sets their maximum bid at $70, their bid will automatically jump to $50 and it will be noted on the item listing that the reserve price has been met. Bidding on Items In order to bid on any item, a new user must first register on the Bidville website and choose a "nickname," or User ID, and a password. Once registered, the user can then select any item they are interested in bidding on, either by searching for a specific item or type of item, or by searching within a particular category or in the featured auction list. To place a bid, the user must then enter their User ID, Password, Quantity and Bid Amount in the Bidding section on the item's auction page. Users then have the ability to review their bid in order to verify that it is correct. Once the user is satisfied with their bid, they can click "submit" and the bid is then entered into our system. 15 It is not possible to lower or retract a bid once it has been submitted. In the "Frequently Asked Questions" section of the BidVille website, bidders are cautioned to be extremely careful when placing a bid and to only place bids when they intend on following through with the purchase. However, users can increase their maximum bid (proxy bid) at any time before an auction ends. In addition, items listed on our website are most often posted by individuals, and sometimes small companies. It is important to note that although we try to monitor our site and remove objectionable material or listings, we may not be able to regulate or verify every item offered for sale. The "Buyer Information" portion of our website warns bidders to beware of potentially misleading statements or fraudulent listings, as well as illegal products listed for sale. To minimize this risk, bidders are encouraged to email sellers with specific questions relating to an item and to also review the seller's feedback report. Furthermore, bidders are able to email Bidville's Customer Service with any concerns. Feedback Feedback is a critical way for future buyers and sellers to assess the credibility of a potential buyer or seller. Our Feedback feature allows sellers and successful buyers to rate other parties to a given transaction and provides a place for additional comments. Potential buyers can easily learn more about a seller by browsing through the seller's feedback profile. Comments are categorized either as Positive, Neutral, or Negative and users can easily see how many comments of each type a user has received in the past. This provides an excellent way for buyers to find out about a seller's trading habits and prior dealings on Bidville. We believe feedback is extremely useful in overcoming initial user hesitancy when trading over the Internet, as it reduces the anonymity and uncertainty of dealing with an unknown trading partner. TrackPal Once a user is registered in our system, that user can then manage their account in a variety of ways through Bidville's "TrackPal" system. The TrackPal system allows users to: - Track all of their current and expired auctions. - View and edit their personal info. - View their selling history. - View their buying history. - See their user feedback. - Relist their expired auctions. - Edit their current Auction Items. Users can also use TrackPal to edit their personal preferences for message displays, email notifications and the user's "About Me" page. In addition, users can "Block Bidders" from bidding on their items by setting up a "Blacklist" of bidders with whom the user does not wish to do business. A user can block certain bidders from bidding by either specifically naming which users to block or by setting a "Minimum Feedback" rating requirement, which other bidders must meet in order to place a bid. 16 Selling Items Selling an item (or items) online using Bidville's auction format can be very effective and we encourage sellers to post as many items as they wish. Before placing an item for sale, a seller must first be a registered Bidville user and have verified their membership by placing a valid credit card on file with us. After completing a one-time registration, a seller can then list items for auction by simply clicking on the "Post an Auction" link near the top of every page on our website and then filling out a short online form. As will be described in greater detail shortly, the key distinction between Bidville and some of its competitors, such as eBay, is that we do not currently charge sellers a "listing fee" to list items for sale in any of our auctions. Instead, we recently implemented a "Final Success Fee" ("FSF") structure, where sellers pay only a percentage of the final amount for which an item sells in one of our auctions. Sellers do not have to pay an FSF for an item that does not sell, either because there are no bids for the item or because the reserve price is not met. Other than charges for any additional features that a seller may want to use to enhance a listing, sellers incur no other charges in selling an item on our website. This is a key difference between Bidville and eBay's current pricing model (which charges sellers a listing fee to list any item(s) for sale on eBay's website, in addition to a final value fee if the item eventually sells). We believe that our pricing model will encourage new users to sell items on our website and can minimize their concerns about the costs of doing so. Bidville auctions allow sellers to sell items on our website without any cost to them unless enhancement fees are used for items listed and/or until the user is able to successfully sell an item. Final Success Fees In accordance with our marketing and advertising plans to position Bidville as a frontrunner in the e-commerce marketplace, Bidville changed its previous fee structure from Membership Fees to Final Success Fees ("FSF"). Effective February 1, 2004, FSF are charged to sellers only when the items they list on the Bidville website are successfully sold. The FSF structure is currently as follows: Final Sale Price Final Success Fee -------------------------------------------------------- $0.01-$25.00 5% of the final sale price $25.01-$1000.00 $1.25 + 2.5% of final sale price amount over $25.00 Over $1000.00 $25.63 + 1% of final sale price amount over $1000.00 FSF are billed to successful sellers on a monthly basis. If the seller has a credit card on file with Bidville, the credit card will be charged the total amount of FSF for that month. If a Bidville seller does not wish to use a credit card to pay for FSF, the seller can make other arrangements with Bidville's Customer Service. 17 Enhancement Fees Aside from the Final Success Fee described above, there are no other mandatory fees for using Bidville. However, there are many optional fees that a seller may or may not decide to incur. For example, there are optional fees for placing an auction in the "Photo Gallery" or "Featured" area of Bidville. There are also fees for using any of our enhancement features available to help a seller's auction stand out to buyers, such as making an auction title BOLD or add a "Gift Icon" to the item. These added features are charged in the form of "Enhancement Fees," which are billed twice per month to sellers depending on the seller's particular billing cycle. See "Completing the Transaction" below. The optional enhancements and the corresponding fee structure are as follows: Enhancement Fee ---------------------------------- Bold Face Title $0.25 Highlight $0.25 Take It! FREE Gift Center Icon $0.50 Category Feature $2.50 Homepage Feature $5.00 Banner $0.25 Photo Gallery $0.10 When a seller posts an auction, Bidville makes it very clear which services are optional. If a seller decides not to use any of these services, they can simply bypass this section on the initial listing form. In that case, the seller's listing will be completely free to the seller until the item actually sells. Featured Sellers Every day, six (6) Bidville sellers are randomly chosen by our computers to be "Featured Sellers." These sellers will automatically have links on the Bidville homepage that direct bidders to their items. To qualify for the daily drawing, sellers must have at least fifty (50) active auctions at the time of the drawing. Bidville Credit "Bidville Credit" represents credits issued to and/or purchased by sellers who have been grand-fathered in prior to the February 1, 2004 change from a membership fee structure to an FSF format. Sellers can use Bidville Credit to purchase any of our optional services for their auctions. For example, a seller may use the credit to place an auction in the Photo Gallery or Featured section of Bidville. Bidville Credit cannot be used to pay for items that a user has won or FSFs incurred for items sold, and is not equivalent to cash. Credit is also non-refundable and non-transferable. 18 A seller can check their credit balance at any time by visiting the TrackPal section of Bidville and clicking on the "View Your Account Balance" link. While there, a seller can also check the details of their account balance by clicking the "View Your Account Invoices" link. This area will show details of any optional services a seller may have purchased for their items. Effect of Transitioning from Membership Fee to Final Success Fee Structure Premier Sellers The recent implementation of the Final Success Fee structure has changed the manner in which existing Premier and Verified sellers are treated. Current Bidville Sellers (as of January 31, 2004) had the option of becoming or continuing their previous Premier Membership plan for three (3) months (paying their membership fee each month) and receiving one and a half (1 1/2) times the credits for each month that they become (or continue) their Premier Membership. After April 30, 2004, there will no longer be Premier Sellers. All members that were Premier Sellers in the prior three (3) months will have three (3) months (until July 31, 2004) to remain as Verified Sellers on Bidville. As of August 1, 2004, there will no longer be any Verified Sellers. Premier Sellers (and Verified Sellers) will not pay any Final Success Fees for the period running from February 1, 2004 to July 31, 2004. Any Credits that are left over after July 31, 2004 will not expire and can be applied towards Enhancement Fees the seller may incur at a later date. Credits, however, cannot be applied towards any Final Success Fee. For example: SUPPORT is a Premier Plus Seller that currently pays $10 per month and accordingly receives $100 in credits per month. SUPPORT will continue to pay the $10 for credits towards Enhancement Fees and will not be charged Final Success Fees for February, March, and April. SUPPORT will receive $150 per month in enhancement credits from Bidville. Between May 1, 2004 and July 31, 2004, SUPPORT will no longer pay the $10 per month and will still not be obligated to pay any FSF. This interim fee structure applies to each level of our Premier Membership fee structure in the following manner: Premier Sellers: *Pay $5 per month through April 30, 2004 *Receive a $37.50 Credit per month through April 30, 2004 *Do not pay FSF until August 1, 2004. Premier Plus Sellers: *Pay $10 per month through April 30, 2004 *Receive a $150 Credit per month through April 30, 2004 *Do not pay FSF until August 1, 2004. 19 Premier Gold: *Pay $15 per month through April 30, 2004 *Receive a $300 Credit per month through April 30, 2004 *Do not pay FSF until August 1, 2004. After August 1, 2004, every Premier Seller (regardless of prior status) will be obligated to pay FSF, although the seller can still apply any unused Credits they may have towards Enhancement Fees. Unused Credits will not expire and may be used by the Seller at any time. Verified Sellers Current Verified Sellers (as of January 31, 2004) will continue to be Verified Sellers until July 31, 2004. If a Verified Seller is due to renew their six (6) month verification any time between January 31, 2004 and July 31, 2004, they will not be required to renew. All Verified Sellers who are current Verified Sellers as of January 31, 2004 will not have to pay FSF until July 31, 2004. Each current (as of January 31, 2004) Verified Seller will receive a one-time "thank you" from Bidville in the form of $25 in credits to be used towards Enhancement Fees. These credits will not expire and can be used for enhancements either during the six (6) month grandfathering period or at any time thereafter. Credits, however, cannot be applied towards FSF. For example: SUPPORT2 is a Verified Seller that paid $5 for 6 months of Verified Selling on Bidville in October. SUPPORT2 is due to pay an additional $5 to re-verify in February 2004. SUPPORT2 does not have to pay an additional $5 in February. SUPPORT2 is a Verified Seller as of January 31, 2004 and therefore does not have to pay FSF until July 31, 2004. SUPPORT2 also receives a one-time credit of $25 on February 1, 2004 to use on enhancements for his auctions. New Sellers All new sellers that registered as users of Bidville after the implementation of the FSF structure (or are an existing member of Bidville but not a Verified Seller or Premier Seller), may still be "grandfathered" in as a Verified Seller and Premier Seller as described above, if such seller becomes a Premier Seller or Verified Seller on or before January 31, 2004. For example: SUPPORT3 joins Bidville on January 2, 2004. SUPPORT3 becomes a Verified Seller. SUPPORT3 pays $5 for his Bidville Verified Membership. SUPPORT3 will receive a $25 credit to use towards enhancement fees on February 1, 2004. SUPPORT3 will NOT have to pay any FSF until July 31, 2004. 20 All new sellers that become a member of Bidville or are an existing member of Bidville and choose to sell items on or after February 1, 2004 will be charged a FSF for each item that they sell on Bidville. For example: SUPPORT4 joins Bidville on February 2, 2004. SUPPORT4 gets his credit card verified and begins to list items for sale on Bidville. SUPPORT4 sells 20 widgets for $200 total. SUPPORT4 gets an invoice on March 1, 2004 for $10 in FSF. Completing the Transaction Payment of Fees Once a seller has verified their membership, Bidville will have a valid credit card from that seller on file. This credit card will be used for routine payment of any optional fees the seller may have accumulated. We will send notification of any fees associated with the respective seller's account twice per month, depending on the seller's billing cycle, via email to the email address on file at that time. On the 1st and 15th of each month, sellers' credit cards will be charged for any fees owed to Bidville totaling $1 or more. If a seller owes less than $1 we will not charge their card, but the balance will carry over to the next billing period. Billing System Member sellers are billed for the expenses incurred by that seller in a particular month under one of following two billing cycles: Cycle 1 - This is the billing cycle for sellers who registered with Bidville between the 1st and 14th of the month. Any charges incurred by the seller (i.e. the aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 1st and 4th of the subsequent billing period in the charges are incurred. The seller's credit card is charged seven (7) days after the date of the e-mailed invoice. Cycle 2 - This is the billing cycle for sellers who registered with Bidville between the 15th and 31st of the month. Any charges incurred by the seller ( i.e. aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 15th and the 19th of the subsequent billing period the charges are incurred. The sellers' credit card is charged seven (7) days after the date of the e-mailed invoice. This type of two cycle monthly billing structure is cost effective for Bidville, since we are charged a transaction fee each time a credit card charge is processed through our website. 21 Paying for Items Won At the conclusion of an auction where an item is successfully sold, the winning buyer is notified via email that they are the highest bidder for the ended auction. In the email, winning bidders are provided full details on how to complete the transaction, including contact information for the seller of the item and instructions on how to proceed. The seller is also notified via email when an auction has ended. In cases where an item has successfully been sold, the email also identifies the winning high bidder. In most cases the seller contacts the winning bidder first, confirming payment, shipping cost and shipment details for the item. The winning bidder will be shipped the item after making the appropriate payment to the seller, according to the payment instructions initially provided by the seller in the auction description. Operations, Technology and Security Technologically, Bidville's website is a scalable and highly accessible system. The backbone of the system resides on a high performance network, with a suite of high-end multi-processor Intel based servers hosting a relational database system and full text repository. A parallel network of web and application servers provides public access to the thousands of pages that collectively comprise the Bidville website. High availability, load balancing and monitoring of this array of pages and servers are accomplished by using company-owned equipment manufactured by Dell, Cisco and Alteon Web Systems, Inc. Bidville's networks and server farms are constantly monitored and corrective actions are taken in response to internal alerts and triggers. The Bidville site is kept in a constant state of readiness 24 hours a day, 7 days a week, 365 days a year, and has full redundancy throughout all layers of the application, based on load balancing, mirroring, replication technologies and fail over architecture, greatly reducing the amount of down time. Web Hosting Colocation On February 25, 2004, we completed the move from our former web hosting services provider, Omega Micro Systems, Inc. in Newark, New Jersey to a web hosting colocation in Tampa, Florida. The new web hosting service provider, iLand Internet Solutions Corporation, in addition to being more geographically accessible from Bidville's offices, also provides greater broadband capability and more comprehensive and expansive managed services. The new hosting location maintains the highest level of access security for the Company-owned equipment owned by the Company. 22 Thunderstone Software On April 6, 2004, Bidville entered into a three-year lease agreement with Thunderstone Software LLC ("Thunderstone"), whereby Bidville will lease the right to install and use certain of Thunderstone's sophisticated software programs. These software programs are an integral part of our website's technological structure and allows us to maximize the use of a comprehensive full text search function on Bidville's website. We are required to pay Thunderstone an initial Lease payment of $25,363, and beginning with the calendar month following execution of the Lease, Bidville shall pay Thunderstone an amount each month equal to $2,900. Monthly payments are due on the first day of each calendar month. The amount of the lease payment is subject to change, predicated upon noted increased levels of search activity conducted on Bidville's website. Testing Bidville's development staff works on an independent development network of high-end servers and workstations where they can test new techniques as well as perform full functional and regression testing of any new features before such features are brought into Bidville's live site. Internet Security All sensitive transactions are handled using industry standard SSL encryption through Verisign, a provider of Internet security. The use of this process and Verisign as a provider helps to prevent Bidville members' confidential information from being intercepted and/or altered by unauthorized third parties. In addition, Bidville has teamed with several companies to provide real-time financial transactions to its membership via secure exchanges between their servers and those of the Company. Bidville adheres to the privacy standards set by the Trust-E and BBB Online organization. Bidville's main priority is to establish and maintain a secure online environment for all Bidville members. Marketing and Distribution Bidville enters the marketplace at a time when Internet use is much greater than the level when eBay began operations. This should result in a shorter period of ramp-up time for growing Bidville's registered user base and expanding associated buying and selling activities on the Bidville website. To maintain a competitive edge, Bidville plans to continually introduce a stream of new innovative technologies and services to the growing online consumer market. Bidville's marketing strategy centers on brand visibility and online consumer market awareness. Bidville's first step is to initiate a co-registration e-mail program along with product positioning with major 23 e-commerce names such as: The Excite Network (Iwon.com), Overture, Lycos.com and Yahoo.com; organizations with which Bidville currently has contracts on a per campaign basis, except for: Yahoo.com which runs through September 2004 and Auction Bytes which runs through the end of 2004. We also plan to introduce an Affiliate Program that pays a fee for performance based and qualified new registration activities conducted on the Bidville site. In addition, further online, print, trade shows and other grass roots advertising campaigns will be the cornerstones of Bidville's marketing strategy. For example, we recently entered into an agreement to be a participating sponsor of Major League Baseball's Tampa Bay Devil Rays, who play in the Eastern Division of the American League. The sponsorship includes thirteen Saturday night games which will host "Bidville.com Saturday Night Silent Auction". Bidville.com will feature various Devil Rays items, including autographed memorabilia, box seat tickets and VIP passes to certain games. These items will be auctioned on the Bidville.com website throughout the season, with all proceeds from the auctions going to the Tampa Bay Devil Rays "Rays of Hope Foundation" charities. A check presentation ceremony, to the "Rays of Hope Foundation" charities, will take place at the end of the season. This community based sponsorship will provide local, as well as national, exposure for Bidville and will enhance our current marketing initiatives by attracting new buyers and sellers to our auction site. Many auction site participants have registered at several auction sites in order to increase the odds for successfully locating items to purchase and/or completing a sale of their item. Although Bidville expects to continue to build a strong sense of brand loyalty, it is also understood that in e-commerce, a considerable percentage of users who register at Bidville will also be registered at other online shopping marketplaces. We plan to monitor our newsgroups, conduct our own surveys and opinion polls, hold community forums and workshops, and analyze feedback obtained through records, statistics and correspondence maintained for customer service interaction with Bidville's members. We believe that continuing to build a strong online community is a key factor for continued business growth. COMPETITION The online auction service market is intensely competitive, with eBay being the dominant player in this market. Our primary competition comes from various online auction sites including: eBay, Amazon.com, the Fairmarket Auction Network, Surplus Auction, uBid, Yahoo! Auctions, and a large number of other companies that use an auction format for consumer-to-consumer or business-to-consumer sales. Bidville's total fee structure, however, is typically forty-five to sixty percent (45% - 60%) lower than comparable fees charged by eBay, with the actual fee structure in each instance depending on the final bid price and the type of fee charged. Additionally, Bidville provides the same, and in many circumstances more, services than do competitors such as eBay. 24 In general, we also face competition from large, well-established companies with considerably greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present and potential competitors have capabilities that may allow such competitors to offer their services at prices that may directly compete with ours. Depending on the category of product, we currently or potentially compete with a number of companies serving particular categories of goods as well as those serving broader ranges of goods. Our broad-based competitors include the vast majority of traditional department and general merchandise stores, as well as emerging online retailers. The most prominent of these include: Wal-Mart, Kmart, Target, Sears, Macy's, JC Penney, Costco, Office Depot, Staples, OfficeMax and Sam's Club as well as eBay, Amazon.com, Buy.com, AOL.com, Yahoo! shopping and MSN. In addition, we face competition from local, regional and national specialty retailers and exchanges in each of its categories of products. For example: Antiques: Christie's, eHammer, Sotheby's / Sothebys.com, Phillips (LVMH) Coins & Stamps: Collectors Universe, Heritage, US Mint, Bowers and Morena Collectibles: Franklin Mint, Go Collect, Collectiblestoday.com, wizardworld.com, Russ Cochran Comic Art Auctions, All Star Auctions Musical Instruments: Guitar Center, Sam Ash, Mars Music, Music123.com, Gbase.com, Harmony-Central.com Sports Memorabilia: Beckett's, Collectors Universe, Mastro, Leylands, Superior Toys, Bean Bag Plush: Amazon.com, KB Toys, ZanyBrainy.com, Wal-Mart.com Premium Collectibles: Christies, DuPont Registry, Greg Manning Auctions, iCollector, Lycos / Skinner Auctions, Millionaire.com, Phillips (LVMH), Sotheby's, Sothebys.com Automotive (used cars): Autobytel.com, AutoVantage.com, AutoWeb.com, Barrett-Jackson, CarPoint, Collectorcartraderonline.com, eClassics.com, Edmunds, CarsDirect.com, Hemmings, imotors.com, vehix.com, newspaper classifieds, used car dealers Books, Movies, Music: Amazon.com, Barnes & Noble, Barnesandnoble.com, Alibris.com, Blockbuster, BMG, Columbia House, Best Buy, CDNow, Express.com, Emusic.com Clothing: Bluefly.com, Dockers.com, FashionMall.com, The Gap, J. Crew, LandsEnd.com, The Limited, Macy's, The Men's Wearhouse, Ross 25 Computers & Consumer Electronics: Best Buy, Buy.com, Circuit City, Compaq, CompUSA, Dell, Fry's Electronics, Gateway, The Good Guys, MicroWarehouse, Shopping.com, 800.com, Computer Discount Warehouse, PC Connection, computer and consumer electronics retailers Home & Garden: IKEA, Crate & Barrel, Home Depot, Pottery Barn, Ethan Allen, Frontgate, Burpee.com Jewelry: Ashford.com, Mondera.com Pottery & Glass: Just Glass, Pottery Auction, Go Collect Sporting Goods/Equipment: dsports.com, FogDog.com, Footlocker, Gear.com, golfclubexchange, MVP.com, PlanetOutdoors.com, Play It Again Sports, REI, Sports Authority, Sportsline.com Tickets: Ticketmaster, Tickets.com Tools/Equipment/Hardware: Home Depot, HomeBase, Amazon.com, Ace Hardware, OSH Business-to-Business: Ariba, BidFreight.com, Bid4Assets, BizBuyer.com, bLiquid.com, Buyer Zone, CloseOutNow.com, Commerce One, Concur Technologies, DoveBid, FreeMarkets, Iron Planet, labx.com, Oracle, Overstock.com, PurchasePro.com, RicardoBiz.com, Sabre, SurplusBin.com, Ventro, VerticalNet Nevertheless, some of our current and potential competitors have longer company operating histories, larger customer bases and greater brand recognition in other business and Internet spaces than we do. In addition, some of these competitors also have significantly greater financial, marketing, technical and other resources than we do. Other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, better-established and better-financed companies. As a result, some of our competitors with other revenue sources may be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to website and systems development than we can. Increased competition may result in reduced operating margins, loss of market share and a diminished value for our brand. Some of our competitors have offered services for free, and others may do this as well. We may be unable to compete successfully against current and future competitors. In order to respond to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that could ultimately cost us more money or even harm our business. New technologies may increase competitive pressures by enabling our competitors to offer similar services at a lower cost than we can. Some Internet-based applications that direct Internet traffic to certain websites may 26 channel users to trading services that compete with us. Although we plan to establish Internet traffic arrangements with several large online services and search engine companies, these arrangements may not be on commercially reasonable terms. Even if these arrangements are implemented, they may not result in increased usage of our service. In addition, companies that control access to transactions through network access or Internet browsers could promote our competitors or charge us substantial fees for inclusion. Finally, some of our current and potential competitors have established or may establish cooperative relationships among themselves or directly with large online service and search engine companies, which may grant our competitors exclusive or semi-exclusive rights that are not available to us. In addition, there has been an ongoing process of consolidation in our industry, which may continue in the future. Accordingly, it is possible that new competitors or alliances among competitors and suppliers may emerge and rapidly acquire market share. For these reasons, among others, increased competition is likely to reduce our operating margins, cause us to lose market share or diminish our brand. If any of these things occur, our business would be significantly harmed. Status of Publicly Announced Products and Services Recently we implemented a Final Success Fee structure that is charged to sellers for successful auctions where item(s) is/are sold. This change became effective February 1, 2004, transitioning Bidville from its previous fee structure where membership fees were charged to all sellers. SOURCES AND AVAILABILITY OF RAW MATERIALS The materials and equipment needed to operate our online auction service are widely available from numerous third parties. No shortage of materials is expected in the foreseeable future. DEPENDENCE ON ONE OR FEW CUSTOMERS None. RESEARCH AND DEVELOPMENT We believe that research and development is an important factor in our future growth. The online auction market is at least partly linked to the latest technological advances. Therefore, we must continually invest in technology in order to provide the best quality online auction service to our community of registered users and to compete effectively with other companies in the industry. No assurance can be made that we will have sufficient funds to purchase or implement technological advances as they become available. Additionally, due to the rapid rate at which technology advances, our equipment may be outdated quickly, preventing or impeding us from realizing our full potential profits. 27 PATENTS, COPYRIGHTS AND TRADEMARKS We intend to protect our original intellectual property through a combination of non-compete and confidentiality agreements, along with patents, copyrights and/or trademarks as appropriate. Copyright laws and applicable trade secret laws protect Bidville's proprietary software and source code. Trademark protection prevents others from using a confusingly similar mark, but does not prevent others from making the same goods or from selling the same goods or services under a clearly different mark. We are currently in the process of applying for federal copyright and trademark registration. Bidville also currently owns the following domain names: 1. www.bidville.com 2. www.auxpal.com 3. www.feedbacksite.com EFFECT OF PROBABLE GOVERNMENTAL REGULATION ON THE BUSINESS Federal We post our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies, any Federal Trade Commission ("FTC") requirements or other privacy-related laws and regulations could result in proceedings by the FTC or others which could potentially have an adverse effect on our business, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the United States Congress and various state legislative bodies regarding privacy issues related to our business. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could materially and adversely affect our business through a decrease in user registrations and revenues. This could be caused by, among other possible provisions, the required use of disclaimers or other requirements before users can utilize our services. We are subject to the same foreign, federal, state and local laws as other companies conducting business on the Internet. Due to the increasing popularity and use of the Internet and online services, many laws relating to the Internet are being debated at the state and federal levels (both in the U.S. and abroad) and it is possible that laws and regulations will be adopted with respect to the Internet or online services. These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of these laws was adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. 28 However, several federal laws have been enacted recently, including the following, which could have an impact on our business. The Digital Millennium Copyright Act is intended, in part, to limit the liability of eligible online service providers for listing or linking to third-party Websites that include materials that infringe copyrights or other rights of others. The Children's Online Protection Act and the Children's Online Privacy Protection Act are intended to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children From Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. Such legislation may impose significant additional costs on our business or subject us to additional liabilities. In addition, laws such as the Digital Millennium Copyright Act and the European Union's Directive on Distance Selling, are still only beginning to be interpreted by the courts and their applicability and scope are, therefore, uncertain. State We are subject to varying levels of regulation in the states in which currently we anticipate providing our online services. Numerous states and foreign jurisdictions, including the State of Florida, where our headquarters are located, have regulations regarding how "auctions" may be conducted and the liability of "auctioneers" in conducting such auctions. Several states are considering imposing these regulations upon us or our users, which could harm our business. In addition, as the nature of the products listed by our users change, we may become subject to new regulatory restrictions. Several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission also has settled several proceedings regarding the manner in which personal information is collected from users and provided to third parties. International Since our services are accessible worldwide and we facilitate sales of goods to users worldwide, foreign jurisdictions may claim that we are required to comply with their laws. For example, a French court has recently ruled that a U.S. website must comply with French laws regarding content. The Australian high court has also recently held that a U.S. website in certain circumstances must comply with Australian laws regarding libel. Thus, if we expand further into international activities, we will become obligated to comply with the laws of the countries in which we operate. Due to the nature of the Internet, it is possible that the governments of individual states and other foreign countries might attempt to regulate Web content or prosecute us for violations of their laws. We might unintentionally violate such laws, such laws may be modified and 29 new laws may be enacted in the future. Any such developments (or developments stemming from enactment or modification of other laws) could also increase the costs of regulatory compliance for us or force us to change our business practices. Furthermore, laws regulating Internet companies outside of the U.S. may be less favorable then those in the U.S., giving greater rights to consumers, content owners and users. Compliance may be more costly or may require us to change our business practices or restrict our service offerings relative to those in the U.S. Our failure to comply with foreign laws could subject us to penalties ranging from fines to bans on our ability to offer our services. In addition, we may be required to retain legal counsel simply in order to advise us as to which laws apply to us and our business, as well as on compliance matters. Applicable laws in various jurisdictions may conflict with one another, leaving us unable to comply with all laws applicable to our business. Consumer Privacy Regulations Several domestic jurisdictions have proposed, and California, Minnesota, Utah, and Vermont have recently passed, legislation that would limit the uses of personal user information gathered online or offline. Many jurisdictions already have such laws and continuously consider strengthening them, especially against online services. In certain instances we are or may become subject to some of these current laws. In addition, we post our privacy policies and practices concerning the use and disclosure of user data directly on our website. Any failure by us to comply with our posted privacy policies, any Federal Trade Commission ("FTC") requirements or other privacy-related laws and regulations could result in proceedings by the FTC or others which could potentially have an adverse effect on our business, results of operations and financial condition. The U.S. Federal Trade Commission also has settled several proceedings against companies regarding the manner in which personal information is collected from users and provided to third parties. Specific statutes intended to protect user privacy have been passed in many non-U.S. jurisdictions, including virtually every non-U.S. jurisdiction in which we currently transact business. Compliance with these laws, given the tight integration of our systems across different countries and the need to move data to facilitate transactions amongst our users (e.g., to payment companies, shipping companies, etc.), is both necessary and difficult. Failure to comply could subject us to lawsuits, fines, criminal penalties, statutory damages, adverse publicity, and other losses that could harm our business. Changes to existing laws or the passage of new laws intended to address these issues could directly affect the way we do business or could create uncertainty on the Internet. This could reduce demand for our services, increase the cost of doing business as a result of litigation costs or increased service or delivery costs, or otherwise harm our business. 30 COST OF SOFTWARE DEVELOPMENT At the current time, none of the costs associated with software development are borne directly by the customer; however there is no guarantee that such costs will not be borne by customers in the future. At the current time, we do not know the extent to which such costs will be borne by the customer, if any. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS Because of the "online" nature of our activities, we have not incurred any expenses in complying with state and federal laws regarding environmental protection or hazardous substances control. We are unaware of any pending legislation that could change the application of such laws so that they would affect us. EMPLOYEES AND CONSULTANTS At our last fiscal year end, December 31, 2003, we employed three (3) persons. As of the date of this filing, we currently employ seven (7) persons. None of these employees are represented by a labor union for purposes of collective bargaining. We consider our relations with our employees to be excellent. We plan to employ additional personnel as needed. Prior to August 25, 2003, the Company had not entered into any consulting or employment agreements. On August 24, 2003, the Company entered into an Executive Employment Agreement with Mr. Michael Palandro under which Mr. Palandro will serve as Bidville's Chief Executive Officer for a period of three (3) years, through August 31, 2006. Under his agreement, Mr. Palandro is entitled to an annual base salary of $120,000. Further, Mr. Palandro shall receive options to purchase up to 2,010,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 670,000 shares per year) on each anniversary date of this agreement, commencing on the 13th month of this agreement. Mr. Palandro is also entitled to receive the following bonuses, based on Company performance between October 1, 2003 and September 30, 2004: Membership enrollment: If enrollments reach 210,000 members, a $15,000 bonus will be paid. If enrollments exceed 270,000, an additional $5,000 bonus will be paid. Revenues: If revenues reach $2,200,000, a $15,000 bonus will be paid. If revenues exceed $2,800,000, an additional $5,000 bonus will be paid. Net Income: If net income reaches $264,000, a $15,000 bonus will be paid. If net income exceeds $336,000, an additional $5,000 bonus will be paid. Performance: An overall performance bonus of $15,000 to $20,000 may be paid at the discretion of the Company's Board of Directors. 31 On August 28, 2003, Bidville entered into an Executive Employment Agreement with Mr. Alan Phiet Pham under which Mr. Pham will serve as Bidville's Director of Information Technologies for a period of three (3) years, through August 31, 2006. Under his agreement, Mr. Pham is entitled to an annual base salary of $56,000. Further, Mr. Pham shall receive options to purchase up to 100,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 33,333 shares per year) on each anniversary date of this agreement, commencing on the 13th month of this agreement. On August 28, 2003, the Company entered into an Executive Employment Agreement with Ms. Kimberly J. Cullen under which Ms. Cullen will serve as Bidville's Director of Marketing for a period of three (3) years, through August 31, 2006. Under her agreement, Ms. Cullen is entitled to an annual base salary of $42,000. Further, Ms. Cullen shall receive options to purchase up to 100,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 33,333 shares per year) on each anniversary date of this agreement, commencing on the 13th month of this agreement. On January 12, 2004, the Company entered into an Executive Employment Agreement with Mr. Gerald C. Parker under which Mr. Parker will serve as the Company's President and Chairman of the Board for a period of three (3) years, through December 31, 2006. Under his agreement, Mr. Parker is entitled to an annual base salary of $150,000. In addition, Mr. Parker shall receive options to purchase up to 1,000,000 shares of Bidville's common stock at 15% below the market price on the date of the agreement. The closing price of Bidville's common stock for January 12, 2004, the date of the agreement, was $5.02. Accordingly, the exercise price of these options is $4.27. The options vest in one-third increments (approximately 333,333 shares per year) on each anniversary date of this agreement, commencing on the 13th month of this agreement. Mr. Parker is also entitled to receive the following bonuses, based on Bidville's performance between December 1, 2003 and November 30, 2004: Membership enrollment: If enrollments reach 210,000 members, a $15,000 bonus will be paid. If enrollments exceed 270,000, an additional $5,000 bonus will be paid. Revenues: If revenues reach $2,200,000, a $15,000 bonus will be paid. If revenues exceed $2,800,000, an additional $5,000 bonus will be paid. Net Income: If net income reaches $264,000, a $15,000 bonus will be paid. If net income exceeds $336,000, an additional $5,000 bonus will be paid. Performance: An overall performance bonus of $15,000 to $20,000 may be paid at the discretion of the Company's Board of Directors. 32 Financing: If during the 2004 fiscal year Bidville achieves private equity financing in an amount of $2,000,000, a $50,000 bonus will be paid. If total equity financing during the fiscal year exceeds $9,000,000, an additional $100,000 bonus will be paid. In recognition of his efforts in assisting Bidville in raising $2,205,000 in private equity capital in December 2003, the Board of Directors voted to award Mr. Parker a performance bonus in the amount of $50,000, which was paid to him in January 2004. Subsequent to the acquisition of 321 Play, Inc., 321 executed an executive employment agreement with Alina Mezhbovski on March 24, 2004, who is to serve as 321's Chief Executive Officer for a period of three (3) years. Ms. Mezhbovski shall receive as compensation: (a) an annual base salary of one hundred thousand dollars ($100,000); (b) Stock Participation - she may be eligible to participate in any stock option incentive plans established for key employees of 321, at the discretion of the Board of Directors; (c) Bonuses - she shall be eligible for a bonus of $100,000 per annum, for each $5,000,000 in annual revenue generated by 321. Total compensation shall not exceed $300,000; (d) Benefits - she shall also be entitled to participate in such programs as vacation pay and other fringe benefit plans authorized from time to time by the Board of Directors, in its discretion, for employees of 321; (e) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors of the Company. 321 also executed on the same date a three-year consulting agreement with Mezhcorp LLC. As compensation, Mezhcorp shall receive: (a) an annual base compensation of one hundred fifty thousand dollars ($150,000); (b) Bonuses - Mezhcorp shall be eligible for a bonus of $100,000 per annum, for each $5,000,000 in annual revenue generated by 321. The total compensation shall not, however, exceed $300,000; (b) Stock Participation - Mezhcorp may be eligible to participate in any stock option incentive plans established for non-Consultants of 321, at the discretion of the Board of Directors; (c) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors. The Company and Dr. Edward Orlando, the Company's former sole shareholder and founder, entered into a Consulting Agreement on August 24, 2003, whereby Dr. Orlando will provide certain management consulting services to the Company and retain a position on the Company's Board of Directors for a one year period. Dr. Orlando received certain property of the Company, including certain computer and other electronic equipment and forgiveness of certain funds advanced by the Company to Dr. Orlando for either personal use or the expenses 33 related to certain patent(s) in process at the August 25, 2003 change in control as compensation for this Consulting Agreement. Further, Dr. Orlando will be reimbursed for all reasonable out-of-pocket expenses so long as said expenses have prior written authorization of the Company's management. On October 1, 2003, the Company entered into a Consulting Agreement with Donald Lees (or LeeWard Enterprises) of Indian Harbor, Florida to provide consulting services for programming, engineering, database management, data transfer and other services. This agreement is for a period of 365 days. This agreement requires compensation at $5,000 per month, plus reimbursement for all reasonable costs and expenses. Either party may cancel this agreement by giving 60 days written notice to the other party. In September 2003, No Bidding, Inc. entered into a consulting agreement with National Securities Corporation, a Washington corporation ("National") for advice and assistance in connection with the negotiation and preparation of acquisitions, mergers and/or strategic alliances. The term of the agreement is for a period of seven (7) months. For such services, the Company is obligated to pay National $20,000 per month. The Company has paid the entire $140,000.00 due National in accordance with the terms of the agreement. In December 2003, Bidville entered into an agreement with both National and Royal Palm Capital Group, Inc. ("Royal Palm"), wherein National will render consulting advice to the Company relating to financial, investment banking and merger/acquisition matters. The term of the agreement is for a period of twelve (12) months. For such services to the Company, Royal Palm has agreed to give National 3,966,700 shares of the Company's common stock owned by Royal Palm. Subsequent to the December 31, 2003 fiscal year end, we executed several individual consulting agreements with various corporations. The first of these agreements, dated January 4, 2004, was executed between Bidville and Mirador Consulting, Inc., a Florida corporation ("Mirador"), for a term of one year from the date of the agreement. Under the terms of the agreement, Mirador shall provide Bidville with various corporate consulting services, including: (a) providing the Company with corporate consulting services on a best efforts basis in connection with mergers and acquisitions, corporate finance, corporate finance relations, introductions to corporate finance, corporate finance relations, introductions to other financial relations companies and other financial services; (b) using its best efforts to locate and identify to the Company private and/or public companies for potential merger with or acquisition by the Company; (c) contacting the Company's existing shareholders, responding in a professional manner to their questions and following up as appropriate; and 34 (d) using its best efforts to introduce the Company to various securities dealers, investment advisors, analysts, funding sources and other members of the financial community with whom it has established relationships, and generally assist the Company in its efforts to enhance its visibility in the financial community. Bidville will compensate Mirador for such services rendered through the initial issuance of 50,000 shares of Bidville restricted common stock upon execution of the agreement for a total price of fifty dollars ($50.00). In addition, Bidville will pay Mirador $5,000 in cash per month, the first payment being due and payable at execution and then due on the first of the month for each successive month for the term of the agreement. On January 5, 2004, we entered into a consulting agreement with EU-IR.com, an Austrian corporation, which has a term of twelve months. EU-IR shall provide public relations and investor relations consulting services in Europe. For such services, Bidville will compensate EU-IR in the amount of $7,500 per month, payable in advance on the first of each month. On January 29, 2004, we entered into a consulting agreement with CEOcast, Inc. ("CEOcast"), to provide investor relations services for a term of one year. For such services, Bidville is required to pay CEOcast $10,000 per month on the 29th of each month for the term of the agreement. Upon signing the agreement, Bidville initially paid CEOcast a cash payment of $20,000, representing the first and last month's compensation, in addition to issuing CEOcast 32,000 shares of Bidville restricted common stock. Under the terms of the agreement, Bidville shall give CEOcast registration rights on the 32,000 shares of restricted common stock after any secondary offering pursuant to a registration statement is completed. These registration rights are contractually defined in the agreement as "not piggy back registration rights or demand registration rights." We also have a consulting agreement with RMN Consulting, LLC ("RMN"), effective February 19, 2004 for a period of six months. According to the agreement, RMN shall provide Bidville with independent public relations business consulting services, as well as draft a marketing report for the Company. Compensation for these services will be $10,000 cash for the first two months the agreement is in effect. As compensation for the remaining four months of the consulting agreement, we will be required to issue RMN 50,000 warrants to purchase Bidville common stock, exercisable after registration of the underlying common stock at a twenty-five percent (25%) discount from the market price of the common stock on the date of exercise. Another consulting agreement, with Capital Resource Alliance, LLC of Atlanta, Georgia ("CRA"), was executed on March 17, 2004, for a term of twelve (12) months. The purpose of the agreement is for CRA to assist the Company in its application to have Bidville common stock traded on the Frankfurt [Germany] Stock Exchange. This agreement is for an one year period and requires compensation in the form of 20,000 shares of restricted, unregistered Bidville 35 common stock and cash in the amount of $200,000, payable within 30 days of the date of the agreement. Receipt of the common stock is contingent upon CRA's successful performance of its services. We are obligated to make reasonable best efforts, in light of "prevailing market conditions," to include the 20,000 shares in the subsequent registration statement we file with the U.S. Securities and Exchange Commission ("SEC") after the execution of this registration. However, under the terms of the agreement, if we should determine that, in our opinion, the "prevailing market conditions" do not make the sale of these shares feasible, then the number of shares to be registered in such registration statement shall be reduced. We also recently executed a consulting agreement with Empire Financial Group, Inc. ("Empire") on March 31, 2004. The agreement is for a term of 12 months and may not be terminated by the Company prior to the end of this twelve-month term. We retained Empire to act as a financial and investment banking advisor to Bidville, to render advice and assistance with regard to strategic transactions, future debt or equity financings, market and industry awareness and to assist the Company in getting Bidville common stock listed on a national exchange by the 2004 year end. As compensation for such services, Bidville shall pay Empire an engagement fee of $25,000, payable upon execution of the agreement, and $10,000 per month payable in advance beginning April 1, 2004 and each of the next eleven (11) months thereafter. The Company will also reimburse Empire on a monthly basis for any and all reasonable expenses incurred by Empire in the performance of its duties under this agreement. Concurrent with the execution of this agreement, the Company is obligated to sell to Empire common stock purchase warrants, at a price of $.001 per warrant, to purchase 200,000 shares of Bidville common stock. Such warrants will expire five (5) years after issuance and will be exercisable at $3.00 per share. The warrants may be exercised as to all or a lesser number of shares and will contain provisions for registration of the resale of the underlying shares at the Company's expense, cashless exercise and for adjustment in the number of such shares and the exercise price to prevent dilution. In the event that a "Strategic Transaction" (as defined in the agreement) is consummated, other than a financing, we are obligated to pay Empire a "Transaction Fee" equal to a percentage of the amount of consideration paid in such transaction, in the following manner: Consideration Paid Transaction Fee in Transaction (Percentage of Consideration) --------------------------------------------------------- Up to $2 million 5.0% $2 million - $4 million 4.0% $4 million - $6 million 3.0% $6 million - $8 million 2.0% Over $8 million 1.0% 36 The Transaction Fee is to be paid in cash at the closing of the transaction to which it relates and shall be payable whether or not such transaction involves stock, or a combination of stock and cash, or is made on the installment sale basis. In addition, if the Company shall, within twelve (12) months immediately following the termination of this agreement, consummate a transaction with any party introduced by Empire to the Company prior to such termination, or with any party which was a party to a transaction or prospective transaction as to which Empire rendered services under the agreement, we shall be required to pay Empire a Transaction Fee with respect to such transaction in accordance with the table above. If Bidville enters into a "financing" transaction subject to this agreement, we must pay Empire a cash fee at the closing of the financing in an amount to be agreed upon prior to such closing. In the event that the parties cannot agree on such a fee, the fee shall be ten percent (10%) of the gross proceeds of such financing. Finally, this agreement contains a non-circumvent provision whereby the Company agrees that for a period of three (3) years from the execution date, we will not solicit any offer to buy from or sell to any person introduced to the Company by Empire, directly or indirectly, any Bidville securities. Should we violate this provision, we would be required to pay Empire an amount equal to ten percent (10%) of the aggregate purchase price of the securities so purchased by such person. As of the date of this filing, none of the warrants described herein had been issued to Empire. Finally, on April 1, 2004, Bidville signed an Advisory Agreement with the Blackmor Group, Inc. ("Blackmor") for an initial term of one year, which will be automatically extended on an annual basis for additional one year terms unless Blackmor or Bidville serves written notice of termination on the other party at least thirty (30) days prior to the end of the applicable term. Under the terms of the Agreement, Blackmor shall assist Bidville in: effecting its purchase of businesses and assets relative to its business and growth strategy, resolution of outstanding debt and obligations of the Company, preparation of registration statements, and introducing Bidville to brokers and dealers, potential investors, public relations firms and consultants and others that may assist the Company in its plans and future development. These services are to be provided on a "best efforts" basis provided, however, that these services shall expressly exclude all legal advice, accounting services or other services which require licenses or certification which Blackmor may not have at such time. Bidville agrees to pay Blackmor a fee for such services by way of the delivery of 75,000 shares of Bidville restricted common stock and 100,000 warrants to purchase our common stock at an exercise price of $2 for two years. RISK FACTORS An investment in our common stock involves a high degree of risk and is not an appropriate investment for persons who cannot afford the loss of their entire investment. Prospective and current investors in common stock of Bidville, Inc. should carefully consider the following risk factors, in addition to the other information contained in this annual report. Except for the historical information contained herein, the following discussion contains certain 37 forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear in this prospectus. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein. RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed. We have a limited operating history with which to evaluate our business. Our company was formed as a sole proprietorship in 1999. We have only a limited operating history on which you can base an evaluation of our business. Potential investors should be aware of the substantial risks, difficulties, delays, and expenses normally encountered with an online auction company, since online commerce is still developing and presents risks that are beyond our control. To address these risks and uncertainties, we must do the following: o maintain and increase our number of registered users, items listed on our service and completed sales; o expand into new product and geographical areas; o maintain and grow our websites and customer support operations at a reasonable cost; o continue to make trading through our service safer for users; o maintain and enhance our brand; o continue to develop and upgrade our technology and information processing systems; o continue to enhance and expand our service to meet the changing requirements of our users; o provide superior customer service; o remain attractive to our commercial partners; o respond to changing legal environments in a variety of countries o respond to competitive developments; and o attract, integrate, retain and motivate qualified personnel. We may be unable to accomplish one or more of these goals, which could cause our business to suffer. In addition, accomplishing one or more of these goals might be very expensive, which could materially harm our financial results. See "The Company." Without profits from operations, we will have a need for additional capital. Without an infusion of capital or increased profits from operations, we are not expected to proceed with the full implementation of our business plan. At 38 the same time, we do not anticipate the receipt of increased operating revenues until management successfully implements our business plan, which is not assured. Further, we may incur significant unanticipated expenditures, which may deplete our capital at an increased rapid rate because of, among other things, the stage of our business, our limited personnel and other resources and our lack of a widespread client base and market recognition. Because of these and other factors, management is presently unable to predict what additional costs might be incurred by us beyond those currently contemplated, in order to achieve market penetration on a commercial scale in our planned line of business. We have no identified alternative sources of funds, and there can be no assurance that resources will be available to us when needed. If adequate funds are not available, we may be required to curtail significantly our business activities or cease operations entirely. See "Financial Statements." Our operating results may fluctuate significantly on a quarterly and seasonal basis. Our operating results have varied on a quarterly basis during our operating history. Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include the following: o our ability to retain an active user base, to attract new users who list items for sale and who purchase items through our service and to maintain customer satisfaction; o our ability to keep our websites operational and to manage and increase the number and value of items listed on our service; o the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations and infrastructure; o foreign, federal, state or local government regulation, including investigations prompted by items improperly listed or sold by our users; o the introduction of new sites, services and products by us or our competitors; o volume, size, timing and completion rate of trades on our websites; o consumer confidence in the security of transactions on our websites; o our ability to upgrade and develop our systems and infrastructure to accommodate growth; o technical difficulties or service interruptions; o our ability to attract new personnel in a timely and effective manner; o our ability to retain key employees in both our existing businesses and our acquisitions; o our ability to integrate and manage our acquisitions successfully; o our ability to expand our product offerings involving fixed price trading successfully; o the ability of our land-based auction businesses to acquire high quality properties for auction; 39 o the timing, cost and availability of advertising in traditional media and on other websites and online services; o the cost of and demand for advertising on our own websites; o the timing of payments to us and of marketing and other expenses under existing and future contracts; o consumer trends and the popularity of some categories of collectible items; o the success of our brand building and marketing campaigns; o the continued success of our commercial partners and technology suppliers; o the increase in the level of use of the Internet and online services; o increasing consumer acceptance of the Internet and other online services for commerce and, in particular, the trading of products such as those listed on our websites; and o general economic conditions and economic conditions specific to the Internet and e-commerce industries. Our limited operating history and the increased variety of services offered on our website makes it difficult for us to forecast the level or source of our revenues or earnings accurately. We believe that period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. We do not have backlog, and a substantial portion of our net revenues each quarter come from transactions for items that are listed and sold during that quarter. Our operating results in one or more future quarters may fall below the expectations of securities analysts and investors. In that event, the trading price of our common stock would likely be adversely affected. In addition, our operating results are somewhat seasonal in nature because many of our users reduce their activities on our website with the onset of good weather or during holidays, such as Thanksgiving and Christmas. Seasonal or cyclical variations in our business may become more pronounced over time and may harm our operating results in the future. See "Financial Statements." Our failure to manage growth could harm us. We believe that as our business plan is more fully realized, we will likely experience a period of rapid growth in our customer base, number of listings, geographic areas, types of goods and alternative methods of sale. These changes will result in new and increased responsibilities for management personnel and will place a significant strain upon our management, operational, and financial resources. The areas that may be put under strain by our growth include the following: o The Websites. We must constantly add new hardware, update software and add new engineering personnel to accommodate the increased use of our websites and the new products and features we are regularly introducing. This upgrade process is expensive, and the increased complexity of our websites increases the cost of additional enhancements. If we are unable to increase the capacity of our systems at least to keep pace with the growth in demand for this capacity, our 40 websites may become unstable and may cease to operate for periods of time. We have experienced periodic unscheduled downtime. Continued unscheduled downtime would harm our business and also could anger users of our websites and reduce future revenues. o Customer Support. We are expanding our customer support operations to accommodate the increased number of users and transactions on our websites. If we are unable provide these operations in a cost-effective manner, users of our websites may have negative experiences, and current and future revenues could suffer, or our margins may decrease. o Customer Accounts. Our revenues are dependent on prompt and accurate billing processes. If we are unable to grow our transaction processing abilities to accommodate the increasing number of transactions that must be billed, our ability to collect revenue will be harmed. To accommodate rapid growth and to compete effectively and manage future growth, if any, we will need to expand, train, motivate and manage our work force at a rapid rate. The majority of our employees today have been with us less than one year and we expect that our rate of hiring will continue at a very high pace. If new employees perform poorly, or if we are unsuccessful in hiring, training and integrating new employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to improve our transaction processing, operational and financial systems, procedures and controls. This is a special challenge as we acquire new operations with different systems. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. We may be unable to hire, train, retain and manage required personnel or to identify and take advantage of existing and potential strategic relationships and market opportunities. Failure to properly manage any of these areas could have a material adverse affect on our business, operating results and financial condition. See "The Company - Employees and Consultants" and "Management." We need to develop new services, features and functions in order to expand operations. We plan to expand our operations by developing new or complementary services, products or transaction formats or expanding the breadth and depth of services. We may be unable to expand our operations in a cost-effective or timely manner. Even if we do expand, we may not maintain or increase our overall acceptance. If we launch a new business or service that is not favorably received by consumers, it could damage our reputation and diminish the value of our brand. We anticipate that future services will include pre-trade and post-trade services. 41 We are pursuing strategic relationships with third parties to provide many services. Because we use third parties to deliver services, we may be unable to control the quality of these services, and our ability to address problems with such third party services may be reduced. Expanding our operations in this manner also will require significant additional expenses and development, operations and other resources and will strain our management, financial and operational resources. The lack of acceptance of any new services could harm our business. See "The Company." An inability to expand our systems may limit our growth. We seek to generate a high volume of traffic and transactions on our service. The satisfactory performance, reliability and availability of our websites, processing systems and network infrastructure are critical to our reputation and our ability to attract and retain large numbers of users. Our revenues depend primarily on the number of items listed by users, the volume of user transactions that are successfully completed and the final prices paid for the items listed. We need to expand and upgrade our technology, transaction processing systems and network infrastructure both to meet increased traffic on our site and to implement new features and functions, including those required under our contracts with third parties. We may be unable to accurately project the rate or timing of increases, if any, in the use of our service or to expand and upgrade our systems and infrastructure to accommodate any increases in a timely fashion. We use internally developed systems to operate our service for transaction processing, including billing and collections processing. We must continually improve these systems in order to accommodate the level of use of our websites. In addition, we may add new features and functionality to our services that would result in the need to develop or license additional technologies. We capitalize hardware and software costs associated with this development in accordance with generally accepted accounting principles and include such amounts in property and equipment. Our inability to add additional software and hardware or to upgrade our technology, transaction processing systems or network infrastructure to accommodate increased traffic or transaction volume could have adverse consequences. These consequences include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users' experiences of our service and delays in reporting accurate financial information. Our failure to provide new features or functionality could also result in such consequences. We may be unable to effectively upgrade and expand our systems in a timely manner or to integrate smoothly any newly developed or purchased technologies with our existing systems. These difficulties could harm or limit our ability to expand our business. See "The Company -- Operations, Technology and Security." 42 Our growth will depend on our ability to develop our brand. We believe that our historical growth has been largely attributable to word of mouth and customer loyalty. We believe that continuing to strengthen our brand will be critical to achieving widespread acceptance of our services. Promoting and positioning our brand will depend largely on the success of our marketing efforts and our ability to provide high quality services. In order to promote our brand, we will need to increase our marketing budget and otherwise increase our financial commitment to creating and maintaining brand loyalty among users. Brand promotion activities may not yield increased revenues, and even if they do, any increased revenues may not offset the expenses we incurred in building our brand. If we do attract new users to our service, they may not conduct transactions over our service on a regular basis. If we fail to promote and maintain our brand or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, our business would be harmed. See "Marketing and Distribution." Our growth and future success depend on our ability to generate traffic to our website. Our ability to sell products through our online auctions depends substantially on our ability to attract user traffic to our website. In order to attract and retain users to our website, we will continue to be required to spend significant amounts of money for online advertising. As the effectiveness of online advertising cannot be consistently relied upon, we intend to also pursue an offline advertising campaign through traditional media forms such as print, radio and television. If we are unable to generate traffic to our website cost effectively, or if our efforts to promote our auctions using both online and off-line media are not successful, our growth and business prospects will be substantially limited. See "Marketing and Distribution." Failure to manage our costs may result in our inability to maintain profitability. We believe that our continued profitability will depend in large part on our ability to do the following: o maintain sufficient transaction volume to attract buyers and sellers; o manage the costs of our business, including the costs associated with maintaining and developing our websites, customer support and international and product expansion; o increase our brand name awareness; o and provide our customers with superior community and trading experiences. We are investing heavily in marketing and promotion, customer support, further development of our website, technology and operating infrastructure development. The costs of these investments are expected to remain significant into the future. In addition, many of our acquisitions require continuing 43 investments in these areas and we have significant ongoing contractual commitments in some of these areas, such as 3 2 1 Play, Inc. and Buy Sell Connect, Inc., which we recently acquired. As a result, we may be unable to adjust our spending rapidly enough to compensate for any unexpected revenue shortfall, which may harm our profitability. The existence of several larger and more established companies that are enabling online sales as well as newer companies, many of whom do not charge for transactions on their sites and others who are facilitating trading through other pricing formats (e.g., reverse auction, group buying, etc.) may limit our ability to raise revenues attributable to final success fees in response to any declines in profitability. In addition, we are incurring expenses associated with expansion and hiring of new personnel in advance of anticipated growth, which may also harm our profitability. In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results are not necessarily meaningful. You should not rely upon our historical results as indications of our future performance. See "Competition." Acquisitions could result in dilution, operating difficulties and other harmful consequences. We have recently acquired and may in the future acquire other businesses, technologies, services or products that we believe are strategic. The process of integrating any acquisition may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties include: o diversion of management time (at both companies) during the period of negotiation through closing and further diversion of such time after closing; from focusing on operating the businesses to issues of integration and future products; o decline in employee morale and retention issues resulting from changes in compensation, reporting relationships, future prospects or the direction of the business; o the need to integrate each company's accounting, management information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented; o the need to implement controls, procedures and policies appropriate for a larger and public company at companies that prior to acquisition had lacked such controls, procedures and policies; and o in some cases, the need to transition operations onto the existing Bidville platform. We have almost no experience in managing this integration process. Moreover, the anticipated benefits of any or all of our acquisitions may not be realized. Future acquisitions or mergers could result in potentially dilutive 44 issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm our business. Future acquisitions or mergers may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all. Even if available, this financing may be dilutive. See "The Company" and "Financial Statements." In the event that we acquire a non-US company, such foreign acquisitions involve special risks, including those related to integration of operations across different cultures, currency risks and the particular economic and regulatory risks associated with specific countries. Certain of these risks are discussed more fully herein. Our recent acquisition of privately held 3 2 1 Play, Inc. and Buy Sell Connect, Inc. exposes our business to greater risk. As part of our business strategy, we acquired 3 2 1 Play, Inc. and Buy Sell Connect.com, Inc. in March 2004. We expect to enter into additional business combinations and acquisitions in the future. Acquisitions may result in dilutive issuances of equity securities, use of our cash resources, incurrence of debt and amortization of expenses related to intangible assets. The acquisitions of 3 2 1 Play and Buy Sell Connect were accompanied by a number of risks, including: o the difficulty of assimilating the operations and personnel of the acquired companies with those of Bidville; o the potential disruption of our ongoing business and distraction of management; o the difficulty of incorporating acquired technology and rights into our products and unanticipated expenses related to such integration; o the failure to further successfully develop acquired technology resulting in the impairment of amounts currently capitalized as intangible assets; o the impairment of relationships with customers of the acquired companies or our own customers as a result of any integration of operations; o the impairment of relationships with employees of the acquired companies or our own business as a result of any integration of new management personnel; o the potential unknown liabilities associated with the acquired companies. We may experience similar risks in connection with our future acquisitions. We may not be successful in addressing these risks or any other problems which may arise in connection with the acquisition of 3 2 1 Play and Buy Sell Connect. Our failure to manage the risks that we could encounter in future acquisitions, would harm our business or cause us to fail to realize the anticipated benefits of our acquisition(s). 45 Our recent acquisitions could result in operating difficulties and increased competition. As a result of our acquisition of 3 2 1 Play, Inc., we compete directly with other online companies that offer online shoppers new products from major brand names at or below wholesale prices and directly from the manufacturers. Our competitors in this segment include includes virtually every online seller, including online auction companies, online retailers and even individuals, depending on the category of product. In addition, we believe it is likely that there will be additional entrants to the online new product sales market. Some of these entrants may have greater operational, strategic, financial, personnel or other resources than we do, as well as greater brand recognition. Increased competition could force 3 2 1 Play to have to sell its products at or below cost, which would reduce total revenues both to 3 2 1 Play and to Bidville, thereby harming our business, operating results and financial condition. We are dependent on key personnel. Our future performance will be substantially dependent on the continued services of our senior management and other key personnel. Our future performance also will depend on our ability to retain and motivate our other officers and key personnel. The loss of the services of any of our executive officers or other key employees could harm our business. We do not maintain any "key person" life insurance policies. Our new businesses are all dependent on attracting and retaining key personnel. Our land-based auction businesses are particularly dependent on specialists and senior management because of the relationships these individuals have established with sellers who consign property for sale at auction. In addition, employee turnover and other labor problems frequently increases during the period following an acquisition as employees evaluate possible changes in compensation, culture, reporting relationships and the direction of the business. These labor issues maybe more severe if employees receive no significant financial return from the acquisition transaction. Such increased turnover could increase our costs and reduce our future revenues. Our future success also will depend on our ability to attract, train, retain and motivate highly skilled technical, managerial, marketing and customer support personnel. Competition for these personnel is intense, especially for engineers and other professionals and we may be unable to successfully attract, integrate or retain sufficiently qualified personnel. In making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the stock options they are to receive in connection with their employment. Fluctuations in our stock price may make it more difficult to retain and motivate employees whose stock option strike prices are substantially above current market prices. See "The Company - Employees and Consultants" and "Management." 46 We are controlled by certain stockholders, executive officers and directors. Our executive officers and directors (and their affiliates) own nearly all of our outstanding common stock. As a result, they have the ability to effectively control our company and direct our affairs and business, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company and may make some transactions more difficult or even impossible without the support of these stockholders. Any of these events could decrease the market price of our common stock. See "Management." Some of our management lacks experience operating an online auction company. Potential purchasers of our common stock should be aware that some of our management may not have any experience operating a company which has online auction services as its primary business. Accordingly, management is required to retain knowledgeable and experienced employees and consultants in the operations of our business. There can be no assurance that we will be able to retain our current employees and/or consultants, or that we will be able to recruit knowledgeable and experienced employees and consultants in the future should it be necessary to do so. See "Management." Future issuances of our common stock will dilute the interests of our existing shareholders. Our Articles of Incorporation currently authorize our Board of Directors to issue up to 200,000,000 shares of common stock, $.001 par value, and 50,000,000 shares of preferred stock, $.001 par value. The power of the Board of Directors to issue shares of common stock, preferred stock or options or warrants is subject to shareholder approval in only limited circumstances. Shareholders have no preemptive rights or cumulative voting rights. Any additional issuances of any of our securities may have the effect of further diluting the equity interest of shareholders. Bidville has issued common shares in exchange for services in the past. In the event the Company continues to issue shares in order to acquire services, it is possible that such transactions will increase the total number of outstanding shares without correspondingly increasing the net tangible book value of the Company, thereby proportionately decreasing the net tangible book value per share to stockholders. We will be required to indemnify our Officers and Directors in most circumstances. Under applicable law, our directors will not, except for certain circumstances, be liable for monetary damages to us or any other person for any statement, vote, decision, or failure to act, regarding corporate management or 47 policy, by a director. Further, our Articles of Incorporation and Bylaws require us to indemnify and hold harmless our directors and officers from and against and in respect of certain losses, damages, deficiencies, expenses or costs that may be incurred or suffered by such directors and officers as a result of their serving in such capacities with Bidville. We do not anticipate paying dividends on our common stock. We have not paid any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, we do not contemplate or anticipate paying any dividends on our common stock in the foreseeable future. Therefore, any potential purchaser of our common stock, whose decision to invest in our common stock is based upon an expectation of dividend payments, should refrain from purchasing common stock in Bidville. See "Dividend Policy." Our stock price has been and may continue to be extremely volatile. The trading price of our common stock has been and is likely to be extremely volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following: o actual or anticipated variations in our quarterly operating results; o unscheduled system downtime; o additions or departures of key personnel; o announcements of technological innovations or new services by us or our competitors; o changes in financial estimates by securities analysts; o conditions or trends in the Internet and online commerce industries; o changes in the market valuations of other Internet companies; o developments in Internet regulation; o announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; o sales of our common stock or other securities in the open market; and o other events or factors, including these described in this "Risk Factors" section and others that may be beyond our control. In addition, the trading price of Internet stocks in general, and of ours in particular, have experienced extreme price and volume fluctuations in recent periods. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. Negative changes in the public's perception of the prospects of Internet or e-commerce companies have in the past and may in future depress our stock price regardless of our results. Other broad market and industry factors may decrease the market price of our common stock, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions, such as recession or interest rate or currency rate fluctuations, also may decrease the market price of our common stock. In the past, following declines in the market price of a company's securities, securities class-action litigation often has been instituted. Litigation of this type, if instituted, could result in substantial costs and a diversion of management's attention and resources. 48 Some anti-takeover provisions may affect the price of our common stock. The Board of Directors has the authority to issue shares of preferred stock and to determine the preferences, rights and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of common stock may be harmed by the rights of the holders of any preferred stock that may be issued in the future. Some provisions of our articles of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. These include provisions that provide for a classified board of directors, prohibit stockholders from taking action by written consent and restrict the ability of stockholders to call special meetings. We are also subject to provisions of Nevada law which may prohibit us from engaging in any business combination with any interested stockholder, unless certain conditions are met. This restriction could have the effect of delaying or preventing a change of control, as well as the effect of delaying or preventing Bidville shareholders from receiving the premium typically payable to shareholders upon a successful change in control. Secondary trading of our common stock may not be possible in some states. Secondary trading in our common stock will not be possible in each state until our shares of common stock are qualified for sale under the applicable securities laws of the state or we verify that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading, or availing ourselves of an exemption for secondary trading in our common stock, in any state. If we fail to register or qualify, or obtain or verify an exemption for the secondary trading of our common stock in any particular state, our shares of common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, a public market for our common stock will fail to develop and the shares could be deprived of any value. We are not currently published in Standard & Poor's Records or Moody's and therefore, we cannot rely upon such a listing to qualify Bidville stock in those states that recognize such a listing as constituting an exemption. Our common stock has historically traded at low prices, and should we become subject to the "Penny Stock" rules and regulations, the liquidity of our common stock will likely be reduced. Our common stock offered by this prospectus may become subject to certain rules and regulations promulgated by the Securities and Exchange Commission ("SEC") pursuant to the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the "Penny Stock Act") which impose strict sales practice requirements on broker-dealers who sell such securities to persons other than established customers and certain "accredited investors." For transactions covered by the Penny Stock Act, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent for the transaction prior to sale. Consequently, such act may affect the ability of broker-dealers to sell our common stock and may affect the ability of purchasers in this offering to sell any of the common stock acquired hereby. 49 The Penny Stock Act generally defines a "penny stock" to be any security not listed on an exchange or not authorized for quotation on the Nasdaq Stock Market that has a market price (as therein defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. For any transactions by broker-dealers involving a penny stock (unless exempt), the act requires delivery, prior to a transaction in a penny stock, of a risk disclosure document relating to the market for the penny stocks. Disclosure also is required to be made regarding compensation payable to both the broker-dealer and the registered representative and current quotations for the securities must be provided. Finally, monthly statements are required to be sent disclosing recent price information for the penny stocks. The foregoing penny stock restrictions will not apply to our common stock if such stock is listed on an exchange or quoted on the Nasdaq Stock Market, has a certain price and volume information provided on a current and continuing basis or if Bidville meets certain minimum net tangible asset or average revenue criteria. There can be no assurance that our common stock will qualify for exemption from the Penny Stock Act. In any event, even if our common stock was exempt from the Penny Stock Rules, it would remain subject to Section 15(b)(6) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which gives the SEC the authority to prohibit any person who is engaged in unlawful conduct while participating in a distribution of a penny stock from associating with a broker-dealer or participating in a distribution of a penny stock, if the SEC finds that such a restriction would be in the public interest. At such time as our common stock is subject to the rules on penny stocks, the market liquidity for our common stock could be severely and adversely affected. RISKS RELATED TO THE ONLINE AUCTION MARKET Our market is intensely competitive. Depending on the category of product, we currently or potentially compete with a number of companies serving particular categories of goods as well as those serving broader ranges of goods. The Internet is a new, rapidly evolving and intensely competitive area. We expect competition to intensify in the future as the barriers to entry are relatively low, and current and new competitors can launch new sites at a nominal cost using commercially available software. Our broad-based competitors include the vast majority of traditional department and general merchandise stores as well as emerging online retailers. In addition, we face competition from local, regional and national specialty retailers and exchanges in each of our categories of products. New technologies may increase competitive pressures by enabling our competitors to offer lower cost services. Some Internet-based applications that direct Internet traffic to certain websites may channel users to trading services that compete with us. Although we plan to establish Internet traffic arrangements with several large online services and search engine companies, 50 these arrangements may not be on commercially reasonable terms. Even if these arrangements are implemented, they may not result in increased usage of our service. In addition, companies that control access to transactions through network access or Internet browsers could promote our competitors or charge us substantial fees for inclusion. The principal competitive factors that will determine our future success include Bidville's: o ability to attract buyers; o volume of transactions and selection of goods; o customer service; and o brand recognition. With respect to our online competition from large companies such as eBay, Amazon.com, and Yahoo! Auctions, additional competitive factors include: o community cohesion and interaction; o system reliability; o reliability of delivery and payment; o website convenience and accessibility; o level of service fees; and o quality of search tools. In addition, there can be no assurance that we will be able to compete successfully against current and future competitors based on these and other factors. Many of our competitors have substantially greater financial, distribution and marketing resources, and have achieved a higher level of brand recognition than us. In order to respond to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that could harm our business. Increased competition could result in price reductions, reduced profit margins and loss of market share, all of which would have a material adverse affect on our business, financial condition and results of operations. See "Competition." Finally, "Network Effects" could make it difficult for a relative newcomer to the large-scale Internet auction business, such as Bidville, to achieve or expand market share. "Network Effects" is the term used to describe why users, presented with a choice between competing systems, may prefer to use an established system, in spite of the fact that this system is apparently less advantageous than newer systems. In the specific example of the online auction business as conducted by Bidville, online buyers will typically purchase goods on internet sites where a large number and variety of goods are offered for sale; conversely, sellers will sell such goods where large numbers of ready buyers already exist. In order to succeed in the online auction business, we must attract buyers in order to attract sellers, but conversely we cannot attract sellers unless we attract buyers. If we are unable to overcome such Network Effects, our business and financial condition may suffer. 51 We must keep pace with rapid technological change in order to remain competitive. Our competitive space is characterized by rapidly changing technology, evolving industry standards, frequent new service and product introductions and enhancements and changing customer demands. These characteristics are worsened by the emerging and changing nature of the Internet. Our future success therefore will depend on our ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to improve the performance, features and reliability of our service. Our failure to adapt to such changes would harm our business. New technologies, such as the development of a peer-to-peer personal trading technology, could adversely affect us. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our services or infrastructure. See "Competition." Our success is dependent on consumer acceptance and the overall strength of the economy. Although we believe we have the ability and experience to recognize potentially valuable auction services and to gauge trends in our business, our revenues, nevertheless, will be substantially dependent on the success of our services. Our success depends, among other things, on rapidly changing consumer acceptance, which is difficult to predict and over which we will have little control. Our profitability and sales will also depend on the strength of the economy, which can dictate consumers' spending habits, especially Internet spending. No prediction can be made about the stability of the economy. Any prolonged downturn in the economy, whether real or perceived, could adversely affect us. See "The Company." System failures and service interruptions could harm our business. We have experienced system failures from time to time in the past. In addition to placing increased burdens on our engineering staff, these outages create a flood of user questions and complaints that must be addressed by our customer support personnel. Any unscheduled interruption in our service results in an immediate loss of revenues that can be substantial and may cause some users to switch to our competitors, especially if such competitors are or are perceived to be more stable. If we experience frequent or persistent system failures, our reputation and brand could be permanently harmed. We have been taking steps to increase the reliability and redundancy of our system. These steps are expensive, reduce our margins and may not be successful in reducing the frequency or duration of unscheduled downtime. Regardless, our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures and similar events. Our disaster recovery planning is not necessarily sufficient for all eventualities and Bidville could be offline for a number of days in the event of a disaster in the state of Florida. Our systems and operations are also subject to break-ins, sabotage, intentional acts of vandalism which could result in downtime for our website. Any downtime Bidville experiences will likely haven a material impact on the Company's revenues for the time period affected. 52 We are dependent upon third parties to host our website. We presently rely on third parties to host our website activities. The use of third party hosting services increases the potential for service disruption. Any interruption in the availability of our website will reduce our revenues and profits, and our future revenues and profits could be harmed if our users believe that our system is unreliable. Despite any precautions we may take, a decision by any of our third-party hosting providers to close a facility we use, without adequate notice, because of financial difficulties or for other reasons, or other unanticipated problems at our hosting facilities could result in lengthy interruptions in our services. In addition, the failure by our hosting facilities to provide our required data communications capacity could result in interruptions in our service. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures. Any unscheduled interruption in our services will likely result in an immediate loss of revenues that can be substantial and may cause some users to switch to our competitors. If we experience frequent or persistent system failures on our websites, our reputation and brand could be permanently harmed. Increases in credit card processing fees could increase our costs, affect our profitability, or otherwise limit our operations. From time to time, Visa, MasterCard, American Express and Discover may increase the interchange fees that they charge for each transaction using one of their cards. MasterCard and Visa have each announced increases to their credit card interchange fees, effective April 2004. Visa and MasterCard both implemented a decrease in their debit card interchange fees in August 2003 as a result of a settlement entered into in response to litigation, but the settlement agreement required them to maintain these lower interchange fees only until January 2004, and they have announced increases in debit card interchange fees, in January 2004 and April 2004, respectively, to levels close to those that prevailed prior to August 2003. Bidville's credit card processors may pass any increases in interchange fees on to the Company. Accordingly, such increased fees will likely increase our operating costs and reduce our profit margins. LEGAL AND REGULATORY RISKS Our business may be harmed by the listing or sale by our users of illegal, pirated or counterfeit items. The law relating to the liability of providers of online services for the activities of their users on their service is currently unsettled. We are aware that certain goods, such as firearms, other weapons, adult material, tobacco products, alcohol and other goods that may be subject to regulation by local, state or federal authorities, have been listed and traded on our service. We may be unable to prevent the sale of unlawful goods, or the sale of goods in an unlawful manner, by users of our service, and we may be subject to allegations 53 of civil or criminal liability for unlawful activities carried out by users of our service. In order to reduce our exposure to this liability, we have prohibited the listing of certain items and increased the number of personnel reviewing questionable items. In the future, we may implement other protective measures that could require us to spend substantial resources and/or reduce revenues by discontinuing certain service offerings. Any costs incurred as a result of liability, or asserted liability, relating to the sale of unlawful goods or the unlawful sale of goods, could harm our business. In addition, we may receive significant and continuing media attention relating to the listing or sale of unlawful goods on our website. This negative publicity could damage our reputation and diminish the value of our brand name. It also could make users reluctant to continue to use our services. Furthermore, we have not received communications alleging that certain items listed or sold through our service by our users infringe third-party copyrights, trademarks and trade names or other intellectual property rights in the past. However, due to the nature of the online auction market, there is a high probability that we may receive such communications sometime in the future. Although we have sought to work actively with the content community to eliminate infringing listings on our website, some content owners may express the view that our efforts are insufficient. Content owners have been active in defending their rights against online companies, including eBay. Allegations of infringement of third-party intellectual property rights may in the future result in litigation against us. Such litigation is costly for us, could result in increased costs of doing business through adverse judgment or settlement, could require us to change our business practices in expensive ways, or could otherwise harm our business. Litigation against other online companies could result in interpretations of the law that could also require us to change our business practices or otherwise increase our costs. See "Governmental Regulation." Our business may be harmed by fraudulent activities on our websites. Our future success will depend largely upon sellers reliably delivering and accurately representing their listed goods and buyers paying the agreed purchase price. We have received in the past, and anticipate that we will receive in the future, communications from users who did not receive the purchase price or the goods that were to have been exchanged. In some cases individuals will be arrested and convicted for fraudulent activities using our websites. While we can suspend the accounts of users who fail to fulfill their delivery obligations to other users, we do not have the ability to require users to make payments or deliver goods or otherwise make users whole other than through our limited fraud insurance program. Other than through this program, we do not compensate users who believe they have been defrauded by other users. We also periodically receive complaints from buyers as to the quality of the goods purchased. Negative publicity generated as a result of fraudulent or deceptive conduct by 54 users of our service could damage our reputation and diminish the value of our brand name. We expect to continue to receive requests from users requesting reimbursement or threatening or commencing legal action against us if no reimbursement is made. Our liability for these sort of claims is only beginning to be clarified and may be higher in some non-U.S. jurisdictions than it is in the U.S. This sort of litigation could be costly for us, divert management attention, result in increased costs of doing business, lead to adverse judgments or could otherwise harm our business. In addition, affected users will likely complain to regulatory agencies. Government inquiries may lead to charges or penalties A large number of transactions occur on our websites. We may be contacted by various foreign, federal, state and local regulatory agencies and be told that they have questions with respect to the adequacy of the steps we take to protect our users from fraud. We are likely to receive inquiries from regulatory agencies in the future, which may lead to action against us. We are subject to laws relating to the use and transfer of personally identifiable information about our users and their transfers, especially outside of the U.S. Violation of these laws, which in many cases apply not only to third-party transfers but also to transfers of information between ourselves or our commercial partners could subject us to significant penalties and negative publicity and could adversely affect our company. We are subject to risks associated with information disseminated through our service. The law relating to the liability of online services companies for information carried on or disseminated through their services is currently unsettled. Claims could be made against online services companies under both U.S. and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated through their services. In addition, federal, state and foreign legislation has been proposed that imposes liability for or prohibits the transmission over the Internet of certain types of information. A website we control features an exchange of feedback, which includes information from users regarding other users. Although all such feedback is generated by users and not by us, it is possible that a claim of defamation or other injury could be made against us for content posted on this website. Claims such as these become more likely and have a higher probability of success in jurisdictions outside the U.S. If we become liable for information provided by our users and carried on our service in any jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources and/or to discontinue certain service offerings, which 55 would negatively affect our financial results. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this liability or asserted liability could harm our business. Unauthorized break-ins or other assaults on our service could harm our business. Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of data, public release of confidential data or the inability to complete customer transactions. In addition, unauthorized persons may improperly access our data. We have experienced an unauthorized break-in by a "hacker" who has stated that he could, in the future, damage or change our system or take confidential information. We have also experienced "denial of service" type attacks on our system that have made all or portions of our websites unavailable for periods of time. These and other types of attacks could harm us. Actions of this sort may be very expensive to remedy and could damage our reputation and discourage new and existing users from using our service. See "Operations, Technology and Security." New and existing regulations could harm our business. We are subject to general business regulations and laws, as well as regulations and laws directly applicable to the Internet. As we continue to expand the scope of our properties and service offerings, the application of existing laws and regulations to Bidville with respect to issues such as user privacy, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, financial market regulation, consumer protection, content regulation, quality of products and services, and intellectual property ownership and infringement can be unclear. In addition, we will also be subject to new laws and regulations directly applicable to our activities. Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of the Internet. Of those laws which do reference the Internet, such as the U.S. Digital Millennium Copyright Act and the European Union's (E.U.) Directive on Distance Selling and Electronic Commerce, have only recently begun to be interpreted by the courts and implemented by the E.U. Member States, so their applicability and scope remain somewhat uncertain. As our activities and the types of goods listed on our site expand, regulatory agencies may claim that we or our users are subject to licensure in their jurisdiction, either with respect to our services in general, or in order to allow the sale of certain items (e.g., real estate, event tickets, boats, automobiles). We post our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies, any Federal Trade Commission ("FTC") requirements or other 56 privacy-related laws and regulations could result in proceedings by the FTC or others which could potentially have an adverse effect on our business, results of operations and financial condition. Due to the nature of the Web, it is possible that the governments of other states or foreign countries might attempt to regulate Web transmissions or prosecute us for violations of their laws. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments (or developments stemming from enactment or modification of other laws) could increase the costs of regulatory compliance for us or force us to change our business practices. See "Government Regulation." Our business may be subject to sales and other taxes. We do not collect sales or other similar taxes on goods or services sold by users through our services. One or more states or any foreign country may seek to impose sales, use, or value-added tax collection or record-keeping obligations on companies like ours that engage in or facilitate online commerce. Such taxes could be imposed if, for example, we were ever deemed to be an "auctioneer" or the agent of our sellers. Several proposals have been made at the state and local levels that would impose additional taxes on the sale of goods and services through the Internet. These proposals, if adopted, could substantially impair the growth of e-commerce, and could diminish our opportunity to derive financial benefit from our activities. In 1998 and 2000, the U.S. federal government enacted legislation prohibiting states or other local authorities from imposing access or discriminatory taxes on the Internet through November 1, 2003. The expiration of this moratorium may permit new access or discriminatory taxes on the Internet that could adversely affect our business. Legislation has also been introduced in the U.S. Congress to override the Supreme Court's Quill decision, which limits the ability of state governments to require sellers outside of their own state to collect and remit sales taxes on goods purchased by in-state residents. Passage of such legislation and the imposition of such sales tax requirements would adversely affect our sellers and our business. A successful assertion by one or more states or any foreign country that we should collect sales or other taxes on the exchange of merchandise or services on our system would harm our business. Our auction business may be subject to regulation which could require us to modify our business practices. Numerous states and foreign jurisdictions, including the State of Florida, where our headquarters are located, have regulations regarding how "auctions" may be conducted and the liability of "auctioneers" in conducting such auctions. Several states and some foreign jurisdictions have attempted, and may attempt in the future, to impose such regulations upon us or our users, which could harm our business. Other regulatory and licensure claims could result in costly litigation or could require us to change our manner of doing business in ways that increase our costs or reduce our revenues or force us to prohibit listings of certain items for some locations. We could also be subject to fines or other penalties. Any of these outcomes could harm our business. 57 RISKS RELATED TO ONLINE COMMERCE We are dependent on the continued growth of online commerce The business of selling goods over the Internet, particularly through personal trading, is new and dynamic. Our future net revenues and profits will be substantially dependent upon the widespread acceptance of the Internet and online services as a medium for commerce by consumers. Rapid growth in the use of and interest in the Internet and online services is a recent phenomenon. This acceptance and use may not continue. Even if the Internet is accepted, concerns about fraud, privacy and other problems may mean that a sufficiently broad base of consumers will not adopt the Internet as a medium of commerce. In particular, our websites require users to make publicly available personal information that some potential users may be unwilling to provide. These concerns may increase as additional publicity over privacy issues on eBay or over the Internet generally increase. Market acceptance for recently introduced services and products over the Internet is highly uncertain, and there are few proven services and products. In order to expand our user base, we must appeal to and acquire consumers who historically have used traditional means of commerce to purchase goods. If these consumers prove to be less active than our earlier users, and we are unable to gain efficiencies in our operating costs, including our cost of acquiring new customers, our business could be adversely impacted. See "The Company." Our business is dependent on the development and maintenance of the Internet Infrastructure The success of our service will depend largely on the development and maintenance of the Internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of complementary products, for providing reliable Internet access and services. The Internet has experienced, and is likely to continue to experience, significant growth in the numbers of users and amount of traffic. If the Internet continues to experience increased numbers of users, increased frequency of use or increased bandwidth requirements, the Internet infrastructure may be unable to support the demands placed on it. In addition, the performance of the Internet may be harmed by increased number of users or bandwidth requirements or by "viruses", "worms" and similar programs. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the level of traffic and the processing transactions on our service. See "Operations, Technology and Security." Our business is subject to online commerce security risks. A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. Our security measures may not prevent security breaches. Our failure to prevent security breaches could harm our business. Currently, a significant number of our users authorize us to bill their credit card accounts directly for all transaction 58 fees charged by us. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication technology to effect secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect customer transaction data. A number of websites have reported breaches of their security. Any compromise of our security could harm our reputation and, therefore, our business. In addition, a party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. An individual has claimed to have misappropriated some of our confidential information by breaking into our computer system. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. These issues are likely to become more difficult as we expand the number of places where we operate. Security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. Our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses caused by security breaches. See "Operations, Technology and Security." We may be unable to protect or enforce our own intellectual property rights adequately We regard the protection of our URLs, copyrights, service marks, trademarks, trade dress and trade secrets as critical to our success. We will rely on a combination of patent, copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have entered into a limited number of confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with parties with whom we conduct business in order to limit access to and disclosure of our proprietary information. These contractual arrangements and the other steps taken by us to protect our intellectual property may not prevent misappropriation of our technology or deter independent third-party development of similar technologies. We may pursue the registration of our URLs, trademarks and service marks in the U.S. and internationally. Effective copyright, service mark, trademark, trade dress and trade secret protection is very expensive to maintain and may require litigation. Protection may not be available in every country in which our services are made available online. Furthermore, we must also protect our URLs in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. We expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that might diminish the value of our proprietary rights or harm our reputation. We also rely on certain technologies that we license from third parties, the suppliers of key database technologies, the operating system and specific hardware components for our service. These third-party technology licenses may not continue to be available to us on commercially reasonable terms. The loss of these technologies could require us to obtain substitute technologies of lower quality or performance standards or at greater cost. See "The Company - Patents, Copyrights and Trademarks." 59 RISKS RELATED TO INTERNATIONAL OPERATIONS International operations exposes us to various other risks. Currently, approximately one percent (1.0%) of Bidville's business activities are generated through foreign market sources. We may expand our international operations further, however, which would require additional management attention and resources. We have limited experience in localizing our service to conform to local languages, cultures, standards and policies. In most countries, we will have to compete with local companies who understand the local market better than we do. We may not be successful in expanding into international markets or in generating revenues from foreign operations. Even if we are successful, the costs of operating new sites are expected to exceed our net revenues for at least 12 months in most countries. As we continue to expand, we are subject to risks of doing business internationally, including the following: o regulatory requirements, including requirements related to the regulation of "auctions," that may limit or prevent the offering of our services in local jurisdictions, may prevent enforcement of agreements between sellers and buyers, and may prohibit certain categories of goods or may limit the transfer of information between our foreign subsidiaries and ourselves; o legal uncertainty regarding liability for the listings of our users, including liability under non-US legal systems (which may well be less Internet-friendly than in the US), as well as the applicability of unique local laws and dangers resulting from a lack of clear precedent or applicable law; o difficulties in staffing and managing foreign operations; o longer payment cycles, different accounting practices and problems in collecting accounts receivable; o local taxation of transactions on our websites; o higher telecommunications and Internet service provider costs; o stronger local competitors; o more stringent consumer and data protection laws; o cultural non-acceptance of online trading; o seasonal reductions in business activity; and o potentially adverse tax consequences. Some of these factors may cause our international costs to exceed our domestic costs of doing business. To the extent we expand internationally, we may have portions of our international revenues denominated in foreign currencies, we also could become subject to increased difficulties in collecting accounts receivable and risks relating to foreign currency exchange rate fluctuations. 60 Item 2 - Description of Property Bidville maintains an executive mailing address in office facilities provided by its majority shareholders, St. James Investment Group, Inc. and Royal Palm Capital Group, Inc., at 620 North Flagler Drive, Suite 509, West Palm Beach, Florida. Bidville does not pay rent or any other fees for the use of this mailing address, as these offices are used virtually full-time by other businesses of the Company's majority shareholders. Bidville currently leases approximately 1,028 net rentable square feet in an office building in Clearwater, Florida for its day-to-day operating activities. This lease is for a twelve (12) month period, commencing on October 1, 2003, with a monthly rental rate of approximately $1,456 per month; plus appropriate sales and use taxes; and escalation increases for building operating expenses, inclusive of insurance premiums, utility charges, management fees and other related costs, as defined in the lease. Bidville has the option and right to renew this lease for two additional periods of three (3) years each at a base rental of 3.0% above the preceding year's base rent upon expiration of the initial twelve (12) month term. On February 25, 2004, we completed the move from our former web hosting services provider, Omega Micro Systems, Inc., located in Newark, New Jersey, to a web hosting colocation in Tampa, Florida. The new web hosting service provider, iLand Internet Solutions Corporation, in addition to being more geographically convenient to Bidville's office, also provides more broadband capability and more comprehensive and expansive managed services. The new hosting location maintains the highest level of access security for the equipment indicated above that is currently owned by the Company. Item 3 - Legal Proceedings Bidville is not a party to any pending or threatened litigation at this time nor is any of its property subject to any pending or threatened legal proceedings, nor are we aware of any facts which are reasonable likely to give rise to such proceedings. Item 4 - Submission of Matters to a Vote of Security Holders The Company has not conducted any meetings of shareholders during the preceding Fiscal year or periods subsequent thereto. 61 PART II Item 5 - Market for Company's Common Stock and Related Stockholder Matters (a) Market Information. The common stock of the Company is currently quoted on the Over the Counter Bulletin Board under the symbol "BVLE" and has been since January 7, 2004. Prior to that time, the Company had traded under symbol "AREP," since October 10, 2001. The ask/high and bid/low information for each quarter since October 10, 2001 are as follows: Quarter Ask/High Bid/Low ---------------------------------------------------------- 10/10/2001 - 11/30/2001 3.000 1.010 12/1/2001 - 2/28/2002 1.010 0.150 3/1/2002 - 5/31/2002 0.150 0.150 6/1/2002 - 8/31/2002 0.150 0.100 9/1/2002 - 11/30/2002 0.110 0.100 12/1/2002 - 2/28/2003 0.110 0.050 3/1/2003 - 5/31/2003 0.050 0.050 6/1/2003 - 8/31/2003 0.050 0.050 9/1/2003 - 11/30/2003(1) 0.800 0.050 12/1/2003 - 12/31/2003(1) 6.250 0.750 1/1/2004 - 3/31/2004(1) 7.500 1.250 (1) After change in fiscal year from 2/28 to 12/31 Please note that over-the-counter market quotations have been provided herein. The quotations reflect inter-dealer prices, without retail markup, mark-down or commission and may not represent actual transactions. As of April 19, 2004, Bidville's common stock has also been traded on the Frankfurt Stock Exchange and on Xetra(R), the Deutsche Borse AG electronic trading system. More information about these markets can be found on the Deutsche Borse AG webpage at: www.deutsche-boerse.com. (b) Holders. As of March 31, 2004, the Company had seventy five (75) shareholders of record of 30,350,007 outstanding shares of our common stock, 24,837,390 of which were restricted Rule 144 shares and 5,512,617 of which were free-trading. Of the Rule 144 shares, 16,140 shares have been held by affiliates of the Company for more than one (1) year. The number of record holders was determined from the records of our Transfer Agent and does not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies. The Transfer Agent of our common stock is Pacific Stock Transfer Company, 500 E Warm Springs Road, Suite 240, Las Vegas, Nevada 89119. 62 (c) Dividends. The Company has never paid or declared any dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. It is the current policy to retain all earnings, if any, to support future growth and expansion. (d) Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth information as of March 31, 2004, with respect to shares of the Company's common stock that may be issued under the Company's existing individual compensation arrangements and agreements, including the 3 2 1 Play, Inc. acquisition agreement and agreements with our consultants, executives and employees.
Number of Securities Weighted Average Remaining Available Exercise Price per for Future Issuance Number of Securities Share of Under Equity to be Issued Upon Outstanding Compensation Plans Exercise of Options, Warrants (excluding Outstanding Options, and Rights (2) securities reflected Warrants and Rights in column (a)) Plan Category (a) (b) (c) - -------------------------------------------------------------------------------------------------- Equity compensation plans approved 0 0 by security holders - -------------------------------------------------------------------------------------------------- Equity compensation plans not 8,785,000 (1) $0.83 (3) 160,864,993 approved by security holders - -------------------------------------------------------------------------------------------------- TOTAL 8,785,000 $0.83 160,864,993
(1) Includes the 3,000,000 shares issuable to 3 2 1 Play, Inc. in accordance with the acquisition agreement dated March 24, 2004 and described herein. This number also includes the 20,000 shares of Bidville restricted common stock to be issued to Capital Resource Alliance, LLC under the terms of our March 11, 2004 consulting agreement. See "Employees and Consultants". (2) This calculation does not include the 50,000 warrants to be issued under the consulting agreement RMN Consulting, Inc., as included in the calculation of column (a). Pursuant to this agreement and effective February 19, 2004 for a period of six months, Bidville will compensate RMN for the last four months of services rendered through the issuance of 63 50,000 warrants to purchase 50,000 shares of Bidville common stock. These warrants are exercisable after registration of the underlying common stock at a twenty-five percent (25%) discount from the market price of the common stock on the date of exercise. This calculation also does not include the 20,000 shares of our restricted common stock to be issued to Capital Resource Alliance, LLC. (3) This includes the value of the 1,000,000 options granted to Gerald C. Parker in his employment agreement dated January 12, 2004. Under the terms of the agreement, the exercise price for those options is $4.27 (equal to 15% below the closing market price of $5.02 on January 12, 2004). The material features of each individual compensation plan used to calculate the number of securities to be issued upon exercise of outstanding options, warrants and rights can be found under "Employees and Consultants" located elsewhere in this report. In addition, the Board of Directors agreed at the last Board meeting held January 13, 2004, that they would create a stock incentive plan for certain of its employees to be administered at the discretion of the Board of Directors. As of the date of this filing, no formal plan had yet been adopted. Common Stock The Company's Articles of Incorporation authorize the issuance of 200,000,000 shares of $0.001 par value Common Stock. Each record holder of Common Stock is entitled to one vote for each share held on all matters properly submitted to the stockholders for their vote. The Articles of Incorporation do not permit cumulative voting for the election of directors. Holders of outstanding shares of Common Stock are entitled to such dividends as may be declared from time to time by the Board of Directors out of legally available funds; and, in the event of liquidation, dissolution or winding up of the affairs of the Company, holders are entitled to receive, ratably, the net assets of the Company available to stockholders after distribution is made to the preferred stockholders, if any, who are given preferred rights upon liquidation. Holders of outstanding shares of Common Stock have no preemptive, conversion or redemptive rights. All of the issued and outstanding shares of Common Stock are, and all unissued shares when offered and sold will be, duly authorized, validly issued, fully paid, and non-assessable. To the extent that additional shares of the Company's Common Stock are issued, the relative interests of then existing stockholders may be diluted. Transfer Agent The transfer agent is Pacific Stock Transfer Company, 500 E. Warm Springs Road, Suite 240, Las Vegas, Nevada 89119. Their telephone number is (702) 361-3033. 64 Recent Sales of Unregistered Securities On December 10, 2003, Bidville acquired 20,000,000 shares of Bidville common stock from its former majority shareholder, Jorge Elias, for consideration of $50,000 in the form of cash and/or a note payable. This amount was paid with a combination of available cash held by Bidville and approximately $23,000 in funds contributed by an outside third-party to complete the transaction. Concurrent with the acquisition of these shares by the Company, they were immediately cancelled and returned to unissued status. The retirement was accounted for as a reduction in the carrying value of issued and outstanding common stock at its respective par value, a reduction of additional paid-in capital to not less than $-0- and a reduction of retained earnings, where appropriate, in accordance with the tenets of Accounting Principles Board Opinion No. 6. On December 10, 2003, the Company issued 20,000,000 shares of restricted, unregistered common stock to the shareholders of NoBidding, Inc. to acquire 100.0% of the issued and outstanding common stock of NoBidding, Inc. on December 10, 2003, pursuant to a Agreement and Plan of Share Exchange dated December 10, 2003, thus effecting a recapitalization of NoBidding, Inc. Under the terms of a consulting agreement entered into on March 11, 2004 between Bidville and Capital Resource Alliance, LLC ("CRA"). The purpose of the one year agreement is for CRA to assist the Company in its application to have Bidville common stock traded on the Frankfort [Germany] Stock Exchange. As compensation, Bidville is obligated to issue CRA 20,000 shares of restricted, unregistered Bidville common stock in addition to cash in the amount of $200,000, payable within 30 days of the date of the agreement. Receipt of the common stock is contingent upon CRA's successful performance of its services. We are also obligated to make reasonable best efforts, in light of "prevailing market conditions," to include the 20,000 shares in the next registration statement we file with the U. S. Securities and Exchange Commission ("SEC") after the execution of this Agreement. However, under the terms of the agreement, if we should determine that, in our opinion, the "prevailing market conditions" do not make the sale of these shares feasible, then the number of shares to be registered in such registration statement shall be reduced. On December 3, 2003, the Company issued a Private Placement Memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended, to sell up to $2,000,000 in common stock at a price of $0.50 per share with accompanying Warrants. Through December 22, 2003, the Company sold an aggregate 4,410,000 shares of restricted, unregistered common stock pursuant to the private placement memorandum for gross proceeds of approximately $2,205,000. Each share was accompanied by Warrant to purchase 1/2 additional share of restricted, unregistered common stock at a price of $1.00 per share. These warrants have no stated expiration date. This offering was scheduled to close on January 31, 2004 and was closed by the Company on December 22, 2003. In connection with such offering, Bidville paid EU-IR.com, an Austrian corporation, a fee of $143,325, pursuant to an Agreement dated December 12, 2003. 65 The Company also contractually committed itself to file a Registration Statement with the U. S. Securities and Exchange Commission to register these shares for resale within 90 days of December 22, 2003. In conjunction with the December 2003 sale of an aggregate 4,410,000 shares of restricted, unregistered common stock pursuant to a Private Placement Memorandum, the Company issued an aggregate 4,410,00 1/2 Warrants to purchase the Company's common stock at a price of $1.00 per share for each full Warrant. Each warrant has a mandatory call feature, such that, when the closing bid price of the Company's common stock exceeds $1.50 per share for ten consecutive trading days, the Company has a right to call these Warrants at a price of $1.00 per share, provided, however, that the Company may not exercise the call feature unless a registration statement registering the common stock purchasable upon exercise of the Warrants ("Warrant Stock") has been declared effective at least 20 trading days earlier and is effective from the date of delivery of the call notice until 10 business days later. The Company is contractually obligated to use all commercially reasonable efforts to maintain the effectiveness of a registration statement registering the Warrant Stock for one year after the call. If the Warrants are not tendered to the Company within 10 business days following the date the Company issues the call, the Warrants expire on the following calendar day. Otherwise, the Warrants have no stated expiration date. Warrants Warrants Originally outstanding at issued December 31, 2003 Exercise price ------------------------------------------------- 12/03 PPM 1/2 Warrants 2,205,000 2,205,000 $1.00 per share --------- --------- Totals at December 31, 2003 2,205,000 2,205,000 Item 6. Management's Discussion and Analysis Forward-looking Statements This Form 10-KSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-KSB which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including statements relating to matters such as future capital expenditures (including the amount and nature thereof), business or management strategy, expansion and growth of 66 the Company's business and operations, and other matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, general economic market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this Form 10-KSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Plan of Operations About Bidville: Bidville, Inc. was founded in 1999 under the name NoBidding, Inc. ("NoBidding") in order to capitalize on the growing Internet commerce field. NoBidding offered a proprietary internet auction site with improved features and functionality compared to competitors such as Ebay. On August 26, 2003, a syndicate of investors purchased a controlling interest in NoBidding in exchange for $225,000 cash and a note in the amount of $75,000, subsequently paid. The Company's founder-member has retained a substantial equity stake in NoBidding. On December 10, 2003, NoBidding, a New Jersey corporation formed on April 19, 1999, and the individual holders of the outstanding capital stock of NoBidding consummated a reverse acquisition pursuant to a certain Share Exchange Agreement (the "Agreement") of such date. The Agreement provided for one hundred percent (100%) of the shares of NoBidding to be acquired by the Company in exchange for 20,000,000 shares of common stock of the Company and $50,000 cash and for the establishment of a new Board of Directors of the Company consisting entirely of NoBidding directors. The Agreement also mandated that the total issued and outstanding shares of the Company immediately after the closing of the transaction be 25,360,007 shares. The Company's subsidiary, Lenders/Investors, Inc. was spun off to the Company's shareholders prior to the Agreement, leaving NoBidding as the only wholly-owned operating subsidiary of the Company after effecting the Agreement. 67 The Company amended its Articles of Incorporation to change its name from American Recreational Enterprises, Inc. to Bidville, Inc. ("Bidville") on December 10, 2003. The total issued and outstanding common stock after effecting the Share Exchange Agreement was 25,360,007 shares. Effective January 7, 2004, the Company changed its symbol on the OTCBB from "AREP" to "BVLE." In addition, concurrent with the acquisition of NoBidding, the Company's management elected to change the Company's fiscal year end from February 28 to December 31. Due to Bidville's change in fiscal year, the Form 10-KSB filed April 2, 2004 covered the transition period from March 1, 2003 to December 31, 2003. Therefore, the following discusses Bidville's operations for the post-acquisition period (August 26, 2003 - December 31, 2003) as compared to its operations during the pre-acquisition period (January 1, 2003 - August 25, 2003). For further explanation and additional information, please see the Company's audited financial statements immediately following this discussion. In the post-acquisition period from August 25, 2003 through December 31, 2003, we generated $15,604 in revenues. As of December 31, 2003, we generated cumulative losses of approximately $10,296,897, which includes compensation expenses related to common stock issuances at less than "fair value" of $10,051,800. Due to our limited operating history, among other factors, there can be no assurance that profitability or significant revenues on a quarterly or annual basis will occur in the future. See "Risk Factors." Executive Operating and Financial Summary Our management team regularly reviews operating metrics such as new members, number of items sold, listings, site traffic and total value of merchandise sold on our site, as well as other information such as new seller accounts. In addition, we routinely monitor other sources of information, such as our proprietary message boards. By examining and analyzing this data, we are able to monitor our site, anticipate trends within the site as well as larger trends within the online auction segment, and trends which affect our business segment. Consequently, we are able to make changes as necessary in order to improve our site and business and revenue models. We believe that understanding such information and how both qualitative and quantitative information may change over time is important to investors, analysts and other parties analyzing our market opportunities and business results. Our management also regularly reviews key financial information, such as net revenues, as well as monitors revenue supportive activities such as customer support, product development, marketing and site operations. We believe that an understanding of key financial information and how it changes over time is important to investors, analysts and other parties analyzing our business results and future market opportunities. We expect a growth in net revenues during 2004, which will result primarily from the implementation of Final Success Fees on February 1, 2004 and a subsequent increase in the volume of transactions conducted on our site, both in the number of transactions and the aggregate dollar value of such transactions. 68 In order to further this growth and to help us achieve our long-term objectives, we will continue to make investments in our business and infrastructure. We expect to continue with our current plan to actively market and advertise our auction services throughout the 2004 fiscal year. In addition, although we recently acquired 3 2 1 Play, Inc. and its subsidiary, Buy Sell Connect.com, Inc. to operate as subsidiaries of the Company, we intend to continue pursuing other suitable acquisitions for the Company in the near future. Whenever possible, consideration supporting such acquisitions shall be in the form of Bidville common stock, so as to conserve cash. We believe these investments are necessary to support the growth of our business. We will also work to expand product development, site operations and our corporate and site infrastructures. As of January 31, 2004, approximately 1.0% of our revenues were attributable to transactions where a seller was located outside the United States. The majority of those international transactions are made up of sellers located in Canada (0.8% of total revenues), with the remainder (0.2% of total revenues) attributable to sellers located in approximately 30 other countries. At present, however, all fees incurred by sellers are payable in U.S. dollars, regardless of where any seller is physically situated. The detailed discussion of our financial condition and results of operations contained herein is intended to provide information to assist investors, analysts and other parties reading this report to understand the key operating metrics and financial information summarized above as well as the changes in our results of operations from operating period to operating period to year end, and the primary factors that accounted for those changes. Results of Operations - For the Periods Beginning January 1, 2003 and Ending August 25, 2003 (actual) and Beginning August 26, 2003 and Ending December 31, 2003 (actual). Revenues The following sets forth, for the periods presented, certain data from our consolidated statement of income and growth performance statistics generated from recorded operating results. This information should be read in conjunction with "Note B - Preparation of Financial Statements" as well as our Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-KSB. January 1, 2003 - August 25, 2003 and August 26, 2003 - December 31, 2003. Net Revenue Recognition Net revenues for the period between January 1, 2003 and August 25, 2003 and for the period between August 26, 2003 and December 31, 2003, both resulted primarily from membership fees collected from sellers to list items on the Bidville website for sale in an auction and/or fixed price format. During those periods, Sellers paid membership fees in one of the following four ways, either: (a) a flat fee of $5.00 in order to be a verified member, which allows six months of selling activity, subject to certain listing restrictions; 69 (b) $5.00 per month to be a premier member, receiving $25.00 in credits per month, without being subject to any listing restrictions; (c) $10.00 per month to be a premier plus member, receiving $100.00 in credits per month, and are not subject to any listing restrictions; and, (d) $15.00 per month as a premier gold member, receiving $200.00 in credits per month, without being subject to any listing restrictions. Bidville bills sellers for charges incurred in a particular month under one of following two billing cycles: Cycle 1 - This is the billing cycle for sellers who registered with Bidville between the 1st and 14th of the month. Any charges incurred by the seller (i.e. the aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 1st and 4th of the subsequent billing period in the charges are incurred. The seller's credit card is charged seven (7) days after the date of the e-mailed invoice. Cycle 2 - This is the billing cycle for sellers who registered with Bidville between the 15th and 31st of the month. Any charges incurred by the seller (i.e. aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 15th and the 19th of the subsequent billing period the charges are incurred. The sellers' credit card is charged seven (7) days after the date of the e-mailed invoice. Credits existing in a seller's account at the end of a billing period are used to offset any Enhancement fees the seller may have incurred in that particular month. If the total amount of Enhancement fees a seller incurs in one month is greater than the total amount of credits that seller has accumulated in their account up to that time, then the seller is required to purchase additional credits using their credit card, in order to cover the difference. Any unused credits remaining at the end of the month will "roll over" into the next month and do not expire. Sellers may also purchase additional credits, beyond the monthly amount of credits they are granted under their membership, at any time through our website, using a credit card to charge the dollar amount of the amount of credit the seller wishes to purchase. Through January 31, 2003, we recognize revenue at the date payment is received from a seller for membership fees and/or extra credits. Under the membership fee structure in place through January 31, 2004, revenues recognized in any given month consist primarily of cash amounts collected for membership fees in that month, with enhancement fees making up only a small portion of the actual cash revenues generated in that month. This is because, as previously mentioned, enhancement fees are first paid with any credits that may exist in a seller's account at the end of the billing period. The Company only receives payment from the seller for enhancement fees in instances where a seller, for example, incurs a greater amount of enhancement fees in a single month than the amount of credit that seller has accumulated in their account up to such date. Consequently, only a small portion of the amount of enhancement fees charged per month generates actual cash income for the Company. 70 This is due at least in part to the manner in which we grant credits to members. Under the membership fee structure in place until January 31, 2004, much of the fees paid for enhancements are typically charged against credits granted to members as a part of their membership package. Such credits are included in the member's monthly membership fee, at no additional charge to the member (except for verified members, who do not receive any credits with their membership). Revenue recognition is expected to be much simpler now since we are in the process of phasing out our former membership fee and credit issuance format, which will terminate completely on April 30, 2004. Such format has been replaced by our new Final Success Fee structure effective as of February 1, 2004. Only persons posting items for sale in our auctions are subject to paying fees under this current format. Accordingly, the only fees we charge are those which a Bidville seller has incurred either through the successful sale of an item (in the form of Final Success Fees) or for choosing to add any of our optional item enhancement features available. For registered sellers who were members before the implementation of our Final Success Fee structure on February 1, 2004, the last month in which membership fees will be collected from (and respective credits issued to) such grandfathered sellers is April, 2004. After such date, sellers will only be able to receive credits from the Company without actually paying for them under specific promotional programs we may offer for short periods of time, which will be geared towards increasing the number of registered users. As mentioned previously, however, credits cannot be used against any Final Success Fees a seller may incur either now or in the future. Finally, grandfathered members will not be required to pay Final Success Fees until August 1, 2004. Net Revenues Compared with the period from January 1 through August 25, 2003, average monthly membership and enhancement fee revenues for the period August 26, 2003 through December 31, 2003 increased slightly in average dollar volume from month to month. Average membership and enhancement fee revenues totaled $4,114 per month for the period between August 26, 2003 and December 31, 2003, as compared to an average of $4,112 per month from January 1 through August 25, 2003. The slight increase in membership and enhancement fee revenues can be attributed to our website and operational restructuring conducted near the end of the December 31, 2003 fiscal year end in preparation for the aggressive marketing/advertising launch planned for January 2004. The slight pro rata increase in net revenues from $30,023 for the period January 1 through August 25, 2003, to $15,604 for the period between August 26, 2003 and December 31, 2003, was also primarily the result of our website and operational restructuring, as well as anticipation of our planned marketing/advertising launch. In particular, such increase was due to the interest and attention such changes and preparations created throughout our current member community. 71 Furthermore, the average number of confirmed registered members increased from 58,299 to 67,397 in the period between January 1, 2003 and August 25, 2003, an increase of 15.6%. For the period between August 26, 2003 and December 31, 2003, the number of registered members increased to 71,039 members, a 15.6% and 5.4% increase over the number of Bidville members on January 1 and a August 25, 2003 respectively. The increase in registered members reflects a moderate overall growth of 5.4%, however, it also reflects a growth in registered users per day each month from 22 at August 26, 2003 to 27 per day for the month ended December 31, 2003, a 22.7% increase. Presently, it is difficult for us to accurately track and identify the exact number of individual active users on the Bidville website on a live time basis during any given period. "Active users" are those Bidville users who placed a bid, or who bought or listed an item over the preceding twelve months. Our plan for the near future is to develop a system for monitoring and tracking those users who are active versus those who are inactive, as defined by a specific set of criteria which will include selling, bidding and buying activities. We believe, however, that the overall increases noted in selling, bidding and buying activities conducted by users in the last fiscal year ended December 31, 2003 is largely the result of our promotional efforts and a consequent increased awareness of Bidville in the online community. The number of items listed on Bidville.com on December 31, 2003 was 1,254,998, a 12.0% increase from the 1,111,700 items that were listed on our website on August 25, 2003. Operating Expenses Selling Expenses Selling expenses in the pre-acquisition period from January 1, 2003 to August 25, 2003 were essentially non-existent. After August 25, 2003, such costs included the costs of online advertising. The Company expended $2,885 on sales expenses from August 25, 2003 through December 31 of that fiscal year. This increase was primarily the result of implementing our marketing programs directed towards Internet marketing and co-branding campaigns. General and Administrative Between January 1, 2003 and August 25, 2003, general and administrative expenses amounted to an aggregate of $31,304, attributable to professional fees, depreciation, and other operating expenses. General and administrative expenses increased greatly for the period from August 26, 2003 through December 31, 2003, totaling $10,270,455. This is due to the fact that included in our results of operations is a non-cash expenditure charged only in the August 26, 2003 through December 31, 2003 period. During such period, we experienced a charge to operations of approximately $10,051,800 for compensation expense related to common stock issuances at less than "fair value". Included in the calculation of this charge was our issuance of Bidville common stock, for either cash or 72 services, at valuations below the closing quoted market price of our common stock (as discounted, as applicable) and either the cash received or the value of the services provided to us by third parties. See "Employment and Consulting Agreements" for a description of the important provisions of each agreement and the Exhibits attached hereto and incorporated herein to read the text of these agreements. In addition, we also incurred $52,285 in expenses between August 25, 2003 and December 31, 2003, due to an increase in our administrative staff from one (1) part-time employee as of December 31, 2002, to three (3) full-time employees. This increase in expenses was necessary in order to obtain the full-time services of a full-time professional staff. As of the date of this filing, we employ seven (7) persons, although we may hire additional employees if necessary. The fees paid to external professional advisors increased from $4,084 from January 1, 2003 through August 25, 2003, to $134,790 from August 26, 2003 through December 31 2003. This increase in fees is attributable to the December 10, 2003 reverse acquisition transaction, the August 25, 2003 transaction, and other transactions which, in the opinion of the Company's senior management, will benefit the Company and lead to long-term growth. With our continued investment in the infrastructure needed to support our business, including a lease of operating facilities and an increased employee headcount, we expect general and administrative expenses to increase in absolute dollars and as a percentage of net revenues during 2004. Stockholders' Equity Between January 1, 2003 and August 25, 2003, Bidville and predecessor entities, taken on a consolidated and as-converted basis, had 25,360,007 shares of common stock outstanding. On December 10, 2003, Bidville acquired 20,000,000 shares of Bidville common stock from its then majority shareholder, Jorge Elias, for consideration of $50,000 in the form of cash and/or a note payable. This amount was paid with a combination of available cash held by Bidville and approximately $23,000 in funds contributed by an outside third-party to complete the transaction. Concurrent with the acquisition of these shares by the Company, they were immediately cancelled and returned to unissued status. This retirement was accounted for as a reduction in the carrying value of issued and outstanding common stock at its respective par value, a reduction of additional paid-in capital to not less than $-0- and a reduction of retained earnings, where appropriate, in accordance with the tenets of Accounting Principles Board Opinion No. 6. On December 10, 2003, the Company issued 20,000,000 shares of restricted, unregistered common stock to the shareholders of NoBidding to acquire 100.0% of the issued and outstanding common stock of NoBidding, pursuant to an Agreement and Plan of Share Exchange dated December 10, 2003, thus effecting a recapitalization. 73 On December 3, 2003, the Company issued a Private Placement Memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended, to sell up to $2,000,000 in common stock at a price of $0.50 per share with accompanying Warrants. Through December 22, 2003, the Company sold an aggregate 4,410,000 shares of restricted, unregistered common stock pursuant to the private placement memorandum for gross proceeds of approximately $2,205,000. Each share was accompanied by Warrant to purchase 1/2 additional share of restricted, unregistered common stock at a price of $1.00 per share. These warrants have no stated expiration date. This offering was scheduled to close on January 31, 2004 and was closed by the Company on December 22, 2003. In connection with such offering, Bidville paid EU-IR.com, an Austrian corporation, a fee of $143,325, pursuant to an Agreement dated December 12, 2003. As part of the private placement transaction, the Company also contractually committed itself to file a Registration Statement with the U. S. Securities and Exchange Commission to register these shares for resale within 90 days of December 22, 2003. Liquidity and Capital Resources From January 1, 2003 through August 25, 2003, the Company generated a positive cash flow of approximately $299, generated mainly through cash advanced by the former majority shareholder of the Company. Throughout this portion of 2003, any such cash flows were essentially offset by the need for working capital, mainly to fund purchases of property and equipment and to pay the salary of the sole part-time employee. From August 26, 2003 through the end of the 2003 fiscal year, the amount of cash on hand increased dramatically to $2,053,306. Of this increase in available cash, $2,205,000 came from monies paid in by investors for restricted Bidville common stock pursuant to the December 2003 Private Placement Memorandum, and an additional $102,398 was contributed to the Company by its majority shareholder over the period between August 26, less $131,228 in expenses incurred in raising such capital. We believe that such expenses were necessary in order for the Company to raise capital needed to initiate its plan of expansion. Commitments and Contingencies The contractual obligations discussed below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates furnished below. We cannot provide certainty regarding the timing and amounts of any such payments. Operating lease amounts include minimum rental payments of $1,456 per month under our non-cancelable operating lease for our corporate headquarters located in Clearwater, Florida. This lease is for a period of twelve (12) months, commencing on October 1, 2003, with a monthly rental rate of approximately 74 $1,456 per month; plus appropriate sales and use taxes; and escalation increases for building operating expenses, inclusive of insurance premiums, utility charges, management fees and other related costs, as defined in the lease. Bidville has the option and right to renew this lease for two additional periods of three (3) years each at a base rental of 3.0% above the preceding year's base rent upon expiration of the initial twelve (12) month term. We initially had a lease obligation with Omega Micro Systems, Inc. ("Omega"), located in Newark, New Jersey, to host our website at a cost of $1,200 per month. However, this lease agreement ended on February 29, 2004. On December 22, 2003, we entered into a new agreement with iLand Internet Solutions Corporation ("iLand"), a website hosting/colocation facility located in Tampa, Florida, to host our website for $1,120 per month for a period of twelve (12) months beginning January 20, 2004. We also entered into a separate managed services agreement with iLand at a cost of $1,561 per month beginning January 23, 2004, also for a period of twelve (12) months. Under the terms of the managed services agreement, iLand agrees to handle any issues which may arise with our company-owned computer equipment that is located at iLand's web hosting facility and utilized in connection with our lease arrangement. On February 25, 2004, we completed the relocation of our web hosting services provider from Omega in Newark, New Jersey, to iLand in Tampa, Florida. The new web hosting service provider, in addition to being more geographically convenient to Bidville's office, also provides more broadband capability and more comprehensive and expansive managed services. The new hosting location maintains the highest level of access security for the equipment indicated above that is currently owned by the Company. On April 6, 2004, we entered into a three-year lease agreement with Thunderstone Software LLC ("Thunderstone"), whereby Bidville will lease the right to install and use certain of Thunderstone's sophisticated software programs. These software programs are an integral part of our website's technological structure and allows us to maximize the use of a comprehensive full text search function on our website. We are required to pay Thunderstone an initial Lease payment of $25,363, and beginning with the calendar month following execution of the Lease, Bidville shall pay Thunderstone an amount each month equal to $2,900. Monthly payments are due on the first day of each calendar month. The amount of the monthly lease payment is subject to change, however, predicated upon noted increased levels of search activity conducted on Bidville's website. Consulting and Employment Agreements At our last fiscal year end, December 31, 2003, we employed three (3) persons. As of the date of this filing, we currently employ seven (7) persons. None of these employees are represented by a labor union for purposes of collective bargaining. We consider our relations with our employees to be excellent. We plan to employ additional personnel as needed. Prior to August 25, 2003, Bidville had not entered into any consulting or employment agreements. Subsequent to the acquisition of NoBidding, the Company entered into executive employment agreements with its Chief Executive Officer, Michael Palandro, and later its President and Chairman, Gerald C. Parker in January 2004. Each executive is compensated in a combination of annual salary, 75 stock options, and bonuses based on meeting certain performance criteria. See "Executive Employment Agreements" above for a more detailed discussion of each of these agreements. In recognition of his efforts in assisting Bidville in raising $2,205,000 in private equity capital in December 2003, the Board of Directors voted to award Mr. Parker a performance bonus in the amount of $50,000, which was paid to him in January 2004, pursuant to the terms of his employment agreement. In addition, we also currently have employment agreements with two other Bidville employees: Mr. Alan Phiet Pham, who will serve as Bidville's Director of Information Technologies for a period of three (3) years, through August 31, 2006. Ms. Kimberly J. Cullen, who will serve as Bidville's Director of Marketing for a period of three (3) years, through August 31, 2006. Under the terms of their respective agreements, Mr. Pham and Ms. Cullen are to be compensated for such services in the form of an annual base salary, and both are entitled to receive options to purchase up to 100,000 shares of common stock in Bidville, at a price of $0.001 per share. These options vest in one-third increments (approximately 33,333 shares per year) on each anniversary date of this agreement, commencing on the 13th month of this agreement. Subsequent to the acquisition of 321 Play, Inc., 321 executed an executive employment agreement with Alina Mezhbovski on March 24, 2004, who is to serve as 321's Chief Executive Officer for a period of three (3) years. Ms. Mezhbovski shall receive as compensation: (a) an annual base salary of one hundred thousand dollars ($100,000); (b) Stock Participation - she may be eligible to participate in any stock option incentive plans established for key employees of 321, at the discretion of the Board of Directors; (c) Bonuses - she shall be eligible for a bonus of $100,000 per annum, for each $5,000,000 in annual revenue generated by 321. Total compensation shall not exceed $300,000; (d) Benefits - she shall also be entitled to participate in such programs as vacation pay and other fringe benefit plans authorized from time to time by the Board of Directors, in its discretion, for employees of 321; (e) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors of the Company. 321 also executed on the same date a three-year consulting agreement with Mezhcorp LLC. As compensation, Mezhcorp shall receive: (a) an annual base compensation of one hundred fifty thousand dollars ($150,000); 76 (b) Bonuses - Mezhcorp shall be eligible for a bonus of $100,000 per annum, for each $5,000,000 in annual revenue generated by 321. The total compensation shall not, however, exceed $300,000; (b) Stock Participation - Mezhcorp may be eligible to participate in any stock option incentive plans established for non-Consultants of 321, at the discretion of the Board of Directors; (c) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors. Prior to the December 31, 2003 fiscal year end, Bidville entered into various consulting agreements. The first, entered into on August 24, 2003, was between the Company and Dr. Edward Orlando, Bidville's former sole shareholder and founder. Pursuant to this agreement, Dr. Orlando is to provide certain management consulting services to the Company and retain a position on the Company's Board of Directors for a one year period. On October 1, 2003, the Company entered into a one-year consulting agreement with Donald Lees (or LeeWard Enterprises), whereby Mr. Lees is to provide consulting services for programming, engineering, database management, data transfer and other services. The agreement requires compensation of $5,000 per month, plus reimbursement for all reasonable costs and expenses. Either party may cancel this agreement by giving 60 days written notice to the other party. In September 2003, No Bidding, Inc. entered into a consulting agreement with National Securities Corporation, a Washington corporation ("National") for advice and assistance in connection with the negotiation and preparation of acquisitions, mergers and/or strategic alliances. The term of the agreement is for a period of seven (7) months. For such services, the Company is obligated to pay National $20,000 per month. The Company has paid all $140,000.00 due National in accordance with the terms of the agreement. In December 2003, Bidville entered into an agreement with both National and Royal Palm Capital Group, Inc. ("Royal Palm"), wherein National will render consulting advice to the Company relating to financial, investment banking and merger/acquisition matters. The term of the agreement is for a period of twelve (12) months. For such services to the Company, Royal Palm has agreed to give National 3,966,700 shares of the Company's common stock owned by Royal Palm. Subsequent to the December 31, 2003 fiscal year end, we executed several consulting agreements with various corporations. Although each agreement varies, the following is a summary of the pertinent provisions of each, the details of which can be found under "Employees and Consultants" located elsewhere in this report: (1) Mirador Consulting, Inc. - dated January 4, 2004 - Term: one year from the date of the agreement. - Compensation: (a) upon execution of the agreement, the issuance of 50,000 shares of Bidville restricted common stock for a total price of fifty dollars ($50.00); 77 (b) Bidville will pay Mirador $5,000 in cash per month, the first payment being due and payable at execution and then due on the first of the month for each successive month for the term of the agreement. (2) EU-IR.com - dated January 5, 2004. - Term: twelve months from the date of the agreement, thereafter the agreement will be automatically renewed month by month, unless it is cancelled by either side giving one month advance notice. - Compensation: $7,500 per month, payable in advance on the first of each month. (3) CEOcast,Inc. - dated January 29, 2004 - Term: one year from the date of the agreement. - Compensation: (a) upon signing the agreement, an initial cash payment of $20,000, representing first and last month's compensation; (b) $10,000 per month on the 29th of each month for the term of the agreement. (c) issuance of 32,000 shares of Bidville restricted common stock, with registration rights after any secondary offering pursuant to a registration statement is completed. (4) RMN Consulting, LLC - effective February 19, 2004 - Term: a period of six (6) months from the date of the agreement. - Compensation: (a) $10,000 cash for the first two months the agreement is in effect. (b) for the remaining four months, issuance of 50,000 warrants to purchase Bidville common stock, exercisable after registration of the underlying common stock at a 25% discount from the market price of the common stock on the date of exercise. (5) Capital Resource Alliance, LLC - dated March 17, 2004 - Term: one year period - Compensation: (a) 20,000 shares of restricted, unregistered Bidville common stock (contingent upon CRA's successful performance of its services) with limited registration rights, and (b)cash in the amount of $200,000, payable within 30 days of the date of the agreement. (6) Empire Financial Group, Inc. - dated March 31, 2004. - Term: twelve (12) months and may not be terminated by the Company - Compensation: (a) engagement fee of $25,000, payable upon execution of the agreement, (b) $10,000 per month payable, in advance beginning April 1, 2004, and each of the next eleven (11) months thereafter, and 78 (c) warrants to purchase 200,000 shares of Bidville common stock, at an exercise price of $3.00 per warrant. Such warrants expire five (5) years after issuance and will contain provisions for registration of the resale of the underlying shares at the Company's expense, cashless exercise and for adjustment in the number of such shares and the exercise price to prevent dilution. (d) In the event that a "Strategic Transaction" (as defined in the agreement) is consummated, other than a financing, we are obligated to pay Empire a "Transaction Fee," in cash at closing, as follows: Consideration Paid Transaction Fee in Transaction (Percentage of Consideration) -------------------------------------------------------- Up to $2 million 5.0% $2 million - $4 million 4.0% $4 million - $6 million 3.0% $6 million - $8 million 2.0% Over $8 million 1.0% (e) If Bidville enters into a "financing" transaction, we must pay Empire a cash fee at the closing of the financing in an amount to be agreed upon prior to such closing. In the event that the parties cannot agree on such a fee, the fee shall be ten percent (10%) of the gross proceeds of such financing. As of the date of this filing, none of the warrants described herein had been issued to Empire, and we have not entered into any "strategic transaction" or "financing" subject to this agreement. (7) Blackmor Group, Inc. - Advisory Agreement dated April 1, 2004 - Term: initial term of one year, which will be automatically extended on an annual basis for a additional one year terms unless Blackmor or Bidville serves written notice on the other party at least thirty (30) days prior to the end of the applicable term. - Compensation: (a) 75,000 shares of Bidville restricted common stock, and (b) 100,000 warrants to purchase Bidville common stock at an exercise price of $2 for two years. Item 7 - Index to Financial Statements The required financial statements begin on page F-1 of this document. 79 Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 8A - Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation conducted within 90 days prior to the filing date of this Annual Report on Form 10-KSB, that the Company's disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary whether: (i) this Annual Report on Form 10-KSB contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report on Form 10-KSB, and (ii) the financial statements, and other financial information included in this Annual Report on Form 10-KSB, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Annual Report on Form 10-KSB. There have been no significant changes in the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regards to significant deficiencies and material weaknesses. PART III Item 9 - Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act MANAGEMENT Directors and Executive Officers The directors and executive officers of the Company, their ages and positions held as of the date of this Annual Report are set forth below: Name Age Position(s) with Company --------------------------------------------------- Gerald C. Parker 61 President and Chairman Michael Palandro 56 Chief Executive Officer and Director Robert W. Pearce 53 Corporate Secretary, Treasurer, and Director John Dewey 54 Director Edward Orlando 33 Director 80 (1) All directors hold office until the next annual meeting of our shareholders and until their successors have been elected and qualify. Officers serve at the pleasure of the Board of Directors. The officers and directors will devote such time and effort to the business and affairs of Bidville as may be necessary to perform their responsibilities as our executive officers and/or directors. Family Relationships There are no family relationships between or among the executive officers and directors of Bidville. Business Experience Gerald C. Parker, age 61, President and Chairman of our Board of Directors Mr. Parker served as Chairman & CEO of St. James Capital Group from January 1997 until January 2000. During this time Mr. Parker was one of the Founders of Inktomi Corp., a publicly traded high technology company which develops scalable network applications and traffic servers. At its peak, Inktomi had a valuation in access of $20 billion dollars. He then served as Chairman of Investment Management America, a merchant bank specializing in investment capital, mergers and acquisitions from January 2000 until November of 2001. In that year he formed and served as CEO of Airways Express, an FAA Part 135 Air Charter Company, which served the SE United States and Bahamas markets. He remained in this capacity from November 2001 until June 2002. In June, 2002 he assumed the position of Vice President with the International Monetary Group in Jupiter, Florida. In affiliation with its sister company, American Capital Corp., Mr. Parker handled all M & A work for investing that capital. He remained in that capacity until June 2003 when he formed St. James Investment Group, Inc., a private merchant banking group and Royal Palm Capital Group, Inc. a private investment company. He serves as Chairman of both St. James and Royal Palm and as CEO of St. James. Mr. Parker attended the Anderson Business College in Decatur, Alabama in the early 1960's as well as numerous business and management courses. Michael Palandro, age 56, is our Chief Executive Officer and a member of the Board of Directors. Mr. Palandro is responsible for establishing and maintaining operational and financial structure, while developing and implementing business strategies and setting the standards for providing the highest level of guidance and Company representation. Prior to BidVille, Mr. Palandro was President and CEO for Mallet, LeVarek and Pierre starting in July 1983, conducting project development mainly in Europe and Asia, until July 1999. He worked as a Senior Consultant performing corporate restructures for RHI Management Resources, a division of Robert Half International through June 2002. Mr. Palandro became Chief Operating Officer for Carnaby.com an on-line auction and fixed price marketplace, resigning in December 2002. After working for 81 Carnaby, Mr. Palandro was involved in the restructuring and development for Bidville.com, accepting full-time employment at Bidville in August 2003. Mr. Palandro holds undergraduate degrees in Accounting and Literature from New York Institute of Technology in 1971, a graduate MBA degree in 1973 in International Finance from New York University and was a Certified Public Accountant from 1975, currently inactive. Robert W. Pearce, age 53, is our Secretary, Treasurer, and a member of the Board of Directors. Robert W. Pearce has spent his career in various executive and sales management positions within the high-tech and financial industries. For the past 25 years, Mr. Pearce has successfully led several high-level projects, including acquisitions, corporate strategy development, product launches, network deployments and the full spectrum of sales and marketing strategy development. Currently, Mr. Pearce serves as the president of St. James Investment Group, Inc, a full service merchant banking firm. He also holds the position of chief executive officer for investment company Royal Palm Capital Group, Inc. Both firms were launched in March 2003. From April 2002 to March 2003, he was the vice president of sales for Cirilium, Inc., a pioneer in the emerging Voice over Internet Protocol industry. In this position, Mr. Pearce established corporate strategies, developed a new sales organization and created new distribution channels. Prior to his work with Cirilium, Mr. Pearce performed consulting services for an independent telephone company, Arrow Communications. From April 2002 to September 2002, Arrow enlisted Mr. Pearce's help with rolling out a technologically advanced group of wireless broadband products. From January 1999 to September 2002, Mr. Pearce was president of Spectracom, Inc., a telecommunications consulting company. During his tenure with Spectracom, Mr. Pearce led a network deployment of high-speed voice and data termination circuits. This network spanned the Far East and Latin America. From January 1996 until January of 1999, Mr. Pearce served as the vice president of sales for Teleflex, Inc., a telecommunications billing company. While at Teleflex, Mr. Pearce helped establish the company as a primary vendor for Siemens ICN. Before assuming roles with telecommunications companies, Mr. Pearce held positions within the financial industry. In 1987, he launched a broker/dealer firm through Bear Stearns. The firm became a key player in the consolidation of the cable television industry and was acquired in 1988. In 1980, Mr. Pearce began work for Prudential Securities as a stockbroker. Mr. Pearce completed his college education at Florida State University in 1975. John Dewey, age 54, is a member of the Board of Directors. Mr. Dewey has over 25 years of corporate technology experience. He has spent the majority of his career defining information technology strategy and enterprise architecture for large international corporations. Currently, Mr. Dewey is building a global architecture practice for NCR Teradata. When completed, the enterprise architecture will serve 1000 clients worldwide. In addition, Mr. Dewey develops business strategy, sales approaches and processes, and manages team staffing. He has been consulting for NCR Teradata from September 2003 to the present. Since January 2003, Mr. Dewey has also participated in various investment banking pr ojects. During this time, he formed Dewey Cubed, Inc., an investment and management company specializing in retail business acquisitions. From April 1996 to May 2003, Mr. Dewey was chief architect for Tanning Technology Corporation, a 82 consulting company specializing in very large transaction processing systems and database systems. During his tenure with Tanning, Mr. Dewey defined business strategy, IT strategy and information systems architecture. In this role, Mr. Dewey managed sales, architecture and design efforts for multiple engagements with large international customers, including eBay, eTrade and Qwest. For eBay, Mr. Dewey led his team to develop the system architecture for a world-class global auction system. Mr. Dewey's team also developed and deployed the system architecture for eTrade's global customer support system. In addition, Mr. Dewey and his team developed a comprehensive customer support and call center system for Qwest. Prior to Tanning, Mr. Dewey worked for 12 years as a senior principal engineer at Harris Corporation. From April 1985 to April 1996, he led sales and development efforts for large commercial and government programs. Before joining Harris Corporation, Mr. Dewey was a senior consultant for Control Data Corporation. From December 1977 to April 1985, Mr. Dewey developed business and technology strategies for The Service Bureau Company, a division of Control Data. Prior to holding technical positions in the corporate environment, Mr. Dewey began his career in the military. From June 1971 to December 1977, Mr. Dewey was a captain and electronic warfare officer in the United States Air Force. Along with his extensive technical experience, Mr. Dewey also has a Bachelor of Science degree in electrical engineering from the University of Virginia. In addition, he has completed graduate studies in systems management at the University of Southern California and in business administration at the University of Utah. Dr. Edward Orlando, age 33, is a member of the Board of Directors. Dr. Edward Orlando is currently and has been an emergency room ("ER") physician since October 2003. Prior to that time, between January 2002 and September 2003, he was an ER resident at St. Johns Hospital in Detroit, Michigan. Between October 2000 and December 2001, he worked on the Bidville project, through the Company's new subsidiary, No Bidding, Inc. Between July 1999 and September 2000, Dr. Orlando served as an ER resident at St. Lukes Hospital in Bethlehem, PA. He was a founder of the Bidville project and worked on it continuously between January 1999 and July 1999. Indemnification of Officers and Directors. The Company's By-Laws provide for the indemnification of its, directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of the Company. The Company will also bear the expenses of such litigation for any of its directors, officers, employees, or agents, upon such persons promise to repay the Company therefor if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by the Company, which it may be unable to recoup. 83 Conflicts of Interest None of the officers or directors of Bidville will devote more than a portion of his time to the affairs of the Company. There will be occasions when the time requirements of the Company's business conflict with the demands of the officers' and directors' other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company. It is not currently anticipated that any salary, consulting fee, or finders fee shall be paid to any of the Company's directors or executive officers, or to any other affiliate of the Company except as described under Executive Compensation below, as discussed in the Employees and Consultants section herein or as defined in Employment Contracts attached hereto as exhibits or incorporated by reference herein. On December 10, 2003, the Company, NoBidding, Inc., and the holders of all of the outstanding common stock of NoBidding, Inc. ("Holders") consummated the Reorganization pursuant to the Agreement of such date. Pursuant to the Agreement, NoBidding, Inc., and the Holders tendered to the Company all of the issued and outstanding shares of common stock of NoBidding, Inc. in exchange for 20,000,000 shares of common stock of the Company. The Board appointed Gerald C. Parker, Michael Palandro, Robert W. Pearce, C. John Dewey and Edward Orlando to serve as members of the Board until the next meeting of the shareholders in which directors are elected. Subsequently, Jorge Elias tendered his resignation in accordance with the terms of the Agreement and Gerald C. Parker was elected Chairman of the Board. Immediately following execution of the Agreement, Gerald C. Parker owned 54.75% of St. James Investment Group, Inc. and 51% of Royal Palm Capital Group, Inc. Gerald C. Parker may be deemed a control person of either St. James, Royal Palm or both. In the event he is deemed a control person in either of these entities, he may be deemed to beneficially own or control the shares of the Company owned by that entity. As a result, St. James, Royal Palm, and/or Gerald C. Parker may be deemed to control or even own a large percentage of the Company's issued and outstanding stock. In doing so, he may control decisions of the shareholders to elect directors, retain existing directors or make other important stockholder decisions. His opinions as a shareholder may influence his decisions as corporate officer and director, for which he owes the stockholders a fiduciary duty. In such a case, a conflict of interest may be deemed to exist. Compliance with Section 16(a) of the Securities Exchange Act of 1934 No Director, Officer, Beneficial Owner of more than ten percent (10%) of any class of equity securities of the Company failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. 84 Item 10 - Executive Compensation EXECUTIVE COMPENSATION
Name and Year Annual Annual Annual LT LT LTIP All Post Comp Comp Comp Comp Comp Payouts Other Salary Bonus Other Rest Options (1) (1) ($) Stock - ---------------------------------------------------------------------------------------------------------- Gerald C. Parker, 2001 $0 Chairman 2002 $0 2003 $0 $50,000 (2) 2004 $37,500 (3) Michael Palandro, 2001 $0 President, CEO and Director 2002 $0 2003 $40,000 2004 $30,000 (3) Robert W. Pearce, 2001 $0 Secretary, Treasurer and 2002 $0 Director 2003 $0 Edward Orlando, 2001 $16,308 Director 2002 $3,538 2003 $0 C. John Dewey, 2001 $0 Director 2002 $0 2003 $0
- ------------------- 85 (1) All other compensation includes certain health and life insurance benefits paid by the Company on behalf of its employees. (2) Mr. Parker was paid a performance bonus in January 2004, which was accrued in December 2003. (3) These amounts represent compensation paid from January 1, 2004 through March 31, 2004. Stock Option Plans The Board of Directors agreed at the last Board meeting, held January 13, 2004, that they would create a stock incentive plan for certain of its employees to be administered at the discretion of the Board of Directors. As of the date of this filing, no formal plan has been adopted. Item 11 - Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of December 31, 2003, regarding the ownership of Bidville's Common Stock by each shareholder known by the Company to be the beneficial owner of more than five percent (5%) of its outstanding shares of Common Stock, each director and all executive officers and directors as a group. Except as otherwise indicated, each of the shareholders has sole voting and investment power with respect to the share(s) of Common Stock beneficially owned. Name and Address of Title of Amount and Nature of Percent of Beneficial Owner Class Beneficial Owner Class - -------------------------------------------------------------------------------- Gerald C. Parker Common 0(2) 0%(2) Michael Palandro Common 0 0% Robert W. Pearce Common 0 0% Edward Orlando Common 3,000,000 11.8% C. John Dewey Common 0 0% - ------------------------------ All Executive Officers and Common 3,000,000 11.8% Directors as a Group (Five (5) persons) Royal Palm Capital Group, Inc. Common 9,350,000(2) 30.8%(2) St. James Investment Group, Inc. Common 1,410,000(2) 4.6%(2) - ---------------------------------------------------- (1) The address for each of the above is c/o Bidville, Inc., 601 Cleveland Street, Suite 120, Clearwater, Florida 33755. 86 (2) Gerald C. Parker owns 54.75% of St. James Investment Group, Inc. and 51% of Royal Palm Capital Group, Inc. He may be deemed a "control person" of either St. James, Royal Palm or both. In the event Mr. Parker is deemed a control person in either of these entities, he may be deemed to beneficially own or control the shares of the Company owned by that entity. Executive Employment Agreements We presently have employment agreements with our President and Chairman, Gerald C. Parker, and our Chief Executive Officer, Michael Palandro. Under the terms of their respective employment agreements, each will receive annual salaries in the following amounts: Mr. Parker - $150,000 and Mr. Palandro - $120,000, for a period of three years from the date of their respective agreements. Compensation for their services also include stock options to purchase up to 1,000,000 and 2,010,000 shares of our common stock, respectively, at a price of $4.27 and $0.001 per share, respectively. These options vest in one-third increments on each anniversary date of the agreement, commencing on the 13th month of the employment agreement. In addition, if Bidville achieves certain revenue levels within approximately the first year of each agreement, we are obligated to pay bonuses to these officers. These bonuses range from $5,000 to $50,000, depending on the type of performance indicators, including membership enrollment, revenues, net income levels, financing and overall performance of the Company. Furthermore, if Mr. Parker is terminated without cause, the Company must pay him his then-applicable base compensation for a period of twelve (12) months from the date of such termination, if such termination occurs after the first twelve months of the employment agreement. Upon such an event, we would then be required to pay this amount in installments, in accordance with the Company's regular payroll practices. See "Employees and Consultants." The Company has no standard arrangement with regard to its directors receiving compensation for services on the Board of Directors or any committee thereof, but directors may be reimbursed for certain expenses in connection with attendance at board and committee meetings and other services performed for the Company. Item 12 - Certain Relationships and Related Transactions Bidville and Dr. Edward Orlando, the Company's former sole shareholder and founder, entered into a Consulting Agreement on August 24, 2003, whereby Dr. Orlando will provide certain management consulting services to the Company and retain a position on the Company's Board of Directors for a one year period. As compensation under this Consulting Agreement, Dr. Orlando received certain property of the Company, including computer and other electronic equipment, as well as the forgiveness of certain funds advanced by the Company to Dr. Orlando for either personal use or the expenses related to certain patent(s) in process at the August 25, 2003 change in control. Dr. Orlando will 87 also be reimbursed for all reasonable out-of-pocket expenses incurred as a Director of the Company, so long as said expenses have prior written authorization of the Company's management. The Company entered into an Executive Employment Agreement with Mr. Gerald C. Parker, on January 12, 2004, under which Mr. Parker is to serve as the Company's President and Chairman of the Board for a period of three (3) years, through December 31, 2006. Under his agreement, Mr. Parker is entitled to an annual base salary of $150,000. In addition, Mr. Parker shall receive options to purchase up to 1,000,000 shares of Bidville common stock at 15% below the market price on the date of the agreement. On January 12, 2004, the date of the agreement, the price at close was $5.02. Accordingly, the exercise price of the 1,000,000 options is $4.27, or 15% below $5.02. As part of the agreement, Mr. Parker is also eligible to receive bonuses based on Bidville's performance between December 1, 2003 and November 30, 2004 in certain areas: Membership enrollment: If enrollments reach 210,000 members, a $15,000 bonus will be paid. If enrollments exceed 270,000, an additional $5,000 bonus will be paid. Revenues: If revenues reach $2,200,000, a $15,000 bonus will be paid. If revenues exceed $2,800,000, an additional $5,000 bonus will be paid. Net Income: If net income reaches $264,000, a $15,000 bonus will be paid. If net income exceeds $336,000, an additional $5,000 bonus will be paid. Performance: An overall performance bonus of $15,000 to $20,000 may be paid at the discretion of the Company's Board of Directors. Financing: If during the 2004 fiscal year Bidville achieves private equity financing in an amount of $2,000,000, a $50,000 bonus will be paid. If total equity financing during the fiscal year exceeds $9,000,000, an additional $100,000 bonus will be paid. In recognition of his efforts in assisting Bidville in raising $2,205,000 in private equity capital in December 2003, the Board of Directors voted to award Mr. Parker a performance bonus in the amount of $50,000, which was paid to him in January 2004. Item 13 - Exhibits and Reports on Form 8-K Exhibit No. Description - ----------------------------------------------- 1 [1] Corporate Charter 2.1 [2] Merger Agreement between the Company and Capstra Capital Corp. 2.2 [3] Share Exchange Agreement between American Ammunition, Inc. and F&F Equipment, Inc. as finalized on August 31, 2001. 88 2.3 [6] Share Exchange Agreement between American Recreational Enterprises, Inc. and NoBidding, Inc. dated December 10, 2003. (previously filed as Exhibit 2.2). 2.4 [7] Aquisition Agreement between Bidville, Inc., and 3 2 1 Play, Inc., dated March 24, 2004. 3(i).1 [1] Articles of Incorporation of Greatestescapes.com. 3(i).2 [3] Certificate of Amendment to Articles of Incorporation of Greatestescapes.com, Inc. filed July 23, 2001. 3(i).3 [5] Articles of Incorporation of Lenders / Investors, Inc. 3(i).4 [6] Certificate of Amendment of Articles of Incorporation changing name to Bidville, Inc. filed December 10, 2003. (previously filed as Exhibit 3(i).3). 3(ii).1 [1] Bylaws of Greatestescapes.com. 3(ii).2 [5] Bylaws of Lenders/Investors, Inc. 10.1 [1] Intellectual Property Assignment between the Company and Kick Start Publishing. 10.2 [1] Public Relations Agreement between the Company and Kathleen Carney & Associates. 10.3 [1] Distribution Agreement between the Company and WORDS Distributing. 10.4 [1] Supplier Agreement between the Company and Organic Buckwheat Pillow Products of Canada & USA. 10.5 [1] Supplier Agreement between the Company and Microsoie, Inc. 10.6 [1] Supplier Agreement between the Company and Ulysses Press. 10.7 [1] Supplier Agreement between the Company and SunDreamer. 10.8 [1] Supplier Agreement between the Company and Attart Industries, Inc. 10.9 [4] Agreement to Void, Cancel and Terminate Stock Exchange Agreement. 10.10 [6] Executive Employment Agreement between NoBidding Inc. and Alan Phiet Pham dated August 28, 2003 (previously filed as Exhibit 10.1 on Form 8K). 10.11 [6] Executive Employment Agreement between NoBidding Inc. and Kim Cullen dated August 28, 2003 (previously filed as Exhibit 10.2 on Form 8K). 89 10.12 [6] Executive Employment Agreement between NoBidding Inc. and Michael Palandro dated August 28, 2003 (previously filed as Exhibit 10.3 on Form 8K). 10.13 [7] Executive Employment Agreement between Bidville Inc. and Gerald Parker dated January 12, 2004. 10.14 [7] Consulting Agreement between Bidville, Inc. and Mirador Consulting, Inc. dated January 4, 2004. 10.15 [7] Consulting Agreement between Bidville, Inc. and RMN Consulting, LLC dated February 19, 2004. 10.16 [7] Consulting Agreement between Bidville, Inc. and CEOcast, Inc. dated January 29, 2004. 10.17 [7] Consulting Agreement between Bidville, Inc. and CRA Consulting dated March 17, 2004. 10.18 * Consulting Agreement between Bidville, Inc. and National Securities Corporation dated September 1, 2003. 10.19 * Financial Advisory and Consulting Agreement between Bidville, Inc. and National Securities Corporation dated December 12, 2003. 10.20 * Consulting Agreement between Bidville, Inc. and Empire Financial Group, Inc. dated March 31, 2004. 10.21 * Advisory Agreement between Bidville, Inc. and Blackmor Group Inc. dated April 1, 2004. 10.22 * Software Lease Agreement between Bidville, Inc. and Thunderstone Software LLC dated April 6, 2004. 10.23 * Agreement between Bidville, Inc. and EU-IR.com dated December 12, 2003. 10.24 * Consulting Agreement between NoBidding, Inc./Bidville, Inc. and EU-IR.com dated January 5, 2004. 10.25 * Consulting Agreement between 321 Play Inc. and Mezhcorp, LLC Inc. dated March 24, 2004. 10.26 * Executive Employment Agreement between 321 Play Inc. and Alina Mezhbovski dated March 24, 2004. 31.1 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 90 31.2 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 * Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 * Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - --------------------------------------------- * Filed herewith. [1] Incorporated herein by reference to the Company's Registration Statement on Form 10-SB filed September 6, 2000. [2] Incorporated herein by reference to the Company's Current Report on Form 8-K filed October 18, 2000. [3] Incorporated herein by reference to the Company's Current Report on Form 8-K filed September 5, 2001. [4] Incorporated herein by reference to the Company's Current Report on Form 8-K filed October 2, 2001. [5] Incorporated herein by reference to the Company's Current Report on Form 8-K, filed April 28, 2003. [6] Incorporated herein by reference to the Company's Current Report on Form 8-K, filed December 10, 2003. [7] Incorporated herein by reference to the Company's Annual Report on Form 10-KSB, filed April 2, 2004. Reports on Form 8-K A report on Form 8-K was filed on December 10, 2003 reporting the Share Exchange conducted between us and NoBidding, Inc. and its shareholders on December 10, 2003 and concurrently, the Company's fiscal year end was changed from February 28/29 to December 31. An amended report on Form 8-KA was filed on December 16, 2003 that further clarified Bidville's fee structure for its online auctions. A report on Form 8-K was filed on January 8, 2004 reporting that Bidville completed the private sale of approximately 4,400,000 shares of the Company's restricted common stock to several individuals for a total of approximately $2,200,000 on or about December 22, 2003. As a condition of the sale, the Company is obligated to file a Registration Statement under the Securities Act of 1933, as amended with the Securities and Exchange Commission within ninety (90) days of the sale. The report also stated that the Company had distributed a press release on January 8, 2004 describing these transactions and announcing that the Company's symbol had changed on the Over the Counter Bulletin Board from "AREP" to "BVLE." 91 A report on Form 8-K was filed on February 12, 2004 reporting that Bidville executed a nonbinding letter of intent on February 11, 2004 for the acquisition of 3 2 1 PLAY, Inc. and Buy Sell Connections, Inc. The report indicated that the Company plans to use the acquisition to expand its online product offerings. Item 14. Principal Accountant Fees and Services The Company paid or accrued the following fees in each of the prior two fiscal years to its principal accountant, S. W. Hatfield, CPA of Dallas, Texas. Year Ended December 31, ------------------------------------- 2003 2002 ------------------------------------- Audit Fees $22,660 $742 Audit-Related Fees - - Tax Fees - - All Other Fees - - Total $22,660 $742 - --------------------------------------------------------------- "Audit Fees" consisted of fees billed for services rendered for the audit of Bidville's annual financial statements and for review of the financial statements included in Bidville's quarterly reports on Form 10-QSB. S. W. Hatfield, CPA, did not perform any non-audit services for Bidville in either the fiscal year ended December 31, 2003 or the fiscal year ended December 31, 2002. Financial Information System Design and Implementation. S. W. Hatfield, CPA did not charge the Company any fees for financial information system design and implementation fees. The Company has no formal audit committee. However, the entire Board of Directors (the "Board") is the Company's defacto audit committee. In discharging its oversight responsibility as to the audit process, the Board obtained from the independent auditors a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors' independence as required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees." The Board discussed with the auditors any relationships that may impact their objectivity and independence, including fees for non-audit services, and satisfied itself as to the auditors' independence. The Board also discussed with management, the internal auditors and the independent auditors the quality and adequacy of the Company's internal controls. The Board reviewed with the independent auditors their management letter on internal controls. 92 The Board discussed and reviewed with the independent auditors all matters required to be discussed by auditing standards generally accepted in the United States of America, including those described in Statement on Auditing Standards No. 61, as amended, "Communication with Audit Committees". The Board reviewed the audited consolidated financial statements of the Company as of and for the year ended December 31, 2003, with management and the independent auditors. Management has the responsibility for the preparation of the Company's financial statements and the independent auditors have the responsibility for the examination of those statements. Based on the above-mentioned review and discussions with the independent auditors and management, the Board of Directors approved the Company's audited consolidated financial statements and recommended that they be included in its Annual Report on Form 10-KSB for the year ended December 31, 2003, for filing with the Securities and Exchange Commission. The Board also approved the reappointment of S. W. Hatfield, CPA as independent auditors. The Company's principal accountant, S. W. Hatfield, CPA, did not engage any other persons or firms other than the principal accountant's full-time, permanent employees. [Balance of this page intentionally left blank] 93 SIGNATURES BIDVILLE, INC. - - - - - - - - - - - - - - - - - (Name of Registrant as Specified in Charter) In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this notification to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 30, 2004 By: /s/ Gerald C. Parker ----------------------------------------------- Gerald C. Parker, President and Chairman /s/ Michael Palandro ------------------------------------------------ Michael Palandro, CEO and Director /s/ Robert W. Pearce ------------------------------------------------ Robert W. Pearce, Secretary, Treasurer, and Director /s/ John Dewey ------------------------------------------------ John Dewey, Director /s/ Edward Orlando ------------------------------------------------ Edward Orlando, Director Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated. Date: April 30, 2004 By: /s/ Gerald C. Parker ----------------------------------------------- Gerald C. Parker, President and Chairman /s/ Michael Palandro ------------------------------------------------ Michael Palandro, CEO and Director /s/ Robert W. Pearce ------------------------------------------------ Robert W. Pearce, Secretary, Treasurer, and Director /s/ John Dewey ------------------------------------------------ John Dewey, Director /s/ Edward Orlando ------------------------------------------------ Edward Orlando, Director 94 BIDVILLE, INC. AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS Page Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets of Bidville, Inc. as of December 31, 2003 and 2002 F-3 Balance Sheets of NoBidding, Inc. as of August 25, 2003 and August 26, 2003 - pre and post-acquisition F-4 Consolidated Statements of Operations and Comprehensive Loss for the period from August 25, 2003 to December 31, 2003 (post-acquisition); for the period from January 1, 2003 to August 25, 2003 (pre-acquisition); and for the year ended December 31, 2002 (pre-acquisition) F-5 Consolidated Statement of Changes in Stockholders' Equity for the periods ended December 31 2003, August 25, 2003 and the year ended December 31, 2002 F-6 Consolidated Statements of Cash Flows for the period from August 25, 2003 to December 31, 2003 (post-acquisition); for the period from January 1, 2003 to August 25, 2003 (pre-acquisition); and for the year ended December 31, 2002 (pre-acquisition) F-7 Notes to the Consolidated Financial Statements F-8 F-1 Letterhead of S. W. Hatfield, CPA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Bidville, Inc. (formerly American Recreational Enterprises, Inc.) We have audited the accompanying consolidated balance sheets of Bidville, Inc. (formerly American Recreational Enterprises, Inc.) (Company) (a Nevada corporation) and Subsidiary (a New Jersey corporation) as of December 31, 2003 and 2002 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity and cash flows for the period from August 26, 2003 through December 31, 2003, the period from January 1, 2003 through August 25, 2003 and the year ended December 31, 2002, respectively. Additionally, we have audited the balance sheets of the Company's wholly-owned subsidiary, NoBidding, Inc., of as of August 26, 2003 (date of acquisition by Safety Harbor Capital Corporation LLC, a Florida limited liability company, and Royal Palm Capital Group, Inc., a Florida corporation) and August 25, 2003 (pre-acquisition). All of these financial statements are collectively the sole responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bidville, Inc. (formerly American Recreational Enterprises, Inc.) and Subsidiary as of December 31, 2003 and 2002 and the financial position of NoBidding, Inc. as of August 25 and 26, 2003, respectively, and the results of the consolidated operations and cash flows of Bidville, Inc. for the period from August 26, 2003 through December 31, 2003, the period from January 1, 2003 through August 25, 2003 and the year ended December 31, 2002, respectively, in conformity with accounting principles generally accepted in the United States of America. We initially issued a Report of Independent Certified Public Accountants (Report) on the above listed financial statements on March 6, 2004 (except for Note K as to which the date is March 24, 2004). Subsequent to the date of our Report, Management of the Company discovered that certain consulting contracts had the respective terms and conditions erroneously disclosed or that certain contracts not been disclosed. The results of these findings had no effect on the Company's financial statements. Accordingly, we withdraw our opinion dated March 6, 2004 (except for Note K as to which the date is March 24, 2004). No reliance should be placed on our opinion dated March 6, 2004 (except for Note K as to which the date is March 24, 2004) /s/ S. W. Hatfield, CPA ----------------------- S. W. HATFIELD, CPA Dallas, Texas May 5, 2004 F-2
BIDVILLE, INC. AND SUBSIDIARY (formerly American Recreational Enterprises, Inc.) CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002 (post-acquisition) (pre-acquisition) December 31, December 31, 2003 2002 ------------------------------------ ASSETS Current Assets Cash on hand and in bank $ 2,053,306 $ 575 Due from former officer - 4,842 Prepaid expenses - 1,800 ------------ ------------ Total current assets 2,053,306 7,217 ------------ ------------ Property and equipment - at cost 7,500 77,269 Less Accumulated depreciation (1,665) (53,938) ------------ ------------ Net property and equipment 5,835 23,331 ------------ ------------ Other Assets Domain name 3,000 3,000 Deposits and other 1,456 2,700 Goodwill 290,616 - ------------ ------------ Total other assets 295,072 5,700 ------------ ------------ TOTAL ASSETS $ 2,354,213 $ 36,248 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable - trade $ 334,472 $ 1,813 Due to controlling shareholder(s) 102,398 - Income taxes payable 240 790 ------------ ------------ Total current liabilities 437,110 2,603 ------------ ------------ Long-term Liabilities Deferred tax liability - 5,005 ------------ ------------ Total liabilities 437,110 7,608 ------------ ------------ Commitments and contingencies Stockholders' Equity Preferred stock - $0.001 par value 50,000,000 shares authorized. None issued and outstanding - - Common stock - $0.001 par value. 200,000,000 shares authorized. 29,770,007 and 25,360,007 29,770 25,360 Additional paid-in capital 12,184,230 (24,360) Retained Earnings (Deficit) (10,296,897) 27,640 ------------ ------------ Total stockholders' equity 1,917,103 28,640 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,354,213 $ 36,248 ============ ============
The accompanying notes are an integral part of these financial statements. F-3
NOBIDDING, INC. (A wholly-owned subsidiary of Bidville, Inc.) BALANCE SHEETS August 25, 2003 (pre-acquisition) and August 26, 2003 (post-acquisition) (pre-acquisition) (post-acquisition) August 25, August 26, 2003 2003 ------------------------------------- ASSETS Current Assets Cash on hand and in bank $ 874 $ 874 Due from majority shareholder 4,841 - ------------ ------------ Total current assets 5,715 874 ------------ ------------ Property and equipment - at cost 77,269 7,500 Less Accumulated depreciation (70,206) - ------------ ------------ Net property and equipment 7,063 7,500 ------------ ------------ Other Assets Domain name 3,000 3,000 Goodwill - 290,616 ------------ ------------ Total other assets 3,000 293,616 ------------ ------------ TOTAL ASSETS $ 15,778 $ 301,990 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable - trade $ 1,600 $ 1,600 Income taxes payable 240 240 ------------ ------------ Total current liabilities 1,840 1,840 ------------ ------------ Long-term Liabilities Deferred tax liability 5,005 - ------------ ------------ Total liabilities 6,845 1,840 ------------ ------------ Commitments and contingencies Stockholders' Equity Common stock - no par value. 100 shares authorized. 100 shares issued and outstanding 1,000 300,150 Retained Earnings (Deficit) 7,933 - ------------ ------------ Total stockholders' equity 8,933 300,150 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,778 $ 301,990 ============ ============
The accompanying notes are an integral part of these financial statements. F-4
BIDVILLE, INC. AND SUBSIDIARY (formerly American Recreational Enterprises, Inc.) STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Period from August 26, 2003 to September 30, 2003 post-acquisition); Period from January 1, 2003 to August 25, 2003 (pre-acquisition); Year ended December 31, 2002 (pre-acquisition) (post-acquisition) (pre-acquisition) Period from Period from August 26, 2003 January 1, 2003 (pre-acquisition) to to Year ended December 31, 2003 August 25, 2003 December 31, 2002 ---------------------------------------------------------- Revenues - net $ 15,604 $ 30,023 $ 38,083 Cost of Sales (42,046) (18,426) (18,565) ------------ ------------ ------------ Gross Profit (26,442) 11,597 19,518 ------------ ------------ ------------ Operating Expenses Selling expenses 2,885 - - General and administrative expenses Administrative compensation 52,285 - 3,837 Professional fees 134,790 4,084 1,250 Other operating expenses 27,030 10,952 13,259 Depreciation 1,665 16,268 25,458 Compensation expense related to common stock issuances at less than "fair value" 10,051,800 - - ------------ ------------ ------------ Total operating expenses 10,270,455 31,304 43,804 ------------ ------------ ------------ Loss from operations (10,296,897) (19,707) (24,286) Provision for income tax benefit (expense) - - 6,970 ------------ ------------ ------------ Net Loss (10,296,897) (19,707) (17,316) Other comprehensive income - - - ------------ ------------ ------------ Comprehensive Loss $(10,296,897) $ (19,707) $ (17,316) ============ ============ ============ Net loss per weighted-average share of common stock outstanding, calculated on Net Loss - basic and fully diluted $ (0.40) nil nil ============ ============ ============ Weighted-average number of shares of common stock outstanding 25,487,404 25,360,007 25,360,007 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-5
BIDVILLE, INC. AND SUBSIDIARY (formerly American Recreational Enterprises, Inc.) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Periods ended December 31, 2003, August 25, 2003 and December 31, 2002 Additional Common Stock paid-in Accumulated Shares Amount capital deficit Total ----------------------------------------------------------------------- Balances at January 1, 2002 25,360,007 $ 25,360 $ (24,360) $ 44,956 $ 45,956 Net loss for the year - - - (17,316) (17,316) ------------ ------------ ------------ ------------ ------------ Balances at December 31, 2002 25,360,007 25,360 (24,360) 27,640 28,640 Net loss for the period - - - (19,707) (19,707) ------------ ------------ ------------ ------------ ------------ Balances at August 25, 2003 25,360,007 25,360 (24,360) 7,933 8,933 Effect of change in control of Bidville, Inc. on August 25, 2003 and reverse acquisition transaction on December 10, 2003 20,000,000 20,000 306,135 (7,933) 318,202 Acquisition and retirement of treasury stock on December 10, 2003 (20,000,000) (20,000) (30,000) - (50,000) Capital contributed to support operations - - 23,015 - 23,015 Sale of common stock pursuant to private placement memorandum 4,410,000 4,410 12,252,390 - 12,256,800 Less costs to obtain capital - - (342,950) - (342,950) Net loss for the period - - - (10,296,897) (10,296,897) ------------ ------------ ------------ ------------ ------------ Balances at December 31, 2003 29,770,007 $ 29,770 $ 12,184,230 $(10,296,897) $ 1,917,103 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-6
BIDVILLE, INC. AND SUBSIDIARY (formerly American Recreational Enterprises, Inc.) STATEMENTS OF CASH FLOWS Period from August 26, 2003 to September 30, 2003 (post-acquisition); Period from January 1, 2003 to August 25, 2003 (pre-acquisition); Year ended December 31, 2002 (pre-acquisition) (post-acquisition) (pre-acquisition) Period from Period from August 26, 2003 January 1, 2003 (pre-acquisition) to to Year ended December 31, 2003 August 25, 2003 December 31, 2002 ---------------------------------------------------------- Cash Flows from Operating Activities Net loss for the period $(10,296,897) $ (19,707) $ (17,316) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 1,665 16,268 25,458 Compensation expense related to common stock issuances at less than "fair value" 10,051,800 - - Deferred income taxes - - (7,520) (Increase) Decrease in Prepaid expenses - 1,800 (900) Deposits and other assets (1,456) (2,700) (20) Increase (Decrease) in Accounts payable 121,150 (213) (381) Income taxes payable - (550) 529 ------------ ------------ ------------ Net cash provided by (used in) operating activities (123,738) (5,102) (150) ------------ ------------ ------------ Cash Flows from Investing Activities Cash advanced (to) from former majority shareholder - 5,401 (304) Purchase of property and equipment - - (1,025) ------------ ------------ ------------ Net cash used in investing activities - 5,401 (1,329) ------------ ------------ ------------ Cash Flows from Financing Activities Cash from sale of common stock 2,205,000 - - Cash paid to acquire capital (131,228) - - Funds provided by majority shareholder 102,398 - - ------------ ------------ ------------ Net cash used in financing activities 2,176,170 - - ------------ ------------ ------------ Increase (Decrease) in Cash 2,052,432 299 (1,479) Cash at beginning of period 874 575 2,054 ------------ ------------ ------------ Cash at end of period $ 2,053,306 $ 874 $ 575 ============ ============ ============ Supplemental Disclosure of Interest and Income Taxes Paid Interest paid for the period $ - $ - $ - ============ ============ ============ Income taxes paid for the period $ - $ - $ 21 ============ ============ ============ Supplemental Disclosure of Non-cash investing and financing activities Amounts to be paid for capital placement accrued as a component of accounts payable $ 211,722 $ - $ - ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-7 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Bidville, Inc. (formerly American Recreational Enterprises, Inc.) (Company or Bidville) was incorporated on February 10, 1999 under the laws of the State of Nevada. The Company was originally in the business of operating a multi media travel related publishing enterprise. Currently, the Company acts as a holding company for it's wholly-owned subsidiary, NoBidding, Inc. Pursuant to an Agreement and Plan of Reorganization dated October 12, 2000, the Company acquired 100.0% of the issued and outstanding shares of common stock of Capstra Capital, Corp. (Capstra), a Washington corporation, from the shareholders thereof in an exchange of an aggregate of 450,000 shares of common stock of the Company and other consideration consisting of cash and payments of certain fees and expenses equal to $30,000 (the Acquisition). Immediately following the Acquisition, the Company formed Greatestescapes (Washington) Corp. (Subco), a Washington corporation, formed solely for the following purpose as a wholly-owned subsidiary of the Company. Subco then merged with Capstra (the Merger). The Acquisition was approved by the unanimous consent of the Board of Directors of Capstra and its shareholders on October 12, 2000. The Acquisition was effective on October 12, 2000. The Merger was approved by unanimous consent of the respective Board of Directors of Subco and the Company on October 12, 2000. The Merger was effective on October 16, 2000. The Acquisition and Merger is intended to qualify as reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Upon effectiveness of the Acquisition and Merger, pursuant to Rule 12g-3(a) of the General Rules and Regulations of the Securities and Exchange Commission (the Commission), the Company elected to become the successor issuer to Capstra for reporting purposes under the Securities Exchange Act of 1934 and elected to report under the Act effective October 16, 2000. On February 14, 2003, concurrent with a change in control, the Company initiated a new business plan. On April 23, 2003, the Company formed a new wholly-owned subsidiary, Lenders/Investors, Inc. (a Florida corporation) for the purpose of (a) making medium to high risk unsecured loans to third party individuals, corporations and/or other entities; (b) equity investments in early-stage, early-growth, pre-IPO companies with a primary objective of both long- term appreciation as well as short-term profits; and c) general asset management. Other general business services may be offered in the future; however, these plans and services have not been defined by management as of the date of these financial statements. There were no business transactions conducted by Lenders/Investors, Inc. On December 10, 2003, the Company conducted a reverse acquisition transaction with NoBidding, Inc. (a New Jersey corporation). As a condition of this transaction, the then controlling shareholder returned 20,000,000 shares of the Company's common stock for a spin off of 100% of the holdings in Lenders/Investors, Inc. and $50,000 cash. Of the $50,000 acquisition price for the 20,000,000 shares, approximately $23,015 was contributed as additional capital by other minority shareholders to complete the NoBidding combination transaction. Additionally, in conjunction with this transaction, the Company changed it's corporate name to Bidville, Inc. NoBidding, Inc.(Company) was incorporated on April 19, 1999, pursuant to the laws of the State of New Jersey. The Company provides an online website-based auction venue for third party buyers and sellers under the assumed name of "Bidville.com". F-8 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE B - PREPARATION OF FINANCIAL STATEMENTS The acquisition of NoBidding, Inc. (NoBidding), on December 10, 2003, by Bidville effected a change in control and was accounted for as a "reverse acquisition" whereby NoBidding is the accounting acquiror for financial statement purposes. Accordingly, for all periods subsequent to the December 10, 2003, the financial statements of the Company reflect the historical financial statements of NoBidding subsequent to an August 25, 2003 change in control transaction and the operations of Bidville subsequent to the December 10, 2003 transaction. The Company originally had a February 28/29 year-end. As a result of the December 10, 2003 reverse acquisition transaction, the Company's Board of Directors changed Bidville's year-end to December 31 to correspond to the year end of it's newly acquired subsidiary, NoBidding, Inc. The Company and its subsidiaries follow the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented. For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. The accompanying consolidated financial statements contain the accounts of Bidville, Inc. (formerly American Recreational Enterprises, Inc.) and its wholly-owned subsidiary, NoBidding, Inc. All significant intercompany transactions have been eliminated. The consolidated entities are collectively referred to as "Company". NOTE C - CHANGE IN CONTROL AND GOODWILL On August 25, 2003 (Closing Date), NoBidding, Inc. (NoBidding) experienced a change in control whereby 85 shares of the 100 shares of issued and outstanding stock (85.0%) of NoBidding was sold by the then sole shareholder, Dr. Edward Orlando (Seller), to Safety Harbor Capital Corporation LLC (a Florida limited liability company) and Royal Palm Capital Group, Inc. (a Florida corporation) (collectively Purchasers) for gross proceeds of $300,000. The purchase price was paid with cash in the amount of approximately $225,000 on or in advance of the Closing Date and a note payable to Dr. Orlando by Royal Palm Capital Group, Inc. in the amount of $75,000, bearing interest at 6.0% per annum which was paid in full, including accrued interest, on or before the original maturity date of February 21, 2004. The $75,000 note was secured by the 85 shares of stock purchased by Safety Harbor Capital Corporation LLC and Royal Palm Capital Group, Inc. The Seller was also transferred certain assets of NoBidding as of the Closing date as a compensation component to a Consulting Agreement, executed concurrently with the Closing Date, by and between NoBidding and the Seller. F-9 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE C - CHANGE IN CONTROL AND GOODWILL - Continued The change in control created a defacto acquisition of NoBidding by the Purchasers and triggered the use of the purchase method of accounting and a reset of the NoBidding financial statements as of the Closing Date The goodwill developed in this transaction was pushed down to the NoBidding financial statements as follows: Cash paid $225,000 Note payable given and subsequently paid 75,000 -------- Total purchase price 300,000 -------- Fair market value of assets purchased (11,374) Fair market value of liabilities assumed 1,990 -------- (9,384) Goodwill incurred in the purchase $290,616 ======== NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Revenue Recognition and Accounts receivable Through January 31, 2004, revenues resulted primarily from membership fees collected from sellers to list items on the Bidville website for sale in an auction and/or fixed price format. During those periods, Sellers paid membership fees in one of the following four ways, either: (a) $5.00 to be a verified member only, which allows six months of selling activity and grants the seller $25.00 in credits for registering as a member, subject to certain listing restrictions; (b) $5.00 per month to be a premier member, receiving $25.00 in credits per month, without being subject to any listing restrictions; (c) $10.00 per month to be a premier plus member, receiving $100.00 in credits per month, and are not subject to any listing restrictions; and, (d) $15.00 per month as a premier gold member, receiving $200.00 in credits per month, without being subject to any listing restrictions. Bidville bills sellers for charges incurred in a particular month under one of the following two billing cycles: Cycle 1 - This is the billing cycle for sellers who registered with Bidville between the 1st and 14th of the month. Any charges incurred by the seller (i.e. the aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 1st and 4th of the subsequent billing period the charges were incurred. The seller's credit card is charged seven (7) days after the date of the e-mailed invoice. F-10 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2. Revenue Recognition and Accounts receivable - continued Cycle 2 - This is the billing cycle for sellers who registered with Bidville between the 15th and 31st of the month. Any charges incurred by the seller ( i.e. aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 15th and the 19th of the subsequent billing period the charges were incurred. The sellers' credit card is charged seven (7) days after the date of the e-mailed invoice. Credits existing in a seller's account at the end of a billing period are used to offset any Enhancement fees the seller may have incurred in that particular month. If the total amount of Enhancement fees a seller incurs in one month is greater than the total amount of credits that seller has accumulated in their account up to that time, then the seller is required to purchase additional credits using their credit card, in order to cover the difference. Any unused credits remaining at the end of the month will "roll over" into the next month and do not expire. Sellers may also purchase additional credits, beyond the monthly amount of credits they are granted under their membership, at any time through our website, using a credit card to charge the dollar amount of the amount of credit the seller wishes to purchase. Under the membership fee structure in place through January 31, 2004, revenues recognized in any given month consist primarily of cash amounts collected for membership fees for a particular month, with enhancement fees making up only a small portion of the actual cash revenues generated in that month. This is because, as previously mentioned, enhancement fees are first paid with any credits that may exist in a seller's account at the end of the billing period. The Company only receives cash from the seller for enhancement fees in instances where a seller (such as an active seller, for example) incurs a greater amount of enhancement fees in a single month than the amount of credit that seller has accumulated in their account up to such date. Consequently, only a small portion of the amount of enhancement fees charged per month generates actual cash income for the Company. A significant portion of the fees "paid" for enhancements are charged against credits granted to members as a part of their membership and included in their monthly membership fee, at no additional charge to the member. Revenue recognition will be much simpler now as the Company has phased out the membership fee and associated credit issuance formats, which terminated completely on April 30, 2004. The "old" revenue recognition format has been replaced with a new Final Success Fee (FSF) structure which became effective on February 1, 2004. Only sellers posting items for sale at auction and/or fixed price listings are subject to paying a FSF. Accordingly, the only fees charged are those which a seller has incurred either through the successful sale of a listed item (in the form of a FSF) or for choosing to utilize any of the optional item listing enhancement features offered by the Company. For registered sellers who were members before the implementation of our Final Success Fee structure on February 1, 2004, the last date on which membership fees will be collected from (and respective credits issued to) such grandfathered sellers is April 30, 2004. After such date, sellers will only be able to receive credits from the Company without actually paying for them will be under specific promotional programs the Company may implement for short periods of time, which will be geared towards increasing the number of registered users, at various times as determined by management. As mentioned previously, however, credits cannot be used against any Final Success Fees a seller may incur at any time. In addition, grandfathered members will not be required to pay Final Success Fees until August 1, 2004. F-11 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2. Revenue Recognition and Accounts receivable - continued Effective February 1, 2004, in accordance with our marketing and advertising plans, the Company changed its fee structure from Membership Fees to Final Success Fees ("FSF"). FSF are charged to sellers only when the items they list on the Bidville.com website are successfully sold. The FSF structure is currently as follows: Final Sale Price Final Success Fee ---------------- ----------------- $0.01-$25.00 5% of the final sale price $25.01-$1000.00 $1.25 + 2.5% of final sale price amount over $25.00 Over $1000.00 $25.63 + 1% of final sale price amount over $1000.00 FSF are billed to successful sellers on a monthly basis. If the seller has a credit card on file with the Company, the credit card will be charged the total amount of FSF for that month. If a seller does not wish to use a credit card to pay for FSF, the seller can make other arrangements with the Company's customer service representatives. Enhancement Fees Aside from the Final Success Fee described above, there are no other mandatory fees for using the Company's auction site. There are many optional fees that a seller may or may not decide to incur. These added features are charged in the form of "Enhancement Fees," which are billed twice per month to sellers depending on the seller's particular billing cycle. The optional enhancements and the corresponding fee structure are as follows: Enhancement Fee --------------- ------------ Bold Face Title $0.25 Highlight $0.25 Take It! FREE Gift Center Icon $0.50 Category Feature $2.50 Homepage Feature $5.00 Banner $0.25 Photo Gallery $0.10 When a seller posts an auction, Bidville makes it very clear which services are optional. If a seller decides not to use any of these services, they can simply bypass this section on the initial listing form. In that case, the seller's listing will be completely free to the seller until the item actually sells. Bidville Credit Bidville Credit represents credits issued to and/or purchased by sellers who have been grand fathered in prior to the February 1, 2004 change from a membership fee structure to an FSF format. Sellers can use Bidville Credit to purchase any of our optional services for their auctions. For example, a seller may use the credit to place an auction in the Photo Gallery or Featured section of Bidville.com. Bidville Credit cannot be used to pay for items that a user has won or FSFs incurred for items sold, and is not equivalent to cash. Credit is also non-refundable and non-transferable. F-12 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2. Revenue Recognition and Accounts receivable - continued Payment of Fees Once a seller has verified their membership, the Company will have a valid credit card from that seller on file. This credit card will be used for routine payment of any optional fees the seller may have accumulated. We will send notification of any fees associated with the respective seller's account twice per month, depending on the seller's billing cycle, via email to the email address on file at the time. Between the 8th and 11th or the 22nd and 25th of each month, respectively, depending upon the seller's billing cycle, sellers' credit cards will be charged for any fees owed to the Company totaling $1.00 or more. If a seller owes the Company less than $1.00 at the end of any single billing cycle, the balance due will be carried over to the next billing cycle. Billing System Sellers are essentially divided into two billing cycles: Cycle 1- for sellers who registered with the Company between the 1st and 14th of any month, and Cycle 2 - for sellers who registered with the Company between the 15th and 31st of the month. Process for billing cycle 1 - Any charges incurred by the seller (i.e. the aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 1st and 4th of the subsequent billing period in the charges are incurred. The seller's credit card is charged 7 days after the date of the e-mailed invoice; Process for billing cycle 2 - Any charges incurred by the seller ( i.e. aggregate of monthly charges for Enhancement Fees and/or FSF) are invoiced via e-mail to the seller between the 15th and the 19th of the subsequent billing period the charges are incurred. The seller's credit card is charged 7 days after the date of the e-mailed invoice. In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and internationally, principally in Canada. As of January 31, 2004, approximately 1.00% of our revenues are attributable to transactions where a seller is located outside the United States. Of that 1.00%, almost 0.80% is made up of sellers located in Canada and the remaining 0.20% is generated from a fragmented seller base located in 30 other countries. At present, however, all fees incurred by sellers are payable in U.S. dollars, regardless of where any seller is physically situated. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. 3. Property and Equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally three to five years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred. F-13 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 4. Intangible Assets Monies paid for acquisition of the Company's website domain name, approximately $3,000, was capitalized as a component of Other Assets on the Company's balance sheet. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all qualifying assets as of the end of each reporting quarter. For the year ended December 31, 2002, the period from January 1, 2003 through August 25, 2003 and the period from August 26, 2003 through December 31, 2003, no charges to operations were made for impairments in the future benefit of this domain name. 5. Goodwill and Reorganization Value in Excess of Amounts Allocable to Identifiable Assets Goodwill represents the excess of the purchase price paid over the fair market value of the assets, less fair market value of liabilities remaining, at the date of the change in control of the Company. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all qualifying assets as of the end of each reporting quarter. As of December 31, 2003, no charges to operations have been made for impairments in the future benefit of goodwill. 6. Income Taxes The Company uses the asset and liability method of accounting for income taxes. At December 31, 2003, August 25, 2003 and December 31, 2002, respectively, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals. As of December 31, 2003, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved. 7. Advertising costs The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. 8. Earnings (loss) per share Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of December 31, 2003, the Company's outstanding warrants are considered antidilutive due to the Company's net operating loss position. F-14 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 8. Earnings (loss) per share - continued As of August 25, 2003 and December 31, 2002, the Company's has no issued and outstanding warrants, options and/or convertible debt. NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. NOTE F - ADVANCES DUE FROM OFFICER Through August 25, 2003, the Company advanced approximately $4,841 to the Company's former sole shareholder and executive officer. This amount was non-interest bearing and is unsecured. The advance was transferred back to the former sole shareholder and executive officer as of the change in control on August 25, 2003. NOTE G - PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 2003, August 25, 2003 and December 31, 2002, respectively:
(post-acquisition) (pre-acquisition) (pre-acquisition) December 31,2003 August 25, 2003 December 31, 2002 ------------------------------------------------------ Computer equipment $ 7,500 $ 76,435 $ 76,435 Office equipment - 834 834 7,500 77,269 77,269 Less Accumulated depreciation (1,665) (70,206) (53,938) Net property and equipment $ 5,835 $ 7,063 $ 23,331 ======== ======== ========
The Company depreciates all computer equipment using the straight-line method and a three (3) year life and depreciates all office equipment using the straight-line method and a five (5) year life. F-15 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE G - PROPERTY AND EQUIPMENT - Continued For the period from August 26, 2003 to December 31, 2003, the period from January 1, 2003 to August 25, 2003 (date of change in control) and the year ended December 31, 2002, respectively, depreciation expense was approximately $1,665, $16,268 and $25,458, respectively. NOTE H - INCOME TAXES The components of income tax (benefit) expense for the period from August 26, 2003 through December 31, 2003, the period from January 1, 2003 through August 25, 2003 (date of change in control) and the year ended December 31, 2002, respectively, are as follows: (post-acquisition) (pre-acquisition) Period from Period from August 26, 2003 January 1, 2003 (pre-acquisition) to to Year ended December 31, 2003 August 25, 2003 December 31, 2002 ---------------------------------------------------------- Federal: Current $ - $ - $ - Deferred - - (6,215) - - (6,215) State: Current - - 550 Deferred - - (1,305) - - (755) Total $ - $ - $(6,970) ======= ======= = ===== As of December 31, 2003, as a result of the August 25, 2003 change in control, the Company has a direct net operating loss carryforward of approximately $245,000 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2018. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards. The Company's income tax expense (benefit) for the period from August 26, 2003 to December 31, 2003, the period from January 1, 2003 to August 25, 2003 (date of change in control) and the year ended December 31, 2002, respectively, differed from the statutory rate of 34% as noted below: F-16 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES - Continued
(post-acquisition) (pre-acquisition) Period from Period from August 26, 2003 January 1, 2003 (pre-acquisition) to to Year ended December 31, 2003 August 25, 2003 December 31, 2002 ---------------------------------------------------------- Statutory rate applied to loss before income taxes $ (3,501,000) $ (6,700) $ (8,250) Increase (decrease) in income taxes resulting from: State income taxes - - 550 Deferred income taxes - - (7,520) Non-deductible compensation expense related to common stock issued at less than "fair value) 3,418,000 - - Other, including reserve for deferred tax asset and effect of graduated tax brackets 83,000 6,700 8,250 Total $ - $ - $ (6,970) ============ ============ ============
Temporary differences, consisting primarily of statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and liabilities as of December 31, 2003, August 25, 2003 and December 31, 2002, respectively: December 31, August 25, December 31, 2003 2003 2002 Deferred tax assets Net operating loss carryforwards $ 83,000 $ - $ - Less valuation allowance (83,000) - - Net Deferred Tax Asset $ - $ - $ - =========== =========== =========== Deferred tax liability Differences in Accumulated Depreciation Federal $ - $ - $ 3,990 State - - 1,015 Total $ - $ - $ 5,005 =========== =========== =========== During the period from August 26, 2003 through December 31, 2003, the valuation allowance increased by approximately $83,000. F-17 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE I - COMMON STOCK TRANSACTIONS On December 10, 2003, Bidville acquired 20,000,000 shares of Bidville common stock from it's former majority shareholder, Jorge Elias, for consideration of $50,000 in the form of cash and/or a note payable. This amount was paid with a combination of available cash held by Bidville and approximately $23,000 in funds contributed by an outside third-party to complete the transaction. Concurrent with the acquisition of these shares by the Company, they were immediately cancelled and returned to unissued status. The retirement was accounted for as a reduction in the carrying value of issued and outstanding common stock at its respective par value, a reduction of additional paid-in capital to not less than $-0- and a reduction of retained earnings, where appropriate, in accordance with the tenets of Accounting Principles Board Opinion No. 6. On December 10, 2003, the Company issued 20,000,000 shares of restricted, unregistered common stock to the shareholders of NoBidding, Inc. to acquire 100.0% of the issued and outstanding common stock of NoBidding, Inc. on December 10, 2003, pursuant to a Agreement and Plan of Share Exchange dated December 10, 2003, thus effecting a recapitalization of NoBidding, Inc. On December 3, 2003, the Company issued a Private Placement Memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended, to sell up to $2,000,000 in common stock at a price of $0.50 per share with accompanying Warrants. Through December 22, 2003, the Company sold an aggregate 4,410,000 shares of restricted, unregistered common stock pursuant to the private placement memorandum for gross proceeds of approximately $2,205,000. Each share was accompanied by Warrant to purchase 1/2 additional share of restricted, unregistered common stock at a price of $1.00 per share. These warrants have no stated expiration date. This offering was scheduled to close on January 31, 2004 and was closed by the Company on December 22, 2003. The Company paid the following fees and/or bonuses upon the conclusion of this offering: $143,325 to National Securities Corporation; $143,325 to EU-IR.com, an Austrian corporation, pursuant to an Agreement dated December 12, 2003; and $50,000 performance bonus to Gerald Parker, the Company's Chairman. The Company also contractually committed itself to file a Registration Statement with the U. S. Securities and Exchange Commission to register these shares for resale within 90 days of December 22, 2003. As of May 5, 2004, the Company has not filed the contractually obligated Registration Statement. NOTE J - STOCK WARRANTS In conjunction with the December 2003 sale of an aggregate 4,410,000 shares of restricted, unregistered common stock pursuant to a Private Placement Memorandum, the Company issued, to the Purchasers of the Company's common stock, an aggregate 4,410,000 1/2 Warrants to purchase the Company's common stock at a price of $1.00 per share for each full Warrant. F-18 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE J - STOCK WARRANTS - Continued Each warrant has a mandatory call feature, such that, when the closing bid price of the Company's common stock exceeds $1.50 per share for ten consecutive trading days, the Company has a right to call these Warrants at a price of $1.00 per share, provided, however, that the Company may not exercise the call feature unless a registration statement registering the common stock purchasable upon exercise of the Warrants (Warrant Stock) has been declared effective at least 20 trading days earlier and is effective from the date of delivery of the call notice until 10 business days later. The Company is contractually obligated to use all commercially reasonable efforts to maintain the effectiveness of a registration statement registering the Warrant Stock for one year after the call. If the Warrants are not tendered to the Company within 10 business days following the date the Company issues the call, the Warrants expire on the following calendar day. Otherwise, the Warrants have no stated expiration date. Warrants Warrants originally outstanding at issued December 31, 2003 Exercise price 12/03 PPM1/2Warrants 2,205,000 2,205,000 $1.00 per share ========= ========= NOTE K - RELATED PARTY TRANSACTIONS During the year ended December 31, 2003, the Company paid or accrued approximately $11,030 in professional fees to Gary Alexander, CPA, an individual who is also a Company shareholder and employee of St. James Investment Group, Inc. (an entity operated by the Company's Chairman) for various accounting and controllership services. NOTE L - COMMITMENTS AND CONTINGENCIES Leased office facilities The Company maintains an executive mailing address in office facilities provided by it's majority shareholders, Safety Harbor Capital Corporation LLC and Royal Palm Capital Group, Inc. The Company pays no rent or other fees for the use of this mailing address as these offices are used virtually full-time by other businesses of the Company's majority shareholders. The Company has leased approximately 1,028 net rentable square feet in an office building in Clearwater, Florida for it's day-to-day operating activities. This lease is for a 12 month period, commencing on October 1, 2003, with a monthly rental rate of approximately $1,456 per month; plus appropriate sales and use taxes; and escalation increases for building operating expenses, inclusive of insurance premiums, utility charges, management fees and other related costs, as defined in the lease. The Company has the option and right to renew this lease for two additional periods of three (3) years each at a base rental of 3.0% above the preceding year's base rent upon expiration of the initial 12 month term. F-19 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Webhosting agreements On December 12, 2003, the Company entered into an agreement with iLand Internet Solutions Corporation (iLand), a website hosting/collocation facility located in Tampa, Florida to host our website for $1,120 per month for a period of twelve (12) months beginning January 20, 2004. We also entered into a separate managed services agreement with iLand at a cost of $1,561 per month, beginning January 23, 2004, also for a period of twelve (12) months. Under the terms of the managed services agreement, iLand agrees to handle any issues which may arise with our company-owned computer equipment that is located at iLand's web hosting facility and utilized in connection with our lease arrangement. Software lease agreement On April 6, 2004, the Company entered into a three-year lease agreement with Thunderstone Software LLC (Thunderstone), whereby the Company will lease the right to install and use certain of Thunderstone's computer software programs, which are an integral component of the Company's website's technological structure. The Company paid Thunderstone an initial lease payment of $25,363 at the inception of the lease and are required to make monthly payments of $2,900 on the first day of each calendar month beginning on the 1st day of the calendar month following execution of the Lease. Future minimum lease payments due under this agreement are as follows: Year ending December 31 Amount 2004 $ 48,563 2005 34,800 2006 34,800 2007 8,700 Total $ 126,863 ========= Marketing agreement On March 24, 2004, the Company entered into an agreement to be a participating sponsor of Major League Baseball's Tampa Bay Devil Rays (Devil Rays), who play in the Eastern Division of the American League. This agreement runs through December 31, 2004 and requires an annual sponsorship fee of $51,000. In addition to various signage at Tropicana Field, the Company will serve as the title sponsor of the"Bidville.com Saturday Night Silent Auction" to be held at every regularly scheduled Saturday night home game of the Devil Rays at Tropicana Field in Tampa Bay, Florida. The Company, on its website, will feature various items provided by the Devil Rays, including autographed memorabilia and VIP passes to certain games, to be auctioned throughout the 2004 Major League Baseball season. Per the Sponsorship Agreement, all of the proceeds from these specific auction items will be transferred to the Tampa Bay Devil Rays "Rays of Hope Foundation" charity. Stock agreement Upon the August 25, 2003 change in control of NoBidding, Edward Orlando, NoBidding's former sole shareholder and founder, Royal Palm Capital Group, Inc. and NoBidding entered into a Shareholder Agreement whereby no shareholder of NoBidding common stock may not sell or otherwise transfer any common stock of NoBidding without the written consent of NoBidding and the other Shareholder. F-20 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Consulting Agreements Edward Orlando - The Company and Edward Orlando (Orlando), NoBidding's former sole shareholder and founder, entered into a Consulting Agreement on August 24, 2003, whereby Orlando will provide certain management consulting services to NoBidding and retain a position on the NoBidding Board of Directors for a one year period. Orlando received certain property of the Company, including certain computer and other electronic equipment and forgiveness of certain funds advanced by the Company to Orlando for either personal use or the expenses related to certain patent(s) in process at the August 25, 2003 change in control as compensation for this Consulting Agreement. Further, Orlando will be reimbursed for all reasonable out-of-pocket expenses so long as said expenses have prior written authorization of the Company's management. Upon completion of the December 3, 2003 transaction, Orlando was also named to the Board of Directors of the Company. National Securities Corporation - On September 1, 2003, No Bidding, Inc. entered into a consulting agreement with National Securities Corporation, a Washington corporation (National) for advice and assistance in connection with the negotiation and preparation of acquisitions, mergers and/or strategic alliances. The term of the agreement is for a period of seven (7) months. For such services, the Company is obligated to pay National $20,000 per month. However, in the event that the Company closes and debt or equity financing in which the net proceeds to the Company exceed $1,000,000; then within 20 days after the closing of such financing, the Company shall pay National all sums due under this Agreement. The December 2003 Private Placement Memorandum, as previously discussed, triggered the advance payment clause and the Company paid or accrued $143,325 in fees due to National as of December 31, 2003 under the terms of this agreement. Additionally, on December 12, 2003, the Company entered into a separate agreement with both National and Royal Palm Capital Group, Inc. (Royal Palm), a Company shareholder and entity controlled by the Company's Chairman, wherein National will render consulting advice to the Company relating to financial, investment banking and merger/acquisition matters. The term of the agreement is for a one (1) year period, ending December 31, 2004. As compensation for these services, Royal Palm has agreed to sell National 3,966,700 shares of the Company's common stock owned by Royal Palm for a purchase price of $500.00. Donald Lees or LeeWard Enterprises - On October 1, 2003, the Company entered into a Consulting Agreement with Donald Lees (or LeeWard Enterprises) of Indian Harbor, Florida to provide consulting services for programming, engineering, database management, data transfer and other services. This agreement is for a period of 365 days. This agreement requires compensation at $5,000 per month, plus reimbursement for all reasonable costs and expenses. Either party may cancel this agreement by giving 60 days written notice to the other party. EU-IR.com - On December 13, 2003, the Company entered into a "Finders Fee Agreement" with EU-IR, an Austrian corporation located in Graf Austria, whereby EU-IR will act as a finder in locating and introducing various individuals and entities that may wish to participate in a private placement of the Company's debt or equity securities. For such services, EU-IR shall receive a fee equal to 6.5% of the value of the consideration paid for the equity or debt sale. Upon the closing of the Company's December 2003 Private Placement Memorandum, the Company paid or accrued $143,325 in fees due to EU-IR under the terms of this agreement. On January 5, 2004, the Company entered into a consulting agreement with EU-IR.com, and Austrian corporation, for a term of one (1) year. EU-IR shall provide public relations and investor relations consulting services in Europe. For such services, the Company will compensate EU-IR in the amount of $7,500 per month, payable in advance on the first of each month. F-21 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Consulting Agreements - continued Mirador Consulting, Inc. - On January 4, 2004, we executed a Consulting Agreement with Mirador Consulting, Inc., a Florida corporation (Mirador) of Boca Raton, Florida. This agreement is for a period of one (1) year and may be renewed upon the mutual written consent of all parties. Under the terms of the agreement, Mirador shall provide The Company with various corporate consulting services, including: a) provide the Company with corporate consulting services on a "best efforts" basis in connection with mergers and acquisitions, corporate finance, corporate finance relations, introductions to corporate finance, corporate finance relations, introductions to other financial companies and other financial services; b) use its best efforts to locate and identify to the Company private and/or public companies for potential merger with or acquisition by the Company; c) contact the Company's existing shareholders, responding in a professional manner to their questions and following up as appropriate; and d) use its best efforts to introduce the Company to various securities dealers, investment advisors, analysts, funding sources and other members of the financial community with whom it has established relationships, and generally assist the Company in its efforts to enhance its visibility in the financial community. The Company will compensate Mirador as follows: 50,000 shares of restricted, unregistered common stock for $50.00, which was below the "fair value" of the Company's common stock at the agreement execution date. Accordingly, the Company will recognize a non-cash charge to operations for "compensation expense related to common stock issuances at less than "fair value" of approximately $124,950. Further, the Company is required to pay $5,000 cash per month; due and payable at execution for month 1 and on the 1st of each month for each successive month for the term of the contract. CEOCast, Inc. - On January 29, 2004, the Company entered into a Consultant Agreement with CEOCast, Inc. of New York, New York to provide investor relation services. This agreement covers a one year period from January 29, 2004 through January 28, 2005. This agreement requires compensation as follows: $20,000 initial payment - 1st and last month; $10,000 per month on 29th of each month thereafter and the issuance of 32,000 shares of restricted, unregistered common stock at the inception of the agreement. These compensation shares have has registration rights after any secondary registration statement following the issuance of these shares goes effective. These rights are contractually defined as "not piggy back registration rights or demand registration rights". At the inception of this agreement, the closing price of the Company's common stock was $5.05 per share. The stock issued in this transaction will be valued at approximately $90,900. RMN Consulting, Inc. - On February 17, 2004, the Company entered into a Consulting Agreement with RMN Consulting, LLC of Rumson New Jersey to "Have a marketing report written regarding BidVille, Inc. The distribution of this marketing report could allow potential investors to determine an investment valuation on the Company's stock. The Consultant's services will include Internet distribution, and company profiles on various websites." This agreement is for a period of six (6) months and requires compensation as follows: $10,000 cash for months 1 and 2 and the issuance of 50,000 warrants monthly for months 3-6, immediately exercisable with the exercise price being equal to 75.0% of closing quoted price of the Company's common stock on each respective month's issuance date. Further, the underlying shares to these warrants must be subject to a registration statement to be filed by the Company with the U. S. Securities and Exchange Commission. F-22 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Consulting Agreements - continued Capital Resource Alliance, LLC -On March 11, 2004, the Company entered into a Consulting Agreement with Capital Resource Alliance, LLC of Atlanta, Georgia to "expend reasonable best efforts to assist the Company in enabling the common stock of the Company to be traded on the Frankfurt [Germany] Stock Exchange." This agreement is for an one year period and compensation is required as follows: 20,000 shares of restricted, unregistered common stock of the Company and cash compensation equal to $200,000, payable within 30 days of the date of this Agreement. The Company is obligated to register the 20,000 shares of common stock in the first Registration Statement filed by the Company with the U. S. Securities and Exchange Commission after the execution of this Agreement. However, if the Company determines that the prevailing market conditions do not make the sale of these shares feasible, in the sole opinion of the Company, then the number of shares to be registered in the Registration Statement shall be reduced. Capital Resource Alliance, LLC has also been issued warrants to purchase an additional 78,910 shares of restricted common stock of the Company. On April 19, 2004, the Company's common stock was approved for trading on the Frankfurt [Germany] Stock Exchange. Empire Financial Group, Inc. - On March 31, 2004, the Company executed a Consulting Agreement with Empire Financial Group, Inc. (Empire) of Longwood, Florida. This agreement is for a term of 1 year and expires on March 31, 2005 and may not be terminated by the Company prior to the end of the specified twelve-month term. Empire is to act as a financial and investment banking advisor to the Company, to render advice and assistance with regard to strategic transactions, future debt or equity financings, market and industry awareness and to assist the Company in getting the Company's common stock listed on a national exchange by the 2004 year end. As compensation for such services, the Company paid Empire an engagement fee of $25,000 upon execution of this agreement, and $10,000 per month payable in advance beginning April 1, 2004 and each of the next eleven (11) months thereafter. The Company will also reimburse Empire on a monthly basis for any and all reasonable expenses incurred by Empire in the performance of its duties under this agreement. Concurrent with the execution of this agreement, the Company is obligated to sell to Empire common stock purchase warrants, at a price of $.001 per warrant, to purchase 200,000 shares of the Company's common stock. Such warrants will expire five (5) years after issuance and will be exercisable at $3.00 per share. The warrants may be exercised as to all or a lesser number of shares and will contain provisions for registration of the resale of the underlying shares at the Company's expense, cashless exercise and for adjustment in the number of such shares and the exercise price to prevent dilution. As of the date of this filing, none of the warrants described herein have been sold to Empire. In the event that a "Strategic Transaction" (as defined in the agreement) is consummated, other than a financing, the Company is obligated to pay Empire a "Transaction Fee" equal to a percentage of the amount of consideration paid in such transaction, in the following manner: Consideration Paid Transaction Fee in Transaction (Percentage of Consideration) Up to $2 million 5.0% $2 million - $4 million 4.0% $4 million - $6 million 3.0% $6 million - $8 million 2.0% Over $8 million 1.0% F-23 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Consulting Agreements - continued Empire Financial Group, Inc. - continued - The Transaction Fee is to be paid in cash at the closing of the transaction to which it relates and shall be payable whether or not such transaction involves stock, or a combination of stock and cash, or is made on the installment sale basis. In addition, if the Company shall, within twelve (12) months immediately following the termination of this agreement, consummate a transaction with any party introduced by Empire to the Company prior to such termination, or with any party which was a party to a transaction or prospective transaction as to which Empire rendered services under the agreement, we shall be required to pay Empire a Transaction Fee with respect to such transaction in accordance with the table above. If the Company enters into a "financing" transaction subject to this agreement, Empire is to receive a cash fee at the closing of the financing in an amount to be agreed upon prior to such closing. In the event that the parties cannot agree on such a fee, the fee shall be ten percent (10%) of the gross proceeds of such financing. Additionally, this agreement contains a non-circumvent provision whereby the Company agrees that for a period of three (3) years from the execution date, the Company will not solicit any offer to buy from or sell to any person introduced to the Company by Empire, directly or indirectly, any of the Company's equity or debt securities. Should the Company, or it's representatives, violate this provision, the Company is required to pay Empire an amount equal to ten percent (10%) of the aggregate purchase price of the securities purchased by such person. Blackmor Group, Inc. - On April 1, 2004, the Company executed an Advisory Agreement with the Blackmor Group, Inc. (Blackmor) for an initial term of 1 year, which will be automatically extended on an annual basis for additional 1 year terms unless Blackmor or the Company serves written notice of termination on the other party at least thirty (30) days prior to the end of the applicable term. Under the terms of this Agreement, Blackmor shall assist the Company in: 1) effecting its purchase of businesses and assets relative to its business and growth strategy, 2) resolution of outstanding debt and obligations of the Company, 3) preparation of registration statements, and 4) introducing the Company to brokers and dealers, potential investors, public relations firms and consultants and others that may assist the Company in its plans and future development. These services are to be provided on a "best efforts" basis provided, however, that these services shall expressly exclude all legal advice, accounting services or other services which require licenses or certification which Blackmor may not have at such time. The Company has agreed to issue 75,000 shares of unregistered, restricted common stock and 100,000 warrants to purchase an equivalent number of shares of the Company's unregistered, restricted common stock at an exercise price of $2.00 per share, with the warrants expiring 2 years from the issue date as compensation on this agreement. Employment Agreements On January 12, 2004, the Company entered into an Executive Employment Agreement with Mr. Gerald Parker (Parker) under which Parker will serve as the Company's President for a period of three (3) years, through December 31, 2006. Under his agreement, Parker is entitled to an annual base salary of $150,000. Further, Parker shall receive options to purchase up to 1,000,000 shares of common stock pursuant to the Company's Incentive Plan. These options vest in one-third increments (approximately 333,333 shares) on each anniversary date of this agreement, commencing on the 13th month of this agreement. Parker is also entitled to receive the following bonuses, based on Company performance between December 1, 2003 and November 30, 2004: F-24 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE L - COMMITMENTS AND CONTINGENCIES - Continued Employment Agreements - continued Membership enrollment: If enrollments reach 210,000 members, a $15,000 bonus will be paid. If enrollments exceed 270,000, an additional $5,000 bonus will be paid. Revenues: If revenues reach $2,200,000, a $15,000 bonus will be paid. If revenues exceed $2,800,000, an additional $5,000 bonus will be paid. Net Income: If net income reaches $264,000, a $15,000 bonus will be paid. If net income exceeds $336,000, an additional $5,000 bonus will be paid. Performance: An overall performance bonus of $15,000 to $20,000 may be paid at the discretion of the Company's Board of Directors. Financing: If the Company achieves private equity financing in an amount of $2,000,000, a $50,000 bonus will be paid. If total equity financing exceeds $9,000,000, an additional $100,000 bonus will be paid. Parker received a $50,000 bonus related to the raising of $2,205,000 in capital through a Private Placement Memorandum in December 2003. On August 24, 2003, NoBidding entered into an Executive Employment Agreement with Mr. Michael Palandro (Palandro) under which Palandro will serve as NoBidding's Chief Executive Officer for a period of three (3) years, through August 31, 2006. Under his agreement, Palandro is entitled to an annual base salary of $120,000. Further, Palandro shall receive options to purchase up to 2,010,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 670,000 shares) on each anniversary date of this agreement, commencing on the 13th month of this agreement. Palandro is also entitled to receive the following bonuses, based on Company performance between October 1, 2003 and September 30, 2004: Membership enrollment: If enrollments reach 210,000 members, a $15,000 bonus will be paid. If enrollments exceed 270,000, an additional $5,000 bonus will be paid. Revenues: If revenues reach $2,200,000, a $15,000 bonus will be paid. If revenues exceed $2,800,000, an additional $5,000 bonus will be paid. Net Income: If net income reaches $264,000, a $15,000 bonus will be paid. If net income exceeds $336,000, an additional $5,000 bonus will be paid. Performance: An overall performance bonus of $15,000 to $20,000 may be paid at the discretion of the Company's Board of Directors. On August 28, 2003, NoBidding entered into an Executive Employment Agreement with Mr. Alan Phiet Pham (Pham) under which Pham will serve as NoBidding's Director of Information Technologies for a period of three (3) years, through August 31, 2006. Under his agreement, Pham is entitled to an annual base salary of $56,000. Further, Pham shall receive options to purchase up to 100,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 33,333 shares) on each anniversary date of this agreement, commencing on the 13th month of this agreement. On August 28, 2003, NoBidding entered into an Executive Employment Agreement with Ms. Kim Cullen (Cullen) under which Cullen will serve as NoBidding's Director of Marketing for a period of three (3) years, through August 31, 2006. Under his agreement, Cullen is entitled to an annual base salary of $42,000. Further, Cullen shall receive options to purchase up to 100,000 shares of common stock in Bidville at a price of $0.001 per share. These options vest in one-third increments (approximately 33,333 shares) on each anniversary date of this agreement, commencing on the 13th month of this agreement. F-25 BIDVILLE, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE M - SUBSEQUENT EVENTS 321 Play, Inc. acquisition On March 24, 2004, the Company entered into an Acquisition Agreement with 321 Play, Inc. (a privately-owned New York corporation). In the agreement, the Company will exchange 500,000 shares of restricted, unregistered common stock for 100.0% of the issued and outstanding common stock of 321 Play, Inc. Additionally, the Company executed a Supplementary Agreement whereby the Company is contingently liable for additional payments of up to 3,000,000 shares of restricted, unregistered common stock over a three (3) year period from the Closing Date based on certain performance goals provided that with respect to any fiscal year preceding the third anniversary date of the Closing Date, the working capital of 321 Play, Inc. meets or exceeds $1,000,000 and remains at or above that level for a period of not less than three (3) months prior to the end of 321's fiscal year; then the Company will be liable to issue an additional 500,000 shares of restricted, unregistered common stock for each $10,000,000 in annual revenues of 321 Play, Inc. as determined by accounting principles generally accepted in the United States of America. Consulting Agreements As listed in detail in Note K - Commitments and Contingencies, the Company has entered into various consulting contracts subsequent to December 31, 2003. (Remainder of this page left blank intentionally) F-26 EX-10 2 bid-10ksba_ex10nsc18.txt CONSULTING AGREEMENT NSC Exhibit 10.18 CONSULTING AGREEMENT This Consulting Agreement is made and effective as of the 1st day of September, 2003 (the "Effective Date"), by and between National Securities Corporation, Washington corporation (the "Consultant"), and NoBidding, Inc., a New Jersey corporation (the "Company"). In consideration of and for the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. PURPOSE AND TERM. The Company hereby retains the Consultant upon the terms and conditions contained herein for a period of seven (7) months from the Effective Date (the "Initial Term"). The Initial Term of this Agreement shall be extended (the "Extended Term") only by written agreement of the parties hereto. 2. DUTIES OF CONSULTANT. During the Initial Term and any Extended Term of this Agreement the Consultant will provide the Company with such regular and customary consulting advice as is reasonably requested by the Company, including but not limited to, rendering advice and assistance in connection with the negotiation and preparation of acquisitions, mergers, and/or strategic alliances, provided that the Consultant shall not be required to undertake duties not reasonably within the scope of the consulting advisory service contemplated by this Agreement. It is understood and acknowledged by the parties that the value of the Consultant's advice is not measurable in any quantitative manner, and that the Consultant shall be obligated to render advice, upon the request of the Company, in good faith, but shall not be obligated to spend any specific amount of time in doing so. 3. RELATIONSHIPS WITH OTHERS. The Company acknowledges that the Consultant is in the business of, among other things, providing financial service and consulting advice (of all types contemplated by this Agreement) to others. Nothing herein contained shall be construed to limit or restrict the Consultant from rendering such services or advice to others. 4. CONSULTING FEE. The Company shall pay the Consultant a consulting fee (the "Fee") of $20,000 per month, with the first monthly payment payable upon execution of this Agreement and, thereafter, each remaining monthly payment of $20,000 shall be payable in advance commencing on the first monthly anniversary of this Agreement. The Consultant may, at its option, immediately cease performance of services under this Agreement if the Fee is not paid timely. Alternatively, and in its sole discretion, the Consultant may perform services for the Company under this Agreement although accrued Fees remains unpaid or in arrears. In doing so, however, the Consultant shall not become obligated to continue such services, nor shall it waive its entitlement to or right to collect any payable but unpaid Fee from the Company at any time. In the event the Company closes any debt or equity financing in which net proceeds to the Company exceed $1,000,000.00, then within 20 days after the closing of such financing, the Company shall pay Consultant all Fee owing under this Agreement, both accrued and shall also prepay the balance of the Fee which shall become due under this Agreement through the end of the Initial Term. In any event, the Company shall pay the Consultant all Fee owing no later than March 31, 2004. Consulting Agreement Page 1 5. EXPENSES. In addition to the consulting fee payable hereunder, the Company shall reimburse Consultant for all travel and other expenses incurred by Consultant in connection with its efforts hereunder, upon submission by Consultant of itemized vouchers therefor, up to a maximum of $5,000.00. 6 LIMITATION UPON THE USE OF ADVICE AND SERVICES. No person or entity, other than the Company, shall be entitled to make use of or rely upon the advice of the Consultant to be given hereunder, and the Company shall not transmit such advice to others, or encourage or facilitate the use or reliance upon such advice by others, without the prior consent of the Consultant. 7 SEVERABILITY. Every provision of this Agreement is intended to be severable. If any term or provision hereof is deemed unlawful or invalid for any reason whatsoever, such unlawfulness or invalidity shall not affect the validity of the remainder of this Agreement. 8 MISCELLANEOUS. a. Any notice or other communication between the parties hereto shall be sent by certified or registered mail, postage prepaid, if to the Company, addressed to it at 601 Cleveland Street, Suite 120, Clearwater, Florida 33755, Attention: Chief Executive Officer, or, if to the Consultant, addressed to it at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, Attention: President, or to such address as may hereafter be designated in writing by any of such entities to the others. Such notice or other communication shall be deemed to be given on the date of receipt. b. This Agreement embodies the entire agreement and understanding between the Company and the Consultant with regard to the subject matter hereof, and with the exception of a separate and unrelated Financial Advisory and Consulting Agreement between the parties hereto and Royal Palm Capital Group, Inc., supersedes any and all other negotiations, prior fee arrangements, prior discussions and preliminary and prior agreements and understandings between the parties related to the subject matter hereof. No representation, promise, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein. c. This Agreement shall be governed by and construed in all respects under the laws of the State of Washington, without reference to its conflict of laws rules or principles. Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of Washington as provided by law. The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of Washington and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been commenced in an inconvenient forum. Consulting Agreement Page 2 d. This Agreement and the rights hereunder may not be assigned by either party (except by operation of law) and shall be binding upon and inure to the benefit of the Parties and their respective successors, assigns and legal representatives. e. This Agreement may be modified, amended, superseded, or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation, or waiver. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof. NoBidding, Inc. National Securities Corporation By: /s/ Gerald Parker By: /s/ Michael Bresner - -------------------------- ---------------------------- Gerald Parker, Chairman Michael Bresner, President Consulting Agreement Page 3 EX-10 3 bid-10ksba_ex10nsc19.txt FINANCIAL ADVISORY AND CONSULTING AGREEMENT NSC Exhibit 10.19 FINANCIAL ADVISORY AND CONSULTING AGREEMENT This agreement ("Agreement") is made and entered into this 12th day of December by and amongst Bidville Inc. (the "Company"); National Securities Corporation (the "Consultant"); and Royal Palm Capital Group, Inc. ("Royal Palm"). . In consideration of and for the mutual promises and covenants contained herein, and for other good and valuable consideration (the receipt of which is hereby acknowledged) the parties hereto mutually agree and intend to be legally bound to the terms of this Agreement as follows: 1. PURPOSE. The Company hereby retains the Consultant on a non-exclusive basis during the term specified to render consulting advice to the Company relating to financial, investment banking and merger/acquisition matters, upon the terms and conditions as set forth herein. 2. TERMS AND CONSIDERATION. This Agreement shall be effective for a period of twelve months commencing on the date first written above (the "Engagement Period"), unless extended by mutual written agreement of the Company and the Consultant. In consideration for the Consultant's work hereunder, Royal Palm has previously agreed to issue to Consultant, upon execution of this Agreement, 3,966,700 shares of common stock for a total purchase price of $500.00 (.000126049(cent) per share). The Shares shall be non-assessable, non-refundable and contain customary terms. 3. FINANCIAL ADVISORY SERVICES OF CONSULTANT. Consultant, based on its review of the Company to date, believes that it may assist the Company by performing the financial advisory services that are listed below and Consultant shall be limited to providing only those such financial advisory services to the Company. In connection with Consultant providing such financial advisory services to the Company, the Company shall provide Consultant with any information that Consultant deems appropriate. The Company hereby acknowledges that Consultant will be using and relying on said information without independent verification and that Consultant assumes no responsibility for the accuracy and completeness of any information provided to it by the Company. In performance of these duties, the Consultant shall provide the Company with the benefits of its best judgment and efforts. It is understood and acknowledged by the parties that the value of the Consultant's advice is not measurable in any quantitative manner, and that the Consultant shall not be obligated to spend any specific amount of time performing its duties hereunder. (a) Providing the Company exposure to the investment community at large through the dissemination of information. (b) Assisting in the Company's financial public relations, by participating in discussions with the Company and the financial community. 1 (c) Advising the Company about its financial structure and that of its divisions or subsidiaries or any of its projects, as such relate to the private and/or public market for the Company's equity securities. (d) Advising the Company with respect to acquisitions in connection with the possible effects on the public market for the Company's equity securities. (e) Advising the Company on the public market for Company's securities and the timing and structure of any future public offering or private or public merger or private placement of its equity securities. Should the Company desire Consultant to provide any financial advisory service(s) not listed above, the Company and Consultant shall enter into an additional engagement letter to be executed by the parties hereto at the commencement of the additional financial advisory service(s) to be rendered by Consultant. 4. CONSULTANT'S RELATIONSHIPS WITH OTHERS. The Company acknowledges that the Consultant or its affiliates is in the business of providing financial, investment banking and merger/acquisition services and consulting advice (of all types contemplated by this Agreement) to others. Nothing herein contained shall be construed to limit or restrict the Consultant in conducting such business with respect to others, or in rendering such advice to others. 5. CONFIDENTIAL INFORMATION. In connection with the rendering of services hereunder, Consultant has been or will be furnished with confidential information concerning the Company including, but not limited to, financial statements and information, cost and expense data, production data, trade secrets, marketing and customer data, and such other information not generally obtained from public or published information or trade sources. Such information shall be deemed "Confidential Material" and, except as specifically provided herein, shall not be disclosed by Consultant without prior written consent of the Company. In the event Consultant is required by applicable law or legal process to disclose any of the Confidential Material, it is agreed that Consultant will deliver to the Company prompt notice of such requirement prior to disclosure of same to permit the Company to seek an appropriate protective order and/or waive compliance of this provision. If, in the absence of a protective order or receipt of written waiver, Consultant is nonetheless, in the written opinion of counsel, compelled to disclose any Confidential Material, Consultant may do so without liability hereunder provided that notice of such prospective disclosure is delivered to the Company prior to actual disclosure. Following the termination of this Agreement and a written request by the Company, Consultant shall deliver to the Company all Confidential Material. 6. CONSULTANT'S LIABILITY & Indemnification of Consultant by Company. (a) In the absence of gross negligence or willful misconduct on the part of Consultant or Consultant's material breach of this Agreement, Consultant shall not be liable to the Company or to any officer, director, 2 employee, agent, representative, stockholder or creditor of the Company for any action or omission of Consultant or any of its officers, directors, employees, agents, representatives or stockholders in the course of, or in connection with, rendering or performing any services hereunder. Should Consultant be found liable for any acts or omissions, the liability of Consultant pursuant to this Agreement shall be limited to the aggregate fees received by Consultant hereunder, which shall not include any liability for incidental, consequential or punitive damages. (b) The Company agrees to indemnify Consultant in accordance with the provisions of Annex A hereto, which is incorporated by reference in its entirety and made a part hereof. 7. TERMINATION. This Agreement may be terminated at any time during the Engagement Period by Consultant upon five (5) days prior written notice to the Company, in the event that Consultant becomes aware of (i) any change in the business or operations of the Company which Consultant reasonably believes may adversely affect Consultant's ability to render the services contemplated hereunder, (ii) any misrepresentation by the Company with respect to the business operations, assets, condition (financial or otherwise), results of operations or prospects of the Company, or (iii) any breach by the Company of its obligations under this Agreement. This Agreement may be terminated by Company only in the event of a material breach by Consultant of its obligations hereunder, which breach remains uncured for a period of thirty days after written notice of the breach is provided to Consultant and any breach in reference to section 6A by consultant. In the event of termination (i) this Agreement shall become void, without liability on the part of Consultant or its affiliates, directors, officers or stockholders, and (ii) Consultant shall be entitled to expenses it has incurred up to the date of such termination. Unless this Agreement is terminated or a new agreement is executed between Company and Consultant, at the end of the Engagement Period, this Agreement shall automatically be renewed and extended on a month-to-month basis. At such time, either party may terminate the Agreement for any reason upon the provision of thirty days prior written notice. 8. SALES OR DISTRIBUTIONS OF SECURITIES. If the Consultant assists the Company in the sale or distribution of securities, the Consultant shall receive fees and other forms of compensation as are customarily received by investment bankers in similar transactions. Unless such sale or distribution falls under the terms of the Finder's Fee Agreement. Such public offering or private placement, undertaken by the Consultant on behalf of the Company, shall be subject to an additional agreement to be executed by the parties hereto at such time as is appropriate. 3 9. LIMITATION UPON THE USE OF ADVICE AND SERVICES. (a) No person or entity, other than the Company or any of its subsidiaries or directors or officers of each of the foregoing, shall be entitled to make use of or rely upon the advice of the Consultant to be given hereunder, and the Company shall not transmit such advice to, or encourage or facilitate the use or reliance upon such advice by others without the prior consent of the Consultant. (b) Company hereby acknowledges that Consultant, for services rendered under this Agreement, makes no commitment whatsoever to recommend or advise its clients to purchase the securities of the Company. Research reports that may be prepared by Consultant will, when and if prepared, be based solely on the merits, and independent judgment of analysts of the Consultant. (c) Company hereby acknowledges that Consultant, for services rendered under this Agreement, makes no commitment whatsoever to make a market in any of the Company's securities on any stock exchange or in any electronic marketplace. Any decision by Consultant to make a market in any of the Company's securities shall be based solely on the independent judgment of Consultant's traders and related supervisory personnel. (d) Use of the Consultant's name in annual reports or any other report of the Company or releases by the Company require the prior approval of the Consultant unless the Company is required by law to include Consultant's name in such annual reports, other report or release of the Company, in which event the Company shall furnish to Consultant copies of such annual reports or other reports or releases using Consultant's name in advance of publication by the Company, its affiliates or assigns. 10. DISCRETION. Nothing contained herein shall require the Company to enter into any transaction presented to it by Consultant, which decision shall be at the Company's sole discretion. 11. SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 12. MISCELLANEOUS. (a) Any notice or other communication between parties hereto shall be sufficiently given if sent by certified or registered mail, postage prepaid, or faxed and confirmed if to the Company, Bidville Inc. addressed 4 to it at 601 Cleveland Street, Suite 120, Clearwater, FL 33755 or if to the Consultant, addressed to it at National Securities Corporation, 1001 Fourth Avenue, Suite 2200, Seattle, WA 98154 or if to Royal Palm Capital Group, Inc. addressed to it at 625 North Flagler Drive, Suite 509, West Palm Beach, Florida 33401. Such notice or other communication shall be deemed to be given on the date of receipt. (b) If the Consultant shall cease to do business, the provisions hereof relating to duties of the Consultant and compensation by the Company as it applies to the Consultant shall thereupon cease to be in effect, except for the Company's obligation of payment of Warrants and expenses as stated in this document. This Agreement shall survive any merger of, acquisition of, or acquisition by the Consultant and after any such merger or acquisition shall be binding upon the Company and the corporation surviving such merger or acquisition. (c) This Agreement embodies the entire agreement and understanding between the Company and the Consultant and supersedes any and all negotiations, prior discussions and preliminary and prior agreements and understandings related to the central subject matter hereof. (d) This agreement has been duly authorized, executed and delivered by and on behalf of the Company and the Consultant. (e) This Agreement shall be construed and interpreted in accordance with the laws of the State of Washington, without giving effect to its rules regarding conflicts of laws. (f) There is no relationship of partnership, agency, employment, franchise or joint venture between the parties. Neither party has the authority to bind the other or incur any obligation on its behalf. (g) The Company hereby acknowledges that Consultant is not a fiduciary of the Company and that Consultant makes no representations or warranties regarding Company's ability to secure financing, whether now or in the future. (h) This Agreement and the rights hereunder may not be assigned by Company without the prior written consent of Consultant. This Agreement may be assigned by Consultant, in whole of in part, at its discretion, without prior consent of Company. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, assigns and legal representatives. (i) The Company shall provide Consultant with a copy of the resolution of its Board of Directors authorizing this engagement and specifically, the issuance of the Warrants and underlining shares. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof. BIDVILLE INC. NATIONAL SECURITIES CORPORATION /s/ Gerald Parker /s/ Mark Goldwasser - -------------------------------- ------------------------------------ Name: Gerald Parker Name: Mark Goldwasser Title: Chairman/Director Title: Chairman & Chief Executive ROYAL PALM CAPITAL GROUP, INC. /s/ Gerald Parker - -------------------------------- Name: Gerald Parker Title: Chairman/Director 6 ANNEX A INDEMNIFICATION Recognizing that transactions of the type contemplated in this engagement sometimes result in litigation and that National Securities Corporation's ("National") role is advisory, Bidville Inc. (the "Company") agrees to indemnify and hold harmless National, its affiliates (including Olympic Cascade Financial Corporation) and their respective officers, directors, employees, agents and controlling persons (collectively, the "Indemnified Parties"), from and against any losses, claims, damages and liabilities, joint or several, related to or arising in any manner out of any transaction, proposal or any other matter (collectively, the "Matters") contemplated by the engagement of National hereunder, and will promptly reimburse the Indemnified Parties for all expenses (including reasonable fees and expenses of legal counsel) as incurred in connection with the investigation of, preparation for, or defense of any pending or threatened claim related to or arising in any manner out of any Matter contemplated by the engagement of National hereunder, or any action or proceeding arising therefrom (collectively, "Proceedings"), whether or not such Indemnified Party is a formal party to any such Proceeding. Notwithstanding the foregoing, the Company shall not be liable in respect of any losses, claims, damages, liabilities or expenses that a court of competent jurisdiction shall have determined by final judgment resulted solely from the gross negligence or willful misconduct of an Indemnified Party. The Company further agrees that it will not, without the prior written consent of National, settle compromise or consent to the entry of any judgment in any pending or threatened Proceeding in respect of which indemnification may be sought hereunder (whether or not National or any Indemnified Party is an actual or potential party to such Proceeding), unless such settlement, compromise or consent includes an unconditional release of National and each other Indemnified Party hereunder from all liability arising out of such Proceeding. The Company agrees that if any indemnification or reimbursement sought pursuant to this letter were for any reason not to be available to any Indemnified Party or insufficient to hold it harmless as and to the extent contemplated by this letter, then the Company shall contribute to the amount paid or payable by such Indemnified Party in respect of losses, claims, damages and liabilities in such proportion as is appropriate to reflect the relative benefits to the Company and its stockholders on the one hand, and National on the other, in connection with the Matters to which such indemnification or reimbursement relates or, if such allocation is not permitted by applicable law, not only such relative benefits but also the relative faults of such parties as well as any other equitable considerations. It is hereby agreed that the 7 relative benefits to the Company and/or its stockholders and to National with respect to National's engagement shall be deemed to be in the same proportion as (i) the total value paid or received or to be paid or received by the Company and/or its stockholders pursuant to the Matters (whether or not consummated) for which National is engaged to render services bears to (ii) the fees paid to National in connection with such engagement. In no event shall the Indemnified Parties contribute or otherwise be liable for an amount in excess of the aggregate amount of fees actually received by National pursuant to such engagement (excluding amounts received by National as reimbursement of the expenses). The Company further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with National's engagement hereunder except for losses, claims, damages, liabilities or expenses that a court of competent jurisdiction shall have determined by final judgment resulted solely from the gross negligence or willful misconduct of such Indemnified Party. The indemnity, reimbursement and contribution obligations of the Company shall be in addition to any liability which the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company or an Indemnified Party. The indemnity, reimbursement and contribution provisions set forth herein shall remain operative and in full force and effect regardless of (i) any withdrawal, termination or consummation of or failure to initiate or consummate any Matter referred to herein, (ii) any investigation made by or on behalf of any party hereto or any person controlling (within the meaning of Section 15 of the Securities Act of 1933 as amended, or Section 20 of the Securities Exchange Act of 1934, as amended) any party hereto, (iii) any termination or the completion or expiration of this letter of National's engagement and (iv) whether or not National shall, or shall not be called upon to, render any formal or informal advice in the course of such engagement. 8 EX-10 4 bid-10ksba_ex10efg20.txt CONSULTING AGREEMENT EFG Exhibit 10.20 March 8, 2004 Bidville, Inc. 601 Cleveland Street, Suite 120 Clearwater, Fl 33755 Attention: Mr. Gerald Parker Chairman of the Board Dear Mr. Parker, You have advised us that Bidville, Inc. (the "Company") desires to retain Empire Financial Group, Inc. ("EFGI") as it's financial and investment banking advisor in connection with the identification, evaluation and introduction into the various forms of private or public debt or equity capital. (Referred to as a "Strategic Transaction.") This letter, when executed by the parties hereto, will constitute an agreement between the Company and EFGI pursuant to which the Company agrees to retain EFGI and EFGI agrees to be retained by the Company under the terms and conditions set forth below. 1. The Company hereby retains EFGI to perform consulting services related to corporate finance and other financial matters in connection with Strategic Transactions, and EFGI hereby accepts such retention. In this regard, subject to the terms set forth below, EFGI shall furnish to the Company advice and recommendations with respect to such aspects of the business and affairs of the Company as the Company shall, from time to time, reasonably request upon reasonable notice. The Company hereby agrees to refer all Strategic Transactions considered by the Company during the term hereof to EFGI and to pay EFGI for all such transactions in accordance with this Agreement. In addition, EFGI shall hold itself ready to assist the Company in evaluating and negotiating particular contracts or transactions other than Strategic Transactions, if requested to do so by the Company, upon reasonable notice for compensation to be agreed upon by the Company and EFGI. 2.(a) As compensation for the general consulting services described in paragraph 1 above to be performed during the term of this agreement, the Company shall pay to EFGI an engagement fee of $25,000 payable upon execution of this agreement and $10,000 per month payable in advance starting April 1 2004 and each of the next 11 months thereafter. EFGI shall be paid such additional compensation in connection with Strategic Transactions as otherwise provided in this Agreement. In addition to its compensation hereunder, the Company will reimburse EFGI for any and all reasonable expenses incurred by EFGI in the performance of its duties hereunder, and EFGI shall account for such expenses to the Company; provided, however, that any single expense in excess of $2,500 shall require the prior written approval of the 1 Company, which will not be unreasonably withheld. Such reimbursement shall accumulate and be paid monthly. Nothing contained herein shall prohibit EFGI from receiving any additional compensation under paragraphs 3 and 4 herein or otherwise. (b)Concurrent with the execution of this agreement, the Company shall sell to EFGI (or its designated affiliates) common stock purchase warrants (the "Warrants"), at a price of $.001 per warrant, to purchase 200,000 shares of Common Stock. Such warrants will expire five years after issuance and will be exercisable at $ 3.00 per share. The Warrants may be exercised as to all or a lesser number of shares and will contain provisions for registration of the resale of the underlying shares at the Company's expense, cashless exercise and for adjustment in the number of such shares and the exercise price to prevent dilution. 3. In addition, EFGI shall hold itself ready to assist the Company in evaluating and negotiating particular contracts or transactions, if requested to do so by the Company, upon reasonable notice, and will undertake such evaluations and negotiations upon prior written agreement as to additional compensation to be paid by the Company to EFGI with respect to such evaluations and negotiations. Nothing herein shall require the Company to utilize EFGI's services in any particular transactions nor shall limit the Company's obligations arising under any other agreement or understanding. 4. The Company and EFGI further acknowledge and agree that EFGI may act as a finder, investment banker or financial consultant in various Strategic Transactions in which the Company may be involved. The Company hereby agrees that in the event a Strategic Transaction, other than Financing, is consummated, the Company shall pay to EFGI a fee (the "Transaction Fee") equal to the aggregate of five percent of the amount of the consideration paid in such transaction up to $2 million of consideration, four percent of the amount of such consideration above $2,000,000 up to $4 million, three percent of the amount of such consideration above $4,000,000 up to $6 million, two percent of the amount of such consideration amount above $6,000,000 up to $8 million, and one percent of the amount of such consideration over $ 8 million. The Transaction Fee shall be paid in cash at the closing of the transaction to which it relates, and shall be payable whether or not the transaction involves stock, or a combination of stock and cash, or is made on the installment sale basis. In addition, if the Company shall, within 12 months immediately following the termination of this Agreement, consummate a transaction with any party introduced by EFGI to the Company prior to such termination, or with any party which was a party to a transaction or prospective transaction as to which EFGI rendered services under this Agreement, the Company shall pay to EFGI a Transaction Fee with respect to such transaction calculated in accordance with this paragraph. In the event that the Company agrees to enter into a Financing, the Company will pay EFGI a cash fee at the closing of the Financing in an amount to be agreed upon by the parties hereto prior to such closing, which fee will not be less favorable to EFGI than is customary in the marketplace for similar Financing. In the event the parties cannot agree on such fee, the fee shall be 10% of the gross proceeds of such financing. 2 For purposes hereof, "Consideration" shall mean the value of all cash, securities and other property or other assets paid, received, payable or receivable, including debt assumed, in connection with a Strategic Transaction, including, without limitation: (a) any distributions made to shareholders in anticipation of the closing; (b) any employment contract enhancements or non-competition payments (other than ordinary and customary compensation in connection with bona fide employment agreements); (c) any payments in connection with any separate transactions affecting another business entity or any of its assets or securities (e.g., purchase or lease of any real estate or other assets, but in the case of a lease, Consideration shall include only sums in excess of current rentals paid to unrelated or unaffiliated third parties); (d) any indebtedness for money borrowed, including receivables, pension liabilities and guarantees, which are assumed; and (e) other business considerations (e.g., business discounts and/or credits for services and/or products). For purposes of determining Consideration, the value of any securities (whether debt or equity) shall be deemed to be the greater of: (i) the fair market value thereof as of the day the definitive agreement is executed by all parties; or (ii) the average of the last reported sales prices of the securities on the twenty (20) consecutive business days prior to the consummation of the Strategic Transaction as reported on the principal exchange on which the security is listed, or, as the case may be, the NASDAQ National Market System; provided that the value of securities that are not freely tradable or have no established public market shall be the fair market value thereof as reasonably agreed-upon by the parties hereto. If any part of the Consideration shall be deferred or contingent upon future earnings or other contingencies, then EFGI shall be entitled to a Transaction Fee on such additional Consideration, and the term Consideration shall include such additional compensation which shall be payable on the basis of the payment when made by the payor. The Transaction Fee for such Consideration paid or received in the future shall be payable when such Consideration is paid and shall be calculated using the formula set forth in Section B (3) by adding this subsequent Consideration to all other Consideration previously paid. 5. All obligations of EFGI contained herein shall be subject to EFGI's reasonable availability for such performance, in view of the nature of the requested service and the amount of notice received. EFGI shall devote such time and effort to the performance of its duties hereunder as EFGI shall determine is reasonably necessary for such performance. EFGI may look to such others for such factual information, investment recommendations, economic advice and/or research, upon which to base its advice to the Company hereunder, as it shall deem appropriate. the Company shall furnish to EFGI all information reasonably relevant to the performance by EFGI of its obligations under this Agreement, or particular projects as to which EFGI is acting as advisor, which will permit EFGI to know all facts material to the advice to be rendered, and all material or information reasonably requested by EFGI. In the event that the Company fails or refuses to furnish any such material or information reasonably requested by EFGI, and thus prevents or impedes EFGI's performance hereunder, any inability of EFGI to perform shall not be a breach of its obligations hereunder. 6. Nothing contained in this Agreement shall limit or restrict the right of EFGI or of any partner, employee, agent or representative of EFGI, to be a partner, director, officer, employee, agent or representative of, or to engage in, any other business, whether of a similar nature or not, nor to limit or restrict the right of EFGI to render services of any kind to any other corporation, firm, individual or association. 3 7. (a) EFGI will hold in confidence any confidential information which the Company provides to EFGI pursuant to this Agreement unless the Company gives EFGI permission in writing to disclose such confidential information to a specific third party. Notwithstanding the foregoing, EFGI shall not be required to maintain confidentiality with respect to information (i) which is or becomes part of the public domain; (ii) of which it had independent knowledge prior to disclosure; (iii) which comes into the possession of EFGI in the normal and routine course of its own business from and through independent non-confidential sources; or (iv) which is required to be disclosed by EFGI by governmental requirements. If EFGI is requested or required (by oral questions, interrogatories, requests for information or document subpoenas, civil investigative demands, or similar process) to disclose any confidential information supplied to it by the Company, or the existence of other negotiations in the course of its dealings with the Company or its representatives, EFGI shall, unless prohibited by law, promptly notify the Company of such request(s) so that the Company may seek an appropriate protective order. (b) "Confidential Information" shall mean the information described at the end of this Agreement, which is disclosed to EFGI by the Company in any manner, whether orally, visually or in tangible form (including, without limitation, documents, devices and computer readable media) and all copies thereof. Tangible materials that disclose or embody Confidential Information shall be marked by the Company as "Confidential," "Proprietary" or the substantial equivalent thereof. Confidential Information that is disclosed orally or visually shall be identified by the Company as confidential at the time of disclosure and reduced to a written summary by the Company, who shall mark such summary as "Confidential," "Proprietary" or the substantial equivalent thereof and deliver it to EFGI within ten (10) days following the disclosure. 8. The Company agrees that, for a period of three years from the date hereof, it shall not solicit any offer to buy from or offer to sell to any person introduced to the Company by EFGI, directly or indirectly, any securities of the Company or of any other entity, or provide the name of any such person to any other securities broker or dealer or selling agent provided that the foregoing shall not apply to any registered underwritten public offering of the Company's securities. In the event that the Company or any of its affiliates, directly or indirectly, solicits, offers to buy from or offers to sell to any such person any such securities, or provides the name of any such person to any other securities broker or dealer or selling agent, and such person purchases such securities or purchases securities from any other securities broker or dealer or selling agent, the Company shall pay to EFGI an amount equal to 10% of the aggregate purchase price of the securities so purchased by such person. 9. The Company agrees to indemnify and hold harmless EFGI, its officers, directors, partners, employees, agents, and counsel, and each person, if any, who controls EFGI within the meaning of Section l5 of the Act or Section 20(a) of the Securities Exchange Act of l934, as amended (the "Exchange Act"), against any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (and any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including, without 4 limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which EFGI is a party), directly or indirectly, caused by, relating to, based upon, arising out of, or in connection with EFGI's acting for the Company, including, without limitation, any act or omission by EFGI in connection with its acceptance of or the performance or non-performance of its obligations under the Agreement. The Company also agrees that EFGI shall not have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with the engagement of EFGI, (i) except as provided below with respect to EFGI's obligations to indemnify to the Company; and (ii) where such loss has been judicially determined to be solely due to EFGI's gross negligence or willful misconduct. These indemnification provisions shall be in addition to any liability which the Company may otherwise have to EFGI or the persons indemnified below in this sentence and shall extend to the following: EFGI, its affiliated entities, partners, employees, legal counsel, agents and controlling persons (within the meaning of the federal securities laws), and the officers, directors, employees, legal counsel, agents and controlling persons of any of them. All references to EFGI in these indemnification provisions shall be understood to include any and all of the foregoing. If any action, suit, proceeding or investigation is commenced, as to which EFGI proposes to demand indemnification, it shall notify the Company with reasonable promptness (provided, however, that any failure by EFGI to notify the Company shall not relieve the Company from its obligations hereunder), and the Company shall have the right to assume the defense of such action. EFGI shall have the right to retain counsel of its own choice to represent it, but the fees and expenses of such counsel shall be at its expense unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have promptly employed counsel reasonably satisfactory to EFGI to have charge of the defense of such action or EFGI shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in any of which events such fees and expenses shall be borne by the Company. Any such counsel of EFGI shall, to the extent consistent with its professional responsibilities, cooperate with the Company and any counsel designated by the Company. the Company shall be liable for any settlement of any claim against EFGI made with the Company's written consent, which consent shall not be unreasonably withheld. the Company shall not, without the prior written consent of EFGI, settle or compromise any claim, or permit a default or consent to the entry of any judgment in respect thereof, unless such settlement, compromise or consent includes, as a unconditional term thereof, the giving by the claimant to EFGI of an unconditional release from all liability in respect of such claim. In order to provide for just and equitable contribution, if a claim for indemnification pursuant to these indemnification provisions is made but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express provisions hereof provide for indemnification in such case, then the Company, on the one hand, and EFGI, on the other hand, shall contribute 5 to the losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements to which the indemnified persons may be subject in accordance with the relative benefits received by the Company, on the one hand, EFGI, on the other hand, and also the relative fault of the Company, on the one hand, and EFGI, on the other hand, in connection with the statements, acts or omissions which resulted in such losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses or disbursements and the relevant equitable considerations shall also be considered. No person found liable for a fraudulent misrepresentation shall be entitled to contribution from any person who is not also found liable for such fraudulent misrepresentation. Notwithstanding the foregoing, EFGI, shall not be obligated to contribute any amount hereunder that exceeds the amount of fees previously received by EFGI pursuant to the Agreement. Neither termination nor completion of the engagement of EFGI referred to above shall affect these indemnification provisions which shall remain operative and in full force and effect and this paragraph shall survive the termination of this Agreement. The Company further agrees that EFGI shall incur no liability to the Company or any other party on account of this Agreement for any acts or omissions arising out of or related to the actions of EFGI relating to this Agreement or the performance or failure to perform any services under this Agreement except for EFGI's intentional or willful misconduct. 10. This Agreement may not be transferred, assigned or delegated by any of the parties hereto without the prior written consent of the other party hereto. 11. The failure or neglect of the parties hereto to insist, in any one or more instances, upon the strict performance of any of the terms or conditions of this Agreement, or their waiver of strict performance of any of the terms or conditions of this Agreement, shall not be construed as a waiver or relinquishment in the future of such term or condition, but the same shall continue in full force and effect. 12. This Agreement is for a term of 12 months and may not be terminated by the Company. This Agreement may be terminated by EFGI at any time upon 30 days' notice. Paragraphs 4, 7, 8 and 9 shall survive the expiration or termination of this Agreement under all circumstances. 13. Any notices hereunder shall be sent to the Company and to EFGI at their respective addresses set forth above. Any notice shall be given by registered or certified mail, postage prepaid, and shall be deemed to have been given when deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving written notice to the other of such change of address in the manner herein provided. 14. This Agreement has been made in the State of Florida and shall be construed and governed in accordance with the laws thereof without giving effect to principles governing conflicts of law. 15. This Agreement contains the entire agreement between the parties, may not be altered or modified, except in writing and signed by the party to be charged thereby, and supersedes any and all previous agreements between the parties relating to the subject matter hereof. 6 EX-10 5 bid-10ksba_ex10bg21.txt ADVISORY AGREEMENT BG Exhibit 10.21 ADVISORY AGREEMENT THIS ADVISORY AGREEMENT (the "Agreement") is made this 1st day of April, 2004, by and between the BLACKMOR GROUP, INC. ("Advisor"), and BIDVILLE, INC., a corporation with its offices located in West Palm Beach, Florida (the "Company"). WHEREAS, Advisor and Advisor's Personnel (as identified below) have experience in evaluating and effecting mergers and acquisitions, advising corporate management, and in performing general administrative duties for publicly-held companies and development stage investment ventures; and WHEREAS, the Company desires to retain Advisor to advise and assist the Company in its development on the terms and conditions set forth below, NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Advisor agree as follows: 1. ENGAGEMENT The Company hereby retains Advisor, effective as of the date hereof (the "Effective Date") and continuing until termination, as provided herein, to assist the Company in its effecting the purchase of businesses and assets relative to its business and growth strategy, resolution of outstanding debt and obligations of the Company, preparation of registration statements, the introduction of the Company to brokers and dealers, potential investors, public relations firms and consultants and others that may assist the Company in its plans and future development (the "Services"). The Services are to be provided on a "best efforts" basis directly and through Advisor's officers and others employed or retained and under the direction of Advisor ("Advisor's Personnel"); provided, however, that the Services shall expressly exclude all legal advice, accounting services or other services which require licenses or certification which Advisor may not have, including capital raising. Advisory Agreement (Blackmor/Bidville) - Page 1 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 2 2. TERM This Agreement shall have an initial term of one (1) year (the "Primary Term"), commencing with the Effective Date. At the conclusion of the Primary Term, this Agreement will automatically be extended on an annual basis (the "Extension Period") unless Advisor or the Company shall serve written notice on the other party terminating the Agreement. Any notice to terminate given hereunder shall be in writing and shall be delivered at least thirty (30) days prior to the end of the Primary Term or any subsequent Extension Period. 3. TIME AND EFFORT OF ADVISOR Advisor shall allocate time and Advisor's Personnel as it deems necessary to provide the Services. The particular amount of time may vary from day to day or week to week. Except as otherwise agreed, Advisor's monthly statement identifying, in general, tasks performed for the Company shall be conclusive evidence that the Services have been performed. Additionally, in the absence of wilful misfeasance, bad faith, negligence or reckless disregard for the obligations or duties hereunder by Advisor, neither Advisor nor Advisor's Personnel shall be liable to the Company or any of its shareholders for any act or omission in the course of or connected with rendering the Services including but not limited to losses that may be sustained in any corporate act in any subsequent Business Opportunity (as defined herein) undertaken by the Company as a result of advice provided by Advisor or Advisor's Personnel. 4. COMPENSATION The Company agrees to pay advisor a fee for the Services ("Advisory Fee") by way of the delivery by the Company of 100,000 options to purchase BVLE shares at $2 for two years. These options shall either have a cashless exercise provision or the shares underlying the options are to be registered. All shares transferred are considered fully earned and non-assessable as if the date hereof. As part of this engagement, Blackmor shall pay all its own expenses, including travel, entertainment and communication costs. If BVLE requests that Blackmor or its representatives make any extraordinary trips, such as overseas travel or a multi-city road show, BVLE shall reimburse Blackmor for the expenses associated with that travel. 5. PLACE OF SERVICE The Services provided by Advisor or Advisor's Personnel hereunder will be performed at Advisor's offices except as otherwise mutually agreed by Advisor and the Company. Advisory Agreement (Blackmor/Bidville) - Page 2 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 3 6. INDEPENDENT CONTRACTOR Advisor and Advisor's Personnel will act as an independent contractor in the performance of its duties under this Agreement. Accordingly, Advisor will be responsible for payment of all federal, state, and local taxes on compensation paid under this Agreement, including income and social security taxes, unemployment insurance, and any other taxes due relative to Advisor's Personnel, and any and all business license fees as may be required. This Agreement neither expressly nor impliedly creates a relationship of principal and agent, or employee and employer, between Advisor's Personnel and the Company. Neither Advisor nor Advisor's Personnel are authorized to enter into any agreement on behalf of the Company. The Company expressly retains the right to approve, in its sole discretion, each Asset Opportunity or Business Opportunity introduced by Advisor, and to make all final decisions with respect to effecting a transaction on any Business Opportunity. 7. REJECTED ASSET OPPORTUNITY OR BUSINESS OPPORTUNITY If, during the Primary Term of this Agreement or any Extension Period, the Company elects not to proceed to acquire, participate or invest in any Business Opportunity identified and/or selected by Advisor, notwithstanding the time and expense the Company may have incurred reviewing such transaction, such Business Opportunity shall revert back to and become proprietary to Advisor, and Advisor shall be entitled to acquire or broker the sale or investment in such rejected Business Opportunity for its own account, or submit such assets or Business Opportunity elsewhere. In such event, Advisor shall be entitled to any and all profits or fees resulting from Advisor's purchase, referral or placement of any such rejected Business opportunity, or the Company's subsequent purchase or financing with such Business Opportunity in circumvention of Advisor. 8. NO AGENCY EXPRESSED OR IMPLIED This Agreement neither expressly or impliedly creates a relationship of principal and agent between the Company and Advisor, or employee and employer between Advisor's Personnel and the Company. 9. TERMINATION The Company and Advisor may terminate this Agreement prior to the expiration of the Primary Term upon thirty (30) days written notice with mutual written consent. Failing to have mutual consent, without prejudice to any other remedy to which the terminating party may be entitled, if any, either party may terminate this Agreement with thirty (30) days written notice under the following conditions: (A) By the Company (i) If, during the Primary Term of this Agreement or any Extension Period, Advisor is unable to provide the Services as set forth herein for thirty (30) consecutive business days because of illness, accident, or other incapacity of Advisor's Personnel; or Advisory Agreement (Blackmor/Bidville) - Page 3 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 4 (ii) If Advisor wilfully breaches or neglects the duties required to be performed hereunder; or (B) By Advisor (i) If the Company breaches this Agreement or fails to make any payments or provide information required hereunder; or (ii) If the Company ceases business or, other than in an Initial Merger, sells a controlling interest to a third party, or agrees to a consolidation or merger of itself with or into another corporation, or enters into such a transaction outside of the scope of this Agreement, or sell substantially all of its assets to another corporation, entity or individual outside of the scope of this Agreement; or (iii) If the Company, subsequent to the execution hereof, has a receiver appointed for its business or assets, or otherwise becomes insolvent or unable to timely satisfy its obligations in the ordinary course of, including but not limited to, the obligation to pay the Initial Fee, the Transaction Fee, or the Advisory Fee; or (iv) If the company, subsequent to the execution hereof, institutes, makes a general assignment for the benefit of creditors, has instituted against it any bankruptcy proceeding for reorganization for rearrangement of its financial affairs, files a petition in a court of Bankruptcy, or is adjudicated a bankrupt; or (v) If any of the disclosures made herein or subsequent hereto by the Company to Consultant are determined to be materially false or misleading. 10. INDEMNIFICATION Subject to the provisions herein, the Company and Advisor agree to indemnify, defend and hold each other harmless from and against all demands, claims, actions, losses, damages, liabilities, costs and expenses, including without limitation, interest penalties, attorneys' fees and expenses asserted against or imposed or incurred by either party by reason of or resulting from any action or a breach of any representation, warranty, covenant, condition, or agreement of the other party to this Agreement. Advisory Agreement (Blackmor/Bidville) - Page 4 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 5 11. REMEDIES Advisor and the Company acknowledge that in the event of a breach of this Agreement by either party, money damages would be inadequate and the non- breaching party would have no adequate remedy at law. Accordingly, in the event of any controversy concerning the rights or obligations under the Agreement, such rights or obligations shall be enforceable in a court of equity by a decree of specific performance. Such remedy, however, shall be cumulative and nonexclusive and shall be in addition to any other remedy to which the parties may be entitled. 12. MISCELLANEOUS (A) SUBSEQUENT EVENTS. Advisor and the Company each agree to notify the other party if, subsequent to the date of this Agreement, either party incurs obligation which could compromise its efforts and obligations under this Agreement. (B) AMENDMENT. This Agreement may be amended or - modified at any time and in any manner only by an instrument in writing executed by the parties hereto. (C) FURTHER ACTIONS AND ASSURANCES. At any time, and from time to time, each party agrees at its or their own expense, to take actions and to execute and deliver documents as may be reasonably necessary to effectuate the purposes of this Agreement. (D) WAIVER. Any failure of any party to this Agreement to comply with any of its obligations, agreements, or conditions hereunder may be waived in writing by the party to whom such compliance is owed. The failure of any party to this Agreement to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision or a waiver of the rights of such party thereafter to enforce each and every such provision. No waiver of any breach of or noncompliance with this Agreement shall be held to be a waiver of any other or subsequent breach or noncompliance. Advisory Agreement (Blackmor/Bidville) - Page 5 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 6 (E) ASSIGNMENT. Neither this Agreement nor any right created by it shall be assignable by either party without the prior written consent of the other. (F) NOTICES. Any notice or other communication - required or permitted by this Agreement must be in writing and shall be deemed to be properly given when delivered in person to an officer of the other party, when deposited in the United States mails for transmittal by certified or registered mail, postage prepaid, or when deposited with a public telegraph company for transmittal, or when sent by facsimile transmission charges prepaid (prepared?), provided that the communication as addressed: (i) In the case of the Company: Bidville, Inc. 625 N. Flagler Drive, Suite 509 West Palm Beach, Florida 33401 Telephone: (561) 820-2444 Fax: (561) 820-9913 (ii) In the case of the Advisor: The Blackmor Group 11294 Hawk Hollow Lake Worth, FL 33467 Telephone: (561) 279-0140 Fax: (561) 279-0056 or to such other person or address designated in writing by the Company or Advisor to receive notice. (G) HEADINGS . The section and subsection heading in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (H) GOVERNING LAW. This Agreement was negotiated and is being contracted for in Florida and shall be governed by the laws of the State of Florida and the United States of America, notwithstanding any conflict-of- law provision to the contrary. Advisory Agreement (Blackmor/Bidville) - Page 6 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 7 (I) BINDING EFFECT. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors, and assigns. (J) ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto and supersedes any and all prior agreements, arrangements, or understandings between the parties relating to the subject matter of this Agreement. No oral understandings, statements, promises, or inducements contrary to the terms of this Agreement exist. No representations, warranties, covenants, or conditions, expressed or implied, other than as set forth herein, have been made by either party. (K) SEVERABILITY. If any part of this Agreement is deemed to be unenforceable, the balance of the Agreement shall remain in full force and effect. (L) COUNTERPARTS. A facsimile, telecopy, or other reproduction of this Agreement may be executed simultaneously in two or m ore counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, by one or more parties hereto and such executed copy may be delivered pursuant to which the signature of or on behalf of such party can be seen. In this event, such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties agree to execute an original if this Agreement as well as any facsimile, telecopy or other reproduction hereof. (M) TIME IS OF THE ESSENCE. Time is of the essence of this Agreement and of each and every provision hereof. Advisory Agreement (Blackmor/Bidville) - Page 7 of 8 Gerald Parker Blackmor Group Consulting Agreement Page 8 IN WITNESS WHEREOF, the parties have executed this Agreement on the date above written. The "Company" "Advisor" Bidville, Inc. The Blackmor Group Consulting By: By: /s/ Gerald Parker /s/ John Moran - ------------------------------ ------------------------------- Gerald Parker, Chairman John Moran Advisory Agreement (Blackmor/Bidville) - Page 8 of 8 EX-10 6 bid-10ksba_ex10ts22.txt SOFTWARE LEASE AGREEMENT TS Exhibit 10.22 SOFTWARE LEASE AGREEMENT This Lease Agreement, dated as of April 6, 2004, is between Thunderstone Software LLC ("Thunderstone") and Bidville, Inc. ("Lessee"). In consideration of the mutual promises set forth below, and intending to be legally bound, the parties agree as follows: 1. DEFINITIONS 1.1 "Defect" means a confirmed failure of the Leased Program to perform in accordance with the Documentation. A "Major Defect" is a Defect that, if not corrected, substantially deprives the Licensee of the functionality of the License Program. 1.2 "Documentation" means all written or electronic technical specifications or materials provided by Thunderstone for use in connection with the Leased Program. 1.3 "Enhancement" means the addition of a new Leased Program feature or the modification or change (including, but not limited to, addition of new functionality, creation of new algorithms, design changes, code changes, ideas, concepts, know-how, approaches, processes, methodologies or techniques) to an existing Leased Program feature that immediately prior to the Enhancement was performing in substantial compliance with Thunderstone's original Documentation. 1.4 "Lease Agreement" means this Agreement. 1.5 "Leased Program" means the machine readable version of one or more of the following programs: Texis, Vortex Webscript Bridge, Metamorph, 3DB, Metamorph API, 3DB API, Network API, Browser API, Metabook, Network Code Generator, Webinator and Postscript Viewer. Only those programs for which you have paid the applicable Fee shall be Leased Programs under this Lease Agreement. 1.6 "Lessee" means you, the buyer or user of the Leased Program or Documentation. 1.7 "Major Release" means a release of the Leased Program that includes Software Updates, selected Enhancements, and other new functionality or capabilities. A Major Release is designated by the Leased Program version number, which in comparison to the previous release of the Leased Program has changed in the digits preceding the second decimal point. 1.8 "Media" means any tape, disk, diskette, CD-rom or electronic delivery method used to install the Leased Program on a computer. 1.9 "Software Update" means a revision, patch or work-around, that when applied to the Leased Program, shall enable it to perform in accordance with the Documentation, or which corrects or repairs a Defect. 1.10 "Technical Support" means commercially-reasonable efforts, undertaken by Thunderstone, to provide Lessee with answers to questions involving general usage of the Leased Program. Technical Support does not include consulting or other services that require Thunderstone to review Lessee's application of the Leased Program. Consulting services are only provided pursuant to a separate agreement. 1.11 "Use" means copying or transmitting any portion of the Leased Program or Documentation into a computer and processing of the instructions or statements contained in the Leased Program. 2. LEASE 2.1 Subject to the terms and conditions of this Lease Agreement, Thunderstone leases to Lessee the non-exclusive, non-transferable, non-assignable right to install and Use the Leased Program and Documentation. This right to install and use is exclusive to Lessee and does not extend to any affiliates or related parties. 2.2 The Media on which the Leased Program is provided to Lessee may contain several copies of the Leased Program and Documentation, each of which is compatible with a different processor architecture (e.g., Unix, Windows NT or Windows X). Lessee may install one copy of the Leased Program on a single server (the computer running the Leased Program will be referred to as a server) for use with only those architectures permitted pursuant to this Lease Agreement. Lessee may transfer the Leased Program from one server to another server, but only if the Leased Program is completely removed from the first server. 2.3 In addition to the copy of the Leased Program installed on the server, Lessee may make another copy of the Leased Program for archival or backup purposes. 2.4 If source code is included on Lessee's installation Media solely for the purpose of recompilation to Lessee's specific operating system, the source code is on loan to Lessee only as long as necessary to enable Lessee to recompile, or port, the Leased Program. Under no circumstances does Lessee have the right to copy, view or modify the source code. The source code, along with a copy of any newly created object code version, must be returned to Thunderstone immediately after recompilation. 3. LEASE PAYMENTS 3.1 Lessee shall pay to Thunderstone an initial Lease payment of $25,363. Thereafter, 2 during the term of this Lease and any renewal term, beginning with the calendar month following execution of this Lease, Lessee shall pay to Thunderstone an amount each month equal to $2,900. Payment shall be due on the first day of each calendar month. Any payment not received by the first day of the month will be assessed a late charge equal to 10% of the amount due. The failure to make payment by the tenth day of the month in which the payment is due will constitute an event of default under this Lease Agreement. 3.2 The Lease payments do not include any local, state, federal, use, excise, personal property or similar taxes, duties or shipping charges, all of which are the liability of and shall be paid by Lessee. Such amounts may be added to the invoice and remitted to the proper authorities by Thunderstone. Lessee is responsible for making its own determination as to the proper tax treatment for the payments made pursuant to this Lease Agreement. 3.3 Thunderstone will provide Lessee with one set of installation Media and one set of Documentation. Thunderstone shall replace any defective installation Media at no cost. Lessee must pay a replacement fee to replace any lost or damaged installation Media. Additional copies of Documentation are available for purchase from Thunderstone. 4. DELIVERY AND INSTALLATION Upon receipt of the initial Lease payment, Thunderstone will deliver the Leased Program and Documentation to Lessee, FOB Thunderstone's location, on appropriate Media for installation on Lessee's computer system by Lessee. Lessee is responsible for all costs associated with installation. 5. TRAINING AND TECHNICAL SUPPORT 5.1 Thunderstone will provide Technical Support to Lessee during the warranty period at no cost. Thereafter, Technical Support will be provided at Thunderstone's discretion. 5.2 This Lease Agreement entitles the Lessee to no training or consulting services from Thunderstone. Training and consulting services are provided, if at all, only pursuant to a separate agreement between Thunderstone and Lessee. 6. TERM AND TERMINATION 6.1 The term of this Lease Agreement will begin as of the date of this Lease Agreement and shall terminate 36 months later. 6.2 Lessee may terminate this Lease Agreement upon notice within 30 days after delivery of the Leased Program or Documentation, provided that (a) Lessee promptly returns the Leased Program and Documentation to Thunderstone in the same condition as received, normal wear and tear excepted, (b) Lessee provides written certification from a duly authorized officer stating that all copies have been returned or destroyed, and (c) Lessee is not in default of any provision of this Lease Agreement. 3 6.3 Either party may terminate this Lease Agreement upon notice if the other party is in breach of any provision of this Lease Agreement and fails to cure that breach within 30 days after receiving written notice from the non-breaching party of the breach. 6.4. Either party may terminate this Lease Agreement upon notice to the other if (a) the other ceases to carry on its business; or (b) a receiver or similar officer is appointed for the other and is not discharged within thirty days; or (c) the other becomes insolvent, admits in writing its inability to pay debts generally as they become due, is adjudicated bankrupt or insolvent, or makes an assignment for the benefit of its creditors or another arrangement of similar import; or (d) proceedings under bankruptcy or insolvency laws are commenced by or against the other and are not dismissed within thirty days. 6.5 Should Lessee in whole or in part, acquire, be acquired by, or merge with any legal entity that Thunderstone, in its sole discretion, deems to be competitive to Thunderstone's business, Thunderstone may immediately terminate this Lease Agreement upon written notice to Lessee. 6.6 Upon termination pursuant to Section 6.2, Thunderstone shall refund to Lessee the initial Lease payment, less any expenses incurred by Thunderstone in connection with this Lease Agreement. Upon termination pursuant to Sections 6.3 or 6.4, Lessee shall immediately pay to Thunderstone an amount equal to the sum of all remaining monthly Lease payments due under this Lease Agreement as if it had not been terminated. 4 6.7 Upon termination of this Lease Agreement, Lessee does not have any option to purchase the Lease Program. Lessee may, however, acquire from Thunderstone a fully paid license to continue using the Licensed Program by executing Thunderstone's then current standard license agreement and by paying to Thunderstone a License Fee equal to Lessee's monthly Lease payment under this Lease Agreement multiplied by six. Alternatively, Lessee may enter into a new lease agreement with Thunderstone pursuant to which Thunderstone will lease to Lessee the then current version of the Licensed Program. The monthly Lease payment will be based on Thunderstone's then current upgrade fee. If Licensee does not acquire a license for the Leased Program, or does not lease an upgrade to the Leased Program, then, upon termination of this Lease, (a) the rights granted to Lessee pursuant to this Lease Agreement shall automatically terminate; (b) Lessee shall certify to Thunderstone that all Leased Programs and Documentation (both original and backup copies) have been removed from Lessee's equipment and either returned or destroyed; and (c) Lessee shall cease to use any Leased Programs or Documentation. 6.8 The provisions of Sections 7.8, 7.9, 8, 9.1, 9.2, 9.3, 9.4, and 9.5 shall survive the termination or cancellation of this Lease Agreement for any reason. 5 7. WARRANTY AND LIABILITY 7.1 Thunderstone warrants that it is the owner of the Leased Program and that it has the right to lease the Leased Program to Lessee. 7.2 Thunderstone shall defend Lessee against any claim that the Leased Program or Documentation infringes a United States patent, copyright, or trade secret, and shall pay any settlements entered into or damages awarded against Lessee to the extent based on such a claim, provided that (a) Lessee notifies Thunderstone promptly in writing of the claim; (b) Thunderstone has sole control of the defense and all related settlement negotiations; and (c) Lessee provides Thunderstone with all necessary assistance, information, and authority to perform the above. 7.3 Thunderstone shall have no liability for any claim of infringement based on (a) use of other than the latest Major Release of the Leased Program, if the infringement would have been avoided by use of the latest Major Release; (b) modification of the Leased Program by Lessee if the infringement would have been avoided without such modification; or (c) the combination or use of the Leased Program with software or hardware not furnished by Thunderstone if the infringement would have been avoided by use of the Leased Program without that software or hardware. 7.4 In the event the Leased Program is held to, or Thunderstone believes it is likely to be held to, infringe a United States patent, copyright or trade secret, Thunderstone shall have the right at its sole option and expense to (a) substitute or modify the Leased Program so that it is non-infringing; (b) obtain for Lessee a license to continue using the Leased Program; or (c) if (a) and (b) are not reasonably practicable, terminate this Lease Agreement. 7.5 The foregoing states Thunderstone's sole obligation and exclusive liability (express, implied, statutory, or otherwise) for any infringements or claims of infringement of any patent, copyright, trademark, trade secret, or other intellectual property right. 7.6 Thunderstone warrants that for a period of ninety days following delivery to Lessee, the Leased Program, when compiled or installed in accordance with the Documentation, will operate without Defect. Thunderstone does not warrant that the Leased Program will be error-free or will operate without interruption. Thunderstone does not warrant that the Leased Program will meet Lessee's requirements or will operate in combination with other software. If the warranty set forth in this Section is breached, Thunderstone's sole obligation will be to use commercially reasonable efforts to provide Lessee with an alternative method 6 of achieving the desired functionality (a "work around") or, in Thunderstone's discretion, a Software Update to correct the Defect. Thunderstone, however, does not warrant that all Defects can be corrected. If Lessee reports a Defect within 90 days of delivery, and if Thunderstone cannot provide Lessee with a work around or correct the Defect after making commercially reasonable efforts to so do, Thunderstone will reduce the Lease payments due pursuant to this Lease Agreement by an equitable amount to reflect the lessened utility of the Leased Program, if any. Lessee shall not be entitled to assert any claim for breach of the limited warranty stated in this Section unless the claim is made in writing and delivered to Thunderstone within ninety days after delivery of the Leased Program. Thunderstone has no obligation to repair any Defect that results from accident, abuse or misapplication. 7.7 THUNDERSTONE HEREBY DISCLAIMS ALL OTHER WARRANTIES TO LESSEE, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE LEASED PROGRAM OR DOCUMENTATION, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 7.8 THE EXPRESS LIMITED WARRANTY AND REMEDY STATED ABOVE IS IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF THUNDERSTONE FOR DAMAGES WHATSOEVER INCLUDING, BUT NOT LIMITED TO, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF OR INABILITY TO USE THE LEASED PROGRAM, EVEN IF THUNDERSTONE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 7.9 IN NO EVENT WILL THUNDERSTONE BE LIABLE TO LESSEE FOR DAMAGES OR ANY OTHER AMOUNTS THAT EXCEED THE TOTAL OF THE AMOUNTS PAID TO THUNDERSTONE BY LESSEE PURSUANT TO THIS LEASE AGREEMENT DURING THE TWELVE MONTH PERIOD PRECEDING THE DATE ON WHICH THUNDERSTONE RECEIVED NOTICE OF THE BASIS FOR THE AWARD. 7.10 All warranties stated in this Lease Agreement are immediately void if Lessee or any third party makes any changes to the Leased Program. Thunderstone shall have no obligation to test, debug, repair or certify any Leased Program that has been modified by Lessee or any third party. 7.11 No Thunderstone employee, agent or representative has the authority to bind Thunderstone to any oral representations or warranties concerning the Leased Program or Documentation. 8. LESSEE INDEMNITY Except for infringement and warranty claims for which Thunderstone is liable under Section 7, Lessee agrees to indemnify and hold Thunderstone harmless against any cost, loss, liability or expense (including attorneys' fees) arising out of third-party claims against Thunderstone relating to Lessee's use of the Leased Program, including, without limitation, any claim that the use of the Leased Program in connection with any other software or hardware infringes any copyright, patent, trade secret or other right of any other person or entity. 7 9. CONFIDENTIALITY AND OWNERSHIP 9.1 Thunderstone retains all right, title and interest, including all intellectual property rights, in and to the Leased Program or Documentation. Lessee may, from time to time, request that Thunderstone create or provide Enhancements for the Leased Program. Thunderstone may, in its sole discretion, undertake to create or provide the requested Enhancements and distribute the Enhancements to all or any of Thunderstone's Lessees. Lessee acknowledges that any and all Enhancements are the exclusive property of Thunderstone, whether or not authored, discovered or invented by Lessee or Thunderstone, and Lessee hereby assigns to Thunderstone all of Lessee's right, title and interest in and to any Enhancement. Lessee further agrees to execute any and all documents requested by Thunderstone to perfect Thunderstone's rights in the Enhancements. 9.2 Lessee shall include reproductions of the Thunderstone copyright notices and other proprietary legends on each copy of the Leased Program and Documentation. Lessee shall not remove, efface or obscure any copyright notices or other proprietary notices or legends from any Leased Program, Documentation or other Thunderstone materials. Upon request, Lessee shall update its Leased Program and Documentation with any changes to Thunderstone's proprietary notices. 9.3 Lessee shall not disclose the Leased Program's object code, source code or Documentation to any third parties. Lessee will use all reasonable precautions and take all necessary steps to prevent the Leased Program and Documentation, in whole or in part, from being acquired by unauthorized parties. 9.4 Lessee shall not, nor will it assist others in attempting to, decompile, reverse engineer or otherwise create the source code for the Leased Program. 9.5 Lessee shall not use the Leased Program and Documentation for the purpose of developing any similar or competitive product, or assisting a third party to develop a similar or competitive product. 10. MISCELLANEOUS 10.1 Lessee may not assign this Lease Agreement or any of its rights or obligations under this Lease Agreement, by operation of law or otherwise, without Thunderstone's prior written consent, which may be withheld for any reason, or which may be granted upon certain conditions, including the payment of a transfer fee. Thunderstone shall have the right to freely assign this Lease Agreement, by operation of law or otherwise, without Lessee's permission. This Lease Agreement shall be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 10.2 In making and performing this Lease Agreement, the parties act and shall act at all times as independent contractors and nothing contained in this Lease Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Lessee and Thunderstone or between any party to this Lease Agreement and any officer or employee of the other party. At no time shall any party make commitments or incur any charges or expenses for or in the name of the other party. 8 10.3 Thunderstone shall not be liable for any delays in the performance of any of its obligations under this Lease Agreement due to causes beyond its reasonable control, including but not limited to, fire, strike, war, riots, acts of any civil or military authority, judicial action, acts of God, or other casualty or natural calamity. 10.4 This Lease Agreement shall be governed by the laws of the State of Ohio, without reference to its conflict of laws principles. All disputes arising out of this Lease Agreement or the parties' business relationship shall be subject to the exclusive jurisdiction of and venue in the Courts of Ohio, including federal district courts, and the parties consent to the personal and exclusive jurisdiction of those courts. Any action against Thunderstone for breach of this Lease Agreement must be brought within one year of the cause of action arising. 10.5 The illegality or invalidity of any term or provision of this Lease Agreement shall not affect the remainder of this Lease Agreement. 10.6 Lessee acknowledges that Thunderstone is subject to regulation by agencies of the U.S. government which prohibit export or diversion of certain technical products to certain countries. Lessee warrants that it will comply in all respects with the export and re-export restrictions applicable to the Leased Programs. 10.7 The waiver of, or failure to enforce, any breach or default hereunder shall not constitute the waiver of any other or subsequent breach or default. Thunderstone's rights and remedies under this Lease Agreement shall not be exclusive, but shall be in addition to any and all rights it may have under applicable law. 10.8 At Thunderstone's request, Lessee shall execute and deliver any financing statements or other documents that may, in Thunderstone's opinion, be necessary to protect Thunderstone's interests in the Lease Programs. 10.9 This document, and any Addendums to it, sets forth the entire Lease Agreement between the parties and supersedes any and all prior proposals, agreements, and representations between them, whether written or oral. This Lease Agreement may be changed only by mutual agreement of the parties in writing. Agreed: Thunderstone Software LLC Lessee: Bidville, Inc. By: /s/ John Turnbull By: /s/ Michael Palandro ------------------------------ -------------------------- John Turnbull, General Manager Michael Palandro, CEO Date: April 8, 2004 Date: April 6, 2004 9 EX-10 7 bid-10ksba_ex10teuir23.txt AGREEMENT EU-IR Exhibit 10.23 FINDERS FEE AGREEMENT December 12, 2003 Bidville Inc. 601 Cleveland Street Suite 120 Clearwater, FL 33755 Attn: Gerald Parker Dear Gerald Parker: This letter will serve as the agreement ("Agreement") between EU-IR, an Austrian corporation ("EU-IR"), with its principal place of business at Feldkirchnerstr. 113, 8055 Graz, Austria and Bidville Inc., a Nevada corporation (the "Company") with its principal place of business at 601 Cleveland Street, Suite 120, Clearwater, FL 33755 with respect to the subject matter hereto. On the Company's behalf, EU-IR will act as a finder in locating and introducing various individuals and entities (collectively, the "Investors") to the Company that want to participate in the private placement of the Company. If the Company consummates a transaction with an Investor, EU-IR shall be entitled to a fee equal to a six and a half percent (6.5%) of the value of the consideration paid for the equity or debt sale. There is no relationship of partnership, agency, employment, franchise or joint venture between the parties - neither party has the authority to bind the other or incur any obligation on its behalf. Seller hereby acknowledges that National acts solely as a finder in connection with the contemplated sale of the Shares and not as a placement agent or underwriter. Furthermore, the Company is relying on its own investment advisors and/or legal counsel in connection with any transaction contemplated by this Agreement. This Agreement shall be governed by the laws of Austria without regard to conflict of laws provisions. If you are in agreement with the foregoing, please execute and return one copy of this Agreement to Finder. Sincerely, EU-IR By: /s/ Herbert Strauss ---------------------------------- Name: Herbert Strauss Title: Chief Executive Officer Agreed to and accepted this 12th day of December 2003. By: /s/ Gerald Parker ------------------------ Name: Gerald Parker Bidville Inc. Title: Chairman/Director EX-10 8 bid-10ksba_ex10euir24.txt CONSULTING AGREEMENT EU-IR Exhibit 10.24 CONSULTING AGREEMENT This agreement ("Agreement") is made and entered into this 5th day of January 5, 2004 between No Bidding Inc./Bidville.com a Florida corporation (the "Company"), and EU-IR.com (The "Consultant"). NATURE OF SERVICE: Consultant shall provide PR and IR services for the Company in Europe. Consultant shall introduce the Company to its database and keep the database informed about the progress of the Company. COMPENSATION: Consultant shall be compensated at a rate of $7,500 per month, payable in advance on the 1st of each month, for the services rendered. TERM OF THE AGREEMENT: This agreement is active for 12 month. Thereafter it will automatically be renewed month by month, unless it is cancelled by either side by giving on month advance notice. NO BIDDING INC./BIDVILLE.COM EU-IR.com /s/ Gerald Parker /s/ Herbert Strauss - --------------------------- ----------------------- Name: Gerald Parker Name: Herbert Strauss Title: Chairman/Director Title: CEO EX-10 9 bid-10ksba_ex10con321ag.txt CONSULTING AGREEMENT 321 Exhibit 10.25 321 Play, Inc. CONSULTING AGREEMENT THIS CONSULTING AGREEMENT, dated as of the 24th day of March 2004, is between 321 Play, Inc. with its principal offices at 625 N. Flagler Dr. Suite 509, West Palm Beach Florida 33401 (the "Company") and Mezhcorp, LLC (collectively, "Consultant). THEREFORE, in consideration of the mutual promises and of the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound according to the terms of this Agreement, hereby agree as follows: 1. Consultant The Company shall engage Consultant, and Consultant hereby accepts such engagement and agrees to perform its duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1 Duties and Responsibilities. (a) During the Term, Consultant shall serve as Consultant and perform all duties and accept all responsibilities incidental to such positions. (b) Consultant represents to the Company that i is not subject or a party to any consulting agreement, non- competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction of any nature whatsoever which would prohibit Consultant from executing this Agreement and performing fully its duties and responsibilities hereunder, or which would in any manner, directly or indirectly, limit or affect the duties and responsibilities which may now or in the future be assigned to Consultant by the Company. 1.2 Extent of Service. The Term of this Agreement shall be for a period of three years (the "Employment Term"). During the Term, Consultant agrees to use its best efforts to carry out its duties and responsibilities under Section 1. hereof. Except as provided in Section 5 hereof, the foregoing shall not be construed as preventing Consultant or its Members from making investments in other businesses or enterprises provided that Consultant agrees not to become engaged in any other business activity which may, in the judgment of the Board of Directors of the Company, interfere with its ability to discharge its duties and responsibilities to the Company. 321 Play, Inc. Consulting Agreement 1 1.3 Base Compensation. (a) For all the services rendered by Consultant hereunder, the Company shall pay Consultant an annual base compensation of One Hundred Fifty Thousand ($150,000.00) Dollars. Bonuses - Consultant shall be eligible for bonus of $100,000 per annum, for each $5,000,000 annual revenue generated by the Company. Total compensation shall not exceed $300,000 under this Section (b) Stock Participation - Consultant may be eligible to participate in any stock option incentive plans established for non-Consultants of the Company, at the discretion of the Board of Directors of the Company. (c) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors of the Company. 2. Expenses Consultant shall be reimbursed for the reasonable business expenses incurred by its in connection with its performance of services hereunder during the Employment Term upon presentation of an itemized account of such expenses in accordance with the policies and procedures established by the Company. This amount is not to exceed $500.00 for any single 30-day period without Secretary or Treasurer's prior written approval. 3. Developments All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Consultant, either by itself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of during its employment by the Company, Consultant itseby assigns, transfers and conveys, and agrees to so assign, transfer and convey to the Company, all of its right, title and interest in and to any and all such Developments to the Board of Directors of the Company. At any time and from time 321 Play, Inc. Consulting Agreement 2 to time, upon the request and at the expense of the Company, Consultant will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Consultant for all reasonable expenses incurred by its in compliance with the provisions of this Section. 4. Confidential Information (a) Consultant recognizes and acknowledges that by reason of its services by and service of the Company, it has had, and will continue to have (both during the Term and at any time thereafter during which it may be employed by the Company), access to confidential information of the Company and its affiliates, including without limitation, information and knowledge pertaining to products and services offered, ideas, plans, trade secrets, proprietary information, advertising, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its affiliates and customers, clients, suppliers and others who have business dealings with the Company and its affiliates ("Confidential Information"). Consultant acknowledges that such Confidential Information is a valuable and unique asset and covenants that she will not, either during or at any time after the Employment Term, disclose any such Confidential Information to any person for any reason whatsoever (except as its duties described herein may require) without the prior written authorization of the Board of Directors of 321 Play, Inc. Consulting Agreement 3 the Company, unless such information is in the public domain through no fault of Consultant or except as may be required by law. (b) Consultant will not disclose the terms of its services or the contents of this agreement to any person for any reason whatsoever (except as its duties described herein may require) without the prior written authorization of the Board of Directors of the Company, unless such information is in the public domain through no fault of Consultant or except as may be required by law. 5. Non-Competition (a) During the Term and for a Twenty-four (24) month period following the date the engagement of Consultant by the Company or any of its affiliates has ended (whether or not such employment is pursuant to this Agreement), Consultant will not, unless acting pursuant hereto or with the prior written consent of the Board of Directors of the Company, directly or indirectly, own, manage, operate, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, partner, principal or otherwise with any business or enterprise engaged within any portion of the United States in the internet auction business or in any other business in which the Company was engaged at the date of termination of Consultant's employment by the Company or at any time for one year after termination of employment with the Company. It is recognized by Consultant that the business of the Company and Consultant's connection therewith is or will be involved in internet and auction activity throughout the United States, and that more limited geographical limitations on this non-competition covenant and the non- solicitation covenant set forth in Section 6 hereof are therefore not appropriate. (b) The foregoing restrictions shall not be construed to prohibit the ownership by Consultant or its Members of not more than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, provided that such ownership represents a passive investment and that neither Consultant nor any group of persons including Consultant and/or its Members in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising its rights as a security owner, or seeks to do any of the foregoing. 321 Play, Inc. Consulting Agreement 4 (c) In the event that Consultant is terminated Without Cause by the Company pursuant to Section 8.4 and Consultant desires to be engaged by a company (the "Prospective Employer") in violation of the covenants set forth in Section 5(a) above, Consultant may request a waiver of Section 5(a) above and such waiver shall be granted by the Company unless the Prospective Employer is a Direct Competitor of the Company in the current geographic markets the Company is engaged. 6. No Solicitation During the Term and for the one year period following the date engagement of Consultant by the Company or any of its affiliates has ended (whether or not such employment is pursuant to the Agreement), Consultant will not, either directly or indirectly, (i) call on or solicit any person, firm, corporation or other entity who or which at the time of such termination was, or within two years prior thereto had been, a customer of the Company or any of their respective affiliates with respect to the activities prohibited by Section 6 hereof or (ii) solicit the employment of any person who was employed by the Company or any of Its affiliates on a full or part-time basis at any time during the course of Consultant's engagement, unless such person prior to such solicitation of employment (A) was involuntarily discharged by the Company or such affiliate, or (B) voluntarily terminated his/her relationship with the Company or such affiliate. 7. Equitable Relief (a) Consultant acknowledges that the restrictions contained in Sections 3, 4, 5 and 6 hereof are reasonable and that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to the Company. 321 Play, Inc. Consulting Agreement 5 (b) CONSULTANT FURTHER REPRESENTS AND ACKNOWLEDGES THAT (i) SHE HAS BEEN ADVISED BY THE COMPANY TO CONSULT ITS OWN LEGAL COUNSEL IN RESPECT OF THIS AGREEMENT, (ii) THAT SHE HAS HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS AGREEMENT, TO REVIEW THROUGHLY THIS AGREEMENT WITH ITS COUNSEL, AND (iii) SHE HAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT. (c) Consultant agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of providing actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 3, 4, 5 or 6 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of Sections 5, or 6 hereof should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable law. (d) Consultant irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of this Agreement, including without limitation, any action commenced by the Company for preliminary or permanent injunctive relief or other equitable relief, must be brought in the United States District Court for the Southern District of Florida, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Palm Beach County (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Consultant may have to the laying of venue of any such suit, action or proceeding in any such court. Consultant also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 12 hereof. 8. Termination This Agreement shall terminate prior to the expiration of its term set forth in Section 1.1 above upon the occurrence of any one of the following events: 321 Play, Inc. Consulting Agreement 6 8.1 Disability. In the event that Consultant is unable fully to perform its essential duties and responsibilities hereunder to the full extent required by the Board of Directors of the Company by reason of illness, injury or incapacity for one hundred and twenty consecutive days, during which time she shall continue to be compensated as provided in Section 1.4 hereof (less any payments due Consultant under disability benefit programs, including Social Security disability, worker's compensation hereunder; provided, however, that Consultant will be entitled to receive the payments prescribed under any disability benefit plan which may be in effect for employees of the Company and in which it participated. Consultant agrees, in the event of any dispute under this Section 8.1, to submit to a physical examination by a licensed physician selected by the Board of Directors of the Company. 8.2 Death. In the event that Consultant dies during the Term, the Company shall pay to its executors, legal representatives or administrators any amounts due and owing to the date of death to Consultant as part of the salary set forth in Section 1.4(a) hereof, and thereafter the Company shall have no further liability or obligation hereunder to his executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through its; provided, however, that Consultant's estate or designated beneficiaries shall be entitled to receive the payments prescribed for such recipients under any death benefit plan which may be in effect for employees of the Company and in which Consultant participated. 8.3 Cause. Nothing in this Agreement shall be construed to prevent its termination by the Company at any time for "cause." For purposes of this Agreement, "cause" shall mean and be limited to Consultant's: 321 Play, Inc. Consulting Agreement 7 (a) Commission of any act of fraud, misappropriation or personal dishonesty relating to or involving the Company in any material way; (b) Gross negligence in the performanc of its duties or in any way relating to the obligations and duties, which he owes the Company; (c) Violation of any express direction of the Company or any material violation of any rule, regulation, policy or plan established by the Company from time to time regarding the conduct of its Consultants and/or its business, if such violation is not remedied by Consultant within thirty (30) days of receiving notice of such violation from the Company; (d) Demonstrably willful and deliberat violation of any obligation owed by Consultant to the Company; (e) Material disclosure or use of Confidential Information, other than as required in the performance of Consultant's duties under this Agreement; (f) Conviction of a crime constituting a felony or any other crime involving moral turpitude or criminal indictment for a crime involving moral turpitude in which the substantial weight of credible evidence indicates that Consultant has committed such a crime. In the event of termination for cause under section 8.3(a) or (f) of this Section 8.3, Consultant shall be suspended pending an independent investigation by persons retained by the Company. 321 Play, Inc. Consulting Agreement 8 In the event of a termination for cause, the Company shall have no obligation to make any further payments or to provide any further benefits or compensation hereunder to Consultant for any period subsequent to the date of such termination, except that Consultant will receive Consultant's Base Compensation, as well as bonus or commission payment(s) for which Consultant is eligible for as of the date of termination. 8.4 Without Cause by the Company. The Company may terminate this Agreement upon not less than 30 days' written notice to Consultant at and for the Company's sole convenience and in its sole discretion and without specifying any cause as set forth in Section 8.3 hereof. If such termination shall occur, Consultant shall receive compensation equal to ninety days (90) compensation and any and all shares or securities shall Immediately vest upon said termination. 9. Survival Notwithstanding the termination of this Agreement by the Company by reason of Consultant's disability under Section 8.1, for cause under Section 8.3, without cause under Section 8.4, or as a result of a Change of Control under Section 8.5, his obligations under Sections 3, 4, 5 and 6 hereof shall survive and remain in full force and effect for the periods therein provided, and the provisions for equitable relief against Consultant in Section 8 hereof shall continue in force, along with the provisions of Sections 10 through 18 hereof. 10. Governing Law This Agreement shall be governed by and interpreted under the laws of the State of Florida without giving effect to any conflict of laws provisions. 11. Litigation Expenses In the event of a lawsuit by either party to enforce the provisions of this Agreement each Party must pay their costs and expenses. 321 Play, Inc. Consulting Agreement 9 12. Notices All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company: 625 N. Flagler Drive Suite 509 West Palm Beach, FL 33401 If to Consultant: or to such other names or addresses as to the Company or Consultant, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 13. Entire Agreement: Contents of Agreement. (a) This Agreement supersedes any and all other agreements, either oral or written, between the parties with respect to the employment of Consultant by Employer for the purposes set forth in Section 1.2, and contains all of the covenants and agreement between the parties with respect to such employment whatsoever. Each party to this agreement acknowledges that no representation, inducements, promises or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this agreement shall be valid or binding. Any modification of this agreement will be effective only if it is in writing and signed by both parties to this agreement. 321 Play, Inc. Consulting Agreement 10 (b) Consultant acknowledges that from time to time, the Company may establish, maintain and distribute Consultant manuals or handbooks or personnel policy manuals, and officers or other representatives of The Company of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of The Company or the Company (whether written or oral and whether or not contained in any Consultant manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement or to create express or implied obligations of any nature to Consultant. (c) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. 14. Assignment All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Consultant hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Consultant. 15. Severability If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 16. Remedies Cumulative: No Waiver: No remedy conferred upon the Company or the Consultant by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any remedy given hereunder or 321 Play, Inc. Consulting Agreement 11 now or hereafter existing at law or in equity. No delay or omission by the Company or Consultant in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company or the employee from time to time and as often as may be deemed expedient or necessary by the Company or the Consultant at its sole discretion. 17. Indemnification: 17.1 Third-Party Proceedings. The Company shall indemnify Consultant if Consultant is or was a party or is threatened to be made a party to any threatened, pending, or completed action or proceedings, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Company) by reason of the fact that Consultant is or was a director, officer, employee, or agent of the Company or a Subsidiary (as hereinafter defined), by reason of any action or inaction on the part of Consultant while a director, officer, employee, or agent or by reason of the fact that Consultant is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including reasonable attorneys fees), judgments, fines, and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Consultant in connection with such action or proceeding unless the Company shall establish that (a) Consultant did not act in good faith and in a manner Consultant reasonably believed to be in the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe Consultant's conduct was unlawful; (b) Consultant's actions amounted to gross negligence; or (c) Consultant's actions were performed with knowledge and intent to harm the Company, The termination of any action or proceeding by judgment, order, settlement, conviction, or 321 Play, Inc. Consulting Agreement 12 upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption (i) that Consultant did not act in good faith and in a manner which Consultant reasonably believed to be in the best interests of the Company; or (ii) with respect to any criminal action or proceeding, that Consultant had reasonable cause to believe that Consultant's conduct was unlawful. 17.2 Proceedings by or in the Right of the Company. The Company shall indemnify Consultant if Consultant was or is a party or is threatened to be made a party to any threatened, pending, or completed action or proceeding by or in the right of the Company or any Subsidiary of the Company to procure a judgment in its favor by reason of the fact that Consultant is or was a director, officer, Consultant, or agent of the Company, or any Subsidiary of the Company, by reason of any action or inaction on the part of Consultant while a director, officer, consultant, or agent or by reason of the fact that Consultant is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including reasonable attorney's fees) and, to the fullest extent permitted by law, amounts paid in settlement of such action or proceeding unless the Company shall establish any of the following concerning the action: a. That Consultant did not act in good faith; b. Consultant acted in a manner Consultant could not have reasonably believed to be in the best interests of the Company and its Members; c. The Consultant actions were intentiona and with knowledge that such actions would result in the harm complained of; d. Consultant's actions amount to gross negligence; or e. Consultant's actions were outside the scope of his employment. No indemnification shall be made in respect of any claim, issue or matter as to which Consultant shall have been adjudged to be liable to the Company 321 Play, Inc. Consulting Agreement 13 in the performance of Consultant's duty to the Company or any Subsidiary of the Company unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Consultant is fairly and reasonably entitled to indemnity for expenses or amounts paid in settlement and then only to the extent that the court shall determine. 17.3 Procedure. Any indemnification provided for in this Agreement shall be made no later than forty-five (45) days after the resolution (by judgment, settlement, dismissal, or otherwise) of the claim to which indemnification is sought. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or bylaws providing for indemnification, is not paid in full by the Company within such period, Consultant may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to ss. 17 of this Agreement, Consultant shall also be entitled to be paid for the expenses (including reasonable attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Consultant has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Consultant for the amount claimed, but the burden of proving such defense shall be on the Company, and Consultant shall be entitled to receive interim payments of expenses pursuant to this Agreement unless and until such defense may be finally adjudicated by court order or judgment from which no further right appeal exists. It is the parties' intention that if the Company contest Consultant's right to indemnification, the question of Consultant's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its Members) to have made a determination that indemnification of Consultant is 321 Play, Inc. Consulting Agreement 14 proper in the circumstances because Consultant has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its Members) that Consultant has not met such applicable standard of conduct, shall create a presumption that Consultant has or has not met the applicable standard of conduct. 17.4 Notice to Insurers. If, at the time of the receip of a notice of a claim pursuant to this Agreement, the Company has directors' and officers' liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Consultant, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 17.5 Relationship to Other Sources. Consultant shall not be required to exercise any rights against any other parties (for example, under any insurance policy purchased by the Company, Consultant, or any other person or entity) before Consultant, or Agreement. However, to the extent the Company actually indemnifies Consultant or advances expenses, the Company shall be entitled to enforce any such rights, which Consultant may have against third parties. Consultant shall assist the Company in enforcing those rights if the Company pays Consultant's reasonable costs and expenses of doing so. 17.6 Selection of Counsel. In the event the Company shall be obligated under this Agreement to pay the expenses of any proceeding against Consultant, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Consultant, which approval shall not be unreasonably withheld, upon the delivery to Consultant of written notice of its election to do so. After delivery of such notice, approval of such counsel by Consultant and the retention of such counsel by the Company, the Company will not be 321 Play, Inc. Consulting Agreement 15 liable to Consultant under this Agreement for any fees of counsel subsequently incurred by Consultant with respect to the same proceeding, provided that (i) Consultant shall have the right to employ counsel in any such proceeding at Consultant's expense; and (ii) if (A) the employment of counsel by Consultant has been previously authorized by the Company (B) Consultant shall have reasonably concluded that there may be a conflict of interest between the Company and Consultant in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the reasonable fees and expenses of Consultant's counsel shall be at the expense of the Company. 17.7 Additional Rights a. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Consultant to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's bylaws, or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Limited Liability Company or other corporate entity to indemnify a member of its or a Subsidiary's board of directors or an officer, such changes shall be, ipso facto, within the purview of Consultant's rights and the Company's obligations, under this Agreement. In the event of any change in any applicable law, statute, or rule which narrows the right of a corporation or other corporate entity to indemnify a member of its or a Subsidiary's Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute, or rule to be applied to this Agreement shall have no effect on this Agreement or the parties rights and obligations hereunder. 321 Play, Inc. Consulting Agreement 16 b. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Consultant my be entitled under the Company's Articles of Incorporation, its bylaws, any agreement, any vote of Members or disinterested directors, the Corporations Law of the State of Nevada, or otherwise, both as to action in Consultant's official capacity and as to action or inaction in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Consultant for any action taken or not taken while serving in an indemnified capacity even though Consultant may have ceased to serve in such capacity at the time of any action or other cover proceeding is commenced. c. Partial Indemnification. Consultant is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses judgments, fines, or penalties actually or reasonably incurred in the investigation, defense, appeal, or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Consultant for the portion of such expenses, judgments, fines, or penalties to which Consultant is entitled. d. Acknowledgment. Both the Company and Consultant acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Consultant understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Consultant. 18. Miscellaneous All section headings are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be 321 Play, Inc. Consulting Agreement 17 necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. /s/ Gerald C. Parker /s/ Victor Mezhibovsky - ------------------------ ------------------------ 321 Play, Inc. Consultant Gerald C. Parker Victor Mezhibovsky - ------------------------ ------------------------ Printed Name Printed Name Chairman President - ------------------------ ------------------------ Title Title 321 Play, Inc. Consulting Agreement 18 EX-10 10 bid-10ksba_ex10exc321em26.txt EXECUTIVE EMPLOYMENT AGREEMENT 321 Exhibit 10.26 321 Play, Inc. EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, dated as of the 24th day of March 2004, is between 321 Play, Inc. with its principal offices at 625 N. Flagler Dr. Suite 509, West Palm Beach, Florida 33401 (the "Company") and Alina Mezhbovski ("Employee"). THEREFORE, in consideration of the mutual promises and of the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound according to the terms of this Agreement, hereby agree as follows: 1. Employment The Company shall employ Employee, and Employee hereby accepts such employment and agrees to perform her duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1 Duties and Responsibilities. (a) During the Employment Term, Employee shall serve as Chief Executive Officer and perform all duties and accept all responsibilities incidental to such positions. Employee may also serve on the Board of Directors of the Company. (b) Employee represents to the Company that she is not subject or a party to any employment agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction of any nature whatsoever which would prohibit Employee from executing this Agreement and performing fully her duties and responsibilities hereunder, or which would in any manner, directly or indirectly, limit or affect the duties and responsibilities which may now or in the future be assigned to Employee by the Company. The Term of this Agreement shall be for a period of three years (the "Employment Term"). During the Employment Term, Employee agrees to use her best efforts to carry out her duties and 1.2 Extent of Service. 321 Play, Inc. EEA 1 responsibilities under Section 1. hereof. Except as provided in Section 5 hereof, the foregoing shall not be construed as preventing Employee from making investments in other businesses or enterprises provided that Employee agrees not to become engaged in any other business activity which may, in the judgment of the Board of Directors of the Company, interfere with her ability to discharge her duties and responsibilities to the Company. 1.3 Base Compensation. (a) For all the services rendered by Employee hereunder, the Company shall pay Employee an annual base salary of One Hundred Thousand ($100,000.00) Dollars. (b) Stock Participation - Employee may be eligible to participate in any stock option incentive plans established for key employees of the Company, at the discretion of the Board of Directors of the Company. (c) Bonuses - Employee shall be eligible for a bonus of $100,000 per annum, for each $5,000,000 annual revenue generated by the Company. Total compensation shall not exceed $300,000 under this Section 1.3. (d) Medical Benefits will be offered by the Company. During the Employment term, Employee shall also be entitled to participate in such programs as vacation pay and other fringe benefit plans authorized from time to time by the Board of Directors of the Company in its discretion for employees of the Company. (e) Additional incentive compensation, if any, shall be at the discretion of the Board of Directors of the Company. 2. Expenses Employee shall be reimbursed for the reasonable business expenses incurred by her in connection with her performance of services hereunder during the Employment Term upon presentation of an itemized account of such expenses in accordance with the policies and procedures established by the Company. This amount is not to exceed $500.00 for any single 30-day period without Secretary or Treasurer's prior written approval. 321 Play, Inc. EEA 2 3. Developments All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Employee, either by herself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of during her employment by the Company, Employee hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey to the Company, all of her right, title and interest in and to any and all such Developments to the Board of Directors of the Company. At any time and from time to time, upon the request and at the expense of the Company, Employee will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Employee for all reasonable expenses incurred by her in compliance with the provisions of this Section. 4. Confidential Information (a) Employee recognizes and acknowledges that by reason of her employment by and service of the Company, she has had, and will continue to have (both during the Employment Term and at any time thereafter during which she may be employed by the Company), access to confidential information of the Company and 321 Play, Inc. EEA 3 its affiliates, including without limitation, information and knowledge pertaining to products and services offered, ideas, plans, trade secrets, proprietary information, advertising, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its affiliates and customers, clients, suppliers and others who have business dealings with the Company and its affiliates ("Confidential Information"). Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that she will not, either during or at any time after the Employment Term, disclose any such Confidential Information to any person for any reason whatsoever (except as her duties described herein may require) without the prior written authorization of the Board of Directors of the Company, unless such information is in the public domain through no fault of Employee or except as may be required by law. (b) Employee will not disclose the terms of her employment or the contents of this agreement to any person for any reason whatsoever (except as her duties described herein may require) without the prior written authorization of the Board of Directors of the Company, unless such information is in the public domain through no fault of Employee or except as may be required by law. 5. Non-Competition (a) During the Employment Term and for a Twenty-four (24) month period following the date the employment of Employee by the Company or any of its affiliates has ended (whether or not such employment is pursuant to this Agreement), Employee will not, unless acting pursuant hereto or with the prior written consent of the Board of Directors of the Company, directly or indirectly, own, manage, operate, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, partner, principal or otherwise with any business or enterprise engaged within any portion of the United States in the internet auction business or in any other business in which the Company was engaged at the date of termination of Employee's employment by the Company or at any time 321 Play, Inc. EEA 4 for one year after termination of employment with the Company. It is recognized by Employee that the business of the Company and Employee's connection therewith is or will be involved in internet and auction activity throughout the United States, and that more limited geographical limitations on this non-competition covenant and the non-solicitation covenant set forth in Section 6 hereof are therefore not appropriate. (b) The foregoing restrictions shall not be construed to prohibit the ownership by Employee of not more than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising her rights as a security owner, or seeks to do any of the foregoing. (c) In the event that Employee is terminated Without Cause by the Company pursuant to Section 8.4 and Employee desires to be employed by a company (the "Prospective Employer") in violation of the covenants set forth in Section 5(a) above, Employee may request a waiver of Section 5(a) above and such waiver shall be granted by the Company unless the Prospective Employer is a Direct Competitor of the Company in the current geographic markets the Company is engaged. 6. No Solicitation During the Employment Term and for the one year period following the date employment of Employee by the Company or any of its affiliates has ended (whether or not such employment is pursuant to the Agreement), Employee will not, either directly or indirectly, (i) call on or solicit any person, firm, corporation or other entity who or which at the time of such termination was, or within two years prior thereto had been, a customer of the Company or any of their respective affiliates with respect to the activities prohibited by Section 6 hereof or (ii) solicit the employment of any person who was employed by the Company or any of Its affiliates on a full or part-time basis at any time during 321 Play, Inc. EEA 5 the course of Employee's employment, unless such person prior to such solicitation of employment (A) was involuntarily discharged by the Company or such affiliate, or (B) voluntarily terminated his/her relationship with the Company or such affiliate. 7. Equitable Relief (a) Employee acknowledges that the restrictions contained in Sections 3, 4, 5 and 6 hereof are reasonable and that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to the Company. (b) EMPLOYEE FURTHER REPRESENTS AND ACKNOWLEDGES THAT (i) SHE HAS BEEN ADVISED BY THE COMPANY TO CONSULT HER OWN LEGAL COUNSEL IN RESPECT OF THIS AGREEMENT, (ii) THAT SHE HAS HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS AGREEMENT, TO REVIEW THROUGHLY THIS AGREEMENT WITH HER COUNSEL, AND (iii) SHE HAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT. (c) Employee agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of providing actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 3, 4, 5 or 6 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of Sections 5, or 6 hereof should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable law. (d) Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of this Agreement, including without limitation, any action commenced by the Company for preliminary or permanent injunctive relief or other equitable relief, must be brought in the 321 Play, Inc. EEA 6 United States District Court for the Southern District of Florida, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Palm Beach County (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Employee may have to the laying of venue of any such suit, action or proceeding in any such court. Employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 12 hereof. 8. Termination This Agreement shall terminate prior to the expiration of its term set forth in Section 1.1 above upon the occurrence of any one of the following events: 8.1 Disability. In the event that Employee is unable fully to perform her essential duties and responsibilities hereunder to the full extent required by the Board of Directors of the Company by reason of illness, injury or incapacity for one hundred and twenty consecutive days, during which time she shall continue to be compensated as provided in Section 1.4 hereof (less any payments due Employee under disability benefit programs, including Social Security disability, worker's compensation hereunder; provided, however, that Employee will be entitled to receive the payments prescribed under any disability benefit plan which may be in effect for employees of the Company and in which she participated. Employee agrees, in the event of any dispute under this Section 8.1, to submit to a physical examination by a licensed physician selected by the Board of Directors of the Company. 8.2 Death. In the event that Employee dies during the Employment Term, the Company shall pay to her executors, legal representatives or administrators any amounts due and owing to the date of death to Employee as part of the salary set forth in Section 1.4(a) hereof, and thereafter the Company shall 321 Play, Inc. EEA 7 have no further liability or obligation hereunder to his executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through her; provided, however, that Employee's estate or designated beneficiaries shall be entitled to receive the payments prescribed for such recipients under any death benefit plan which may be in effect for employees of the Company and in which Employee participated. 8.3 Cause. Nothing in this Agreement shall be construed to prevent its termination by the Company at any time for "cause." For purposes of this Agreement, "cause" shall mean and be limited to Employee's: (a) Commission of any act of fraud, misappropriation or personal dishonesty relating to or involving the Company in any material way; (b) Gross negligence in the performanc of her duties or in any way relating to the obligations and duties, which he owes the Company; (c) Violation of any express direction of the Company or any material violation of any rule, regulation, policy or plan established by the Company from time to time regarding the conduct of its Employees and/or its business, if such violation is not remedied by Employee within thirty (30) days of receiving notice of such violation from the Company; (d) Demonstrably willful and deliberat violation of any obligation owed by Employee to the Company; (e) Material disclosure or use of Confidential Information, other than as required in the performance of Employee's duties under this Agreement; 321 Play, Inc. EEA 8 (f) Conviction of a crime constituting a felony or any other crime involving moral turpitude or criminal indictment for a crime involving moral turpitude in which the substantial weight of credible evidence indicates that Employee has committed such a crime. In the event of termination for cause under section 8.3(a) or (f) of this Section 8.3, Employee shall be suspended pending an independent investigation by persons retained by the Company. In the event of a termination for cause, the Company shall have no obligation to make any further payments or to provide any further benefits or compensation hereunder to Employee for any period subsequent to the date of such termination, except that Employee will receive Employee's Base Compensation, as well as bonus or commission payment(s) for which Employee is eligible for as of the date of termination. 8.4 Without Cause by the Company. The Company may terminate this Agreement upon not less than 30 days' written notice to Employee at and for the Company's sole convenience and in its sole discretion and without specifying any cause as set forth in Section 8.3 hereof. If such termination shall occur, Employee shall receive compensation equal to ninety days (90) compensation and any and all shares or securities shall Immediately vest upon said termination. 9. Survival Notwithstanding the termination of this Agreement by the Company by reason of Employee's disability under Section 8.1, for cause under Section 8.3, without cause under Section 8.4, or as a result of a Change of Control under Section 8.5, his obligations under Sections 3, 4, 5 and 6 hereof shall survive and remain in full force and effect for the periods therein provided, and the provisions for equitable relief against Employee in Section 8 hereof shall continue in force, along with the provisions of Sections 10 through 18 hereof. 321 Play, Inc. EEA 9 10. Governing Law This Agreement shall be governed by and interpreted under the laws of the State of Florida without giving effect to any conflict of laws provisions. 11. Litigation Expenses In the event of a lawsuit by either party to enforce the provisions of this Agreement each Party must pay their costs and expenses. 12. Notices All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company: 625 N. Flagler Drive Suite 509 West Palm Beach, FL 33401 If to Employee: or to such other names or addresses as to the Company or Employee, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 13. Entire Agreement: Contents of Agreement. (a) This Agreement supersedes any and all other agreements, either oral or written, between the parties with respect to the employment of Employee by Employer for the purposes set forth in Section 1.2, and contains all of the 321 Play, Inc. EEA 10 covenants and agreement between the parties with respect to such employment whatsoever. Each party to this agreement acknowledges that no representation, inducements, promises or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this agreement shall be valid or binding. Any modification of this agreement will be effective only if it is in writing and signed by both parties to this agreement. (b) Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of The Company of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of The Company or the Company (whether written or oral and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement or to create express or implied obligations of any nature to Employee. (c) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. 14. Assignment All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. 321 Play, Inc. EEA 11 15. Severability If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 16. Remedies Cumulative: No Waiver: No remedy conferred upon the Company or the Employee by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company or employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company or the employee from time to time and as often as may be deemed expedient or necessary by the Company or the employee at its sole discretion. 17. Indemnification: 17.1 Third-Party Proceedings. The Company shall indemnify Employee if Employee is or was a party or is threatened to be made a party to any threatened, pending, or completed action or proceedings, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Company) by reason of the fact that Employee is or was a director, officer, employee, or agent of the Company or a Subsidiary (as hereinafter defined), by reason of any action or inaction on the part of Employee while a director, officer, employee, or agent or by reason of the fact that Employee is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including reasonable attorneys fees), judgments, fines, and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Employee in 321 Play, Inc. EEA 12 connection with such action or proceeding unless the Company shall establish that (a) Employee did not act in good faith and in a manner Employee reasonably believed to be in the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe Employee's conduct was unlawful; (b) Employee's actions amounted to gross negligence; or (c) Employee's actions were performed with knowledge and intent to harm the Company, The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption (i) that Employee did not act in good faith and in a manner which Employee reasonably believed to be in the best interests of the Company; or (ii) with respect to any criminal action or proceeding, that Employee had reasonable cause to believe that Employee's conduct was unlawful. 17.2 Proceedings by or in the Right of the Company. The Company shall indemnify Employee if Employe was or is a party or is threatened to be made a party to any threatened, pending, or completed action or proceeding by or in the right of the Company or any Subsidiary of the Company to procure a judgment in its favor by reason of the fact that Employee is or was a director, officer, employee, or agent of the Company, or any Subsidiary of the Company, by reason of any action or inaction on the part of Employee while a director, officer, employee, or agent or by reason of the fact that Employee is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including reasonable attorney's fees) and, to the fullest extent permitted by law, amounts paid in settlement of such action or proceeding unless the Company shall establish any of the following concerning the action: a. That Employee did not act in good faith; b. Employee acted in a manner Employee could not have reasonably believed to be in the best interests of the Company and its Members; 321 Play, Inc. EEA 13 c. The Employee actions were intentional and with knowledge that such actions would result in the harm complained of; d. Employee's actions amount to gross negligence; or e. Employee's actions were outside the scope of his employment. No indemnification shall be made in respect of any claim, issue or matter as to which Employee shall have been adjudged to be liable to the Company in the performance of Employee's duty to the Company or any Subsidiary of the Company unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Employee is fairly and reasonably entitled to indemnity for expenses or amounts paid in settlement and then only to the extent that the court shall determine. 17.3 Procedure. Any indemnification provided for in this Agreement shall be made no later than forty-five (45) days after the resolution (by judgment, settlement, dismissal, or otherwise) of the claim to which indemnification is sought. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or bylaws providing for indemnification, is not paid in full by the Company within such period, Employee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to ss. 17 of this Agreement, Employee shall also be entitled to be paid for the expenses (including reasonable attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Employee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Employee for the amount claimed, but the burden of proving such defense shall be on the Company, and Employee shall be entitled to receive interim payments of expenses pursuant to this 321 Play, Inc. EEA 14 Agreement unless and until such defense may be finally adjudicated by court order or judgment from which no further right appeal exists. It is the parties' intention that if the Company contest Employee's right to indemnification, the question of Employee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its Members) to have made a determination that indemnification of Employee is proper in the circumstances because Employee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its Members) that Employee has not met such applicable standard of conduct, shall create a presumption that Employee has or has not met the applicable standard of conduct. 17.4 Notice to Insurers. If, at the time of the receip of a notice of a claim pursuant to this Agreement, the Company has directors' and officers' liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Employee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 17.5 Relationship to Other Sources. Employee shall not be required to exercise any rights against any other parties (for example, under any insurance policy purchased by the Company, Employee, or any other person or entity) before Employee, or Agreement. However, to the extent the Company actually indemnifies Employee or advances expenses, the Company shall be entitled to enforce any such rights, which Employee may have against third parties. Employee shall 321 Play, Inc. EEA 15 assist the Company in enforcing those rights if the Company pays Employee's reasonable costs and expenses of doing so. 17.6 Selection of Counsel. In the event the Company shall be obligated under this Agreement to pay the expenses of any proceeding against Employee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Employee, which approval shall not be unreasonably withheld, upon the delivery to Employee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Employee and the retention of such counsel by the Company, the Company will not be liable to Employee under this Agreement for any fees of counsel subsequently incurred by Employee with respect to the same proceeding, provided that (i) Employee shall have the right to employ counsel in any such proceeding at Employee's expense; and (ii) if (A) the employment of counsel by Employee has been previously authorized by the Company (B) Employee shall have reasonably concluded that there may be a conflict of interest between the Company and Employee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the reasonable fees and expenses of Employee's counsel shall be at the expense of the Company. 17.7 Additional Rights a. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Employee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's bylaws, or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Limited Liability Company or other corporate entity to indemnify a member of its or a Subsidiary's board of directors or an officer, such changes shall be, ipso facto, within the 321 Play, Inc. EEA 16 purview of Employee's rights and the Company's obligations, under this Agreement. In the event of any change in any applicable law, statute, or rule which narrows the right of a corporation or other corporate entity to indemnify a member of its or a Subsidiary's Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute, or rule to be applied to this Agreement shall have no effect on this Agreement or the parties rights and obligations hereunder. b. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Employee my be entitled under the Company's Articles of Incorporation, its bylaws, any agreement, any vote of Members or disinterested directors, the Corporations Law of the State of Nevada, or otherwise, both as to action in Employee's official capacity and as to action or inaction in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Employee for any action taken or not taken while serving in an indemnified capacity even though Employee may have ceased to serve in such capacity at the time of any action or other cover proceeding is commenced. c. Partial Indemnification. Employee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses judgments, fines, or penalties actually or reasonably incurred in the investigation, defense, appeal, or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Employee for the portion of such expenses, judgments, fines, or penalties to which Employee is entitled. d. Acknowledgment. Both the Company and Employee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Employee understands and acknowledges that the Company has 321 Play, Inc. EEA 17 undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Employee. 18. Miscellaneous All section headings are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. /s/ Gerald C. Parker /s/Alina Mezhibovsky - ------------------------ ------------------------ 321 Play, Inc. Employee Gerald C. Parker Alina Mezhibovsky - ------------------------ ------------------------ Printed Name Printed Name Chairman CEO - ------------------------ ------------------------ Title Title 321 Play, Inc. EEA 18 EX-31 11 bid-10ksba_ex31ceo.txt SECTION 302 CERTIFICATION CEO Exhibit 31.1 CERTIFICATION I, Michael Palandro, certify that: 1. I have reviewed this annual report on Form 10-KSB of Bidville, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange act rules 13a-15(e) and 15d- 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 30, 2004 /s/ Michael Palandro - ----------------------------------------- Michael Palandro, Chief Executive Officer (or equivalent thereof) EX-31 12 bid-10ksba_ex31cfo.txt SECTION 302 CERTIFICATION CFO Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Bidville, Inc. (the "Company") on Form 10-KSB, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Palandro, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Michael Palandro ------------------------- Michael Palandro Chief Executive Officer (or equivalent thereof) April 30, 2004 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Bidville, Inc. (the "Company") on Form 10-KSB, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert W. Pearce, Chief Financial Officer (or the equivalent thereof) of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert W. Pearce ------------------------- Robert W. Pearce Chief Financial Officer (or equivalent thereof) April 30, 2004 EX-32 13 bid-10ksba_ex32ceo.txt SECTION 906 CERTIFICATION CEO Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Bidville, Inc. (the "Company") on Form 10-KSB, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert W. Pearce, Chief Financial Officer (or the equivalent thereof) of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert W. Pearce ------------------------- Robert W. Pearce Chief Financial Officer (or equivalent thereof) April 30, 2004 EX-32 14 bid-10ksba_ex32cfo.txt SECTION 906 CERTIFICATION CFO Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Bidville, Inc. (the "Company") on Form 10-KSB, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert W. Pearce, Chief Financial Officer (or the equivalent thereof) of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert W. Pearce ------------------------- Robert W. Pearce Chief Financial Officer (or equivalent thereof) April 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----