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, 2005
Commission File No. 333-88952
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
(Exact name of small business issuer as specified in its charter)
DELAWARE 74-3022293
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1600 WEST SUNRISE BLVD., FORT LAUDERDALE, FL 33311
(Address of principal executive offices)
(954) 462-0500
(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 March 31, 2005 is 184,639,810.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLIGENT MOTOR CARS GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------ March 31, December 31,
2005 2004
----------- -----------
Current Assets
Cash and cash equivalents $ 13,012 $ 14,447
Notes and Accounts Receivable, Net 204,007 161,392
Inventories 237,014 220,254
----------- -----------
Total current assets 454,033 396,093
----------- -----------
Property and Equipment, Net 153,498 164,283
Other Assets 20,178 20,254
----------- -----------
Total Assets $ 627,709 $ 580,630
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current Liabilities
Notes Payable:
- Floor Plan Notes - Related Party $ 1,008,469 $ 950,539
- Floor Plan Notes - Finance Company 142,735 130,715
Accounts Payable and accrued liabilities 174,095 231,546
Accrued officer compensation 185,000 325,000
Current portion of long term debt 5,876 5,876
----------- -----------
Total current liabilities 1,516,175 1,643,676
----------- -----------
Long-term debt, net of current portion 15,950 17,150
----------- -----------
Total liabilities 1,532,125 1,660,826
----------- -----------
STOCKHOLDERS' DEFICIENCY:
Common Stock - $.001 par value 200,000,000
shares authorized, 184,639,810 shares
issued and outstanding 337,864 156,191
Additional paid-in-capital 3,200,436 3,191,972
Accumulated deficit (4,442,716) (4,428,359)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (904,416) (1,080,196)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 627,709 $ 580,630
=========== ===========
See accompanying notes to consolidated condensed financial statements
2
INTELLIGENT MOTOR CARS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
March 31, March 31,
2005 2004
------------- -------------
Revenues
Net sales of vehicles $ 1,007,842 $ 2,109,512
Finance Income, net 8,271 84,387
------------- -------------
Total revenues 1,016,113 2,193,899
Cost of sales
Cost of sales - purchase of automobiles 812,326 1,495,744
Cost of sales - other 127,048 352,276
------------- -------------
Total cost of sales 939,374 1,848,020
Gross profit 76,739 345,879
General and administrative expense
Stock based compensation -- 7,500
Officers' compensation -- 29,000
Selling, general and administrative 78,863 187,922
Depreciation expense 10,785 9,503
------------- -------------
General and administrative expense 89,648 233,925
Income (expense) from operations (12,909) 111,954
Other (expense) (1,448) (16,729)
------------- -------------
Income (expense) before taxes (14,357) 95,225
Income taxes -- --
------------- -------------
Net income (loss) $ (14,357) $ 95,225
============= =============
Net income (loss) per common share - basic and diluted $ (0.0001) $ 0.001
============= =============
Weighted average number of shares outstanding 123,095,255 94,297,441
============= =============
See accompanying notes to consolidated condensed financial statements.
3
INTELLIGENT MOTOR CARS GROUP, INC.
CASH FLOWS FROM OPERATING ACTIVITIES:
Three months
ended March 31, December 31,
2005 2004
--------------- ------------
Net loss $ (14,357) $ (337,603)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
- Depreciation 10,785 43,140
- Provisions for doubtful accounts 48,616
-Conversion of stock for services 25,000
- Stock based compensation 140,000 7,500
- Conversion of interest for stock 11,975
Changes in operating assets and liabilities:
(Increase) decrease in :
Accounts Receivable 19,905 65,595
Notes Receivable (62,520) (861,303)
Inventories (16,760) 141,310
Other 76 (5,392)
Increase (decrease) in :
Accounts payable and accrued liabilities (99,605) (270,981)
Changes in accrued officer compensation (140,000) 25,000
----------- -----------
Net cash used in operating activities (137,476) (1,132,143)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of Property and Equipment -- (25,502)
-----------
----------- -----------
Net cash used in investing activities -- (25,502)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from notes payable - related parties 105,085 1,086,483
Payments on floorplan loans - un-related party 7,020 8,059
Payments on stockholder loans payable
Proceeds from notes
Payment on notes (1,201) (9,026)
Proceeds from Issuance of Common Stock 25,137 27,883
----------- -----------
Net cash provided by financing activities 136,041 1,113,399
----------- -----------
Net Decrease in Cash (1,435) (44,246)
Cash, beginning of period 14,447 58,693
----------- -----------
Cash, end of period $ 13,012 $ 14,447
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 1,448 $ 55,200
=========== ===========
Notes and interest payable converted to stock $ -- $ 341,009
=========== ===========
Notes receivable exchanged for related party debt $ -- $ 1,556,345
=========== ===========
Deferred compensation for related party converted to stock $ 140,000 $ --
=========== ===========
See accompanying notes to consolidated condensed financial statements.
4
INTELLIGENT MOTOR CARS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 1. BASIS OF PRESENTATION
- ------- ---------------------
The accompanying un-audited consolidated financial statements 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, 2005 and
the results of operations for three months ended March 31, 2005 and 2004. 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 December 31, 2004 included in the Company's Annual
Report on Form 10-KSB filed on April 15, 2005 and amended on April 20, 2005.
Certain amounts in prior period financial statements have been reclassified for
comparative purposes and to conform to the presentation in the current period
financial statements.
NOTE 2. INCOME (LOSS) PER SHARE
- ------- -----------------------
The Company computes loss per common share in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" which requires the presentation of both basic and diluted
loss per share. Historical 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 net loss per common share has not been presented, as
there were no options or warrants granted or convertible preferred stock
outstanding.
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. For the three months ended March 31, 2005 the
Company reported net losses of approximately $14,000. The Company's consolidated
balance sheet at March 31,2005 reflects negative working capital and a
stockholders' deficiency of approximately $904,000. These factors amongst others
raise substantial doubt about the Company's ability to continue as a going
concern.
Management's plans to continue its operations and become profitable by
increasing cash transactions and focusing additional resources on wholesale
sales and re-launch of its internal financing division in 2005. Management
believes this would allow the Company to execute its business plan, achieve its
revenue projections, and provide working capital for inventory and floor
planning activities although no assurance can be given that this will occur due
to the Company's continuing lack of funding to achieve its business goals
including for expansion.
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 2005 and in 2004, the Company has been conducting 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. The accompanying financial statements,
and the notes to financial statements, present those transactions that
management, to the best of its knowledge and belief, has identified, accounted
for, and disclosed in these financial statements. At March 31, 2005, the Company
owes its affiliates $1,008,000 for goods and services.
5
On March 3, the Board of Directors authorized and approved the
conversion of all debt owed at December 31, 2004 by the Company to Gerald
Scalzo, the Company's Chief Executive Officer, Chairman of the Board of
Directors and a major shareholder, into 14,000,000 shares of restricted common
stock at a conversion price of $.01 per share based upon a percentage value of
the sale price of a share of common stock on March 2, 2005, the trading day
immediately preceding the date of the Board's action. As of December 31, 2004,
the Company was indebted to Gerald Scalzo for the past due compensation of
$325,000. With the issuance of these shares, Mr. Scalzo retired $140,000 of the
past due compensation owed to him, leaving a balance due of $185,000.
NOTE 5. COMMON STOCK
- ------- ------------
On January 13, 2005, the Company amended its Certificate of
Incorporation to increase its authorized common stock from 100,000,000 to
200,000,000 shares.
On January 18, 2005 the Company effected a 7:1 forward split of its
common stock resulting in the increase of its issued and outstanding shares of
common stock to 184,639,810.
In February 2005, Intelligent Motor Cars Group entered into a one-year
renewable agreement with Cross Capital Fund, LLC (the "Fund") to fund $2,500,000
over the next year beginning in the second quarter of 2005. IMC will issue
2,500,000 shares of its Series A 6% Cumulative Convertible Preferred Stock
("Preferred Stock") for the funds advanced. In addition, Intelligent Motor Cars
Group will pay a monthly management fee of $10,000 dollars in cash or free
trading shares and will issue a warrant to the Fund for 500,000 post-split
shares of common stock, the final terms of which have not been approved by the
Company. In exchange for equity funding, Intelligent Motor Cars Group will
receive an Investor Membership Interest in the Fund. The Fund has "piggyback"
registration rights for the shares of common stock that may be issued upon a
conversion of Preferred Stock as set forth in the agreement and is expected to
have the same registration rights upon the exercise of the warrant. No funding
has been received during the quarter ended March 31, 2005, no shares of
Preferred Stock issued and no warrant has been issued to the Fund.
On March 3, the Board of Directors authorized and approved the
conversion of all debt owed at December 31, 2004 by the Company to Gerald
Scalzo, the Company's Chief Executive Officer, Chairman of the Board of
Directors and a major shareholder, into 14,000,000 post-split shares of
restricted common stock at a conversion price of $.01 per share based upon a
percentage value of the sale price of a share of common stock on March 2, 2005,
the trading day immediately preceding the date of the Board's action. As of
December 31, 2004, the Company was indebted to Gerald Scalzo for the past due
compensation of $325,000. With the issuance of these shares, Mr. Scalzo retired
$140,000 of the past due compensation owed to him, leaving a balance due of
$185,000.
Also on March 3, 2005, the Board of Directors authorized and approved
(i) the issuance of 2,500,000 shares of restricted common stock to Michael
Magolnick in lieu of cash compensation for services as Chief Operating Officer
for the fiscal year ended December 31, 2004, and (ii) 350,000 shares of
restricted common stock to Harvey Judkowitz as compensation for serving as a
director and as Chairman of Board's Audit Committee for the 2005 fiscal year,
all at a price of $.01 per share based upon a percentage value of the sale price
of a share of common stock on March 2, 2005, the trading day immediately
preceding the date of the Board's action."
On March 17, 2005, the Board of Directors authorized and approved the
sale of 1,331,000 shares through a private transaction. Total proceeds received
from this issuance amounted to $25,137.
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.
6
In September 2003, the Company launched its first retail buy here/pay
here dealership at 1600 West Sunrise Blvd., Fort Lauderdale, Florida. .In the
third quarter of 2004, the Company discontinued its buy here/pay here program.
The company focuses on cash sales and financing through third party finance
companies. Because of this business migration and uncertainties surrounding
efforts to obtain financing for the Company throughout 2004, we continue to
anticipate incurring losses in the foreseeable future, possibly through fiscal
year end 2005. Our ability to achieve our business objectives is contingent upon
our success in raising additional capital until adequate revenues are realized
from operations. There is no assurance that additional capital will be obtained.
It is the Company's plan to continue building its profitable cash business as
well as its wholesale division.
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.
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED MARCH 31, 2005
For the first quarter ended March 31, 2005, the Company's total assets
are approximately $627,700 compared to approximately $2,112,500 for the first
quarter in 2004. The notes and accounts receivable as of March 31, 2005 is
$204,007 compared to $1,485,679. Discontinuing our buy here/pay here model due
to lack of funding and the sale of notes receivable to reduce related party debt
to continue operations in 2004 were responsible for the decrease.
For the first quarter ended March 31, 2005, the Company's current
liabilities are $627,709 compared to $1,516,175 for the first quarter ended
March 31, 2004. Sale of notes receivable to reduce debt and continue operations
last year is responsible for the decrease.
For the three months ended March 31, 2005, the Company reported a net
loss of ($14,537) or ($0.0001) compared to income of $95,000 or $0.001 per
share.
Sales for the first quarter ended March 31, 2005 were approximately
$1.0 million in revenues versus $2.2 million for the quarter ended March 31,
2004. During the first quarter of 2004, the Company was conducting its business
as a buy here/pay here operation. Buy here/pay here business model was suspended
during the third quarter 2004 due to lack of funding. The Company focused on
more cash sales and selling financed sales to third party finance companies that
resulted in the sale of fewer units.
Cost of goods sold for the first quarter ended March 31, 2005 are
approximately $939,000 versus approximately $1,848,000 for the same period in
2004. The decrease is due to fewer sales for the quarter and cost cutting
measures.
General and administrative expenses for the three months ended March
31, 2005 was approximately $90,000 as compared to approximately $233,928 for the
same period in 2004. The reduction was due to a reduction in professional fees
of approximately $38,000, cost cutting measures including health insurance
benefits, reduced officers' compensation of $29,000 and stock based compensation
of $7,500.
Other expenses for the first quarter ended March 31, 2005 were lower
due to the satisfaction of interest bearing notes payable in 2004. Interest
expense for the first quarter ended March 31,2005 is $1,448 versus quarter ended
March 31, 2004 of $16,279.
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
key employees of the Company have been taking minimal salary and stock
compensation. Salaries will be increased for the officers and key employees to a
reasonable level upon funding, as to which no assurance can be given that any
financing, whether through conventional financing sources or through the sale of
Company securities on a private placement basis, will be realized or available
to the Company on satisfactory terms. In addition, we believe we will have
sufficient cash to meet our minimum operating costs and very limited expansion
costs for the next 12 months. However, to continue our more aggressive plan
during the next 12 months and beyond, which we will need to raise a minimum of
$2 million in additional financing from the sale of our securities, 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 these
expansion plans but there is a risk that we may not secure the necessary funding
which will have a material adverse impact on our ability to expand the Company's
business and continue as a going concern.
7
In February 2005, Intelligent Motor Cars Group entered into a one-year
renewable agreement with Cross Capital Fund, LLC (the "Fund") to fund $2,500,000
over the next year beginning in the second quarter of 2005. IMC will issue
2,500,000 shares of its Series A 6% Cumulative Convertible Preferred Stock
("Preferred Stock") for the funds advanced. In addition, Intelligent Motor Cars
Group will pay a monthly management fee of $10,000 dollars in cash or free
trading shares and will issue a warrant to the Fund for 500,000 post-split
shares of common stock, the final terms of which have not been approved by the
Company. In exchange for equity funding, Intelligent Motor Cars Group will
receive an Investor Membership Interest in the Fund. The Fund has "piggyback"
registration rights for the shares of common stock that may be issued upon a
conversion of Preferred Stock as set forth in the agreement and is expected to
have the same registration rights upon the exercise of the warrant. No funding
has been received for the first quarter, no shares of Preferred Stock issued and
no warrant has been issued to the Fund.
ITEM 3. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Operating 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 Chief Operating
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 1. EXHIBITS
Exhibits:
31.1 Certifications of the Chief Executive Officer and pursuant to Section
302 of The Sarbanes-Oxley Act of 2002.
31.2 Certifications of the Chief Financial Officer and pursuant to Section
302 of The Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002.
8
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim period.
Date: May 23, 2005
INTELLIGENT MOTOR CARS GROUP, INC.
(Registrant)
By: /s/ Gerald Scalzo
-----------------------
Gerald Scalzo
Chief Executive Officer