SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
Commission File No. 333-88952
INTELLIGENT MOTOR CARS GROUP, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 74-3022293
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
2800 W. CYPRESS CREEK ROAD, FORT LAUDERDALE, FL 33309
(Address of principal executive offices)
(954) 917-4301
(Issuer's telephone number)
* * * * * * * * * * * * * * * * * * * * * *
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days: YES [X]. NO [ ].
The number of shares of INTELLIGENT MOTOR CARS GROUP, INC. Common Stock (Par
Value $0.001) outstanding at June 26, 2003 was 15,413,630.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
----------- -----------
ASSETS
------
Current Assets:
Cash $ 43,822 $ 50,186
Accounts receivable, net 457,518 373,492
Inventories 253,439 261,031
Notes receivable - stockholders, current 97,925 95,117
----------- -----------
Total current assets 852,704 779,826
Property and Equipment, Net 115,694 82,676
Notes Receivable - Stockholders, Non-Current 67,500 67,500
Other Assets 8,328 8,328
----------- -----------
Total assets $ 1,044,226 $ 938,330
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable:
Floor plan notes $ 196,443 $ 133,796
Line of credit 49,854 49,915
Related parties 22,055 27,200
Other 771,909 705,373
Accounts payable and accrued liabilities 376,462 308,765
Accrued officer compensation 225,000 200,000
Stockholder loans payable 165,591 184,738
----------- -----------
Total current liabilities 1,807,314 1,609,787
----------- -----------
Deposits on Issuance of Common Stock 305,600 --
----------- -----------
Stockholders' Deficiency:
Common stock 14,538 14,538
Additional paid-in capital 2,233,033 2,233,033
Deficit (3,316,259) (2,919,028)
----------- -----------
Total stockholders' deficiency (1,068,688) (671,457)
----------- -----------
Total liabilities and stockholders' deficiency $ 1,044,226 $ 938,330
=========== ===========
See accompanying notes to consolidated condensed financial statements.
1
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net Sales $ 2,368,021 $ 5,669,314
------------ ------------
Costs and Expenses:
Cost of sales 2,291,769 5,391,316
Officers' compensation 38,000 25,000
Corporate reorganization costs 307,813 --
Selling, general and administrative 115,781 113,718
------------ ------------
2,753,363 5,530,034
------------ ------------
Loss From Operations (385,342) 139,280
Other Expense, Net (11,889) (59,382)
------------ ------------
Net Income (Loss) $ (397,231) $ 79,898
============ ============
Net Income (Loss) Per Common Share - Basic and Diluted $ (0.03) $ 0.01
============ ============
Weighted Average Shares Used to Calculate Net
Income (Loss) Per Common Share 14,538,000 14,538,000
============ ============
See accompanying notes to consolidated condensed financial statements.
2
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) $(397,231) $ 79,898
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 3,750 3,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (84,026) (424,608)
Inventories 7,592 22,676
Other assets (2,808) (2,500)
Increase in:
Accounts payable and accrued expenses 92,697 234,588
--------- ---------
Net cash used in operating activities (380,026) (86,946)
--------- ---------
Cash Flows from Investing Activities:
Acquisition of property and equipment (36,768) (9,916)
--------- ---------
Net cash used in investing activities (36,768) (9,916)
--------- ---------
Cash Flows from Financing Activities:
Deposits received on stock issuance 305,600 32,975
Proceeds from notes payable 124,038 203,630
Payments on stockholder loans payable (19,208) (36,682)
Payments on notes payable -- (43,499)
Distributions to stockholders -- (7,694)
--------- ---------
Net cash provided by financing activities 410,430 148,730
--------- ---------
Net Increase (Decrease) in Cash (6,364) 51,868
Cash, Beginning 50,186 65,713
--------- ---------
Cash, Ending $ 43,822 $ 117,581
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 11,889 $ 59,382
========= =========
See accompanying notes to consolidated condensed financial statements.
3
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
at March 31, 2003 have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-QSB and
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position as of March 31,
2003 and results of operations for three months ended March 31, 2003
and 2002. All adjustments are of a normal recurring nature. The results
of operations for interim periods are not necessarily indicative of the
results to be expected for a full year. Certain information and
footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto for the year ended January 31, 2003 included in the Company's
Annual Report on Form 10-KSB and Form 8-K/A filed on June 26, 2003.
Certain amounts in prior period financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current period financial statements.
Effective February 5, 2003, IMCG acquired all of the outstanding common
stock of IMC through an exchange of shares of IMCG for all the
outstanding common stock of IMC (the Acquisition). IMCG issued
10,000,000 shares of restricted common stock, $.001 par value, to the
former stockholders of IMC in exchange for their 500 shares of IMC
common stock.
Pursuant to an Agreement and Plan of Share Exchange effective February
5, 2003 among IMCG, IMC and the IMC stockholders (the Agreement), the
officers and directors of IMCG resigned upon consummation of the
Acquisition. The persons serving as directors and officers of IMC
immediately prior to the Acquisition were elected to the same offices
with IMCG and retained their positions as directors and officers of
IMC.
As a result of the Acquisition, IMC is a wholly-owned subsidiary of
IMCG. IMCG intends to operate IMC in the same manner and to continue in
the business that IMC engaged in prior to the Acquisition. Prior to the
Acquisition, no material relationship existed between IMC and/or any of
its affiliates and IMCG and/or any of its affiliates.
The Acquisition was accounted for as a reverse acquisition application
of the purchase method of accounting by IMCG, with IMC treated as the
accounting acquiror. Under the reverse acquisition method of
accounting, the assets and liabilities of IMCG were recorded as of the
acquisition date, at their respective historical cost, which is
considered to be the equivalent of fair values, and added to those of
IMC, with no increment in combined stockholders' equity (deficiency).
The reported results of operations of IMCG after completion of the
acquisition reflects the historical results of operations of IMC.
4
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
NOTE 2. NET LOSS PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" which requires the presentation of both
basic and diluted earnings (loss) per share.
Basic net loss per common share has been computed based upon the
weighted average number of shares of common stock outstanding during
the periods. Diluted loss per share has not been presented, as it would
be anti-dilutive. The computation of net income (loss) per share is
reflected in the following schedule:
Three Months Ended
March 31,
2003 2002
---- ----
Net Income (Loss) $(397,231) $79,898
======== ======
Total Weighted Average Number of Common Shares 14,538,000 14,538,000
========== ==========
Net Income (Loss) Per Common Share $(0.03) $.01
===== ===
NOTE 3. GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States which assume that the Company will continue as a going
concern, including the realization of assets and liquidation of
liabilities in the ordinary course of business. However, for the three
months ended March 31, 2003 and year ended December 31, 2002, the
Company suffered net losses of approximately $397,000 and $2,443,000,
respectively. The Company also had a stockholders' deficiency of
approximately $1,069,000, as well as a working capital deficit of
approximately $955,000, at March 31, 2003. In February 2003, the
Company entered into a share exchange transaction with an entity which
is subject to the registration and reporting requirements of the
Securities and Exchange Commission. This transaction required
significant management and financial resources on the part of the
Company in connection with the acquisition and subsequent assimilation
of the two entities. This caused the Company to have fewer resources,
including working capital and management time, to commit to operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
Management's plans to continue its operations and become profitable
include the following:
In general, it is the Company's objective to continue to expand its
used car operations by launching several Buy-Here/Pay-Here car lots as
well as expanding its floor planning (dealer-to-dealer financing)
service. The Company is also in the process of raising equity capital
of up to $5 million by the fourth quarter of 2003 (see Note 5).
Management believes this would allow the Company to execute its
business plan and achieve its revenue projections by providing working
capital for inventory and floor planning activities.
5
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
NOTE 3. GOING CONCERN (Continued)
The Company's business strategy will focus on several key initiatives
o Controlled Growth. The Company will continue to expand its
operations by increasing unit sales at existing locations and
opening new retail locations. The Company believes it can open
new locations at the rate of 20-25% annually through 2006. The
Company plans to open at least one new location in 2003, assuming
success in raising equity capital. In addition, the Company plans
to acquire existing locations of other operators.
o Selling Basic Transportation. The Company will continue to focus
on selling basic and affordable transportation to its customers.
In general, the Company does not sell luxury cars, sports cars or
exotic cars. The average sales price of retail and wholesale
vehicles sold by the Company during 2002 was approximately
$6,000. By selling vehicles in this price range, the Company is
able to keep the terms of its installment sales contracts
generally less than 24 months, and the customer is better able to
afford his or her payments. In addition, by keeping the price
range under $10,000, the Company has the ability to capture a
market left alone by its bigger competitors.
o Collecting Customer Accounts. As the Company grows and expands it
retail sales, management realizes that collecting customer
accounts is the single most important aspect of operating a
retail used car business. The Company is already investigating
adding retail sales managers to the management team to manage the
retail sales and collection responsibilities. In addition, the
Company plans to open a retail payment center.
Management believes that the actions presently being taken by the
Company provide the opportunity for the Company to improve liquidity
and sustain profitability. However, there are no assurances that
management's plans will be achieved. The accompanying consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE 4. RELATED PARTY TRANSACTIONS
In 2002 and 2003, the Company conducted and is continuing to conduct
certain aspects of its business with several related parties, including
officers and stockholders of the Company, as well as entities owned by
officers and stockholders of the Company. However, in conducting these
transactions, management has not prepared, executed or retained any
written documentation of the terms and conditions of these
transactions. As a result, there has been no competent evidential
matter in support of these transactions. The accompanying consolidated
financial statements present those transactions that management, to the
best of its knowledge and belief, has been able to identify, account
for, and disclose in these financial statements. These transactions
include notes receivable - stockholders arising from advances against
future commissions which were not earned, stockholder loans payable,
officers' compensation, operating leases, vehicle reconditioning, and
leased personnel.
6
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
NOTE 5. SUBSEQUENT EVENTS
PENDING PRIVATE PLACEMENT OF SECURITIES
On May 15, 2003, the Board of Directors approved the sale of
5,000,000 shares of the Company's common stock on a "best efforts"
basis at a price of $1.00 per share. This sale is to be done on a
private placement basis pursuant to Regulation "S" under the
Securities Act of 1933.
ACCRUAL OF INTEREST
On June 1, 2003, the Board of Directors authorized the issuance of
one share of common stock for each $1 in interest due to certain
note holders, who agreed to the accrual of the interest payments
for the period commencing on June 1, 2003 and ending on August 31,
2003 ("Accrual Period"). Interest payments in accordance with the
terms of the respective notes, including all accrued but unpaid
interest during the Accrual Period, will commence after the Accrual
Period ends.
ISSUANCE OF STOCK FOR COMPENSATION
On May 19, 2003, the Board of Directors authorized the payment of
compensation to an officer of the Company of $500 payable weekly
and 1,000 shares of the Company's common stock for each week of
service to the Company as Chief Operating Officer, commencing as of
April 28, 2003 through the date of his termination. The shares will
be issued on a monthly basis for the number of weeks earned in the
previous month.
On June 10, 2003, the Board of Directors approved the issuance of a
total of 620,000 shares to three persons, including an officer of
the Company and two independent contractors, as compensation for
services to be provided to the Company for the period from June 1,
2003 to May 31, 2005.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of our results of operations and financial condition. The
discussion should be read in conjunction with our financial
statements and notes thereto appearing in this prospectus.
The following discussion and analysis contains forward-looking
statements, which involve risks and uncertainties. Our actual
results may differ significantly from the results, expectations and
plans discussed in these forward-looking statements.
OVERVIEW
Since our going public in February 2003, our goal has been to
execute our business strategy by launching retail locations as well
as increasing our wholesale capabilities. We intend to grow through
an increase in our core business as well as various targeted
acquisitions. Because of delays in certain filings and
uncertainties surrounding our fund raising efforts through the
first and second quarter's to-date, we anticipate incurring losses
in the foreseeable future, possibly through year-end 2003. Our
ability to achieve our business objectives is contingent upon our
success in raising additional capital until adequate revenues are
realized from operations.
We completed the share exchange, name change to Intelligent Motor
Cars Group, Inc., and stock symbol change (IMCG.ob) as of February
17, 2003. Subsequently, we spent an estimated $800,000 in fees
associated with the share exchange, the audit, legal and other
professional services, thereby reducing our operational working
capital to $200,000. Top line revenues from 2002 were $18.97
million, which was realized from $1 million in working capital.
PLAN OF OPERATION
We have defined our business strategy and consulted with several
potential acquisition candidates during the first two quarters of
2003. Our plan during the growth and assimilation into the public
company was to solidify an exact strategy that enabled us to
emulate the formula that made us successful in the past and
identify targets for acquisition based on revenue and synergistic
business models. We plan to begin execution of our business
strategy during the third and fourth quarters of 2003, provided the
additional capital we need is made available to us. Assuming that
we receive a minimum of $1 million in additional funding then we
will be able to expand our wholesale operation to include high-end
vehicles ($25,000-50,000 average sales price), and devote resources
to launch an effective retail operation that will bring in an
estimated 30-40% net margin. We will attempt to raise capital from
sale of our common stock, loans from investors, shareholders or
management, and/or joint venture partners. Management will use its
best efforts to raise the additional funds to carry out the planned
business strategy but there is risk that we may not secure the
necessary funding.
If we are successful in raising a minimum of $2.5 million in
additional funds and executing our business plan by the third
quarter of 2003, we project revenues of approximately $15 million
in 2003 and $30 million in 2004 with an estimated net profit of $2
million for 2004. More defined projections will be made upon
successful completion of funding.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATION
Net sales from operations for the first quarter of 2003 were
significantly lower than the same period 2002 due to several key
factors. Primarily, in February 2003 the Company entered into a
share exchange transaction with a publicly reporting entity named
Harrison Holding's. As a result of the transaction the entity
changed its name to Intelligent Motor Cars Group and the underlying
stock symbol to IMCG, trading on the OTC Bulletin Board. This
transaction and the events that preceded and followed this
transaction for a span of 6-8 months, required significant
management and financial resources on the part of the Company. This
caused the Company to have significantly fewer resources, including
working capital and management time to commit to sales. Where in
2002, the Company had $1 million in working capital to devote to
sales; during this period in 2003 the Company had only $200,000 to
devote to sales. With the full $1 million in working capital it is
estimated that the Company would have reported $10 million in sales
and gross profit of $250,000 for the same period. This estimate is
based on the relative ratio of working capital to sales. In 2002,
net sales were $5.6 million using $1 million in working capital.
For the same period in 2003, net sales were $2.4 million using only
$200,000 in working capital.
During the first quarter of 2003, the Company reported Corporate
Reorganization Costs of $307,000. These costs include various items
relating directly to the share exchange and fees for professional
services relating to the share exchange. This factor was the single
largest contributor to the Company's first quarter loss of
$397,000. Without this item the Company would have shown a per
share loss of less than $.01. In addition, due to lower overall
sales and slightly rising fixed expenses, SG&A expense for Q1 2003
represented 4.9% of the total expenses versus 2% for the same
period in 2002. Cost of sales expense and Officers' compensation
both rose slightly in Q1 2003 versus Q1 2002.
As noted in the MD&A Overview and Plan of Operation, the Company
expects to execute its business plan, which includes the expansion
of its wholesale and retail divisions during the third and fourth
quarters of 2003. It is management's projection that this strategic
execution will enable the Company to report gross sales for Q4 2003
equal to or greater than Q4 2002. It is further projected that
sales will double from full-year 2003 to full-year 2004 providing
the Company receives the infusion of investment funds expected
during the third quarter of 2003.
CAPITAL RESOURCES AND LIQUIDITY
On a given business day, the Company has a positive or negative
cash flow of up to $100,000 based on collections and accounts
payable. Officers and directors of the company have been taking
minimal salary and stock compensation. Salaries will be increased
for the officers and directors to a reasonable level upon funding.
In addition, we believe we will have sufficient cash through our
fund raising efforts to meet our minimum operating and expansion
costs for the next 12 months. We will need to raise additional
capital to continue our operations during the next 12 months and
beyond, and there is no assurance we will be successful in raising
the needed capital.
9
ITEM 3. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our
management, including our Chief Executive Officer and Acting Chief
Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), within 90 days of the filing date of this report.
Based on their evaluation, our Chief Executive Officer and Acting
Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective.
(b) There have been no significant changes (including corrective
actions with regard to significant deficiencies or material weaknesses)
in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation
referenced in paragraph (a) above.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certifications of the Chief Executive Officer and
Acting Chief Financial Officer
99.2 Written Statement of the Chief Executive Officer and
Acting Chief Financial Officer
(b) Reports on Form 8-K:
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: June 30, 2003
INTELLIGENT MOTOR CARS GROUP, INC.
(Registrant)
By: /s/ GERALD SCALZO
-------------------
Gerald Scalzo
Chief Executive Officer and Acting Chief Financial Officer
10