UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2003
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 000-30554
FUTURE CARZ, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0431029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Union Street, Suite K, San Diego, CA 92101
(Address of principal executive offices) (Zip Code)
(619) 696-3690
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 52,856,900
FUTURE CARZ, INC.
For the Quarterly Period Ended March 31, 2003
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements 3
Balance Sheet 4
Statement of Operations 5
Statement of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Plan of Operation 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits 12
SIGNATURES 13
CERTIFICATIONS 14
2
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and pursuant to the
rules and regulations of the Securities and Exchange Commission ("Commission").
While these statements reflect all normal recurring adjustments which are, in
the opinion of management, necessary for fair presentation of the results of the
interim period, they 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. For further information, refer to the
financial statements and footnotes thereto, which are included in the Company's
Annual Report on Form 10-KSB/A previously filed with the Commission on June 10,
2003.
The accompanying notes are an integral part of these unaudited financial
statements.
3
FUTURE CARZ, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 13,443
Prepaid expenses 4,326
-----------
Total current assets 17,769
-----------
FIXED ASSETS, net 600
-----------
LEASE ASSETS
Net investment in operating lease vehicles 147,467
Vehicles held for lease 119,550
-----------
267,017
-----------
$ 285,386
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 157,608
Operating advances - related parties 27,303
Note payable - related parties 136,000
-----------
Total current liabilities 320,911
-----------
STOCKHOLDERS' (DEFICIT)
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $0.001 par value, 100,000,000 shares
authorized, 52,856,900 shares issued and outstanding 52,857
Additional paid-in capital 6,632,216
Deferred compensation (33,000)
Accumulated (deficit) (6,687,598)
-----------
(35,525)
-----------
$ 285,386
===========
The accompanying notes are an integral part of these financial statements.
4
FUTURE CARZ, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended March 31,
2003 2002
------------ ------------
REVENUE $ 12,697 $ --
------------ ------------
EXPENSES
General and administrative 18,820 105,162
Depreciation and amortization 4,924 758
Non-cash stock compensation -- 414,688
------------ ------------
23,744 105,920
------------ ------------
NET OPERATING (LOSS) (11,047) (105,920)
------------ ------------
OTHER INCOME (EXPENSE)
Gain on disposal of assets -- 501
Interest expense -- (9,100)
------------ ------------
-- (8,599)
------------ ------------
NET (LOSS) $ (11,047) $ (114,519)
============ ============
PER SHARE INFORMATION
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 51,540,233 5,570,577
============ ============
NET (LOSS) PER COMMON SHARE $ (0.00) $ (0.02)
============ ============
The accompanying notes are an integral part of these financial statements.
5
FUTURE CARZ, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31,
2003 2002
-------- --------
Cash flow from operating activities
Net cash (used in) operating expenses $ (8,330) $(23,513)
-------- --------
Cash flow from investing activities
Proceeds from assets held for sale -- 23,927
Purchase of lease assets (31,890) --
-------- --------
Net cash provided by (used in) investing activities (31,890) 23,927
-------- --------
Cash flow from financing activities
Net cash provided by financing activities -- --
-------- --------
Net increase (decrease) in cash (40,220) 414
Cash - beginning 53,663 --
-------- --------
Cash - ending $ 13,443 $ 414
======== ========
The accompanying notes are an integral part of these financial statements.
6
FUTURE CARZ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information. They 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. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation, have been included in
the accompanying unaudited consolidated financial statements. Operating results
for the periods presented are not necessarily indicative of the results that may
be expected for the full year. For further information, refer to the
consolidated financial statements and notes thereto, included in the Company's
Form 10-KSB/A as of and for the two years ended December 31, 2002.
NOTE 2. EARNINGS PER SHARE
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards 128, "Earnings per Share." Basic earnings (loss)
per share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted earnings (loss) per
share is calculated by dividing net income (loss) by the weighted average number
of common shares and dilutive common stock equivalents outstanding. During the
periods presented, common stock equivalents were not considered, as their effect
would be anti-dilutive.
NOTE 3. GOING CONCERN
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The Company has experienced losses from operations as a result of its investment
necessary to achieve its operating plan, which is long-range in nature. For the
three months ended March 31, 2003 the Company incurred a net loss of $11,047 and
has a working capital deficit of $303,142.
The ability of the Company to continue as a going concern is dependent upon its
ability to raise additional capital and, ultimately, the achievement of
significant operating revenues. The accompanying financial statements do not
include any adjustments that might be required should the Company be unable to
recover the value of its assets or satisfy its liabilities.
7
FUTURE CARZ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
NOTE 4. STOCKHOLDERS' (DEFICIT)
On March 20, 2003 the Company agreed to issue 1,500,000 shares of common stock
to a consultant in exchange for services to be provided through March 20, 2005.
The shares were issued at their fair market value of $0.022 on that date. The
Company has recorded deferred compensation of $33,000 for services to be
received subsequent to March 31, 2003. On March 28, 2003 the Company filed a
Form S-8 Registration Statement to register these shares of common stock and
issued the shares to the consultant.
On March 28, 2003 the consultant arranged for the transfer of 1,360,000 shares
to certain former note holders of the Company in satisfaction of the Company's
stock subscriptions. The issuance of these registered common shares to the
consultant and subsequent transfer to the former note holders was not
permissible under Form S-8. As a result, the Company's ability to register
additional shares may be restricted.
As a result of this transaction the Company has recorded a note payable -
related party of $136,000 to the consultant for satisfaction of the stock
subscriptions on the Company's behalf. As of the date of this filing the Company
had not agreed to repayment terms with the consultant.
NOTE 5. CONTINGENCIES
The Company is currently a defendant in a lawsuit brought against American
Automotive Group and other defendants relating to allegations of securities
fraud by certain shareholders of American Automotive Group. The Company was
named in the lawsuit due to its asset purchase of American Automotive Group's
auto lease assets during the year ended December 31, 2001. The Company is unable
to determine the likelihood or amount of any damages.
NOTE 6. SUBSEQUENT EVENT
On May 1, 2003 the Company entered into a secured promissory note for $100,000
at 12% annum, interest due monthly. The promissory note is secured by lease
assets and matures on April 30, 2004. As of the date of this filing the balance
due under this promissory note was $100,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements about Future
Carz, Inc.'s business, financial condition and prospects that reflect
management's assumptions and beliefs based on information currently available.
We can give no assurance that the expectations indicated by such forward-looking
statements will be realized. If any of our management's assumptions should prove
incorrect, or if any of the risks and uncertainties underlying such expectations
should materialize, Future Carz' actual results may differ materially from those
indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct
bearing on operating results include, but are not limited to, acceptance of our
services, our ability to expand our customer base, managements' ability to raise
capital in the future, the retention of key employees and changes in the
regulation of our industry.
There may be other risks and circumstances that management may be unable to
predict. When used in this Quarterly Report, words such as, "BELIEVES,"
"EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES" and similar
expressions are intended to identify forward-looking statements, as defined in
Section 21E of the Securities Exchange Act of 1934, although there may be
certain forward-looking statements not accompanied by such expressions.
The safe harbors of forward-looking statements provided by Section 21E of
the Exchange Act are unavailable to issuers of penny stock. As we issued
securities at a price below $5.00 per share, our shares are considered penny
stock and such safe harbors set forth under the Reform Act are unavailable to
us.
GENERAL
Future Carz, Inc. ("Future Carz" or the "Company") was organized by the
filing of articles of incorporation with the Secretary of State of the State of
Nevada on July 13, 1999, under the name Future Carz.com, Inc. Subsequently, on
February 5, 2001, we filed an amendment to the articles of incorporation,
whereby we changed our name to Future Carz, Inc. We have never been the subject
of any bankruptcy or receivership action.
In October 2002, we entered into an agreement with The Jack Watters Group
to obtain necessary capital to satisfy our debt obligations and to reconfigure
our operations to achieve profitability and increase revenue generating
capabilities.
We were originally founded to capitalize on two significant emerging trends
transforming the automobile financing market: a dramatic rise in the number of
sub-prime consumers and a marked increase in used car leasing. Sub-prime
consumers are individuals with limited credit histories, low incomes, or past
credit issues that prevent them from accessing traditional (conforming)
financing. This group now accounts for roughly 45% of the credit population
nationwide. Through a predecessor company, our management identified a unique
opportunity for high-yield profits with comparatively low exposure to risk in
the sub-prime segment of the automobile financing market. The innovation behind
the opportunity was an unconventional approach to leasing rather than selling
used vehicles.
Our current service offering is designed to meet the needs of the growing
sub-prime credit sector seeking quality used automobiles. We offer an attractive
alternative to buying a used car or leasing a new one. The concept is to provide
closed-end leases on used vehicles in a format that is acceptable to the
sub-prime consumer, yet reduces risk of default for us.
Our leasing system incorporates both new and used cars. Lessees have an
option to take out a warranty for $10 a week that covers the vehicle's major
components. As of March 31, 2003 none of our lessees have chosen to purchase a
warranty. The lease requires the lessee to return the vehicle to an approved
service location for a checkup every three months. The general lease offering
includes a range of down payments from $500 to $700 in cash with an average
9
weekly payment of $75. These payments are due each Friday. If the lessee fails
to make the payment on Friday, the lessee will receive a phone call on Saturday.
If no response occurs prior to Monday, a collection agency is contacted and
takes a more aggressive approach to receive payment or, as a last resort, the
vehicle is repossessed. The leased vehicle title remains in our name during the
entire lease period.
Customers view the opportunity to drive a quality vehicle as a luxury and
in many cases, we may be their last resort to obtain reliable transportation.
The added benefit of building good credit is an unexpected bonus. For this
reason, we command a sense of loyalty with our customers. Many of these
individuals will eventually improve their credit rating and look for newer
vehicles or upgraded transportation. Through our approach, we can produce strong
repeat customer and referral business.
In November 2002 the present management team began building relationships
with automotive rebuilders in southern California to provide a source of supply
for quality late model automobiles. Rebuilders were required to build
automobiles to the Company's specifications and provide a limited warranty. To
date the Company has acquired over 30 vehicles from these sources.
In December 2002 the Company opened a leasing center under the name Accel
Auto Carz located at 717 Union Street in San Diego, CA. As of March 31, 2003
this leasing center has leased 13 vehicles. The Company makes credit decisions
taking into account the prospective lessee's present job, credit history and
future prospects. For the period beginning December 1, 2002 to date the Company
has suffered no defaults on lease payments. Although this period is relatively
short in duration and only reflects transactions with a small number of lessees,
the Company believes its default rate will be acceptable.
In April 2003 the Company signed a lease to open a second leasing center in
Hammond, Indiana, which is part of the greater Chicago, IL market. This leasing
center is scheduled to open June 30, 2003. The Company has established a network
of rebuilders similar to those in southern California in the Chicago area. The
Hammond leasing center will operate under the name Accel Auto Carz.
On May 1, 2003 the Company entered into a secured promissory note for
$100,000 at 12% annum, interest due monthly. The promissory note is secured by
lease assets and matures on April 30, 2004. As of the date of this filing the
balance due under this promissory note was $100,000.
REVENUE FROM SERVICES PROVIDED
The Company's revenue from services provided was $12,697 for the quarter
ended March 31, 2003. For the prior quarter ended March 31, 2002, revenue from
services provided was zero. This increase in revenue is attributable to the
Company opening its leasing center in San Diego.
OPERATING EXPENSES
Operating expenses totaled $23,744 and $105,920 for the quarters ended
March 31, 2003 and 2002, respectively. The decrease in expenses is attributable
to more efficient use of the Company's resources as well as no stock
compensation being incurred during the quarter ended March 31, 2003.
In addition, the Company's interest expense was zero for the quarter ended
March 31, 2003, down from $9,100 in the prior year, due to a large decrease in
interest bearing debt.
NET LOSS
The Company incurred a net loss in the amount of $11,047 for the quarter
ended March 31, 2003. This represents a decrease of $103,472 or 90%, over the
net loss for the prior quarter 2002 of $114,519.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a net decrease of $40,220 in our cash position
during the quarter ended March 31, 2003, as compared to a net increase of $414
during the quarter ended March 31, 2002. The Company used $8,330 of cash for
operating activities for the quarter ended March 31, 2003, as compared to
$23,513, for the quarter ended March 31, 2002. The Company purchased lease
vehicles with cash in the amount of $31,890, during the quarter ended March 31,
2003. The Company did experience a cash inflow of $23,927 from the proceeds of
assets held for sale during the quarter ended March 31, 2002.
The Company obtained no financing during the quarters ended March 31, 2003
or March 31, 2002.
CASH NEEDS FOR THE NEXT TWELVE MONTHS
The Company's financial resources during the quarter ended March 31, 2003
were sufficient to support the Company's operating infrastructure. The company
anticipates the cash needs for the next twelve months to be approximately
$200,000, approximately $125,000 for financing activities and $75,000 for
operations activities.
The Company has entered into an agreement with Hoosier State Building and
Loan, Ltd. to provide lien backed financing of its leased vehicles. The Company
expects to increase investments in vehicles over the next 12 months. The Company
may not have sufficient financial resources to support an increased level of
operations for the next 12 months if it does not generate sufficient revenues
and/or if it fails to raise equity capital as appropriate. Based on current
information on hand and the Company's latest expectation for its operations for
the next 12 months, the Company may face an issue of whether its available cash
resources from operations and capital will allow it to continue as a going
concern.
The Company cannot give any assurance that it will be able to generate cash
from operations to meet its needs for the next 12 months. There may be a
shortfall in our cash if the Company fails to do so. The Company may need to
obtain additional financing in the event that it is unable to realize sufficient
revenue or collect accounts receivable. Furthermore, the Company's ability to
satisfy the redemption of future debt obligations that it may enter into will be
primarily dependent upon the future financial and operating performance of the
Company. Such performance is dependent upon financial, business and other
general economic factors, many of which are beyond the Company's control. If the
Company is unable to generate sufficient cash flow to meet its future debt
service obligations or provide adequate long-term liquidity, the Company will
have to pursue one or more alternatives, such as reducing or delaying capital
expenditures, refinancing debt, selling assets or operations or raising equity
capital. There can be no assurance that such alternatives can be accomplished on
satisfactory terms, if at all, or in a timely manner. If the Company does not
have sufficient cash resources when needed, the Company will not be able to
continue operations as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer (who also effectively serves
as the Chief Financial Officer), of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
concluded that our disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information we are required to disclose
in the reports we file under the Securities Exchange Act of 1934, within the
time periods specified in the SEC's rules and forms. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this
evaluation.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 2001, the Company and its officers and directors were named as
defendants in a lawsuit in the State of Arizona brought by investors and
creditors of American Automotive Group relating to allegations of securities
fraud by certain shareholders of American Automotive Group. The Company was
named in the lawsuit due to its asset purchase of American Automotive Group's
auto lease assets during the 2001 for common stock of the Company. The claim is
for remediation of $162,000, including attorney's fees. The Company is unable to
determine the likelihood or amount of any damages.
ITEM 2. CHANGES IN SECURITIES
On March 28, 2003, we filed a registration statement of Form S-8, whereby
we registered an aggregate of 1,500,000 shares of $0.001 par value common stock,
issued to Douglas G. Hauser for services to be rendered pursuant to a consulting
services agreement entered into in March, 2003. On March 28, 2003 the Mr. Hauser
arranged for the transfer of 1,360,000 of these shares to certain former note
holders of the Company in satisfaction of the Company's stock subscriptions. The
issuance of these registered common shares to the consultant and subsequent
transfer to the former note holders was not permissible under Form S-8. As a
result, the shares issued to the note holders are restricted securities and may
only be sold in compliance with Rule 144. As a result, the Company has placed
stop-transfer instructions on the shares issued to the note holders. The Company
is evaluating making an offer to the note holders, which may include the option
of either keeping the restricted shares and receiving a cash payment of $0.01
per share, or returning the shares and receiving the promissory notes they
previously held. The Company is exploring alternatives for making the offer to
the note holders pursuant to Regulation D.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Description
-----------
Exhibit 3 Articles of Incorporation & By-Laws
(a) Articles of Incorporation of the Company.*
(b) By-Laws of the Company.*
Exhibit 99 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
- ----------
* Incorporated by reference to the exhibits to the Company's General Form for
Registration of Securities of Small Business Issuers on Form 10-SB, and
amendments thereto, previously filed with the Commission.
(b) Reports on Form 8-K
None
12
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Future Carz, Inc.
(Registrant)
Signature Title Date
--------- ----- ----
/s/ Ethel Merriman Chief Executive Officer and June 17, 2003
- ----------------------------- Chief Financial Officer
Ethel Merriman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ethel Merriman President and June 17, 2003
- ----------------------------- Director
Ethel Merriman
/s/ M. David Fesko Director June 17, 2003
- -----------------------------
M. David Fesko
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CERTIFICATIONS
I, Ethel Merriman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Future Carz, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial position, results of operations, and cash
flows of the issuer as of, and for, the periods presented in this quarterly
report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 17, 2003
/s/ Ethel Merriman
- ------------------------------------
President, CEO, and Principal Financial Officer
14