Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):
On January 30, 2007, the Registrant entered into that certain First Amendment to Stock Purchase Agreement (the “Amendment”), by and among the Registrant, Darin and Michelle Oreman (the “Shareholders”), Lowprice.com, Inc., an Arizona corporation d/b/a RedCat Motors (the “Company”) and Hexagon Financial, LLC, an Arizona limited liability company (“Hexagon”). The Amendment amended that certain Stock Purchase Agreement dated December 28, 2006, by and between the Registrant, the Shareholders and Hexagon, whereby the Registrant shall purchase 100% of the common stock of the Company from the Shareholders for an aggregate purchase price of $1.00. Thereafter, the Registrant shall make a capital contribution to the Company of $1,000,000 in cash upon the Closing, the issuance to Hexagon of 400,000 shares of the common stock of the Registrant upon the Closing, and $200,000 in cash which shall be paid on or before February 28, 2007.
On January 30, 2007, the Registrant completed the acquisition of one hundred percent (100%) of the issued and outstanding common stock of Lowprice.com, Inc., an Arizona corporation d/b/a RedCat Motors (the “Company”) pursuant to a Stock Purchase Agreement, as amended (the “Agreement”) by and among the Registrant, (the Shareholders), the Company and Hexagon. We purchased 100% of the common stock of the Company from the Shareholders for an aggregate purchase price of 1.00. Further, the Registrant made a capital contribution to the Company consisting of $1,000,000 in cash, which was paid to the Company upon the Closing. The Registrant further issued to Hexagon 400,000 shares of the common stock of the Registrant for the settlement of debt. The Registrant is obligated to make an additional $200,000 capital contribution in cash on or before February 28, 2007.
Hexagon is entitled to registration rights for the 400,000 shares of common stock issued to it, and the Registrant is obligated to complete an effective registration statement with the Securities and Exchange Commission no later than ninety (90) days from the Closing Date.
Pursuant to the Agreement, we are obligated to pay the sum of $200,000 in cash to the Company as an additional capital contribution on or before February 28, 2007.
On January 30, 2007, the Board of Directors of the Registrant authorized the issuance of 400,000 shares of the Registrant’s common stock to Hexagon Financial, LLC, an Arizona limited liability company, pursuant to the Agreement. We relied upon Section 4(2) and Regulation D of the Securities Act of 1933, as amended (the "Act"). Our officers and directors determined the sophistication of our investor, as the investor was an accredited investors. The investor certified that it was purchasing the shares for its own account, with investment intent. This offering was not accompanied by general advertisement or general solicitation and the shares were issued with a Rule 144 restrictive legend.
1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Lowprice.com, Inc. (Lowprice.com or “the Company”) was incorporated in the state of Arizona on May 11, 2006 and was the successor of Lowprice.com LLC which was organized in the state of Louisiana on March 14, 2001. The Company is located in the city of Phoenix, Arizona, U.S.A. The Company is engaged in the sales and distribution of high quality recreational and transportation motorcycles, all-terrain vehicles (“ATVs”), dirt bikes, and scooters. The Company’s motorcycles and ATVs products are manufactured in China.
2. | SUMMARY OF SIGNIFICANT ACCOUTING POLICIES |
Basis of Preparation
The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales are COD and management has not reserved any amount for bad debts. As of December 31, 2006, there was no allowance.
Inventories
Inventories are valued at the lower of cost (determined on a first-in first-out basis) or net realizable value. The management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower than the cost.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of plant, property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets: 5 to 7 years for all fixed assets.
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)
NOTES TO FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUTING POLICIES - continued |
Impairment
The Company applies the provisions of Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets in the years ended December 31, 2006 and 2005.
Revenue Recognition and Customer Deposit
The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposit.
Fair Values of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values of financial instruments.
The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers,, accounts payable, other payable, tax payable, and related party advances and borrowings.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.
Segment Reporting
Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)NOTES TO FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUTING POLICIES - continued |
Recent Pronouncements
In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006.
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's first quarter of fiscal 2006.
In June 2005, the EITF reached consensus on Issue No. 05-6, determining the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on its consolidated financial position or results of operations.
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company's first fiscal year that begins after September 15, 2006. The Company has not evaluated the impact of this pronouncement its financial statements.
In March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:
| | 1. | Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. |
| | 2. | Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. |
| | 3. | Permits an entity to choose ‘Amortization method’ or ‘Fair value measurement method’ for each class of separately recognized servicing assets and servicing liabilities. |
| | 4. | At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. |
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)
NOTES TO FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUTING POLICIES - continued |
Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.
In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements.
In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.
The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities.
3. | DUE FROM RELATED PARTIES |
As of December 31, 2006 $59,832 is due from officers and shareholders of the Company.
These amounts are interest free, due on demand and are unsecured.
Inventories consist of the following as of December 31, 2006:
| ATV’s & Scooters | | $ | 969,445 | |
| Parts | | | 381,531 | |
| Redcat Racing | | | 166,303 | |
| Accessories | | | 56,286 | |
| Total | | $ | 1,573,565 | |
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)
NOTES TO FINANCIAL STATEMENTS
5. | PREPAID EXPENSES & OTHER ASSETS |
Composition of this category is reflected below:
| Prepaid Inventory | | $ | 22,208 | |
| Prepaid Insurance | | | 70,905 | |
| Other | | | 20,121 | |
| Total | | $ | 113,234 | |
6. | PROPERTY, PLANT & EQUIPMENT |
Property, Plant & Equipment consist of the following as of December 31, 2006:
| Machinery & Equipment | | $ | 64,543 | |
| Furniture & Fixtures | | | 59,384 | |
| Electronic Equipment | | | 480,319 | |
| Less: Accumulated Depreciation | | | (142,199 | ) |
| Total | | $ | 462,047 | |
Depreciation expenses were $109,159 and $3,625 for the twelve month periods ended December 31, 2006 and 2005, respectively.
As of December 31, 2006, the company had recorded a security deposit for a lease of $16,740.
8. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Composition of this category is reflected below as of December 31, 2006:
| Accounts payable | | $ | 607,347 | |
| Credit cards | | | 119,638 | |
| Other accruals | | | 92,639 | |
| Total | | $ | 819,624 | |
Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposit. Customer deposit amounted to $136,416 as of December 31, 2006.
The company has a line of credit from an unrelated party. The line of credit is secured by all of the assets, with an interest rate of 5.00%, and due on July 1, 2007. As of December 31, 2006, accrued interest is $0. The balance of the line of credit at December 31, 2006 was $2,640,077, of which all is current.
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)
NOTES TO FINANCIAL STATEMENTS
10. | NOTES PAYABLE - continued |
The company has a loan payable of $372,259 from an unrelated party. The note is secured by various computer equipments and software purchased from Microsoft Capital, with an interest rate of 5.00%, and due on June 1, 2011. As of December 31, 2006, accrued interest is $0. The balance of the note payable at December 31, 2006 was $338,861, of which $69,774 is current and $268,907 is non current.
The scheduled principal payments on the notes are as follows:
Years ended | | | | |
December 31, | | | | |
| | | | | |
2007 | | $ | 2,705,215 | |
2008 | | | 73,344 | |
2009 | | | 77,096 | |
2010 | | | 81,041 | |
2011 | | | 42,062 | |
Thereafter | | | 0 | |
| | | | | |
Total | | | 2,978,758 | |
Current portion | | | 2,709,851 | |
| | | | | |
Non current portion | | $ | 268,907 | |
Interest expenses were $224,339 and $388,116 for the years ended December 31, 2006 and 2005.
11. | EQUITY AND RELATED PARTY TRANSACTIONS |
The Company approved distribution to the members in the amount of $522,363 and $352,568 for the years ended December 31 2006, and 2005, respectively.
12. | OTHER INCOME (EXPENSE) |
Other income was $202,097 for the year ended December 31, 2006. Other income includes $199,036 forgiveness of debt, and $3,061 other income. In year 2005, the Company incurred $199,036 interest expenses which was forgiven in 2006 and was recorded as other income.
Other expense was $41,919 for the year ended December 31, 2005.
13. | SUPPLEMENTAL DISCLOSURE OF CASH FLOWS |
The Company prepares its statements of cash flows using the indirect method as defined under the Financial Accounting Standard No. 95.
The Company paid $0 for income tax during the twelve month periods ended December 31, 2006 and 2005, respectively.
The company paid $388,116 and $256,536 for interest expenses for the twelve month periods ended December 31, 2006 and 2005, respectively.
On February 1, 2006, Lowprice.com entered into a lease agreement for the new facilities in which they operate. The term of the lease is 36 months with monthly payments of $19,900. As of December 31, 2006, the amount due was $0.
LOWPRICE.COM, INC.
(DBA REDCAT MOTORS)
NOTES TO FINANCIAL STATEMENTS
Minimum annual rent expense for Lowprice.com for the next 3 years subsequent to December 31, 2006 is as follows:
| Period | | | Amount | |
| 1 year after | | $ | 254,123 | |
| 2 year after | | $ | 258,652 | |
| 3 year after | | $ | 21,591 | |
Rent expenses were $233,401 and 100,997 for the twelve month periods ended December 31, 2006 and 2005, respectively.
On December 28th, 2006, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Tank Sports, Inc., a California Corporation (“Tank”) whereby the Company agreed to sell 100% of the common stock. Upon the closing of the transaction, Tank has agreed to make a $1,600,000 capital contribution to Lowprice.com, Inc. which will be immediately used to pay off the current debt.
The closing of the transaction is subject to certain terms and conditions.
There is a pending litigation which per the management’s opinion, will be settled in about $200,000. The potential obligation is covered under the insurance policy of the Company.
Pursuant to the requirements of the Securities Exchange Act of 1934, The Registrant has duly caused this report to be signed on its behalf by The undersigned hereunto duly authorized.
