UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________TO____________
Commission File Number: 333-78659
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0879572
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
15170 NORTH HAYDEN ROAD, SUITE 5, SCOTTSDALE, ARIZONA 85260
(Address of principal executive offices) (Zip Code)
(480) 556-6701
(Registrant's telephone number, including area code)
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, ARIZONA 85260
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
34,514,001 SHARES OF COMMON STOCK, NO PAR VALUE, AS OF DECEMBER 31, 2000
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flow
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
2000 2000
(unaudited)
--------------- ---------------
Restated Restated
--------------- ---------------
Current assets:
Cash $ 139,612 $ 4,355,738
Accounts receivable - trade, net 163,990 -
Accounts receivable - employees and brokers, net 134,453 -
Prepaid expenses and other 136,047 110,272
Net assets of discontinued operations 1,373,400 1,023,166
------------- -------------
Total current assets 1,947,502 5,489,176
------------- -------------
Property and equipment, net 732,337 813,118
Software, net 7,945,945 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:
Notes payable-related party $ 528,807 $ -
Notes payable-bank 1,386,309 1,112,418
Accrued liabilities 44,713 6,124
------------- -------------
Total current liabilities 1,959,829 1,118,542
------------- -------------
Long-term debt - notes payable to related party - 528,807
------------- -------------
Stockholders' equity:
Convertible preferred stock, Series C; $0.10 par value;
400,000 shares authorized; 21,216 issued, and 12,852 and 20,800
outstanding, respectively; liquidation preference $100 per share 1,063,323 1,906,536
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,824 issued, and 17,034 and 31,200
outstanding, respectively; liquidation preference $100 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 27,652,609 shares issued and outstanding at March 31, 2000 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 condensed consolidated financial statements.
3.
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Restated Restated
-------------- --------------
Revenues - Internet fees $ 200,868 $ - $ 623,668 $ 291,587
------------ ------------ ------------ ------------
Cost of revenues:
Salary and wages 108,949 - 291,638 -
Other 121,903 - 250,957 -
------------ ------------ ------------ ------------
Total cost of revenues 230,852 - 542,595 -
------------ ------------ ------------ ------------
Gross profit (29,984) - 81,073 291,587
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 376,763 45,093 817,914 260,464
Product development 125,402 - 335,550 -
General and administrative 469,570 106,395 1,079,466 334,893
Depreciation and amortization 3,954,625 57,554 4,859,648 171,033
------------ ------------ ------------ ------------
Total operating expenses 4,926,360 209,042 7,092,578 766,390
------------ ------------ ------------ ------------
Loss from operations (4,956,344) (209,042) (7,011,505) (474,803)
Interest expense (11,898) (11,898) (47,592) (47,645)
------------ ------------ ------------ ------------
(Loss) from continuing operations (4,968,242) (220,940) (7,059,097) (522,448)
------------ ------------ ------------ ------------
Discontinued operations:
Loss from operations of land-based segment (91,146) (110,204) (323,839) (118,307)
Loss from disposition of land-based segment (1,652,053) - (1,652,053) -
------------ ------------ ------------ ------------
(1,743,199) (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 - 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)
============ ============ ============ ============
Basic (loss) per share:
Continuing operations $ (0.15) $ (0.01) $ (0.22) $ (0.03)
Discontinued operations $ (0.05) $ (0.01) $ (0.06) $ (0.01)
Weighted average shares number of
common shares outstanding:
Basic 34,068,036 20,735,084 31,525,710 20,685,084
Fully diluted 34,068,036 20,735,084 31,525,710 20,685,084
See notes to condensed consolidated financial statements.
4.
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
For the Nine Months Ended December 31,
---------------------------------------
2000 1999
----------------- ------------------
Cash flows from operating activities:
Net (loss) income:
From continuing operations $(7,059,097) $(391,628)
From discontinued operations of land-based segment (323,839) (118,307)
From disposition of land-based segment (1,652,053) -
------------ ----------
(9,034,989) (509,935)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 4,859,648 171,033
Stock or stock options issued for services 53,436 -
(Increase) decrease in:
Net assets of discontinued operations (350,234) 330,771
Accounts receivable (163,990) 98,610
Accounts receivable employees and others (134,453) -
Prepaid expenses and other current assets (25,775) (205,249)
Accounts payable - (24,712)
Accrued liabilities 38,589 (50,723)
------------ ----------
Net cash used in operating activities (4,757,768) (190,205)
------------ ----------
Cash flows from investing activities:
Purchase of property, equipment and software (629,431) (92,971)
Sale of property and equipment 117,932 45,925
------------ ----------
Net cash used in investing activities (511,499) (47,046)
------------ ----------
Cash flows from financing activities:
Net proceeds from borrowing 573,891 (19,475)
Proceeds from issuance of common stock - net 479,250 514,475
------------ ----------
Net cash provided by financings 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.
5.
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
NOTE A - PRESENTATION OF FINANCIAL STATEMENTS
The condensed consolidated financial statements of AutoTradeCenter.com
Inc. ("AUTC") or the "Company," which refers to AutoTradeCenter.com Inc. and its
subsidiaries have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These statements reflect
all adjustments (including all normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations, and cash flows of AUTC as of December 31, 2000 and for all of the
periods presented. These statements are condensed and do not include all of the
information required by generally accepted accounting principles in a full set
of financial statements. These statements should be read in conjunction with
AUTC's financial statements and notes thereto included in AUTC's Annual Report
on Form 10-K for its fiscal year ended March 31, 2000.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries: Auto Network Group of Arizona,
Inc. ("ANET-AZ"), Pinnacle Dealer Services, Inc. ("PDS"), National Dealer
Services ("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden
Remarketing Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com
Inc. ("BTC"). All material intercompany accounts and transactions have been
eliminated. As more fully described in these notes the Company sold 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.
6.
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
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.
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 64,326 227,415 432,914
------------- -------------- -------------- -------------
Other income (expense):
Miscellaneous 124,021 30,825 139,599 73,803
Interest expense (268,152) (205,355) (690,853) (625,024)
------------- -------------- -------------- -------------
Total other income (expense)-net (144,131) (174,530) (551,254) (551,221)
------------- -------------- -------------- -------------
Net loss $ (91,146) $ (110,204) $ (323,839) $ (118,307)
============= ============ ============== =============
7.
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
2. COMPUTATION OF LOSS RESULTING FROM DISCONTINUING LAND-BASED SEGMENT
Loss from sale of: ANET-NM, ANET-NW, and ANET-SA:
Carrying value $1,596,933
Sales price 1,200,000
----------
Loss 396,933
Unamortized goodwill 352,432 $ 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
==========
3. NET ASSETS OF DISCONTINUED OPERATIONS
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
December 31, 2000 March 31, 2000
----------------- --------------
Assets:
Accounts receivable - trade, net $3,117,206 $ 5,743,845
Accounts receivable - employees and brokers, net 186,150 332,122
Goodwill and property and equipment - 316,311
Inventory - net 3,177,212 4,648,492
---------- -----------
Total assets 6,480,568 11,040,770
---------- -----------
Liabilities:
Accounts payable - trade 4,117,808 4,401,858
Notes payable - related party 750,000 5,376,821
Accrued liabilities 239,360 238,925
---------- -----------
Total liabilities 5,107,168 10,017,604
---------- -----------
NET ASSETS FROM DISCONTINUED OPERATIONS $1,373,400 $ 1,023,166
========== ===========
8.
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
NOTE E - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, 2000 March 31, 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.
9.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. Our
actual future results could differ materially from our historical results of
operations and those discussed in the forward-looking statements. All period
references are for the respective three and nine-month periods ending December
31, 1999 and 2000.
GENERAL
The presentation includes a discussion of us with our wholly owned
subsidiaries, National Dealer Services ("NDSCo"), AutoTradeCenter Remarketing
Services Inc. formerly Walden Remarketing Services, Inc. ("Walden Remarketing"),
and BusinessTradeCenter.com Inc. ("BTC"), as well as subsidiaries in which we
formerly carried out our land-based operations. These subsidiaries are; Auto
Network Group of Arizona, Inc. ("ANET-AZ"), Auto Network Group of New Mexico,
Inc. ("ANET-NM"), Auto Network Group Northwest, Inc. ("ANET-NW"), Auto Network
Group of Pennsylvania, Inc. ("ANET-PA") Auto Group of San Antonio Ltd.
("ANET-SA"). Auto Network Group of Denver Inc., ("ANET-D"), and Pinnacle Dealer
Services, ("PDS") Inc.
As of December 29, 2000, we sold our interest in our land-based
operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to
Automotive Disposition Management Services, Inc., an affiliated Arizona
corporation, in exchange for a 16% interest in Automotive Disposition.
Automotive Disposition is a private company owned by Jules Gollins, the former
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" below.
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. Our existing
remarketing agreement with American Honda Finance Corporation gives us an
exclusive contract to remarket, over the Internet through January 31, 2004, all
of the 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
10.
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
OVERVIEW
Net loss from continuing (Internet) operations was $4,968,242 or $0.15
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 $6,711,441 or $0.20 per share and $9,034,989 or $0.28 per share,
respectively, as compared to net losses of $306,194 or $0.02 per share and
$509,935 or $0.04 per share for the comparable periods in 1999.
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999 FOR CONTINUING OPERATIONS
Net sales from our continuing operations were $200,868 for the three
months ended December 31, 2000 compared to no Internet revenue for the same
period of the prior year. Substantially all of this revenue was earned from our
contract with American Honda Finance Corporation. We remarketed 3,819 vehicles
during the three months ended December 31, 2000.
Cost of revenues was $230,852 for the three months ending December 31,
2000 resulting in a negative gross profit of $29,984.
Sales and marketing expenses, including travel, promotional,
advertising and trade show expense was $376,763 for the three months ending
December 31, 2000 compared to $45,093 for the same period of the prior year. The
significant increase was attributable to the major expansion of our sales and
marketing efforts as we continued to make the vehicle remarketing community
aware of our new product.
Our product and development costs were $125,402 compared to zero for
the three months ending December 31, 2000 and 1999, respectively. The increased
expenditures were attributable to the design of our new technology.
General and administrative expenses increased $363,175 from $106,395 to
$469,570 reflecting the increased cost we experienced in adding personnel,
additional office lease expense, telephone, and other administrative expenses
attributable to the development of our Internet based remarketing program.
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. For the three-month prior period amortization of goodwill from Walden
was again $49,635 with depreciation of office equipment, furniture and fixtures
adding an additional $7,919 for a total of $57,554.
Interest expense of $11,898 was the same for both three-month periods.
11.
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999 FOR CONTINUING OPERATIONS
Revenues for the nine months ended December 31, 2000 from continuing
operations was $623,668. During this period we marketed 15,722 vehicles for
American Honda Finance. For the nine months ended December 31, 1999 revenue was
$291,587. All of the revenue for this nine month period 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.
Cost of revenues was $542,595 for the nine months ending December 31,
2000 resulting in a gross profit of $81,073. There was no comparable cost of
revenue for the prior period ended December 31, 1999 as the remarketing services
performed by AutoTradeCenter Remarketing Services Inc. were significantly
different and therefore no costs were charged to this category.
Sales and marketing expenses increased to $817,914 from $260,464 for
the respective nine months ended December 31, 2000 and 1999. Significant travel,
promotional, advertising and trade show expense contributed to this increase.
Product development cost were $335,550 for the December 31, 2000 nine
month period and nil for the prior comparable period once again reflecting the
change of the business model to focus on the Internet and technology.
General and administrative expenses were $1,079,466 for the nine months
ended December 31, 2000 and $334,893 for the nine months ended December 31,
1999. Included in the general and administrative costs are all of our corporate
overhead costs, including but not limited to, executive salaries, 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 general and administrative expenses also
include rent and other normal office supplies, telephone and other operational
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. For the nine months ended
December 31, 1999 amortization related to the Walden transaction was again
$148,904 plus depreciation of $22,129 was recorded for furniture, fixtures and
equipment for a total of $171,033.
DISCONTINUED OPERATIONS
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
12.
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 discontinued land-based
operations reflects the details of these operations for the periods herein
presented:
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
DISCONTINUED OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31 FOR THE NINE MONTHS ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
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 expenses -- -- 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 64,326 227,415 432,914
------------- ------------- -------------- -------------
Other income (expense):
Miscellaneous 124,021 30,825 139,599 73,803
Interest expense (268,152) (205,355) (690,853) (625,024)
------------- ------------- -------------- -------------
Total other income (expense)-net (144,131) (174,530) (551,254) (551,221)
------------- ------------- -------------- -------------
Net Loss $ (91,146) $ (110,204) $ (323,839) $ (118,307)
============= ============= ============== =============
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 $ 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
==========
FINANCIAL CONDITION
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.
13.
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) decreased
during the nine months ended December 31, 2000 by $4,382,961. At December 31,
2000 we had a working capital deficiency of $12,327, as compared to positive
working capital of $4,370,634 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 continuing and discontinued operations 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.
14.
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, 2000, 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.
ANTICIPATED TRENDS
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 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:
15.
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
OTHER
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 2000, the
Company's Annual Report to Shareholders, as well as statements made by the
Company in periodic press releases, oral statements made by the Company's
officials to analysts and shareholders in the course of presentations about the
Company, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by the forward looking statements. Such factors include, among other
things, (1) general economic and business conditions; (2) interest rate changes;
(3) the relative stability of the debt and equity markets; (4) competition; (5)
demographic changes; (6) government regulations particularly those related to
Internet commerce; (7) required accounting changes; (8) equipment failures,
power outages, or other events that may interrupt Internet communications; (9)
disputes or claims regarding the Company's proprietary rights to its software
and intellectual property; and (10) other factors over which the Company has
little or no control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
16.
PART II - - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management,
the outcome of these matters will not have a material adverse affect
upon the financial condition, results of operations or cash flows of
the Company. See "Forward-Looking Statements" above.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended December 31, 2000, 30,000 shares of common
stock were issued as compensation to deJong & Associates for services
values at $67,500.
No underwriters were used in the above transactions. The Company relied
upon the exemption from registration contained in Section 4(2) as to
all of the transactions. All of the purchasers were deemed to be
sophisticated with respect to the investment in the securities due to
their financial condition and involvement in the registrant's business.
Restrictive legends were placed on the stock certificates evidencing
the shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
REGULATION
S-K NUMBER DOCUMENT
2.1 Agreement and Plan of Reorganization between Auto Network Group, Inc. and Walden
Remarketing Services, Inc. (1)<F1>
2.2 Agreement Concerning the Exchange of Common Stock Between AutoTradeCenter.com Inc. and
Auto Network Group of Northwest, Inc. (1)<F1>
3.1 Articles of Incorporation, as amended (1)<F1>
3.2 Bylaws (1)<F1>
4.1 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network
USA, Inc. Regarding Series A Preferred Stock (1)<F1>
4.2 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network
USA, Inc. Regarding Series B Preferred Stock (1)<F1>
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc. (1)<F1>
4.4 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series C Preferred Stock (3)<F3>
4.5 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series D Preferred Stock (3)<F3>
10.1 Stock Option Plan (1)<F1>
17.
REGULATION
S-K NUMBER DOCUMENT
10.2 Evelyn Felice loan documents (1)<F1>
10.3 Mark Moldenhauer loan documents (1)<F1>
10.4 Pinnacle Financial Corporation loan documents (1)<F1>
10.5 Eastlane Trading Limited loan documents (1)<F1>
10.6 Norwest Bank loan documents (1)<F1>
10.7 Mike and Debbie Stuart loan documents (1)<F1>
10.8 Purchase of Goodwill Agreement with JBS, LLC (1)<F1>
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc. (1)<F1>
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.12 Sample "Work for Hire Agreement" (1)<F1>
10.13 Agreement with Auction Finance Group, Inc. (1)<F1>
10.14 Purchase Agreement with Lloydminister Enterprises Inc. and Kindersley Holdings Inc. dated
March 23, 2000 (2)<F2>
10.15 Amended and Restated Secured Promissory Note dated March 31, 2000 to Mark Moldenhauer (3)<F3>
10.16 Amended and Restated Secured Promissory Note dated March 31, 2000 to Pinnacle Financial
Corporation (3)<F3>
10.17 Loan Extension from Wells Fargo Business Credit, Inc. (3)<F3>
10.18 Agreement with American Honda Finance (3)(4)<F3><F4>
10.19 Extension and Exchange Agreement with Pinnacle Financial Corporation dated December 29,
2000 (5)<F5>
21 Subsidiaries of the registrant (3)<F3>
- ---------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-
78659).
(2)<F2> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated March 23, 2000
(File No. 333-78659).
(3)<F3> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-
37090).
(4)<F4> Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
(5)<F5> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated December 29, 2000
(File No. 333-78659).
</FN>
b) Reports on Form 8-K: NONE.
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTRADECENTER.COM INC.
Date: December 5, 2001 By: /s/ ROGER L. BUTTERWICK
-------------------------------------
Roger L. Butterwick, President
(Principal Financial and Accounting
Officer)
19.