As Filed With the Securities and Exchange
Commission on May 10, 2004. Registration No.: 333-115149
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AUTO DATA NETWORK, INC.
(Name of small business issuer in its charter)
Delaware 7389
(State or jurisdiction of (Primary Standard
incorporation or organization) Classification Code Number)
13-3944580
(IRS Employer Identification No.)
The Forsyth Centre, Century Place
Lamberts Road, Tunbridge Wells
Kent TN2 3EH United Kingdom
011 44 1892 511 566
(Address and telephone number of principal executive offices and
principal place of business)
Christopher Glover, Chief Executive Officer
The Forsyth Centre, Century Place
Lamberts Road, Tunbridge Wells
Kent TN2 3EH United Kingdom
011 44 1892 511 566
(Name, address, and telephone number of agent for service)
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Copies of communications to:
L. STEPHEN ALBRIGHT, ESQ.
17337 Ventura Boulevard, Suite 208
Encino, California 91316
(818) 789-0779
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
1
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed
Proposed maximum
Title of maximum aggregate Amount of
securities to Amount to be offering price offering registration
be registered registered per share(1) price(2) fee
- --------------------------------------------------------------------------------
Common Stock 10,211,762 shares $3.19 $32,575,521 $4,127.32
underlying
Series B
Preferred Stock
Convertible
Promissory Notes
(common stock par
value $0.0001
per share) (2)
- --------------------------------------------------------------------------------
Common Stock 3,084,246 shares $3.19 $ 9,838,746 $1,246.57
underlying
warrants to
purchase common
stock par value
$0.01 (2)
- --------------------------------------------------------------------------------
(1) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the bid and ask prices
per share of our common stock, as reported on the OTC Bulletin Board, on April
19, 2004. Total Filing Fee is $5,373.89.
(2) The holders of "Series A Preferred Stock" hold pre-emptive rights which
grant them the ability to purchase additional shares of common stock on the same
terms and conditions as Series B selling shareholders in order to prevent the
dilution of their positions. Certain of these Series A shareholders have elected
to exercise their right to purchase common stock and these purchasers are
included herein, including warrants related thereto.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
PROSPECTUS
Dated: May __, 2004 Subject to completion
13,296,008 SHARES OF COMMON STOCK
AUTO DATA NETWORKS, INC.
We have prepared this prospectus to allow certain of our current
stockholders to sell up to 13,296,008 shares of our common stock. We are not
selling any shares of common stock under this prospectus. The shares of common
stock that we are registering for resale include shares of common stock that may
be issued upon the conversion of Series B Preferred Stock Convertible Promissory
Notes and the exercise of warrants to purchase shares of common stock.. Up to
13,296,008 shares of common stock will be will be issued upon the exercise or
conversion of the preferred stock and exercise of the warrants. The selling
stockholders listed on page 17 may sell these shares from time to time after
this Registration Statement is declared effective by the Securities & Exchange
Commission.
The prices at which the selling stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds received by the selling
stockholders.
We may receive up to $7,085,477 in proceeds from the exercise of the
outstanding warrants. We will not receive any proceeds from the conversion of
Series B Preferred Stock Convertible Promissory Notes to common stock held by
the selling stockholders. As of the date of this prospectus, none of the
warrants has been exercised.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ADNW.OB." On April 19, 2004, the last reported sales price of our common stock
as reported by the OTC Bulletin Board was $3.21 per share.
We urge you to read carefully the "Risk Factors" section beginning on page
10 where we describe specific risks associated with an investment in Auto Data
Network, Inc. and these securities before you make your investment decision.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is May __, 2004.
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TABLE OF CONTENTS
PAGE
PART I
Prospectus Summary ...................................................... 5
Risk Factors ............................................................ 10
Disclosure Regarding Forward Looking Statements ......................... 16
Use of Proceeds ......................................................... 16
Determination of Offering Price ......................................... 17
Dilution ................................................................ 17
Selling Security Holders ................................................ 17
Plan of Distribution .................................................... 23
Legal Proceedings ....................................................... 26
Management .............................................................. 26
Security Ownership of Certain Beneficial Owners & Management ............ 27
Description of Securities ............................................... 28
Interests of Named Experts and Counsel .................................. 30
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ........................................... 32
Description of Business ................................................. 30
Management's Discussion and Analysis or Plan of Operation................ 46
Description of Property ................................................. 50
Certain Relationships and Related Transactions........................... 50
Market for Common Equity and Related Stockholder Matters................. 50
Executive Compensation .................................................. 52
Changes and Disagreements with Accountants on
Accounting and Financial Disclosures .................................... 53
Financial Information .....................................53 & F-1 through F-14
PART II
Indemnification of Directors and Officers ............................... i
Other Expenses of Issuance and Distribution ............................. ii
Recent Sales of Unregistered Securities ................................. ii
Exhibits ................................................................ iv
Undertakings ....................................................... vi
Back Cover of Prospectus (no page number)
4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING
OFFERS TO BUY, SHARES OF THE COMPANY'S COMMON STOCK IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE AS OF THE DATE OF THIS PROSPECTUS REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and the securities being offered for sale by means of
this prospectus and our financial statements and notes to those statements
appearing elsewhere in this prospectus. The summary highlights information
contained elsewhere in this prospectus.
CORPORATE INFORMATION/BACKGROUND
Our principal executive offices are located at The Forsyth Centre, Century
Place Lamberts Road, Tunbridge Wells Kent, TN2 3EH United Kingdom and our phone
number, including country code is 011 44 1892 511 566.
Auto Data Network Inc ("the Company") was formed as a Delaware corporation
on November 6, 1996, under the name Medic Media Inc. On March 30, 1999, Medic
Media changed its name to AMAC Inc. and engaged in the development and
manufacture of amphibious vehicles, anticipated market demand did not
materialize and the company decided to change direction and pursue a different
strategy for returning value to shareholders. On October 2, 2001, the Company
acquired all of the outstanding shares of Europortal Inc T/A AutoData Group
("ADG") in exchange for the sale of 95% of the outstanding shares of the Company
to the former stockholders of ADG. The remaining 5% equity was retained by
original AMAC stockholders. The effect of this transaction was a change in
control of the Company, ceding corporate control to the former stockholders of
ADG. In acquiring ADG the Company became the owner of Automotive Data Network
Ltd., formerly All Group Holdings Ltd., a UK holding company. On October 4, 2001
the Company changed its name to Auto Data Network, Inc. The acquisition of
Eurportal Inc by AMAC Inc was considered to be a reverse merger because of the
respective sizes of the two entities and Europortal Inc became the accounting
acquirer.
THE COMPANY
Auto Data Network, Inc. (referred to as "us", "we" or "Company") is a group
of established companies which provide software products and services to the
automotive industry. Our main customers are auto dealership in a marketplace of
approximately 78,000 dealers in North America and 92,000 dealers in Europe. The
company estimates that this represents a $15 billion market for Software and
Services specifically for auto dealerships. The company supplies a suite of
software solutions and services that enable dealerships to run their businesses
more efficiently and achieve considerable cost savings. The majority of the
company's current solutions are focused on serving the aftermarket and finance
areas of automobile dealerships. These areas are of particular importance since
we estimate that the aftermarket business is responsible for 48%
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of a dealerships' profits generated from 12% of their overall revenue. We
estimate that the second most profitable area is vehicle finance and insurance
which contributes 35% of profits from 2% of revenues.
Our open business automation and distribution channel eCommerce products
and services are designed for industry participants interested in relevant,
real-time data related to the purchase and sale of motor vehicles and automotive
parts and related services in specific markets Our operations are conducted
through our four subsidiaries and using our solutions, many companies now
generate new sales, operate more cost efficiently, accelerate inventory turns
and maintain stronger relationships with suppliers and customers. The Group
generates sales from its two divisions, aftermarket service products and
information services. These divisions supply real time and transactional
services to manufacturers, retailers and consumers producing industry-wide
revenue generation, communication and information collection.
On April 23, 2003 the company completed the acquisition of MAM Software
Limited. MAM Software is the leading European supplier of automotive aftermarket
of computer software and systems within the automotive aftermarket and marine
trade. It provides a complete range of products covering all aspects of sales,
stock and purchase control linked to a full range of accounting systems. These
systems apply to Motor Factors and Distributors, Parts Retailers and Garages.
MAM Software offers a service that covers installation of new computer systems
followed by comprehensive support and maintenance. Its range of software
products are known as "Auto Part", a complete system for wholesalers and
retailers, "Auto Work", a computer system for garages and workshops, "Autocat",
a stand alone electronic catalogue, and "Autonet" a service for establishing and
maintaining a presence on the world wide web. MAM Software currently maintains
four sites in the United Kingdom and Republic of Ireland. It is considered a
pre-eminent system supplier to the Automotive Parts Aftermarket.
On July 1, 2003 the Company completed the acquisition of Avenida
Technologies Limited, a company based in Coventry, UK, which develops software
to address the most pressing challenges of the automotive industry - issues such
as the coordination of activities between manufacturers and dealers, information
exchange between suppliers and manufacturer, reducing costs to stay competitive
and increasing customer retention. Avenida software accelerates the flow of
information throughout an organization by removing the barriers between
applications, data stores and network platforms, so increasing its efficiency.
Furthermore, Avenida takes these benefits outside the enterprise by pushing its
technology boundaries to include selected trading partners and customers.
Avenida reduces data-management costs while ensuring data is accurate and
up-to-date, regardless of its location.
Avenida's software connects existing, legacy systems to those of trading
partners using the latest XML standards and 'rules based' processing. Using
Avenida, businesses benefit from the centralization and sharing of the critical
business services, processes, messages, and vocabularies that make up the
transactions exchanged between trading partners. Avenida offers an
Internet-based solution to reflect the increasingly distributed nature of the
automotive industry. Streamlined business information is able to flow between
dealerships, manufacturers, aftermarket service providers and other distribution
'value chain' companies. Messaging to exchange customer records, orders,
shipment information and other business information, within automotive product
configuration and sales systems, is already in use with a number of clients
including Land Rover, MG Rover, Ford (NYSE: F), BMW (Frankfurt: BMWG.F), Rolls
Royce, Lloyds TSB (NYSE: LYG), and TNT, an express delivery company in Europe.
6
On August 13, 2003, the company announced an agreement with CarParts
Technologies, Inc. ("CarParts") is a leading provider of software systems to the
automotive aftermarket supply chain. Over 3,000 customers, including leading
automotive aftermarket outlets, tier 1 manufacturers, program groups, warehouse
distributors, tire and service chains and independent installers across all 50
U.S. states and Canada, rely on CarParts software.
Under the terms of the agreement, we provided a loan of $2 million to fund
the continued growth of the company. We sill also acquire CarParts on a
pre-determined formula at the end of 2005.
CarParts has developed the world's first application suite that puts the
Internet inside its VAST point-of-sale ("POS") and back office ("DirectStep")
automotive aftermarket systems. CarParts has created an industry-specific
private trading network, OpenWebs(TM) Intelligent Trading Network
("OpenWebs(TM)"), with in-built, secure trading and accounting functionality
that lets members buy from, and sell to, any other partner on the network -
distributors, manufacturers, even other dealers. Since everyone is connected
under trading rules, members can confirm sales to their own customers based on
accurate information and reduce their inventory. OpenWebs(TM) integrates its
trading and accounting functions with existing industry systems from a standard
Microsoft based platform. This results in lower customer installation costs and
minimal user training requirements.
Using OpenWebs(TM), CarParts has also deployed a leading tire-industry
Enterprise Resource Planning ("ERP") application, Tradera, with advanced tire
functionality, tire adjustment warranty tracking, volume bonus accruals and
integration with retread software. Computer-to-computer connectivity with
leading tire manufacturers provides accurate real-time product information to
assist dealerships and repair centres in managing and extending their
relationship with customers
We market our products to vehicle and parts manufacturers, dealers,
consumers and related industry participants, including financial institutions,
insurance providers and fleet owners. Our core product offering revolves around
three functions: (1) our ability to link the often incompatible systems and data
structures of the various participants in the industry into one unified
information platform, (2) our ability to assemble and provide relevant,
actionable data in real-time to our subscribers, and (3) our breadth of services
and product offering designed to facilitate and increase efficiencies using the
data we provide to facilitate sales of new and used vehicles, parts and
accessories, and various services such as finance, insurance and vehicle
servicing.
Our product suite includes applications we have developed internally and
applications developed by businesses through acquisition. The platform
propositions are integrated as a communications channel that allows all
automotive sector participants to transact within a single environment, in which
transactional data is added and modified on the network. This process creates a
unique source of "Intelligent Information(TM)" that can be accessed by
subscribing companies to analyze and react to changes in market conditions.
Between June 1, 2003, and October 15, 2003, we sold an aggregate total of
5,328,000 shares of preferred stock, 500,000 were Series A-1 Convertible
Promissory Note Preferred Stock and 4,828,000 were Series A-2 Preferred Stock.
All of these sales were made in reliance upon exemptions from registration under
the Securities Act of 1933, as amended (the "Act"). We sold
7
all of these preferred shares for $2.50 per share. Each of these preferred
shares is currently convertible into two (2) shares of our common stock. The
shares of common stock underlying these preferred shares were registered
pursuant to a registration statement filed on November 05, 2003. In addition to
selling those shares, we issued warrants to purchase up to 1,331,000 shares of
our common stock to various investment advisors and consultants. These warrants
are exercisable at the price of $1.25 per share. The 1,331,000 shares of our
common stock which underlie these warrants were registered pursuant to the same
registration statement filed on November 05, 2003
On March 15, 2004, we announced that we had invested $11 million in DCS
Automotive, Europe's largest dealer management system ("DMS") provider and a
division of DCS Group, PLC., for a one-third equity interest. Under the terms of
the investment, we have the right to purchase the remaining two-thirds equity
interest in DCS Automotive upon the completion of certain financial performance
criterion by DCS. The addition of DCS provides a substantial channel to the
Company's product offering. DCS is the leading provider of DMS systems in
France, Germany and Switzerland with in excess of 11,000 clients. DCS Automotive
is European leader in the provision of Information Technology ("IT") business
solutions to the automotive retail sector in Europe. Established in 1976, DCS
Automotive has evolved from a supplier of dealer management systems and now
specializes in flexible, connective technologies and services designed
exclusively for the automotive industry. DCS Automotive has offices in the UK,
France, Germany, Spain, Switzerland and Asia, as well as agents and
representations throughout the rest of the world. Its customers include the
world's leading manufacturers, distributors and retail motor groups, including
Renault, Volkswagen, BMW and leading distributor groups across Europe.
On March 18, 2004, we announced the completion of our purchase of
MMI-Automotive Limited ("MMI"), a leading provider of business management and
marketing systems for the United Kingdom and European automotive industry. MMI
was founded in 1981 and is a leader in Microsoft Windows(R) based DMS and
customer relations marketing systems ("CRM") for both automotive dealers and
manufacturers. MMI's products include Automate DMS, a real-time dealer
management system designed for automotive dealerships and dealer groups -
endorsed by several major automobile manufacturers; Target CRM, a system to help
dealerships, dealer groups and manufacturers generate more revenue through the
strategic management of customer relationships; Target CCRM, a centralized
customer relationship management system for multi-site or multi-franchise
dealers; and TimePro, a time recording and management system. MMI also offers
design and consultancy services for dealer websites and product development.
MMI's software provides a comprehensive dealer management system inclusive of
vehicle and parts sales, inventory management, service management and records,
accounting systems, as well as manufacturer links. Its fully integrated customer
relations management system provides an information and marketing framework
designed to maximize profitability, effectiveness and customer loyalty.
On March 26, 2004 the Company completed its purchase of Hiltingbury Motor
Group, comprising Hiltingbury Motors Limited and Hiltingbury Service Station
Limited. Hiltingbury is an innovative supplier of automotive goods and services
to the domestic UK consumer market.
In addition, between February 12, 2004, and March 30, 2004, we sold an
aggregate total of 5,105,881 shares of Series B Preferred Stock Convertible
Notes ("Series B Preferred Stock") of which 764,581 Series B Preferred Shares
were sold to those preferred stockholders who elected to exercise their
preemption rights. All of these sales were made in reliance upon exemptions from
registration under the Securities Act
8
of 1933, as amended (the "Act"). We sold all of the Series B Preferred Stock for
$3.80 per share. Each of the Series B Preferred Stock shares is currently
convertible into two (2) shares of our common stock. For each five (5) shares of
Series B Preferred Stock purchased, subscribing investors received warrants to
purchase two (2) shares of the Company's common stock at an initial exercise
price equal to $2.50 per share. The shares of common stock underlying these
Series B Preferred Stock and warrants are being registered pursuant to this
registration statement. In addition to selling those shares, we issued warrants
to purchase up to 1,041,896 shares of our common stock to various investment
advisors and consultants. These warrants are exercisable at the price of $1.90
per share. We are also registering 1,041,896 shares of our common stock which
underlie these warrants. These transactions are listed in the Selling
Shareholders portion of this registration statement.
We believe that we have the opportunity to become a leading technology
company servicing the automotive industry in the next five years if we
successfully execute our balanced growth strategy. We anticipate that revenues
derived from our current software portfolio will permit us to further develop
new products in our development portfolio.
THE OFFERING
Shares offered by the
selling stockholders ...................up to 13,296,008 shares of common stock.
Shares outstanding prior to
offering ............................................................28,082,724
Shares to be outstanding
following offering ........................................... up to 41,378,732
Use of proceeds ............................We will not receive any proceeds
from the sale and and issuance of common
stock following the conversion of the
Series B Preferred Stock. However, if
the selling shareholders owning warrants
exercise them, we would receive up to
$7,085,477.00. We cannot know how many
warrants the selling shareholders will
exercise their warrants or, if so
exercised, that they will sell them to
the public. Depending upon the amount of
proceeds generated by this offering, we
plan to use most of the proceeds for
general working capital to pay
administrative and general expenses. We
estimate the expenses of this offering,
such as printing, legal, and accounting
will be approximately $100,000.
Risk Factors ...............................An investment in our common stock
is subject to significant risks. You
should carefully consider the
information set forth in the "Risk
Factors" section of this prospectus as
well as other information set forth in
this prospectus, including our financial
statements and related notes.
9
Dividend policy ............................We intend to retain any earnings to
finance the finance the development and
growth of our business. Accordingly, we
do not anticipate that we will declare
any cash dividends on our common stock
for the foreseeable future. See "Market
For Common Equity and Dividend Policy"
on page 48.
Plan of Distribution .......................The shares of common stock offered
for resale may be sold by the selling
stockholders pursuant to this prospectus
in the manner described under "Plan of
Distribution" on page 20.
OTC Bulletin Board symbol ..............................................ADNW.OB
SUMMARY FINANCIAL DATA
The following summary financial information is taken from our financial
statements included elsewhere in this prospectus and should be read along with
the financial statements and the related notes.
INCOME STATEMENT DATA
Three Months Ended Nine months Ended
February 29 November 30
2003 2002 2003 2002
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Total revenue .......... $ 1,772,996 $ 40,412 $ 15,095,548 $ 1,026,100
Operating expenses ..... 1,081,617 68,053 8,101,283 453,059
Net profit / loss ...... 514,648 (725,002) 2,000,826 17,113
Net loss per share ..... $ 0.045 $ (0.065) $ 0.137 $ 0.001
Average number of shares 11,552,289 11,462,078 14,386,850 11,552,289
BALANCE DATA SHEET
February 28, November 30,
2003 2003
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
Total assets .............................. $ 9,143,601 $35,066,099
Cash ...................................... 722,961 8,584,760
Total liabilities ......................... 2,531,376 9,598,061
Working capital (deficiency) .............. (452,115) 6,460,111
Stockholders' equity (deficit) ............ 7,214,749 25,468,036
RISK FACTORS
You should carefully consider the following risks before you decide to buy
our common stock. Our business, financial condition or operating results may
suffer if any of the events described in the following risk factors actually
occur. There may be additional risks that we are not currently able to identify.
These may also adversely affect our business, financial condition
10
or operating results. I f any of the events we have identified or those that we
cannot now identify occurs, the trading price of our common stock could decline,
and you may lose all or part of the money you paid to buy our common stock.
We have a limited operating history, which makes it difficult to evaluate
our business and to predict our future operating results.
We were organized in November 1996. Since our inception, we have been
primarily engaged in organizational activities, including developing a strategic
operating plan, entering into various collaborative agreements for the
development of products and technologies, hiring personnel and developing and
testing our products.
With the exception of our most recently completed fiscal year we have
incurred net losses since commencing business. We may incur future losses. We
may never generate material revenues or achieve profitability and, if we do
achieve profitability, we may not be able to maintain profitability.
We may fail to address risks we face as a developing business which could
adversely affect the implementation of our business plan.
We are prone to all of the risks inherent to the establishment of any new
business venture. You should consider the likelihood of our future success to be
highly speculative in light of our limited operating history, as well as the
limited resources, problems, expenses, risks and complications frequently
encountered by similarly situated companies. To address these risks, we must,
among other things,
o maintain and increase our product portfolio;
o implement and successfully execute our business and marketing strategy;
o continue to develop new products and upgrade our existing products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do
so, our business prospects, financial condition and results of operations would
be materially adversely affected. We have limited experience in developing
products and may be unsuccessful in our efforts to develop products.
To achieve profitable operations, we, alone or with others, must
successfully develop, market and sell our products. The development of new
software products is highly uncertain and subject to a number of significant
risks. Most products resulting from our or our collaborative partners' product
development efforts are not expected to be available for sale for at least a
year. Potential products that appear to be promising at early stages of
development may not reach the market for a number of reasons.
11
To date, our resources have been substantially dedicated to the
acquisition, research and development of products and technologies. Most of the
existing and future products and technologies developed by us will require
extensive additional development. Our product development efforts may not be
successful.
An increase in competition from other software manufacturers could have a
material adverse effect on our ability to generate revenue and cash flow.
Because many of our competitors have substantially greater capabilities and
resources, they may be able to develop products before us or develop more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow.
Competition in our industry is intense. Potential competitors in the United
States and Europe are numerous most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than us. Competing technologies and products may be more effective than any of
those that are being or will be developed by us.
If we fail to keep up with rapid technological change, our technologies and
products could become less competitive or obsolete.
The software industry is characterized by rapid and significant
technological change. We expect that automotive technology will continue to
develop rapidly, and our future success will depend on our ability to develop
and maintain a competitive position. Technological development by others may
result in products developed by us, branded or generic, becoming obsolete before
they are marketed or before we recover a significant portion of the development
and commercialization expenses incurred with respect to these products.
We have limited sales and marketing capability, and may not be successful
in selling or marketing our products.
We depend on patent and proprietary rights to develop and protect our
technologies and products, which rights may not offer us sufficient protection.
The software industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. Our
success will depend on our ability to obtain and enforce protection for products
that we develop under United States and foreign patent laws and other
intellectual property laws, preserve the confidentiality of our trade secrets
and operate without infringing the proprietary rights of third parties.
We also rely upon trade secret protection for our confidential and
proprietary information. Others may independently develop substantially
equivalent proprietary information and techniques or gain access to our trade
secrets or disclose our technology. We may not be able to meaningfully protect
our trade secrets which could limit our ability to exclusively produce products.
We require our employees, consultants, members of the scientific advisory
board and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of employment or consulting relationships or a
collaboration with us. These agreements may not
12
provide meaningful protection of our trade secrets or adequate remedies in the
event of unauthorized use or disclosure of confidential and proprietary
information.
If we lose key management or other personnel our business will suffer.
We are highly dependent on the principal members of our management staff.
We also rely on consultants and advisors to assist us in formulating our
development strategy. Our success also depends upon retaining key management and
technical personnel, as well as our ability to continue to attract and retain
additional highly-qualified personnel. We face intense competition for personnel
from other companies, government entities and other organizations. We may not be
successful in retaining our current personnel. We may not be successful in
hiring or retaining qualified personnel in the future. If we lose the services
of any of our management staff or key technical personnel, or if we fail to
continue to attract qualified personnel, our ability to acquire, develop or sell
products would be adversely affected.
Our management and internal systems might be inadequate to handle our
potential growth.
Our success will depend in significant part on the expansion of our
operations and the effective management of growth. This growth will place a
significant strain on our management and information systems and resources and
operational and financial systems and resources. To manage future growth, our
management must continue to improve our operational and financial systems and
expand, train, retain and manage our employee base. Our management may not be
able to manage our growth effectively. If our systems, procedures, controls, and
resources are inadequate to support our operations, our expansion would be
halted and we could lose our opportunity to gain significant market share. Any
inability to manage growth effectively may harm our ability to institute our
business plan.
Because we intend to have international operations, we will be subject to
risks of conducting business in foreign countries.
If, as we anticipate, international operations will constitute a part of
our business, we will be subject to the risks of conducting business in foreign
countries, including:
o difficulty in establishing or managing distribution relationships;
o different standards for the development, use, packaging and marketing
of our products and technologies;
o our inability to locate qualified local employees, partners,
distributors and suppliers;
o the potential burden of complying with a variety of foreign laws,
trade standards and regulatory requirements; and
o general geopolitical risks, such as political and economic
instability, changes in diplomatic and trade relations, and foreign
currency risks.
We cannot predict our future capital needs and we may not be able to secure
additional financing which could affect our ability to operate as a going
concern. We have recently completed an offering through the sale of shares of
the Series B Preferred Stock. We received
13
$14,517,308 from the sale of those securities. We issued warrants to placement
agents and other consultants and advisors who have provided services to us. The
warrants to purchase common stock are generally exercisable within five years of
the issuance date. However, other terms, such as price, vary from warrant holder
to warrant holder. These variations reflect the differing circumstances, such as
then current needs, under which the warrants were issued. Nevertheless, we may
need additional financing to continue to fund the research and development of
our products and to generally expand and grow our business. To the extent that
we will be required to fund operating losses, our financial position would
deteriorate. There can be no assurance that we will be able to find significant
additional financing at all or on terms favorable to us. If equity securities
are issued in connection with a financing, dilution to our stockholders may
result, and if additional funds are raised through the incurrence of debt, we
may be subject to restrictions on our operations and finances. Furthermore, if
we do incur additional debt, we may be limiting our ability to repurchase
capital stock, engage in mergers, consolidations, acquisitions and asset sales,
or alter our lines of business or accounting methods, even though these actions
would otherwise benefit our business. As of November 30, 2003, we had
stockholders' equity of $25,468,036 and net working capital of $6,460,111.
If adequate financing is not available, we may be required to delay, scale
back or eliminate some of our research and development programs, to relinquish
rights to certain technologies or products, or to license third parties to
commercialize technologies or products that we would otherwise seek to develop.
Any inability to obtain additional financing, if required, would have a material
adverse effect on our ability to continue our operations and implement our
business plan.
The prices we charge for our products and the level of third-party
reimbursement may decrease and our revenues could decrease.
Our ability to commercialize products successfully depends in part on the
price we may be able to charge for our products.
We may encounter significant financial and operating risks if we grow our
business through acquisitions.
As part of our growth strategy, we may seek to acquire or invest in
complementary or competitive businesses, products or technologies. The process
of integrating acquired assets into our operations may result in unforeseen
operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our
business. We may allocate a significant portion of our available working capital
to finance all or a portion of the purchase price relating to possible
acquisitions although we have no immediate plans to do so. Any future
acquisition or investment opportunity may require us to obtain additional
financing to complete the transaction. The anticipated benefits of any
acquisitions may not be realized. In addition, future acquisitions by us could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, any of which could materially adversely affect our
operating results and financial position. Acquisitions also involve other risks,
including entering markets in which we have no or limited prior experience.
The price of our common stock is likely to be volatile and subject to wide
fluctuations.
14
The market price of the securities of software companies has been
especially volatile. Thus, the market price of our common stock is likely to be
subject to wide fluctuations. If our revenues do not grow or grow more slowly
than we anticipate, or, if operating or capital expenditures exceed our
expectations and cannot be adjusted accordingly, or if some other event
adversely affects us, the market price of our common stock could decline. In
addition, if the market for pharmaceutical and biotechnology stocks or the stock
market in general experiences a loss in investor confidence or otherwise fails,
the market price of our common stock could fall for reasons unrelated to our
business, results of operations and financial condition. The market price of our
stock also might decline in reaction to events that affect other companies in
our industry even if these events do not directly affect us. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
The public trading market for our common stock is limited and may not be
developed or sustained which could limit the liquidity of an investment in our
common stock.
There is a limited trading market for the common stock. Since April 1999,
the common stock has been traded sporadically under the symbol "ADNW.OB" on the
OTC bulletin board, an inter-dealer automated quotation system for equity
securities. There can be no assurance that an active and liquid trading market
will develop or, if developed, that it will be sustained which could limit your
ability to sell our common stock at a desired price.
Certain events could result in a dilution of your ownership of our common
stock.
As of April 30, 2004, we had 28,082,724 shares of common stock outstanding,
500,000 shares of Series A-1 Convertible Promissory Note, 1,681,900 shares of
Series A-2 Preferred Stock outstanding (a total of 2,181,900 shares of Series A
preferred stock) which are currently convertible into 4,363,800 shares of common
stock and 5,105,881 shares of Series B Convertible Promissory Note which are
currently convertible into 10,211,762 shares of common stock. We also have
outstanding warrants which represent 1,172,920 common stock equivalents at an
exercise price of $1.25 per share, 2,128,274 common stock equivalents at an
exercise price of $2.50 per share and 1,041,896 common stock equivalents at an
exercise price of $1.90 per share. Our preferred stock securities also provide
for anti-dilution protection upon the occurrence of sales of our common stock
below certain prices, stock splits, redemptions, mergers and other similar
transactions. If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would increase. If
converted or exercised, these securities will result in a dilution to your
percentage ownership of our common stock.
The provisions of Delaware law may inhibit potential acquisition bids that
stockholders may believe are desirable, and the market price of our common stock
may be lower as a result.
We are subject to the anti-takeover provisions of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions. These
provisions could discourage potential acquisition proposals and could delay or
prevent a change in control transaction. They could also have the effect of
discouraging others from making tender offers for our common stock. As a result,
these provisions may prevent our stock price from increasing substantially in
response
15
to actual or rumored takeover attempts. These provisions may also prevent
changes in our management.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Risk Factors," "Business" and
in other sections of this prospectus that are forward-looking statements. In
some cases, you can identify these statements by forward-looking words such as
"may," "might," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial performance, or anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results, level
of activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by the
forward-looking statements, including those factors discussed under the section
entitled "Risk Factors." You should specifically consider the numerous risks
outlined under "Risk Factors." Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness or
any of these forward-looking statements.
USE OF PROCEEDS
The following table describes how we plan to allocate the proceeds of this
offering, assuming the selling shareholders exercise half or all of the
3,084,246 shares of Common Stock offered:
SALE OF SALE OF
1,542,123 3,084,246
SHARES SHARES
(50% OF (100% OF
OFFERING) OFFERING
------------- -------------
Gross proceeds ......................... $3,542,739 $7,085,477
Estimated offering expenses (e.g.;
printing and mailing costs, legal
and accounting fees, SEC
registration fee, and blue sky
fees) ............................. 100,000 100,000
---------- ----------
Estimated net proceeds ................. $3,442,739 $6,985,477
========== ==========
Estimated uses of proceeds
General and administrative
expenses and additional
working capital ............... $3,442,739 $6,985,477
========== ==========
Regardless of the amount of proceeds we may receive from the exercise of
warrants, the funds will be used to cover general and administrative expenses
and as additional working capital. We are not relying on these proceeds to
finance the Company during the next twelve
16
months. For an analysis of the use of proceeds from our private placement of
preferred stock, please see Item 25 below.
DETERMINATION OF OFFERING PRICE
The selling stock holders will, at their discretion, sell the stock at the
prevailing market price for our shares, provided that they have either converted
their Series B Preferred Stock (note that there are no proceeds to the Company
upon the conversion of the preferred stock). The warrant holders will pay us
$2,50 per share upon the exercise of their warrants. The price for the shares of
stock offered by this Prospectus has not been and will not be determined by us.
DILUTION
As of April 30, 2004, we had: (i) 28,082,724 shares of common stock
outstanding; (ii) 500,000 shares of Series A-1 Preferred Stock outstanding and
1,686,900 shares of Series A-2 Preferred Stock outstanding (a total of 2,181,900
shares of Series A preferred stock) which are currently convertible into
4,363,800 shares of common stock; (iii) 5,105,881 shares of Series B Preferred
Stock which are currently convertible into 10,211,762 shares of common stock;
(iv) outstanding warrants which represent 1,172,920 common stock equivalents,
exercisable at an exercise price of $1.25 per share; (v) outstanding warrants
which represent 2,042,350 common stock equivalents at an exercise price of $2.50
per share; and, (vi) outstanding warrants which represent 1,041,896 common stock
equivalents at an exercise price of $1.90 per share. These securities also
provide for anti-dilution protection upon the occurrence of sales of our common
stock below certain prices, stock splits, redemptions, mergers and other similar
transactions. If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would increase. If
converted or exercised, these securities will result in a dilution to your
percentage ownership of our common stock.
SELLING STOCKHOLDERS
The following table details the name of each selling stockholder, the
number of shares owned by each selling stockholder and the number of shares that
may be offered for resale under this prospectus. To the extent permitted by law,
the selling stockholders who are not natural persons may distribute shares, from
time to time, to one or more of their respective affiliates, which may sell
shares pursuant to this prospectus. We have registered the shares to permit the
selling stockholders and their respective permitted transferees or other
successors in interest that receive their shares from the selling stockholders
after the date of this prospectus to resell the shares. Because each selling
stockholder may offer all, some or none of the shares it holds, and because
there are currently no agreements, arrangements, or understandings with respect
to the sale of any of the shares, no definitive estimate as to the number of
shares that will be held by each selling stockholder after the offering can be
provided. The selling stockholders may from time to time offer all or some of
the shares pursuant to this offering. Pursuant to Rule 416 under the securities
act, the registration statement of which this prospectus is a part also covers
any additional shares of our common stock which becomes issuable in connection
with such shares because of any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration which
results in an increase in the number of outstanding shares of our common stock.
The following table has been prepared on the assumption that all
17
shares offered under this prospectus will be sold to parties unaffiliated with
the selling stockholders. Except as indicated by footnote, none of the selling
stockholders has had a significant relationship with us within the past three
years, other than as a result of the ownership of our shares or other
securities. Except as indicated by footnote, the selling stockholders have sole
voting and investment power with their respective shares. Percentages in the
table below are based on 28,082,724 shares of our common stock outstanding as of
April 30, 2004.
OWNERSHIP OF COMMON STOCK PRIOR TO THE OFFERING
NAME OF SELLING SHAREHOLDER NUMBER OF PERCENTAGE
SHARES OF
OWNERSHIP
PREFERRED SHARES
- ----------------
Alexandra Global Master Fund 500,000 3.56 (1)
Alta Partners Discount Convertible Arbitrage
Holdings Ltd 482,422 3.44 (2)
Anthony Tang 26,316 *
Bear Stearns F/B/O Rosen Capital LP M/P/P PLN 26,000 *
C.S.L. Associates LP 65,790 *
Castle Creek Technology Partners 131,579 *
CDIB Capital Investment America 394,737 2.81 (3)
Chrys D. & Kelly S. Beal 13,157 *
Colbart Birnet L.P. 26,316 *
Cranshire Capital LP 65,789 *
Crescent International Ltd 80,000 *
Crestview Capital Master LCC 315,789 2.25 (4)
David A. Dent 27,000 *
David S. Hannes 5,000 *
Donald A. Leventin 7,500 *
Edward B. Clounes II 26,000 *
Francis A. Fiolek 7,500 *
HK Partners for Kathy Finneran 6,500 *
Ipolis Commercial Ltd 50,000 *
Iroquois Capital LP 32,895 *
James H. Levi 15,000 *
James T. Pappas 12,463 *
Janet Levi Zalkin 1,500 *
Jeanette Friedman 6,500 *
Jefferey & Betsy Maas 6,500 *
Jess S. Morgan & Co, INC 152,243 1.08 (5)
Julian H. & Doris B. Cohen 20,000 *
Karen Weil 7,900 *
Lance Malvin & Partners Inc. 8,000 *
Larry S. Kopp 27,263 *
Lewis C. Pell 50,000 *
Little Wing LP 237,000 1.69 (6)
Meadowbrook Capital Opportunity 135,000 *
Michael Wallach 7,500 *
Microcapital Fund Ltd 175,000 1.25 (7)
Microcapital Fund Ltd 75,000 *
18
Neil V. Moody Revocable Trust DTD 30,000 *
Nicusa Capital Partners LP 50,000 *
Parker L. Quillen 10,000 *
Philip Isaacson 15,000 *
Puglisi Capital Partners LP 75,000 *
Richard Molinsky 60,000 *
Richard Neslund 80,000 *
Rodd Friedman 35,000 *
Sandra Einck 7,900 *
Spencer Beale Family Trust 18,000 *
Tim Albright 10,000 *
Tony Nikolich 7,500 *
Tradewinds Fund Ltd 59,000 *
Triage Capital Management B, LP 84,211 *
Triage Capital Management LP 42,105 *
Triage Offshore Fund Ltd 400,000 2.85 (8)
United Value Investors Ltd 250,000 1.78 (9)
Vertical Ventures LLC 32,895 *
Vestal Venture Capital 135,000 *
William A. Lewis 75,000 *
Anthony G. Williams 11,963 *
Arrowhead Capital Management, LLC 11,926 *
Barron Ventures 160,000 1.14 (10)
Bellefonte Capital VF I, LLP 5,950 *
Brendan McNamee 5,963 *
C.R. Querbes 4,472 *
Caydal, LLC 17,890 *
Darren Taube 12,982 *
Echo Trust 5,963 *
Eric Lichtenstein 12,982 *
George A. VonderLinden 5,963 *
Greg Osborn 13,715 *
H. John Greeniaus 11,926 *
IndiGo Ventures, LLC 10,000 *
Investor Group L.P. 2,719 *
Investor Growth Capital Limited 6,345 *
James B. Robinson 1,193 *
John P. Smith 9,210 *
Jonathan Sack 5,963 *
Larry D. Bouts 17,890 *
MHJ Holdings Co. 11,926 *
Michael J. Miller 1,491 *
Myron Neugeboren 4,651 *
Neil V. Moody Rev. Trust Dated 2/9/95 2,982 *
Patrick J. McMahon 11,926 *
Patrick Lawler 2,991 *
Richard Dickey 2,982 *
Stephen J. Nicholas, MD 2,982 *
Thomas P. Kurz 1,908 *
Thomas Samph 2,982 *
19
Tom Pirelli 14,312 *
Valhalla Investment Partners LP 5,963 *
TOTAL NUMBER OF PREFERRED SHARES: 5,105,881
Total number of shares of common stock to
be issued upon conversion of all preferred stock: 10,211,762
WARRANTS
- --------
Alexandra Global Master Fund 200,000 *
Alta Partners Discount Convertible Arbitrage
Holdings Ltd 192,969 *
Anthony Tang 10,526 *
Bear Stearns F/B/O Rosen Capital LP M/P/P PLN 10,400 *
C.S.L. Associates LP 26,316 *
Castle Creek Technology Partners 52,632 *
CDIB Capital Investment America 157,895 *
Chrys D. & Kelly S. Beal 5,263 *
Colbart Birnet L.P. 10,526 *
Cranshire Capital LP 26,316 *
Crescent International Ltd 32,000 *
Crestview Capital Master LCC 126,316 *
David A. Dent 10,800 *
David S. Hannes 2,000 *
Donald A. Leventin 3,000 *
Edward B. Clounes II 10,400 *
Francis A. Fiolek 3,000 *
HK Partners for Kathy Finneran 2,600 *
Ipolis Commercial Ltd 20,000 *
Iroquois Capital LP 13,158 *
James H. Levi 6,000 *
James T. Pappas 4,985 *
Janet Levi Zalkin 600 *
Jeanette Friedman 2,600 *
Jefferey & Betsy Maas 2,600 *
Jess S. Morgan & Co, INC 60,897 *
Julian H. & Doris B. Cohen 8,000 *
Karen Weil 3,160 *
Lance Malvin & Partners Inc. 3,200 *
Larry S. Kopp 10,905 *
Lewis C. Pell 20,000 *
Little Wing LP 94,800 *
Meadowbrook Capital Opportunity 54,000 *
20
Michael Wallach 3,000 *
Microcapital Fund Ltd 70,000 *
Microcapital Fund Ltd 30,000 *
Neil V. Moody Revocable Trust DTD 12,000 *
Nicusa Capital Partners LP 20,000 *
Parker L. Quillen 4,000 *
Philip Isaacson 6,000 *
Puglisi Capital Partners LP 30,000 *
Richard Molinsky 24,000 *
Richard Neslund 32,000 *
Rodd Friedman 14,000 *
Sandra Einck 3,160 *
Spencer Beale Family Trust 7,200 *
Tim Albright 4,000 *
Tony Nikolich 3,000 *
Tradewinds Fund Ltd 23,600 *
Triage Capital Management B, LP 33,684 *
Triage Capital Management LP 16,842 *
Triage Offshore Fund Ltd 160,000 *
United Value Investors Ltd 100,000 *
Vertical Ventures LLC 13,158 *
Vestal Venture Capital 54,000 *
William A. Lewis 30,000 *
Anthony G. Williams 4,785 *
Arrowhead Capital Management, LLC 4,770 *
Barron Ventures 64,000 *
Bellefonte Capital VF I, LLP 2,380 *
Brendan McNamee 2,385 *
C.R. Querbes 1,789 *
Caydal, LLC 7,156 *
Darren Taube 5,193 *
Echo Trust 2,385 *
Eric Lichtenstein 5,193 *
George A. VonderLinden 2,385 *
Greg Osborn 5,486 *
H. John Greeniaus 4,770 *
IndiGo Ventures, LLC 4,000 *
Investor Group L.P. 1,088 *
Investor Growth Capital Limited 2,538 *
James B. Robinson 477 *
John P. Smith 3,684 *
Jonathan Sack 2,385 *
Larry D. Bouts 7,156 *
21
MHJ Holdings Co. 4,770 *
Michael J. Miller 596 *
Myron Neugeboren 1,860 *
Neil V. Moody Rev. Trust Dated 2/9/95 1,193 *
Patrick J. McMahon 4,770 *
Patrick Lawler 1,196 *
Richard Dickey 1,193 *
Stephen J. Nicholas, MD 1,193 *
Thomas P. Kurz 763 *
Thomas Samph 1,193 *
Tom Pirelli 5,725 *
Valhalla Investment Partners LP 2,385 *
WARRANTS DUE TO PLACEMENT AGENTS:
- ---------------------------------
Middlebury Capital LLC 369,910 1.49 (11)
Sloan 286,842 1.15 (12)
Vertical Capital 96,202 *
IQ Ventures 284 *
Griffin Securities 236,026 *
Newport Capital 52,632 *
TOTAL: 3,084,246
* Represents less than 1% of our outstanding shares of common stock before
and after offering.
(1) Represents 2.41% after offering, assuming all shares are converted and all
warrants are exercised.
(2) Represents 2.33% after offering, assuming all shares are converted and all
warrants are exercised.
(3) Represents 1.90% after offering, assuming all shares are converted and all
warrants are exercised.
(4) Represents 1.52% after offering, assuming all shares are converted and all
warrants are exercised.
(5) Represents less than 1% after offering, assuming all shares are converted
and all warrants are exercised.
(6) Represents 1.14% after offering, assuming all shares are converted and all
warrants are exercised.
(7) Represents less than 1% after offering, assuming all shares are converted
and all warrants are exercised.
(8) Represents 1.93% after offering, assuming all shares are converted and all
warrants are exercised.
(9) Represents 1.21% after offering, assuming all shares are converted and all
warrants are exercised.
(10) Represents less than 1% after offering, assuming all shares are converted
and all warrants are exercised.
(11) Represents less than 1% after offering, assuming all shares are converted
and all warrants are exercised.
(12) Represents less than 1% after offering, assuming all shares are converted
and all warrants are exercised.
22
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. The term "selling stockholders" includes
pledgees, donees, transferees or other successors in interest selling shares
received after the date of this prospectus from the selling stockholders as a
pledge, gift, partnership distribution or other non-sale related transfer. The
number of shares beneficially owned by each selling stockholder will decrease as
and when it effects any such transfers. The plan of distribution for the selling
stockholders' shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledgees, donees or other successors will be selling
stockholders hereunder. To the extent required, we may amend and/or supplement
this prospectus from time to time to describe a specific plan of distribution.
The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. The selling
stockholders may offer their shares from time to time pursuant to one or more of
the following methods:
o on the OTC Bulletin Board or on any other market on which our common
stock may from time to time be trading;
o one or more block trades in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o in public or privately-negotiated transactions;
o through the writing of options on the shares;
o through underwriters, brokers or dealers (who may act as agents or
principals) or directly to one or more purchasers;
o an exchange distribution in accordance with the rules of an exchange;
o through agents;
o through market sales, both long or short, to the extent permitted
under the federal securities laws; or
o in any combination of these methods.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to the prevailing market price;
23
o at negotiated prices; or
o any other prices as the selling stockholder may determine from time to
time.
In connection with distributions of the shares or otherwise, the selling
stockholders may
o enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the shares in
the course of hedging the positions they assume;
o sell the shares short and redeliver the shares to close out such short
positions;
o enter into option or other transactions with broker-dealers or other
financial institutions which require the delivery to them of shares
offered by this prospectus, which they may in turn resell; and
o pledge shares to a broker-dealer or other financial institution,
which, upon a default, they may in turn resell.
In addition to the foregoing methods, the selling stockholders may offer
their share from time to time in transactions involving principals or brokers
not otherwise contemplated above, in a combination of such methods as described
above or any other lawful methods.
Sales through brokers may be made by any method of trading authorized by
any stock exchange or market on which the shares may be listed or quoted,
including block trading in negotiated transactions. Without limiting the
foregoing, such brokers may act as dealers by purchasing any or all of the
shares covered by this prospectus, either as agents for others or as principals
for their own accounts, and reselling such shares pursuant to this prospectus. A
selling stockholder may effect such transactions directly, or indirectly through
underwriters, broker- dealers or agents acting on their behalf. In effecting
sales, brokers and dealers engaged by the selling stockholders may arrange for
other brokers or dealers to participate.
The shares may also be sold pursuant to Rule 144 under the securities act,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
availability of certain current public information concerning the issuer, the
resale occurring following the required holding period under 144 and the number
of shares during any three-month period not exceeding certain limitations. The
selling stockholders have the sole and absolute discretion not to accept any
purchase offer or make any sale of their shares if they deem the purchase price
to be unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker- dealers acting as agents for
themselves or their customers. These broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom these broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that the selling stockholders will attempt to
sell shares of common stock in block transactions to market makers
24
or other purchasers at a price per share which may be below the then market
price. The selling stockholders cannot assure that all or any of the shares
offered by this prospectus will be issued to, or sold by, the selling
stockholders if they do not exercise or convert the common stock equivalents
that they own. The selling stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered by this prospectus, may be
deemed "underwriters" as that term is defined under the securities act or the
exchange act, or the rules and regulations under those acts. In that event, any
commissions received by the broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the securities act.
The selling stockholders, alternatively, may sell all or any part of the
shares offered by this prospectus through an underwriter. To our knowledge, none
of the selling stockholders have entered into any agreement with a prospective
underwriter and there can be no assurance that any such agreement will be
entered into. If the selling stockholders enter into such an agreement or
agreements, then we will set forth, in a post-effective amendment to this
prospectus, the following information:
o the number of shares being offered;
o the terms of the offering, including the name of any selling
stockholder, underwriter, broker, dealer or agent;
o the purchase price paid by any underwriter;
o any discount, commission and other underwriter compensation;
o any discount, commission or concession allowed or reallowed or paid to
any dealer;
o the proposed selling price to the public; and
o other facts material to the transaction.
We will also file such agreement or agreements. In addition, if we are
notified by the selling stockholders that a donee, pledgee, transferee or other
successor-in-interest intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
The selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
exchange act and the rules and regulations under the exchange act, including,
without limitation, Regulation M. These provisions may restrict certain
activities of, and limit the timing of purchases and sales of any of the shares
by, the selling stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to the same securities for a specified period of time prior to the
commencement of the distribution, subject to specified exceptions or exemptions.
All of these limitations may affect the marketability of the shares.
We have agreed to pay all costs and expenses incurred in connection with
the registration of the shares offered by this prospectus, except that the
selling stockholder will be responsible for
25
all selling commissions, transfer taxes and related charges in connection with
the offer and sale of the shares and the fees of the selling stockholder's
counsel.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus forms a part continuously effective until the
earlier of the date that the shares covered by this prospectus may be sold
pursuant to Rule 144(k) of the securities act and the date that all of the
shares registered for sale under this prospectus have been sold.
We have agreed to indemnify the selling stockholders, or their respective
transferees or assignees, against certain liabilities, including liabilities
under the securities act, or to contribute to payments that the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of those liabilities.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MANAGEMENT
Our executive officers, directors and other significant employees and their
ages and positions are as follows:
NAME OF INDIVIDUAL AGE POSITION WITH AUTO DATA NETWORK AND
SUBSIDIARIES
Christopher R. Glover 58 Chairman and Chief Executive Officer
Lee J. Cole 42 Chief Financial Officer
Lt. General J. W. Morris (ret) 83 Director
Linden Boyne 60 Secretary
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors or regarding their position
with the Company.
CHRISTOPHER R. GLOVER, the founder of the Company, has served as the
Company's Chief Executive Officer and as the Chairman of the Board of Directors
since 2001. Mr. Glover has also served as the Chief Executive Officer and
Chairman of the Board of Directors of ADN (UK) since 2001. Mr. Glover has 27
years experience in the automotive industry. Prior to joining the Company, Mr.
Glover served as the Managing Director of Coasis Promotions Ltd., a UK marketing
company, which he founded in 1995, the largest client of which was the Ford
Motor Company. Concurrently therewith he founded and was the Managing Director
for Redleaf Vehicle Leasing Ltd., a UK vehicle leasing company. From 1991 to
1995, he served as Sales Director for COS Ltd., a UK marketing and production
services company supplying mainly to publishing, training and motor industries.
From 1989 to 1991, Mr. Glover was the Managing Director and part owner for
County Contract Hire Ltd., a UK vehicle leasing company operating in Britain and
in France. From 1985 to 1989, Mr. Glover served as the
26
Director and the General Manager for Equity & General Finance (Rentals) Ltd., a
UK company specializing in truck and car rental and leasing ("EGF"). Prior to
joining EGF, in 1985, he served as the Finance and Leasing Manager for Hughes of
Beaconsfield, a UK Mercedes outlet company. From 1984 to 1985, Mr. Glover acted
as the Deputy Chief Executive of Sales and Marketing for Securiplan, a UK static
guarding, mobile control and courier service. From 1979 to 1984, Mr. Glover
worked for Highway Vehicle Leasing Ltd. in the UK, and from 1977 to 1979, he
co-founded and was responsible for all sales and marketing for The Car Leasing
Company. Mr. Glover has a B.Sc., with honours, in Sociology and Management
Psychology from Warwick University.
LEE COLE has been a director of the Company since 2001. Mr. Cole has been a
director of DBP Holdings Ltd. ("DBP"), our largest shareholder, since 1999. DBP
currently has investments in fourteen European software and related service
companies. From 1995 to 1999, Mr. Cole served as the Managing Director of TEC
Capital Group, a venture capital firm.
LT. GENERAL J. W. MORRIS (RET.), Chairman, retired from the military in
1980 after serving as Chief of the US Army Corps of Engineers (USACE) for nearly
five years. He has had a long distinguished career in the US army which began
with his West Point academic career at the outset of World War II. He has also
worked directly with three US Presidents, Nixon, Ford and Carter. He is a Fellow
of the Society of Military Engineers, and a Governor of West Point Military
Academy. He is a director of numerous corporations, American and European. He
has excellent contacts in Washington, DC and throughout the United States from
his distinguished career in the Military and as a member of the National Academy
of Engineering. He also was chair at the University of Maryland graduate course
in Engineering Management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock, as of September 1, 2003 by (i) each person whom we
know to beneficially own 5% or more of the common stock, (ii) each of our
directors, (iii) each person listed on the Summary Compensation Table set forth
under "Executive Compensation" and (iv) all of our directors and executive
officers. The number of shares of common stock beneficially owned by each
stockholder is determined in accordance with the rules of the Commission and
does not necessarily indicate beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those shares of common stock over
which the stockholder exercises sole or shared voting or investment power. The
percentage ownership of the common stock, however, is based on the assumption,
expressly required by the rules of the Commission, that only the person or
entity whose ownership is being reported has converted or exercised common stock
equivalents into shares of common stock; that is, shares underlying common stock
equivalents are not included in calculations in the table below for any other
purpose, including for the purpose of calculating the number of shares
outstanding generally.
PERCENTAGE OF PERCENTAGE OF
NUMBER OF CLASS OWNED CLASS OWNED
NAME SHARES OWNED BEFORE OFFERING AFTER OFFERING (1)
- ---- ------------ --------------- ------------------
Christopher Glover (2) 1,517,973 5.41% 3.67%
Lee Cole (3) -0- -0- -0-
Lt. Gen. J. W. Morris (4) 2,000 * *
Linden Boyne (5) -0- -0- -0-
All officers and
directors as a group
(3 persons) 1,519,973 5.41% 3.67%
- ----------
27
* Less than 1% and statistically insignificant
(1) Assumes that all 13,296,008 of the shares offered by the selling
stockholders are sold.
(2) Brooklands, St. Marks Road, Tunbridge Wells, Kent, TN2 5LU, UK
(3) 32 Haymarket, Piccadilly, London, SW1Y 4TP, UK
(4) Fairfax Drive, Suite Number 5, Arlington, Virginia, USA
(5) Aberfoyle, 33 Green Lane, Blackwater, Camberley, Surrey, UK
DESCRIPTION OF SECURITIES
DESCRIPTION OF COMMON STOCK
NUMBER OF AUTHORIZED AND OUTSTANDING SHARES. Our Certificate of
Incorporation authorizes the issuance of 50,000,000 shares of common stock,
$.001 par value per share, of which 28,082,724 shares were outstanding on April
30, 2004. All of the outstanding shares of common stock are fully paid and
non-assessable.
VOTING RIGHTS. Holders of shares of common stock are entitled to one vote
for each share on all matters to be voted on by the stockholders. Holders of
common stock have no cumulative voting rights. Accordingly, the holders of in
excess of 50% of the aggregate number of shares of common stock outstanding will
be able to elect all of our directors and to approve or disapprove any other
matter submitted to a vote of all stockholders.
OTHER. Holders of common stock have no preemptive rights to purchase our
common stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
TRANSFER AGENT. Shares of common stock are registered at the transfer agent
and are transferable at such office by the registered holder (or duly authorized
attorney) upon surrender of the common stock certificate, properly endorsed. No
transfer shall be registered unless we are satisfied that such transfer will not
result in a violation of any applicable federal or state securities laws. The
transfer agent for our common stock is Liberty Transfer Company, 274B New York
Avenue, Huntington, New York 11743.
DESCRIPTION OF PREFERRED STOCK
NUMBER OF AUTHORIZED SHARES. Our certificate of incorporation authorizes
the issuance of up to 25,000,000 shares of preferred stock, par value $.00l per
share, in one or more series with such limitations and restrictions as may be
determined in the sole discretion of our board of directors, with no further
authorization by stockholders required for the creation and issuance thereof.
Shares of preferred stock will be registered on our books. We currently
anticipate that
28
the preferred stock will not be registered with the SEC pursuant to the Exchange
Act. No transfer shall be registered unless we are satisfied that such transfer
will not result in a violation of any applicable federal or state securities
laws.
We have designated 500,000 shares of our preferred stock as Series A-1
Convertible Promissory Note preferred stock ("Series A-1"), of which 500,000
shares were issued and outstanding as of October 30, 2003. We have designated
5,000,000 shares of our preferred stock as Series A-2 Preferred Stock ("Series
A-2") , of which 4,828,000 shares were issued and outstanding as of October 30,
2003. The holders of either the Series A-1 or Series A-2 shares vote as a single
class with the common stock, on an as--converted basis, on all matters on which
the holders of the common stock are entitled to vote. Each of the outstanding
shares of Series A-1 and Series A-2 preferred stock may currently be converted
into two (2) shares of common stock. The shares of Series A convertible
preferred stock shall be automatically convertible into shares of common stock
under certain circumstances and may be convertible into common stock at the our
option or the shareholder's option under other circumstances. Holders of Series
A-1 and Series A-1 preferred stock have a liquidation preference over holders of
Series B preferred stock and common stock and may receive annual dividends which
may be paid in cash or additional shares of common stock in our sole discretion.
We have designated 5,514,474 shares of our preferred stock as Series B
Preferred Convertible Promissory Note preferred stock ("Series B"), of
which 5,105,881 were issued and outstanding as of April 30, 2004. Of this
amount, 764,581 Series B shares were purchased by Series A shareholders
through their exercise of their preemptive rights. Each of the outstanding
shares of Series B preferred stock may currently be converted into two (2)
shares of common stock. The shares of Series B Preferred Stock shall be
automatically convertible into shares of common stock under certain
circumstances and may be convertible into common stock at the our option or
the shareholder"s option under other circumstances. Holders of Series B
Preferred Stock rank junior to the Company's Series A-1 and Series A-2
preferred stock but senior to the Company's common stock as to dividends
and rights upon liquidation, deemed liquidation, and dissolution and
winding up. Holders of Series B preferred stock have a liquidation
preference over common stock and may receive annual dividends which may be
paid in cash or additional shares of common stock in our sole discretion.
WARRANTS
As of April 30, 2004, there were outstanding warrants to purchase an
aggregate of 4,257,166 shares of our common stock of which;
(i) 1,172,920 common stock equivalents at an exercise price of $1.25 per
share;
(ii) 2,042,342 common stock equivalents at an exercise price of $2.50 per
share; and,
(iii)1,041,896 common stock equivalents at an exercise price of $1.90 per
share.
STOCK OPTIONS
None.
TRANSFER AGENT
Our transfer agent is Liberty Transfer Company, Inc., 274B New York Avenue,
Huntington, New York 11743.
29
EXPERTS
Our auditors are F. E. Hanson, Ltd., certified public accountants. Our
consolidated financial statements as at and for the year ended February 28, 2003
have been included in this prospectus and in the registration statement in
reliance upon the report of F. E. Hanson Ltd., and upon the authority of F. E.
Hanson C.P.A, as experts in accounting and auditing. Our financial statements
for the nine month period ended November 30, 2003 have also been included in
this prospectus and in the registration statement. These have been reviewed by
our auditors F. E. Hanson Ltd.
L. Stephen Albright, attorney at law, has passed upon the validity of the
securities being offered hereby.
Neither F.E. Hanson, Ltd. nor Mr. Albright were hired on a contingent
basis, nor will either receive a direct or indirect interest in the business of
issuer. Further, neither was or will be a promoter, underwriter, voting trustee,
director, officer, or employee of the issuer.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The indemnification of our officers and directors is governed by Section
145 of the General Corporation Law of the State of Delaware (the "DGCL") as well
as our Certificate of Incorporation, as amended, and By-Laws. Subsection (a) of
DGCL Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in the manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in a connection with the defense or settlement
of such action or suit if the person acted in good faith and in the manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
30
DGCL Section 145 further provides that to the extent that to a present or
former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsection (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because the applicable standard of conduct has been met by the
party to be indemnified. Such determination must be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are no parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The statute authorizes the corporation to pay expenses incurred by an officer or
director in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the person to whom the advance will be made, to
repay the advances if it shall ultimately be determined that he was not entitled
to indemnification. DGCL Section 145 also provides that indemnification and
advancement of expenses permitted thereunder are not to be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors, or otherwise. DGCL Section 145 also authorizes the
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insures.
Article Seventh of our Certificate of Incorporation, as amended (the
"Certificate"), provides that none of our directors shall be personally liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL (involving certain unlawful
dividends or stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit.
Pursuant to Section 145(g) of the DGCL, our By-Laws, as amended, authorize
the us to obtain insurance to protect officers and directors from certain
liabilities, including liabilities against which the Company cannot indemnify
its officers and directors.
In derivative actions, the Company may only protect its officers,
directors, employees and agents from liability against expenses actually and
reasonably incurred in connection with the defense or settlement of a suit, and
only if they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the Company. Indemnification is not
permitted in the event that the director, officer, employee or agent is actually
adjudged liable to the Company unless, and only to the extent that, the court in
which the action was brought so determines.
Our Certificate of Incorporation permits it to protect from liability its
directors except in the event of: (1) any breach of the director's duty of
loyalty to the Company or its stockholders; (2)
31
any act or failure to act that is not in good faith or involves intentional
misconduct or a knowing violation of the law; (3) liability arising under
Section 174 of the Delaware General Corporation Law, relating to unlawful stock
purchases, redemptions, or payment of dividends; or (4) any transaction in which
the director received an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Wien
Group pursuant to the foregoing provisions, or otherwise, we have been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
DESCRIPTION OF BUSINESS
We are an emerging software company. Our primary business focus is the
acquisition, development and sale of software to the automotive industry. We
have a broad range of products and technologies under development.
PRODUCTS
We are a leading producer of integrated solutions that provide Information
Management Services and Software Solutions to the automotive sector helping to
grow business, manage change and improve profitability. We market a specialized
suite of feature-rich, proprietary software support solutions and information
services for the automotive industry.
Our solutions, products and services are designed for industry participants
interested in relevant, real-time data related to the purchase and sale of motor
vehicles and automotive parts and services in specific markets. We enable car
companies and automotive retailers to work together to build value for their
customers and create efficiencies in the supply chain. Our focus is clear, it is
to provide automobile companies and retailers with the software tools,
information and services they need to develop and improve their business.
We divide our products and services into two areas. The first is
aftermarket Support Software and the second is Information Management services.
All of our products and services revolve around three unique selling points.
These are:
1. Our ability to link the often incompatible systems and data structures
of the various participants in the industry into one unified information
platform;
2. Our ability to assemble and provide relevant, actionable data in
real-time to our subscribers, and;
3. Our breadth of services and product offering designed to facilitate and
increase efficiencies using the data we provide to facilitate sales of new and
used vehicles, parts and accessories, and essential services such as finance,
insurance and vehicle servicing.
Our corporate executive team with over 150 years of combined operating
experience, delivering on strategy and strong relationships with participants in
the automotive sector in the UK, Europe and North America.
32
Our strategy is designed to reinforce and increase our market share by
leveraging upon strong existing relationships in different automotive
distribution channels, a broad range of solutions, information and service
offerings and the use of our information exchange network as the most efficient
means of transacting with the maximum number of suppliers and customers. We earn
a substantial amount of our revenues from license fees and through service
support for our products and services paid by dealers, manufacturers and parts
suppliers, in addition we earn some fee income on a per-transaction usage basis.
This strategy is supported by the objectives of the management;
o To accomplish and capitalize on industry integration; and
o To deliver and expand our offering of information and solutions to our
subscribers.
We intend to also develop, and where appropriate acquire, communication and
information networks that connect and integrate the three primary sales
information channels in the automotive sectors, manufacturer, retailer and
customer forming one information network and one transaction engine upon which
the entire automotive sector can build an internal marketplace.
The key to the successful integration of various industry infrastructures
will be the creation and maintenance of an information architecture designed to
ensure that all data that we capture is evaluated, sorted and repackaged for
resale. Since inception the company has acquired four separate businesses in
these areas and developed two internally. As the network develops, we will be
increasing our charges, for the expanded service offering, including
subscription and transaction fees when supplying industry transaction data
collected by and distributed through our own communications hub. Additionally,
this repackaged information can be leveraged to sell additional incremental
products and services. The strategy to increase charges as the services and
depth of offering increases will continue to grow revenues and the penetration
of the system as we will have greater access to data that will benefit our
subscribers and users.
OFFERING
As a software and information services company, our integrated product,
service, training and technology solutions enable automotive retailers and other
companies in their supply chain to manage their businesses profitably and serve
their customers efficiently. Through our two divisions; Aftermarket Software and
Information Management Services our innovative solutions span the range from new
e-business, web solutions, turnkey systems and software, to, consulting,
learning and networking services.
AFTERMARKET SOFTWARE
Our Aftermarket Software Division develops and markets a range of
proprietary solutions for the parts and accessories segment of the automotive
industry. The applications link directly to the major manufacturers of parts and
accessories in the UK to monitor inventory levels. Our award winning
applications, which provide real-time data are licensed to both distributors and
dealers and facilitate the purchase of parts from the manufacturers. The
company's products are customized according to specialization for companies
engaged in parts supply, distribution, retailing, vehicle repair and servicing,
and engine and component reconditioning. We are
33
actively developing our suite of programs adding new age systems to extend our
offering and expand market share.
INFORMATION MANAGEMENT SERVICES
The key driver for growth in this division is the Orbit database "Platform"
which we developed over the last three years and continues to expand and invest
in. The platform aggregates information gathered from the client data base
refines it sells it to auto retailers and other customers on a subscription
basis. The Platform is designed to act as a powerful "translator," enabling the
different proprietary software and databases of automotive industry participants
to interact efficiently in real-time. Information is consolidated into a single,
seamless data interchange through which automotive industry-related businesses
can communicate. Data is provided to and collected from over 4,500 UK automotive
dealers, as well as manufacturers and financial institutions in the United
Kingdom ("UK").
STRATEGY
Our strategy is to be the market leader in providing systems and software
products and services, to act as the hub of a data information network for the
automotive sector. Our products address and capitalize on the automotive
industry's need for a common data information exchange network. Our products and
services are integrated and leveraged upon the information within our Network to
increase efficiencies for all Network participants. We plan to increase market
share and revenue opportunities by developing and maintaining our position as
the strategic hub of this information and services network. Initially, we are
focusing on the UK market, although we recognize, and will pursue, additional
opportunities in Europe and the U.S.
The following is a description of how we aim to achieve these objectives.
Our objective is to develop, and where appropriate acquire, the technology
to create a network that connects and integrates the three primary industry
channels -- manufacturer, retailer and customer - together, forming one data
network and one transaction engine upon which the entire automotive sector can
build an internal marketplace. The key to the successful integration of various
industry infrastructures will be the creation and maintenance of an information
flow designed to ensure that all data that we capture is evaluated, sorted and
repackaged for resale.
We have spent the last three years developing our Orbit database which is a
key driver for growth as it resells information gathered from the rest of the
group to auto retailers on a subscription basis. The Platform is designed to act
as a powerful "translator," enabling the different proprietary software and
databases of automotive industry participants to interact efficiently in
real-time through the use of a comprehensive XML and UNIX infrastructure. We
consolidate this information flow into a single, seamless data interchange
through which automotive industry-related businesses and consumers can
communicate. The platform currently provides and collects industry data from
over 4,500 UK automotive dealers, as well as manufacturers and financial
institutions in the United Kingdom ("UK"), including HSBC Holdings Ltd., GM
Interleasing UK, Ltd., a subsidiary of General Motors of America Corporation,
SAAB GB Ltd., Volkswagen Group UK Ltd., Honda UK Ltd., Nissan Motor (GB)
34
Ltd., Ltd., Renault UK Ltd., and Lombard Auto Exchange. Additionally we have a
strategic relationship with Europe's largest Dealer Management System "DMS"
provider (who currently have over 15,000 systems installed)
As the Data Interchange grows, we will begin charging subscription and
transaction fees for supplying industry transaction data collected by and
distributed through our own communications hub. Additionally, this repackaged
information can be leveraged to sell additional incremental products and
services. The anticipated impact of our integration of industry data on each of
the three network channels is set forth below.
MANUFACTURER CHANNEL. Our Network will provide real-time, consolidated
information on trading, product demand and supply to and from manufacturers. It
will facilitate business-to-business acquisition and disposal of surplus
components and vehicle stock.
RETAILER CHANNEL. By creating a full-service communications gateway through the
Network, we will revolutionize existing dealer management systems. Dealers will
be able to access real-time records of vehicle and owner history, vehicle
reliability and running costs and competitor comparisons on price and
availability.
CONSUMER CHANNEL. Access to our Network database will provide the consumer with
the opportunity to access the relevant vehicle's complete service and insurance
history, as well as allowing the consumer to verify used vehicle mileage.
Information on real-time regional market valuations and vehicle availability
will also be available to consumers either through dealerships, direct from
manufacturers, or via private sales or auctions.
MAXIMIZING TRANSACTION OPPORTUNITIES
By centralizing data and information in the Network, we will enable the
automotive industry to maximize transaction opportunities by streamlining the
processes for accessing and managing this data and information. We believe that
by centralizing and streamlining these processes we will be able to reduce the
costs of data management for both the Company and for our subscribers, and
thereby increase profitability. Additionally, with the increasing size of our
database we believe the opportunities for leveraging upon new products for
commercial advantage will grow exponentially.
GROWTH STRATEGY
Our plans for expansion include the continued development of a wide range
of profitable products and services for our existing clients and future clients
and the continued development of our database software technology. We intend to
leverage upon these developments. On the global level, we plan to capitalize on
our existing technology and products and services as well as our industry
relationships to expand overseas, first into Europe, and then into North
America. We believe the automotive industry in Europe is as fragmented as in the
UK, allowing us to employ our integration strategy to expand into Europe. Many
of our existing subscribers have European and overseas subsidiaries, giving us a
springboard into those markets. Additionally, we will utilize our management
team's industry-wide relationships with information providers to expand our
market.
35
OUR OPERATING COMPANIES AND PRODUCTS
The following is a brief description of each of the separate business of
our current operating entities:
ORBIT DATA ("ORBIT") - Orbit has developed the Data Interchange that enables the
different proprietary software and databases of automotive industry participants
to interact efficiently in real-time through the use of a comprehensive XML
infrastructure. Orbit is a universal communications platform that gathers
industry data from a wide variety of sources, translates this information into a
common format and database, and makes it available to subscribers.
Orbit gathers industry data from businesses that use our software and Web
portals. It also has data mining agreements with other business management
software providers. We collect information from more than 4,500 dealers in the
U.K. and 3,000 in Europe, as well as major financial institutions and automobile
manufacturers. The Company has recently signed a five-year exclusive agreement
with Europe's largest provider of dealership management software, Kerridge
Technology Systems to mine data from more than 15,000 dealerships and service
providers.
The platform creates information services for participants at all points
along the supply chain. At the upstream end of the supply chain, manufacturers
can analyze demand trends and adjust supply and pricing accordingly. Downstream
operators can monitor inventory levels at the U.K.'s major parts manufacturers,
an arrangement that increases liquidity and sales. Retailers can keep track of
the competition, research used vehicle histories, and effectively expand their
inventory by using Orbit's dealer-to-dealer vehicle locator and wholesale
auction service to find and purchase requested models. These dealer services
create greater vehicle liquidity and higher profit margins. Service shops and
parts suppliers can access an exhaustive, up-to-date parts catalogue, as well as
vehicle service and repair histories. Consumers are provided with a suite of
research tools; they can browse vehicle availability and pricing, research book
values, and check service, mileage and insurance histories through a single
service. They can also research and apply for discounted financial products
provided through our partnerships with insurance and financing companies.
Orbit applications address market inefficiencies and facilitate
collaborative arrangements, because suppliers, dealers and workshops are
provided with a common medium through which to communicate and conduct business.
These services are available through Orbit at a small fraction of the price
of existing offerings. Our management anticipates using the Orbit platform for
the continued development of new sales applications, including collaborations
with providers of financing, insurance and warrantee plans, as well as auction
houses and roadside assistance companies.
The Orbit subscription service is installed at test locations in the U.K.,
and it is scheduled for commercial introduction later in 2003. The Company's
agreement with Kerridge will likely provide a ready market for the Orbit suite
of information and service offerings, and Kerridge is expected to help market
Orbit.
ORBIT FEATURE EXISTING SOURCES
Online classified listings Average dealer expenditure: $500/month
Online wholesale auctions Not available
Book values and service histories Blue Book/Glass's: $200/month
36
Mileage verifications $25/vehicle, average of 40/month: $1,000
Accident histories $20/vehicle, average of 40/month: $800
Custom discount insurance and
warrantees Not available
Real time industry statistics Not available
Total cost: $200/month Total cost: $2,500/month
COUNTY SERVICES AND PRODUCTS LTD. ("COUNTY") - County has developed and markets
proprietary insurance products including warranties for the dealer network to
assist them in selling more services to their consumers and helping them achieve
a better return on their sales.
County has developed initially nine products both in warranty and insurance
based services which have enabled it to amass a large database containing car
buying trends and customer choices which have been built up over the last ten
years. It also has a very strong liaison with all the major insurance
underwriters assisting it to develop further products and being able to resell
the data to the underwriters.
The products that County offers allow dealers to maintain margin if not
increase and give them an advantage over their competition. By using County
software application a dealer can store and access information that will help
him to quickly calculate and recalculate deals by providing profit margin
calculations and real-time information, all of which allows the dealer greater
flexibility in negotiations. County have also developed a radio frequency
identification tab to be fitted to all vehicles, plus legal fees cover, a reward
for stolen vehicles and insurance against odometer tampering. The company has
developed bespoke software in Insurance, Warranty and Financial services
County software is charged at a monthly fee as well as taking a percentage
on all insurance and warranty sold at all the dealerships that the group is
linked, which is initially 4,500, including UK dealerships such as, Reg Vardy
plc, Dixon Motors plc, Perry Group plc, Mercedes-Benz Direct, Concept Automotive
Services Ltd., CD Bramall plc, Corby Motor Group Ltd., Bates Motor Group Ltd.
and the Robert Mowett Motor Group. County also supplies warranty packages to
other dealership groups within the UK. County has a unique warranty for MOT
tests in the UK upon 22,000 a carried out each month and they would expect to
maintain a 50% sales success into this market
ALLCARS RETAIL LIMITED AND ALLCARS.COM ("ALLCARS") - This is a web hub for a
variety of retail services, including a used vehicle locator, price guide,
retail auction service, and access to discounted financing and insurance
products. The site also contains automotive news and information, a route
planner, a page to book mechanics' services, and free email reminders about
registration and insurance renewal dates. AllCars also hosts free Web sites for
dealerships and provides links to these, as well as those of manufacturers and
others. More than 2,000 U.K. dealerships list merchandise or services on the
site, and we have assurance from 4,000 more dealerships that they will join when
additional functionality is added. The Company receives 20% of all revenues that
AllCars's services generate for dealerships.
Our online used vehicle locating service is the core of AllCars. The
AllCars database is linked to dealerships' management software, and inventory is
automatically posted on the Web. Consumers can search for vehicles by a variety
of criteria including make, model, price and dealership.
37
AllCars also offers a portal to discounted financial services from two U.K.
auto financing and insurance firms. We collaborated with Redleaf Vehicle Leasing
to provide a guide to help consumers decide on appropriate vehicles and
financing plans; free estimates are generated and online loan applications can
be made. AllCars also provides information and free quotes from AXA Direct and
AXA Insurance, which market discounted insurance and warrantee plans.
Our plans to increase AllCars's revenues by collaborating with more
dealerships and adding to the site's general content and advertising base. We
have seeded search engines to increase site traffic, and is pursuing strategic
relationships with other providers of dealership management software. AllCars
also expects to be available soon on Europe Digital, an interactive television
service, and the Company may launch new sites called Allbikes, Allvans and
Allrentals
E-COM MULTI LTD. - This is a dealer information service for the location of
vehicles that all subscribing dealers have for sale. The subscribing dealers
utilize this proprietary network to locate and purchase vehicles for the
consumer making the request in their dealership. The information services
dramatically increases the vehicles a dealer can offer at no cost and maximize
the sales opportunities for trade in vehicles at the best market prices through
the orbit platform connecting the dealership back end system to an online and
real time biding process. At any one time we expect to have 70,000 vehicles on
the database. The Company hosts wholesale automobile auctions for dealerships as
well as insurance companies seeking replacement vehicles for those written-off
in accidents. The service is not available to the public, but is only for
high-volume industry players for whom auctions are a regular and time-consuming
part of business. Orbit auctions are conducted through a dealer-to-dealer
intranet, and they operate continuously. There are no subscriptions or listing
fees, which encourages dealers to list more vehicles and browse freely. Listings
provide detailed descriptions, and the bidding process is simple. Invoices are
sent automatically at the end of each auction, and payment and shipping
solutions are arranged. The Orbit auction service allows dealers to offer a
great selection of used and new vehicles, and it significantly reduces the work
involved in an auction. It also boosts liquidity and turnover, which are
becoming increasingly important as heightened competition places added pressure
on margins in the auto retail business.
MAM SOFTWARE LTD ("MAM") - We recently acquired MAM Software, the U.K.'s largest
provider of software for the highly profitable automotive parts and accessories
industry. MAM's award winning software applications serve all sectors of the
parts supply chain, including manufacturers, distributors, retailers and service
facilities. The Company installs customized software solutions and associated
hardware, and offers consultation, training and technical support for its
customers. MAM is currently the leading supplier of software to U.K. body shops,
and it has been consistently named as the nation's "Best Aftermarket Software
Company" by the Institute of Transport Management. MAM markets four primary
software products for the auto parts industry, as described below.
AUTOPART is a fully customizable and scalable business management system
for the aftermarket auto parts industry. Autopart provides very detailed
applications for all major aspects of factory, distribution, and retail business
operations. Applications include inventory management, purchase and sales order
processing and accounting programs. The software is integrated with MAM's
Autocat database, which tracks 5 million auto parts in the U.K. Autopart is
fully e-business enabled with XML technology, and includes features such as
instant faxing of any screen, internal messaging, and the ability to conduct
transactions over the Internet. The
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system utilizes a flexible and secure Windows environment and runs on Intel
processors; it is compatible with a range of memory, speed and hardware
specifications.
AUTOWORK is MAM's comprehensive software package for workshops and repair
facilities. Like Autopart, it provides detailed management applications for
every major aspect of business operations. Features include the generation of
quotations and invoices with profit margins, the maintenance of service records
by vehicle and customer, detailed stock controls, customized report generation,
and a database of average retail prices and installation times. Another database
tracks employee work records; a supplier database records contact information
and connects to the parts database for ease of ordering; a separate tire
database details pricing and stock information. Autowork is also linked to
Autocat, and customers can elect access to other industry databases. In the
U.K., most repair facilities are located at dealerships, so Autowork includes a
cars sales module that allows clients to keep track of new or used vehicle
sales. Autowork comes with a powerful set of statistical and graphics tools to
help businesses analyze their operations and become more efficient. Customized
reports and color charts show such data as sales and profit margins for each
business segment, and the efficiency and productivity of individual mechanics.
AUTOCAT is MAM's comprehensive auto parts catalogue, which is updated and
distributed in CD-ROM format on a quarterly basis. The catalogue displays
millions of car and light commercial truck parts available from hundreds of
aftermarket suppliers of all sizes. Simple steps make it easy to locate parts,
and entries are accompanied by photographs or drawings and average street prices
and installation times. Autocat generates estimates and purchase orders that can
be printed or sent over the Internet.
AUTONET provides a full range of Internet services for the auto industry.
Customers can choose from simple web access and e-mail packages or full service
website creation and hosting. The most basic package is dial-up ISP, provided
through British Telephone's popular BTclick service. Customers are billed for
time spent online; there are no installation charges or commitments. This
package includes two email addresses and the ability to send and receive
purchase orders from MAM software applications. For larger businesses, Autonet
has a dedicated mail server that provides registered domain names and networked
email systems that employees can access from any location. Local mail servers
can also be installed.
MAM employs a Web design team that works with business owners to create
customized Web sites. The MAM team can handle all management and updating,
although instruction is provided for customers who want to manage their own
sites. All Web sites can be customized, but MAM also offers a suite of packaged
designs.
MAM recently announced the release of its next generation of software,
dubbed 'Version 21.' The software uses new open standards, which are compatible
with a wider range of system platforms, such as the Microsoft .NET initiative.
Version 21 is compatible with more than 20 operating languages, allowing greater
accessibility and networking capability, such as cross-platform distributed
computing and the integration of mobile devices. Scale-up capabilities and speed
have also been increased, and the advance effectively widens the market for MAM
Software.
CARPARTS TECHNOLOGIES, INC. ("CarParts") - CarParts is a is a leading provider
of software systems to the automotive aftermarket supply chain. Over 3,000
customers, including
39
leading automotive aftermarket outlets, tier 1 manufacturers, program groups,
warehouse distributors, tire and service chains and independent installers
across all 50 U.S. states and Canada, rely on CarParts software.
Under the terms of an agreement completed August 13, 2003, loaned $2
million to fund the continued growth of the company. We will also acquire
CarParts on a pre-determined formula at the end of 2005.
CarParts has developed the world's first application suite that puts the
Internet inside its VAST point-of-sale ("POS") and back office (DirectStep)
automotive aftermarket systems. CarParts has created an industry-specific
private trading network, OpenWebs(TM) Intelligent Trading Network, with
in-built, secure trading and accounting functionality that lets members buy
from, and sell to, any other partner on the network - distributors,
manufacturers, even other dealers. Since everyone is connected under trading
rules, members can confirm sales to their own customers based on accurate
information and reduce their inventory. CarParts' OpenWebs(TM) Intelligent
Trading Network integrates with existing industry systems from a standard
Microsoft based platform resulting in lower customer installation costs and
minimal user training requirements.
Using OpenWebs(TM), CarParts has also deployed a leading tire-industry ERP
application, Tradera, with advanced tire functionality, tire adjustment warranty
tracking, volume bonus accruals and integration with retread software.
Computer-to-computer connectivity with leading tire manufacturers provides
accurate real-time product information to assist dealerships and repair centers
in managing and extending their relationship with customers.
Combined with the acquisition of MAM Software, we have created the footprint
from which we intend to expand our aftermarket offering in the US & Europe.
There is a complementary suite of products that both companies sell which means
that current product lines will not be replaced in their respective markets.
CarParts' software development has pursued a similar strategy to MAM Software
and the adherence to open standards, such as Microsoft's .NET (NASDAQ: MSFT),
will simplify the integration of our service offerings to the benefit of our
customers in our respective markets. Collaboration between both companies
development teams will lead to a complete and integrated suite of product
offerings to the automotive aftermarket.
Both CarParts and MAM Software bring highly experienced management teams
and a powerful, unduplicated roster of customers in their respective North
American and European markets. The combined product lines of the two companies
addresses market needs for new automotive aftermarket services that are expected
to be broadly adopted in coming years. We anticipate that the combined resources
and competencies achieved by the cooperation between MAM and CarParts will
enable us to capture larger market share, and better enable our target customers
to derive profits and growth from the $237 billion US aftermarket which serves
200m US car and Fleet owners.
AVENIDA LIMITED ("Avenida") - Avenida, based in Coventry, UK, develops software
to address the most pressing challenges of the automotive industry, such as the
coordination of activities between manufacturers and dealers, information
exchange between suppliers and manufacturer, reducing costs to stay competitive
and increasing customer retention. Avenida software accelerates the flow of
information throughout an organization by removing the barriers between
applications, data stores and network platforms, so increasing its efficiency.
40
Furthermore, Avenida takes these benefits outside the enterprise by pushing its
technology boundaries to include selected trading partners and customers.
Avenida reduces data-management costs while ensuring data is accurate and
up-to-date, regardless of its location.
Avenida's software connects existing, legacy systems to those of trading
partners using the latest XML standards and 'rules based' processing. Using
Avenida, businesses benefit from the centralization and sharing of the critical
business services, processes, messages, and vocabularies that make up the
transactions exchanged between trading partners. Avenida offers an
Internet-based solution to reflect the increasingly distributed nature of the
automotive industry. Streamlined business information is able to flow between
dealerships, manufacturers, aftermarket service providers and other distribution
'value chain' companies. Messaging to exchange customer records, orders,
shipment information and other business information, within automotive product
configuration and sales systems, is already in use with a number of clients
including Land Rover, MG Rover, Ford (NYSE: F), BMW (Frankfurt: BMWG.F), Rolls
Royce, Lloyds TSB (NYSE: LYG), and TNT, an express delivery business in Europe.
Our recently announced release of 'Version 21' software by its subsidiary,
MAM Software Inc., will benefit from the rules-based translation technology
developed by Avenida. The combination of these two technologies, which utilize
new open standards, such as Microsoft's .NET initiative and XML, will provide
integration services that universally connect automotive applications, data
stores and network platforms - even across technical and organizational
boundaries - and enable those resources to work together within one framework.
This provides a foundation from which automotive companies, and their trading
partners, are able to leverage existing information assets from a portfolio of
Internet-based applications.
Our investment of $11 million in DCS Automotive, Europe's largest dealer
management system ("DMS") provider and a division of DCS Group, PLC, provides a
substantial channel to the Company's product offering. DCS is the leading
provider of DMS systems in France, Germany and Switzerland with in excess of
11,000 clients. DCS Automotive is European leader in the provision of IT
business solutions to the automotive retail sector in Europe. Established in
1976, DCS Automotive has evolved from a supplier of dealer management systems
and now specializes in flexible, connective technologies and services designed
exclusively for the automotive industry. DCS Automotive has offices in the UK,
France, Germany, Spain, Switzerland and Asia, as well as agents and
representations throughout the rest of the world. Its customers include the
world's leading manufacturers, distributors and retail motor groups, including
Renault, Volkswagen, BMW and leading distributor groups across Europe.
Our purchase of MMI-Automotive Limited (MMI), adds a leading provider of
business management and marketing systems for the United Kingdom and European
automotive industry to the group. MMI was founded in 1981 and is a leader in
Microsoft Windows(R) based dealer management systems ("DMS") and customer
relations marketing systems ("CRM") for both automotive dealers and
manufacturers. MMI's products include Automate DMS, a real-time dealer
management system designed for automotive dealerships and dealer groups -
endorsed by several major automobile manufacturers; Target CRM, a system to help
dealerships, dealer groups and manufacturers generate more revenue through the
strategic management of customer relationships; Target CCRM, a centralized
customer relationship management system for multi-site or multi-franchise
dealers; and TimePro, a time recording and management system. MMI also offers
design and consultancy services for dealer websites and product development.
MMI's software provides a comprehensive dealer management system inclusive of
vehicle and
41
parts sales, inventory management, service management and records, accounting
systems, as well as manufacturer links. Its fully integrated customer relations
management system provides an information and marketing framework designed to
maximize profitability, effectiveness and customer loyalty.
PATENTS AND PROPRIETARY RIGHTS
Our success will depend, in part, upon our ability to obtain and enforce
protection for our products under United States and foreign patent laws and
other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business. We
will also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position. We
evaluate the desirability of seeking patent or other forms of protection for our
products in foreign markets based on the expected costs and relative benefits of
attaining this protection. There can be no assurance that any patents will be
issued from any applications or that any issued patents will afford adequate
protection to us. Further, there can be no assurance that any issued patents
will not be challenged, invalidated, infringed or circumvented or that any
rights granted thereunder will provide competitive advantages to us. Parties not
affiliated with us have obtained or may obtain United States or foreign patents
or possess or may possess proprietary rights relating to our products. There can
be no assurance that patents now in existence or hereafter issued to others will
not adversely affect the development or commercialization of our products or
that our planned activities will not infringe patents owned by others.
We could incur substantial costs in defending ourselves in infringement
suits brought against us or any of our licensors or in asserting any
infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of the
Board and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of employment or consulting relationships or a
collaboration with us. These agreements provide that all confidential
information developed or made known during the course of the relationship
42
with us is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees, the agreements provide that
all inventions resulting from work performed for us, utilizing our property or
relating to our business and conceived or completed by the individual during
employment shall be our exclusive property to the extent permitted by applicable
law.
SALES AND MARKETING
The sales, distribution, servicing and after-market for motor vehicles is
huge, representing 1.7 trillion dollars of economic activity in North America
alone. A marketplace that is ready for change. Technologies such as the
Internet, broadband data transmission, wireless and handheld digital devices are
creating entirely new ways to share information and conduct business in the
automotive retailing marketplace. Consumers are armed with more information than
ever before. They clearly expect an improved experience at the point of sale,
whether they enter the physical bricks and mortar of an automotive retailer or
make their purchase through the click of a mouse.
Car companies need to lower the cost of distribution. They wish to create
build-to-order manufacturing strategies that quickly deliver the vehicles that
consumers require. They want to free up capital and inventory and improve
customer service.
Automotive retailers want to know more about the consumer and to do a
better job of marketing. They want access to actionable data about their
customers to help them establish long-term relationships through sophisticated
CRM programs. They need to better integrate their physical and online retailing
strategies to create a strong brand. They want to improve the vehicle-shopping,
purchase and service experience while improving efficiency and profitability.
Allied products and services providers-like financial institutions,
insurance companies, collision repair facilities and departments of motor
vehicles-want to lower costs, streamline processes and provide more value for
the consumer by better sharing of data and integrating services.
The transformation of the automotive industry is underway. We intend to
capitalize on this transformation with our in depth industry expertise, an
intense focus on our customers, market-leading solutions and award-winning
software.
In the UK alone the automotive industry is a substantial revenue-generating
sector of the economy, with thousands of participating companies. More than 2.2
million new vehicles were registered in 2002 in the UK market, with a sales
value of over $75 billion, as reported by The Society of Motor Manufacturers and
Traders Ltd. ("SMMT"). In addition, there were approximately 6.7 million used
vehicle sales in 2000, worth over $65 billion annually, according to SMMT.
Additional incremental sales of insurance, spare parts and other auto related
products created a total UK market in excess of $160 billion in 2000, according
to SMMT. Of the new vehicle sales each year, SMMT estimates that over 50% are
sold to the fleet, leasing and rental markets. Over 30 different manufacturers
compete in this market, through approximately 7,500 franchised retailers (31,000
outlets in total).
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The retail automotive industry as a whole, though a multi-billion dollar
industry, is characterized by disconnected, individual businesses, inhibiting
the collection and utilization of critical transaction-related information in
the industry. There has been significant consolidation among manufacturers, but
the dealer networks, that serve as the primary means for distribution of
products, tend to be entrepreneurial and highly fragmented.
The absence of efficient information exchange makes the industry unwieldy,
unresponsive to market changes and operationally inefficient. Many of the
business units can be compared to islands of information: disconnected from
their immediate partners, within what we view as the three primary industry
channels - manufacturers, retailers and consumers. Linkage between different
channels is limited due to antiquated systems with no common technology
platforms or information pathways. These barriers to information supply and
analysis increase inefficiencies throughout the industry. Without a system that
facilitates compatibility these inefficiencies will only be exacerbated as the
industry's reliance on technology grows.
We believe that the industry suffers from similar problems in Europe and in
the U.S. The impact of global competitive pressures are forcing the automotive
industry to reduce margins and look for areas where efficiencies can be improved
and new revenue streams located and utilized. A need exists to build a universal
network through which the automotive industry can communicate and conduct
business.
Our success will depend, in part, upon our ability to obtain and enforce
protection for our products under United States and foreign patent laws and
other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business. We
will also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of the
Scientific Advisory Board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements provide that all
confidential information developed or made known during the course of the
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
INDUSTRY OVERVIEW
The software industry has significantly evolved since its commercial
inception in the 1970s and is currently approaching a period of sustained
growth. We believe that this growth, coupled
44
with the maturing state of the existing automotive software sector, will
strengthen the large software companies and result in the emergence of a new
generation of software companies. To be successful, this new breed of software
company must have the ability to harness rapidly advancing technology, provide
solutions for previously unmet needs, ensure faster development of new products
and allow flexibility to exploit changing market conditions. We seek to be at
the forefront of this new generation of companies.
COMPETITION
We have no direct competitors in the UK or in Europe who will be offering
the same breadth of products, depth of data and services that we intend to
offer. There are a number of our individual services and solutions that have
specific competitors products in their respective businesses. However no
company\markets an equivalent data rich and flexible suite of integrated
services.
Orbit's direct competitors in the UK market are Cap Net, Glass's
Information Services Ltd., and Autologic Information International Inc. However,
it is possible that, in the future, we may face service or solutions competition
from other existing or potential competitors, such as The Reynolds and Reynolds
Company, currently operating only in North America.
We are confident that our ability to successfully integrate manufacturers,
retailers and customers in the industry, and provide a comprehensive information
service and software solution for the automotive industry through one unified
network will contribute to our continued success over any existing or future
competitors and ensure long term success. Additionally, we feel the depth of
industry knowledge and experience, the strong and credible reputation of our
management, as well as our proprietary technology and expertise will continue to
give our network and products a competitive edge in the market.
While the market for providing Internet products and services for the
automotive industry is relatively new, it is rapidly evolving, and it is likely
that the All Cars Web site will could face competition in the future. However we
believe that our established products and data will protect us from any
immediate threat and give us a competitive advantage from which to develop our
product and company strategy. However our existing and potential competitors may
develop offerings that are perceived as better than our services or otherwise
achieve greater market acceptance. Currently, AllCars consumer site competes
with Autobytel Inc. and Autotrade, both of which are Internet-based companies.
The value and unique position of our trade, consumer and data products create a
number of elements and markets for us and therefore provide numerous revenues
and markets to develop or focus on. This multi market strategy provide numerous
advantages to us.
EMPLOYEES
The Company and its subsidiaries have a total of 128 employees as at
November 30, 2003. We engage independent contractors for information technology
programming activities and software support and training. We consider our
relations with our employees to be good. We have never had a work stoppage, and
no employees are represented under collective bargaining agreements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. The discussion should be read together with
our audited financial statements and notes included elsewhere in this
prospectus.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the SEC,
requires all companies to include a discussion of critical accounting policies
or methods used in the preparation of the consolidated financial statements. In
addition, Financial Reporting Release No. 61 was recently released by the SEC,
which requires all companies to include a discussion to address, among other
things, liquidity, off-balance sheet arrangements, contractual obligations and
commercial commitments. The following discussion is intended to supplement the
summary of significant accounting policies as described in Note 1 of the Notes
To Consolidated Financial Statements for the year ended February 28, 2003
included in our annual report on Form 10-K.
These policies were selected because they represent the more significant
accounting policies and methods that are broadly applied in the preparation of
the consolidated financial statements.
REVENUE-RECOGNITION
Non-refundable up-front payments received in connection with software
licences and support services are deferred and recognized on a usage basis over
the relevant periods of the service agreement typically 3 or 5 years. All other
services supplied are invoiced in arrears and are immediately collectible.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles of the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, and such differences may be material to the financial statements.
OVERVIEW
We are a group of established companies which provide software products and
services to the automotive industry. The company's main customers are auto
dealerships in a marketplace of approximately 78,000 dealers in North America
and 92,000 dealers in Europe. We supply a suite of software services and
solutions that enable the dealerships to run their businesses more efficiently
and achieve considerable cost savings. The majority of the company's current
solutions are focused on serving the aftermarket and finance areas of
dealerships.
46
COMPANY STATUS
We have made solid progress in developing our business over the past twelve
months. With the exception of our most recent fiscal year we have incurred
losses during our development stage. Our management believes that we have the
opportunity to become a leading automotive technology company, provided we
successfully bring our lead products to market. We intend to commence marketing
a combined suite of products. A key element of our business strategy is to
continue to acquire, obtain licenses for, and develop new technologies and
products that we believe offer unique market opportunities and/or complement our
existing product lines.
We are considered a development-stage company for accounting purposes
because we have not generated any material revenues to date. Accordingly, we
have no relevant operating history upon which an evaluation of our performance
and future prospects can be made. We are prone to all of the risks to the
establishment of any new business venture. You should consider the likelihood of
our future success to be highly speculative in light of our limited operating
history, as well as the limited resources, problems, expenses, risks and
complications frequently encountered by similarly situated companies. To address
these risks, we must, among other things:
o satisfy our future capital requirements for the implementation of our
business plan;
o commercialize our existing products;
o complete development of products presently in our pipeline and obtain
necessary regulatory approvals for use;
o implement and successfully execute our business and marketing strategy
to commercialize products;
o establish and maintain our client base;
o continue to develop new products and upgrade our existing products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we were unable to do
so, our business prospects, financial condition and results of operations would
be materially adversely affected. The likelihood of our success must be
considered in light of the development cycles of new pharmaceutical products and
technologies and the competitive and regulatory environment in which we operate.
RESULTS OF OPERATIONS
FOR THE FISCAL YEAR END FEBRUARY 28, 2003
In the completed fiscal year we reported an increase in revenues to
$1,773,000, up from $40,412 in the previous year, reflecting the initial impact
of our acquisition program. Full contributions from these acquisitions and the
subsequent acquisition of MAM Software will produce a substantial increase in
revenue for the current year.
47
The Company made a net profit of $514,648 in the financial year which
reduced the net loss from operations, since the Company's inception, to
$675,941. The Company's performance in this year is reflective of its ongoing
expansion. It is anticipated that the Company will be able to meet its financial
obligations through internal net revenue in the foreseeable future.
The Company acquired Auto Data Group on October 2, 2001, and this has been
treated as a reverse takeover with Auto Data Group being regarded as the
acquirer in the financial statements. To complete the Company's change in
strategy to an automotive software and aftercare provider it was decided during
the fiscal year ending February 28, 2002, to sell its subsidiary, CMAC Limited,
and its assets. This was achieved for zero consideration and has been accounted
for as a write off of $774,402, which includes the disposal of a vehicle
prototype valued at $648,960.
Total assets have increased to $9,143,601 compared with $4,836,980 in the
previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company made post tax profit of $514,648 in the year ended February 28,
2003, and $2,000,826 in the first nine months of this year and it is anticipated
that the Company will be able to meet its financial obligations through internal
net revenue in the foreseeable future. As a result, the Company has from time of
inception to August 31, 2003, a net profit from operations of $1,591,772.
Through October 30, 2003 we have sold an aggregate of 500,000 shares of
Series A-1 preferred stock in a series of private placements, 4,828,300 shares
of Series A-2 Preferred Stock and issued warrants to purchase an aggregate of
1,331,000 shares of common stock, resulting in aggregate gross proceeds of
approximately $14,983,750 once all warrants are exercised.
In addition, between February 12, 2004, and March 30, 2004, we sold an
aggregate total of 5,105,881 shares of Series B Preferred Stock in a private
placement and issued warrants to purchase an aggregate of 2,042,350 shares of
common stock, resulting in aggregate gross proceeds of approximately $24,508,224
once all warrants are exercised.
All of these sales were made in reliance upon exemptions from registration
under the Securities Act of 1933, as amended (the "Act"). We sold all of the
Series B Preferred Stock for $3.80 per share. Each of these preferred shares is
currently convertible into two (2) shares of our common stock. For each five (5)
shares of Series B preferred stock purchased, subscribing investors receive two
(2) warrants to purchase shares of the Company's common stock at an initial
exercise price equal to $2.50 per share. The shares of common stock underlying
these preferred shares and warrants are being registered pursuant to this
registration statement. In addition to selling those shares, we issued warrants
to purchase up to 1,041,896 shares of our common stock to various investment
advisors and consultants. These warrants are exercisable at the price of $1.90
per share. We are also registering 1,041,896 shares of our common stock which
underlie these warrants. These transactions are listed in the Selling
Shareholders portion of this registration statement.
We intend to raise additional capital from public or private placements to
investors of our common stock and/or other series of preferred stock. However,
there can be no assurance that we will be able to obtain capital from a
placement of our common stock or whether the funds
48
required by the Company will enable us to further develop our operations.
Additionally, there is no guarantee that we will be able to raise capital on
terms and conditions which are acceptable to us. The inability to raise
additional capital may forestall our growth.
PLAN OF OPERATION
Our management does not believe that we need any of the net proceeds from
the exercise of the warrants and that without those proceeds, we will be able to
continue as currently planned operations for the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill and intangible assets with indefinite lives will
no longer be amortized, but will be subject to annual impairment tests in
accordance with Statement 142. Other intangible assets will continue to be
amortized over their useful lives. The Company is still in the process of
evaluating the impact of adopting this pronouncement on its consolidated
financial statements, however, it does not believe that the adoption of this
pronouncement will have a material impact on the consolidated financial
statements.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement is effective for fiscal years
beginning after December 31, 2001. This supercedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
while retaining many of the requirements of such statement. We do not believe
that this statement will have a material effect on our financial statements.
In April 2002, the FASB, issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical Corrections. In
addition to amending and rescinding other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions, SFAS No. 145 precludes companies from
recording gains and losses from the extinguishment of debt as an extraordinary
item. SFAS No. 145 is effective for our first quarter in the fiscal year ending
June 30, 2003. The Company does not expect the adoption of this pronouncement to
have a material impact on our consolidated results of operations or financial
position.
In June 2002, the FASB issued SFAS No. 146, :Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
activity. SFAS No. 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company does not expect the
adoption of this pronouncement to have a material effect on the consolidated
results of operations or financial position.
49
DESCRIPTION OF PROPERTY
As of the date of this report we do not own any interest in real property.
Our corporate headquarters are located at The Forsyth Centre, Century Place, and
Lamberts Road, Tunbridge Wells, Kent TN2 3EH, United Kingdom. We also have
offices at 712 Fifth Avenue, 19th Floor New York, New York 10023 and in London
at 32 Haymarket, London SW1Y 4TP. We occupy approximately 2,600 square feet on
one floor at our corporate headquarters, which is leased through The Forsyth
Business Centre. We occupy approximately 300 square feet on one floor at our New
York office and approximately 600 square feet on one floor at our London Office.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended November 30, 2003, there were no material
transactions or relationships between the Company and its management.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
HIGH LOW
---- ---
Fiscal Year Ended February 29, 2004
First Quarter $2.45 $0.90
Second Quarter $2.50 $1.93
Fiscal Year Ended February 28, 2003
First Quarter $3.15 $0.80
Second Quarter $3.75 $2.30
Third Quarter $4.25 $3.50
Fourth Quarter $4.50 $4.00
Fiscal Year Ended February 28. 2002
First Quarter $4.50 $4.00
Second Quarter $4.10 $0.01
Third Quarter $65.625 $0.75
Fourth Quarter $65.625 $65.625
On September 29, 2001 the Company effected a 25-for-1 reverse stock split
which reduced the number of shares of issued common stock to 534,871. On October
16, 2001, the Company issued 9,500,000 shares in consideration for all of the
outstanding shares of Europortal Inc T/A AutoData Group ("ADG"). The remaining
5% equity of the Company was retained by existing AMAC stockholders. The effect
of this transaction was a change of control of the Company, ceding corporate
control to the former stockholders of ADG. In acquiring ADG, the Company became
the owner of Automotive Data Network Ltd., formerly All Group Holdings Ltd., a
UK holding company.
50
COMMON STOCK
The Company's certificate of incorporation provides for the authorization
of 50,000,000 shares of Common Stock, par value $0.001 per share. As of April
30, 2004, 28,082,724 shares of Common Stock were issued and outstanding, all of
which are fully paid and non-assessable. As of March 31, 2004, there were 447
shareholders of record of common stock. Each share of our Common Stock is
entitled to one vote. Our stockholders have no pre-emptive rights.
PREFERRED STOCK
As stated above, our Articles of Incorporation authorize the issuance of
25,000,000 shares of preferred stock, par value $0.001 per share. As of April
30, 2004, 2,181,900 shares of Series A preferred stock were issued and
outstanding which were held by 47 shareholders of record and 5,105,881 shares of
Series B Preferred Shares were issued and outstanding which were held by 88
shareholders.
DIVIDENDS
We have never declared or paid cash dividends on our capital stock, and our
board of directors does not intend to declare or pay any dividends on the common
stock in the foreseeable future. Our earnings, if any, are expected to be
retained for use in expanding our business. The declaration and payment in the
future of any cash or stock dividends on the common stock will be at the
discretion of the board of directors and will depend upon a variety of factors,
including our ability to service our outstanding indebtedness and to pay our
dividend obligations on securities ranking senior to the common stock, our
future earnings, if any, capital requirements, financial condition and such
other factors as our board of directors may consider to be relevant from time to
time.
Owners of preferred shares have a certain rights and priorities to
dividends and liquidation proceeds.
The transfer agent for our Common Stock is Liberty Transfer Co. located at
274 New York Avenue, Suite B Huntington, New York 11743. Their telephone number
is 212 509-4000.
51
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years
ended February 28, 2003, 2002 and April 30, 2001, 2000 and 1999 concerning the
compensation paid and awarded to all individuals serving as (a) our chief
executive officer, (b) each of our four other most highly compensated executive
officers (other than our chief executive officer) at the end of our fiscal year
ended February 28, 2004 whose total annual salary and bonus exceeded $100,000
for these periods, and (c) up to two additional individuals, if any, for whom
disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended February 28, 2003:
SUMMARY COMPENSATION TABLE
Restricted Securities
Name & Other Annual Stock Underlyling LTIP All Other
Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------- ---- ------ ----- ------------ ---------- ------------ ------- ------------
Christopher R. Glover (1) 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 39,000 0 0 0
shares
2003 0 0 0 0 0 0 0
Lee Cole 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
Lt. Gen. J.W. Morris 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
Linden Boyne 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
<FN>
(1) In February, 2004, Mr. Glover commenced receiving an automobile allowance
of (pound) 57,500.
</FN>
52
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUTO DATA NETWORK, INC. - AS OF NOVEMBER 30, 2003 AND FOR THE YEAR ENDED
FEBRUARY 28, 2003
- --------------------------------------------------------------------------------
Report of Independent Auditors ........................................... F-1
Consolidated Balance Sheet as of February 28, 2003 ........................ F-2
Consolidated Statements of Operations for the years ended
February 28, 2003 and 2002 and the period from
August 16, 1996 (inception) to February 28, 2003 ..................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended February 28, 2001, 2002 and 2003
and the period from August 16, 1996 (inception) to
February 28, 2003 .................................................... F-4
Consolidated Statements of Cash Flows for the years ended
February 28, 2003 and 2002 .......................................... F-5
Notes to Consolidated Financial Statements for
the year ended February 28, 2003 .................................... F-6
AUTO DATA NETWORK, INC. - AS OF NOVEMBER 30, 2003 AND FOR THE NINE MONTHS
ENDED NOVEMBER 30, 2003 AND 2002 (UNAUDITED)
- --------------------------------------------------------------------------------
Consolidated Balance Sheet as of November 30, 2003 and 2002 .............. F-8
Consolidated Statements of Operations for the nine months ended
November 30, 2003 and 2002 .......................................... F-9
Consolidated Statements of Cash Flows for the nine months
ended November 30, 2003 and 2002 ................................... F-10
Notes to Consolidated Financial Statements
for the nine months ended November 30, 2003 ......................... F-11
53
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors, Auto Data Network Inc.:
I have audited the accompanying balance sheet of Auto Data Network Inc., ("the
Company") as of February 28, 2003 and the related Income Statement and Cash Flow
for the period then ended. These financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion on these
financial statements based on our audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for our opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Auto Data Network, Inc., as of
February 28, 2003, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/S/ F. E. HANSON, LTD. Date: June 16, 2003
- --------------------------------
F. E. Hanson Ltd.
Frank E, Hanson, C.P.A.
Arlington, VA.
F-1
AUTO DATA NETWORK, INC.
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 2003
ASSETS
Current assets:
Cash & cash equivalents ............................. 722,961
Deferred costs ...................................... 1,194
Accounts receivable ................................. 867,106
------------
Total current assets ..................................... $ 1,591,261
Property, plant and equipment, net ....................... 54,159
Other assets:
Intangible assets, net .............................. 7,498,181
------------
$ 9,143,601
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft ...................................... $ 312,327
Accounts payable .................................... 1,807,616
Other accrued liabilities ........................... 279,683
Tax payable ......................................... 488,000
------------
Total current liabilities ................................ 2,887,626
Long term liabilities:
0
------------
Total liabilities ........................................ 2,887,626
Stockholders' deficit:
Common stock, $0.001 par value ...................... 11,552
Authorised: 50,000,000 shares
Issued and outstanding: ............................. 11,552,289
Additional paid in capital .......................... 6,858,537
Currency value changes .............................. 61,827
Deficit accumulated during development stage ........ (675,941)
------------
Total stockholders' deficit .............................. 6,255,975
------------
$ 9,143,601
============
The accompanying footnotes are an integral part of these financial statements.
F-2
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Period from
August 16,
1996
(inception)
Year ended Year ended through
February 28, February 28, February 28,
2003 2002 2003
------------ ------------ ------------
Revenue ......................... $ 1,772,996 $ 40,412 $ 5,135,697
Cost of sales ................... 590,193 40,760 2,288,113
Gross profit/loss ............... 1,182,803 (348)
Total operating expenses ........ 1,081,617 68,053 1,887,486
Disposal of asset ............... -- 648,960 648,960
------------ ------------ ------------
Net profit/loss pre tax ......... $ 101,186 $ (717,361) $ (248,333)
============ ============ ============
Basic and diluted net
loss per share ............... $ 0.045 $ (0.065)
Weighted average shares used
in computing basic and diluted
basic and diluted net loss per
share ........................ 11,552,289 11,462,078
The accompanying footnotes are an integral part of these financial statements.
F-3
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Total
Common Stock Issued Paid-In Accumulated Shareholder's
Shares Par Value Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
Balance as of Apr. 30, 1998 .. 10,000,000 $ 10,000 $ 9,000 $ (31,450) $ (12,450)
============ ============ ============ ============ ============
Shares canceled Mar. 31, 1999 (10,000,000) (10,000) -- -- --
Shares issued 6.5 to 1
reverse split Mar. 8, 1999 . 1,538,461 1,538 -- -- --
Net loss for year ended 1999 . 3,500,000 3,500 -- (133,004) (150,416)
------------ ------------ ------------ ------------ ------------
Balance Apr. 30, 1999 ........ 5,038,461 $ 5,038 $ 9,000 $ (164,454) $ (150,416)
============ ============ ============ ============ ============
Net loss for year ended 2000 . -- -- -- (126,846) (277,261)
------------ ------------ ------------ ------------ ------------
Balance Apr. 30, 2000 ........ 5,038,461 $ 5,038 $ 9,000 $ (291,300) $ (277,261)
============ ============ ============ ============ ============
Net loss for year ended 2001 . -- -- -- (143,450) (420,711)
------------ ------------ ------------ ------------ ------------
Balance Apr. 30, 2001 ........ 5,038,461 $ 5,038 $ 9,000 $ (434,750) $ (420,711)
============ ============ ============ ============ ============
AMAC Inc. ....................
Shares issued Sep. 28, 2001 .. 8,333,333 (8,333) -- -- --
Gala loan capitalised
25 for 1 reverse split
Sep. 29, 2001 .............. 534,871 (534) -- -- --
Shares issued Oct. 16, 2001 .. 9,500,000 (9,500) -- -- --
Acquisition of Europortal Inc.
Shares issued Oct. 17, 2001 .. 1,077,268 (1,077) -- -- --
Loans capitalised
Shares issued Feb. 15, 2002 .. 350,000 (3,500) -- -- --
Consultants
Net loss for year ended 2002 . -- -- -- (725,002) 3,941,390
------------ ------------ ------------ ------------ ------------
Balance Feb. 28, 2002 ........ 11,462,078 $ (11,462) $ 5,120,518 $ (725,002) $ 3,941,390
============ ============ ============ ============ ============
Shares issued April 26, 2002 . 90,211 (90.21) 383,307 -- --
Acquisition of E-com Multi Ltd
August 3, 2002 ............ -- -- 1,274,700 -- --
Acquisition of Hilsten
Resources Ltd
Loans capitalised ............ -- -- 44,167 -- --
Exchange differences ......... -- -- 35,845 (12,371) --
Net profit for year ended 2003 -- -- -- 514,648 --
------------ ------------ ------------ ------------ ------------
Balance Feb. 28, 2003 ........ 11,552,289 $ (11,552) $ 6,858,537 $ 502,274 $ 6,255,975
============ ============ ============ ============ ============
The accompanying footnotes are an integral part of these financial statements.
F-4
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
FEBRUARY 28,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit/(Loss) ........................ $ 514,648 $ (725,002)
Depreciation and amortization ............ 144,853 4,349
Write off of R&D Costs ................... -- 648,960
Net Change in Assets, Liabilities
& Accruals .............................. 178,941 723,998
Net Adjustments .......................... 323,794 1,377,307
Net Cash Used in Operating Activities .... 838,442 652,305
Cash Flows from Investing Activities ..... (25,000) (714,917)
Cash Flows from Financing Activities
Exchange Rate Difference ................. 61,827 (31,859)
Other Non-Cash Change .................... (2,844,106) 4,221
New Shares Issue ......................... 90 6,424
Additional Paid in Capital ............... 1,738,019 24,946
----------- -----------
(1,044,170) 3,732
Net Change in Cash ....................... (230,728) (58,880)
Cash Beginning Period .................... (55,425) 3,455
----------- -----------
Cash at End of Period .................... (286,153) (55,425)
Cash and Bank Balance .................... 3,591 14
Bank Overdrafts .......................... (289,744) (55,439)
----------- -----------
$ (286,153) $ (155,425)
The accompanying footnotes are an integral part of these financial statements.
F-5
AUTO DATA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING FEBRUARY 28, 2003
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Company : Auto Data Network, Inc. a Delaware corporation is the
parent company arising from the merger between the Company and the following
entities: Europortal Inc., Automatrix Ltd., County Services and Products Ltd, E
Multi Ltd. its aim is to create a dedicated information network between the UK
automotive industry, its consumers and trading partners.
NOTE 2. BASIS OF PRESENTATION:
Financial statements are prepared on an accrual basis of accounting where
revenue is recognized when earned and expenses when incurred.
NOTE 3. ACCOUNTS PAYABLE:
As of the date of this report there are no judgments or pending litigation
outstanding. However management indicates that alternative funding will be
required to satisfy liabilities.
NOTE 4. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from these estimates. Significant estimates in the financial
statements include the assumption that the company will continue as a going
concern.
NOTE 5. CONTINGENT LIABILITY:
A possible liability exists with Inland Revenue when and if the accrued payroll
of UK staff and Directors are converted to equity.
NOTE 6. ACQUISITIONS:
During the fiscal year acquisition agreements have been reached with Hilsten
Resources, Ltd., Automatrix (UK) Ltd., and E-Com Multi (UK) Limited.
NOTE 7. DEPRECIATION POLICY:
The company depreciates all its fixed assets over their useful lives on the
following basis:
o Tangible assets at the rate of 25% per annum on the reducing balance
of the asset value.
o Intangible assets at the rate of 3% per annum commencing one year
after the asset was acquired.
NOTE 8. REVENUE RECOGNITION:
The company recognizes income when services are rendered and license fees are
normally agreed on an annual basis and invoiced monthly in arrears.
F-6
NOTE 9. FOREIGN CURRENCY:
The company's foreign subsidiaries use the local currency as their functioning
currency. Accordingly assets and liabilities are translated into US dollars at
year end exchange rates, and revenues and expenses are translated at the average
prevailing during the accounting period.
NOTE 10. SUBSEQUENT EVENTS:
On January 18, 2003, a Share Sale Agreement was executed relating to the
acquisition by Auto Data Network of the entire Share Capital of MAM Software
Limited, ("MAM"), a company registered in England and based in Sheffield, South
Yorkshire. Completion took place on April 23, 2003.
F-7
AUTO DATA NETWORK, INC.
CONSOLIDATED BALANCE SHEET
For the nine month period ending November 30, 2003 and three month period ending
February 28, 2002
As Of As Of
November 30, February 28,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
ASSETS
Current assets
Cash and equivalents .................... $ 8,584,760 $ 722,961
Accounts receivable ..................... 6,116,321 867,106
Accounts receivable -sundry ............. 846,321 0
Prepaid expenses ........................ 194,505 1,194
Inventories ............................. 316,380 0
----------- -----------
Total current assets ................... $16,058,181 $ 1,591,261
Accounts receivable due after
more than one year ..................... $ 2,002,889
Fixed assets less accumulated
depreciation ........................... $ 470,855 $ 54,159
Intangibles ............................. 9,061,064 7,498,181
Goodwill ................................ 7,473,108 0
----------- -----------
Total Assets ............................ $35,066,097 $ 9,143,601
LIABILITIES
Current liabilities
Accounts payable ....................... $ 4,572,835 $ 1,451,366
Accrued expense and sundry
accounts .............................. 537,945 279,683
Short-term loans ....................... 24,677 22,583
Short bank borrowing ................... 446,457 289,744
Other current liabilities .............. 826,753 0
----------- -----------
Total liabilities ...................... $ 6,408,667 $ 2,043,376
Other liabilities
Accrued tax ............................ 0 488,000
Taxation payable ....................... 1,244,217 0
Value added tax ........................ 828,119 0
Long term liabilities &
deferred income ....................... 1,117,058 0
----------- -----------
Total Liabilities ....................... $ 9,598,061 2,531,376
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value,
Authorized 50,000.000 Shares;
Issued and Outstanding
14,839,850 Shares ...................... 14,840 11,590
Preferred Stock 5,328,300 @ $.001
Issued and Outstanding .................. 5,328
Additional Paid in Capital .............. 23,953,550 7,214,749
Accumulated Other Income ................ 169,433 (61,827)
Accumulated Deficit ..................... 1,324,885 (675,941)
----------- -----------
Total Stockholders' Equity .............. $25,468,036 $ 6,612,225
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $35,066,097 $ 9,143,601
=========== ===========
The accompanying notes and accountant's report are an integral part of these
financial statements.
F-8
AUTO DATA NETWORK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDING NINE MONTHS ENDING
NOVEMBER 30, NOVEMBER 30,
(Unaudited) (Unaudited)
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue ..................... $ 6,218,593 474,715 $ 15,095,548 1,026,100
Cost of revenue ............. 1,359,507 191,747 4,062,729 351,531
------------ ------------ ------------ ------------
Gross margin ................ 4,859,086 282,968 11,032,819 674,569
Operating expenses
Personnel ................... 1,986,895 0 3,772,629 0
Sales & marketing ........... 16,252 15,271 159,477 35,300
General & administrative .... 1,533,481 50,393 3,831,989 401,652
Depreciation and amortization 118,939 6,400 337,188 16,107
------------ ------------ ------------ ------------
Total operating expenses .... 3,655,567 72,064 8,101,283 453,059
Net operating profit/loss ... 1,203,519 210,904 2,931,536 221,510
Interest expense ............ (18,635) (6,021) (73,213) (12,268)
------------ ------------ ------------ ------------
NET PROFIT/LOSS FROM
TRADING ..................... 1,184,884 204,883 2,858,323 209,242
Net profit/loss before tax .. 1,184,884 204,883 2,858,323 209,232
Provision for taxation ...... 355,465 87,552 857,497 192,129
------------ ------------ ------------ ------------
Net profit after tax ........ 829,419 117,331 2,000,826 17,113
Net profit per share ........ 0.057 0.01 0.137 0.001
Weighted average
number of shares
outstanding ................. 14,614,850 11,552,289 14,614,850 11,552,289
The accompanying notes and accountant's report are an integral part of these
financial statements.
F-9
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 3 MONTHS ENDED
NOVEMBER 30,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income profit .......................... $ 829,419 $ 117,291
Adjustments to reconcile net loss
to cash used in operating
activities:
Depreciation and other non-cash
charges .................................. 118,939 6,440
Other non cash changes
Changes in assets, liabilities
Accounts receivable ...................... (572,784)
Other current assets ..................... (1,701,617)
Tangible assets .......................... (164,236)
Accounts payable ......................... 260,459
Accrued expenses ......................... (12,101)
Other non current liabilities .............. 1,478,215 (112,174)
----------- -----------
Total adjustments .......................... (593,125) (105,734)
Net cash provided/(used in)
operations ................................ 236,294 11,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries ................ (1,401,420) 0
Investing activities ....................... 0 0
Net cash used in investing
activities ................................. (1,401,420) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
New share issue - common stock .............. 450 0
New share issue - preferred stock ........... 3,298
Additional paid-in capital .................. 6,469,669 0
Effect of exchange rates on cash ............ 344,880 0
Other non cash changes ...................... 0 0
----------- -----------
6,818,297 0
Net change in cash and equivalents .......... 5,653,171 11,557
Cash and cash equivalents at
beginning of period ........................ 2,485,132 1,670
----------- -----------
Cash and cash equivalents at end of period .. $ 8,138,303 13,227
Bank overdraft .............................. (446,457)
Supplemental disclosure of cash flow
information
Interest paid ............................... 25,291
The accompanying notes and accountants report are an integral part of these
financial statements.
F-10
AUTO DATA NETWORK, INC.
Notes to Financial Statements
November 30, 2003
NOTE 1. BASIS OF PRESENTATION
The financial statements are prepared on the accrual basis of accounting.
Accordingly, revenue is recognized when earned and expenses when incurred.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended November 30, 2003 compared with the
same period in the previous year are not necessarily indicative of the results
that may be expected for the year ending February 28, 2004. These Condensed
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in the Company's
Form 10-KSB for the year ended February 28, 2003.
NOTE 2. LIQUIDITY
The Company made post tax profit of $514,648 in the year ended February 28, 2003
compared to $2,000,826 in the nine months to November 30,2003 and it is
anticipated that the Company will be able to meet its financial obligations
through internal net revenue in the foreseeable future
As a result, the Company has from time of inception to November 30, 2003 made a
net profit from operations of $1,324,885.
NOTE 3. STOCK TRANSACTIONS
On April 23, 2003 the company issued 2,000,000 (two million) shares of
restricted Common stock in part satisfaction of the purchase consideration of
MAM Software Limited. The balance of the consideration is to be paid before the
financial year end.
The company commenced a private placement of 6% Convertible Preferred Stock on
July 18, 2003. This private placement finally closed on November 3, 2003 during
which the company had sold an aggregate total of 5,328,300 shares of preferred
stock, 500,000 were Series A-1 Convertible Promissory Note Preferred Stock and
4,828,000 were Series A-2 Preferred Stock. All of these sales were made in
reliance upon exemptions from registration under the Securities Act of 1933, as
amended (the "Act"). We sold all of these preferred shares for $2.50 per share.
Each of these preferred shares is currently convertible into two (2) shares of
our common stock. In addition to selling those shares, we issued warrants to
purchase up to 1,331,000 shares of our common stock to various investment
advisors and consultants. These warrants are exercisable at the price of $1.25
per share. The registration statement for the offering became effective on
November 21, 2003 pursuant to the SEC's acceptance of the company's SB-2 filing
made on November 6, 2003. The estimated net proceeds from this private placement
of Convertible Preferred Stock are $11,120,750.
F-11
NOTE 4. ISSUED SHARE CAPITAL
Shares Value
---------- ----------
Issued Common Stock, $0.001 par value,
at fiscal year end February 28, 2003 ................. 11,589,850 $ 11,590
Stock issued for acquisition of Automatrix ........... 190,000 190
Stock issued for the acquisition of MAM Software
Limited ........................................... 2,000,000 $ 2,000
Stock issued to consultants August 11, 2003 .......... 610,000 610
Stock issued to consultants .......................... 450,000 450
Total Issued common stock as of November 30, 2003 .... 14,839,850 $ 14,839
Preferred stock issued as of November 30, 2003 ....... 5,328,300 5,328
Total Stock issued ................................... 20,168,150 $ 20,168
ADDITIONAL CONTRIBUTED CAPITAL
Additional contributed capital at fiscal year end
February 28, 2003 ............................................ $ 7,214,749
Acquisition of MAM Software Limited .......................... 3,998,000
Acquisition of Automatrix Limited ............................ 341,810
Shares issued to consultants ................................. 1,324,390
Preferred stock issued ....................................... 11,074,601
Total ........................................................ 23,953,550
The company lists its Common Stock on the OTC Bulletin Board market (OTCBB -
ADNW). Authorised Common stock is 50,000,000 at $0.001 par value and authorized
Preferred stock is 25,000,000 at $0.001 par value
NOTE 5. CONSOLIDATION
The company owns 100% of the equity of all its subsidiaries and the Financial
Statements incorporate consolidation of all companies in the group.
NOTE 6. DEPRECIATION POLICY AND ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS
The Company depreciates all its fixed assets over their useful lives on the
following basis:
Tangible Assets at the rate of 25% per annum on the reducing balance of the
asset value.
Intangible Assets at the rate of 3% per annum commencing one year after the
asset was acquired but subject to the provisions of SFAS 141
SFAS No. 142, "Goodwill and Other Intangible Assets," changes the current
accounting model that requires amortization of goodwill, supplemented by
impairment tests, to an accounting model that is based solely upon impairment
tests. SFAS No. 142 also provides guidance on accounting for identifiable
intangible assets that may or may not require amortization. The provisions of
SFAS No. 142 related to accounting for goodwill and intangible assets will be
generally effective for the Company at the beginning of 2002, except that
certain provisions related to goodwill and other intangible assets are effective
for business combinations completed after July 1, 2001. The Company does not
believe this statement has any impact to the Company as of December 31, 2002.
F-12
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No.143 addresses financial accounting and reporting for
obligations associated with the retirement of intangible long-lived assets and
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it has occurred. The asset retirement obligations will be capitalized as a
part of the carrying amount of the long-lived asset. SFAS No. 143 applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and normal operation of
long- lived assets. SFAS No. 143 is effective for years beginning after June 15,
2002, with earlier adoption permitted. Currently, the Company does not believe
this statement has any impact on the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting
model for long-lived assets to be disposed of by sale and the recognition of
impairment of long-lived assets to be held and used. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001, with an earlier adoption
encouraged. The Company is evaluating the impact of adopting SFAS No. 144 but
believes it will not have a material effect on the Company's results of
operations or financial position.
Long Lived Assets - The company has completed a number of business combinations
over the years. These business combinations result in the acquisition of
intangible assets and the recognition of goodwill on the company's consolidated
balance sheet. The company accounts for these assets under the provisions of
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill not be amortized, but
instead tested for impairment at least annually. The statement also requires
recognized intangible assets with finite useful lives to be amortized over their
useful lives. Long-lived assets, goodwill and intangible assets are reviewed for
impairment annually or whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable from future cash flows.
Future cash flows are forecasted based on management's estimates of future
events and could be materially different from actual cash flows. If the carrying
value of an asset is considered impaired, an impairment charge is recorded for
the amount by which the carrying value of the asset exceeds its fair value.
NOTE 7. REVENUE RECOGNITION
The company recognizes income when services are rendered and licence fees are
normally agreed on an annual basis and invoiced monthly in arrears. Invoices for
sales of goods such as computer hardware products are issued on dispatch and
revenue is recognized on invoice date.
NOTE 8. FOREIGN CURRENCY
The company's foreign subsidiaries use the local currency as their functioning
currency. Accordingly Assets and liabilities are translated into US dollars at
year end exchange rates, and revenues and expenses are translated at the average
prevailing during the accounting period.
NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 148, "Accounting for Stock-Based Compensation
- -Transition and Disclosure." The new statement, which becomes effective December
2002, requires all entities with stock-based employee compensation arrangements
to provide additional disclosures in their
F-13
summary of significant accounting policies note; permits entities changing to
the fair value method of accounting for employee stock compensation to choose
from one of three transition methods; and requires interim-period pro forma
disclosures if stock-based compensation is accounted for under the intrinsic
value method in any period presented. The Company is still assessing this new
standard but does not believe that it will have a material effect on its results
of operations or financial condition upon adoption.
F-14
BACK COVER OF PROSPECTUS
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL _______2005, (TWO YEAR ANNIVERSARY OF EFFECTIVE DATE)
ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of our Certificate of Incorporation states: "No
director shall be personally liable to the Corporation of its stockholders for
monetary damages for any breach of fiduciary duty by such director as a
di4rector. Notwithstanding the foregoing sentence, a director shall be liable to
the extent provided by applicable law, (i) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith of laws, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived a
personal benefit. No amendment to or repeal of this Article Seventh shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment."
Further, indemnification of officers and directors of the company is
provided for under the Article XI of the Company's by-laws which state that
"Each person who was or is made a party or is threatened to be made a party or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigation (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer, of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
The right to indemnification conferred shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its disposition: provided, however,
that, if the Delaware General Corporation Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer), to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified under this Section or otherwise. The Corporation may, by action
of its Board of Directors, provide indemnification to employees and agents of
the Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
i
Section 145 of the Delaware General Corporation Law authorizes us to
indemnify any director or officer under prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being one of our directors or officers if it
is determined that the person acted in accordance with the applicable standard
of conduct set forth in such statutory provisions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Advanced Media pursuant to the foregoing provisions, or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate the following expenses in connection with this registration.
SEC registration fee $ 5,374
Printing costs 5,000
Blue sky fees 25,000
Accounting fees and expenses 15,000
Legal fees and expenses 15,000
Miscellaneous 40,000
--------
Total $105,374
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Between February 12, 2004, and March 30, 2004, we sold an aggregate
total of 5,105,881 shares of Series B Preferred Stock in a private placement (of
this amount, 764,581 shares were subscribed for by Series A Preferred
shareholders exercising their preemptive rights) and issued warrants to purchase
an aggregate of 3,084,246 shares of common stock, 2,042,350 of which have an
exercise price of $2.50 per share and 1,041,896 of which have an exercise price
of $1.90 per share.
These transactions are listed under the Preferred Stock table in the
Selling Shareholders portion of this registration statement. All shares of the
Series B Preferred Stock were sold at the price of $3.80 per share. Each of
these preferred shares is currently convertible into two (2) shares of our
common stock. For each five (5) shares of Series B Preferred Stock purchased,
subscribing investors receive two (2) warrants to purchase shares of the
Company's common stock at an initial exercise price equal to $2.50 per share.
The shares of common stock underlying these preferred shares and warrants are
being registered pursuant to this registration statement. In addition to selling
those shares, we issued warrants to purchase up to 1,041,896 shares of our
common stock to various investment advisors and consultants. These warrants are
exercisable at the price of $1.90 per share. We are also registering 1,041,896
shares of our common stock which underlie these warrants. These transactions are
listed in the Selling Shareholders portion of this registration statement.
As a result of our sale of 5,105,881 shares of Series B Preferred Stock
in a private placement, we received $19,402,348 in proceeds. The following is an
analysis of our use of those proceeds.
ii
Gross proceeds $19,402,348
Offering expenses (e.g.; printing and
mailing costs, legal and accounting fees,
SEC registration fee, and blue sky fees) $ 105,374
Net proceeds $19,296,974
Anticipated uses of proceeds
Investment in DCS Automotive $11,000,000
Cost of fund raising $ 1,979,633
Working capital $ 6,317,341
-----------
$19,296,974
Regardless of whether or not we receive any proceeds from the selling
shareholders' exercise of warrants and purchase of common stock, we believe that
the proceeds generated from the sale of the preferred shares are sufficient to
provide us with the working capital necessary to cover our planned needs for at
least the next twelve months.
Unless otherwise stated, each of the persons who received these
unregistered securities had knowledge and experience in financial and business
matters which allowed them to evaluate the merits and risk of the receipt of
these securities, and that hey were knowledgeable about our operations and
financial condition; (ii) no underwriter participated in, nor did we pay any
commission or fees to any underwrite in connection with the transactions; (iii)
the transactions did not involve a public offering; and, (iv) each certificate
issued for these unregistered securities contained a legend stating that the
securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities.
In addition, between February 12, 2004 and March 12, 2004, we issued
warrants to purchase shares of common stock in the Company. These were issued as
consideration for assistance in placing the preferred stock, the sale of which
is described above, and to other consultants and advisors. The warrants were
issued as follows:
1. Warrants to purchase up to 369,910 shares of common stock at an
exercise price of $1.90 per share were granted to Middlebury Capital,
LLC. These were granted as compensation for placement agents for the
preferred stock. These are exercisable through March 12, 2009.
2. Warrants to purchase up to 286,842 shares of common stock at an
exercise price of $1.90 per share were granted to Sloan. These were
granted as compensation for placement agents for the preferred stock.
These are exercisable through March 12, 2009.
3. Warrants to purchase up to 96,202 shares of common stock at an exercise
price of $1.90 per share were granted to Vertical Capital. These were
granted as compensation for placement agents for the preferred stock.
These are exercisable through March 12, 2009.
iii
4. Warrants to purchase up to 284 shares of common stock at an exercise
price of $1.90 per share were granted to IQ Ventures. These were
granted as compensation for placement agents for the preferred stock.
These are exercisable through March 12, 2009.
5. Warrants to purchase up to 236,026 shares of common stock at an
exercise price of $1.90 per share were granted to Griffin Securities.
These were granted as compensation for placement agents for the
preferred stock. These are exercisable through March 12, 2009.
6. Warrants to purchase up to 52,632 shares of common stock at an exercise
price of $1.90 per share were granted to Newport Capital. These were
granted as compensation for placement agents for the preferred stock.
These are exercisable through March 12, 2009.
ITEM 27. EXHIBITS.
The following exhibits are filed or incorporated by reference as part
of this Registration Statement.
The following exhibits are filed or incorporated by reference as part
of this Registration Statement.
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation of the registrant (then named
Medic Media, Inc.) dated November 6, 1996, and filed with the
State of Delaware, Secretary of State, Division of
Corporations on November 6, 1996;
3.2 Certificate of Renewal and Revival of Charter of the
registrant (then named Medic Media, Inc.) dated July 27, 1998,
and filed with the State of Delaware, Secretary of State,
Division of Corporations on July 29, 2003;
3.3 Certificate of Amendment of Certificate of Incorporation of
the registrant (then named Medic Media, Inc.) dated March 10,
1999 and filed with the State of Delaware, Secretary of State,
Division of Corporations on March 30, 1999 (changing name to
AMAC, Inc.);
3.4 Certificate of Resignation of Registered Agent of AMAC Inc.,
dated August 17, 2001, and filed with the State of Delaware,
Secretary of State, Division of Corporations on August 17,
2001;
3.5 Certificate of Renewal and Revival of Charter of the
registrant (then named AMAC, Inc.) dated October 3, 2001, and
filed with the State of Delaware, Secretary of State, Division
of Corporations on October 4, 2001;
3.6 Certificate of Amendment of Certificate of Incorporation of
the registrant (then named AMAC, Inc.) dated October 2nd, 2001
and filed with the State of Delaware, Secretary of State,
Division of Corporations on October 4, 2001(changing name to
Auto Data Network, Inc.);
3.7 Certificate of Amendment of Certificate of Incorporation of
the registrant, dated July 18, 2001 and filed with the State
of Delaware, Secretary of State, Division of Corporations on
July 27, 2001(changing authorized stock);
iv
3.8 Certificate of Renewal and Revival of Charter of the
registrant dated June 9, 2003, and filed with the State of
Delaware, Secretary of State, Division of Corporations on June
10, 2003;
3.9 Certificate of Designations, Preferences and Rights of Series
A-1 Convertible Preferred Stock and Series A-2 Convertible
Preferred Stock of Auto Data Network, Inc. of the registrant
dated July 15, 2003, and filed with the State of Delaware,
Secretary of State, Division of Corporations on July 15, 2003,
filed as "Exhibit 4.1" to Registrant's Report on Form 8-K
filed with the Commission on August 20, 2003;
3.10 Bylaws of the registrant dated July 15, 2003, and filed with
the State of Delaware, Secretary of State, Division of
Corporations on July 15, 2003, previously filed with the
Commission;
3.11 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock of Auto Data Network, Inc. of
the registrant dated January 20, 2004, and filed with the
State of Delaware, Secretary of State, Division of
Corporations on March 10, 2004, filed as "Exhibit 4.1" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2004;
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Certificate of Common Stock filed as "Exhibit 4.1" to
Registrant's Registration Statement on Form SB-2 filed with
the Commission on November 6, 2003;.
4.2 Certificate of Series B Convertible Stock filed as "Exhibit
4.4" to Registrant's Report on Form 8-K filed with the
Commission on March 19, 2003;
4.3 Certificate of Designations, etc. listed as "Exhibit 3.11"
above;
(5) OPINION ON LEGALITY
5.1 Opinion of L. Stephen Albright regarding the legality of the
securities being registered
(10) MATERIAL CONTRACTS
10.1 Form of Securities Purchase Agreement by and among Registrant,
on the one hand, and certain purchasers, on the other hand,
dated as of February 12, 2004, filed as "Exhibit 10.22" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2003;
10.2 Form of Purchase Warrant, dated March 11, 2004, filed as
"Exhibit 4.3" to Registrant's Report on Form 8-K filed with
the Commission on March 19, 2003;
10.3 Form of Registration Rights Agreement by and among Registrant,
on the one hand, and certain purchasers, on the other hand,
dated as of February 12, 2004, filed as "Exhibit 10.23" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2003;
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Registrant B NONE
v
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Accountants
23.2 Consent of L. Stephen Albright, see Item 5.1 above
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the ACalculation of Registration Fee@ table in the
effective registration statement;
(iii) To include any additional or changed material
information on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering; and
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
vi
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2, as amended, and authorized this
registration statement to be signed on its behalf by the undersigned, in the New
York City, State of New York, on May 10, 2004.
AUTO DATA NETWORK, INC.,
A Delaware corporation, Registrant
By: /S/ CHRISTOPHER R. GLOVER
--------------------------------------
Christopher R. Glover,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/S/ CHRISTOPHER R. GLOVER Chairman, Chief Executive May 10, 2004
- ------------------------------ Officer, and Director
Christopher R. Glover (Principal Executive
Officer)
/S/ LEE J. COLE Chief Financial Officer May 10, 2004
- ------------------------------ (Principal Financial
Lee J. Cole Officer) and Director
vii
EXHIBITS INDEX
EXHIBIT NO. TITLE OF DOCUMENT
- -------------- --------------------------------------------------------------
The following exhibits are filed or incorporated by reference as part
of this Registration Statement.
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation of the registrant (then named
Medic Media, Inc.) dated November 6, 1996, and filed with the
State of Delaware, Secretary of State, Division of
Corporations on November 6, 1996;
3.2 Certificate of Renewal and Revival of Charter of the
registrant (then named Medic Media, Inc.) dated July 27, 1998,
and filed with the State of Delaware, Secretary of State,
Division of Corporations on July 29, 2003;
3.3 Certificate of Amendment of Certificate of Incorporation of
the registrant (then named Medic Media, Inc.) dated March 10,
1999 and filed with the State of Delaware, Secretary of State,
Division of Corporations on March 30, 1999 (changing name to
AMAC, Inc.);
3.4 Certificate of Resignation of Registered Agent of AMAC Inc.,
dated August 17, 2001, and filed with the State of Delaware,
Secretary of State, Division of Corporations on August 17,
2001;
3.5 Certificate of Renewal and Revival of Charter of the
registrant (then named AMAC, Inc.) dated October 3, 2001, and
filed with the State of Delaware, Secretary of State, Division
of Corporations on October 4, 2001;
3.6 Certificate of Amendment of Certificate of Incorporation of
the registrant (then named AMAC, Inc.) dated October 2nd, 2001
and filed with the State of Delaware, Secretary of State,
Division of Corporations on October 4, 2001(changing name to
Auto Data Network, Inc.);
3.7 Certificate of Amendment of Certificate of Incorporation of
the registrant, dated July 18, 2001 and filed with the State
of Delaware, Secretary of State, Division of Corporations on
July 27, 2001(changing authorized stock);
3.8 Certificate of Renewal and Revival of Charter of the
registrant dated June 9, 2003, and filed with the State of
Delaware, Secretary of State, Division of Corporations on June
10, 2003;
3.9 Certificate of Designations, Preferences and Rights of Series
A-1 Convertible Preferred Stock and Series A-2 Convertible
Preferred Stock of Auto Data Network, Inc. of the registrant
dated July 15, 2003, and filed with the State of Delaware,
Secretary of State, Division of Corporations on July 15, 2003,
filed as "Exhibit 4.1" to Registrant's Report on Form 8-K
filed with the Commission on August 20, 2003;
3.10 Bylaws of the registrant dated July 15, 2003, and filed with
the State of Delaware, Secretary of State, Division of
Corporations on July 15, 2003, previously filed with the
Commission;
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3.11 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock of Auto Data Network, Inc. of
the registrant dated January 20, 2004, and filed with the
State of Delaware, Secretary of State, Division of
Corporations on March 10, 2004, filed as "Exhibit 4.1" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2004;
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Certificate of Common Stock filed as "Exhibit 4.1" to
Registrant's Registration Statement on Form SB-2 filed with
the Commission on November 6, 2003;.
4.2 Certificate of Series B Convertible Stock filed as "Exhibit
4.4" to Registrant's Report on Form 8-K filed with the
Commission on March 19, 2003;
4.3 Certificate of Designations, etc. listed as Exhibit 3.11
above;
(5) OPINION ON LEGALITY
5.1 Opinion of L. Stephen Albright regarding the legality of the
securities being registered
(10) MATERIAL CONTRACTS
10.1 Form of Securities Purchase Agreement by and among Registrant,
on the one hand, and certain purchasers, on the other hand,
dated as of February 12, 2004, filed as "Exhibit 10.22" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2003;
10.2 Form of Purchase Warrant, dated March 11, 2004, filed as
"Exhibit 4.3" to Registrant's Report on Form 8-K filed with
the Commission on March 19, 2003;
10.3 Form of Registration Rights Agreement by and among Registrant,
on the one hand, and certain purchasers, on the other hand,
dated as of February 12, 2004, filed as "Exhibit 10.23" to
Registrant's Report on Form 8-K filed with the Commission on
March 19, 2003;
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Registrant B NONE
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Accountants
23.2 Consent of L. Stephen Albright, see Item 5.1 above
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