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
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)
Copies of communications to:
L. STEPHEN ALBRIGHT, ESQ.
17337 Ventura Boulevard, Suite 208
Encino, California 91316
(818) 789-0779
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 498,189 shares 2.63 $1,310,237 $170.00
- --------------------------------------------------------------------------------
(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 July 2, 2004. Total Filing Fee is $170.00.
(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: July __, 2004 Subject to completion
498,189 SHARES OF COMMON STOCK
AUTO DATA NETWORKS, INC.
We have prepared this prospectus to allow certain of our current stockholders to
sell up to 498,189 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 was issued to the
selling shareholders listed on page 14 (the "Selling Shareholders") as partial
consideration for our purchase of the shares of MMI Automotive Limited, Plc
("MMI"). The Selling Shareholders may sell these shares at their own discretion
and 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 will not receive any proceeds from the sale of the shares by the Selling
Shareholders. Nor did we receive any proceeds from the issuance of the shares to
the Selling Shareholders as the shares were issued as consideration for our
purchase of MMI.
Our common stock is quoted on the OTC Bulletin Board under the symbol "ADNW.OB."
On July 2, 2004, the last reported sales price of our common stock as reported
by the OTC Bulletin Board was $2.63 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.
On June 4, 2004, we filed a Second Amendment to Form SB-2 Registration
Statement. That Registration Statement was declared effective on Thursday, June
17, 2004. Pursuant to that Registration Statement, we registered 13,976,260
shares of our common stock to be issued upon the conversion of Series B-1 and
B-2 Preferred Stock Convertible Notes and the exercise of warrants to purchase
common stock.
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 July __, 2004.
3
TABLE OF CONTENTS
PAGE
PART I
Prospectus Summary ...................................................... 5
Risk Factors ............................................................ 10
Disclosure Regarding Forward Looking Statements ......................... 14
Use of Proceeds ......................................................... 14
Determination of Offering Price ......................................... 14
Dilution ................................................................ 14
Selling Stockholders .................................................... 14
Plan of Distribution .................................................... 15
Legal Proceedings ....................................................... 18
Management .............................................................. 18
Security Ownership of Certain Beneficial Owners & Management ............ 19
Description of Securities ............................................... 20
Experts ................................................................. 21
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ........................................... 21
Description of Business ................................................. 23
Management's Discussion and Analysis or Plan of Operation................ 33
Description of Property ................................................. 36
Certain Relationships and Related Transactions........................... 36
Market for Common Equity and Related Stockholder Matters................. 36
Executive Compensation .................................................. 37
Changes and Disagreements with Accountants on
Accounting and Financial Disclosures .................................... 38
Financial Information ......................................38 & F-1 through F-8
PART II
Indemnification of Directors and Officers ............................... i
Other Expenses of Issuance and Distribution ............................. ii
Recent Sales of Unregistered Securities ................................. ii
Exhibits ................................................................ iii
Undertakings ............................................................ v
Back Cover of Prospectus (no page number)
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.
4
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% 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.
5
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.
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.
6
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 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 15, 2004, we closed a transaction whereby we purchased all of the
issued and outstanding common stock of MMI Automotive Limited ("MMI") for cash
and equity. The cash terms consisted of our payment of Nine Hundred Thousand
Dollars ($900,000) and the Shares registered by this Registration Statement.
MMI is engaged in the development and exploitation of computer software, codes,
programs and processes which provide support to franchised retail automotive
outlets in the United Kingdom with accounting, sales and service records
management (effectively handling all customer and vehicle records)
communications with manufacturers including, without limitation, parts and
vehicle orders, warranty claims and related data, together with business
performance measurements and customer relations and marketing information.
On March 18, 2004, we announced the completion of our purchase of MMI. MMI is a
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. As part of the purchase price paid to acquire MMI, we issued
498,189 shares of our common stock to the Selling Shareholders. Those shares
were issued with a restriction on transfer legend and are being registered for
resale pursuant to this Registration Statement.
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-1 Preferred Stock Convertible Notes, of
which 764,581 Series B-1 Preferred Shares were sold to those
7
preferred stockholders who elected to exercise their preemption rights, and
between March 31, 2004 and May 20, 2004 we sold an aggregate total of 272,526
shares of Series B-2 Preferred Stock Convertible Notes ("Series B 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 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 1,068,085
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 1,068,085 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 498,189 shares of common stock.
Shares outstanding prior to
offering ........................................................... 28,240,114
Shares to be outstanding
following offering ................................................. 28,240,114
Use of proceeds ............................We will not receive any proceeds
from the sale of the shares. We estimate
the expenses of this offering, such as
printing, legal, and accounting will be
approximately $65,170.
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.
Dividend policy ............................We intend to retain any earnings to
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 Related Stockholder
Matters" on page 36.
8
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 15.
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
- ---------------------
Twelve Months Ended
February 29
2004 2003
--------------------------------------------------------
Total revenue .......... $ 25,330,056 $ 1,772,996
Operating expenses ..... 12,839,838 1,081,617
Net profit / loss ...... 3,649,527 514,648
Net profit per share ..... 0.194 0.045
Average number of shares 18,811,995 11,436,622
Balance Data Sheet
- ------------------
February 29, February 28,
2004 2003
(Audited) (Audited)
- --------------------------------------------------------------------------------
Total assets .............................. $ 46,331,083 $ 9,143,601
Cash and cash equivalents.................. 6,282,465 722,961
Total liabilities ......................... 15,621,851 2,531,376
Working capital (deficiency) .............. 5,650,676 772,170
Stockholders' equity (deficit) ............ 30,709,232 6,612,225
9
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 or operating
results. If 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.
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
10
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 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
11
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 gross aggregate proceeds of
$20,437,947 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 February 29, 2004, we had
stockholders' equity of $30,709,232 and net working capital of $5,650,676.
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
12
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.
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 July 12, 2004, we had 28,240,114 shares of common stock outstanding,
500,000 shares of Series A-1 Convertible Promissory Note, 1,601,900 shares of
Series A-2 Preferred Stock outstanding (a total of 2,101,900 shares of Series A
preferred stock) which are currently convertible into 4,203,800 shares of common
stock and 5,098,381 shares of Series B-1 Convertible Promissory Note, 272,526
shares of Series B-2 Convertible Promissory Note (a total of 5,370,907 shares of
Series B preferred stock) which are currently convertible into 10,741,814 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, 2,151,361
common stock equivalents at an exercise price of $2.50 per share and 1,068,085
common stock equivalents at an exercise price of $1.90 per share.
These shares were registered by us pursuant to a Form SB-2 Registration
Statement, Second Amendment, filed with the Commission on June 4, 2004, and
declared effective on June 17, 2004.
While the conversion of Preferred Shares and the exercise of warrants, as well
as our common stock below certain prices, stock splits, redemptions, mergers and
other similar transactions, the 498,189 shares registered hereby were issued on
March 17, 2004 and there will no be any further dilutive effect of these 498,189
shares. 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
13
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 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
We will not receive any proceeds from the sale of the shares being registered
under this Registration Statement.
DETERMINATION OF OFFERING PRICE
The selling stock holders will, at their discretion, sell the stock at the
prevailing market price for our shares. The price for the shares of stock
offered by this Prospectus has not been and will not be determined by us.
DILUTION
As of July 12, 2004, we had 28,240,114 shares of common stock issued and
outstanding. This total number of shares includes the 498,189 shares which are
being registered by this Registration Statement.
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 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
14
below are based on 28,240,114 shares of our common stock outstanding as of July
12, 2004.
OWNERSHIP OF COMMON STOCK
NAME OF SELLING SHAREHOLDER NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY BEING OFFERED OWNERSHIP PRIOR BEING SOLD OWNERSHIP AFTER
OWNED PRIOR TO TO SALE SALE
OFFERING
Lnyx, Plc 369,142 369,142 * (1) 369,142 0.00%
269 Banbury Road
Oxford OX2 7JF
David Hayward 87,890 87,890 * (1) 87,890 0.00%
3 The Spinney, The Camp,
Stroud GL6 7JF
Sandra Dobson 17,576 17,576 * (1) 17,576 00.0%
21 Marshfield Way, Stratton
St. Margaret, Swindon SN3 4PS
Rodney James Farrar 5,862 5,862 * (1) 5,862 00.0%
22 Moutbatten Avenue,
Yaxley, Peteborough PE7 3Y
Paul Lucas 17,719 17,719 * (1) 17,719 00.0%
33 Long Croft,
Yate, Bristol BS17 5NY
TOTAL NUMBER OF SHARES 498,189 498,189 * (1) 498,189 00.0%
<FN>
(1) Represents less than 1% of the issued and outstanding shares.
</FN>
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;
15
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;
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.
16
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 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.
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
17
this prospectus, except that the selling stockholder will be responsible for 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
Christopher R. Glover 58 Chairman of the Board of Directors
and Chief Executive Officer
Lee J. Cole 42 Director and Chief Financial
Officer
Lt. General J. W. Morris (ret.) 83 Director
Linden Boyne 61 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 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 honors, in Sociology and Management Psychology from Warwick
University.
18
LEE J. COLE
Lee J. Cole has extensive commercial experience, particularly in the venture
capital business. From 1995 to 1999, Mr. Cole served as the Managing Director of
TEC Capital Group, a technology consulting and venture capital firm. Mr. Cole
also serves as a director of the following companies: Electronic Game Card Inc.,
Enhance Biotech, Inc., and Neuro Bioscience Inc.
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 July 12, 2004 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
- ---- ------------ --------------- --------------
Christopher Glover (1) 1,517,973 5.38% 5.38%
Lee Cole (2) -0- -0- -0-
Lt. Gen. J. W. Morris (3) 2,000 * *
Linden Boyne (4) -0- -0- -0-
Ci4, Inc. (5) 5,060,956 17.92% 17.92%
All officers and
directors as a group
(3 persons) 1,519,973 4.79% 4.79%
- ----------
* Less than 1% and statistically insignificant
(1) Brooklands, St. Marks Road, Tunbridge Wells, Kent, TN2 5LU, UK
(2) 32 Haymarket, Piccadilly, London, SW1Y 4TP, UK
(4) Fairfax Drive, Suite Number 5, Arlington, Virginia, USA
(5) Care of P.W.C. LLP, Benson House, 33 Wellington Street, Leeds LS14JP, UK
19
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 28,240,114 shares were outstanding on July 12, 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 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 July 12, 2004. We have designated
5,000,000 shares of our preferred stock as Series A-2 Preferred Stock ("Series
A-2"), of which 1,601,900 shares were issued and outstanding as of June 7, 2004.
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 5,370,907
were issued and outstanding as of July 12, 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.
20
WARRANTS
As of July 12, 2004, there were outstanding warrants to purchase an aggregate of
4,392,366 shares of our common stock of which;
(i) 1,172,920 common stock equivalents at an exercise price of $1.25 per
share;
(ii) 2,151,361 common stock equivalents at an exercise price of $2.50 per
share; and,
(iii) 1,068,085 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.
EXPERTS
Our auditors are F. E. Hanson, Ltd., certified public accountants. Our
consolidated financial statements as at and for the year ended February 28, 2004
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.
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 nor 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
21
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.
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) 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.
22
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 has 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.
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
23
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 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.
24
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) 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.
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.
25
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 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.
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
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
26
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.
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 plan is 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 are 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 bidding 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
27
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 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 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 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.
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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.
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.
29
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 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.
30
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 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).
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.
31
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 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
32
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 provides 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 licenses
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.
33
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, 2004
In the completed fiscal year we reported an increase in revenues to $25,330,056,
up from $1,772,996 in the previous year, reflecting the initial impact of our
acquisition program.
The Company made a post tax net profit of $3,649,527 in the financial year. 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.
Total assets have increased to $46,331,083 compared with $9,143,601 in the
previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company made post tax profit of $3,649,527 in the year ended February 29,
2004, and it is anticipated that the Company will be able to meet its financial
obligations through internal net revenue in the foreseeable future.
34
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 May 20, 2004, we sold an aggregate
total of 5,105,881 shares of Series B-1 Preferred Stock in a private placement
and 272,526 shares of Series B-2 Preferred Stock and issued warrants to purchase
an aggregate of 3,219,446 shares of common stock, resulting in aggregate gross
proceeds of approximately $26,810,113 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 1,068,085 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 1,068,085 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 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
35
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.
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 February 29, 2004, 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
Third Quarter $2.85 $2.14
Fourth Quarter $2.75 $1.91
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.
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 July 12,
2004, 28,240,114 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.
36
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 July 12,
2004, 2,101,900 shares of Series A preferred stock were issued and outstanding
which were held by 43 shareholders of record and 5,370,907 shares of Series B
Preferred Shares were issued and outstanding which were held by 91 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.
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years ended
February 28, 2004, 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 $100,000
for these periods, and (c) up to two additional individuals, if any, for whom
disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended February 28, 2003:
SUMMARY COMPENSATION TABLE
Restricted Securities
Name & Other Annual Stock Underlyling LTIP All Other
Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------- ---- ------ ----- ------------ ---------- ------------ ------- ------------
Christopher R. Glover (1) 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 39,000 0 0 0
shares
2003 0 0 0 0 0 0 0
2004
Lee Cole 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
2004 0 0 0 0 0 0 0
Lt. Gen. J.W. Morris 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
2004 0 0 0 0 0 0 0
37
Restricted Securities
Name & Other Annual Stock Underlyling LTIP All Other
Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------- ---- ------ ----- ------------ ---------- ------------ ------- ------------
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
2004 0 0 0 0 0 0 0
<FN>
(1) In February, 2004, Mr. Glover commenced receiving an automobile allowance
of (pound) 57,500.
</FN>
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUTO DATA NETWORK, INC. - AS OF FOR THE YEAR ENDED FEBRUARY 29, 2004
Report of Independent Auditors ........................................... F-1
Consolidated Balance Sheet as of February 29, 2004 ........................ F-2
Consolidated Statements of Operations for the years ended
February 29, 2004 and February 28, 2003 .............................. F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended February 29, 2004, 2003 and
2002 and the period from August 16, 1996 (inception)
to February 29, 2004 ................................................. F-4
Consolidated Statements of Cash Flows for the years ended
February 29, 2004 and February 28, 2003 .......................... F-6
Notes to Consolidated Financial Statements for
the year ended February 29, 2004 .................................... F-7
38
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 29, 2004 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 in
the United States of America. 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 29, 2004, and the results of its operations and its cash flows for the
year ended February 29, 2004 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
/s/ Frank E. Hanson Date: June 3, 2004
- --------------------------------
F. E. Hanson Ltd.
Frank E. Hanson, C.P.A.
Arlington, VA.
F-1
AUTO DATA NETWORK, INC.
CONSOLIDATED BALANCE SHEET FOR PERIOD ENDING FEBRUARY 29, 2004
As of As of
February 29, 2004 February 28, 2003
----------------- -----------------
CURRENT ASSETS
Cash & Cash Equivalents $ 6,282,465 $ 722,961
Inventory 2,419,465 0
Prepaid Expenses 335,066 1,194
Accounts Receivables 12,398,307 867,106
Other Accounts Receivable 892,435 0
Total Current Assets $ 22,327,738 $ 1,591,261
FIXED ASSETS
Total Fixed Assets 2,344,988 54,159
OTHER ASSETS
Accumulated Development
And Acquisition Costs 16,942,003 7,498,181
TOTAL OTHER ASSETS 4,716,354 7,498,181
TOTAL ASSETS 46,331,083 9,143,601
LIABILITES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,025,766 $ 1,451,366
Bank overdraft 1,109,226 289,744
Loan Payable 8,293 22,583
Taxation Payable 1,776,491 488,000
Accrued Expenses 659,334 279,683
Deferred Revenue 990,108 0
Other Current Liabilities 1,566,189 0
Total Current Liabilities $ 13,135,407 $ 2,531,376
LONG TERM LIABILITIES $ 2,486,444 $ 0
Total Liabilities $ 15,621,851 $ 2,531,376
STOCKHOLDER'S EQUITY
Common Stock $0.001 par
value 50,000,000 shares
authorized 23,602,000 issued and
outstanding February 29, 2004 $ 23,602 11,590
Preferred Stock $0.001 par
Value 25,000,000 shares
Authorized 2,866,000 issued and
outstanding February 29, 2004 $ 2,866 0
Additional Contributed
Capital $ 28,049,231 7,214,749
Currency Value Changes $ (318,703) 61,827
Pre-acquisition Reserve 83,612 0
Accumulated Surplus/Deficit $ 3,649,527 (675,941)
Retained Earnings B/Fwd (780,908)
Total Stockholders Equity $ 30,709,232 6,612,225
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 46,331,083 9,143,601
The accompanying notes are an integral part of these financial statements.
F-2
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR PERIOD ENDING FEBRUARY 29, 2004
As of As of
February 29 2004 February 28, 2003
---------------- -----------------
Total Revenue $ 25,330,056 $ 1,772,996
Cost of Sales 8,057,903 590,193
Gross Profit (Loss) 17,272,153 1,182,803
Staffing Costs 6,329,438 313,528
Total Operating Expenses 12,839,838 1,081,617
Net Profit/(Loss) 4,432,315 101,186
Financing Expenses (138,754) 22,564
Net Profit/(Loss) Before Corporation Tax 4,293,561 846,711
Write off for Goodwill 0 0
Provision for Tax (644,034) (332,063)
Net Profit/(Loss) 3,649,527 514,648
Profit/(Loss) Per Share 0.194 0.045
The accompanying notes are an integral part of these financial statements.
F-3
AUTO DATA NETWORK INC.
SHAREHOLDERS' EQUITY STATEMENT
FOR THE YEAR ENDED FEBRUARY 29, 2004
Common Stock Issued Preferred Total Acc. Shareholder's
Shares Par Value Shares Paid Capital Deficit Equity
----------- ------------ ------------ ------------ ------------ ------------
Balance as of April 30, 1998 10,000,000 $ 10,000 $ 9,000 $ (31,450) $ (12,450)
Shares Cancelled March 31, 1999 (10,000,000) (10,000)
Shares Issued 6.5 to 1 Reverse
Split March 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 1,069,855 1,078,188
Gala Loan Capitalized
25 for 1 Reverse Split Sep 29, 2001 (12,836,923) (12,836) 12,836
Shares Issued Oct 16, 2001 9,500,000 $ 9,500 (9,500) 434,750 434,750
Acquisition of Europortal Inc
Shares Issued Oct 17, 2001 1,077,268 $ 1,077 4,038,677 4,039,754
Loans Capitalized
Shares issued Feb 15, 2002 350,000 350 262,150 262,500
Consultants
Exchange rate Diffs (30,838) (30,838)
Net loss for Year Ended 2002 (1,159,752) (1,159,752)
Balance February 28, 2002 11,462,139 11,462 5,383,018 (1,190,590) 4,203,890
Shares Issued April 26, 2002 90,211 90 383,307 383,397
Acquisition of E-com Multi Ltd
August 3, 2002 1,274,700 1,274,700
Acquisition of Hilsten Resources Ltd
Shares issued December 13, 2002
Consultants 37,500 38 93,712 93,750
Loans Capitalized 44,167 44,167
Currency adjustment 35,845 35,845
Exchange rate diff 61,827 61,827
Net profit for Year Ended 2003 514,648 514,648
Balance February 28, 2003 11,589,850 11,590 7,214,749 (614,115) 6,612,224
Shares issued April 23, 2003
Acquisition MAM Software UK Ltd 2,000,000 2,000 3,998,000 4,000,000
Shares issued June 3, 2003
Acquisition Automatrix Ltd 190,000 190 341,810 342,000
Preference Shares issued
August 11,2003 less placement
Costs 2,030,300 2,030 4,219,109 4,221,139
F-4
AUTO DATA NETWORK INC.
SHAREHOLDERS' EQUITY STATEMENT
FOR THE YEAR ENDED FEBRUARY 29, 2004 (Continued)
Common Stock Issued Preferred Total Acc. Shareholder's
Shares Par Value Shares Paid Capital Deficit Equity
----------- ------------ ------------ ------------ ------------ ------------
Shares issued August 11,2003
Payments to Consultants 610,000 610 761,890 762,500
Preference shares issued
November 30 2003 less placement
Costs 3,298,000 3298 6,853,479 6,856,777
Shares issued November 30, 2003
Payments to consultants 450,000 450 562,050 562,500
Preference shares converted in
Quarter 4 4,925,200 (2,462,600) 2,463 2,463
Shares January 15, 2004
Acquisition MAM Software UK 1,454,545 1,455 3,198,544 3,199,999
Shares issued January 15, 2004
Acquisition of Avenida 400,000 400 899,600 900,000
Net Profit Year ended
February 29, 2004 3,649,527 3,649,527
Exchange Rate Difference (135,799) (135,799)
Other accumulated income (349,692) (349,692)
----------- ------------ ------------ ----------- ------------ ------------
Balance at February 29, 2004 21,619,595 $ 2,865,700 $ 24,486 $28,049,231 $ 2,549,921 $ 30,623,638
The accompanying notes are an integral part of these financial statements.
F-5
AUTO DATA NETWORK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDING FEBRUARY 29, 2004
For the Year For the Year
Ended Ended
February 29, 2004 February 28, 2003
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit/(Loss) $ 3,649,527 $ 514,648
Depreciation and amortization 499,572 144,853
Write off Goodwill -0- -0-
Net Change in Assets, Liabilities
Accounts receivable (7,394,452) (772,227)
Inventory (451,338) -0-
Prepaid expenses (176,391) 7,300
Other current assets (351,005) (63,411)
Other liabilities 655,505 0
Accounts payable 1,651,607 1,123,481
Accrued expenses 259,996 542,861
Deferred Income 911,617 -0-
Other current liabilities (447,407) (2,374)
Interest and Tax Payable 560,980 -0-
Total Adjustments (4,281,316) 980,483
Net Cash Used in Operating Activities (631,789) 1,495,131
CASH FLOWS FROM INVESTING ACTIVITIES (11,010,835) (56,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Exchange Rate Difference (401,880) 61,827
Loans Receivable In Excess of One Year (2,870,738) -0-
Increase/Decrease Bank borrowing (374,614) 234,319
Other Non-Cash Change (Goodwill) -0- (2,844,106)
New Shares Issue 14,878 128
Additional Paid in Capital 20,834,482 1,831,731
------------ ------------
Total 17,202,128 (716,101)
Net Change in Cash 5,559,504 722,947
Cash Beginning Period 722,961 14
------------ ------------
Cash at End of Period 6,282,465 722,961
Bank Overdrafts 1,109,226 (289,744)
------------ ------------
Total $ 5,173,239 433,217
------------ ------------
The accompanying notes are an integral part of these financial statements.
F-6
AUTO DATA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING FEBRUARY 29, 2004
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;
and E com 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:
There are no contingent liabilities.
NOTE 6 ACQUISITIONS:
During the fiscal year acquisition agreements have been concluded with Hilsten
Resources, Ltd., Automatrix (UK) Ltd., and E-Com Multi (UK) Limited.
NOTE 7 DEPRECIATION POLICY:
The Company depreciates its assets over their useful lives on the following
basis:- Tangible Assets at 25% per annum of the net book value of the assets. No
depreciation is provided in the first 12 months from the date of acquisition of
the asset Intangible Assets at 3% per annum but also subject to review of
impairment as required by SFAS 144
NOTE 8 FOREIGN CURRENCY:
The Company's foreign subsidiaries use the local currency as their functional
currency. Accordingly, assets and liabilities are translated into U.S. dollars
at year end exchange rates, and revenues and expenses are translated at the
average rate prevailing during the accounting period.
Provision is made for the difference in exchange rates prevailing at the end of
each accounting period end and applied to assets and liabilities in subsidiary
companies based abroad. The average exchange rate for the accounting period is
applied for Statement of Operations items. There is a gain of $61,827 in this
accounting period which is not considered material.
F-7
NOTE 9 REVENUE RECOGNITION:
Non-refundable up-front payments received in connection with software licenses
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.
NOTE 10 CASH AND CASH EQUIVALENTS:
This figure includes $719,370 in tradable securities.
NOTE 11 NON CASH CHANGES:
Comprises Goodwill.
NOTE 11 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-8
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.
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.
i
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate the following expenses in connection with this registration.
SEC registration fee $ 170
Printing costs 5,000
Blue sky fees 25,000
Accounting fees and expenses 5,000
Legal fees and expenses 10,000
Miscellaneous 20,000
--------
Total $ 65,170
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Between February 12, 2004, and May 20, 2004, we sold an aggregate total of
5,378,407 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 3,219,446 shares of common stock, 2,151,361 of which have an exercise price
of $2.50 per share and 1,068,085 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 1,068,085 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 1,068,085
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 5,378,407 shares of Series B Preferred Stock in a
private placement, we received $20,437,947 in proceeds. The following is an
analysis of our use of those proceeds.
Gross proceeds $20,437,947
Offering expenses (e.g.; printing and
mailing costs, legal and accounting fees,
SEC registration fee, and blue sky fees) $ 100,000
Net proceeds $20,337,947
Anticipated uses of proceeds
Investment in DCS Automotive $11,000,000
Cost of fund raising $ 2,063,193
Working capital $ 7.274,754
-----------
$20,337,947
ii
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 May 20, 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 and to other
consultants and advisors. The warrants were issued as follows:
1. Warrants to purchase up to 380,310 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 May 20, 2009.
2. Warrants to purchase up to 302,631 shares of common stock at an exercise
price of $1.90 per share were granted to Sloan Securities Corp. These were
granted as compensation for placement agents for the preferred stock. These are
exercisable through May 20, 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.
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.
(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;
iii
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;
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 (filed herewith)
(10) MATERIAL CONTRACTS (incorporated by reference)
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 NONE
iv
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Accountants (filed herewith)
23.2 Consent of L. Stephen Albright, see Item 5.1 above filed
herewith
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 "Calculation 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.
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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 July 21, 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 July 21, 2004
- ------------------------------ Officer, and Director
Christopher R. Glover (Principal Executive
Officer)
/S/ LEE J. COLE Chief Financial Officer July 21, 2004
- ------------------------------ (Principal Financial
Lee J. Cole Officer) and Director
vi
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;
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;
vii
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 NONE
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Accountants
23.2 Consent of L. Stephen Albright, see Item 5.1 above
viii