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ATC-ONLANE, INC. - 10KSB - 20020816 - LIQUIDITY_CAPITAL
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) was
$(849,581) at March 31, 2002, as compared to working capital at March 31, 2001
of $182,556. The decrease of $1,032,137 substantially was due to the increase in
borrowing on our line of credit of $968,311 during the fiscal year ended March
31, 2002.
For the fiscal ended March 31, 2002, we used cash of $432,631 in our
operating activities. The major components of which were our net loss for the
period from continuing operations of $7,902,662. Cash primarily was provided by
the non-cash charges for depreciation and amortization of $4,175,891 and
non-cash interest expense on warrants and additional stock of $2,678,621 plus
the non-cash loss on disposal of impaired assets of $49,122. An additional
non-cash expense related to the issuance of stock and options for services
valued at $251,971. Other accounts affecting our cash balances included
decreases in our prepaid expenses along with increases in accounts payable and
accrued liabilities offset by an increase in accounts receivable.
We used cash of $4,371,599 in our operating activities for the fiscal
year ended March 31, 2001, the major components of which were our net losses for
the period of $9,060,369 from continuing operations, $323,840 from discontinued
operations, and $2,339,445 from the charge off of our discontinued wholesale
land-based operations. Cash primarily was provided by the non-cash charges for
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 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.
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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. Cash primarily was provided by the non-cash charges
for depreciation and amortization of $319,800 and the additional non-cash
expense 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.
Our investing activities for the fiscal years ended March 31, 2002,
2001, and 2000 used cash of $847,808, $1,123,690, and $374,420, respectively.
For the fiscal year ended March 31, 2002, cash was used primarily for the
purchase of computer software required for our e-commerce and Internet
operations. 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.
For our fiscal year ended March 31, 2002, we supported our cash needs
by net borrowings on our line of credit in the amount of $968,311 and proceeds
from the issuance of convertible preferred stock and common stock of $130 and
$437,599, respectively.
Financing activities provided net cash of $1,348,619 for our fiscal
year ended March 31, 2001, as compared to $5,174,734 during the previous year.
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 was due on April 1, 2002: it
has been restructured and is described below at "Anticipated Trends and Plan of
Operations." 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 of our now discontinued
wholesale land-based operations. 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, respectively.
ANTICIPATED TRENDS AND PLAN OF OPERATION
We intend to continue the development of our Internet based
initiatives. We believe that focusing on providing automotive remarketing
services via the Internet will improve our long-term prospects for
profitability. Internet operations generate a lower amount of revenue, but
result in higher profit margins.
We anticipate that our agreement with American Honda Finance
Corporation will generate revenues for the next one and one-half years. We
anticipate the volume of lease vehicles being returned to Honda will remain at
approximately the current levels for the remaining term of our contract.
However, we anticipate an overall increase in revenues for the ensuing year
resulting from the price increase we negotiated in October 2001, plus we
anticipate additional revenues from new programs and initiatives currently being
introduced to Honda. We expect the revenue generated from our contract with
Suzuki to remain at approximately the same level as generated this past year.
The Volvo web site, www.volvoride.com, became fully operational in December 2001
and therefore contributed only four months of revenue in our fiscal year ending
March 31, 2002; we expect to generate revenue from our Volvo for the entire
twelve months of our current fiscal year. Internet vehicle remarketing is
currently gaining broader acceptance by consignors charged with the
responsibility of disposing of lease returns and other used vehicle inventories.
We are attempting to enter 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.
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We have sustained operating losses resulting in little tangible net
worth at March 31, 2002. However, beginning in December 2001 we took measures to
generate positive cash flow and operating profits by (1) increasing revenues
through the expansion of our Internet remarketing of off-lease and program
vehicles with new customers and developing new products and services for our
current customer base, and (2) further reducing our cash requirements for
software and website development and continuing to reduce our costs of
operations. Additionally, on June 28, 2002, we entered into an agreement to
merge with Autodaq Corporation, which is described below.
MERGER WITH AUTODAQ
On June 28, 2002, we entered into an agreement to merge with Autodaq
Corporation ("Autodaq"). Under the Agreement and Plan of Reorganization dated
June 28, 2002 (the "Agreement"), AutoTradeCenter and Autodaq, along with
AutoTradeCenter, Inc., a Delaware corporation ("ATC Delaware") and AUTC Autodaq
Corporation, a Delaware Corporation ("AUTC Autodaq") agreed that upon
shareholder approval and completion of certain closing conditions: (1)
AutoTradeCenter will reincorporate in Delaware by merging with and into ATC
Delaware, with ATC Delaware surviving the merger; and (2) AUTC Autodaq, a
wholly-owned subsidiary of ATC Delaware, will merge with and into Autodaq, with
Autodaq surviving the merger (the "Merger").
Under the terms and conditions of the Agreement and after the
completion of the Merger, the current shareholders of AutoTradeCenter will own
approximately 27.15% of ATC Delaware's fully-diluted capital stock (including,
for purposes of this calculation, shares of Common Stock reserved for issuance
pursuant to ATC Delaware's stock option plan and the warrant issued to an
affiliate of Autodaq described below), and the current shareholders of Autodaq
will own approximately 63.35% of ATC Delaware's fully-diluted capital stock.
Senior management of AutoTradeCenter will receive options to purchase up to an
aggregate of 4.5% of ATC Delaware's Common Stock. Shares of Common Stock
reserved for issuance pursuant to ATC Delaware's stock plan will constitute the
remaining 5% of ATC Delaware's capital stock. The Merger will be accounted for
as a purchase and is intended to qualify as tax-free to the shareholders of
AutoTradeCenter and Autodaq. The Merger is expected to close in the second half
of 2002 and is subject to approval of the shareholders of AutoTradeCenter and
Autodaq, as well as other customary closing conditions. Autodaq shareholders
holding shares sufficient to approve the Merger delivered voting agreements and
proxies in which they agreed to vote their shares in favor of the Merger. The
Agreement requires AutoTradeCenter to deliver voting agreements and proxies from
shareholders holding shares sufficient to approve the Merger on or before July
19, 2002; AutoTradeCenter satisfied this condition by delivering voting
agreements and proxies for shares representing (i) 100% of AutoTradeCenter's
Series D Preferred Stock, and (ii) approximately 52% of AutoTradeCenter's Common
Stock on a fully-diluted basis (excluding shares of Common Stock issuable upon
conversion of the Series D Preferred Stock). In the event AutoTradeCenter had
failed to deliver such voting agreements as previously described, an affiliate
of Autodaq could have exercised a warrant convertible into a majority of
AutoTradeCenter's capital stock for nominal consideration.
Additionally, as part of the Agreement, Autodaq loaned to
AutoTradeCenter approximately $1 million, which AutoTradeCenter used to retire
its indebtedness under a credit facility with Eagle Capital due on June 30,
2002, to redeem its Series E Preferred Stock, and to terminate a services
agreement related to such credit facility. AutoTradeCenter is not required to
make payments to Autodaq under the loan prior to the closing of the Merger. The
loan is secured by a first priority security interest in all of
AutoTradeCenter's assets. As partial consideration for such loan,
AutoTradeCenter provided an affiliate of Autodaq with a warrant to purchase
shares equal to approximately 5% of AutoTradeCenter's Common Stock on a
fully-diluted basis at an exercise price equal to the fair market value of
AutoTradeCenter's Common Stock at the time the warrant was issued ($0.061 per
share).
In connection with the retirement of indebtedness under
AutoTradeCenter's credit facility with Eagle Capital and the redemption of
AutoTradeCenter's Series E Preferred Stock, Neil Elsey and Chris Arnold resigned
as Directors of AutoTradeCenter effective June 28, 2002.
As part of the above transactions, AutoTradeCenter also amended and
restated the terms of its subordinated promissory note to one of its former
founders. As restructured, the note (in the principal amount of $814,253)
requires that (i) interest (accruing at 12% per annum from June 28, 2002) will
be paid monthly commencing on July 31, 2002, (ii) principal payments of $25,000
will be paid monthly on the last day of each month commencing on January 31,
2003 and continuing through September 30, 2003, and (iii) all remaining
principal, and accrued and
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unpaid interest, will be due and payable on September 30, 2003. The note is
secured by a security interest in all of AutoTradeCenter's assets, which
security interest is subordinated to the security interest granted in connection
with the loan from Autodaq to AutoTradeCenter described immediately above.
AutoTradeCenter also issued to the note holder a five-year warrant to purchase
1,000,000 shares of AutoTradeCenter's Common Stock with an exercise price equal
to the lesser of (i) $0.125 per share, or (ii) 120% of the daily per share
closing price of AutoTradeCenter's Common Stock for the 30 consecutive trading
days immediately preceding the date of exercise of the warrant. Concurrently
with the issuance of this warrant, the note holder cancelled existing warrants
to purchase shares of AutoTradeCenter's Common Stock.
The boards of directors of AutoTradeCenter and Autodaq have determined
that, in the event the Merger closes, it will be in the best interest of the
combined company to raise additional equity to provide the company with
additional capital resources. Therefore, the Agreement contemplates that
following the closing of the Merger, certain investors, including August Capital
III, L.P. ("August Capital"), a principal investor in Autodaq, will purchase
additional shares and warrants of the new parent company (ATC Delaware). Such
financing would consist of (i) shares of senior preferred stock of ATC Delaware,
for a purchase price of $3.0 - $4.0 million, and (ii) warrants to purchase
additional shares of ATC Delaware Common Stock equal to 200% of the number of
shares of senior preferred stock purchased. The exercise price for these
warrants will equal the fair market value of AutoTradeCenter's Common Stock at
the time the senior preferred financing closes, as determined by the board of
directors of the new company at the time the senior preferred financing closes.
The financing is subject to a number of closing conditions, including the
closing of the Merger and ATC Delaware's receipt of commitments for a minimum of
$1.0 million from investors other than August Capital. There is no assurance
that such conditions will be satisfied or that such financing will close. In the
event that the financing does close and the maximum senior preferred shares and
warrants which may be offered in such financing are purchased, such shares and
warrants would represent approximately 9.52% and 19.05%, respectively, of ATC
Delaware's fully-diluted capital stock. In such an event, the ownership of the
current shareholders of AutoTradeCenter in ATC Delaware would be reduced from
27.15% to approximately 19.39% upon consummation of such financing.
In the event that the Merger does close and the Series E financing does
not close immediately following the Merger, the new company will be required to
immediately attempt to raise additional capital through the sale of equity, debt
financing or other means (all of which would require the approval of certain of
its preferred stockholders); there is no assurance that the new company would be
successful in raising additional funds. The failure to immediately close the
Series E financing or to raise additional funds in another fashion would require
the new company to significantly modify its planned operations and could result
in the new company filing a Chapter 11 petition under the U.S. Bankruptcy Code
or taking other similar action to restructure its operations.
ITEM 7. FINANCIAL STATEMENTS.
See the financial statements beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The officers and directors of the company are as follows:
NAME AGE POSITION
Roger L. Butterwick 56 President, Chief Financial Officer,
Treasurer and Director
Mark R. Jensen 37 Secretary, Vice President and Chief
Technology Officer
James Kaiser 58 Director
David Livingston 68 Director
R. Gary McCauley 59 Director
L. David Sikes 60 Director
A. Marvin Strait 68 Director
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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, our Treasurer since April 2, 1999 and Chief
Financial Officer since August 1, 2001. 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
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
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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. From March 1995
through June 2001, Mr. Sikes was the Chairman of the Board and chief executive
officer of Ramtron International Corporation, a publicly owned specialty
semiconductor company located in Colorado Springs, Colorado. He is presently the
Chairman of the Board of Ramtron. 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 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 and performs
other financial consulting services. 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; and, Colorado Technical University, a private
university with campuses in Colorado and South Dakota, since 1990. Mr. Strait is
also a member of the Community Advisory Board of Western National Bank, a
privately held bank located in Colorado Springs, Colorado.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the remuneration for Mr. Butterwick and
Mr. Jensen, by fiscal year, who functions as our chief executive officer and
chief technology officer, respectively. We are not required to set forth
information for any officer whose total annual salary and bonus does not exceed
$100,000.
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SUMMARY COMPENSATION TABLE
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LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION COMPENSA- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
YEAR SALARY ($) BONUS ($) TION ($) ($) SARS (#) ($) TION(S)
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Roger Butterwick,
President, 2000 $ 54,000 -0- -0- -0- 500,000 -0- -0-
Chief Financial 2001 $ 158,400 -0- -0- -0- -0- -0- -0-
Officer 2002 $ 208,333 -0- -0- -0- 375,000 -0- -0-
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Mark Jensen, 2001 $ 151,500 -0- -0- -0- 150,000 -0- -0-
Secretary, Chief 2002 $ 170,000 -0- -0- -0- 200,000 -0- -0-
Technology Officer
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EXECUTIVE COMPENSATION
Currently, we pay the following monthly salaries plus car allowances:
o Roger Butterwick - $18,750
o Mark Jensen - $14,166
We reimburse all officers and directors for actual out-of-pocket
expenses incurred on our behalf.
We have no retirement, pension, profit sharing or medical reimbursement
plans exclusively covering our officers and directors. A Company-sponsored
401(k) plan and major medical and dental health insurance coverage for all
employees has been implemented.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
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NUMBER OF SECURITIES % OF TOTAL OPTIONS/SARS
UNDERLYING OPTIONS/ GRANTED TO EMPLOYEES IN EXERCISE OR BASE
NAME SARS GRANTED (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
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Roger Butterwick 375,000(1)<F1> 15.4% $0.10 11/14/11
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Mark Jensen 200,000 (2)<F2> 8.2% $0.10 11/14/11
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<F1>
(1) On November 14, 2001, we granted Mr. Butterwick an option for 375,000
shares, 225,000 of which vested upon their grant. The remainder of the
options vest 50,000 on each anniversary of the grant date. The option is
exercisable for five years from date of vesting.
<F2>
(2) On November 14, 2001, we granted Mr. Jensen an option for 200,000 shares,
80,000 of which vested upon their grant. The remainder of the options vest
40,000 on each anniversary of the grant date. The option is exercisable for
five years from date of vesting.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
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NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED ON UNEXERCISED IN-THE-MONEY
NAME EXERCISE (#) VALUE REALIZED ($) OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
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EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------
Roger Butterwick -0- -0- 450,000/425,000 -0-/-0-
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Mark Jensen -0- -0- 50,000/100,000 -0-/-0-
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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 Item 12 - "Certain Relationships
and Related Party Transactions."
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DIRECTORS' COMPENSATION AND COMMITTEES
We pay each non-employee director $3,000 for his attendance at both the
annual stockholders' meeting and annual directors' meeting, $1,000 to $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),
David G. Livingston and L. David Sikes.
o Technical Committee, consisting of L. David Sikes (committee chairman)
and James G. Kaiser.
o Compensation Committee, consisting of R. Gary McCauley (committee
chairman) and David G. Livingston.
STOCK OPTION PLAN
On August 5, 1997, the shareholders adopted the 1997 Stock Option Plan,
which provides for the grant of both incentive stock options and non-qualified
options to eligible employees, officers, and directors. The option pool is
adjusted annually at the beginning of each fiscal quarter to a number equal to
10% of the number of shares of common stock outstanding at the end of our last
completed fiscal quarter. At March 31, 2002, the number of shares eligible
pursuant to the plan was 5,858,436. 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. At March 31, 2002,
2,186,158 options had vested and were eligible for exercise at a total exercise
price of $1,246,110.
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 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.
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Options have been granted under this plan as follows:
Balance, March 31, 1999........................ 1,523,175
Granted........................................ 1,419,080
Exercised...................................... 0
Cancelled/expired.............................. (25,000)
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Balance, March 31, 2000........................ 2,917,255
Granted........................................ 554,474
Exercised...................................... (362,925)
Cancelled/expired.............................. (394,885)
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Balance, March 31, 2001........................ 2,713,919
Granted........................................ 2,440,398
Exercised...................................... 0
Cancelled/expired.............................. (2,145,167)
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Balance, March 31, 2002........................ 3,009,150
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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. Management and the board of directors determined that it was not in
the best interest of the company to bring the adoption of the 2000 Equity
Incentive Compensation Plan to a vote of the shareholders and, on November 14,
2001, the plan was recinded.
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:
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
Granted....................................... 0
Exercised..................................... 0
Cancelled/expired............................. (1,094,810)
-------------
Balance, March 31, 2002....................... 875,000
=============
|
22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The following table provides beneficial stock ownership information as
to the directors and certain executive officers individually and as a group, and
the holders of more than 5% of our common stock as of June 28, 2002:
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED(1)<F1> PERCENT
------------------------- ------------------------- -------
Almond Investors, LLC 18,025,261 (2)<F2> 21.70%
110 Colabaugh Pond Road
Croton-on-Hudson, NY 10520
John Charles Hakala 9,291,639 (3)<F3> 13.54%
12873 W. Harvard Ave.
Lakewood, CO 80228
Eagle Capital Group LLC 6,875,000 (4)<F4> 9.43%
2425 E. Camelback Rd., Suite 100
Phoenix, AZ 85016
Mark Moldenhauer 5,310,041 (5)<F5> 7.91%
14500 N. Northsight Blvd. #213
Scottsdale, AZ 85260
Red Rock Advisors Fund, LLC 4,967,692 7.52%
1192 E. Draper Parkway, Suite 410
Draper, UT 84020
R. Gary McCauley 2,105,000 (6)<F6> 3.14%
A. Marvin Strait 1,020,000 (7)<F7> 1.53%
James Kaiser 1,005,000 (7)<F7> 1.51%
Roger L. Butterwick 974,400 (8)<F8> 1.46%
L. David Sikes 647,000 (9)<F9> 0.98%
David Livingston 275,000 (10)<F10> 0.42%
Mark R. Jensen 200,000 (11)<F11> 0.30%
All officers and directors as a group 6,226,400(12)<F12> 8.99%
(7 persons)
----------------
(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 June 28, 2002, 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 66,088,851 shares outstanding.
(2)<F2> Includes 16,961,753 shares issuable upon conversion of 7,894 shares of
Series D preferred stock, assuming a conversion price of $0.04654 for
the Series D preferred stock.
(3)<F3> Includes 2,541,000 shares issuable upon conversion of 846 shares of
Series D Preferred Stock.
(4)<F4> Includes 6,750,000 shares issuable upon exercise of stock purchase
warrant and stock options, including those stock options held by the
principals of Eagle Capital Group LLC.
(5)<F5> Includes 1,000,000 shares issuable upon exercise of stock purchase warrant.
23
|
(6)<F6> Includes 500,000 shares issuable upon exercise of stock purchase
warrant and 450,000 shares issuable upon the exercise of options.
(7)<F7> Includes 250,000 shares issuable upon exercise of stock purchase
warrant and 125,000 shares issuable upon the exercise of options.
(8)<F8> Includes 99,400 shares held of record by Cambridge Consulting Group, an
entity controlled by Mr. Butterwick. Includes 875,000 shares issuable
upon the exercise of options.
(9)<F9> Includes 124,000 shares issuable upon exercise of stock purchase
warrant and 125,000 shares issuable upon the exercise of options.
(10)<F10>Includes 125,000 shares issuable upon exercise of options.
(11)<F11>Includes 200,000 shares issuable upon exercise of options.
(12)<F12>Includes 3,149,000 shares issuable upon exercise of stock purchase
warrants and the exercise of options.
|
CHANGE OF CONTROL
See Item 6. "Management's Discussion and Analysis or Plan of Operation
- Anticipated Trends and Plan of Operation" for a description of our proposed
merger with Autodaq Corporation.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
Number of securities to be Weighted average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan catagory warrants and rights rights reflected in column (a))
------------- ------------------- ------ ------------------------
Equity compensation plans
approved by security holders. 3,009,150 $0.57 2,043,576
Equity compensation plans not
approved by security holders 0 0 0
--------- ----- ---------
Total 3,009,150 $0.57 2,043,576
========= ===== =========
|
ITEM 12. 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.
During the two years ended March 31, 2002, we 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,
2002 and 2001, the outstanding balances on these notes were $738,201 and
$738,807, respectively. The total interest paid to these entities on all
financing activities for the years ended March 31, 2002 and 2001 were $229,812
and $106,888, respectively. Total interest paid to these entities on all
financing activities for discontinued operations was $0 and $699,288 for the
fiscal years ended March 31, 2002 and 2001, respectively.
24
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 a
consolidated promissory note to Mark
Moldenhauer and Pinnacle Financial
Corporation dated July 19, 2001.
03/31/01 Pinnacle Financial Secured promissory note for $336,807,
Corporation 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,
subordinated to senior debt. Paid by a
consolidated promissory note to Mark
Moldenhauer and Pinnacle Financial
Corporation dated July 19, 2001.
05/16/01 R. Gary McCauley Promissory note for $150,000 and
(director) subsequently increased to $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. Paid August 29, 2001.
07/16/01 R. Gary McCauley Promissory note for $65,000, due upon
(director) receipt of and secured by specific
trade accounts receivable, interest at
12% per annum. Paid August 29, 2001.
07/19/01 Mark Moldenhauer and Consolidated promissory note for
Pinnacle Financial $738,200, interest at 12% per annum
Corporation payable monthly, principal payments of
$25,000 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. Paid by amended and restated note
dated June 28, 2002.
06/28/02 Mark Moldenhauer Promissory note for $814,252.71,
interest at 12% per annum, interest
only payable through December 31,
2002, principal payments of $25,000
per month for January 2003 through
September 2003, balance due September
30, 2003, secured by all assets of the
company, subordinated to the note
payable to Autodaq Corporation.
|
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 ("Automotive
Disposition"), in exchange for a 16% interest in Automotive Disposition. In
addition, promissory notes for $1,200,000 owed to us by the land-based
operations were assigned to Pinnacle Financial Corporation, a private company
owned by Mr. Moldenhauer.
25
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 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.
The older note due April 1, 2002 was paid with a consolidated note due June 30,
2002 and the consolidated note was amended with a new note to Mr. Moldenhauer
due September 30, 2003.
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. For the year ended
March 31, 2001, 59,177 shares were earned and issued to the appropriate party.
In the first quarter of the fiscal year ended March 31, 2002, 430,675
of our common shares held in escrow for the management of our former subsidiary
in Oregon were exchanged for 9% of our interest in Automotive Disposition
Management thereby reducing our interest therein to approximately 7%. In January
2002, Auto Network Group of New Mexico, Inc. terminated its association with
Automotive Disposition. In March 2002, we entered into a further agreement with
the management of our former subsidiary in San Antonio and Automotive
Disposition whereby we fixed the number of earn-out shares for San Antonio
management at 261,034 for the three remaining years of our prior agreement with
them, and cancelled 54,784 shares of common stock remaining in escrow. In
addition, we received cash of $1,000 and returned to Automotive Disposition the
shares representing the approximate 7% interest in Automotive Disposition. We no
longer have any 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
The following exhibits are filed with this report:
REGULATION
S-B NUMBER DOCUMENT
2.1 Agreement and Plan of Reorganization with Autodaq Corporation
dated June 28, 2002 (1)
3.1 Articles of Incorporation, as amended (2)
3.2 Bylaws (2)
4.1 Warrant to Purchase Common Stock Issued to Anthony & Company,
Inc. (2)
4.2 Statement Pursuant to Section 10-602 of The Arizona Business
Corporation Act of AutoTradeCenter.com Inc. Regarding Series C
Preferred Stock (3)
4.3 Statement Pursuant to Section 10-602 of The Arizona Business
Corporation Act of AutoTradeCenter.com Inc. Regarding Series D
Preferred Stock (3)
4.4 Statement Pursuant to Section 10-602 of the Arizona Business
Corporation Act of AutoTradeCenter.com Inc. Regarding Series E
Preferred Stock (4)
10.1 Stock Option Plan (2)
10.2 Amended and Restated Secured Promissory Note dated March 31, 2000
to Mark Moldenhauer (2)
10.3 Amended and Restated Secured Promissory Note dated March 31, 2000
to Pinnacle Financial Corporation (2)
10.4 Agreement with American Honda Finance (3)(5)
10.5 Extension and Exchange Agreement with Pinnacle Financial
Corporation dated December 29, 2000 (6)
|
26
REGULATION
S-B NUMBER DOCUMENT
10.6 Motor Vehicle Remarketing Agreement with American Suzuki Motor
Corporation dated January 10, 2001 (5) (7)
10.7 Letter agreement with Sutro & Co. Incorporated dated October 11,
2000 (3)
10.8 First Amendment to Motor Vehicle Remarketing Agreement with
American Honda Finance Corporation (8)
10.9 Secured Promissory Note to Mark Moldenhauer dated December 29,
2000 (3)
10.10 Secured Promissory Note to Mark Moldenhauer dated March 31, 2001
(9)
10.11 Secured Promissory Note to Pinnacle Financial Corporation dated
March 31, 2001 (10)
10.12 Promissory Note to R. Gary McCauley dated May 31, 2001 (11)
10.13 Promissory Note to R. Gary McCauley dated July 16, 2001 (12)
10.14 Amended and Restated secured Promissory Note to Mark Moldenhauer
dated July 19, 2001 (13)
10.15 Eagle Capital Group, LLC Pay-Off Agreement dated June 28, 2002
(1)
10.16 Amended and Restated secured Promissory Note and Subordination
Agreement to Mark Moldenhauer dated June 28, 2002 (1)
10.17 Autodaq loan agreement, security agreement, common stock warrants
(1)
21 Subsidiaries of the registrant (8)
99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------------
|
(1) Incorporated by reference to Exhibit No. 2.1 filed to the Current
Report on Form 8-K dated July 25, 2002 (File No. 333-78659).
(2) Incorporated by reference to the exhibits filed to the Registration
Statement on Form S-1 (File No. 333-78659).
(3) Incorporated by reference to the exhibits filed to the registration
statement on Form S-1 (File No. 333-37090).
(4) Incorporated by reference to Exhibit No. 4.6 to the Annual Report on
Form 10-K for the year ended March 31, 2001 (the "1991 Form 10-K").
(5) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(6) Incorporated by reference to the exhibits filed to the current report
on Form 8-K dated December 29, 2000 (File No. 333-78659).
(7) Incorporated by reference to Exhibit No. 10.20 to the 1991 Form 10-K.
(8) Incorporated by reference to Exhibit No. 10.22 to the 1991 Form 10-K.
(9) Incorporated by reference to Exhibit No. 10.24 to the 1991 Form 10-K.
(10) Incorporated by reference to Exhibit No. 10.25 to the 1991 Form 10-K.
(11) Incorporated by reference to Exhibit No. 10.26 to the 1991 Form 10-K.
(12) Incorporated by reference to Exhibit No. 10.27 to the 1991 Form 10-K.
(13) Incorporated by reference to Exhibit No. 10.28 to the 1991 Form 10-K.
REPORTS ON FORM 8-K
During the last quarter of the period covered by this report, no reports on
Form 8-K were filed.
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AUTOTRADECENTER.COM INC.
(Registrant)
Date: August 13, 2002 By: /S/ ROGER L. BUTTERWICK
-------------------------------------------
Roger L. Butterwick, President
|
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
President, Chief Financial Officer,
Treasurer and a director
/S/ ROGER L. BUTTERWICK (Principal Executive, Financial and AUGUST 13, 2002
------------------------------------ Accounting Officer) ---------------------
Roger L. Butterwick
/S/ JAMES KAISER Director AUGUST 13, 2002
------------------------------------ ---------------------
James Kaiser
/S/ DAVID LIVINGSTON Director AUGUST 13, 2002
------------------------------------ ----------------------
David Livingston
/S/ R. GARY MCCAULEY Director AUGUST 13, 2002
------------------------------------ ----------------------
R. Gary McCauley
/S/ L. DAVID SIKES Director AUGUST 13, 2002
----------------------------------------- ----------------------
L. David Sikes
/S/ A. MARVIN STRAIT Director AUGUST 13, 2002
------------------------------------ ----------------------
A. Marvin Strait
|
28
NEFF + RICCI LLP
CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
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, 2002 and 2001, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years ended March 31, 2002, 2001, and 2000. 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, 2002 and 2001, and the results of their operations
and their cash flows for the years ended March 31, 2002, 2001, and 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ NEFF + RICCI LLP
Albuquerque, New Mexico
April 24, 2002, except for Note Q and R, as to which the date is July 19, 2002.
|
F-1
AUTOTRADECENTER.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
March 31,
----------------------------------
2002 2001
---------------- ---------------
Current assets:
Cash $ 334,669 $ 209,068
Accounts receivable - trade 295,067 224,298
Accounts receivable - employees 1,500 8,535
Prepaid loan fees 19,909 -
Prepaid expenses and other 35,662 164,882
Assets from discontinued operations, net 26,300 21,812
---------------- ---------------
Total current assets 713,107 628,595
---------------- ---------------
Property and equipment, net 265,100 508,949
Software, net 4,605,548 7,539,338
---------------- ---------------
4,870,648 8,048,287
---------------- ---------------
Intangible assets, net 1,390,528 1,590,700
---------------- ---------------
Total assets $ 6,974,283 $ 10,267,582
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 235,878 $ 110,063
Line of credit - Eagle Capital Group 968,311 -
Long term debt - notes payable to related parties current portion 75,000 200,000
Accrued liabilities 283,499 135,976
---------------- ---------------
Total current liabilities 1,562,688 446,039
---------------- ---------------
Long term debt - notes payable to related parties 663,201 538,807
---------------- ---------------
Stockholders' equity:
Convertible preferred stock, Series C; $0.10 par value;
398,700 shares authorized; 21,216 issued, and 11,016 and 11,118
outstanding in 2002 and 2001, respectively; liquidation preference
$100.00 per share 924,828 914,828
Convertible preferred stock, Series D; $0.10 par value;
600,000 shares authorized; 31,824 issued, and 11,800 and 14,536 shares
outstanding in 2002 and 2001, respectively; liquidation preference
$100.00 per share 1,227,296 959,060
Convertible preferred stock, Series E; $0.10 par value;
1,300 shares authorized; 1,300 issued, and 1,300 and 0 outstanding
in 2002 and 2001, respectively 130 -
Common stock, no par value; 100,000,000 shares authorized;
59,678,125 and 40,954,759 shares issued and 59,462,575
and 40,954,759 outstanding in 2002 and 2001, respectively 29,964,441 24,944,750
Capital stock contra account (1,373,264) -
Retained deficit (25,716,800) (17,814,138)
---------------- ---------------
Total stockholders' equity 4,748,395 9,282,736
---------------- ---------------
Total liabilities and stockholders' equity $ 6,974,283 $ 10,267,582
================ ===============
|
See notes to condensed consolidated financial statements.
F-2
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
2002 2001 2000
---------------- --------------- ----------------
(RESTATED) (RESTATED)
Revenue:
Internet fees $ 2,542,610 $ 870,474 $ 291,587
Other 25,300 - -
---------------- --------------- ----------------
Total revenues 2,567,910 870,474 291,587
---------------- --------------- ----------------
Cost of revenues:
Salary and wages 450,856 397,122 -
Other 415,536 325,304 -
---------------- --------------- ----------------
Total cost of revenues 866,392 722,426 -
---------------- --------------- ----------------
Gross profit 1,701,518 148,048 291,587
---------------- --------------- ----------------
Operating expenses:
Sales and marketing 626,464 1,127,899 295,065
Product development 208,403 411,058 -
General and administrative 1,601,536 1,469,297 559,468
Depreciation and amortization 4,175,891 3,836,788 319,800
Loss on disposal of impaired software 49,122 2,261,486 -
---------------- --------------- ----------------
Total operating expenses 6,661,416 9,106,528 1,174,333
---------------- --------------- ----------------
(Loss) from operations (4,959,899) (8,958,480) (882,746)
---------------- --------------- ----------------
Other income (expense):
Interest expense (229,812) (106,888) (63,456)
Interest expense - warrants and additional stock issued (2,678,621) - -
Other expense (34,598) - -
Other income 268 4,999 -
---------------- --------------- ----------------
Total other income (expense) - net (2,942,763) (101,889) (63,456)
---------------- --------------- ----------------
(Loss) from continuing operations (7,902,662) (9,060,369) (946,202)
---------------- --------------- ----------------
Discontinued operations:
Loss from operations of land-based segment - (323,840) (1,697,585)
Loss from disposition of land-based segment (2,339,445) -
---------------- --------------- ----------------
- (2,663,285) (1,697,585)
---------------- --------------- ----------------
(Loss) before income taxes (7,902,662) (11,723,654) (2,643,787)
Income tax (expense) benefit:
Continuing operations - - -
Discontinued operations - - 56,034
---------------- --------------- ----------------
- - 56,034
---------------- --------------- ----------------
Net (loss) $ (7,902,662) $ (11,723,654) $ (2,587,753)
================ =============== ================
Basic (loss) per share:
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations $ - $ (0.08) $ (0.08)
Diluted earnings (loss) per share:
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations $ - $ (0.08) $ (0.08)
Weighted average shares number of common shares outstanding:
Basic 47,740,879 32,777,824 21,638,671
Fully diluted 47,740,879 32,777,824 21,638,671
|
See notes to condensed consolidated financial statements.
F-3
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Series B, Series C, Series D, Series E,
Convertible Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
----------------------- ----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - 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 31,200 2,859,805
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 31,200 $2,859,805 - $ -
=========== =========== =========== =========== =========== =========== =========== ===========
Capital Stock
Contra Account Common Stock
--------------- ---------------------------------- Retained
Amount Shares Amount Deficit Total
--------------- ---------------- ---------------- ----------------- -----------------
Balance - 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 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
divident 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 the 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 $ - 27,652,609 $ 19,779,542 $ (6,090,485) $ 18,455,398
=============== =============== ================= ================= ==================
|
See notes to condensed consolidated financial statements.
F-4
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Series B, Series C, Series D, Series E,
Convertible Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
----------------------- ----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance forward from March 31,
2000 - $ - 20,800 $1,906,536 31,200 $2,859,805 - $ -
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 - Conversion
of preferred shares (8,200) (751,615)
September 2000 - Conversion
of preferred shares (14,900) (1,365,740)
October 2000 - Exercise of stock
options
October 2000 - Stock issued for
services (91,598) (137,396)
January 2001 - Conversion of
preferred shares (700) (17,495)
January 2001 - Conversion of
preferred shares (1,000) (47,532)
March 2001 - Conversion of
preferred shares (1,049) (50,340)
March 2001 - Conversion of
preferred shares (1,000) (100,000)
March 2001 - Shares issued for
services (21,000) (31,500)
March 2001 - Shares issued
upon exercise of options
March 2001 - Common shares
sold pursuant to Private
Placement
March 2001 - Options and
warrants issued for services
March 2001 - Adjust Preferred
shares for 2% bonus shares 218 285
issued -net
Net loss from discontinued
operations for the year ended
March 31, 2001
Net loss from continuing
operations for the year ended
March 31, 2001
Rounding
(1)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - March 31, 2001 - $ - 11,118 $ 924,828 14,536 $1,227,296 - $ -
=========== =========== =========== =========== =========== =========== =========== ===========
Capital Stock
Contra Account Common Stock
--------------- ---------------------------------- Retained
Amount Shares Amount Deficit Total
--------------- ---------------- ---------------- ----------------- -----------------
Balance forward from March 31,
2000 $ - 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 - Conversion
of preferred shares 669,120 751,615 -
September 2000 - Conversion
of preferred shares 1,838,741 1,365,740 -
October 2000 - Exercise of stock
options 374,750 317,583 317,583
October 2000 - Stock issued for
services 134,683 282,430 53,436
January 2001 - Conversion of
preferred shares 57,120 17,495 -
January 2001 - Conversion of
preferred shares 357,143 47,532 -
March 2001 - Conversion of
preferred shares 348,939 50,340 -
March 2001 - Conversion of
preferred shares 81,600 100,000 -
March 2001 - Shares issued for
services 60,000 52,500 -
March 2001 - Shares issued
upon exercise of options 19,300 19,300 19,300
March 2001 - Common shares
sold pursuant to Private
Placement 5,865,212 1,452,487 1,452,487
March 2001 - Options and
warrants issued for services 193,186 193,186
March 2001 - Adjust Preferred
shares for 2% bonus shares
issued -net -
Net loss from discontinued
operations for 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
Balance - March 31, 2001 1 -
--------------- ---------------- ---------------- ----------------- -----------------
$ - 40,954,759 $ 24,944,750 $ (17,814,138) $ 9,282,736
=============== ================ ================ ================= =================
|
See notes to condensed consolidated financial statements.
F-5
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Series B, Series C, Series D, Series E,
Convertible Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
----------------------- ----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance forward from March 31,
2001 - $ - 11,118 $ 924,828 14,536 $1,227,296 - $ -
April 2001 - Stock issued
pursuant to Private Placement
April 2001- Common shares
and warrents issued for services
April 2001 - Conversion of
preferred shares (204) (20,000)
April 2001 - Issuance of earn
out shares
August 2001 - Conversion of
preferred shares (500) (49,020)
August 2001 - Issuance of
shares for directors fees
August 2001- Issue additional
Common shares for Preferred
C Holders
August 2001 - Issued convertible
Series E Preferred stock 1,300 130
August 2001 - Issued anti-
dilution shares to Private
Placement holders
September 2001 - Stock issued
pursuant to Private Placement
September 2001 - Record
purchase of stock - permanently
retired
September 2001 - Additional
paid in capital - Eagle
September 2001 - Contra
accounts Eagle warrants
October 2001 - Stock issued
pursuant to Private Placement
November 2001 - Conversion
of preferred shares (500) (49,020)
December 2001 - Additional
paid in capital - Eagle
December 2001 - Contra
accounts Eagle warrants
January 2002 - Stock issued
pursuant to Private Placement
January 2002 - Additional paid
in capital - Eagle
January 2002 - Contra accounts
Eagle warrants
January 2002 - Conversion of
preferred shares (102) (10,000) (532) (52,157)
February 2002 - Common
shares issued for services
February 2002 - Contra
accounts Eagle warrants
February 2002 - Stock issued
pursuant to Private Placement
March 2002 - Common shares
issued for services
March 2002 - Contra accounts
Eagle warrants
March 2002 - Cost of Stock
issued pursuant to Private
Placement
March 2002 - Conversion of
preferred shares (1,000) (98,039)
March 2002 - Issuance of earn
out shares
March 2002 - Adust book
shares to Transfer Agent total
Net loss from operations for the
year ended March 31, 2002
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - March 31, 2002 - $ - 11,016 $ 914,828 11,800 $ 959,060 1,300 $ 130
=========== =========== =========== =========== =========== =========== =========== ===========
Capital Stock
Contra Account Common Stock
--------------- ---------------------------------- Retained
Amount Shares Amount Deficit Total
--------------- ---------------- ---------------- ----------------- -----------------
Balance forward from March 31,
2001 $ - 40,954,759 $ 24,944,750 $ (17,814,138) $ 9,282,736
April 2001 - Stock issued
pursuant to Private Placement 746,808 186,702 186,702
April 2001- Common shares
and warrents issued for services 25,000 34,711 34,711
April 2001 - Conversion of
preferred shares 111,732 20,000 -
April 2001 - Issuance of earn
out shares 93,750 35,156 35,156
August 2001 - Conversion of
preferred shares 440,820 49,020 -
August 2001 - Issuance of
shares for directors fees 510,000 51,000 51,000
August 2001- Issue additional
Common shares for Preferred
C Holders 538,560 112,721 112,721
August 2001 - Issued convertible
Series E Preferred stock 130
August 2001 - Issued anti-
dilution shares to Private
Placement holders 9,918,027 2,075,844 2,075,844
September 2001 - Stock issued
pursuant to Private Placement 450,000 45,000 45,000
September 2001 - Record
purchase of stock - permanently
retired (215,550) (30,177) (30,177)
September 2001 - Additional
paid in capital - Eagle 1,814,925 1,814,925
September 2001 - Contra
accounts Eagle warrants (2,014,838) (2,014,838)
October 2001 - Stock issued
pursuant to Private Placement 350,000 35,000 35,000
November 2001 - Conversion
of preferred shares 732,600 49,020 -
December 2001 - Additional
paid in capital - Eagle 6,159 6,159
December 2001 - Contra
accounts Eagle warrants (422,753) (422,753)
January 2002 - Stock issued
pursuant to Private Placement 1,500,000 150,000 150,000
January 2002 - Additional paid
in capital - Eagle 42,235 42,235
January 2002 - Contra accounts
Eagle warrants 307,426 307,426
January 2002 - Conversion of
preferred shares 764,482 62,157 -
February 2002 - Common
shares issued for services 75,000 7,500 7,500
February 2002 - Contra
accounts Eagle warrants 367,998 367,998
February 2002 - Stock issued
pursuant to Private Placement 520,000 52,000 52,000
March 2002 - Common shares
issued for services 555,000 67,478 67,478
March 2002 - Contra accounts
Eagle warrants 388,903 388,903
March 2002 - Cost of Stock
issued pursuant to Private
Placement (925) (925)
March 2002 - Conversion of
preferred shares 1,068,376 98,039 -
March 2002 - Issuance of earn
out shares 320,214 56,126 56,126
March 2002 - Adust book
shares to Transfer Agent total 2,997 -
Net loss from operations for the
year ended March 31, 2002 (7,902,662) (7,902,662)
--------------- ---------------- ---------------- ----------------- -----------------
Balance - March 31, 2002 $ (1,373,264) 59,462,575 $ 29,964,441 $ (25,716,800) $ 4,748,395
=============== ================ ================ ================= =================
|
See notes to condensed consolidated financial statements.
F-6
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
2002 2001 2000
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss:
From continuing operations $ (7,902,662) $ (9,060,369) $ (946,202)
From discontinued operations of land-based segment - (323,840) (1,641,551)
From disposition of land-based segment - (2,339,445) -
--------------- --------------- ---------------
(7,902,662) (11,723,654) (2,587,753)
--------------- --------------- ---------------
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization 4,175,891 3,836,788 319,800
Interest expense - warrants and additional stock 2,678,621 - -
Loss on disposal of impaired software 49,122 2,261,486 -
Stock or stock options issued for services 251,971 299,955 351,280
(Increase) decrease in:
Net assets of discontinued operations (4,488) 1,001,354 1,257,062
Accounts receivable (63,734) (232,834) 98,610
Prepaid expenses and other current assets 109,311 (54,610) (105,006)
Increase (decrease) in:
Accounts payable 125,814 110,063 (24,712)
Accrued liabilities 147,523 129,852 (44,599)
Deferred income taxes - - (7,010)
--------------- --------------- ---------------
Net cash used in operating activities (432,631) (4,371,600) (742,328)
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of property, equipment and software (847,808) (1,552,232) (420,365)
Sale of property and equipment - 428,542 45,945
--------------- --------------- ---------------
Net cash used in investing activities (847,808) (1,123,690) (374,420)
--------------- --------------- ---------------
Cash flows from financing activities:
Net proceeds from borrowings - (802,418) 158,393
Proceeds from long term debt - 200,000 -
Draws on line of credit - Eagle Capital Group 1,519,536 - -
Repayments on line of credit - Eagle Capital Group (551,225) - -
Proceeds from issuance of convertible preferred stock 130 - 4,766,341
Proceeds from exercise of stock options - 498,550 -
Proceeds from issuance of common stock - net 437,599 1,452,487 250,000
--------------- --------------- ---------------
Net cash provided by financings activities 1,406,040 1,348,619 5,174,734
--------------- --------------- ---------------
Net change in cash 125,601 (4,146,671) 4,057,986
Beginning cash balance 209,068 4,355,738 297,752
--------------- --------------- ---------------
Ending cash balance $ 334,669 $ 209,067 $ 4,355,738
=============== =============== ===============
Supplemental disclosures:
Interest paid for discontinued operations $ - $ 690,853 $ 887,094
=============== =============== ===============
Interest paid for continuing operations $ 119,870 $ 106,888 $ 63,456
=============== =============== ===============
Income taxes paid $ - $ - $ 3,000
=============== =============== ===============
Issuance of common stock for:
Software $ - $ - $ 11,493,673
=============== =============== ===============
Goodwill $ - $ 53,333 $ 246,724
=============== =============== ===============
|
See notes to condensed consolidated financial statements.
F-7
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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 April 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 wholesale land-based operations in order to concentrate
efforts on remarketing used vehicles utilizing the Internet. Accordingly, it
sold its wholesale 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 or restated to
conform to the current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain
F-8
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
reported amounts of assets and liabilities, and 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.
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. No losses have been experienced by the Company.
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, 2002, there had
been no write down of goodwill (See information regarding reclassification and
restatement of goodwill- Note B).
The Company intends to adopt Financial Accounting Standards Board
Statement 142 "Goodwill and Other Intangible Assets," effective during its first
quarter ending June 30, 2002. Management believes, that with its pending merger
as disclosed in Note Q to these financial statements, that the Company may
experience a resulting loss in value to this intangible asset of goodwill.
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.
F-9
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed based on the
weighted average number of common shares outstanding. The computations for the
years ending March 31, 2000 and 2001, exclude 430,465 shares held in escrow
pending certain earn-out provisions. For the year ending March 31, 2002
agreement was reached on the earn-out provisions and the shares issued are
included in the weighted number of shares outstanding. Basic and diluted
earrings per share are the same for all years presented, 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 AND CONCENTRATION 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. For the years ending March 31, 2002 and 2001,
84% and 100% respectively, of the Company's revenue was earned from its contract
with American Honda Finance Corporation.
NOTE B - RECLASSIFICATION AND RESTATEMENT 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 and
restated this amount 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 ended March 31, 2001.
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 and restated this amount 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 and restated consolidated balance sheet at March 31,
2000, and the consolidated and condensed statements of operation for the years
ended March 31, 2000 and 2001, reflects both of these reclassifications and
restatements.
F-10
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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.
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.
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.)
March 31,
--------------------------------
2002 2001
---- ----
Trade accounts receivable $ 295,067 $ 224,298
Due from employees 1,500 8,535
------- -------
$ 296,567 $ 232,833
======= =======
|
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
DEPRECIATION ------------------------------
LIFE/METHOD 2002 2001
----------- ---- ----
Computers and equipment 3 years/SL $ 712,689 $ 739,638
Furniture and fixtures 7 years/SL 62,072 62,072
Leasehold improvements 5 years/SL 6,200 6,300
-------- --------
780,961 808,110
Less accumulated depreciation (515,861) (299,061)
--------- ---------
$ 265,100 $ 508,949
======== ========
Software and Website programming consist of the following:
Software/systems design 3 years/SL $11,633,524 $10,804,765
Less accumulated amortization (7,027,976) (3,265,427)
----------- -----------
$ 4,605,548 $ 7,539,338
=========== ===========
|
The Company, in its fiscal year ended March 31, 2001, recorded 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.
The Company, in its fiscal year ended March 31, 2002, charged an
impairment loss of $49,122 on the disposal of software previously acquired since
it was determined that it had no future value to the Company and its activities.
F-11
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE F - GOODWILL AND INTANGIBLES
March 31,
AMORTIZATION ---------------------------------
LIFE/METHOD 2002 2001
----------- ---- ----
Goodwill and intangibles $ 1,987,511 $ 1,988,612
Less accumulated amortization 10 years/SL (596,983) (398,912)
---------- ---------
$ 1,390,528 $ 1,590,700
========== =========
|
NOTE G - LONG-TERM DEBT AND NOTES PAYABLE:
RELATED PARTY AND AFFILIATES: 2002 2001
----------------------------- ---- ----
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 $ 0 $ 402,000
conversion.
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 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. 0 336,807
o Note payable to a former officer and director, 12% annual interest
payable monthly, collateralized by all accounts receivable, inventory,
equipment and certain intangibles, and is due June 30, 2002. The
security interest is subordinated to the first lein of Eagle Capital
Group, LLC. The note is convertible at the option of the holder into
common shares of the Company at $0.10 per share. The Company also
issued a warrant to the holder to purchase one share of the Company's
common stock for every two shares of common stock received upon
conversion. The note is guaranteed by Mr. Butterwick. This note has
been restated and amended (see Note Q - Subsequent events) 738,201 0
------- --------
Total notes payable 738,201 738,807
Less long-term portion of notes payable (663,201) (538,807)
----------- ----------
Notes payable-current portion (see Note Q - Subsequent events) $ 75,000 $ 200,000
=========== ==========
|
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 specific trade accounts
receivable. 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
F-12
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE G - LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED):
due at July 26, 2001 on both notes to approximately $150,000. As part of the
financing arangement with Eagle Capital Group, LLC as described below, the due
dates of the notes were extended until September 30, 2001. These notes were paid
on August 29, 2001.
LINE OF CREDIT - EAGLE CAPITAL GROUP, LLC: 2002 2001
------------------------------------------ ---- ----
o A $1,300,000 line of credit, 12% annual interest payable monthly, due
June 30, 2002. The Company paid a commitment fee of $13,000 and is
obligated to pay a 1% facility use fee of up to $13,000 each quarter.
The line of credit is secured by all assets including but not limited
to furniture, fixtures, leasehold improvements, personal property, and
intellegtual property. The Company is also required to pay monthly
principal payments of not less that 5% of the outstanding loan balance
each month. (See 1. below and also Note Q - Subsequent events) $ 968,311 $ -
======= ========
|
1. The loan is convertible into common stock of the Company at any time
up to 90 days after the due date, including any extensions, at the rate of $0.10
per share. This right was terminated on June 28, 2002 (see Note Q - Subsequent
events). 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. Had the Company prepaid the loan
in full prior to December 31, 2001, the Company would have been required to
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
was provided two representatives on the Company's board of directors. As of June
28, 2002, the Series E Preferred Stock was redeemed resulting in the termination
of the voting rights and the two Eagle representatives resigned from the
Company's board of directors. (See Note Q - Subsequesnt Events.)
Also, as additional consideration given for the line of credit, the
Company entered into a Facilities Use and Administrative Services Agreement with
Eagle for the use of office facilities, technical engineers, marketing,
accounting, and other management services that may vary from time to time. The
fee for these services was $264,000 during the year ended March 31, 2002.
As a result of this transaction, the Company was required to reset the
pricing of the units sold in February through April, 2001. The additional shares
of Common Stock issued to private placement investors was 9,918,027 and the
additional warrants were 4,959,013 exercisable at $0.125 per share.
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.
F-13
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
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.
MARCH 31,
------------------------------------------------------------------
2002 2001
-------------------------------- ---------------------------------
CARRYING CARRYING
FAIR VALUE VALUE FAIR VALUE VALUE
Cash and cash equivalents $334,669 $334,669 $209,068 $209,068
Notes payable and line of credit $1,706,512 $1,706,512 $738,807 $738,807
|
NOTE I - INCOME TAXES
The income tax provision (benefit) shown in the consolidated income statement
is detailed for each year.
MARCH 31,
-------------------------------------------------
2002 2001 2000
---- ---- ----
Currently payable (receivable):
Federal $ - $ - $ (38,459)
State - - (10,565)
-------- -------- ----------
Total currently payable - - (49,024)
-------- -------- ----------
Deferred:
Federal - - (5,105)
State - - (1,905)
-------- -------- ----------
Total deferred - - (7,010)
-------- -------- ----------
Total $ - $ - $ (56,034)
======== ======== ==========
|
The income tax provision (benefit) for continuing operations varied
from the federal statutory rate as follows for each year.
MARCH 31,
-------------------------------------------------
2002 2001 2000
---- ---- ----
U.S. Statutory rate -34% -34% -34%
State income taxes, net of federal income tax benefit -8% -8% -8%
Valuation allowance 42% 42% 39%
--- --- ---
0% 0% 3%
=== === ===
|
The Company has a federal tax loss carryforward of approximately
$9,736,000 of which approximately $809,000 expires in 2020, $4,750,000 in 2021,
and $4,177,000 in 2022.
The following summarizes the tax effects of the significant temporary
differences which comprise the deferred tax asset or liability for each year.
MARCH 31,
-------------------------------------------------
2002 2001 2000
---- ---- ----
Bad debt reserve $ - $ - $ 439,307
Other - - -
Net operating loss carryforward 4,177,000 4,750,000 809,000
--------- ---------- -------
Net deferred tax asset (liability) 4,177,000 4,750,000 1,248,307
Valuation allowance (4,177,000) (4,750,000) (1,248,307)
----------- ----------- -----------
Net deferred income tax (liability) $ - $ - $ -
=========== =========== ===========
|
F-14
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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.
The computation of basic and dilutive earnings per common share
follows:
YEAR ENDED MARCH 31,
-----------------------------------------------
2002 2001 2000
---- ---- ----
Income (loss) available to common stockholders:
Continuing operations-basic and diluted $ (7,902,662) $ (9,060,369) $ (946,202)
Discontinued operations - (2,663,285) (1,641,551)
-----------------------------------------------
$ (7,902,662) $ (11,723,654) $ (2,587,753)
------------------------------------------------------------------------------------------------------------
============================================================================================================
Weighted average number of common shares
outstanding - basic 47,740,879 32,777,824 21,638,671
Weighted average number of common shares
outstanding - diluted 47,740,879 32,777,824 21,638,671
------------------------------------------------------------------------------------------------------------
============================================================================================================
Basic (loss) per common share:
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations $ - $ (0.08) $ (0.08)
Dilited (loss) per common share
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations $ - $ (0.08) $ (0.08)
|
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, 2002, 2001, and 2000 because
they are anti-dilutive.
As described in Notes G, M, and Q, the Company has convertible debt,
contingently issuable stock, options, warrants and convertible preferred stock.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company leases a facility in Scottsdale, Arizona from an unrelated
third party under an operating lease expiring September 30, 2002 at an annual
cost of $87,737. The lease requires the Company to pay all maintenance,
insurance, and taxes on the leased property. A lease in Denver, Colorado was
terminated in August 2001.
The future minimum lease payments required under the remaining
operating lease is $43,868 for the year ended March 31, 2003.
F-15
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 as stated above. Rental expense was
$244,541, $435,938, and $192,296 for the years ended March 31, 2002, 2001, and
2000 respectively.
See Note Q - Subsequent events for discussion regarding sub-lease.
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.
NOTE L - BUSINESS ACQUISITIONS
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.
F-16
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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.
NOTE L - BUSINESS ACQUISITIONS (CONTINUED):
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 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.
F-17
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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 5,865,212
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 746,808 units were sold, under
similar terms. The private placement subscription agreement contains an
anti-dilution provision.
During the year ended March 31, 2002, the Company issued an additional
2,820,000 shares in the private placement referred to in the preceeding
paragraph at $0.10 per share. As a result of the transaction with Eagle Capital
Group LLC, the Company was required to reset the pricing of the units sold in
March 2001 and April 2001. The anti-dilution clause contained in the Private
Placement required the Company to issue 9,918,027 shares of its common stock and
4,959,013 additional stock purchase warrants exercisable at $0.125 per share.
During the year ended March 31, 2002, the Company also issued 1,578,964
shares of common stock for services valued at $251,971 and cancelled 54,784
shares of previously issued common being held in escrow pursuant to an earn-out
agreement with the principals of AutoGroup of San Antonio, Ltd. that were
un-earned.
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.
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.
As of May 31, 2002, all of the Preferred Series C had been converted
into common stock.
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
F-18
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED):
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.
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.
On June 26, 2002, the Company entered into an agreement with the sole
remaining holder of Preferrred Series D, whereby the holder agreed to fix the
conversion price into common shares at $0.04654 per share. (See Note Q -
Subsequent Events).
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
quarter, or 1,000,000 shares, whichever is greater. For the fiscal years'
beginning April 1, 2000, April 1, 2001, and April 1, 2002 the Option Pool was
2,765,261, 4,095,476 and 5,966,258 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:
F-19
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED):
Options Weighted Average Options
Outstanding Price Per Share Exercisable
--------------------------------------------------------------
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 (412,925) 0.79
Cancelled/Forfeited (397,535) 1.25
----------- -----
Balance, March 31, 2001 2,661,269 1.47 2,606,729
=========
Granted 2,440,398 0.10
Exercised - -
Cancelled/Forfeited (2,092,517) 1.21
----------- -----
Balance, March 31, 2002 3,009,150 $ 0.57 2,186,158
=========== ====== =========
|
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 $0.10 to $3.16.
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. In November 2001, the board of directors recinded the plan.
OTHER STOCK OPTION DISCLOSURES:
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,
----------------------------------------------------------------
2002 2001 2000
----------------------------------------------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Risk free interest rate 2.10% 5.74% 6.02%
Expected volitility 99% 168% 166%
Expected life (in months) 22 16 32
|
F-20
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE M - STOCKHOLDERS' 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, 2002, 2001 and 2000 were $0.10, $1.07, and $0.80 per share,
respectively.
Year ended March 31,
--------------------------------------------------------------
2002 2001 2000
--------------------------------------------------------------
Net income (loss) as reported under APB 25:
Continuing operations $ (7,902,662) $ (9,060,369) $ (946,202)
Discontinued operations - (2,663,285) (1,641,551)
------------- ------------ ------------
$ (7,902,662) $ (11,723,654) $ (2,587,753)
============= ============ ============
Net income (loss) pro forma under SFAS 123:
Continuing operations $ (7,971,311) $ (10,712,316) $ (1,578,305)
Discontinued operations - (2,663,285) (2,075,079)
------------- ------------ ------------
$ (7,971,311) $ (13,375,601) $ (3,653,384)
============= ============ ============
Basic net income (loss) per common share as
reported under APB 25:
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations - (0.08) (0.08)
------- ------ ------
$ (0.17) $ (0.36) $ (0.12)
======= ====== ======
Diluted net income (loss) per share as reported
under APB 25:
Continuing operations $ (0.17) $ (0.28) $ (0.04)
Discontinued operations - (0.08) (0.08)
------- ------ ------
$ (0.17) $ (0.36) $ (0.12)
======= ====== ======
Basic net income (loss) per share - pro forma
under SFAS 123:
Continuing operations $ (0.17) $ (0.33) $ (0.07)
Discontinued operations - (0.08) (0.10)
------- ------ ------
$ (0.17) $ (0.41) $ (0.17)
======= ====== ======
Diluted net income (loss) per share - pro forma
under SFAS 123:
Continuing operations $ (0.17) $ (0.33) $ (0.07)
Discontinued operations - (0.08) (0.10)
------- ------ ------
$ (0.17) $ (0.41) $ (0.17)
======= ====== ======
Outstanding shares:
Basic 47,740,879 32,777,824 21,638,671
Fully diluted 47,740,879 32,777,824 21,638,671
|
F-21
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE M - STOCKHOLDERS' 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:
Options Weighted Average Options
Outstanding Price Per Share Exercisable
---------------------------------------------------------
Balance, March 31, 1999 2,089,810 $ 1.16
Granted 465,000 1.43
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
=========
Granted - -
Exercised - -
Cancelled/forfeited (1,094,810) 1.02
----------- ----
Balance, March 31, 2002 875,000 $ 0.53 875,000
=========== ==== =======
|
The fair value of the options issued during the years ended March 31,
2002, 2001 and 2000 was determined using the Black-Scholes option pricing model.
For the year ended March 31, 2000 options granted for services were valued at
$351,280. No other options were granted for the years ended March 31, 2001 and
2002.
NOTE N - RELATED PARTY TRANSACTIONS
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, 2002, March 31, 2001 and March 31, 2000 the
outstanding balance on these notes was $738,201, $738,807, and $528,807,
respectively. The total interest paid to these entities on all financing
activities for the years ended March 31, 2002, 2001, and 2000 was $0, $106,888,
and $63,456, respectively. At March 31, 2002, the Company has accrued but not
paid $73,906 of interest due on the related party debt.
The outstanding balances on related party notes respecting discontinued
operations were $0, $0, and $5,166,821 at March 31, 2002, 2001, and 2000,
respectively. Total interest paid to these entities on all financing activities
for discontinued operations was $0, $699,288, and $704,665 for the years ended
March 31, 2002, 2001, and 2000, respectively.
NOTE O - CONCENTRATIONS
Remarketing off-lease and program vehicles, primarily using the
Internet, represents the Company's primary business segment. For the years
ending March 31, 2002 and 2001, 84% and 100% respectively, of the Company's
revenue was earned from its contract with American Honda Finance Corporation.
F-22
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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.
NOTE Q - SUBSEQUENT EVENTS
COMMITMENTS
Effective May 15, 2002 the Company entered into a sub-lease with an
independent third party through March 30, 2004 for approximately 7,000 square
feet of office space loacted in Mesa, Arizona. The monthly payments are $10,886
per month for a total commitment of $114,303 and $130,632 for the years ending
March 31, 2003 and 2004, respectively. In addition, the Company leased furniture
from the sub-lessor of the office space for $380 per month expiring with the
termination of the sub-lease. The total commitment of this furniture lease is
$3,990 and $4,560 for the years ending March 31, 2003 and 2004, respectively.
PREFERRED STOCK SERIES C, D AND E
On May 29, 2002 and May 31, 2002, investors holding 11,016 shares of
the Company's Preferred Series C stock exercised their right to convert their
preferred stock holdings into 1,668,639 shares of common stock. As a result of
this transaction, the Company no longer has any outstanding Preferred Series C
shares.
Also on May 31, 2002, an investor holding 3,000 shares of the Company's
Preferred Series D stock exercised their right to convert their preferred stock
holdings into 4,807,692 shares of common stock. On June 26, 2002, another
investor holding 846 shares of the Company's Preferred Series D shares exercised
their right to convert their preferred stock holding into 1,668,639 shares of
common stock.
Also on June 26, 2002, a third investor of 7,894 shares of the
Company's Preferred Series D stock, representing the remaining outstanding
balance of the Preferred Series D stock, entered into an agreement with the
Company whereby the Company agreed to redeem 1,429 shares of the Preferred
Series D stock and agreed to use its best efforts to redeem the remaining 6,465
shares of Preferred Series D stock up until the closing date of the merger with
Autodaq Corporation. The investor agreed to exercise his right to convert any
remaining Preferred Series D stock into common stock immediately before the
closing of the merger between the Company and Autodaq. The maximum number of
common shares that would be issued pursuant to the agreement is 16,961,753
shares.
On June 28, 2002, in conjunction with the payoff of the credit facility
with Eagle Capital Group, LLC (see below), the Company redeemed the 1,300 shares
of Preferred Series E stock and cancelled a warrant that gave Eagle the right to
purchase up to 13,000,000 shares of the Company's common stock.
NOTES PAYABLE
On June 28, 2002, the Company amended and restated its note payable to
a former officer and director of the Company that was due June 30, 2002. The new
note in the amount of $814,253 (including accrued interest) earns interest at
12% per annum, and provides for interest only payments through December 31,
2002. Beginning January 31, 2003 and continuing each month thereafter through
September 30, 2003 the note is payable $25,000 per month plus interest. The note
is due September 30, 2003 and is secured by all assets of the Company; however,
the note is subordinated to the note payable to Autodaq Corporation. As a result
of the amended and restated note, all but $75,000 has been reclassified to
long-term.
F-23
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE Q - SUBSEQUENT EVENTS (CONTINUED):
On June 28, 2002, the Company, in conjunction with the signing of a
definitive merger agreement with Autodaq Corporation (see below), obtained a 12%
loan from Autodaq of approximately $1 million, which AutoTradeCenter.com used to
retire its indebtedness under a credit facility due to Eagle Capital Group, LLC
on June 30, 2002 and to terminate a services agreement related to such credit
facility. The Company is not required to make payments to Autodaq under the loan
prior to the closing of the merger. The loan is due in full on November 30, 2002
and is collateralized by a security interest in substantially all assets of the
Company. As partial consideration for such loan, the Company provided an
affiliate of Autodaq with a warrant to purchase shares equal to approximately 5%
of the Company's common stock on a fully-diluted basis at an exercise price
equal to the fair market value of the Company's common stock.
MERGER
On June 28, 2002 the Company signed a definitive agreement to merge
with Autodaq Corporation.
Under the terms of the agreement, the Company's shareholders will
receive shares of common stock and preferred stock in a newly-formed Delaware
company, AutoTradeCenter, Inc. Autodaq shareholders will receive shares of
common stock and various classes of preferred stock in AutoTradeCenter, Inc.
As a result of the foregoing transactions, following the merger the
current shareholders of AutoTradeCenter.com Inc. will own approximately 27.15%
of the new company's fully-diluted capital stock (including, for purposes of
this calculation, shares of common stock reserved for issuance pursuant to the
company's stock option plan), and the current shareholders of Autodaq will own
approximately 63.35% of the new company's capital stock. Senior management of
AutoTradeCenter.com will receive options to purchase up to an aggregate of 4.5%
of the new entity's common stock. Shares of common stock reserved for issuance
pursuant to the company's stock plan will constitute the remaining 5% of the
company's capital stock. The transaction will be accounted for as a purchase and
is intended to qualify as tax-free to the shareholders of AutoTradeCenter.com
and Autodaq. The transaction is expected to close in the second half of 2002.
The merger is subject to approval of the shareholders of AutoTradeCenter.com and
Autodaq, as well as other customary closing conditions. Autodaq and
AutoTradeCenter shareholders holding shares sufficient to approve the merger
delivered to the respective counter party voting agreements and proxies in which
they agreed to vote their shares in favor of the merger. Concurrent with the
signing of the merger document, the Company signed a continuing guarantee for
the new financing (convertible note) obtained by Autodaq for $1,500,000, which
was partially used for the loan to the Company mentioned above.
In addition to the interim financing as described above, the Company
has determined that following the closing of the merger, it will be in the best
interest of the combined company to raise additional equity to provide the
company with additional capital resources. Therefore, the merger agreement
contemplates that following the closing of the merger, certain investors will
purchase additional shares and warrants of the new parent company (ATC
Delaware). Such financing would consist of (i) shares of senior preferred stock
of ATC Delaware, for a purchase price of $3.0 - $4.0 million, and (ii) warrants
to purchase additional shares of ATC Delaware Common Stock equal to 200% of the
number of shares of senior preferred stock purchased. The exercise price for
these warrants will equal the fair market value of AutoTradeCenter's Common
Stock at the time the senior preferred financing closes, as determined by the
board of directors of the new company at the time the senior preferred financing
closes. In the event that the financing does close and the maximum senior
preferred shares and warrants which may be offered in such financing are
purchased, such shares and warrants would represent approximately 9.52% and
19.05%, respectively, of ATC Delaware's fully-diluted capital stock. In such an
event, the ownership of the current shareholders of AutoTradeCenter in ATC
Delaware would be reduced from 27.15% to approximately 19.39% upon consummation
of such financing.
F-24
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE R - LIQUIDITY ISSUES
The Company has sustained operating losses and negative cash flow since
its inception, resulting in no tangible net worth at March 31, 2002. Without the
pending merger and new financings, as discussed in Note Q, the Company may have
difficulty funding its day-to-day operations or servicing its debt. There is no
assurance that all the conditions required for the merger will be realized or
that future required funding will take place.
F-25
EXHIBIT 99
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AutoTradeCenter.com Inc. (the "Company")
on Form 10-KSB for the period ending March 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Roger
L. Butterwick, Chief Executive Officer and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ ROGER L. BUTTERWICK
--------------------------------
Roger L. Butterwick,
Chief Executive Officer and
Chief Financial Officer
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