UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 13, 2007
DEEP FIELD TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey 333-120506 20-1862733
(State or other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
2222 Second Street, Fort Myers, Florida 33901
(Address of Principal Executive (Zip Code)
Offices)
(239) 437-5235
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry Into A Material Definitive Agreement.
Please see Item 2.01 herein below.
Item 1.02 Termination Of Material Definitive Agreement.
Please see Item 2.01 herein below.
Item 2.01 Completion Of Acquisition Or Disposition Of Assets.
Exchange Agreement
On February 13, 2007 (the "Transaction Date"), Deep Field Technologies,
Inc. (the "Registrant") completed its acquisition of Beijing Sino-US Beijing
Jinche Yingang Auto Technological Services, Ltd. ("AutoMart" and together with
the Registrant, the "Company"), a cooperative joint venture organized under the
laws of The People's Republic of China. The Registrant, AutoMart and those
certain joint venture participants named therein (the "JV Participants")
executed that certain Amended and Restated Securities Exchange Agreement on
January 25, 2007 (the "Exchange Agreement") pursuant to which the JV
Participants agreed to transfer to the Registrant, and the Registrant agreed to
acquire from the JV Participants, ninety-five percent (95%) of the outstanding
equity interests of AutoMart and all voting and economic rights, benefits and
obligations (other than the right to receive distributions in connection with ;a
liquidation, sale or other transfer, in whole, of AutoMart) of the remaining
five percent (5%) interest in exchange for (a) Eighty-Three Million Eighty-One
Thousand Six Hundred Thirty-Five (83,081,635) shares of the Registrant's Class A
common stock, no par value per share (the "Common Stock"), (b) Two Million
(2,000,000) shares of the Registrant's Class B common stock, par value $0.01 per
share (the "Class B Common") and (c) the assumption by the Registrant of all
obligations of Mayflower Auto Group LLC ("Mayflower") with respect to the
issuance by Cornell Capital Partners, LP ("Cornell") to Mayflower of certain
promissory notes equal to Three Million Three Hundred Fifty Thousand Dollars
($3,350,000) (the "Mayflower Notes"). As a result of the consummation of the
Exchange Agreement, and pending the satisfaction of certain notice requirements
under applicable New Jersey corporate law (the "Notice"), the former holders of
AutoMart capital stock (the JV Participants) shall beneficially own over ninety
percent (90%) of the total outstanding voting securities of the Registrant. Such
Notice was mailed to Registrant's stockholders on February 8, 2007 and the
securities shall be exchanged on February 28, 2007. For accounting purposes, the
transaction is classified as a reverse merger which AutoMart is considered the
acquirer (hereinafter referred to as the "Merger").
Asset Purchase Agreement
In connection with the transactions consummated by the Exchange Agreement,
the Registrant entered into an asset purchase agreement (the "APA") with iVoice,
Inc. ("iVoice") on the Transaction Date pursuant to which the Registrant
assigned, transferred and delivered to iVoice on an "as is, where is" basis, and
iVoice purchased from the Registrant on an "as is, where is" basis, all of the
Assets (as such term is defined in the APA) relating to the Registrant's unified
messaging business, free and clear of all encumbrances and liens, in exchange
for the payment by iVoice to the Registrant of One Dollar ($1.00). A copy of the
APA and the Bill of Sale are attached hereto as Exhibits 10.2 and 10.3,
respectively.
Consulting Agreements
In connection with the transactions contemplated by the Exchange
Agreement, the Registrant entered into Consulting Agreements, each dated as of
the Transaction Date, with each of: (a) Mr. Mark Meller, pursuant to which Mr.
Meller shall provide general corporate finance, advisory and other similar
consulting services to the Registrant for a term of six (6) months in exchange
for the payment by the Registrant to Mr. Meller of One Million (1,000,000)
shares of Common Stock, which Common Stock shall be issued to Mr. Meller on the
Effective Date (as defined therein), and shall be deemed fully earned and not
redeemable by the Company, including upon any termination of the Consulting
Agreement, after such issuance; (b) Mr. Jerome Mahoney, pursuant to which Mr.
Mahoney shall provide general corporate finance, advisory and other similar
consulting services to the Registrant for a term of six (6) months in exchange
for the payment by the Registrant to Mr. Mahoney of One Million (1,000,000)
shares of Common Stock, which Common Stock shall be issued to Mr. Mahoney on the
Effective Date (as defined therein) and shall be deemed fully earned and not
redeemable by the Company, including upon any termination of the Consulting
Agreement, after such issuance; (c) iVoice, pursuant to which iVoice shall
provide general corporate finance, advisory and other similar consulting
services to the Registrant for a term of six (6) months in exchange for the
payment by the Registrant to iVoice of Four Million (4,000,000) shares of Common
Stock, which Common Stock shall be issued to iVoice on the Transaction Date and
shall be deemed fully earned and not redeemable by the Registrant, including
upon any termination of the Consulting Agreement, after such issuance; (d) MM2
Group, Inc. ("MM2"), pursuant to which MM2 shall provide general corporate
finance, advisory and other similar consulting services to the Registrant for a
term of six (6) months in exchange for the payment by the Registrant to iVoice
of Four Million (4,000,000) shares of Common Stock, which Common Stock shall be
issued to MM2 on the Transaction Date and shall be deemed fully earned and not
redeemable by the Registrant, including upon any termination of the Consulting
Agreement, after such issuance.
2
The Registrant has agreed to register the 2,000,000 shares of Common Stock
issued to Mssrs. Meller and Mahoney on Form S-8, at the Registrant's expense,
with the U.S. Securities and Exchange Commission (the "SEC") on such date that
is not later than seventy (70) days after the Transaction Date. Each Consulting
Agreement includes customary non-disclosure and non-solicitation provisions
which shall remain enforceable for a period of six (6) months following the
termination of each Consulting Agreement.
Termination & Settlement Agreements
In connection with the transactions contemplated by the Exchange
Agreement, the Registrant entered into Termination & Settlement Agreements with
each of (a) Mr. Meller, pursuant to which (i) Mr. Meller resigned from his
positions as President, Chief Executive Officer, Chief Financial Officer and as
a member of the Board of Directors of the Registrant, (ii) the Registrant and
Mr. Meller agreed to settle all obligations owing by the Company to Mr. Meller,
including, without limitation, all obligations under Mr. Meller's October 1,
2004 Employment Agreement, in exchange for the issuance by the Registrant to Mr.
Meller of the One Million (1,000,000) shares of Common Stock issued pursuant to
Mr. Meller's Consulting Agreement as described herein above and (iii) the
Registrant and Mr. Meller terminated Mr. Meller's October 1, 2004 Employment
Agreement and (b) Mr. Mahoney, pursuant to which (x) Mr. Mahoney resigned from
his position as Chairman of the Board of Directors of the Registrant, (y) the
Registrant and Mr. Mahoney agreed to settle all obligations owing by the Company
to Mr. Mahoney, including, without limitation, all obligations under Mr.
Mahoney's August 3, 2004 Employment Agreement, in exchange for the issuance by
the Registrant to Mr. Mahoney of the One Million (1,000,000) shares of Common
Stock issued pursuant to Mr. Mahoney's Consulting Agreement as described herein
above and (z) the Registrant and Mr. Mahoney terminated Mr. Mahoney's August 3,
2004 Employment Agreement.
Assignment Agreement
On the Transaction Date, the Registrant assumed all obligations of
Mayflower with respect to the issuance by Cornell to Mayflower of the Mayflower
Notes equal to Three Million Three Hundred Fifty Thousand Dollars ($3,350,000).
Pursuant to that certain Assignment Agreement, by and among the Registrant,
Mayflower and Cornell (the "Assignment Agreement"), upon the assumption by the
Registrant of the Mayflower Notes, 23,800,000 shares of Common Stock and 600,000
shares of Class B Common were pledged, as well as all of Registrant's assets, to
secure the Mayflower Notes. Furthermore, the Registrant issued to Cornell (a) a
warrant to purchase 25,000,000 shares of Common Stock at an exercise price of
$0.10 per share for a period of five (5) years, (b) a warrant to purchase
10,000,000 shares of Common Stock at an exercise price of $0.15 per share for a
period of five (5) years, (c) a warrant to purchase 7,500,000 shares of Common
Stock at an exercise price of $0.20 per share for a period of five (5) years,
(d) a warrant to purchase 6,000,000 shares of Common Stock at an exercise price
of $0.25 per share for a period of five (5) years and (e) a warrant to purchase
5,833,333 shares of Common Stock at an exercise price of $0.30 per share for a
period of five (5) years.
3
I. Description of Business of AutoMart
The following information set forth below relates to the business of
AutoMart, and references below to "we", "our" and "us" are references to
AutoMart. The following may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"). Forward-looking statements are identified by
words such as "believe", "anticipate", "expect", "intend", "plan", "will", "may"
and other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. The Registrant wishes to caution
readers that these forward-looking statements are only predictions and that the
business of the Registrant is subject to significant risks.
AutoMart was formed on August 5, 2005 as a cooperative joint venture
organized under the laws of The People's Republic of China to engage in the
business of automobile painting and repairs, sales of automobile parts,
accessories and supplies and sales of automobile insurance in China. The parties
to the joint venture are Beijing Jinche Yingang Automobile Services Center
("Jinche"), a corporation duly registered and existing under the laws of the
People's Republic of China, Mayflower, a company organized under the laws of the
State of Delaware of the United States of America and Mr. Chuen Kin Quek, an
individual resident of the State of Massachusetts of the United States of
America. Jinche had previously acquired all of the operating assets and business
of Beijing Shang Fang Weije Car Sale Co., Ltd., which is registered and existing
under the laws of the People's Republic of China. Subsequent to the formation of
AutoMart, management duly registered, and began operating under, the trade name
"AutoMart".
AutoMart currently operates twelve (12) automotive repair centers in
locations throughout Beijing. Operating activities at these centers include the
painting and repair of automobiles, sales of automotive parts, accessories and
supplies, and the sale of automotive insurance.
As of January 19, 2007, AutoMart employed four hundred eighty-nine (489)
full-time employees. This includes twenty-one (21) executive and management
personnel, fifty-one (51) office staff and four hundred sixteen (416) in the
operating facilities. All employees are located in the Beijing area.
II. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial
statements as of December 31, 2005 and the years ended December 31, 2005 and
2004 and reviewed financial statements as of September 30, 2006 and the nine (9)
months ended September 30, 2006 and 2005 and related notes included as exhibits
herein. This discussion contains forward-looking statements, which involve a
number of risks and uncertainties. Forward-looking statements are not guarantees
of performance. Actual results or events may differ materially from those
anticipated in these forward-looking statements as a result of various factors.
Information in the following discussion for a yearly period means for the year
ended December 31 of the indicated year.
4
Background
AutoMart currently operates twelve (12) automotive repair centers in
locations throughout Beijing. Operating activities at these centers include the
painting and repair of automobiles, sales of automotive parts, accessories and
supplies, and the sale of automotive insurance.
We intend to begin expanding our current facilities as well as adding new
operating facilities beginning in the second quarter of 2007. This expansion
will be in the general area of Beijing.
We have incurred substantial operating losses from the previous year due
in large part to our expansion in the latter half of 2005 and the additional
legal, professional and administrative costs associated with the negotiation and
execution of the Exchange Agreement.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements. We have identified
the accounting policies that we believe require application of management's most
subjective judgments, often requiring the need to make estimates about the
effect of matters that are estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in note 2
of the notes to consolidated financial statements included in this report, we
believe that the following accounting policies require the application of
significant judgments and estimates:
Revenue Recognition. Revenue is recognized upon delivery and acceptance of
automobile repair services by its customers and the insurance policies being
executed and become effective, provided that the other conditions of sales, as
established by the SEC's Staff Accounting Bulletin ("SAB") No. 104, are
satisfied: (1) Persuasive evidence of an arrangement exists; (2) Delivery has
occurred, upon shipment when title passes, or services have been rendered; (3)
The seller's price to the buyer is fixed or determinable; and (4) Collectibility
is reasonably assured.
Currency Reporting. Amounts reported in the accompanying combined
financial statements and disclosures are stated in U.S. Dollars, unless stated
otherwise. The functional currency of AutoMart, which accounted for most of our
operations, is reported in Renminbi ("RMB"). Foreign currency transactions
(outside PRC) during the nine (9) months ended September 30, 2006, and 2005 and
the years ended December 31, 2005 and 2004 are translated into RMB according to
the prevailing exchange rate at the transaction dates.
For the purpose of preparing the financial statements, the assets and
liabilities of AutoMart have been translated into U.S. dollars at the current
rate as of year end or period end, the contributed capital has been translated
into U.S. dollars at the historical rates and the combined statements of
operations (loss) have been translated into U.S. dollars at the weighted average
rates during the periods the transactions were recognized.
The resulting translation gain (loss) adjustments are recorded as other
comprehensive income in the combined statements of operations and comprehensive
income and as a separate component of statements of stockholders' equity.
Allowance for Doubtful Accounts. AutoMart maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. Allowance for doubtful accounts is based on
ou assessment of the collectibility of specific customer accounts, the aging of
accounts receivable, our history of bad debts, and the general condition of the
industry. If a major customer's credit worthiness deteriorates, or our
customers' actual defaults exceed historical experience, Our estimates could
change and impact its reported results. We have not experienced any significant
amount of bad debt in the past.
5
Inventories. Inventories are stated at lower of cost (using the first-in,
first-out method) or market. We continually evaluate the composition of its
inventories, assessing slow-moving and ongoing products. Our products contain
parts and paints used for auto repairs. Our inventories include primarily repair
parts which can be commonly used on most of the auto repairs. Certain parts
which are exclusively used for certain models of automobiles are ordered as
needed, therefore we did not provide any reserve for slow-moving and obsolete
inventories.
Results of Operations for the Nine (9) Months Ended September 30, 2006
Compared With Nine (9) Months Ended September 30, 2005 (Unaudited)
AutoMart recognized revenue in the amount of $3,665,990 for the nine (9)
months ended September 30, 2006 related to sales of insurance and auto repair
services, compared with $1,182,178 for the same period in 2005, an increase of
$2,483,812 or 210%. The increase was primarily due to increase of repair
services performed through the expansion of facilities and market penetration,
in accordance with management's plan. The majority of our new facilities were
opened in the fourth quarter of 2005. We expect the repair revenues continue to
increase as more new facilities are expected to be opened in 2007 and overall
market growth in the auto repair industry in China.
Gross profit for the nine (9) month period ended September 30, 2006 was
$1,744,489 compared with $728,044 for the same period in 2005, an increase of
$1,016,445 or 140%. The increase was due to increased revenues. Gross profit as
a percentage of revenues declined from 62% for 2005 to 48% for 2006, due to
higher overhead costs including rents for the new facilities and depreciation on
leasehold improvements on facilities. We expect the gross profit in amount and
in percentage continue to increase as the overhead cost related to the
facilities will remain stable as the revenues increase.
Selling expenses were $1,030,491 for the nine (9) month period ended
September 30, 2006, compared with $116,479 for the same period in 2005, an
increase of $914,012 or 785%. The substantial increased reflects the costs
related to increased volume as well as management's efforts to attract repair
business from both retail and institutional sources. We expect the selling
expenses continue to increase as the revenues increase in the next twelve (12)
months.
General and administrative expenses were $1,095,705 for the nine (9)
months ended September 30, 2006 compared with $345,020 for the nine (9) months
ended September 30, 2005, an increase of $750,685 or 218%. The increase was due
to expansion of administrative staff related to the addition of new facilities
and to allow future business expansion. Audit and other professional costs
associated with the preparation for the Exchange Agreement described herein also
accounted for a substantial part of this increase. We expect the selling
expenses continue to increase as professional fees will continue to increase now
that AutoMart is the chief operating and majority-owned subsidiary of a U.S.
publicly-traded entity.
Merger cost of $148,102 for the nine (9) months ended September 30, 2005
included primarily legal cost related to legal services with respect to setting
up legal structure in China in order to consummate the Exchange Agreement. We
incurred no such cost in 2006 as all the related services were performed in 2005
and we do not expect to incur any Merger cost in the next twelve (12) months.
6
Miscellaneous income were approximately $47,000 during the nine (9) months
ended September 30, 2006 compared to $5,700 during the nine (9) months ended
September 30, 2006, an increase of $41,300 or 725%. We sold certain inventories,
which were originally used for its micro paint repair. We made the determination
to cease the micro paint repair in 2006 and therefore we sold majority part of
our micro paint inventories in 2006. Since such sales were not AutoMart's
typical line of business, they were classified as part of non-operating income.
Income taxes decreased by $86,985 from $86,985 during the nine (9) months
ended September 30, 2005 to $0 during the nine (9) months ended September 30,
2005. We incurred losses during the nine (9) months ended September 30, 2006 and
therefore there was $0 income tax provision during the period. We expect to
generate income in the second half of 2007 and consequently income tax provision
is expected to be increased as the operating results become positive.
Discontinued operations included the operating results of the discontinued
wholesale business of auto repair parts. We made the determination in January
2006 to discontinue our wholesale business.
Results of Operations For The Year Ended December 31, 2005 Compared With
The Year Ended December 31, 2004
Revenues for the year ended December 31, 2005 were $9,298,885, compared
with $5,134,322 for the year ended December 31, 2004. The increase in revenues
was primarily due to the expansion of operations during 2005. AutoMart opened
seven (7) facilities during 2005 and most of those were opened during the second
half of 2005.
Gross profit for 2005 was $1,412,416 compared with $1,119,445 for 2004, an
increase of $292,971 or 26%. Gross profit as a percentage of revenues declined
from 22% for 2005 to 15% for 2004. The relatively lower margin for 2005 as a
percentage of revenue is because of significant increases in rent expense and
depreciation expense related to new auto repair facilities, and substantially
all of the increase in revenue in 2005 is due to auto repair services, which
produces lower margins than insurance policy sales.
Selling expenses increased from $169,867 for 2004 to $238,730 for 2005, an
increase of $68,863, or 41%. The increase was primarily due to increase of
headcounts of sales representatives during 2005 in relations to the expansions
in the second half of 2005.
General and administrative expenses increased from $307,519 for 2004 to
$994,223 for 2005, an increase of $686,704 or 223%. The increase was due to
expansion of administrative staff related to the addition of new facilities and
to allow future business expansion. Audit and other professional costs
associated with preparation for the Exchange Agreement described herein also
accounted for a substantial part of this increase. We expect the selling
expenses continue to increase as professional fees will continue to increase now
that AutoMart is the chief operating and majority-owned subsidiary of a U.S.
publicly-traded entity.
Income taxes decreased from $250,325 for 2004 to $149,109 for 2005, an
increase of $101,216 or 40%. The decrease was due to decrease of pretax income.
Other comprehensive income increased from $0 for 2004 to $18,924, an
increase of $18,924. The exchange rate between the RMB and U.S. dollars began to
fluctuate beginning the second half of 2005 which. Other comprehensive income
represents the effect of the change of foreign currency exchange rate.
7
Liquidity and Capital Reserves
Net cash provided by (used for) operating activities for the nine (9)
months ended September 30, 2006 totaled $48,795 compared to $(586,826) for the
nine (9) months ended September 30, 2005, an increase of $635,621. The
improvement was due to increase in accounts payable and accrued expenses, and
the reduction of prepaid expenses related to facilities rents.
Net cash used for investing activities for the nine (9) months ended
September 30, 2006 was $256,708, compared to $17,867 for the same period in
2005, an increase of $238,841. The increase of net cash used was due to
increased expenditures for leasehold improvements and equipment related to the
opening of new facilities.
Net cash provided by financing activities for the nine (9) months ended
September 30, 2006 was $155,861, compared with $1,350,479 for the nine (9)
months ended September 30, 2005, a decrease of $1,194,618. The decrease reflects
AutoMart's ability to generate operating cash flows to fund its operations
instead of heavily relying on capital contributions in the prior year.
At September 30, 2006, we had $82,020 in cash compared with $903,924 at
September 30, 2005.
Net cash used in operating activities for the year ended December 31, 2005
was $540,901 compared with $107,621 for the year ended December 31, 2004, an
increase of $433,280. The primary reason for the increase in net cash used in
operating activities was the operating loss incurred in 2005.
Net cash used in investing activities was $1,094,510 for the year ended
December 31, 2005, compared with $210,331 for the year ended December 31, 2004,
an increase of $884,179. The increase was due to investments in property, plant
and equipment related to the expansion of operating facilities in 2005.
Net cash provided by financing activities for the year ended December 31,
2005 was $1,631,172, compared with $0 for the year ended December 31, 2004. All
of this increase was due to capital contribution from the shareholders of
AutoMart.
At December 31, 2005 we had $142,782 in cash compared with $165,140 at
December 31, 2004.
Off-Balance Sheet Transactions
We have no material off-balance sheet transactions.
New Accounting Pronouncements
In March 2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting for
Servicing of Financial Assets--An Amendment of FASB Statement No. 140." Among
other requirements, FAS 156 requires a company to recognize a servicing asset or
servicing liability when it undertakes an obligation to service a financial
asset by entering into a servicing contract under certain situations. Under FAS
156 an election can also be made for subsequent fair value measurement of
servicing assets and servicing liabilities by class, thus simplifying the
accounting and provide for income statement recognition of potential offsetting
changes in the fair value of servicing assets, servicing liabilities and related
derivative instruments. The Statement will be effective beginning the first
fiscal year that begins after September 15, 2006. We do not expect the adoption
of FAS 156 will have a material impact on our financial position or results of
operations.
8
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes". This interpretation requires companies to
determine whether it is more likely than not that a tax position will be
sustained upon examination by the appropriate taxing authorities before any part
of the benefit can be recorded in the financial statements. FIN 48 provides
guidance on de-recognition, classification, accounting in interim periods and
disclosure requirements for tax contingencies. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The differences between the amounts
recognized in the statements of financial position prior to the adoption of FIN
48 and the amounts reported after adoption will be accounted for as a
cumulative-effect adjustment recorded to the beginning balance of retained
earnings. We are evaluating the impact of this new pronouncement to our
financial position and results of operations or cash flows.
In September 2006, the SEC released Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements". SAB 108 provides
interpretive guidance on the SEC's views regarding the process of quantifying
materiality of financial statement misstatements. SAB 108 is effective for
fiscal years ending after November 15, 2006, with early application for the
first interim period ending after November 15, 2006. We do not expect the
adoption of SAB 108 will have a material impact on our financial position or
results of operations.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We are evaluating the impact of this
new pronouncement to our financial position and results of operations or cash
flows.
In September 2006, the FASB issued Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)". SFAS 158 requires
companies to recognize the overfunded or underfunded status of a defined benefit
post-retirement plan as an asset or liability in its balance sheet and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income, effective for fiscal years ending after December
15, 2006. SFAS 158 also requires companies to measure the funded status of the
plan as of the date of its fiscal year-end, with limited exceptions, effective
for fiscal years ending after December 15, 2008. We do not expect the adoption
of SFAS 158 will have a material impact on our financial position or results of
operations, as we do not currently have any defined benefit pension or other
post-retirement plans.
III. Description of Property
AutoMart leases approximately nine hundred ten (910) square meters in a
corporate office in the Haidian District of Beijing at an annual rate of
approximately $166 per square meter. We also lease the other operating
facilities including nine (9) small or "Economic" service centers ranging in
approximate size from two hundred (200) square meters to seven hundred fifty
(750) square meters, at approximate annual lease rates ranging from $25 to $165
per square meter, and the following large or "Central" service centers:
Annual Lease Rate
Center Square Meters Per Square Meter
- ------------ ----------------- -----------------
Huo Xing 4,690 USD $59.30
Shi Ba Li 6,224 USD $44.69
Si Ji Qing 3,185 USD $42.57
9
IV. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information regarding the
post-Merger beneficial ownership of our voting capital stock of (i) each person
known to us to beneficially own more than five percent (5%) of the applicable
class of voting securities, (ii) our Directors, (iii) and each named executive
officer and (iv) all Directors and executive officers as a group. As of February
13, 2007, a total of 111,595,619 shares of Common Stock outstanding and a total
of 2,000,000 shares of our Class B Common were outstanding. No shares of our
Class C Common were issued and outstanding at February 13, 2007. Each share of
Common Stock is entitled to one (1) vote on matters on which holders of Common
Stock are eligible to vote. Each share of Class B Common is entitled to one
hundred (100 votes) on matters on which holders of the Common Stock are eligible
to vote. The column entitled "Percentage of Ownership" shows the percentage of
each class of voting stock beneficially owned by each listed party.
The number of shares beneficially owned is determined under rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within sixty (60) days of February 13, 2007, through the
exercise or conversion of any stock option, convertible security, warrant or
other right. Unless otherwise indicated, (a) each person or entity named in the
table has sole voting power and investment power (or shares that power with that
person's spouse) with respect to all shares of capital stock listed as owned by
that person or entity and (b) each person or entity has the following address:
c/o Deep Field Technologies, Inc., 2222 Second Street, Fort Myers, FL 33901.
Shares Beneficially Percentage
Name and Position(s) Title of Class Owned Ownership (1)
- ------------------------------ -------------- ------------------- -------------
Mr. Guisan Pang Common Stock 13,567,526(2) 12.16%
CEO and Chairman of the Board Class B Common 326,607(3) 16.33%
Mr. Shanhui Wang Common Stock 13,770,027(4) 12.34%
Vice President and Director Class B Common 331,482(5) 16.57%
Mr. Bing Ren Common Stock 13,770,027(4) 12.34%
Vice President and Director Class B Common 331,482(5) 16.57%
Mr. Pang Liyong Common Stock 13,770,027(4) 12.34%
Vice President and Director Class B Common 331,482(5) 16.57%
Mr. Fred J. Griffin Common Stock -- --
CFO and Director Class B Common -- --
Mr. Scott D. Cray Common Stock 8,340,959(6) 7.47%
Director Class B Common 200,789(7) 10.04%
10
Mr. Derek S. Cray Common Stock -- --
Director Class B Common -- --
Mr. Blair J. McInnes Common Stock -- --
Director Class B Common -- --
Mr, David A. Dodge Common Stock -- --
Director Class B Common -- --
Mr. Steven M. Merrick Common Stock -- --
Director Class B Common -- --
Mr. James Schneider Common Stock -- --
Director Class B Common -- --
All Directors and Executive Common Stock 63,218,565 56.65%
Officers as a Group (11 Class B Common 1,521,842 76.09%
persons)
Beijing Jinche Yingang Common Stock 54,877,606 48.31%
Automobile Service Center Class B Common 1,321,053 66.05%
No. 102-2, Building No 3,
Wan Liu Xin Ji Yuan,
Haidian district,
Beijing, China
Chuen Kin Quek Common Stock 4,372,718 3.85%
20 Lewis Terrace, Unit 1, Class B Common 105,263 5.26%
Newton, MA 02458
Mayflower Auto Group, LLC Common Stock 23,831,311 20.98%
2222 Second Street Class B Common 573,684 28.68%
Fort Myers, FL 33901
(1) Percentage ownership for Common Stock is based on 111,595,619 shares issued
and outstanding and percentage ownership for Class B Common is based on
2,000,000 shares outstanding.
(2) Mr. Guisan Pang owns 16.75% of Beijing Jinche Yingang Automobile Service
Center and therefore, he may be considered the beneficial owner of those
13,567,526 shares of Common Stock.
(3) Mr. Guisan Pang owns 16.75% of Beijing Jinche Yingang Automobile Service
Center and therefore, he may be considered the beneficial owner of those 326,607
shares of Class B Common.
(4) This individual owns 17% of Beijing Jinche Yingang Automobile Service Center
and therefore, he may be considered the beneficial owner of those 13,770,027
shares of Common Stock.
(5) This individual owns 17% of Beijing Jinche Yingang Automobile Service Center
and therefore, he may be considered the beneficial owner of those 331,482 shares
of Class B Common.
11
(6) Mr. Cray owns 35% of Mayflower Auto Group, LLC and therefore, he may be
considered the beneficial owner of those 8,340,959 shares of Common Stock.
(7) Mr. Cray owns 35% of Mayflower Auto Group, LLC and therefore, he may be
considered the beneficial owner of those 200,789 shares of Class B Common.
V. Directors, Executive Officers, Promoters and Control Persons
Listed below are the Post-Merger name, age, title and business experience
of the executive officers and Directors of the Registrant:
Name Age Title
- -------------------- ---------- ------------------------------
Mr. Guisan Pang 63 CEO and Chairman of the Board
Mr. Shanhui Wang 36 Vice President and Director
Mr. Bing Ren 44 Vice President and Director
Mr. Liyong Pang 33 Vice President and Director
Mr. Fred J. Griffin 55 CFO and Director
Mr. Scott D. Cray 57 Director
Mr. Derek S. Cray 36 Director
Mr. Blair J. McInnes 57 Director
Mr. David A. Dodge 32 Director
Mr. Steven M. Merrick 65 Director
Mr. James Schneider 47 Director
Guisan Pang Mr. G. Pang has served as the Registrant's Chief Executive
Officer and as Chairman of the Board of Directors since February 13, 2007. Mr.
G. Pang has served (and continues to serve) as Chief Executive Officer and as
Chairman of the Board of Directors of AutoMart since August 2005. Prior to that,
Mr. Pang served as Chairman of the Board of Beijing Jinche Yingang Automobile
Services Center from March 2004 through August 2005. Mr. G. Pang founded the
predecessor of AutoMart in 2001 as Beijing South Grand Trade Ltd. Mr. G. Pang
served previously as General Manager of National Weaponry Industrial Co. from
January 2002 through March 2004, and prior to that he served as General Manager
of China Northern Equipment Engineering and General Manager of China Yan Xing
Co. Prior to that Mr. G. Pang served with the Ministry of Weaponry, rising to
the level of Director of North Asia Material. In 1992, Mr. G. Pang was elected
Deputy Director of the China Automobile Information Network. In 1995, Mr. G.
Pang was recognized as a Marketing Expert by the State Council of the People's
Republic of China.
Shanhui Wang Mr. Wang has served as Vice President and as a Director of
the Registrant since February 13, 2007. Mr. Wang has served (and continues to
serve) as Vice President and as a Director of AutoMart since August 2005. From
May 2004 through August 2005, Mr. Wang served as Deputy General Manager of
Beijing Jinche Yingang Automobile Services Center and from January 2002 through
May 2004, he served as Deputy General Manager of Shang Fang Weije Car Sale Co.,
Ltd. in China. Prior to that, Mr. Wang served as operations director for Yanxing
Company for the Weaponry Ministry of China. Mr. Wang served the ministry in
Russia from 1997 to 1998 as manager of foreign business affairs. He is a
graduate of Chongqing Commercial College with a major in Statistics.
Bing Ren Mr. Ren has served as Vice President and as a Director of the
Registrant since February 13, 2007. Mr. Ren has served (and continues to serve)
as Vice President and as a Director of AutoMart since August 2005. From May 2004
through August 2005, Mr. Ren served as Deputy General Manager of Beijing Jinche
Automobile Services Center and from January 2002 through May 2004, he served as
Deputy General Manager of Shang Fang Weije Car Sale Co., Ltd. in China. Mr. Ren
was previously a manager in Yanxing Advertising Company. Prior to his work in
advertising, Mr. Ren was a professional actor, performing in the theater of
Shanxi Province for ten (10) years before moving to Beijing. He is a graduate of
Beijing Broadcasting Institute.
12
Liyong Pang Mr. L. Pang has served as Vice President and as a Director of
the Registrant since February 13, 2007. Mr. L. Pang has served (and continues to
serve) as Vice President and as a Director of AutoMart since August 2005. From
May 2004 through August 2005, Mr. L. Pang served as Deputy General Manager of
Beijing Jinche Automobile Services Center and from January 2002 through May
2004, he served as Deputy General Manager of Shang Fang Weije Car Sale Co., Ltd.
Auto Sales Company in China. Prior to that, Mr. L. Pang served with Yanxing
Company for the Weaponry Ministry of China. He is a graduate of Nanking
University earning a degree in Marketing and Automotive Engineering.
Fred J. Griffin Mr. Griffin has served as Chief Financial Officer and as a
Director of the Registrant since February 13, 2007. Mr. Griffin has served (and
continues to serve) as CFO of AutoMart since January 2006 and as a Director
since July 2006. Mr. Griffin also serves as interim CFO of Nanoscience
Technologies, Inc. (OTCBB:NANS). From December 2004 through January 2006, Mr.
Griffin worked as an independent private consultant and from January 2003
through December 2004, he served as CFO of Simex Technologies, Inc., at that
time a U.S. publicly-traded company (OTCBB: SMXT). From January 2002 through
January 2003, Mr. Griffin worked as an independent private consultant. Mr.
Griffin joined AutoMart through his association with Mayflower Auto Group, LLC
primarily to assist in the transition of AutoMart from a private PRC operating
company to a publicly-traded company. Mr. Griffin has more than thirty (30)
years of financial and accounting experience and is a former partner in the
international accounting firm of Deloitte Haskins & Sells, now known as Deloitte
& Touche. Mr. Griffin earned his a B.S. degree in accounting from Louisiana
State University.
Scott D. Cray Mr. S. Cray has served as a Director of the Registrant since
February 13, 2007 and as a Director of AutoMart since January 2006. Mr. S. Cray
has served as President of Cray Construction & Development, Inc., a
multi-million dollar construction company involved in residential and commercial
development in Southwest Florida, since founding the company in Fort Myers,
Florida in 2002. In 2005, Mr. S. Cray co-founded and is a Managing Member of
Mayflower Auto Group, LLC. In 2003, Mr. S. Cray founded and is a Principal and
Member of Haul-N-Mining, LLC, an active joint-venture involved in mining and
land development located in Charlotte County, Florida.
Derek S. Cray Mr. D. Cray has served as a Director of the Registrant since
February 13, 2007 and as a Director of AutoMart since January 2006. Mr. D. Cray
has served as Principal and as Project Manager of Cray Construction &
Development, Inc., a multi-million dollar construction company involved in
residential and commercial development in Southwest Florida, since 2002. In
2003, Mr. D. Cray founded and is a Principal and Member of Haul-N-Mining, LLC,
an active joint-venture involved in mining and land development located in
Charlotte County, Florida. In 2005, Mr. D. Cray founded and is a Principal and
Member of Sandy-Key Lane, LLC, a land development holding company in Fort Myers,
Florida.
Blair J. McInnes Mr. McInnes has served as a Director of the Registrant
since February 13, 2007 and as a Director of AutoMart since January 2006. In
January 2002 Mr. McInnes founded and serves as President and COO of Tesscourt
Capital Limited of Winnipeg, Manitoba Canada. Mr. McInnes is also a founder of
FGN USA, Inc., a worldwide distributor of neutraceutical products.
David A. Dodge Mr. Dodge has served as a Director of the Registrant since
February 13, 2007 and as a Director of AutoMart since July 2006. He is the Chief
Financial Officer of NeoMedia Technologies, Inc. ("NeoMedia"), a publicly-traded
communications technology company in Fort Myers, Florida. Mr. Dodge joined
NeoMedia in 1999 as the Financial Reporting Manager. Since then, Mr. Dodge has
acted as NeoMedia's Director of Financial Planning and Controller, and currently
holds the title of Vice President and Chief Financial Officer. Prior to joining
NeoMedia in 1999, Mr. Dodge was an auditor with Ernst & Young LLP for two (2)
years. Mr. Dodge earned his B.A. in economics from Yale University and an M.S.
in accounting from the University of Hartford, and is also a Certified Public
Accountant.
13
Steven M. Merrick Mr. Merrick has served as a Director of the Registrant
since February 13, 2007. Mr. Merrick has been a Director of CTI Industries,
Inc., a publicly traded U.S. company (NASDAQ Capital Market: CTI) for more than
twenty (20) years and has been an officer of the Company since 1996. Mr. Merrick
was a principal of the law firm Merrick & Associates, P.C. and is Of Counsel to
the law firm of Vanasco Genelly & Miller, Chicago, Illinois and has been engaged
in the practice of law for more than forty (40) years. Mr. Merrick is also
Senior Vice President, Director and a member of the Management Committee of
Reliv International, Inc. (NASDAQ-GS: RELV), a manufacturer and direct marketer
of nutritional supplements and food products.
James H. Schneider Mr. Schneider has served as a Director of the
Registrant since February 13, 2007. Mr. Schneider is Vice President of Cray
Construction & Development, Inc., a multi-million dollar construction company
involved in residential and commercial development in Southwest Florida where he
oversees both Land Development and Residential Construction. Mr. Schneider
joined Cray Construction in 2002. In 2002 Mr. Schneider founded and served
through 2004 as Founding Member of Old Burnt Store-50, LLC, a fifty (50) acre
mining operation and single-family residential development in Punta Gorda,
Florida. From 2003 through 2004, Mr. Schneider was a Member and General Manager
of Quality Materials, LLC, a four hundred (400) acre mining operation in Port
Charlotte Florida. In 2003, Mr. Schneider founded and serves as Founding Member
and President of Haul-N-Mining, an active Mining operation in Charlotte County
Florida. In 2005, Mr. Schneider founded and is a Member of Calypso Cove, LLC and
Sandy Key Lane, LLC, both land holding companies. Mr. Schneider also serves as
Chief Executive Officer and a Director of Nanoscience Technologies, Inc. (OTCBB:
NANS). James holds a B.S. degree in Accounting from the University of South
Florida, and his General Contractor's License.
VI. Executive Compensation
The following table sets forth compensation information for services
rendered by certain of our former executive officers prior to the Merger in all
capacities during the last three (3) completed fiscal years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
Summary Compensation Table
All Other
Name and Other Annual Restricted Underlying Securities
Position(s) Year Salary($) Bonus Compensation Stock Options Compensation
---- ------------ ------- ------------ ------------ ------------ ------------
Jerome Mahoney 2005 $ 86,133 (1) $ 0 $ 0 $ 0 $ 0 $ 0
Former Chairman 2004 $ 21,250 $ 0 $ 0 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Mark Meller 2005 $ 136,133 (2) $ 0 $ 0 $ 0 $ 0 $ 0
Former CEO, CFO,
President and
Director 2004 $ 21,250 $ 0 $ 0 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(1) $82,383 was accrued and unpaid in fiscal year 2005. (2) $132,383 was accrued
and unpaid in fiscal year 2005.
14
Employment Agreements
None.
Equity Compensation Plans
ALL COMPENSATION PLANS PREVIOUSLY APPROVED BY SECURITY HOLDERS; AND
ALL COMPENSATION PLANS NOT PREVIOUSLY APPROVED BY SECURITY HOLDERS
Number of Weighted
securities to be average exercise Number of
issued upon exercise price of securities
of outstanding outstanding remaining
options, warrants options, warrants for available
Plan category and rights(a) and rights(b) future issuance(c)
- ---------------------------- -------------------- ----------------- ------------------
Equity compensation plans 0 $ 0.00 0
approved by security holders
Equity compensation plans not 4,000,000(1) $ 0.00 4,000,000(1)
approved by security holders
-------------------- ----------------- ------------------
Total 4,000,000(1) $ 0.00 4,000,000(1)
(1) Includes 2,000,000 Common Stock shares for each of the Deep Field
Technologies, Inc. 2005 Stock Incentive Plan and the 2005 Directors' and
Officers' Stock Incentive Plan. Both plans were adopted by the Board of
Directors on December 12, 2005.
The Company did not issue any stock options or shares under either stock
incentive plan listed above for the years ended December 31, 2005 and 2004.
VII. Certain Relationships and Related Transactions
The Registrant entered into a five-year employment agreement with Jerome
Mahoney, its former non-executive Chairman of the Board of Directors, effective
August 3, 2004. On February 13, 2007, the Registrant entered into a Termination
& Settlement Agreement with Mr. Mahoney whereby the parties thereto terminated
Mr. Mahoney's August 3, 2004 Employment Agreement.
The Registrant entered into a five-year employment agreement with Mark
Meller, its former President, CEO, CFO and Director, effective October 1, 2004.
On February 13, 2007, the Registrant entered into a Termination & Settlement
Agreement with Mr. Meller whereby the parties thereto terminated Mr. Meller's
October 1, 2004 Employment Agreement.
In connection with the assumption of assets and liabilities by the
Registrant from iVoice, the Registrant assumed $190,000 of outstanding
indebtedness from iVoice to Mr. Mahoney. The debt was subject to a promissory
note (the "Note") having substantially the same terms as the terms applicable to
the indebtedness from iVoice to Mr. Mahoney. On August 5, 2005, the Registrant
issued the $190,000 Note payable to Mr. Mahoney, which bore interest at the
prime rate plus two percent (2%) per annum. On the Transaction Date, the
Registrant and Mr. Mahoney entered into a Termination & Settlement Agreement
pursuant to which the Registrant settled all obligations owed by the Registrant
to Mr. Mahoney, including, without limitation, the Note, which has now
terminated.
15
On January 29, 2007, AutoMart issued a promissory note to Mr. Scott D.
Cray in the principal amount of $135,000 (the "Cray Note"). Mr. Cray is the
Managing Member of Mayflower, a Director of AutoMart and post- Merger Director
of the Registrant. The Cray Note bears interest at a rate of twelve percent
(12%) per annum, matures on January 28, 2008 and is secured by all of the assets
of AutoMart and in the stock and assets of each of AutoMart's subsidiaries.
Pursuant to the Cray Note, upon the closing the Exchange Agreement, the
principals of AutoMart will issue to Mr. Cray warrants to purchase 85,000 shares
of Common Stock at a price of $0.19 per share, which was the closing bid price
on the date of the Cray Note. The warrants have a three-year maturity and a
cashless exercise provision.
VIII. Description of Securities
Pursuant to our Certificate of Incorporation, the Registrant is authorized
to issue up to: One Million (1,000,000) shares of preferred stock, par value
$1.00 per share ("Preferred"), Ten Billion (10,000,000,000) shares of Class A
Common Stock, no par value per share, Fifty Million (50,000,000) shares of Class
B Common, par value $0.01 per share and Twenty Million (20,000,000) shares of
Class C common stock ("Class C Common"), par value $0.01 per share. Below is a
description of the Registrant's outstanding securities, including its Preferred,
Common Stock, Class B Common, Class C Common, options, warrants and debt.
Preferred Stock
The Board of Directors expressly is authorized, subject to limitations
prescribed by the New Jersey Business Corporations Act ("NJBCA") and the
provisions of the Certificate of Incorporation, to provide, by resolution and by
filing an amendment to the Certificate of Incorporation pursuant to the NJBCA,
for the issuance from time to time of the shares of Preferred in one (1) or more
series, to establish from time to time the number of shares to be included in
each series, and to fix the designation, powers, preferences and other rights of
the shares of each such series and to fix the qualifications, limitations and
restrictions thereon, including, but without limiting the generality of the
foregoing, the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) whether that series shall have voting rights, in addition
to voting rights provided by law, and, if so, the terms of such
voting rights;
(d) whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption
dates;
16
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the Registrant, and the relative rights of priority, if any, of
payment of shares of that series; and
(h) any other relative powers, preferences and rights of that
series, and qualifications, limitations or restrictions on that
series.
In the event of any liquidation, dissolution or winding up of the
Registrant, whether voluntary or involuntary, the holders of Preferred of each
series shall be entitled to receive only such amount or amounts as shall have
been fixed by the certificate of designations or by the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
As of February 13, 2007, there were zero (0) shares of Preferred issued and
outstanding.
Class A Common Stock
Each holder of our Common Stock is entitled to one (1) vote for each share
held of record. Holders of our Common Stock have no preemptive, subscription,
conversion, or redemption rights. Upon liquidation, dissolution or winding-up,
the holders of Common Stock are entitled to receive our net assets pro rata.
Each holder of Common Stock is entitled to receive ratably any dividends
declared by the Board of Directors of the Registrant out of funds legally
available for the payment of dividends. We have not paid any dividends on our
Common Stock and do not contemplate doing so in the foreseeable future. We
anticipate that any earnings generated from operations will be used to finance
our growth.
As of February 13, 2007, there were 111,595,619 shares of Common Stock
issued and outstanding.
Class B Common Stock
Each holder of Class B Common has voting rights equal to one hundred (100)
shares of Common Stock. Holders of Class B Common are entitled to receive
dividends in the same proportion as the Class B Common conversion rights have to
Common Stock. There are Fifty Million (50,000,000) shares of our Class B Common
authorized and as of February 13, 2007, of which zero (0) shares issued and
outstanding. A holder of Class B Common has the right to convert each share of
Class B Common into the number of shares of Common Stock determined by dividing
the number of shares of Class B Common being converted by a twenty percent (20%)
discount of the lowest price that the Registrant had ever issued its Common
Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B
Common will be entitled to receive distributions.
Class C Common Stock
Each holder of our Class C Common is entitled to one (1) vote for each one
thousand (1,000) shares held of record. Holders of our Class C Common have no
preemptive, subscription, conversion, or redemption rights. Shares of Class C
Common are not convertible into Common Stock. There are Twenty Million
(20,000,000) shares authorized and as of February 13, 2007, of which zero (0)
shares issued and outstanding. Upon liquidation, dissolution or winding-up, the
holders of Class C Common are not entitled to receive our net assets pro rata.
We have not paid any dividends on our common stock and do not contemplate doing
so in the foreseeable future. We anticipate that any earnings generated from
operations will be used to finance our growth.
17
Options and Warrants
During the year ended December 31, 2005, the Company adopted the 2005
Stock Incentive Plan and the 2005 Directors' and Officers' Stock Incentive Plan
(the "Plan") in order to attract and retain qualified personnel. Under the Plan,
the Board of Directors of the Registrant in its discretion may grant stock
options (either incentive or non-qualified stock options) to officers and
employees to purchase Common Stock. The Registrant did not issue any stock
options for the years ended December 31, 2006, 2005 and 2004.
Debt
In order to provide necessary working capital for the Registrant, on
August 12 and November 19, 2004, Deep Field Technologies issued an aggregate of
$400,000 in secured convertible debentures, with interest payable at five
percent (5%) per annum, to Cornell. On February 28, 2005, the Registrant's
obligations under the secured convertible debentures were terminated and
replaced with a secured promissory note of the same principal amount, which note
accrues interest at rate of twelve percent (12%) per annum, but is not
convertible into any equity security of the Registrant. On February 28, 2005,
the Registrant borrowed an additional $100,000 pursuant to such promissory note.
In connection with the issuances of the secured convertible debentures, the
Registrant paid a fee to Cornell equal to ten percent (10%) of the aggregate
principal amount of the debentures. When the secured convertible debentures were
terminated, the Registrant received a credit for fees that would otherwise have
been payable upon the issuance of the $400,000 in replacement notes. The
Registrant paid to Cornell a fee of $10,000 in connection with its $100,000
borrowing.
The Registrant's obligations under the secured promissory note issued to
Cornell are secured by a first priority security interest in substantially all
of the Registrant's assets. iVoice had also guaranteed the payment of all
amounts payable by the Registrant pursuant to the secured promissory note. This
guaranty terminated on August 5, 2005. On September 9, 2005, the Registrant
entered into a Standby Equity Distribution Agreement with Cornell, pursuant to
which the Registrant may, from time to time, issue and sell to Cornell shares of
Common Stock for a total purchase price of up to $10 million. The purchase price
for the shares is ninety-five percent (95%) of the market price, which is
defined as the lowest closing bid price of the Common Stock during the five (5)
trading days following the date that the Registrant delivers to Cornell a notice
requiring it to advance funds to the Registrant. A cash fee equal to six percent
(6%) of the cash proceeds of the draw down is also payable at the time of
funding. In addition, Cornell is entitled to receive, as additional
compensation, that number of shares of Common Stock equal to one and one half
percent (1.5%) of the number of shares of Common Stock outstanding on the date
that a registration statement in respect of the shares to be distributed
pursuant to the SEDA becomes effective. However, due to the Merger, the
Registrant has delayed any attempts to obtain additional financing and the
Registrant intends on terminating the SEDA.
On the Transaction Date, the Registrant assumed all obligations of
Mayflower with respect to the issuance by Cornell to Mayflower of the Mayflower
Notes equal to Three Million Three Hundred Fifty Thousand Dollars ($3,350,000).
Pursuant to that certain Assignment Agreement, by and among the Registrant,
Mayflower and Cornell (the "Assignment Agreement"), upon the assumption by the
Registrant of the Mayflower Notes, 23,800,000 shares of Common Stock and 600,000
shares of Class B Common were pledged, as well as all of Registrant's assets, to
secure the Mayflower Notes. Furthermore, the Registrant issued to Cornell (a) a
warrant to purchase 25,000,000 shares of Common Stock at an exercise price of
$0.10 per share for a period of five (5) years, (b) a warrant to purchase
10,000,000 shares of Common Stock at an exercise price of $0.15 per share for a
period of five (5) years, (c) a warrant to purchase 7,500,000 shares of Common
Stock at an exercise price of $0.20 per share for a period of five (5) years,
(d) a warrant to purchase 6,000,000 shares of Common Stock at an exercise price
of $0.25 per share for a period of five (5) years and (e) a warrant to purchase
5,833,333 shares of Common Stock at an exercise price of $0.30 per share for a
period of five (5) years.
18
On January 29, 2007, AutoMart issued a promissory note to Mr. Scott D.
Cray in the principal amount of $135,000 (the "Cray Note"). Mr. Cray is the
Managing Member of Mayflower, a Director of AutoMart and post- Merger Director
of the Registrant. The Cray Note bears interest at a rate of twelve percent
(12%) per annum, matures on January 28, 2008 and is secured by all of the assets
of AutoMart and in the stock and assets of each of AutoMart's subsidiaries.
Pursuant to the Cray Note, upon the closing the Exchange Agreement, the
principals of AutoMart will issue to Mr. Cray warrants to purchase 85,000 shares
of Common Stock at a price of $0.19 per share, which was the closing bid price
on the date of the Cray Note. The warrants have a three-year maturity and a
cashless exercise provision.
IX. Market Price of and Dividends on the Registrant's Common Equity and Other
Shareholder Matters
Market Information
The Registrant's Common Stock is quoted on the NASD OTC Bulletin Board
under the symbol "DPFD". The following table shows the high and low closing
prices for the periods indicated.
High Low
----- -----
2006
First Quarter $0.34 $0.04
Second Quarter $0.29 $0.13
Third Quarter $0.16 $0.08
Fourth Quarter $0.21 $0.09
Holders of Common Equity
As of January 19, 2007, the number of record holders of our common shares
was approximately seven hundred forty-five (745).
Dividend Information
To date, the Registrant has never paid a dividend. We have no plans to pay
any dividends in the near future. We intend to retain all earnings, if any, for
the foreseeable future, for use in our business operations.
Recent Sales of Unregistered Securities
On January 5, 2006, the Registrant issued 1,000,000 shares to Mr. Mahoney
and 1,000,000 shares to Mr. Miller for accrued salary conversion.
On January 9, 2006 the Registrant issued 3,250,000 shares to Mr. Mahoney
and 3,250,00 shares to Mr. Miller for accrued salary conversion.
On January 5, 2006, the Registrant issued 2,000,000 shares to Mr. Lawrence
Muenz for legal services rendered.
On January 9, 2006, the Registrant issued 1,000,000 shares to Mr. Lawrence
Muenz for legal services rendered.
On the Transaction Date, the Registrant issued 83,081,635 shares of Common
Stock and 2,000,000 shares of Class B Common to the JV Participants in
connection with the Exchange Agreement.
On the Transaction Date, the Registrant issued 4,000,000 shares to iVoice
pursuant to the terms of the iVoice Consulting Agreement.
19
On the Transaction Date, the Registrant issued 4,000,000 shares to MM2
pursuant to the terms of the MM2 Consulting Agreement.
In the year ending December 31, 2005, the Company issued no unregistered
securities pursuant to various exemptions from registration under the Securities
Act.
X. Legal Proceedings
The Company is not a party to any material pending legal or arbitration
proceedings and is not aware of any material contemplated legal proceedings to
which it may be a party. No Director, officer or affiliate of the Registrant and
no owner of record or beneficial owner of more than five percent (5%) of the
securities of the Registrant, or any associate of any such Director, officer or
security holder is a party adverse to the Registrant or has an material interest
adverse to the Registrant.
XI. Risk Factors
An investment in our Common Stock involves various risks. You should carefully
consider the risk factors set forth below in connection with the other
information contained in this report before before purchasing Common Stock. If
any of the risks discussed in this report actually occur, our business,
operating results, prospects and/or financial condition could be adversely
impacted. This could cause the market price of the Common Stock to decline and
could cause you to lose all or part of your investment.
AutoMart Is A Company Organized In And Operating Under The Laws Of The Peoples
Republic Of China.
AutoMart's original predecessors, Beijing Jinche Yingang Automobile Services
Center (Jinche) and Beijing Shang Fang Weije Car Sale Co. Ltd. (Shang Fang), are
registered and existing under the laws of the People's Republic of China. Jinche
was formed on November 21, 2003 and Shang Fang was formed on August 14, 2002. In
anticipation of the Exchange Agreement with the Registrant, AutoMart obtained
approval from all appropriate PRC regulatory authorities to operate pursuant to
the ownership and operating structure contemplated in the Exchange Agreement.
AutoMart's commercial operations are conducted solely in the PRC, and are
subject to the laws thereof. Such laws are subject to change and any such change
could affect the Company's operations and ability to conduct its business as
anticipated in the exchange agreement.
AutoMart's Operating History Is Relatively Brief.
The majority of AutoMart's facilities have been added within the past twelve
(12) months, and our experience in managing these operations profitably is
therefore limited.
In The Near Term, AutoMart Will Likely Require Additional Funding For the
Development and Expansion of Our Operations.
The Company will require significant additional funding for the development of
our business through expansion of our existing facilities, development of new
facilities in Beijing and throughout China, expansion of our product and service
offerings, and the addition of related vertical businesses. AutoMart have no
established bank financing arrangements, and do not expect to establish any such
financing arrangement in the near future. Therefore, to the extent that we are
unable to fund our development efforts from operating working capital, it will
likely be necessary to reconsider expansion plans, and our ability to sustain
our market revenue share may be adversely affected.
20
The Company Will Require Significant Expansion In Order To Remain Competitive.
While we currently enjoy a leadership position in the auto repair and
maintenance industry in the Beijing, area, we expect increasing competitive
pressure in the next few years, and we must continue to grow to maintain that
position in the market. We do not expect to be able to fund all of this growth
through internally-generated cash flow, and there is no guarantee that we will
be able to secure sufficient financing to fund this further expansion.
If We Lose Key Management, Our Business May Suffer.
We are highly dependent on our Chief Executive Officer, Mr. Pang Guisan, as well
as our executive management group to manage our business and carry out our
growth plan. Should any occurrence result in the incapacity of any of these
officers to continue his duties with the Company, the operation of our business
could be adversely affected.
We Will File A Registration Statement Registering A Large Number Of Shares That
May Be Sold In The Public Market After The Closing Of The Exchange Agreement,
Which May Cause The Price Of Our Common Stock To Decline.
We are obligated under an agreement with certain of our investors to file a
registration statement after the closing of the Exchange Agreement. These shares
of Common Stock, upon acquisition pursuant to the registration statement, unless
held by "affiliates" will be freely tradable without restriction or further
registration under federal securities laws immediately following their sale
pursuant to the registration. Sales of a substantial number of shares of our
Common Stock in the public markets, or the perception that these sales may
occur, could cause the market price of our Common Stock to decline and could
materially impair our ability to raise capital through the sale of additional
equity securities.The Market Price Of Our Common Stock Could Be Volatile And
Your Investment Could Suffer A Decline In Value.
The market price for our Common Stock, as with many emerging companies, is
likely to be volatile and could be susceptible to wide price fluctuations due to
a number of internal and external factors, many of which are beyond our control,
including:
o Quarterly variations in operating results and overall financial
condition;
o Economic and political developments affecting the economy as a
whole, and China in particular;
o Short-selling programs;
o The stock market's perception of the auto repair industry in China;
o Changes in earnings estimates by analysts;
o Additions or departures of key personnel; and
o Sales of substantial numbers of shares of common stock or securities
convertible into or exercisable for our common stock.
We Have A Small Public Float, Which Result In A Thin Trading Market For Our
Shares.
The public float of our Common Stock is small in comparison to our total shares
outstanding on a fully diluted basis, resulting in a very thin public market for
the trading of our shares, and we expect limited trading volume for the
foreseeable future. Limited trading volume entails a high degree of volatility
in our stock price. This limited liquidity and volatile stock price will likely
continue for the foreseeable future.
21
The Application Of The "Penny Stock" Rules Could Adversely Affect The Market
Price Of Our Common Stock And Increase Your Transaction Costs To Sell Those
Shares.
As long as the trading price of our Common Stock is below $5.00 per share, the
open-market trading of our Common Stock will be subject to the "penny stock"
rules. The penny stock rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1 million 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 securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the SEC relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. These additional burdens imposed on
broker-dealers may restrict the ability or decrease the willingness of
broker-dealers to sell our Common Stock, and may result in decreased liquidity
of our common stock and increased transaction costs for sales and purchases of
our Common Stock as compared to other securities.
Item 3.02 Unregistered Sales of Equity Securities
See Item 2.01 herein above under the subtitle "Recent Sales of
Unregistered Securities".
Item 4.01 Change in Registrant's Certifying Accountant
(a) Previous Independent Accountants
(1) (i) Effective February 13, 2007, Bagell, Josephs, Levine & Company, LLC
("Bagell") was dismissed as Registrant's independent registered public
accounting firm.
Bagell's report on the Registrant's financial statements for the years
ended December 31, 2005 and 2004past two (2) fiscal years contained a
modification expressing substantial doubt about the Registrant's ability to
continue as a going concern. The auditors' report for the years ended December
31, 2005 and 2004 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified as to audit scope, or accounting principles.
(iii) The change of independent registered public accountants was approved
by the Audit Committee of Registrant's Board of Directors on February 13, 2007.
(iv) During the Registrant's most recent two (2) fiscal years, as well as
the subsequent interim period through February 13, 2007, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
22
(v) During the Registrant's most recent two (2) fiscal years, as well as
the subsequent interim period through February 13, 2007, Bagell did not advise
the Registrant of any of the matters identified in Item 304(a)(1)(iv)(B) of
Regulation S-B.
(vi) The Registrant has requested Bagell to furnish a letter addressed to
the SEC stating whether it agrees with the statements made by the Registrant
and, if not, stating the respects in which it does not agree. A copy of such
letter is attached hereto as Exhibit 16.1.
(b) New Independent Accountants
On February 13, 2007, the Registrant engaged Stonefield Josephson, Inc.
("Stonefield") as its independent registered public accounting firm to audit the
Registrant's financial statements. The Registrant did not consult Stonefield on
any matters described in Item 304(a)(2)(i) or (ii) of Regulation S-B during the
Registrant's two (2) most recent fiscal years or any subsequent interim period
prior to engaging Stonefield.
Item 5.01 Change in Control of Registrant
In connection with the transactions consummated by the Exchange Agreement
and pending the satisfaction of certain notice requirements under applicable New
Jersey corporate law (the "Notice"), the former holders of AutoMart capital
stock (the JV Participants) shall aquire control of the Registrant on February
28, 2007. Reference is made to the description of the Exchange Agreement and the
consideration paid in connection therewith set forth in Item 2.01.
As a result of the consummation of the Exchange Agreement and subject to
the Notice requirement, the former own holders of AutoMart capital stock (the JV
Participants) shall own over ninety percent (90%) of the outstanding voting
securities of the Registrant. The holders of capital stock of the Registrant
immediately prior to the consummation of the Exchange Agreement and completion
of the Notice requirements shall retain less than ten percent (10%) of the
outstanding voting securities of the Registrant.
Reference is made to the disclosures contained in Item 2.01 with respect
to the disclosures to be made under Item 5.01(a)(8).
Item 5.02 Departure of Directors and Principal Officers; Election of Directors;
Appointment of Principal Officers
In connection with the transactions consummated by the Exchange Agreement,
the Board of Directors of the Registrant accepted the resignation of (a) Mr.
Mark Meller as President, Chief Executive Officer and Chief Financial Officer
and as a member of the Board of Directors of the Registrant and (b) Mr. Jerome
Mahoney as Chairman of the Board of Directors of the Registrant. Both
resignations are effective as of the Transaction Date.
In connection with the transactions consummated by the Exchange Agreement,
the Board of Directors of the Registrant appointed Mr. Guisan Pang to serve as
Chief Executive Officer and Chairman of the Board of the Registrant, Mr. Shanhui
Wang to serve as Vice President and as a Director of the Registrant, Mr. Bing
Ren to serve as Vice President and as a Director of the Registrant, Mr. Liyong
Pang to serve as Vice President and as a Director of the Registrant, Mr. Fred J.
Griffin to serve as Chief Financial Officer and as a Director of Registrant, Mr.
Scott D. Cray to serve as a Director of the Registrant, Mr. Derek S. Cray to
serve as a Director of the Registrant, Mr. Blair J. McInnes to serve as a
Director of the Registrant, Mr. David A. Dodge to serve as a Director of the
Registrant , Mr. Steven Merrick to serve as a Director of the Registrant and Mr.
James Schneider to serve as a Director of the Registrant, each appointment
effective as of the Transaction Date. Please refer to Item 2.01 herein above for
a detailed biography of each newly-appointed officer and Director.
23
Item 9.01 Financial Statements and Exhibits
(a) The Condensed Financial Statements (Unaudited) of AutoMart for the
nine (9) months ended September 30, 2006 and 2005 and the Audited Financial
Statements of AutoMart for the years ended December 31, 2005 and 2004 and notes
thereto are attached hereto.
(b) The Unaudited Pro Forma Consolidated Financial Statements relating to
the Registrant and giving effect to the acquisition of AutoMart are attached
hereto.
(c) Not Applicable.
(d) Exhibit No. Description:
Exhibit Description Location
10.1 Share Exchange Agreement, dated January 25, 2007, by and Incorporated by reference to the
among the Registrant, AutoMart and the JV Participants listed Registrant's Current Report on Form
therein 8-K as filed with the SEC on
January 31, 2007
10.2 Asset Purchase Agreement, dated February 13, 2007, by and Provided herewith
between the Registrant and iVoice.
10.3 Bill of Sale, dated February 13, 2007 Provided herewith
10.4 Consulting Agreement, dated February 13, 2007, by and between Provided herewith
the Registrant and Mr. Mark Meller
10.5 Consulting Agreement, dated February 13, 2007, by and between Provided herewith
the Registrant and Mr. Jerome Mahoney
10.6 Consulting Agreement, dated February 13, 2007, by and between Provided herewith
the Registrant and iVoice
10.7 Consulting Agreement, dated February 13, 2007, by and between Provided herewith
the Registrant and MM2 Group, Inc.
10.8 Termination & Settlement Agreement, dated February 13, 2007, Provided herewith
by and between the Registrant and Mr. Mark Meller
10.9 Termination & Settlement Agreement, dated February 13, 2007, Provided herewith
by and between the Registrant and Mr. Mark Meller
10.10 Assignment Agreement, by and among Registrant, Mayflower and Provided herewith
Cornell
10.11 Warrant DPFD 1-5, dated February 13, 2007, issue by Provided herewith
Registrant to Cornell
10.12 Warrant DPFD 2-5, dated February 13, 2007, issue by Provided herewith
Registrant to Cornell
10.13 Warrant DPFD 3-5, dated February 13, 2007, issue by Provided herewith
Registrant to Cornell
10.14 Warrant DPFD 4-5, dated February 13, 2007, issue by Provided herewith
Registrant to Cornell
10.15 Warrant DPFD 5-5, dated February 13, 2007, issue by Provided herewith
Registrant to Cornell
16.1 Auditor Letter Provided herewith
24
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
DEEP FIELD TECHNOLOGIES, INC.
Date: February 13, 2007 By: /s/ Fred Griffin
----------------------
Name: Fred Griffin
Title: Chief Financial Officer
25
DEEP FIELD TECHNOLOGIES, INC.
Index to Financial Statements
Financial Statements of AutoMart Page No.
Condensed Interim Financial Statements (Unaudited):
Condensed Balance Sheet as of September 30, 2006 F-1
Condensed Combined Statements of Operations and Comprehensive Income (Loss) F-2
Condensed Combined Statements of Cash Flows F-3
Notes to Condensed Financial Statements F-4-12
Financial Statements (Audited):
Report of Independent Registered Public Accounting Firm -- Stonefield Josephson, Inc. F-13
Balance Sheet as of December 31, 2005 F-14
Combined Statements of Operations and Comprehensive Income (Loss) F-15
Combined Statement of Stockholders' Equity F-16
Combined Statements of Cash Flows F-17
Notes to Combined Financial Statements F-18-31
Pro Forma Financial Information of Registrant (Unaudited):
Pro Forma Condensed Combined Balance Sheet as of September 30, 2006 F-33
Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2006 F-34
Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 2005 F-35
Notes to Pro Forma Condensed Combined Financial Statements F-36-37
26
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Condensed Balance Sheet (Unaudited)
As of September 30, 2006
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 82,020
Accounts receivable, including unbilled amount of $2,545,034
net of allowance for doubtful accounts of $80,609 3,571,563
Inventories 652,981
Prepaid expenses 142,696
Other current assets 69,384
-----------
Total current assets 4,518,644
Property, equipment and improvements, net of
accumulated depreciation and amortization 1,693,208
Deposits 955,515
-----------
$ 7,167,367
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,270,363
Accrued expenses 1,495,841
Due to employees 644,367
Due to stockholders 119,497
Income tax payable 410,962
Other current liabilities 185,986
-----------
Total current liabilities 5,127,016
-----------
Stockholders' equity:
Contributed capital 2,270,125
Accumulated foreign currency translation adjustments 60,685
Accumulated deficit (290,459)
-----------
Total stockholders' equity 2,040,351
-----------
$ 7,167,367
===========
The accompanying notes form an integral part of these financial statements.
F-1
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
(Condensed Combined Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Nine Months
September 30, September 30,
2006 2005
------------- -------------
Net revenues $ 3,665,990 $ 1,182,178
Cost of revenues 1,921,501 454,134
------------- -------------
Gross profit 1,744,489 728,044
Operating expenses:
Selling 1,030,491 116,479
General and administrative 1,095,705 345,020
Merger cost -- 148,102
------------- -------------
(Loss) income from operations (381,707) 118,443
Other income:
Interest income 59 445
Miscellaneous 47,418 5,660
------------- -------------
(Loss) income from continuing operations
before income taxes (334,230) 124,548
Income taxes -- 86,985
------------- -------------
(Loss) income from continuing operations (334,230) 37,563
------------- -------------
Discontinued operations
Income from operations of discontinued
wholesale business, net of tax -- 20,442
------------- -------------
Income from discontinued operations -- 20,442
------------- -------------
Net (loss) income (334,230) 58,005
Other comprehensive income - foreign currency
translation adjustments 41,761 24,399
------------- -------------
Comprehensive (loss) income $ (292,469) $ 82,404
============= =============
The accompanying notes form an integral part of these financial statements.
F-2
Beijing Sino-US Jinche Yingang Technological Services Limited
Condensed Combined Statements of Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Nine Months Nine Months
September 30, September 30,
2006 2005
------------- -------------
Cash flows (used for) provided by operating activities:
Net (loss) income $ (334,230) $ 58,005
------------- -------------
Adjustments to reconcile net (loss) income to net
133,940 21,431
Bad debt
Depreciation and amortization expenses 133,940 21,431
Bad debt 5,597 6,539
Changes in assets and liabilities:
Accounts receivable (1,910,137) 78,941
Inventories (402,355) (1,791)
Prepaid expenses 467,735 (311,100)
Due to employees 508,686 (168,772)
Due from employees -- (880,726)
Other current assets 3,045 (13,304)
Other assets (16,555) (44,209)
Accounts payable 946,122 252,116
Accrued expenses 489,304 305,897
Income tax payable 5,391 107,319
Due to stockholders 23,124 (36,452)
Other current liabilities 129,128 39,280
------------- -------------
Total adjustments 383,025 (644,831)
------------- -------------
Net cash provided by (used for) operating activities 48,795 (586,826)
------------- -------------
Cash flows used for investing activities -
Purchases of property, equipment and improvements (256,708) (17,867)
------------- -------------
Cash flows provided by financing activities -
Cash proceeds from capital contributions 155,861 1,350,479
------------- -------------
Effect of exchange rate changes on cash (8,710) (7,001)
------------- -------------
Net increase (decrease) in cash and cash equivalents (60,762) 738,785
Cash and cash equivalents, beginning of the period 142,782 165,139
------------- -------------
Cash and cash equivalents, end of of the period $ 82,020 $ 903,924
============= =============
Supplemental disclosure of cash flow information:
Income tax paid $ 5,391 $ --
============= =============
Interest paid $ -- $ --
============= =============
The accompanying notes form an integral part of these financial statements.
F-3
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation of Organization and Nature of Business Operations
Basis of Presentation
The condensed financial statements include the financial statements of
Beijing Sino-US Jinche Yingang Auto Technological Service Limited (the
"Company" or "Joint Venture") and its affiliates. The accompanying
unaudited condensed financial statements have been prepared in accordance
with the instructions to the interim financial statements and do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. These condensed combined financial statements and
related notes should be read in conjunction with the Company's audited
combined financial statements for the years ended December 31, 2005 and
2004 included in the Form 8K. In the opinion of the management, these
condensed financial statements reflect all adjustments which are of a
normal recurring nature and which are necessary to present fairly the
financial position of the Company as of September 30, 2006, the results of
operations, and cash flows for the nine month periods ended September 30,
2006 and 2005. The results of operations for the nine-month period ended
September 30, 2006 are not necessarily indicative of the results which may
be expected for the entire fiscal year. All significant intercompany
accounts and transactions have been eliminated in preparation of the
condensed combined financial statements.
The accompanying financial statements are presented on a combined basis,
as if the operations of the entities had been combined to form the Joint
Venture as of January 1, 2005, the beginning of the reporting period.
These entities have been combined due to their ultimate combined
operations through the effectiveness of the Joint Venture Agreement on
August 5, 2005, and their common management reporting structure. The
statements of operations and comprehensive income (loss) include the
operating results of Beijing Jinche Yingang Automobile Service Center Co.,
Ltd. and Beijing Shang Fang Weije Car Sale Co., Ltd. up to the date of
forming the Joint Venture, August 4, 2005, and the operating results of
the Company from August 5, 2005 to December 31, 2005. All significant
intercompany transactions and accounts are eliminated.
Going Concern
The accompanying condensed combined financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America, which contemplates continuation of the
Company as a going concern.
The Company had an accumulated deficit of $290,459 and working capital
deficit of $608,372 as of September 30, 2006 and a net loss of $334,230
for the nine months ended September 30, 2006, and relied on capital
contributions to meet its cash requirements. This raises substantial doubt
about the Company's ability to continue as a going concern. Therefore,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying condensed balance sheet is dependent upon continued
operations of the Company, which in turn, is dependent upon the Company's
ability to raise capital and/or generate positive cash flow from
operations.
F-4
It is management's intention to seek additional working capital from the
registration of its common shares and distribution through private
placements within the first half of 2007. The amount of such offerings
will be determined by the expected amount of internally generated cash
flows, and is expected to be sufficient to meet the Company's working
capital requirements for the next twelve months.
The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be necessary in
the event the Company cannot continue in existence.
Organization
Beijing Sino-US Jinche Yingang Auto Technological Service Limited was
formed on August 5, 2005 as a cooperative joint venture organized under
the laws of The People's Republic of China ("China" or "PRC"), to engage
in the business of automobile painting and repairs, sales of automobile
parts, accessories and supplies and sales of automobile insurance in
China. The parties to the joint venture are Beijing Jinche Yingang
Automobile Services Center ("Jinche"), a corporation duly registered and
existing under the laws of the People's Republic of China, Mayflower Auto
Group, LLC ("Mayflower"), an entity organized under the laws of the State
of Delaware of the United States of America, and Chuen Kin Quek ("Quek"),
an individual who is a resident of the State of Massachusetts of the
United States of America. Jinche had previously acquired all of the
operating assets and business of Beijing Shang Fang Weije Car Sale Co.,
Ltd. ("Shang Fang"), which is registered and existing under the laws of
the People's Republic of China. Jinche was formed on November 21, 2003
while Shangfang was formed on August 14, 2002. Subsequent to the formation
of the Company, management duly registered, and began operating under, the
trade name "AutoMart".
On January 12, 2006, the Company and the Joint Venture's participants
entered into a Securities Exchange Agreement with Deep Field Technologies,
Inc. ("Deep Field") whereby the Joint Venture's participants will transfer
95% of their interest in the Company to Deep Field in exchange for
73,745,909 shares of Class A Common and 2,000,000 shares of Class B Common
Stock.
On January 25, 2007, that agreement was voided and the Company and the
Joint Venture's participants entered into a revised Securities Exchange
Agreement with Deep Field Technologies, Inc. whereby the Joint Venture's
participants will transfer 95% of their interest in the Company to Deep
Field in exchange for an aggregate of 83,081,635 Class A Common Stock
shares, or 80% of the outstanding shares of Deep Field, and 2,000,000
shares of the Deep Field's Class B Common Stock. In addition, Deep Field
will assume (a) all obligations of Mayflower Auto Group LLC ("Mayflower")
with respect to (i) that certain Promissory Note, dated September 15,
2005, issued by Cornell Capital Partners, LP ("Cornell") to Mayflower in
the principal amount of $1,850,000 and (ii) that certain Promissory Note,
dated October 5, 2006, issued by Cornell to Mayflower in the principal
amount of $1,500,000.
F-5
The closing of the Securities Exchange will occur upon the satisfaction of
a number of conditions precedents: (i) stockholder approval of the
Securities Exchange by the Company's shareholders, (ii) financing in the
form of a convertible debenture for not less than $4 million and (iii) the
requisite approvals by the People's Republic of China. On February 13,
2007, all the conditions were met and the transaction was closed.
Nature of Business
The Company operates automotive repair centers in locations throughout
Beijing, China. Operating activities at these centers include the painting
and repair of automobiles, sales of automotive parts, accessories and
supplies, and the sales of automobile insurance. The Company grants credit
to its customers, which are located throughout China, and the Company does
not generally require collateral.
(2) Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized upon delivery and acceptance by its customers,
provided that the other conditions of sales, as established by the
Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No.
104, are satisfied:
o Persuasive evidence of an arrangement exists;
o Delivery has occurred, upon shipment when title passes, or services
have been rendered;
o The seller's price to the buyer is fixed or determinable; and o
Collectibility is reasonably assured.
Revenues on automobile repair services are recognized upon the completion
of the repair services.
Sales of auto repair parts and accessories revenues are recognized upon
the delivery of the products to the customers.
Commission revenues on automobile insurance are recognized upon the
execution of the insurance policies and such policies being accepted by
the insurance companies. The Company bears the risk of the loss of the
commission income if the customers cancel the insurance policies prior to
commission income being received. Based on the historical information
since the inception of its operations, the Company has not experienced any
cancellations of policies from its customers or loss of commission income.
F-6
In accordance with Question 2 of Staff Accounting Bulletin No. 104 ("SAB
104"), , the Company has met all the criteria to earn its commissions upon
the executions of insurance policies and such policies being accepted by
the insurance companies. Based on the history of homogeneous transactions
with the same characteristics, the Company has not experienced any
material amount of policy cancellations. Accordingly, the Company did not
record any allowance for loss of commission.
Currency Reporting
Amounts reported in the accompanying combined financial statements and
disclosures are stated in U.S. Dollars, unless stated otherwise. The
functional currency of the Company, which accounted for most of the
Company's operations, is reported in Renminbi ("RMB"). Foreign currency
transactions (outside PRC) during the nine months ended September 30,
2006, and 2005 are translated into RMB according to the prevailing
exchange rate at the transaction dates.
For the purpose of preparing the financial statements, the assets and
liabilities of the Company have been translated into U.S. dollars at the
current rate as of September 30, 2006, the contributed capital has been
translated into U.S. dollars at the historical rates and the combined
statements of operations (loss) have been translated into U.S. dollars at
the weighted average rates during the periods the transactions were
recognized.
The resulting translation gain (loss) adjustments are recorded as other
comprehensive income in the combined statements of operations and
comprehensive income and as a separate component of statements of
stockholders' equity.
Accounts Receivable
Accounts receivable consist of amounts due from customers, principally
insurance companies, resulting from the repair of automobiles and
commission income on executed insurance policies, including amounts billed
and to be billed (unbilled). Unbilled receivables represent revenue earned
in the current period but not billed to the customers until future dates.
Unbilled revenues totaled $2,513,261 and $133,777 for the nine months
ended September 30, 2006 and 2005, respectively. Unbilled accounts
receivable amounted to $2,545,034 as of September 30, 2006.
The Company provides an allowance for doubtful accounts equal to the
estimated uncollectible amounts. The Company's estimate is based on
historical collection experience and a review of the current status of
trade account sreceivable. It is reasonably possible that the Company's
estimate of the allowance for doubtful accounts will change. Accounts
receivable are presented net of an allowance for doubtful accounts of
$80,609 as of September 30, 2006.
F-7
Concentration of Credit Risk
The Company's revenues are concentrated in the automobile industry which
is highly competitive. Significant customer preference changes in the
industry or customer requirements, could adversely affect the Company's
operating results.
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of trade accounts
receivable. The credit risk in the Company's accounts receivable is
mitigated by the fact that the Company performs ongoing credit evaluations
of its customers' financial condition and that accounts receivable are
primarily derived from large credit-worthy companies throughout the PRC.
Historically, the Company has not experienced significant losses related
to trade receivables. Generally, no collateral is required.
New Accounting Pronouncements
In February 2006, the FASB decided to move forward with the issuance of a
final FSP FAS 123R-4 Classification of Options and Similar Instruments
Issued as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event. The guidance in this FSP FAS 123R-4
amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate
the concept articulated in footnote 16 of FAS 123R. That is, a cash
settlement feature that can be exercised only upon the occurrence of a
contingent event that is outside the employee's control does not meet the
condition in paragraphs 32 and A229 until it becomes probable that the
event will occur. Originally under FAS 123R, a provision in a share-based
payment plan that required an entity to settle outstanding options in cash
upon the occurrence of any contingent event required classification and
accounting for the share based payment as a liability. This caused an
issue under certain awards that require or permit, at the holder's
election, cash settlement of the option or similar instrument upon (a) a
change in control or other liquidity event of the entity or (b) death or
disability of the holder. With this new FSP, these types of cash
settlement features will not require liability accounting so long as the
feature can be exercised only upon the occurrence of a contingent event
that is outside the employee's control (such as an initial public
offering) until it becomes probable that event will occur. The guidance in
this FSP shall be applied upon initial adoption of Statement 123R. An
entity that adopted Statement 123R prior to the issuance of the FSP shall
apply the guidance in the FSP in the first reporting period beginning
after February 2006. Early application of FSP FAS 123R-4 is permitted in
periods for which financial statements have not yet been issued. The
Company does not anticipate that this new FSP will have any material
impact upon its financial condition or results of operations.
In February 2006, the Financial Accounting Standards Board issued SFAS No.
155, "Accounting for Certain Hybrid Financial Instruments -- an amendment
of FASB Statements No. 133 and 140." SFAS No. 155 simplifies the
accounting for certain hybrid financial instruments, eliminates the FASB's
interim guidance which provides that beneficial interests in securitized
financial assets are not subject to the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and
eliminates the restriction on the passive derivative instruments that a
qualifying special-purpose entity may hold. SFAS No. 155 is effective for
all financial instruments acquired or issued after the beginning of an
entity's first fiscal year that begins after September 15, 2006, however,
early adoption is permitted for instruments acquired or issued after the
beginning of an entity's fiscal year in 2006. The Company is evaluating
the impact of this new pronouncement to its financial position and results
of operations or cash flows.
F-8
In March 2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting for
Servicing of Financial Assets--An Amendment of FASB Statement No. 140."
Among other requirements, FAS 156 requires a company to recognize a
servicing asset or servicing liability when it undertakes an obligation to
service a financial asset by entering into a servicing contract under
certain situations. Under FAS 156 an election can also be made for
subsequent fair value measurement of servicing assets and servicing
liabilities by class, thus simplifying the accounting and provide for
income statement recognition of potential offsetting changes in the fair
value of servicing assets, servicing liabilities and related derivative
instruments. The Statement will be effective beginning the first fiscal
year that begins after September 15, 2006. The Company does not expect the
adoption of FAS 156 will have a material impact on our financial position
or results of operations.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes." This interpretation requires companies to
determine whether it is more likely than not that a tax position will be
sustained upon examination by the appropriate taxing authorities before
any part of the benefit can be recorded in the financial statements. FIN
48 provides guidance on de-recognition, classification, accounting in
interim periods and disclosure requirements for tax contingencies. FIN 48
is effective for fiscal years beginning after December 15, 2006. The
differences between the amounts recognized in the statements of financial
position prior to the adoption of FIN 48 and the amounts reported after
adoption will be accounted for as a cumulative-effect adjustment recorded
to the beginning balance of retained earnings. The Company is evaluating
the impact of this new pronouncement to its financial position and results
of operations or cash flows.
In September 2006, the SEC released Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 provides
interpretive guidance on the SEC's views regarding the process of
quantifying materiality of financial statement misstatements. SAB 108 is
effective for fiscal years ending after November 15, 2006, with early
application for the first interim period ending after November 15, 2006.
The Company does not expect the adoption of SAB 108 will have a material
impact on its financial position or results of operations.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements." SFAS 157 defines fair value, establishes a framework and
gives guidance regarding the methods used for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. The Company is
evaluating the impact of this new pronouncement to its financial position
and results of operations or cash flows.
F-9
In September 2006, the FASB issued Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)." SFAS 158
requires companies to recognize the overfunded or underfunded status of a
defined benefit post-retirement plan as an asset or liability in its
balance sheet and to recognize changes in that funded status in the year
in which the changes occur through comprehensive income, effective for
fiscal years ending after December 15, 2006. SFAS 158 also requires
companies to measure the funded status of the plan as of the date of its
fiscal year-end, with limited exceptions, effective for fiscal years
ending after December 15, 2008. The Company does not expect the adoption
of SFAS 158 will have a material impact on our financial position or
results of operations, as the Company does not currently have any defined
benefit pension or other post-retirement plans.
(3) Property, Equipment, and Improvements:
A summary as of September 30, 2006 is as follows:
Office equipment $ 197,337
Repair equipment 261,275
Leasehold improvements 1,442,232
----------
1,900,844
Less accumulated depreciation and amortization 207,636
----------
$1,693,208
==========
Depreciation and amortization expense for property, equipment, and
improvements amounted to $133,940 and $21,431, for the nine months ended
September 30, 2006 and 2005, respectively.
F-10
(4) Accrued Expenses:
Accrued expenses as of September 30, 2006 consist of the following:
Accrued payroll $ 137,061
Welfare payable 60,715
Value added tax payable 647,871
Accrued payable for leasehold improvements and
fixed assets 317,640
Other accrued expenses 332,554
----------
$1,495,841
==========
(5) Segment Reporting:
The Company is structured as two distinct business units: Auto repair
service and auto insurance agent. Performance is evaluated and resources
allocated based on specific segment requirements and measurable factors.
Management uses the Company's internal statements of operations to
evaluate each business unit's performance.
Summarized operational results for the two segments for the nine months
ended September 30, 2006 and 2005 are presented below:
2006 2005
---------- ----------
Net revenues:
Auto repair service $3,593,479 $ 908,655
Commissions on auto insurance sales 72,511 273,523
---------- ----------
Total revenues reported from continuing
operations 3,665,990 1,182,178
Discontinued auto repair part sales -- 5,377,732
---------- ----------
$3,665,990 $6,559,910
========== ==========
2006 2005
--------- ---------
Net income (loss):
Auto repair service $(332,966) $ 119,299
Commissions on auto insurance sales (1,264) 66,366
Discontinued auto repair part sales -- 20,442
Merger cost -- (148,102)
--------- ---------
$(334,230) $ 58,005
========= =========
F-11
As of
September 30,
2006
-------------
Identifiable assets:
Auto repair service $ 6,960,469
Auto insurance agent 206,898
-------------
$ 7,167,367
=============
(6) Discontinued Operations:
In January 2006, the Company's management made the determination to
discontinue the wholesale business of the auto repair parts. There were no
identifiable assets exclusively used for the wholesale business. Therefore
there were no assets being classified as held for disposal and
accordingly, no gain or loss on disposal of discontinued operations was
reported in the accompanying financial statements. The operating loss from
the discontinued wholesale business amounted to $0 and $20,442, net of
taxes for the nine months ended September 30, 2006 and 2005, respectively.
(7) Subsequent Events:
On January 25, 2007, the Company and the Joint Venture's participants
entered into a revised Securities Exchange Agreement with Deep Field
Technologies, Inc. whereby the Joint Venture's participants will transfer
95% of their interest in the Company to Deep Field in exchange for an
aggregate of 83,081,635 Class A Common Stock shares, or 80% of the
outstanding shares of Deep Field, and 2,000,000 shares of the Deep Field's
Class B Common Stock. In addition, Deep Field will assume (a) all
obligations of Mayflower Auto Group LLC ("Mayflower") with respect to (i)
that certain Promissory Note, dated September 15, 2005, issued by Cornell
Capital Partners, LP ("Cornell") to Mayflower in the principal amount of
$1,850,000 and (ii) that certain Promissory Note, dated October 5, 2006,
issued by Cornell to Mayflower in the principal amount of $1,500,000.
The closing of the Securities Exchange will occur upon the satisfaction of
a number of conditions precedents: (i) stockholder approval of the
Securities Exchange by the Company's shareholders, (ii) financing in the
form of a convertible debenture for not less than $4 million and (iii) the
requisite approvals by the People's Republic of China. On February 13,
2007, all the conditions were met and the transaction was closed.
F-12
Beijing Sino-US Jinche Yingang Auto Technological Service Limited
Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Table of Contents
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
Page
Report of Independent Registered Public Accounting Firm F-13
Financial Statements:
Balance Sheet F-14
Combined Statements of Operations and Comprehensive Income (Loss) F-15
Combined Statements of Stockholders' Equity F-16
Combined Statements of Cash Flows F-17
Notes to Combined Financial Statements F-18-31
Report of Independent Registered Public Accounting Firm
Board of Directors
Beijing Sino-US Jinche Yingang Auto
Technological Services Limited
Beijing, China
We have audited the accompanying balance sheet of Beijing Sino-US Jinche Yingang
Auto Technological Services Limited as of December 31, 2005 and the related
combined statements of operations and comprehensive income (loss), stockholders'
equity and cash flows for the years ended December 31, 2005 and 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 the Company as of December 31,
2005, and the results of its operations and its cash flows for the years ended
December 31, 2005 and 2004, in conformity with United States generally accepted
accounting principles.
/S/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Central, Hong Kong
October 4, 2006
F-13
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Balance Sheet
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 142,782
Accounts receivable, including unbilled amount of
$148,298 net of allowance for doubtful accounts
of $73,455 1,610,372
Inventories 276,193
Prepaid expenses 604,124
Other current assets 71,031
----------
Total current assets 2,704,502
Property, equipment and improvements, net of
accumulated depreciation and amortization 1,485,120
Deposits 920,139
----------
$5,109,761
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $1,286,262
Accrued expenses 963,378
Due to employees 126,688
Due to stockholders 94,176
Income tax payable 408,165
Other current liabilities 54,133
----------
Total current liabilities 2,932,802
----------
Stockholders' equity:
Contributed capital 2,114,264
Accumulated foreign currency translation adjustments 18,924
Accumulated deficit 43,771
----------
Total stockholders' equity 2,176,959
----------
$5,109,761
==========
The accompanying notes form an integral part of these financial statements.
F-14
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Combined Statements of Operations and Comprehensive Income (Loss)
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2005 2004
------------ ------------
Net sales $ 9,298,885 $ 5,134,322
Cost of sales 7,886,469 4,014,877
------------ ------------
Gross profit 1,412,416 1,119,445
Operating expenses:
Selling 238,730 169,867
General and administrative 994,223 307,519
Merger cost 379,293 --
------------ ------------
(Loss) income from operations (199,830) 642,059
Other income (expenses):
Interest income 627 355
Miscellaneous 8,327 (8,333)
------------ ------------
(Loss) income before income taxes (190,876) 634,081
Income taxes 149,109 250,325
------------ ------------
Net (loss) income (339,985) 383,756
Other comprehensive income - foreign currency
translation adjustments 18,924 --
------------ ------------
Comprehensive (loss) income $ (321,061) $ 383,756
============ ============
The accompanying notes form an integral part of these financial statements.
F-15
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Combined Statements of Stockholders' Equity
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
Other Total
Contributed Comprehensive Retained Stockholders'
Capital Income Earnings Equity
----------- ------------- ----------- -------------
Balance at December 31, 2003 $ 483,092 $ -- $ -- $ 483,092
Net income -- -- 383,756 383,756
----------- ------------- ----------- -------------
Balance at December 31, 2004 483,092 -- 383,756 866,848
Capital contributions 1,631,172 -- -- 1,631,172
Foreign currency translation adjustments -- 18,924 -- 18,924
Net loss -- -- (339,985) (339,985)
----------- ------------- ----------- -------------
Balance at December 31, 2005 $ 2,114,264 $ 18,924 $ 43,771 $ 2,176,959
=========== ============= =========== =============
The accompanying notes form an integral part of these financial statements.
F-16
Beijing Sino-US Jinche Yingang Technological Services Limited
Combined Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2005 2004
------------ ------------
Cash flows (used for) provided by operating activities:
Net (loss) income $ (339,985) $ 383,756
------------ ------------
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation 47,172 21,722
Bad debt 68,376 3,494
Changes in assets and liabilities:
Accounts receivable (864,471) (786,046)
Inventories (267,287) (4,807)
Prepaid expenses (528,362) (66,184)
Due to employees (99,710) 222,101
Due from employees 181,263 (179,292)
Other current assets (69,237) (744)
Other assets (88,465) (809,300)
Accounts payable 798,227 464,089
Accrued expenses 480,203 241,070
Income tax payable 149,109 250,325
Due to stockholders (36,630) 128,019
Other current liabilities 28,896 24,176
------------ ------------
Total adjustments (200,916) (491,377)
------------ ------------
Net cash used for operating activities (540,901) (107,621)
------------ ------------
Cash flows used for investing activities -
purchases of property, equipment and improvements (1,094,510) (210,331)
------------ ------------
Cash flows provided by financing activities -
cash proceeds from capital contributions 1,631,172 --
------------ ------------
Effect of exchange rate changes on cash (18,119) --
Net decrease in cash and cash equivalents (4,239) (317,952)
Cash and cash equivalents, beginning of year 165,140 483,092
------------ ------------
Cash and cash equivalents, end of year $ 142,782 $ 165,140
============ ============
The accompanying notes form an integral part of these financial statements.
F-17
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies:
Organization, Nature of Business and Basis of Presentation
Beijing Sino-US Jinche Yingang Auto Technological Service Limited
(the "Company" or "Joint Venture") was formed on August 5, 2005 as a
cooperative joint venture organized under the laws of The People's
Republic of China ("China"), to engage in the business of automobile
painting and repairs, sales of automobile parts, accessories and
supplies and sales of automobile insurance in China. The parties to
the joint venture are Beijing Jinche Yingang Automobile Services
Center ("Jinche"), a corporation duly registered and existing under
the laws of the People's Republic of China, Mayflower Auto Group,
LLC ("Mayflower"), an entity organized under the laws of the State
of Delaware of the United States of America, and Chuen Kin Quek
("Quek"), an individual who is a resident of the State of
Massachusetts of the United States of America. Jinche had previously
acquired all of the operating assets and business of Beijing Shang
Fang Weije Car Sale Co., Ltd. ("Shang Fang"), which is registered
and existing under the laws of the People's Republic of China.
Jinche was formed on November 21, 2003 while Shangfang was formed on
August 14, 2002. Subsequent to the formation of the Company,
management duly registered, and began operating under, the trade
name "AutoMart".
The Company operates automotive repair centers in locations
throughout Beijing, China. Operating activities at these centers
include the painting and repair of automobiles, sales of automotive
parts, accessories and supplies, and the sale of automotive
insurance. The Company grants credit to its customers, which are
located throughout China, and the Company does not generally require
collateral.
On January 12, 2006, the Company and the Joint Venture's
participants entered into a Securities Exchange Agreement with Deep
Field Technologies, Inc. ("Deep Field") whereby the Joint Venture's
participants will transfer 95% of their interest in the Company to
Deep Field in exchange for an aggregate of 116,245,399 Class A
Common Stock shares, or 85% of the outstanding shares of Deep Field,
and 2,000,000 shares of the Deep Field's Class B Common Stock.
The closing of the Securities Exchange will occur upon the
satisfaction of a number of conditions precedents: (i) stockholder
approval of the Securities Exchange by the Company's shareholders,
(ii) financing in the form of a convertible debenture for not less
than $4 million and (iii) the requisite approvals by the People's
Republic of China. As of October 4, 2006, the share exchange has not
yet been closed.
F-18
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Organization, Nature of Business and Basis of Presentation (Continued)
The accompanying financial statements are presented on a combined
basis, as if the operations of the entities had been combined to
form the Joint Venture as of January 1, 2004, the beginning of the
reporting period. These entities have been combined due to their
ultimate combined operations through the effectiveness of the Joint
Venture Agreement on August 5, 2005, and their common management
reporting structure. The statements of operations and comprehensive
income (loss) include the operating results of Jinche and ShangFang
up to the date of forming the Joint Venture, August 4, 2005, and the
operating results of the Company from August 5, 2005 to December 31,
2005. All significant intercompany transactions and accounts are
eliminated.
Revenue Recognition
Revenue is recognized upon delivery and acceptance of automobile
repair services by its customers and the insurance policies being
executed and become effective, provided that the other conditions of
sales, as established by the Securities and Exchange Commission's
Staff Accounting Bulletin ("SAB") No. 104, are satisfied:
o Persuasive evidence of an arrangement exists;
o Delivery has occurred, upon shipment when title passes, or
services have been rendered;
o The seller's price to the buyer is fixed or determinable; and
o Collectibility is reasonably assured.
Revenues on automobile repair services are recognized upon the
completion of the repair services.
Sales of auto repair parts and accessories revenues are recognized
upon the delivery of the products to the customers.
Commission revenues on automobile insurances are recognized upon the
execution of the insurance policies and such policies being accepted
by the insurance companies. The Company bears the risk of the loss
of the commission income if the customers cancel the insurance
policies prior to commission income being received. Based on the
historical information since the inception of its operations, the
Company has not experienced any cancellations of policies from its
customers or loss of commission income.
Under SAB 104, question 2 and related answers, the Company has met
all the criteria to earn its commissions upon the executions of
insurance policies and such policies being accepted by the insurance
companies. Accordingly, the Company did not record any allowance for
loss of commission.
F-19
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Currency Reporting
Amounts reported in the accompanying combined financial statements
and disclosures are stated in U.S. Dollars, unless stated otherwise.
The functional currency of the Company, which accounted for most of
the Company's operations, is reported in Renminbi ("RMB"). Foreign
currency transactions (outside PRC) during the years ended December
31, 2005, and 2004 are translated into RMB according to the
prevailing exchange rate at the transaction dates.
For the purpose of preparing the financial statements, the assets
and liabilities of the Company have been translated into U.S.
dollars at the current rate as of December 31, 2005, the contributed
capital has been translated into the U.S. dollars at the historical
rates and the combined statements of operations (loss) have been
translated into U.S. dollars at the weighted average rates during
the years the transactions were recognized.
The resulting translation gain (loss) adjustments are recorded as
other comprehensive income in the combined statements of operations
and comprehensive income and as a separate component of statements
of stockholders' equity.
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 at the dates
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from those estimates.
Cash and Cash Equivalents
For purposes of the combined statements of cash flows, cash
equivalents include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations. The Company had no cash equivalents at
December 31, 2005.
F-20
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Comprehensive Income
Statement on Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components in
the financial statements. For the years ended December 31, 2005 and
2004, other comprehensive income includes foreign currency
translation adjustments.
Fair Value Disclosures of Financial Instruments
The Company has estimated the fair value amounts of its financial
instruments using the available market information and valuation
methodologies considered to be appropriate and has determined that
the book value of the Company's accounts receivable, inventories,
accounts payable, accrued expenses, due to employees, due to
stockholders, and income tax payable at December 31, 2005
approximate fair value.
Accounts Receivable
Accounts receivable consist of amounts due from customers,
principally insurance companies, resulting from the repair of
automobiles and commission income on executed insurance policies,
including amounts billed and to be billed (unbilled). Unbilled
revenues totaled $146,125 and $216,792 for the years ended December
31, 2005 and 2004. Unbilled accounts receivable amounted to $148,298
as of December 31, 2005.
The Company provides an allowance for doubtful accounts equal to the
estimated uncollectible amounts. The Company's estimate is based on
historical collection experience and a review of the current status
of trade account receivable. It is reasonably possible that the
Company's estimate of the allowance for doubtful accounts will
change. Accounts receivable are presented net of an allowance for
doubtful accounts of $73,455 as of December 31, 2005.
Prepaid Expenses
Prepaid expense consists primarily of prepaid rent expense of repair
facilities and corporate office for the year of 2006.
F-21
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Concentration of Credit Risk:
The Company's revenues are concentrated in the automobile industry
which is highly competitive. Significant customer preference changes
in the industry or customer requirements, could adversely affect the
Company's operating results.
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of trade accounts
receivable. The credit risk in the Company's accounts receivable is
mitigated by the fact that the Company performs ongoing credit
evaluations of its customers' financial condition and that accounts
receivable are primarily derived from large credit-worthy companies
throughout the PRC. Historically, the Company has not experienced
significant losses related to trade receivables. Generally, no
collateral is required.
Major Customers
During the years ended December 31, 2005 and 2004, 38% and 37%,
respectively, of the Company revenues were generated from three
customers. Accounts receivable from these three customer totaled
$979,223, which represented 61% of the total accounts receivable as
of December 31, 2005.
Inventories
Inventories consist of merchandise purchased for resale, both
directly to customers and indirectly through inclusion in automobile
repair services, and are stated at the lower of cost (first-in,
first-out) or market. Such reserves are based on the valuation of
specific items based on estimates of their marketability. Based on
the Company's assessment of estimated market value based upon the
assumptions about the future demand of its products and market
conditions, no obsolescence reserve was necessary as of December 31,
2005.
Property, Equipment and Improvements
Property, equipment and improvements are valued at cost.
Depreciation and amortization are computed on the straight-line
method based on the estimated useful life of respective assets.
The estimated service lives of property, equipment, and improvements
are as follows:
Office equipment 5 years
Repair equipment 10 years
Leasehold improvements 5 to 20 years
F-22
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Deposits
Deposits consist of amounts paid to insurance companies pursuant to
operating agreements requiring such deposits for the right to write
automotive insurance policies and process claims for automobile
repairs against such policies. Deposits also include rental deposits
paid to landlords related to the leased real estate properties.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 144 relates to assets that can be amortized
and the life can be determinable. The Company evaluates at each
balance sheet dates whether events and circumstances have occurred
that indicate possible impairment. If there are indications of
impairment, the Company uses future undiscounted cash flows of the
related assets or asset grouping over the remaining life in
measuring whether the assets are recoverable. In the event such cash
flows are not expected to be sufficient to recover the recorded
asset values, the assets are written down to their estimated fair
value. Long-lived assets to be disposed of are reported at the lower
of carrying amount or fair value of asset less disposal costs. The
Company determined that there was no impairment of long-lived assets
as of December 31, 2005.
Advertising
The Company expenses advertising costs when incurred. The Company
incurred $82,642 and $5,804 of advertising expense for the years
ended December 31, 2005 and 2004, respectively.
F-23
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (Continued):
Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets, including tax loss
and credit carryforwards, and liabilities are measured using enacted
tax rates in the PRC expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax assets
and deferred tax liabilities. The components of the deferred tax
assets and liabilities are individually classified as current and
non-current based on their characteristics. Realization of the
deferred tax asset is dependent on generating sufficient taxable
income in future years.
Segment Reporting
Based on the Company's integration and management strategies, the
Company operated in two business segments including auto repairs and
sale of auto repair parts and accessories, and auto insurance agent.
All of the Company's sales are generated in China and substantially
all of the Company's assets are located in China.
New Accounting Pronouncements
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive
guidance related to the interaction between SFAS 123(R) and certain
SEC rules and regulations. It also provides the SEC staff's views
regarding valuation of share-based payment arrangements. In April
2005, the SEC amended the compliance dates for SFAS 123(R), to allow
companies to implement the standard at the beginning of their next
fiscal year, instead of the next reporting period beginning after
June 15, 2005. Management is currently evaluating the impact SAB 107
will have on the financial statements.
In May 2005, the FASB issued FASB Statement No. 154, Accounting
Changes and Error Corrections. This new standard replaces APB
Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, and
represents another step in the FASB's goal to converge its standards
with those issued by the IASB. Among other changes, Statement 154
requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented
on the new accounting principle, unless it is impracticable to do
so. Statement 154 also provides that (1) a change in method of
depreciating or amortizing a long-lived nonfinancial asset be
accounted for as a change in estimate (prospectively) that was
effected by a change in accounting principle, and (2) correction of
errors in previously issued financial statements should (1)
Organization and Summary of Significant Accounting Policies
(Continued):
F-24
12
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Organization and Summary of Significant Accounting Policies (continues):
New Accounting Pronouncements (Continued)
be termed a "restatement." The new standard is effective for
accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this standard
is permitted for accounting changes and correction of errors made in
fiscal years beginning after June 1, 2005. Management believes that
changes resulting from adoption of the FASB will not have a material
effect on the financial statements taken as a whole.
In June 2005, the EITF reached a consensus on Issue 05-6,
"Determining the Amortization Period for Leasehold Improvements,"
which requires that leasehold improvements acquired in a business
combination or purchased subsequent to the inception of a lease be
amortized over the lesser of the useful life of the assets or a term
that includes renewals that are reasonably assured at the date of
the business combination or purchase. EITF 05-6 is effective for
periods beginning after June 29, 2005. Earlier application is
permitted in periods for which financial statements have not been
issued. The adoption of this Issue did not have an impact on the
Company's financial statements.
In February 2006, the FASB decided to move forward with the issuance
of a final FSP FAS 123R-4 Classification of Options and Similar
Instruments Issued as Employee Compensation That Allow for Cash
Settlement upon the Occurrence of a Contingent Event. The guidance
in this FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB
Statement No. 123R to incorporate the concept articulated in
footnote 16 of FAS 123R. That is, a cash settlement feature that can
be exercised only upon the occurrence of a contingent event that is
outside the employee's control does not meet the condition in
paragraphs 32 and A229 until it becomes probable that the event will
occur. Originally under FAS 123R, a provision in a share-based
payment plan that required an entity to settle outstanding options
in cash upon the occurrence of any contingent event required
classification and accounting for the share based payment as a
liability. This caused an issue under certain awards that require or
permit, at the holder's election, cash settlement of the option or
similar instrument upon (a) a change in control or other liquidity
event of the entity or (b) death or disability of the holder. With
this new FSP, these types of cash settlement features will not
require liability accounting so long as the feature can be exercised
only upon the occurrence of a contingent event that is outside the
employee's control (such as an initial public offering) until it
becomes probable that event will occur. The guidance in this FSP
shall be applied upon initial adoption of Statement 123R. An entity
that adopted Statement 123R prior to the issuance of the FSP shall
apply the guidance in the FSP in the first reporting period
beginning after February 2006. Early application of FSP FAS 123R-4
is permitted in periods for which financial statements have not yet
been issued. The Company does not anticipate that this new FSP will
have any material impact upon its financial condition or results of
operations.
F-25
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Organization and Summary of Significant Accounting Policies (Continued):
New Accounting Pronouncements (Continued)
In February 2006, the Financial Accounting Standards Board issued
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments
-- an amendment of FASB Statements No. 133 and 140." SFAS No. 155
simplifies the accounting for certain hybrid financial instruments,
eliminates the FASB's interim guidance which provides that
beneficial interests in securitized financial assets are not subject
to the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and eliminates the restriction
on the passive derivative instruments that a qualifying
special-purpose entity may hold. SFAS No. 155 is effective for all
financial instruments acquired or issued after the beginning of an
entity's first fiscal year that begins after September 15, 2006,
however, early adoption is permitted for instruments acquired or
issued after the beginning of an entity's fiscal year in 2006. The
Company is evaluating the impact of this new pronouncement to its
financial position and results of operations or cash flows.
In March 2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting
for Servicing of Financial Assets--An Amendment of FASB Statement
No. 140." Among other requirements, FAS 156 requires a company to
recognize a servicing asset or servicing liability when it
undertakes an obligation to service a financial asset by entering
into a servicing contract under certain situations. Under FAS 156 an
election can also be made for subsequent fair value measurement of
servicing assets and servicing liabilities by class, thus
simplifying the accounting and provide for income statement
recognition of potential offsetting changes in the fair value of
servicing assets, servicing liabilities and related derivative
instruments. The Statement will be effective beginning the first
fiscal year that begins after September 15, 2006. The Company does
not expect the adoption of FAS 156 will have a material impact on
our financial position or results of operations.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes." This interpretation requires companies
to determine whether it is more likely than not that a tax position
will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the
financial statements. FIN 48 provides guidance on de-recognition,
classification, accounting in interim periods and disclosure
requirements for tax contingencies. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The differences between the
amounts recognized in the statements of financial position prior to
the adoption of FIN 48 and the amounts reported after adoption will
be accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings. The Company is evaluating
the impact of this new pronouncement to its financial position and
results of operations or cash flows.
F-26
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(1) Organization and Summary of Significant Accounting Policies (Continued):
New Accounting Pronouncements (Continued)
In September 2006, the SEC released Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements." SAB
108 provides interpretive guidance on the SEC's views regarding the
process of quantifying materiality of financial statement
misstatements. SAB 108 is effective for fiscal years ending after
November 15, 2006, with early application for the first interim
period ending after November 15, 2006. The Company does not expect
the adoption of SAB 108 will have a material impact on its financial
position or results of operations.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements." SFAS 157 defines fair value, establishes a framework
and gives guidance regarding the methods used for measuring fair
value, and expands disclosures about fair value measurements. SFAS
157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those
fiscal years. The Company is evaluating the impact of this new
pronouncement to its financial position and results of operations or
cash flows.
In September 2006, the FASB issued Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)."
SFAS 158 requires companies to recognize the overfunded or
underfunded status of a defined benefit post-retirement plan as an
asset or liability in its balance sheet and to recognize changes in
that funded status in the year in which the changes occur through
comprehensive income, effective for fiscal years ending after
December 15, 2006. SFAS 158 also requires companies to measure the
funded status of the plan as of the date of its fiscal year-end,
with limited exceptions, effective for fiscal years ending after
December 15, 2008. The Company does not expect the adoption of SFAS
158 will have a material impact on our financial position or results
of operations, as the Company does not currently have any defined
benefit pension or other post-retirement plans.
F-27
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(2) Property, Equipment, and Improvements:
A summary as of December 31, 2005 is as follows:
Office equipment $ 153,362
Repair equipment 148,852
Leasehold improvements 1,253,481
--------------
1,555,695
Less accumulated depreciation and amortization 70,575
-------------
$ 1,485,120
==============
Depreciation and amortization expense for property, equipment, and
improvements amounted to $47,172 and $21,722, for the years ended
December 31, 2005 and 2004, respectively.
(3) Accrued Expenses:
Accrued expenses as of December 31, 2005 consist of the following:
Accrued payroll $ 9,297
Welfare payable 54,515
Value added tax payable 488,276
Accrued payable for leasehold improvements and
fixed assets 268,531
Other accrued expenses 142,759
-------------
$ 963,378
=============
F-28
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(4) Income Taxes:
The income tax provision amounted to $149,109 and $250,325, respectively,
for the years ended December 31, 2005 and 2004 (an effective rate of
-78.2% for 2005 and 39.5% for 2004). A reconciliation of the provision for
income taxes with amounts determined by applying the statutory China
federal income tax rate to income before income taxes is as follows:
2005 2004
-------- --------
Computed tax at federal statutory rate of 33% $ -- $209,246
Entertainment -- 1,005
Non-deductible salaries and fringe benefits -- 40,074
Taxes on profit in Shang Fang and Jinche prior to
contribution to the joint venture 149,109 --
-------- --------
$149,109 $250,325
======== ========
The components of provision for the income taxes are as follows:
2005 2004
-------- --------
Current $149,109 $250,325
Deferred -- --
-------- --------
$149,109 $250,325
======== ========
The Company discovered errors in its income tax computations and filings
for 2005 and 2004. The Company consulted a certified tax advisor to review
their revised computations, and assist in communicating the revised
computations to the tax authorities. The tax advisor has advised the
Company to pay all of the additional taxes related to 2005 and 2004 tax
years on or before March 31, 2007, the reporting date for the Company's
tax filings for 2006, to avoid any interest and penalties. Accordingly, no
interest and penalties can be estimated, if any, and accordingly have been
accrued. However, there can be no assurance that this action by the
Company will ultimately avoid interest and penalties.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. There are
no significant components of the Company's deferred tax assets and
liabilities as of December 31, 2005.
F-29
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(5) Segment Reporting:
The Company is structured as two distinct business units: Auto repair
service and repair part sales, and auto insurance agent. Performance is
evaluated and resources allocated based on specific segment requirements
and measurable factors. Management uses the Company's internal statements
of operations to evaluate each business unit's performance.
Summarized operational results for the two segments for the years ended
December 31, 2005 and 2004 are presented below:
2005 2004
----------- -----------
Net revenues:
Auto repair service and repair part sales $ 8,879,763 $ 4,296,790
Commissions on auto insurance sales 419,122 837,532
----------- -----------
$ 9,298,885 $ 5,134,322
=========== ===========
2005 2004
----------- -----------
Net income (loss):
Auto repair service and repair part sales $ 23,942 $ 41,784
Commissions on auto insurance sales 15,366 341,972
Merger cost (379,293) --
----------- -----------
$ (339,985) $ 383,756
=========== ===========
Identifiable assets: As of
December 31,
2005
----------
Auto repair service and repair part sales $3,464,204
Auto insurance agent 1,645,557
----------
$5,109,761
==========
F-30
Beijing Sino-US Jinche Yingang Auto Technological Services Limited
Notes to Combined Financial Statements
As of December 31, 2005 and for the
Years Ended December 31, 2005 and 2004
- --------------------------------------------------------------------------------
(6) Commitments:
The Company leases certain facilities under various long-term
noncancellable and month-to-month leases. These leases are accounted for
as operating leases. Rent expense amounted to $345,050 and $179,535 for
the years ended 2005 and 2004, respectively.
A summary of the future minimum annual rental commitments under the
operating leases is as follows:
Year ending December 31,
2006 $ 1,203,649
2007 1,226,469
2008 1,201,434
2009 1,100,395
2010 1,056,581
2011 and thereafter 5,480,664
-----------
Total minimum lease payments $11,269,192
===========
F-31
DEEP FIELD TECHNOLOGIES, INC.
Unaudited Pro Forma Condensed Combined Financial Statements
On February 13, 2007, the Registrant completed its acquisition of
AutoMart, a cooperative joint venture organized under the laws of The People's
Republic of China (the "Joint Venture"), and the joint venture participants
named therein, in exchange for (a) 83,081,635 shares of Class A Common, (b)
2,000,000 shares of Class B Common Stock (together representing over 90% of the
issued and outstanding voting capital stock of the Registrant) and (c) the
assumption by the Registrant of all obligations of Mayflower Auto Group LLC
("Mayflower") with respect to the issuance by Cornell Capital Partners, LP to
Mayflower of certain promissory notes equal to Three Million Three Hundred Fifty
Thousand Dollars ($3,350,000) pending the satisfaction of certain notice
requirements under applicable New Jersey corporate law, which such notice
requirements will be satisfied on February 28, 2007. The acquisition will be
accounted for as a reverse-acquisition. The unaudited pro forma combined
condensed balance sheet as of September 30, 2006 and statements of operations
for the nine months ended September 30, 2006 and the year ended December 31,
2005 are based on the historical financial statements of the Registrant and the
Joint Venture appearing elsewhere in this report and has been prepared to
reflect the Registrant's acquisition of the Joint Venture. These pro forma
unaudited combined financial statements should be read in conjunction with the
Registrant's historical financial statements and notes thereto and the financial
statements of the Joint Venture included elsewhere in this report.
Deep Field Technologies, Inc.
Unaudited Proforma Condensed Combined Balance Sheet
As of September 30, 2006
(In Thousands, Except for Par and Share Data)
Proforma Adjusted
Assets Deep Field AutoMart Adjustments Proforma
---------- -------- ----------- --------
Current assets
Cash 34 82 (34)(1) 1,732
1,650 (6)
Accounts receivable, net -- 3,572 -- 3,572
Inventory -- 653 -- 653
Prepaid expenses 6 143 (6)(1) 143
Other current assets -- 69 -- 69
---------- -------- ----------- --------
Total current assets 40 4,519 1,610 6,169
Property, equipment and improvements, net -- 1,693 -- 1,693
Deposits -- 955 -- 955
---------- -------- ----------- --------
Total assets 40 7,167 1,610 8,817
========== ======== =========== ========
Liabilities and Stockholders Equity
Current liabilities
Accounts payable 378 2,270 (34)(1) 2,614
Accrued expenses -- 1,496 (6)(1) 1,490
Due to related parties 255 120 (255)(2) 120
Due to employees -- 644 -- 644
Income tax payable -- 411 -- 411
Notes payable to related parties 190 -- (190)(2) --
Notes payable 500 -- 3,350 (6) 3,850
Interest payable 231 (6) 231
Other current liabilities -- 186 -- 186
---------- -------- ----------- --------
Total current liabilities 1,323 5,127 3,096 9,546
Minority Interest in Sino-US -- -- 102(4) 102
Stockholders equity (deficit)
Preferred stock, $1.00 par value, authorized
1,000,000 shares, no shares issued and outstanding -- -- -- --
Common stock
Class A - no par value, authorized
10,000,000,000 shares 388 -- 2,400 (2) 1,554
(1,700)(6)
(1,671)(3)
2,250 (5)
(114)(4)
Class B - $0.01 par value, authorized
50,000,000 shares -- -- 20 (5) 20
Class C - $0.01 par value, authorized
20,000,000 shares
Additional paid in capital -- 2,270 (2,270)(5) --
Accumulated foreign currency translation adjustments -- 60 (3)(4) 57
Retained earnings (accumulate deficit) (1,671) (290) 1,671 (3) (2,462)
(1,955)(2)
15 (4)
(231)(6)
---------- -------- ----------- --------
40 7,167 1,610 8,817
========== ======== =========== ========
Notes
(1) Cash and prepaid expenses to be utilized in operations or for costs
associated with the exchange transaction.
(2) Issuance of 10,000,000 shares to Mr. Mchoney and Meller to pay off certain
payables to these shareholders and the excess of the fair value of the
shares over the payables was considered as compensation to them.
Adjustments related to issuance of shares to Deep Field Shareholders:
Shares Price Total
10,000,000 $ 0.24 $ 2,400,000 Fair value of stock on the date of the reverse-merger
(152,488) Meller
(103,190) Mahoney
(190,000) Mahoney
------------
$ 1,954,322
(3) Reflects the assumption of the accumulated deficit of Deep Field in
connection with the exchange transaction.
(4) Adjustment for 5% minority interest in AutoMart retained by Jinche.
(5) Issuance of Class A and Class B common shares in relations to the
acquisition and all the additional paid in capital was transferred to
Class A common shares since Class A common shares have no par value.
(6) 12% Notes payable to Cornell Capital assumed from Mayflower Auto Group,
LLC.
F-33
Deep Fields Technologies Inc.
Unaudited Proforma Combined Statement of Operations
Nine Months Ended September 30, 2006
- --------------------------------------------------------------------------------
Deep Fields
Technologies Inc AutoMart Inc Combined
Nine Months Nine Months Nine Months
September 30, September 30, September 30,
2006 2006 Adjustments 2006
------------- ------------- ------------- -------------
SALES, net -- 3,665,990 -- 3,665,990
COST OF SALES -- 1,921,501 -- 1,921,501
------------- ------------- ------------- -------------
GROSS PROFIT -- 1,744,489 -- 1,744,489
Operating Expenses:
Selling -- 1,030,491 -- 1,030,491
General & Administrative 282,418 1,095,705 -- 1,378,123
Merger costs 1,954,322(1) 1,954,322
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (282,418) (381,707) (1,954,322) (2,618,447)
THER INCOME (EXPENSE)
Miscellaneous 869 47,477 -- 48,346
Write-off of financing costs -- -- -- --
Interest expense (362,075) (301,500)(2) (663,575)
------------- ------------- ------------- -------------
Total other income (expense) (361,206) 47,477 (301,500) (615,229)
LOSS FROM OPERATIONS BEFORE INCOME TAXES (643,624) (334,230) (2,255,822) (3,233,676)
PROVISION FOR INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
NET LOSS (643,624) (334,230) (2,255,822) (3,233,676)
Other Comprehensive Income - Foreign currency
translation adjustments -- 41,761 -- 41,761
------------- ------------- ------------- -------------
Comprehensive loss
(643,624) (292,469) (2,255,822) (3,191,915)
============= ============= ============= =============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.03) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING --
Basic and diluted 20,250,248 343,081,635(3) 363,331,883
============= ============= =============
Notes
(1) Termination of Agreement (Mahoney & Meller and related entities)
10,000,000 (class A shares) @ $.24 per share $2.4 million - $445,678 of
forgiveness of payable = $1,954,322 of excess of fair value over payables
(Table 1.1)
The 10,000,000 shares include the following:
5 Million of Common Stock, Class A to Mr. Mahoney
5 Million of Common Stock, Class A to Mr. Meller
Table 1.1
Shares Price Total
-------------- ------------------- ---------
10,000,000 0.24 2,400,000 Fair value of stock on the date of the reverse-merger
(152,488) Meller
(103,190) Mahoney
(190,000) Mahoney
-----------
1,954,322
(2) Interest on 12% promissory notes of $3,350,000 assumed from Mayflower Auto
Group, for the 9 months ended September 30, 2006
(3) Issuance of Common Stock Class A related to the merger 83,081,635
Common Stock Class A equivalent for Class B shares issued
related to the merger (Table 1.2) 250,000,000
Issuance of 10,000,000 shares of Common Stock Class A to
Mr. Mahoney and Meller 10,000,000
-----------
343,081,635
Table 1.2
Total of
Class A
Shares Conversion Equivalent
-------------- ------------------ -----------
2,000,000 0.008 250,000,000
F-34
Deep Fields Technologies Inc.
Unaudited Proforma Combined Statement of Operations
Year Ended December 31, 2005
- -----------------------------------------------------------------
Deep Fields
Technologies Inc AutoMart Inc Combined
For Year Ended For Year Ended For Year Ended
December 31, December 31, December 31,
2005 2005 Adjustments 2005
---------------- -------------- -------------- --------------
SALES, net 112 9,298,885 -- 9,298,997
COST OF SALES -- 7,886,469 -- 7,886,469
---------------- -------------- -------------- --------------
GROSS PROFIT 112 1,412,416 -- 1,412,528
Operating Expenses:
Selling 238,730 -- 238,730
General & Administrative 623,733 994,223 -- 1,617,956
Merger Costs 379,293 1,954,322(1) 2,333,615
---------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (623,621) (199,830) (1,954,322)(1) (2,777,773)
OTHER INCOME (EXPENSE)
Miscellaneous 4,437 8,954 -- 13,391
Write-off of financing costs (10,000) -- -- (10,000)
Interest expense (60,138) (402,000)(2) (462,138)
---------------- -------------- -------------- --------------
Total other income (expense) (65,701) 8,954 (402,000) (458,747)
LOSS FROM OPERATIONS BEFORE INCOME TAXES (689,322) (190,876) (2,356,322) (3,236,520)
PROVISION FOR INCOME TAXES -- 149,109 -- 149,109
---------------- -------------- -------------- --------------
NET (LOSS) Income (689,322) (339,985) (2,356,322) (3,385,629)
Other Comprehensive Income - Foreign currency
translation adjustments -- 18,924 -- 18,924
---------------- -------------- -------------- --------------
Comprehensive loss (689,322) (321,061) (2,356,322) (3,366,705)
================ ============== ============== ==============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.07) $ (0.01)
================ ==============
WEIGHTED AVERAGE SHARES OUTSTANDING -
Basic and diluted 10,013,984 343,081,635(3) 353,095,619
================ ============== ==============
Notes
(1) Termination of Agreement (Mahoney & Meller and related entities)
10,000,000 (class A shares) @ $.24 per share $2.4 million - $445,678 of
forgiveness of payable = $1,954,322 of excess of fair value over payables
(Table 1.1)
The 10,000,000 shares include the following:
5 Million of Common Stock, Class A to Mr. Mahoney and related entity
5 Million of Common Stock, Class A to Mr. Meller and related entity
Table 1.1
Shares Price Total
------------ --------------- ---------
10,000,000 0.24 2,400,000
(152,488) Meller
(103,190) Mahoney
(190,000) Mahoney
------------
Excess of Fair Value Over Payable 1,954,322
(2) Interest on 12% promissory notes of $3,350,000 assumed from
Mayflower Auto Group, for the year ended December 31, 2005
(3) Issuance of Common Stock Class A related to the merger 83,081,635
Common Stock Class A equivalent for Class B shares issued
related to the merger (Table 1.2) 250,000,000
Issuance of 10,000,000 shares of Common Stock Class A to
Mr. Mahoney and Meller 10,000,000
-----------
343,081,635
Table 1.2
Total of
Class
Shares Conversion A Equivalent
------------ --------------- ------------
2,000,000 0.008 250,000,000
F-35
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet is presented to give
effect to the acquisition as if it occurred on September 30, 2006 and combines
the balance sheets of Deep Field and Automart as of that date. The unaudited pro
forma condensed combined statements of operations for the nine months ended
September 30, 2006, and for the year ended December 31, 2005 record the
acquisition transaction as if the acquisition had taken place on January 1, 2006
and January 1, 2005, respectively. The pro forma information does not purport to
be indicative of the results that would have been reported if the above
transactions had been in effect for the periods presented or which may result in
the future.
SUMMARY OF TRANSACTION
On February 13, 2007 (the "Transaction Date"), Deep Field Technologies,
Inc. (the "Registrant") completed its acquisition of Beijing Sino-US Beijing
Jinche Yingang Auto Technological Services, Ltd. ("AutoMart" and together with
the Registrant, the "Company"), a cooperative joint venture organized under the
laws of The People's Republic of China. The Registrant, AutoMart and those
certain joint venture participants named therein (the "JV Participants")
executed that certain Amended and Restated Securities Exchange Agreement on
January 25, 2007 (the "Exchange Agreement") pursuant to which the JV
Participants agreed to transfer to the Registrant, and the Registrant agreed to
acquire from the JV Participants, ninety-five percent (95%) of the outstanding
equity interests of AutoMart and all voting and economic rights, benefits and
obligations (other than the right to receive distributions in connection with ;a
liquidation, sale or other transfer, in whole, of AutoMart) of the remaining
five percent (5%) interest in exchange for (a) Eighty-Three Million Eighty-One
Thousand Six Hundred Thirty-Five (83,081,635) shares of the Registrant's Class A
common stock, no par value per share (the "Common Stock"), (b) Two Million
(2,000,000) shares of the Registrant's Class B common stock, par value $0.01 per
share (the "Class B Common") and (c) the assumption by the Registrant of all
obligations of Mayflower Auto Group LLC ("Mayflower") with respect to the
issuance by Cornell Capital Partners, LP ("Cornell") to Mayflower of certain
promissory notes equal to Three Million Three Hundred Fifty Thousand Dollars
($3,350,000) (the "Mayflower Notes"). As a result of the consummation of the
Exchange Agreement, and pending the satisfaction of certain notice requirements
under applicale New Jersey corporate law (the "Notice"), the former holders of
AutoMart capital stock (the JV Participants) shall beneficially own over ninety
percent (90%) of the total outstanding voting securities of the Registrant. Such
Notice was mailed to Reistrant's stockholders on February 8, 2007 and the
securities shall be exchanged on February 28, 2007. For accounting purpose, the
transaction is classified as a reverse merger which AutoMart is considered the
acquirer (hereinafter referred to as the "Merger").
PRO FORMA ADJUSTMENTS
Proforma adjustments on the balance sheet as of September 30, 2006 include the
following:
1. Cash and prepaid expenses in the amount of $40,000 to be used to
offset the accounts payable and accrued expenses.
2. Issuance of 10,000,00 shares of common stock Class A to Mr. Mchoney
and Mr. Meller valued at $0.24 per share to pay off payables to Mr.
Mchoney and Mr. Meller in the amount of $446,000. The excess of the
fair value of the shares over the payable amount in the amount of
$1,954,000 was expensed.
3. Accumulated deficit of Deep Field of $1,671,000 was adjusted to $0
as AutoMart's accumulated deficit will become the Registrant's
accumulated deficit after the reverse-merger.
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4. Minority interest of $102,000 was recorded as Deep Field owns 95% of
AutoMart after the merger.
5. AutoMart's contributed capital account of $2,270,000 was
reclassified to common stock Class A and Class B as approximately 83
million shares of common stock Class A and 2 million shares of
common stock Class B were issued by Deep Field in exchange of 95% of
the ownership of AutoMart.
6. The Company assumed the outstanding notes payable to Cornell Capital
in the amount of $3.35 million from Mayflower Auto Group,
shareholder of AutoMart. $1.5 million of the note payable to Cornell
Capital was entered in October 2007 and cash proceeds of the full
amount will be retained by AutoMart. $150,000 out of the note
payable entered in September 2005 has not yet contributed to
AutoMart as of September 30, 2006.
Proforma adjustments on the statements of operations for the nine months ended
September 30, 2006 and the year ended December 31, 2005 including the following:
1. Issuance of 10,000,00 shares of common stock Class A to Mr. Mahoney
and Mr. Meller valued at $0.24 per share to pay off payables of
$446,000 payable to Mr. Mahoney and Mr. Meller. The excess of the
fair value of the shares over the payable amount in the amount of
$1,954,000 was expensed.
2. Interest expense on 12% promissory notes of $3,350,000 assumed from
Mayflower Auto Group was $301,500 and $402,000 for the 9 months
ended September 30, 2006 and year ended December 31, 2005,
respectively.
3. Issuance of 83,081,635 shares of common stock Class A, issuance of
250,000,000 shares of common stock Class A equivalent (2,000,000
common stock Class B), and 10,000,000 shares of common stock Class A
issued to Mr. Mchoney and Mr. Meller per the terms of the merger,
totaling 343,081,635 shares. A holder of Class B Common has the
right to convert each share of Class B Common into the number of
shares of Common Stock determined by dividing the number of shares
of Class B Common being converted by a twenty percent (20%) discount
of the lowest price that the Registrant had over issued its Common
Stock which was $0.01 per share.
PRO FORMA NET LOSS PER SHARE
The pro forma basis and dilutive net loss per share are based on the weighted
average number of shares of pro forma Deep Field's common stock as if the shares
issued to acquire AutoMart had taken place at the beginning of each of the
reporting periods. Dilutive shares are not included in the computation of pro
forma dilutive net loss per share as their effect would be anti-dilutive.
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