As filed May 14,2001 File No. 333-37090
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMENDMENT NO. 5
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
ARIZONA 5010 86-0879572
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
15170 NORTH HAYDEN ROAD, SUITE 5, SCOTTSDALE, ARIZONA 85260
(480) 556-6701
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROGER L. BUTTERWICK, PRESIDENT
AUTOTRADECENTER.COM INC.
15170 NORTH HAYDEN ROAD, SUITE 5
SCOTTSDALE, ARIZONA 85260
(480) 556-6701
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300, Denver, Colorado 80203
(303) 777-3737; (303) 777-3823 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAX-IMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
Common stock issuable upon 2,828,800 shares $1.00 $2,121,600 $560.10
conversion of Series C (1)<F1>
preferred stock
Common stock issuable upon 8,359,223 shares $ (1)<F1> $3,182,400 $840.15
conversion of Series D (1)<F1>(2)<F2> (2)<F2>
preferred stock
Common stock held by 6,247,143 shares $1.84 (3)<F3> $11,494,743 $3,034.61
selling security holders
Common stock issuable upon 75,000 shares $1.03 (4)<F4> $77,250 $20.39
exercise of stock option
Common stock issuable upon 105,000 shares $1.20 (4)<F4> $126,000 $33.27
exercise of stock option
Common stock issuable upon 55,000 shares $5.40 (4)<F4> $297,000 $78.41
exercise of warrants
Common stock 175,000 shares $0.50 (4)<F4> $87,500 $23.10
issuable upon
exercise of warrants
Common stock held by 104,683 shares $0.85 (5)<F5> $88,457 $22.11
selling security holders
Common stock held by 55,000 shares $0.335 (7)<F7> $18,425 $4.61
selling security holders
Total 18,004,849 shares $17,493,375 $4,616.75 (6)<F6>
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<FN>
(1)<F1> An indeterminate number of additional securities are registered
hereunder which may be issued, as provided in the Series C and D
preferred stock definitions, in the event provisions against dilution
become operative.
(2)<F2> Each share of Series D preferred stock is convertible into shares of
the registrant's common stock using a conversion price equal to 65% of
the average closing bid price for the common stock for the 10 trading
days immediately preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $100 = # of shares of
-------------------------------------
65% of average closing bid price common stock
There were originally 31,824 shares of Series D preferred stock issued
and outstanding. Accordingly, the aggregate dollar value of shares of
Series D preferred stock to be converted is $3,182,400. The number of
shares shown is equal to the number of shares issued upon conversion
plus an estimate of shares still issuable upon conversion, using a
conversion price of $0.25.
(3)<F3> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of May 11, 2000.
(4)<F4> Calculated pursuant to Rule 457(g).
(5)<F5> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of January 26, 2001.
(6)<F6> A filing fee of $4,640.72 has already been paid.
(7)<F7> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of April 18, 2001.
</FN>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
Subject to Completion, dated May 14, 2001
AUTOTRADECENTER.COM INC.
18,004,849 SHARES OF COMMON STOCK
This prospectus is for selling shareholders and covers 18,004,049 shares
owned by them. We will not receive any proceeds from the resale of these shares.
We have agreed to pay for all expenses of this offering.
Our common stock is traded on the OTC Bulletin Board under the symbol
"AUTC." On May 10, 2001, the closing price for our common stock was $0.28 per
share.
The selling shareholders or their transferees may use this prospectus to
offer their shares for sale from time to time. They may sell their shares in one
or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as principal, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
shareholders. The selling shareholders and intermediaries through whom such
shares are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended, and the profits realized or commissions
received may be deemed underwriting compensation.
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INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. A DETAILED
EXPLANATION OF THESE RISKS IS INCLUDED IN ANOTHER SECTION OF THIS PROSPECTUS,
BEGINNING ON PAGE 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This date of this prospectus is _____________, 2001
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY.............................................................3
RISK FACTORS...................................................................5
NOTE TO READERS...............................................................11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................11
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................11
SELECTED FINANCIAL DATA.......................................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS....................................................13
BUSINESS......................................................................22
MANAGEMENT....................................................................29
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................36
SELLING STOCKHOLDERS..........................................................43
DESCRIPTION OF SECURITIES.....................................................45
PLAN OF DISTRIBUTION..........................................................47
SHARES ELIGIBLE FOR FUTURE SALE...............................................48
LEGAL PROCEEDINGS.............................................................48
EXPERTS.......................................................................48
AVAILABLE INFORMATION.........................................................49
REPORTS TO STOCKHOLDERS.......................................................49
INDEX TO FINANCIAL STATEMENTS.................................................50
FINANCIAL STATEMENTS.........................................................F-1
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should carefully read this entire prospectus and the financial
statements contained in this prospectus before purchasing our securities.
AUTOTRADECENTER.COM INC.
We assist automobile manufacturers, finance companies, financial
institutions, lease and rental companies, and automobile dealers in marketing
their inventories of used automobiles over the Internet. This is referred to as
"remarketing" in the automotive industry. We have developed technology that
enables businesses with used vehicles to post their inventories on a website,
provide detailed information about each vehicle, and sell these vehicles to
other dealers. We believe that our services provide businesses with an efficient
and cost-effective used vehicle redistribution or remarketing system as an
alternative to traditional auto auctions.
We were incorporated in Arizona on July 10, 1997 and commenced operations
on September 22, 1997 at our office and warehouse facility in Scottsdale,
Arizona. We were engaged primarily in the wholesale used car business, selling
and buying primarily late model used vehicles to and from independent and
franchised automobile dealers. "Dealers" refers to persons or entities that sell
and buy automobiles as a business. We acquired late model trade-in vehicles from
dealers and resold the vehicles to other dealers located in multiple geographic
regions. We purchased, took title to, and sold vehicles to dealers through
brokers. We refer to these operations as our land-based operations in this
prospectus. On November 30, 2000, we formally decided to focus our efforts on
remarketing services via the Internet. As of December 29, 2000, we sold our
interest in three of our land-based operations and disposed of our last
land-based operation in January 2001. Our management believes that focusing on
remarketing services via the Internet offers the best chance for growth and
profitability.
Our land-based operations are reflected as discontinued operations in our
financial statements. We generated revenues of $291,587 and incurred a net loss
of $2,587,753 for the fiscal year ended March 31, 2000, $946,202 of which
resulted from Internet remarketing operations and $1,641,551 of which resulted
from land-based operations. Revenues generated and costs incurred from
remarketing operations were not significant during that fiscal year. We first
earned revenues from Internet remarketing services in April 2000. We generated
revenues of $645,833 and incurred a net loss of $9,034,989 for the nine months
ended December 31, 2000. All of these revenues resulted from Internet
remarketing operations. $1,975,892 of the net loss is due to the discontinuance
of our land-based operations.
Our offices are located at 15170 North Hayden Road, Suite 5, Scottsdale,
Arizona 85260, and our telephone number is (480) 556-6701.
THE OFFERING
Securities offered.................. 2,828,800 shares of common stock issued or issuable upon conversion of Series
(We will not receive any of the C preferred stock held by existing shareholders
proceeds from the resale of these
securities.) An estimated 8,359,223 shares of common stock issued or issuable upon
conversion of Series D preferred stock (based on a conversion price of $0.25
per share) held by existing shareholders. Since the conversion price is equal to
65% of the average closing bid for the 10 trading days immediately preceding the
date of conversion, the number of shares is subject to change.
Up to 6,406,826 shares of common stock held by existing shareholders
410,000 shares of common stock issuable upon exercise of stock options and
warrants
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Securities outstanding............. 34,514,001 shares of common stock as of December 31, 2000
12,852 shares of Series C preferred stock as of December 31, 2000
17,034 shares of Series D preferred stock as of December 31, 2000
SUMMARY FINANCIAL INFORMATION
The following summary financial data is based upon our consolidated
financial statements included elsewhere in this prospectus. We have restated our
financial statements due to our disposition of our land-based operations, which
represents the disposal of a business segment. We have prepared our consolidated
financial statements in accordance with generally accepted accounting
principles. Our results of operations for any interim period do not necessarily
indicate our results of operations for the full year. You should read this
summary financial data in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business," and our
consolidated financial statements.
BALANCE SHEET DATA:
DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
2000 2000 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
Current assets $ 1,947,502 $ 5,489,176 $ 401,628 $ --
Total assets $12,266,256 $20,102,747 $4,790,817 $743,333
Current liabilities $ 1,959,829 $ 1,647,349 $1,343,936 $ --
Long-term liabilities $ -- $ -- $ 535,817 $ 3,465
Stockholders' equity $10,306,427 $18,455,398 $2,911,064 $739,868
Working capital (deficiency) $ (12,327) $ 3,841,827 $ (942,308) $ --
INCOME STATEMENT DATA:
JULY 10, 1997
NINE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
Net sales $ 645,833 $ 291,587 $ 291,587 $ -- $ --
Net loss from continuing
operations $(7,059,097) $(522,448) $ (946,202) $(276,671) $ --
Income (loss) from dis-
continued operations $(1,975,892) $(118,307) $(1,697,585) $ 448,491 $15,899
Net income (loss) before
taxes $(9,034,989) $(640,755) $(2,643,787) $ 171,820 $15,899
Net income (loss)
$(9,034,989) $(509,935) $ 2,587,753) $ 115,241 $12,384
Basic earnings (loss) per
share
Continuing operations $ (0.22) $ (0.03) $ (0.04) $ (0.02) $ --
Discontinued
operations $ (0.22) $ (0.03) $ (0.08) $ 0.03 $ --
Diluted earnings (loss)
per share
Continuing operations $ (0.06) $ (0.00) $ (0.04) $ (0.01) $ --
Discontinued
operations $ (0.06) $ (0.00) $ (0.08) $ 0.02 $ --
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RISK FACTORS
The securities offered under this prospectus involve a high degree of
risk. You should carefully consider the risk factors set forth below, as well as
the other information appearing in this prospectus, before purchasing any of our
securities.
WE REQUIRE CASH OF $800,000 THROUGH AUGUST, 2001 TO SUSTAIN OPERATIONS.
We project that we will not be operating at a break-even level until September
2001. Accordingly, we require $800,000 of cash through external sources
through August 2001. If are unable to obtain this funding at the appropriate
times, we may have to cut back operations.
WE MAY NOT BE PROFITABLE IN THE FUTURE. We incorporated on July 10, 1997
and have been in operation since September 22, 1997. We experienced a net loss
of $2,587,753 for the year ended March 31, 2000 and incurred a loss of
$9,034,989 for the nine months ended December 31, 2000. We are continuing to
expand our Internet operations. This expansion requires us to hire personnel and
incur expenses prior to realizing the anticipated revenue associated with our
expansion efforts. Therefore, you should consider the purchase of our securities
as risky since we may be subject to unusually high legal and accounting costs,
marketing program development costs, automated systems development, losses
related to abandoned projects, and other similar costs and expenses commonly
encountered by new ventures.
AS AN ENTITY FORMED IN 1997, ONLY LIMITED INFORMATION IS AVAILABLE. Since
we were formed in 1997, we can provide only a limited amount of historical
information and financial data about our operations upon which you can make an
informed judgment as to our future prospects.
WE HAVE PLEDGED ALL OF OUR ASSETS TO SECURE DEBT. As of April 16, 2001, we
owed $738,200 to Mark Moldenhauer, our affiliate. We have negotiated new notes
with Mr. Moldenhauer for the repayment of this amount, which are due April 1,
2002. We pledged all of our assets to secure this loan. If we should fail to
repay the new notes according to their terms, foreclosure on the pledged assets
would impair our ability to conduct business as usual. We would be forced to
reorganize our business operations or find another source of capital to carry
out business operations.
WE ARE COMPLETELY DEPENDENT UPON REVENUES FROM AMERICAN HONDA FINANCE. For
the nine months ended December 31, 2000, we derived all of our revenues from our
contract with American Honda Finance Corporation. While we expect to generate
revenues from our contract with American Suzuki Motor Corporation during the
quarter ending June 30, 2001, the loss of our contract with American Honda
Finance Corporation would materially and adversely affect our ability to conduct
business.
WE HAVE ENGAGED IN TRANSACTIONS WITH RELATED PARTIES THAT WERE NOT AT
ARMS-LENGTH; ARMS-LENGTH TRANSACTIONS MAY HAVE BEEN MORE FAVORABLE WHICH WOULD
HAVE INCREASED SHAREHOLDER VALUE. The disposition of our land-based operations;
acquisition of Pinnacle Dealer Services, Inc.; loans from our principal
shareholders and former officers and directors; and the issuance of stock
options to principal shareholders, officers and directors who have personally
guaranteed company obligations were not arm's-length transactions. While
management believes that the terms of such transactions were fair and in our
best interests, all of the transactions, other than the disposition of our
land-based operations, were not approved by our shareholders or disinterested
directors and no fairness opinions were obtained. Further, we engaged in
wholesale used car transactions with affiliated entities from time to time on
the same terms as with other automobile dealers. It may be unlikely that
officers, directors, and principal shareholders will continue to provide
financial assistance in the future. The risk associated with any of these
related party transactions is that our company may have been able to consummate
these transactions under more favorable terms and conditions. If that were
proven true, we could be subject to suit by our shareholders.
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THE LOSS OF ANY OF OUR EXPERIENCED MANAGEMENT MAY LIMIT OUR SUCCESS. Our
success will largely depend upon the active participation of our management. We
do not have employment agreements with our management or key-man insurance. The
time, which the officers and directors devote to our business affairs and the
skill with which they discharge their responsibilities will substantially impact
our success. To the extent the services of these individuals would be
unavailable to us for any reason, we would have to obtain other executive
personnel to manage and operate our company. In such event, there is no
assurance that we would be able to employ qualified persons on favorable terms.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY AGAINST OTHERS AND MAY BE FORCED
TO ABANDON THE EXECUTION OF OUR CURRENT BUSINESS PLAN. We compete with other
Internet-based entities that maintain commercial websites for remarketing of
vehicles on the Internet, including Autodaq.com Inc., Manheim Interactive, Fleet
Lease Disposal, Inc., Cobalt Inc. and GMAC's Smart auction. We may compete for
vehicles sales with the automobile auctions such as Manheim, Inc. Adessa
Corporation, ABC and Serve Net. When, and or if, we expand our Internet services
to consumer purchasing over the Internet, we will compete with retail Internet
sites such as Cars.com, Autobytel.com, Autoweb.com, AutoVantage, Carsdirect.com,
USATradein.com, Automall.com, Stoneage.com and Microsoft Corporation's Carpoint.
Certain of these Internet companies may decide in the future to compete in the
wholesale market and provide competition to us.
In addition, all major vehicle manufacturers have their own Web sites and
many have recently launched or announced plans to launch online buying services,
such as General Motors Corporation's BuyPower. We believe that the principal
competitive factors in the online market are brand recognition, speed and
quality of fulfillment, variety of value-added services, ease of use, customer
satisfaction, quality of service, and technical expertise. We cannot assure you
that we will be able to compete successfully against current or future
competitors, many of which have substantially more capital, existing brand
recognition, resources, and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share, or otherwise may materially and adversely
affect our business, results of operations and financial condition.
The market for Internet-based commercial services is new, and we expect
competition among commercial web sites to increase significantly in the future.
Minimal barriers to entry characterize Internet commerce, and new competitors
can launch new Web sites at relatively low cost. To compete successfully as an
Internet-based commercial entity, we must increase significantly awareness of
our services and brand name. If we do not achieve our competitive objectives,
such failure may have a material adverse effect on our business, results of
operations, and financial condition.
A DECREASE IN THE LEVEL OF VEHICLE SALES IN THE AUTOMOTIVE INDUSTRY COULD
CAUSE OUR BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION TO SUFFER.
The economic strength of the automotive industry significantly impacts the
revenue we derive from our automotive-related vendors. The automotive industry
is cyclical, with sales of vehicles changing due to changes in national and
global economic forces. Sales of vehicles in the United States have been at
historically high levels during recent years. We cannot assure you that vehicle
sales will stay at their current levels in the future. A decrease from the
current level of vehicle sales could have a material adverse affect on our
business, results of operations, and financial condition.
INABILITY TO MANAGE GROWTH AND ENTRY INTO NEW BUSINESS AREAS WILL HAVE AN
ADVERSE EFFECT ON OUR BUSINESS. We are expanding our operations in order to
establish a leadership position in the evolving market for Internet-based
vehicle purchasing services. We believe that establishing industry leadership
requires us to test, introduce, and develop new services and products, including
enhancing our Web site; expand the breadth of products and services offered;
expand our market presence through relationships with third parties; and acquire
new or complementary businesses, products or technologies. We may not be able to
expand our operations in a cost-effective or timely manner or increase overall
market acceptance. Our inability to generate sufficient revenue from such
expanded services or products to offset their cost could have a material adverse
effect on our business, financial condition, and results of operations.
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WE CANNOT ASSURE YOU THAT THERE WILL BE SUFFICIENT GROWTH AND ACCEPTANCE
OF OUR INTERNET COMMERCE SERVICES TO ALLOW US TO SUCCEED. The market for
Internet-based vehicle wholesaling and purchasing services has only recently
begun to develop and is evolving rapidly. While many Internet commerce companies
have grown in terms of revenue, few are profitable. We cannot assure you that we
will be profitable. As is typical for a new and rapidly evolving industry,
demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty and there are few proven
services and products. Moreover, since the market for our services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market. The success of our services will depend upon the adoption of the
Internet by consumers and dealers as a mainstream medium for commerce. While we
believe that our services offer significant advantages to consumers and dealers,
we cannot assure you that widespread acceptance of Internet commerce in general,
or of our services in particular, will occur. Our success will require that
dealers, who have historically relied upon auto auctions to purchase vehicles,
will accept new methods of conducting business and exchanging information. In
addition, dealers must be trained to use and invest in developing technologies.
Moreover, critical issues concerning the commercial use of the Internet,
including ease of access, security, reliability, cost, and quality of service,
remain unresolved and may impact the growth of Internet use. If the market for
Internet-based vehicle marketing services fails to develop, develops more slowly
than expected, or becomes saturated with competitors, or if our services do not
achieve market acceptance, our business, results of operations, and financial
condition will be materially and adversely affected.
IF LAWS OR REGULATIONS PERTAINING TO INTERNET COMMERCE ARE ADOPTED, OUR
OPERATIONS COULD BE ADVERSELY IMPACTED. There are currently few laws or
regulations that apply directly to the Internet. Due to the increasing
popularity of the Internet, it is possible that a number of local, state,
national or international laws and regulations may be adopted with respect to
issues such as the pricing of services and products, advertising, user privacy,
intellectual property, information security, or anti-competitive practices over
the Internet. In addition, tax authorities in a number of states are currently
reviewing the appropriate tax treatment of companies engaged in Internet
commerce. New state tax regulations may subject us to additional state sales,
use, and income taxes. Because our business is dependent on the Internet, the
adoption of any such laws or regulations may decrease the growth of Internet
usage or the acceptance of Internet commerce that could, in turn, decrease the
demand for our services and increase costs or otherwise have a material adverse
effect on our business, results of operations, and financial condition. To date,
we have not spent significant resources on lobbying or related government
affairs issues, but we may need to do so in the future.
IF WE ARE UNABLE TO ADAPT TO CHANGING TECHNOLOGIES, OUR BUSINESS, RESULTS
OF OPERATIONS, AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED. The Internet
and electronic commerce markets are characterized by rapid technological change,
changes in user and customer requirements, frequent new service and product
introductions embodying new technologies, and the emergence of new industry
standards and practices that could render our existing Web site and technology
obsolete. Our performance will depend, in part, on our ability to continue to
enhance our existing services, develop new technology that addresses the
increasingly sophisticated and varied needs of its prospective customers,
license leading technologies, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of our Web site and other proprietary technology entails significant
technical and business risks. We may not be successful in using new technologies
effectively or adapting our web site or other proprietary technology to customer
requirements or to emerging industry standards. If we were to be unable to adapt
to changing technologies, our business, results of operations, and financial
condition could be materially and adversely affected.
IF WE SHOULD EXPERIENCE SIGNIFICANT SYSTEMS INTERRUPTIONS, OUR BUSINESS,
RESULTS OF OPERATIONS, AND FINANCIAL CONDITION WOULD BE ADVERSELY IMPACTED.
Currently we host our Web sites WWW.AUTOTRADECENTER.COM and
WWW.TRADEINCARSONLINE.COM in our offices in Scottsdale Arizona. These sites
formerly were hosted through a third party based in Kelowna, British Columbia.
We employ the services of NetChemistry based in Newport Beach, California, as
the Application Services Provider (ASP) to host our Web site for American Honda
Finance Corporation, www.hfcarsales.com. Although the third parties maintain
redundant offsite backup servers, all of our primary servers could be vulnerable
to interruption by damage from fire, flood, power loss, telecommunications
failure, break-ins, and other events beyond our control. We have experienced
periodic systems interruptions and
7
anticipate that such interruptions will occur from time to time in the future.
In the event that we experience significant system disruptions, our business,
results of operations, and financial condition would be materially and adversely
affected.
SECURITY BREACHES INVOLVING CONFIDENTIAL INFORMATION TRANSMITTED VIA THE
INTERNET COULD EXPOSE US TO LOSS, LITIGATION OR OTHER LIABILITIES. To the extent
that our activities involve the storage and transmission of proprietary
information, such as personal financial information, security breaches could
expose us to a risk of financial loss, litigation, and other liabilities. We
rely on technology that is designed to facilitate the secure transmission of
confidential information. Our computer infrastructure, however, may be
vulnerable to physical or electronic computer break-ins, viruses, and similar
disruptive problems. A party who circumvents our security measures could
misappropriate proprietary information, jeopardize the confidential nature of
information transmitted over the Internet, or cause interruptions in our
operations. Concerns over the security of Internet transactions and the privacy
of users also could inhibit the growth of the Internet in general, particularly
as a means of conducting commercial transactions. Our insurance policies
currently do not protect against such losses. Any such security breach could
have a material adverse effect on our business, results of operations, and
financial condition.
IF WE CANNOT KEEP UP WITH INCREASES IN VOLUME OR PACE OF TRAFFIC ON OUR
WEBSITE, OUR SALES AND ULTIMATELY OUR RESULTS OF OPERATIONS WILL BE ADVERSELY
AFFECTED. Our success will depend, in large part, upon a robust communications
industry and infrastructure to provide Internet access and carry Internet
traffic. The Internet may not prove to be a viable commercial medium because of
inadequate development of the necessary infrastructure (e.g., reliable network
backbone), timely development of complementary products (e.g., high speed
modems), delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
government regulation. If the Internet continues to experience significant
growth in the number of users and the level of use, the Internet infrastructure
may not be able to continue to support the demands placed on it by such growth.
An unexpectedly large increase in the volume or pace of traffic on our Web site
or the number of orders placed by customers may require us to expand and further
upgrade our technology, transaction-processing systems, and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our web site or to expand and upgrade our
systems and infrastructure to accommodate such increases.
THE MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY OR CLAIMS OF
INFRINGEMENT COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, AND
FINANCIAL CONDITION. Our ability to compete depends upon our proprietary systems
and technology. We have not yet applied for copyright protection or registered
our trademarks. As a result, unauthorized parties may attempt to duplicate
aspects of our services or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our proprietary rights is difficult.
In addition, we may become involved in litigation in the future to enforce or
protect our intellectual property rights or to defend against claims of
infringement or invalidity. As part of our confidentiality procedures, we
generally enter into agreements with our employees and consultants and limit
access to our trade secrets and technology. We cannot assure you that these
steps will prevent misappropriation of technology or that the agreements entered
into for that purpose would be enforceable. Misappropriation of our intellectual
property or potential litigation could have a material adverse effect on its
business, results of operations, and financial condition.
LICENSING TECHNOLOGY AND CONTENT COULD SUBJECT US TO CLAIMS OF
INFRINGEMENT. We license technology and content from third parties. We could
become subject to infringement actions based upon the licenses from those third
parties. We generally obtain representations as to the origin and ownership of
such licensed technology and content. These representations, however, may not
adequately protect us. Any of those claims, whether or not they have merit,
could subject us to costly litigation and the diversion of our technical and
management personnel that in turn may have a material adverse effect upon
shareholder value.
LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY IMPAIR INVESTMENT LIQUIDITY
AND/OR RETURN ON INVESTMENT. Our common stock is traded in the over-the-counter
market. The price for the stock and the volume of shares traded fluctuate
widely. Consequently, persons who invest in the common stock may not be able to
use their
8
shares as collateral for loans and may not be able to liquidate at a suitable
price in the event of an emergency. In addition, holders may not be able to
resell their shares, or may not be able to sell their shares at or above the
price they paid for them.
THE EXERCISE OR CONVERSION OF OPTIONS, WARRANTS, AND CONVERTIBLE
SECURITIES COULD RESULT IN POTENTIAL DILUTION AND IMPAIR MARKET PRICE OF OUR
COMMON STOCK. As of December 31, 2000, we had outstanding options, warrants, and
convertible securities to acquire an aggregate of 14,778,155 shares of common
stock, based on a conversion price of $0.25 for the Series D preferred stock. To
the extent that the outstanding options, warrants, and convertible securities
are exercised or converted, existing shareholders will experience dilution in
their percentage ownership. So long as these options, warrants, and convertible
securities are exercisable, the holders will have the opportunity to profit from
a rise in the price of the common stock. The additional shares of common stock
available for sale in the market may have a negative impact on the price and
liquidity of the common stock that is currently outstanding.
ISSUANCE OF PREFERRED STOCK COULD RESULT IN POTENTIAL DILUTION AND COULD
IMPAIR OUR ABILITY TO PAY DIVIDENDS ON COMMON STOCK. We are authorized to issue
up to 1,000,000 shares of preferred stock, in one or more series, with such
rights, preferences, qualifications, limitations, and restrictions as shall be
fixed and determined by our board of directors from time to time. These
preferences could operate to the detriment of the rights of the holders of our
common stock. For example, preferred stock having a dividend preference could
impair our ability to pay dividends on the common stock. Preferred stock having
a right to convert into common stock could result in dilution to common
stockholders. As of December 31, 2000, 12,852 shares of Series C preferred stock
and 17,034 shares of Series D preferred stock were outstanding.
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES MAY HAVE AN ADVERSE IMPACT
ON OUR ABILITY TO OBTAIN ADDITIONAL FINANCING THAT COULD RESULT IN REDUCED
LEVELS OF OPERATIONS. The holders of such options, warrants, and convertible
securities can be expected to exercise them at a time when we would probably be
able to obtain additional capital by an offering of its stock at a price higher
than the exercise price of these outstanding options, warrants, and convertible
securities. This may cause a potential investor to reduce or refuse to provide
us with additional financing. As disclosed elsewhere in this prospectus, we
intend to finance our growth through the issuance of up to $10 million of debt,
convertible debt, or equity. Accordingly, the existence of these options,
warrants, and convertible securities may impair our ability to grow or to
sustain current or increased levels of operations. A decrease in operations
could result in sustained losses that may have a material effect upon
shareholder value.
ISSUANCE OF THE SERIES D PREFERRED STOCK MAY SIGNIFICANTLY DILUTE THE
EQUITY INTEREST OF EXISTING SHAREHOLDERS AND DEPRESS THE MARKET PRICE FOR THE
COMMON STOCK. Holders of the Series D Preferred Stock are issued shares of
common stock at 65% of the market price of our common stock at the time of
conversion. The lower the average trading price of our common stock at the time
of a conversion, the greater the number of shares of our common stock that will
be issued. Accordingly, this causes a greater risk of dilution. The risk of
dilution could cause our shareholders to sell their shares, which could have a
depressive effect on the price of our common stock.
SIGNIFICANT WORKING CAPITAL DEFICIENCY MAY DISRUPT NORMAL OPERATIONS BY
REDUCING SALES AND RESULT IN OPERATING LOSSES. At December 31, 2000, we had a
working capital deficiency of $12,327. This deficiency increases our
vulnerability if there is a negative economic or industry downturn. This reduces
the amount of cash available to sustain the current level of sales. Reduced
sales may result in operating losses, decreasing shareholder value.
"PENNY STOCK" RULES MAY LIMIT THE MARKETABILITY OF OUR STOCK RESULTING IN
A LOSS OF AN INVESTORS INVESTMENT. Our common stock is subject to SEC rules
relating to "penny stocks," which apply to non-NASDAQ companies whose stock
trades at less than $5.00 per share or whose tangible net worth is less than
$2,000,000. These rules require brokers who sell "penny stocks" to persons other
than established customers and "accredited investors" to complete required
documentation, make suitability inquiries of investors, and provide investors
with specific disclosures concerning the risks of trading in the security. These
rules may restrict the ability of brokers to
9
sell the common stock and may reduce the secondary market for the common stock.
A limited secondary market may result in a decrease in the shareholder value
and/or a partial or total loss of an investor's investment.
INABILITY TO OBTAIN ADDITIONAL FINANCING REQUIRED TO EXECUTE OUR BUSINESS
PLAN COULD RESULT IN SIGNIFICANT LOSSES AND DECREASE SHAREHOLDER VALUE. We
continue to make a growing and significant monetary investment in our Internet
presence. Competition on the Internet continues to increase and many potential
competitors enjoy significantly better financial strength than our company. If
we are unable to obtain additional long-term capital in the form of equity or
debt, we may be unable to effectively execute our business plan and possibly
suffer a significant financial loss, resulting in a decrease in shareholder
value.
NOTE TO READERS
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "WE," "OUR," AND "US,"
REFERS TO AUTOTRADECENTER.COM INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are not historical facts but are
forward-looking statements. These forward-looking statements may be identified
by the use of terminology such as "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plans," "project," and similar expressions. These statements
involve risks and uncertainties including, but not limited to, those relating to
the stage in which we are operating; the lack of revenues; Year 2000 compliance;
uncertainty of market acceptance of our services once introduced; competition;
effects of government regulation on our services; dependence on key personnel;
and market for our shares as well as other factors detailed in "Risk Factors"
above and elsewhere in this prospectus and in our other filings with the SEC.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated.
10
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock traded over-the-counter on the OTC Bulletin Board from
January 29, 1998 to August 2, 1999, and since November 8, 1999. From August 3,
1999 to November 5, 1999, our common stock traded on the "pink sheets". The
following table sets forth the range of high and low bid quotations for each
fiscal quarter since the stock began trading. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions and may
not necessarily represent actual transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID
March 31, 1998................................ $ 1.1250 $ 0.0250
June 30, 1998................................. $ 1.1250 $ 0.7500
September 30, 1998............................ $ 1.0625 $ 0.1875
December 31, 1998............................. $ 1.6875 $ 0.5000
March 31, 1999................................ $ 7.7500 $ 1.5625
June 30, 1999................................. $ 3.7500 $ 1.8750
September 30, 1999............................ $ 2.1250 $ 0.6250
December 31, 1999............................. $ 2.0000 $ 0.6250
March 31, 2000................................ $ 7.6250 $ 1.5000
June 30, 2000................................. $ 3.2500 $ 1.1000
September 30, 2000............................ $ 2.6250 $ 0.9375
December 31, 2000............................. $ 2.3750 $ 0.3125
March 31, 2001................................ $ 1.2344 $ 0.2969
On May 10, 2001, the closing price for the common stock was $0.28. The
number of record holders of common stock as of December 31, 2000 was 98
according to our transfer agent.
Our common stock is subject to SEC rules relating to "penny stocks," which
apply to non-NASDAQ companies whose stock trades at less than $5.00 per share or
whose tangible net worth is less than $2,000,000. Prior to the sale of a penny
stock recommended by the broker-dealer to a new customer who is not an
accredited investor, the broker-dealer must approve the customer's account for
transactions in penny stocks in accordance with procedures set forth in the
SEC's rules. The broker-dealer must obtain information about the customer's
financial situation, investment experience, and investment objectives. Using
this information, the broker-dealer must be able to determine that transactions
in penny stocks are suitable for this customer and that the customer has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker-dealer must
furnish the customer with a written statement setting forth the basis for the
broker's determination of suitability. The customer must sign, date, and return
the statement to the broker-dealer. In addition, the broker-dealer must obtain a
written agreement from the customer to purchase the penny stock that sets forth
the identity of the stock and number of shares to be purchased. A separate
agreement must be obtained for each penny stock purchased by the customer until
he or she becomes an "established customer."
Holders of shares of common stock are entitled to dividends when, and if,
declared by the board of directors out of funds legally available for the
payment of dividends. We have never paid any cash dividends on our common stock
and intend to retain future earnings, if any, to finance the development and
expansion of our business. Our future dividend policy is subject to the
discretion of the board of directors and will depend upon a number of factors,
including future earnings, capital requirements, and our financial condition.
11
SELECTED FINANCIAL DATA
The balance sheet and income statement data shown below were derived from
our audited and unaudited financial statements. We have restated our financial
statements due to our disposition of our land-based operations, which represents
the disposal of a business segment. You should read this data in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as our financial statements and notes thereto, included
elsewhere in this prospectus.
BALANCE SHEET DATA:
DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
2000 2000 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
Current assets $ 1,947,502 $ 5,489,176 $ 401,628 $ --
Total assets $12,266,256 $20,102,747 $4,790,817 $743,333
Current liabilities $ 1,959,829 $ 1,647,349 $1,343,936 $ --
Long-term liabilities $ -- $ -- $ 535,817 $ 3,465
Stockholders' equity $10,306,427 $18,455,398 $2,911,064 $739,868
Working capital (deficiency) $ (12,327) $ 3,841,827 $ (942,308) $ --
INCOME STATEMENT DATA:
JULY 10, 1997
NINE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
Net sales $ 645,833 $ 291,587 $ 291,587 $ -- $ --
Net loss from continuing
operations $(7,059,097) $(522,448) $ (946,202) $(276,671) $ --
Income (loss) from dis-
continued operations $(1,975,892) $(118,307) $(1,697,585) $ 448,491 $15,899
Net income (loss) before
taxes $(9,034,989) $(640,755) $(2,643,787) $ 171,820 $15,899
Net income (loss)
$(9,034,989) $(509,935) $ 2,587,753) $ 115,241 $12,384
Basic earnings (loss) per
share
Continuing operations $ (0.22) $ (0.03) $ (0.04) $ (0.02) $ --
Discontinued
operations $ (0.22) $ (0.03) $ (0.08) $ 0.03 $ --
Diluted earnings (loss)
per share
Continuing operations $ (0.06) $ (0.00) $ (0.04) $ (0.01) $ --
Discontinued
operations $ (0.06) $ (0.00) $ (0.08) $ 0.02 $ --
12
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 from September 22, 1997, commencement of operations, through
March 31, 1998 and the years ended March 31, 1999 and 2000; and the respective
nine-month periods ending December 31, 1999 and 2000.
GENERAL
The presentation includes a discussion of us with our wholly owned
subsidiaries, NDSCo.com, Inc., AutoTradeCenter Remarketing Services, Inc.
formerly Walden Remarketing Services, Inc., and BusinessTradeCenter.com Inc., as
well as subsidiaries in which we formerly carried out our land-based operations.
These subsidiaries are Auto Network Group of Arizona, Inc., Auto Network Group
of New Mexico, Inc., Auto Network Group Northwest, Inc., Auto Network Group of
Eastern Pa., Inc., Auto Group of San Antonio Ltd., Auto Network Group of Denver
Inc., and Pinnacle Dealer Services, 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. We disposed of our land-based
operations in Scottsdale, Arizona, in January 2001, thereby discontinuing all
land-based operations and allowing us to focus on providing automotive
remarketing services via the Internet.
As a result of the disposition of our land-based operations, as further
described in the following paragraphs, the trend information should be carefully
read and evaluated. See "Anticipated Trends and Plan of Operations" beginning at
page 21.
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 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 were issued to such managers, subject to forfeiture
based on both future earnings levels and continuity of management. In addition,
we made stock options available to these managers, which could be earned based
on future performance. On August 2, 2000, we formed a new wholly owned
subsidiary, Auto Network Group of Denver, Inc., and leased a facility in Denver,
Colorado.
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. We generated
$291,587 of revenue in the year ended March 31, 2000 from remarketing activities
that were not related either to our Internet remarketing business or our land-
based operations. See the discussion about Walden Remarketing immediately
preceding the section entitled "Fiscal Years Ending March 31, 2000, 1999 and
1998" on page 16. Our existing remarketing agreement with Honda Finance
Corporation gives us an exclusive contract to remarket, over the Internet
through January 31, 2004, all of the
13
vehicles returned to Honda and Acura after termination of a lease. These are
referred to in the industry as "off-lease" vehicles. 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) and we signed an agreement with Suzuki in January
2001 to remarket their program cars over the Internet for a one-year period.
Due to the discontinuance of our land-based operations, we now focus all
of our efforts on remarketing vehicles over the Internet.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE AND NINE
MONTHS ENDED DECEMBER 31, 1999. Net loss from continuing (Internet) operations
was $4,920,650 or $0.14 per share for the three months ended December 31, 2000
as compared to a net loss from continuing operations of $220,940 or $0.01 per
share for the three months ended December 31, 1999. Net loss from continuing
operations was $7,059,097 or $0.22 per share for the nine months ended December
31, 2000, as compared to a net loss from continuing operations of $522,448 or
$0.03 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 $6,711,411 or $0.19 per share and $9,034,989 or $0.28 per share,
respectively, as compared to net losses of $306,194 or $0.01 per share and
$509,935 or $0.03 per share for the comparable periods in 1999.
Our financial statements since our inception in 1997 reflect Internet
operations as continuing operations and land-based operations as discontinued
operations, even though we did not generate any revenue from our Internet
remarketing operations until April 2000. 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
transferred these operations to certain of the independent-contractor brokers
who formerly purchased and sold vehicles for us primarily in Scottsdale Arizona,
in January 2001.
The following statement of operations for the land-based operations
reflects the details of these operations for the periods herein presented:
14
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
DISCONTINUED OPERATIONS
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
12/31/00 12/31/99 12/31/00 12/31/99
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 1,199,064 964,688 315,933 359,261
Bad debt expenses 75,000 -- -- --
Depreciation and amortization 36,165 61,582 62,778 24,197
--------------- --------------- --------------- ---------------
Total operating expenses 5,686,501 3,579,901 1,751,957 1,162,342
--------------- --------------- --------------- ---------------
Income (loss) from operations 227,415 432,914 52,985 64,326
--------------- --------------- --------------- ---------------
Other income (expense):
Miscellaneous 139,599 73,803 124,021 30,825
Interest expense (690,853) (625,024) (315,744) (205,355)
--------------- --------------- --------------- ---------------
Total other income (expense)-net (551,254) (551,221) (191,723) (174,530)
--------------- --------------- --------------- ---------------
Loss before income taxes (323,839) (118,307) (138,738) (110,204)
--------------- --------------- --------------- ---------------
Income tax benefit -- -- -- --
Minority interest in loss -- -- -- --
Net Loss $ (323,839) $ (118,307) $ (138,738) $ (110,204)
=============== =============== =============== ===============
The following table reflects the loss incurred from discontinuing our
land-based operations:
Loss from sale of Albuquerque, Bend, and San Antonio operations:
Carrying value $1,596,933
Sales price 1,200,000
----------
Loss 396,933
Unamortized goodwill 352,432
----------
Total loss $ 749,365
Loss from transfer and closing of Scottsdale operation:
Sale of equipment 31,665
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 200,000 775,300
---------
Additional loss from closing Pennsylvania 127,388
-----------
Total Loss $ 1,652,053
===========
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.
15
General and administrative expenses of $723,624 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 capitalized software costs resulting from
the acquisitions of the minority interest in BTC and the acquisition of NDSCo,
as well as from computers and equipment required to run our Internet sites and
office furniture and equipment. Depreciation and amortization related to
continuing operations increased to $4,859,648 for the nine months ended December
31, 2000. Included in depreciation and amortization for the nine months ended
December 31, 2000 are (1) $2,022,465 to fully depreciate all of the
undepreciated costs allocated to software at the time of our acquisition of
NDSCo, and (2) $2,343,638 for depreciation on the value of software acquired
when we purchased the minority interest in BTC. Amortization was $148,904 and
primarily is due to goodwill resulting from our acquisitions during our fiscal
year ended March 31, 2000 of Walden Remarketing. During the quarter ended
December 31, 2000, depreciation and amortization charges included $1,869,531
respecting NDSCo and $1,622,867 respecting BTC. Amortization of goodwill from
Walden was $49,635 for the quarter.
Net sales from our continuing operations were nil and $291,587 for the
three and nine months ended December 31, 1999. All of this revenue was earned
during the first part of the year by AutoTradeCenter Remarketing Services Inc.
from contracts entered into by Walden Remarketing Services prior to our
acquisition of the company. These contracts were with American Honda Financial
Services and others. The revenue derived from these contracts resulted from
services provided by us to encourage dealers to attend and purchase off-lease
and other vehicles at auctions. None of this revenue resulted from Internet
activities, and it ceased upon expiration of the contracts in July and August of
1999. Operating expenses for these periods include all expenses directly related
to the activities of AutoTradeCenter Remarketing Services, increased by an
allocation of corporate salaries, overhead, and interest expense to our
continuing operations.
FISCAL YEARS ENDING MARCH 31, 2000, 1999 AND 1998. Our losses from
continuing operations were $(276,671) for the year ended March 31, 1999 and
$(946,202) for the year ended March 31, 2000. We did not have any Internet
remarketing operations for the period ending March 31, 1998. During the year
ended March 31, 2000, we reported fee revenue of $291,587 from the remarketing
of vehicles, although none of this revenue was from our Internet operations.
Operating expenses from continuing operations were $1,174,333. While there were
no revenues generated in fiscal 1999, we had operating expenses of $213,215.
Operating expenses for these years included direct expenses related to
remarketing non-owned vehicles as well as certain allocations of corporate
overhead and interest expense. The increase in general and administrative
expenses experienced in the 2000 fiscal year, in addition to the increase
resulting from our expanded Internet operations, primarily is attributable to
expenses incurred in the development of our web site, unusual one-time costs
associated with our registration process, costs associated with our capital
raising efforts, enhancements of our accounting and management information
systems, and costs associated with the hiring and training of personnel.
Subsequent to the year-end, additional personnel were added to our payroll as
well as additional office facilities, equipment, and computer hardware and
software.
Depreciation and amortization increased from $24,042 for the fiscal year
ended March 31, 1999 to $319,800 for the fiscal year ended March 31, 2000. The
significant increase in depreciation of $97,219 for the fiscal year ended March
31, 2000 is due to depreciation on purchases of computer software, property and
equipment required to improve our internal reporting and communications and to
initiate our e-commerce business with Honda and others. Amortization for the
fiscal year ended March 31, 2000 was $198,538 as a result of the allocation to
goodwill of the purchase price paid for Walden Remarketing in excess of its net
assets.
16
FLUCTUATIONS IN OPERATING RESULTS
We have had limited experience to determine if our operations will be
subjected to major fluctuations or trends. Historically, the used car market has
remained relatively stable as an industry. Industry projections over the next
few years indicate there will be an upward trend in used car sales; however,
there can be no assurance that our sales will parallel industry projections or
that industry projections will materialize.
FINANCIAL CONDITION
DECEMBER 31, 2000. As a result of our decision to discontinue our
land-based operations, our total assets decreased to $12,266,256 at December 31,
2000, from $20,102,747 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:
AUTOTRADECENTER.COM INC.
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
DECEMBER 31,
2000 MARCH 31, 2000 MARCH 31, 1999
Assets
Accounts receivable - trade, net $ 3,117,206 $ 5,743,845 $ 4,873,189
Accounts receivable - employees and brokers, net 186,150 332,122 324,248
Inventory 3,177,212 4,648,492 5,028,357
Prepaid expenses and other -- -- 73,887
Goodwill and property and equipment -- 316,311 266,860
----------- ----------- -----------
Total Assets 6,480,568 11,040,770 10,566,541
=========== =========== ===========
Liabilities
Accounts payable - trade 4,117,808 4,401,858 4,174,029
Notes payable - related party and other 750,000 5,376,821 3,893,890
Accrued liabilities 238,360 238,925 218,394
----------- ----------- -----------
5,107,168 10,017,604 8,286,313
Net Assets from Discontinued Operations $ 1,373,400 $ 1,023,166 $ 2,280,228
=========== =========== ===========
Total liabilities at December 31, 2000 increased to $1,959,829 from
$1,647,349 at March 31, 2000, primarily due to the increased amount due to Wells
Fargo Business Credit. 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 $738,200 at April 16, 2001 and we have agreed to new
notes for this amount, which are due April 1, 2002.
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.
MARCH 31, 2000. ASSETS. Total assets were $20,102,747 at March 31, 2000,
an increase of $15,311,930 from total assets of $4,790,817 at March 31, 1999. A
substantial amount of this increase is reflected in net software
17
that increased from $5,442 at March 31, 1999 to $12,013,608 at March 31, 2000.
The increase is due to our acquisitions of other entities for shares of our
common stock and other consideration described below.
o NATIONAL DEALER SERVICES CO. ("NDSCO")
On March 1, 2000, we acquired NDSCo by issuing to its shareholders a total
of 1,100,000 restricted shares of common stock, valued at $2.55 per share, in
exchange for the outstanding NDSCo shares. Of the purchase price, $2,039,123 was
allocated to the cost of software. During the quarter ended December 31, 2000,
this entire undepreciated cost was charged to depreciation based on a change in
estimate of its value and useful life.
o AUTOTRADECENTER REMARKETING SERVICES & WALDEN REMARKETING SERVICES, INC.
("WALDEN REMARKETING")
On March 31, 1999, we acquired Walden Remarketing by issuing to its
shareholders a total of 2,050,000 restricted shares of common stock, cash of
$125,000, and a promissory note in the principal amount of $425,000. We valued
the common stock at its estimated fair market value of $0.71 per share for a
total of $1,450,000. The promissory note accrued interest at the rate of 12% per
annum and required us to make 18 equal monthly payments of principal and
interest beginning May 1, 1999. At December 31, 1999, we converted the remaining
principal balance of the note ($314,475) into 314,475 shares of common stock.
The excess of the purchase price over the fair value of the net assets acquired
(goodwill) was $1,985,383 and is being amortized on a straight-line basis over
10 years.
o BUSINESS TRADECENTER.COM INC. ("BTC")
On January 7, 1999, we incorporated BTC in Arizona to facilitate the
buying and selling of vehicles at wholesale between dealers on the Internet. BTC
has developed the technology and systems necessary to make our inventory, as
well as the inventory of member dealers, available for purchase and sale on our
Internet site. On March 23, 2000, we acquired the remaining 45% minority
interest of BTC by issuing 5,000,000 shares of common stock, valued at $1.88 per
share, which represented management's estimate of the fair market value of the
common stock on that date, and paying off a convertible $200,000 note. Of the
purchase price, $9,374,550 was considered the value of the BTC software, certain
of which was being completed pursuant to our contract to provide Internet
marketing of American Honda Finance Corporation's off-lease vehicles. The
carrying value of this software is being depreciated over 36 months.
The increase in total assets also reflects the growth we have experienced
through the deployment of the capital and debt raised from outside investors.
LIABILITIES. Total liabilities decreased from $1,879,753 at March 31, 1999
to $1,647,349 at March 31, 2000. This decrease primarily is attributable to our
decrease in the amount owed to Wells Fargo Business Credit and decreases in
accounts payable and accrued liabilities.
STOCKHOLDERS' EQUITY. Stockholders' equity increased from $2,911,064 at
March 31, 1999 to $18,455,398 at March 31, 2000. The increase is attributable
to: $4,766,341 of net proceeds from the sale in a private placement of our
Series C and series D preferred shares; $9,375,000 from the issuance of common
shares to acquire the minority interest in a subsidiary (BTC); $2,801,590 from
the issuance of common shares to acquire a wholly owned subsidiary (NDSCo.);
$250,000 of net proceeds from the sale of common stock as a result of exercise
of options and warrants; the issuance of common stock valued at $193,401 in
connection with the acquisition of our Northwest subsidiary; $80,000 in common
shares issued for software development; $314,475 relating to a conversion of
debt to equity; and $351,280 for the fair value of stock options granted. These
increases were offset by our net loss for the year of $2,587,753.
During February 2000 we issued 21,216 shares of Series C preferred stock
("Series C") for $2,080,000. Each share of Series C preferred stock is
convertible, at the option of the holder, at any time, into 80 shares of Common
Stock of the Corporation, which is based on the initial conversion price of
$1.25. We assigned an intrinsic value of $1,697,280 to this conversion feature.
As a result, a constructive dividend in this amount was charged to retained
earnings with a corresponding increase in common stock. Each share of Series C
preferred stock is entitled to a $100 liquidation preference over common
stockholders. The Series C preferred stock is non-voting. We have
18
the right and option upon notice to the holders of the Series C preferred stock
to call, redeem, and acquire any or all of the shares of Series C preferred
stock at a price equal to $110.00 per share, at any time to the extent such
shares have not previously converted to common stock pursuant to the terms
described above; provided, however, that the holders of the Series C preferred
stock shall, in any event, have the right during the 30-day period immediately
following the date of the Notice of Redemption, which shall fix the date for
redemption, to convert their shares of Series C preferred stock.
During February 2000 we issued 31,824 shares of Series D preferred stock
("Series D") for $3,120,000. Each share of Series D preferred stock is
convertible, at the option of the holder, at any time, into shares of Common
Stock of the Corporation equal to $100.00 divided by the conversion price which
shall be equal to 65% of the average closing bid price for the common stock for
the 10 trading days immediately preceding the date of conversion. The maximum
conversion price shall be $4.00 per share. We assigned an intrinsic value of
$1,680,000 to this conversion feature. As a result, a constructive dividend in
this amount was charged to retained earnings with a corresponding increase in
common stock. Each share of Series D preferred stock is entitled to a $100
liquidation preference over common stockholders. The Series D preferred stock is
non-voting. We have the right and option upon notice to the holders of the
Series D preferred stock to call, redeem, and acquire any or all of the shares
of Series D preferred stock at a price equal to $110.00 per share, at any time
to the extent such shares have not previously converted to common stock pursuant
to the terms described above; provided, however, that the holders of the Series
D preferred stock shall, in any event, have the right during the 30-day period
immediately following the date of the Notice of Redemption, which shall fix the
date for redemption, to convert their shares of Series D preferred stock in
accordance with the terms described above.
MARCH 31, 1999 AND 1998. Total assets increased from $743,333 at March 31,
1998, to a consolidated total of $4,790,817 at March 31, 1999. The increase is
attributable to an increase in the net assets of our discontinued land-based
operations, the purchase of property and equipment, and the acquisition of
Walden Remarketing Services.
Total liabilities increased from $3,645 at March 31, 1998 to a
consolidated total of $1,879,752 at March 31, 1999. This increase primarily is
attributable to secured debt used to increase our now discontinued land-based
operations.
Stockholders' equity increased from $739,868 at March 31, 1998 to a
consolidated balance of $2,911,064 at March 31, 1999. We attribute the increase
at March 31, 1999 to earnings of $115,241 generated during the year ended March
31, 1999, $372,037 of net proceeds from the sale of preferred stock, the
issuance of common stock valued at $1,604,480 of goodwill in connection with the
acquisition of our subsidiaries, and $79,438 which was the fair value of stock
options granted for the year.
LIQUIDITY AND CAPITAL RESOURCES
DECEMBER 31, 2000. Working capital (current assets minus current
liabilities) decreased during the nine months ended December 31, 2000 by
$3,854,154. At December 31, 2000 we had a working capital deficiency of $12,327,
as compared to positive working capital of $3,841,827 at March 31, 2000. The
decrease substantially is due to the decrease in cash of $4,216,126, offset by
the increases in receivables and in net assets of discontinued operations.
Cash of $4,757,768 was used in our operating activities for the nine
months ended December 31, 2000, as compared to using $190,205 for the nine
months ended December 31, 1999. The major components contributing to the cash
used in operations for the nine months ended December 31, 2000 were our net
losses for the period from continuing operations of $7,059,097, discontinued
operations of $323,839, and discontinuance of land-based operations of
$1,652,053. Cash was primarily provided by the non-cash charge for depreciation
and amortization of $4,859,648. In contrast, for the nine months ended December
31, 1999, our loss from operations continuing and discontinued of $509,935
contributed to our cash used in operations. In addition, $205,249 was used to
increase our prepaid expenses and other current assets, with cash primarily
provided by the non-cash charge for depreciation and amortization of $171,033
and the decrease in the carrying value of net assets of discontinued operations
of $330,771.
19
Our investing activities for the nine months ended December 31, 2000 and
1999 used cash of $511,499 and $47,046, respectively, and consisted primarily of
computer hardware and software required for business expansion and our
e-commerce and Internet operations.
Financing activities provided cash of $1,053,141 for the first nine months
of our fiscal year ended March 31, 2001, as compared to $495,000 during the
previous period. We increased cash from the net proceeds of borrowings
($573,891) and the sale of common shares primarily related to the exercise of
previously issued stock options. Proceeds from such issuances were $479,250
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 evidenced this obligation to Wells
Fargo Business Credit bore interest at 1.5% over prime and was extended from its
original due date of March 31, 2000 to January 31, 2001. The amount outstanding
on our revolving line of credit at December 31, 2000 was $1,386,309. At March
31, 2000 our bank line of credit was $1,112,418. 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, which bears interest at 12% per annum. This debt subsequently
increased to $738,200 at April 16, 2001 and is now due April 1, 2002. At March
31, 2000, total long and short-term debt was $1,647,349.
MARCH 31, 2000 AND 1999. We used $742,328 of cash to support our operating
activities for the fiscal year ended March 31, 2000, as compared to $1,682,760
for the fiscal year ended March 31, 1999. The major component contributing to
the use of cash funds for operations for the fiscal year ended March 31, 2000,
other than our net loss for the year of $2,587,753, was the increase of $105,006
in prepaid expenses and other current assets. Cash was primarily provided by the
non-cash expense of $319,800 for depreciation and amortization, $351,280 for
stock options issued for services, and the decrease of $1,257,062 in net assets
of discontinued operations. For the year ending March 31, 1999, net assets of
discontinued operations increased $1,823,695 and accounts receivable increased
$98,610. These increases were offset by net income of $115,241, an increase in
accrued liabilities of $50,723, and adjustments of $24,042 for depreciation and
amortization and $23,083 for stock or stock options issued for services.
Our investing activities for the fiscal years ended March 31, 2000 and
1999 required a use of cash of $374,420 and $188,832, respectively. For the
fiscal year ended March 31, 2000, our investing activities comprised primarily
of the purchase of property and equipment for $420,365, less proceeds from sales
of property and equipment of $45,945. Property and equipment acquired in the
fiscal year ended March 31, 2000 primarily were computer hardware and software
required for business expansion and our e-commerce and Internet operations.
For the fiscal year ended March 31, 1999, $175,446 was expended for
property and equipment and $57,520 was sold. In addition $70,906 was used for
acquisitions.
We supported the cash needs identified above by net borrowings of $158,393
and proceeds from the issuance of convertible preferred stock and common stock
of $4,766,341 and $250,000, respectfully, for the fiscal year ended March 31,
2000. For the fiscal year ended March 31, 1999, cash needs were supplied by net
borrowings of $1,268,500 and the issuance of long-term debt and convertible
preferred stock for $528,807 and $372,037 respectfully.
MARCH 31, 1999 AND 1998. We used $1,682,760 of cash to support our
operating activities for the year ended March 31, 1999, as compared to $727,485
for the period ended March 31, 1998. The major components contributing to the
use of cash funds for operations for the year ended March 31, 1999 was the
increase in net assets of discontinued operations of $1,823,695 and inventory of
$98,610. These increases were only partially offset by net income of $115,241,
an increase in accrued liabilities of $50,723, and a total adjustment of $47,125
for depreciation and amortization and stock or stock options issued for
services. For the period ending March 31, 1998, substantially all of our
activities were related to our now discontinued land-based operations. The net
assets of these operations were financed by the issuance of common and preferred
shares.
20
Our investing activities for the year ended March 31, 1999 required a use
of cash of $188,832. For the year ended March 31, 1999, our investing activities
were limited to the purchase of property and equipment of $175,446, sale of
property and equipment of $57,520, and cash paid for acquisitions of $70,906. We
supported the cash needs identified above by receiving cash from net borrowings
of $1,268,500, proceeds from issuance of long-term debt of $528,807, and
proceeds from the issuance of preferred stock of $372,037 for the year ended
March 31, 1999.
ANTICIPATED TRENDS AND PLAN OF OPERATION
For the remainder of the current fiscal year, we intend to continue the
development of our Internet sites. We believe that focusing on providing
automotive remarketing services via the Internet will improve our long-term
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. In contrast, the Internet operations generate a lower amount
of revenue, but result in higher profit margins.
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 being returned upon termination of leases 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 website. With a definitive agreement
having been signed with American Suzuki Motor Corporation in January 2001, we
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.
Initially, revenues from Internet operations will not cover operating
expenses, and we will operate at a cash flow deficit. We project that we will
not be operating at a break-even level until September 2001. Accordingly, we
require $800,000 of cash through external sources through August 2001. We plan
to finance this deficit 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 and meeting our existing overhead
will be difficult. This limitation may adversely affect shareholder value.
To address the above-mentioned needs, we have raised, through April 20,
2001, approximately $1,700,000 from a private placement of common stock and
warrants. This offering is still in process. In addition we are in discussion
with investment bankers regarding an additional capital raise of up to
$3,000,000 through the issuance of common shares.
We are also attempting 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.
We cannot assure you that we will be able to raise this additional capital
21
BUSINESS
GENERAL
We assist automobile manufacturers, finance companies, financial
institutions, lease and rental companies, and automobile dealers in marketing
their inventories of used automobiles over the Internet. This is referred to as
"remarketing" in the automotive industry. We have developed technology that
enables businesses with used vehicles to post their inventories on a website,
provide detailed information about each vehicle, and sell these vehicles to
other dealers. We believe that our services provide businesses with an efficient
and cost-effective used vehicle redistribution or remarketing system as an
alternative to traditional auto auctions.
Presently, all of our revenues are derived from developing and operating
remarketing websites for businesses, such as American Honda Finance and American
Suzuki Motor, for which we are paid listing fees and fees when a vehicle is
bought or sold on the website. We are trying to market our services to other
similar types of companies.
We are trying to develop a different type of Internet remarketing service,
which would be used by consumers trying to sell their used vehicles. This
project is still developing.
CORPORATE BACKGROUND
We were organized as an Arizona corporation on July 10, 1997 under the
name Auto Network USA, Inc., and commenced operations on September 22, 1997, at
our facility in Scottsdale, Arizona. In December 1998, we changed our name to
Auto Network Group, Inc. as a result of an agreement reached with an entity with
a similar name. We again changed our name to AutoTradeCenter.com in April 1999
to more properly reflect our current Internet presence and our future direction
of providing automotive redistribution services over the Internet.
SUBSIDIARIES. Auto Network Group of New Mexico, Inc., a wholly owned
subsidiary, was incorporated on May 18, 1998, and commenced operations on June
1, 1998. Upon the opening of our Auto Network Group of New Mexico office and
warehouse facility, we were able to attract the necessary brokers and
administrative personnel by issuing common stock and stock options in our
company. We utilized this same process or methodology in opening other targeted
markets, which was part of our business plan and corporate strategy. Auto
Network Group of New Mexico operates its business in a manner similar to certain
other subsidiaries of its parent, AutoTradeCenter.com.
On August 20, 1998, we acquired Pinnacle Dealer Services, Inc., an
affiliated Arizona corporation by issuing 300,000 shares of common stock.
Pinnacle Dealer Services promotes and administers alternative financing programs
for dealers who purchase used cars from us.
On January 7, 1999, we incorporated BusinessTradeCenter.com Inc. in
Arizona to facilitate the buying and selling of vehicles at wholesale between
dealers on the Internet. BusinessTradeCenter.com has developed the technology
and systems necessary to make our inventory, as well as the inventory of member
dealers, available for purchase and sale on our Internet site. In March 2000, we
acquired the 45% minority interest of BusinessTradeCenter by issuing 5,000,000
shares of our common stock valued at $1.88 per share, making BusinessTradeCenter
a wholly-owned subsidiary. As part of this transaction we paid a $200,000 note
that contained conversion rights to acquire a 30% (after conversion) interest in
BusinessTradeCenter.com.
On March 31, 1999, we acquired Walden Remarketing Services, Inc., a
Minnesota corporation, by issuing to the shareholders of Walden Remarketing
2,050,000 restricted shares of common stock, cash of $125,000, and a promissory
note in the principal amount of $450,000. We valued the issued shares at their
estimated fair market value of $0.71 per share, or $1,450,000. In a separate
agreement reached in December 1999, the then remaining balance of this note,
$314,475, was paid through the issuance of 314,475 shares of common stock,
valued at $1.00 per share. Walden Remarketing assists manufacturers in the
disposition of their fleet and consumer lease vehicles. Walden Remarketing
changed its name to AutoTradeCenter Remarketing Services in January 2000.
22
On July 20, 1999, we acquired Auto Network Group Northwest, Inc., an
Oregon corporation formed for the purpose of allowing us to establish operations
in the northwestern part of the United States. It had no prior operating
history. Auto Network Group Northwest operates in a manner similar to Auto
Network Group of New Mexico, Inc.
On March 1, 2000 we acquired NDSCo.com Inc., a technology provider of
systems and applications for the automotive industry by issuing to the former
shareholders of NDSCo 1,100,000 shares of our common stock valued at $2.55 per
share. NDSCo became a wholly-owned subsidiary of BusinessTradeCenter.com, Inc.
Auto Group of San Antonio, Ltd. and Auto Network Group of Eastern Pa.,
Inc. became wholly-owned subsidiaries of our company on April 1, 2000. These
entities did not have any prior operations. They operate in a manner similar to
our New Mexico and Oregon wholesale operations. In September 2000, we decided to
close the Pennsylvania operations.
On August 2, 2000, we formed a new wholly-owned subsidiary, Auto Network
Group of Denver, Inc. This subsidiary was not funded primarily due to our
growing emphasis on Internet operations.
Effective December 29, 2000, we sold our interest in Auto Network Group of
New Mexico, Inc., Auto Network Group Northwest, Inc., and Auto Group of San
Antonio, Ltd.
EQUITY FINANCING. In December 1997, we sold 1,002,500 shares of common
stock, in a private placement, for gross proceeds of $25,062.50. In February
1998, we sold 6,750 shares of Series A preferred stock, in a private placement,
for $675,000. From November 1998 to December 1998, we sold 47,000 shares of
Series B preferred stock for gross proceeds of $470,000 in a private placement.
In February 2000, we sold in a private placement 21,216 shares of Series C
preferred stock and 31,824 shares of Series D preferred stock for gross proceeds
of $5,200,000. From March 2001 through April 20, 2001, we have sold
approximately 6,800,000 shares of common stock and warrants in a private
placement for gross proceeds of approximately $1,700,000. This offering is still
in process.
INTERNET OPERATIONS
On February 1, 1999, we introduced an Internet site: AutoTradeCenter.com.
Our wholly-owned subsidiary, BusinessTradeCenter.com, controls the legal rights
to the Internet domain name, technology, systems, and programming required to
operate this site. Upon introduction, access to this site was limited to
registered members including automobile dealers, leasing companies, banks, and
fleet or rental companies. It was our intent, at the time, to provide to members
information on used vehicles offered for sale by us and by others. To encourage
use of this site, initially we offered free membership. We planned to charge a
membership fee at an undetermined future date. From inception approximately 500
businesses have registered as members. Initially up to ten members posted cars
on the Internet site. Our entire inventory also was listed on the Internet site.
To date no revenue has been generated from the AutoTradeCenter.com web site. The
start-up costs for the development of the site were not material, since the
prior minority owner of BusinessTradeCenter.com contributed the technology for
the site design for its ownership interest.
The development of our website and our acquisition of Walden Remarketing
Services led to the execution of a Motor Vehicle Remarketing Agreement with
American Honda Finance Corporation in February 2000. The agreement gave us the
exclusive contract to remarket, over the Internet for two years, all of the
vehicles returned to Honda after termination of a lease. Access to the website
is restricted to users approved by Honda. As of June 15, 2000, the Honda Web
site was operational with all Honda and Acura dealers throughout the United
States. We amended our agreement with American Honda Finance on February 12,
2001. Among other things, the amendment extends our contract to remarket Honda
and Acura vehicles through January 31, 2004, and increases the fees we can earn
for each vehicles marketed on the website.
We developed a pilot program for Suzuki, similar to the program utilized
for Honda, which began in September 2000. We signed a definitive agreement with
Suzuki in January 2001. BusinessTradeCenter is
23
responsible for the technology used in our contracts with American Honda Finance
Corporation and American Suzuki Motor Corporation, in addition to the on-going
responsibility of maintaining the system.
On March 1, 2000, we acquired NDSCo.com Inc., a provider of technology for
the automotive industry. We believe that the applications and technology
obtained by this acquisition complements the technology that we have previously
acquired or developed. The rights to this technology, processes and applications
became the property of BusinessTradeCenter.com. The functionality of several of
the systems acquired through the NDSCo.com acquisition is similar to the
technology previously developed by BusinessTradeCenter. However, we believe that
the NDSCo.com systems offer more flexibility and capability of being adapted for
use by multiple clients. We believe that this technology allows us to add more
clients, such as American Suzuki, without having to effect major changes to what
we have already developed for existing clients.
By combining the BusinessTradeCenter and NDSCo.com technologies, we are
creating the next generation of AutoTradeCenter technology called ATCADVANTAGE,
to better service current clients such as American Honda Finance Corporation and
American Suzuki Motor Corporation, as well as prospective clients. These
prospective clients would be automobile manufacturers, finance companies,
financial institutions, lease and rental companies, and automobile dealers with
an inventory of used vehicles to sell. We launched ATCADVANTAGE in February 2001
with the Honda website. Both the Honda and Suzuki websites are actually part of
the ATCADVANTAGE platform. We hope to add other clients.
The ATCADVANTAGE web site offers, among other things, the following
services and features:
o INVENTORY LISTING - A consignor can post inventory for sale. The listing
includes a complete description of each vehicle, including make, model,
trim, accessories, mileage, and the wholesale price. Uploaded digital
images and condition reports are also associated with the vehicles for
viewing.
o COMMUNITY - Consignors can set up a private, branded site for the purpose
of providing an information center for their buying dealers. This area on
the site facilitates dealer buying histories, remarketing activities
calendar, transportation links, newsletter and other static links.
Consignors can advertise here, through the use of banner ads, and other
tools to market information to prospective buyers.
o CARGROUPS -Consignor vehicles are organized into groups that follow the
same business rules, or behaviors. This technology allows differing vehicle
bodies to be searched, and viewed side by side by with vehicles from other
CarGroups. Consignors can make all their portfolios available for sale to
any, or all-prospective buyers through the use of one or more CarGroups.
o CLIENT INVENTORY MANAGEMENT TOOLSET - Live performance reports, auction
routing and individual vehicle tracking are available to the consignors
providing a comprehensive view of their portfolios activity including sales
and logistical data.
o CONDITION REPORT UPLOAD STANDARDS - Reduces integration costs as vendors
are introduced into the environment. The Standard is intended to make it
easier for buying dealers to interpret vehicle inspection results.
o CLICK SUPPORT FOR DEALERS - Utilizes push technology to take customer
service levels to a new higher standard. The application of push
technology, with advanced lead and follow characteristics, links directly
with a CRM system, to unify dealer phone, fax, browsing and email
activities.
Since we have been unable to generate revenue from posting and selling
vehicles on the AutoTradeCenter.com site as a result of, among other things,
premature timing obstacles relating to the dealer-to-dealer exchanges of used
vehicles, we decided to change the functionality of our AutoTradeCenter.com web
site as follows:
o No automobiles are posted on the site.
o We are redirecting dealers to the ATCADVANTAGE site.
24
We are using the AutoTradeCenter.com site to provide information about our
company, such as financial statements, press releases, personnel information,
etc.
For services provided on our ATCADVANTAGE site, we intend to charge our
clients a per vehicle listing fee and a transaction fee for each vehicle sold on
the website. We also intend to charge fees for extra services such as providing
a call center, generating reports and analyzing data collected through the
website.
BusinessTradeCenter is also responsible for the development and
maintenance of our Internet application utilizing our website
WWW.TRADEINCARSONLINE.COM. This website, introduced in December 1999, was
designed to facilitate the Internet car buying process by providing a firm bid
on trade-ins. Consumers can obtain a bid from us on their used car that they are
trading in when purchasing a new vehicle from one of the on-line new car sale or
referral programs. We initiated a pilot program in Arizona in May 2000. We have
entered into a strategic alliance with Autobytel.com Inc. 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 condition report. Since we do not have an exclusive
agreement with Autobytel, Autobytel can institute a competing program similar to
ours at any time. As of the date of this prospectus, we have not purchased a
vehicle under the Autobytel program and we are unable to predict when or if we
will earn any revenues from this or any other website.
LAND-BASED OPERATIONS
We began operations as a licensed wholesale automobile dealer engaged in
the wholesale used car business. The wholesale used car business involves the
buying of a used vehicle from a licensed automobile dealer and selling that
vehicle to another licensed automobile dealer. Automobile dealers are licensed
through the laws of each state where they conduct business and include the
following types of entities:
o Franchised dealers
o Independent dealers
o Finance companies
o Lease companies
o Car rental companies
The distribution process of used automobiles takes place on local and
national levels as car demand and supply fluctuates within and between local and
national markets. Currently, the auto auctions located primarily in major urban
areas across the country fill this re-distribution process. We, and other
wholesale companies similar to us, satisfy only a small portion of the used car
re-distribution process. The typical profile of other wholesale companies,
commonly referred to as independent wholesale brokers, are either individuals or
small groups of up to five individuals that buy and sell automobiles as
described above. Our land-based operations competed with both the auto auctions
and the independent wholesale brokers. Our land-based operations focused their
efforts on the buying and selling late model luxury automobiles. The average
vehicle sale was approximately $15,000.
Our land-based operations contracted with salesmen, referred to as
brokers, to buy and sell used vehicles. Each broker entered into a non-exclusive
contract with the local operation that authorized the broker to act as the
operation's agent in the buying and selling of used vehicles under the company
name. Each operation used corporate funds to purchase the vehicle and in turn
all monies received upon the sale of the used vehicle were deposited into the
corporate bank account. Even though the broker had the authority to buy used
vehicles, each operation contractually limited the amount of inventory that each
broker could have on hand or unsold at any given point in time. Each broker had
the responsibility to sell the used cars he or she has purchased. The average
length of time a used vehicle was in inventory was 15 days. Generally, each
operation compensated its brokers under one of two compensation methods. Under
the first plan, the broker retained the profit or loss in excess of a fixed fee,
ranging from $175 to $225, retained by us. The second compensation plan involved
the company sharing any gain
25
and loss with the broker. There was no fee assessed under this plan. The first
compensation plan was the method predominately used.
As of January 31, 2001, we discontinued all land-based operations.
AUTOTRADECENTER REMARKETING SERVICES (FORMERLY WALDEN REMARKETING SERVICES)
AutoTradeCenter Remarketing assists the finance subsidiaries of
manufacturers, banks or other finance companies in disposing of used vehicles
that are being returned upon the expiration of a lease term. AutoTradeCenter
Remarketing currently is providing these services for our contract with American
Honda Finance Corporation utilizing the technology provided by
BusinessTradeCenter.com.
In the mid 90's, creative lease programs appeared and thousands of
vehicles that had been returned to finance companies after termination of a
lease started to appear at auto auctions. Currently, we believe that lessees
purchase only 25% of these vehicles at termination of the lease. In addition,
dealer purchases of these vehicles have not met industry expectations.
Therefore, lessors have not been able to maximize the residual prices for these
vehicles, resulting in certain cases in severe losses on lease portfolios.
Remarketing programs were developed to address this resale need.
FINANCE PROGRAMS - PINNACLE DEALER SERVICES
We acquired Pinnacle Dealer Services to promote and administer alternative
third party finance programs for dealers who purchase used cars from us. Making
financing available to dealers had the effect of increasing sales and cash flow
without exposing us to any financing risks. These dealers, who were independent
of our company, were obligated to the third party for any financing extended to
them. The third party had the risk of making the loans. This type of arrangement
is no longer needed in light of the disposition of our land-based operations.
CUSTOMERS
Our e-commerce Internet automotive solutions and initiatives provides us
with the opportunity to serve the large suppliers of used automobiles such as
finance companies, lease companies and car rental companies. These customers are
also considered to be automobile dealers; however, they only supply the industry
with used vehicles, they are not purchasers of used automobiles.
For the nine months ended December 31, 2000, all of our revenues from
continuing operations were generated from our contract with American Honda
Finance.
SEASONALITY OF BUSINESS
The sale of used automobiles is a year-round process. However, generally
sales slow down during the fourth quarter of the calendar year due to the
introduction of new models and the holiday season. Business generally picks up
in January. Similarly there are fewer vehicles returned after the termination of
a lease in the fourth quarter of the calendar year. This is followed by a return
to higher volumes in the first and second calendar quarters, followed by a
further increase in vehicles being returned after termination of a lease during
the summer months.
WORKING CAPITAL PRACTICES
We financed our inventory needs for our land-based operations through
private sources of capital and proceeds from the sale of used cars. In addition,
we utilized a $3,000,000 line of credit with Wells Fargo Business Credit, Inc.
This line of credit will no longer be needed due to the disposition of our
land-based operations.
26
COMPETITION
We compete with other Internet-based entities that maintain commercial Web
sites for the wholesale remarketing of vehicles on the Internet including
Autodaq.com Inc., Manheim Interactive, The Cobalt Group and GMAC's Smart
auction. We believe that we compete for customers, which are entities with
inventories of off-lease or program vehicles to sell, primarily on the basis of:
o Pricing - what it costs these entities to use our services as opposed to
the services of others;
o The experience and expertise of our personnel in Internet technology and
the automobile remarketing/retail sales industries;
o Our call center which is staffed 24 hours a day, 7 days a week;
o Whether the needs of these entities are being addressed adequately; and
o The quality of service to be rendered to all users of the Web site - this
includes both the entities and the prospective buyers of the vehicles.
We currently assess our competition as follows:
o AUTODAQ.COM INC. - We believe that we compete directly against Autodaq.com
Inc., an entity that currently provides an Internet Web site that competes
with our Internet initiatives. These initiatives are directed to the
acquisition and redistribution of vehicles returned to finance companies
after termination of a lease. Because Autodaq.com is privately held there
is little public knowledge about this company, its financial strength or
its business model. We consider Autodaq.com to be a major competitor. Based
upon the reaction from prospective customers to our most recent proposals,
we believe that we compete favorably with Autodaq.com.
o MANHEIM INTERACTIVE - Manheim Interactive is an Internet-based subsidiary
of Manheim Auctions, which is the largest automobile auction company in the
United States. Until recently Manheim Interactive had limited its presence
only to vehicles grounded at Manheim auctions. However, we believe that
Manheim intends to expand its Internet presence to include other vehicles.
Manheim is far better capitalized than we, as it is owned by Cox
Enterprises, a subsidiary of Cox Communications.
o FLEET LEASE DISPOSAL, INC. - Fleet Lease Disposal is a privately-held
Florida-based corporation that competes against us for large financial
institution clients. It appears to have a management team with a
significant amount of experience both in automobile sales and Internet
technology.
o THE COBALT GROUP - Cobalt is a public company. It also is better
capitalized than our company. Currently The Cobalt Group is a leading
provider of e-business products and services to the automotive industry.
Nearly half of the nation's auto dealers use Cobalt's technology, including
8,500 Web services clients. Its e-business products and services are
endorsed by 15 automotive manufacturers and more than 50 of the 100 largest
dealer groups in the United States. Cobalt is the only e-business provider
endorsed by the National Automobile Dealers Association. In the event
Cobalt decides to enter the remarketing business, it can become a
formidable competitor.
o GMAC - Although the GMAC web site has been limited to General Motors'
vehicles, an expansion of this site to other manufacturers and financial
institution also could provide substantial competition.
MyTradeIn.com Inc. is a private entity that is planning to introduce a Web
site WWW.MYTRADEIN.COM that will compete with our Internet initiative
WWW.TRADEINCARSONLINE.COM. Because this Web site is not currently functional, we
are unable to determine the business model it represents nor are we able to
access to what extent it will be competition. We believe MyTradeIn.com Inc. will
be a major competitor.
GOVERNMENT REGULATION
Compliance with government regulations does not impose a significant
impact on our Internet operations.
27
EMPLOYEES AND BROKERS
As of February 21, 2001, we had 25 full-time employees and no part-time
employees. Employment levels remain relatively high as we anticipate future
growth. We depend upon a limited number of key management and technical
personnel. As we continue to mature, grow and diversify, our need for highly
skilled professionals increases. Our continued success will depend in large part
upon our ability to retain and attract managerial and technical personnel with
significant experience in finance, technology and computers, marketing, and
sales as well as managers and brokers who have significant automobile industry
experience. None of our employees is represented by labor organizations; we have
never had a work stoppage or slowdown as a result of labor issues; and we have
excellent relations with our employees. Management believes that the adoption of
our stock plans, along with other company benefits, will enhance employees'
interest in remaining with us. In the future, management is planning to add
further incentives to attract and retain high quality personnel.
FACILITIES
We lease administrative and warehouse facilities, comprising a total of
13,500 square feet in Scottsdale, Arizona, from an unrelated third party under
an operating lease expiring September 30, 2002. In addition, we sublease 6,000
square feet of office space from an unrelated third party that expires February
28, 2002. We housed both our Internet operations and Scottsdale land-based
operations in these facilities. With the disposition of our land-based
operations, we estimate that we will need approximately 11,000 square feet. We
will attempt to sublease any excess office space.
Facilities for our land-based operations were leased by the respective
subsidiaries. Accordingly, with the disposition of our land-based operations, we
do not have any ongoing obligations for those leases, except for the Scottsdale
location, as described above.
28
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the company are as follows:
NAME AGE POSITION
Roger L. Butterwick 53 President, Treasurer and Director
John E. Rowlett 51 Vice President, Secretary, Chief Operating Officer and Director
Michael H. Feinstein 65 Chief Financial Officer
Mark R. Jensen 36 Chief Technology Officer and Vice President of Internet Operations
John Houck 63 Director
James Kaiser 57 Director
David Livingston 67 Director
R. Gary McCauley 58 Director
L. David Sikes 59 Director
A. Marvin Strait 67 Director
The term of office of each director of our company ends at the next annual
meeting of our stockholders or when such director's successor is elected and
qualifies. No date for the next annual meeting of stockholders is specified in
our Bylaws or has been fixed by the board of directors. The term of office of
each officer of our company ends at the next annual meeting of our board of
directors, expected to take place immediately after the next annual meeting of
stockholders, or when such officer's successor is elected and qualifies.
ROGER L. BUTTERWICK has been the President and a director of our company
since December 8, 1999 and our Treasurer since April 2, 1999. Prior to joining
our company, Mr. Butterwick devoted the majority of his time as a partner in
Cambridge Management Associates, LLP, an organization in the business of
structuring and securing financing for developing organizations. Previously, Mr.
Butterwick was an owner of Lehman, Butterwick & Company, P.C., a large local
certified public accounting firm located in Denver, Colorado. In addition, he
has been involved with the finance and mortgage banking industries. Mr.
Butterwick received his Bachelor of Science in Business Administration from the
University of Denver. He is a member of the American Institute of CPA's. Mr.
Butterwick is a full-time employee of our company.
JOHN E. ROWLETT has been the Secretary and a director of our company since
December 8, 1999. Mr. Rowlett is a 25-year veteran of the automobile business.
He has extensive expertise in all areas of dealership management, including
facility design, development and maintenance, sales, sales management, general
management, finance, CSI, wholesaling, reconditioning, parts, service and body
shop management, forecasting, budgeting, policy administration, inventory
acquisition and control, market trends, and financial management. Mr. Rowlett
has been charged with the responsibility of managing large retail
mega-dealerships involving multiple locations and new car store franchises.
Accomplishments include:
o Graduate of Chrysler Corporation's Dealer Academy
o Experienced in turnarounds and rapid growth transitions, outstanding
history of rehabilitation of marginal or unprofitable dealerships.
o Accomplished in marketing, product development, operations and direct
sales of diverse product lines.
o Effective in all phases of labor relations, including recruiting,
hiring, training, motivating and supervising.
MICHAEL H. FEINSTEIN has been the Chief Financial Officer of our company
since May 2000. Mr. Feinstein also serves as a director and the chairman of the
audit committee of Styling Technology Incorporated of Scottsdale, Arizona, a
publicly-held manufacturer and distributor of beauty salon products. He has held
this position since June 1997. From May 1998 to April 2000, Mr. Feinstein has
provided business consulting services in Phoenix, Arizona, in addition to
serving for a period of time as the President of a private company engaged in
manufacturing located
29
in Tempe, Arizona. From July 1995 to May 1998, he served as the chief financial
officer for Monaco Finance, Inc., of Denver, Colorado, a sub-prime automobile
finance company formerly listed on NASDAQ. He was the executive vice president
and later president of American Southwest Holdings, Inc., of Phoenix, Arizona,
engaged in the mortgage securitization industry. From 1983 to 1993, Mr.
Feinstein was the chief financial officer for MDC Holdings, Inc. and Asset
Investors Corporation, both based in Denver, Colorado and traded on the New York
Stock Exchange. MDC Holdings is one of the largest homebuilders in the United
States and Asset Investors is a real estate investment trust. Prior to 1983, he
was a partner with the national public accounting firm of Deloitte and Touche.
Mr. Feinstein is a graduate of the Wharton School of the University of
Pennsylvania. He obtained his CPA certificate from Colorado and has been a
member of the American Institute of CPA's.
MARK R. JENSEN has been our Chief Technology Officer since March 2000. He
is responsible for all operations that relate to our Internet initiatives. Mr.
Jensen joined us from NDSCo.com, a privately-held Internet automotive
remarketing company that we acquired in March 2000. As acting chief operations
officer, he managed NDSCo.com's business operations from April 1999 to March
2000. Mr. Jensen founded The Deanox Group, Inc. in 1989 and operated that
company until 1998. As a privately-held company in Logan, Utah, The Deanox Group
provided computer software, hardware, and consulting services to customers
desiring to apply computer technologies to their business operations. Mr. Jensen
has been a frequent speaker and trainer for groups and academic forums including
the State of Utah, Utah State University, Bernina of America, Weber State
College, Mountain West Center for Regional Studies, Utah State Continuing
Education Department, and the Office of the Governor for the State of Utah.
JOHN HOUCK has been a director since November 2000. Mr. Houck retired in
December 1998 from Toyota Motor Credit, where he had served as manager of its
Phoenix, Arizona, branch office since June 1987. From December 1966 to May 1987,
he worked with Ford Motor Credit, serving in the capacity of branch manager in
Honolulu, Hawaii.
JAMES KAISER has been a director since November 2000. Mr. Kaiser has been
the chairman, chief executive officer, and a director of Avenir Partners Inc., a
privately-owned franchised automobile dealership located in Memphis, Tennessee,
since December 1998. He has also been the president of Kaiser Services, LLC, a
business development company, located in Manhattan Beach, California, since
1998. From 1994 to 1996, Mr. Kaiser was the president, chief executive officer,
and a director of Quanterra Inc., a subsidiary jointly owned by Corning Inc. and
International Technology Inc., engaged in the business of environmental testing
laboratories and located in Denver, Colorado. Mr. Kaiser serves as a director of
the following public companies: Sunoco, Inc. since 1993; and The Mead
Corporation since 1995.
DAVID LIVINGSTON has been a director since November 2000. Since December
1995, Mr. Livingston has been the managing partner of The Corporate Development
Group, a private firm located in Mission Viejo, California offering corporate
development and investment banking services. He was the executive vice president
of the Bank of New Mexico (a Western Bancorporation/First Interstate
Bancorporation bank) from 1962 to 1970 and chairman, chief executive officer,
and a director of First National Bank of Albuquerque from January 1970 to March
1975. During his career, Mr. Livingston has served on numerous boards for
corporate, civic, and charitable organizations. He is also the current chairman
of David Livingston & Associates, Inc., dba Pacific-Southwest Capital Group
since 1975.
R. GARY MCCAULEY has been a director since November 2000. Since 1964, he
has owned and/or operated a number of private businesses. Mr. McCauley has been
the owner, developer, and manager of retail shopping centers in Florida and
Colorado since 1986. In addition, since 1972, he has held oil and gas interests
through D&G Enterprises, a private company co-owned by him. He has owned and
been the president and/or general manager of various automobile dealerships from
time to time: Scott Toyota, Inc, Scottsdale, Arizona (1998-2000); McCauley
Mazda, Phoenix, Arizona (1989-1990); McCauley Oldsmobile/Honda, Colorado
Springs, Colorado (1977-1990); McCauley Volkswagen, Albuquerque, New Mexico
(1966-1977); and McCauley Volkswagen, Yuma, Arizona (1964-1966). From 1979 to
1990, Mr. McCauley was the co-founder and an officer of Sunwest Life Insurance
Co., which provided life, accident, health, and extended warranty insurance
products to over 50 automobile dealerships in the western United States.
30
L. DAVID SIKES has been a director since November 2000. Since March 1995,
Mr. Sikes has been the chairman and chief executive officer of Ramtron
International Corporation, a publicly-owned specialty semiconductor company
located in Colorado Springs, Colorado. Mr. Sikes was president and chief
executive officer of the U.S. operations of ASM International N.V., a public
semiconductor company domiciled in the Netherlands, from January 1990 to July
1992. His background also includes management positions with the following: vice
president for the semiconductor product sector of Motorola, Inc., Phoenix,
Arizona, from June 1984 to June 1987; an executive for National Semiconductor
Corporation, Santa Clara, California, from July 1972 to January 1974; and an
engineering management position for Eastman Kodak Company, Rochester, New York,
from July 1963 to January 1967.
A. MARVIN STRAIT has been a director since November 2000. Mr. Strait has
been in the practice of public accountancy under the name of A. Marvin Strait,
CPA, since June 1994. He specializes in litigation support, offering consulting
services with a focus on business valuation. Mr. Strait was previously the
managing partner and later chairman with Strait oKushinsky and Company, P.C. in
Colorado Springs, Colorado, from October 1977 to May 1993. Mr. Strait was a past
chairman (1987-1988) and served on the board of directors (1983-1989) of the
American Institute of Certified Public Accountants. He received the AICPA Gold
Medal for Distinguished Service in 1992. Mr. Strait currently serves as a
director of the following: Whitman Education Group, Inc., a publicly-held
company based in Miami, Florida, since late 1998; Colorado Technical University,
a private university with campuses in Colorado and South Dakota, since 1990; and
Western National Bank, a privately-held bank located in Colorado Springs,
Colorado, since 1996.
EXECUTIVE COMPENSATION
The following table sets forth the remuneration for Mr. Butterwick by
fiscal year, who functions as our chief executive officer. We are not required
to set forth information for any officer whose total annual salary and bonus
does not exceed $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ALL OTHER
NAME AND COMPENSA-
PRINCIPAL TION
POSITION ($)
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP
COMPENSA- AWARD(S) OPTIONS/ PAYOUTS
YEAR SALARY ($) BONUS ($) TION($) ($) SARS (#) ($)
Roger 1999 $63,000(1)<F1> -0- -0- -0- -0- -0- -0-
Butterwick 2000 $54,000 -0- -0- -0- 500,000 -0- -0-
President
- --------------
<FN>
(1)<F1> Includes $36,000 paid to Mr. Butterwick as a consultant prior to becoming President.
</FN>
Currently, we pay the following monthly salaries plus car allowances:
Roger Butterwick - $13,200
John Rowlett - $12,500
Michael Feinstein - $11,000
Mark Jensen - $14,500
We reimburse all officers and directors for actual out-of-pocket expenses
incurred on our behalf.
We have no retirement, pension, profit sharing or medical reimbursement
plans exclusively covering our officers and directors, although we do
contemplate implementing a company sponsored 401(k) plan and providing major
medical and dental health insurance coverage for all employees in the near
future.
31
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE ALTERNATIVE
AT ASSUMED ANNUAL RATES OF TO (F) AND
STOCK PRICE APPRECIATION (G):
INDIVIDUAL GRANTS FOR OPTION TERM GRANT DATE
VALUE
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) IN FISCAL ($/SH) DATE 5% ($) 10% ($) VALUE $
YEAR
Roger 250,000 17.6% $1.00 10/01/02 $37,500 $75,000
Butterwick 250,000(1)<F1> 17.6% $1.00 10/01/02 $37,500 $75,000
- ----------------
<FN>
(1)<F1> This option vests upon the company achieving certain gross sales and net profits goals. The goals are
being revised due to the disposition of the land-based operations. 25,000 of these options have vested.
</FN>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON OPTIONS/SARS AT OPTIONS/SARS AT
NAME EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR END (#) FISCAL YEAR END ($)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
Roger Butterwick -0- -0- 275,000/225,000 $601,563/$492,188
In addition to the stock options granted to Mr. Butterwick shown in the
above table, stock options have also been granted to Mr. Butterwick in
connection with loan guarantees. In addition, certain stock options were granted
to Cambridge Management Associates, LLP, an entity controlled by Mr. Butterwick,
that provided contracted financial services to our company prior to Mr.
Butterwick becoming an officer, as described in the section of this prospectus
entitled "Certain Relationships and Related Transactions."
CONSULTING AGREEMENT
On December 1, 1999, we canceled the Consulting Agreement that we had
entered into with Dennis E. Hecker as part of our acquisition of Walden
Remarketing Services. Mr. Hecker had previously agreed to provide consulting
services to our company for a period of three years ending April 20, 2002. The
options that had been granted Mr. Hecker as consideration for his services were
also cancelled.
DIRECTORS' COMPENSATION AND COMMITTEES
We pay each non-employee director $3,000 for his attendance at both the
annual stockholders' meeting and annual directors' meeting, $2,000 for his
attendance at each physical meeting of the board of directors, $750 for his
attendance at each physical committee meeting, and $500 for his attendance at
each telephonic meeting of the board of directors. We also reimburse them for
their travel expenses incurred in connection with these meetings.
We have the following committees of the board of directors:
o Audit Committee, consisting of A. Marvin Strait (committee chairman), John
Houck, and Michael H. Feinstein (corporate liaison)
o Technical Committee, consisting of L. David Sikes (committee chairman),
James G. Kaiser, and Mark R. Jensen (corporate liaison)
o Compensation Committee, consisting of R. Gary McCauley (committee
chairman), David G. Livingston, and John E. Rowlett (corporate liaison)
STOCK OPTION PLAN
On August 5, 1997, the shareholders adopted the 1997 Stock Option Plan,
which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors. The option
32
pool is adjusted annually on the beginning of our fiscal year to a number equal
to 10% of the number of shares of common stock outstanding at the end of our
last completed fiscal year. At March 31, 2000, the number of shares eligible
pursuant to the plan is 2,808,307. The plan is administered by the compensation
committee of the board of directors or, if there is no committee, by the board
of directors. A registration statement on Form S-8 was filed on May 15, 2000
registering the underlying shares of the options granted. At March 31, 2000,
2,139,755 options had vested and were eligible for exercise at a total exercise
price of $2,227,587.
The plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of our subsidiaries, will
receive automatic option grants to purchase 10,000 shares of common stock upon
their appointment or election to the board of directors. Options shall have an
option price equal to 100% of the fair market value of our common stock on the
grant date and shall have a minimum vesting period of one year from the date of
grant.
Each option granted under the plan will be evidenced by a written option
agreement between our company and the optionee. Incentive stock options may be
granted only to employees as defined by the Internal Revenue Code. The option
price of any incentive stock option may not be less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted under the plan to a person owning more than 10%
of the total combined voting power of our common stock will have an option price
of not less than 110% of the fair market value per share on the date of grant of
the incentive stock option. Each non-qualified stock option granted under the
plan will be at a price no less than 85% of the fair market value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the fair market value per
share on the date of grant. The exercise period of options granted under the
plan may not exceed ten years from the date of grant thereof. Incentive stock
options granted to a person owning more than 10% of the total combined voting
power of the common stock cannot be exercisable for more than five years. No
portion of any option will be exercisable prior to the first anniversary of the
grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of our company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of our company
since the date of grant of the option. If the optionee ceases to be an employee,
officer, or director of our company or any subsidiary other than by reason of
death, disability, retirement, or for cause, all options granted to such
optionee, fully vested to such optionee but not yet exercised, will terminate 90
days after the date the optionee ceases to be an employee, officer, or director.
All options, which are not vested to an optionee, under the conditions stated in
this paragraph for which employment ceases, will immediately terminate on the
date the optionee ceases employment or association.
Options have been granted under this plan as follows:
Granted............................................................................. 175,000
Exercised........................................................................... 0
Cancelled/expired................................................................... (25,000)
-------------
Balance, March 31, 1998............................................................. 150,000
Granted............................................................................. 1,361,499
Exercised........................................................................... 0
Cancelled/expired................................................................... (125,000)
--------------
Balance, March 31, 1999............................................................. 1,386,499
Granted............................................................................. 1,322,080
Exercised........................................................................... 0
Cancelled/expired................................................................... (25,000)
-------------
Balance, March 31, 2000............................................................. 2,683,579
Granted............................................................................. 465,000
Exercised........................................................................... (370,425)
Cancelled/expired................................................................... (147,009)
-------------
Balance, December 31, 2000.......................................................... 2,631,145
=============
33
2000 EQUITY INCENTIVE COMPENSATION PLAN
On November 29, 2000, the board of directors adopted the 2000 Equity
Incentive Compensation Plan, which provides for granting stock options, stock
appreciation rights, restricted and deferred stock, bonus stock, and other
stock-based awards to officers, directors, employees, and independent
contractors. The shareholders must still adopt this plan. The total number of
shares of common stock that may be subject to the granting of awards under this
plan at any time during the term of the plan is equal to 3,500,000 shares, plus
the number of shares with respect to which awards previously granted under the
plan that terminate without being exercised, and the number of shares that are
surrendered in payment of any awards or any tax withholding requirements. During
any fiscal year the number of options, stock appreciation rights, restricted
shares of common stock, deferred shares of common stock, shares as a bonus or in
lieu of other company obligations, and other stock-based awards granted to any
one participant may not exceed 450,000 for each type of such award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
an annual incentive award or other cash award in any fiscal year to any one
participant is $2,000,000, and the maximum amount that may be earned as a
performance award or other cash award in respect of a performance period by any
one participant is $5,000,000.
The compensation committee of the board of directors administers this
plan, and
o selects eligible persons to receive awards,
o determines the type and number of awards to be granted and the number of
shares of common stock to which awards will relate,
o specifies times at which awards will be exercisable or settleable
(including performance conditions that may be required as a condition
thereof),
o sets other terms and conditions of awards,
o prescribes forms of award agreements,
o interprets and specify rules and regulations relating to this plan, and
o makes all other determinations that may be necessary or advisable for the
administration of this plan.
The board of directors may amend, alter, suspend, discontinue or terminate
this plan or the compensation committee's authority to grant awards without
further stockholder approval. However, stockholders must approve any amendment
or alteration if that approval is required by law or regulation or under the
rules of any stock exchange or quotation system on which our shares are then
listed or quoted.
Unless earlier terminated by the board of directors, this plan will
terminate at such time as no shares of common stock remain available for
issuance under this plan and we have no further rights or obligations with
respect to outstanding awards under this plan.
Subject to approval of this plan by the stockholders, options have been
granted under this plan as follows:
Granted............................................................................. 1,650,000
Exercised........................................................................... 0
Cancelled/expired................................................................... 0
-------------
Balance, December 31, 2000.......................................................... 1,650,000
=============
OTHER OPTIONS
In addition to the stock options granted under the 1997 stock option plan and
2000 equity incentive compensation plan, we have granted options as follows:
Granted............................................................................. 850,000
Exercised........................................................................... 0
Cancelled/expired................................................................... 0
-------------
Balance, March 31, 1998............................................................. 850,000
Granted............................................................................. 1,589,810
Exercised........................................................................... 0
Cancelled/expired................................................................... (350,000)
-------------
34
Balance, March 31, 1999............................................................. 2,089,810
Granted............................................................................. 465,000
Exercised........................................................................... 0
Cancelled/expired................................................................... (300,000)
-------------
Balance, March 31, 2000............................................................. 2,254,810
Granted............................................................................. 0
Exercised........................................................................... (210,000)
Cancelled/expired................................................................... (75,000)
-------------
Balance, December 31, 2000.......................................................... 1,969,810
=============
SECURITIES OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
The following table provides stock ownership information as to the
officers and directors individually and as a group, and the holders of more than
5% of our common stock as of December 31, 2000:
PERCENT OF CLASS (1)<F1>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF OWNER OWNED CONVERSION CONVERSION (2)<F2>
Mark Moldenhauer 4,669,000 (3)(4)<F3><F4> 13.39% 10.66%
14500 N. Northsight Blvd. #213
Scottsdale, AZ 85260
Almond Investors, LLC 5,808,085 (5)<F5> 14.51% 13.37%
110 Colabaugh Pond Road
Croton-on-Hudson, NY 10520
Lloydminister Enterprises 2,500,000 7.24% 5.75%
Battersea Bridge Road
London, England SW11 3BG
Kindersley Holdings Inc. 2,500,000 7.24% 5.75%
23 Bentinck Street
London, England W1M 5R1
Roger L. Butterwick 1,299,400 (4)(6)(7)<F4><F6><F7> 3.64% 2.91%
R. Gary McCauley 325,000 (7)(8)<F7><F8> 0.93% 0.74%
John E. Rowlett 215,000 (7)(9)<F7><F9> 0.62% 0.49%
John Houck 125,000 (7)<F7> 0.36% 0.29%
James Kaiser 125,000 (7)<F7> 0.36% 0.29%
David Livingston 125,000 (7)<F7> 0.36% 0.29%
L. David Sikes 125,000 (7)<F7> 0.36% 0.29%
A. Marvin Strait 125,000 (7)<F7> 0.36% 0.29%
Mark R. Jensen 50,000 (10)<F10> 0.14% 0.11%
Michael Feinstein 0 -- --
All officers and directors as a group 2,514,400(11)<F11> 6.81% 5.48%
(10 persons)
- -----------------
35
<FN>
(1)<F1> Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from December 31, 2000, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of common stock
owned by such persons, but are not deemed to be outstanding for the
purpose of computing the percentage owned by any other person.
Percentages are based on 34,514,001 shares outstanding before the
offering and 43,451,201 shares outstanding after the offering.
(2)<F2> Assumes the conversion of 12,852 shares of Series C preferred stock at
$0.75 per share and 17,034 shares of Series D preferred stock using a
conversion price of $0.25 per share and the issuance of the 410,000
option shares. Since the conversion price of the Series D preferred
stock is equal to 65% of the average closing bid price for the 10
trading days immediately preceding the date of conversion, the number
of shares is subject to change. Almond did not, in connection with its
acquisition of the Series C and D preferred stock, obtain any voting
rights, directorships, rights to directorships, positions with us,
right to positions with us, or any non-public information regarding us.
Further, Almond acquired the Series C and D preferred stock in the
ordinary course of business, for its own account, and not with a view
to distribution and did not, at the time of such acquisition nor any
time thereafter, have any agreement or understanding, directly or
indirectly, with any person to distribute any portion of the Series C
and D preferred stock or the common stock issuable upon conversion.
(3)<F3> Includes 100,000 shares issuable upon the exercise of options.
(4)<F4> Includes 250,000 shares issuable upon the exercise of options.
(5)<F5> Includes 5,154,400 shares issuable upon conversion of 8,976 shares of
Series C preferred stock and 9,894 shares of Series D preferred stock,
assuming a conversion price of $0.25 for the Series D preferred stock.
(6)<F6> Includes 99,400 shares held of record by Cambridge Consulting Group, an
entity controlled by Mr. Butterwick. Includes 825,000 shares issuable
upon the exercise of options.
(7)<F7> Includes 125,000 shares issuable upon exercise of options.
(8)<F8> Includes 200,000 shares issuable upon exercise of options.
(9)<F9> Includes 90,000 shares issuable upon exercise of options.
(10)<F10>Includes 50,000 shares issuable upon exercise of options.
(11)<F11>Includes 2,415,000 shares issuable upon exercise of options.
</FN>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the terms of agreements and other transactions included in this
section were as fair as those we could have obtained from unrelated third
parties at arms-length transactions.
Upon inception of our company, 9,000,000 restricted shares of common stock
were issued to our founders for total consideration of $30,000 as follows:
Jeff Erskine 1,820,000 shares
Mike Stuart 1,500,000 shares
Mark Moldenhauer 1,500,000 shares
Joe Seaverns 320,000 shares
Candy Seaverns 1,500,000 shares
Victor Felice 540,000 shares
John Carrante 1,820,000 shares
Jeff Erskine, Mike Stuart, and Mark Moldenhauer and their respective
spouses personally guaranteed the operating lease dated July 24, 1997, pursuant
to which we lease our office and warehouse facilities in Scottsdale, Arizona. At
July 24, 1997, Messrs. Erskine, Stuart, and Moldenhauer were officers,
directors, and principal shareholders of our company. The lease expires
September 30, 2002.
36
From inception, September 22, 1997, through March 31, 2000, we had entered
into various lending arrangements involving officers, directors and other
affiliated entities owned or controlled by officers, directors and other key
personnel totaling $3,682,751. At March 31, 1998 the balance outstanding on
these notes was $832,000 and total interest paid to these entities on all
financing activities for the period ended March 31, 1998 was $58,416. At March
31, 1999, the outstanding note balance was $3,871,446 and the total interest
paid for the year ended March 31, 1999 was $286,824. At March 31, 2000, the
outstanding note balance was $4,086,128 and the total interest for the year
ended March 31, 2000 was $470,340.
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
09/22/97 Evelyn Felice $400,000 loan, 12% interest per annum, payable monthly,
(principal stockholder at due September 22, 1999, collateralized by used car inventory,
the time) personally guaranteed by Jeff Erskine, Mike Stuart, and John
Carrante. This note was paid September 22, 1999.
10/17/97 Mark Moldenhauer $150,000 loan, 12% interest per annum, payable monthly, due
(officer, director and November 17, 1999, collateralized by used car inventory,
principal stockholder at personally guaranteed by Jeff Erskine, Mike Stuart, and John
the time) Carrante. This note was paid by the Amended and Restated
Secured Promissory Note dated March 31, 2000.
12/15/97 Pinnacle Financial $200,000 loan, 12% interest per annum, payable monthly, due
Corporation (owned by December 15, 1998, collateralized by used car inventory.
officer, director, and This note was paid by the Amended and Restated Secured
principal stockholder at Promissory Note dated March 31, 2000.
the time)
01/15/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly, due
(officer, director and January 15, 1999, collateralized by used car inventory,
principal stockholder at convertible into shares of common stock at $.10 per share.
the time) Note was converted into 3,000,000 shares of common stock on
May 1, 2000.
03/31/98 Mark Moldenhauer $102,000 loan, 12% interest per annum, payable monthly, due
(officer, director and upon 30 days' notice, collateralized by used car inventory.
principal stockholder at This note was paid by the Amended and Restated Secured
the time) Promissory Note dated March 31, 2000.
04/07/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly, due
(officer, director and upon 30 days' notice, collateralized by used car inventory.
principal stockholder at This note was paid by the Amended and Restated Secured
the time) Promissory Note dated March 31, 2000.
06/01/98 Eastlane Trading Limited $250,000 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
09/01/98 Mike and Debbie Stuart $50,000 loan, 12% interest per annum, payable monthly, due
(officer, director, and October 1, 1999, collateralized by used car inventory. This
principal stockholder at note was paid March 31, 2000.
the time)
37
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
09/11/98 Pinnacle Financial $117,500 loan, 12% interest per annum, payable monthly,
Corporation (owned by due October 11, 1999, collateralized by used car inventory.
officer, director, and This note was paid by the Amended and Restated Secured
principal stockholder at Promissory Note dated March 31, 2000.
the time)
09/18/98 Pinnacle Financial $400,000 loan, 12% interest per annum, payable monthly, due
Corporation (owned by October 30, 1998 (extended and due upon demand),
officer, director, and collateralized by used car inventory. This note was paid by
principal stockholder at the Amended and Restated Secured Promissory Note dated March
the time) 31, 2000.
10/20/98 Eastlane Trading Limited $1,000,000 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
11/18/98 Eastlane Trading Limited $232,259 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
02/05/99 Eastlane Trading Limited $17,741 loan, 12% interest per annum, payable on request, due
(principal stockholder) April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
5/13/99 Pinnacle Financial $300,000 loan to Auto Network Group of New Mexico, 12 %
Corporation (owned by interest per annum, payable monthly, due May 13, 2000,
officer, director, and personally guaranteed by Jules Gollins, Bruce Burton, Stuart
principal stockholder at Bailey, all officers of Auto Network Group of New Mexico, and
the time) their respective spouses.
6/22/99 Pinnacle Financial $200,000 loan, 12 % interest per annum, payable monthly, due
Corporation (owned by December 22, 1999. This note was paid by the Amended and
officer, director, and Restated Secured Promissory Note dated March 31, 2000.
principal stockholder at
the time)
6/22/99 Mark Moldenhauer $100,000 loan, 12 % interest per annum, payable monthly,
(officer, director due December 22, 1999. This note was paid by the Amended
and principal stockholder and Restated Secured Promissory Note dated March 31,
at the time) 2000.
38
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
7/20/99 Cascade Funding Group. LLC $1,572,000 loan to Auto Network Group Northwest, prime plus
(owned by three officers 6% interest per annum, payable monthly, collateralized by
of Auto Network Group used car inventory, due July 14, 2000.
Northwest, Inc.)
8/3/99 Pinnacle Financial $50,000 loan, 12 % interest per annum, payable monthly, due
Corporation (owned by February 3, 2000. This note was paid by the Amended and
officer, director, and Restated Secured Promissory Note dated March 31, 2000.
principal stockholder at
the time)
8/3/99 Mark Moldenhauer $200,000 loan, 12 % interest per annum, payable monthly
(officer, director and due February 3, 2000. This note was paid by the Amended
principal stockholder and Restated Secured Promissory Note dated March 31,
at the time) 2000.
8/13/99 MDM Investments $160,000 loan, 12 % interest per annum, payable monthly,
(owned by Mike Stuart and due August 13, 2000. This note was paid October 14, 1999.
Mark Moldenhauer)
11/1/99 MDM Investments $300,000 loan, 12% interest per annum, payable monthly,
(owned by Mike Stuart and due May 13, 2000. This note has been paid.
Mark Moldenhauer)
11/5/99 and Susan Gollins (wife of $17,000 loan, 15% interest per annum, payable monthly, due on
11/9/99 officer and director of demand. Assumed by Automotive Disposition Management
Auto Network Group of New Services, Inc.
Mexico, Inc.)
11/14/99 Darlene Burton Gollins $45,000 loan, 15% interest per annum, payable monthly, due on
(wife of officer and demand. Assumed by Automotive Disposition Management
director of Auto Network Services, Inc.
Group of New Mexico, Inc.)
12/27/99 Pinnacle Financial $175,000 loan, 12 % interest per annum, payable monthly, due
Corporation (owned by February 3, 2000. This note was paid January 12, 2000.
officer, director, and
principal stockholder at
the time)
03/31/00 Pinnacle Financial Amended and Restated Secured Promissory Note
Corporation for $2,675,420, 12% interest per annum, interest payable monthly,
3 quarterly principal payments of $569,307
beginning June 30, 2000, with final payment of $967,500 due
April 1, 2001, personally guaranteed by Roger L. Butterwick
and John E. Rowlett, collateralized by all assets of
AutoTradeCenter.com Inc. Assumed in part by Automotive
Disposition Management Services, Inc. and to be paid in part
by a new note for $336,200 due April 1, 2002, 12% interest
per annum.
39
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
03/31/00 Mark Moldenhauer Amended and Restated Secured Promissory Note for $852,000,
12% interest per annum, interest payable monthly, principal
and interest due April 1, 2001, personally guaranteed by
Roger L. Butterwick and John E. Rowlett, collateralized by
all assets of AutoTradeCenter.com Inc. To be paid by a new
note due April 1, 2002, 12% interest per annum.
12/29/00 Mark Moldenhauer Secured Promissory Note for $300,000, 12% interest per
annum, principal and interest due April 1, 2001,
collateralized by all assets of AutoTradeCenter.com Inc. To
be paid by a new note due April 1, 2002, 12% interest
per annum.
On May 5, 1998, we obtained a line of credit from First International Bank
of Arizona in the amount of $500,000. The note was secured by a first lien on
all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to us to the bank's line of
credit. On May 7, 1998, the Company granted each of Messrs. Erskine, Stuart, and
Moldenhauer two-year options to purchase 100,000 restricted shares of common
stock at a price of $.75 per share. On March 26, 1999, the note was paid. The
expiration date of the options has been extended to May 7, 2002.
On March 26, 1999, we obtained a $3,000,000 revolving line of credit from
Wells Fargo Business Credit, Inc. The note was originally due March 31, 2000 and
was secured by a first lien on all inventory, accounts receivable, equipment,
and general intangibles. The interest rate paid was 1.5% over the bank's prime
rate. Messrs. Stuart and Moldenhauer, who are former officers, directors, and/or
principal stockholders, and Mr. Butterwick, currently an officer, director and
principal stockholder personally guaranteed the note. On December 31, 1998, we
granted each of Messrs. Stuart, Moldenhauer, and Butterwick three-year options
to purchase 250,000 restricted shares of common stock at a price of $1.00 per
share, the closing bid on the common stock at December 31, 1998, in
consideration for providing their personal guarantees on the line of credit. Mr.
Butterwick remained as the sole guarantor of the note during the extension
period. No additional consideration was granted to Mr. Butterwick. The note was
paid in full on February 16, 2001.
AUTO NETWORK GROUP OF NEW MEXICO, INC. TRANSACTIONS. On June 1, 1998, Auto
Network Group of New Mexico entered into a lease for an office and warehouse
facility in Albuquerque, New Mexico, with G & B Investments LLC, an entity owned
and controlled by Bruce Burton and Jules Gollins. The original lease that
expired on May 31, 1999 has been extended to May 31, 2001. Messrs. Burton and
Gollins are two of the principals who manage the Auto Network Group of New
Mexico operations. The amount of lease payments made under this agreement was
$26,732 for the year ended March 31, 1999 and $34,754 for the year ended March
31, 2000.
Also on June 1, 1998, we entered into a Purchase of Goodwill Agreement
with JBS, LLC, an entity whose members comprise the management team of Auto
Network Group of New Mexico. In consideration for the goodwill which Auto
Network Group of New Mexico is receiving from JBS, JBS was granted a total of
800,000 restricted shares of our common stock valued at $.20 per share as
follows: 266,667 shares issued upon execution of the agreement, held in escrow,
and subject to forfeiture if Auto Network Group of New Mexico is not doing
business as of June 1, 1999; 266,667 shares to be earned for the period June 1,
1998 through March 31, 1999 if pre-tax earnings of Auto Network Group of New
Mexico are at least $60,000; and 266,666 shares to be earned for the period
April 1, 1999 through March 31, 2000 if pre-tax earnings of Auto Network Group
of New Mexico are at least $120,000. In addition, JBS may earn options to
purchase restricted shares of our common stock at the rate of 5 options for
every dollar of pre-tax earnings of Auto Network Group of New Mexico in excess
of $60,000 for the
40
period ending March 31, 1999, and 5 options for every dollar of pre-tax earnings
of Auto Network Group of New Mexico in excess of $120,000 for the year ended
March 31, 2000. The options are to be exercisable for a period of 3 years from
date of grant at the bid price as of March 31, 1999 or 2000, respectively.
For the period from June 1, 1998 through March 31, 1999, Auto Network
Group of New Mexico had pre-tax earnings of $107,962, resulting in JBS, LLC
earning 266,667 shares and 239,810 options, exercisable at $3.00 per share. For
the period ending March 31, 2000, Auto Network Group of New Mexico had pre-tax
earnings of $70,395, resulting in no shares or options being earned. This
agreement was subsequently amended and 266,666 shares were issued in 2000.
On June 1, 1998, we loaned $250,000 to Auto Network Group of New Mexico.
The related promissory note is due June 30, 2000 and earns interest at 12% per
annum, payable monthly. This note has been extended to June 30, 2003. This note
was repaid upon the sale of the subsidiary.
WALDEN REMARKETING TRANSACTIONS. As of March 31, 1999, we acquired Walden
Remarketing Services, Inc., a Minnesota corporation, by issuing the shareholders
of Walden Remarketing a total of 2,050,000 restricted shares of common stock,
cash of $125,000, and promissory notes in the aggregate principal amount of
$425,000. The promissory notes accrued interest at the rate of 12% per annum and
had a remaining principal balance of $314,475 at December 31, 1999, at which
time they were converted into 314,475 common shares of our company.
In connection with the acquisition of Walden Remarketing, Dennis E.
Hecker, the principal shareholder of that company, provided a personal guaranty
with respect to the full disclosure of liabilities of that company.
On April 20, 1999, we entered into a consulting agreement with Dennis E.
Hecker as part of our acquisition of Walden Remarketing. Mr. Hecker has agreed
to provide consulting services to us for a period of three years ending April
20, 2002. We granted Mr. Hecker an option to purchase 3,000,000 shares of our
common stock at $3.00 per share. As of December 1, 1999 the consulting agreement
and the option to purchase 3,000,000 shares of our common stock were canceled.
AUTO NETWORK GROUP NORTHWEST, INC. On July 20, 1999, we acquired Auto
Network Group Northwest, Inc., an Oregon corporation, by issuing the
shareholders of Auto Network Group Northwest a total of 500,000 shares of
restricted common stock valued at $1.50 per share. All shares are held in escrow
and are subject to the following events:
1. 83,333 shares are subject to forfeiture if the pre-tax earnings of
Auto Network Group Northwest as of March 31, 2000 are less than
$30,000. If pre-tax earnings are between $30,000 and $50,000 a
pro-rata amount of shares shall be issued and the balance shall be
forfeited.
2. 166,667 shares are subject to forfeiture if the pre-tax earnings of
Auto Network Group Northwest as of March 31, 2001 are less than
$50,000. If pre-tax earnings are between $50,000 and $100,000 a
pro-rata amount of shares shall be issued and the balance shall be
forfeited.
3. 250,000 shares are subject to forfeiture if the pre-tax earnings of
Auto Network Group Northwest as of March 31, 2002 are less than
$75,000. If pre-tax earnings are between $75,000 and $150,000 a
pro-rata amount of shares shall be issued and the balance shall be
forfeited.
In addition, the former shareholders of Auto Network Group Northwest may
earn options to purchase restricted shares of our common stock at the rate of 5
options for every dollar of pre-tax earnings of Auto Network Group Northwest in
excess of $50,000 for the period ending March 31, 2000; $100,000 for the year
ended March 31, 2001; and, $150,000 for the year ended March 31, 2002. The
options are to be exercisable for a period of 3 years from date of grant at the
bid price of our common stock as of April 1, 2000, 2001 or 2002, respectively.
For the period from July 20, 1999 through March 31, 2000, Auto Network
Group Northwest had pre-tax earnings of $41,721, resulting in the former
shareholders earning 69,535 shares.
41
AUTO GROUP OF SAN ANTONIO, LTD. Effective April 1, 2000, we opened our
office and warehouse wholesale operation in San Antonio, Texas. Auto Group of
San Antonio Ltd., a Texas limited partnership, conducts our business in San
Antonio. Our company is the sole limited partner and the sole owner of a newly
formed limited liability company which serves as the general partner.
We loaned the limited partnership $450,000, which is evidenced by an
unsecured promissory note with interest at the rate of 12% per annum payable
monthly, in arrears. This note, which may be prepaid at any time, has a final
maturity on March 31, 2005. The limited partnership has entered into a
management agreement with JRB AutoBrokers, L.P., a Texas limited partnership.
JRB AutoBrokers also loaned $100,000 to the limited partnership on similar terms
to our advance. This promissory note is subordinate to our loan.
Under the terms of the management agreement, JRB is responsible for all
day-to-day management of the limited partnership with complete autonomy, subject
only to reasonable review by the general partner. In addition, we have issued
468,750 of our common shares to JRB to acquire this operation. The shares, that
have been mutually valued at $2.00 per share, are to be held in escrow pending
certain future events. 93,750 of such shares will be released to JRB on April 1,
2001, subject only to the continuation of the business at that date. Annually
beginning March 31, 2001, 93,750 additional shares or a portion thereof will be
released subject to the limited partnership achieving pre-determined pre-tax
earnings. For example, if the limited partnership earns $100,000 for the year
ended March 31, 2001, 93,750 of such shares will be released to JRB. In the
event earnings for the year fall below $100,000, a portion of these shares may
still be released. After March 31, 2001, the pre-tax earnings floor increases
through March 31, 2004. A currently interminable number of additional shares can
be earned for the year ended March 31, 2005 based on pre-tax earning. Effective
with the sale of this subsidiary we placed 375,000 common shares in escrow to
meet our obligation under the earn-out agreement.
Stock options to acquire our common shares also can be earned if pre-tax
earnings exceed the total predetermined levels over the first five years of this
operation.
AUTO NETWORK GROUP OF EASTERN PA., INC. Effective April 1, 2000 we opened
our office and warehouse wholesale operation in the Philadelphia, Pennsylvania
area. Our business in Pennsylvania is conducted by Auto Network Group of Eastern
Pa., Inc., a Pennsylvania corporation. We are the sole shareholder of this
Pennsylvania operation.
We loaned $300,000 to the Pennsylvania operation, which is evidenced by an
unsecured promissory note with interest at the rate of 12% per annum payable
monthly, in arrears. The note may be prepaid at any time and has a final
maturity on March 31, 2006. Mr. Edward G. McCusker has agreed to loan $100,000
to the Pennsylvania operation on terms similar to our advance, on or before June
30, 2000. This loan will be subordinate to the debt owed to us. As of September
30, 2000, Mr. McCusker had not made the loan.
The Pennsylvania operation entered into a management agreement with Mr.
McCusker, which provides that he is responsible for all day-to-day operations.
In addition, we have agreed to issue 232,500 of our common shares to Mr.
McCusker as additional compensation for his services. The shares, valued by us
at $2.00 per share, are to be held in escrow pending certain future events,
including among other things the making of the loan by Mr. McCusker. 50,000 of
such shares will be released to Mr. McCusker one year from his funding his
obligation, subject to the continuation of the business at that date and to his
satisfactory performance. Annually beginning March 31, 2001 and for each
twelve-month period thereafter, 15,000, 22,488, 30,003, 32,504, 37,502, and
45,003 additional shares or a portion thereof will be released subject to the
Pennsylvania operation achieving pre-determined pre-tax earnings. For example,
if the operation earns $60,000 (floor) for the year ended March 31, 2001, 15,000
of such shares will be released to Mr. McCusker. In the event earnings for the
year fall below $60,000, a portion of these shares may still be released. After
March 31, 2001, the pre-tax earnings floor increases through March 31, 2006.
Stock options to acquire our common shares also can be earned if pre-tax
earnings exceed the total predetermined floor over the first six years of this
operation.
42
As of September 30, 2000, we decided to close our operations in
Pennsylvania since the loan had not been made as of September 30, 2000 and
certain disputes had arisen over the management of the operations. As a result,
no shares will be issued to Mr. McCusker. We anticipate that closing this
operation will result in a loss of approximately $300,000.
AUTOMOTIVE DISPOSITION MANAGEMENT SERVICES, 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. As of February 16, 2001, Automotive
Disposition Management Services, Inc. assumed a portion of the note owed to
Pinnacle Financial Corporation. The remaining portion is being paid with a new
note to Pinnacle Financial Corporation in the amount of $366,200 due April 1,
2002.
As described above, we originally acquired the New Mexico, Texas, and
Oregon operations with earn-out agreements, which enabled the managers of these
operations to earn shares and options if certain performance goals were met. We
agreed to place a total of 805,465 shares of our common stock in escrow to
satisfy, in full, our obligations under these 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 Automotive Disposition. Any
shares transferred to Automotive Disposition can, at our election, be exchanged
for part or all of our interest in Automotive Disposition.
FUTURE TRANSACTIONS. All future affiliated transactions will be made or
entered into on terms that are no less favorable to us than those that can be
obtained from any unaffiliated third party. A majority of the independent,
disinterested members of our board of directors will approve future affiliated
transactions and forgiveness of loans.
We believe that all loans made to affiliates by us meet the foregoing
standard. All loans to affiliates made by us carry an interest rate of 12% per
annum. This is the same interest rate paid by us on all notes payable to both
affiliates and outside third parties, with the exception of our revolving line
of credit with a financial institution. That revolving line of credit bears
interest at the prime rate plus 1-1/2%.
SELLING STOCKHOLDERS
HOLDERS OF SERIES C AND D PREFERRED STOCK
The following table sets forth information regarding beneficial ownership
of shares of our Series C and D preferred stock as of December 31, 2000. We are
registering shares of common stock issuable upon conversion of the Series C and
D preferred stock. The shares are being registered to permit public secondary
trading of such shares, and each of the selling stockholders may offer the
common stock for resale as they wish. Assuming that the selling stockholders
convert all of their Series C and D preferred stock into common stock and sell
all of their common stock, the selling stockholders will not own any common
stock of our company. None of the selling stockholders has had any position,
office, or material relationship with us within the past three years.
43
SHARES OF SHARES OF SHARES OF
SERIES C SERIES D COMMON STOCK
PREFERRED PREFERRED STOCK ISSUED/ISSUABLE
STOCK OWNED OWNED ORIGINALLY UPON CONVERSION
ORIGINALLY AND BEING PERCENTAGE
SELLING STOCKHOLDER REGISTERED (1)<F1> OWNERSHIP
Almond Investors, LLC 8,976 13,464 5,808,085 14.5%
John A. Brda 408 612 124,463 (2)<F2>
Susan C. Buescher Revocable Trust 306 459 93,347 (2)<F2>
E. Eugene Burwell Living Trust 408 612 124,463 (2)<F2>
dated 5/19/99
Curt E. Burwell Living Trust 816 1,224 248,926 (2)<F2>
dated 4/9/99
Indenture of Trust James F. Cool 1,836 2,754 560,083 1.6%
Robert M. Crivello 204 306 62,231 (2)<F2>
Anthony D. and Kelly A. Cupini 408 612 124,463 (2)<F2>
Jimmy Dowda 306 459 217,283 (2)<F2>
Edwards Capital Corporation 306 459 89,715 (2)<F2>
Generation Capital Associates 1,020 1,530 680,800 1.9%
Karron Heathman Living Trust 204 306 62,231 (2)<F2>
James E. Hullverson Jr. SEP IRA 816 1,224 248,926 (2)<F2>
Thomas C. Hullverson 1,428 2,142 435,620 1.3%
Brianna Lenz 204 306 111,072 (2)<F2>
Frederick Lenz 204 306 111,072 (2)<F2>
D. Michael McDaniel 408 612 124,463 (2)<F2>
Red Rock Advisors Fund, LLC 2,040 3,060 1,496,000 4.2%
S L Land Holdings Inc. 204 306 144,856 (2)<F2>
South County Investors 204 306 62,231 (2)<F2>
Holly Webb 204 306 62,231 (2)<F2>
Kelley Lewis 102 153 74,800 (2)<F2>
Ronnie L. Williams Sr. 204 306 120,662 (2)<F2>
TOTAL 21,216 31,824 11,188,023
- ---------------
<FN>
(1)<F1> For those holders who have not yet converted their shares of Series D
preferred stock, this assumes the conversion of the shares based on a
conversion price of $0.25 for the Series D preferred stock. See
"Description of Securities - Series C and D Preferred Stock" for an
explanation of the conversion formula. If we should issue more shares
than what is being registered because of changes in the conversion
price, we will have to file another registration statement to register
those additional shares.
(2)<F2> Less than 1%
</FN>
The securities offered through this prospectus by the selling stockholders
will be acquired through the conversion of Series C and D preferred stock. The
selling stockholders purchased the Series C and D preferred stock in a private
placement. We agreed to register the securities for resale by the selling
stockholders to permit them to sell the shares as they wish in the market or in
privately negotiated transactions. The selling stockholders have agreed in a
legally binding agreement that they will sell no more than 20% of their holdings
(calculated assuming full conversion of their preferred stock) per month in the
open market. We are in the process of amending this agreement to permit the
holders to sell at least one-third of their holdings per month, with the
possibility of selling more if the market price and trading volume of our common
stock meets certain levels.
We have agreed to bear the expenses of registering the common stock, but
not broker discounts and commissions if the selling stockholders resell the
common stock.
44
EXISTING HOLDERS OF COMMON STOCK
We are also registering the shares owned by the persons in the table set
forth below. The shares are being registered to permit public secondary trading
of such shares, and each of the selling stockholders may offer the common stock
for resale as they wish. Assuming that the selling stockholders sell all of the
shares listed in the table, they will not own any common stock of our company.
None of the selling stockholders has had any position, office, or material
relationship with us within the past three years, except for Lloydminister
Enterprises Inc. Lloydminister was a minority owner of BusinessTradeCenter. We
issued the 5,000,000 shares in exchange for its interest in BusinessTradeCenter
in March 2000, and Lloydminister subsequently transferred 2,500,000 of them to
Kindersley Holdings.
NUMBER OF SHARES OF
COMMON STOCK BEING
SELLING STOCKHOLDER REGISTERED
Lloydminister Enterprises Inc. 2,500,000
Kindersley Holdings Inc. 2,500,000
JK Technologies, L.L.C. 560,000
Beckstrand Investments L.L.C. 470,000
Billy K. McCoy and Susan McCoy 70,000
Anthony & Company, Inc. 107,143
Anthony D. and Kelly A. Cupini 61,825
John A. and Lucia Brda 42,858
Net Chemistry 40,000
de Jong & Associates 55,000
TOTAL 6,406,826
STOCK OPTIONS AND WARRANTS
We are registering the shares issuable upon the exercise of the stock
options and warrants set forth in the table below. We have agreed to bear the
expenses of registering the shares issuable upon exercise of the options and
warrants, but not any broker discounts or commissions incurred upon the resale
of these shares.
NUMBER OF SHARES
ISSUABLE UPON EXERCISE EXPIRATION DATE CONSIDERATION FOR THE OPTION OR
HOLDER EXERCISE PRICE WARRANT
Anthony Trejo 50,000 $1.03 06/02/02 Services - promotion of company
Robert C. Crandall 25,000 $1.03 06/02/02 Services - promotion of company
de Jong & Associates 75,000 $1.20 01/01/02 Investment relations services
Gerry Richards 30,000 $1.20 03/31/02 Investment relations services
Cardinal Securities LLC 55,000 $5.40 02/15/05 Financial advisory services
RCG Capital Markets 175,000 $0.50 09/21/01 Financial advisory services
Group, Inc.
TOTAL 410,000
DESCRIPTION OF SECURITIES
We are authorized to issue up to 100,000,000 shares of common stock, no
par value, and 1,000,000 shares of preferred stock, $0.10 par value per share.
The following is a summary of the material provisions contained in our articles
of incorporation and bylaws. You may wish to refer to our articles of
incorporation and bylaws for more information. The section entitled "Available
Information" in this prospectus describes how you can inspect or obtain copies
of these documents. As of December 31, 2000, there were outstanding 34,514,001
shares of common stock, 12,852 shares of Series C preferred stock, and 17,034
shares of Series D preferred stock.
45
COMMON STOCK
Each share of common stock has one vote with respect to all matters voted
upon by the shareholders.
Holders of common stock are entitled to receive dividends, when and if
declared by our board of directors, out of company funds legally available for
the payment of dividends. We have never declared a dividend on our common stock
and have no present intention of declaring any dividends in the future.
Holders of common stock do not have any preemptive rights or other rights
to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of our company, holders
of the common stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities and
any liquidation payments due to holders of preferred stock.
All outstanding shares of common stock, and shares of common stock
issuable upon conversion of the Series C and D preferred stock, when issued and
paid for, will be fully paid and not liable for further call or assessment.
PREFERRED STOCK
Our articles of incorporation authorize us to issue up to 1,000,000 shares
of preferred stock, in one or more series, with such rights, preferences,
qualifications, limitations, and restrictions as shall be set forth in a
statement filed with the State of Arizona authorizing the issuance of such
stock. We have established a Series A preferred stock consisting of 6,750
shares, a Series B preferred stock consisting of 250,000 shares, a Series C
preferred stock consisting of 21,216 shares, and a Series D preferred stock
consisting of 31,824 shares. No shares of Series A or Series B preferred stock
are outstanding. As of December 31, 2000, there were 12,852 shares of Series C
preferred stock and 17,034 shares of Series D preferred stock outstanding.
SERIES C AND D PREFERRED STOCK
CONVERSION OF SERIES C PREFERRED STOCK. Each share of Series C preferred
stock is convertible into shares of our common stock at a price of $0.75.
CONVERSION OF SERIES D PREFERRED STOCK. Each share of Series D preferred
stock is convertible into shares of the registrant's common stock using a
conversion price equal to 65% of the average closing bid price for the common
stock for the 10 trading days immediately preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $100 = # of shares of
-------------------------------------
65% of average closing bid price common stock
There were 17,034 shares of Series D preferred stock outstanding as of
December 31, 2000. Based on a conversion price of $0.25, and after giving effect
to Series D shares converted through March 31, 2001, 5,814,400 shares are
issuable upon conversion of the outstanding shares of Series D preferred stock.
This prospectus covers the resale of the shares of common stock issuable
upon conversion of the Series C and Series D preferred stock.
LIQUIDATION PREFERENCE. In the event of liquidation, dissolution, or the
winding up of our company, whether voluntary or involuntary, any holder of the
Series C and Series D preferred stock shall be entitled to receive a
distribution of $100 for each share of Series C or D preferred stock. This
amount will be paid out of the assets of our company prior to any distribution
of assets with respect to any other shares of capital stock.
OPTIONAL REDEMPTION. We have the right and option to call, redeem, and
acquire any or all of the shares of Series C and D preferred stock at a price
equal to $110.00 per share, at any time, so long as such shares have not
previously converted to common stock. Before we can do so, we must give at least
30 days' notice to the holders of
46
the Series C and D preferred stock that provides them with the redemption date.
However, the holders of the Series C and D preferred stock have the right during
the 30-day period immediately following the date of the notice of redemption to
convert their shares of preferred stock into common stock. If the shares are
converted during this 30-day period, this call option shall be deemed not to
have been exercised by us with respect to the shares so converted. The notice of
redemption will require the holders to surrender to us, on or before the
redemption date, to our transfer agent, the certificates representing the shares
of Series C or D preferred stock to be redeemed. Even if the certificates
representing the shares called for redemption have not been surrendered for
redemption and cancellation on or after the redemption date, such shares shall
be deemed to be expired and all rights of the holders of these shares shall
cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series C and D preferred
stock have no voting rights except to the extent required by the Arizona
Business Corporation Act, and neither the Series C or D preferred stock is
entitled to any preemptive rights.
TRANSFER AGENT
The transfer agent for our common and preferred stock is Standard
Registrar & Transfer Agency, P.O. Box 14411, Albuquerque, New Mexico 87191.
PLAN OF DISTRIBUTION
All or a portion of the securities offered through this prospectus by the
selling stockholders may be delivered and/or sold in transactions from time to
time on the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale. These transactions will be at market prices
prevailing at the time, at prices related to such prevailing prices, or at
negotiated prices. The selling stockholders may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders. The selling stockholders and any
broker-dealers that participate in the distribution may be deemed to be
"underwriters" within the meaning of federal securities laws. Any commissions
received by such broker-dealers and any profits realized on the resale of
securities by them may be deemed to be underwriting discounts and commissions
under federal securities laws. Because the selling stockholders may be deemed to
be "underwriters," they may be subject to the prospectus delivery requirements
of the Securities Act, as well as the anti-manipulation provisions of Regulation
M.
Any broker-dealer participating in such transactions as agent may receive
commissions from the selling stockholders and, if they act as agent for the
purchaser of the securities, from such purchaser. Broker-dealers may agree with
the selling stockholders to sell a specified number of securities at a
stipulated price per share. To the extent such a broker-dealer is unable to do
so acting as agent for the selling stockholders, it may purchase as principal
any unsold securities at the price required to fulfill the broker-dealer
commitment to the selling stockholders. Broker-dealers who acquire securities as
principal may then resell these securities in transactions which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices. In connection
with such resales broker-dealers may pay to or receive from the purchasers of
these securities commissions computed as described above. To the extent required
under the federal securities laws, a supplemental prospectus will be filed,
disclosing
(a) the name of any such broker-dealers;
(b) the number of securities involved;
(c) the price at which such securities are to be sold;
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
(e) that such broker-dealers did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, as supplemented; and,
(f) other facts material to the transaction.
47
Under applicable rules and regulations under federal securities laws, any
person engaged in the distribution of the resale of securities may not
simultaneously engage in market making activities with respect to the securities
of our company for a period of two business days prior to the commencement of
such distribution. In addition, the selling stockholders will be subject to
applicable provisions of the federal securities laws, and the rules and
regulations under these laws, including Regulation M, which provisions may limit
the timing of purchases and sales of the securities by the selling stockholders.
The selling stockholders will pay all commissions and other expenses
associated with the sale of the common stock by them. The shares of common stock
offered through this prospectus are being registered because of our contractual
obligations with the selling stockholders, and we have paid the expenses of the
preparation of this prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 2000, the company has 34,514,001 shares of common
stock, 12,852 shares of Series C preferred stock, and 17,034 shares of Series D
preferred stock outstanding. Of the 34,514,001 shares of common stock,
14,205,287 shares are freely tradable without restriction and 20,308,714 shares
are restricted. Of the restricted shares, 11,389,875 are held by "affiliates" of
the Company. An "affiliate" of an issuer is a person that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. An "affiliate" can sell his shares only if the
shares are registered under federal securities laws or exempt from registration.
The SEC's Rule 144 is a type of exemption from registration. With respect to the
remaining 8,918,839 restricted shares, 6,942,906 are currently eligible for sale
under Rule 144. 6,351,826 of the shares which are currently restricted are being
registered in this registration statement.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume of the then outstanding
shares during the four calendar weeks preceding each such sale. Furthermore, a
person who is not deemed an "affiliate" of the company and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
There are also outstanding as of December 31, 2000, options to purchase
shares of common stock, 12,852 shares of Series C preferred stock, and 17,034
shares of Series D preferred stock, all of which are exercisable to purchase or
convertible into shares of common stock.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings and we do not know of
any proceedings that are contemplated.
EXPERTS
We have included the consolidated financial statements of the company for
the years ended March 31, 2000 and 1999 in reliance upon the report of Neff &
Ricci, LLP, independent certified public accountants, and the consolidated
financial statements for the period from inception to March 31, 1998 in reliance
on the report of Price Kong & Company, P.A., whose reports have been included in
this prospectus upon the authority of those firms as experts in accounting and
auditing.
48
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the securities offered through this prospectus. This
prospectus does not contain all of the information contained in the registration
statement and its exhibits and schedules. You should refer to the registration
statement and its exhibits for additional information. Whenever we make
reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other documents. We also file annual, quarterly and
special report with the Securities and Exchange Commission.
You can read our filings with the Securities and Exchange Commission,
including the registration statement, over the Internet at the SEC's website at
www.sec.gov. You may read and copy any document we file with the SEC at its
public reference facilities at 450 Fifth Street, NW, Washington, D.C. 20549, the
New York Regional Office located at 7 World Trade Center, 13th Floor, New York,
NY 10048, and the Chicago Regional Office located at Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference
facilities.
We have a web site on the Internet at www.AutoTradeCenter.com.
REPORTS TO STOCKHOLDERS
As a result of filing this registration statement, we are subject to the
reporting requirements of the federal securities laws, and are required to file
periodic reports and other information with the SEC. We will furnish our
shareholders with annual reports containing audited financial statements
certified by independent public accountants following the end of each fiscal
year and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year following the end of such fiscal
quarter.
49
INDEX TO FINANCIAL STATEMENTS
AutoTradeCenter.com Inc. and Subsidiaries:
Condensed Consolidated Balance Sheet as of December 31, 2000 (Unaudited).............................F-1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
December 31, 2000 and 1999 (Unaudited)...........................................................F-2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2000
and 1999 (Unaudited).............................................................................F-3
Notes to Condensed Consolidated Financial Statements as of December 31, 2000 (Unaudited).............F-4
Independent Auditors' Report from Neff & Ricci LLP...................................................F-8
Independent Auditors' Report from Price Kong & Company, P.A..........................................F-9
Consolidated Balance Sheet as of March 31, 2000 and 1999.............................................F-10
Consolidated Statement of Operations for the Years Ended March 31, 2000 and 1999 and
From July 10, 1997 (Inception) Through March 31, 1998............................................F-11
Consolidated Statement of Changes in Stockholders' Equity from July 10, 1997 (Inception)
Through March 31, 1998 and the Years Ended March 31, 1999 and 2000...............................F-12
Consolidated Statement of Cash Flows for the Years Ended March 31, 2000 and 1999 and
From July 10, 1997 (Inception) Through March 31, 1998............................................F-14
Notes to Consolidated Financial Statements...........................................................F-15
NDSCo.Com, Inc.:
Independent Auditors' Report from Joseph B. Glass CPA, PC............................................F-43
Balance Sheet as of December 31, 1999................................................................F-44
Statement of Operations for the period of inception (October 22, 1999) to December 31, 1999..........F-46
Statement of Stockholders' Equity for the period of inception (October 22, 1999)
to December 31, 1999.............................................................................F-47
Statement of Cash Flows for the period of inception (October 22, 1999) to December 31, 1999..........F-48
Notes to Financial Statements........................................................................F-50
Pro Forma Income Statement for the Year Ended March 31, 2000..............................................F-57
50
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(RESTATED)
ASSETS
December 31, March 31,
2000 2000
UNAUDITED
------------- -------------
Current assets:
Cash $ 139,612 $ 4,355,738
Accounts receivable - trade, net 163,990 --
Accounts receivable - employees and brokers, net 134,453 --
Inventory -- --
Net assets of discontinued operations 1,373,400 1,023,166
Prepaid expenses and other 136,047 110,272
------------- -------------
Total current assets 1,947,502 5,489,176
------------- -------------
Property and equipment, net 803,820 813,118
Software, net 7,874,282 12,013,608
------------- -------------
8,678,282 12,826,726
------------- -------------
Intangible assets, net 1,640,472 1,786,845
------------- -------------
Total assets $ 12,266,256 $ 20,102,747
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ --
Notes payable - related party $ 528,807 528,807
Notes payable - bank 1,386,309 1,112,418
Accrued liabilities 44,713 6,124
------------- -------------
Total current liabilities 1,959,829 1,647,349
------------- -------------
Non-current liabilities:
Long-term debt - related party -- --
------------- -------------
Total non-current liabilities -- --
------------- -------------
Stockholders' equity:
Convertible preferred stock, Series C; $.10 par value;
400,000 shares authorized; 21,216 issued, 12,852 and 0 shares outstanding
in 2000 and 1999, respectively; liquidation preference $110.00 per share 1,063,323 1,906,536
Convertible preferred stock, Series D; $.10 par value;
600,000 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 outstanding at December 31, 2000
and 21,615,530 shares issued and outstanding at December 31,1999 23,011,910 19,779,542
Retained deficit (15,125,474) (6,090,485)
------------- -------------
Total stockholders' equity 10,306,427 18,455,398
------------- -------------
Total liabilities and stockholders' equity $ 12,266,256 $ 20,102,747
============= =============
See notes to condened consolidated financial statements.
F-1
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(RESTATED)
For the Three Months Ended For the Nine Months Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2000 1999 2000 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 13,600 644,427 40,500
Selling 197,092 31,493 505,598 219,964
General and administrative 723,624 103,418 1,646,449 334,893
Bad Debts 2,977
Depreciation and amortization 3,954,625 57,554 4,859,648 171,033
------------- ------------- ------------- -------------
Total operating expenses 5,108,404 209,042 7,656,122 766,390
------------- ------------- ------------- -------------
Loss from operations (4,908,752) (209,042) (7,011,505) (474,803)
------------- ------------- ------------- -------------
Other income (expense)
Miscellaneous -- -- -- --
Interest expense (11,898) (11,898) (47,592) (47,645)
------------- ------------- ------------- -------------
Total other income (expense) (11,898) (11,898) (47,592) (47,645)
------------- ------------- ------------- -------------
Loss from continuing operations (4,920,650) (220,940) (7,059,097) (522,448)
------------- ------------- ------------- -------------
Discontinued operations:
Loss from from operations of Land-based segment (138,738) (110,204) (323,839) (118,307)
Loss from from disposition of Land-based segment (1,652,053) -- (1,652,053) --
------------- ------------- ------------- -------------
(1,790,791) (110,204) (1,975,892) (118,307)
Net (loss) before income taxes (6,711,441) (331,144) (9,034,989) (640,755)
Income tax refund (expense) -- 485 -- 56,034
Minority interest in loss of subsidiaries -- 24,465 -- 74,786
------------- ------------- ------------- -------------
24,950 -- 130,820
------------- ------------- ------------- -------------
Net (loss) $ (6,711,441) $ (306,194) $ (9,034,989) $ (509,935)
============= ============= ============= =============
(Loss) per share
Basic and diluted
Continuing operations $ (0.14) $ (0.01) $ (0.22) $ (0.03)
Discontinued operations $ (0.05) $ (0.00) $ (0.06) $ (0.00)
------------- ------------- ------------- -------------
$ (0.19) $ (0.01) $ (0.28) $ (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.
F-2
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(RESTATED)
For The Nine Months Ended
---------------------------
December 31, December 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net (loss)
From continuing operations $(7,059,097) $ (391,628)
From discontinued operations (323,839) (118,307)
From discontinuance of Land-based operations (1,652,053) --
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Depreciation and amortization 4,859,648 171,033
Stock issued for services 53,436 --
(Increase) decrease in:
Accounts receivable (163,990) 98,610
Accounts receivable employees and others (134,453)
Inventory --
Prepaid expenses and other current assets (25,775) (205,249)
Carrying value net assets of discontinued operations (350,234) 330,771
Increase (decrease) in:
Accounts payable -- (24,712)
Accrued liabilities 38,589 (50,723)
------------ ------------
Net cash provided by (used in)
operating activities (4,757,768) (190,205)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (629,431) (92,971)
Sale of property and equipment 117,932 45,925
------------ ------------
Net cash provided by (used in) investing activities (511,499) (47,046)
------------ ------------
Cash flows from financing activities:
Net proceeds from borrowing 573,891 (19,475)
Net repayment of related party borrowings --
Proceeds from issuance of common stock 479,250 514,475
------------ ------------
Net cash provided by ( used in) financing activities 1,053,141 495,000
------------ ------------
Net change in cash (4,216,126) 257,749
Beginning cash balance 4,355,738 297,752
------------ ------------
Ending cash balance $ 139,612 $ 555,501
============ ============
Supplemental disclosures:
Interest paid including discontinued operations $ 622,728 $ 672,669
============ ============
Interest paid from continuing operations $ 47,592 $ 47,645
============ ============
Income taxes paid $ -- $ 3,000
============ ============
Issuance of common stock for goodwill $ 53,333 $ 749,990
============ ============
See notes to condensed consolidated financial statements.
F-3
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED) (RESTATED)
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 its interest in three of
its land based operations and transferred its operations in Scottsdale, Arizona,
to certain independent wholesale automobile brokers in January 2001.
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 earn out 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 RECLASSIFICATION OF GOODWILL
When the Company acquired NDSCo on March 31, 2000 (as more fully described in
Note J. of its Form 10-K for the year ended March 31, 2000), $2,039,123 of the
purchase price was allocated to goodwill. The goodwill was assigned a useful
life of 10 years. Upon further consideration the Company reclassified this
allocation from goodwill to cost of software to more succinctly categorize the
nature of the assets purchased. During the quarter ended December 31, 2000, as a
result of the changes in its business plan and the disposition of its
dealer-to-dealer land based business, the Company further determined that it
could no longer estimate the useful life, if any, of this software. Accordingly,
the carrying cost of this asset was depreciated in full during the quarter.
When the Company acquired the remaining 45% minority interest of BTC on March
23, 2000 (as more fully described in Note J. of its Form 10-K for the year ended
March 31, 2000), $9,374,550 of the purchase price was allocated to goodwill with
an estimated life of 10 years. Upon further consideration, the Company
reclassified this allocation from goodwill to cost of software to more
succinctly categorize the nature of the assets purchased. Effective for the
quarter ended December 31, 2000, the Company changed its estimate of the useful
life of this asset from 10 years to 36 months.
The restated consolidated balance sheet at March 31, 2000 among other things
reflects both of these reclassifications.
F-4
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED) (RESTATED)
NOTE D - INFORMATION REGARDING DISCONTINUED OPERATIONS:
On November 30, 2000, the Company formalized its decision to exit its land-based
operations at the end of fiscal year 2001. 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 both business segments. As of December 29, 2000, the
Company sold its 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. The Company sold substantially all of its land-based operations in
Scottsdale Arizona, to its independent contract brokers effective January 31,
2001, thereby discontinuing all land-based operations. The Company has recorded
an actual loss of $749,366 on the sale of its land-based operations to
Automotive Disposition Management Services, Inc., recorded additional losses of
$127,388 related to the earlier closing of its Pennsylvania operation and
accrued an estimated loss of $775,300 on disposal related to the Scottsdale
operation in these December 31, 2000 interim financial statements. The following
schedule of net assets from discontinued operations and financial statements
show the effect of discontinued operations to the condensed consolidated balance
sheets at December 31, 2000 and March 31, 2000 and to the condensed consolidated
statements of operations and cash flow for the three and nine months ended
December 31, 2000 and 1999.
For the fiscal years ended March 31, 2000, 1999 and 1998, general and
administrative expenses were insignificant to continuing operations. The Company
began Internet operations in January of 1999, and accordingly it allocated
certain salary and administrative costs to these efforts for its March 31, 1999
fiscal year. For the fiscal year ended March 31, 2000, the Company again
allocated certain general and administrative costs for executive compensation
and overhead to continuing operations; however, substantially all general and
administrative expenses continued to be related directly and indirectly to the
Company's land-based operations, which generated over 99% of the Company's
revenues.
F-5
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED) (RESTATED)
1. RESULTS OF OPERATIONS OF DISCONTINUED LAND-BASED SEGMENT:
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
12/31/00 12/31/99 12/31/00 12/31/99
-------- -------- -------- --------
Net sales $ 39,521,133 $ 29,101,990 $ 123,171,010 $ 97,458,893
Cost of sales 37,716,191 27,875,322 117,257,094 93,446,078
-------------- -------------- -------------- --------------
Gross profit 1,804,942 1,226,668 5,913,916 4,012,815
-------------- -------------- -------------- --------------
Operating expenses:
Selling 1,373,246 778,884 4,376,272 2,553,631
General and administrative 315,933 359,261 1,199,064 964,688
Bad debt expense -- -- 75,000 --
Depreciation and amortization 62,778 24,197 36,165 61,582
-------------- -------------- -------------- --------------
Total operating expenses 1,751,957 1,162,342 5,686,501 3,579,901
-------------- -------------- -------------- --------------
Income from operations 52,985 64,326 227,415 149,486
-------------- -------------- -------------- --------------
Other income (expense):
Miscellaneous 124,021 30,825 139,599 73,803
Interest expense (315,744) (205,355) (690,853) (625,024)
-------------- -------------- --------------- ---------------
Total other income
(expense) - net (191,723) (174,530) (551,254) (551,221)
-------------- -------------- --------------- ---------------
Loss before income taxes (138,738) (110,204) (323,839) (118,307)
-------------- -------------- -------------- --------------
Income tax benefit -- -- -- --
Minority interest in loss -- -- -- --
-------------- -------------- -------------- --------------
Net Loss $ (138,738) $ (110,204) $ (323,839) $ (118,307)
============== ============== ============== ==============
2. COMPUTATION OF LOSS RESULTING FROM DISCONTINUING LAND-BASED SEGMENT
Loss from sale of: ANET-NM, ANET-NW, and ANET-SA
Carrying value $ 1,596,933
Sales price 1,200,000
--------------
Loss 396,933
Un-amortized goodwill 352,432
--------------
Total loss 749,365
Loss from transfer and closing of Scottsdale Operation
Sale of equipment 31,665
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 200,000 775,300
--------------
Additional loss from closing Pennsylvania 127,338
--------------
Total Loss $ 1,652,053
==============
F-6
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED) (RESTATED)
3. NET ASSETS OF DISCONTINUED OPERATIONS
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
DECEMBER 31, MARCH 31, MARCH 31,
2000 2000 1999
ASSETS
Accounts receivable - trade, net $ 3,117,206 $ 5,743,845 $ 4,873,189
Accounts receivable - employees and brokers, net 186,150 332,122 324,248
Inventory - net 3,177,212 4,648,492 5,028,357
Prepaid expenses and other -- -- 73,887
Goodwill and property and equipment -- 316,311 266,860
-------------- -------------- --------------
Total Assets 6,480,568 11,040,770 10,566,541
-------------- -------------- --------------
LIABILITIES
Accounts payable - trade 4,117,808 4,401,858 4,174,029
Notes payable - related party 750,000 5,376,821 3,893,890
Accrued liabilities 239,360 238,925 218,394
-------------- -------------- --------------
5,107,168 10,017,604 8,286,313
-------------- -------------- --------------
NET ASSETS FROM DISCONTINUED OPERATIONS $ 1,373,400 $ 1,023,166 $ 2,280,228
============== ============== ==============
NOTE E - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, March 31,
----------------------------------
2000 2000
---- ----
Goodwill $1,985,383 $1,985,383
Other 3,228 3,228
---------- ----------
1,988,611 1,988,611
Less accumulated amortization 348,139 201,766
---------- ----------
$1,640,472 $1,786,845
========== ==========
NOTE F - 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 Form 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.
F-7
NEFF & RICCI LLP LETTERHEAD
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
AutoTradeCenter.com Inc. and Subsidiaries
We have audited the consolidated balance sheets of AutoTradeCenter.com, Inc. and
Subsidiaries as of March 31, 2000 and 1999, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of
AutoTradeCenter.com, Inc. and Subsidiaries' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
The financial statements of AutoTradeCenter.com, Inc. and Subsidiaries as of
March 31, 1998, were audited by other auditors whose report dated August 6,
1998, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2000 and 1999 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
AutoTradeCenter.com, Inc. and Subsidiaries as of March 31, 2000 and 1999, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
May 11, 2000, except for the second to last paragraph in Note J, and the last
paragraph in Note N, as to which the date is March 28, 2001
F-8
[PRICE KONG & COMPANY, PA LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Auto Network USA, Inc.
We have audited the accompanying income statement of Auto Network USA, Inc., an
Arizona corporation, and the related statements of stockholders' equity, and
cash flows for the period from inception (July 10, 1997) to March 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auto Network USA, Inc. as of
March 31, 1998, and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
We have not audited the financial statements of Auto Network USA, Inc. for any
period subsequent to March 31, 1998.
/s/ Price Kong & Company, P.A.
Price Kong & Company, P.A.,
Phoenix, Arizona
August 6, 1998
F-9
AutoTradeCenter.com Inc. and Subsidiaries
Consolidated Balance Sheets
(Restated)
March 31,
--------------------------------
ASSETS 2000 1999
------------ -----------
Current assets:
Cash $ 4,355,738 $ 297,752
Accounts receivable - trade - 98,610
Net assets of discontinued operations 1,023,166 -
Prepaid expenses and other 110,272 5,266
------------ -----------
Total current assets 5,489,176 401,628
------------ -----------
Property and equipment, net 813,118 118,136
Software, net 12,013,608 5,442
Net assets of discontinued operations - 2,280,228
------------ -----------
12,826,726 2,403,806
------------ -----------
Intangible assets, net 1,786,845 1,985,383
------------ -----------
Total assets 20,102,747 4,790,817
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade - 24,713
Notes payable - related party 528,807 -
Notes payable - bank 1,112,418 1,268,500
Accrued liabilities 6,124 50,723
------------ -----------
Total current liabilities 1,647,349 1,343,936
------------ -----------
Non-current liabilities:
Deferred income taxes - 7,010
Long-term debt - related party - 528,807
------------ -----------
Total non-current liabilities - 535,817
------------ -----------
Commitments and contingencies - -
Stockholders' equity:
Convertible preferred stock, Series B; $10.00 par value;
250,000 shares authorized; 47,000 issued and
outstanding in 1999 - 372,037
Convertible preferred stock, Series C; $0.10 par value;
400,000 shares authorized; 20,800 issued and
outstanding in 2000; liquidation preference $110.00 per share 1,906,536 -
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,200 issued and
outstanding in 2000; liquidation preference $110.00 per share 2,859,805 -
Common stock, no par value; 100,000,000 shares authorized;
27,652,609 and 20,385,084 shares issued and outstanding
in 2000 and 1999, respectively 19,779,542 2,664,479
Retained deficit (6,090,485) (125,452)
------------ -----------
Total stockholders' equity 18,455,398 2,911,064
------------ -----------
Total liabilities and stockholders' equity $20,102,747 $4,790,817
============ ===========
See notes to consolidated financial statements
F-10
AutoTradeCenter.com Inc. and Subsidiaries
Consolidated Statements of Operations
(Restated)
For the Year Ended From July 10, 1997
-------------------------------- (inception) Through
March 31, 2000 March 31, 1999 March 31, 1998
------------ ------------ ------------
Net sales $ 291,587 $ - $ -
Cost of sales - - -
------------ ------------ ------------
Gross profit 291,587 - -
------------ ------------ ------------
Operating expenses:
Salary 54,000 63,000 -
Selling 241,065 - -
General and administrative 559,468 126,173 -
Depreciation and amortization 319,800 24,042 -
------------ ------------ ------------
Total operating expenses 1,174,333 213,215 -
------------ ------------ ------------
Loss from operations (882,746) (213,215) -
------------ ------------ ------------
Other income (expense):
Miscellaneous - - -
Interest expense - related party (63,456) (63,456) -
------------ ------------ ------------
Total other income (expense) - net (63,456) (63,456) -
------------ ------------ ------------
Net loss from continuing operations (946,202) (276,671) -
------------ ------------ ------------
Income (loss) from discontinued operations of
land based segment (1,697,585) 448,491 15,899
------------ ------------ ------------
Net (loss) income before income taxes (2,643,787) 171,820 15,899
------------ ------------ ------------
Income tax (expense) benefit
Continuing operations - 50,302 -
Discontinued operations 56,034 (106,881) (3,515)
------------ ------------ ------------
Net (Loss) Income $(2,587,753) $ 115,241 $ 12,384
============ ============ ============
Basic earnings (loss) per share
Continuing operations $ (0.04) $ (0.02) $ -
============ ============ ============
Discontinued operations $ (0.08) $ 0.03 $ -
============ ============ ============
Diluted earnings (loss) per share
Continuing operations $ (0.04) $ (0.01) $ -
============ ============ ============
Discontinued operations $ (0.08) $ 0.02 $ -
============ ============ ============
Weighted average shares number of common shares outstanding
Basic 21,638,671 13,726,397 9,844,084
Fully diluted 21,638,671 22,826,745 13,478,625
See notes to consolidated financial statements
F-11
AutoTradeCenter.com Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
From July 10, 1997 (inception) Through March 31, 1998,
and The Years Ended March 31, 1999 and 2000
(Restated)
Series A and Series B, Series C, Series D,
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
------- ---------- ------ ---------- ------ ----------
Beginning balance, July 10, 1997 (inception) -
Issued common stock to founders
December 1997 - Issued common stock
pursuant to Rule 504 of Regulation D
February 1998 - Issued convertible
Series A preferred stock 6,750 $ 675,000
March 1998 - converted Series A preferred shares
into common shares: 1,111 to 1 (2,902) (290,171)
Series A Preferred stock offering costs (2,578)
Net income from July 10,1997 (inception)
through March 31, 1998
------- ---------- ------ ---------- ------ ----------
Balance - March 31, 1998 3,848 382,251 - - - -
June 1998 - Issued common shares under
goodwill agreement
August 1998 - Issued common shares for purchase
of subsidiary
November 1998 - Issued convertible
Series B preferred stock 35,000 $ 281,242 - -
December 1998 - Issued convertible
Series B preferred stock 12,000 90,795 - -
March 1999 - Converted Series A preferred shares
into common shares: 1,111 to 1 (3,848) (382,251)
March 1999 - Effect of constructive dividend on
convertible Series B preferred stock
March 1999 - Issued common shares under
goodwill agreement
March 1999 - Issued common shares for purchase
of subsidiary
March 1999 - Fair value of stock options granted
for the year ended.
Net income for the year ended March 31, 1999
------- ---------- ------ ---------- ------ ----------
Balance - March 31, 1999 47,000 372,037
------- ---------- ------ ---------- ------ ----------
Common Stock Retained
Shares Amount Earnings Total
---------- ----------- ---------- ------------
Beginning balance, July 10, 1997 (inception) -
Issued common stock to founders 9,000,000 $ 30,000 $ 30,000
December 1997 - Issued common stock
pursuant to Rule 504 of Regulation D 1,002,500 25,062 25,062
February 1998 - Issued convertible
Series A preferred stock 675,000
March 1998 - converted Series A preferred shares
into common shares: 1,111 to 1 3,224,122 290,171 -
Series A Preferred stock offering costs (2,578)
Net income from July 10,1997 (inception)
through March 31, 1998 $ 12,384 12,384
---------- ----------- ---------- ------------
Balance - March 31, 1998 13,226,622 345,233 12,384 739,868
June 1998 - Issued common shares under
goodwill agreement 266,667 53,333 53,333
August 1998 - Issued common shares for purchase
of subsidiary 300,000 47,814 47,814
November 1998 - Issued convertible
Series B preferred stock 281,242
December 1998 - Issued convertible
Series B preferred stock 90,795
March 1999 - Converted Series A preferred shares
into common shares: 1,111 to 1 4,275,128 382,251 -
March 1999 - Effect of constructive dividend on
convertible Series B preferred stock 253,077 (253,077)
March 1999 - Issued common shares under 266,667 53,333 53,333
goodwill agreement
March 1999 - Issued common shares for purchase
of subsidiary 2,050,000 1,450,000 1,450,000
March 1999 - Fair value of stock options granted
for the year ended. 79,438 79,438
Net income for the year ended March 31, 1999 115,241 115,241
---------- ----------- ---------- ------------
Balance - March 31, 1999 20,385,084 2,664,479 (125,452) 2,911,064
---------- ----------- ---------- ------------
See notes to consolidated financial statements.
F-12
Series A and Series B, Series C, Series D,
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
------- ---------- ------ ---------- ------ ----------
Balance forward 47,000 $ 372,037 -
April 1999 - Exercise of stock options
December 1999 - Note payable converted into
stock
Series B Preferred stock conversion
January 31, 2000 (47,000) (372,037)
February 2000 - Issued common shares for
software development
February 2000 - Warrants conversion
February 2000 - Issued convertible
Series C preferred stock 20,800 $1,906,536
February 2000 - Issued convertible
Series D preferred stock 31,200 $2,859,805
March 2000 - Issued common shares for purchase
of minority interest in subsidiary
March 2000 - Issued common shares for purchase
of subsidiary
March 2000 - Issued restricted common shares
for purchase of subsidiary
March 2000 - Effect of constructive dividend on
convertible Series C preferred stock
March 2000 - Effect of constructive dividend on
convertible Series D preferred stock
March 2000 - Fair value of stock options granted
for services for the year ended.
Net loss for the year ended March 31, 2000
------- ---------- ------ ---------- ------ ----------
Balance - March 31, 2000 - $ - 20,800 $1,906,536 31,200 $2,859,805
Common Stock Retained
Shares Amount Earnings Total
---------- ----------- ------------ ------------
Balance forward 20,385,084 $ 2,664,479 $ (125,452) $ 2,911,064
April 1999 - Exercise of stock options 100,000 200,000 200,000
December 1999 - Note payable converted into
stock 314,475 314,475 314,475
Series B Preferred stock conversion
January 31, 2000 543,515 372,037 -
February 2000 - Issued common shares for
software development 40,000 80,000 80,000
February 2000 - Warrants conversion 100,000 50,000 50,000
February 2000 - Issued convertible
Series C preferred stock 1,906,536
February 2000 - Issued convertible
Series D preferred stock 2,859,805
March 2000 - Issued common shares for purchase
of minority interest in subsidiary 5,000,000 9,375,000 9,375,000
March 2000 - Issued common shares for purchase
of subsidiary 1,100,000 2,801,590 2,801,590
March 2000 - Issued restricted common shares
for purchase of subsidiary 69,535 193,401 193,401
March 2000 - Effect of constructive dividend on
convertible Series C preferred stock 1,697,280 (1,697,280) -
March 2000 - Effect of constructive dividend on
convertible Series D preferred stock 1,680,000 (1,680,000) -
March 2000 - Fair value of stock options granted
for services for the year ended. 351,280 351,280
Net loss for the year ended March 31, 2000 (2,587,753) (2,587,753)
---------- ----------- ------------ ------------
Balance - March 31, 2000 27,652,609 $19,779,542 $(6,090,485) $18,455,398
F-13
AutoTradeCenter.com Inc. and Subsidaries
Consolidated Statements of Cash Flows
(Restated)
For the Year Ended From July 10, 1997
-------------------------------- (inception) Through
March 31, 2000 March 31, 1999 March 31, 1998
------------ ------------ ------------
Cash flows from operating activities:
Net (loss) income
Continuing operations-net of income taxes $ (946,202) $ (226,369) $ -
Discontinued operations-net of income taxes (1,641,551) 341,610 12,384
------------ ------------ ------------
(2,587,753) 115,241 12,384
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 319,800 24,042 -
Stock or stock options issued for services 351,280 23,083 -
(Increase) decrease in:
Net assets of discontinued operations 1,257,062 (1,823,695) (743,334)
Accounts receivable-trade 98,610 (98,610) -
Prepaid expenses and other current assets (105,006) (5,266) -
Accounts payable (24,712) 24,712 -
Accrued liabilities (44,599) 50,723 -
Deferred income taxes (7,010) 7,010 3,465
------------ ------------ ------------
Net cash provided by (used in)
operating activities (742,328) (1,682,760) (727,485)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment and software (420,365) (175,446) -
Sale of property and equipment 45,945 57,520 -
Net cash paid for acquisitions - (70,906) -
------------ ------------ ------------
Net cash provided by (used in)
investing activities (374,420) (188,832) -
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from borrowings 158,393 1,268,500 -
Proceeds from long-term debt - 528,807 -
Proceeds from issuance of convertible
preferred stock 4,766,341 372,037 672,422
Proceeds from issuance of common stock 250,000 - 55,063
------------ ------------ ------------
Net cash provided by financings activities 5,174,734 2,169,344 727,485
------------ ------------ ------------
Net change in cash 4,057,986 297,752 -
Beginning cash balance 297,752 - -
------------ ------------ ------------
Ending cash balance $ 4,355,738 $ 297,752 $ -
============ ============ ============
Supplemental disclosures:
Interest paid for discontinued operations $ 887,094 $ 355,006 $ 107,960
============ ============ ============
Interest paid for continuing operations $ 63,456 $ 63,456 $ -
============ ============ ============
Income taxes paid $ 3,000 $ 73,527 $ -
============ ============ ============
See notes to consolidated financial statements
F-14
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCORPORATION AND NATURE OF BUSINESS
AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to
the laws of the State of Arizona on July 10, 1997 and began operations on
September 22, 1997. In December 1998, the Company changed its name from Auto
Network USA, Inc. to Auto Network Group, Inc. In March 1999, the Company again
changed its name to AutoTradeCenter.com Inc. to more properly reflect its future
direction as an Internet based wholesaler of used automobiles. The wholesale
automobile business principally involves activities related to redistributing
used vehicles, typically acquired from franchised and independent auto dealers,
lessors, banks and other finance companies and reselling them to other
franchised and independent dealers. The Company engages in these activities
either as a fee-based service or as a principal to the transaction. As a
principal, the Company takes title to the vehicle being redistributed.
The Company's land based operations (non-Internet), where in the
Company is a principal to the transaction, performs these services through
independent wholesale brokers. Each broker buys and sells vehicles in the name
of the Company. Currently, the Company employs two methods of compensating each
broker. Under the first arrangement, the broker retains all profit or loss in
excess of a fixed fee per vehicle charged by the Company for the services it
provides for the brokers. Under the second arrangement, the Company and the
broker share the profit and loss in accordance with negotiated percentage
splits. As of April 1, 2000, the Company has 5 locations throughout the United
States.
The company's Internet operations facilitate the exchange of used
vehicles from franchised and independent auto dealers, lessors, banks and other
finance companies to other franchised and independent dealers. The Company,
generally, earns fees from these exchanges, utilizing its proprietary software.
The Company, currently does not act as principal in its Internet business. In
the future, the Company may acquire certain trade-in used vehicles from
individuals for sale to dealers as a result of strategic alliances with Internet
companies engaged in the business of selling new cars on line. (Such as
Autobytel.com). Vehicles acquired through this medium will be sold directly to
the franchise dealer providing the new car to the on-line consumer, the Company
through its land-based operations or to dealers over the internet.
AutoTradeCenter.com Inc. stock is traded on the NASD Bulletin Board
under the symbol AUTC.OB.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Auto Network Group of Arizona, Inc.
("ANET-AZ"), Auto Network Group of New Mexico, Inc. ("ANET-NM"), Auto Network
Group Northwest, Inc. ("ANET-NW"), 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.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year presentation.
F-15
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities,
disclosures at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Accordingly, actual results
could differ from those estimates.
CASH AND CASH ITEMS
Cash and cash items include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition. At
times, cash balances held at financial institutions were in excess of federally
insured limits.
INVENTORY
Inventory consists entirely of used vehicles that are stated at the
lower of cost or market. The cost of used vehicles is determined on a specific
identification basis. The cost of each vehicle includes the purchase price plus
transportation and reconditioning expenses. The Company reduces the carrying
value of each vehicle if the total cost exceeds the net realizable value of the
vehicle.
DEPRECIATION METHOD
Equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the assets estimated useful lives
ranging from 3 to 10 years.
AMORTIZATION OF INTANGIBLES
Goodwill and other intangibles are amortized on a straight-line basis
over periods ranging up to 10 years. The Company periodically assesses the
recoverability of the cost of its goodwill based upon a review of projected
undiscounted cash flows of the related operating entity. These cash flow
estimates are prepared and reviewed by management in connection with the
Company's annual long-range planning process. As of March 31, 2000, there had
been no write down of goodwill.
REVENUE RECOGNITION
Revenue and the corresponding cost of the sale is recognized when
vehicles are sold to customers evidenced by a sale and a purchase order,
respectively. The Company pays for the vehicle and receives payment from its
customers when the vehicle title is presented. It is not unusual for a title to
lag several days behind the recordation of the vehicle purchase and physical
delivery; correspondingly, a vehicle may be sold and delivered to a customer
prior to the delivery of the title and the receipt of cash. These sales are
recorded in trade receivables until the cash is received. The Company has
implemented the requirements of Staff Accounting Bulletin 101, which did not
have a material impact on revenue recognition in the financial statements.
EARNINGS PER SHARE
Basic earnings per share have been computed based on the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the increase in average common shares
F-16
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
outstanding that would result from the assumed exercise of outstanding stock
options and the assumed conversion of debt and preferred stock.
VALUATION OF STOCK OPTIONS
The Company uses the intrinsic value method for valuing stock options
issued to employees. The Company uses the fair value of goods or services
received or the fair value of the options or warrants issued, whichever is more
readily measurable, to determine the expense to record for options or warrants
issued to non-employees.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in its
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based upon the difference between financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
SEGMENT REPORTING
The Company is required to report information about operating segments
in and related disclosures about products and services, geographic areas and
major customers. The Company currently has only one operating segment at March
31, 2000. However, on February 28, 2000 the Company entered into a Motor Vehicle
Remarketing Agreement with American Honda Finance Corporation and on March 1,
2000 purchased NDSCo. These events launched the Company's Internet re-marketing
segment. The Company earned no revenue from its Internet re-marketing operations
during the year ended March 31, 2000, and its related expenses from its Internet
subsidiaries, BusinessTradeCenter.com Inc. and NDSCo, were immaterial to its
operations. Beginning with the year ended March 31, 2001 the Company will report
information regarding both its land based and its Internet re-marketing
operations.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
March 31,
---------------- -----------------
2000 1999
---- ----
Trade accounts receivable $5,828,411 $5,061,853
Due from employees and independent wholesale brokers 1,378,092 324,248
----------- ----------
7,206,503 5,386,101
Allowance for doubtful accounts 1,130,536 90,055
----------- ----------
Total $6,075,967 $5,296,046
=========== ==========
The allowance for doubtful accounts consist of the following:
Beginning of the year $ 90,055 $ -0-
Provision for bad debts 1,045,970 90,055
Write offs (5,489) -0-
Recoveries -0- -0-
----------- ----------
End of the year $1,130,536 $ 90,055
========== ==========
F-17
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE B - ACCOUNTS RECEIVABLE (CONTINUED)
On March 31, 2000 accounts receivable from used car brokers providing
services to the Company under the terms of work-for-hire agreements ("Brokers")
totaled $1,378,092. The Company has determined that an additional provision for
losses of $1,045,970 is required which reduced earnings for the year ended March
31, 2000. Recoveries, if any, will be recorded as revenue in the period in which
they are received.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
-----------------------------
CATEGORY LIFE/METHOD 2000 1999
-------- ----------- ---- ----
Computers and equipment 3 years/SL $ 597,231 $ 40,490
Software/systems design 3 years/SL 598,225 9,509
Vehicles 3 years/SL 229,910 80,442
Furniture and fixtures 7 years/SL 100,243 46,021
Leasehold improvements 5 years/SL 16,628 16,628
---------- --------
1,542,237 193,090
Less allowance for depreciation 118,839 24,646
---------- --------
$1,423,398 $168,444
========== ========
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of the following:
March 31,
------------------------------
2000 1999
---- ----
Goodwill $13,746,926 $2,139,862
Other 21,278 71,788
----------- ----------
13,768,204 2,211,650
Less accumulated amortization 261,720 4,272
----------- ----------
$13,506,484 $2,207,378
=========== ==========
Also see Note J.
NOTE E - LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consists of the following:
March 31,
------------- --------------
RELATED PARTY AND AFFILIATES: 2000 1999
- ----------------------------- ---- ----
o Notes payable to former officer and director, 12% annual interest
payable monthly, collateralized by all accounts receivable, inventory,
equipment and certain intangibles, $852,000 due April 1, 2001,
$300,000 due January 15, 1999, 30 day renewable terms, subordinated to $ 1,152,000 $ 852,000
senior debt. The $852,000 note can be accelerated if either Roger L.
Butterwick or John E. Rowlett ceases to be an officer or director.
(See 1. and 2. below)
o Note payable to former officer and director, 12% annual interest
payable monthly, collateralized by inventory, due October 1, 1999,
subordinated to senior debt. (See 2. below) -0- 50,000
F-18
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE E - LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED)
March 31,
------------- --------------
RELATED PARTY AND AFFILIATES: 2000 1999
- ----------------------------- ---- ----
o Note payable to an entity controlled by a former officer and director
of the Company, 12% annual interest payable monthly, collateralized by
all accounts receivable, inventory, equipment, and certain intangibles.
$569,307 is due June 30, 2000, $569,307 is due September 30, 2000,
$569,306 is due December 31, 2000 with the balance of $967,500 due
April 1, 2001. This note is subordinated to senior debt and can be
accelerated if either Roger L. Butterwick or John E.
Rowlett ceases to be an officer or director (See 2. below) 2,675,420 717,500
o $1,572,000 line of credit to an entity controlled by three officers of
ANET-NW, annual interest at prime plus 6% (currently 15%), secured by
all accounts receivable, inventory, and furniture and equipment, due
July 14, 2000. 1,409,683 -0-
o Note payable to a shareholder of an entity acquired by the Company, 12%
annual interest, principal and interest payable monthly, due October
1, 2000. -0- 425,000
o Note payable to an entity controlled by two officers of ANET-NM, 15%
annual interest payable monthly, due June 30, 2000, subordinated to
senior debt. (See 3. below) 174,116 198,116
o Note payable to an entity controlled by two former officers and
directors of the Company, 12% annual interest payable monthly,
collateralized by inventory, due May 13, 2000 and 30 day renewable
terms, subordinated to senior debt. (See 2. below) 300,000 -0-
o Notes payable to a related party, 15% annual interest payable monthly,
due on demand. 17,000 -0-
o Note payable to a related party, 15% annual interest payable monthly,
due on demand. 35,000 -0-
o Note payable to an entity controlled by two officers of ANET-NM, 12%
annual interest payable monthly, due on demand. 50,000 -0-
o Note payable to an officer of ANET-NM, 15% annual interest payable
monthly, due upon 30 days notice, subordinated to senior debt. (See
3. below) 92,409 123,084
o Note payable to an entity that is a major shareholder of the Company,
12% annual interest payable monthly, due April 1, 2000. (See 4. below) -0- 1,500,246
o Notes payable to officers and major shareholders, 12% annual interest
payable quarterly, due March 31, 2001, convertible into stock of
subsidiary. (See 6. below) -0- 5,500
---------- ----------
5,905,628 3,871,446
BANK:
o $3,000,000 revolving line of credit, 1.5% over prime, secured by all
accounts receivable, inventory, equipment and certain intangibles,
partially guaranteed by one officer, due June 30, 2000 (See 5. below) 1,112,418 1,268,500
OTHER:
o Note payable to an unrelated third party, 12% annual interest payable
monthly, due September 22, 1999. -0- 301,000
---------- ----------
Total long-term debt and notes payable 7,018,046 5,440,946
---------- ----------
F-19
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE E - LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED)
March 31,
------------- --------------
RELATED PARTY AND AFFILIATES: 2000 1999
- ----------------------------- ---- ----
Less current portion of long-term debt and notes payable:
Related party and affiliates 4,086,128 1,902,833
Bank 1,112,418 1,268,500
Other -0- 301,000
---------- ----------
Total current portion of long-term debt and notes payable 5,198,546 3,472,333
---------- ----------
Total long-term debt $1,819,500 $1,968,613
========== ==========
1. A note in the amount of $300,000 is convertible, at the option of note
holder, into shares of the Company's common stock at a conversion price
of $0.10 per share. The option expires 30 days after the term of the
note. This note was converted into 3,000,000 shares of common stock on
May 1, 2000.
2. Various notes maturing during the year were extended by mutual
agreement and not paid when they became due.
3. The note is convertible at any time into shares of the Company's common
stock at the bid price of the common stock at date of conversion.
4. The note is convertible, prior to acceptance of payment in full of the
outstanding balance, into shares of the Company's common stock at a
conversion price of $1.03 per share. This note was paid in full on
December 31,1999 and was not converted into common stock.
5. Subject to the bank's approval, the loan may be increased to the lessor
of 85% of the eligible accounts receivable or $3 million. The amount of
the average unused line as of year-end is $1,765,895. The bank charges
a fee on the amount of the unused line by taking the average unused
portion times .25% divided by 360 times the days in the month. This
calculated into a fee of $380 for the month of March 2000. In addition,
the loan requires net income and equity limits be met and limits
capital expenditures, officers' pay and additional indebtedness. At
March 31, 2000, the Company was in violation of various provisions of
the loan agreement. These provisions apply to the amount of net loss
incurred and the amount of capital expenditures incurred. The lender
subsequently waived these Events of Default.
6. These notes were paid in full on February 16, 2000 and were not
converted into the common stock of the subsidiary.
All long-term debt in the amount of $1,968,613 at March 31,
1999 matures during the year ending March 31, 2001. All long-term debt
in the amount of $1,819,500 at March 31, 2000 matures during the year
ending March 31, 2002.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each
class of financial instrument are as follows:
CASH AND CASH EQUIVALENTS, RECEIVABLES, AND ACCOUNTS PAYABLE
The carrying amount approximate fair value because of the short-term
maturity of these instruments.
F-20
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT (INCLUDING AMOUNTS DUE WITHIN ONE YEAR)
The fair value of long-term debt was based upon market prices where
available or current borrowing rates available for financing with similar terms
and maturities.
March 31,
----------------------------------------------------------------
2000 1999
--------------------------- ------------------------------
FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
Cash and cash equivalents $4,355,738 $4,355,738 $ 297,752 $ 297,752
Long-term debt which includes amounts
due within one year. $7,018,046 $7,018,046 $5,440,946 $5,440,946
NOTE G - INCOME TAXES
The income tax provision (benefit) shown in the consolidated income
statement is detailed for each year ended March 31:
2000 1999 1998
---- ---- ----
Currently payable (receivable):
Federal $(38,459) $43,564 $ -0-
State (10,565) 9,470 50
--------- ------- ------
Total currently payable (49,024) 53,034 50
--------- ------- ------
Deferred:
Federal (5,105) 3,154 1,951
State (1,905) 391 1,514
--------- ------- ------
Total deferred (7,010) 3,545 3,465
--------- ------- ------
Total $(56,034) $56,579 $3,515
========= ======= ======
The income tax provision (benefit) for continuing operations varied
from the federal statutory rate as follows for each year ended March 31:
2000 1999 1998
---- ---- ----
U.S. Statutory rate (34)% 34% 34%
State income taxes, net of federal income tax benefit (8)% 8% 8%
Valuation allowance 39 % 0% 0%
----- --- ---
3 % 42% 42%
===== === ===
The company has a federal tax loss carryforward of approximately
$1,464,000, which expires in 2015.
The following summarizes the tax effects of the significant temporary
differences which comprise the deferred tax asset or liability for each
year ended March 31:
2000 1999 1998
---- ---- ----
Bad debt reserve $ 439,307 $ 37,823 $ -0-
Other -0- (41,368) (3,465)
Net operating loss carryforward 615,049 -0- -0-
------------ --------- --------
Net deferred tax asset (liability) 1,054,356 (3,545) (3,465)
Valuation allowance (1,054,356) -0- -0-
------------ --------- --------
Net deferred income tax (liability) $ -0- $ (3,545) $(3,465)
============ ========= ========
F-21
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE H - EARNINGS PER SHARE
Basic earnings per common share are based on the weighted average
number of common shares outstanding in each year. Diluted earnings per common
share assume that any dilutive convertible preferred shares and convertible debt
outstanding during each year were converted at the first available conversion
date, with related interest and outstanding common shares adjusted accordingly.
It also assumes that outstanding common shares were increased by shares issuable
upon exercise of those stock options and warrants for which market price exceeds
exercise price, to the extent they are not anti-dilutive.
The computation of basic and dilutive earnings per common share is as
follows:
From July 10,
1997 (inception)
Year ended Year ended Through
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
Income (loss) available to common stockholders:
Basic $ (2,587,753) $ 115,241 $ 12,384
Effect of dilutive securities - convertible debt -0- 68,573 5,914
------------- ----------- -----------
$ (2,587,753) $ 183,814 $ 18,298
============= =========== ===========
-----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding - basic 21,638,671 13,726,397 9,844,084
Conversion of Series A preferred stock -0- 4,181,427 1,978,270
Conversion of Series B preferred stock -0- 388,235 -0-
Exercise of stock options -0- 167,260 22,105
Exercise of warrants -0- 844,655 449,955
Conversion of debt -0- 3,518,771 1,184,211
------------- ----------- -----------
Weighted average number of common shares
outstanding - diluted 21,638,671 22,826,745 13,478,625
-----------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Basic $(0.12) $0.01 $0.00
======= ===== =====
Diluted $(0.12) $0.01 $0.00
======= ===== =====
The effects of convertible debt and preferred stock along with the
stock options and warrants have not been included in the calculation of diluted
earnings per share for the year ended March 31, 2000 because they are
anti-dilutive.
As described in Notes E, J and K, the Company has convertible debt,
contingently issuable stock, options, warrants and convertible preferred stock.
NOTE I - OPERATING LEASES
The Company leases its facility in Scottsdale, Arizona from an
unrelated third party under an operating lease expiring September 30, 2002. As
more fully explained in Note J, the Company sublets a different facility in
Scottsdale, Arizona to handle the relocated remarketing and expanding corporate
operations. Both of these leases require the Company to pay all maintenance,
insurance, and taxes on the leased property. The Company also has operating
leases for facilities in Albuquerque, New Mexico, Bend, Oregon, San Antonio,
Texas and Philadelphia, Pennsylvania.
F-22
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE I - OPERATING LEASES (CONTINUED)
The following schedule shows the future minimum lease payments required
by year under the various operating leases:
Year ending March 31, 2001 $428,946
2002 378,177
2003 113,952
2004 31,397
--------
$952,472
========
The Company sub-leases a portion of its Scottsdale facility to an
independent third party on a monthly basis for $2,000 per month. Rental expense
was $222,296, $195,312, and $75,860 for the years ended March 31, 2000 and 1999
and for the period ending March 31, 1998, respectively.
NOTE J - BUSINESS ACQUISITIONS
AUTO NETWORK GROUP OF NEW MEXICO, INC. ("ANET-NM")
On June 1, 1998, the Company entered into a Purchase of Goodwill
Agreement with JBS, LLC, an entity whose members comprise the management team of
ANET-NM. In consideration for the goodwill which ANET-NM is receiving from JBS,
JBS was granted a total of 800,000 contingently issuable restricted shares of
the Company's common stock valued at $.20 per share as follows: 266,667 shares
issued upon execution of the Agreement, held in escrow, and subject to
forfeiture if ANET-NM is not doing business as of June 1, 1999: 266,667 shares
to be earned for the period June 1, 1998 through March 31, 1999 if pre-tax
earnings of ANET-NM are at least $60,000; and 266,666 shares to be earned for
the period April 1, 1999 through March 31, 2000 if pre-tax earnings of ANET-NM
are at least $120,000. In addition, JBS may earn options to purchase restricted
shares of the Company's common stock at the rate of 5 options for every dollar
of pre-tax earnings of ANET-NM in excess of $60,000 for the period ending March
31, 1999, and 5 options for every dollar of pre-tax earnings of ANET-NM in
excess of $120,000 for the year ended March 31, 2000. The options are to be
exercisable for a period of 3 years from date of grant at the bid price as of
March 31, 1999 or 2000, respectively.
In accordance with the terms of the Purchase of Goodwill Agreement,
266,667 shares of contingently issuable shares of common stock were granted to
JBS, LLC as ANET-NM was doing business at June 1, 1999. For the period from June
1, 1998 through March 31, 1999, ANET-NM had pre-tax earnings of $107,962
resulting in JBS, LLC earning 239,810 options, exercisable at $3.00 per share.
For the period ending March 31, 2000, ANET-NM had pre-tax earnings of $70,395
resulting in no shares being earned by JBS, LLC.
The goodwill purchased of $106,666 is being amortized on a
straight-line basis over 10 years.
PINNACLE DEALER SERVICES, INC. ("PDS")
On August 20, 1998, the Company acquired PDS, an Arizona corporation,
by issuing to the shareholders of PDS a total 300,000 restricted shares of
common stock, valued at $0.20 per share, in exchange for the outstanding shares
of PDS. PDS provides financing programs for dealers who purchase vehicles from
the Company (See Note L).
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $47,813 and is being amortized on a straight-line basis
over 10 years.
F-23
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE J - BUSINESS ACQUISITIONS (CONTINUED)
AUTO NETWORK GROUP NORTHWEST, INC. ("ANET-NW")
On July 20, 1999, the Company entered into an Exchange of Common Stock
Agreement with ANET-NW. In consideration for the stock which the Company is
receiving from ANET-NW, ANET-NW was granted a total of 500,000 contingently
issuable restricted shares of the Company's common stock valued at $1.50 per
share as follows: up to 83,333 shares shall no longer be forfeitable on July 1,
2000 under the following conditions: if audited pre-tax earnings are less than
$30,000 all 83,333 shares shall be forfeited. If the audited pre-tax earnings
are between $30,000 and $50,000 a pro-rata amount of shares shall be issued and
the balance shall be forfeited. If the audited pre-tax earnings are $50,000 or
over the restricted stock will be issued and any earnings in excess of $50,000
shall cause options to be earned at a ratio of 5 options for every $1.00 of
excess earnings. These options shall be priced at the closing bid price of the
Company's common stock on April 1 following the March 31 year end. As of July 1,
2001, 166,667 shares can be earned at the following levels: less than $50,000 of
pre-tax audited earnings then shares are forfeited, $50,000 to $100,000 a
pro-rata amount of shares will be issued, over $100,000 the shares will be
issued and options will be earned with the above formula. As of July 1, 2002,
250,000 shares can be earned at the following levels: less than $75,000 of
pre-tax audited earnings then shares are forfeited, $75,000 to $150,000 a
pro-rata amount of shares will be issued, over $150,000 the shares will be
issued and options will be earned with the above formula.
For the period from July 20, 1999 through March 31, 2000, ANET-NW had
pre-tax earnings of $41,721 resulting in ANET-NW earning 69,535 shares.
The goodwill purchased of $193,391 is being amortized on a
straight-line basis over 10 years.
NATIONAL DEALER SERVICES CO. (" NDSCO")
On March 1, 2000, the Company acquired NDSCo, a Utah corporation, by
issuing to the shareholders of NDSCo a total 1,100,000 restricted shares of
common stock, valued at $2.55 per share, in exchange for the outstanding shares
of NDSCo. 100,000 shares of stock were held in escrow pending the successful
completion of the new NDSCo software. The software was subsequently completed.
NDSCo was a privately held corporation involved in the development of an
electonic vehicle distribution system. They utilized a network of auto buying
web sites that empowered auto dealerships to research, finance and purchase
vehicles online. They also provided manufacturers with the ability to list
vehicles for sale to dealers in all parts of the country almost instantly from
their own lots.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $2,039,123 and is being amortized on a straight-line
basis over 10 years.
AUTOTRADECENTER REMARKETING SERVICES INC. & WALDEN REMARKETING SERVICES, INC.
("WALDEN REMARKETING")
On March 31, 1999, the Company acquired Walden Remarketing, a Minnesota
corporation by issuing the shareholders of Walden Remarketing a total of
2,050,000 restricted shares of common stock, cash of $125,000, and a promissory
note in the principal amount of $425,000. The Company valued the common stock at
its estimated fair market value of $0.71 per share or $1,450,000. The promissory
note accrues interest at the rate of 12% per annum and requires the Company to
make 18 equal monthly payments of principal and interest beginning May 1, 1999.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $1,985,383 and is being amortized on a straight-line
basis over 10 years.
F-24
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE J - BUSINESS ACQUISITIONS (CONTINUED)
On April 20, 1999, the Company entered into a Consulting Agreement with
the former majority shareholder of Walden Remarketing as part of the Company's
acquisition of Walden Remarketing. The consulting services agreement is for a
period of three years ending April 20, 2002. As consideration for the agreement,
the Company has granted to the shareholder an option to purchase 3,000,000
shares of the Company's common stock at $3.00 per share. The options, which
expire April 20, 2009, vest according to a schedule that is based on the trading
price of the common stock
On December 1, 1999, the Company entered into an agreement which
provides for the termination and unwinding of all oustanding obligations and
agreements that arose when the Company acquired Walden Remarketing. The balance
on the promissory note issued as part of the acquistion in the amount of
$314,475 was converted into common stock at a price of $1.00 per share. The
Company changed the name from Walden Remarketing to AutoTradeCenter Remarketing
Services Inc. and moved the operation to a new office in Scottsdale, Arizona.
The consulting services agreement entered into with the former majority
shareholder of Walden Remarketing as part of the Company's acquisition of Walden
Remarketing was also terminated. As a result the option to purchase 3,000,000
shares of the Company's common stock at $3.00 per share has expired.
BUSINESSTRADECENTER.COM INC. ("BTC")
On January 7, 1999, the Company incorporated BTC in Arizona to
facilitate the buying and selling of vehicles at wholesale between dealers on
the Internet. BTC has developed the technology and systems necessary to make the
company's inventory, as well as the inventory of member dealers, available for
purchase and sale on the Company's Internet site. On March 23, 2000 we acquired
the remaining 45% minority interest of BTC by issuing 5,000,000 shares of common
stock, valued at $1.88 per share, which represents management's estimate of the
fair market value of the common stock on the date of the transaction, and paying
off a convertible $200,000 note, making BTC a wholly-owned subsidiary.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $9,374,550 and is being amortized on a straight-line
basis over 10 years.
The acquisitions described above were accounted for by the purchase
method of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues or expenses
related to these acquisitions prior to the respective closing dates. The cash
portions of the acquisitions were financed through available cash and borrowings
from the Company's line of credit.
The following schedule shows the pro-forma results for continuing and
discontinued operations for the years ended March 31, 2000 and March 31, 1999
assuming the acquisitions the Company acquired during the year ended March 31,
2000 occurred on April 1, 1998.
Year ended March 31,
--------------------------------------------
2000 1999
---- ----
Net revenues
Continuing operations $ 291,587 $ --
Discontinued operations 131,569,675 97,665,410
------------ -----------
$131,861,262 $97,665,410
============ ===========
Net loss
Continuing operations $ (3,117,304) $(2,534,363)
Discontinued operations (1,641,551) 341,610
------------ -----------
$ (4,758,855) $(2,192,753)
============ ===========
F-25
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE J - BUSINESS ACQUISITIONS (CONTINUED)
Year ended March 31,
--------------------------------------------
2000 1999
---- ----
Basic loss per common share
Continuing operations $ (0.11) $ (0.13)
Discontinued operations (0.06) 0.02
------------ -----------
$ (0.17) $ (0.11)
============ ===========
Diluted loss per common share
Continuing operations $ (0.11) $ (0.13)
Discontinued operations (0.06) 0.02
------------ -----------
$ (0.17) $ (0.11)
============ ===========
These pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combinations been in effect on April 1,
1998, or of future results of operations.
As a result of the acquisitions, the Company had the following non-cash
activity:
Year ended March 31,
------------------------------------
Assets acquired: 2000 1999
---- ----
Accounts receivable, net $ -0- $ 98,609
Prepaid expenses -0- 3,520
Investment in subsidiaries 460 -0-
Property and equipment 802,708 34,655
Goodwill 11,607,064 2,141,158
----------- ----------
Total assets acquired 12,410,232 2,277,942
----------- ----------
Liabilities assumed:
Accounts payable -0- 84,712
Accrued liabilities 40,241 84,180
----------- ----------
Total liabilities assumed 40,241 168,892
----------- ----------
Notes payable issued -0- 425,000
Value of common stock issued 12,369,991 1,604,480
----------- ----------
Net cash paid $ -0- $ 79,570
=========== ==========
NOTE K - STOCKHOLDERS' EQUITY
COMMON STOCK
On July 10, 1997 (inception) the Company issued 9,000,000 shares of
no-par value common stock for $30,000 to its founders. In December 1997, the
Company sold 1,002,500 common shares for $25,062 pursuant to Rule 503 of
Regulation D under the Securities Act of 1933 (commonly referred to as a "504
offering").
F-26
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
SERIES A
On February 2, 1998, the Company sold 6,750 shares of Series A
preferred stock to Eastlane Trading Limited for $675,000. Each share is
convertible into 1,111 shares of common stock. The intrinsic value of this
conversion feature was not material. For each share of common stock issued upon
conversion of the Series A preferred stock, one warrant to purchase common stock
is issued. Five warrants are exercisable to purchase one share of common stock
at $.25 per share. Total exercisable warrants were 1,499,850. On March 15, 1999,
644,824 of these warrants expired. As of March 31, 1999, all 6,750 shares of
Series A preferred stock had been converted into 7,499,250 shares of common
stock, and warrants exercisable to purchase 855,026 shares were outstanding. The
remaining 855,026 warrants expired on March 23, 2000.
SERIES B
During November and December, 1998 the Company issued 47,000 shares of
Series B preferred stock ("Series B") for $470,000. Each share of Series B
preferred stock is convertible into shares of common shares using a conversion
price equal to 65% of the average closing bid price for the common stock for the
10 trading days immediately preceding the date of conversion. The Company
assigned an intrinsic value of $253,077 to this conversion feature. As a result,
a constructive dividend in this amount was recorded in the accompanying
financial statements. Each share of Series B preferred stock is entitled to a
$10 liquidation preference over common stockholders. The Series B preferred
stock is non voting.
The Company shall have the right and option upon notice to the holders
of the Series B preferred stock to call, redeem, and acquire any or all of the
shares of Series B preferred stock at a price equal to $11.00 per share, at any
time to the extent such shares have not previously converted to common stock
pursuant to the terms described above; provided, however, that the holders of
the Series B preferred stock shall, in any event, have the right during the
30-day period immediately following the date of the Notice of Redemption, which
shall fix the date for redemption, to convert their shares of Series B preferred
stock in accordance with the terms described above.
As of March 31, 2000, all 47,000 shares of series B preferred stock had
been converted into 543,515 shares of common stock.
SERIES C
During February, 2000 the Company issued 20,800 shares of Series C
preferred stock ("Series C") for $2,080,000. Each share of Series C preferred
stock is convertible, at the option of the holder, at any time, into 80 shares
of Common Stock of the Corporation, which is based on the initial conversion
price of $1.25. The Company assigned an intrinsic value of $1,697,280 to this
conversion feature. As a result, a constructive dividend in this amount was
recorded in the accompanying financial statements. Each share of Series C
preferred stock is entitled to a $100 liquidation preference over common
stockholders. The Series C preferred stock is non voting.
The Company shall have the right and option upon notice to the holders
of the Series C preferred stock to call, redeem, and acquire any or all of the
shares of Series C preferred stock at a price equal to $110.00 per share, at any
time to the extent such shares have not previously converted to common stock
pursuant to the terms described above; provided, however, that the holders of
the Series C preferred stock shall, in any event, have the right during the
30-day period immediately following the date of the Notice of
F-27
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
Redemption, which shall fix the date for redemption, to convert their shares of
Series C preferred stock in accordance with the terms described above.
On May 17, 2000 the Company filed Form S-1 Registration Statement under
theSecurities Act of 1933 to register the common shares to be issued upon
conversion of the Series C preferred stock.
SERIES D
During February, 2000 the Company issued 31,200 shares of Series D
preferred stock ("Series D") for $3,120,000. Each share of Series D preferred
stock is convertible, at the option of the holder, at any time, into shares of
Common Stock of the Corporation equal to $100.00 divided by the conversion price
which shall be a price equal to 65% of the average closing bid price for the
common stock for the 10 trading days immediately preceding the date of
conversion. The maximum conversion price shall be $4.00 per share. The Company
assigned an intrinsic value of $1,680,00 to this conversion feature. As a
result, a constructive dividend in this amount was recorded in the accompanying
financial statements. Each share of Series D preferred stock is entitled to a
$100 liquidation preference over common stockholders. The Series D preferred
stock is non voting.
The Company shall have the right and option upon notice to the holders
of the Series D preferred stock to call, redeem, and acquire any or all of the
shares of Series D preferred stock at a price equal to $110.00 per share, at any
time to the extent such shares have not previously converted to common stock
pursuant to the terms described above; provided, however, that the holders of
the Series D preferred stock shall, in any event, have the right during the
30-day period immediately following the date of the Notice of Redemption, which
shall fix the date for redemption, to convert their shares of Series D preferred
stock in accordance with the terms described above.
On May 17, 2000 the Company filed Form S-1 Registration Statement under
the Securities Act of 1933 to register the common shares to be issued upon
conversion of the Series D preferred stock.
STOCK OPTION PLAN
On August 5, 1997, the shareholders of the Company adopted the 1997
Stock Option Plan ("Plan"), which provides for the granting of both incentive
stock options and non-qualified options to eligible employees (including
independent wholesale brokers), officers, and directors of the Company.
Initially, a total of 1,000,000 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under this Plan (the "Option
Pool"). The Option Pool is adjusted annually on the beginning of the Company's
fiscal year to a number equal to 10% of the number of shares of common stock of
the Company outstanding at the end of the Company's last completed fiscal year,
or 1,000,000 shares, whichever is greater. For the fiscal years' beginning April
1, 1999 and April 1, 2000, the Option Pool was 2,038,508 shares and 2,765,261,
respectively. The Plan is administered by the Compensation Committee of the
Board of Directors or, if there is no Committee, by the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of the Company's subsidiaries,
will receive automatic option grants to purchase 10,000 shares of common stock
upon their appointment or election to the Board of Directors of the Company.
Options shall have an option price equal to 100% of the fair market value of the
common stock on the grant date and shall have a minimum vesting period of one
year from the date of grant.
F-28
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
requires the Company to disclose pro forma information regarding option grants
made to its employees. SFAS No. 123 specifies certain valuation techniques that
produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because "APB 25", "Accounting for Stock Issued to Employees,"
specifies that no compensation charge arises when the price of the employees'
stock option equal the market value of the underlying stock at the grant date,
as in the case of options granted to the Company's employees.
SFAS 123 pro-forma numbers are as follows:
From July 10, 1997
(inception)
Year ended Year ended Through
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1988
-------------- -------------- --------------
Net income (loss) as reported under APB 25 $(2,587,753) $ 115,241 $12,384
Net income (loss) pro forma under SFAS 123 $(3,653,384) $(234,979) $10,783
Basic net income (loss) per common share-
as reported under APB 25 $(0.12) $0.01 $0.00
Diluted net income (loss) per common share-
as reported under APB 25 $(0.12) $0.01 $0.00
From July 10, 1997
(inception)
Year ended Year ended Through
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
Basic net income (loss) per common share-
pro forma under SFAS 123 $(0.17) $(0.02) $0.00
Diluted net income (loss) per common share-
pro forma under SFAS 123 $(0.17) $(0.02) $0.00
Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following average assumptions:
From July 10,1997
(inception)
Year ended Year ended Through
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
Expected dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 6.02% 4.67% 5.11%
Expected volatility 166% 149% 53%
Expected life (in months) 32 43 59
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's options. The weighted average
estimated fair value of employee stock options granted during the years ending
March 31, 2000 and 1999 and the period ending March 31, 1998 were $0.80, $0.52
and $0.01 per share, respectively.
F-29
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
During the years ending March 31, 2000 and 1999 and the period ending
March 31, 1998, the Company granted stock options to certain of its employees
and independent wholesale brokers to purchase up to 1,322,080, 1,361,499 and
175,000 shares, respectively, of the Company's common stock that would be
restricted pursuant to Rule 144 of the SEC. These shares vest according to
length of service provided that the recipient is still employed by the Company
or under contract pursuant to a work-for-hire agreement as of the vesting date.
The option prices range from $0.15 to $4.88. At March 31, 2000, 1999 and 1998,
2,389,755, 1,206,499 and 0 shares, respectively, were eligible for exercise. The
weighted average exercisable price was $1.55, $1.09 and $0.15 for the years
ended March 31, 2000, 1999 and the period ending March 31, 1998, respectively.
OTHER STOCK OPTIONS
The Company has also granted stock options to other third parties as
part of the issuance of stock, debt and in business acquisitions. Some options
vest according to various agreed upon conditions; while others vested on the
date granted. The price at which the options may be exercised varies from $0.32
to $2.56. At March 31, 2000, 1999 and 1998, the total outstanding options were
2,429,810, 2,089,810 and 850,000, respectively.
The fair value of the options issued during the year ended March 31,
1998 was not material. The fair value of the options issued during the years
ended March 31, 2000 and 1999 was determined using the Black-Scholes option
pricing model. Options granted for services were valued at $23,083 and options
granted for loan guarantees were valued at $56,355 in 1999. For the year ended
March 31, 2000 options granted for services were valued at $351,280.
NOTE L - RELATED PARTY TRANSACTIONS
During the years ended March 31, 2000 and 1999 and the period ended
March 31, 1998, the Company consummated a total of $0, $486,275 and $800,000 of
vehicle sales and $0, $2,055,000 and $1,255,000 in purchase transactions
respectively with two entities owned by officers, directors and other major
stockholders of the Company. At March 31, 1998, the Company had recorded in
accounts receivable $37,522 due from one of these entities. Likewise at March
31, 1998, the Company had recorded an account payable of $15,999 to another
related entity. At March 31, 1999, these accounts had been paid in full.
During the period ending March 31, 1998, the Company paid $4,000 for
professional services to MRM Consultants, an entity owned by an officer and
director. At March 31, 1998 he was owed $11,500. At March 31, 1999, the account
had been paid in full.
On May 5, 1998, the Company obtained a line of credit from its
commercial bank in the amount of $500,000. The note was secured by a first lien
on all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to the Company to the
bank's line of credit. On May 7, 1998, the Company granted each of Messrs.
Erskine, Stuart, and Moldenhauer options to purchase 100,000 restricted shares
of Common Stock at a price of $.75 per share. These options expire on May 7,
2002. On March 26, 1999, the note was refinanced.
Effective June 1, 1998 ANET-NM entered into a lease agreement with G &
B Investments, LLC, an entity owned by two of the principals managing the
Albuquerque operations. The lease terminates on May 31, 1999 but is
automatically renewed unless a 30-day cancellation notice is received by either
party. The lease is
F-30
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE L - RELATED PARTY TRANSACTIONS (CONTINUED)
an operating lease whereby ANET-NM is responsible for all operating costs. The
amount of the lease is $2,500 per month. Effective May 1, 2000 the amount of the
lease is $3,600 per month.
As described in Note K, on August 20, 1998 the Company acquired
Pinnacle Dealer Services ("PDS") for 300,000 restricted shares of common stock.
PDS was owned by three officers of the Company. The value assigned to the
transaction was $47,813.
On March 26, 1999, the Company obtained a $3,000,000 line of credit
from a financial institution. The note is due March 31, 2000, and is secured by
a first lien on all inventory accounts receivable, equipment, and general
intangibles. Messrs. Stuart, Moldenhauer, and Butterwick personally guaranteed
the note. In consideration of the personal guarantees, the Company granted each
of Messrs. Stuart, Moldenhauer, and Butterwick three-year options to purchase
250,000 restricted shares of common stock at a price of $1.00 per share.
On April 3, 2000, the Company extended its $3,000,000 line of credit
from a financial institution. The note is due June 30, 2000, and is secured by a
first lien on all inventory accounts receivable, equipment, and general
intangibles. Messr. Butterwick personally guaranteed a portion of the note. No
options were granted in consideration of his personal guarantee.
Pursuant to a Financial Services Agreement with Cambridge Management
Associates, LLP, an entity whose managing partner became an officer of the
Company on April 2, 1999, 300,000 stock options vested on March 26, 1999. The
options are exercisable at $0.32 per share.
The Company has entered into various lending arrangements with
officers, directors and other affiliated entities owned or controlled by
officers, directors and other key personnel of the Company. As more fully
detailed in Note E, at March 31, 2000, March 31, 1999 and March 31,1998 the
outstanding balance on these notes was $5,905,628, $3,871,446 and $832,000,
respectively. The total interest paid to these entities on all financing
activities for the years ended March 31, 2000, 1999 and the period ended March
31, 1998 was $768,121, $286,824 and $58,436, respectively.
Related party payables at March 31, 1999 include $185,000 due to a
major shareholder, normal commissions of $37,423 due to officers of ANET-NM, and
$27,828 due to affiliated entities for business expenses incurred on behalf of
the Company.
NOTE M - CONCENTRATIONS
The Company is engaged primarily in one line of business - wholesale
activities of used automobiles - which represents 100% of consolidated sales.
During the year ended March 31, 1999, the Company purchased used
vehicles from Canada for resale in the United States. The total amount of
vehicles purchased in Canada was $3,350,955 including transportation and vehicle
inspections. The Company did no Canadian transactions during the year ended
March 31, 2000.
The Company utilizes independent brokers as its sales force in the
purchase and sale of used vehicles. For the years ended March 31, 2000 and 1999
a significant portion of the Company's sales were generated by a few of these
brokers. Consequently, loss of the services of one of more of these high volume
sales producers would have had an impact upon the financial results. As the
Company continues its expansion plans, any future negative results from the loss
of any one broker's services will be minimized.
F-31
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS
AUTO GROUP OF SAN ANTONIO, LTD.
Effective April 1, 2000, the Company opened an office and warehouse
wholesale operation in San Antonio, Texas. Auto Group of San Antonio Ltd., a
Texas limited partnership, conducts our business in San Antonio. The Company is
the sole limited partner and the sole owner of a newly formed limited liability
company which serves as the general partner.
The Company loaned the limited partnership $450,000, which is evidenced
by an unsecured promissory note with interest at the rate of 12% per annum
payable monthly, in arrears. This note, which may be prepaid at any time, has a
final maturity on March 31, 2005. The limited partnership has entered into a
management agreement with JRB AutoBrokers, L.P. ("JRB"), a Texas limited
partnership. JRB also loaned $100,000 to the limited partnership on similar
terms to the Company's advance. This promissory note is subordinate to our loan.
Under the terms of the management agreement, JRB is responsible for all
day-to-day management of the limited partnership with complete autonomy, subject
only to reasonable review by the general partner. Inaddition, the Company
granted a total of 468,750 contingently issuable restricted shares of the
Company's common stock to JRB to acquire this operation. The shares, that have
been mutually valued at $2.00 per share, are to be held in escrow pending
certain future events. 93,750 of such shares will be released to JRB on April 1,
2001, subject only to the continuation of the business at that date. Annually
beginning March 31, 2001, 93,750 additional shares or a portion thereof will be
released subject to the limited partnership achieving pre-determined pre-tax
earnings. For example, if the limited partnership earns $100,000 for the year
ended March 31, 2001, 93,750 of such shares will be released to JRB. In the
event earnings for the year fall below $100,000, a portion of these shares may
still be released. After March 31, 2001, the pre-tax earnings floor increases
through March 31, 2004. A currently interminable number of additional shares can
be earned for the year ended March 31, 2005 based on pre-tax earning.
Stock options to acquire our common shares also can be earned if
pre-tax earnings exceed the total predetermined levels over the first five years
of this operation.
AUTO NETWORK GROUP OF EASTERN PA., INC.
Effective April 1, 2000 the Company opened an office and warehouse
wholesale operation in the Philadelphia, Pennsylvania area. The business in
Pennsylvania is conducted by Auto Network Group of Eastern Pa., Inc., a
Pennsylvania corporation. The Company is the sole shareholder of this
Pennsylvania operation.
The Company loaned $300,000 to the Pennsylvania operation, which is
evidenced by an unsecured promissory note with interest at the rate of 12% per
annum payable monthly, in arrears. The note may be prepaid at any time and has a
final maturity on March 31, 2006. Mr. Edward G. McCusker has agreed to loan
$100,000 to the Pennsylvania operation on terms similar to our advance, on or
before June 30, 2000. This loan will be subordinate to the debt owed to us. As
of May 10, 2000, Mr. McCusker had not made the loan.
The Pennsylvania operation entered into a management agreement with Mr.
McCusker, which provides that he is responsible for all day-to-day operations.
In addition, the Company granted a total of 232,500 contingently issuable
restricted shares of the Company's common stock to Mr. McCusker as additional
compensation for his services. The shares, valued by us at $2.00 per share, are
to be held in escrow pending certain future events, including among other things
the making of the loan by Mr. McCusker. 50,000 of such shares will be released
to Mr. McCusker one year from his funding his obligation, subject to the
continuation of the business at that date and to his satisfactory performance.
Annually beginning March 31,
F-32
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
2001 and for each twelve-month period thereafter, 15,000, 22,488, 30,003,
32,504, 37,502, and 45,003 additional shares or a portion thereof will be
released subject to the Pennsylvania operation achieving pre-determined pre-tax
earnings. For example, if the operation earns $60,000 (floor) for the year ended
March 31, 2001, 15,000 of such shares will be released to Mr. McCusker. In the
event earnings for the year fall below $60,000, a portion of these shares may
still be released. After March 31, 2001, the pre-tax earnings floor increases
through March 31, 2006. Stock options to acquire our common shares also can be
earned if pre-tax earnings exceed the total predetermined floor over the first
six years of this operation.
DISCONTINUED OPERATIONS
On November 30, 2000, the Company formalized its decision to exit its
land-based operations at the end of fiscal year 2001. 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 both business segments. As of December 29, 2000, the
Company sold its 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. The Company plans to wind down its land-based operations in
Scottsdale, Arizona, thereby discontinuing all land-based operations. The
Company has recorded an actual loss of $749,366 on the sale of its land-based
operations to Automotive Disposition Management Services, Inc., recorded
additional losses of $127,388 related to the earlier closing of its Pennsylvania
operation and accrued an estimated loss of $775,300 on disposal related to the
Scottsdale operation in the December 31, 2000 interim financial statements. The
following schedule of net assets from discontinued operations and financial
statements show the effect of discontinued operations to the consolidated
balance sheets for the years ended March 31, 2000 and 1999 and the consolidated
statements of operations for the years ended March 31, 2000 and 1999 and the
period from July 10, 1997 (inception) through March 31, 1998. Footnotes A-M
(except for the second to last paragraph in Note J, which has been updated to
distinguish between continuing and discontinued operations) reflect amounts as
originally reported and do not distinguish between continuing and discontinued
operations as such information is presented below:
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
MARCH 31, 2000 MARCH 31, 1999
-----------------------------------------
ASSETS
Accounts receivable - trade, net $ 5,743,845 $ 4,873,189
Accounts receivable - employees and brokers, net 332,122 324,248
Inventory 4,648,492 5,028,357
Prepaid expenses and other - 73,887
Goodwill and Property and Equipment 316,311 266,860
----------- -----------
Total Assets 11,040,770 10,566,541
----------- -----------
LIABILITIES
Accounts payable - trade 4,401,858 4,174,029
Notes payable - related party and other 5,376,821 3,893,890
Accrued liabilities 238,925 218,394
----------- -----------
10,017,604 8,286,313
----------- -----------
NET ASSETS FROM DISCONTINUED OPERATIONS $ 1,023,166 $ 2,280,228
=========== ===========
F-33
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated balance sheet for
the year ended March 31, 2000:
RECLASSIFICATION
2000 FOR
ASSETS AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
------------------ ------------------ ------------------
Current assets:
Cash $ 4,355,738 $ - $ 4,355,738
Accounts receivable - trade 5,743,845 (5,743,845) -
Accounts receivable - employees and related parties 332,122 (332,122) -
Inventory 4,648,492 (4,648,492) -
Net assets of discontinued operations - 1,023,166 1,023,166
Prepaid expenses and other 110,272 - 110,272
-------------- -------------- --------------
Total current assets 15,190,469 (9,701,293) 5,489,176
-------------- -------------- --------------
Property and equipment, net 1,423,398 (610,280) 813,118
Software, net - 12,013,608 12,013,608
-------------- -------------- --------------
1,423,398 11,403,328 12,826,726
-------------- -------------- --------------
Intangible assets, net 13,506,484 (11,719,639) 1,786,845
-------------- -------------- --------------
Total assets $ 30,120,351 $ (10,017,604) $ 20,102,747
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 4,401,858 $ (4,401,858) $ -
Accounts payable - employees and related parties - - -
Notes payable - related party 4,086,128 (3,557,321) 528,807
Notes payable - bank 1,112,418 - 1,112,418
Notes payable - other - - -
Accrued liabilities 245,049 (238,925) 6,124
-------------- -------------- --------------
Total current liabilities 9,845,453 (8,198,104) 1,647,349
-------------- -------------- --------------
Non-current liabilities:
Deferred income taxes - - -
Long-term debt - related party 1,819,500 (1,819,500) -
-------------- -------------- --------------
Total non-current liabilities 1,819,500 (1,819,500) -
-------------- -------------- --------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series B; $10.00 par value;
250,000 shares authorized; 47,000 issued and
Outstanding in 1999 - - -
Convertible preferred stock, Series C; $0.10 par value;
400,000 shares authorized; 20,800 issued and Outstanding
in 2000; liquidation preference $110.00 per share 1,906,536 - 1,906,536
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,200 issued and
Outstanding in 2000; liquidation preference $110.00 per share 2,859,805 - 2,859,805
Common stock, no par value; 100,000,000 shares authorized;
27,652,609 and 20,385,084 shares issued and outstanding
in 2000 and 1999, respectively 19,779,542 - 19,779,542
Retained deficit (6,090,485) - (6,090,485)
-------------- -------------- --------------
Total stockholders' equity 18,455,398 - 18,455,398
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 30,120,351 $ (10,017,604) $ 20,102,747
============== ============== ==============
F-34
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated balance sheet for the year
ended March 31, 1999:
RECLASSIFICATION
1999 FOR
ASSETS AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Current assets:
Cash $ 297,752 $ - $ 297,752
Accounts receivable - trade 4,971,798 (4,873,188) 98,610
Accounts receivable - employees and related parties 324,248 (324,248) -
Inventory 5,028,357 (5,028,357) -
Prepaid expenses and other 79,153 (73,887) 5,266
-------------- -------------- --------------
Total current assets 10,701,308 (10,299,680) 401,628
-------------- -------------- --------------
Net assets of discontinued operations - 2,280,228 2,280,228
Property and equipment, net 168,444 (50,308) 118,136
Software, net - 5,442 5,442
-------------- -------------- --------------
168,444 2,235,362 2,403,806
-------------- -------------- --------------
Intangible assets, net 2,207,378 (221,995) 1,985,383
-------------- -------------- --------------
Total assets $ 13,077,130 $ (8,286,313) $ 4,790,817
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 4,198,742 (4,174,029) 24,713
Accounts payable - employees and related parties 250,251 (250,251) -
Notes payable - related party 1,902,833 (1,902,833) -
Notes payable - bank 1,268,500 - 1,268,500
Notes payable - other 301,000 (301,000) -
Accrued liabilities 269,117 (218,394) 50,723
-------------- -------------- --------------
Total current liabilities 8,190,443 (6,846,507) 1,343,936
-------------- -------------- --------------
Non-current liabilities:
Deferred income taxes 7,010 - 7,010
Long-term debt - related party 1,968,613 (1,439,806) 528,807
-------------- -------------- --------------
Total non-current liabilities 1,975,623 (1,439,806) 535,817
-------------- -------------- --------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series B; $10.00 par value;
250,000 shares authorized; 47,000 issued and
outstanding in 1999 372,037 - 372,037
Convertible preferred stock, Series C; $0.10 par value;
400,000 shares authorized; 20,800 issued and
outstanding in 2000; liquidation preference $110.00 per share - - -
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,200 issued and
outstanding in 2000; liquidation preference $110.00 per share - - -
Common stock, no par value; 100,000,000 shares authorized;
27,652,609 and 20,385,084 shares issued and outstanding
in 2000 and 1999, respectively 2,664,479 - 2,664,479
Retained deficit (125,452) - (125,452)
-------------- -------------- --------------
Total stockholders' equity 2,911,064 - 2,911,064
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 13,077,130 $ (8,286,313) $ 4,790,817
============== ============== ==============
F-35
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of operations
for the year ended March 31, 2000:
RECLASSIFICATION
2000 FOR
AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Net sales $ 131,861,292 $(131,569,705) $ 291,587
Cost of sales 125,770,135 (125,770,135) -
-------------- -------------- --------------
Gross profit 6,091,157 (5,799,570) 291,587
-------------- -------------- --------------
Operating expenses:
Salary - 54,000 54,000
Selling 4,084,987 (3,843,922) 241,065
General and administrative 2,397,342 (1,837,874) 559,468
Bad debt expense 1,045,970 (1,045,970) -
Depreciation and amortization 358,228 (38,428) 319,800
-------------- -------------- --------------
Total operating expenses 7,886,527 (6,712,194) 1,174,333
-------------- -------------- --------------
Loss from operations (1,795,370) 912,624 (882,746)
-------------- -------------- --------------
Other income (expense):
Miscellaneous 102,133 (102,133) -
Interest expense - related party (768,121) 704,665 (63,456)
Interest expense (182,429) 182,429 -
-------------- -------------- --------------
Total other income (expense) - net (848,417) 784,961 (63,456)
-------------- -------------- --------------
Net loss from continuing operations (2,643,787) 1,697,785 (946,202)
-------------- -------------- --------------
Loss from discontinued operations of land-based segment - (1,697,585) (1,697,585)
-------------- -------------- --------------
Net loss before income taxes (2,643,787) - (2,643,787)
-------------- -------------- --------------
Income tax (expense) benefit 56,034 (56,034) -
Continuing operations - - -
Discontinued operations - 56,034 56,034
-------------- -------------- --------------
56,034 - 56,034
-------------- -------------- --------------
Net Loss $ (2,587,753) $ - $ (2,587,753)
============== ============== ==============
Basic loss per share $ (0.12)
Continuing operations $ (0.04) $ (0.04)
Discontinued operations $ (0.08) $ (0.08)
Diluted loss per share $ (0.12)
Continuing operations $ (0.04) $ (0.04)
Discontinued operations $ (0.08) $ (0.08)
Weighted average shares number of common shares outstanding
Basic 21,638,671 - 21,638,671
Fully diluted 21,638,671 - 21,638,671
F-36
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of operations
for the year ended March 31, 1999:
RECLASSIFICATION
1999 FOR
AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Net sales $ 97,665,410 $ (97,665,410) $ -
Cost of sales 93,388,836 (93,388,836) -
-------------- -------------- --------------
Gross profit 4,276,574 (4,276,574) -
-------------- -------------- --------------
Operating expenses:
Salary - 63,000 63,000
Selling 2,772,192 (2,772,192) -
General and administrative 868,556 (742,483) 126,173
Bad debt expense 90,055 (90,055) -
Depreciation and amortization 27,858 (3,816) 24,042
-------------- -------------- --------------
Total operating expenses 3,758,661 (3,545,446) 213,215
-------------- -------------- --------------
Income (loss) from operations 517,913 (731,128) (213,215)
-------------- -------------- --------------
Other income (expense):
Miscellaneous 70,686 (70,686) -
Interest expense - related party (286,824) 223,368 (63,456)
Interest expense (129,955) 129,955 -
-------------- -------------- --------------
Total other income (expense) - net (346,093) 282,637 (63,456)
-------------- -------------- --------------
Net (loss) income from continuing operations 171,820 (448,491) (276,671)
-------------- -------------- --------------
Income from discontinued operations of Land-based segment - 448,491 448,491
-------------- -------------- --------------
Net income before income taxes 171,820 - 171,820
-------------- -------------- --------------
Income tax (expense) benefit (56,579) 56,579 -
Continuing operations - 50,302 50,302
Discontinued operations - (106,881) (106,881)
-------------- -------------- --------------
(56,579) - (56,579)
-------------- -------------- --------------
Net Income $ 115,241 $ - $ 115,241
============== ============== ==============
Basic earnings (loss) per share $ 0.01
Continuing operations $ (0.02) $ (0.02)
Discontinued operations $ 0.03 $ 0.03
Diluted earnings (loss) per share $ 0.01
Continuing operations $ (0.02) $ (0.02)
Discontinued operations $ 0.03 $ 0.03
Weighted average shares number of common shares outstanding
Basic 13,726,397 - 13,726,397
Fully diluted 22,826,745 - 22,826,745
F-37
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of operations
from July 10, 1997 (inception) through March 31, 1998:
RECLASSIFICATION
1998 FOR
AS ORIGINALLY DISCONTINUED 1998
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Net sales $ 31,581,117 $ (31,581,117) $ -
Cost of sales 30,280,247 (30,280,247) -
-------------- -------------- --------------
Gross profit 1,300,870 (1,300,870) -
-------------- -------------- --------------
Operating expenses:
Salary - - -
Selling 905,303 (905,303) -
General and administrative 274,388 (274,388) -
Bad debt expense - - -
Depreciation and amortization 3,429 (3,429) -
-------------- -------------- --------------
Total operating expenses 1,183,120 (1,183,120) -
-------------- -------------- --------------
Income from operations 117,750 (117,750) -
-------------- -------------- --------------
Other income (expense):
Miscellaneous 12,553 (12,553) -
Interest expense - related party (58,436) 58,436 -
Interest expense (55,968) 55,968 -
-------------- -------------- --------------
Total other income (expense) - net (101,851) 101,851 -
-------------- -------------- --------------
Net income from continuing operations 15,899 (15,899) -
-------------- -------------- --------------
Income from discontinued operations of Land-based segment - 15,899 15,899
-------------- -------------- --------------
Net income before income taxes 15,899 - 15,899
-------------- -------------- --------------
Income tax (expense) benefit 3,515 (3,515) -
Continuing operations - - -
Discontinued operations - 3,515 3,515
-------------- -------------- --------------
3,515 - 3,515
-------------- -------------- --------------
Net Income $ 12,384 $ - $ 12,384
============== ============== ==============
Basic earnings per share $ -
Continuing operations $ - $ -
Discontinued operations $ - $ -
Diluted earnings per share $ -
Continuing operations $ - $ -
Discontinued operations $ - $ -
Weighted average shares number of common shares outstanding
Basic 9,844,084 - 9,844,084
Fully diluted 13,478,625 - 13,478,625
F-38
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of cash flows
for the year ended March 31, 2000:
RECLASSIFICATION
2000 FOR
` AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Cash flows from operating activities:
Net loss $ (2,587,753) $ 2,857,753 $ -
Continuing operations-net of income taxes - (946,202) (946,202)
Discontinued operations-net of income taxes - (1,641,551) (1,641,551)
-------------- -------------- --------------
(2,587,753) - (2,587,753)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 358,228 (38,428) 319,800
Bad debt expense
1,045,970 (1,045,970) -
Stock or stock options issued for services 351,280 - 351,280
(Increase) decrease in:
Net assets of discontinued operations - 1,257,062 1,257,062
Accounts receivable (1,825,891) 1,924,501 98,610
Inventory 379,866 (379,866) -
Prepaid expenses and other current assets 24,915 (129,921) (105,006)
Increase (decrease) in: -
Accounts payable (47,135) 22,423 (24,712)
Accrued liabilities (67,774) 23,175 (44,599)
Deferred income taxes (3,545) (3,465) (7,010)
-------------- -------------- --------------
Net cash provided by (used in) operating
activities (2,371,839) (958,242) (742,328)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment and software (536,512) 116,147 (420,365)
Sale of property and equipment 62,675 (16,730) 45,945
Investment in other assets - - -
Net cash paid for acquisitions - - -
-------------- -------------- --------------
Net cash used in investing activities (473,837) 99,417 (374,420)
-------------- -------------- --------------
Cash flows from financing activities:
Net Proceeds from borrowings 85,699,933 (85,541,540) 158,393
Repayment of borrowings (85,856,015) 85,856,015 -
Proceeds from related party borrowings 3,175,703 (3,175,703) -
Repayment of related party borrowings (1,132,300) 1,132,300 -
Proceeds from long-term debt - - -
Proceeds from issuance of convertible preferred
stock 4,766,341 - 4,766,341
Proceeds from issuance of common stock 250,000 - 250,000
-------------- -------------- --------------
Net cash provided by financing activities 6,903,662 (1,728,928) 5,174,734
-------------- -------------- --------------
Net change in cash 4,057,986 - 4,057,986
Beginning cash balance 297,752 - 297,752
-------------- -------------- --------------
Ending cash balance $ 4,355,738 $ - $ 4,355,738
============== ============== ==============
Supplemental disclosures:
Interest paid $ 950,550 $ - $ -
============== ============== ==============
Interest paid including discontinued operations $ - $ 887,094 $ 887,094
============== ============== ==============
Interest paid for continuing operations $ - $ 64,456 $ 63,456
============== ============== ==============
Income taxes paid $ 3,000 $ - $ 3,000
============== ============== ==============
F-39
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of cash flows
for the year ended March 31, 1999:
RECLASSIFICATION
1999 FOR
` AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Cash flows from operating activities:
Net (loss) income $ 115,241 $ (115,241) $ -
Continuing operations-net of income taxes - (226,369) (226,369)
Discontinued operations-net of income taxes - 341,610 341,610
-------------- -------------- --------------
115,241 - 115,241
Adjustments to reconcile net income to net cash provided
By operating activities:
Depreciation and amortization 27,858 (3,816) 24,042
Bad debt expense 90,055 (90,055) -
Stock or stock options issued for services 23,083 - 23,083
(Increase) decrease in:
Net assets of discontinued operations - (1,823,695) (1,823,695)
Accounts receivable (3,582,169) 3,483,559 (98,610)
Inventory (2,845,459) 2,845,459 -
Prepaid expenses and other current assets (70,906) 65,640 (5,266)
Increase (decrease) in:
Accounts payable 2,448,261 (2,423,549) 24,712
Accrued liabilities 95,445 (44,722) 50,723
Deferred income taxes 3,545 3,465 7,010
-------------- -------------- --------------
Net cash provided by (used in) operating
activities (3,695,046) 2,012,286 (1,682,760)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment and software (158,287) (17,159) (175,446)
Sale of property and equipment 56,277 1,243 57,520
Investment in other assets (605) 605 -
Net cash paid for acquisitions (79,570) 8,664 (70,906)
-------------- -------------- --------------
Net cash used in investing activities (182,185) (6,647) (188,832)
-------------- -------------- --------------
Cash flows from financing activities:
Net Proceeds from borrowings 4,868,500 (3,600,000) 1,268,500
Repayment of borrowings (3,625,000) 3,625,000 -
Proceeds from related party borrowings 1,903,033 (1,903,033) -
Repayment of related party borrowings (560,500) 560,500 -
Proceeds from long-term debt 1,216,913 (688,106) 528,807
Proceeds from issuance of convertible preferred stock 372,037 - 372,037
-------------- -------------- --------------
Net cash provided by financing activities 4,174,983 (2,005,639) 2,169,344
-------------- -------------- --------------
Net change in cash 297,752 - 297,752
Beginning cash balance - - -
-------------- -------------- --------------
Ending cash balance $ 297,752 $ - $ 297,752
============== ============== ==============
Supplemental disclosures:
Interest paid $ 710,012 $ (710,012) $ -
============== ============== ==============
Interest paid including discontinued operations $ - $ 355,006 $ 355,006
============== ============== ==============
Interest paid for continuing operations $ - $ 63,456 $ 63,456
============== ============== ==============
Income taxes paid $ 73,527 $ - $ 73,527
============== ============== ==============
F-40
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
Impact of discontinued operations to the consolidated statement of cash flows
from July 10, 1997 (inception) through March 31, 1998:
RECLASSIFICATION
1998 FOR
` AS ORIGINALLY DISCONTINUED 1998
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- --------------
Cash flows from operating activities:
Net income $ 12,384 $ (12,384) $ -
Continuing operations-net of income taxes - - -
Discontinued operations-net of income taxes - 12,384 12,384
-------------- -------------- --------------
12,384 - 12,384
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,429 (3,429) -
Bad debt expense - -
Stock or stock options issued for services - - -
(Increase) decrease in:
Net assets of discontinued operations - (743,334) (743,334)
Accounts receivable (1,705,323) 1,705,323 -
Inventory (2,182,898) 2,182,898 -
Prepaid expenses and other current assets (17,700) 17,700 -
Increase (decrease) in:
Accounts payable 1,916,020 (1,916,020) -
Accrued liabilities 89,491 (89,491) -
Deferred income taxes 3,465 - 3,465
-------------- -------------- --------------
Net cash provided by (used in) operating activities (1,881,132) 1,153,647 (727,485)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment and software (57,225) 57,225 -
Sale of property and equipment - - -
Investment in other assets (2,128) 2,128 -
Net cash paid for acquisitions - - -
-------------- -------------- --------------
Net cash used in investing activities (59,353) 59,353 -
-------------- -------------- --------------
Cash flows from financing activities:
Net Proceeds from borrowings - - -
Repayment of borrowings - - -
Proceeds from related party borrowings 1,601,000 (1,601,000) -
Repayment of related party borrowings (769,000) 769,000 -
Proceeds from long-term debt 381,000 (381,000) -
Proceeds from issuance of convertible preferred stock 672,422 - 672,422
Proceeds from issuance of common stock 55,063 - 55,063
-------------- -------------- --------------
Net cash provided by financing activities 1,940,485 (1,213,000) 727,485
-------------- -------------- --------------
Net change in cash - - -
Beginning cash balance - - -
-------------- -------------- --------------
Ending cash balance $ - $ - $ -
============== ============== ==============
Supplemental disclosures:
Interest paid $ 107,960 $ (107,960) $ -
============== ============== ==============
Interest paid including discontinued operations $ - $ 107,960 $ 107,960
============== ============== ==============
Interest paid for continuing operations $ - $ - $ -
============== ============== ==============
Income taxes paid $ - $ - $ -
============== ============== ==============
F-41
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(RESTATED)
NOTE O - 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 effect upon the financial condition,
results of operations or cash flows of the Company.
F-42
Joseph B. Glass CPA, PC
Certified Public Accountant
3939 South Wasatch Boulevard (Suite #2)
Salt Lake City, Utah 84124
Tel. 801-414-3325 Fax 801-273-7852
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
NDSCo.Com,Inc.
I have audited the balance sheet of NDSCo.Com,Inc. as of December 31, 1999 and
the related statements of operations, stockholders' equity and cash flows for
the period from inception (October 22, 1999) to December 31, 1999. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NDSCo.Com,Inc. as of December 31,
1999 and the results of its operations and its cash flows for the initial period
then ended in conformity with generally accepted accounting principles.
/S/JOSEPH B. GLASS CPA, PC
Joseph B. Glass CPA, PC
Salt Lake City, Utah
February 22, 2000
F-43
NDSCo.Com, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1999
ASSETS
Current Assets
Cash and cash equivalents $ 1,253
Note Receivable from Shareholder (note 5) 10,116
Deposits 165
----------
Total Current Assets 11,534
Property and Equipment:
Computer Equipment 438,250
Less Accumulated Depreciation and amortization (25,639)
----------
Net Property and Equipment 412,611
Equipment under capital lease obligations less accumulated amortization
of $1,082 (note 4) 84,665
Software development costs 293,884
Deposits 4,500
Deferred income taxes (note 3) -
----------
$ 807,194
==========
See accompanying notes to the financial statements
F-44
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease (note 4) $ 40,650
Accounts payable 145,544
Accrued liabilities 35,627
Due to stockholder (note 5) 61,370
----------
Total Current Liabilities 283,191
Obligations under capital lease, excluding current installments (note 4) 36,467
----------
Total liabilities 319,658
Commitments and contingent liabilities (notes 2,4 and 6) -
Stockholders' equity:
Common Stock, $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 2,897,712 shares (note 6) 2,898
Additional paid-in capital 804,073
Deficit accumulated during the development stage (319,435)
----------
Total stockholders' equity 487,536
----------
$ 807,194
==========
F-45
NDSCo.Com, Inc.
(A Development Stage Company)
Statement of Operations
For the period from inception (October 22, 1999) to December 31, 1999
Revenues $ -
Operating expenses:
Leased employee expense 181,825
Payroll taxes and employee benefits 30,305
Travel expenses 9,944
Telephone and internet expenses 5,666
Rent (note 4) 38,668
Office expenses 2,547
Legal and professional fees 20,553
Depreciation expense 26,721
----------
Total operating expenses 316,229
----------
Operating loss (316,229)
Net interest expense (note 4) (3,206)
----------
Net loss before income taxes (319,435)
Income tax expense (note 3) -
----------
Net loss $(319,435)
==========
See accompanying notes to financial statements.
F-46
NDSCo.Com, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
For the period from inception (October 22, 1999) to December 31, 1999
Deficit
accumulated
Additional during the Total
Number paid-in development Stockholders'
of Shares Amount capital stage Equity
--------- ------ -------- ---------- ----------
Balances at October 22, 1999 - $ - $ - $ - $ -
Shares issued under pre-incorporation
agreement (note 6). 2,000,000 2,000 554,971 - 556,971
Proceeds from shares issued under
pre-incorporation agreement (note 6). 897,712 898 249,102 - 250,000
Net loss for the period from inception
(October 22, 1999) to December 31, 1999 - - - (319,435) (319,435)
--------- ------ -------- ---------- ----------
Balances at December 31, 1999 2,897,712 $2,898 $804,073 $(319,435) $ 487,536
========= ====== ======== ========== ==========
See accompanying notes to financial statements.
F-47
NDSCo.Com, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the period from inception (October 22, 1999) to December 31, 1999
Cash flows from operating activities:
Net Loss $(319,435)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 26,721
Net change in current assets and liabilities:
Deposits (165)
Accounts payable 145,544
Accrued liabilities 35,511
----------
Net cash used in operating activities (111,824)
Cash flows from investing activities:
Purchase of equipment (12,250)
Software development costs (170,384)
Loan to Stockholder (10,000)
----------
Net cash used in investing activities (192,634)
Cash flows from financing activities:
Proceeds from the sale of stock 250,000
Proceeds from stockholder advance 61,370
Repayments of obligations under capital leases (5,659)
----------
Net cash provided by financing activities 305,711
----------
Net increase in cash and cash equivalents 1,253
Cash and cash equivalents at the beginning of the period -
----------
Cash and cash equivalents at the end of the year $ 1,253
==========
See accompanying notes to financial statements.
F-48
NDSCo.Com, Inc.
(A Development Stage Company)
Statement of Cash Flows (continued)
For the period from inception (October 22, 1999) to December 31, 1999
Cash paid during the period from inception (October 22, 1999)
to December 31, 1999 for:
Interest $ 1,723
Income taxes $ -
Supplemental disclosures of noncash investing and financing activities (note 6):
On October 22, 1999, the Company issued 2,000,000 shares of its $0.0001
par value common stock for various assets and liabilities. The stock was
valued at $0.2785 per share. In conjunction with this transaction net
assets and liabilities were assumed or transferred as follows:
Computer Equipment $ 426,000
Furniture under capital lease obligation 41,967
Display booth under capital lease obligation 43,780
Capitalized software 128,000
Capital lease obligations (82,776)
Stock issued (556,971)
See accompanying notes to financial statements.
F-49
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
(1) DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. DESCRIPTION OF BUSINESS OPERATIONS
NDSCo.Com, Inc. (the Company), based in Salt Lake City, Utah, is a
pioneering provider of e-business products and solutions that use
web-based technologies to achieve business-to-business objectives in
the automobile industry. The Company utilizes a network of auto buying
web sites that empower auto dealerships to research, finance, and
purchase vehicles online. The Company also provides manufacturers the
ability to list vehicles for sale to dealers in all parts of the
country almost instantly from their own lots.
b. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with an
original maturity to the Company of less than ninety days.
c. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service
lives.
The estimated lives used in determining depreciation and amortization
are:
Computer equipment 3 years
Furniture and display booths 5-7 years
Equipment under capital leases are amortized over the lives of the
respective leases or, for those leases which substantially transfer
ownership, over the service lives of the assets. Amortization expense
for capital leases is included with depreciation and amortization
expense.
The straight-line method of depreciation and amortization is followed
for substantially all assets for financial reporting purposes. Certain
assets are depreciated under accelerated methods for tax purposes.
F-50
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
d. INTANGIBLE ASSETS
All research and development costs incurred by the Company in the
development of computer software are charged to expense until
technological feasibility of the software is established. After
technological feasibility has been established, software development
costs are capitalized until the software is available for general
release. Software development costs are recorded at the lower of its
un-amortized historical cost or its estimated net realizable value.
Software development costs are amortized on a product by product basis
using the straight-line method over their estimated useful lives of
three to five years. There was no amortization of software development
costs for the period ending December 31, 1999.
On an ongoing basis, management reviews the valuation and amortization
of software development costs to determine possible impairment by
comparing the carrying value to the discounted estimated future cash
flows of the related business.
e. INCOME TAXES
The Company accounts for income taxes under the asset and liability
method, under which deferred taxes are determined based on the
difference between the financial statement and the tax basis of the
assets and liabilities using enacted tax rates in effect in the years
in which the deferred tax assets or liabilities are expected to be
paid or recovered. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance related to deferred
tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
f. 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
F-51
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
and disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) LIQUIDITY
The Company is a "Development Stage Company", beginning business in a
competitive market. During the period from inception (October 22, 1999) to
December 31, 1999 the Company incurred at net loss of $312,093 and used
cash from operating activities of $111,824. Management has implemented
plans that it believes will return the Company to profitable operations and
positive cash flows. In the opinion of management, the continued
implementation of these plans will permit the Company to meet its operating
and debt cash requirements, at least through the next fiscal year; however,
the Company is subject to uncertainties over which management has limited
control, any one of which could adversely affect the Company's operating
cash flows, and thus create cash flow problems for the Company.
(3) INCOME TAXES
Net loss from operations before income taxes and related income tax expense
for the period from inceptions (October 22, 1999) to December 31, 1999 was
as follows:
Net loss from continuing operations
before income taxes $312,093
Current:
Federal $ -
State -
Deferred:
Federal -
State -
--------
Total $ -
========
F-52
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
Differences between income taxes attributable to continuing operations at
the statutory federal income tax rates and the Company's effective tax rate
of 34% are as follows:
Tax at federal statutory rate $(106,112)
State income taxes, net of federal
tax benefit (12,484)
Valuation allowance 118,596
----------
Total $ -
==========
Effective income tax rate 00.0%
Components of deferred income tax assets and liabilities at December 31,
1999 are as follows:
Deferred tax asset:
Net loss from operations $ 118,596
Less valuation allowance (118,596)
----------
Net deferred tax asset $ -
==========
The company has net operating loss carry-forwards of approximately $312,000
for income tax purposes, which expire in 2019. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. In order to fully
realize the deferred tax assets, the Company will need to generate future
taxable income of approximately $312,000 prior to the expiration of the net
operating loss carry-forwards in 2019. Due to the uncertainty of the
ultimate realization of the deferred tax assets, the Company has recorded a
valuation allowance against these assets of $118,596 at December 31, 1999.
F-53
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
(4) LEASING ARRANGEMENTS
The Company leases all of its office facilities under a non-cancelable
operating lease. The lease is with a company controlled by an officer and
director of the Company. The Company also leases certain of its property
and equipment under capital leases.Future minimum lease payments under
capital and non-cancelable operating leases as of December 31, 1999, are as
follows:
CAPITAL OPERATING
LEASES LEASES
Year ending December 31,
2000 $ 57,238 $51,285
2001 19,222 3,773
2002 15,766 -
2003 11,824 -
2004 - -
Thereafter - -
-------- -------
Total minimum lease payments $104,050 55,058
Less amounts representing
estimated executory costs 6,052
Less amounts representing
interest 20,881
--------
Present value of net minimum
capital lease payments 77,117
Less current installments of
obligations under capital lease 40,650
--------
Present value of net minimum
lease payments $ 36,467
========
Total rent expense under operating leases in 1999 was $38,668, of which
$33,247 was under a lease with a company controlled by an officer and
director of the Company.
F-54
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
(5) RELATED PARTY TRANSACTIONS
An 8.0% unsecured loan in the amount of $10,000 was made to a shareholder
and director in November 1999. The note carries a default interest rate of
10.0% and is due in January 2000.
The Company was advanced $61,370 from a shareholder and director during the
period ending December 31, 1999. The advance carries no interest rate and
is due on demand.
(6) COMMON STOCK
On October 22, 1999 the Company issued 897,712 shares of its $.001 par
value common stock for $250,000 cash ($0.2785 per share).
On October 22, 1999 the Company issued 2,000,000 shares of its $.001 par
value (valued at $556,971, based on a value of $0.2785 per share) to JK
Technologies, Inc. for computer equipment, furniture, computer software,
and lease obligations. Values were assigned to the various assets and
liabilities based on their fair market values. The transaction has been
accounted for using the purchase method of accounting.
As of December 31, 1999, 2,000,000 of the issued and outstanding shares,
were being held in an escrow account. Of those shares, 750,000 are to be
delivered to the shareholder on January 22, 2000, 500,000 are to be
delivered to the shareholder on October 22, 2000, and 750,000 shares are to
be delivered to the shareholder on October 22, 2001. The escrow agreement
allows the Company, at its option, to repurchase any of the shares
remaining in the escrow account, if certain officers and directors are
terminated by the Company for any reason prior to October 22, 2001, at a
purchase price of $.2875 per share
On October 22, 1999 the Company has issued options to a shareholder and director
to purchase 350,000 shares of common stock at a purchase price of $1.00 per
share, an option to purchase 433,139 shares at a purchase price of $1.50, and an
option to purchase 319,149 shares at a purchase price of $2.35 per share. The
shares are exercisable on or before January 15, 2000, on or March 15, 2000, and
on or before June 30, 2000, respectively.
F-55
NDSCO.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
For the period from inception (October 22, 1999) to
December 31, 1999
(7) SUBSEQUENT EVENT
On February 16, 2000, the Company signed a letter of intent to exchange all
of its issued and outstanding stock for 1,175,000 shares of the common
stock of an unrelated company. The agreement has a scheduled closing date
of March 1, 2000.
F-56
AutoTradeCenter.com, Inc.
Pro forma Income Statement
For the Year Ended March 31, 2000
(Unaudited)
Historical Statements
--------------------------------------------
AutoTradeCenter.com, Inc.
3/31/00 NDSCo.012/31/99 Pro-forma Adjustments Pro-forma Results
Net sales $ 291,587 - - $ 291,587
Cost of sales - - - -
-------------------------------------------------------------------------------------------
Gross profit 291,587 - - 291,587
-------------------------------------------------------------------------------------------
Operating expenses:
Salary 54,000 - -
Selling 241,065 - - 241,065
General and administrative 559,468 289,508 - 848,976
Depreciation and amortization 319,800 26,721 186,919 533,440
-------------------------------------------------------------------------------------------
Total operating expenses 1,174,333 316,229 186,919 1,623,481
-------------------------------------------------------------------------------------------
Loss from operations (882,746) (316,229) (186,919) (1,385,894)
-------------------------------------------------------------------------------------------
Other income (expense):
Interest expense-related party (63,456) (3,206) - (66,662)
-------------------------------------------------------------------------------------------
Total other income (expense) - net (63,456) (3,206) - (66,662)
-------------------------------------------------------------------------------------------
Net loss from continuing operations (946,202) (319,435) - (1,265,637)
Loss from discontinued operations
of land based segments (1,697,585) - - (1,697,585)
-------------------------------------------------------------------------------------------
Net loss before income taxes (2,643,787) (319,435) - (2,963,222)
-------------------------------------------------------------------------------------------
Income tax (expense) benefit
Continuing operations - - - -
Discontinued operations 56,034 - - 56,034
-------------------------------------------------------------------------------------------
56,034 - - 56,034
-------------------------------------------------------------------------------------------
Net loss $ (2,587,753) (319,435) (186,919) $ (3,094,107)
===========================================================================================
Basic loss per share
Continuing operations $ (0.04) $ (0.06)
Discontinued operations $ (0.08) $ (0.08)
Diluted loss per share
Continuing operations $ (0.04) $ (0.06)
Discontinued operations $ (0.08) $ (0.08)
Weighted average shares outstanding for:
Basic earnings per share 21,638,671 22,647,004
Diluted earnings per share 21,638,671 22,647,004
F-57
AutoTradeCenter.com, Inc.
Notes to the Pro Forma Income Statement
For the Year Ended March 31, 2000
Note 1. Description of the Transaction
As of March 1, 2000, AutoTradeCenter.com, Inc. (the Company) acquired NDSCo.com
(NDSCo.), a Utah Corporation by issuing to the shareholders of NDSCo. a total of
1,100,000 restricted shares of stock.
Note 2. Pro Forma Presentation
The Pro Forma presentation shows the estimated results of operations for the
year ended March 31, 2000, had the entities been combined as of April 1, 1999.
NDSCo. was formed as a corporation on October 22, 1999. The Pro Forma financial
statements of NDSCo.'s operating results for the period January 1, 2000 through
the date of acquisition on March 1, 2000 would not materially impact the Pro
Forma financial statements and therefore have not been disclosed. The
presentation does not include the effects of any increase in sales that may have
resulted in the combination. The only Pro Forma adjustment made as a result of
the combination is to add the amortization of goodwill acquired and amortized
over ten years. No income tax benefit has been added as a valuation allowance
has been recorded for the deferred tax asset relating to the loss carry
forwards.
F-58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee........$ 4,612.14
Accounting fees and expenses......................... 5,000.00
Blue sky fees and expenses........................... 1,000.00
Legal fees and expenses.............................. 20,000.00
Transfer agent fees and expenses..................... 2,000.00
Printing expenses.................................... 2,000.00
Miscellaneous expenses............................... 5,387.86
------------
Total................................................$ 40,000.00
============
All amounts are estimates except the SEC filing fee. The Selling
Stockholders will be bearing the cost of their own brokerage fees and
commissions and their own legal and accounting fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arizona Business Corporation Act and Article 9 of the Registrant's
Articles of Incorporation permit the Registrant to indemnify its officers and
directors and certain other persons against expenses in defense of a suit to
which they are parties by reason of such office, so long as the persons
conducted themselves in good faith and the persons reasonably believed that
their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding the officer or director was adjudged liable on the basis that
he or she derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the registrant's inception, it has issued and sold securities which
were not registered under the Securities Act of 1933, as follows:
COMMON STOCK:
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
8/97 Jeff Erskine, Mike Stuart, Mark 9,000,000 shares $.003333 per share $30,000 cash
Moldenhauer, Joe Seaverns, Candy
Seaverns, Victor Felice, and John
Carrante
12/97 34 persons who were associates or 1,002,500 shares $0.025 per share $25,062.50 cash
acquaintances of Mark Moldenhauer
and who have previously invested
in this type of offering
2/98 - 3/99 Eastlane Trading Limited, 7,499,250 shares (and Conversion of 6,750 shares of Series A
Silhouette Investments Ltd., and warrants to purchase Preferred Stock
Flagstone Automotive Inc. 1,499,850 shares at
$.25 per share)
II-1
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
6/98 JBS, LLC 266,667 shares Purchase of goodwill valued at $.20 per
share
8/98 Shareholders of Pinnacle Dealer 300,000 shares These shares were issued in exchange for
Services, Inc. the shares of Pinnacle Dealer Services, Inc.
3/99 Shareholders of Walden 2,050,000 shares These shares were issued in exchange for
Remarketing Services, Inc. the shares of Walden Remarketing Services,
Inc.
3/99 JBS, LLC 266,667 shares Purchase of goodwill valued at $.20 per
share
4/99 M&A West, Inc. 100,000 shares $2.00 per share $200,000 cash
7/99 Shareholders of Auto Network 500,000 shares These shares were issued in exchange for
Group Northwest, Inc. the shares of Auto Network Group Northwest,
Inc.
11/99 - Holders of Series B Preferred 543,515 shares Conversion of 47,000 shares of Series B
1/00 Stock Preferred Stock
12/99 Dennis Hecker 314,475 shares Payment of obligation in the amount of
$314,475
2/00 Anthony & Company, Inc. 100,000 shares $0.50 per share $50,000 cash
3/00 Shareholders of NDSCo.Com, Inc. 1,100,000 shares These shares were issued in exchange for
the shares of NDSCo.Com, Inc.
3/00 Lloydminister Enterprises Inc. 5,000,000 shares These shares were issued in exchange for
Lloydminister's shares of
BusinessTradeCenter.com
3/00 Net Chemistry 40,000 shares These shares were issued as payment for
software programming and systems
development services valued at $120,000
4/00 JRB AutoBrokers, L.P. 468,750 shares Purchase of goodwill valued at $2.00 per
share
4/00 Edward McCusker 232,500 shares Compensation for management services
5/00 Mark Moldenhauer 3,000,000 shares Payment of obligation in the amount of
$300,000.
8/00 JBS, LLC 266,666 shares Purchase of goodwill valued at $.20 per
share
9/00 Anthony D. and Kelly Cupini 61,825 shares Compensation due under Finders Agreement to
John A. and Lucia Brda 42,858 shares Anthony & Company, Inc. in connection with
offering of Series C and D Preferred Stock
(see below)
10/00 DeJong & Associates 30,000 shares Compensation for services
04/01 18 accredited investors 6,612,016 shares $0.25 per share $1,653,004
No underwriters were used in the above transactions. The registrant relied
upon the exemption from registration contained in Section 4(2) as to all of the
transactions except for the sale of shares in December 1997, the conversion of
the Series A Preferred Stock, and the purchase of shares by M&A West, Inc. With
regard to the transactions made in reliance on the exemption contained in
Section 4(2), 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 issued in the Section 4(2) transactions.
SERIES A PREFERRED STOCK:
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
2/98 Eastlane Trading Limited 6,750 shares $100 per share $675,000 cash
II-2
No underwriters were used in the above transaction. The registrant relied
upon the exemption from registration contained in Section 4(2) of the Securities
Act of 1933. The purchaser was deemed to be sophisticated with respect to this
investment in securities of the registrant by virtue of its financial condition
and previous investment experience. A restrictive legend was placed on the stock
certificates evidencing the Series A Preferred Stock.
SERIES B PREFERRED STOCK:
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
11/98 - 3 accredited and 1 non-accredited 47,000 shares $10 per share $470,000 cash
12/98 investors
The registrant entered into a Consulting Agreement with Anthony & Company,
Inc. dba Anthony Advisors (the "Consultant"). Under the terms of the Consulting
Agreement, the registrant appointed the Consultant as its exclusive agent for
the purpose of introducing to the registrant persons interested in investing in
the Series B Preferred Stock. The Consultant was not authorized to negotiate the
terms of the transaction with any introduced investor on behalf of the
registrant or to execute the transaction on behalf of the registrant. For its
services, the registrant paid the Consultant a fee of $82,720 and warrants to
purchase up to 100,000 shares of the registrant's Common Stock at $.50 per
share. The registrant relied upon the exemption from registration contained in
Rule 506 of Regulation D.
SERIES C PREFERRED STOCK AND SERIES D PREFERRED STOCK:
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
2/99 22 accredited investors 21,216 shares of $100 per share $5,200,000 cash
Series C Preferred
Stock and 31,824
shares of Series D
Preferred Stock
The registrant entered into a Finder Agreement with Anthony & Company,
Inc. dba Anthony Advisors ("Anthony"). Under the terms of the Finder Agreement,
the registrant engaged Anthony for the purpose of introducing to the registrant
persons interested in investing in the Series C and D Preferred Stock. Anthony
was not authorized to negotiate the terms of the transaction with any introduced
investor on behalf of the registrant or to execute the transaction on behalf of
the registrant. For its services, the registrant agreed to pay Anthony a fee of
$250,000 and issue 107,143 shares of the registrant's Common Stock. The
registrant also engaged the services of Cardinal Securities, LLC and paid fees
of $165,000 and Cardinal's legal fees of $7,500 for its services in connection
with the offering. In addition, the registrant also agreed to grant warrants to
Cardinal to purchase up to 55,000 shares of common stock at a price of $5.40 per
share. The registrant relied upon the exemption from registration contained in
Rule 506 of Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this registration
statement:
REGULATION S-K
NUMBER DOCUMENT
2.1 Agreement and Plan of Reorganization between Auto Network Group, Inc. and Walden Remarketing
Services, Inc. (1)
2.2 Agreement Concerning the Exchange of Common Stock Between AutoTradeCenter.com Inc. and Auto
Network Group of Northwest, Inc. (1)
2.3 Stock for Stock Agreement with Automotive Disposition Management Services, Inc., dated December
29, 2000 (6)
II-3
REGULATION S-K
NUMBER DOCUMENT
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
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)
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)
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc. (1)
4.4 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series C Preferred Stock (3)
4.5 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series D Preferred Stock (3)
5.1 Opinion regarding legality(3)
10.1 Stock Option Plan (1)
10.2 Evelyn Felice loan documents (1)
10.3 Mark Moldenhauer loan documents (1)
10.4 Pinnacle Financial Corporation loan documents (1)
10.5 Eastlane Trading Limited loan documents (1)
10.6 Norwest Bank loan documents (1)
10.7 Mike and Debbie Stuart loan documents (1)
10.8 Purchase of Goodwill Agreement with JBS, LLC (1)
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc. (1)
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999 (1)
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999 (1)
10.12 Sample "Work for Hire Agreement" (1)
10.13 Agreement with Auction Finance Group, Inc. (1)
10.14 Purchase Agreement with Lloydminister Enterprises Inc. and Kindersley Holdings Inc. dated March
23, 2000 (2)
10.15 Amended and Restated Secured Promissory Note dated March 31, 2000 to Mark Moldenhauer (3)
10.16 Amended and Restated Secured Promissory Note dated March 31, 2000 to Pinnacle Financial
Corporation (3)
10.17 Loan Extension from Wells Fargo Business Credit, Inc. (3)
10.18 Agreement with American Honda Finance (3)(4)
10.19 Extension and Exchange Agreement with Pinnacle Financial Corporation dated December 29, 2000 (6)
10.20 Motor Vehicle Remarketing Agreement with American Suzuki Motor Corporation dated January 10, 2001
(4)
10.21 Letter agreement with Sutro & Co. Incorporated dated October 11, 2000 (3)
10.22 First Amendment to Motor Vehicle Remarketing Agreement with American Honda Finance Corporation (4)
10.23 Secured Promissory Note to Mark Moldenhauer dated December 29, 2000 (3)
21 Subsidiaries of the registrant (3)
23.1 Consent of Neff & Ricci, LLP
23.2 Consent of Price Kong & Company, P.A.
23.3 Consent of Joseph B. Glass CPA, PC
23.4 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (incorporated by reference into Exhibit
5.1)
- ---------------
<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> Filed previously.
II-4
(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 quarterly report on Form 10-Q for the quarter
ended September 30, 2000.
(6)<F6> 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) The following financial statement schedules are filed with this
registration statement: None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent not more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on May 14, 2001. date
AUTOTRADECENTER.COM INC.
By: /s/ ROGER L. BUTTERWICK
------------------------------------
Roger L. Butterwick, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
President, Treasurer and a director
/s/ Roger L. Butterwick (Principal Executive Officer) May 14, 2001
- ------------------------------------ ----------------
Roger L. Butterwick
Vice President, Secretary and a
/s/ John E. Rowlett Director May 14, 2001
- ------------------------------------ ----------------
John E. Rowlett
Chief Financial Officer (Principal
/s/ Michael H. Feinstein Financial and Accounting Officer) May 11, 2001
- ------------------------------------ ----------------
Michael H. Feinstein
/s/ John Houck Director May 14, 2001
- ------------------------------------ ----------------
John Houck
Director
- ------------------------------------ ----------------
James Kaiser
/s/ David Livingston Director May 14, 2001
- ------------------------------------ ----------------
David Livingston
/s/ R. Gary McCauley Director May 11, 2001
- ------------------------------------ ----------------
R. Gary McCauley
/s/ L. David Sikes Director May 11, 2001
- ------------------------------------ ----------------
L. David Sikes
/s/ A. Marvin Strait Director May 11, 2001
- ------------------------------------ ----------------
A. Marvin Strait
II-6