Filed Pursuant to Rule 424(B)(2)
Registration No. 333-88272
PROSPECTUS
400,000 Units
of
AutoExotica International, Ltd.
We are offering, on a "best efforts, all-or-none basis," 400,000 units
at a price of $2.50 per unit. Each unit consists of one share of our common
stock, $.001 par value, and one warrant exercisable to purchase one share of our
common stock at an exercise price of $3.00 per share. The aggregate amount of
proceeds of the offering, before expenses and excluding exercise of the
warrants, will be $1,000,000. Pending the sale of the 400,000 units, all of the
proceeds of our offering will be held in an escrow account. If 400,000 units are
not sold within 60 days from the date hereof, all funds received by us will be
refunded to subscribers in full without interest thereon. We may extend the
offering period for an additional 30 days in our sole discretion.
Concurrent with this offering, we are registering 200,000 additional
shares of common stock for sale by a selling shareholder who may wish to sell
its shares in the open market or in privately negotiated transactions. The
selling shareholder is identified in this prospectus and in a separate selling
shareholder prospectus. The sale by the selling shareholder will only be made
subsequent to the completion of our offering of the 400,000 units.
No public trading market currently exists for the units, our common
stock or the warrants. The offering price of the units, the value of our common
stock and the exercise price of the warrants have been arbitrarily determined by
us. There can be no assurance that a market for our securities will develop or
that you will be able to liquidate your investment. See "Risk Factors."
Our principal executive offices are located at 927 Broadway, Suite 2,
Bayonne, New Jersey 07002. Our telephone number is (201) 437-6238, our website
is www.autoexoticarentals.com and our email address is exotorent@aol.com.
The securities being offered by this prospectus involve a high degree
of risk. You should read the "Risk Factors" section beginning on page 3 before
you decide to purchase any of the securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 31, 2002
TABLE OF CONTENTS
You should rely only on the information contained in this document. We
have not authorized anyone to provide you with information that is different.
This document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
Forward Looking Statements .................................................................... 1
Prospectus Summary ............................................................................ 1
AutoExotica International, Ltd ......................................................... 1
Recapitalization ....................................................................... 1
The Offering ........................................................................... 2
Concurrent Offering .................................................................... 2
Summary Financial Information ................................................................. 2
Balance Sheet Data ..................................................................... 2
Statement of Operations Data ........................................................... 3
Risk Factors .................................................................................. 3
Risks Related to our Business .......................................................... 3
Risks Associated with our Securities ................................................... 6
Use Of Proceeds ............................................................................... 9
Dilution ...................................................................................... 9
Concurrent Offering ........................................................................... 10
Plan Of Distribution .......................................................................... 10
Escrow of Offering Funds ............................................................... 10
Directors, Executive Officers, Promoters And Control Persons .................................. 11
Officers and Directors ................................................................. 11
Background of Executive Officers, Directors and Significant Employees .................. 11
Executive Compensation ........................................................................ 12
Compensation of Directors and Executive Officers ....................................... 12
Committees ............................................................................. 12
Employment Agreements .................................................................. 12
Stock Option Plans and Agreements ...................................................... 12
Security Ownership of Certain Beneficial Owners and Management ................................ 13
Business ...................................................................................... 13
Summary ................................................................................ 13
Operations ............................................................................. 14
Business Strategy ...................................................................... 15
Marketing .............................................................................. 15
Strategic Alliances .................................................................... 16
Competition ............................................................................ 16
Employees .............................................................................. 17
Regulation ............................................................................. 17
Facilities ............................................................................. 17
Legal proceedings ...................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 18
Overview and Background ................................................................ 18
Results of Operations for the Years Ended June 30, 2002 and June 30, 2001 .............. 19
Liquidity and Capital Resources ........................................................ 20
Business Trends; Seasonality ........................................................... 21
Description of Securities ..................................................................... 21
General ................................................................................ 21
Common Stock ........................................................................... 21
Preferred Stock ........................................................................ 22
Warrants ............................................................................... 22
Options ................................................................................ 23
Limitations on Liability of Directors .................................................. 23
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Dividend Policy ............................................................ 23
Restricted Shares Eligible for Future Resale ............................... 23
Transfer Agent and Registrant .............................................. 23
Securities and Exchange Commission Position on Indemnification for
Securities Act Liabilities .............................................. 23
Certain Relationships and Related Party Transactions .............................. 24
Consulting Agreement ....................................................... 24
Debts owed to Principal Shareholder; Cancellation of Indebtedness .......... 24
Legal Matters ..................................................................... 25
Experts ........................................................................... 25
Available Information ............................................................. 25
Financial Statements .............................................................. F-1
Table of Contents .......................................................... F-1
Independent Auditors Report ................................................ F-2
Balance Sheets ............................................................. F-3
Statements of Operations and Accumulated Deficit ........................... F-4
Statements of Changes in Shareholders' Equity .............................. F-5
Statements of Cash Flows ................................................... F-6
Notes to the Financial Statements .......................................... F-7 through F-13
ii
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify these
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us as
described in "Risk Factors" and elsewhere in this prospectus.
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding our company and our financial statements and the
related notes appearing elsewhere in this prospectus.
AutoExotica International, Ltd.
AutoExotica International, Ltd. is in the business of renting luxury,
exotic and high-performance automobiles and motorcycles to individuals and
businesses throughout the United States. Originally incorporated in the State of
New Jersey on June 16, 1989, AutoExotica was reincorporated in the State of
Nevada on June 13, 1995. We commenced our operations in July 1998, concentrating
our efforts in the New York and Washington, D.C. metropolitan areas. Focused
initially on providing rental services in the Northeastern region of the United
States, we have expanded our service to include parts of the Southeastern and
Western regions of the United States. See "Business-Operations."
Our business was created to respond to what we believe is a strong and
continually increasing public interest in experiencing the pleasure of driving
high performance luxury vehicles. We offer top of the line automobiles from
manufacturers such as Mercedes Benz, Porsche, Ferrari and BMW. We rent our
vehicles to individuals and businesses on a short-term and long-term basis. To
date, we have derived most of our business from referrals from prestigious
hotels and resorts; recently, we expanded our business relationships through
strategic alliances with a private membership club and a luxury properties
registry. See "Business-Strategic Alliances."
Our principal executive offices are located at 927 Broadway, Suite 2,
Bayonne, New Jersey 07002. Our telephone number is (201) 437-6238, our website
is www.autoexoticarentals.com and our email address is exotorent@aol.com.
Recapitalization
In January 2001, we effected a 4.87774-for-one stock split pursuant to
which all of our 1,000,000 shares of then-issued and outstanding common stock
were converted into 4,877,740 shares of common stock. Unless otherwise noted,
all share and per share data presented in this prospectus is reflected on a
post-split basis as if the stock split had occurred upon inception of our
company. See "Business-Summary" and Note G to the Financial Statements included
elsewhere in this prospectus.
1
The Offering
Shares of common stock outstanding before offering 5,600,000 shares
Shares of common stock in units being offered 400,000 shares
Warrants and shares of common stock issuable on
exercise of the warrants in the units being offered 400,000 shares
Plan of distribution We are offering the units for cash at a price of
$2.50 per unit. Each unit contains one share of
our common stock and one warrant. Each warrant
is exercisable to purchase one share of our
common stock at a price of $3.00 per share.
Use of proceeds The proceeds of this offering will be used by us
to finance additional vehicles, for marketing,
promotion and advertising and for working capital.
Concurrent Offering
Shares of common stock being offered by
selling shareholder 200,000 shares
Plan of distribution Concurrent with our offering, a selling
shareholder is offering for sale shares of our
common stock. The selling shareholder may sell
its shares in the open market or in privately
negotiated transactions and at market prices,
fixed prices or negotiated prices.
Use of Proceeds We will not receive any of the proceeds from the
sale of shares of our common stock by the selling
shareholder.
SUMMARY FINANCIAL INFORMATION
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, related notes and other
financial information included elsewhere in this prospectus. The balance sheet
data as of June 30, 2001 and 2002 and the statements of operations data for the
year ended June 30, 2001 and 2002 are derived from our financial statements. The
financial statements as of June 30, 2001 and 2002 and for the years then ended
have been audited by Asher & Company, Ltd. and are included in this prospectus.
Historical results are not necessarily indicative of future results.
Balance Sheet Data
June 30, 2001 June 30, 2002
---------------- ----------------
Cash $ 1,480 $ 6,389
Deferred lease costs (net of accumulated amortization) $33,445 $ 36,228
Total assets $99,304 $ 79,972
Long-term notes payable $22,501 $ 20,285
Total liabilities $99,305 $105,913
Stockholders' (deficit) equity $ (1) $(25,941)
2
Statement Of Operations Data
June 30,
----------------------------------
2002 2001
--------------- ---------------
Revenue $ 146,818 $ 83,022
Vehicle expense $ 101,766 $ 50,248
Interest expense $ (10,092) $ (4,554)
Net loss $(403,790) $(150,096)
Loss per share - basic and diluted $ (0.07) $ (0.03)
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our securities.
Investing in our securities involves a high degree of risk. Any of the following
risks could adversely affect our business, financial condition and results of
operations and could result in a complete loss of your investment. The risks and
uncertainties described below are not the only ones we may face.
Risks Related To Our Business
We have experienced and may continue to experience operating losses, which could
cause our business to fail.
We have had net losses in each year of our operations. For the fiscal
years ended June 30, 2002 and 2001, our net losses from operations were $393,698
and $145,542, respectively. There can be no assurance that we will obtain
profitability in the foreseeable future. Even if we do achieve profitability we
may be unable to sustain or increase profitability on a quarterly or annual
basis. This could cause our business to fail.
Our auditors have expressed substantial doubt about our ability to continue as a
going concern; our business could fail if we are unable to generate sufficient
working capital to meet our financial obligations.
The report of our independent auditors included in this prospectus
indicates a substantial doubt as to our ability to continue as a going concern
due to our history of limited working capital and net losses and our current
financial obligations (including our obligations under our current vehicle and
equipment leases). We have historically experienced operating losses. If we
experience continued losses or do not otherwise have enough working capital, we
would need to obtain additional financing to keep our business operating.
Continued losses and/or the lack of such financing could cause our business to
fail.
We have relied on outside financing to implement our revenue and operations; the
unavailability of such financing in the future, if we need it, could cause our
business to fail.
Since our inception, our operations have been financed through advances
from our founder and chief executive officer, Darryl A. Nowak, our line of
credit and the revenue generated by our automobile rentals. Although we have
historically relied on the financial assistance of our chief executive officer,
we believe that the proceeds from this offering and the revenues we will be able
to generate from our operations will provide sufficient cash to fund our
3
operations, our projected growth and our obligations for the next twelve months.
Further expansion of our operations beyond our current plans would require
additional funds, possibly in the form of debt or equity financing. There can be
no assurance that such financing would be available on terms favorable or
acceptable to us as and when needed. The inability to obtain such financing
could cause our business to fail.
We face significant competition; our business may not succeed if we cannot
compete effectively with other companies in our industry.
The automobile rental industry and some of the markets in which we
operate are highly competitive. Our competition consists of companies that
provide service on national, regional and local levels. These companies range in
size from small and local "boutique" operations (which have few employees, small
fleets of automobiles and limited financial resources) to large publicly-held
companies (which have many employees, numerous locations, large fleets of
automobiles and significant capital resources). We believe that we service a
"niche" market and that we do not compete directly with the larger national or
local automobile rental companies, such as Hertz Corporation, Avis, National,
Budget or Thrifty, because these companies typically offer standard makes and
models of automobiles (such as Ford Taurus and Chevrolet Lumina). Most of the
larger vehicle rental companies do not focus their efforts on the "niche" market
of providing luxury automobiles for rent.
Our most significant competition is from local "boutique" providers
whose operations are focused on vacation destinations. We believe that our
competition is not significant in the Northeast because no other companies
provide luxury automobile rental services in this area; however, in the
Southeastern and Western regions of the United States (where we have recently
expanded our operations), we face greater competition because there are more
"boutique" providers of luxury rental automobiles focused on the vacation
destination cities and resorts in these areas. We compete primarily on the basis
of our customer service and price. Our ability to succeed may depend upon our
ability to continue to compete with these companies. If we were not able to
continue to effectively compete with other companies in our industry, our
business could fail.
We depend upon our chief executive officer to generate virtually all of our
business and his loss or unavailability could cause us to lose business and
would put us at a competitive disadvantage.
Our success depends largely on the skills, experience and reputation of
our founder and chief executive officer, Darryl A. Nowak. Mr. Nowak has been
instrumental in developing our business and in structuring our strategic
alliances. Mr. Nowak has been responsible for the generation of virtually all of
our business to date. We could lose current business and potential business
leads if Mr. Nowak becomes unavailable to work for us. The loss or
unavailability of Mr. Nowak for any significant period of time could, therefore,
have a material adverse effect on the business, operations, prospects and
financial condition of our company. If Mr. Nowak becomes unavailable to us and
we are not able to hire someone with Mr. Nowak's abilities or resources, our
business would fail.
4
Our founder and chief executive officer is our largest shareholder which enables
him to determine the outcome of matters submitted to a vote of shareholders.
Prior to this offering, Darryl A. Nowak, our company's founder and
chief executive officer, owned 87.1% of our outstanding common stock. Following
this offering, Mr. Nowak will own 81.2% of our outstanding common stock
(assuming no exercise of the warrants included in the units being offered by
us). Therefore, Mr. Nowak will continue to be able to elect a majority of the
board of directors and will continue to control our business, operations and
policies upon completion of this offering. Although investors in the offering
will acquire shares of common stock entitled to vote on certain matters relating
to our company, the outcome of any such vote may be determined ultimately by Mr.
Nowak and not by such investors. See "Dilution" and "Security Ownership of
Certain Beneficial Owners and Management."
Management has broad discretion in using the proceeds of the offering; funds
invested by investors in the offering may not be used by us as currently
anticipated.
We expect to use the net proceeds of this offering to finance the
acquisition of additional automobiles to increase our fleet of rental vehicles,
for marketing, promotion and advertising and for working capital. Our
management, however, has broad discretion over the actual use of the proceeds of
this offering and may therefore determine to reallocate the use of proceeds.
Investors in the offering will not control the actual use or the allocation of
the proceeds and there may be limited information about the specific use of
these funds available to such investors in the future.
Economic conditions and changes in interest rates could impact the profitability
of our business.
Our business may be significantly impacted by down-turns in the economy
and changes in interest rates. If general economic conditions weaken, our
ability to generate new rental business may decrease due to the perception that
rental of exotic vehicles is a luxury (rather than a necessity) in a market in
which consumer confidence and consumer spending is decreasing. Additionally, the
rate of defaults on existing rentals may increase. If we were to experience a
significant decrease in rentals or in the rate of defaults on current rentals,
our cash flow would be more restrained and our revenue would decrease. Either of
these events could cause our business to fail.
Since we have borrowed money to finance the leases on the automobiles
that we rent to our customers, increases in interest rates could significantly
increase our expenses and reduce our profitability. To the extent that our
financing facilities are subject to variations in interest rates and to the
extent that we continue in the future to finance the leasing of new automobiles,
increases in the applicable interest rates will increase the amount of interest
we pay on the automobiles we lease and the money we borrow, and our profit
margins will decrease, which could adversely affect our business.
Maintaining a luxury automobile fleet is a capital intensive business and we may
require additional capital in order to support and grow our fleet, which capital
may not be available.
Our revenue to date has been related directly to the volume of luxury
automobiles in our fleet. We currently have only twelve vehicles and one
motorcycle in our fleet. Our growth depends on our ability to add more vehicles
to our fleet for rent. Although we intend to use a portion of the proceeds of
this offering to finance our acquisition of additional vehicles for our fleet
(in order to continue to increase our rental business and to enter into new
regions), we may
5
require access to additional short and long term credit in the future in order
to continue to lease vehicles from vehicle manufacturers and commercial leasing
companies. In such event, we may require additional financing from banks,
manufacturer-related financial institutions and commercial leasing companies.
There can be no assurance that we will be able to obtain additional financing
when needed or, to the extent such financing is available, to obtain financing
on acceptable terms. In the event that we require such financing, we would be
adversely effected if we were unable to continue to secure sufficient and timely
financing on acceptable terms; in such event, our business could fail.
We may be deemed to be in violation of our vehicle leases which could trigger
termination and adversely affect our business.
Rental of the vehicles that we lease for use in our business requires the
written consent of the leasing companies from whom we lease these vehicles.
Although we have obtained the verbal consent of these leasing companies, we have
not secured their written consent. We have, however, entered into discussions
with the leasing companies to obtain written consent; these companies have
indicated that their consent is predicated on our ability to raise capital.
Based on our discussions with the leasing companies to date, we expect to obtain
their written consent upon completion of our offering. Although none of the
leasing companies has determined to terminate its agreement with us, as of the
date hereof, we may be deemed to be in technical violation of these leases,
which entitles the leasing companies to terminate our vehicle leases. If we do
not obtain the requisite consent and the leasing companies determine to
terminate our leases, the leasing companies could require the return of our
leased vehicles. In the event of such termination, we would be required to
identify and obtain vehicles through other leasing companies. Our inability to
secure other leases could cause our business to fail.
Risks Associated With Our Securities
Since our securities have never been traded, prices for our common stock may
vary or decline after the offering.
There is no public market for any of our securities and no assurance can be
given that a market will develop or that any shareholder will be able to
liquidate his investment without considerable delay, if at all. If a market for
any of our securities should develop, the prices for these securities may be
highly volatile. Our sale of the units and sales of common stock owned by
shareholders of our company (including the selling shareholder) into the market
may cause the market price of our common stock to fall. Factors such as those
discussed in this "Risk Factors" section may have a significant impact on the
market price of our securities. The following factors will add volatility to the
price of our common stock:
. actual or anticipated variations in our quarterly operating
results
. conditions or trends in the auto finance industry in general
. announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint ventures
. our capital commitments
. additions or departures of our key personnel
. sales of our common stock
6
The lack of an underwriter in this offering and the absence of a market-maker
make it extremely unlikely that an orderly market for our securities will
develop.
There is no underwriter engaged in connection with this offering and there
can be no assurance that any brokerage firm will act as a market maker of our
securities. Due to the anticipated volatility of our common stock, brokerage
firms may not be willing to effect transactions in our common stock. Even if a
purchaser finds a broker willing to effect transactions in our common stock, the
combination of brokerage commissions, state transfer taxes, if any, and other
selling costs may exceed the selling price.
Investors in this offering will pay a higher price per share for their shares of
common stock than earlier investors, which will cause new investors to
experience an immediate reduction in the per share (net tangible) value of their
shares after completion of the offering.
We had a pro forma net tangible book value of zero per share prior to our
offering. After the offering, we expect our net tangible book value per share to
be approximately $.15. Our founder paid approximately $.03 per share for the
4,877,740 shares of our common stock that he owns, whereas new investors will
have paid $2.50 per share for their shares. There will be an increase in the net
tangible book value per share for our existing stockholders of approximately
$.15. Because existing shareholders paid less for their shares of common stock
than new investors, there will be dilution (reduction in value) to new investors
in the net tangible book value per share of approximately $2.35. See "Dilution."
We may issue additional shares of our common stock without shareholder consent,
which will further dilute investors' percentage interest in our company.
Our articles of incorporation permit the issuance of additional shares of
common and preferred stock as determined from time to time by management of our
company. Accordingly, we may issue additional shares of common stock or other
securities in the future in connection with acquisitions and other financing
transactions. Our management will have the right to determine the number of
shares that we issue and the consideration or purchase price per share for such
issuances without the consent or approval of shareholders or the investors in
this offering. As an investor in this offering, you would not have anti-dilution
rights (to purchase shares of our common stock in connection with any subsequent
issuance or offering in order for you to maintain your percentage of ownership
in our company). The issuance of additional shares of our common stock will have
the effect of diluting a shareholder's interest in our company, thereby reducing
the percentage of our company that such shareholder owns.
Penny stock regulations impose certain restrictions on the marketability of our
securities which are likely to make it difficult for investors to resell our
shares of common stock.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) or exercise price of less than $5.00 per share, subject to
certain exceptions. As a result, our common stock is subject to rules that
impose additional sales practice requirements on broker-dealers who sell our
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the
7
transaction, of a risk disclosure document mandated by the Securities and
Exchange Commission relating to the penny stock market. The broker-dealer must
also disclose the commission payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell our securities and may affect the ability of investors to sell our
securities in the secondary market and the price at which such investors can
sell any such securities.
Shareholders should be aware that, according to the Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
. control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
. manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
. "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
. excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the inevitable
collapse of those prices with consequent investor losses.
State blue sky laws impose significant restrictions on the resale of our stock
which could significantly impair the ability of investors to resell the
securities purchased in this offering.
Each state has its own securities laws, known as "blue sky laws," which:
(a) limit the sale of securities to a state's residents unless such sale is
registered in that state or qualifies for an exemption from registration; and
(b) govern the reporting requirements for broker-dealers and stock brokers doing
business directly or indirectly in the state. Before a security is sold in a
state, the sale and the broker executing the sale must have been registered in
that state or there otherwise must have been an exemption applicable to the
sale, thereby exempting the transaction from the state's registration
requirements. We have filed a registration statement relating to the sale of our
common stock in Connecticut and New York, however, we do not currently intend to
register the sale of our common stock in additional states. Determinations
regarding registration in other states may be made by the broker-dealers, if
any, who agree to serve as the market-makers for our stock. There may be
significant state blue sky law restrictions on the ability of investors to sell,
and on purchasers to buy, our securities. Investors in this offering should
consider the secondary market for our securities to be limited given that
investors may be unable to resell their stock or may be unable to resell without
the significant expense of state registration or qualification.
8
The offering price of the units was not determined on the basis of our earnings,
book value or any other financial criterion of value; investors could experience
a loss in the value of the securities they purchase following the offering.
The offering price of the units, the value of the underlying shares of
common stock and the exercise price of the warrants have been arbitrarily
determined by us and are not based on our earnings, book value, net worth or
other financial statement criteria of value. Additionally, the offering price of
the shares of common stock being offered by the selling shareholder will be
determined by such shareholder in its sole discretion. The factors considered by
us in determining the offering price of the units and the exercise price of the
warrants included an evaluation of the history of and prospects for the industry
in which we compete and the prospects for our future earnings. Such factors are
entirely subjective, and no representations are made herein as to any
objectively determinable value of the securities offered in this offering.
Accordingly, there can be no assurance that the prices of our securities will be
sustained (such prices may decrease in the future) or that the market will
similarly value these securities. This may result in a decline in the value of
the securities an investor purchases in this offering.
USE OF PROCEEDS
We estimate that the net proceeds from our offering will be approximately
$900,000. We expect to use such proceeds as follows:
Approximate
Approximate Percentage of
Amount of Proceeds Proceeds
---------------------- ---------------
Lease of Additional Vehicles $600,000 67%
Marketing, Promotion and Advertising $100,000 11%
Working Capital $200,000 22%
The amounts set forth above are estimates and management of our company has
broad discretion with respect to application of the proceeds of this offering.
See "Risk Factors." Should a reapportionment or reallocation of funds be
determined by the board of directors to be in the best interests of our company,
the actual amount expended to finance any category of expenses may be increased
or decreased. The proceeds of this offering that are not expended immediately
may be deposited in interest bearing accounts or invested in government
obligations, certificates of deposit or similar short term, low risk
investments.
We will not receive any of the proceeds from the sale of shares of our
common stock by the selling shareholder. See "Concurrent Offering."
DILUTION
Net tangible book value consists of total assets minus intangible assets
and liabilities divided by the total number of common shares outstanding. Our
company has no shares of preferred stock outstanding and no options issued and
outstanding.
At June 30, 2002, we had a net tangible book value of zero per share.
9
Assuming consummation of this offering, we will have a net tangible book
value of $874,059 or $.15 per share. This represents an immediate increase to
existing shareholders in net tangible book value of approximately $.15 per share
and an immediate dilution to new investors of $2.35 per share. See "Risk
Factors." "Dilution" represents the difference between the offering price per
share and the net tangible book value per share of common stock at June 30,
2002, after giving effect to the sale of the shares of common stock offered
hereby. The following table illustrates the dilution in net tangible book value
per share to new investors as of June 30, 2002, assuming that all of the units
being offered by us are sold and none of the warrants included in the units are
exercised (because the $3.00 exercise price of the warrants exceeds the offering
price of the units, rendering the exercise to be anti-dilutive).
Offering price $ 2.50
Net tangible book value before offering $(25,941)
Increase in net tangible book attributable to new investors $900,000
Pro forma net tangible book value after the offering $874,059
Dilution in net tangible book value to new investors $ 2.35
The following table summarizes the differences between existing
shareholders and new investors with respect to the number of shares of common
stock purchased from our company, the total cash consideration paid, and the
average cash consideration per share of common stock paid, assuming all of the
units being offered by us are sold and none of the warrants included in the
units are exercised (because the $3.00 exercise price of the warrants exceeds
the offering price of the units rendering exercise to be anti-dilutive).
Number of Shares Total Consideration Average Price
-----------------------
Purchased Percent Amount ($) Percent Per Share ($)
-------------------- --------- ----------- ------- ----------------
Existing Shareholders 5,600,000 93% 1,207,179 51% .22
New Investors 400,000 7% 1,000,000 49% 2.50
CONCURRENT OFFERING
The registration statement of which this prospectus is a part also includes
an alternate prospectus relating to the offering of 200,000 shares of common
stock by the selling shareholder. All of the 200,000 shares of common stock may
be sold, after the closing of the offering, in the open market, in privately
negotiated transactions or otherwise.
We will not receive any of the proceeds from the sale of the 200,000 shares
of common stock by the selling shareholder. Although the selling shareholder
will not sell its shares prior to the completion of our offering, sales of
shares of common stock by the selling shareholder or the potential of such sales
may have a material adverse effect on the market price of our common stock. See
"Risk Factors."
PLAN OF DISTRIBUTION
Escrow of Offering Funds
We are offering 400,000 units on a "best efforts, all-or-none" basis. The
units are being offered directly by us to the public. No underwriter is
participating in our offering. Pending completion of our offering, the funds we
receive will be deposited in an escrow account at Continental Stock Transfer &
Trust Company. If all of the units are not sold within 60 days of the
10
date hereof, all funds received by us will be refunded to subscribers in full
without interest thereon (unless the offering is extended by us for an
additional 30 days, in which case, the funds received by us will be refunded
upon expiration of the additional 30 day period). Each subscriber will receive
from us confirmation of its subscription to purchase the units with instructions
to forward funds to Continental Stock Transfer & Trust Company, 17 Battery
Place, New York, New York 10004. All of the proceeds of this offering will be
deposited in the escrow account by noon of the business day immediately
following the day of receipt. All subscriber checks must be made payable to
"Continental Stock Transfer & Trust Company, as escrow agent for AutoExotica
International, Ltd." During the period of escrow, subscribers will not be
entitled to a refund of their subscriptions. If at the end of the offering
period, all of the units have been sold, all funds in the escrow account will be
released to our company.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Officers and Directors
The names and ages of our directors and executive officers are set
forth below. All directors are elected annually by our shareholders to serve
until the next annual meeting of the shareholders and until their successors are
duly elected and qualified. Officers are elected annually by the board of
directors to serve at the pleasure of the board.
Name Age Position(s) with AutoExotica
- ------------------- ------- ---------------------------------------------
Darryl A. Nowak 38 Chief Executive Officer, Chief Accounting
and Principal Financial Officer and President
Elaine Nowak 39 Executive Vice President and Secretary
Background of Executive Officers, Directors and Significant Employees
Darryl A. Nowak: Darryl A. Nowak has served as our Chief Executive Officer,
Chief Accounting and Principal Financial Officer and President and as a director
since our inception in 1989. Mr. Nowak has been responsible for the day-to-day
operations of our company and for our company's execution of its business plan,
including development and cultivation of client and strategic alliance
relationships. From 1982 to 1992, Mr. Nowak was employed by Comex et Cie, a
Marseilles, France based oil and gas conglomerate, where he was engaged as an
offshore diving supervisor in the company's underwater marine operations in
Australia, Southeast Asia and Mexico. Pursuant to Mr. Nowak's employment
agreement, Mr. Nowak intends to continue to devote his full time to the business
of our company. See "Executive Compensation - Employment Agreements." Mr. Nowak
is the husband of Elaine Nowak, another officer and director of our company.
Elaine Nowak: Elaine Nowak has served as our Executive Vice President and
Secretary and as a director since our inception in 1989. Ms. Nowak has been
responsible for assisting Mr. Nowak in overseeing the day-to-day operations of
our company. Ms. Nowak is also responsible for administrative operations,
including invoicing, accounts payable and receivable and office management. From
1980 to 1988, Ms. Nowak held various positions with local and national banks.
Ms. Nowak has and intends to continue to devote her full time to the business of
the company. Ms. Nowak is the wife of Darryl Nowak, another officer and director
of our company.
Neither Mr. Nowak nor Ms. Nowak has been an officer or director of a
publically-held reporting company previously.
11
EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers
Our directors are entitled to receive reasonable out-of-pocket expenses
incurred in attending meetings of the board of directors but are not compensated
for their service as directors. We intend to pay non-cash consideration in the
form of options to directors. In the future, we may determine to pay directors
cash as well as non-cash consideration. The board held four (4) meetings during
the last fiscal year and each director attended all of these meetings.
Committees
Given the limited size of the board of directors to date, we have not
established subcommittees. The board of directors performs the role of the
audit, compensation and nominating committees and is entrusted with the overall
management decisions of the company.
Employment Agreements
We recently entered into an employment agreement with Darryl A. Nowak.
Mr. Nowak has agreed to serve as our Chief Executive Officer, Chief Accounting
and Principal Financial Officer and President. The employment agreement provides
for Mr. Nowak to receive an annual salary of $85,000, subject to a ten percent
(10%) annual increase and bonuses at the discretion of the board of directors.
Mr. Nowak's agreement expires on April 30, 2005 (subject to earlier termination
for cause). To date, Mr. Nowak has not drawn any salary. See Note M to the
Financial Statements. As an executive officer of our company, Mr. Nowak is
entitled to receive stock options under our stock option plan. In addition,
under the terms of his employment agreement, Mr. Nowak is entitled to
participate in all medical, pension and other benefit plans that we may
establish from time to time for our senior executives. Mr. Nowak's employment
agreement is terminable by us for cause (i.e., conviction of a felony, willful
misconduct, dishonesty or material breach of the agreement) at any time or in
the event that Mr. Nowak becomes disabled and is unable to perform his duties
under his employment agreement for more than 90 consecutive days or for more
than 120 days during any twelve (12) month period.
Elaine Nowak is employed by the company on an "at-will" basis. Ms.
Nowak's current salary is $45,000 per year.
Stock Option Plans and Agreements
We recently adopted the AutoExotica Incentive Stock Option Plan
pursuant to which we may grant options to purchase up to 1,000,000 shares of our
common stock. The stock option plan provides for the grant of options which
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, to officers and employees of our company and
non-qualified options to officers, directors, employees and consultants of our
company. An aggregate of 1,000,000 shares of our common stock is reserved for
issuance under the stock option plan (subject to adjustment in the event of our
declaration of stock dividends, stock splits, reclassifications and the
occurrence of other similar events). No options have been granted to date.
The stock option plan is to be administered by our board of directors
or a committee established by the board of directors. The board of directors (or
the committee) determines the persons to whom options are granted, the number of
shares of our common stock subject to an option, the period during which options
may be exercised and the exercise price thereof.
12
The exercise price of each option is to be determined by our board of
directors (or the committee), provided that the exercise price for any incentive
option may not be less than the "fair market value" of our common stock at the
time of grant, and provided that if an incentive option is granted to an
optionee who owns more than ten percent (10%) of the voting power of the capital
stock of our company, the minimum exercise price of such option may not be less
than one hundred ten percent (110%) of the "fair market value" of our common
stock on the date of grant, determined in accordance with the stock option plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 30, 2002
with respect to the beneficial ownership of the outstanding shares of our common
stock, $.001 par value, plus, where relevant for particular beneficial owners,
shares which such beneficial owner has the right to acquire, by (i) any holder
known to us owning more than five percent (5%) of the outstanding shares; (ii)
our officers and directors; and (iii) the directors and officers of our company
as a group.
Percentage of Percentage Of
Number of Shares Ownership before Ownership after
Name of Beneficial Owner of Common Stock Offering Offering/(1)/
- ------------------------------------ -------------------- ------------------- --------------------
Darryl Nowak /(2)/ 4,877,774 87.1% 81.2%
c/o AutoExotica International, Ltd
927 Broadway, Suite 2
Bayonne, N.J. 07002
Abingdon Associates /(3)/ 600,000 10.7% 10%
P.O. Box 89 RR1, Route 216
Poughquag, N.Y. 12570
All officers and directors 4,877,774 87.1% 81.2%
as a group (2 persons)
______________
(1) Assumes issuance of shares of common stock included in the units but no
exercise of warrants included in the units.
(2) Mr. Nowak is the founder, Chief Executive Officer, Chief Accounting and
Principal Financial Officer and President of AutoExotica.
(3) Abingdon Associates, the selling shareholder, owns 600,000 shares of
common stock of AutoExotica. Concurrent with the offering by AutoExotica,
Abingdon Associates is offering for sale 200,000 of the 600,000 shares of
common stock it owns. Abingdon Associates provides on-going consulting
services to AutoExotica pursuant to a consulting agreement. See "Certain
Relationships and Related Party Transactions - Consulting Agreement."
BUSINESS
Summary
AutoExotica is in the business of renting luxury, exotic and
high-performance automobiles and motorcycles to individuals and businesses
throughout the United States. Originally incorporated in the State of New Jersey
on June 16, 1989, AutoExotica was reincorporated in the State of Nevada on June
13, 1995. In January 2001, we effected a 4.87774-for-one stock split pursuant to
which all of our 1,000,000 shares of then-issued and outstanding common stock
were converted into 4,877,740 shares of common stock. See Note G to the
Financial Statements included elsewhere in this prospectus.
13
We commenced our operations in July 1998, concentrating our efforts in
the New York and Washington, D.C. metropolitan areas. Focused initially on
providing rental services in the Northeastern region of the United States, we
have expanded our service to include parts of the Southeastern and Western
regions of the United States. See "Strategic Alliances" below.
Our business was created to respond to what we believe is a strong and
continually increasing public interest in experiencing the pleasure of driving
high performance luxury vehicles. We offer top of the line automobiles from
manufacturers such as Mercedes Benz, Porsche, Ferrari and BMW. We believe that
the increasing demand to drive luxury vehicles is evidenced by the recent launch
by the Hertz Corporation, a large national competitor, of its Prestige
Collection. See "Risk Factors - Competition" and "Competition" below.
Our principal executive offices are located at 927 Broadway, Suite 2,
Bayonne, New Jersey 07002. Our telephone number is (201) 437-6238, our website
address is www.autoexoticarentals.com and our email address is
exotorent@aol.com.
Operations
We rent our vehicles to individuals and businesses. Customers of the
company include brokerage firms, advertising agencies, hotels, vacation resorts,
airlines and travel agencies. We make our vehicles available to our customers on
a short-term and long-term basis. A short-term rental period is typically one or
two days, while long-term rentals may run for a period of up to four (4) weeks.
Subject to certain arrangements that we have made with our strategic alliance
partners (see "Strategic Alliances" below), our rental rates range from $295 per
day (for a Porsche Boxter) to $1,200 per day (for a Ferrari F355).
Our operations are principally conducted out of our executive offices
in Bayonne, New Jersey. Our operations in the Northeast are supported by the
fleet of automobiles that we maintain in our facilities in New Jersey. It is our
practice to deliver our automobiles directly to the customer following a phone
reservation made by the customer or our referral source. At the time of
reservation, prices and terms are agreed to and payments are made by cash or
credit card. Upon delivery of the reserved vehicles to our customers, our
customers execute rental agreements. We also maintain vehicles in Florida,
Colorado, Nevada and Arizona in connection with our agreements with our
strategic alliance partners. See "Strategic Alliances" below.
We lease the vehicles that we rent to the public from vehicle
manufacturers and commercial leasing companies. Our leases are typically
financed by banks, manufacturer-related financing companies and commercial
leasing companies. The leases range in term from three (3) to four (4) years and
in monthly payments from $493 to $1,573. We maintain liability insurance on all
of the vehicles we lease and we are responsible under the leases for all
maintenance and repair.
Our vehicle leases require the consent of the leasing companies for use
of the vehicles in our business; we have obtained the verbal consent of these
leasing companies and are in the process of negotiating written consents. Based
on our discussions to date, we believe that we will receive written consent from
the leasing companies upon completion of our offering. In the event that we do
not obtain the written consent, where required, we could be deemed to be in
violation of our lease agreements and the leasing companies could terminate our
agreements. This would have a material adverse effect on our business and
operations. See "Risk Factors."
14
Business Strategy
A significant portion of our business is derived from referrals from
prestigious hotels and resorts. We work with the concierge services at several
national hotels (such as the Four Seasons) who refer their clientele to us.
Although we currently have no formal written agreements with these concierge
services, our relationships with these establishments have consistently provided
referral opportunities for us. As a result, we are in the process of negotiating
more formal agreements with several hotels. To the extent that such hotels are
national, it is our intention to implement a referral program with such hotels
that would generate referral business at such hotels' various locations
nationally.
We have recently expanded our business relationships to include strategic
alliances with Private Retreats, a private membership club, and A&K Registry, a
luxury properties registry. See "Strategic Alliances" below.
It is our business strategy to expand our operations by:
. increasing our fleet of vehicles
. increasing the number of locations in which we operate
. expanding our existing relationships with strategic alliance
partners
. entering into new agreements with additional luxury products
and service providers
We intend to use a portion of the proceeds of this offering to finance
the acquisition of additional vehicles, thereby increasing the number of
vehicles that we maintain in our fleet. This will enable us to rent more
vehicles from our existing locations, to provide additional vehicles to our
strategic alliance partners and to provide new locations with rental vehicles.
It is also part of our business plan to expand our operations by increasing our
marketing, promotional and advertising activities and by continuing to enter
into agreements with luxury product service providers. It is our belief that
increased marketing and promotion will implement our current referral business.
Marketing
Implementation of a strategic marketing and advertising program is an
important part of our business and growth strategy. We have not previously had
the financial resources to implement such a program and have focused our efforts
on growing our business by encouraging repeat business and referrals. A portion
of the proceeds of our offering are intended to finance our marketing
initiatives. Following completion of this offering, we intend to implement a
strategic plan that includes:
. placement of print ads in national publications such as the
Wall Street Journal and Town & Country Magazine, local
publications such as Palm Beach Illustrated and
industry-specific magazines, such as airline (in flight)
magazines and vacation magazines
. preparation and distribution of brochures and flyers to luxury
hotels, spas, resorts and travel agencies in key metropolitan
and resort destination cities such as Palm Beach, Florida,
Aspen, Colorado and Scottsdale, Arizona
15
. creation of a website with on-line reservation and confirmation
capabilities, which may be used by resort clients, business
clients and airline clients and will have instantaneous
"real-time" information and assistance on our latest vehicle
offerings, pricing packages, promotions, vehicle availability
and alternative vehicle options
. implementation of print and on-line promotional programs that
will provide commercials about and links to our resort and
other strategic alliance partners
Strategic Alliances
In August 2001, we entered into a series of agreements with Private
Retreats, LLC, a private membership club, providing for our membership in the
club and cooperative marketing efforts between our company and the club. Under
the terms of our membership agreement with the club, Private Retreats, LLC
issued a bond in the amount of $150,000 (evidencing a refundable membership
deposit) plus $2,825 of prepaid membership dues in exchange for our issuance to
the club of 122,260 shares of our common stock.
In the event that we determine in the future to terminate our
membership, the bond is refundable in cash pursuant to the terms of the bond and
our membership agreement with Private Retreats, LLC. Under the terms of our
cooperative agreement with Private Retreats, LLC, we have agreed to rent (for a
period of up to thirty (30) days in the aggregate) at least three (3)
automobiles to the club on a monthly basis for use at its resorts in Vail,
Colorado, Las Vegas, Nevada and Scottsdale, Arizona. In exchange for our
provision of luxury automobiles in Vail, Las Vegas and Scottsdale, Arizona,
Private Retreats, LLC has agreed to pay a retainer of $1,500 per month for
thirty (30) days of vehicle usage (subject to a fifty dollar ($50) per day
increase in the event that additional rental days are requested). We have also
agreed to rent a luxury automobile to the president of the club at a lease price
equal to our direct costs. The cooperative agreement with Private Retreats, LLC
is terminable upon thirty (30) days' prior written notice.
In October 2001, we entered into an agreement with Global Registry, LLC
to cross-market our luxury automobile rental services to the members of an elite
registry known as the A&K Registry. The A&K Registry was established by Global
Registry in alliance with Abercrombie & Kent, a luxury adventure travel and tour
operator. Members of the A&K Registry are owners at private residence clubs and
other elite properties around the world. The A&K Registry offers its members a
portfolio of luxury properties, travel packages, transportation (jets, yachts
and automobiles through AutoExotica) packages and sports and entertainment event
venues. Under the agreement, we have agreed to make our automobiles available to
members of the A&K Registry at a discounted rate from our customary retail
prices and to pay the registry a marketing fee based on a percentage of the
gross rental sales revenue we receive on automobiles rented by members of the
registry. The term of our agreement with the A&K Registry is three (3) years,
subject to earlier termination.
Competition
The automobile rental industry and some of the markets in which we
operate are highly competitive. See "Risk Factors." Our competition consists of
companies that provide service on national, regional and local levels. These
companies range in size from small and local "boutique" operations (which have
few employees, small fleets of automobiles and limited financial resources) to
large publicly-held companies (which have many employees, numerous locations,
large fleets of automobiles and significant capital resources). We believe that
we do not compete
16
directly with the larger national or local automobile rental companies, such as
Hertz Corporation, Avis, National, Budget or Thrifty, because these companies
typically offer standard makes and models of automobiles (such as Ford Taurus
and Chevrolet Lumina). Most of these larger companies do not focus their efforts
on providing luxury automobiles for rent. However, Hertz recently launched what
it calls its Prestige Collection, which we believe is indicative of the growing
market for luxury rentals.
Our most significant competition is from local "boutique" providers
whose operations are focused on vacation destinations. We believe that our
competition is not significant in the Northeast because no other companies
provide luxury automobile rental services in this area; however, in the
Southeastern and Western regions of the United States (where we have recently
expanded our operations), we face greater competition because there are more
"boutique" providers of luxury rental automobiles focused on the vacation
destination cities and resorts in these areas. We compete primarily on the basis
of our customer service and price and believe that we are able to be competitive
by offering high quality luxury automobiles at comparable or lower prices than
our competitors.
Employees
As of September 30, 2002, we had two (2) full-time employees. It is our
intention to hire up to four (4) additional employees over the next twelve (12)
months. None of our employees are represented by a labor union and we have not
experienced any work stoppages. We consider our employee relations to be good.
Regulation
Our operations are subject to some governmental regulations, including
those relating to price regulation, advertising, labor matters, charge card and
credit matters and environmental protection. Our operations could be adversely
effected by any limitation in the fuel supply or by the imposition of mandatory
allocation or rationing regulations. Although we have not experienced any such
constraints or disruptions to date, in the event of severe disruption of fuel
supplies, the operations of companies in the business of renting vehicles could
be adversely effected.
The environmental, legal and regulatory requirements applicable to our
business relate to the operation and maintenance of automobiles generally. The
use of automobiles (and other vehicles) is subject to various governmental
requirements designed to limit damage to the environment, including vehicle
emissions and noise. Generally, the requirements of these kinds of regulations
are met by vehicle manufacturers, however, we may be required from time to time
to take measures to comply with such regulations (such as vehicle emissions
testing and minor vehicle repair).
Facilities
We currently rent office and garage/warehouse space in Bayonne, New
Jersey on a month-to-month basis. We believe that our current facilities are
adequate to support our operations and will provide adequate space during the
period of our currently anticipated growth; however, as we continue to grow our
business, additional space may be required. In the event that we require
alternate or additional space, based on the current commercial market, we
believe that there would be adequate space available for us to rent on
competitive terms.
17
Legal proceedings
There are no material legal proceedings pending to which AutoExotica is
a party and we are unaware of any contemplated material legal actions against
us.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview and Background
Our company is a relative newcomer to an intensely competitive
business. Our operations commenced in 1998 in a limited geographical area. As of
the date of this prospectus, we have a total of only twelve (12) vehicles
available for rent by our customers. Our business plan envisions the expansion
of our business by increasing our fleet of rental vehicles and by attracting
additional customers by means of effecting strategic alliances with companies
having access to a substantial customer base. In order for our business plan to
be successful, we must be able to finance the acquisition of additional
vehicles, attract additional customers, compete with other luxury vehicle rental
providers (including the larger and well-established entities to the extent that
they enter into and focus on this niche market), and expand into diverse
geographical areas. This requires the infusion of capital, the ability to
attract and retain competent managerial personnel and the success of a directed
campaign to attract additional strategic alliance partners.
Our sole business and source of revenue is derived from the rental of
high performance automobiles and motorcycles. Our revenue is derived primarily
from rental fees. Our expenses consist of direct operating expenses;
depreciation expenses relating to our revenue-earning vehicles; general and
administrative expenses; and interest expenses relating to our need for borrowed
funds. Our ability to earn profits is directly related to the volume and pricing
of rental transactions and the turnover ratio of our vehicle fleet. Any
significant change in the cost of operation of our vehicle fleet will impact
directly upon our ability to generate a profit. Our ability to adjust our
pricing to reflect such cost changes is crucial to our profitability. Our
business requires significant expenditures for our vehicle fleet and we require
liquidity to augment our fleet.
Our basic business strategy revolves around the belief that there
exists a "niche" market for the business of renting luxury, exotic and high
performance vehicles and motorcycles to individuals and businesses. We believe
that there is a strong and increasing interest in driving high-performance
luxury vehicles. We feel that will be able to compete successfully in this
"niche" market if we are adequately financed. It is our belief that the
successful completion of the offering described in this prospectus will permit
us to realize the next stage of our anticipated growth. In order to be
successful, we believe we must concentrate our efforts on the development and
cultivation of our strategic alliances. Rather than expending any significant
percentage of the anticipated proceeds of our offering on general advertising,
we believe that increasing the number of our strategic alliances will produce
the additional customer base we require to be successful. We intend to increase
our strategic alliances (and, therefore, our customer base) by increasing our
fleet of vehicles, adding to our geographical locations, and offering
personalized services to the customers represented by our strategic alliance
partners.
The success of our business is dependent upon our belief that there
exists a substantial "niche" market for high-performance vehicles. Unlike our
competitors, we are not constrained to offer high-performance vehicles produced
by any single automobile manufacturer. We believe
18
that our ability to offer the reservation of a specific luxury vehicle combined
with personalized services will attract a significant customer response. Our
personalized services will include specific model reservation capability, free
pick-up and return availability, and customer accommodation services. We intend
to target, in association with our strategic partners, major tourist and
business markets. Although business travel has remained at diminished levels,
reflecting a decrease in corporate spending, we have not experienced any
substantial decline in revenue in 2002 compared with comparable periods in 2001
due to the effect of the terrorist activities and reduced corporate travel
spending.
Results of Operations for the Years Ended June 30, 2002 and June 30, 2001
Revenues for the year ended June 30, 2002 were $146,818 compared to
$83,022 for the year ended June 30, 2001, an increase of $63,796 or 76%. The
primary reason for the increase in revenues was that we increased the number of
vehicles that we maintain in our fleet thereby increasing the number of lease
transactions that we completed. Increased capacity has enabled us to respond to
an increasing number of requests for our vehicles.
Our operating expenses typically consist of vehicle expense,
depreciation and amortization of computer equipment, warehousing expenses,
insurance premiums, salaries and payroll, and general and administrative
expenses. However, for the fiscal year ended June 30, 2002, we were required to
amortize and record $250,000 in consulting fees payable to a consultant over
three years pursuant to the terms of a consulting agreement that will expire by
its terms in 2004. Accordingly, total operating expenses increased significantly
to $548,162 for the year ended June 30, 2002 from $228,564 for the year ended
June 30, 2001. The overall increase in total operating expenses was primarily
attributable to the expense related to deferred consulting fees we were required
to amortize and record for accounting purposes during this fiscal period. Other
components which contributed to the increase in operating expenses were: vehicle
expense (additional lease commitments on new vehicles for our rental fleet),
insurance (an increase in premiums for coverage of newly leased vehicles) and
general and administrative expenses (resulting from increases in professional
fees relating to this offering).
Vehicle expense increased by 102% from $50,248 for the year ended June
30, 2001 to $101,766 for the year ended June 30, 2002. The increase in vehicle
expense was directly related to an increase in the number of vehicles we lease
for use in our rental fleet. During the year ended June 30, 2001, we leased nine
(9) new vehicles, increasing our fleet to twelve (12) vehicles available for
rent.
Depreciation and amortization of computer and transportation equipment
increased from $5,907 for the year ended June 30, 2001 to $13,025 for the year
ended June 30, 2002.
Warehousing expense decreased from 2001 to 2002. Our expenses for
warehousing of the vehicles that we rent decreased from $6,408 for the year
ended June 30, 2001 to $4,159 for the year ended June 30, 2002. This decrease
was primarily the result of our having fewer vehicles in our warehouse facility
and more vehicles at the facilities of our strategic alliance partners.
Insurance expense increased 81% from $8,037 for the year ended June 30,
2001 to $14,567 for the year ended June 30, 2002. The increase in insurance
expense was primarily due to an increase in the amount of insurance that we
carry on our vehicles based on the increase in the number of vehicles we
maintain in our rental fleet and customary (periodic) increases in premiums on
our existing insurance policies.
19
Salaries and payroll taxes increased modestly from 2001 to 2002.
However, general and administrative expenses increased significantly during the
same period. General and administrative expenses increased 115% from $42,748 for
the year ended June 30, 2001 to $91,771 for the year ended June 30, 2002. This
increase was primarily the result of an increase in professional fees relating
to this offering.
Interest expense was $10,092 for the year ended June 30, 2002 compared
to $4,554 for the year ended June 30, 2001. The 122% increase in interest
expense from 2001 to 2002 was primarily due to increased use of credit card
financing (and the related interest expense) and interest on borrowings under
our line of credit with American Express. See "Liquidity and Capital Resources"
below.
Net loss increased 169% to $403,790 for the year ended June 30, 2002
from $150,096 for the year ended June 30, 2001. The increase in losses was
largely the result of amortization of deferred consulting fees and increases in
operating expenses we experienced as our business grew. See "Certain
Relationships and Related Party Transactions - Consulting Agreement" and Note H
to the Financial Statements included elsewhere herein. Also contributing to the
losses was the increase in professional fees that we incurred in preparation for
this offering. These expenses were offset in part by an increase in our rental
revenue resulting from the increased number of vehicles we had available for
rent.
Liquidity and Capital Resources
Our operations have been funded to date by cash generated by our
operating activities, amounts available under our credit facilities, including
our line of credit with American Express (see below) and cash advances from
Darryl A. Nowak, our founder and the principal shareholder of our company.
Recently, all amounts owed by us to Mr. Nowak were cancelled and are reflected
in our financial statements as contributions to paid-in capital. See "Certain
Relationships and Related Party Transactions" and Note G to the Financial
Statements.
Our auditors have expressed substantial doubt as to our ability to
continue as a going concern due to our history of limited working capital and
net losses, and our current obligations (including the obligations under our
current vehicle and equipment leases). The auditors have referenced this in
their report relating to our audited financial statements included elsewhere
herein. See "Risk Factors." Although we have faced significant cash constraints
since inception of our operations, we believe that the proceeds of this
offering, together with the revenue which we anticipate will be generated (based
on application of the proceeds of this offering), will be sufficient to sustain
and expand our operations for the next twelve months. In the event that we do
not complete this offering, we may not be able to expand our operations but
believe that we would be able to continue to operate, as we have in the past, on
the modest but more cash constrained basis. See "Risk Factors."
We use our cash primarily to finance the leases on the vehicles that we
maintain in our rental fleet. A portion of our cash is also used to insure the
vehicles and to support the transport costs associated with the delivery of
vehicles to clients. Typically, we lease our vehicles from vehicle manufacturers
through leasing programs offered by them. Sometimes we lease the vehicles
through leasing programs offered by independent banks. It is our intention to
use the proceeds of this offering to increase the number of vehicles that we
have in our fleet (thereby increasing the number of vehicles available for rent
and the revenue that we are able to generate from our fleet). Although we
believe we have received favorable leasing terms, we believe that as
20
we increase the volume of vehicles we lease from existing providers, the lease
terms will become more favorable.
We have a $10,000 line of credit with American Express. The line of
credit bears interest at a variable rate. The applicable interest rate on the
line of credit was 10.99% at June 30, 2001 and at June 30, 2002. We had
outstanding between 80% and 90% of the amounts available under the line of
credit for the periods ended June 30, 2001 and 2002. As of June 30, 2002, there
was outstanding $7,500 under the line of credit. While we believe that the terms
of the line of credit with American Express are relatively favorable based on
the size of our business, we believe that we will be able to secure more
favorable terms, including higher lending limits and lower interest rates, as
our business grows. We may use the proceeds of this offering to repay a portion
of the amounts outstanding under the line of credit. It is our belief that, with
the availability of the proceeds of this offering (and the revenue which we
anticipate will be generated by rentals of the additional vehicles we intend to
lease with a portion of the proceeds of this offering), we will not need to rely
on the line of credit to the same extent that we have relied on it historically.
Business Trends; Seasonality
The automobile rental business as a whole tends to be seasonal.
Typically, demand for rental vehicles in the business and leisure segments of
the industry declines in the winter and increases in the spring and summer.
Operations also tend to vary geographically and based on weather considerations.
This is largely consistent with the seasonality in business that the travel
industry experiences. In an effort to offset these trends, we have chosen to
focus our operations on: (a) key metropolitan cities such as New York City and
Washington, D.C. (where business usage remains more consistent and tourism tends
to increase during periods where business usage may otherwise decline) and (b)
vacation and resort destinations such as Palm Beach, Florida, Vail, Colorado and
Scottsdale, Arizona (where there is less business usage, but travel and leisure
usage tends to increase in one city as it declines in another based on
geographic and weather-related considerations). We are able to accommodate
shifts in demand by relocating and increasing/decreasing our fleet in the
various locations throughout the year, thereby maximizing vehicle usage and
availability. We intend to continue to focus our attention on these areas as we
implement our plans for expansion.
DESCRIPTION OF SECURITIES
General
We are authorized to issue up to twenty five million (25,000,000)
shares of common stock, $.001 par value per share, of which five million six
hundred thousand (5,600,000) shares are issued and outstanding. Our articles of
incorporation authorize five million (5,000,000) shares of preferred stock $.001
par value per share, none of which is outstanding.
Common Stock
Subject to the rights of holders of preferred stock, if any, holders of
shares of our common stock are entitled to share equally on a per share basis in
such dividends as may be declared by our board of directors out of funds legally
available therefor. There are presently no plans to pay dividends with respect
to the shares of our common stock. Upon our liquidation, dissolution or winding
up, after payment of creditors and the holders of any of our senior securities,
including preferred stock, if any, our assets will be divided pro rata on a per
share basis
21
among the holders of the shares of our common stock. The common stock is not
subject to any liability for further assessments. There are no conversion or
redemption privileges nor any sinking fund provisions with respect to the common
stock and the common stock is not subject to call. The holders of common stock
do not have any pre-emptive or other subscription rights.
Holders of shares of common stock are entitled to cast one vote for
each share held at all stockholders' meetings for all purposes, including the
election of directors. The common stock does not have cumulative voting rights.
There are three (3) holders of record of our common stock. See "Certain
Relationships and Related Party Transactions." All of the issued and outstanding
shares of common stock are fully paid, validly issued and non-assessable.
Preferred Stock
None of the five million (5,000,000) shares of authorized preferred
stock are currently outstanding. Our board of directors has the authority,
without further action by the holders of the outstanding common stock, to issue
shares of preferred stock from time to time in one or more classes or series, to
fix the number of shares constituting any class or series and the stated value
thereof, if different from the par value, and to fix the terms of any such
series or class, including dividend rights, dividend rates, conversion or
exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference of
such class or series.
Warrants
Each warrant will entitle you to purchase one share of our common stock
at an exercise price of $3.00 per share at any time for a period of three (3)
years commencing on the date of the closing of our offering. Unless we extend
the terms of the warrants, in our sole discretion, the warrants will expire at
5:00 p.m., New York time, three (3) years from the date of the closing. The
warrants will be issued in registered form under a warrant agreement with
Continental Stock Transfer & Trust Company, as warrant agent. Please refer to
the warrant agreement (which has been filed as an exhibit to the registration
statement of which this prospectus is a part) for a complete description of the
terms and conditions of the warrants. The exercise price and number of shares of
our common stock or other securities issuable on exercise of the warrants are
subject to adjustment to protect against dilution if we issue a stock dividend,
or we undertake a stock split, recapitalization, reorganization, merger,
consolidation or other similar event. The warrants do not give you any dividend,
voting, preemptive or any other rights our stockholders may have. We cannot
assure you that the market price of our common stock will equal or exceed the
exercise price of the warrants at any time during the period in which they are
exercisable. The warrants and the shares of common stock issuable upon exercise
of the warrants have been included in the registration statement of which this
prospectus is a part. Although we have undertaken and intend to have all of
these securities covered by an effective registration statement in the states
where our securities are being offered and we will endeavor to maintain a
current prospectus relating to these securities until the expiration or
redemption of the warrants (subject to the terms of the warrant agreement), we
cannot assure you that we will be able to do so. The warrants cannot be
exercised unless, at the time of exercise, the prospectus covering the warrants
and the shares of common stock issuable upon exercise of the warrants is current
and the registration statement covering the securities is effective (or there is
available an exemption from the federal and applicable state registration
requirements).
22
Options
As of June 30, 2002, we do not have any options issued and outstanding.
Limitation on Liability of Directors
Our articles of incorporation and bylaws provide that we will indemnify
our directors to the extent permitted by Nevada Revised Statutes, including
circumstances in which indemnification is otherwise discretionary under the
Nevada Revised Statutes. Our articles of incorporation also provide that to the
extent that Nevada Revised Statutes is amended to permit further
indemnification, we will so indemnify our directors.
Dividend Policy
We have not paid any dividends on our common stock since our inception
and do not intend to pay dividends on our common stock in the foreseeable
future. We anticipate that any earnings which we may realize in the foreseeable
future will be retained to finance the growth of our company.
Restricted Shares Eligible for Future Resale
All of our outstanding shares of common stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144.
Adopted under the Securities Act of 1933, as amended, Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of one year
may sell only an amount every three months equal to the greater of (a) one
percent of our issued and outstanding shares, or (b) the average weekly volume
of sales during the four calendar weeks preceding the sale. However, the amount
of "restricted securities" which a person who is not an affiliate of our company
may sell is not limited if the shares have been held by the non-affiliate for
two years, provided there is adequate current public information available
concerning our company. Upon the completion of this offering, and assuming
exercise of the warrants offered hereby, AutoExotica will have 6,400,000 shares
issued and outstanding, of which 5,400,000 shares will be "restricted
securities," 1,000,000 shares are included in the registration statement of
which this prospectus is part, 200,000 shares of which are being offered by the
selling shareholder and 800,000 shares of which are being offered by our company
(assuming exercise of the warrants).
The resale of the securities held by the selling shareholder is subject
to prospectus delivery and other requirements of the Securities Act of 1933, as
amended. Sales of such securities or the potential of such sales at any time may
have an adverse effect on the market prices of the securities offered hereby.
See "Concurrent Offering."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and warrants is
Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York
10004.
Securities and Exchange Commission Position on Indemnification for Securities
Act Liabilities
Our articles of incorporation and bylaws provide that we will indemnify
our officers and directors for costs and expenses incurred in connection with
the defense of actions, suits, or
23
proceedings against them on account of their being or having been directors or
officers of AutoExotica, absent a finding of negligence or misconduct in the
performance of their duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is unenforceable.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Subsequent to the re-incorporation of our company on June 13, 1995, we
issued an aggregate of 5,600,000 shares of our common stock as follows:
a) 1,000,000 (pre-split) shares were issued to Darryl A. Nowak in
consideration of Mr. Nowak's capital contribution of $1,000;
b) 3,877,740 additional shares were issued to Darryl A. Nowak in
connection with a 4.87774:1 stock split effected by us in January
2001 (see "Recapitalization");
c) 600,000 shares were issued to Abingdon Associates in April 2001 in
exchange for consulting services being rendered to us under the
terms of a consulting agreement with Abingdon Associates (see
"Consulting Agreement" below and Note H to the Financial
Statements included elsewhere herein); and
d) 122,260 shares were issued to Private Retreats, LLC in September
2001 in exchange for our receipt of a bond in the principal amount
of $150,000 and $2,825 in pre-paid membership fees in connection
with our corporate membership in the retreat (see "Business -
Strategic Alliances").
Consulting Agreement
In April 2001, we entered into an agreement with Abingdon Associates to
provide us with strategic business advice in the areas of corporate finance,
business development and growth strategies. The term of our agreement with
Abingdon Associates is three years, subject to earlier termination by either
party upon delivery of one month's prior written notice. We issued 600,000
shares of our common stock to Abingdon Associates in exchange for its services
under the agreement. A portion (200,000) of the shares of common stock we issued
to Abingdon Associates has been included in the registration statement of which
this prospectus is a part and Abingdon Associates is the selling shareholder
referred to throughout this prospectus. The principals of Abingdon Associates
are Lucille Corrier and Lawrence Corrier. Other than as specifically set forth
in this prospectus, Abingdon Associates has no position, office or other
material relationship with our company. See Note H to the Financial Statements
included elsewhere in this prospectus.
Debts owed to Principal Shareholder; Cancellation of Indebtedness
From time to time, Darryl A. Nowak, our founder, chief executive
officer and the principal shareholder of our company, has advanced funds to our
company for working capital. In December 2001, Mr. Nowak agreed to cancel this
indebtedness which has been reflected in our financial statements as a
contribution to additional paid-in capital. See Note G to the Financial
Statements included elsewhere in this prospectus.
24
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
our company by Vorys, Sater, Seymour & Pease, LLP, 1828 L Street, N.W., 11th
Floor, Washington, D.C. 20036.
EXPERTS
The financial statements of AutoExotica included in this prospectus and
elsewhere in the registration statement, to the extent and for the periods
indicated in their reports, have been audited by Asher & Company, Ltd.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended, with respect to the securities offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information,
reference is made to the registration statement and the exhibits and schedules
filed as a part of the registration statement. Statements contained in this
prospectus concerning the contents of any contract or any other document are not
necessarily complete; reference is made in each instance to such contract or any
other document filed as an exhibit to the registration statement. After the
offering, we will be subject to the informational requirements of the Exchange
Act of 1934, as amended and in accordance therewith, will be required to file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission. The registration statement,
including exhibits and schedules thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 after payment of fees prescribed by the Securities and
Exchange Commission. The Securities and Exchange Commission also maintains a
website which provides online access to reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission at the address http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports containing
financial statements audited by independent accountants beginning with the year
ending June 30, 2002.
You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell our securities in
any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate as of the date on
the front cover of this prospectus only. Our business, financial condition,
results of operations and prospects may have changed since that date.
25
AUTOEXOTICA INTERNATIONAL, LTD.
JUNE 30, 2002 AND 2001
TABLE OF CONTENTS
Page
----
Independent Auditors' Report ..................................... F-2
Financial Statements
Balance Sheets .............................................. F-3
Statements of Operations and Accumulated Deficit ............ F-4
Statements of Changes in Shareholder's Equity ............... F-5
Statements of Cash Flows .................................... F-6
Notes to Financial Statements ............................... F-7 - F-13
F-1
Independent Auditors' Report
The Shareholder and Board of Directors
Autoexotica International, Ltd.
Bayonne, New Jersey
We have audited the accompanying balance sheets of Autoexotica
International, Ltd. as of June 30, 2002 and 2001 and the related statements of
operations and accumulated deficit, changes in Shareholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of Autoexotica International, Ltd.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Autoexotica International,
Ltd. as of June 30, 2002 and 2001 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming
Autoexotica International, Ltd. will continue as a going concern. As shown in
the financial statements, Autoexotica International, Ltd. had a net loss of
$403,790 for the year ended June 30, 2002, and as of that date, had a working
capital deficit of $76,514 and a negative net worth of $25,941. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding those matters are discussed in Note B. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
September 26, 2002
F-2
AUTOEXOTICA INTERNATIONAL, LTD.
BALANCE SHEETS
ASSETS
June 30,
--------
2002 2001
---- ----
CURRENT ASSETS
Cash $ 6,389 $ 1,480
Accounts receivable - 4,000
----------- -----------
Total current assets 6,389 5,480
Property and equipment, net of accumulated depreciation 6,224 11,543
Purchased vehicles leased to customers, net of accumulated depreciation 22,631 30,336
OTHER ASSETS
Deferred lease costs, net of accumulated amortization of $34,863
and $15,931 as of June 30, 2002 and 2001, respectively 36,228 33,445
Security deposits 8,500 18,500
----------- -----------
Total other assets 44,728 51,945
----------- -----------
Total Assets $ 79,972 $ 99,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 7,496 $ 9,238
Notes payable, current portion 2,556 2,186
Amounts due on credit cards 18,565 5,171
Accounts payable 37,800 13,586
Accrued expenses 10,402 2,093
Capital lease obligation, current portion 1,084 704
Deferred revenue 5,000 -
----------- -----------
Total current liabilities 82,903 32,978
LONG-TERM LIABILITIES
Notes payable 20,285 22,501
Note payable, principal Shareholder - 39,450
Capital lease obligation 2,725 4,376
----------- -----------
Total long-term liabilities 23,010 66,327
----------- -----------
Total liabilities 105,913 99,305
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value; 20,000,000 shares
authorized, 5,600,000 and 5,477,740 issued and
outstanding as of June 30, 2002 and 2001, respectively 5,600 5,478
Additional paid-in capital 1,217,422 939,694
Accumulated deficit (651,046) (247,256)
Less: Deferred consulting service fees (447,917) (697,917)
Less: Refundable membership deposit (150,000) -
----------- -----------
Total Shareholders' equity (25,941) (1)
----------- -----------
Total Liabilities and Shareholders' Equity $ 79,972 $ 99,304
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
AUTOEXOTICA INTERNATIONAL, LTD.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended June 30,
----------------------------------------
2002 2001
----------------------------------------
Revenue
Rental $ 146,818 $ 83,022
Other 7,646 -
----------- -----------
Total revenue 154,464 83,022
Expenses
Vehicle 101,766 50,248
Depreciation 13,025 5,907
Amortization of deferred consulting fee 250,000 52,083
Warehousing 4,159 6,408
Insurance 14,567 8,037
Salaries and payroll taxes 72,874 63,133
General and administrative 91,771 42,748
----------- -----------
Total operating expenses 548,162 228,564
----------- -----------
Loss from operations (393,698) (145,542)
Other expense
Interest expense (10,092) (4,554)
----------- -----------
NET LOSS (403,790) (150,096)
Accumulated deficit, beginning of year (247,256) (97,160)
----------- -----------
Accumulated deficit, end of year $ (651,046) $ (247,256)
=========== ===========
Loss per share $ (0.07) $ (0.03)
=========== ===========
Weighted average number of outstanding shares 5,569,184 5,009,247
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
AUTOEXOTICA INTERNATIONAL, LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2002 AND 2001
Shares Deferred
of Additional Consulting Refundable Total
Common Common Paid-In Accumulated Service Membership Shareholders'
Stock Stock Capital Deficit Fees Deposit Equity
---------- --------- ---------- ----------- ---------- ---------- -------------
Balance, June 30, 2000 1,000,000 $ 1,000 $ 55,000 $ (97,160) $ (41,160)
Contribution of loan amounts
by principal Shareholder - - 84,172 - 84,172
Contribution of services by - - 55,000 - 55,000
principal Shareholder
Stock split 4.87774 for 1 3,877,740 3,878 (3,878) - -
Issuance of common stock
to Abington Associates 600,000 600 749,400 - $ (750,000) -
Amortization of deferred
consulting services - - - - 52,083 52,083
Net loss - - - (150,096) - (150,096)
---------- --------- ---------- ----------- ---------- -------------
Balance, June 30, 2001 5,477,740 5,478 939,694 (247,256) (697,917) (1)
Amortization of deferred
consulting services - - - - 250,000 250,000
Issuance of shares to
Private Retreats, LLC 122,260 122 152,703 - - 152,825
Contribution of loan amounts
by principal Shareholder - - 59,025 - - 59,025
Contribution of services
by principal Shareholder - - 66,000 - - 66,000
Refundable Membership Deposit - - - - - $ (150,000) (150,000)
Net loss - - - (403,790) - - (403,790)
---------- --------- ---------- ----------- ---------- ---------- -------------
Balance, June 30, 2002 5,600,000 $ 5,600 $1,217,422 $ (651,046) $ (47,917) $ (150,000) $ (25,941)
========== ========= ========== =========== ========== ========== =============
The accompanying notes are an integral part of these financial statements.
F-5
AUTOEXOTICA INTERNATIONAL, LTD.
STATEMENTS OF CASH FLOWS
Years Ended June 30,
-----------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net loss $(403,790) $(150,096)
Adjustments to reconcile net loss to net cash
utilized by operating activities:
Non-cash compensation 66,000 $ 55,000
Depreciation and amortization 284,781 67,521
Changes in:
Accounts receivable 4,000 (2,350)
Accounts payable and accrued expenses 32,523 19,615
Security deposits 10,000 --
Deferred revenue 5,000 --
--------- ---------
Net cash utilized by operating activities (1,486) (10,310)
INVESTING ACTIVITIES
Acquisition of property and equipment -- (31,460)
Deferred lease payments (21,715) (12,131)
--------- ---------
Net cash utilized by investing activities (21,715) (43,591)
FINANCING ACTIVITIES
Payments on line of credit, net (1,742) (531)
Payments on notes payable (1,846) (7,286)
Net borrowing on credit cards 13,394 --
Proceeds from notes payable -- 25,019
Payments on capital lease obligations (1,271) (2,297)
Proceeds from principal Shareholder's loan -- 39,450
Capital contributions from Shareholder 19,575 --
--------- ---------
Net cash provided by financing activities 28,110 54,355
--------- ---------
INCREASE IN CASH 4,909 454
Cash, beginning of year 1,480 1,026
--------- ---------
Cash, end of year $ 6,389 $ 1,480
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 10,092 $ 4,554
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Non-cash financing activities consists of a capital lease of $6,349 for the
year ended June 30, 2001.
Additional non-cash financing activities included the contribution by the
principal Shareholder of notes payable to equity of $39,450 and $84,172 for
the years ended June 30, 2002 and 2001.
$152,825 of common stock valued at $1.25 per share was issued in exchange
for a refundable membership deposit in a private club for $150,000 and
membership dues and expenses of $2,825 for the year ended June 30, 2002.
The accompanying notes are an integral part of
these financial statements.
F-6
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Autoexotica International, Ltd. (the Company) began operations in
July, 1998 and is located in Bayonne, New Jersey. The Company leases
various short and long-term leases of exotic and luxury automobiles
and motorcycles to customers located throughout the United States.
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Property and equipment
Property and equipment and purchased vehicles leased to customers are
carried at cost. Depreciation is provided by accelerated methods over
estimated useful lives which range from 5 to 7 years. Minor repairs
and maintenance are charged to operations as incurred.
Accounts receivable
Accounts receivable are recorded at their estimated, net realizable
value; therefore, no provision for doubtful accounts is reflected on
the balance sheet. Management believes all material accounts
receivable will be collected.
Deferred lease costs
The Company has deferred lease origination costs associated with
several automobile leases. The costs are amortized over the lives of
the respective leases on a straight-line basis. Amortization expense
included in vehicle expense amounted to $18,932 and $9,579 for the
years ended June 30, 2002 and 2001, respectively.
Concentration of credit risk
The Company's operations are largely concentrated in rentals of luxury
automobiles and motorcycles. A serious economic slowdown could
negatively impact operations. However, it is the opinion of management
that rentals offer an attractive alternative to purchasing during
economic slowdowns and their business tends to increase during these
periods.
F-7
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue recognition
Revenue is recognized ratably over the term of the operating lease
starting with the date the lease was entered.
Advertising costs
The Company charges advertising costs to operations as they are
incurred. Advertising costs charged to operations were $8,398 and
$1,070 for the years ended June 30, 2002 and 2001, respectively.
Loss per share
The Company utilizes SFAS No. 128, "Earnings Per Share" to compute the
loss per share. Loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding for the year. The
weighted average number of common shares outstanding for the years
ended June 30, 2002 and 2001 have been adjusted to reflect the
recapitalization of the Company on July 1, 2000.
NOTE B - MANAGEMENT'S PLANS TO IMPROVE OPERATIONS AND FINANCIAL CONDITION
The Company's financial statements have been presented on the basis
that it will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As of June 30, 2002, the Company had a net
loss for the year then ended of $403,790, and a working capital
deficit of $76,514. In addition to operational cash flow requirements,
the Company has capital requirements in connection with capital
leases, a note payable, and lease commitments. The financial
statements do not include any adjustments relating to the
recoverability of or classification of assets or the amount and
classification of liabilities that might be required should the
Company be unable to continue as a going concern.
The Company intends to address these issues in the following manner:
a) The Company intends to file a Registration Statement on Form
SB-2 with the Securities and Exchange Commission (SEC) seeking
the registration for sale to the public of an aggregate of
400,000 of its authorized, unissued shares at the price of $2.50
per share (as part of an unit that also includes 400,000 warrants
exercisable at $3.00 per share).
F-8
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE C - PROPERTY AND EQUIPMENT AND PURCHASED VEHICLES LEASED TO CUSTOMERS
The cost and accumulated depreciation of property and equipment and
purchased vehicles leased to customers is as follows:
2002
----
2001
----
Furniture and fixtures $ 9,284 $ 9,284
Transportation equipment 16,730 16,730
------ ------
26,014 26,014
Accumulated depreciation (19,790) (14,471)
------- ------
Property and equipment net of accumulated depreciation $ 6,224 $ 11,543
======= ======
Purchased vehicles leased to customers $ 31,460 $ 31,460
Accumulated depreciation (8,829) (1,124)
------- ------
Purchased vehicles leased to customers, net of
accumulated depreciation $ 22,631 $ 30,336
======= ======
Depreciation expense on property and equipment was $5,319 and $4,783
for the years ended June 30, 2002 and 2001, respectively. Depreciation
expense on purchased vehicles leased to customers was $7,705 and
$1,124 for the years ended June 30, 2002 and 2001, respectively.
NOTE D - LINE OF CREDIT
The Company has available a line of credit in the amount of $10,000
with a financial institution. The line of credit bears interest at a
variable rate which was 10.99% as of June 30, 2002.
NOTE E - CAPITAL LEASE PAYABLE
The Company is obligated under the terms of a capital lease agreement
for computer equipment. The carrying cost of the computer equipment
was $6,349 at June 30, 2002. Accumulated depreciation was $3,302 and
$1,270 at June 30, 2002 and 2001, respectively. Amortization of
computer equipment leased is included with depreciation expense, which
is part of operating expenses.
F-9
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE E - CAPITAL LEASE PAYABLE (Continued)
Minimum lease payments under the capital lease obligation are as
follows:
Years Ending June 30, Amount
-------------------- ------
2003 $ 2,531
2004 2,531
2005 1,681
-----
6,743
Less amounts representing interest (2,934)
-----
Present value of future minimum
lease payments 3,809
Current portion 1,084
-----
Long-term portion $ 2,725
=====
NOTE F - NOTE PAYABLE
Certain transportation equipment is financed under the terms of a note
payable. The note payable requires monthly principal and interest
payments of $493 through April, 2008, bears interest at 15.7%, and is
secured by certain transportation equipment. Aggregate maturities of
the note payable for the five years subsequent to June 30, 2002 are as
follows:
Years Ending June 30, Amount
-------------------- ------
2003 $ 2,556
2004 2,989
2005 3,495
2006 4,087
2007 4,778
NOTE G - TRANSACTIONS WITH PRINCIPAL SHAREHOLDER
The principal Shareholder of the Company had various loans to the
Company for working capital purposes. The advances are unsecured,
interest free and are not expected to be repaid in the current year.
The Company's principal Shareholder contributed $39,450 and $84,172 of
his loan amounts to the Company's equity for the years ended June 30,
2002 and 2001, respectively, giving up all rights and claims under the
loan.
F-10
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE G - TRANSACTIONS WITH PRINCIPAL SHAREHOLDER (Continued)
On July 1, 2000, the Company approved a resolution to recapitalize the
Company. The recapitalization resulted in the Company's principal
Shareholder owning an aggregate 4,877,740 of shares of common stock.
During 2002 and 2001, the principal Shareholder provided to the
Company certain services related to the sales, administration and
financial aspects of the Company, for which he received no
compensation. These financial statements reflect an expense for the
estimated compensation and related payroll expenses for these services
with the credit reflected as an equity contribution for services
provided by the principal Shareholder.
NOTE H - ABINGDON ASSOCIATES CONSULTING AGREEMENT
On April 12, 2001 the Company entered into a three year consulting
agreement with Abingdon Associates to provide the Company with certain
non-exclusive services relating to corporate finance, acquisitions and
general financial services in exchange for 600,000 shares of the
Company's common stock, which were valued at $1.25 per share which the
Company considers to be fair value at the date of issuance. This
deferred consulting service fee is amortized over the related
three-year term.
NOTE I - REFUNDABLE MEMBERSHIP DEPOSIT
The Company issued 122,260 shares of common stock to Private Retreats,
LLC. This common stock is valued at $1.25 per share, which is
considered by the Company to be fair value at the date of issuance.
Private Retreats, LLC customarily issues bonds representing the
refundable membership fees paid by its members. Upon termination of a
membership by a member, the bond may be redeemed for cash pursuant to
its terms. Although the Company did not pay for its membership with
cash, the Company is entitled, as is the case with other members who
receive these bonds, to surrender the bond for cash upon termination
of its membership, all in accordance with the terms of the bond and
the membership agreement.
There exists no agreement between Private Retreats, LLC and the
Company providing for the return of the common stock issued to Private
Retreats, LLC.
F-11
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE J - INCOME TAXES
At June 30, 2002, the Company has available net operating loss
carryforwards of approximately $585,000 to offset future federal and
state income tax liabilities. The deferred tax asset of approximately
$199,000 which is generated by the net operating loss carryforwards is
fully reserved. The valuation allowance increased by $134,000 in 2002.
The net operating loss carryforwards expire from 2019 through 2022.
NOTE K - LEASE COMMITMENTS
The Company leases six luxury automobiles under operating leases which
expire at various times beginning in May, 2003 and ending in April,
2005. The Company also leases certain storage facilities on a monthly
basis. Lease costs were $90,877 and $46,500 for the years ended June
30, 2002 and 2001, respectively. Minimum future lease payments under
these noncancellable operating leases having remaining terms in excess
of one year as of June 30, 2002 are as follows:
Years Ending June 30, Amount
-------------------- ------
2003 $ 79,899
2004 54,690
2005 28,004
---------
$ 162,593
=========
NOTE L - REGISTRATION OF SHARES FOR PUBLIC SALE
The Company is in the process of filing a registration statement for
400,000 units, at a price of $2.50 per unit. Each unit consists of one
share of common stock, $.001 par value, and one warrant exercisable to
purchase one share of the Company's common stock at an exercise price
of $3.00 per share.
NOTE M - EMPLOYMENT AGREEMENT - PRINCIPAL SHAREHOLDER
On April 30, 2002 the Company entered into an employment agreement
with its principal Shareholder to serve as Chief Executive Officer and
President. The employment agreement provides for salary of $85,000
plus benefits and discretionary bonuses over the term of the
agreement. The agreement expires on April 30, 2005. During 2002, the
principal shareholder contributed his salary to additional paid-in
capital.
F-12
AUTOEXOTICA INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
NOTE N - STOCK OPTION PLAN
On April 30, 2002 the Company adopted the AutoExotica Incentive Stock
Option Plan which may result in the Company granting options to
purchase up to 1,000,000 shares of the Company's common stock to
officers and employees of the Company. No options have been granted to
date.
NOTE O - PRICING COMMITMENTS
In August 2001, the Company entered into a cooperative marketing
agreement with Private Retreats, LLC. Under the terms of the agreement
the Company has agreed to lease at least three automobiles to Private
Retreats, LLC for an aggregate of up to 30 days usage per month. The
Company will receive a monthly rental fee of $1,500 for the contracted
usage. Private Retreats, LLC has the option of contracting for
additional days usage at $50 per day. In addition, the Company has
agreed to provide the president of Private Retreats, LLC a car at no
more than the Company's direct cost. The cooperative agreement with
Private Retreats, LLC is cancelable by either party with 30 days
written notice.
In October 2001, the Company entered into a marketing alliance
agreement with Global Registry, LLC. Under the terms of the agreement
the Company has agreed to lease vehicles to Global Registry at a 70%
discount from the Company's 2002 retail prices, lease vehicles to
members of Global Registry at a 45% discount from the Company's 2002
retail prices, and pay Global Registry a 15% of gross sales marketing
fee for rentals made by members of Global Registry. The marketing
alliance agreement may be terminated by either party upon 90 days
written notice.
NOTE P - PREFERRED STOCK
The provision and preferences of the preferred stock may be set by the
Company's Board of Directors without Shareholder approval.
F-13
PROSPECTUS
400,000 Units
of
AUTOEXOTICA INTERNATIONAL, LTD.
October 31, 2002
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR THAT ARE CURRENTLY
DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THE RISKS AND
UNCERTAINTIES DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND UNCERTAINTIES WHICH
WE MAY FACE IN THE FUTURE WILL HAVE A GREATER IMPACT ON THOSE WHO PURCHASE OUR
COMMON STOCK. THESE PURCHASERS WILL PURCHASE OUR COMMON STOCK AT THE MARKET
PRICE OR AT A PRIVATELY NEGOTIATED PRICE AND WILL RUN THE RISK OF LOSING THEIR
ENTIRE INVESTMENT.