Pre-Effective Amendment to Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1/A Amendment No. 6 107 656K
2: EX-5.1 Opinion Re: Legality 3 12K
3: EX-10.31 Volvo Mvr Agreement Dated 4/30/01 16 62K
4: EX-23.1 Consent of Neff & Ricci, LLP 2 6K
As filed October 18, 2001 File No. 333-37090
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment No. 6
AutoTradeCenter.com Inc.
(Exact name of registrant as specified in its charter)
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Arizona 5010 86-0879572
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
15170 North Hayden Road, Suite 5, Scottsdale, Arizona 85260
(480) 556-6701
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Roger L. Butterwick, President
AutoTradeCenter.Com Inc.
15170 North Hayden Road, Suite 5
Scottsdale, Arizona 85260
(480) 556-6701
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300, Denver, Colorado 80203
(303) 777-3737; (303) 777-3823 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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, check
the following box. |_|
CALCULATION OF REGISTRATION FEE
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Title of each class of Proposed Proposed max-
securities to be Amount to be maximum offering imum aggregate Amount of
registered registered price per unit offering price registration fee
Common stock issuable upon 2,555,484 shares $1.00 $2,121,600 $560.10
conversion of Series C (1)<F1>
preferred stock
Common stock issuable upon 15,052,536 $ (1)<F1> $3,182,400 $840.15
conversion of Series D shares (1)<F1>(2)<F2> (2)<F2>
preferred stock
Common stock held by 6,247,143 shares $1.84 (3)<F3> $11,494,743 $3,034.61
selling security holders
Common stock issuable upon 75,000 shares $1.03 (4)<F4> $77,250 $20.39
exercise of stock option
Common stock issuable upon 105,000 shares $1.20 (4)<F4> $126,000 $33.27
exercise of stock option
Common stock issuable upon 55,000 shares $5.40 (4)<F4> $297,000 $78.41
exercise of warrants
Common stock 175,000 shares $0.50 (4)<F4> $87,500 $23.10
issuable upon
exercise of warrants
Common stock held by 104,683 shares $0.85 (5)<F5> $88,457 $22.11
selling security holders
Common stock held by 55,000 shares $0.335 (7)<F7> $18,425 $4.61
selling security holders
Total 24,424,846 shares $17,493,375 $4,616.75 (6)<F6>
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<FN>
(1)<F1> An indeterminate number of additional securities are registered
hereunder which may be issued, as provided in the Series C and D
preferred stock definitions, in the event provisions against dilution
become operative.
(2)<F2> Each share of Series D preferred stock is convertible into shares of
the registrant's common stock using a conversion price equal to 65% of
the average closing bid price for the common stock for the 10 trading
days immediately preceding the date of conversion:
# of shares of preferred stock x $100 = # of shares of
65% of average closing bid price common stock
There were originally 31,824 shares of Series D preferred stock issued
and outstanding. Accordingly, the aggregate dollar value of shares of
Series D preferred stock to be converted is $3,182,400. The number of
shares shown is equal to the number of shares issued upon conversion,
not already resold, plus an estimate of shares still issuable upon
conversion, using a conversion price of $0.10.
(3)<F3> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of May 11, 2000.
(4)<F4> Calculated pursuant to Rule 457(g).
(5)<F5> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of January 26, 2001.
(6)<F6> A filing fee of $4,640.72 has already been paid.
(7)<F7> Calculated, pursuant to Rule 457(c), using the average of the bid and
asked prices as of April 18, 2001.
</FN>
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.
Subject to Completion, dated October 18, 2001
AutoTradeCenter.com Inc.
24,424,846 Shares of Common Stock
This prospectus is for selling shareholders and covers 24,424,846
shares owned by them. We will not receive any proceeds from the resale of these
shares. We have agreed to pay for all expenses of this offering.
Our common stock is traded on the OTC Bulletin Board under the symbol
"AUTC." On October 12, 2001, the closing price for our common stock was $0.10
per share.
The selling shareholders or their transferees may use this prospectus
to offer their shares for sale from time to time. They may sell their shares in
one or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as principal, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
shareholders. The selling shareholders and intermediaries through whom such
shares are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended, and the profits realized or commissions
received may be deemed underwriting compensation.
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Investing in these securities involves a high degree of risk. A
detailed explanation of these risks is included in another section of this
prospectus, beginning on page 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This date of this prospectus is _____________, 2001
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...................................................................3
RISK FACTORS.........................................................................5
NOTE TO READERS.....................................................................10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................10
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................11
SELECTED FINANCIAL DATA.............................................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................13
BUSINESS............................................................................24
MANAGEMENT..........................................................................30
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.......................36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................38
SELLING STOCKHOLDERS................................................................46
DESCRIPTION OF SECURITIES...........................................................48
PLAN OF DISTRIBUTION................................................................49
SHARES ELIGIBLE FOR FUTURE SALE.....................................................50
LEGAL PROCEEDINGS...................................................................51
EXPERTS.............................................................................51
AVAILABLE INFORMATION...............................................................51
REPORTS TO STOCKHOLDERS.............................................................51
INDEX TO FINANCIAL STATEMENTS.......................................................52
FINANCIAL STATEMENTS...............................................................F-1
2
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should carefully read this entire prospectus and the financial
statements contained in this prospectus before purchasing our securities.
AUTOTRADECENTER.COM INC.
We assist automobile manufacturers, finance companies, financial
institutions, lease and rental companies, and automobile dealers in marketing
their inventories of used automobiles over the Internet. This is referred to as
"remarketing" in the automotive industry. We have developed technology that
enables businesses with used vehicles to post their inventories on a website,
provide detailed information about each vehicle, and sell these vehicles to
other dealers. We believe that our services provide businesses with an efficient
and cost-effective used vehicle redistribution or remarketing system as an
alternative to traditional auto auctions.
We were incorporated in Arizona on July 10, 1997 and commenced
operations on September 22, 1997 at our office and warehouse facility in
Scottsdale, Arizona. We were engaged primarily in the wholesale used car
business, selling and buying primarily late model used vehicles to and from
independent and franchised automobile dealers. "Dealers" refers to persons or
entities that sell and buy automobiles as a business. We acquired late model
trade-in vehicles from dealers and resold the vehicles to other dealers located
in multiple geographic regions. We purchased, took title to, and sold vehicles
to dealers through brokers. We refer to these operations as our land-based
operations in this prospectus. On November 30, 2000, we formally decided to
focus our efforts on remarketing services via the Internet. As of December 29,
2000, we sold our interest in three of our land-based operations and disposed of
our last land-based operation as of February 28, 2001. Our management believes
that focusing on remarketing services via the Internet offers the best chance
for growth and profitability.
Our land-based operations are reflected as discontinued operations in
our financial statements. We generated revenues of $891,423 and incurred a net
loss of $11,723,654 for the fiscal year ended March 31, 2001, $9,060,369 of
which resulted from Internet remarketing operations and $2,663,285 of which
resulted from the discontinuance of land-based operations. We first earned
revenues from Internet remarketing services in April 2000. For the quarter ended
June 30, 2001, we generated revenues of $584,825 and incurred a net loss of
$1,410,263.
Our offices are located at 15170 North Hayden Road, Suite 5,
Scottsdale, Arizona 85260, and our telephone number is (480) 556-6701.
THE OFFERING
Securities offered.................. 2,555,484 shares of common stock issued
(We will not receive any of the or issuable upon conversion of Series C
proceeds from the resale of these preferred stock held by existing
securities.) shareholders
An estimated 15,052,536 shares of common
stock issued or issuable upon conversion
of Series D preferred stock (based on a
conversion price of $0.10 per share)
held by existing shareholders. Since the
conversion price is equal to 65% of the
average closing bid for the 10 trading
days immediately preceding the date of
conversion, the number of shares is
subject to change.
Up to 6,406,826 shares of common stock
held by existing shareholders
410,000 shares of common stock issuable
upon exercise of stock options and
warrants
Securities outstanding............. 54,147,918 shares of common stock as of
August 15, 2001
11,118 shares of Series C preferred
stock as of August 15, 2001
13,832 shares of Series D preferred
stock as of August 15, 2001
1,300 shares of Series E preferred stock
as of August 15, 2001
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SUMMARY FINANCIAL INFORMATION
The following summary financial data is based upon our consolidated
financial statements included elsewhere in this prospectus. We have reclassified
our financial statements prior to March 31, 2001, due to our disposition of our
land-based operations, which represents the disposal of a business segment. We
have prepared our consolidated financial statements in accordance with generally
accepted accounting principles. Our results of operations for any interim period
do not necessarily indicate our results of operations for the full year. You
should read this summary financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," and our consolidated financial statements.
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BALANCE SHEET DATA:
June 30, March 31, March 31, March 31,
2001 2001 2000 1999
(Reclassified) (Reclassified)
Current assets $ 387,131 $ 628,595 $ 5,489,176 $ 401,628
Total assets $ 9,587,819 $10,267,582 $20,102,747 $4,790,817
Current liabilities $ 1,458,777 $ 446,039 $ 1,118,542 $1,343,936
Long-term liabilities $ -- $ 538,807 $ 528,807 $ 535,817
Stockholders' equity $ 8,129,042 $ 9,282,736 $18,455,398 $2,911,064
Working capital (deficiency) $(1,071,646) $ 182,556 $ 4,370,634 $ (942,308)
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INCOME STATEMENT DATA:
Three Months Three Months
Ended Ended Year Ended Year Ended Year Ended
June 30, June 30, March 31, March 31, March 31,
2001 2000 2001 2000 1999
(Reclassified) (Reclassified) (Reclassified)
Revenues $ 584,825 $ 169,650 $ 891,423 $ 291,587 $ --
Loss from continuing
operations $(1,410,263) $ (972,154 ) $ (9,060,369) $ (946,202) $(276,671)
Income (loss) from dis-
continued operations $ -- $ (48,501) $ (2,663,285) $(1,697,585) $ 448,491
Net income (loss) before
taxes $(1,410,263) $(1,020,655) $(11,723,654) $(2,643,787) $ 171,820
Net income (loss) $(1,410,263) $(1,020,655) $(11,723,654) $(2,587,753) $ 115,241
Basic earnings (loss) per
share
Continuing operations $ (0.03) $ (0.03) $ (0.28) $ (0.04) $ (0.02)
Discontinued
operations $ -- $ (0.00) $ (0.08) $ (0.08) $ 0.03
Diluted earnings (loss)
per share
Continuing operations $ (0.03) $ (0.03) $ (0.28) $ (0.04) $ (0.01)
Discontinued
operations $ -- $ (0.00) $ (0.08) $ (0.08) $ 0.02
4
RISK FACTORS
The securities offered under this prospectus involve a high degree of
risk. You should carefully consider the risk factors set forth below, as well as
the other information appearing in this prospectus, before purchasing any of our
securities.
WE MAY NOT BE PROFITABLE IN THE FUTURE. We incorporated on July 10,
1997 and have been in operation since September 22, 1997. We experienced a net
loss of $11,723,654 for the year ended March 31, 2001 and incurred a loss of
$1,410,263 for the three months ended June 30, 2001. We are continuing to expand
our Internet operations. This expansion requires us to hire personnel and incur
expenses prior to realizing the anticipated revenue associated with our
expansion efforts. Therefore, you should consider the purchase of our securities
as risky since we may be subject to unusually high legal and accounting costs,
marketing program development costs, automated systems development, losses
related to abandoned projects, and other similar costs and expenses commonly
encountered by new ventures.
AS AN ENTITY FORMED IN 1997, ONLY LIMITED INFORMATION IS AVAILABLE.
Since we were formed in 1997, we can provide only a limited amount of historical
information and financial data about our operations upon which you can make an
informed judgment as to our future prospects.
WE HAVE PLEDGED ALL OF OUR ASSETS TO SECURE DEBT. On July 26, 2001, we
entered into a financing agreement with Eagle Capital Group, LLC, a private
non-affiliated company, for a new line of credit of up to $1,300,000. This loan
is secured by all of our assets. As part of our agreement with Eagle, we
executed a new note with Mark Moldenhauer, an affiliate, for $738,807 which is
subordinated to Eagle's note and due June 30, 2002. If we should fail to repay
the new notes according to their terms, foreclosure on the pledged assets would
impair our ability to conduct business as usual. We would be forced to
reorganize our business operations or find another source of capital to carry
out business operations.
WE ARE DEPENDENT UPON REVENUES FROM AMERICAN HONDA FINANCE. For the
year ended March 31, 2001, we derived all of our revenues from our contract with
American Honda Finance Corporation. While we generated a portion of our revenues
from our contract with American Suzuki Motor Corporation during the quarter
ending June 30, 2001, the loss of our contract with American Honda Finance
Corporation would materially and adversely affect our ability to conduct
business.
WE HAVE ENGAGED IN TRANSACTIONS WITH RELATED PARTIES THAT WERE NOT AT
ARMS-LENGTH; ARMS-LENGTH TRANSACTIONS MAY HAVE BEEN MORE FAVORABLE WHICH WOULD
HAVE INCREASED SHAREHOLDER VALUE. The disposition of our land-based operations;
acquisition of Pinnacle Dealer Services, Inc.; loans from our principal
shareholders and former officers and directors; and the issuance of stock
options to principal shareholders, officers and directors who have personally
guaranteed company obligations were not arm's-length transactions. While
management believes that the terms of such transactions were fair and in our
best interests, all of the transactions, other than the disposition of our
land-based operations, were not approved by our shareholders or disinterested
directors and no fairness opinions were obtained. Further, we engaged in
wholesale used car transactions with affiliated entities from time to time on
the same terms as with other automobile dealers. It may be unlikely that
officers, directors, and principal shareholders will continue to provide
financial assistance in the future. The risk associated with any of these
related party transactions is that our company may have been able to consummate
these transactions under more favorable terms and conditions. If that were
proven true, we could be subject to suit by our shareholders.
THE LOSS OF ANY OF OUR EXPERIENCED MANAGEMENT MAY LIMIT OUR SUCCESS.
Our success will largely depend upon the active participation of our management.
We do not have employment agreements with our management or key-man insurance.
The time, which the officers and directors devote to our business affairs and
the skill with which they discharge their responsibilities will substantially
impact our success. To the extent the services of these individuals would be
unavailable to us for any reason, we would have to obtain other executive
personnel to manage and operate our company. In such event, there is no
assurance that we would be able to employ qualified persons on favorable terms.
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WE MAY BE UNABLE TO COMPETE EFFECTIVELY AGAINST OTHERS AND MAY BE
FORCED TO ABANDON THE EXECUTION OF OUR CURRENT BUSINESS PLAN. We compete with
other Internet-based entities that maintain commercial websites for remarketing
of vehicles on the Internet, including Autodaq.com Inc., Manheim Interactive,
Fleet Lease Disposal, Inc., Cobalt Inc. and GMAC's Smart auction. We may compete
for vehicles sales with the automobile auctions such as Manheim, Inc. Adessa
Corporation, ABC and Serve Net. When, and or if, we expand our Internet services
to consumer purchasing over the Internet, we will compete with retail Internet
sites such as Cars.com, Autobytel.com, Autoweb.com, AutoVantage, Carsdirect.com,
USATradein.com, Automall.com, Stoneage.com and Microsoft Corporation's Carpoint.
Certain of these Internet companies may decide in the future to compete in the
wholesale market and provide competition to us.
In addition, all major vehicle manufacturers have their own Websites
and many have recently launched or announced plans to launch online buying
services, such as General Motors Corporation's BuyPower. We believe that the
principal competitive factors in the online market are brand recognition, speed
and quality of fulfillment, variety of value-added services, ease of use,
customer satisfaction, quality of service, and technical expertise. We cannot
assure you that we will be able to compete successfully against current or
future competitors, many of which have substantially more capital, existing
brand recognition, resources, and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Website
traffic or loss of market share, or otherwise may materially and adversely
affect our business, results of operations and financial condition.
The market for Internet-based commercial services is new, and we expect
competition among commercial websites to increase significantly in the future.
Minimal barriers to entry characterize Internet commerce, and new competitors
can launch new Websites at relatively low cost. To compete successfully as an
Internet-based commercial entity, we must increase significantly awareness of
our services and brand name. If we do not achieve our competitive objectives,
such failure may have a material adverse effect on our business, results of
operations, and financial condition.
A DECREASE IN THE LEVEL OF VEHICLE SALES IN THE AUTOMOTIVE INDUSTRY
COULD CAUSE OUR BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION TO
SUFFER. The economic strength of the automotive industry significantly impacts
the revenue we derive from our automotive-related vendors. The automotive
industry is cyclical, with sales of vehicles changing due to changes in national
and global economic forces. Sales of vehicles in the United States have been at
historically high levels during recent years. We cannot assure you that vehicle
sales will stay at their current levels in the future. A decrease from the
current level of vehicle sales could have a material adverse affect on our
business, results of operations, and financial condition.
INABILITY TO MANAGE GROWTH AND ENTRY INTO NEW BUSINESS AREAS WILL HAVE
AN ADVERSE EFFECT ON OUR BUSINESS. We are expanding our operations in order to
establish a leadership position in the evolving market for Internet-based
vehicle purchasing services. We believe that establishing industry leadership
requires us to test, introduce, and develop new services and products, including
enhancing our Website; expand the breadth of products and services offered;
expand our market presence through relationships with third parties; and acquire
new or complementary businesses, products or technologies. We may not be able to
expand our operations in a cost-effective or timely manner or increase overall
market acceptance. Our inability to generate sufficient revenue from such
expanded services or products to offset their cost could have a material adverse
effect on our business, financial condition, and results of operations.
WE CANNOT ASSURE YOU THAT THERE WILL BE SUFFICIENT GROWTH AND
ACCEPTANCE OF OUR INTERNET COMMERCE SERVICES TO ALLOW US TO SUCCEED. The market
for Internet-based vehicle wholesaling and purchasing services has only recently
begun to develop and is evolving rapidly. While many Internet commerce companies
have grown in terms of revenue, few are profitable. We cannot assure you that we
will be profitable. As is typical for a new and rapidly evolving industry,
demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty and there are few proven
services and products. Moreover, since the market for our services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market. The success of our services will depend upon the adoption of the
Internet by consumers and dealers as a mainstream medium for commerce. While we
believe that our services offer significant advantages to consumers and dealers,
we cannot assure you that widespread acceptance of Internet commerce in
6
general, or of our services in particular, will occur. Our success will require
that dealers, who have historically relied upon auto auctions to purchase
vehicles, will accept new methods of conducting business and exchanging
information. In addition, dealers must be trained to use and invest in
developing technologies. Moreover, critical issues concerning the commercial use
of the Internet, including ease of access, security, reliability, cost, and
quality of service, remain unresolved and may impact the growth of Internet use.
If the market for Internet-based vehicle marketing services fails to develop,
develops more slowly than expected, or becomes saturated with competitors, or if
our services do not achieve market acceptance, our business, results of
operations, and financial condition will be materially and adversely affected.
IF LAWS OR REGULATIONS PERTAINING TO INTERNET COMMERCE ARE ADOPTED, OUR
OPERATIONS COULD BE ADVERSELY IMPACTED. There are currently few laws or
regulations that apply directly to the Internet. Due to the increasing
popularity of the Internet, it is possible that a number of local, state,
national or international laws and regulations may be adopted with respect to
issues such as the pricing of services and products, advertising, user privacy,
intellectual property, information security, or anti-competitive practices over
the Internet. In addition, tax authorities in a number of states are currently
reviewing the appropriate tax treatment of companies engaged in Internet
commerce. New state tax regulations may subject us to additional state sales,
use, and income taxes. Because our business is dependent on the Internet, the
adoption of any such laws or regulations may decrease the growth of Internet
usage or the acceptance of Internet commerce that could, in turn, decrease the
demand for our services and increase costs or otherwise have a material adverse
effect on our business, results of operations, and financial condition. To date,
we have not spent significant resources on lobbying or related government
affairs issues, but we may need to do so in the future.
IF WE ARE UNABLE TO ADAPT TO CHANGING TECHNOLOGIES, OUR BUSINESS,
RESULTS OF OPERATIONS, AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED. The
Internet and electronic commerce markets are characterized by rapid
technological change, changes in user and customer requirements, frequent new
service and product introductions embodying new technologies, and the emergence
of new industry standards and practices that could render our existing Website
and technology obsolete. Our performance will depend, in part, on our ability to
continue to enhance our existing services, develop new technology that addresses
the increasingly sophisticated and varied needs of its prospective customers,
license leading technologies, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of our Website and other proprietary technology entails significant
technical and business risks. We may not be successful in using new technologies
effectively or adapting our website or other proprietary technology to customer
requirements or to emerging industry standards. If we were to be unable to adapt
to changing technologies, our business, results of operations, and financial
condition could be materially and adversely affected.
IF WE SHOULD EXPERIENCE SIGNIFICANT SYSTEMS INTERRUPTIONS, OUR
BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION WOULD BE ADVERSELY
IMPACTED. Currently we host our Websites www.autotradecenter.com and
www.tradeincarsonline.com in our offices in Scottsdale Arizona. We employ the
services of Software Strategies and IBIZ Technologies based in Phoenix, Arizona,
as the Application Services Provider (ASP) and Net Operations Center (NOC) to
host our Websites for American Honda Finance Corporation(www.hfcarsales.com),
American Suzuki Motor Corporation (www.suzukiproline.com), and Volvo Finance
North America (www.volvoride.com). Although the third parties maintain backup
servers, all of our primary servers could be vulnerable to interruption by
damage from fire, flood, power loss, telecommunications failure, break-ins, and
other events beyond our control. We have experienced periodic systems
interruptions and anticipate that such interruptions will occur from time to
time in the future. In the event that we experience significant system
disruptions, our business, results of operations, and financial condition would
be materially and adversely affected.
SECURITY BREACHES INVOLVING CONFIDENTIAL INFORMATION TRANSMITTED VIA
THE INTERNET COULD EXPOSE US TO LOSS, LITIGATION OR OTHER LIABILITIES. To the
extent that our activities involve the storage and transmission of proprietary
information, such as personal financial information, security breaches could
expose us to a risk of financial loss, litigation, and other liabilities. We
rely on technology that is designed to facilitate the secure transmission of
confidential information. Our computer infrastructure, however, may be
vulnerable to physical or electronic computer break-ins, viruses, and similar
disruptive problems. A party who circumvents our security measures could
misappropriate proprietary information, jeopardize the confidential nature of
information transmitted over the Internet, or cause interruptions in our
operations. Concerns over the security of Internet
7
transactions and the privacy of users also could inhibit the growth of the
Internet in general, particularly as a means of conducting commercial
transactions. Our insurance policies currently do not protect against such
losses. Any such security breach could have a material adverse effect on our
business, results of operations, and financial condition.
IF WE CANNOT KEEP UP WITH INCREASES IN VOLUME OR PACE OF TRAFFIC ON OUR
WEBSITE, OUR SALES AND ULTIMATELY OUR RESULTS OF OPERATIONS WILL BE ADVERSELY
AFFECTED. Our success will depend, in large part, upon a robust communications
industry and infrastructure to provide Internet access and carry Internet
traffic. The Internet may not prove to be a viable commercial medium because of
inadequate development of the necessary infrastructure (e.g., reliable network
backbone), timely development of complementary products (e.g., high speed
modems), delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
government regulation. If the Internet continues to experience significant
growth in the number of users and the level of use, the Internet infrastructure
may not be able to continue to support the demands placed on it by such growth.
An unexpectedly large increase in the volume or pace of traffic on our Website
or the number of orders placed by customers may require us to expand and further
upgrade our technology, transaction-processing systems, and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our website or to expand and upgrade our
systems and infrastructure to accommodate such increases.
THE MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY OR CLAIMS OF
INFRINGEMENT COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, AND
FINANCIAL CONDITION. Our ability to compete depends upon our proprietary systems
and technology. We have not yet applied for copyright protection or registered
our trademarks. As a result, unauthorized parties may attempt to duplicate
aspects of our services or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our proprietary rights is difficult.
In addition, we may become involved in litigation in the future to enforce or
protect our intellectual property rights or to defend against claims of
infringement or invalidity. As part of our confidentiality procedures, we
generally enter into agreements with our employees and consultants and limit
access to our trade secrets and technology. We cannot assure you that these
steps will prevent misappropriation of technology or that the agreements entered
into for that purpose would be enforceable. Misappropriation of our intellectual
property or potential litigation could have a material adverse effect on its
business, results of operations, and financial condition.
LICENSING TECHNOLOGY AND CONTENT COULD SUBJECT US TO CLAIMS OF
INFRINGEMENT. We license technology and content from third parties. We could
become subject to infringement actions based upon the licenses from those third
parties. We generally obtain representations as to the origin and ownership of
such licensed technology and content. These representations, however, may not
adequately protect us. Any of those claims, whether or not they have merit,
could subject us to costly litigation and the diversion of our technical and
management personnel that in turn may have a material adverse effect upon
shareholder value.
LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY IMPAIR INVESTMENT
LIQUIDITY AND/OR RETURN ON INVESTMENT. Our common stock is traded in the
over-the-counter market. The price for the stock and the volume of shares traded
fluctuate widely. Consequently, persons who invest in the common stock may not
be able to use their shares as collateral for loans and may not be able to
liquidate at a suitable price in the event of an emergency. In addition, holders
may not be able to resell their shares, or may not be able to sell their shares
at or above the price they paid for them.
THE EXERCISE OR CONVERSION OF OPTIONS, WARRANTS, AND CONVERTIBLE
SECURITIES COULD RESULT IN POTENTIAL DILUTION AND IMPAIR MARKET PRICE OF OUR
COMMON STOCK. As of August 15, 2001, we had outstanding options, warrants, and
convertible securities to acquire an aggregate of 61,380,912 shares of common
stock, based on a conversion price of $0.10 for the Series D preferred stock. To
the extent that the outstanding options, warrants, and convertible securities
are exercised or converted, existing shareholders will experience dilution in
their percentage ownership. So long as these options, warrants, and convertible
securities are exercisable, the holders will have the opportunity to profit from
a rise in the price of the common stock. The additional shares of common stock
available for sale in the market may have a negative impact on the price and
liquidity of the common stock that is currently outstanding.
8
ISSUANCE OF PREFERRED STOCK COULD RESULT IN POTENTIAL DILUTION AND
COULD IMPAIR OUR ABILITY TO PAY DIVIDENDS ON COMMON STOCK. We are authorized to
issue up to 1,000,000 shares of preferred stock, in one or more series, with
such rights, preferences, qualifications, limitations, and restrictions as shall
be fixed and determined by our board of directors from time to time. These
preferences could operate to the detriment of the rights of the holders of our
common stock. For example, preferred stock having a dividend preference could
impair our ability to pay dividends on the common stock. Preferred stock having
a right to convert into common stock could result in dilution to common
stockholders. As of August 15, 2001, 11,118 shares of Series C preferred stock,
13,832 shares of Series D preferred stock, and 1,300 shares of Series E
preferred stock were outstanding.
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES MAY HAVE AN ADVERSE
IMPACT ON OUR ABILITY TO OBTAIN ADDITIONAL FINANCING THAT COULD RESULT IN
REDUCED LEVELS OF OPERATIONS. The holders of such options, warrants, and
convertible securities can be expected to exercise them at a time when we would
probably be able to obtain additional capital by an offering of its stock at a
price higher than the exercise price of these outstanding options, warrants, and
convertible securities. This may cause a potential investor to reduce or refuse
to provide us with additional financing. As disclosed elsewhere in this
prospectus, we intend to finance our growth through the issuance of up to $10
million of debt, convertible debt, or equity. Accordingly, the existence of
these options, warrants, and convertible securities may impair our ability to
grow or to sustain current or increased levels of operations. A decrease in
operations could result in sustained losses that may have a material effect upon
shareholder value.
ISSUANCE OF THE SERIES D PREFERRED STOCK MAY SIGNIFICANTLY DILUTE THE
EQUITY INTEREST OF EXISTING SHAREHOLDERS AND DEPRESS THE MARKET PRICE FOR THE
COMMON STOCK. Holders of the Series D Preferred Stock are issued shares of
common stock at 65% of the market price of our common stock at the time of
conversion. The lower the average trading price of our common stock at the time
of a conversion, the greater the number of shares of our common stock that will
be issued. Accordingly, this causes a greater risk of dilution. The risk of
dilution could cause our shareholders to sell their shares, which could have a
depressive effect on the price of our common stock.
SIGNIFICANT WORKING CAPITAL DEFICIENCY MAY DISRUPT NORMAL OPERATIONS BY
REDUCING SALES AND RESULT IN OPERATING LOSSES. At June 30, 2001, we had a
working capital deficiency of $1,071,646. This deficiency increases our
vulnerability if there is a negative economic or industry downturn. This reduces
the amount of cash available to sustain the current level of sales. Reduced
sales may result in operating losses, decreasing shareholder value.
"PENNY STOCK" RULES MAY LIMIT THE MARKETABILITY OF OUR STOCK RESULTING
IN A LOSS OF AN INVESTORS INVESTMENT. Our common stock is subject to SEC rules
relating to "penny stocks," which apply to non-NASDAQ companies whose stock
trades at less than $5.00 per share or whose tangible net worth is less than
$2,000,000. These rules require brokers who sell "penny stocks" to persons other
than established customers and "accredited investors" to complete required
documentation, make suitability inquiries of investors, and provide investors
with specific disclosures concerning the risks of trading in the security. These
rules may restrict the ability of brokers to sell the common stock and may
reduce the secondary market for the common stock. A limited secondary market may
result in a decrease in the shareholder value and/or a partial or total loss of
an investor's investment.
INABILITY TO OBTAIN ADDITIONAL FINANCING REQUIRED TO EXECUTE OUR
BUSINESS PLAN COULD RESULT IN SIGNIFICANT LOSSES AND DECREASE SHAREHOLDER VALUE.
We continue to make a growing and significant monetary investment in our
Internet presence. Competition on the Internet continues to increase and many
potential competitors enjoy significantly better financial strength than our
company. If we are unable to obtain additional long-term capital in the form of
equity or debt, we may be unable to effectively execute our business plan and
possibly suffer a significant financial loss, resulting in a decrease in
shareholder value.
9
NOTE TO READERS
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "WE," "OUR," AND "US,"
REFERS TO AUTOTRADECENTER.COM INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are not historical facts but
are forward-looking statements. These forward-looking statements may be
identified by the use of terminology such as "anticipate," "believe,"
"estimate," "expect," "intend," "may," "plans," "project," and similar
expressions. These statements involve risks and uncertainties including, but not
limited to, those relating to the stage in which we are operating; the lack of
revenues; uncertainty of market acceptance of our services once introduced;
competition; effects of government regulation on our services; dependence on key
personnel; and market for our shares as well as other factors detailed in "Risk
Factors" above and elsewhere in this prospectus and in our other filings with
the SEC. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
10
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock traded over-the-counter on the OTC Bulletin Board from
January 29, 1998 to August 2, 1999, and since November 8, 1999. From August 3,
1999 to November 5, 1999, our common stock traded on the "pink sheets". The
following table sets forth the range of high and low bid quotations for each
fiscal quarter since the stock began trading. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions and may
not necessarily represent actual transactions.
[Download Table]
FISCAL QUARTER ENDING HIGH BID LOW BID
March 31, 1998.......................... $ 1.1250 $ 0.0250
June 30, 1998........................... $ 1.1250 $ 0.7500
September 30, 1998...................... $ 1.0625 $ 0.1875
December 31, 1998....................... $ 1.6875 $ 0.5000
March 31, 1999.......................... $ 7.7500 $ 1.5625
June 30, 1999........................... $ 3.7500 $ 1.8750
September 30, 1999...................... $ 2.1250 $ 0.6250
December 31, 1999....................... $ 2.0000 $ 0.6250
March 31, 2000.......................... $ 7.6250 $ 1.5000
June 30, 2000........................... $ 3.2500 $ 1.1000
September 30, 2000...................... $ 2.6250 $ 0.9375
December 31, 2000....................... $ 2.3750 $ 0.3125
March 31, 2001.......................... $ 1.2344 $ 0.2969
June 30, 2001........................... $ 0.4062 $ 0.1400
September 30, 2001...................... $ 0.2500 $ 0.0800
On October 12, 2001, the closing price for the common stock was $0.10.
The number of record holders of common stock as of August 15, 2001 was 125
according to our transfer agent.
Our common stock is subject to SEC rules relating to "penny stocks,"
which apply to non-NASDAQ companies whose stock trades at less than $5.00 per
share or whose tangible net worth is less than $2,000,000. Prior to the sale of
a penny stock recommended by the broker-dealer to a new customer who is not an
accredited investor, the broker-dealer must approve the customer's account for
transactions in penny stocks in accordance with procedures set forth in the
SEC's rules. The broker-dealer must obtain information about the customer's
financial situation, investment experience, and investment objectives. Using
this information, the broker-dealer must be able to determine that transactions
in penny stocks are suitable for this customer and that the customer has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker-dealer must
furnish the customer with a written statement setting forth the basis for the
broker's determination of suitability. The customer must sign, date, and return
the statement to the broker-dealer. In addition, the broker-dealer must obtain a
written agreement from the customer to purchase the penny stock that sets forth
the identity of the stock and number of shares to be purchased. A separate
agreement must be obtained for each penny stock purchased by the customer until
he or she becomes an "established customer."
Holders of shares of common stock are entitled to dividends when, and
if, declared by the board of directors out of funds legally available for the
payment of dividends. We have never paid any cash dividends on our common stock
and intend to retain future earnings, if any, to finance the development and
expansion of our business. Our future dividend policy is subject to the
discretion of the board of directors and will depend upon a number of factors,
including future earnings, capital requirements, and our financial condition.
11
SELECTED FINANCIAL DATA
The balance sheet and income statement data shown below were derived
from our audited and unaudited financial statements. We have reclassified our
financial statements prior to March 31, 2001, due to our disposition of our
land-based operations, which represents the disposal of a business segment. You
should read this data in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as well as our financial
statements and notes thereto, included elsewhere in this prospectus.
[Enlarge/Download Table]
BALANCE SHEET DATA:
June 30, March 31, March 31, March 31,
2001 2001 2000 1999
(Reclassified) (Reclassified)
Current assets $ 387,131 $ 628,595 $ 5,489,176 $ 401,628
Total assets $ 9,587,819 $10,267,582 $20,102,747 $4,790,817
Current liabilities $ 1,458,777 $ 446,039 $ 1,118,542 $1,343,936
Long-term liabilities $ -- $ 538,807 $ 528,807 $ 535,817
Stockholders' equity $ 8,129,042 $ 9,282,736 $18,455,398 $2,911,064
Working capital (deficiency) $(1,071,646) $ 182,556 $ 4,370,634 $ (942,308)
[Enlarge/Download Table]
INCOME STATEMENT DATA:
Three Months Three Months
Ended Ended Year Ended Year Ended Year Ended
June 30, June 30, March 31, March 31, March 31,
2001 2000 2001 2000 1999
(Reclassified) (Reclassified) (Reclassified)
Revenues $ 584,825 $ 169,650 $ 891,423 $ 291,587 $ --
Loss from continuing
operations $(1,410,263) $ (972,154 ) $ (9,060,369) $ (946,202) $(276,671)
Income (loss) from dis-
continued operations $ -- $ (48,501) $ (2,663,285) $(1,697,585) $ 448,491
Net income (loss) before
taxes $(1,410,263) $(1,020,655) $(11,723,654) $(2,643,787) $ 171,820
Net income (loss) $(1,410,263) $(1,020,655) $(11,723,654) $(2,587,753) $ 115,241
Basic earnings (loss) per
share
Continuing operations $ (0.03) $ (0.03) $ (0.28) $ (0.04) $ (0.02)
Discontinued
operations $ -- $ (0.00) $ (0.08) $ (0.08) $ 0.03
Diluted earnings (loss)
per share
Continuing operations $ (0.03) $ (0.03) $ (0.28) $ (0.04) $ (0.01)
Discontinued
operations $ -- $ (0.00) $ (0.08) $ (0.08) $ 0.02
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. Our
actual future results could differ materially from our historical results of
operations and those discussed in the forward-looking statements. All period
references are the years ended March 31, 1999, 2000 and 2001; and the respective
three-month periods ending June 30, 2000 and 2001.
GENERAL
The presentation includes a discussion of us with our wholly owned
subsidiaries, NDSCo.com, Inc., AutoTradeCenter Remarketing Services, Inc.
formerly Walden Remarketing Services, Inc., and BusinessTradeCenter.com Inc., as
well as subsidiaries in which we formerly carried out our land-based operations.
These subsidiaries are Auto Network Group of Arizona, Inc., Auto Network Group
of New Mexico, Inc., Auto Network Group Northwest, Inc., Auto Network Group of
Eastern Pa., Inc., Auto Group of San Antonio Ltd., Auto Network Group of Denver,
Inc., and Pinnacle Dealer Services, Inc.
As of December 29, 2000, we sold our interest in our land-based
operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to
Automotive Disposition Management Services, Inc., an affiliated Arizona
corporation, in exchange for a 16% interest in Automotive Disposition.
Automotive Disposition is a private company owned by Jules Gollins, the manager
of the New Mexico land-based operation, and by Mark Moldenhauer, one of our
founders, principal shareholders, and former officer and director. We disposed
of our land-based operations in Scottsdale, Arizona, as of February 28, 2001,
thereby discontinuing all land-based operations and allowing us to focus on
providing automotive remarketing services via the Internet.
As a result of the disposition of our land-based operations, as further
described in the following paragraphs, the trend information should be carefully
read and evaluated. See "Anticipated Trends and Plan of Operations" beginning at
page 21.
OVERVIEW
We began operations on September 22, 1997 and completed our first
fiscal year on March 31, 1998. On June 1, 1998, we opened the office and
warehouse facility in Albuquerque, New Mexico. We acquired Pinnacle Dealer
Services, Inc. in August 1998 to provide financing for the purchase of vehicles.
On July 20, 1999, we opened our office and warehouse facility in Bend, Oregon.
On April 1, 2000, we began operations in the Philadelphia, Pennsylvania area,
with the incorporation of Auto Network Group of Eastern Pa., Inc. At the same
time, we began operations in San Antonio, Texas, with the establishment of Auto
Group of San Antonio Ltd., a Texas limited partnership. In each of these
transactions, we entered into a management consulting agreement with the
individual or entity responsible for managing each respective operation. Under
these agreements, certain of our common shares were issued to such managers,
subject to forfeiture based on both future earnings levels and continuity of
management. In addition, we made stock options available to these managers,
which could be earned based on future performance. On August 2, 2000, we formed
a new wholly owned subsidiary, Auto Network Group of Denver, Inc., and leased a
facility in Denver, Colorado.
In January 1999, we announced the development of our Internet site
www.autotradecenter.com. No revenues have been generated from the operations of
this site, which is now used for informational purposes only. However, effective
February 1, 2000, a new website developed for American Honda Finance
Corporation, powered by our technology, began generating revenue. We generated
$291,587 of revenue in the year ended March 31, 2000 from remarketing activities
that were not related either to our Internet remarketing business or our
land-based operations. See the discussion about Walden Remarketing in the
section entitled "Fiscal Years Ending March 31, 2001, 2000 and 1999" on page 16.
Our existing remarketing agreement with Honda Finance Corporation gives us an
exclusive contract to remarket, over the Internet through January 31, 2004, all
of the vehicles returned to Honda and Acura after termination of a consumer
lease. These are referred to in the industry as "off-lease" vehicles. The Honda
website, www.hfcarsales.com, became operational in all Honda and Acura
dealerships by June 15, 2000 upon completion of a phase in period beginning
April 2000. We developed a pilot program for Suzuki, similar to the program
developed for Honda, utilizing our Internet technology systems and procedures to
remarket their
13
"program vehicles" to dealers. The term "program vehicles" refers to cars owned
by Suzuki that are being returned from various car rental fleets. The Suzuki
pilot program began in September 2000 (www.suzukiproline.com) and we signed an
agreement with Suzuki in January 2001 to remarket their program cars over the
Internet for a one-year period. In April of 2001, we entered into an agreement
to remarket off-lease Volvo vehicles with Volvo Finance North America for 15
months, commencing April 30, 2001. The Volvo Finance website, www.volvoride.com,
is scheduled to begin operating on October 18, 2001.
Due to the discontinuance of our land-based operations, we now focus
all of our efforts on remarketing vehicles over the Internet.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE
30, 2000. Net losses were $1,410,263 ($0.03 per share) for the three months
ended June 30, 2001 as compared to net losses from continuing operations of
$972,154 ($0.03) per share and $48,501 from discontinued operations for the
three months ended June 30, 2000.
INTERNET REVENUES. Internet revenues were $583,655 for the three months
ended June 30, 2001 as compared to $169,650 for the same period last year.
Substantially all revenue for the quarter ended June 30, 2001 was earned from
remarketing over 10,000 Honda and Acura vehicles under our contract with
American Honda Finance Corporation. We remarketed fewer than 100 Suzuki vehicles
following the activation of our Suzuki website in May 2001. For the quarter
ended June 30, 2000, we sold approximately 4,500 Honda and Acura vehicles
following the initialization of the Honda program in April 2000.
COST OF REVENUES. Cost of revenues in addition to salary and wages
included our website hosting costs and an allocated share of operating expenses
and overhead. Salary and wages were lower in the current quarter as compared to
the first quarter of last year even though we more than tripled our revenues. We
were able to operate more efficiently as a result of experience following the
launch of our Internet programs.
PRODUCT DEVELOPMENT. Our product development expenses consisted
primarily of compensation for product development personnel and outside
consulting costs. Product development expense remained relatively constant for
the June 2001 quarter, as compared to the June 2000 quarter. The bulk of our
product development costs are capitalized into cost of software in accordance
with Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use used in determining the amount of
software costs developed in-house to be capitalized. We apply Emerging Issues
Task Force 00-02 Accounting for Website Development Costs in determining the
amount of website development costs to be capitalized.
These standards require capitalization of certain direct development
costs associated with internal use software and website development costs. Costs
to be capitalized include internal and external direct project costs including,
among others, payroll and labor, material, and services. These costs are
included in software and are being amortized over a period not to exceed three
years beginning when the software is substantially ready for use. Costs incurred
on new projects, projects in a preliminary phase and projects that contract
negotiations have not begun, as well as maintenance, and training costs are
charged to expense as incurred. During the three months ended June 30, 2001 we
capitalized over $600,000 in software development costs as compared to less than
$50,000 during the same quarter last year.
GENERAL AND ADMINISTRATIVE. Our general and administrative expense
consists primarily of compensation for administrative personnel, including our
executive officers, facility expenses and fees for outside professional
services. General and administrative expenses increased by $74,374 to $381,958
from $307,584 in the quarter ended June 30, 2001 as compared to our first
quarter ended June 30, 2000. The increase primarily is attributable to increases
in salaries and wages and professional fees. Salaries for certain individuals
formerly working for our now discontinued land-based operations were included in
general and administrative expenses for the current period. Certain other
general and administrative expenses, part of which were absorbed by our
discontinued operations, also currently are included in general and
administrative expense.
14
DEPRECIATION AND AMORTIZATION. Amortization of our software that drives
our Internet sites increased to $900,473 for the period ended June 30, 2001 as
compared to amortization of $324,678 for the same period last year. The increase
of $575,795 primarily relates to the reclassification of purchased goodwill to
cost of software in the third quarter of our fiscal year ended March 31, 2001.
At that time we also changed our estimate of the useful life of such software
from ten years to three years. Amortization also increased as a result of
additional capitalized software costs. Depreciation of our furniture, fixtures,
and computer equipment was approximately the same for each period.
FISCAL YEARS ENDING MARCH 31, 2001, 2000 AND 1999. Our financial
statements since our inception in 1997 reflect Internet operations as continuing
operations and land-based operations as discontinued operations, even though we
did not generate any revenue from our Internet remarketing operations until
April 2000. On November 30, 2000, our management and Board of Directors decided
to discontinue all of our land-based operations. We believe that our best
opportunity to maximize profitability and shareholder value is to concentrate
all of our efforts on remarketing used vehicles utilizing the Internet as the
backbone of our operations. We sold our land-based subsidiaries in New Mexico,
Oregon, and San Antonio on December 29, 2000, and closed our operations in
Pennsylvania and Colorado by the end of the year. We began to down size our
Scottsdale Arizona operations in December 2000, and transferred these operations
to certain of the independent-contractor brokers who formerly purchased and sold
vehicles for us primarily in Scottsdale Arizona, effective February 28, 2001.
The following schedule shows the computation of the loss
resulting from discontinuing our land-based operations:
[Enlarge/Download Table]
Loss from sale of Albuquerque, Bend, and San Antonio operations:
Carrying value $1,596,933
Sales price 1,200,000
----------
Loss 396,933
Unamortized goodwill 351,542
----------
Total loss $ 748,475
Loss from transfer and closing of Scottsdale operation:
Sale of equipment 17,793
Inventory losses due to sale 425,693
Uncollectible brokers accounts 593,635
Costs of closing operations 226,461
Accrued future costs of closing operations 50,000
----------
1,313,582
Loss from closing Pennsylvania 277,388
----------
Total loss from discontinuing land-based segment $2,339,445
==========
15
The following statement of operations for the land-based operations
reflects the details of these operations for the periods herein presented:
[Enlarge/Download Table]
RESULTS OF OPERATIONS OF DISCONTINUED LAND-BASED OPERATIONS:
FOR THE YEAR ENDED MARCH 31,
2001*<F1> 2000 1999
Net sales $123,171,010 $131,569,705 $97,665,410
Cost of sales 117,257,094 125,770,135 93,388,836
------------- ------------- ------------
Gross profit 5,913,916 5,799,570 4,276,574
Operating expenses
Selling 4,376,272 3,843,922 2,772,192
General and administrative 1,199,064 1,783,874 679,383
Bad debt expenses 75,000 1,045,970 90,055
Depreciation and amortization 36,165 38,428 3,816
------------- ------------- ------------
Total operating expenses 5,686,501 6,712,194 3,545,446
------------- ------------- ------------
Income (loss) from operations 227,415 (912,624) 731,128
------------- ------------- ------------
Other income (expense):
Miscellaneous 139,599 102,133 70,686
Interest expense (690,853) (887,094) (353,323)
------------- ------------- ------------
Total other income (expense) - net (551,254) (784,961) (282,637)
------------- ------------- ------------
Net income (loss) before income taxes $ (323,839) $ (1,697,585) $ 448,491
============= ============= ============
<FN>
*<F1> Through 2/28/01 - date of discontinuance
</FN>
Net losses from continuing operations were $9,060,369 ($0.28 per
share), $946,202 ($0.04 per share), and $276,671 ($0.02 per share) for the
fiscal years ended March 31, 2001, 2000 and 1999, respectively.
Total net losses (including discontinued operations) were $11,723,654
($0.36 per share) and $2,587,753 ($0.12 per share) for the fiscal years ended
March 31, 2001 and 2000. We had net income of $115,241 ($0.01 per share) for the
year ended March 31, 1999.
Net sales from continuing operations were $891,423, $291,587, and nil
for our fiscal years ended March 31, 2001, 2000 and 1999, respectively.
Substantially all revenue for the year ended March 31, 2001 was earned from
remarketing 22,173 Honda and Acura vehicles under our contract with American
Honda Finance Corporation. For the fiscal year ended March 31, 2000, all revenue
was earned during the first part of the year by AutoTradeCenter Remarketing
Services Inc. from contracts entered into by Walden Remarketing Services prior
to our acquisition of that company. These contracts were with American Honda
Finance and others. The revenue derived from these contracts resulted from
services provided by us to encourage dealers to attend and purchase off-lease
and other vehicles at auctions. None of this revenue resulted from Internet
activities, and it ceased upon expiration of the contracts in July and August of
1999
Operating expenses from continuing operations were $9,849,903,
$1,174,333, and $213,215 for the fiscal years ended March 31, 2001, 2000 and
1999, respectively. The increase in general and administrative expenses in the
fiscal year ended March 31, 2001, as compared to our fiscal year ended March 31,
2000, primarily resulted from the expansion of our Internet operations to
remarket off-lease and program vehicles. Included in expenses related to our new
business plan are $342,089 for hosting and maintaining our Honda and Suzuki
websites and expenses to maintain a dealer service call center to serve all
Honda, Acura, and Suzuki dealers 24 hours a day, 7 days per week. Sales and
marketing expenses including salary, travel, and other website sales promotion
totaled $730,883. Operating expenses for the year included all of our corporate
overhead costs. During the fiscal year ended March 31, 2001, we expensed legal,
accounting, and professional fees of $579,155, outside consulting fees including
directors fees and other costs related to public relations of $473,788, rent
expenses of $187,431, and general and administrative costs of $385,083. The
increase in these costs, in addition to our expanded Internet operations, also
16
can be attributed, in part, to expenses associated with our registration
process, costs associated with our capital raising efforts, enhancements of our
accounting and management information systems, and costs associated with the
hiring and training of personnel.
For the fiscal year ended March 31, 2000, operating expenses included
all direct costs and salaries related to continuing operations plus an
allocation of executive salary and administrative costs from our land-based
operations.
While there were no revenues generated in fiscal 1999, we had operating
expenses of $213,215. Operating expenses for 1999 included certain allocations
of corporate overhead and interest expense from our land-based operations.
Depreciation primarily is capitalized software costs resulting from the
acquisitions of minority interest in BusinessTradeCenter.com and the acquisition
of NDSCo.com, as well as from computers and equipment required to run our
Internet sites and office furniture and equipment. Depreciation and amortization
related to continuing operations increased to $3,836,788 for the fiscal year
ended March 31, 2001, as compared to $319,800 and $24,042 for the fiscal years
ended March 31, 2000 and 1999, respectively. Included in depreciation and
amortization for the fiscal year ended March 31, 2001 are $3,265,247 for
depreciation of software acquired when we purchased the minority interest in
BusinessTradeCenter.com and amortization of $198,538 of goodwill resulting from
our acquisition (during our fiscal year ended March 31, 2000) of Walden
Remarketing. The balance of depreciation expense resulted from depreciation of
our furniture, fixtures, and computer hardware.
We also recorded a charge for the loss on disposal of impaired software
of $2,261,486. This software was acquired from NDSCo.com as part of the purchase
price when we acquired NDSCo on March 31, 2000. This software that assists in
dealer-to-dealer Internet exchanges of used vehicles does not fit in our current
business plan of remarketing off-lease and program cars. Since we cannot
determine when or if we will use the software, we are unable to assess its value
and accordingly consider it impaired.
During the fiscal year ended March 31, 2000, depreciation and
amortization charges of $319,800 included amortization of $198,538 for goodwill
relating to our acquisition of Walden Remarketing, in addition to depreciation
of furniture, fixtures, and computer hardware. For our fiscal year ended March
31, 1999, depreciation of furniture, fixtures, and computer hardware totaled
$24,042.
Interest expense for the fiscal years ended March 31, 2001, 2000, and
1999 of $106,888, $63,456, and $63,456, respectively, was from interest charges
on related party debt allocated to continuing operations. The balance of
interest expense from related party debt was included in the results of our
discontinued operations.
FLUCTUATIONS IN OPERATING RESULTS
We have had limited experience to determine if our operations will be
subjected to major fluctuations or trends. Historically, the used car market has
remained relatively stable as an industry. Industry projections over the next
few years indicate there will be an upward trend in used car sales. Vehicles
coming off-lease during the next three years are predicted to remain relatively
constant as are the availability of program cars. However, there can be no
assurance that our sales will parallel industry projections or that industry
projections will materialize.
FINANCIAL CONDITION
JUNE 30, 2001. Total assets decreased to $9,587,819 at June 30, 2001,
from $10,267,582 at March 31, 2001. This decrease results from a $184,886
reduction in cash, a $57,109 decrease in prepaid expenses, and a $387,496
reduction in net fixed assets.
Total liabilities at June 30, 2001 increased to $1,458,777 from
$984,846 at March 31, 2001, primarily due to a $357,987 increase in accounts
payable, a $66,737 increase in accrued liabilities, along with a $50,000
increase in notes payable to related parties.
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MARCH 31, 2001 AND 2000. ASSETS. As a result of our decision to
discontinue our land-based operations, our total assets decreased to $10,267,582
at March 31, 2001, from $20,102,747 at March 31, 2000. This decrease primarily
results from the substantial completion of the sale of assets formerly used in
our land-based operations (as is reflected in the following schedule) and our
use of cash in funding operations. Total assets also declined due to non-cash
depreciation and amortization of our software, furniture and equipment, and
goodwill, and the write-off of impaired software.
The following table reflects the detail of our net assets from
discontinued operations:
[Download Table]
AUTOTRADECENTER.COM INC.
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS
MARCH 31, 2001 MARCH 31, 2000
ASSETS
Accounts receivable - trade, net $60,659 $ 5,743,845
Accounts receivable - employees and brokers, net -- 332,122
Inventory 28,000 4,648,492
Goodwill and property and equipment -- 316,311
------- -----------
Total Assets 88,659 11,040,770
======= ===========
LIABILITIES
Accounts payable - trade 66,847 4,401,858
Notes payable - related party and other -- 5,376,821
Accrued liabilities -- 238,925
------- -----------
66,847 10,017,604
------- -----------
NET ASSETS FROM DISCONTINUED OPERATIONS $21,812 $ 1,023,166
======= ===========
Total assets were $20,102,747 at March 31, 2000, an increase of
$15,311,930 from total assets of $4,790,817 at March 31, 1999. A substantial
amount of this increase is reflected in net software that increased from $5,442
at March 31, 1999 to $12,013,608 at March 31, 2000. The increase is due to our
acquisitions of other entities for shares of our common stock and other
consideration described below. Other increases in assets included an increase in
cash of $4,057,986, which is the result of receiving $4,766,341 from the
proceeds of the sale in a private placement of our Series C and Series D
convertible preferred stock, an increase in the carrying value of net assets for
discontinued operations, and purchases of property and equipment.
o NATIONAL DEALER SERVICES CO. ("NDSCo")
On March 1, 2000, we acquired NDSCo by issuing to its shareholders a
total of 1,100,000 restricted shares of common stock, valued at $2.55 per share,
in exchange for the outstanding NDSCo shares. Of the purchase price, $2,039,123
was allocated to the cost of software. During the fiscal year ended March 31,
2001, this entire undepreciated cost was charged to expense as a loss on
impaired software as we no longer could determine its fair value, if any.
o AUTOTRADECENTER REMARKETING SERVICES & WALDEN REMARKETING SERVICES,
INC. ("WALDEN REMARKETING")
On March 31, 1999, we acquired Walden Remarketing by issuing to its
shareholders a total of 2,050,000 restricted shares of common stock, cash of
$125,000, and a promissory note in the principal amount of $425,000. We valued
the common stock at its estimated fair market value of $0.71 per share for a
total of $1,450,000. The promissory note accrued interest at the rate of 12% per
annum and required us to make 18 equal monthly payments of principal and
interest beginning May 1, 1999. At December 31, 1999, we converted the remaining
principal balance of the note ($314,475) into 314,475 shares of common stock.
The excess of the purchase price over the fair
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value of the net assets acquired (goodwill) was $1,985,383 and is being
amortized on a straight-line basis over 10 years.
o BUSINESS TRADECENTER.COM INC. ("BTC")
On January 7, 1999, we incorporated BTC in Arizona to facilitate the
buying and selling of vehicles at wholesale between dealers on the Internet. BTC
has developed the technology and systems necessary to make our inventory, as
well as the inventory of member dealers, available for purchase and sale on our
Internet site. On March 23, 2000, we acquired the remaining 45% minority
interest of BTC by issuing 5,000,000 shares of common stock, valued at $1.88 per
share, which represented management's estimate of the fair market value of the
common stock on that date, and paying off a convertible $200,000 note. Of the
purchase price, $9,374,550 was considered the value of the BTC software, certain
of which was being completed pursuant to our contract to provide Internet
marketing of American Honda Finance Corporation's off-lease vehicles. The
carrying value of this software is being depreciated over 36 months.
LIABILITIES. Current liabilities at March 31, 2001 decreased to
$446,039 from $1,118,542 at March 31, 2000, primarily due to the repayment of
our revolving note payable to Wells Fargo Business Credit in February 2001.
Long-term debt due to related parties was $538,807 at March 31, 2001, as
compared to $528,807 due to the same parties at March 31, 2000 and March 31,
1999. Our long-term debt is due June 30, 2002.
STOCKHOLDERS' EQUITY. Stockholders' equity decreased from $18,455,398
at March 31, 2000, to $9,282,736 at March 31, 2001. The decrease primarily
resulted from our net loss for the fiscal year ended March 31, 2001 of
$11,723,654 offset by: $1,452,487 of proceeds from private placement of common
shares in March 2001, cash received from the exercise of stock options of
$498,550, common stock issued for services of $299,955, and the conversion of a
note payable of $300,000 into common shares. Stockholders' equity increased from
$2,911,064 at March 31, 1999 to $18,455,398 at March 31, 2000. The increase is
attributable to: $4,766,341 of net proceeds from the sale in a private placement
of our Series C and series D preferred shares; $9,375,000 from the issuance of
common shares to acquire the minority interest in a subsidiary (BTC); $2,801,590
from the issuance of common shares to acquire a wholly owned subsidiary
(NDSCo.); $250,000 of net proceeds from the sale of common stock as a result of
exercise of options and warrants; the issuance of common stock valued at
$193,401 in connection with the acquisition of our Northwest subsidiary; $80,000
in common shares issued for software development; $314,475 relating to a
conversion of debt to equity; and $351,280 for the fair value of stock options
granted. These increases were offset by our net loss for the year of $2,587,753.
During February 2000 we issued 20,800 shares of Series C preferred
stock ("Series C") for $2,080,000. Each share of Series C preferred stock is
convertible, at the option of the holder, at any time, into 80 shares of Common
Stock of the Corporation, which is based on the initial conversion price of
$1.25. We assigned an intrinsic value of $1,697,280 to this conversion feature.
As a result, a constructive dividend in this amount was charged to retained
earnings with a corresponding increase in common stock. Each share of Series C
preferred stock is entitled to a $100 liquidation preference over common
stockholders. The Series C preferred stock is non-voting. We have the right and
option upon notice to the holders of the Series C preferred stock to call,
redeem, and acquire any or all of the shares of Series C preferred stock at a
price equal to $110.00 per share, at any time to the extent such shares have not
previously converted to common stock pursuant to the terms described above;
provided, however, that the holders of the Series C preferred stock shall, in
any event, have the right during the 30-day period immediately following the
date of the Notice of Redemption, which shall fix the date for redemption, to
convert their shares of Series C preferred stock.
During February 2000 we issued 31,200 shares of Series D preferred
stock ("Series D") for $3,120,000. Each share of Series D preferred stock is
convertible, at the option of the holder, at any time, into shares of Common
Stock of the Corporation equal to $100.00 divided by the conversion price which
shall be equal to 65% of the average closing bid price for the common stock for
the 10 trading days immediately preceding the date of conversion. The maximum
conversion price shall be $4.00 per share. We assigned an intrinsic value of
$1,680,000 to this conversion feature. As a result, a constructive dividend in
this amount was charged to retained earnings with a corresponding increase in
common stock. Each share of Series D preferred stock is entitled to a $100
liquidation preference over common stockholders. The Series D preferred stock is
non-voting. We have the right and option upon notice to the holders of the
Series D preferred stock to call, redeem, and acquire any or all of the shares
of
19
Series D preferred stock at a price equal to $110.00 per share, at any time to
the extent such shares have not previously converted to common stock pursuant to
the terms described above; provided, however, that the holders of the Series D
preferred stock shall, in any event, have the right during the 30-day period
immediately following the date of the Notice of Redemption, which shall fix the
date for redemption, to convert their shares of Series D preferred stock in
accordance with the terms described above.
In accordance with the terms of the Series C and D preferred stock, the
Company was deemed to issue an additional 2% (416 shares of Series C and 624
shares of Series D) to the shareholders. As the additional shares were
considered to be a cost of issuance, their cost was capitalized to the related
equity account. The conversion price for the Series C preferred stock was
subsequently reduced to $0.75.
During our fiscal year ended March 31, 2001, holders of $981,708 and
$1,632,508 of our Series C and D preferred stock (9,682 and 16,664 shares,
respectively) elected to convert such shares to 3,352,663 common shares based on
the formulae contained in the terms of the preferred shares. On May 17, 2000, we
filed a registration statement to register the resale of the common shares
issued or to be issued upon conversion of the Series C and Series D preferred
stock. That registration is still in process.
LIQUIDITY AND CAPITAL RESOURCES
June 30, 2001. At June 30, 2001 our cash balance was $24,182 as
compared to $209,068 at March 31, 2001. Current liabilities at June 30, 2001
were $1,458,777 as compared to current assets of $387,131. We were able to meet
our current obligations, as they became payable due to the infusion of cash as
described in the subsequent events below.
We generated cash of $248,412 in our operating activities for the
quarter ended June 30, 2001, the major components of which were our net losses
for the period from continuing operations of $1,410,263, offset by the non-cash
charges for depreciation and amortization of $1,007,786, other non cash items
totaling $120,380 and an increase in payables of $473,931 including $49,207
advanced to us by one of our directors.
For the quarter ended June 30, 2000, net cash used in operating
activities was $2,012,980. The major component contributing to the cash used in
operations for the quarter ended June 30, 2000 were our net losses for the
period of $972,154 and $48,501 from continuing operations and discontinued
operations, respectively. Cash primarily was provided by the non-cash charges
for depreciation and amortization of $445,534. Other accounts affecting our cash
balances included cash used by our discontinued operations of $2,497,887 offset
by increases in borrowings from our bank line of credit of $670,996 and the
conversion of $300,000 in debt owed to one of our former officers and directors
to common stock. Cash also was generated by the net increase in accounts payable
of $112,059.
Our investing activities for the quarters ended June 30, 2001 and 2000,
were primarily for the purchase of computer hardware and software required for
business expansion and our e-commerce and Internet operations. For the quarter
ended June 30, 2001 we acquired computer software valued at $620,000. For the
quarter ended June 30, 2000 used cash of $123,083 to acquire software, hardware,
company cars, and office furniture and fixtures.
Financing activities for the quarter ended June 30, 2001 consisted in
the issuance of 746,808 of our common shares at $0.25 per share as part of the
private placement started in March 2001. For the quarter ended June 30, 2000, we
received $10,000 from the proceeds of issuance of common shares.
MARCH 31, 2001, 2000 AND 1999. Working capital (current assets minus
current liabilities) was $182,556 at March 31, 2001, as compared to working
capital at March 31, 2000 of $4,370,634. The decrease of $4,188,078
substantially is due to the decrease in cash of $4,146,670 and the decrease in
assets from discontinued operations offset by the increases in receivables and
the repayment of our revolving line of credit with Wells Fargo.
We used cash of $4,171,599 in our operating activities for the fiscal
year ended March 31, 2001, the major components of which were our net losses for
the period from continuing operations of $9,060,369, discontinued land-based
operations of $323,840, and the loss from disposition of the land-based segment
of $2,339,445. Non-cash charges included depreciation and amortization of
$3,836,788, plus the non-cash loss on disposal of impaired assets of $2,261,486.
An additional non-cash expense related to the issuance of stock and options for
services
20
valued at $299,955. Other accounts affecting our cash balances included cash
received from liquidation of assets of discontinued operations of $1,001,354, an
additional short-term loan from a related party, and increases in accounts
payable and accrued liabilities offset by an increase in accounts receivable.
For the fiscal year ended March 31, 2000, net cash used in operating
activities was $742,328. The major component contributing to the cash used in
operations for the fiscal year ended March 31, 2000 were our net losses for the
period of $946,202 and $1,641,551 from continuing operations and discontinued
operations, respectively. Non-cash charges included depreciation and
amortization of $319,800 and the additional non-cash expenses related to the
issuance of stock and options for services valued at $351,280. Other accounts
affecting our cash balances included cash received from discontinued operations
of $1,257,062 and small changes, both positive and negative, to other current
assets and liabilities.
For the fiscal year ended March 31, 1999, net cash used in operating
activities was $1,682,760. The major components contributing to the cash used in
operations for the fiscal year ended March 31, 1999 were our net income (loss)
for the period of $(226,369) and $341,610 from continuing operations and
discontinued operations, respectively. Non-cash charges included depreciation
and amortization of $24,042 and the additional non-cash expense related to the
issuance of stock and options for services valued at $23,083. We used $1,823,695
to acquire assets for our discontinued land-based operations. Cash balances also
were affected by small changes, both positive and negative, to other current
assets and liabilities.
Our investing activities for the fiscal years ended March 31, 2001,
2000 and 1999 used cash of $1,123,690, $374,420 and $188,832, respectively. For
the fiscal year ended March 31, 2001, cash was used primarily for the purchase
of computer hardware and software required for business expansion and our
e-commerce and Internet operations, and offset by the sale of certain
company-owned vehicles. For the fiscal year ended March 31, 2000, we acquired
computer software and hardware, company cars, and office furniture and fixtures.
Our investing activities for the fiscal year ended March 31, 1999 also were for
similar items. In addition, we used $70,906 in an acquisition.
Financing activities provided net cash of $1,148,619 for our fiscal
year ended March 31, 2001, as compared to $5,174,734 and $2,169,344 during the
previous two years, respectively. Increases in cash included $1,452,487 from the
proceeds of the sale of 5,865,212 common shares in March 2001, $498,550 in
proceeds received from the exercise of previously issued stock options, and
additional borrowings of $310,000 from related parties. Our related party debt
of $738,807 is due April 1, 2002. We used $1,112,418 to repay the Wells Fargo
Business Credit, Inc. line of credit that had provided sufficient short-term
liquidity and capital to implement our business plan, including the expansion
into other markets. The note that evidenced this obligation to Wells Fargo
Business Credit bore interest at 1.5% over prime and was extended from its
original due date of March 31, 2000 to January 31, 2001. At March 31, 2000 our
bank line of credit was $1,112,418. On February 16, 2001 we repaid Wells Fargo
Business Credit in full.
For our fiscal year ended March 31, 2000, we supported our cash needs
by net borrowings of $158,393 and proceeds from the issuance of convertible
preferred stock and common stock of $4,766,341 and $250,000, respectfully.
For the fiscal year ended March 31, 1999, cash needs were supplied by
net borrowings of $1,268,500 and the issuance of long-term debt and convertible
preferred stock for $528,807 and $372,037 respectfully.
ANTICIPATED TRENDS AND PLAN OF OPERATION
We intend to continue the development of our Internet sites. We believe
that focusing on providing automotive remarketing services via the Internet will
improve our long-term prospects for profitability. While the land-based
operations generated a substantial amount of revenue, the gross profit margins
were low and insufficient to cover operating expenses relating to the land-based
operations. These operating expenses consisted primarily of selling commissions,
interest expenses (for financing inventory and accounts receivable), bad debt
expense, and office overhead. In addition, the land-based operations were
capital-intensive. In contrast, the Internet operations generate a lower amount
of revenue, but result in higher profit margins.
21
Our agreement with American Honda Finance Corporation will generate
revenues for the next three years. We anticipate a greater number of car sales
on our Honda website resulting in increased revenues in the months to come as a
larger number of vehicles are being returned upon termination of leases and will
be available to all Honda and Acura dealers in the United States. In addition
our amended contract with American Honda Finance Corporation will provide
additional revenue for each car sold on our website. With the definitive
agreement signed with American Suzuki Motor Corporation in January 2001, we
expect to generate added revenue from the Suzuki site. We entered into an
agreement to remarket off-lease Volvo vehicles with Volvo Finance North America
for 15 months, commencing April 30, 2001. The Volvo Finance website,
www.volvoride.com, is scheduled to begin operating on October 18, 2001, giving
Volvo dealers nationwide the opportunity to purchase off-lease vehicles from
Volvo Finance via the Internet. We anticipate entering into similar contracts
with other manufacturers and financial institutions to assist them in
remarketing their inventories of used vehicles; however, no such other contracts
exist at this time.
The Company has sustained operating losses and negative cash flow since
its inception, resulting in no tangible net worth at June 30, 2001. Currently we
are operating at a cash flow deficit as revenues from Internet operations do not
cover operating expenses. We project that cash flow from operations will reach a
break-even level during our quarter ended December 31, 2001. Accordingly, we
needed at least $1,300,000 of cash through external sources to fund our
operations and service our long and short-term debt until we achieve positive
cash flow from operations.
We have addressed these concerns by: (1) Obtaining a new line of
credit, effective July 26, 2001, for up to $1,300,000 to fund our operating
needs until the projected future revenue sources are developed; (2) Continuing
our efforts to raise up to an additional $500,000 under terms similar to those
of the private placement of equity securities in March and April of 2001; (3)
Implementing plans to generate positive cash flow and operating profits by
increasing revenues through the expansion of its Internet remarketing of
off-lease and program vehicles with its current customers and others and develop
new products and services for its current customer base and others and; (4)
further reducing our cash requirements for software and website development and
continuing to reduce our costs of operations.
There is no assurance, however, that the Company will be able to
implement its business plan as outlined above. In the event that the Company is
unable to obtain positive cash flow prior to exhausting its new line of credit,
it must obtain additional financing in the form of equity or debt to continue
operations.
RECENT FINANCING
On July 26, 2001, we entered into a financing arrangement with Eagle
Capital Group, LLC ("Eagle"), a private company, which provides for a line of
credit up to $1,300,000. The loan is due June 30, 2002. It bears interest at the
rate of 12% per annum payable monthly. We paid a commitment fee of $13,000 and
are obligated to pay a one percent (1%) facility fee of up to $13,000 each
quarter. We also are required to pay monthly principal payments of not less than
5% of the outstanding loan balance once we achieve positive cash flow. The loan
is secured by all assets including, but not limited to, furniture, fixtures,
leasehold, personal property, and intellectual property.
The loan is convertible into our common stock at any time before the
due date thereof, including any extensions, at the lesser of the average bid
price following the date of the first advance and the earlier of the conversion
date or the termination date or $0.10 per share. We also issued Eagle a warrant
which allows Eagle, for a period of 90 days from the termination date of the
loan, to purchase common shares at $0.10 per share in an amount equal to the
difference between (a) 13,000,000 and (b) the number of shares of common stock
issued upon prior conversion of any amounts under the loan.
In addition, we issued a warrant to Eagle that allows Eagle to
purchase, for a period of up to five years, up to 6,500,000 shares of common
stock at an exercise price of $0.125 per share. If we prepay the loan in full at
any time prior to December 31, 2001, we will issue to Eagle 1,500,000 shares of
common stock as consideration.
22
In addition, we issued to Eagle 1,300 shares Series E preferred stock,
at a par value of $0.10 per share. The Series E preferred stock grants Eagle the
right to vote an equivalent of 13,000,000 common shares. Eagle will have two
representatives on our board of directors.
We also entered into a Facilities Use and Administrative Services
Agreement with an affiliate of Eagle for the use of office facilities, software
development, marketing, accounting, and other management services that may vary
from time to time. The fee for these services will be negotiated between the
parties in good faith as business practices and circumstances change.
On July 26, 2001, as part of the agreement with Eagle, we consolidated
the notes payable to Pinnacle Financial and Mark Moldenhauer of $336,807 and
$402,000, respectively. The consolidated note bears interest at 12% payable
monthly. In addition, we are obligated to make principal payments of $25,000 per
month in November and December 2001, and $50,000 per month principal payments
from January 2002 through May 2002. The balance of the note is due June 30,
2002. Any principal payment may be converted into common stock at the sole
discretion of the lender at the rate of $0.10 per share, upon three days written
notice. We also issued a warrant to purchase one share of common stock for every
two shares of common stock received upon conversion. The warrant exercise price
is $0.125 per share and expires five years from issuance. The note is
subordinated to the first lien of Eagle.
As a result of this transaction, we are required to reset the pricing
of the units sold in March through April 2001 pursuant to a private placement.
The anti-dilution clause contained in the private placement required us to issue
9,918,027 shares of our common stock and 4,959,014 additional stock purchase
warrants exercisable at $0.125 per share.
23
BUSINESS
GENERAL
We assist automobile manufacturers, finance companies, financial
institutions, lease and rental companies, and automobile dealers in marketing
their inventories of used automobiles over the Internet. This is referred to as
"remarketing" in the automotive industry. We have developed technology that
enables businesses with used vehicles to post their inventories on a website,
provide detailed information about each vehicle, and sell these vehicles to
other dealers. We believe that our services provide businesses with an efficient
and cost-effective used vehicle redistribution or remarketing system as an
alternative to traditional auto auctions.
Presently, all of our revenues are derived from developing and
operating remarketing websites for businesses, such as American Honda Finance
Corporation, American Suzuki Motor Corporation, and Volvo Finance North America,
for which we are paid listing fees and fees when a vehicle is bought or sold on
the website. We are trying to market our services to other similar types of
companies.
CORPORATE BACKGROUND
We were organized as an Arizona corporation on July 10, 1997 under the
name Auto Network USA, Inc., and commenced operations on September 22, 1997, at
our facility in Scottsdale, Arizona. In December 1998, we changed our name to
Auto Network Group, Inc. as a result of an agreement reached with an entity with
a similar name. We again changed our name to AutoTradeCenter.com in April 1999
to more accurately reflect our Internet presence and our future direction of
providing automotive remarketing services over the Internet.
Subsidiaries. Auto Network Group of New Mexico, Inc., a wholly owned
subsidiary, was incorporated on May 18, 1998, and commenced operations on June
1, 1998. Upon the opening of our Auto Network Group of New Mexico office and
warehouse facility, we were able to attract the necessary brokers and
administrative personnel by issuing common stock and stock options in our
company. We utilized this same process or methodology in opening other targeted
markets, which, at the time, was part of our business plan and corporate
strategy. Auto Network Group of New Mexico operated its business in a manner
similar to certain other subsidiaries of its parent, AutoTradeCenter.com.
On August 20, 1998, we acquired Pinnacle Dealer Services, Inc., an
affiliated Arizona corporation by issuing 300,000 shares of common stock.
Pinnacle Dealer Services promotes and administers alternative financing programs
for dealers who purchase used cars from us.
On January 7, 1999, we incorporated BusinessTradeCenter.com Inc. in
Arizona to facilitate the wholesale buying and selling of vehicles at wholesale
between dealers on the Internet. Initially, we owned 55% of the common shares.
BusinessTradeCenter.com has developed the technology and systems necessary to
make our inventory, as well as the inventory of member dealers, available for
purchase and sale on our Internet site. In March 2000, we acquired the 45%
minority interest of BusinessTradeCenter by issuing 5,000,000 shares of our
common stock valued at $1.88 per share. As part of this transaction we repaid a
$200,000 note that contained conversion rights to acquire a 30% (after
conversion) interest in BusinessTradeCenter.com.
On March 31, 1999, we acquired Walden Remarketing Services, Inc., a
Minnesota corporation, by issuing to the shareholders of Walden Remarketing
2,050,000 restricted shares of common stock, cash of $125,000, and a promissory
note in the principal amount of $450,000. We valued the issued shares at their
estimated fair market value of $0.71 per share, or $1,450,000. In a separate
agreement reached in December 1999, the then remaining balance of this note,
$314,475, was paid through the issuance of 314,475 shares of common stock,
valued at $1.00 per share. Walden Remarketing assists manufacturers in the
disposition of their fleet and consumer lease vehicles. Walden Remarketing
changed its name to AutoTradeCenter Remarketing Services in January 2000.
On July 20, 1999, we acquired Auto Network Group Northwest, Inc., an
Oregon corporation formed to establish operations in the northwestern part of
the United States. It had no prior operating history. Auto Network Group
Northwest operated in a manner similar to Auto Network Group of New Mexico, Inc.
24
On March 1, 2000 we acquired NDSCo.com Inc., a provider of systems and
applications technology for the automotive industry, by issuing to the former
shareholders of NDSCo 1,100,000 shares of our common stock valued at $2.55 per
share. NDSCo became a wholly-owned subsidiary of BusinessTradeCenter.com, Inc.
Auto Group of San Antonio, Ltd. and Auto Network Group of Eastern Pa.,
Inc. became wholly-owned subsidiaries of our company on April 1, 2000. These
entities did not have any prior operations. They operated in a manner similar to
our New Mexico and Oregon wholesale operations. In September 2000, we decided to
close the Pennsylvania operation.
On August 2, 2000, we formed a new wholly-owned subsidiary, Auto
Network Group of Denver, Inc. This subsidiary was not funded primarily due to
our growing emphasis on Internet operations.
Effective December 29, 2000, we sold our interest in Auto Network Group
of New Mexico, Inc., Auto Network Group Northwest, Inc., and Auto Group of San
Antonio, Ltd.
EQUITY FINANCING. In December 1997, we sold 1,002,500 shares of common
stock, in a private placement, for gross proceeds of $25,062.50. In February
1998, we sold 6,750 shares of Series A preferred stock, in a private placement,
for $675,000. From November 1998 to December 1998, we sold 47,000 shares of
Series B preferred stock for gross proceeds of $470,000 in a private placement.
In February 2000, we sold in a private placement 21,216 shares of Series C
preferred stock and 31,824 shares of Series D preferred stock for gross proceeds
of $5,200,000. From March 2001 through April 20, 2001, we have sold 6,612,018
shares of common stock and 3,306,009 warrants in a private placement for gross
proceeds of $1,653,005.
INTERNET OPERATIONS
On February 1, 1999, we introduced an Internet site:
AutoTradeCenter.com. Our wholly-owned subsidiary, BusinessTradeCenter.com,
controls the legal rights to the Internet domain name, technology, systems, and
programming required to operate this site. Upon introduction, access to this
site was limited to registered members including automobile dealers, leasing
companies, banks, and fleet or rental companies. It was our intent, at the time,
to provide to members information on used vehicles offered for sale by us and by
others. To encourage use of this site, initially we offered free membership. We
planned to charge a membership fee at an undetermined future date. From
inception approximately 500 businesses have registered as members. Initially up
to ten members posted cars on the Internet site. Our entire inventory also was
listed on the Internet site. To date no revenue has been generated from the
AutoTradeCenter.com website. Our current business plan does not include
generating revenue from this site. The start-up costs for the development of the
site were not material, since the prior minority owner of
BusinessTradeCenter.com contributed the technology for the site design for its
ownership interest. Software relating to Internet dealer-to-dealer used car
exchanges acquired from NDSCo.com, as part of the purchase price of that
company, was written off as impaired in our fiscal year ended March 31, 2001.
The development of our website and our acquisition of Walden
Remarketing Services led to the execution of a Motor Vehicle Remarketing
Agreement with American Honda Finance Corporation in February 2000. The
agreement gave us the exclusive contract to remarket, over the Internet for two
years, all of the vehicles returned to Honda after termination of a lease.
Access to the website is restricted to users approved by Honda. As of June 15,
2000, the Honda Website was operational with all Honda and Acura dealers
throughout the United States. We amended our agreement with American Honda
Finance on February 12, 2001. Among other things, the amendment extends our
contract to remarket Honda and Acura vehicles through January 31, 2004, and
increases the fees we can earn for each vehicles marketed on the website.
We developed a pilot program for Suzuki, similar to the program
utilized for Honda, in September 2000. We signed a definitive agreement with
Suzuki in January 2001, and initiated sales of Suzuki vehicles over the Internet
in May 2001. BusinessTradeCenter is responsible for the technology used in our
contracts with American Honda Finance Corporation, American Suzuki Motor
Corporation, and Volvo Finance North America, in addition to the on-going
responsibility of maintaining the system.
25
In April 2001, we signed an exclusive remarketing agreement with Volvo
Finance North America to remarket via the Internet the Volvo consumer off-lease
portfolio. The program is scheduled to begin operating on a national basis on
October 18, 2001.
On March 1, 2000, we acquired NDSCo.com Inc., a provider of technology
for the automotive industry. We believe that certain of the applications and
technology obtained by this acquisition complements the technology that we have
previously acquired or developed. The rights to this technology, processes and
applications became the property of BusinessTradeCenter.com. The functionality
of certain of the systems acquired through the NDSCo.com acquisition is similar
to the technology previously developed by BusinessTradeCenter. However, we
believe that the NDSCo.com systems offer more flexibility and capability of
being adapted for use by multiple clients. We believe that this technology
allows us to add more clients without having to effect major changes to what we
have already developed for existing clients.
By combining the BusinessTradeCenter and NDSCo.com technologies, we
have created the next generation of AutoTradeCenter technology called
ATCadvantage, to better service current clients such as American Honda Finance
Corporation, American Suzuki Motor Corporation, and Volvo Finance North America,
as well as prospective clients. These prospective clients would be automobile
manufacturers, finance companies, financial institutions, lease and rental
companies, and automobile dealers with an inventory of used vehicles to sell. We
launched ATCadvantage in February 2001 with the Honda website. The Honda,
Suzuki, and Volvo websites utilize the ATCadvantage platform, as will other
clients when or if obtained.
The ATCadvantage website offers, among other things, the following
services and features:
o Inventory listing - A consignor can post inventory for sale. The
listing can include a complete description of each vehicle, including
make, model, trim, accessories, mileage, and the wholesale price.
Uploaded digital images and condition reports are also associated with
the vehicles for viewing.
o Community - Consignors can set up a private, branded site for the
purpose of providing an information center for their buying dealers.
This area on the site facilitates dealer buying histories, remarketing
activities calendar, transportation links, newsletter and other static
links. Consignors can advertise here, through the use of banner ads,
and other tools to market information to prospective buyers.
o CarGroups -Consignor vehicles are organized into groups that follow the
same business rules, or behaviors. This technology allows differing
vehicle bodies to be searched, and viewed side by side by with vehicles
from other CarGroups. Consignors can make all their portfolios
available for sale to any, or all-prospective buyers through the use of
one or more CarGroups.
o Client Inventory Management Toolset - Live performance reports, auction
routing and individual vehicle tracking are available to the consignors
providing a comprehensive view of their portfolios activity including
sales and logistical data.
o Condition Report Upload Standards - Reduces integration costs as
vendors are introduced into the environment. The Standard is intended
to make it easier for buying dealers to interpret vehicle inspection
results.
o Click support for Dealers - Utilizes push technology to take customer
service levels to a new higher standard. The application of push
technology, with advanced lead and follow characteristics, links
directly with a CRM system, to unify dealer phone, fax, browsing and
email activities.
We intend to charge new clients for services provided on our
ATCadvantage site a per vehicle listing fee and a transaction fee for each
vehicle sold on the website. We also intend to charge fees for premium services
such as specialized reports, analyzing data collected through the website, and
certain custom programming requested by clients.
26
Since we have been unable to generate revenue from posting and selling
vehicles on the AutoTradeCenter.com site as a result of, among other things,
obstacles relating to the dealer-to-dealer exchanges of used vehicles over the
Internet, we decided to change the functionality of our AutoTradeCenter.com
website as follows:
o No automobiles are posted on the site.
o We are redirecting dealers to the ATCadvantage site.
o We are using the AutoTradeCenter.com site to provide information about
our company, such as financial statements, press releases, personnel
information, etc.
BusinessTradeCenter is also responsible for the development and
maintenance of our Internet application utilizing our website
www.tradeincarsonline.com. This website, introduced in December 1999, was
designed to facilitate the Internet car buying process by providing a firm bid
on trade-ins. Consumers can obtain a bid from us on their used car that they are
trading in when purchasing a new vehicle from one of the on-line new car sale or
referral programs. As of October 15, 2001, we have not purchased a vehicle
through this website and we are unable to predict when or if we will earn any
revenues from this or any other website.
LAND-BASED OPERATIONS
We began operations as a licensed wholesale automobile dealer engaged
in the wholesale used car business. The wholesale used car business involves the
buying of a used vehicle from a licensed automobile dealer and selling that
vehicle to another licensed automobile dealer. Automobile dealers are licensed
through the laws of each state where they conduct business and include the
following types of entities:
o Franchised dealers
o Independent dealers
o Finance companies
o Lease companies
o Car rental companies
The distribution process of used automobiles takes place on local and
national levels as car demand and supply fluctuates within and between local and
national markets. Currently, the auto auctions located primarily in major urban
areas across the country fill this re-distribution process. We, and other
wholesale companies similar to us, satisfy only a small portion of the used car
re-distribution process. The typical profile of other wholesale companies,
commonly referred to as independent wholesale brokers, are either individuals or
small groups of up to five individuals that buy and sell automobiles as
described above. Our land-based operations competed with both the auto auctions
and the independent wholesale brokers. Our land-based operations focused their
efforts on the buying and selling late model luxury automobiles. The average
vehicle sale was approximately $15,000.
Our land-based operations contracted with salesmen, referred to as
brokers, to buy and sell used vehicles. Each broker entered into a non-exclusive
contract with the local operation that authorized the broker to act as the
operation's agent in the buying and selling of used vehicles under the company
name. Each operation used corporate funds to purchase the vehicle and in turn
all monies received upon the sale of the used vehicle were deposited into the
corporate bank account. Even though the broker had the authority to buy used
vehicles, each operation contractually limited the amount of inventory that each
broker could have on hand or unsold at any given point in time. Each broker had
the responsibility to sell the used cars he or she has purchased. The average
length of time a used vehicle was in inventory was 15 days.
As of February 28, 2001, we discontinued all land-based operations.
AUTOTRADECENTER REMARKETING SERVICES (FORMERLY WALDEN REMARKETING SERVICES)
AutoTradeCenter Remarketing assists the finance subsidiaries of
manufacturers, banks or other finance companies, and car rental companies in
remarketing used vehicles that are being returned upon the expiration of a lease
term or other contractual arrangement. AutoTradeCenter Remarketing currently is
providing certain of these
27
services for American Honda Finance Corporation, American Suzuki Motor
Corporation, and Volvo Finance North America utilizing the Internet technology
provided by BusinessTradeCenter.com.
In the mid 90's, creative lease programs appeared and thousands of
returned vehicles started to appear at auto auctions after termination of a
lease. Currently, we believe that lessees purchase only 25% of these vehicles at
termination of the lease. In addition, dealer purchases of these vehicles have
not met industry expectations. Therefore, lessors have not been able to maximize
the residual prices for these vehicles, resulting in certain cases in severe
losses on lease portfolios. Remarketing programs were developed to address this
resale need.
FINANCE PROGRAMS - PINNACLE DEALER SERVICES
We acquired Pinnacle Dealer Services to promote and administer
alternative third party finance programs for dealers who purchase used cars from
us. Making financing available to dealers had the effect of increasing sales and
cash flow without exposing us to any financing risks. These dealers, who were
independent of our company, were obligated to the third party for any financing
extended to them. The third party had the risk of making the loans. This type of
arrangement is no longer needed in light of the disposition of our land-based
operations.
CUSTOMERS
Our e-commerce Internet automotive solutions and initiatives provides
us with the opportunity to serve the large suppliers of used automobiles such as
finance companies, lease companies and car rental companies. These customers are
also considered to be automobile dealers; however, they only supply the industry
with used vehicles, they are not purchasers of used automobiles.
For the fiscal year ended March 31, 2001, substantially all of our
revenues from continuing operations were generated from our contract with
American Honda Finance. For the three months ended June 30, 2001, American
Suzuki Motor Corporation contributed to our gross revenue along with American
Honda Finance. Volvo Finance North America is scheduled to begin operating on
October 18, 2001.
SEASONALITY OF BUSINESS
The sale of used automobiles is a year-round process. However,
generally sales slow down during the fourth quarter of the calendar year due to
the introduction of new models and the holiday season. Business generally picks
up in January. Similarly there are fewer vehicles returned after the termination
of a lease in the fourth quarter of the calendar year. This is followed by a
return to higher volumes in the first and second calendar quarters, followed by
a further increase in vehicles being returned after termination of a lease
during the summer months.
WORKING CAPITAL PRACTICES
We financed our inventory needs for our land-based operations through
private sources of capital and proceeds from the sale of used cars. In addition,
we utilized a $3,000,000 line of credit with Wells Fargo Business Credit, Inc.
This line of credit is no longer needed due to the disposition of our land-based
operations. Currently we are meeting our working capital needs through private
placement sale of equity or debt securities and loans from related parties.
COMPETITION
We compete with other Internet-based entities that maintain commercial
Websites for the wholesale remarketing of vehicles on the Internet including
Autodaq.com Inc., Manheim Interactive, Fleet Lease Disposal, Inc., The Cobalt
Group and GMAC's Smart auction. We also compete with various financial
institutions which remarket their own off-lease vehicles. We believe that we
compete for customers, which are entities with inventories of off-lease or
program vehicles to sell, primarily on the basis of:
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(1) The cost of using our services as opposed to the services of others;
(2) The experience and expertise of our personnel in Internet technology
and the automobile remarketing/retail sales industries;
(3) Our dealer services call center which is staffed 24 hours a day, 7 days
a week;
(4) Whether the needs of these entities are being addressed adequately; and
(5) The quality of service to be rendered to all users of the Website -
primarily the seller and the buyer.
We currently assess our competition as follows:
o AUTODAQ.COM INC. - We believe that we compete directly against
Autodaq.com Inc., an entity that currently provides an Internet
Website that competes with our Internet initiatives. These
initiatives are directed to the acquisition and redistribution of
vehicles returned to finance companies after termination of a
lease. Because Autodaq.com is privately held there is little
public knowledge about this company, its financial strength or its
business model. We consider Autodaq.com to be a major competitor.
Based upon the reaction from prospective customers to our most
recent proposals, we believe that we compete favorably with
Autodaq.com.
o MANHEIM INTERACTIVE - Manheim Interactive is an Internet-based
subsidiary of Manheim Auctions, which is the largest automobile
auction company in the United States. Until recently Manheim
Interactive had limited its presence only to vehicles grounded at
Manheim auctions. However, we believe that Manheim intends to
expand its Internet presence to include other vehicles. Manheim is
far better capitalized than we, as it is owned by Cox Enterprises.
o FLEET LEASE DISPOSAL, INC. - Fleet Lease Disposal is a
privately-held Florida-based corporation that competes against us
for large financial institution clients. It appears to have a
management team with a significant amount of experience both in
automobile sales and Internet technology. Its Veretrack program
offers vehicle remarketing services, lease disposal/termination
solutions, title services, or personalized customer programs. It
recently introduced new, web-based, Internet technology to
expedite the process of remarketing off-lease and fleet vehicles
for manufacturers, banks, and other financial institutions.
o THE COBALT GROUP - Cobalt is a public company. It also is better
capitalized than our company. Currently The Cobalt Group is a
leading provider of e-business products and services to the
automotive industry. Nearly half of the nation's auto dealers use
Cobalt's technology, including 8,500 Web services clients. Its
e-business products and services are endorsed by 15 automotive
manufacturers and more than 50 of the 100 largest dealer groups in
the United States. Cobalt is the only e-business provider endorsed
by the National Automobile Dealers Association. Cobalt recently
introduced Motorplaceexchange.com, an Internet
business-to-business website that is intended to compete with us
in the remarketing of automobiles.
o GMAC - Although the GMAC website has been limited to General
Motors' vehicles, an expansion of this site to other manufacturers
and financial institution also could provide substantial
competition.
GOVERNMENT REGULATION
Compliance with government regulations does not impose a significant
impact on our Internet operations.
EMPLOYEES
As of October 15, 2001, we had 21 full-time employees and no part-time
employees. Employment levels remain relatively high as we anticipate future
growth. We depend upon a limited number of key management and technical
personnel. As we continue to mature, grow and diversify, our need for highly
skilled professionals increases. Our continued success will depend in large part
upon our ability to retain and attract managerial and technical personnel with
significant experience in finance, technology and computers, marketing, and
sales who have significant automobile industry experience. None of our employees
is represented by labor organizations; we have never had a work stoppage or
slowdown as a result of labor issues; and we have excellent relations with our
employees. Management believes that the adoption of our stock plans, along with
other company benefits, will
29
enhance employees' interest in remaining with us. In the future, management is
planning to add further incentives to attract and retain high quality personnel.
FACILITIES
We lease, from an unrelated third party, approximately 4,500 square
feet of office space in Scottsdale, Arizona, to house our Internet operations.
The lease expires February 28, 2002. The 13,500 square feet administrative and
warehouse facility, also in Scottsdale, Arizona, that formerly housed our
land-based and warehouse facilities, is leased from an unrelated third party
under an operating lease expiring September 30, 2002. This facility is subleased
to two unrelated parties. Monthly rentals received by us under the sublease are
approximately equal to our rental payments.
Facilities for our land-based operations were leased by the respective
subsidiaries. Accordingly, we have no ongoing obligations for those leases.
MANAGEMENT
Officers and Directors
The officers and directors of the company are as follows:
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NAME AGE POSITION
Roger L. Butterwick 55 President, Treasurer and Director
John E. Rowlett 51 Vice President, Secretary and Chief Operating Officer
Mark R. Jensen 36 Chief Technology Officer and Vice President of Internet Operations
James Kaiser 57 Director
David Livingston 67 Director
R. Gary McCauley 58 Director
L. David Sikes 59 Director
A. Marvin Strait 67 Director
G. Neil Elsey III 49 Director
J. Christopher Arnold 37 Director
The term of office of each director of our company ends at the next
annual meeting of our stockholders or when such director's successor is elected
and qualifies. No date for the next annual meeting of stockholders is specified
in our Bylaws or has been fixed by the board of directors. The term of office of
each officer of our company ends at the next annual meeting of our board of
directors, expected to take place immediately after the next annual meeting of
stockholders, or when such officer's successor is elected and qualifies.
ROGER L. BUTTERWICK has been the President and a director of our
company since December 8, 1999 and our Treasurer since April 2, 1999. Prior to
joining our company, Mr. Butterwick devoted the majority of his time as a
partner in Cambridge Management Associates, LLP, an organization in the business
of structuring and securing financing for developing organizations. Previously,
Mr. Butterwick was an owner of Lehman, Butterwick & Company, P.C., a large local
certified public accounting firm located in Denver, Colorado. In addition, he
has been involved with the finance and mortgage banking industries. Mr.
Butterwick received his Bachelor of Science in Business Administration from the
University of Denver. He is a member of the American Institute of CPA's. Mr.
Butterwick is a full-time employee of our company.
JOHN E. ROWLETT has been the Secretary of our company since December 8,
1999 and was a director from December 1999 to September 2001. Mr. Rowlett is a
25-year veteran of the automobile business. He has extensive expertise in all
areas of dealership management, including facility design, development and
maintenance, sales,
30
sales management, general management, finance, CSI, wholesaling, reconditioning,
parts, service and body shop management, forecasting, budgeting, policy
administration, inventory acquisition and control, market trends, and financial
management. Mr. Rowlett has been charged with the responsibility of managing
large retail mega-dealerships involving multiple locations and new car store
franchises. Accomplishments include:
o Graduate of Chrysler Corporation's Dealer Academy
o Experienced in turnarounds and rapid growth transitions, outstanding
history of rehabilitation of marginal or unprofitable dealerships.
o Accomplished in marketing, product development, operations and direct
sales of diverse product lines.
o Effective in all phases of labor relations, including recruiting,
hiring, training, motivating and supervising.
MARK R. JENSEN has been our Chief Technology Officer since March 2000.
He is responsible for all operations that relate to our Internet initiatives.
Mr. Jensen joined us from NDSCo.com, a privately-held Internet automotive
remarketing company that we acquired in March 2000. As acting chief operations
officer, he managed NDSCo.com's business operations from April 1999 to March
2000. Mr. Jensen founded The Deanox Group, Inc. in 1989 and operated that
company until 1998. As a privately-held company in Logan, Utah, The Deanox Group
provided computer software, hardware, and consulting services to customers
desiring to apply computer technologies to their business operations. Mr. Jensen
has been a frequent speaker and trainer for groups and academic forums including
the State of Utah, Utah State University, Bernina of America, Weber State
College, Mountain West Center for Regional Studies, Utah State Continuing
Education Department, and the Office of the Governor for the State of Utah.
JAMES KAISER has been a director since November 2000. Mr. Kaiser has
been the chairman, chief executive officer, and a director of Avenir Partners
Inc., a privately-owned franchised automobile dealership located in Memphis,
Tennessee, since December 1998. He has also been the president of Kaiser
Services, LLC, a business development company, located in Manhattan Beach,
California, since 1998. From 1994 to 1996, Mr. Kaiser was the president, chief
executive officer, and a director of Quanterra Inc., a subsidiary jointly owned
by Corning Inc. and International Technology Inc., engaged in the business of
environmental testing laboratories and located in Denver, Colorado. Mr. Kaiser
serves as a director of the following public companies: Sunoco, Inc. since 1993;
and The Mead Corporation since 1995.
DAVID LIVINGSTON has been a director since November 2000. Since
December 1995, Mr. Livingston has been the managing partner of The Corporate
Development Group, a private firm located in Mission Viejo, California offering
corporate development and investment banking services. He was the executive vice
president of the Bank of New Mexico (a Western Bancorporation/First Interstate
Bancorporation bank) from 1962 to 1970 and chairman, chief executive officer,
and a director of First National Bank of Albuquerque from January 1970 to March
1975. During his career, Mr. Livingston has served on numerous boards for
corporate, civic, and charitable organizations. He is also the current chairman
of David Livingston & Associates, Inc., dba Pacific-Southwest Capital Group
since 1975.
R. GARY MCCAULEY has been a director since November 2000. Since 1964,
he has owned and/or operated a number of private businesses. Mr. McCauley has
been the owner, developer, and manager of retail shopping centers in Florida and
Colorado since 1986. In addition, since 1972, he has held oil and gas interests
through D&G Enterprises, a private company co-owned by him. He has owned and
been the president and/or general manager of various automobile dealerships from
time to time: Scott Toyota, Inc, Scottsdale, Arizona (1998-2000); McCauley
Mazda, Phoenix, Arizona (1989-1990); McCauley Oldsmobile/Honda, Colorado
Springs, Colorado (1977-1990); McCauley Volkswagen, Albuquerque, New Mexico
(1966-1977); and McCauley Volkswagen, Yuma, Arizona (1964-1966). From 1979 to
1990, Mr. McCauley was the co-founder and an officer of Sunwest Life Insurance
Co., which provided life, accident, health, and extended warranty insurance
products to over 50 automobile dealerships in the western United States.
L. DAVID SIKES has been a director since November 2000. Since March
1995, Mr. Sikes has been the chairman and chief executive officer of Ramtron
International Corporation, a publicly-owned specialty semiconductor company
located in Colorado Springs, Colorado. Mr. Sikes was president and chief
executive officer of the U.S. operations of ASM International N.V., a public
semiconductor company domiciled in the Netherlands, from January 1990 to July
1992. His background also includes management positions with the
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following: vice president for the semiconductor product sector of Motorola,
Inc., Phoenix, Arizona, from June 1984 to June 1987; an executive for National
Semiconductor Corporation, Santa Clara, California, from July 1972 to January
1974; and an engineering management position for Eastman Kodak Company,
Rochester, New York, from July 1963 to January 1967.
A. MARVIN STRAIT has been a director since November 2000. Mr. Strait
has been in the practice of public accountancy under the name of A. Marvin
Strait, CPA, since June 1994. He specializes in litigation support, offering
consulting services with a focus on business valuation. Mr. Strait was
previously the managing partner and later chairman with Strait oKushinsky and
Company, P.C. in Colorado Springs, Colorado, from October 1977 to May 1993. Mr.
Strait was a past chairman (1987-1988) and served on the board of directors
(1983-1989) of the American Institute of Certified Public Accountants. He
received the AICPA Gold Medal for Distinguished Service in 1992. Mr. Strait
currently serves as a director of the following: Whitman Education Group, Inc.,
a publicly-held company based in Miami, Florida, since late 1998; Colorado
Technical University, a private university with campuses in Colorado and South
Dakota, since 1990; and Western National Bank, a privately-held bank located in
Colorado Springs, Colorado, since 1996.
G. NEIL ELSEY III has been a director since September 2001. He is a
managing member of Eagle Capital Group, LLC, a private company which has
provided a credit facility to us. In 1996, Mr. Elsey was one of six partners who
purchased 52% of the American Stock Exchange-listed company known as Arizona New
Mexico Land Company. In addition, since 1996, he has owned and/or operated a
number of private businesses in the real estate industry, the lottery pooling
industry, the food services industry, the apparel industry, the
chemical/cleaning solutions industry, the sports entertainment industry, the
travel industry, and the real estate finance/lending industry. Since 1980, Mr.
Elsey has been the principal in several real estate entities involved in the
purchase, development, construction, and/or financing of real estate ventures
exceeding $1 billion. In addition, beginning in 1998, Mr. Elsey became part of a
management team and the trustee of a voting trust that took on the task of
completely restructuring the management, accounting, development, and sales
efforts relating to an 1,800-acre master planned community containing in excess
of $100 million of real estate and a nationally acclaimed golf course. In the
past, he has served as a board member, shareholder, and trustee of various
publicly-traded companies.
J. CHRISTOPHER ARNOLD has been a director since September 2001. He is a
managing member of Eagle Capital Group, LLC. Since 1996, he has owned and/or
operated a number of private businesses in the real estate industry, the sports
entertainment industry, the travel industry, and the real estate finance/lending
industry. Since 1996, Mr. Arnold has been the principal in several real estate
entities involved in the purchase, development, construction, and/or financing
of real estate ventures exceeding $750 million. In addition, beginning in 1998,
Mr. Arnold became part of a management team that took on the task of completely
restructuring the management, accounting, development, and sales efforts
relating to an 1,800-acre master planned community containing in excess of $100
million of real estate and a nationally acclaimed golf course. Mr. Arnold
received his Bachelor of Science Degree in accounting from the University of
Southern Mississippi. He has also received his Master's Degree in finance from
Grand Canyon University. Mr. Arnold is a member of the American Institute of
Certified Public Accountants.
EXECUTIVE COMPENSATION
The following table sets forth the remuneration for Mr. Butterwick by
fiscal year, who functions as our chief executive officer and other executive
officers. We are not required to set forth information for any officer whose
total annual salary and bonus does not exceed $100,000.
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Compensa- Award(s) Options/ Payouts Compensa-
Position Year Salary ($) Bonus ($) tion ($) ($) SARs (#) ($) tion($)
Roger Butterwick, 1999 $63,000(1)<F1> -0- -0- -0- 375,000 -0- -0-
President 2000 $54,000 -0- -0- -0- 500,000 -0- -0-
2001 $158,400 -0- -0- -0- -0- -0- -0-
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Compensa- Award(s) Options/ Payouts Compensa-
Position Year Salary ($) Bonus ($) tion ($) ($) SARs (#) ($) tion($)
John Rowlett, 2001 $144,000 -0- -0- -0- 325,000 -0- -0-
Chief Operating
Officer
Michael 2001 $121,000 -0- -0- -0- 90,000 -0- -0-
Feinstein, Chief
Financial Officer
Mark Jensen, 2001 $151,500 -0- -0- -0- 150,000 -0- -0-
Chief Technology
Officer
------------------
<FN>
(1)<F1> Includes $36,000 paid to Mr. Butterwick as a consultant prior to becoming President.
</FN>
Currently, we pay the following monthly salaries plus car allowances:
Roger Butterwick - $18,750, John Rowlett - $16,667, and Mark Jensen - $14,166.
We reimburse all officers and directors for actual out-of-pocket
expenses incurred on our behalf.
We have no retirement, pension, profit sharing or medical reimbursement
plans exclusively covering our officers and directors, although we do
contemplate implementing a company sponsored 401(k) plan and providing major
medical and dental health insurance coverage for all employees in the near
future.
[Enlarge/Download Table]
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable value at Alternative to
assumed annual rates of stock (f) and (g):
price appreciation for option grant date
Individual Grants term value
Percent of
Number of total
securities options/SARs
underlying granted to Exercise or Grant date
Options/SARs employees in base price Expiration present
Name granted (#) fiscal year ($/Sh) date 5% ($) 10% ($) value $
Roger 125,000 4.3% $0.91 11/29/05 $5,687.50 $11,375.00
Butterwick 250,000 (1)<F1> 8.6% $0.91 11/29/05 $2,275.00 $4,550.00
John 150,000 (2)<F2> 5.1% $0.9375 12/08/02 $2,343.75 $4,687.50
Rowlett 125,000 4.3% $0.91 11/29/05 $5,687.50 $11,375.00
200,000 (3)<F3> 6.8% $0.91 11/29/05 $1,820.00 $3,640.00
Michael 90,000 (4)<F4> 3.1% $1.9375 05/01/03 $2,906.25 $5,812.50
Feinstein
Mark 150,000 (5)<F5> 5.1% $3.16 04/01/03 $7,900.00 $15,800.00
Jensen
----------------
<FN>
(1)<F1> We granted Mr. Butterwick an option for 250,000 shares, 50,000 of which
were vested at the time of granting. The remainder of the options vests
as to 50,000 on each anniversary of the grant date. The option is
exercisable for five years from date of vesting.
(2)<F2> We granted Mr. Rowlett an option for 150,000 shares, 50,000 of which
vested as of December 8, 2000. The remainder of the options vests as to
50,000 on each anniversary thereafter. The option is exercisable for
two years from date of vesting.
(3)<F3> We granted Mr. Rowlett an option for 200,000 shares, 40,000 of which
were vested at the time of granting. The remainder of the options vests
as to 40,000 on each anniversary of the grant date. The option is
exercisable for five years from date of vesting.
(4)<F4> We granted Mr. Feinstein an option for 90,000 shares, 30,000 of which
vested as of May 1, 2001. The remainder of the options vests as to
30,000 on each anniversary thereafter. The option is exercisable for
two years from date of vesting.
(5)<F5> We granted Mr. Jensen an option for 150,000 shares, 50,000 of which
vested as of April 1, 2001. The remainder of the options vests as to
50,000 on each anniversary thereafter. The option is exercisable for
two years from date of vesting.
</FN>
33
[Enlarge/Download Table]
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of securities
underlying unexercised Value of unexercised in-
Shares acquired on options/SARs at fiscal the-money options/SARs
Name exercise (#) Value Realized ($) year end (#) at fiscal year end ($)
Exercisable/ Exercisable/
unexercisable unexercisable
Roger Butterwick -0- -0- 450,000/425,000 -0-/-0-
John Rowlett -0- -0- 215,000/260,000 -0-/-0-
Michael Feinstein -0- -0- 30,000/60,000 -0-/-0-
Mark Jensen -0- -0- 50,000/100,000 -0-/-0-
In addition to the stock options granted to Mr. Butterwick shown in the
above table, stock options have also been granted to Mr. Butterwick in
connection with loan guarantees. In addition, certain stock options were granted
to Cambridge Management Associates, LLP, an entity controlled by Mr. Butterwick,
that provided contracted financial services to our company prior to Mr.
Butterwick becoming an officer, as described in the section of this prospectus
entitled "Certain Relationships and Related Transactions."
DIRECTORS' COMPENSATION AND COMMITTEES
We pay each independent director $3,000 for his attendance at both the
annual stockholders' meeting and annual directors' meeting, $2,000 for his
attendance at each physical meeting of the board of directors, $750 for his
attendance at each physical committee meeting, and $500 for his attendance at
each telephonic meeting of the board of directors. We also reimburse them for
their travel expenses incurred in connection with these meetings.
We have the following committees of the board of directors:
o Audit Committee, consisting of A. Marvin Strait (committee chairman),
L. David Sikes, David G. Livingston, and Chris Arnold (corporate
liaison)
o Technical Committee, consisting of L. David Sikes (committee chairman),
James G. Kaiser, and Mark R. Jensen (corporate liaison)
o Compensation Committee, consisting of R. Gary McCauley (committee
chairman), Neil Elsey, David G. Livingston, and John E. Rowlett
(corporate liaison)
STOCK OPTION PLAN
On August 5, 1997, the shareholders adopted the 1997 Stock Option Plan,
which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors. The option
pool is adjusted annually on the beginning of our fiscal year to a number equal
to 10% of the number of shares of common stock outstanding at the end of our
last completed fiscal year. At March 31, 2001, the number of shares eligible
pursuant to the plan was 4,095,476. The plan is administered by the compensation
committee of the board of directors or, if there is no committee, by the board
of directors. A registration statement on Form S-8 was filed on May 15, 2000
registering the underlying shares of the options granted.
The plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of our subsidiaries, will
receive automatic option grants to purchase 10,000 shares of common stock upon
their appointment or election to the board of directors. Options shall have an
option price equal to 100% of the fair market value of our common stock on the
grant date and shall have a minimum vesting period of one year from the date of
grant.
Each option granted under the plan will be evidenced by a written
option agreement between our company and the optionee. Incentive stock options
may be granted only to employees as defined by the Internal Revenue Code. The
option price of any incentive stock option may not be less than 100% of the fair
market value per share on the date of grant of the option; provided, however,
that any incentive stock option granted under the plan to a person owning more
than 10% of the total combined voting power of our common stock will have an
option price of not less than 110% of the fair market value per share on the
date of grant of the incentive stock option. Each non-qualified stock option
granted under the plan will be at a price no less than 85% of the fair market
value per
34
share on the date of grant thereof, except that the automatic stock option
grants to disinterested directors will be at a price equal to the fair market
value per share on the date of grant. The exercise period of options granted
under the plan may not exceed ten years from the date of grant thereof.
Incentive stock options granted to a person owning more than 10% of the total
combined voting power of the common stock cannot be exercisable for more than
five years. No portion of any option will be exercisable prior to the first
anniversary of the grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of our company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of our company
since the date of grant of the option. If the optionee ceases to be an employee,
officer, or director of our company or any subsidiary other than by reason of
death, disability, retirement, or for cause, all options granted to such
optionee, fully vested to such optionee but not yet exercised, will terminate 90
days after the date the optionee ceases to be an employee, officer, or director.
All options, which are not vested to an optionee, under the conditions stated in
this paragraph for which employment ceases, will immediately terminate on the
date the optionee ceases employment or association.
Options have been granted under this plan as follows:
[Download Table]
Balance, March 31, 1998................. 350,000
Granted................................. 1,298,175
Exercised............................... 0
Cancelled/expired....................... (125,000)
----------
Balance, March 31, 1999................. 1,523,175
Granted................................. 1,419,080
Exercised............................... 0
Cancelled/expired....................... (25,000)
----------
Balance, March 31, 2000................. 2,917,255
Granted................................. 554,474
Exercised............................... (362,925)
Cancelled/expired....................... (394,885)
----------
Balance, March 31, 2001................. 2,713,919
==========
2000 EQUITY INCENTIVE COMPENSATION PLAN
On November 29, 2000, the board of directors adopted the 2000 Equity
Incentive Compensation Plan, which provides for granting stock options, stock
appreciation rights, restricted and deferred stock, bonus stock, and other
stock-based awards to officers, directors, employees, and independent
contractors. The shareholders must still adopt this plan. The total number of
shares of common stock that may be subject to the granting of awards under this
plan at any time during the term of the plan is equal to 3,500,000 shares, plus
the number of shares with respect to which awards previously granted under the
plan that terminate without being exercised, and the number of shares that are
surrendered in payment of any awards or any tax withholding requirements. During
any fiscal year the number of options, stock appreciation rights, restricted
shares of common stock, deferred shares of common stock, shares as a bonus or in
lieu of other company obligations, and other stock-based awards granted to any
one participant may not exceed 450,000 for each type of such award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
an annual incentive award or other cash award in any fiscal year to any one
participant is $2,000,000, and the maximum amount that may be earned as a
performance award or other cash award in respect of a performance period by any
one participant is $5,000,000.
The compensation committee of the board of directors administers this
plan, and:
o selects eligible persons to receive awards,
o determines the type and number of awards to be granted and the number
of shares of common stock to which awards will relate,
o specifies times at which awards will be exercisable or settleable
(including performance conditions that may be required as a condition
thereof),
o sets other terms and conditions of awards,
o prescribes forms of award agreements,
35
o interprets and specify rules and regulations relating to this plan, and
o makes all other determinations that may be necessary or advisable for
the administration of this plan.
The board of directors may amend, alter, suspend, discontinue or
terminate this plan or the compensation committee's authority to grant awards
without further stockholder approval. However, stockholders must approve any
amendment or alteration if that approval is required by law or regulation or
under the rules of any stock exchange or quotation system on which our shares
are then listed or quoted.
Unless earlier terminated by the board of directors, this plan will
terminate at such time as no shares of common stock remain available for
issuance under this plan and we have no further rights or obligations with
respect to outstanding awards under this plan.
Subject to approval of this plan by the stockholders, options have been
granted under this plan as follows:
[Download Table]
Granted.......................................... 2,365,496
Exercised........................................ 0
Cancelled/expired................................ 0
---------
Balance, March 31, 2001.......................... 2,365,496
=========
OTHER OPTIONS
In addition to the stock options granted under the 1997 stock option plan and
2000 equity incentive compensation plan, we have granted options as follows:
[Download Table]
Balance, March 31, 1998.......................... 850,000
Granted.......................................... 1,589,810
Exercised........................................ 0
Cancelled/expired................................ (350,000)
----------
Balance, March 31, 1999.......................... 2,089,810
Granted.......................................... 465,000
Exercised........................................ 0
Cancelled/expired................................ (300,000)
----------
Balance, March 31, 2000.......................... 2,254,810
Granted.......................................... 0
Exercised........................................ (210,000)
Cancelled/expired................................ (75,000)
----------
Balance, March 31, 2001.......................... 1,969,810
==========
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table provides stock ownership information as to the
officers and directors individually and as a group, and the holders of more than
5% of our common stock as of August 15, 2001:
[Enlarge/Download Table]
Percent of Class (1)<F1>
Number of Shares Owned Before After
Name and address of owner Conversion Conversion (2)<F2>
Eagle Capital Group, LLC 19,500,000 (3)<F3> 26.48% 21.82%
2425 East Camelback Road, Suite 100
Phoenix, AZ 85016
J. Christopher Arnold 19,500,000 (3)<F3> 26.48% 21.82%
2425 East Camelback Road, Suite 100
Phoenix, AZ 85016
36
Percent of Class (1)<F1>
Number of Shares Owned Before After
Name and address of owner Conversion Conversion (2)<F2>
G. Neil Elsey III 19,500,000 (3)<F3> 26.48% 21.82%
2425 East Camelback Road, Suite 100
Phoenix, AZ 85016
Mark Moldenhauer 15,651,105 (4)<F4> 23.87% 19.25%
14500 N. Northsight Blvd. #213
Scottsdale, AZ 85260
Almond Investors, LLC 11,031,620 (5)<F5> 17.04% 15.79%
110 Colabaugh Pond Road
Croton-on-Hudson, NY 10520
John Charles Hakala 6,750,000 (6)<F6> 11.97% 9.36%
12873 W. Harvard Avenue
Lakewood, CO 80228
Ardmore Investments Inc. 3,750,000 (7)<F7> 6.77% 5.27%
14500 N. Northsight Blvd. #213
Scottsdale, AZ 85260
R. Gary McCauley 1,910,000 (8)(9)<F8><F9> 3.47% 2.70%
Roger L. Butterwick 1,299,400 (10)<F10> 2.35% 1.83%
A. Marvin Strait 960,000 (9)(11)<F9><F11> 1.76% 1.37%
James Kaiser 950,000 (9)(11)<F9><F11> 1.74% 1.35%
L. David Sikes 587,000 (9)(12)<F9><F12> 1.08% 0.84%
John E. Rowlett 305,000 (9)(13)<F9><F13> 0.56% 0.43%
David Livingston 215,000 (9)<F9> 0.40% 0.31%
Mark R. Jensen 180,000 (13)<F13> 0.33% 0.26%
All officers and directors as a group 25,906,400(14)<F14> 33.61% 27.91%
(10 persons)
-------------------------
<FN>
(1)<F1> Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from August 15, 2001, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of common stock
owned by such persons, but are not deemed to be outstanding for the
purpose of computing the percentage owned by any other person.
Percentages are based on 54,147,918 shares outstanding before the
offering and conversion of the preferred stock and 69,872,318 shares
outstanding after the offering and conversion of the preferred stock.
(2)<F2> Assumes the conversion of 11,118 shares of Series C preferred stock at
$0.75 per share and 13,832 shares of Series D preferred stock using a
conversion price of $0.10 per share and the issuance of the 410,000
option shares. Since the conversion price of the Series D preferred
stock is equal to 65% of the average closing bid price for the 10
trading days immediately preceding the date of conversion, the number
of shares is subject to change.
(3)<F3> Includes 6,500,000 shares issuable upon exercise of a warrant issued to
Eagle Capital Group, LLC and 13,000,000 shares issuable upon conversion
of a promissory note issued to Eagle Capital Group, LLC. Does not give
effect to the Series E preferred stock which grants Eagle the right to
vote an equivalent of 13,000,000 common shares. Each of Messrs. Arnold
and Elsey has the right to dispose of and to vote the securities held
by Eagle Capital Group, LLC. Accordingly, each is deemed to be the
beneficial owner of the securities held by Eagle.
37
(4)<F4> Includes 350,000 shares issuable upon the exercise of options and
7,388,070 shares and 3,694,035 warrants issuable upon conversion of a
promissory note.
(5)<F5> Includes 10,590,800 shares issuable upon conversion of 8,976 shares of
Series C preferred stock and 9,394 shares of Series D preferred stock,
assuming a conversion price of $0.10 for the Series D preferred stock.
Almond did not, in connection with its acquisition of the Series C and
D preferred stock, obtain any voting rights, directorships, rights to
directorships, positions with us, right to positions with us, or any
non-public information regarding us. Further, Almond acquired the
Series C and D preferred stock in the ordinary course of business, for
its own account, and not with a view to distribution and did not, at
the time of such acquisition nor any time thereafter, have any
agreement or understanding, directly or indirectly, with any person to
distribute any portion of the Series C and D preferred stock or the
common stock issuable upon conversion.
(6)<F6> Includes 2,250,000 shares issuable upon exercise of a warrant.
(7)<F7> Includes 1,250,000 shares issuable upon exercise of a warrant.
(8)<F8> Includes 500,000 shares issuable upon exercise of a warrant.
(9)<F9> Includes 125,000 shares issuable upon exercise of options.
(10)<F10>Includes 99,400 shares held of record by Cambridge Consulting Group, an
entity controlled by Mr. Butterwick. Includes 1,200,000 shares issuable
upon the exercise of options.
(11)<F11>Includes 250,000 shares issuable upon exercise of a warrant.
(12)<F12>Includes 124,000 shares issuable upon exercise of a warrant.
(13)<F13>Includes 180,000 shares issuable upon exercise of options.
(14)<F14>Includes 3,434,000 shares issuable upon exercise of options and
warrants. Includes 6,500,000 shares issuable upon exercise of a warrant
issued to Eagle Capital Group, LLC and 13,000,000 shares issuable upon
conversion of a promissory note issued to Eagle Capital Group, LLC.
Does not give effect to the Series E preferred stock which grants Eagle
the right to vote an equivalent of 13,000,000 common shares.
</FN>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the terms of agreements and other transactions included in this
section were as fair as those we could have obtained from unrelated third
parties at arms-length transactions.
Jeff Erskine, Mike Stuart, and Mark Moldenhauer and their respective
spouses personally guaranteed the operating lease dated July 24, 1997, pursuant
to which we lease our office and warehouse facilities in Scottsdale, Arizona. At
July 24, 1997, Messrs. Erskine, Stuart, and Moldenhauer were officers,
directors, and principal shareholders of our company. The lease expires
September 30, 2002.
From inception, September 22, 1997, through March 31, 2000, we had
entered into various lending arrangements involving officers, directors and
other affiliated entities owned or controlled by officers, directors and other
key personnel. At March 31, 2001, 2000 and 1999, the outstanding balances on
these notes from continuing operations were $738,807, $528,807, and $528,807,
respectively. The total interest paid from continuing operations to these
entities on all financing activities for the years ended March 31, 2001, 2000
and 1999 was $106,888, $63,456, and $63,456, respectively. The outstanding
balances on related party notes respecting discontinued operations were $0,
$5,376,821, and $3,342,639 at March 31, 2001, 2000, and 1999, respectively.
Total interest paid to these entities on all financing activities for
discontinued operations was $690,853, $887,094, and $355,066 for the fiscal
years ended March 31, 2001, 2000 and 1999, respectively.
38
[Enlarge/Download Table]
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
09/22/97 Evelyn Felice $400,000 loan, 12% interest per annum, payable monthly,
(principal stockholder at due September 22, 1999, collateralized by used car inventory,
the time) personally guaranteed by Jeff Erskine, Mike Stuart, and John
Carrante. This note was paid September 22, 1999.
10/17/97 Mark Moldenhauer $150,000 loan, 12% interest per annum, payable monthly,
(officer, director and due November 17, 1999, collateralized by used car inventory,
principal stockholder at personally guaranteed by Jeff Erskine, Mike Stuart, and John
the time) Carrante. This note was paid by the Amended and Restated
Secured Promissory Note dated March 31, 2000.
12/15/97 Pinnacle Financial $200,000 loan, 12% interest per annum, payable monthly,
Corporation (owned by due December 15, 1998, collateralized by used car inventory.
officer, director, and This note was paid by the Amended and Restated Secured
principal stockholder at Promissory Note dated March 31, 2000.
the time)
01/15/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly,
(officer, director and due January 15, 1999, collateralized by used car inventory,
principal stockholder at convertible into shares of common stock at $.10 per share.
the time) Note was converted into 3,000,000 shares of common stock
on May 1, 2000.
03/31/98 Mark Moldenhauer $102,000 loan, 12% interest per annum, payable monthly,
(officer, director and due upon 30 days' notice, collateralized by used car
principal stockholder at inventory. This note was paid by the Amended and Restated
the time) Secured Promissory Note dated March 31, 2000.
04/07/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly, due
(officer, director and due upon 30 days' notice, collateralized by used car
principal stockholder at inventory. This note was paid by the Amended and Restated
the time) Secured Promissory Note dated March 31, 2000.
06/01/98 Eastlane Trading Limited $250,000 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
09/01/98 Mike and Debbie Stuart $50,000 loan, 12% interest per annum, payable monthly,
(officer, director, and due October 1, 1999, collateralized by used car inventory.
principal stockholder at This note was paid by the Amended and Restated Secured
the time) Promissory Note dated March 31, 2000.
09/11/98 Pinnacle Financial $117,500 loan, 12% interest per annum, payable monthly,
Corporation (owned by due October 11, 1999, collateralized by used car inventory.
officer, director, and This note was paid by the Amended and Restated Secured
principal stockholder at Promissory Note dated March 31, 2000.
the time)
39
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
09/18/98 Pinnacle Financial $400,000 loan, 12% interest per annum, payable monthly,
Corporation (owned by due October 30, 1998 (extended and due upon demand),
officer, director, and collateralized by used car inventory. This note was paid by
principal stockholder at the Amended and Restated Secured Promissory Note dated
the time) March 31, 2000.
10/20/98 Eastlane Trading Limited $1,000,000 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
11/18/98 Eastlane Trading Limited $232,259 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
02/05/99 Eastlane Trading Limited $17,741 loan, 12% interest per annum, payable on request, due
(principal stockholder) April 1, 2000, collateralized by used car inventory. This
note was assumed by Pinnacle Financial as of December 31,
1999 and has been paid by the Amended and Restated
Secured Promissory Note due to Pinnacle Financial dated
March 31, 2000.
5/13/99 Pinnacle Financial $300,000 loan to Auto Network Group of New Mexico, 12 %
Corporation (owned by interest per annum, payable monthly, due May 13, 2000,
officer, director, and personally guaranteed by Jules Gollins, Bruce Burton, Stuart
principal stockholder at Bailey, all officers of Auto Network Group of New Mexico, and
the time) their respective spouses.
6/22/99 Pinnacle Financial $200,000 loan, 12 % interest per annum, payable monthly,
Corporation (owned by due December 22, 1999. This note was paid by the Amended
officer, director, and and Restated Secured Promissory Note dated March 31,
principal stockholder at 2000.
the time)
6/22/99 Mark Moldenhauer $100,000 loan, 12 % interest per annum, payable monthly,
officer, director and due December 22, 1999. This note was paid by the Amended
principal stockholder at and Restated Secured Promissory Note dated March 31,
the time) 2000.
7/20/99 Cascade Funding Group. LLC $1,572,000 loan to Auto Network Group Northwest, prime
(owned by three plus 6% interest per annum, payable monthly, collateralized
officers of Auto Network by used car inventory, due July 14, 2000. Assumed by
Group Northwest, Inc.) Automotive Disposition Management Services, Inc.
8/3/99 Pinnacle Financial $50,000 loan, 12 % interest per annum, payable monthly, due
Corporation (owned by February 3, 2000. This note was paid by the Amended and
officer, director, and Restated Secured Promissory Note dated March 31, 2000.
principal stockholder at
the time)
40
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
8/3/99 Mark Moldenhauer $200,000 loan, 12 % interest per annum, payable monthly,
(officer, director and due February 3, 2000. This note was paid by the Amended
principal stockholder at and Restated Secured Promissory Note dated March 31,
the time) 2000.
8/13/99 MDM Investments $160,000 loan, 12 % interest per annum, payable monthly,
(owned by Mike Stuart due August 13, 2000. This note was paid October 14, 1999.
and Mark Moldenhauer)
11/1/99 MDM Investments $300,000 loan, 12% interest per annum, payable monthly,
(owned by Mike Stuart due May 13, 2000. This note has been paid.
and Mark Moldenhauer)
11/5/99 and 11/9/99 Susan Gollins (wife of $17,000 loan, 15% interest per annum, payable monthly, due
officer and director of on demand. Assumed by Automotive Disposition
Auto Network Group of Management Services, Inc.
New Mexico, Inc.)
11/14/99 Darlene Burton Gollins $45,000 loan, 15% interest per annum, payable monthly, due
(wife of officer and on demand. Assumed by Automotive Disposition
director of Auto Network Management Services, Inc.
Group of New Mexico,
Inc.)
12/27/99 Pinnacle Financial $175,000 loan, 12 % interest per annum, payable monthly,
Corporation (owned by due February 3, 2000. This note was paid January 12, 2000.
officer, director, and
principal stockholder at
the time)
03/31/00 Pinnacle Financial Amended and Restated Secured Promissory Note for
Corporation $2,675,420, 12% interest per annum, interest payable
monthly, 3 quarterly principal payments of $569,307
beginning June 30, 2000, with final payment of $967,500 due
April 1, 2001, personally guaranteed by Roger L. Butterwick
and John E. Rowlett, collateralized by all assets of
AutoTradeCenter.com Inc. Assumed in part by Automotive
Disposition Management Services, Inc. and paid in part by a
new note for $336,200 due April 1, 2002, 12% interest per
annum.
03/31/00 Mark Moldenhauer Amended and Restated Secured Promissory Note for
$852,000, 12% interest per annum, interest payable monthly,
principal and interest due April 1, 2001, personally
guaranteed by Roger L. Butterwick and John E. Rowlett,
collateralized by all assets of AutoTradeCenter.com Inc. Paid
by a new note due April 1, 2002, 12% interest per annum.
12/29/00 Mark Moldenhauer Secured Promissory Note for $300,000, 12% interest per
annum, principal and interest due April 1, 2001,
collateralized by all assets of AutoTradeCenter.com Inc. Paid
by a new note due April 1, 2002, 12% interest per annum.
41
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
03/31/01 Mark Moldenhauer Secured promissory note for $402,000, 12% interest per annum
payable monthly, principal and interest due April 1,
2002 collateralized by all accounts receivable, inventory,
equipment, and certain intangibles of AutoTradeCenter.com
Inc., personally guaranteed by Roger L. Butterwick and John
E. Rowlett, convertible at the option of the holder into
common shares at the lesser of $0.375 per share or the
average trading price of the common stock for the 30 trading
days preceding conversion. Paid by Amended and Restated
Secured Promissory Note dated July 26, 2001.
03/31/01 Pinnacle Financial Secured promissory note for $336,807, 12% interest per
Corporation annum payable monthly, principal and interest due April 1,
2002, collateralized by all accounts receivable, inventory,
equipment, and certain intangibles of AutoTradeCenter.com
Inc., personally guaranteed by Roger L. Butterwick and John
E. Rowlett, convertible at the option of the holder into
common shares at the lesser of $0.375 per share or the
average trading price of the common stock for the 30 trading
days preceding conversion, subordinated to senior debt. Paid
by Amended and Restated Secured Promissory Note dated
July 26, 2001.
05/16/01 R. Gary McCauley Promissory note for $150,000 and subsequently increased to
(director) $200,000 on May 31, 2001, due upon receipt of and secured
by specific trade accounts receivable, interest at 12% per
annum. Principal balance reduced to approximately $50,000
on June 29, 2001.
07/16/01 R. Gary McCauley Promissory note for $65,000, due upon receipt of and secured
(director) by specific trade accounts receivable, interest at 12% per
annum.
07/26/01 Mark Moldenhauer and Consolidated promissory note for $738,200, interest at 12%
Pinnacle Financial per annum payable monthly, principal payments of $25,000
Corporation per month for the months of November and December 2001,
principal payments of $50,000 per month for January 2002
through May 2002, balance due June 30, 2002, subordinated
to the first lien of Eagle Capital Funding, LLC.
On May 5, 1998, we obtained a line of credit from First International
Bank of Arizona in the amount of $500,000. The note was secured by a first lien
on all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to us to the bank's line of
credit. On May 7, 1998, the Company granted each of Messrs. Erskine, Stuart, and
Moldenhauer two-year options to purchase 100,000 restricted shares of common
stock at a price of $.75 per share. On March 26, 1999, the note was paid. The
expiration date of the options has been extended to May 7, 2002.
On March 26, 1999, we obtained a $3,000,000 revolving line of credit
from Wells Fargo Business Credit, Inc. The note was originally due March 31,
2000 and was secured by a first lien on all inventory, accounts receivable,
equipment, and general intangibles. The interest rate paid was 1.5% over the
bank's prime rate. Messrs. Stuart and Moldenhauer, who are former officers,
directors, and/or principal stockholders, and Mr. Butterwick, currently an
officer, director and principal stockholder personally guaranteed the note. On
December 31, 1998, we granted each of Messrs. Stuart, Moldenhauer, and
Butterwick three-year options to purchase 250,000 restricted
42
shares of common stock at a price of $1.00 per share, the closing bid on the
common stock at December 31, 1998, in consideration for providing their personal
guarantees on the line of credit. Mr. Butterwick remained as the sole guarantor
of the note during the extension period. No additional consideration was granted
to Mr. Butterwick. The note was paid in full on February 16, 2001.
AUTO NETWORK GROUP OF NEW MEXICO, INC. TRANSACTIONS. On June 1, 1998,
Auto Network Group of New Mexico entered into a lease for an office and
warehouse facility in Albuquerque, New Mexico, with G & B Investments LLC, an
entity owned and controlled by Bruce Burton and Jules Gollins. The original
lease that expired on May 31, 1999 was extended to May 31, 2001. Messrs. Burton
and Gollins are two of the principals who manage the Auto Network Group of New
Mexico operations. The amount of lease payments made under this agreement was
$26,732 for the year ended March 31, 1999 and $34,754 for the year ended March
31, 2000.
Also on June 1, 1998, we entered into a Purchase of Goodwill Agreement
with JBS, LLC, an entity whose members comprise the management team of Auto
Network Group of New Mexico. In consideration for the goodwill which Auto
Network Group of New Mexico is receiving from JBS, JBS was granted a total of
800,000 contingently issuable restricted shares of our common stock valued at
$.20 per share as follows: 266,667 shares issued upon execution of the
agreement, held in escrow, and subject to forfeiture if Auto Network Group of
New Mexico was not doing business as of June 1, 1999; 266,667 shares to be
earned for the period June 1, 1998 through March 31, 1999 if pre-tax earnings of
Auto Network Group of New Mexico were at least $60,000; and 266,666 shares to be
earned for the period April 1, 1999 through March 31, 2000 if pre-tax earnings
of Auto Network Group of New Mexico were at least $120,000. In addition, JBS was
able to earn options to purchase restricted shares of our common stock at the
rate of 5 options for every dollar of pre-tax earnings of Auto Network Group of
New Mexico in excess of $60,000 for the period ending March 31, 1999, and 5
options for every dollar of pre-tax earnings of Auto Network Group of New Mexico
in excess of $120,000 for the year ended March 31, 2000. The options were to be
exercisable for a period of 3 years from date of grant at the bid price as of
March 31, 1999 or 2000, respectively.
Since Auto Network Group of New Mexico was doing business at June 1,
1999, 266,667 shares were earned. For the period from June 1, 1998 through March
31, 1999, Auto Network Group of New Mexico had pre-tax earnings of $107,962,
resulting in JBS, LLC earning 266,667 shares and 239,810 options, exercisable at
$3.00 per share. For the period ending March 31, 2000, Auto Network Group of New
Mexico had pre-tax earnings of $70,395, resulting in no shares or options being
earned. This agreement was subsequently amended and 266,666 shares were issued
in 2000.
On June 1, 1998, we loaned $250,000 to Auto Network Group of New
Mexico. The related promissory note was due June 30, 2000 and earned interest at
12% per annum, payable monthly. This note has been extended to June 30, 2003.
This note was repaid upon the sale of the subsidiary.
WALDEN REMARKETING TRANSACTIONS. As of March 31, 1999, we acquired
Walden Remarketing Services, Inc., a Minnesota corporation, by issuing the
shareholders of Walden Remarketing a total of 2,050,000 restricted shares of
common stock, cash of $125,000, and promissory notes in the aggregate principal
amount of $425,000. The promissory notes accrued interest at the rate of 12% per
annum and had a remaining principal balance of $314,475 at December 31, 1999, at
which time they were converted into 314,475 common shares of our company.
In connection with the acquisition of Walden Remarketing, Dennis E.
Hecker, the principal shareholder of that company, provided a personal guaranty
with respect to the full disclosure of liabilities of that company.
On April 20, 1999, we entered into a consulting agreement with Dennis
E. Hecker as part of our acquisition of Walden Remarketing. Mr. Hecker had
agreed to provide consulting services to us for a period of three years ending
April 20, 2002. We granted Mr. Hecker an option to purchase 3,000,000 shares of
our common stock at $3.00 per share. As of December 1, 1999 the consulting
agreement and the option to purchase 3,000,000 shares of our common stock were
canceled.
AUTO NETWORK GROUP NORTHWEST, INC. On July 20, 1999, we acquired Auto
Network Group Northwest, Inc., an Oregon corporation, by issuing the
shareholders of Auto Network Group Northwest a total of 500,000
43
contingently issuable shares of restricted common stock valued at $1.50 per
share. All shares were held in escrow and were subject to the following events:
1. 83,333 shares were subject to forfeiture if the pre-tax earnings
of Auto Network Group Northwest as of March 31, 2000 were less
than $30,000. If pre-tax earnings were between $30,000 and $50,000
a pro-rata amount of shares were to be issued and the balance
forfeited.
2. 166,667 shares were subject to forfeiture if the pre-tax earnings
of Auto Network Group Northwest as of March 31, 2001 were less
than $50,000. If pre-tax earnings were between $50,000 and
$100,000 a pro-rata amount of shares were to be issued and the
balance forfeited.
3. 250,000 shares were subject to forfeiture if the pre-tax earnings
of Auto Network Group Northwest as of March 31, 2002 were less
than $75,000. If pre-tax earnings were between $75,000 and
$150,000 a pro-rata amount of shares were to be issued and the
balance forfeited.
In addition, the former shareholders of Auto Network Group Northwest
were able to earn options to purchase restricted shares of our common stock at
the rate of 5 options for every dollar of pre-tax earnings of Auto Network Group
Northwest in excess of $50,000 for the period ending March 31, 2000; $100,000
for the year ended March 31, 2001; and, $150,000 for the year ended March 31,
2002. The options were to be exercisable for a period of 3 years from date of
grant at the bid price of our common stock as of April 1, 2000, 2001 or 2002,
respectively.
For the period from July 20, 1999 through March 31, 2000, Auto Network
Group Northwest had pre-tax earnings of $41,721, resulting in the former
shareholders earning 69,535 shares. In April 2001, Automotive Disposition
Management Services, the parent of Auto Network Group Northwest, entered into an
agreement with the management of Auto Network Group Northwest under which Auto
Network Group Northwest reacquired all of its outstanding common shares from
Automotive Disposition Management Services and agreed to return to Automotive
Disposition Management Services 430,465 of our common stock that were being held
in escrow pending the results of the original earn-out agreement. We decided to
exercise our option to exchange these shares for 8.55% of our interest in
Automotive Disposition Management Services based upon the agreement wherein
Automotive Disposition acquired certain of our operating subsidiaries. Effective
July 1, 2001, all options previously issued to Auto Network Group Northwest
management and employees, as well as rights to earn new options, expired
unexercised.
AUTO GROUP OF SAN ANTONIO, LTD. Effective April 1, 2000, we opened our
office and warehouse wholesale operation in San Antonio, Texas. Auto Group of
San Antonio Ltd., a Texas limited partnership, conducted our business in San
Antonio. Our company was the sole limited partner and the sole owner of a newly
formed limited liability company which serves as the general partner.
We loaned the limited partnership $450,000, which is evidenced by an
unsecured promissory note with interest at the rate of 12% per annum payable
monthly, in arrears. This note, which could be prepaid at any time, had a final
maturity on March 31, 2005. The limited partnership has entered into a
management agreement with JRB AutoBrokers, L.P., a Texas limited partnership.
JRB AutoBrokers also loaned $100,000 to the limited partnership on similar terms
to our advance. This promissory note was subordinate to our loan. When
Automotive Disposition Management Services acquired the limited partnership, our
note was repaid in full.
Under the terms of the management agreement, JRB was responsible for
all day-to-day management of the limited partnership with complete autonomy,
subject only to reasonable review by the general partner. In addition, we
granted 468,750 contingently issuable restricted shares of our common stock to
JRB to acquire this operation. At that time, the shares were assigned a value of
$2.00 per share, and held in escrow pending certain future events. 93,750 of
such shares were released to JRB on April 1, 2001, since they were subject only
to the continuation of the business at that date. Annually beginning March 31,
2001, 93,750 additional shares or a portion thereof were to be released subject
to the limited partnership achieving pre-determined pre-tax earnings. For
example, if the limited partnership earns $100,000 for the year ended March 31,
2001, 93,750 of such shares will be released to JRB. In the event earnings for
the year fall below $100,000, a portion of these shares may still be released.
After March 31, 2001, the pre-tax earnings floor increases through March 31,
2004. A currently interminable number of additional
44
shares can be earned for the year ended March 31, 2005 based on pre-tax earning.
Effective with the sale of this subsidiary we placed 375,000 common shares in
escrow to meet our obligation under the earn-out agreement. For the fiscal year
ended March 31, 2001, JRB reported earnings of $78,157 entitling the managers of
JRB to receive 73,272 earn-out shares for the year then ended.
AUTO NETWORK GROUP OF EASTERN PA., INC. Effective April 1, 2000 we
opened our office and warehouse wholesale operation in the Philadelphia,
Pennsylvania area. Our business in Pennsylvania was conducted by Auto Network
Group of Eastern Pa., Inc., a Pennsylvania corporation. We were the sole
shareholder of this Pennsylvania operation.
We loaned $300,000 to the Pennsylvania operation, which was evidenced
by an unsecured promissory note with interest at the rate of 12% per annum
payable monthly, in arrears. The note could be prepaid at any time and had a
final maturity on March 31, 2006. Mr. Edward G. McCusker had agreed to loan
$100,000 to the Pennsylvania operation on terms similar to our advance, on or
before June 30, 2000. This loan was to be subordinate to the debt owed to us.
Mr. McCusker did not advance such funds for the Pennsylvania operations and for
this reason, as well as others, we ceased our operations in Pennsylvania in the
third quarter of 2000. We have filed a lawsuit in Pennsylvania against Mr. and
Mrs. McCusker in an effort to recover all or a part of our $300,000 loan plus
interest and costs. Although we believe that we are entitled to full recovery,
we have charged the unpaid balance of our loan to expense in the year ended
March 31, 2001.
AUTOMOTIVE DISPOSITION MANAGEMENT SERVICES, INC. As of December 29,
2000, we sold our interest in our land-based operations in Albuquerque, New
Mexico; San Antonio, Texas; and Bend, Oregon to Automotive Disposition
Management Services, Inc., an affiliated Arizona corporation, in exchange for a
16% interest in Automotive Disposition. Automotive Disposition is a private
company owned by Jules Gollins, the manager of the New Mexico land-based
operation, and by Mark Moldenhauer, one of our founders, principal shareholders,
and former officer and director. In addition, promissory notes for $1,200,000
owed to us by the land-based operations have been assigned to Pinnacle Financial
Corporation, a private company owned by Mr. Moldenhauer. Pinnacle Financial
Corporation in turn reduced the outstanding principal balance of our promissory
note to Pinnacle by $1,200,000 and extended the principal installment,
originally due December 31, 2000, to January 30, 2001. As of February 16, 2001,
Automotive Disposition Management Services, Inc. assumed a portion of the note
owed to Pinnacle Financial Corporation. The remaining portion was paid with a
new note to Pinnacle Financial Corporation in the amount of $366,200 due April
1, 2002. This note was paid by an amended and restated secured promissory note
to Mark Moldenhauer dated July 26, 2001, which is due June 30, 2002.
As described above, we originally acquired the New Mexico, Texas, and
Oregon operations with earn-out agreements, which enabled the managers of these
operations to earn shares and options if certain performance goals were met. We
agreed to place a total of 805,465 shares of our common stock in escrow to
satisfy, in full, our obligations under these agreements. These common shares
will remain in escrow until such time as certain shares of our stock are either
earned or forfeited. If earned, the relevant shares of our stock will be
transferred to the managers and brokers, and if unearned, the relevant shares of
our stock will be transferred and delivered to Automotive Disposition. Any
shares transferred to Automotive Disposition can, at our election, be exchanged
for part or all of our interest in Automotive Disposition.
FUTURE TRANSACTIONS. All future affiliated transactions will be made or
entered into on terms that are no less favorable to us than those that can be
obtained from any unaffiliated third party. A majority of the independent,
disinterested members of our board of directors will approve future affiliated
transactions and forgiveness of loans.
We believe that all loans made to affiliates by us meet the foregoing
standard. All loans to affiliates made by us carry an interest rate of 12% per
annum. This is the same interest rate paid by us on all notes payable to both
affiliates and outside third parties.
45
SELLING STOCKHOLDERS
HOLDERS OF SERIES C AND D PREFERRED STOCK
The following table sets forth information regarding beneficial
ownership of shares of our Series C and D preferred stock as of August 15, 2001.
We are registering shares of common stock issuable upon conversion of the Series
C and D preferred stock. The shares are being registered to permit public
secondary trading of such shares, and each of the selling stockholders may offer
the common stock for resale as they wish. Assuming that the selling stockholders
convert all of their Series C and D preferred stock into common stock and sell
all of their common stock, the selling stockholders will not own any common
stock of our company. None of the selling stockholders has had any position,
office, or material relationship with us within the past three years.
[Enlarge/Download Table]
Shares of Shares of Shares of
Series C Series D Common Stock
Preferred Preferred Issued/Issuable
Stock Stock Upon Conversion
Owned Owned And Being Percentage
Selling Stockholder Originally Originally Registered (1)<F1> Ownership
Almond Investors, LLC 8,976 13,464 11,031,620 17.0%
John A. Brda 408 612 124,463 (2)<F2>
Susan C. Buescher Revocable Trust 306 459 93,347 (2)<F2>
E. Eugene Burwell Living Trust 408 612 124,463 (2)<F2>
dated 5/19/99
Curt E. Burwell Living Trust 816 1,224 248,926 (2)<F2>
dated 4/9/99
Indenture of Trust James F. Cool 1,836 2,754 227,164 (2)<F2>
Robert M. Crivello 204 306 62,231 (2)<F2>
Anthony D. and Kelly A. Cupini 408 612 124,463 (2)<F2>
Jimmy Dowda 306 459 16,320 (2)<F2>
Edwards Capital Corporation 306 459 16,320 (2)<F2>
Generation Capital Associates 1,020 1,530 1,333,800 2.4%
Karron Heathman Living Trust 204 306 62,231 (2)<F2>
James E. Hullverson Jr. SEP IRA 816 1,224 248,926 (2)<F2>
Thomas C. Hullverson 1,428 2,142 102,701 (2)<F2>
Brianna Lenz 204 306 10,880 (2)<F2>
Frederick Lenz 204 306 10,880 (2)<F2>
D. Michael McDaniel 408 612 124,463 (2)<F2>
Red Rock Advisors Fund, LLC 2,040 3,060 3,332,000 5.8
S L Land Holdings Inc. 204 306 10,880 (2)<F2>
South County Investors 204 306 62,231 (2)<F2>
Holly Webb 204 306 62,231 (2)<F2>
Kelley Lewis 102 153 166,600 (2)<F2>
Ronnie L. Williams Sr. 204 306 10,880 (2)<F2>
TOTAL 21,206 31,824 17,608,020
-------------
<FN>
(1)<F1> Gives effect to shares already sold by these stockholders through
August 15, 2001. For those holders who have not yet converted their
shares of Series D preferred stock, this assumes the conversion of the
shares based on a conversion price of $0.10 for the Series D preferred
stock. See "Description of Securities - Series C and D Preferred Stock"
for an explanation of the conversion formula. If we should issue more
shares than what is being registered because of changes in the
conversion price, we will have to file another registration statement
to register those additional shares.
(2)<F2> Less than 1%
</FN>
46
The securities offered through this prospectus by the selling
stockholders will be acquired through the conversion of Series C and D preferred
stock. The selling stockholders purchased the Series C and D preferred stock in
a private placement. We agreed to register the securities for resale by the
selling stockholders to permit them to sell the shares as they wish in the
market or in privately negotiated transactions. The selling stockholders have
agreed in a legally binding agreement that they will sell no more than 20% of
their holdings (calculated assuming full conversion of their preferred stock)
per month in the open market. We are in the process of amending this agreement
to permit the holders to sell at least one-third of their holdings per month,
with the possibility of selling more if the market price and trading volume of
our common stock meets certain levels.
We have agreed to bear the expenses of registering the common stock,
but not broker discounts and commissions if the selling stockholders resell the
common stock.
EXISTING HOLDERS OF COMMON STOCK
We are also registering the shares owned by the persons in the table
set forth below. The shares are being registered to permit public secondary
trading of such shares, and each of the selling stockholders may offer the
common stock for resale as they wish. Assuming that the selling stockholders
sell all of the shares listed in the table, they will not own any common stock
of our company. None of the selling stockholders has had any position, office,
or material relationship with us within the past three years, except for
Lloydminister Enterprises Inc. Lloydminister was a minority owner of
BusinessTradeCenter. We issued the 5,000,000 shares in exchange for its interest
in BusinessTradeCenter in March 2000, and Lloydminister subsequently transferred
2,500,000 of them to Kindersley Holdings.
[Download Table]
NUMBER OF SHARES OF
COMMON STOCK BEING
SELLING STOCKHOLDER REGISTERED
Lloydminister Enterprises Inc. 2,500,000
Kindersley Holdings Inc. 2,500,000
JK Technologies, L.L.C. 560,000
Beckstrand Investments L.L.C. 470,000
Billy K. McCoy and Susan McCoy 70,000
Anthony & Company, Inc. 107,143
Anthony D. and Kelly A. Cupini 61,825
John A. and Lucia Brda 42,858
Net Chemistry 40,000
de Jong & Associates 55,000
TOTAL 6,406,826
STOCK OPTIONS AND WARRANTS
We are registering the shares issuable upon the exercise of the stock
options and warrants set forth in the table below. We have agreed to bear the
expenses of registering the shares issuable upon exercise of the options and
warrants, but not any broker discounts or commissions incurred upon the resale
of these shares.
[Enlarge/Download Table]
Number of Shares
Issuable upon Exercise Expiration Date Consideration for the Option or
Holder Exercise Price Warrant
Anthony Trejo 50,000 $1.03 06/02/02 Services - promotion of company
Robert C. Crandall 25,000 $1.03 06/02/02 Services - promotion of company
de Jong & Associates 75,000 $1.20 01/01/02 Investment relations services
Gerry Richards 30,000 $1.20 03/31/02 Investment relations services
Cardinal Securities LLC 55,000 $5.40 02/15/05 Financial advisory services
RCG Capital Markets 175,000 $0.50 09/21/01 Financial advisory services
Group, Inc.
TOTAL 410,000
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DESCRIPTION OF SECURITIES
We are authorized to issue up to 100,000,000 shares of common stock, no
par value, and 1,000,000 shares of preferred stock, $0.10 par value per share.
The following is a summary of the material provisions contained in our articles
of incorporation and bylaws. You may wish to refer to our articles of
incorporation and bylaws for more information. The section entitled "Available
Information" in this prospectus describes how you can inspect or obtain copies
of these documents. As of August 15, 2001, there were outstanding 54,147,918
shares of common stock, 11,118 shares of Series C preferred stock, 13,832 shares
of Series D preferred stock, and 1,300 shares of Series E preferred stock.
COMMON STOCK
Each share of common stock has one vote with respect to all matters
voted upon by the shareholders.
Holders of common stock are entitled to receive dividends, when and if
declared by our board of directors, out of company funds legally available for
the payment of dividends. We have never declared a dividend on our common stock
and have no present intention of declaring any dividends in the future.
Holders of common stock do not have any preemptive rights or other
rights to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of our company, holders
of the common stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities and
any liquidation payments due to holders of preferred stock.
All outstanding shares of common stock, and shares of common stock
issuable upon conversion of the Series C and D preferred stock, when issued and
paid for, will be fully paid and not liable for further call or assessment.
PREFERRED STOCK
Our articles of incorporation authorize us to issue up to 1,000,000
shares of preferred stock, in one or more series, with such rights, preferences,
qualifications, limitations, and restrictions as shall be set forth in a
statement filed with the State of Arizona authorizing the issuance of such
stock. We have established a Series A preferred stock consisting of 6,750
shares, a Series B preferred stock consisting of 250,000 shares, a Series C
preferred stock consisting of 21,216 shares, a Series D preferred stock
consisting of 31,824 shares, and a Series E preferred stock consisting of 1,300
shares. No shares of Series A or Series B preferred stock are outstanding. As of
August 15, 2001, there were 11,118 shares of Series C preferred stock, 13,832
shares of Series D preferred stock, and 1,300 shares of Series E preferred stock
outstanding.
SERIES C AND D PREFERRED STOCK
CONVERSION OF SERIES C PREFERRED STOCK. Each share of Series C
preferred stock is convertible into shares of our common stock at a price of
$0.75.
CONVERSION OF SERIES D PREFERRED STOCK. Each share of Series D
preferred stock is convertible into shares of the registrant's common stock
using a conversion price equal to 65% of the average closing bid price for the
common stock for the 10 trading days immediately preceding the date of
conversion:
# of shares of preferred stock x $100 = # of shares of
65% of average closing bid price common stock
There were 13,832 shares of Series D preferred stock outstanding as of
August 15, 2001. Based on a conversion price of $0.10, and after giving effect
to Series D shares converted through August 15, 2001, 13,832,000 shares are
issuable upon conversion of the outstanding shares of Series D preferred stock.
48
This prospectus covers the resale of the shares of common stock
issuable upon conversion of the Series C and Series D preferred stock.
LIQUIDATION PREFERENCE. In the event of liquidation, dissolution, or
the winding up of our company, whether voluntary or involuntary, any holder of
the Series C and Series D preferred stock shall be entitled to receive a
distribution of $100 for each share of Series C or D preferred stock. This
amount will be paid out of the assets of our company prior to any distribution
of assets with respect to any other shares of capital stock.
OPTIONAL REDEMPTION. We have the right and option to call, redeem, and
acquire any or all of the shares of Series C and D preferred stock at a price
equal to $110.00 per share, at any time, so long as such shares have not
previously converted to common stock. Before we can do so, we must give at least
30 days' notice to the holders of the Series C and D preferred stock that
provides them with the redemption date. However, the holders of the Series C and
D preferred stock have the right during the 30-day period immediately following
the date of the notice of redemption to convert their shares of preferred stock
into common stock. If the shares are converted during this 30-day period, this
call option shall be deemed not to have been exercised by us with respect to the
shares so converted. The notice of redemption will require the holders to
surrender to us, on or before the redemption date, to our transfer agent, the
certificates representing the shares of Series C or D preferred stock to be
redeemed. Even if the certificates representing the shares called for redemption
have not been surrendered for redemption and cancellation on or after the
redemption date, such shares shall be deemed to be expired and all rights of the
holders of these shares shall cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series C and D
preferred stock have no voting rights except to the extent required by the
Arizona Business Corporation Act, and neither the Series C or D preferred stock
is entitled to any preemptive rights.
SERIES E PREFERRED STOCK
Automatic Redemption. We are required to redeem the shares of Series E
preferred stock for $130 upon the earlier of:
(i) The date the loan from Eagle Capital Group is converted in full to
common stock;
(ii) June 30, 2002; or
(iii) The date we repay the loan in full.
VOTING AND PREEMPTIVE RIGHTS. The holder of the Series E preferred
stock has the right to vote an equivalent of 13,000,000 common shares with the
holders of the common stock on all matters submitted to a vote of shareholders.
In addition, the Series E preferred stock, as a separate class, is entitled to
elect two directors.
TRANSFER AGENT
The transfer agent for our common and preferred stock is Standard
Registrar & Transfer Agency, P.O. Box 14411, Albuquerque, New Mexico 87191.
PLAN OF DISTRIBUTION
All or a portion of the securities offered through this prospectus by the
selling stockholders may be delivered and/or sold in transactions from time to
time on the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale. These transactions will be at market prices
prevailing at the time, at prices related to such prevailing prices, or at
negotiated prices. The selling stockholders may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders. The selling stockholders and any
broker-dealers that participate in the distribution may be deemed to be
"underwriters" within the meaning of federal securities laws. Any commissions
received by such broker-dealers and any profits realized on the resale of
securities by them may be deemed to be underwriting discounts and commissions
under federal securities laws.
49
Because the selling stockholders may be deemed to be "underwriters," they may be
subject to the prospectus delivery requirements of the Securities Act, as well
as the anti-manipulation provisions of Regulation M.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholders and, if they act as agent for
the purchaser of the securities, from such purchaser. Broker-dealers may agree
with the selling stockholders to sell a specified number of securities at a
stipulated price per share. To the extent such a broker-dealer is unable to do
so acting as agent for the selling stockholders, it may purchase as principal
any unsold securities at the price required to fulfill the broker-dealer
commitment to the selling stockholders. Broker-dealers who acquire securities as
principal may then resell these securities in transactions which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices. In connection
with such resales broker-dealers may pay to or receive from the purchasers of
these securities commissions computed as described above. To the extent required
under the federal securities laws, a supplemental prospectus will be filed,
disclosing
(a) the name of any such broker-dealers;
(b) the number of securities involved;
(c) the price at which such securities are to be sold;
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
(e) that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus, as supplemented; and,
(f) other facts material to the transaction.
Under applicable rules and regulations under federal securities laws,
any person engaged in the distribution of the resale of securities may not
simultaneously engage in market making activities with respect to the securities
of our company for a period of two business days prior to the commencement of
such distribution. In addition, the selling stockholders will be subject to
applicable provisions of the federal securities laws, and the rules and
regulations under these laws, including Regulation M, which provisions may limit
the timing of purchases and sales of the securities by the selling stockholders.
The selling stockholders will pay all commissions and other expenses
associated with the sale of the common stock by them. The shares of common stock
offered through this prospectus are being registered because of our contractual
obligations with the selling stockholders, and we have paid the expenses of the
preparation of this prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 15, 2001, we have 54,147,918 shares of common stock,
11,118 shares of Series C preferred stock, 13,832 shares of Series D preferred
stock, and 1,300 shares of Series E preferred stock outstanding. Of the
54,147,918 shares of common stock, 19,570,085 shares are freely tradable without
restriction and 34,577,833 shares are restricted. Of the restricted shares,
17,574,620 are held by "affiliates" of the Company. An "affiliate" of an issuer
is a person that directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer. An
"affiliate" can sell his shares only if the shares are registered under federal
securities laws or exempt from registration. The SEC's Rule 144 is a type of
exemption from registration. With respect to the remaining 17,003,213 restricted
shares, 1,372,368 are currently eligible for sale under Rule 144. 6,351,826 of
the shares which are currently restricted are being registered in this
registration statement.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume of the then outstanding
shares during the four calendar weeks preceding each such sale. Furthermore, a
person who is not deemed an "affiliate" of the company and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
50
There are also outstanding as of August 15, 2001, options to purchase
shares of common stock, 11,118 shares of Series C preferred stock, and 13,832
shares of Series D preferred stock, all of which are exercisable to purchase or
convertible into shares of common stock.
LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to our business, and we do not know
of any such proceedings that are contemplated.
EXPERTS
We have included the consolidated financial statements of the company
for the years ended March 31, 2001, 2000 and 1999 in reliance upon the report of
Neff & Ricci, LLP, independent certified public accountants, whose report has
been included in this prospectus upon the authority of this firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 with the Securities
and Exchange Commission for the securities offered through this prospectus. This
prospectus does not contain all of the information contained in the registration
statement and its exhibits and schedules. You should refer to the registration
statement and its exhibits for additional information. Whenever we make
reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other documents. We also file annual, quarterly and
special report with the Securities and Exchange Commission.
You can read our filings with the Securities and Exchange Commission,
including the registration statement, over the Internet at the SEC's website at
www.sec.gov. You may read and copy any document we file with the SEC at its
public reference facilities at 450 Fifth Street, NW, Washington, D.C. 20549, the
New York Regional Office located at 233 Broadway, New York, NY 10279, and the
Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison
Street, Chicago, IL 60661. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the Public Reference facilities.
We have a website on the Internet at www.AutoTradeCenter.com.
REPORTS TO STOCKHOLDERS
As a result of filing this registration statement, we are subject to
the reporting requirements of the federal securities laws, and are required to
file periodic reports and other information with the SEC. We will furnish our
shareholders with annual reports containing audited financial statements
certified by independent public accountants following the end of each fiscal
year and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year following the end of such fiscal
quarter.
51
[Enlarge/Download Table]
INDEX TO FINANCIAL STATEMENTS
AutoTradeCenter.com Inc. and Subsidiaries:
Condensed Consolidated Balance Sheet as of June 30, 2001 (Unaudited).................................F-1
Condensed Consolidated Statements of Operations for the Three Months Ended
June 30, 2001 and 2000 (Unaudited)...............................................................F-2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2001
and 2000 (Unaudited).............................................................................F-3
Notes to Condensed Consolidated Financial Statements as of June 30, 2001 (Unaudited).................F-4
Independent Auditors' Report from Neff & Ricci LLP...................................................F-7
Consolidated Balance Sheet as of March 31, 2001 and 2000.............................................F-8
Consolidated Income Statement of Operations for the Years Ended March 31, 2001, 2000 and 1999........F-9
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended March 31, 2001,
2000 and 1999....................................................................................F-10
Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999..............F-13
Notes to Consolidated Financial Statements...........................................................F-14
52
AUTOTRADECENTER.COM INC.
CONSENSED CONSOLIDATED BALANCE SHEETS
ASSETS
[Enlarge/Download Table]
JUNE 30, MARCH 31,
2001 2001
--------------- ---------------
(UNAUDITED)
--------------- ---------------
Current assets:
Cash $ 24,182 $ 209,068
Accounts receivable - trade 226,104 224,298
Accounts receivable - employees 2,772 8,535
Prepaid expenses and other 107,773 164,882
Assets from discontinued operations, net 26,300 21,812
--------------- ---------------
Total current assets 387,131 628,595
--------------- ---------------
Property and equipment, net 400,867 508,949
Software, net 7,259,924 7,539,338
--------------- ---------------
7,660,791 8,048,287
--------------- ---------------
Intangible assets, net 1,539,897 1,590,700
--------------- ---------------
Total assets $ 9,587,819 $ 10,267,582
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 468,050 $ 110,063
Notes payable to related parties current portion 788,014 200,000
Accrued liabilities 202,713 135,976
--------------- ---------------
Total current liabilities 1,458,777 446,039
--------------- ---------------
Long term debt - notes payable to related parties net of current portion - 538,807
--------------- ---------------
Stockholders' equity:
Convertible preferred stock, Series C; $.10 par value;
400,000 shares authorized; 21,216, issued, and 11,118
outstanding; liquidation preference $100 per share 924,828 924,828
Convertible preferred stock, Series D; $.10 par value;
600,000 shares authorized; 31,824 issued, and 14,332 and 14,536
outstanding, respectively; liquidation preference $100 per share 1,207,296 1,227,296
Common stock, no par value; 100,000,000 shares authorized;
41,932,049 and 40,954,759 shares issued and outstanding
at June 30, and March 31, 2001, respectively 25,221,319 24,944,750
Retained deficit (19,224,401) (17,814,138)
--------------- ---------------
Total stockholders' equity 8,129,042 9,282,736
--------------- ---------------
Total liabilities and stockholders' equity $ 9,587,819 $ 10,267,582
=============== ===============
See Notes to Condensed Consolidated Financial Statements
F-1
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
[Enlarge/Download Table]
FOR THE THREE MONTHS ENDED
JUNE 30,
2001 2000
--------------- ---------------
(RECLASSIFIED)
Revenues
Internet fees $ 583,655 $ 169,650
Other 1,170 -
--------------- ---------------
Total revenues 584,825 169,650
--------------- ---------------
Cost of revenues
Salary and wages 93,972 99,289
Other 86,766 33,266
--------------- ---------------
Total cost of revenues 180,738 132,555
--------------- ---------------
Gross profit 404,087 37,095
--------------- ---------------
Operating expenses
Sales and marketing 286,358 187,506
Product Development 62,064 52,941
General and Administrative 381,958 307,584
Depreciation and Amortization 1,007,786 445,534
--------------- ---------------
Total Operating expenses 1,738,166 993,565
--------------- ---------------
Loss from operations (1,334,079) (956,470)
Interest expense 25,914 15,684
Other income (242) -
Loss on impairment of software 50,512 -
--------------- ---------------
76,184 15,684
--------------- ---------------
(Loss) from continuing operations (1,410,263) (972,154)
Discontinued operations:
(Loss) from operations of land-based segment - (48,501)
--------------- ---------------
Net (loss) $ (1,410,263) $ (1,020,655)
=============== ===============
Basic (loss) per share:
Continuing operations $ (0.03) $ (0.03)
Discontinued operations $ - $ (0.00)
Weighted average shares number of common shares outstanding
Basic 41,932,049 28,862,609
Fully diluted 41,932,049 28,862,609
See Notes to Condensed Consolidated Financial Statements
F-2
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
[Enlarge/Download Table]
FOR THE THREE MONTHS ENDED
JUNE 30,
(RECLASSSIFIED)
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net (loss):
Continuing operations-net of income taxes $ (1,410,263) $ (972,154)
Discontinued operations-net of income taxes (48,501)
---------------- ----------------
(1,410,263) (1,020,655)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,007,786 445,534
Loss on disposal of impaired software 50,512 -
Stock or stock options issued for services 69,868 -
(Increase) decrease in:
Net assets of discontinued operations (4,488) (2,497,887)
Accounts receivable 3,957 -
Prepaid expenses and other current assets 57,109 (23,027)
Notes payable-bank 670,996
Notes payable to related parties 49,207 300,000
Accounts payable 357,987 -
Accrued liabilities 66,737 112,059
---------------- ----------------
Net cash provided by (used in) operating activities 248,412 (2,012,980)
---------------- ----------------
Cash flows from investing activities:
Purchase of property, equipment and software (620,000) (123,083)
---------------- ----------------
Net cash used in investing activities (620,000) (123,083)
---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock - net 186,702 10,000
---------------- ----------------
Net cash provided by financings activities 186,702 10,000
---------------- ----------------
Net change in cash (184,886) (2,126,063)
Beginning cash balance 209,068 4,355,738
---------------- ----------------
Ending cash balance $ 24,182 $ 2,229,675
================ ================
Supplemental disclosures:
Interest paid for discontinued operations $ 25,914 $ 194,858
================ ================
Interest paid for continuing operations $ 106,888 $ 63,456
================ ================
See Notes to Condensed Consolidated Financial Statements
F-3
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
NOTE A - PRESENTATION OF FINANCIAL STATEMENTS
The condensed consolidated financial statements of AutoTradeCenter.com
Inc. ("AUTC") or the "Company," which refers to AutoTradeCenter.com Inc. and its
subsidiaries have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These statements reflect
all adjustments (including all normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations, and cash flows of AUTC as of June 30, 2001 and for all of the
periods presented. These statements are condensed and do not include all of the
information required by generally accepted accounting principles in a full set
of financial statements. These statements should be read in conjunction with
AUTC's financial statements and notes thereto included in AUTC's Annual Report
on Form 10-K for its fiscal year ended March 31, 2001.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries: Auto Network Group of Arizona,
Inc. ("ANET-AZ"), Pinnacle Dealer Services, Inc. ("PDS"), National Dealer
Services ("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden
Remarketing Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com
Inc. ("BTC"). All material intercompany accounts and transactions have been
eliminated.
AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to
the laws of the State of Arizona on July 10, 1997 and began operations on
September 22, 1997. In December 1998, the Company changed its name from Auto
Network USA, Inc. to Auto Network Group, Inc. In March 1999, the Company again
changed its name to AutoTradeCenter.com Inc. to more properly reflect its future
direction as an Internet based wholesaler and remarketer of used automobiles.
The wholesale automobile business principally involves activities related to
redistributing used vehicles, typically acquired from franchised and independent
auto dealers, lessors, banks and other finance companies and reselling them to
other franchised and independent dealers. Prior to December 31, 2000 the Company
engaged in these activities either as a fee-based service or as a principal. As
a principal (land-based operations), the Company performed these services
through independent wholesale brokers. Each broker bought, titled, and sold
vehicles in the name of the Company. In November 2000, the Company decided to
discontinue all of its land-based operations in order to concentrate efforts on
remarketing used vehicles utilizing the Internet. Accordingly, it sold its
land-based subsidiaries located in New Mexico, Texas, and Oregon on December 29,
2000, and transferred ownership of substantially all vehicles owned by its
Scottsdale, Arizona operations on February 28, 2001 to certain of its former
brokers.
NOTE B - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed based on the
weighted average number of common shares outstanding. The number of common
shares outstanding due not include 375,000 shares issued and held in escrow
subject to release based on a prior earn-out agreement with the Company's former
land-based subsidiary in San Antonio. The Company issued, in April 2001, 93,750
shares pursuant to this agreement. Diluted earnings per share reflects the
increase in average common shares outstanding that would result from the assumed
exercise of outstanding stock options and the assumed conversion of debt and
preferred stock. Since the Company operated at a loss for all periods stated the
computation of diluted earnings per share would be anti-dilutive. Accordingly
basic and diluted earnings (loss) per share are equivalent.
F-4
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
NOTE C - INFORMATION REGARDING DISCONTINUED OPERATIONS
Net assets from discontinued operations at June 30, and March 31, 2001
primarily consisted of uncollected receivable balances from former independent
contractor wholesale automobile brokers. As of August 13, 2001 these uncollected
accounts have been turned over to independent third parties for collection.
The disposition of the land-based operations represents the disposal of
a business segment under APB Opinion No. 30. Accordingly, the condensed
consolidated statements of operations and cash flows for the three months ended
June 30, 2000 have been reclassified to reflect the discontinuance of all
land-based operations.
NOTE D - PROPERTY AND EQUIPMENT
[Download Table]
JUNE 30, MARCH 31,
CATEGORY LIFE/METHOD 2001 2001
Computers and equipment 3 years/SL $ 691,795 $ 739,638
Furniture and fixtures 7 years/SL 62,072 62,072
Leasehold improvements 5 years/SL 6,200 6,300
------------- --------------
760,067 808,010
Less accumulated depreciation 359,200 299,061
------------- --------------
$ 400,867 $ 508,949
============= ==============
Software/systems design 3 years/SL $ 11,425,824 $ 10,804,765
Less accumulated depreciation 4,165,900 3,265,427
------------- --------------
$ 7,259,924 $ 7,539,338
============= ==============
NOTE E - STOCKHOLDERS' EQUITY
Preferred and Common Stock
During May of 2001, a holder of 204 series D convertible preferred
shares elected to convert such shares to common shares. Based on the formulae
contained in the terms of the preferred shares, 111,732 shares of common stock
were issued. These shares will become registered and available for sale (subject
to certain lock-up provisions) upon the acceptance by the Securities and
Exchange Commission of previous filings on Form S-1 and Form 10-K.
NOTE F - SUBSEQUENT EVENT
On May 16, 2001, a director of the Company loaned the Company $150,000.
On May 31, 2001, the note was rewritten and increased to $200,000 and is due
upon the Company's receipt of specific trade accounts receivable The note bears
interest at the rate of 12% per annum and is secured by these specific trade
accounts. On July 16, 2001, this director loaned the Company an additional
$65,000 under a new note with the same terms and conditions as the original
note. Subsequent principal payments have reduced the balances due at July 26,
2001 on both notes to approximately $115,000. As part of the financing
arrangement with Eagle Capital Group, LLC as described below, the due dates on
the notes have been extended until after August 31, 2001.
F-5
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
On July 26, 2001, the Company entered into a financing arrangement with
Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line
of credit up to $1,300,000. The loan provides for an initial advance of
$250,000, followed by a thirty-day review period during which Eagle will
complete its legal due diligence with respect to, among other items, the
Company's intellectual property. The review period grants Eagle the right to
discontinue funding of the line of credit if the Company's intellectual property
is deficient in certain material respects. The loan is due June 30, 2002 bearing
interest at the rate of 12% per annum that is payable monthly. The Company paid
a commitment fee of $13,000 and is obligated to pay a one percent (1%) facility
fee of up to $13,000 each quarter. The Company is also required to pay monthly
principal payments of not less than 5% of the outstanding loan balance once the
Company achieves positive cash flow. The loan is secured by all assets including
but not limited to furniture, fixtures, leasehold, personal property, and
intellectual property.
The loan is convertible into common stock of the Company at any time
before the due date thereof, including any extensions, at the lesser of the
average bid price following the date of the first advance and the earlier of the
conversion date or the termination date or $0.10 per share. The Company also
issued Eagle a warrant which allows Eagle, for a period of 90 days from the
termination date of the loan, to purchase common shares at $0.10 per share in an
amount equal to the difference between (a) 13,000,000 and (b) the number of
shares of common stock issued upon prior conversion of any amounts under the
loan.
In addition, the Company issued a warrant to Eagle that allows Eagle to
purchase, for a period of up to five years, up to 6,500,000 shares of Common
Stock at an exercise price of $0.125 per share. If the Company prepays the loan
in full at any time prior to December 31, 2001, the Company will issue to Eagle
1,500,000 shares of Common Stock as consideration.
In addition, the Company issued to Eagle 1,300 shares Series E
Preferred Stock, at a par value of $0.10 per share. The Series E Preferred Stock
grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle
will have two representatives on the Company's board of directors.
The Company also entered into a Facilities Use and Administrative
Services Agreement with an affiliate of Eagle for the use of office facilities,
software development, marketing, accounting, and other management services that
may vary from time to time. The fee for these services will be negotiated
between the parties in good faith as business practices and circumstances
change.
On July 26, 2001, as part of the agreement with Eagle, the Company
consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer in the
amounts of $336,807 and $402,000, respectively. The consolidated note bears
interest at 12% payable monthly. In addition, the Company is obligated to make
principal payments of $25,000 per month in November and December 2001, and
$50,000 per month principal payments from January 2002 through May 2002. The
balance of the note is due June 30, 2002. Any principal payment may be converted
into Common Stock at the sole discretion of the lender at the rate of $0.10 per
share, upon three days written notice. The Company also issued a warrant to
purchase one share of Common Stock for every two shares of Common Stock received
upon conversion. The warrant exercise price is $0.125 per share and expires five
years from issuance. The note is subordinated to the first lien of Eagle.
As a result of this transaction, the Company is required to reset the
pricing of the units sold in March through April 2001 pursuant to a private
placement. The anti-dilution clause contained in the private placement requires
the Company to issue 9,948,027 shares of its common stock and 4,959,013
additional stock purchase warrants exercisable at $0.125 per share.
F-6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AutoTradeCenter.com, Inc. and Subsidiaries
We have audited the consolidated balance sheets of AutoTradeCenter.com, Inc. and
Subsidiaries as of March 31, 2001 and 2000, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years ended March 31, 2001, 2000, and 1999. These financial statements are the
responsibility of AutoTradeCenter.com, Inc. and Subsidiaries' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AutoTradeCenter.com, Inc. and
Subsidiaries as of March 31, 2001 and 2000, and the results of their operations
and their cash flows for the years ended March 31, 2001, 2000, and 1999 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
May 18, 2001, except for Note R and S, as to which the date is July 26, 2001.
F-7
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Balance Sheet
MARCH 31, 2001 AND 2000
ASSETS
[Enlarge/Download Table]
2001 2000
------------- -------------
Current assets: (RECLASSIFIED)
Cash $ 209,068 $ 4,355,738
Accounts receivable - trade 224,298 -
Accounts receivable - employees 8,535 -
Prepaid expenses and other 164,882 110,272
Assets from discontinued operations, net 21,812 1,023,166
------------- -------------
Total current assets 628,595 5,489,176
------------- -------------
Property and equipment, net 508,949 813,118
Software, net 7,539,338 12,013,608
------------- -------------
8,048,287 12,826,726
------------- -------------
Intangible assets, net 1,590,700 1,786,845
------------- -------------
Total assets $ 10,267,582 $ 20,102,747
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 110,063 $ -
Notes payable - bank - 1,112,418
Long term debt - notes payable to related parties current portion 200,000 -
Accrued liabilities 135,976 6,124
------------- -------------
Total current liabilities 446,039 1,118,542
------------- -------------
Long term debt - notes payable to related parties 538,807 528,807
------------- -------------
Stockholders' equity:
Convertible preferred stock, Series C; $.10 par value;
400,000 shares authorized; 21,216, and 20,800 issued, and 11,118 and 20,800
outstanding in 2001 and 2000, respectively; liquidation preference $100.00 per share 924,828 1,906,536
Convertible preferred stock, Series D; $.10 par value;
600,000 shares authorized; 31,824 and 31,200 issued, and 14,536 and 31,200 shares
outstanding in 2001 and 2000, respectively; liquidation preference $100.00 per share 1,227,296 2,859,805
Common stock, no par value; 100,000,000 shares authorized;
40,954,759 and 27,652,609 shares issued and outstanding
in 2001 and 2000, respectively 24,944,750 19,779,542
Retained deficit (17,814,138) (6,090,485)
------------- -------------
Total stockholders' equity 9,282,736 18,455,398
------------- -------------
Total liabilities and stockholders' equity $ 10,267,582 $ 20,102,747
============= =============
See notes to consolidated financial statements
F-8
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Income Statement
Years ended March 31, 2001, 2000 and 1999
[Enlarge/Download Table]
2001 2000 1999
------------- ------------ ----------
(RECLASSIFIED) (RECLASSIFIED)
Net sales $ 891,423 $ 291,587 $ -
------------- ------------ ----------
Operating expenses:
Salary 1,053,198 54,000 63,000
Selling 730,883 241,065 -
General and administrative 1,967,548 559,468 126,173
Loss on disposal of impaired software 2,261,486 - -
Depreciation and amortization 3,836,788 319,800 24,042
------------- ------------ ----------
Total operating expenses 9,849,903 1,174,333 213,215
------------- ------------ ----------
(Loss) from operations (8,958,480) (882,746) (213,215)
------------- ------------ ----------
Other income (expense):
Miscellaneous 4,999 - -
Interest expense (106,888) (63,456) (63,456)
------------- ------------ ----------
Total other income (expense) - net (101,889) (63,456) (63,456)
------------- ------------ ----------
(Loss) from continuing operations (9,060,369) (946,202) (276,671)
------------- ------------ ----------
Discontinued operations:
Income (loss) from operations of land-based segment (323,840) (1,697,585) 448,491
Loss from disposition of land-based segment (2,339,445) - -
------------- ------------ ----------
(2,663,285) (1,697,585) 448,491
------------- ------------ ----------
Net income (loss) before income taxes (11,723,654) (2,643,787) 171,820
------------- ------------ ----------
Income tax (expense) benefit:
Continuing operations - - 50,302
Discontinued operations - 56,034 (106,881)
------------- ------------ ----------
- 56,034 (56,579)
------------- ------------ ----------
Net income (loss) $(11,723,654) $(2,587,753) $ 115,241
============= ============ ==========
Basic earnings (loss) per share:
Continuing operations $ (0.28) $ (0.04) $ (0.02)
Discontinued operations $ (0.08) $ (0.08) $ 0.03
Diluted earnings (loss) per share:
Continuing operations $ (0.28) $ (0.04) $ (0.01)
Discontinued operations $ (0.08) $ (0.08) $ 0.02
Weighted average shares number of common shares outstanding
Basic 32,777,824 21,638,671 13,726,397
Fully diluted 32,777,824 21,638,671 22,826,745
See notes to consolidated financial statements
F-9
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended March 31, 2001, 2000 and 1999
[Enlarge/Download Table]
SERIES A, CONVERTIBLE SERIES B, CONVERTIBLE SERIES C, CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- --------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- -------- ---------- -------- ------------
Balance - March 31, 1998 3,848 $ 382,251 - $ - - $ -
June 1998 - Issued common shares
under goodwill agreement
August 1998 - Issued common
shares for purchase of subsidiary
November 1998 - Issued convertible
Series B preferred stock 35,000 $ 281,242
December 1998 - Issued convertible
Series B preferred stock 12,000 90,795
March 1999 - Converted preferred
shares into common shares (3,848) (382,251)
March 1999 - Effect of construc-
tive dividend on convertible
Series B preferred stock
March 1999 - Issued common shares
under goodwill agreement
March 1999 - Issued common shares
for purchase of subsidiary
March 1999 - Fair value of stock
options granted for the year ended.
Net income for the year ended
March 31, 1999
------- ---------- -------- ---------- -------- ------------
Balance - March 31, 1999 - $ - 47,000 $ 372,037 - $ -
======= ========== ======== ========== ======== ============
SERIES D, CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ---------------------------- EARNINGS
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
-------- ------------ ------------ ------------- ------------- -------------
Balance - March 31, 1998 - $ - 13,226,622 $ 345,233 $ 12,384 $ 739,868
June 1998 - Issued common shares
under goodwill agreement 266,667 53,333 53,333
August 1998 - Issued common
shares for purchase of subsidiary 300,000 47,814 47,814
November 1998 - Issued convertible
Series B preferred stock 281,242
December 1998 - Issued convertible
Series B preferred stock 90,795
March 1999 - Converted preferred
shares into common shares 4,275,128 382,251 -
March 1999 - Effect of construc-
tive dividend on convertible
Series B preferred stock 253,077 (253,077) -
March 1999 - Issued common shares
under goodwill agreement 266,667 53,333 53,333
March 1999 - Issued common shares
for purchase of subsidiary 2,050,000 1,450,000 1,450,000
March 1999 - Fair value of stock
options granted for the year ended 79,438 79,438
Net income for the year ended
March 31, 1999 115,241 115,241
-------- ------------ ------------ ------------- ------------- -------------
Balance - March 31, 1999 - $ - 20,385,084 $ 2,664,479 $ (125,452) $ 2,911,064
======== ============ ============ ============= ============= =============
See notes to consolidated financial statements
F-10
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended March 31, 2001, 2000 and 1999
[Enlarge/Download Table]
SERIES A, CONVERTIBLE SERIES B, CONVERTIBLE SERIES C, CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- --------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- -------- ---------- -------- ------------
Balance forward from March 31,
1999 - $ - 47,000 $ 372,037 - $ -
April 1999 - Exercise of stock
options
December 1999 - Note payable
converted into stock
January 2000 - Preferred stock
conversion (47,000) $(372,037)
February 2000 - Issued common
shares for software development
February 2000 - Warrants conversion
February 2000 - Issued convertible
Series C preferred stock 20,800 1,906,536
February 2000 - Issued convertible
Series D preferred stock
March 2000 - Issued common shares
for purchase of minority interest
in subsidiary
March 2000 - Issued common shares
for purchase of subsidiary
March 2000 - Effect of constructive
dividend on convertible Series C
preferred stock
March 2000 - Effect of constructive
dividend on convertible Series D
preferred stock
March 2000 - Fair value of stock
options granted for the year ended
March 2000 - Issued restricted
common shares for purchase of
subsidiary
Net loss for the year ended
March 31, 2000
------- ---------- -------- ---------- -------- ------------
Balance - March 31, 2000 - $ - - $ - 20,800 $ 1,906,536
======= ========== ======== ========== ======== ============
SERIES D, CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ---------------------------- EARNINGS
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
-------- ------------ ------------ ------------- ------------- -------------
Balance forward from March 31,
1999 - $ - 20,385,084 $ 2,664,479 (125,452) $ 2,911,064
April 1999 - Exercise of stock
options 100,000 200,000 200,000
December 1999 - Note payable
converted into stock 314,475 314,475 314,475
January 2000 - Preferred stock
conversion 543,515 372,037 -
February 2000 - Issued common
shares for software development 40,000 80,000 80,000
February 2000 - Warrants conversion 100,000 50,000 50,000
February 2000 - Issued convertible
Series C preferred stock 1,906,536
February 2000 - Issued convertible
Series D preferred stock 31,200 2,859,805 2,859,805
March 2000 - Issued common shares
for purchase of minority interest
in subsidiary 5,000,000 9,375,000 9,375,000
March 2000 - Issued common shares
for purchase of subsidiary 1,100,000 2,801,590 2,801,590
March 2000 - Effect of constructive
dividend on convertible Series C
preferred stock 1,697,280 (1,697,280) -
March 2000 - Effect of constructive
dividend on convertible Series D
preferred stock 1,680,000 (1,680,000) -
March 2000 - Fair value of stock
options granted for the year ended 351,280 351,280
March 2000 - Issued restricted
common shares for purchase of
subsidiary 69,535 193,401 193,401
Net loss for the year ended
March 31, 2000 (2,587,753) (2,587,753)
-------- ------------ ------------ ------------- ------------- -------------
Balance - March 31, 2000 31,200 $ 2,859,805 27,652,609 $ 19,779,542 $ (6,090,485) $ 18,455,398
======== ============ ============ ============= ============= =============
See notes to consolidated financial statements
F-11
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended March 31, 2001, 2000 and 1999
[Enlarge/Download Table]
SERIES A, CONVERTIBLE SERIES B, CONVERTIBLE SERIES C, CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- --------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- -------- ---------- -------- ------------
Balance forward from March 31,
2000 - $ - - $ - 20,800 $ 1,906,536
April 2000 - Exercise of stock
options
April 2000 - Issued common shares
for purchase of subsidiary
contingent on performance
April 2000 - Issued common shares
for purchase of subsidiary
contingent on performance
May 2000 - Note payable converted
into stock
July 2000 - Exercise of stock
options
August 2000 - Exercise of stock
options
September 2000 - Exercise of stock
options
September 2000 - Issuance of shares
for goodwill
September 2000 - Preferred C stock
conversion (8,200) (751,615)
September 2000 - Preferred D stock
conversion
October 2000 - Exercise of stock
options
October 2000 - Stock issued for
services (91,598)
January 2001 - Conversion of
preferred shares (700) (17,495)
January 2001 - Conversion of
preferred shares
March 2001 - Conversion of
preferred shares
March 2001 - Conversion of
preferred shares (1,000) (100,000)
Shares issued for services (21,000)
Shares issued upon exercise of
options
Common shares sold pursuant to
Private Placement through March 31
Shares, options and warrants
issued for services
To adjust Preferred shares for 2%
bonus shares issued - net 218
Net loss from discontinued
operations for a the year ended
March 31, 2001
Net loss from continuing
operations for the year ended
March 31, 2001
Rounding
------- ---------- -------- ---------- -------- ------------
Balance - March 31, 2001 - $ - - $ - 11,118 $ 924,828
======= ========== ======== ========== ======== ============
SERIES D, CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ---------------------------- EARNINGS
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
-------- ------------ ------------ ------------- ------------- -------------
Balance forward from March 31,
2000 31,200 $ 2,859,805 27,652,609 $ 19,779,542 $ (6,090,485) $ 18,455,398
April 2000 - Exercise of stock
options 10,000 10,000 10,000
April 2000 - Issued common shares
for purchase of subsidiary
contingent on performance - - -
April 2000 - Issued common shares
for purchase of subsidiary
contingent on performance - - -
May 2000 - Note payable converted
into stock 3,000,000 300,000 300,000
July 2000 - Exercise of stock
options 163,875 124,792 124,792
August 2000 - Exercise of stock
options 5,000 4,375 4,375
September 2000 - Exercise of stock
options 50,000 22,500 22,500
September 2000 - Issuance of shares
for goodwill 266,667 53,333 53,333
September 2000 - Preferred C stock
conversion 669,120 751,615 -
September 2000 - Preferred D stock
conversion (14,900) (1,365,740) 1,838,741 1,365,740 -
October 2000 - Exercise of stock
options 374,750 317,583 317,583
October 2000 - Stock issued for
services (137,396) 134,683 282,430 53,436
January 2001 - Conversion of
preferred shares 57,120 17,495 -
January 2001 - Conversion of
preferred shares (1,000) (47,532) 357,143 47,532 -
March 2001 - Conversion of
preferred shares (1,049) (50,340) 348,939 50,340 -
March 2001 - Conversion of
preferred shares 81,600 100,000 -
Shares issued for services (31,500) 60,000 52,500 -
Shares issued upon exercise of
options 19,300 19,300 19,300
Common shares sold pursuant to
Private Placement through March 31 5,865,212 1,452,487 1,452,487
Shares, options and warrants
issued for services 193,186 193,186
To adjust Preferred shares for 2%
bonus shares issued - net 285 -
Net loss from discontinued
operations for a the year ended
March 31, 2001 (2,663,285) (2,663,285)
Net loss from continuing
operations for the year ended
March 31, 2001 (9,060,369) (9,060,369)
Rounding (1) 1 -
-------- ------------ ------------ ------------- ------------- -------------
Balance - March 31, 2001 14,536 $ 1,227,296 40,954,759 $ 24,944,750 $(17,814,138) $ 9,282,736
======== ============ ============ ============= ============= =============
See notes to consolidated financial statements
F-12
AutoTradeCenter.com Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended March 31, 2001, 2000 and 1999
[Enlarge/Download Table]
2001 2000 1999
------------- ------------- ------------
Cash flows from operating activities:
Net (loss) income:
Continuing operations-net of income taxes $ (9,060,369) $ (946,202) $ (226,369)
Discontinued operations-net of income taxes (2,663,285) (1,641,551) 341,610
------------- ------------- ------------
(11,723,654) (2,587,753) 115,241
------------- ------------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,836,788 319,800 24,042
Loss on disposal of impaired software 2,261,486 - -
Stock or stock options issued for services 299,955 351,280 23,083
(Increase) decrease in:
Net assets of discontinued operations 1,001,354 1,257,062 (1,823,695)
Accounts receivable (232,834) 98,610 (98,610)
Prepaid expenses and other current assets (54,610) (105,006) (5,266)
Long term debt - current portion 200,000 - -
Accounts payable 110,063 (24,712) 24,712
Accrued liabilities 129,852 (44,599) 50,723
Deferred income taxes - (7,010) 7,010
------------- ------------- ------------
Net cash used in operating activities (4,171,599) (742,328) (1,682,760)
------------- ------------- ------------
Cash flows from investing activities:
Purchase of property, equipment and software (1,552,232) (420,365) (175,446)
Sale of property and equipment 428,542 45,945 57,520
Net cash paid for acquisitions - - (70,906)
------------- ------------- ------------
Net cash used in investing activities (1,123,690) (374,420) (188,832)
------------- ------------- ------------
Cash flows from financing activities:
Net proceeds from borrowings (802,418) 158,393 1,268,500
Proceeds from long-term debt - - 528,807
Proceeds from issuance of convertible preferred stock - 4,766,341 372,037
Proceeds from exercise of stock options 498,550 - -
Proceeds from issuance of common stock - net 1,452,487 250,000 -
------------- ------------- ------------
Net cash provided by financings activities 1,148,619 5,174,734 2,169,344
------------- ------------- ------------
Net change in cash (4,146,670) 4,057,986 297,752
Beginning cash balance 4,355,738 297,752 -
------------- ------------- ------------
Ending cash balance $ 209,068 $ 4,355,738 $ 297,752
============= ============= ============
Supplemental disclosures:
Interest paid for discontinued operations $ 690,853 $ 887,094 $ 355,006
============= ============= ============
Interest paid for continuing operations $ 106,888 $ 63,456 $ 63,456
============= ============= ============
Income taxes paid $ - $ 3,000 $ 73,527
============= ============= ============
Issuance of Common Stock for:
Software $ - $ 11,493,673 $ -
============= ============= ============
Goodwill $ 53,333 $ 246,724 $ 1,503,333
============= ============= ============
See notes to consolidated financial statements
F-13
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCORPORATION AND NATURE OF BUSINESS
AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to
the laws of the State of Arizona on July 10, 1997 and began operations on
September 22, 1997. In December 1998, the Company changed its name from Auto
Network USA, Inc. to Auto Network Group, Inc. In March 1999, the Company again
changed its name to AutoTradeCenter.com Inc. to more properly reflect its future
direction as an Internet based wholesaler and remarketer of used automobiles.
The wholesale automobile business principally involves activities related to
redistributing used vehicles, typically acquired from franchised and independent
auto dealers, lessors, banks and other finance companies and reselling them to
other franchised and independent dealers. Prior to December 31, 2000 the Company
engaged in these activities either as a fee-based service or as a principal. As
a principal (land-based operations), the Company performed these services
through independent wholesale brokers. Each broker bought, titled, and sold
vehicles in the name of the Company. In November 2000, the Company decided to
discontinue all of its land-based operations in order to concentrate efforts on
remarketing used vehicles utilizing the Internet. Accordingly, it sold its
land-based subsidiaries located in New Mexico, Texas, and Oregon on December 29,
2000, and transferred ownership of substantially all vehicles owned by its
Scottsdale, Arizona operations on February 28, 2001 to certain of its former
brokers.
The Company's Internet operations facilitate the exchange (remarketing)
of used vehicles from lessors, captive and other finance companies, banks, and
franchised and independent auto dealers, to other franchised and independent
dealers. The Company, generally, earns fees from these exchanges, utilizing its
proprietary software. The Company currently has three contracts to remarket late
model off-lease and program vehicles to specified franchised dealers. The
Company currently does not act as principal in its Internet business.
AutoTradeCenter.com Inc. stock is traded on the NASD Bulletin Board
under the symbol AUTC.OB.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Auto Network Group of Arizona, Inc.
("ANET-AZ") Pinnacle Dealer Services, Inc. ("PDS"), National Dealer Services
("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden Remarketing
Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com Inc. ("BTC").
All material intercompany accounts and transactions have been eliminated.
Information regarding the discontinued operations of former subsidiaries; Auto
Network Group of New Mexico, Inc. ("ANET-NM"), Auto Network Group Northwest,
Inc. ("ANET-NW"), and Auto Group of SanAntonio, Ltd. ("ANET-SA"), is contained
herein. Information regarding two other land-based subsidiaries that currently
have no assets or liabilities, Auto-Network Group of Eastern PA, Inc.
("ANET-PA") and Auto Network Group of Denver, Inc. ("ANET-Den") also is
contained herein.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities,
disclosures at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Accordingly, actual results
could differ from those estimates.
F-14
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH ITEMS
Cash and cash items include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition. At
times, cash balances held at financial institutions were in excess of federally
insured limits.
INVENTORY
Inventory (relating to discontinued operations) consists entirely of
used vehicles that are stated at the lower of cost or market. The cost of used
vehicles is determined on a specific identification basis. The cost of each
vehicle includes the purchase price plus transportation and reconditioning
expenses. The Company reduces the carrying value of each vehicle if the total
cost exceeds the net realizable value of the vehicle. At March 31, 2001 as a
result of the discontinuance of its land-based operations the Company has no
inventory.
DEPRECIATION METHOD
Equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the assets estimated useful lives
ranging from 3 to 10 years.
SOFTWARE CAPITALIZATION AND WEBSITE DEVELOPMENT COSTS
The Company follows Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, in
determining the amount of software costs developed in-house to be capitalized.
The Company applies Emerging Issues Task Force 00-02 Accounting for Website
Development Costs in determining the amount of website development costs to be
capitalized.
These standards require capitalization of certain direct development
costs associated with internal use software and website development costs. Costs
to be capitalized include internal and external direct project costs including,
among others; payroll and labor, material, and services. These costs are
included in software and are being amortized over a period not to exceed three
years beginning when the software is substantially ready for use. Costs incurred
on new projects, projects in a preliminary phase and projects that contract
negotiations have not begun, as well as maintenance, and training costs are
charged to expense as incurred.
AMORTIZATION OF INTANGIBLES
Goodwill and other intangibles are amortized on a straight-line basis
over periods ranging up to 10 years. The Company periodically assesses the
recoverability of the cost of its goodwill based upon a review of projected
undiscounted cash flows of the related operating entity. These cash flow
estimates are prepared and reviewed by management in connection with the
Company's annual long-range planning process. As of March 31, 2001, there had
been no write down of goodwill (See information regarding reclassification of
goodwill- Note B).
F-15
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue and the corresponding cost of revenue are recognized monthly.
Customers are billed a per vehicle sales fee for vehicles sold while listed on
the Company's hosted web sites. These sales are recorded in trade receivables
until cash is received. The Company has implemented the requirements of Staff
Accounting Bulletin 101, which did not have a material impact on revenue
recognition in the financial statements.
Formerly, land-based operating revenues and the corresponding cost of
the sales were recognized when vehicles were sold to customers evidenced by a
sale and a purchase order, respectively. The Company paid for the vehicle and
received payment from its customers when the vehicle title was presented. It is
not unusual for a title to lag several days behind the recordation of the
vehicle purchase and physical delivery; correspondingly, a vehicle may be sold
and delivered to a customer prior to the delivery of the title and the receipt
of cash.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed based on the
weighted average number of common shares outstanding. The computations exclude
430,465 shares held in escrow pending certain earn-out provisions. Diluted
earnings per share for the year ended March 31, 1999, reflects the increase in
average common shares outstanding that would result from the assumed exercise of
outstanding stock options and the assumed conversion of debt and preferred
stock. Basic and diluted earrings per share are the same for the years ended
March 31, 2000, and 2001, as the Company reported losses for these years and a
computation of fully diluted earnings would be anti-dilutive.
VALUATION OF STOCK OPTIONS
The Company uses the intrinsic value method for valuing stock options
issued to employees. The Company uses the fair value of goods or services
received or the fair value of the options or warrants issued, whichever is more
readily measurable, to determine the expense to record for options or warrants
issued to non-employees.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in its
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based upon the difference between financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
SEGMENT REPORTING
The Company is required to report information about its operating
segments, as well as related disclosures about products and services, geographic
areas and major customers. At March 31, 2001, Internet remarketing is the
Company's only operating segment. All of its revenue for the year ended March
31, 2001 was earned from its contract with American Honda Finance Corporation.
All former land-based operations are presented as discontinued operations.
F-16
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE B - RECLASSIFICATION OF GOODWILL
When the Company acquired NDSCo on March 31, 2000, $2,039,123 of the
purchase price was allocated to goodwill. The goodwill was assigned a useful
life of 10 years. Upon further consideration the Company reclassified this
allocation from goodwill to cost of software to more succinctly categorize the
nature of the assets purchased. During the quarter ended December 31, 2000, as a
result of the changes in its business plan including the disposition of its
dealer-to-dealer land based business, the Company further determined that it
could no longer estimate the useful life, if any, of this software. Accordingly,
the carrying cost of this asset was considered impaired and written off in full
during the year.
When the Company acquired the remaining 45% minority interest of BTC on
March 23, 2000, $9,374,550 of the purchase price was allocated to goodwill with
an estimated life of 10 years. Upon further consideration, the Company
reclassified this allocation from goodwill to cost of software to more
succinctly categorize the nature of the assets purchased. Effective for the year
ended March 31, 2000, the Company changed its estimate of the useful life of
this asset from 10 years to 3 years.
The reclassified consolidated balance sheet at March 31, 2000, among
other things, reflects both of these reclassifications.
NOTE C - DISCONTINUED OPERATIONS
On November 30, 2000, the Company formalized its decision to exit its
land-based operations no later than March 31, 2001, the end of its fiscal year.
The disposition of the land-based operations represents the disposal of a
business segment under APB Opinion No. 30. Accordingly, results of these
operations have been classified as discontinued and prior periods have been
restated, including the reallocation of fixed overhead charges to both business
segments. As of December 29, 2000, the Company sold its land-based operations in
Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to Automotive
Disposition Management Services, Inc., ("ADM") an affiliated Arizona
corporation, in exchange for a 16% interest in ADM. The Company sold
substantially all of its land-based operations in Scottsdale Arizona, to certain
of its independent contract brokers effective February 28, 2001, thereby
completing the discontinuance of all land-based operations. The Company has
recorded an actual loss of $748,475 on the sale of its land-based operations to
ADM, recorded total losses of $277,388 related to the earlier closing of its
Pennsylvania operation and accrued an estimated loss of $1,313,582 on disposal
of its Scottsdale operations, including $50,000 in estimated future expenses,
included in accrued expenses. Total losses on disposition of land-based
operations increased $687,392 over the amount reported in the Company's interim
financial statements contained in Form 10-Q for the period ended December 31,
2000. The additional losses included among other things; $250,000 in additional
allowance for losses for unpaid balances due the Company at December 31, 2000
from its independent contractor brokers, additional losses of $225,693
attributable to the sale and disposition of inventory during the three months
ended March 31, 2001 that could not be charged to and collected from such
brokers, an additional loss of $38,596, from the sale of subsidiary operations
other than Scottsdale, with the balance attributable to general and
administrative expenses related to closing the Scottsdale operation.
The following schedule of net assets from discontinued operations, long
term debt and notes payable of discontinued operations, and financial statements
show the effect of discontinued operations to the consolidated balance sheets at
March 31, 2001 and March 31, 2000 and to the condensed consolidated statements
of operations and cash flow for the fiscal years ended March 31, 2001, 2000 and
1999.
F-17
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS:
[Download Table]
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
ASSETS:
Accounts receivable - trade, net $60,659 $ 5,743,845
Accounts receivable - employees and brokers, net - 332,122
Inventory 28,000 4,648,492
Goodwill and property and equipment - 316,311
------- -----------
88,659 11,040,770
------- -----------
LIABILITIES:
Accounts payable - trade 66,847 4,401,858
Notes payable - related party and other - 5,376,821
Accrued liabilities -- 238,925
------- -----------
66,847 10,017,604
------- -----------
NET ASSETS FROM DISCONTINUED OPERATIONS $21,812 $ 1,023,166
======= ===========
RESULTS OF OPERATIONS OF DISCONTINUED LAND-BASED SEGMENT:
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
[Enlarge/Download Table]
FOR THE YEAR ENDED
3/31/2001* 3/31/2000 3/31/1999
-------------- -------------- ------------
Net Sales $ 123,171,010 $ 131,568,705 $ 97,665,410
Cost of Sales 117,257,094 125,770,135 93,388,836
-------------- -------------- -------------
Gross Profit 5,913,916 5,799,570 4,276,574
-------------- ------------- ------------
Operating Expenses:
Selling 4,376,272 3,843,922 2,772,192
General and administrative 1,199,064 1,783,874 679,383
Bad debt expense 75,000 1,045,970 90,055
Depreciation and amortization 36,165 38,428 3,816
-------------- ------------- ------------
Total Operating Expenses 5,686,501 6,712,194 3,545,446
-------------- ------------- ------------
Income(loss) from operations 227,415 (912,624) 731,128
Other income (expense):
Miscellaneous 139,599 102,133 70,686
Interest expense (690,853) (887,094) (353,323)
-------------- ------------- ------------
Total other income(expense) - net (551,254) (784,961) (282,637)
-------------- ------------- ------------
Net income (loss) before income taxes * $ (323,839) $ (1,697,585) $ 449,401
============== ============== =============
* Through 12/31/00 date of discontinuance
F-18
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Long term debt and notes payable related to discontinued operations at March 31,
2000 consisted of the following:
[Enlarge/Download Table]
RELATED PARTY AND AFFILIATES:
o Notes payable to former officer and director, 12% annual interest payable monthly,
collateralized by all accounts receivable, inventory, equipment and certain intangibles,
$852,000 due April 1, 2001, $300,000 due January 15, 1999, 30 day renewable terms,
subordinated to senior debt. The $852,000 note can be accelerated if either Roger L.
Butterwick or John E. Rowlett ceases to be an officer or director. (See 1. and 2.
below) $ 960,000
o Note payable to an entity controlled by a former officer and director of the Company,
12% annual interest payable monthly, collateralized by all accounts receivable,
inventory, equipment, and certain intangibles. $569,307 is due June 30, 2000, $569,307
is due September 30, 2000, $569,306 is due December 31, 2000 with the balance of
$967,500 due April 1, 2001. This note is subordinated to senior debt and can be
accelerated if either Roger L. Butterwick or John E. Rowlett ceases to be an officer or
director (See 2. below). 2,338,613
o $1,572,000 line of credit to an entity controlled by three officers of ANET-NW, annual
interest at prime plus 6% (currently 15%), secured by all accounts receivable, inventory,
and furniture and equipment, due July 14, 2000. 1,409,683
o Note payable to an entity controlled by two officers of ANET-NM, 15% annual interest
payable monthly, due June 30, 2000, subordinated to senior debt. 174,116
o Note payable to an entity controlled by two former officers and directors of the Company,
12% annual interest payable monthly, collateralized by inventory, due May 13, 2000 and 30
day renewable terms, subordinated to senior debt (See 2. below). 300,000
o Notes payable to a related party, 15% annual interest payable monthly, due on demand. 17,000
o Note payable to a related party, 15% annual interest payable monthly, due on demand. 35,000
o Note payable to an entity controlled by two officers of ANET-NM, 12% annual interest
payable monthly, due on demand. 50,000
o Note payable to an officer of ANET-NM, 15% annual interest payable monthly, due upon 30
days notice, subordinated to senior debt. 92,409
----------
Total long-term debt and notes payable discontinued operations 5,376,821
Less current portion of long-term debt and notes payable:
Related party and affiliates 3,557,321
----------
Total long-term debt $1,819,500
==========
1. A note in the amount of $300,000 is convertible, at the option of note
holder, into shares of the Company's common stock at a conversion price of
$0.10 per share. The option expires 30 days after the term of the note.
This note was converted into 3,000,000 shares of common stock on May 1,
2000.
2. Various notes maturing during the year were extended by mutual agreement.
F-19
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated balance sheet for the year
ended March 31, 2000:
[Enlarge/Download Table]
RECLASSIFICATION
2000 FOR
ASSETS AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
------------- ------------- -------------
Current assets:
Cash $ 4,355,738 $ - $ 4,355,738
Accounts receivable - trade 5,743,845 (5,743,845) -
Accounts receivable - employees and related parties 332,122 (332,122) -
Inventory 4,648,492 (4,648,492) -
Prepaid expenses and other 110,272 - 110,272
Net assets of discontinued operations, net - 1,023,166 1,023,166
------------- ------------- -------------
Total current assets 15,190,469 (9,701,293) 5,489,176
------------- ------------- -------------
Property and equipment, net 1,423,398 (610,280) 813,118
Software, net - 12,013,608 12,013,608
------------- ------------- -------------
1,423,398 11,403,328 12,826,726
------------- ------------- -------------
Intangible assets, net 13,506,484 (11,719,639) 1,786,845
------------- ------------- -------------
Total assets $ 30,120,351 $(10,017,604) $ 20,102,747
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 4,401,858 $ (4,401,858) $ -
Accounts payable - employees and related parties - - -
Notes payable - related party 4,086,128 (4,086,128) -
Notes payable - bank 1,112,418 - 1,112,418
Notes payable - other - - -
Accrued liabilities 245,049 (238,925) 6,124
------------- ------------- -------------
Total current liabilities 9,845,453 (8,726,911) 1,118,542
------------- ------------- -------------
Non-current liabilities:
Deferred income taxes - - -
Long term debt - related party 1,819,500 (1,290,693) 528,807
------------- ------------- -------------
Total non-current liabilities 1,819,500 (1,290,693) 528,807
------------- ------------- -------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series C; $0.10 par value;
400,000 shares authorized; 20,800 issued and
outstanding in 2000; liquidation preference $100.00
per share 1,906,536 - 1,906,536
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,200 issued and
outstanding in 2000; liquidation preference $100.00
per share 2,859,805 - 2,859,805
Common stock, no par value; 100,000,000 shares
authorized; 27,652,609 shares issued and outstanding
in 2000 19,779,542 - 19,779,542
Retained deficit (6,090,485) - (6,090,485)
------------- ------------- -------------
Total stockholders' equity 18,455,398 - 18,455,398
------------- ------------- -------------
Total liabilities and stockholders' equity $ 30,120,351 $(10,017,604) $ 20,102,747
============= ============= =============
F-20
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated balance sheet for the year
ended March 31, 1999:
[Enlarge/Download Table]
RECLASSIFICATION
1999 FOR
ASSETS AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
------------- ------------- -------------
Current assets:
Cash $ 297,752 $ - $ 297,752
Accounts receivable - trade 4,971,798 (4,873,188) 98,610
Accounts receivable - employees and related parties 324,248 (324,248) -
Inventory 5,028,357 (5,028,357) -
Prepaid expenses and other 79,153 (73,887) 5,266
------------- ------------- -------------
Total current assets 10,701,308 (10,299,680) 401,628
------------- ------------- -------------
Net assets of discontinued operations - 2,280,228 2,280,228
Property and equipment, net 168,444 (50,308) 118,136
Software, net - 5,442 5,442
------------- ------------- -------------
168,444 2,235,362 2,403,806
------------- ------------- -------------
Intangible assets, net 2,207,378 (221,995) 1,985,383
------------- ------------- -------------
Total assets $ 13,077,130 $ (8,286,313) $ 4,790,817
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 4,198,742 (4,174,029) 24,713
Accounts payable - employees and related parties 250,251 (250,251) -
Notes payable - related party 1,902,833 (1,902,833) -
Notes payable - bank 1,268,500 - 1,268,500
Notes payable - other 301,000 (301,000) -
Accrued liabilities 269,117 (218,394) 50,723
------------- ------------- -------------
Total current liabilities 8,190,443 (6,846,507) 1,343,936
------------- ------------- -------------
Non-current liabilities:
Deferred income taxes 7,010 - 7,010
Long-term debt - related party 1,968,613 (1,439,806) 528,807
------------- ------------- -------------
Total non-current liabilities 1,975,623 (1,439,806) 535,817
------------- ------------- -------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series B; $10.00 par value;
250,000 shares authorized; 47,000 issued and
outstanding in 1999 372,037 - 372,037
Common stock, no par value; 100,000,000 shares
authorized; 20,385,084 shares issued and
outstanding in 1999 2,664,479 - 2,664,479
Retained deficit (125,452) - (125,452)
------------- ------------- -------------
Total stockholders' equity 2,911,064 - 2,911,064
------------- ------------- -------------
Total liabilities and stockholders' equity $ 13,077,130 $ (8,286,313) $ 4,790,817
============= ============= =============
F-21
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated statement of operations
for the year ended March 31, 2000:
[Enlarge/Download Table]
RECLASSIFICATION
2000 FOR
AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
-------------- -------------- -------------
Net sales $ 131,861,292 $(131,569,705) $ 291,587
Cost of sales 125,770,135 (125,770,135) -
-------------- -------------- -------------
Gross profit 6,091,157 (5,799,570) 291,587
-------------- -------------- -------------
Operating expenses:
Salary - 54,000 54,000
Selling 4,084,987 (3,843,922) 241,065
General and administrative 2,397,342 (1,837,874) 559,468
Bad debt expense 1,045,970 (1,045,970) -
Depreciation and amortization 358,228 (38,428) 319,800
-------------- -------------- -------------
Total operating expenses 7,886,527 (6,712,194) 1,174,333
-------------- -------------- -------------
Loss from operations (1,795,370) 912,624 (882,746)
-------------- -------------- -------------
Other income (expense):
Miscellaneous 102,133 (102,133) -
Interest expense - related party (768,121) 704,665 (63,456)
Interest expense (182,429) 182,429 -
-------------- -------------- -------------
Total other income (expense) - net (848,417) 784,961 (63,456)
-------------- -------------- -------------
Net loss from continuing operations (2,643,787) 1,697,785 (946,202)
-------------- -------------- -------------
Loss from discontinued operations of land-based segment - (1,697,585) (1,697,585)
-------------- -------------- -------------
Net loss before income taxes (2,643,787) - (2,643,787)
-------------- -------------- -------------
Income tax (expense) benefit 56,034 (56,034) -
Continuing operations - - -
Discontinued operations - 56,034 56,034
-------------- -------------- -------------
56,034 - 56,034
-------------- -------------- -------------
Net Loss $ (2,587,753) $ - $ (2,587,753)
============== ============== =============
Basic loss per share $ (0.12)
Continuing operations $ (0.04) $ (0.04)
Discontinued operations $ (0.08) $ (0.08)
Diluted loss per share $ (0.12)
Continuing operations $ (0.04) $ (0.04)
Discontinued operations $ (0.08) $ (0.08)
Weighted average shares number of common shares outstanding
Basic 21,638,671 - 21,638,671
Fully diluted 21,638,671 - 21,638,671
F-22
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated statement of operations
for the year ended March 31, 1999:
[Enlarge/Download Table]
RECLASSIFICATION
1999 FOR
AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
------------- ------------- -------------
Net sales $ 97,665,410 $(97,665,410) $ -
Cost of sales 93,388,836 (93,388,836) -
------------- ------------- -------------
Gross profit 4,276,574 (4,276,574) -
------------- ------------- -------------
Operating expenses:
Salary - 63,000 63,000
Selling 2,772,192 (2,772,192) -
General and administrative 868,556 (742,383) 126,173
Bad debt expense 90,055 (90,055) -
Depreciation and amortization 27,858 (3,816) 24,042
------------- ------------- -------------
Total operating expenses 3,758,661 (3,545,446) 213,215
------------- ------------- -------------
Income (loss) from operations 517,913 (731,128) (213,215)
------------- ------------- -------------
Other income (expense):
Miscellaneous 70,686 (70,686) -
Interest expense - related party (286,824) 223,368 (63,456)
Interest expense (129,955) 129,955 -
------------- ------------- -------------
Total other income (expense) - net (346,093) 282,637 (63,456)
Net (loss) income from continuing operations 171,820 (448,491) (276,671)
------------- ------------- -------------
Income from discontinued operations of land-based segment - 448,491 448,491
------------- ------------- -------------
Net income before income taxes 171,820 - 171,820
------------- ------------- -------------
Income tax (expense) benefit (56,579) 56,579 -
Continuing operations - 50,302 50,302
Discontinued operations - (106,881) (106,881)
------------- ------------- -------------
(56,579) - (56,579)
------------- ------------- -------------
Net Income $ 115,241 $ - 115,241
============= ============= =============
Basic earnings (loss) per share $ 0.01
Continuing operations $ (0.02) $ (0.02)
Discontinued operations $ 0.03 $ 0.03
Diluted earnings (loss) per share $ 0.01
Continuing operations $ (0.02) $ (0.02)
Discontinued operations $ 0.03 $ 0.03
Weighted average shares number of common shares outstanding
Basic 13,726,397 - 13,726,397
Fully diluted 22,826,745 - 22,826,745
F-23
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated statement of cash flows
for the year ended March 31, 2000:
[Enlarge/Download Table]
RECLASSIFICATION
2000 FOR
` AS ORIGINALLY DISCONTINUED 2000
REPORTED OPERATIONS AS RECLASSIFIED
------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (2,587,753) $ 2,587,753 $ -
Continuing operations-net of income taxes - (946,202) (946,202)
Discontinued operations-net of income taxes - (1,641,551) (1,641,551)
------------- ------------- -------------
(2,587,753) - (2,587,753)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 358,228 (38,428) 319,800
Bad debt expense 1,045,970 (1,045,970) -
Stock or stock options issued for services 351,280 - 351,280
(Increase) decrease in:
Net assets of discontinued operations - 1,257,062 1,257,062
Accounts receivable (1,825,891) 1,924,501 98,610
Inventory 379,866 (379,866) -
Prepaid expenses and other current assets 24,915 (129,921) (105,006)
Increase (decrease) in:
Accounts payable (47,135) 22,423 (24,712)
Accrued liabilities (67,774) 23,175 (44,599)
Deferred income taxes (3,545) (3,465) (7,010)
------------- ------------- -------------
Net cash provided by (used in) operating
activities (2,371,839) 1,629,511 (742,328)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment and software (536,512) 116,147 (420,365)
Sale of property and equipment 62,675 (16,730) 45,945
Investment in other assets - - -
Net cash paid for acquisitions - - -
------------- ------------- -------------
Net cash used in investing activities (473,837) 99,417 (374,420)
------------- ------------- -------------
Cash flows from financing activities:
Net Proceeds from borrowings 85,699,933 (85,541,540) 158,393
Repayment of borrowings (85,856,015) 85,856,015 -
Proceeds from related party borrowings 3,175,703 (3,175,703) -
Repayment of related party borrowings (1,132,300) 1,132,300 -
Proceeds from long-term debt - - -
Proceeds from issuance of convertible preferred stock 4,766,341 - 4,766,341
Proceeds from issuance of common stock 250,000 - 250,000
------------- ------------- -------------
Net cash provided by financing activities 6,903,662 (1,728,928) 5,174,734
------------- ------------- -------------
Net change in cash 4,057,986 - 4,057,986
Beginning cash balance 297,752 - 297,752
------------- ------------- -------------
Ending cash balance 4,355,738 - 4,355,738
============= ============= =============
Supplemental disclosures:
Interest paid $ 950,550 $ - $ -
============= ============= =============
Interest paid including discontinued operations $ - $ 887,094 $ 887,094
============= ============= =============
Interest paid for continuing operations $ - $ 64,456 $ 63,456
============= ============= =============
Income taxes paid $ 3,000 - 3,000
============= ============= =============
F-24
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
Impact of discontinued operations to the consolidated statement of cash flows
for the year ended March 31, 1999:
[Enlarge/Download Table]
RECLASSIFICATION
1999 FOR
AS ORIGINALLY DISCONTINUED 1999
REPORTED OPERATIONS AS RECLASSIFIED
------------ ------------ ------------
Cash flows from operating activities:
Net (loss) income $ 115,241 $ (115,241) $ -
Continuing operations-net of income taxes - (226,369) (226,369)
Discontinued operations-net of income taxes - 341,610 341,610
------------ ------------ ------------
115,241 - 115,241
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,858 (3,816) 24,042
Bad debt expense 90,055 (90,055) -
Stock or stock options issued for services 23,083 - 23,083
(Increase) decrease in:
Net assets of discontinued operations - (1,823,695) (1,823,695)
Accounts receivable (3,582,169) 3,483,559 (98,610)
Inventory (2,845,459) 2,845,459 -
Prepaid expenses and other current assets (70,906) 65,640 (5,266)
Increase (decrease) in:
Accounts payable 2,448,261 (2,423,549) 24,712
Accrued liabilities 95,445 (44,722) 50,723
Deferred income taxes 3,545 3,465 7,010
------------ ------------ ------------
Net cash provided by (used in) operating
activities (3,695,046) 2,012,286 (1,682,760)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment and software (158,287) (17,159) (175,446)
Sale of property and equipment 56,277 1,243 57,520
Investment in other assets (605) 605 -
Net cash paid for acquisitions (79,570) 8,664 (70,906)
------------ ------------ ------------
Net cash used in investing activities (182,185) (6,647) (188,832)
------------ ------------ ------------
Cash flows from financing activities:
Net Proceeds from borrowings 4,868,500 (3,600,000) 1,268,500
Repayment of borrowings (3,625,000) 3,625,000 -
Proceeds from related party borrowings 1,903,033 (1,903,033) -
Repayment of related party borrowings (560,500) 560,500 -
Proceeds from long-term debt 1,216,913 (688,106) 528,807
Proceeds from issuance of convertible preferred
stock 372,037 - 372,037
------------ ------------ ------------
Net cash provided by financing activities 4,174,983 (2,005,639) 2,169,344
------------ ------------ ------------
Net change in cash 297,752 - 297,752
Beginning cash balance - - -
------------ ------------ ------------
Ending cash balance $ 297,752 $ $ 297,752
Supplemental disclosures:
Interest paid $ 710,012 $ (710,012) $ -
============ ============ ============
Interest paid including discontinued operations $ - $ 355,006 $ 355,006
============ ============ ============
Interest paid for continuing operations $ $ 63,456 $ 63,456
============ ============ ============
Income taxes paid $ 73,527 - $ 73,527
============ ============ ============
F-25
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C - DISCONTINUED OPERATIONS (CONTINUED)
The following schedule shows the computation of the loss resulting from
discontinuing the land-based segment:
[Enlarge/Download Table]
Loss from sale of: ANET-NM, ANET-NW, and ANET-SA:
Carrying value $1,596,933
Sales price 1,200,000
----------
Loss 396,933
Un-amortized goodwill 351,542
----------
Total loss on sale of land-based subsidiaries $ 748,475
Loss from transfer and closing of Scottsdale land-based facility:
Operations:
Sale of equipment 17,793
Inventory losses due to sale 425,693
Uncollectible brokers accounts 593,635
Costs of closing operations 226,461
Accured future costs of closing operations 50,000
----------
1,313,582
Loss from closing Pennsylvania 277,388
----------
Total loss from discontinuing land-based segment $2,339,445
==========
NOTE D - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following: (No allowance for doubtful
accounts is considered necessary since all accounts are deemed fully
collectible.)
[Download Table]
March 31,
---------------- -----------------
2001 2000
---- ----
Trade accounts receivable $224,298 $ -
Due from employees 8,535 -
-------- ----
$232,833 $ -
======== ====
F-26
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
[Enlarge/Download Table]
March 31,
Depreciation ---------------------------------
LIFE/METHOD 2001 2000
----------- ---- ----
Computers and equipment 3 years/SL $ 739,638 $ 665,890
Vehicles 3 years/SL - 229,910
Furniture and fixtures 7 years/SL 62,072 41,616
Leasehold improvements 5 years/SL 6,300 -
808,100 937,416
Less accumulated depreciation (299,061) (124,298)
$ 508,949 $ 813,118
Software and Website programming consist of the following:
Software/systems design 3 years/SL $10,804,765 $12,448,037
Less accumulated amortization (3,265,427) (434,429)
------------ ------------
$ 7,539,338 $12,013,608
============ ============
The Company, in its fiscal year ended March 31, 2001, charged an
impairment loss of $2,261,486 on the disposal of software acquired when the
Company purchased all of the outstanding common stock in NDSCo. This software
provides dealer-to-dealer Internet trading for the exchange of used automobiles
and is not included in the Company's current business plan which is focused on
the remarketing of off-lease and program vehicles .
NOTE F - GOODWILL AND INTANGIBLES
[Download Table]
March 31,
Amortization ---------------------------------
LIFE/METHOD 2001 2000
----------- ---- ----
Goodwill and intangibles $ 1,989,612 $1,988,611
Less accumulated amortization 10 years/SL (398,912) (201,766)
------------ ------------
$ 1,590,700 $1,786,845
============ ============
NOTE G - LONG-TERM DEBT AND NOTES PAYABLE:
[Enlarge/Download Table]
RELATED PARTY AND AFFILIATES: 2001 2000
---- ----
o Notes payable to former officer and director, 12% annual interest
payable monthly, collateralized by all accounts receivable, inventory,
equipment and certain intangibles due April 1, 2002. The note can be
accelerated if either Roger L. Butterwick or John E. Rowlett ceases to
be an officer or director. The note is guaranteed by Mr. Butterwick
and Mr. Rowlett as individuals. The note is convertible at the option
of the holder into common shares of the Company at the lesser of
$0.375 per share or the average trading price of such common shares
for 30 previous trading days prior to conversion. $ 402,000 $ 192,000
o Note payable to an entity controlled by a former officer and director
of the Company, 12% annual interest payable monthly, collateralized
F-27
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
RELATED PARTY AND AFFILIATES: 2001 2000
---- ----
by all accounts receivable, inventory, equipment, and certain
intangibles due April 1, 2002 This note is subordinated to senior debt
and can be accelerated if either Roger L. Butterwick or John E. Rowlett
cease to be an officer or director. The note is guaranteed by Mr.
Butterwick and Mr. Rowlett as individuals The note is convertible at
the option of the holder into common shares of the Company at the
lesser of $0.375 per share or the average trading price of such common
shares for 30 previous trading days prior to conversion. 336,807 336,807
BANK:
o $3,000,000 revolving line of credit, 1.5% over prime, secured by all
accounts receivable, inventory, equipment and certain intangibles,
partially guaranteed by one officer, due June 30, 2000. (Note 1) - 1,112,418
---------- ------------
Total notes payable 738,807 1,641,225
Less long-term notes (538,807) (528,807)
---------- ------------
Notes payable-current portion ( see Note R-Subsequent events) $ 200,000 $ 1,112,418
========== ============
1. Subject to the bank's approval, the loan may be increased to the lessor
of 85% of the eligible accounts receivable or $3 million. The amount of
the average unused line as of year-end is $1,765,895. The bank charges
a fee on the amount of the unused line by taking the average unused
portion times .25% divided by 360 times the days in the month. This
calculated into a fee of $380 for the month of March 2000. In addition,
the loan requires net income and equity limits be met and limits
capital expenditures, officers' pay and additional indebtedness. At
March 31, 2000, the Company was in violation of various provisions of
the loan agreement. These provisions apply to the amount of net loss
incurred and the amount of capital expenditures incurred. The lender
subsequently waived these Events of Default. The line of credit was
repaid in full in February 2001.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each
class of financial instrument are as follows:
CASH AND CASH EQUIVALENTS, RECEIVABLES, AND ACCOUNTS PAYABLE
The carrying amount approximates fair value due to the short-term
maturity of these instruments.
LONG-TERM DEBT
The fair value of long-term debt was based upon market prices where
available or current borrowing rates available for financing with similar terms
and maturities.
[Enlarge/Download Table]
March 31,
--------------------------------------------------------------------
2001 2000
---------------------------------- ---------------------------------
Carrying Carrying
FAIR VALUE VALUE FAIR VALUE VALUE
Cash and cash equivalents $209,068 $209,068 $4,355,738 $4,355,738
Notes payable $738,807 $738,807 $1,641,225 $1,641,225
F-28
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE I - INCOME TAXES
The income tax provision (benefit) shown in the consolidated income
statement is detailed for each year.
[Download Table]
March 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Currently payable (receivable):
Federal $ - $(38,459) $43,564
State - (10,565) 9,470
---- --------- -------
Total currently payable - (49,024) 53,034
Deferred:
Federal - (5,105) 3,154
State - (1,905) 391
---- --------- -------
Total deferred - (7,010) 3,545
---- --------- -------
Total $ - $(56,034) $56,579
==== ========= =======
The income tax provision (benefit) for continuing operations varied
from the federal statutory rate as follows for each year.
[Enlarge/Download Table]
March 31,
--------------------------------------
2001 2000 1999
---- ---- ----
U.S. Statutory rate -34% -34% 34%
State income taxes, net of federal income tax benefit -8% -8% 8%
Valuation allowance 42% 39% 0%
--- ---- ----
0% 3% 42%
==== ==== ====
The Company has a federal tax loss carryforward of approximately
$14,300,000 of which approximately $1,450,000 expires in 2020 and $12,850,000
expires in 2021.
The Company has undergone a change in ownership of over 50% during the
preceding 36 months. Accordingly, Section 382 of the Internal Revenue Code will
limit the Company's annual utilization of its net-operating loss carryforward to
an amount equal to the pre-change value of the Company multiplied by the federal
long-term tax exempt interest rate. The application of Section 382 also may
result in a portion of the Company's net operating loss carryforwards to expire
unused.
The following summarizes the tax effects of the significant temporary
differences which comprise the deferred tax asset or liability for each year.
[Download Table]
March 31,
---------------------------------------------
2001 2000 1999
---- ---- ----
Bad debt reserve $ - $ 439,307 $ 37,823
Other - (41,368)
Net operating loss carryforward 6,013,809 615,049 -
------------ ------------ ----------
Net deferred tax asset (liability) 6,013,809 1,054,356 (3,545)
Valuation allowance (6,013,809) (1,054,356) -
------------ ------------ ----------
Net deferred income tax (liability) $ - $ - $ (3,545)
============ ============ ==========
F-29
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE J - EARNINGS PER SHARE
Basic earnings per common share are based on the weighted average
number of common shares outstanding in each year. Diluted earnings per common
share assume that any dilutive convertible preferred shares and convertible debt
outstanding during each year were converted at the first available conversion
date, with related interest and outstanding common shares adjusted accordingly.
It also assumes that outstanding common shares were increased by shares issuable
upon exercise of those stock options and warrants for which market price exceeds
exercise price, to the extent they are not anti-dilutive.
[Enlarge/Download Table]
The computation of basic and dilutive earnings
per common share follows: YEAR ENDED MARCH 31,
-------------------------------------------------
2001 2000 1999
Income (loss) available to common stockholders:
Continuing operations-basic and diluted $ (9,060,369) $ (946,202) $ (226,369)
Discontinued operations (2,663,285) (1,641,551) 341,610
Effect of dilutive securities - convertible debt - - 68,573
------------- ------------- -------------
$(11,723,654) $ (2,587,753) $ 183,814
============= ============= =============
Weighted average number of common shares
outstanding - basic 32,777,824 21,638,671 13,726,397
Conversion of Series A preferred stock -0- -0- 4,181,427
Conversion of Series B preferred stock -0- -0- 388,235
Exercise of stock options -0- -0- 167,260
Exercise of warrants -0- -0- 844,655
Conversion of debt -0- -0- 3,518,771
------------- ------------- -------------
Weighted average number of common shares
outstanding - diluted 32,777,824 21,638,671 22,826,745
============= ============= =============
Basic earnings (loss) per common share:
Continuing operations $ (0.28) $ (0.04) $ (0.02)
Discontinued operations $ (0.08) $ (0.08) $ 0.03
Diluted earnings (loss) per common share
Continuing operations $ (0.28) $ (0.04) $ (0.01)
Discontinued operations $ (0.08) $ (0.08) $ 0.02
The effects of convertible debt and preferred stock along with the
stock options and warrants have not been included in the calculation of diluted
earnings per share for the years ended March 31, 2001 and March 31, 2000,
because they are anti-dilutive.
As described in Notes G, L and M, the Company has convertible debt,
contingently issuable stock, options, warrants and convertible preferred stock.
F-30
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE K - COMMITMENTS
The Company leases its facility in Scottsdale, Arizona from an
unrelated third party under an operating lease expiring September 30, 2002 at an
annual cost of $87,737. It also is obligated to pay annual net rentals of
approximately $33,497 for a land-based facility in Denver, Colorado. Reserves
established at March 31, 2001, should be adequate to cover such expenses in the
event the Company is unable to further sub-lease this property. Both of these
leases require the Company to pay all maintenance, insurance, and taxes on the
leased property.
The following schedule shows the future minimum lease payments required
by year under the various operating leases:
Year ending March 31, 2002 $286,387
2003 96,162
2004 38,548
2005 31,397
2006 5,233
--------
$457,727
========
The Company sub-leases a portion of its former land-based Scottsdale
facility to two unrelated third parties. One of the sub-leases is a $3,000
month-to-month rental. The other third party's sub-lease is a non-cancelable
agreement that expires on September 30, 2002 and calls for annual rentals of
$62,064. Neither of these sub-leases have been used to reduce the Company's
minimum annual operating lease obligation (see above table). Rental expense was
$435,938, $192,296, and $195,312 for the years ended March 31, 2001, 2000, and
1999 respectively. The Company also has contracted with a vendor to host its
remarketing websites for a base fee of $10,900 per month through April 30, 2002.
NOTE L - BUSINESS ACQUISITIONS
AUTO NETWORK GROUP OF NEW MEXICO, INC. ("ANET-NM")
On June 1, 1998, the Company entered into a Purchase of Goodwill
Agreement with JBS, LLC, an entity whose members comprise the management team of
ANET-NM. In consideration for the goodwill which ANET-NM is receiving from JBS,
JBS was granted a total of 800,000 contingently issuable restricted shares of
the Company's common stock valued at $.20 per share as follows: 266,667 shares
issued upon execution of the Agreement, held in escrow, and subject to
forfeiture if ANET-NM is not doing business as of June 1, 1999: 266,667 shares
to be earned for the period June 1, 1998 through March 31, 1999 if pre-tax
earnings of ANET-NM are at least $60,000; and 266,666 shares to be earned for
the period April 1, 1999 through March 31, 2000 if pre-tax earnings of ANET-NM
are at least $120,000. In addition, JBS may earn options to purchase restricted
shares of the Company's common stock at the rate of 5 options for every dollar
of pre-tax earnings of ANET-NM in excess of $60,000 for the period ending March
31, 1999, and 5 options for every dollar of pre-tax earnings of ANET-NM in
excess of $120,000 for the year ended March 31, 2000. The options are to be
exercisable for a period of 3 years from date of grant at the bid price as of
March 31, 1999 or 2000, respectively.
In accordance with the terms of the Purchase of Goodwill Agreement,
266,667 shares of contingently issuable shares of common stock were granted to
JBS, LLC as ANET-NM was doing business at June 1, 1999. For the period from June
1, 1998 through March 31, 1999, ANET-NM had pre-tax earnings of $107,962
resulting in JBS LLC, earning 266,667 shares and earning 239,810 options,
exercisable at $3.00 per share. For
F-31
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE L - BUSINESS ACQUISITIONS (CONTINUED)
the period ending March 31, 2000, ANET-NM had pre-tax earnings of $70,395
resulting in no shares being earned by JBS, LLC. However, in an amendment to the
purchase agreement entered into during the year ended March 31, 2001, the
Company issued the 266,666 remaining contingently issuable shares to JBS, LLC
and increased purchased goodwill by $53,333. All purchased goodwill was being
amortized over 10 years.
When the company exchanged all of its interest in ANET-NM, on December
29, 2000, for its interest in ADM, the balance of unamortized goodwill of
$136,889 was charged to loss on discontinuance of land-based operations.
AUTO NETWORK GROUP NORTHWEST, INC. ("ANET-NW")
On July 20, 1999, the Company entered into an Exchange of Common Stock
Agreement with ANET-NW. In consideration for the stock which the Company is
receiving from ANET-NW, ANET-NW was granted a total of 500,000 contingently
issuable restricted shares of the Company's common stock valued at $1.50 per
share as follows: up to 83,333 shares shall no longer be forfeitable on July 1,
2000 under the following conditions: if audited pre-tax earnings are less than
$30,000 all 83,333 shares shall be forfeited. If the audited pre-tax earnings
are between $30,000 and $50,000 a pro-rata amount of shares shall be issued and
the balance shall be forfeited. If the audited pre-tax earnings are $50,000 or
over the restricted stock will be issued and any earnings in excess of $50,000
shall cause options to be earned at a ratio of 5 options for every $1.00 of
excess earnings. These options shall be priced at the closing bid price of the
Company's common stock on April 1 following the March 31 year end. As of July 1,
2001, 166,667 shares can be earned at the following levels: less than $50,000 of
pre-tax audited earnings then shares are forfeited, $50,000 to $100,000 a
pro-rata amount of shares will be issued, over $100,000 the shares will be
issued and options will be earned with the above formula. As of July 1, 2002,
250,000 shares can be earned at the following levels: less than $75,000 of
pre-tax audited earnings then shares are forfeited, $75,000 to $150,000 a
pro-rata amount of shares will be issued, over $150,000 the shares will be
issued and options will be earned with the above formula.
For the period from July 20, 1999 through March 31, 2000, ANET-NW had
pre-tax earnings of $41,721 resulting in ANET-NW earning 69,535 shares.
The goodwill purchased of $193,391 was being amortized on a
straight-line basis over 10 years. On December 31, 2000, the balance of
unamortized goodwill of $176,886 was charged to loss on disposition of
land-based operations.
Subsequent Events. In April, 2001 ADM the then parent of ANET-NW
entered into an agreement with ANET-NW management under which ANET-NW reacquired
all of its outstanding common shares from ADM and among other things agreed to
return to ADM 430,465 shares of the Company's stock that were being held in
escrow pending the results of the original earn-out agreement. The Company's
Board of Directors has directed management to exercise its option to exchange
these shares for 8.55% of its interest in Automotive Disposition Management
Company ("ADM") based upon an agreement between the parties to the transaction
wherein ADM acquired certain of the operating subsidiaries of the Company (See
Note C). Effective July 1, 2001 all options previously issued to ANET-NW
management and employees as well as rights to earn new options expired
unexercised.
F-32
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE L - BUSINESS ACQUISITIONS (CONTINUED)
AUTO GROUP OF SAN ANTONIO, LTD.
Effective April 1, 2000, the Company opened an office and warehouse
wholesale operation in San Antonio, Texas. Auto Group of San Antonio Ltd., a
Texas limited partnership, conducts business in San Antonio. The Company is the
sole limited partner and the sole owner of a newly formed limited liability
Company which serves as the general partner.
The Company loaned the limited partnership $450,000, which is evidenced
by an unsecured promissory note with interest at the rate of 12% per annum
payable monthly, in arrears. This note, which may be prepaid at any time, has a
final maturity on March 31, 2005. The limited partnership has entered into a
management agreement with JRB AutoBrokers, L.P. ("JRB"), a Texas limited
partnership. JRB also loaned $100,000 to the limited partnership on similar
terms to the Company's advance. This promissory note is subordinate to our loan.
When ADM acquired the limited partnership they repaid the note to the Company in
full.
Under the terms of the management agreement, JRB is responsible for all
day-to-day management of the limited partnership with complete autonomy, subject
only to reasonable review by the general partner. In addition, the Company
granted a total of 468,750 contingently issuable restricted shares of the
Company's common stock to JRB. At that time the shares were assigned a value of
$2.00 per share. The issuance of 93,750 of the shares is subject only to the
continuation of the business at March 31, 2001. Annually beginning March 31,
2001, 93,750 additional shares or a portion thereof will be released subject to
the limited partnership achieving pre-determined pre-tax earnings. For example,
if the limited partnership earns $100,000 for the year ended March 31, 2001,
93,750 of such shares will be issued to JRB. In the event earnings for the year
fall below $100,000, a portion of these shares may still be issued After March
31, 2001, the pre-tax earnings floor increases through March 31, 2004. As part
of the stock-for-stock agreement with ADM, 93,750 of the contingently issuable
shares were issued to JRB in April of 2001. The balance of the contingently
issuable shares, 375,000, were placed in escrow subject to the earn-out
agreement. For the fiscal year ended March 31, 2001, JRB reported earnings of
$78,157 entitling the managers of JRB to receive 73,272 earn-out shares for the
year then ended. No additional future losses from discontinued operations has
been accrued respecting the balance of the earn-out shares as the number of
shares, if any, to be issued is not determinable.
AUTO NETWORK GROUP OF EASTERN PA., INC.
Effective April 1, 2000 the Company opened an office and warehouse
wholesale operation in the Philadelphia, Pennsylvania area. The business in
Pennsylvania is conducted by Auto Network Group of Eastern Pa., Inc., a
Pennsylvania corporation. The Company is the sole shareholder of this
Pennsylvania operation.
The Company loaned $300,000 to the Pennsylvania operation, which is
evidenced by a secured promissory note with interest at the rate of 12% per
annum payable monthly, in arrears. The note may be prepaid at any time and has a
final maturity on March 31, 2006. Mr. Edward G. McCusker had agreed to loan
$100,000 to the Pennsylvania operation on terms similar to our advance, on or
before June 30, 2000. This loan was to be subordinate to the debt owed to us.
Mr. McCusker did not advance such funds for the Pennsylvania operations and for
this reason as well as others, the Company ceased its operations in Pennsylvania
in the third quarter of 2000. The Company has filed a law-suit in the Courts of
Pennsylvania naming Mr. and Mrs. McCusker as defendants in an effort to recover
all or part of its $300,000 loan plus interest and costs. Although the Company
believes that it is entitled to full recovery, it has charged the unpaid balance
of its loan to the Pennsylavnia operations in the current year.
F-33
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE L - BUSINESS ACQUISITIONS (CONTINUED)
PINNACLE DEALER SERVICES, INC. ("PDS")
On August 20, 1998, the Company acquired PDS, an Arizona corporation,
by issuing to the shareholders of PDS a total 300,000 restricted shares of
common stock, valued at $0.20 per share, in exchange for the outstanding shares
of PDS. PDS provides financing programs for dealers who purchase vehicles from
the Company.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $47,813 and was being amortized on a straight-line basis
over 10 years. At December 31, upon its decision, to close all land-based
operations, the Company charged the balance of the PDS unamortized goodwill of
$36,657 to loss on discontinuance of land-based operations.
NATIONAL DEALER SERVICES CO. ("NDSCO")
On March 1, 2000, the Company acquired NDSCo, a Utah corporation, by
issuing to the shareholders of NDSCo a total 1,100,000 restricted shares of
common stock, valued at $2.55 per share, in exchange for the outstanding shares
of NDSCo. 100,000 shares of stock were held in escrow pending the successful
completion of the new NDSCo software. The software was subsequently completed.
NDSCo was a privately held corporation involved in the development of an
electonic vehicle distribution system. They utilized a network of auto buying
websites that empowered auto dealerships to research, finance and purchase
vehicles online. They also provided manufacturers with the ability to list
vehicles for sale to dealers in all parts of the country almost instantly from
their own lots.
Please refer to Notes B and E for information regarding the
reclassification to software of the excess paid over book-value for the NDSCo.
Common stock. Subsequent to the reclassification, the Company determined that
this software is impaired, and accordingly has charged the remaining unamortized
balance to expense.
AUTOTRADECENTER REMARKETING SERVICES INC. & WALDEN REMARKETING SERVICES, INC.
("WALDEN REMARKETING")
On March 31, 1999, the Company acquired Walden Remarketing, a Minnesota
corporation by issuing the shareholders of Walden Remarketing a total of
2,050,000 restricted shares of common stock, cash of $125,000, and a promissory
note in the principal amount of $425,000. The Company valued the common stock at
its estimated fair market value of $0.71 per share or $1,450,000. The promissory
note accrues interest at the rate of 12% per annum and requires the Company to
make 18 equal monthly payments of principal and interest beginning May 1, 1999.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $1,985,383 and is being amortized on a straight-line
basis over 10 years.
On April 20, 1999, the Company entered into a Consulting Agreement with
the former majority shareholder of Walden Remarketing as part of the Company's
acquisition of Walden Remarketing. The consulting services agreement is for a
period of three years ending April 20, 2002. As consideration for the agreement,
the Company has granted to the shareholder an option to purchase 3,000,000
shares of the Company's common stock at $3.00 per share. The options, which
expire April 20, 2009, vest according to a schedule that is based on the trading
price of the common stock.
On December 1, 1999, the Company entered into an agreement which
provides for the termination and unwinding of all oustanding obligations and
agreements that arose when the Company acquired Walden Remarketing. The balance
on the promissory note issued as part of the acquistion in the amount of
$314,475
F-34
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE L - BUSINESS ACQUISITIONS (CONTINUED)
was converted into common stock at a price of $1.00 per share. The Company
changed the name from Walden Remarketing to AutoTradeCenter Remarketing Services
Inc. and moved the operation to a new office in Scottsdale, Arizona.
The consulting services agreement entered into with the former majority
shareholder of Walden Remarketing as part of the Company's acquisition of Walden
Remarketing was also terminated. As a result the option to purchase 3,000,000
shares of the Company's common stock at $3.00 per share expired.
BUSINESSTRADECENTER.COM INC. ("BTC")
On January 7, 1999, the Company incorporated BTC in Arizona to
facilitate the buying and selling of vehicles at wholesale between dealers on
the Internet. BTC has developed the technology and systems necessary to make the
Company's inventory, as well as the inventory of member dealers, available for
purchase and sale on the Company's Internet site. On March 23, 2000 it acquired
the remaining 45% minority interest of BTC by issuing 5,000,000 shares of common
stock, valued at $1.88 per share, which represents management's estimate of the
fair market value of the common stock on the date of the transaction, and paying
off a convertible $200,000 note, thereby making BTC a wholly-owned subsidiary.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $9,374,550 and was being amortized on a straight-line
basis over 10 years. Please refer to Note B for information regarding the
reclassification of the purchase price paid by the Company for BTC from goodwill
to software and the subsequent change in the estimate of its useful life from 10
years to 3 years.
The acquisitions described above were accounted for by the purchase
method of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues or expenses
related to these acquisitions prior to the respective closing dates. The cash
portions of the acquisitions were financed through available cash and borrowings
from the Company's line of credit.
The following schedule shows the pro-forma results for continuing
operations for the years ended March 31, 2000 and March 31, 1999 assuming the
acquisitions the Company acquired during the year ended March 31, 2000 occurred
on April 1, 1998.
Year ended March 31,
------------------------------
2000 1999
---- ----
Net revenues $ 291,587 $ -
Net loss $(3,117,304) $(2,534,363)
Year ended March 31,
------------------------------
2000 1999
---- ----
Basic loss per common share $ (0.11) $ (0.13)
Diluted loss per common share $ (0.11) $ (0.13)
These pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combinations been in effect on April 1,
1998, or of future results of operations.
F-35
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE L - BUSINESS ACQUISITIONS (CONTINUED)
As a result of the acquisitions, the Company had the following non-cash
activity:
[Download Table]
Year ended March 31,
------------------------------------
Assets acquired: 2000 1999
---- ----
Accounts receivable, net $ -- $ 98,609
Prepaid expenses -- 3,520
Investment in subsidiaries 460 --
Property and equipment 802,708 34,655
Goodwill 11,607,064 2,141,158
---------- ---------
Total assets acquired 12,410,232 2,277,942
---------- ---------
Liabilities assumed:
Accounts payable -- 84,712
Accrued liabilities 40,241 84,180
---------- ---------
Total liabilities assumed 40,241 168,892
---------- ---------
Notes payable issued -- 425,000
Value of common stock issued 12,369,991 1,604,480
---------- ---------
Net cash paid $ -- $ 79,570
========== =========
NOTE M - STOCKHOLDERS' EQUITY
COMMON STOCK
On July 10, 1997 (inception) the Company issued 9,000,000 shares of
no-par value common stock for $30,000 to its founders. In December 1997, the
Company sold 1,002,500 common shares for $25,062 pursuant to Rule 503 of
Regulation D under the Securities Act of 1933 (commonly referred to as a "504
offering").
On March 31, 2001, the Company, in a private placement, sold 5,865,210
units at $0.25 per unit. Each unit consists of one share of no par common stock
and one warrant (expiring March 31, 2006) enabling the warrant holder to acquire
one share of common stock at $0.3125 per share, for each two warrants tendered.
Subsequent to March 31, 2001 an additional 186,702 units were sold, under
similar terms. The private placement subscription agreement contains an
anti-dilution provision. Refer to Note R - Subsequent Events for additional
disclosures related to the issuance of the number of shares of Common Stock to
be issued pursuant to this private placement.
PREFERRED STOCK
SERIES C
During February, 2000 the Company issued 20,800 shares of Series C
preferred stock ("Series C") for $2,080,000. Each share of Series C preferred
stock is convertible, at the option of the holder, at any time, into 80 shares
of Common Stock of the Corporation, which is based on the initial conversion
price of $1.25. The Company assigned an intrinsic value of $1,697,280 to this
conversion feature. As a result, a constructive dividend in this amount was
recorded in the accompanying financial statements. Each share of Series C
preferred stock is entitled to a $100 liquidation preference over common
stockholders. The Series C preferred stock is non voting.
F-36
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
The Company shall have the right and option upon notice to the holders
of the Series C preferred stock to call, redeem, and acquire any or all of the
shares of Series C preferred stock at a price equal to $110.00 per share, at any
time to the extent such shares have not previously converted to common stock
pursuant to the terms described above; provided, however, that the holders of
the Series C preferred stock shall, in any event, have the right during the
30-day period immediately following the date of the Notice of Redemption, which
shall fix the date for redemption, to convert their shares of Series C preferred
stock in accordance with the terms described above.
On May 17, 2000 the Company filed Form S-1 Registration Statement under
the Securities Act of 1933 to register the common shares to be issued upon
conversion of the Series C preferred stock. On May 14, 2001 the Company filed
Form S-1 Registration Statement Amendment Number 5 under the Securities Act of
1933 to register the common shares to be issued upon conversion of the Series C
preferred stock.
In accordance with terms of the Series C preferred stock and a
subsequent agreement with shareholders the Company issued an additional 2% (416
Shares) Series C preferred shares to its shareholders. As the additional shares
are considered to be a cost of issuance, their cost is capitalized to the
related equity account. Furthermore, the conversion price for the Series C
preferred shares has been reduced to $0.75. No additional constructive dividend
was recorded upon the reduction of the conversion price as there is no
additional intrinsic value resulting from the reduction.
SERIES D
During February, 2000 the Company issued 31,200 shares of Series D
preferred stock ("Series D") for $3,120,000. Each share of Series D preferred
stock is convertible, at the option of the holder, at any time, into shares of
Common Stock of the Corporation equal to $100.00 divided by the conversion price
which shall be a price equal to 65% of the average closing bid price for the
common stock for the 10 trading days immediately preceding the date of
conversion. Shareholders of Series D are limited to owning at any given time no
more than 5% of the total issued and outstanding Common Stock of the Corporation
after giving effect to the issuance of the Common Stock to be received from any
Series D conversion. The maximum conversion price shall be $4.00 per share. The
Company assigned an intrinsic value of $1,680,000 to this conversion feature. As
a result, a constructive dividend in this amount was recorded in the
accompanying financial statements. Each share of Series D preferred stock is
entitled to a $100 liquidation preference over common stockholders. The Series D
preferred stock is non voting.
The Company shall have the right and option upon notice to the holders
of the Series D preferred stock to call, redeem, and acquire any or all of the
shares of Series D preferred stock at a price equal to $110.00 per share, at any
time to the extent such shares have not previously converted to common stock
pursuant to the terms described above; provided, however, that the holders of
the Series D preferred stock shall, in any event, have the right during the
30-day period immediately following the date of the Notice of Redemption, which
shall fix the date for redemption, to convert their shares of Series D preferred
stock in accordance with the terms described above.
On May 17, 2000 the Company filed Form S-1 Registration Statement under
the Securities Act of 1933 to register the common shares to be issued upon
conversion of the Series D preferred stock. On May 14, 2001 the Company filed
Form S-1 Registration Statement Amendment Number 5 under the Securities Act of
1933 to register the common shares to be issued upon conversion of the Series D
preferred stock.
In accordance with terms of the Series D preferred stock the Company
has deemed to issue an additional 2% (624 Shares) Series D preferred shares to
its shareholders. As the additional shares are considered to be a cost of
issuance, their cost is capitalized to the related equity account.
F-37
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE M - STOCKHOLDRS' EQUITY (CONTINUED)
STOCK OPTION PLANS
1997 STOCK OPTION PLAN:
On August 5, 1997, the shareholders of the Company adopted the 1997
Stock Option Plan ("Plan"), which provides for the granting of both incentive
stock options and non-qualified options to eligible employees (including
independent wholesale brokers), officers, and directors of the Company.
Initially, a total of 1,000,000 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under this Plan (the "Option
Pool"). The Option Pool is adjusted annually on the beginning of the Company's
fiscal year to a number equal to 10% of the number of shares of common stock of
the Company outstanding at the end of the Company's last completed fiscal year,
or 1,000,000 shares, whichever is greater. For the fiscal years' beginning April
1, 1999, April 1, 2000, and April 30, 2001 the Option Pool was 2,038,508,
2,765,261 and 3,732,551 shares, respectively. The Plan is administered by the
Compensation Committee of the Board of Directors or, if there is no Committee,
by the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of the Company's subsidiaries,
will receive automatic option grants to purchase 10,000 shares of common stock
upon their appointment or election to the Board of Directors of the Company.
Options shall have an option price equal to 100% of the fair market value of the
common stock on the grant date and shall have a minimum vesting period of one
year from the date of grant.
The following table reflects activities in the Company's 1997 Option Plan:
[Download Table]
Weighted
Average
Options Price Options
Outstanding per Share Exercisable
------------------------------------------
Balance, March 31, 1998 350,000 $ 0.15 0
==========
Granted 1,298,175 1.05
Exercised
Cancelled/Forfeited (125,000) 0.71
--------------------
Balance, March 31, 1999 1,523,175 0.87 375,000
==========
Granted 1,419,080 1.50
Exercised
Cancelled/Forfeited (25,000) 0.15
--------------------
Balance, March 31, 2000 2,917,255 1.50 2,139,755
==========
Granted 554,474 2.38
Exercised (362,925) 0.79
Cancelled/Forfeited (394,885) 1.25
--------------------
Balance, March 31, 2001 2,713,919 $ 1.47 2,606,729
==================================
These shares vest according to length of service provided that the
recipient is still employed by the Company or under contract pursuant to a
work-for-hire agreement as of the vesting date. The vesting period for options
issued to brokers who were performing services for the Company at the time of
its disposition of land-based operations remain unchanged. The option prices
range from $0.15 to $4.88.
F-38
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE M - STOCKHOLDRS' EQUITY (CONTINUED)
2000 EQUITY INCENTIVE COMPENSATION PLAN:
On November 29, 2000, the board of directors adopted the 2000 Equity
Incentive Compensation Plan, which provides for granting stock options, stock
appreciation rights, restricted and deferred stock, bonus stock, and other
stock-based awards to officers, directors, employees, and independent
contractors. The shareholders must still adopt this plan. The total number of
shares of common stock that may be subject to the granting of awards under this
plan at any time during the term of the plan is equal to 3,500,000 shares, plus
the number of shares with respect to which awards previously granted under the
plan that terminate without being exercised, and the number of shares that are
surrendered in payment of any awards or any tax withholding requirements. During
any fiscal year the number of options, stock appreciation rights, restricted
shares of common stock, deferred shares of common stock, shares as a bonus or in
lieu of other company obligations, and other stock-based awards granted to any
one participant may not exceed 450,000 for each type of such award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
an annual incentive award or other cash award in any fiscal year to any one
participant is $2,000,000, and the maximum amount that may be earned as a
performance award or other cash award in respect of a performance period by any
one participant is $5,000,000.
Unless earlier terminated by the board of directors, this plan will
terminate at such time as no shares of common stock remain available for
issuance under this plan and we have no further rights or obligations with
respect to outstanding awards under this plan.
Subject to approval of this plan by the stockholders, options have been
granted under this plan as follows:
Granted ............................... 2,365,496
Exercised.................................. 0
Cancelled/expired.......................... 0
--------
Balance, March 31, 2001.................... 2,365,496
==========
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
requires the Company to disclose pro forma information regarding option grants
made to its employees. SFAS No. 123 specifies certain valuation techniques that
produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because "APB 25", "Accounting for Stock Issued to Employees,"
specifies that no compensation charge arises when the stock price of the options
granted to the Company's employees is equal to or greater than the fair market
value of the stock price at the date of grant.
Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following average assumptions:
Year Ended March 31,
-------------------------
2001 2000 1999
----- ----- -----
Expected divident yield 0.00% 0.00% 0.00%
Risk-free interest rate 5.74% 6.02% 4.67%
Expected volatility 168% 166% 149%
Expected life (in months) 16 32 43
F-39
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE M - STOCKHOLDRS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's options. The weighted average
estimated fair value of employee stock options granted during the years ending
March 31, 2001 and 2000 and March 31, 1999 were $1.07, $0.80, and $0.52 per
share, respectively.
SFAS 123 pro-forma numbers are as follows:
[Enlarge/Download Table]
YEAR ENDED MARCH 31,
----------------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Net income (loss) as reported under APB 25
Continuing operations $ (9,060,369.00) $ (946,202.00) $ (226,369.00)
Discontinued operations $ (2,663.285.00) $ (1,641,551.00) $ 341,610.00
---------------- ---------------- ----------------
$(11,723,654.00) $ (2,587,753.00) $ 115,241.00
Net income (lo9ssP pro forma under SFAS 123
Continuing operations $(10,712,316.00) $ (1,578,305.00) $ (267,263.00)
Discontinued operations $ (2,663,285.00) $ (2,075,079.00) $ 32,284.00
---------------- ---------------- ----------------
$(13,375,601.00) $ (3,653,384.00) $ (234,979.00)
Basic net income (loss) per common share-
as reported under APB 25
Continuing operations $ (0.28) $ (0.04) $ (0.02)
Discontinued operations $ (0.08) $ (0.08) $ 0.03
---------------- ---------------- ----------------
$ (0.36) $ (0.12) $ (0.01)
Diluted net income (loss) per common share-
as reported under APB 25
Continuing operations $ (0.28) $ (0.04) $ (0.01)
Discontinued operations $ (0.08) $ (0.08) $ 0.02
---------------- ---------------- ----------------
$ (0.36) $ (0.12) $ (0.01)
Basic net income (loss) per common share-
pro forma under SFAS 123
Continuing operations $ (0.33) $ (0.07) $ (0.02)
Discontinued operations $ (0.08) $ (0.10) $ 0.00
---------------- ---------------- ----------------
$ (0.41) $ (0.17) $ (0.02)
Diluted net income (loss) per common share-
pro forma under SFAS 123
Continuing operations $ (0.33) $ (0.07) $ (0.01)
Discontinued operations $ (0.08) $ (0.10) $ 0.00
---------------- ---------------- ----------------
$ (0.41) $ (0.17) $ (0.01)
Outstanding Shares
Basic 32,777,824 21,638,671 13,726,397
fully diluted 32,777,824 21,638,671 22,826,746
F-40
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE M - STOCKHOLDRS' EQUITY (CONTINUED)
OTHER STOCK OPTIONS
The Company has also granted stock options to other third parties as
part of the issuance of stock, debt and in business acquisitions. Some options
vest according to various agreed upon conditions; while others vested on the
date granted. Following is a table reflecting activities regarding other stock
options:
[Download Table]
Weighted
Average
Options Price Options
Outstanding per Share Exercisable
Balance, March 31, 1998 850,000 $0.39
Granted 1,589,810 1.42
Exercised - -
Cancelled/Forfeited (350,000) 0.50
---------- ----- ---------
Balance, March 31, 1999 2,089,810 1.16 2,089,180
=========
Granted 465,000 1.30
Exercised - -
Cancelled/Forfeited (300,000) 3.50
---------- ----- ---------
Balance March 31, 2000 2,254,810 0.88 2,254,810
=========
Granted - -
Exercised (210,000) 1.00
Cancelled/Forfeited (75,000) 2.56
---------- ----- ---------
Balance March 31, 2001 1,969,810 $0.80 1,969,810
========== ===== =========
The fair value of the options issued during the years ended March 31,
2001, 2000 and 1999 was determined using the Black-Scholes option pricing model.
Options granted for services were valued at $23,083 and options granted for loan
guarantees were valued at $56,355 in 1999. For the years ended March 31, 2001
and 2000 options granted for services were valued at $193,186 and $351,280,
respectively. No other options were granted for the year ended March 31, 2001.
NOTE N - RELATED PARTY TRANSACTIONS
Certain of the following related party transactions refer to prior
tranactions with the disposal of land-based subsidiaries and operations.
Effective June 1, 1998 ANET-NM entered into a lease agreement with G & B
Investments, LLC, an entity owned by two of the principals managing the
Albuquerque operations. The lease terminates on May 31, 1999 but is
automatically renewed unless a 30-day cancellation notice is received by either
party. The lease is an operating lease whereby ANET-NM is responsible for all
operating costs. The amount of the lease is $2,500 per month. Effective May 1,
2000 the amount of the lease increased to $3,600 per month.
As described in Note L, on August 20, 1998 the Company acquired
Pinnacle Dealer Services ("PDS") for 300,000 restricted shares of common stock.
PDS was owned by three officers of the Company. The value assigned to the
transaction was $47,813.
On March 26, 1999, the Company obtained a $3,000,000 line of credit
from a financial institution. The note is due March 31, 2000, and is secured by
a first lien on all inventory accounts receivable, equipment, and general
intangibles. Messrs. Stuart, Moldenhauer, and Butterwick personally guaranteed
the note. In
F-41
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE N - RELATED PARTY TRANSACTIONS (CONTINUED)
consideration of the personal guarantees, the Company granted each of Messrs.
Stuart, Moldenhauer, and Butterwick three-year options to purchase 250,000
restricted shares of common stock at a price of $1.00 per share.
On April 3, 2000, the Company extended its $3,000,000 line of credit
from a financial institution. The note is due June 30, 2000, and is secured by a
first lien on all inventory accounts receivable, equipment, and general
intangibles. Messr. Butterwick personally guaranteed a portion of the note. No
options were granted in consideration of his personal guarantee. The note was
further extended through the first two months of 2001 when it was repaid in
full.
Pursuant to a Financial Services Agreement with Cambridge Management
Associates, LLP, an entity whose managing partner became an officer of the
Company on April 2, 1999, 300,000 stock options vested on March 26, 1999. The
options are exercisable at $0.32 per share.
The Company has entered into various lending arrangements with
officers, directors and other affiliated entities owned or controlled by
officers, directors and other key personnel of the Company. As more fully
detailed in Note G, at March 31, 2001, March 31, 2000 and March 31,1999 the
outstanding balance on these notes was $738,807, $528,807, and $528,807,
respectively. The total interest paid to these entities on all financing
activities for the years ended March 31, 2001, 2000, and 1999 was $106,888,
$63,456, and $63,456, respectively.
The outstanding balances on related party notes respecting discontinued
operations were $0, $5,166,821, and $3,342,639 at March 31, 2001, 2000, and
1999, respectively. Total interest paid to these entities on all financing
activities for discontinued operations was $699,288, $704,665, and $233,368 for
the years ended March 31, 2001, 2000, and 1999, respectively.
NOTE O - CONCENTRATIONS
Remarketing off-lease and program vehicles, primarily using the
Internet, represents the Company's primary business segment. For the fiscal year
ended March 31, 2001, 100% of its revenue was earned under a three year contract
with American Honda Finance Corporation to remarket used Honda and Accura
vehicles.
NOTE P - LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect upon the financial condition,
results of operations or cash flows of the Company.
F-42
NOTE Q - AUTOTRADECENTER.COM INC. - CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2001
[Download Table]
(unaudited)
------------
Net sales $ 246,806
============
Operating expenses:
Salary 210,962
Selling 225,285
General and administrative 518,908
Loss on disposal of impaired software -
Depreciation and amortization 1,238,626
------------
Total operating expenses 2,193,781
(Loss) from operations (1,946,975)
------------
Other income (expense):
Miscellaneous 4,999
Interest expense (59,296)
------------
Total other income (expense) - net (54,297)
(Loss) from continuing operations (2,001,272)
------------
Discontinued operations:
(Loss) from operations of land-based segment -
(Loss) from disposition of land-based segment (687,392)
------------
(687,392)
Net (loss) before income taxes (2,688,664)
------------
Income tax expense (benefit) -
------------
Net (loss) $(2,688,664)
============
Basic earnings (loss) per share:
Continuing operations $ (0.06)
Discontinued operations $ (0.02)
Diluted earnings (loss) per share:
Continuing operations $ (0.06)
Discontinued operations $ (0.02)
Weighted average shares number of common shares outstanding
Basic 34,323,871
Fully diluted 34,323,871
F-43
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE R - SUBSEQUENT EVENTS
On May 16, 2001 a director of the Company loaned the Company $150,000.
On May 31, 2001, the note was rewritten and increased to $200,000 and is due
upon the Company's receipt of specific trade accounts receivable. The note bears
interest at the rate of 12% per annum and is secured by these specific trade
accounts. On July 16, 2001, this director loaned the Company an additional
$65,000 under a new note with the same terms and conditions as the original
note. Subsequent principal payments have reduced the balances due at July 26,
2001 on both notes to approximately $115,000. As part of the financing
arrangement with Eagle Capital Group, LLC as described below, the due dates on
the notes have been extended until after August 31, 2001.
On July 26, 2001, the Company entered into a financing arrangement with
Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line
of credit up to $1,300,000. The loan provides for an initial advance of
$250,000, followed by a thirty-day review period during which Eagle will
complete its legal due diligence with respect to, among other items, the
Company's intellectual property. The review period grants Eagle the right to
discontinue funding of the line of credit if the Company's intellectual property
is deficient in certain material respects. The loan is due June 30, 2002 bearing
interest at the rate of 12% per annum that is payable monthly. The Company paid
a commitment fee of $13,000 and is obligated to pay a one percent (1%) facility
fee of up to $13,000 each quarter. The Company is also required to pay monthly
principal payments of not less than 5% of the outstanding loan balance once the
Company achieves positive cash flow. The loan is secured by all assets including
but not limited to furniture, fixtures, leasehold, personal property, and
intellectual property.
The loan is convertible into common stock of the Company at any time
before the due date thereof, including any extensions, at the lesser of the
average bid price following the date of the first advance and the earlier of the
conversion date or the termination date or $0.10 per share. The Company also
issued Eagle a warrant which allows Eagle, for a period of 90 days from the
termination date of the loan, to purchase common shares at $0.10 per share in an
amount equal to the difference between (a) 13,000,000 and (b) the number of
shares of common stock issued upon prior conversion of any amounts under the
loan.
In addition, the Company issued a warrant to Eagle that allows Eagle to
purchase, for a period of up to five years, up to 6,500,000 shares of common
stock at an exercise price of $0.125 per share. If the Company prepays the loan
in full at any time prior to December 31, 2001, the Company will issue to Eagle
1,500,000 shares of Common Stock as consideration.
In addition, the Company issued to Eagle 1,300 shares Series E
Preferred Stock, at a par value of $0.10 per share. The Series E Preferred Stock
grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle
will have two representatives on the Company's board of directors.
The Company also entered into a Facilities Use and Administrative
Services Agreement with an affiliate of Eagle for the use of office facilities,
software development, marketing, accounting, and other management services that
may vary from time to time. The fee for these services will be negotiated
between the parties in good faith as business practices and circumstances
change.
On July 26, 2001, as part of the agreement with Eagle, the Company
consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer in the
amounts of $336,807 and $402,000, respectively. The consolidated note bears
interest at 12% payable monthly. In addition, the Company is obligated to make
principal payments of $25,000 per month in November and December 2001, and
$50,000 per month principal payments from January 2002 through May 2002. The
balance of the note is due June 30, 2002. Any principal payment may be converted
into Common Stock at the sole discretion of the lender at the rate of $0.10 per
share, upon three days written notice. The Company also issued a warrant to
purchase one share of Common Stock for every two shares of Common Stock received
upon conversion. The warrant exercise price is $0.125 per share and expires five
years from issuance. The note is subordinated to the first lien of Eagle.
F-44
As a result of this transaction, the Company is required to reset the
pricing of the units sold in March through April, 2001 pursuant to a private
placement. The anti-dilution clause contained in the private placement requires
the Company to issue 9,948,027 shares of its common stock and 4,959,013
additional stock purchase warrants exercisable at $0.125 per share.
NOTE S - LIQUIDITY ISSUES
The Company has sustained operating losses and negative cash flow since
its inception, resulting in little tangible net worth at March 31, 2001. Without
the new financing, as discussed in Note R, the Company could not have funded its
day-to-day operations or service its long term debt. The Company and its
management have addressed these concerns by: (1) Obtaining a new line of credit,
effective July 26, 2001, for up to $1,300,000 (see Note R) to fund the Company's
operating needs until the projected future revenue sources are fully developed;
(2) Continuing our efforts to raise up to an additional $500,000 under terms
similar to those of the private placement of equity securities in March and
April of 2001; (3) Implementing plans to generate positive cash flow and
operating profits by increasing revenues through the expansion of its Internet
remarketing of off-lease and program vehicles with its current customers and
others and develop new products and services for its current customer base and
others and; (4) the Company intends to further reduce its cash requirements for
software and website development and continue to reduce its costs of operations.
There is no assurance, however, that the Company will be able to implement its
business plan as outlined above. In the event that the Company is unable to
obtain positive cash flow prior to exhausting its new line of credit, it must
obtain additional financing in the form of equity or debt to continue
operations.
F-45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
[Download Table]
Securities and Exchange Commission filing fee........ $ 4,612.14
Accounting fees and expenses......................... 5,000.00
Blue sky fees and expenses........................... 1,000.00
Legal fees and expenses.............................. 20,000.00
Transfer agent fees and expenses..................... 2,000.00
Printing expenses.................................... 2,000.00
Miscellaneous expenses............................... 5,387.86
----------
Total................................................ $40,000.00
==========
All amounts are estimates except the SEC filing fee. The
Selling Stockholders will be bearing the cost of their own brokerage fees and
commissions and their own legal and accounting fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arizona Business Corporation Act and Article 9 of the Registrant's
Articles of Incorporation permit the Registrant to indemnify its officers and
directors and certain other persons against expenses in defense of a suit to
which they are parties by reason of such office, so long as the persons
conducted themselves in good faith and the persons reasonably believed that
their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding the officer or director was adjudged liable on the basis that
he or she derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the registrant's inception, it has issued and sold securities
which were not registered under the Securities Act of 1933, as follows:
[Enlarge/Download Table]
COMMON STOCK:
Date Person or Class of Persons Number of Shares Offering Price Consideration
8/97 Jeff Erskine, Mike Stuart, Mark 9,000,000 shares $.003333 per share $30,000 cash
Moldenhauer, Joe Seaverns, Candy
Seaverns, Victor Felice, and John
Carrante
12/97 34 persons who were associates or 1,002,500 shares $0.025 per share $25,062.50 cash
acquaintances of Mark Moldenhauer
and who have previously invested
in this type of offering
2/98 - 3/99 Eastlane Trading Limited, 7,499,250 shares (and Conversion of 6,750 shares of Series A
Silhouette Investments Ltd., and warrants to purchase Preferred Stock
Flagstone Automotive Inc. 1,499,850 shares at
$.25 per share)
II-1
Date Person or Class of Persons Number of Shares Offering Price Consideration
6/98 JBS, LLC 266,667 shares Purchase of goodwill valued at $.20 per
share
8/98 Shareholders of Pinnacle Dealer 300,000 shares These shares were issued in exchange for
Services, Inc. the shares of Pinnacle Dealer Services, Inc.
3/99 Shareholders of Walden 2,050,000 shares These shares were issued in exchange for
Remarketing Services, Inc. the shares of Walden Remarketing Services,
Inc.
3/99 JBS, LLC 266,667 shares Purchase of goodwill valued at $.20 per
share
4/99 M&A West, Inc. 100,000 shares $2.00 per share $200,000 cash
7/99 Shareholders of Auto Network 500,000 shares These shares were issued in exchange for
Group Northwest, Inc. the shares of Auto Network Group Northwest,
Inc.
11/99 - Holders of Series B Preferred 543,515 shares Conversion of 47,000 shares of Series B
1/00 Stock Preferred Stock
12/99 Dennis Hecker 314,475 shares Payment of obligation in the amount of
$314,475
2/00 Anthony & Company, Inc. 100,000 shares $0.50 per share $50,000 cash
3/00 Shareholders of NDSCo.Com, Inc. 1,100,000 shares These shares were issued in exchange for
the shares of NDSCo.Com, Inc.
3/00 Lloydminister Enterprises Inc. 5,000,000 shares These shares were issued in exchange for
Lloydminister's shares of
BusinessTradeCenter.com
3/00 Net Chemistry 40,000 shares These shares were issued as payment for
software programming and systems
development services valued at $120,000
4/00 JRB AutoBrokers, L.P. 468,750 shares Purchase of goodwill valued at $2.00 per
share
4/00 Edward McCusker 232,500 shares Compensation for management services
5/00 Mark Moldenhauer 3,000,000 shares Payment of obligation in the amount of
$300,000.
6/00 - Holders of Series C Preferred 1,346,400 shares Conversion of 10,098 shares of Series C
8/01 Stock Preferred Stock
6/00 - 8/01 Holders of Series D Preferred 3,097,375 shares Conversion of 17,992 shares of Series D
Stock Preferred Stock
8/00 JBS, LLC 266,666 shares Purchase of goodwill valued at $.20 per
share
9/00 Anthony D. and Kelly Cupini 61,825 shares Compensation due under Finders Agreement to
John A. and Lucia Brda 42,858 shares Anthony & Company, Inc. in connection with
offering of Series C and D Preferred Stock
(see below)
10/00 DeJong & Associates 30,000 shares Compensation for services
3/01 - 4/01 19 accredited investors 16,530,045 shares $1,653,005 cash
8/01 directors 510,000 shares compensation for services
No underwriters were used in the above transactions. The registrant
relied upon the exemption from registration contained in Section 4(2) as to all
of the transactions except for the sale of shares in December 1997, the
conversion of the Series A Preferred Stock, and the purchase of shares by M&A
West, Inc. With regard to the transactions made in reliance on the exemption
contained in Section 4(2), the purchasers were deemed to be sophisticated with
respect to the investment in the securities due to their financial condition and
involvement in the registrant's business. Restrictive legends were placed on the
stock certificates evidencing the shares issued in the Section 4(2)
transactions.
II-2
[Enlarge/Download Table]
SERIES A PREFERRED STOCK:
Date Person or Class of Persons Number of Shares Offering Price Consideration
2/98 Eastlane Trading Limited 6,750 shares $100 per share $675,000 cash
No underwriters were used in the above transaction. The registrant
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933. The purchaser was deemed to be sophisticated with
respect to this investment in securities of the registrant by virtue of its
financial condition and previous investment experience. A restrictive legend was
placed on the stock certificates evidencing the Series A Preferred Stock.
[Enlarge/Download Table]
SERIES B PREFERRED STOCK:
Date Person or Class of Persons Number of Shares Offering Price Consideration
11/98 - 3 accredited and 1 non-accredited 47,000 shares $10 per share $470,000 cash
12/98 investors
The registrant entered into a Consulting Agreement with Anthony &
Company, Inc. dba Anthony Advisors (the "Consultant"). Under the terms of the
Consulting Agreement, the registrant appointed the Consultant as its exclusive
agent for the purpose of introducing to the registrant persons interested in
investing in the Series B Preferred Stock. The Consultant was not authorized to
negotiate the terms of the transaction with any introduced investor on behalf of
the registrant or to execute the transaction on behalf of the registrant. For
its services, the registrant paid the Consultant a fee of $82,720 and warrants
to purchase up to 100,000 shares of the registrant's Common Stock at $.50 per
share. The registrant relied upon the exemption from registration contained in
Rule 506 of Regulation D.
[Enlarge/Download Table]
SERIES C PREFERRED STOCK AND SERIES D PREFERRED STOCK:
Date Person or Class of Persons Number of Shares Offering Price Consideration
2/99 22 accredited investors 21,216 shares of $100 per share $5,200,000 cash
Series C Preferred
Stock and 31,824
shares of Series D
Preferred Stock
The registrant entered into a Finder Agreement with Anthony & Company,
Inc. dba Anthony Advisors ("Anthony"). Under the terms of the Finder Agreement,
the registrant engaged Anthony for the purpose of introducing to the registrant
persons interested in investing in the Series C and D Preferred Stock. Anthony
was not authorized to negotiate the terms of the transaction with any introduced
investor on behalf of the registrant or to execute the transaction on behalf of
the registrant. For its services, the registrant agreed to pay Anthony a fee of
$250,000 and issue 107,143 shares of the registrant's Common Stock. The
registrant also engaged the services of Cardinal Securities, LLC and paid fees
of $165,000 and Cardinal's legal fees of $7,500 for its services in connection
with the offering. In addition, the registrant also agreed to grant warrants to
Cardinal to purchase up to 55,000 shares of common stock at a price of $5.40 per
share. The registrant relied upon the exemption from registration contained in
Rule 506 of Regulation D.
[Enlarge/Download Table]
SERIES E PREFERRED STOCK:
Date Person or Class of Persons Number of Shares Offering Price Consideration
7/01 Eagle Capital Group, LLC 1,300 shares of $0.10 per share $130 cash
Series E Preferred
Stock
II-3
No underwriters were used in the above transaction. The registrant
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933. The purchaser was deemed to be sophisticated with
respect to this investment in securities of the registrant by virtue of its
financial condition and previous investment experience. A restrictive legend was
placed on the stock certificates evidencing the Series A Preferred Stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this
registration statement:
[Enlarge/Download Table]
Regulation S-K
Number Document
2.1 Agreement and Plan of Reorganization between Auto Network Group, Inc. and Walden Remarketing
Services, Inc. (1)<F1>
2.2 Agreement Concerning the Exchange of Common Stock Between AutoTradeCenter.com Inc. and Auto
Network Group of Northwest, Inc. (1)<F1>
2.3 Stock for Stock Agreement with Automotive Disposition Management Services, Inc., dated December
29, 2000 (6)<F6>
3.1 Articles of Incorporation, as amended (1)<F1>
3.2 Bylaws (1)<F1>
4.1 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series A Preferred Stock (1)<F1>
4.2 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series B Preferred Stock (1)<F1>
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc. (1)<F1>
4.4 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series C Preferred Stock (3)<F3>
4.5 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series D Preferred Stock (3)<F3>
5.1 Opinion regarding legality
10.1 Stock Option Plan (1)<F3>
10.2 Evelyn Felice loan documents (1)<F1>
10.3 Mark Moldenhauer loan documents (1)<F1>
10.4 Pinnacle Financial Corporation loan documents (1)<F1>
10.5 Eastlane Trading Limited loan documents (1)<F1>
10.6 Norwest Bank loan documents (1)<F1>
10.7 Mike and Debbie Stuart loan documents (1)<F1>
10.8 Purchase of Goodwill Agreement with JBS, LLC (1)<F1>
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc. (1)<F1>
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.12 Sample "Work for Hire Agreement" (1)<F1>
10.13 Agreement with Auction Finance Group, Inc. (1)<F1>
10.14 Purchase Agreement with Lloydminister Enterprises Inc. and Kindersley Holdings Inc. dated March
23, 2000 (2)<F2>
10.15 Amended and Restated Secured Promissory Note dated March 31, 2000 to Mark Moldenhauer (3)<F3>
10.16 Amended and Restated Secured Promissory Note dated March 31, 2000 to Pinnacle Financial
Corporation (3)<F3>
10.17 Loan Extension from Wells Fargo Business Credit, Inc. (3)<F3>
10.18 Agreement with American Honda Finance (3)(4)<F3><F4>
10.19 Extension and Exchange Agreement with Pinnacle Financial Corporation dated December 29, 2000 (6)<F6>
10.20 Motor Vehicle Remarketing Agreement with American Suzuki Motor Corporation dated January 10, 2001
(4)<F4>
II-4
Regulation S-K
Number Document
10.21 Letter agreement with Sutro & Co. Incorporated dated October 11, 2000 (3)<F3>
10.22 First Amendment to Motor Vehicle Remarketing Agreement with American Honda Finance Corporation (4)
10.23 Secured Promissory Note to Mark Moldenhauer dated December 29, 2000 (3)<F3>
10.24 Secured Promissory Note to Mark Moldenhauer dated March 31, 2001 (7)<F7>
10.25 Secured Promissory Note to Pinnacle Financial Corporation dated March 31, 2001 (7)<F7>
10.26 Promissory Note to R. Gary McCauley dated May 31, 2001 (7)<F7>
10.27 Promissory Note to R. Gary McCauley dated July 16, 2001 (7)<F7>
10.28 Amended and Restated Secured Promissory Note to Mark Moldenhauer dated July 24, 2001 (7)<F7>
10.29 Eagle Capital Group, LLC loan documents (7)<F7>
10.30 Escrow Agreement between Stradling Yocca Carlson & Rauth, AutoTradeCenter.com Inc. and
Netchemistry, Inc. dated July 26, 2001 (7)<F7>
10.31 Motor Vehicle Remarketing Agreement with Volvo Finance North America, Inc. dated April 30, 2001
21 Subsidiaries of the registrant (3)<F3>
23.1 Consent of Neff & Ricci, LLP
23.2 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (incorporated by reference into Exhibit
5.1)
---------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No.
333-78659).
(2)<F2> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated March 23, 2000
(File No. 333-78659).
(3)<F3> Filed previously.
(4)<F4> Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
(5)<F5> Incorporated by reference to the exhibits filed to the quarterly report on Form 10-Q for the quarter
ended September 30, 2000.
(6)<F6> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated December 29,
2000 (File No. 333-78659).
(7)<F7> Incorporated by reference to the exhibits filed to the annual report on Form 10-K for the fiscal year
ended March 31, 2001.
</FN>
(b) The following financial statement schedules are filed with this
registration statement: None
ITEM 17. UNDERTAKINGS
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:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth 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 not 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.
II-5
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liability arising under the Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale,
State of Arizona, on October 16, 2001.
AUTOTRADECENTER.COM INC.
By:/s/ ROGER L. BUTTERWICK
------------------------------------
Roger L. Butterwick, President
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.
[Enlarge/Download Table]
Signature Title Date
President, Treasurer and a director
/s/ ROGER L. BUTTERWICK (Principal Executive, Financial and 10/16/01
----------------------------- Accounting Officer) --------------------------
Roger L. Butterwick
/s/ JAMES KAISER 10/16/01
----------------------------- Director --------------------------
James Kaiser
/s/ DAVID LIVINGSTON 10/16/01
----------------------------- Director --------------------------
David Livingston
/s/ R. GARY MCCAULEY 10/16/01
----------------------------- Director --------------------------
R. Gary McCauley
/s/ L. DAVID SIKES 10/16/01
----------------------------- Director --------------------------
L. David Sikes
/s/ A. MARVIN STRAIT 10/17/01
----------------------------- Director --------------------------
A. Marvin Strait
----------------------------- Director --------------------------
G. Neil Elsey III
----------------------------- Director --------------------------
J. Christopher Arnold
II-7
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘S-1/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 4/20/09 | | 89 |
| | 3/31/06 | | 48 | | 91 |
| | 3/31/05 | | 47 | | 88 |
| | 3/31/04 | | 47 | | 88 |
| | 1/31/04 | | 16 | | 28 |
| | 6/30/03 | | 46 |
| | 9/30/02 | | 33 | | 86 | | | 10QSB, NT 10-Q |
| | 7/1/02 | | 87 |
| | 6/30/02 | | 8 | | 99 | | | 10QSB, 10QSB/A, NT 10-Q |
| | 5/7/02 | | 45 |
| | 4/30/02 | | 86 |
| | 4/20/02 | | 46 | | 89 |
| | 4/1/02 | | 24 | | 83 |
| | 3/31/02 | | 47 | | 86 | | | 10KSB, NT 10-K |
| | 2/28/02 | | 33 |
| | 12/31/01 | | 25 | | 99 | | | 10-Q |
| Filed on: | | 10/18/01 | | 1 | | 31 |
| | 10/16/01 | | 107 |
| | 10/15/01 | | 30 | | 32 |
| | 10/12/01 | | 4 | | 14 |
| | 9/30/01 | | 14 | | | | | 10-Q |
| | 8/31/01 | | 60 | | 99 |
| | 8/15/01 | | 6 | | 54 |
| | 8/13/01 | | 60 |
| | 7/26/01 | | 8 | | 105 |
| | 7/24/01 | | 105 |
| | 7/16/01 | | 60 | | 105 |
| | 7/1/01 | | 47 | | 87 |
| | 6/30/01 | | 6 | | 61 | | | 10-Q |
| | 6/29/01 | | 45 |
| | 5/31/01 | | 45 | | 105 |
| | 5/18/01 | | 62 |
| | 5/16/01 | | 60 | | 99 |
| | 5/14/01 | | 92 | | | | | S-1/A |
| | 5/1/01 | | 36 |
| | 4/30/01 | | 17 | | 105 |
| | 4/20/01 | | 28 |
| | 4/18/01 | | 3 |
| | 4/1/01 | | 36 | | 74 |
| | 3/31/01 | | 6 | | 105 | | | 10-K, NT 10-K |
| | 2/28/01 | | 6 | | 72 |
| | 2/16/01 | | 24 | | 48 |
| | 2/12/01 | | 28 |
| | 1/31/01 | | 24 | | | | | S-1/A |
| | 1/30/01 | | 48 |
| | 1/26/01 | | 2 |
| | 1/10/01 | | 104 |
| | 12/31/00 | | 14 | | 87 | | | 10-Q, 10-Q/A, 10QSB/A, NT 10-Q |
| | 12/29/00 | | 6 | | 105 | | | 8-K |
| | 12/8/00 | | 36 |
| | 11/30/00 | | 6 | | 72 |
| | 11/29/00 | | 38 | | 94 |
| | 10/11/00 | | 105 |
| | 9/30/00 | | 14 | | 105 | | | 10-Q |
| | 8/13/00 | | 44 |
| | 8/2/00 | | 16 | | 28 |
| | 7/14/00 | | 43 | | 74 | | | 10-K |
| | 7/1/00 | | 87 |
| | 6/30/00 | | 14 | | 97 | | | 10-Q |
| | 6/15/00 | | 16 | | 28 |
| | 5/17/00 | | 23 | | 92 |
| | 5/15/00 | | 37 | | | | | S-1, S-8 |
| | 5/13/00 | | 43 | | 74 |
| | 5/11/00 | | 2 |
| | 5/1/00 | | 42 | | 96 |
| | 4/3/00 | | 97 |
| | 4/1/00 | | 16 | | 93 |
| | 3/31/00 | | 14 | | 104 | | | 10-K, NT 10-K |
| | 3/23/00 | | 22 | | 105 | | | 8-K |
| | 3/1/00 | | 21 | | 89 | | | 8-K |
| | 2/3/00 | | 43 | | 44 |
| | 2/1/00 | | 16 |
| | 1/12/00 | | 44 |
| | 12/31/99 | | 14 | | 46 | | | 10-Q |
| | 12/22/99 | | 43 |
| | 12/8/99 | | 33 |
| | 12/1/99 | | 46 | | 89 |
| | 11/17/99 | | 42 |
| | 11/8/99 | | 14 |
| | 11/5/99 | | 14 |
| | 10/14/99 | | 44 |
| | 10/11/99 | | 42 |
| | 10/1/99 | | 42 |
| | 9/30/99 | | 14 | | | | | 10-Q |
| | 9/22/99 | | 42 |
| | 8/3/99 | | 14 |
| | 8/2/99 | | 14 |
| | 7/20/99 | | 16 | | 87 | | | S-1/A |
| | 6/30/99 | | 14 |
| | 6/1/99 | | 46 | | 86 |
| | 5/31/99 | | 46 | | 96 |
| | 5/1/99 | | 21 | | 89 |
| | 4/20/99 | | 46 | | 104 |
| | 4/2/99 | | 33 | | 97 |
| | 4/1/99 | | 46 | | 93 |
| | 3/31/99 | | 14 | | 97 |
| | 3/26/99 | | 45 | | 97 |
| | 2/1/99 | | 28 |
| | 1/15/99 | | 42 | | 74 |
| | 1/7/99 | | 22 | | 90 |
| | 12/31/98 | | 14 | | 46 |
| | 12/15/98 | | 42 |
| | 10/30/98 | | 43 |
| | 9/30/98 | | 14 |
| | 8/20/98 | | 27 | | 96 |
| | 6/30/98 | | 14 |
| | 6/1/98 | | 16 | | 96 |
| | 5/18/98 | | 27 |
| | 5/7/98 | | 45 |
| | 5/5/98 | | 45 |
| | 4/1/98 | | 90 |
| | 3/31/98 | | 14 | | 65 |
| | 1/29/98 | | 14 |
| | 9/22/97 | | 6 | | 69 |
| | 8/5/97 | | 37 | | 93 |
| | 7/24/97 | | 41 |
| | 7/10/97 | | 6 | | 91 |
| List all Filings |
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