UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO_______
Commission File Number: 333-78659
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0879572
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
15170 NORTH HAYDEN ROAD, SUITE 5, SCOTTSDALE, ARIZONA 85260
(Address of principal executive offices) (Zip Code)
(480) 556-6701
(Registrant's telephone number, including area code)
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, ARIZONA 85260
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
34,514,001 SHARES OF COMMON STOCK, NO PAR VALUE, AS OF DECEMBER 31, 2000
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flow
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
December 31, March 31,
2000 2000
UNAUDITED
Current assets:
Cash $ 139,582 $ 4,355,738
Accounts receivable - trade, net 163,990 5,743,845
Accounts receivable - employees and brokers, net 8,000 332,122
Inventory - 4,648,492
Prepaid expenses and other 58,920 110,272
------------- -------------
Total current assets 370,492 15,190,469
------------- -------------
Property and equipment, net 1,675,582 1,423,398
------------- -------------
Net assets of discontinued operations 1,557,883
Intangible assets, net 12,195,468 13,506,484
------------- -------------
Total assets $ 15,799,425 $ 30,120,351
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 4,401,858
Notes payable - related party $ 528,807 4,086,128
Notes payable - bank 1,386,308 1,112,418
Accrued liabilities 44,746 245,049
------------- -------------
Total current liabilities 1,959,861 9,845,453
------------- -------------
Non-current liabilities:
Long-term debt - related party - 1,819,500
------------- -------------
Total non-current liabilities - 1,819,500
------------- -------------
Stockholders' equity:
Convertible preferred stock, Series C; $.10 par value;
21,216 shares authorized; 21,216 issued, 12,852 and 0 shares outstanding
in 2000 and 1999, respectively; liquidation preference $100.00 per share 1,063,323 1,906,536
Convertible preferred stock, Series D; $.10 par value;
31,824 shares authorized; 31,824 issued, 17,034 and 0 shares outstanding
in 2000 and 1999, respectively; liquidation preference $100.00 per share 1,356,668 2,859,805
Common stock, no par value; 100,000,000 shares authorized;
34,514,001 shares issued, 34,068,036 shares outstanding
at December 31, 2000, and 21,615,530 shares issued and outstanding
at March 31, 2000 23,011,910 19,779,542
Retained deficit (11,592,337) (6,090,485)
------------- -------------
Total stockholders' equity 13,839,564 18,455,398
------------- -------------
Total liabilities and stockholders' equity $ 15,799,425 $ 30,120,351
============= =============
See notes to condensed consolidated financial statements.
3
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended For the Nine Months Ended
December 31, 2000 December 31, 1999 December 31, 2000 December 31, 1999
Net sales 200,868 $ - $ 645,833 $ 291,587
Cost of sales 1,216 - 1,216 -
------------- ------------- ------------- -------------
Gross profit 199,652 - 644,617 291,587
------------- ------------- ------------- -------------
Operating expenses:
Salary 233,063 644,427
Selling 197,092 31,493 505,598 219,964
General and administrative 735,522 76,218 1,646,449 253,893
Depreciation and amortization 485,394 2,977 1,390,417 9,105
------------- ------------- ------------- -------------
Total operating expenses 1,651,071 110,688 4,186,891 482,962
------------- ------------- ------------- -------------
Other income (expense)
Miscellaneous
Interest expense - - - (53)
------------- ------------- ------------- -------------
Total other income (expense) - - - (53)
------------- ------------- ------------- -------------
Loss from continuing operations (1,451,419) (110,688) (3,542,274) (191,428)
------------- ------------- ------------- -------------
Discontinued operations:
Loss from from operations of Land-based
segment (120,571) (220,456) (353,264) (449,327)
Loss from from disposition of Land-based
segment (1,606,314) - (1,606,314) -
------------- ------------- ------------- -------------
(1,726,885) (220,456) (1,959,578) (449,327)
Net (loss) before income taxes (3,178,304) (331,144) (5,501,852) (644,755)
Income tax refund (expense) - 485 - 56,034
Minority interest in loss of subsidiaries - 24,465 - 74,786
------------- ------------- ------------- -------------
- 24,950 - 130,820
------------- ------------- ------------- -------------
Net (loss) $ (3,178,304) $ (306,194) $ (5,501,852) $ (509,935)
============= ============= ============= =============
(Loss) per share
Basic and diluted
Continuing operations $ (0.04) $ (0.00) $ (0.11) $ (0.01)
Discontinued operations $ (0.05) $ (0.01) $ (0.06) $ (0.02)
------------- ------------- ------------- -------------
$ (0.09) $ (0.01) $ (0.17) $ (0.03)
============= ============= ============= =============
Weighted average common shares outstanding
Basic 34,068,036 20,735,084 31,525,710 20,685,084
============= ============= ============= =============
Diluted 34,068,036 20,735,084 31,525,710 20,685,084
============= ============= ============= =============
See notes to condensed consolidated financial statements.
4
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended
December 31, 2000 December 31, 1999
Cash flows from operating activities:
Net (loss)
From continuing operations $(3,542,274) $ (509,935)
From discontinued operations (353,264) -
From discontinuance of land-based operations (1,606,314) -
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,390,417 232,615
Write-off of goodwill associated with land-
based operations 315,775 -
Bad debt reserve 75,000 -
Stock issued for services 53,434 -
(Increase) decrease in:
Accounts receivable 5,903,977 (672,022)
Inventory 4,648,492 (140,855)
Prepaid expenses and other current assets 51,352 (75,328)
Increase (decrease) in:
Accounts payable (4,401,858) (616,233)
Accrued liabilities (200,303) (68,748)
------------ ------------
Net cash provided by (used in)
operating activities 2,334,434 (1,850,506)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (828,829) (128,429)
Sale of property and equipment 159,803 45,925
Investment in net assets of discontinued operations (1,557,883)
------------ ------------
Net cash provided by (used in) investing activities (2,226,909) (82,504)
------------ ------------
Cash flows from financing activities:
Net proceeds from borrowing 273,890 230,664
Net repayment of related party borrowings (5,376,821) 1,445,620
Proceeds from issuance of common stock 779,250 514,475
------------ ------------
Net cash provided by (used in) financings activities (4,323,681) 2,190,759
------------ ------------
Net change in cash (4,216,156) 257,749
Beginning cash balance 4,355,738 297,752
------------ ------------
Ending cash balance $ 139,582 $ 555,501
============ ============
Supplemental disclosures:
Interest paid $ 622,728 $ 672,669
============ ============
Income taxes paid $ - $ 3,000
============ ============
Issuance of common stock for goodwill $ - $ 749,990
============ ============
See notes to condensed consolidated financial statements.
5
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
NOTE A - PRESENTATION OF FINANCIAL STATEMENTS
The condensed consolidated financial statements of AutoTradeCenter.com
Inc. ("AUTC") or the "Company," which refers to AutoTradeCenter.com Inc. and its
subsidiaries have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These statements reflect
all adjustments (including all normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations, and cash flows of AUTC as of December 31, 2000 and for all of the
periods presented. These statements are condensed and do not include all of the
information required by generally accepted accounting principles in a full set
of financial statements. These statements should be read in conjunction with
AUTC's financial statements and notes thereto included in AUTC's Annual Report
on Form 10-K for its fiscal year ended March 31, 2000.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries: Auto Network Group of Arizona,
Inc. ("ANET-AZ"), Pinnacle Dealer Services, Inc. ("PDS"), National Dealer
Services ("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden
Remarketing Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com
Inc. ("BTC"). All material intercompany accounts and transactions have been
eliminated. As more fully described in these notes the Company sold certain of
its subsidiaries on December 29, 2000 and liquidated, in substance, two other
subsidiaries.
We sold our land-based subsidiaries in New Mexico, Oregon, and San
Antonio on December 29, 2000, and closed our operations in Pennsylvania and
Colorado by the end of the year. We began to down size our Scottsdale, Arizona
operations in December 2000, and expect to transfer these operations to certain
of the independent-contractor brokers who formerly purchased and sold vehicles
for us primarily in Scottsdale, Arizona, by the end of March 31, 2001.
Accordingly our condensed consolidated financial statements at December 31,
2000, and results of operations and cash flow for the periods ended December 31,
2000, and 1999, have been prepared to give effect to our decision to discontinue
our land based operations.
NOTE B - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed based on the
weighted average number of common shares outstanding. The computations exclude
430,465 shares held in escrow pending earnout provisions. Diluted earnings per
share reflects the increase in average common shares outstanding that would
result from the assumed exercise of outstanding stock options and the assumed
conversion of debt and preferred stock. Since the Company operated at a loss for
all periods stated the computation of diluted earnings per share would be
anti-dilutive. Accordingly basic and diluted earnings (loss) per share are
equivalent.
NOTE C - INFORMATION REGARDING DISCONTINUED OPERATIONS
On November 30, 2000, the Company formalized its decision to exit its
land-based operations by the end of March 31, 2001. In connection with the
discontinuance of the land-based operations, the Company incurred a one-time
charge of $1,606,314 related to the write-off of the land-based operations, net
of expected proceeds, and an accrual for estimated losses during the phase-out
period. The disposition of the land-based operations represents the disposal of
a business segment under APB Opinion No. 30. Accordingly, results of these
operations have been classified as discontinued and prior periods have been
restated, including the reallocation of fixed overhead charges to our continuing
operation. For business segment reporting purposes, the land-based operating
results were previously classified as the segment "land-based operations".
6
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
NOTE C - INFORMATION REGARDING DISCONTINUED OPERATIONS:
1. RESULTS OF OPERATIONS OF DISCONTINUED LAND BASED-SEGMENT
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
DISCONTINUED OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED DECEMBER 31,
2000 1999 2000 1999
Net sales $ 123,171,010 $ 97,458,893 $ 39,521,133 $ 29,101,990
Cost of sales 117,257,094 93,446,078 37,716,191 27,875,322
-------------- ------------- ------------- -------------
Gross profit 5,913,916 4,012,815 1,804,942 1,226,668
-------------- ------------- ------------- -------------
Operating expenses:
Selling 4,376,272 2,553,631 1,373,246 778,884
General and administrative 1,199,064 1,086,188 356,733 400,061
Bad debt expense 75,000 - - -
Depreciation and amortization 17,998 223,510 (8,087) 81,751
-------------- ------------- ------------- -------------
Total operating expenses 5,668,334 3,863,329 1,721,892 1,260,696
-------------- ------------- ------------- -------------
Income (loss) from operations 245,582 149,486 83,050 (34,028)
-------------- ------------- ------------- -------------
Other income (expense):
Miscellaneous 139,599 73,803 124,021 30,825
Interest expense (738,445) (672,616) (327,642) (217,253)
-------------- ------------- ------------- -------------
Total other income (expense) - net (598,846) (598,813) (203,621) (186,428)
-------------- ------------- ------------- -------------
Net Loss $ (353,264) $ (449,327) $ (120,571) $ (220,456)
============== ============= ============= =============
7
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
2. COMPUTATION OF LOSS RESULTING FROM DISCONTINUING LAND-BASED-SEGMENT
Loss from sale of: ANET-NM, ANET-NW, and ANET-SA
Carrying value $1,596,904
Sales price 1,200,000
----------
Loss 396,904
Un-amortized goodwill 315,775
----------
Total loss 712,679
Loss from transfer and closing of Scottsdale
operation
Inventory losses due to sale 200,000
Uncollectible brokers accounts 343,635
Estimated costs of operations from
December 31, 2000 until final closing
of office 200,000 743,635
----------
Additional loss from closing Pennsylvania 150,000
----------
Total Loss $1,606,314
==========
3. NET ASSETS OF DISCONTINUED OPERATIONS
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
ASSETS
Accounts receivable - trade, net $3,131,196
Accounts receivable - employees and brokers, net 312,068
Inventory - net 3,177,212
Prepaid expenses and other 36,047
----------
Total Assets 6,656,523
LIABILITIES
Accounts payable - trade 4,109,537
Notes payable - related party 750,000
Accrued liabilities 239,103
----------
5,098,640
NET ASSETS FROM DISCONTINUED OPERATIONS $1,557,883
==========
8
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, March 31,
2000 2000
Goodwill 13,202,791 $13,746,926
Other 3,228 21,278
----------- -----------
13,206,019 13,768,204
Less accumulated amortization 1,010,551 261,720
----------- -----------
$12,195,468 $13,506,484
=========== ===========
NOTE E - STOCKHOLDERS' EQUITY
During the first nine months of our fiscal year ended March 31, 2001,
holders of $836,400 and $1,479,000 of our series C and series D convertible
preferred shares (8,364 and 14,790 shares respectively) elected to convert such
shares to 2,363,563 common shares based on the formulae contained in the terms
of the preferred shares. These shares will become registered and available for
resale (subject to certain lock-up provisions) upon the effectiveness of a
registration statement on From S-1 filed with the Securities and Exchange
Commission. We also issued 218,875 common shares for $161,667 upon the exercise
of stock options during the nine months ended December 31, 2000.
NOTE F - UNCERTAINTY
The Securities and Exchange Commission (SEC) is currently in discussions
with management concerning the amortization period of goodwill recorded for both
the NDSCo and BTC acquisitions. The SEC believes the Company should reevaluate
the amortization period. Management, however believes there is adequate
justification to support the present life assigned to this intangible. The
ultimate outcome of these discussions cannot presently be determined, and no
acceleration of amortization expense or impairment of asset carrying value that
may result has been made in the condensed consolidated financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. Our
actual future results could differ materially from our historical results of
operations and those discussed in the forward-looking statements. All period
references are for the respective three and nine-month periods ending December
31, 1999 and 2000.
GENERAL
The presentation includes a discussion of us with our wholly owned
subsidiaries, National Dealer Services ("NDSCo"), AutoTradeCenter Remarketing
Services Inc. formerly Walden Remarketing Services, Inc. ("Walden Remarketing"),
and BusinessTradeCenter.com Inc. ("BTC"), as well as subsidiaries in which we
formerly carried out our land-based operations. These subsidiaries are; Auto
Network Group of Arizona, Inc. ("ANET-AZ"), Auto Network Group of New Mexico,
Inc. ("ANET-NM"), Auto Network Group Northwest, Inc. ("ANET-NW"), Auto Network
Group of Pennsylvania, Inc. ("ANET-PA") Auto Group of San Antonio Ltd.
("ANET-SA"). Auto Network Group of Denver Inc., ("ANET-D"), and Pinnacle Dealer
Services, ("PDS") Inc.
As of December 29, 2000, we sold our interest in our land-based
operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to
Automotive Disposition Management Services, Inc., an affiliated Arizona
corporation, in exchange for a 16% interest in Automotive Disposition.
Automotive Disposition is a private company owned by Jules Gollins, the manager
of the New Mexico land-based operation, and by Mark Moldenhauer, one of our
founders, principal shareholders, and former officer and director. In addition,
promissory notes for $1,200,000 owed to us by the land-based operations have
been assigned to Pinnacle Financial Corporation, a private company owned by Mr.
Moldenhauer. Pinnacle Financial Corporation has in turn reduced the outstanding
principal balance of our promissory note to Pinnacle by $1,200,000 and extended
the principal installment, originally due December 31, 2000, to January 30,
2001. We currently are negotiating an extension of this note or a conversion
thereof to equity.
We plan to wind down our land-based operations in Scottsdale, Arizona,
thereby discontinuing all land-based operations and allowing us to focus on
providing automotive remarketing services via the Internet. We believe that this
change will improve our prospects for profitability. While the land-based
operations generated a substantial amount of revenue, the gross profit margins
were low and insufficient to cover operating expenses relating to the land-based
operations. These operating expenses consisted primarily of selling commissions,
interest expenses (for financing inventory and accounts receivable), bad debt
expense, and office overhead. In addition, the land-based operations were
capital-intensive. We believe that the cash received from the discontinuance of
these operations will allow us to retire part of our debt.
In contrast, the Internet operations generate a lower amount of
revenue, but result in high profit margins. Initially, revenues from Internet
operations will not cover operating expenses, and we will operate at a cash flow
deficit. We plan to finance this deficit partially by funds, if any, made
available from the discontinuance of our land-based operations, and partially
from additional capital in the form of equity or debt or both raised in a
private placement. In the event this capital is not raised, our Internet
operations will be severely limited. This limitation may adversely affect
shareholder value.
Accordingly as further described in the following paragraphs, our
Company's business has materially changed. Therefore, all information contained
herein should be carefully read and evaluated.
OVERVIEW
We began operations on September 22, 1997 and completed our first
fiscal year on March 31, 1998. On June 1, 1998, we opened the office and
warehouse facility in Albuquerque, New Mexico. We acquired Pinnacle Dealer
Services, Inc. in August 1998 to provide financing for the purchase of vehicles.
On July 20, 1999, we opened our office and warehouse facility in Bend, Oregon.
On April 1, 2000, we began operations in the
10
Philadelphia, Pennsylvania area, with the incorporation of Auto Network Group of
Eastern Pa., Inc. At the same time, we began operations in San Antonio, Texas,
with the establishment of Auto Group of San Antonio Ltd., a Texas limited
partnership. In each of these transactions, we entered into a management
consulting agreement with the individual or entity responsible for managing each
respective operation. Under these agreements, certain of our common shares have
been issued to such managers and their brokers, subject to forfeiture based on
both future earnings levels and continuity of management. As part of our sale of
certain of our land-based subsidiaries to Automotive Disposition Management
Services, Inc. "(ADM") on December 29, 2000, we agreed to place 805,405 of our
common shares in escrow to satisfy, in full, our obligations under the
consulting agreements. These common shares will remain in escrow until such time
as certain shares of our stock are either earned or forfeited. If earned, the
relevant shares of our stock will be transferred to the managers and brokers,
and if unearned, the relevant shares of our stock will be transferred and
delivered to ADM. Any shares transferred to ADM can, at our election, be
exchanged for part or all of our interest in ADM. At December 31, 2000, these
shares has not been issued
In January 1999, we announced the development of our Internet site
WWW.AUTOTRADECENTER.COM. No revenues have been generated from the operations of
this site, which is now used for informational purposes only. However, effective
February 1, 2000, a new web site developed for American Honda Finance
Corporation, powered by our technology, began generating revenue. Our
remarketing agreement with Honda Finance Corporation gives us an exclusive
contract to remarket, over the Internet for two years, all of the vehicles
returned to Honda after termination of a lease. On February 12, 2001, we amended
our agreement with American Honda Finance Corporation. The amendment among other
things extends our contract to remarket off-lease Honda and Acura vehicles
through January 31, 2004, and increases the fees we can earn for each vehicle
marketed on the website.
The Honda web site, www.hfcarsales.com, became operational in all
Honda and Acura dealerships by June 15, 2000 upon completion of a phase in
period beginning April 2000.
We developed a pilot program for Suzuki, similar to the program
developed for Honda, utilizing our Internet technology systems and procedures to
remarket their program vehicles to dealers. The Suzuki pilot program began in
September 2000 (www.suzukiproline.com). We entered into a formal agreement with
Suzuki in January 2001 to remarket their program cars over the Internet for a
one-year period. We anticipate earning revenue from our Suzuki contract in April
of 2001.
In December 1999, we introduced our second Internet site,
WWW.TRADEINCARSONLINE.COM, which has been designed to facilitate the Internet
car buying process by providing a firm bid on trade-ins. We initiated a pilot
program in Arizona in May 2000. As a result of this pilot program, we have
determined that to be commercially successful, we have to substantially change
our software and program content. Notwithstanding our perceived program changes,
we have entered into a strategic alliance with WWW.AUTOBYTEL.COM, an Internet
company that sells new cars on line. Our non-binding letter of intent with
Autobytel.com calls for us to make a firm bid on trade-ins from their
prospective customers. Under this agreement a new car customer of Autobytel can
offer his trade-in, if any, to us. We will provide the customer with a firm bid
to purchase the trade-in vehicle, subject only to proof of good title and a
satisfactory, to us, condition report. Since we do not have an exclusive
agreement with Autobytel a competing program similar to ours can be instituted
by AutobyTel or by others at any time. Presently we have not purchased a vehicle
under the Autobytel program and we are unable to predict when, or if, we will
earn revenue from this or any other "business to consumer" website.
RESULTS OF OPERATIONS
Net loss from continuing (Internet) operations was $1,451,419 or $0.04
per share for the three months ended December 31, 2000 as compared to a net loss
from continuing operations of $110,688 or $0.01 per share for the three months
ended December 31, 1999. Net loss from continuing operations was $3,542,274 or
$0.11 per share for the nine months ended December 31, 2000, as compared to a
net loss from continuing operations of $191,428 or $0.01 per share for the nine
months ended December 31, 1999.
For the three and nine months ended December 31, 2000 we reported net
losses of $3,178,304 or $0.09 per share and $5,501,852 or $0.17 per share,
respectively, as compared to net losses of $306,194 or $0.01 per share and
11
$509,935 or $0.03 per share for the comparable periods in 1999.
From our inception through March 31, 2000, we reported the results of
our operations as one segment during which time substantially all of our
revenues were generated from land-based wholesale sales of used vehicles. During
this period we did not generate any revenue from our Internet operations. We
first reported our Internet operations as a separate segment for the first
quarter of our fiscal year ending March 31, 2001. On November 30, 2000, our
management and Board of Directors decided to discontinue all of our land-based
operations. We believe that our best opportunity to maximize profitability and
shareholder value is to concentrate all of our efforts on remarketing used
vehicles utilizing the Internet as the backbone of our operations.
We sold our land-based subsidiaries in New Mexico, Oregon, and San
Antonio on December 29, 2000, and closed our operations in Pennsylvania and
Colorado by the end of the year. We began to down size our Scottsdale Arizona
operations in December 2000, and expect to transfer these operations to certain
of the independent-contractor brokers who formerly purchased and sold vehicles
for us primarily in Scottsdale Arizona, by the end of March 31, 2001.
Accordingly our consolidated financial statements at December 31, 2000, and
results of operations and cash flow for the periods ended December 31, 2000, and
1999, have been prepared to give effect to our decision to discontinue our land
based operations.
The following statement of operations for the land-based operations
reflects the details of these operations for the periods herein presented:
AutoTradeCenter.com Inc. and Subsidiaries
Discontinued operations
For the Nine Months Ended December 31, For the Three Months Ended December 31,
2000 1999 2000 1999
Net sales $123,171,010 $97,458,893 $39,521,133 $29,101,990
Cost of sales 117,257,094 93,446,078 37,716,191 27,875,322
------------- ------------ ------------ ------------
Gross profit 5,913,916 4,012,815 1,804,942 1,226,668
------------- ------------ ------------ ------------
Operating expenses:
Selling 4,376,272 2,553,631 1,373,246 778,884
General and administrative 1,199,064 1,086,188 356,733 400,061
Bad debt expense 75,000 - - -
Depreciation and amortization 17,998 223,510 (8,087) 81,751
------------- ------------ ------------ ------------
Total operating expenses 5,668,334 3,863,329 1,721,892 1,260,696
------------- ------------ ------------ ------------
Income (loss) from operations 245,582 149,486 83,050 (34,028)
------------- ------------ ------------ ------------
Other income (expense):
Miscellaneous 139,599 73,803 124,021 30,825
Interest expense (738,445) (672,616) (327,642) (217,253)
------------- ------------ ------------ ------------
Total other income (expense) - net (598,846) (598,813) (203,621) (186,428)
------------- ------------ ------------ ------------
Net Loss $ (353,264) $ (449,327) $ (120,571) $ (220,456)
============= ============ ============ ============
The following table reflects the loss incurred from discontinuing our
land-based operations:
12
Loss from sale of: ANET-NM, ANET-NW, and ANET-SA
Carrying value $1,596,904
Sales price 1,200,000
----------
Loss 396,904
Un-amortized goodwill 315,775
----------
Total loss 712,679
Loss from transfer and closing of Scottsdale
operation
Inventory losses due to sale 200,000
Uncollectible brokers accounts 343,635
Estimated costs of operations from
December 31, 2000 until final closing
of office 200,000 743,635
----------
Additional loss from closing Pennsylvania 150,000
----------
Total Loss $1,606,314
==========
Net sales from our continuing operations were $200,868 and $645,833 for
the three and nine months ended December 31, 2000. Substantially all of this
revenue was earned from our contract with American Honda Finance Corporation. We
marketed 3,819 and 15,722 vehicles during the three and nine months ended
December 31, 2000. Operating expenses for our Internet segment include salaries
for management, sales, marketing and our call-center. We maintain a call-center
to better serve all Honda and Acura Dealers 24 hours per day, 7 days per week.
General and administrative expenses of $735,522 and $1,646,449 for the
three and nine month periods include approximately $175,000 and $375,000 for the
three and nine month periods for hosting and maintaining our Honda Web site. We
also spent approximately $50,000 and $100,000 for the three and nine-month
periods for travel and other costs related to marketing and promotion. Included
in operating expenses are all of our corporate overhead costs, including but not
limited to, executive salaries and related costs, executive travel, and
professional fees. Professional fees include, among other charges, legal fees
and audit fees, and other professional services related to public relations and
capital accumulation. The balance of operating expenses is made up of normal
business expenses.
Depreciation primarily is from computer equipment required to run our
Internet sites as well as office furniture and equipment. Depreciation related
to continuing operations increased to $340,897 for the nine months ended
December 31, 2000 from company-wide depreciation of $93,833 for the same period
last year. Amortization primarily is due to amortization of goodwill resulting
from our acquisitions during our fiscal year ended March 31, 2000 of NDSCo
($234,364 for three months and $703,091 for nine months), BTC ($50,978 for three
months and $152,934 for nine months) and Walden Remarketing ($49,635 for three
months and $148,904 for nine months ended December 31, 2000).
FINANCIAL CONDITION
As a result of our decision to discontinue our land-based operations,
our total assets decreased to $15,799,425 at December 31, 2000, from $30,120,351
at March 31, 2000. This decrease primarily results from the sale of our
subsidiaries and the reporting of our remaining land-based operations as
discontinued operations.
The following table reflects the detail of our Net assets from
discontinued operations:
13
AUTOTRADECENTER.COM, INC.
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
ASSETS
Accounts receivable - trade, net $ 3,131,196
Accounts receivable - employees and brokers, net 312,068
Inventory - net 3,177,212
Prepaid expenses and other 36,047
-----------
Total Assets 6,656,523
Liabilities
Accounts payable - trade 4,109,537
Notes payable - related party 750,000
Accrued liabilities 239,103
-----------
5,098,640
NET ASSETS FROM DISCONTINUED OPERATIONS $ 1,557,883
===========
Total liabilities decreased to $1,959,861 from $11,664,953, primarily
due to the sale of our subsidiaries and the reclassification of certain
liabilities of our land-based operations as discontinued operations. At February
16, 2001 we have repaid Wells Fargo Business credit in full. We also owed
$528,807 to a related party at December 31, 2000. This debt increased to
$738,807 at January 31, 2001. We are currently discussing a repayment schedule
for this debt, as well as alternatives to convert this debt to equity.
During the first nine months of our fiscal year ended March 31, 2001,
holders of $836,400 and $1,479,000 of our series C and series D convertible
preferred shares (8,364 and 14,790 shares respectively) elected to convert such
shares to 2,363,563 common shares based on the formulae contained in the terms
of the preferred shares. These shares will become registered and available for
resale (subject to certain lock-up provisions) upon the effectiveness of a
registration statement.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) decreased
during the nine months ended December 31, 2000 by $6,934,385. At December 31,
2000 we had a working capital deficiency of $1,589,369, as compared to positive
working capital of $5,345,016 at March 31, 2000. A substantial amount of this
decrease is due to the reclassification of $1,819,500 of long-term debt to
short-term debt, as the maturity date for such debt is less than twelve months
as of December 31, 2000. However, the realization of $1,557,883 from the net
assets of discontinued operations will decrease the working capital deficiency
to $31,486.
Cash of $2,334,434 was provided by our operating activities for the
nine months ended December 31, 2000, as compared to using $1,850,506 for the
nine months ended December 31, 1999. The major components contributing to the
cash provided by operations for the nine months ended December 31, 2000 were the
decreases in accounts receivable of $5,903,977 and in inventory of $4,648,492,
together with the adjustment for depreciation and amortization of $1,390,417,
and the write-off of goodwill of $315,775 associated with our land-based
operations. These more than offset the decrease in accounts payable of
$4,401,858 and our net losses for the period from continuing operations of
$3,542,274, discontinued operations of $353,264, and discontinuance of
land-based operations of $1,606,314. Other changes in current assets and
liabilities resulted in a further use of cash of $20,517. Accounts receivable,
inventories, and accounts payable decreased due to our decision to discontinue
our land-based operations and our use of funds to support our of Internet
operations. Cash flow for the nine months ended
14
December 31, 1999 is presented in our financial statements. However, it has
little significance to our current or future operations due to the
discontinuance of our land-based operations.
Our investing activities for the nine months ended December 31, 2000
and 1999 used cash of $2,226,909 and $82,504, respectively. For the nine months
ended December 31, 2000 our investing activities comprised the net purchase of
property and equipment ($669,026) and investment in net assets of discontinued
operations ($1,557,883). Property and equipment acquired in
the nine months ended December 31, 2000 primarily were computer hardware and
software required for business expansion and our e-commerce and Internet
operations. During the nine months ended December 31, 1999 we added $82,504 of
furniture and equipment net of dispositions.
We repaid net borrowings during the first nine months of our fiscal
year ended March 31, 2001 in the amount of $5,102,931, as compared to additional
borrowings of $1,676,284 during the same period last year. We increased cash
from the sale of common shares primarily related to the exercise of previously
issued stock options. Proceeds from such issuances were $779,250 during the
current period and $514,475 last year.
On March 26, 1999, we obtained a $3,000,000 revolving line of credit
with Wells Fargo Business Credit, Inc. that provided sufficient short-term
liquidity and capital to implement our business plan, including providing for
the expansion into other markets. The note that evidences this obligation to
Wells Fargo Business Credit bears interest at 1.5% over prime and has been
extended from its original due date of March 31, 2000 to June 30, 2000, and
subsequently to November 30, 2000. The amount outstanding on our revolving line
of credit at December 31, 2000 was $1,386,308. At March 31, 2000 our bank line
of credit was $1,112,418. Effective November 30, 2000, we again extended our
line of credit with Wells Fargo Business Credit to January 31, 2001. On February
16, 2001 we repaid Wells Fargo Business Credit in full. We also owed $528,807 to
a related party at December 31, 2000. This debt subsequently increased to
$738,807 at January 31, 2001. We are currently discussing a repayment schedule
for this debt, as well as alternatives to convert this debt to equity. At March
31, 2000, total long and short-term debt was $7,018,046.
To address our long-term liquidity needs, we must obtain additional
equity financing and/or additional credit facilities that are greater than one
year in duration. If we are unable to renegotiate or replace our notes and
credit lines and/or we are not successful in our planned equity raising
activities, we will be may not be able to continue developing our Internet
activities. These actions, if required, will result in a reduction in our sales
that could result in unanticipated losses or force us to sell our current
Internet business to a better-capitalized entity.
To address the above-mentioned needs, we anticipate receiving the first
draw down of approximately $1,500,000 from a $2,000,000 private placement of
convertible preferred shares expected to close in full by February 28, 2001. In
addition we are in discussion with investment bankers regarding an addition
capital raise of up to $3,000,000 through the issuance of common shares
Our investment bankers, Sutro &Company also have circulated a Private
Placement Memorandum to raise up to an additional $10,000,000 in new capital. We
estimate that the following funding will be needed:
o Approximately $5 million will be required to fund our e-commerce
operations including our negative cash flow from operations. These
funds will be used both to augment our current operations and to
expand into new markets.
o $2 million will be needed for marketing programs
o $3 million for Internet development including capital
expenditures.
ANTICIPATED TRENDS
Our future will depend upon our Internet remarketing business. Our
agreement with American Honda Finance Corporation will generate revenues for the
next three years. We anticipate a greater number of car sales on our Honda
website resulting in increased revenues in the months to come as a larger number
of vehicles are coming off lease and will be available to all Honda and Acura
dealers in the United States. In addition our amended contract with American
Honda Finance Corporation will provide additional revenue for each car sold on
our
15
website. Our pilot program with American Suzuki Motor Corporation began
generating revenue in September 2000. We signed a definitive agreement with
Suzuki in January 2001 and expect to generate added revenue from the Suzuki
site. We anticipate entering into similar contracts with other manufacturers and
financial institutions to assist them in remarketing their inventories of used
vehicles; however, no such other contracts exist at this time. Our programs with
Autobytel and other Internet new car retailers are currently under development
and accordingly, we cannot estimate a start date for earning revenue from this
or similar programs.
We cannot assure you that we will be able to raise the additional
capital or debt financing to execute our business plan to assist automobile
manufacturers, finance companies, financial institutions, lease and rental
companies, and automobile dealers in remarketing their inventories of used
vehicles over the Internet. In addition, it may become necessary to further
extend certain of our debt due to shareholders and former officers or to convert
part or all of such debt to equity in order for us to meet obligations as they
come due. Failure to extend these terms could force us to reorganize our
company, resulting in dilution to our current shareholders. A conversion of debt
to equity would also result in dilution to our current shareholders. Either of
these scenarios is likely to have a negative impact upon shareholder value of
our common stock.
For the remainder of the current fiscal year, we intend to proceed with
the sale and transfer of our land-based operations. We also intend to continue
the development of our Internet sites. We intend to raise the capital necessary
to finance our anticipated growth through a combination of debt, equity or
convertible debt offering of up to $10 million.
OTHER
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 2000, the
Company's Annual Report to Shareholders, as well as statements made by the
Company in periodic press releases, oral statements made by the Company's
officials to analysts and shareholders in the course of presentations about the
Company, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Act of 1995. 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 to be materially
different from any future results, performance or achievements expressed or
implied by the forward looking statements. Such factors include, among other
things, (1) general economic and business conditions; (2) interest rate changes;
(3) the relative stability of the debt and equity markets; (4) competition; (5)
demographic changes; (6) government regulations particularly those related to
Internet commerce; (7) required accounting changes; (8) equipment failures,
power outages, or other events that may interrupt Internet communications; (9)
disputes or claims regarding the Company's proprietary rights to its software
and intellectual property; and (10) other factors over which the Company has
little or no control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management,
the outcome of these matters will not have a material adverse affect
upon the financial condition, results of operations or cash flows of
the Company. See "Forward-Looking Statements" above.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended December 31, 2000, 30,000 shares of common
stock were issued as compensation to deJong & Associates for services
values at $67,500.
No underwriters were used in the above transactions. The Company relied
upon the exemption from registration contained in Section 4(2) as to
all of the transactions. All of the purchasers were deemed to be
sophisticated with respect to the investment in the securities due to
their financial condition and involvement in the registrant's business.
Restrictive legends were placed on the stock certificates evidencing
the shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
REGULATION
S-K NUMBER DOCUMENT
2.1 Agreement and Plan of Reorganization between Auto Network Group, Inc. and Walden Remarketing
Services, Inc. (1)<F1>
2.2 Agreement Concerning the Exchange of Common Stock Between AutoTradeCenter.com Inc. and Auto
Network Group of Northwest, Inc. (1)<F1>
3.1 Articles of Incorporation, as amended (1)<F1>
3.2 Bylaws (1)<F1>
4.1 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series A Preferred Stock (1)<F1>
4.2 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series B Preferred Stock (1)<F1>
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc. (1)<F1>
4.4 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series C Preferred Stock (3)<F3>
4.5 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series D Preferred Stock (3)<F1>
10.1 Stock Option Plan (1)<F1>
17
REGULATION
S-K NUMBER DOCUMENT
10.2 Evelyn Felice loan documents (1)<F1>
10.3 Mark Moldenhauer loan documents (1)<F1>
10.4 Pinnacle Financial Corporation loan documents (1)<F1>
10.5 Eastlane Trading Limited loan documents (1)<F1>
10.6 Norwest Bank loan documents (1)<F1>
10.7 Mike and Debbie Stuart loan documents (1)<F1>
10.8 Purchase of Goodwill Agreement with JBS, LLC (1)<F1>
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc. (1)<F1>
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.12 Sample "Work for Hire Agreement" (1)<F1>
10.13 Agreement with Auction Finance Group, Inc. (1)<F1>
10.14 Purchase Agreement with Lloydminister Enterprises Inc. and Kindersley Holdings Inc. dated March
23, 2000 (2)<F2>
10.15 Amended and Restated Secured Promissory Note dated March 31, 2000 to Mark Moldenhauer (3)<F3>
10.16 Amended and Restated Secured Promissory Note dated March 31, 2000 to Pinnacle Financial
Corporation (3)<F3>
10.17 Loan Extension from Wells Fargo Business Credit, Inc. (3)<F3>
10.18 Agreement with American Honda Finance (3)(4)<F3><F4>
10.19 Extension and Exchange Agreement with Pinnacle Financial Corporation dated December 29, 2000 (5)<F5>
21 Subsidiaries of the registrant (3)<F3>
- ---------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-78659).
(2)<F2> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated March 23, 2000 (File No.
333-78659).
(3)<F3> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-37090).
(4)<F4> Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
(5)<F5> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated December 29, 2000
(File No. 333-78659).
</FN>
b) Reports on Form 8-K: NONE.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTRADECENTER.COM INC.
Date: February 20, 2001 By:/s/ M.H. FEINSTEIN
------------------------------------
M.H. Feinstein, Chief Financial Officer
19