As filed July 20, 1999 File No. 333-78659
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMENDMENT NO. 1
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
ARIZONA 5010 86-0879572
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Identification No.)
of incorporation Code Number)
or organization)
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, ARIZONA 85260
(602) 951-8040
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MIKE STUART, PRESIDENT
AUTOTRADECENTER.COM INC.
8135 EAST BUTHERUS, SUITE 3
SCOTTSDALE, ARIZONA 85260
(602) 951-8040
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
(303) 777-3737
(303) 777-3823 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
PROPOSED
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE REGISTRATION FEE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common stock issuable 100,000 shares (1)<F1> $0.50 $50,000 $13.90
upon exercise of warrant
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common stock issuable _____ shares (1)<F1>(2)<F2> $_____ (1) $723,077 $201.02
upon conversion of
Series B Preferred Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total $773,077 $214.92
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<FN>
<F1>
(1) An indeterminate number of additional securities are registered
hereunder which may be issued, as provided in the warrant and Series B
Preferred Stock definition, in the event provisions against dilution
become operative.
<F2>
(2) Each share of Series B Preferred Stock is convertible into shares of
the registrant's common stock using a conversion price equal to 65% of
the average closing bid price for the common stock for the 10 trading
days immediately preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $10 = # of shares of
65% of average closing bid price common stock
There are 47,000 shares of Series B Preferred Stock issued and
outstanding. Because common shares issued upon conversion are being
issued at a discount from the market price, $723,077 of common stock,
as valued at the time of issuance, will be issued upon conversion of
$470,000 of preferred stock. Accordingly, the aggregate offering price
of the common shares being registered herein is $723,077.
</FN>
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Subject to Completion, dated July 20, 1999
AUTOTRADECENTER.COM INC.
SHARES OF COMMON STOCK
Holders of the Series B Preferred Stock are entitled to convert these
shares into common stock. This prospectus covers the resale of these shares of
common stock. As many as 1,146,341 shares of common stock may be issued upon
conversion of the Series B Preferred Stock. The selling stockholders may sell
the common stock at any time at any price. We will not receive any proceeds from
the resale of these shares. We have agreed to pay for all expenses of this
offering. In addition, we are registering 100,000 shares of common stock
issuable upon exercise of a warrant granted to Anthony Advisors.
Our common stock is traded on the local over-the-counter markets and
the NASD Bulletin Board under the symbol "AUTC." On July 8, 1999, the NASD
temporarily assigned the trading symbol AUTCE, indicating our non-compliance
with the OTC Bulletin Board Eligibility Rule. On July 15, 1999, the closing
price for our common stock was $1.94 per share.
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WE DO NOT RECEIVE ANY FEES OR REVENUE FROM OUR WEB SITE WWW.AUTOTRADECENTER.COM
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INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 4 FOR A MORE DETAILED EXPLANATION OF THESE RISKS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This date of this Prospectus is _____________, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY...........................................................3
RISK FACTORS.................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................7
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................7
SELECTED FINANCIAL DATA......................................................8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................................12
BUSINESS....................................................................13
MANAGEMENT..................................................................18
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT...............21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................23
SELLING STOCKHOLDERS........................................................26
DESCRIPTION OF SECURITIES...................................................27
PLAN OF DISTRIBUTION........................................................28
SHARES ELIGIBLE FOR FUTURE SALE.............................................29
LEGAL PROCEEDINGS...........................................................29
EXPERTS.....................................................................30
AVAILABLE INFORMATION.......................................................30
REPORTS TO STOCKHOLDERS.....................................................30
FINANCIAL STATEMENTS........................................................F-1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should carefully read this entire prospectus and the financial
statements contained in this prospectus before purchasing our securities.
THE COMPANY
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "WE," "OUR," "US," AND
"THE COMPANY" REFERS TO AUTOTRADECENTER.COM INC.
We are engaged in the wholesale used car business, selling and buying
used vehicles to and from independent and franchised automobile dealers.
"Dealers" refers to persons or entities that sell and buy automobiles as a
business. AutoTradeCenter.com was incorporated in Arizona on July 10, 1997 and
commenced operations on September 22, 1997 at its office and warehouse facility
in Scottsdale, Arizona. We opened an office and warehouse facility in
Albuquerque, New Mexico, on June 1, 1998, which is operated by our wholly owned
subsidiary, Auto Network Group of New Mexico, Inc.
We enhance our services by offering alternative finance programs for
dealers who purchase used cars from us. These programs are marketed and
administered by Pinnacle Dealer Services, Inc., a wholly owned Arizona
corporation that we acquired on August 20, 1998.
In February 1999, we launched an Internet site to facilitate the buying
and selling of used vehicles at wholesale between automobile dealers. To gain
access to the full features of the Internet site, automobile dealers must first
register as members. We do not receive any fees or revenues from this website at
present. To encourage use of this site, we are offering 12 months of membership
free if businesses register by September 1, 1999. After September 1, 1999, we
plan to charge a membership fee. The business activities related to the
development, management and administration of the Internet site are being
conducted through BusinessTradeCenter.com Inc., a majority owned subsidiary. We
make our entire inventory available on the site. The Internet site allows all
members, including our company, to transact the business of buying and selling
used automobiles over the Internet.
On March 31, 1999, we acquired Walden Remarketing Services, which
assists the financing subsidiaries of various car manufacturers in the
disposition of their fleet and consumer lease vehicles. Currently, most of the
activities of Walden Remarketing are limited to promoting the sale of these
vehicles at various auctions throughout the United States. Walden Remarketing
charges fees for the services it performs.
Our offices are located at 8135 East Butherus, Suite 3, Scottsdale,
Arizona 85260, and our telephone number is (602) 951-8040.
THE OFFERING
Securities offered...................... Up to 1,146,341 shares of common stock
issuable upon conversion of Series B
Preferred Stock
Up to 100,000 shares of common stock
issuable upon exercise of warrants
Securities outstanding.................. 20,485,084 shares of common stock
47,000 shares of Series B Preferred
Stock
We will not receive any of the proceeds from the resale of these
securities.
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial data is based upon our consolidated
financial statements included elsewhere in this prospectus. We have prepared our
consolidated financial statement in accordance with generally accepted
accounting principles. Our results of operations for any interim period do not
necessarily indicate our results of operations for the full year. You should
read this summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business," and
our consolidated financial statements.
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
Current assets................................... $ 10,678,225 $ 3,893,221
Total assets..................................... $ 12,997,692 $ 3,961,845
Current liabilities.............................. $ 8,190,443 $ 2,687,512
Long-term liabilities............................ $ 1,975,623 $ 534,465
Stockholders' equity............................. $ 2,831,626 $ 739,868
Working capital.................................. $ 2,487,782 $ 1,205,709
<CAPTION>
INCOME STATEMENT DATA: JULY 10, 1997
YEAR ENDED (INCEPTION)
MARCH 31, 1999 THROUGH
MARCH 31, 1998
<S> <C> <C>
Net sales........................................ $ 97,665,410 $ 31,581,117
Income from operations........................... $ 517,913 $ 117,750
Net income before taxes.......................... $ 171,820 $ 15,899
Net income....................................... $ 115,241 $ 12,384
Earnings per share............................... $ 0.01 $ 0.00
</TABLE>
RISK FACTORS
The securities offered under this prospectus involve a high degree of
risk. You should carefully consider the risk factors set forth below, as well as
the other information appearing in this prospectus, before purchasing any of our
securities.
AS A NEWLY FORMED ENTITY WE MAY NOT CONTINUE TO BE PROFITABLE. We
incorporated on July 10, 1997 and have been in operation only since September
22, 1997. While we were able to generate net income of $12,384 for the period
ended March 31, 1998, and $115,241 for the year ended March 31, 1999, we cannot
assure you that we will continue to be profitable. We are continuing to expand
our operations that require us to hire personnel and incur expenses prior to
realizing the anticipated revenue associated with this expansion effort.
Therefore, you should consider the purchase of our securities as being risky
since we may be subject to unusually high legal and accounting costs, marketing
program development costs, automated systems development, losses related to
abandoned projects, and other similar costs and expenses commonly encountered by
new ventures.
AS A NEWLY FORMED ENTITY, ONLY LIMITED INFORMATION IS AVAILABLE. Since
we were only recently formed, we can provide only a limited amount of historical
information and financial data about our operations upon which you can make an
informed judgment as to our future prospects.
ASSETS PLEDGED AS COLLATERAL MAY AFFECT LEVEL OF WORKING CAPITAL. Our
line of credit from Norwest Business Credit, Inc. in the amount of $3,000,000 is
secured by all of our inventory, accounts receivable, equipment, and general
tangibles. If we should fail to generate sufficient cash flow to service the
bank debt, foreclosure on the pledged assets would reduce the amount of working
capital required to sustain the current level of sales.
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<PAGE>
WE HAVE ENGAGED IN TRANSACTIONS WITH RELATED PARTIES THAT WERE NOT AT
ARMS-LENGTH. The acquisition of Pinnacle Dealer Services, Inc.; loans from our
principal shareholders, officers, and directors; and the issuance of stock
options to principal shareholders, officers and directors who have personally
guaranteed company obligations were not arm's-length transactions. While
management believes that the terms of such transactions were fair and in our
best interests, they were not approved by our shareholders or disinterested
directors and no fairness opinions were obtained. Further, we engage in
wholesale used car transactions with affiliated entities from time to time on
the same terms as with other automobile dealers. It is likely that officers,
directors, and principal shareholders will continue to provide financial
assistance in the future. The risk associated with any of these related party
transactions is that our company may have been able to consummate these
transactions under more favorable terms and conditions. If that were proven
true, our historical and future financial statements would show more favorable
results, increasing shareholder value.
DEPENDENCE ON EXPERIENCED MANAGEMENT MAY LIMIT OUR SUCCESS. Our success
will largely depend upon the active participation of our management. We do not
have employment agreements with our management or key-man insurance. The time
which the officers and directors devote to our business affairs and the skill
with which they discharge their responsibilities will substantially impact our
success. To the extent the services of these individuals would be unavailable to
us for any reason, we would have to obtain other executive personnel to manage
and operate our company. In such event, there is no assurance that we would be
able to employ qualified persons on favorable terms.
RELIANCE ON KEY PERSONNEL FOR REVENUE GENERATION. We utilize brokers as
our sales force in the purchase and sale of used vehicles. A significant portion
of our revenue is currently generated by a few of these brokers. Consequently,
the loss of the services of one or more of these high volume sales producers
would have a negative impact upon our financial performance.
OUR BUSINESS FACES SIGNIFICANT COMPETITION. We compete with other
independent wholesale brokers and auto auctions. In addition to independent
wholesale brokers and auto auctions, we may face competition, unknown to us
today, from the auto industry. If we are unable to compete, either on the basis
of services or price, we may be forced to abandon the execution of our current
business plan. If that were to happen, there may be a significant delay in the
anticipated revenues, and further, we may not have sufficient working capital
and equity to sustain losses that may occur.
LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY IMPAIR INVESTMENT
LIQUIDITY AND/OR RETURN ON INVESTMENT. Our common stock is traded in the
over-the-counter market. The price for the stock and the volume of shares traded
fluctuate widely. Consequently, persons who invest in the common stock may not
be able to use their shares as collateral for loans and may not be able to
liquidate at a suitable price in the event of an emergency. In addition, holders
may not be able to resell their shares, or may not be able to sell their shares
at or above the price they paid for them.
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES COULD RESULT IN POTENTIAL
DILUTION AND IMPAIR MARKET PRICE. As of July 16, 1999, we had outstanding
options and warrants to acquire an aggregate of 4,901,161 shares of common
stock, a promissory note which can be converted into 3,000,000 shares of common
stock and shares of Series B Preferred Stock which are convertible into a
maximum of 1,146,341 shares of common stock. To the extent that the outstanding
options, warrants, and convertible securities are exercised or converted,
existing shareholders will experience dilution in their percentage ownership. So
long as these options, warrants, and convertible securities are exercisable, the
holders will have the opportunity to profit from a rise in the price of the
common stock. The additional shares of common stock available for sale in the
market may have a negative impact on the price and liquidity of the common stock
that is currently outstanding.
AUTHORIZATION OF PREFERRED STOCK COULD RESULT IN POTENTIAL DILUTION. We
are authorized to issue up to 1,000,000 shares of preferred stock, in one or
more series, with such rights, preferences, qualifications, limitations, and
restrictions as shall be fixed and determined by our board of directors from
time to time. These preferences could operate to the detriment of the rights of
the holders of our common stock. For example, preferred stock having a dividend
preference could impair our ability to pay dividends on the common stock.
Preferred stock having a right to convert into common stock could result in
dilution to common stockholder. As of July 16, 1999, 47,000 shares of Series B
Preferred Stock were issued and outstanding.
5
<PAGE>
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES MAY HAVE AN ADVERSE
IMPACT ON ADDITIONAL FINANCING. The holders of such options, warrants, and
convertible securities can be expected to exercise them at a time when we would
probably be able to obtain additional capital by an offering of its stock at a
price higher than the exercise price of these outstanding options, warrants, and
convertible securities. This may cause a potential investor to reduce or refuse
to provide us with additional financing. This may occur at a time when
additional financing may be necessary to sustain current or increased levels of
operations.
SIGNIFICANT INDEBTEDNESS MAY DISRUPT NORMAL OPERATIONS. At March 31,
1999, we had liabilities of $10,166,066 as compared to stockholders' equity of
$2,831,626. The high level of debt increases our vulnerability if there is a
negative economic or industry downturn. Also, if interest rates increase, we may
not be able to service the high level of debt. This would require us to decrease
the amount of debt, thus reducing the amount of working capital required to
sustain the current level of sales.
"PENNY STOCK" RULES MAY LIMIT THE MARKETABILITY OF OUR STOCK. Our
common stock is subject to SEC rules relating to "penny stocks," which apply to
non-NASDAQ companies whose stock trades at less than $5.00 per share or whose
tangible net worth is less than $2,000,000. These rules require brokers who sell
"penny stocks" to persons other than established customers and "accredited
investors" to complete required documentation, make suitability inquiries of
investors, and provide investors with specific disclosures concerning the risks
of trading in the security. These rules may restrict the ability of brokers to
sell the common stock and may affect the secondary market for the common stock.
WHOLESALE CAR BUSINESS SUBJECT TO RISKS. The wholesale used car
business requires significant reliance upon the judgement of brokers who act as
agents for us. Lack of good judgement or dishonesty on behalf of a broker can
expose our company to significant losses. Additionally, as part of its regular
business, we continually are required to make credit decisions on automobile
dealers and other wholesalers for which there is extremely limited verifiable
financial data. Often we are forced to consider merely the recent "street
reputation" of a dealer when extending credit through the sale of a car.
OPERATING A WEB SITE ON THE INTERNET AND CONDUCTING BUSINESS ON THE
INTERNET SUBJECT TO RISKS. As a new and expanding business medium, the Internet
contains many unknown risks to our business model. It is possible that our
Internet business model will not prove to be economically viable. This event
would cause a significant financial loss to our company and the funds invested
in developing the Internet site and detrimentally impact our long-term business
plan.
BUSINESS ON THE INTERNET COULD BE SUBJECT TO MORE GOVERNMENT
REGULATION. It is possible that the US government could impose significant
regulations on business conducted over the Internet. Such regulation could have
a significant and detrimental impact on our Internet business.
ADDITIONAL FINANCING REQUIRED TO EXECUTE OUR BUSINESS PLAN AND ACHIEVE
GROWTH PROJECTIONS. We continue to make a growing and significant monetary
investment in our Internet presence. Competition on the Internet continues to
increase and many potential competitors enjoy significantly better financial
strength than our company. If we are unable to obtain additional funding, we may
be unable to effectively execute our business plan and possibly suffer a
significant financial loss.
6
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are not historical facts but
are forward-looking statements. These forward-looking statements may be
identified by the use of terminology such as "anticipate," "believe,"
"estimate," "expect,""intend," "may," "plans," "project," and similar
expressions. These statements involve risks and uncertainties including, but not
limited to, those relating to the stage in which we are operating; the lack of
revenues; Year 2000 compliance; uncertainty of market acceptance of our services
once introduced; competition; effects of government regulation on our services;
dependence on key personnel; and market for our shares as well as other factors
detailed in "Risk Factors" above and elsewhere in this prospectus and in our
other filings with the SEC. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded over-the-counter since January 29,
1998 on the OTC Bulletin Board. The following table sets forth the range of high
and low bid quotations for each fiscal quarter since the stock began trading.
These quotations reflect inter-dealer prices without retail mark-up, mark-down,
or commissions and may not necessarily represent actual transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID
March 31, 1998 $ 1.1250 $ 0.0250
June 30, 1998 $ 1.1250 $ 0.7500
September 30, 1998 $ 1.0625 $ 0.1875
December 31, 1998 $ 1.6875 $ 0.5000
March 31, 1999 $ 7.7500 $ 1.5625
June 30, 1999 $ 3.7500 $ 1.8750
On July 15, 1999, the closing price for the common stock was $1.94.
The number of record holders of common stock as of July 15, 1999 was 62
according to our transfer agent.
Our common stock is subject to SEC rules relating to "penny stocks,"
which apply to non-NASDAQ companies whose stock trades at less than $5.00 per
share or whose tangible net worth is less than $2,000,000. Prior to the sale of
a penny stock recommended by the broker-dealer to a new customer who is not an
accredited investor, the broker-dealer must approve the customer's account for
transactions in penny stocks in accordance with procedures set forth in the
SEC's rules. The broker-dealer must obtain information about the customer's
financial situation, investment experience, and investment objectives. Using
this information, the broker-dealer must be able to determine that transactions
in penny stocks are suitable for this customer and that the customer has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker-dealer must
furnish the customer with a written statement setting forth the basis for the
broker's determination of suitability. The customer must sign, date, and return
the statement to the broker-dealer. In addition, the broker-dealer must obtain a
written agreement from the customer to purchase the penny stock that sets forth
the identity of the stock and number of shares to be purchased. A separate
agreement must be obtained for each penny stock purchased by the customer until
he or she becomes an "established customer."
Holders of shares of common stock are entitled to dividends when, and
if, declared by the board of directors out of funds legally available for the
payment of dividends. We have never paid any cash dividends on our common stock
and intend to retain future earnings, if any, to finance the development and
expansion of our business. Our future dividend policy is subject to the
discretion of the board of directors and will depend upon a number of factors,
including future earnings, capital requirements, and our financial condition.
7
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet and income statement data shown below were derived
from our audited financial statements. You should read this data in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as our financial statements and notes thereto, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
Current assets................................... $ 10,678,225 $ 3,893,221
Total assets..................................... $ 12,997,692 $ 3,961,845
Current liabilities.............................. $ 8,190,443 $ 2,687,512
Long-term liabilities............................ $ 1,975,623 $ 534,465
Stockholders' equity............................. $ 2,831,626 $ 739,868
Working capital.................................. $ 2,487,782 $ 1,205,709
<CAPTION>
INCOME STATEMENT DATA: JULY 10, 1997
YEAR ENDED (INCEPTION)
MARCH 31, 1999 THROUGH
MARCH 31, 1998
<S> <C> <C>
Net sales........................................ $ 97,665,410 $ 31,581,117
Income from operations........................... $ 517,913 $ 117,750
Net income before taxes.......................... $ 171,820 $ 15,899
Net income....................................... $ 115,241 $ 12,384
Earnings per share............................... $ 0.01 $ 0.00
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. Our
actual future results could differ materially from our historical results of
operations and those discussed in the forward-looking statements. All period
references are from September 22, 1997, commencement of operations, through
March 31, 1998 and the year ended March 31, 1999. The financial impact related
to the activities of Walden Remarketing Services, Inc., which was acquired on
March 31, 1999, is not included in the following discussion and analysis.
GENERAL
The following presentation sets forth Management's Discussion and
Analysis of Financial Condition and Results of Operations from September 22,
1997, commencement of operations, through March 31, 1998, and the year ended
March 31, 1999. The presentation includes a discussion of us with our wholly
owned subsidiaries, Auto Network Group of New Mexico, Inc., Pinnacle Dealer
Services, Inc., and BusinessTradeCenter.com Inc.
Consequently, and in order to present an adequate analysis of our
financial trends, the following discussion also includes Management's Discussion
and Analysis of Financial Condition and Results of Operations for the six month
periods ending March 31, 1998 and March 31, 1999.
OVERVIEW
We began operations on September 22, 1997 and completed our first
fiscal year on March 31, 1998. During this period of time the founders were
involved in the normal activities associated with any start up venture.
Management focused its activities on hiring and training personnel, developing
accounting and management systems and controls, and expanding our operations
into different markets. On June 1, 1998, we opened the office and warehouse
facility in Albuquerque, New Mexico. Pinnacle Dealer Services, Inc. was acquired
in August 1998. Pinnacle Dealer Services, Inc. provides to our dealer network,
through third party financing arrangements, financing for the purchase of
vehicles that are purchased by dealers from us. Making financing available to
dealers has the effect of increasing sales and cash flow without exposing us to
any financing risks. These dealers, who are independent of our company, are
obligated to the third party for any financing extended to them. The third party
has the risk of making the loans.
RESULTS OF OPERATIONS
For the year ended March 31, 1999, we reported consolidated sales of
$97,665,410, as compared to sales of $31,581,117 for the period ended March 31,
1998, that covered approximately six months of operations. Sales for the six
months ended March 31, 1999 were $53,918,939. The relative increase in the
volume of sales is primarily due to the addition of brokers, who buy and sell
vehicles on our behalf, during the balance of the calendar year 1998 and the
opening of the Albuquerque office on June 1, 1998. Sales for the Albuquerque
office for the ten months ending March 31, 1999 were $18,088,597.
We realized a gross profit margin of 4.1% for the period ended March
31, 1998, 4.4% for the year ended March 31, 1999 and 4.6% for the six months
ended March 31, 1999. Management does not anticipate that this gross margin will
change significantly in the near term.
Total operating expenses were $1,183,120 for the period ending March
31, 1998, and $3,735,578 for the year ended March 31, 1999, and $2,217,163 for
the six months ended March 31, 1999, resulting in income from operations of
$117,750 and $517,913, and $244,666, respectively. The factors that contributed
to the increase in the operating expenses were hiring of additional personnel,
accounting costs associated with our audited financial statements, legal costs,
and depreciation and amortization expense related to additional property and
equipment, and goodwill. Despite the actual dollar increases for the periods
ended March 31, 1999 as compared to the period ended March 31, 1998, these
expenses, expressed as a percent of sales, remained relatively consistent at
3.7% of sales for the period ended March 31, 1998, 3.8% for the year ended March
31, 1999, and 4.1% for the six months ended March 31, 1999.
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Income from operations was $117,750 for the period ended March 31,
1998, $517,913 for the year ended March 31, 1999, and $244,666 for the six
months ended March 31, 1999; net income for these three periods was $12,384,
$115,241 and $38,915, respectively.
Interest expense was $114,404 for the period ending March 31, 1998,
$416,779 for the year ended March 31, 1999, and $263,551 for the six months
ended March 31, 1999.
Pinnacle Dealer Services has not contributed any significant direct
operating activity since its inception. However, as of July 16, 1999, it had
originated $780,000 of financing for dealers who had purchased cars from us.
ANTICIPATED TRENDS
Management anticipates that sales will increase in the current fiscal
year ending March 2000 based upon the following:
o Proposed expansion into three to five additional markets;
o The initiation of marketing programs designed to increase sales;
o The acquisition of Walden Remarketing; and
o Our initiative into the use of the Internet through
BusinessTradeCenter.
We believe these activities may provide opportunities for national and
international relationships that may increase used car availability and
re-distribution.
While management anticipates a growth in sales in the current fiscal
year, our ability to grow depends upon our ability to raise the additional
capital and debt financing required to fund such growth. We cannot assure you
that we will be able to raise the additional capital or debt financing. If we
cannot raise these additional funds, sales and the anticipated resulting net
income will not increase over historical levels.
FLUCTUATIONS IN OPERATING RESULTS
We have had limited experience to determine if our operations will be
subjected to major fluctuations or trends. Historically, the used car market has
remained relatively stable as an industry. Industry projections over the next
few years indicates there will be an upward trend in used car sales; however,
there can be no assurance that our sales will parallel industry projections or
that industry projections will materialize.
FINANCIAL CONDITION
Total assets increased from $3,961,845 at March 31, 1998, to a
consolidated total of $12,997,692 at March 31, 1999. The total assets at March
31, 1999 that were attributable to the operations of all subsidiaries were
$1,745,881. Total assets for our company at March 31, 1999, without our
subsidiaries, increased from $3,961,845 at March 31, 1998 to $11,251,811 at
March 31, 1999, reflecting the growth we have experienced through the deployment
of the capital and debt raised from outside investors.
Total liabilities increased from $3,221,977 at March 31, 1998 to a
consolidated total of $10,166,066 at March 31, 1999. The increase attributable
to all subsidiaries was $1,672,628 with the remaining balance of the increase
due to short-term debt financing.
Stockholders' equity increased from $739,868 at March 31, 1998 to a
consolidated balance of $2,831,626 at March 31, 1999. We attribute the increase
to earnings of $115,241 generated during the year ended March 31, 1999, $372,037
of net proceeds from the sale of preferred stock, and $1,604,480 attributable to
the acquisition of businesses, which consisted primarily of goodwill.
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LIQUIDITY AND CAPITAL RESOURCES
We used $3,695,046 of cash to support our operating activities for the
year ended March 31, 1999, as compared to $1,881,132 for the period ended March
31, 1998. Our investing activities for the year ended March 31, 1999 and the
period ended March 31, 1998 required a use of cash of $182,185 and $59,353,
respectively. We supported these cash needs by receiving cash proceeds from net
borrowings and proceeds from sale of stock of $4,174,983 for the year ended
March 31, 1999, and $1,940,485 for the period ended March 31, 1998.
The model for expansion into other markets and the opening of other
facilities requires the independent wholesale broker in the new location to
subordinate debt to the funds infused into the operations by us. This provides
the new location with additional working capital to expand sales volume. We
estimate that the additional debt infusion under this arrangement will be
$300,000 to $500,000 for each new location. Each market needs these funds for
working capital in the purchase of vehicles and a build up of accounts
receivable.
Effective September 1, 1998, Pinnacle Dealer Services initiated a
financing program for dealers who purchase vehicles from us. We intend to
improve our cash flows through utilization of this financing program.
In addition, on March 26, 1999, we obtained a $3,000,000 revolving line
of credit with Norwest Business Credit, Inc. that will provide sufficient
short-term liquidity and capital to implement our business plan, including
providing for the expansion into other markets. The note bears interest at 1.5%
over prime and is due on March 31, 2000. We must renegotiate or replace this
credit facility within the year.
All of our long-term debt, in the amount of $1,968,623 at March 31,
1999, matures during the year ending March 31, 2001. To address our long-term
liquidity needs, we must obtain additional equity financing and/or additional
credit facilities that are greater than one year in duration.
BusinessTradeCenter only recently commenced operations. It is too early
to discuss how it will impact us. However, inquiries, correspondence and dealer
registration to be included in the activities created by this Internet site have
exceeded management estimates and expectations since its introduction on
February 1, 1999. Sales through our Internet site currently account for less
than 10% of our revenues. We cannot assure you that BusinessTradeCenter will be
profitable.
We acquired the Walden Remarketing subsidiary on March 31, 1999.
Therefore, we cannot yet predict its impact on our operations. Walden
Remarketing has previously maintained profitable operations and we have no
reason to believe that positive performance will not be achieved in the future.
However, we cannot assure you that Walden Remarketing will be profitable.
YEAR 2000 ISSUES
We have segregated our discussions of Year 2000 issues into the
following categories:
o OUR STATE OF READINESS. We have identified and addressed all year
2000 issues that we believe will have an impact upon our business.
All information technology systems that we use directly in our
operations are represented by the manufacturers to be Year 2000
compatible. With respect to non-technical Year 2000 issues, we do
not rely upon machinery or equipment that may contain embedded
technology, such as microcontrollers, other than in the used
vehicles we purchase and sell, mechanical heating and air
conditioning equipment relating to our office and warehouse
facilities, and our telephone answering system. We have prepared
our remediation plan addressing these potential issues. We depend
upon third parties' technology, such as banks, the Federal Reserve
System, and the Internet for the conduct of our business. We have
received assurances from these third parties that they are on
schedule to meet their Year 2000 readiness.
o THE COST TO ADDRESS OUR YEAR 2000 ISSUEs. We have modified some of
our information technology and software at an estimated cost of
less than $10,000.
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o THE RISKS OF OUR YEAR 2000 ISSUEs. Our most reasonable likely
worst case Year 2000 scenario involves a breakdown in the
communication systems in telephone equipment and in accessing the
Internet. While we believe this risk in minimal, if it should
occur, our anticipated business plan and the use of the Internet
beginning January 1, 2000 would be impaired.
o OUR CONTINGENCY PLANs. We have developed various contingency plans
addressing numerous potential risks, including those we have
classified as "inconveniences." Baring a major catastrophic
breakdown in operations and systems out of our control, such as a
complete collapse of the banking and communications systems in the
world, we are prepared to make the necessary adjustments without a
significant loss.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In the fall of 1998, Price Kong & Company, P.A., which had audited our
financial statements for the period ended March 31, 1998, notified our
management that it would no longer perform auditing services for companies that
would be filing reports with the SEC. The report of Price Kong & Company, P.A.
on the March 1998 Financial Statements did not contain an adverse opinion or a
disclaimer of an opinion. That report was not qualified or modified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with Price Kong & Company, P.A. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure during
the term of their engagement by us. No reportable events occurred during the
term of the engagement. Even though Price Kong & Company no longer provides
auditing services for us, they did consent to the use of their report in this
filing.
In January 1999, we engaged Neff & Ricci, LLP to audit our financial
statements for the fiscal year ended March 31, 1999. The decision to engage Neff
& Ricci, LLP was approved by our board of directors. Prior to the engagement of
Neff & Ricci, LLP, we did not consult this firm.
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BUSINESS
We are engaged in the wholesale used car business. The wholesale used
car business involves the buying of a used vehicle from a licensed automobile
dealer and selling that vehicle to another licensed automobile dealer.
Automobile dealers are licensed through the laws of each state where they
conduct business and include the following types of entities:
o Franchised dealers
o Independent dealers
o Finance companies
o Lease companies
o Car rental companies
The distribution process of used automobiles takes place on local and
national levels as car demand and supply fluctuates within and between local and
national markets. Currently, the auto auctions located primarily in major urban
areas across the country fill this re-distribution process. We, and other
wholesale companies similar to us, satisfy only a small portion of the used car
re-distribution process. The typical profile of other wholesale companies,
commonly referred to as independent wholesale brokers, are either individuals or
small groups of up to five individuals that buy and sell automobiles as
described above. We compete with both the auto auctions and the independent
wholesale brokers and will differentiate our method of doing business as
compared to our competition under the "Competition" heading included later in
this section.
We contract with salesmen, referred to as brokers, to buy and sell used
vehicles. Each broker enters into a contract with us that authorizes the broker
to act as our agent in the buying and selling of used vehicles under our company
name. We use corporate funds to purchase the vehicle and in turn all monies
received upon the sale of the used vehicle are deposited into the corporate bank
account. Even though the broker has the authority to buy used vehicles, we
contractually limit the amount of inventory that each broker can have on hand or
un-sold at any given point in time. Each broker has the responsibility to sell
the used cars he or she has purchased. The average length of time a used vehicle
is in our inventory is 15 days. The broker is compensated under one of the two
general compensation methods that we offer. The first plan involves a flat fee,
referred to in the business as a "pack," that is added to the price of each used
vehicle purchased. Pursuant to this plan, the broker retains the net benefit of
all gains and losses resulting from the difference between the price received
upon the vehicle sale and the amount of that vehicles purchase price, including
the pack. The second compensation plan involves our company sharing any gain and
loss with the broker. Pursuant to this plan, there is no pack. Currently, the
first compensation plan is the method predominately used.
In January 1999, we announced the development of our Internet site
WWW.AUTOTRADECENTER.COM. The general public can only access the "guest" section
when they originally connect to the web site. The full functionality features of
our Internet site are restricted to members. To become a member, a licensed
dealer must complete an application and provide to us a copy of their dealer
license as proof of their dealership status. The Internet site allows all
members, including our company, to transact the business of buying and selling
used automobiles over the Internet.
We believe that as the membership to our Internet site grows and the
listing of inventory of used vehicles for sale increases, our emphasis in the
way we conduct our wholesale business will transition from the current process,
previously described, to that commonly referred to today as e-commerce.
Specifically, that means we will increasingly depend upon the Internet site
WWW.AUTOTRADECENTER.COM for the conduct of our business of buying and selling
used vehicles to automobile dealers on a wholesale basis.
For the remainder of the current fiscal year, we intend to open office
and warehouse facilities in three to five additional markets if we can raise the
necessary funds to do so. As stated previously, $300,000 to $500,000 is needed
for each new location. We also intend to continue the development of our
Internet site. Lastly, we must renegotiate or replace the $3,000,000 revolving
line of credit with Norwest Business Credit, Inc.
by the end of March 2000.
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CORPORATE BACKGROUND
We were organized as an Arizona corporation on July 10, 1997 under the
name Auto Network USA, Inc., and commenced operations on September 22, 1997, at
our facility in Scottsdale, Arizona. We changed our name to AutoTradeCenter.com
in April 1999 to more properly reflect our current Internet presence and our
future direction of providing business-to-business automotive redistribution
services over the Internet. From inception until February 1998, we had
approximately 12 brokers and we operated on a break-even basis. During the
months of February 1998 through March 1999, we added 14 brokers and secured
additional funding. As a result of these additional brokers and additional
funding, our operating margin increased, thereby resulting in profitable
operations.
In December 1997, we sold 1,002,500 shares of common stock for gross
proceeds of $25,062.50 in a private placement. In February 1998, we sold 6,750
shares of Series A Preferred Stock for $675,000 in a private placement.
Auto Network Group of New Mexico, Inc., a wholly owned subsidiary, was
incorporated on May 18, 1998, and commenced operations on June 1, 1998. In order
to achieve the sales volume necessary to economically operate an office and
warehouse facility in each targeted market area we need to staff that facility
with a minimum of four brokers plus two administrative personnel, one of which
must have a bookkeeping background. Upon the opening of our Auto Network Group
of New Mexico office and warehouse facility, we were able to attract the
necessary brokers and administrative personnel by issuing common stock and stock
options in our company. We will utilize this same process or methodology in
opening other targeted markets, which is part of our business plan and corporate
strategy. Auto Network Group of New Mexico operates its business the same as its
parent, AutoTradeCenter.com, as will future facilities that operate pursuant to
the Auto Network Group of New Mexico model.
On August 20, 1998, we acquired Pinnacle Dealer Services, Inc., an
affiliated Arizona corporation. Pinnacle Dealer Services promotes and
administers alternative financing programs for dealers who purchase used cars
from us.
From November 1998 to December 1998, we sold 47,000 shares of Series B
Preferred Stock for gross proceeds of $470,000 in a private placement.
On January 7, 1999, we incorporated BusinessTradeCenter.com Inc. in
Arizona to facilitate the buying and selling of vehicles at wholesale between
dealers on the Internet. BusinessTradeCenter.com has developed the technology
and systems necessary to make our inventory, as well as the inventory of member
dealers, available for purchase and sale on our Internet site.
On March 31, 1999, we acquired Walden Remarketing Services, Inc., a
Minnesota corporation, by issuing to the shareholders of Walden Remarketing
2,050,000 restricted shares of common stock, cash of $125,000, and a promissory
note in the principal amount of $425,000. Walden Remarketing assists
manufacturers in the disposition of their fleet and consumer lease vehicles.
CUSTOMERS
We sell automobiles on a wholesale basis to franchise and independent
used car dealers throughout North America. There were over 80,000 registered and
licensed car dealers in the United States as of December 31, 1998. As of July
16, 1999, we had consummated at least one transaction with over 700 of these
licensed dealers. The past several years has brought about a much-publicized
attempt by various entities to consolidate the retail car market. These efforts
have primarily been directed at the franchised dealers. To date there has not
been sufficient experience to determine if such consolidation will have a
negative or positive impact on our long-term customer base and growth plans. At
present, management believes that its base of existing customers and potential
customers is sufficiently large that any impact due to the consolidation of the
franchised dealers will be minimal.
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INTERNET SITE - BUSINESSTRADECENTER.COM
On February 1, 1999, we introduced an Internet site
AutoTradeCenter.com. Our subsidiary, BusinessTradeCenter.com, controls the legal
rights to the Internet domain name, technology, systems, and programming
involved in operating this site. Only automobile dealers, leasing companies,
banks, and fleet or rental companies can use this site to obtain information on
used vehicles. These businesses must first register to become members. To
encourage use of this site, we are offering 12 months of membership free if
businesses register by September 1, 1999. After September 1, 1999, we plan to
charge a membership fee. The pricing of the membership fee cannot be established
at this time; however, we plan to set the fee to reflect the value of the
service, taking into consideration any competing pricing structure. As of July
16, 1999, over 400 businesses had registered as members.
Our entire inventory is listed on the Internet site. While we currently
sell less than 10% of our vehicles as a direct response from our Internet site,
we expect this to increase, as more dealers become knowledgeable and comfortable
in the capabilities of our Internet site. We expect that over time, most of our
business will be conducted through the Internet site.
The web site offers the following services and features to our company
and other members:
o INVENTORY FOR SALE - A dealer may post its inventory for sale. The
listing includes a complete description of the vehicle, a
condition report, mileage, and the wholesale price. In addition,
up to six pictures per vehicle may be uploaded to the site for
viewing.
o INTRA-NET CAPABILITY - We assign each member a unique user number
and password. If a member dealer is associated or affiliated with
other members, our system has the capability of restricting the
viewing of any inventory listed to the affiliated group. This
feature provides an affiliated group to share their inventory
amongst their group for a period of time, specified for each
vehicle listed, before that vehicle is made available for sale to
any other member.
o BATCH UPLOADING - Our system allows for a vehicle to be input into
the system one at a time or by batches.
o SEARCH CAPABILITIES - A search, utilizing any data field such as
make, model, year, or location, can be made of all vehicles listed
in the inventory database.
o WISH LIST - If a dealer is seeking to purchase a vehicle that is
not in the inventory database, he may enter the details of the
desired vehicle on the wish list. Other members may have knowledge
as to where that desired vehicle could be located.
o ON-LINE AUCTION - When a dealer does not sell a listed vehicle at
the wholesale price listed, he may choose to put the vehicle up
for auction. Our on-line auction can be conducted for up to 72
hours for each vehicle. The listing dealer may accept or reject
any bids.
o TRANSACTING BUSINESS - Names, addresses and telephone numbers are
listed for each dealer. If a member wishes to purchase a vehicle
on the inventory listing, he may do so by contacting the listing
dealer.
o ESCROW SERVICES - Escrow services are available for any dealer who
would like to have an independent third party hold the vehicle
title and funds until all terms and conditions of the
purchase/sale have been met. We are not a party to the escrow
services, other than in our capacity as a member.
No revenue had been generated from any fees on our Internet site as of
July 16, 1999. Management believes that as our Internet site grows, other
sources of revenues from advertising and other promotional fees will be
available to our company.
FINANCE PROGRAMS - PINNACLE DEALER SERVICES
Pinnacle Dealer Services promotes and administers alternative finance
programs for dealers who purchase used cars from us. On August 20, 1998, we,
along with Pinnacle Dealer Services, executed an agreement with Auction Finance
Group, Inc., a non-affiliated lending company that provides licensed automobile
dealers with credit lines, thereby allowing them to purchase vehicles from us.
These credit lines are marketed through Pinnacle Dealer Services. In the
agreement, we have granted the lending company an exclusive license to provide
third party loans and extensions of credit lines to dealers at our facilities.
The credit applications provided by the lending company
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bear the Pinnacle Dealer Services logo. The lending company is to pay us a fee
of $15.00 for each vehicle it finances so long as the average purchase price is
above $10,000 and the average loan term is six weeks. If these two conditions
are not met, the lending company has the right to renegotiate the $15.00 fee. To
date, we have met this covenant. The agreement with the lending company is for a
term of ten years and automatically renews for successive ten-year periods
unless terminated.
Pinnacle Dealer Services is also currently exploring other alternative
finance programs that may be made available to our dealer network for retail
customers who purchase used cars from these dealers.
WALDEN REMARKETING
Walden Remarketing assists the finance subsidiaries of manufacturers,
banks or other finance companies in disposing of used vehicles that are being
returned upon the expiration of a lease term.
In the mid 90's, creative lease programs appeared and thousands of
off-lease vehicles started to appear at auto auctions. Currently, lessees
purchase only 25% of these vehicles at termination of the lease. In addition,
dealer purchases of these vehicles have not met industry expectations.
Therefore, lessors have not been able to realize sufficient residual prices for
these vehicles, resulting in severe losses on lease portfolios. Remarketing
programs were developed to address this resale need.
Currently, most of the activities of Walden Remarketing are limited to
promoting the sale of these vehicles at various auctions throughout the United
States. Walden Remarketing charges fees for the services it performs.
Walden Remarketing enjoys working relationships with Honda and Hyundai,
and currently has exclusive contractual arrangements with Honda and Hyundai to
provide remarketing services. On June 14, 1999, Honda notified Walden
Remarketing that it was terminating the existing contract for remarketing
services currently provided by Walden Remarketing. Management is currently
discussing new service opportunities with Honda, including listing these
off-lease vehicles on our Internet site. We do not know at this time whether
Honda will contract with Walden Remarketing for this service or any current
service offered by Walden Remarketing.
We believe that the acquisition of Walden Remarketing provides us with
the opportunity to gain access to the inventory of used vehicles coming off
lease. Potentially, if these vehicles were made available on our Internet site,
we may be able to decrease the timeframe for redistributing the used vehicle to
a dealer and/or increase the amount the finance company receives for the
off-lease used vehicle.
WORKING CAPITAL PRACTICES
We finance our inventory needs through private sources of capital and
proceeds from the sale of used cars. In addition, we have a $3,000,000 line of
credit with Norwest Business Credit, Inc.
COMPETITION
We believe that we have two major sources of competition: independent
wholesale brokers and auto auctions.
INDEPENDENT WHOLESALE BROKERS. Approximately 3% of the vehicles sold by
franchised dealers in the United States in 1997 were acquired from independent
wholesale brokers and other related type organizations, according to the 1999
USED CAR MARKET REPORT prepared by ADT Automotive Inc. Independent wholesale
brokers represent a direct form of competition as they are performing services
similar to the services provided by us. Information on wholesale brokers is
limited. It is our belief that the vast majority of the wholesale brokers are
small organizations of typically 1 to 5 individuals. We are not aware of any one
wholesale broker that sells more than 2,000 vehicles annually. Based upon our
discussions with numerous individuals and associated groups of independent
wholesale brokers, we believe that these groups are generally undercapitalized
and have limited external financial resources.
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We believe that we possess many competitive advantages over these
smaller wholesale brokers due to our relatively greater financial strength and
operational staff. We believe that the auto dealers from whom we purchase
vehicles enjoy a greater assurance of timely payment from us as compared to
other smaller wholesale brokers because we are publicly held, we have achieved a
high reputation for prompt payment for vehicles purchased, and we have
significantly more capital than most of the independent wholesale brokers.
Dealers with whom we transact business have stated to us that our public
presence and our timely payment policies provides them with a greater degree of
comfort as compared to the smaller independent wholesale brokers. On a national
basis the wholesale brokers represent a very fragmented part of the auto
distribution system and these persons are part of the targeted consolidation and
growth plan for our company.
We compete with the independent wholesale brokers on the basis of
service. We are not aware of any other independent wholesale brokers that
conduct their operations on the Internet.
AUTO AUCTIONS. Auto auctions as a whole are the most significant
competitor to us in the used car distribution system. According to the 1999 USED
CAR MARKET REPORT, in 1997 the total number of vehicles sold by auto auctions
was in excess of 10 million units, which represented 38% of the total used car
sales. From 1982 to 1997, auto auctions' contribution of used cars sold to
dealers increased from 6% to 28%.
Auto auctions originally began as "dealer exchanges" and over time have
evolved into the current distribution system of most of the used cars between
dealers. There are several nationally recognized companies in the auto auction
market. According to the website of Manheim Auctions, Manheim, the largest in
the United States, has 64 locations and sold over 5.2 million units in 1997,
representing over 50% of all auto auction sales during that period. According to
the 1999 USED CAR MARKET REPORT, ADT Automotive, Inc. has 28 locations, and sold
2.1 million cars in 1997, which represented 21% of the auto auction market. In
addition to the two organizations mentioned above, there are numerous
independent auto auctions located throughout the United States and Canada.
Generally, an auto auction company holds an auction once a week or at
other intervals, allowing the company to accumulate a number of vehicle for
sale. During the auctions, persons in attendance make bids on a particular
vehicle. The highest bid is generally accepted. If none of the bids meets a
certain set minimum to the company, the vehicle may be held over to the
following week's auction. The auction then proceeds to the next vehicle.
We believe that the manner in which auto auctions conduct business is
fundamentally flawed in today's environment. Specifically, dealers selling used
vehicles through the auto auctions may be delayed in converting their used
vehicles into cash for up to 45 days because of the fact that auctions are held
only periodically and because bids at the auctions may not be acceptable.
Although costs associated with doing business with us may be the same or even
slightly higher than that of the auto auctions, management believes that the
increased level of service and the speed at which the service is rendered
compensates for the higher costs. As explained above, our brokers have the
responsibility to sell the used cars he or she has purchased. As opposed to a
car receiving a few minutes of attention from dealers at an auto auction, our
brokers can give a car hours of focused attention with dealers. We believe that
the difference between auto auctions and our business is analogous to a house
which is sold by posting a sign in the front yard versus hiring a realtor to
advertise and market the house to targeted prospective buyers.
INTERNET OPERATIONS. Auto auctions have developed or are developing
Internet sites that will perform similar services as compared to our Internet
site. Therefore, auto auctions will provide significant competition to us. At
the present, we know of no other Internet sites directed at the wholesale used
car business. There are a number of sites directed at the retail car business.
GOVERNMENT REGULATION
Compliance with government regulations does not impose a significant
impact on the sale of used cars between dealers. Laws between state motor
vehicle divisions do vary and we perform what duties we consider are reasonable
and appropriate to remain current on any law changes.
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EMPLOYEES AND BROKERS
As of July 16, 1999, we had 21 full-time employees, no part-time
employees, and 28 brokers. Employment levels remain relatively high as we
anticipate future growth. We depend upon a limited number of key management and
technical personnel. Except for management, few of our employees are highly
skilled professionals. Our continued success will depend in large part upon our
ability to retain and attract managerial personnel with significant experience
in the wholesale automobile industry. None of our employees is represented by
labor organizations; we have never had a work stoppage or slowdown as a result
of labor issues; and we have excellent relations with our employees. Management
believes that the adoption of the 1997 Stock Option Plan, along with other
company benefits, will enhance employees' interest in remaining with us. In the
future, management is planning to add further incentives to attract and retain
high quality personnel.
FACILITIES
We lease administrative and warehouse facilities, comprising a total of
13,500 square feet in Scottsdale, Arizona, from an unrelated third party under
an operating lease expiring September 30, 2002. We opened an office and
warehouse facility in Albuquerque, New Mexico, on June 1, 1998, and entered into
an operating lease for 5,000 square feet with a related party expiring on May
31, 1999. Both of these leases require us to pay all maintenance, insurance, and
taxes on the leased property. Walden Remarketing maintains offices in
Minneapolis, Minnesota, with a related party pursuant to an informal
office-sharing arrangement.
We believe that the leases are renewable on substantially similar
terms. In the event that the leases are not renewed, we believe that leasing any
non-customized facility can fill current general office/warehouse needs.
We believe that our existing facilities are suitable and adequate for
our operations and that productive capacity is being utilized.
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the company are as follows:
NAME AGE POSITION
Mike Stuart 51 President and Director
Mark Moldenhauer 46 Vice President, Secretary, and Director
Roger L. Butterwick 52 Treasurer
Mike Stuart and Mark Moldenhauer may be deemed to be the "promoters"
and "parents" of the company within the meaning of the SEC's rules and
regulations.
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.
MIKE STUART has been a director of our company since its inception, and
president since November 30, 1997. He has been involved in the automobile sales
industry since 1971, first as a salesman with Lou Grubb Chevrolet in Phoenix,
Arizona, from 1971 to 1980, and then as a manager and partner with Lou Grubb
Mitsubishi from 1981 to 1992. From January 1994 through June 1995, Mr. Stuart
was vice-president and general manager of three automotive dealerships
comprising nine automobile franchises. In January 1996, Mr. Stuart formed an
automotive retail store located in Scottsdale, Arizona specializing in late
model sport and luxury used cars. That business was
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sold in August 1998 and since that time he has devoted all of his time to
AutoTradeCenter.com. Mr. Stuart is a past two-term president of the Greater
Phoenix New Car Dealers Association and former chairman of the Arizona
Automobile Dealers Association's Ethics and Judiciary Committee. He served as
the principal instructor for the General Motors Field Management Training
Program and is a past director of the national Mitsubishi Dealer 20 group. Mr.
Stuart is a full-time employee of our company.
MARK MOLDENHAUER has been vice president of our company since November
30, 1997, a director since December 15, 1997, and secretary since March 24,
1998. Since 1986, he has been engaged in the business of arranging public and
private mergers, acquisitions, and the placement of equity and debt financing
through his firm, MRM Consultants. In connection with rendering those consulting
services, he has previously served as a director of numerous public and private
companies. Mr. Moldenhauer was involved in management consulting services from
1980 to 1985 through Ball Management. From 1978 to 1980, he was a tax specialist
for the Adolph Coors Company in Golden, Colorado, and from 1976 to 1978, he
worked as an auditor for the national accounting firm then known as Peat,
Marwick, Mitchell & Co. He received a master's degree in accounting from the
University of Arkansas in 1976. Mr. Moldenhauer is a full-time employee of our
company.
ROGER L. BUTTERWICK has been the Treasurer of the Company since April
2, 1999. For the past four years Mr. Butterwick devoted the majority of his time
as a partner in Cambridge Management Associates, LLP, an organization in the
business of structuring and securing financing for developing organizations.
Previously, Mr. Butterwick was an owner of Lehman, Butterwick & Company, P.C., a
large local certified public accounting firm located in Denver, Colorado. In
addition, he has been involved with the finance and mortgage banking industries.
Mr. Butterwick received his Bachelor of Science in Business Administration from
the University of Denver. He is a member of the American Institute of CPA's. Mr.
Butterwick is a full-time employee of our company.
EXECUTIVE COMPENSATION
The following table sets forth the remuneration for Mr. Stuart, who
functions as our chief executive officer. We are not required to set forth
information for any officer whose total annual salary and bonus does not exceed
$100,000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPENSA-
PRINCIPAL COMPENSA- AWARD(S) OPTIONS/ PAYOUTS TION
POSITION YEAR SALARY($) BONUS($) TION ($) ($) SARS(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MIKE STUART 1999 $65,500 -0- -0- -0- -0- -0- -0-
PRESIDENT 1998 $6,000 -0- -0- -0- -0- -0- -0-
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
Currently, we pay Messrs. Stuart and Moldenhauer $4,500 each per month
and Mr. Butterwick $4,000 per month. 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, and do not contemplate
implementing any such plans at this time.
We have not granted any stock options to Mr. Stuart as compensation.
Stock options have been granted to Messrs. Stuart, Moldenhauer, and Butterwick
in connection with loan guarantees and debt subordination, as described in the
section of this prospectus entitled "Certain Relationships and Related
Transactions."
CONSULTING AGREEMENT
On April 20, 1999, we entered into a Consulting Agreement with Dennis
E. Hecker as part of our acquisition of Walden Remarketing Services. Mr. Hecker
has agreed to provide consulting services to our company for a period of three
years ending April 20, 2002. We granted Mr. Hecker an option to purchase
3,000,000 shares of our common stock at $3.00 per share. The options, which
expire April 20, 2009, vest according to a schedule that is based on the trading
price of the common stock. We have agreed to register the shares issuable upon
exercise of the options.
19
<PAGE>
STOCK OPTION PLAN
On August 5, 1997, the shareholders adopted the 1997 Stock Option Plan,
which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors. Initially,
a total of 1,000,000 shares of common stock was reserved for issuance pursuant
to the exercise of stock options under this plan. The option pool is adjusted
annually on the beginning of our fiscal year to a number equal to 10% of the
number of shares of common stock outstanding at the end of our last completed
fiscal year, or 1,000,000 shares, whichever is greater. At March 31, 1999, the
number of shares eligible pursuant to the plan is 2,038,508. 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 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 no 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.
As of March 31, 1999, options have been granted under this plan as
follows:
<TABLE>
<CAPTION>
DATE OF NUMBER OF EXERCISE EXPIRATION
GRANT OPTIONEE OPTIONS PRICE VESTED DATE
<S> <C> <C> <C> <C> <C>
02/17/98 Employees and 300,000 $.15 Yes 02/17/2003
Independent Contractors
06/01/98 Employees and 125,000 $.75 (1)<F1>, (2)<F2> 06/01/2003
Independent Contractors
09/11/98 Independent Contractor 10,000 $.51 (1)<F1> 09/11/2003
09/21/98 Employees and 175,000 $.425 (1)<F1>, (2)<F2> 09/21/2003
Independent Contractors
12/01/98 Independent Contractor 25,000 $1.25 (2)<F2> 12/01/2003
20
<PAGE>
<CAPTION>
DATE OF NUMBER OF EXERCISE EXPIRATION
GRANT OPTIONEE OPTIONS PRICE VESTED DATE
<S> <C> <C> <C> <C> <C>
12/31/98 Independent Contractors 646,499 $1.00 Yes 12/31/2001
02/01/99 Employees and 130,000 $2.00 (1)<F1>, (2)<F2> 02/01/2002
Independent Contractors
02/15/99 Employee 25,000 $2.00 (1)<F1> 02/15/2002
- ---------------
<FN>
<F1>
(1) To vest one year from date of grant for employees.
<F2>
(2) To vest one year from date of grant for independent contractors so long
as the volume of transactions initiated by the optionee for our company
one year from date of grant is no less than the volume of transactions
at the time of grant.
</FN>
</TABLE>
OTHER OPTIONS
In addition to the stock options granted under the 1997 stock option
plan, we have granted options as follows:
<TABLE>
<CAPTION>
DATE Number of Options Exercise Price EXPIRATION DATE
OF GRANT Optionee Vested
<S> <C> <C> <C> <C> <C>
02/24/98 Cambridge Management Associates, LLP 300,000 $.32 Yes 03/26/2002
07/06/98 Arnold Greenberg 50,000 $.875 Yes 07/06/2000
07/08/98 John Abadie 25,000 $.875 Yes 07/08/2000
</TABLE>
Other stock options have been granted to officers and directors in
connection with guarantees and other financial transactions.
SECURITIES OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
Mike Stuart and Mark Moldenhauer may be deemed to be promoters for the
purposes of this offering.
The following table provides stock ownership information as to the
officers and directors individually and as a group, and the holders of more than
5% of our common stock as of July 16, 1999:
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)<F1>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF OWNER OWNED CONVERSION CONVERSION (2)<F2>
<S> <C> <C> <C>
Mark Moldenhauer 4,820,000(3)<F3>(4)<F4>(5)<F5> 20.2% 19.2%
8135 E. Butherus #3
Scottsdale, AZ 85260
Eastlane Trading Limited 2,535,302(6)<F6> 11.8% 11.2%
c/o S&W Cremin, McCarthy & Co.
28 Harcourt Street
Dublin 2, Ireland
21
<PAGE>
<CAPTION>
PERCENT OF CLASS (1)<F1>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF OWNER OWNED CONVERSION CONVERSION (2)<F2>
<S> <C> <C> <C>
Dennis E. Hecker 1,855,000 9.1% 8.5%
500 Ford Road
Minneapolis, MN 55426
Mike Stuart 1,820,000(4)<F4>(5)<F5> 8.7% 8.2%
8135 E. Butherus #3
Scottsdale, AZ 85260
Jeff Erskine 1,790,000(4)<F4> 8.7% 8.2%
8135 E. Butherus #3
Scottsdale, AZ 85260
John Michael Carrante 1,690,000 8.2% 7.8%
8135 E. Butherus #3
Scottsdale, AZ 85260
Joseph M. Seaverns & Candace L. Seaverns
Family Living Trust U/A Dated 6/21/93 1,690,000(7)<F7> 8.2% 7.8%
10158 E. Topaz Drive
Scottsdale, AZ 85258
Silhouette Investments Ltd. 1,679,832(8)<F8> 8.1% 7.6%
P.O. Box 22009
Capri Centre
Kelowna, BC V1Y 2N9 Canada
Flagstone Automotive Inc. 1,559,844(9)<F9> 7.5% 7.1%
15111 N. Hayden Road
Scottsdale, AZ 85260
Roger L. Butterwick 850,000(5)<F5>(10)<F10> 4.1% 3.8%
258 S. Sandstone Street
Gilbert, AZ 85296
All officers and directors as a group 7,490,000(3)<F3>(10)<F10>(11)<F11> 30.3% 28.9%
(3 persons)
<FN>
<F1>
(1) 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 July 16, 1999, 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 20,485,084 shares outstanding before the
offering and 21,731,425 shares outstanding after the offering, which
assumes the conversion of the shares using the floor price of $0.41 per
share and the issuance of the 100,000 warrant shares.
<F2>
(2) Assumes the conversion of the shares using the floor price of $0.41 per
share and the issuance of the 100,000 warrant shares.
<F3>
(3) Includes 3,000,000 shares issuable upon the conversion of a promissory
note in the amount of $300,000 at a conversion price of $.10 per share.
<F4>
(4) Includes 100,000 shares issuable upon the exercise of options.
<F5>
(5) Includes 250,000 shares issuable upon the exercise of options.
<F6>
(6) Includes 959,904 shares issuable upon the exercise of warrants.
22
<PAGE>
<F7>
(7) Includes 320,000 shares owned of record by Joe Seaverns.
<F8>
(8) Includes 279,972 shares issuable upon the exercise of warrants.
<F9>
(9) Includes 259,974 shares issuable upon the exercise of warrants.
<F10>
(10) Includes 100,000 shares held of record by Cambridge Consulting Group,
an entity controlled by Mr. Butterwick. Includes 500,000 shares
issuable upon the exercise of options.
<F11>
(11) Includes 950,000 shares issuable upon the exercise of options.
</FN>
</TABLE>
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.
Upon inception of our company, 9,000,000 restricted shares of common
stock were issued to our founders for total consideration of $30,000 as follows:
Jeff Erskine 1,820,000 shares
Mike Stuart 1,500,000 shares
Mark Moldenhauer 1,500,000 shares
Joe Seaverns 320,000 shares
Candy Seaverns 1,500,000 shares
Victor Felice 540,000 shares
John Carrante 1,820,000 shares
Jeff Erskine, Mike Stuart, and Mark Moldenhauer and their respective
spouses personally guaranteed the operating lease dated July 24, 1997, pursuant
to which we lease our office and warehouse facilities in Scottsdale, Arizona. At
July 24, 1997, Messrs. Erskine, Stuart, and Moldenhauer were officers,
directors, and principal shareholders of our company. The lease expires
September 30, 2002.
From inception, September 22, 1997, through March 31, 1999, we had
entered into various lending arrangements involving officers, directors and
other affiliated entities owned or controlled by officers, directors and other
key personnel totaling $3,682,751. At March 31, 1998 the balance outstanding on
these notes was $832,000 and total interest paid to these entities on all
financing activities for the period ended March 31, 1998 was $58,416. At March
31, 1999, the outstanding note balance was $3,871,446 and the total interest
paid for the year ended March 31, 1999 was $286,824.
<TABLE>
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
<S> <C> <C>
09/22/97 Evelyn Felice $400,000 loan, 12% interest per annum, payable monthly,
(principal stockholder at the time) due September 22, 1999, collateralized by used car
inventory, personally guaranteed by Jeff Erskine,
Mike Stuart, and John Carrante
10/17/97 Mark Moldenhauer $150,000 loan, 12% interest per annum, payable monthly,
(officer, director and principal due November 17, 1999, collateralized by used car
stockholder) due November 17, 1999, collateralized by used car
inventory, personally guaranteed by Jeff Erskine, Mike
Stuart, and John Carrante
12/15/97 Pinnacle Financial Corporation $200,000 loan, 12% interest per annum, payable monthly,
(owned by officers, directors, and due December 15, 1998, collateralized by used car
principal stockholders) inventory
23
<PAGE>
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
<C> <C> <C>
01/15/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly,
due January 15, 1999, collateralized by used car
inventory, convertible into shares of common stock at $.10
per share
03/31/98 Mark Moldenhauer $102,000 loan, 12% interest per annum, payable monthly,
due upon 30 days' notice, collateralized by used car
inventory
04/07/98 Mark Moldenhauer $300,000 loan, 12% interest per annum, payable monthly,
due upon 30 days' notice, collateralized by used car
inventory
06/01/98 Eastlane Trading Limited $250,000 loan, 12% interest per annum, payable on request,
(principal stockholder) due April 1, 2000, collateralized by used car inventory
06/30/98 Dove Motors (owned by principal $100,000 loan, 12% interest per annum, payable upon demand
stockholder)
07/28/98 Pinnacle Financial Corporation $50,500 loan, 12% interest per annum, payable upon demand
07/30/98 Pinnacle Financial Corporation $30,000 loan, 12% interest per annum, payable upon demand
09/01/98 Mike and Debbie Stuart $50,000 loan, 12% interest per annum, payable monthly,
(officer, director, and principal due October 1, 1999, collateralized by used car inventory
stockholder)
09/11/98 Pinnacle Financial Corporation $117,500 loan, 12% interest per annum, payable monthly,
due October 11, 1999, collateralized by used car inventory
09/18/98 Pinnacle Financial Corporation $400,000 loan, 12% interest per annum, payable monthly,
due October 30, 1998 (extended and due upon demand),
collateralized by used car inventory
10/20/98 Eastlane Trading Limited $1,000,000 loan, 12% interest per annum, payable on
request, due April 1, 2000, collateralized by used car
inventory
11/18/98 Eastlane Trading Limited $232,259 loan, 12% interest per annum, payable on request,
due April 1, 2000, collateralized by used car inventory
5/13/99 Pinnacle Financial Corporation $300,000 loan, 12 % interest per annum, payable monthly,
due May 13, 2000, personally guaranteed by Jules Gollins,
Bruce Burton, Stuart Bailey, all officers of Auto Network
Group of New Mexico, and their respective spouses
6/22/99 Pinnacle Financial Corporation $200,000 loan, 12 % interest per annum, payable monthly,
due December 22, 1999
6/22/99 Mark Moldenhauer $100,000 loan, 12 % interest per annum, payable monthly,
due December 22, 1999
</TABLE>
24
<PAGE>
On February 2, 1998, we sold 6,750 shares of Series A preferred stock
to Eastlane Trading Limited for $675,000. Each share is convertible into 1,111
shares of common stock. For each share of common stock issued upon conversion of
the Series A preferred stock, one warrant to purchase common stock is issued.
Five warrants are exercisable to purchase one share of common stock at $.25 per
share. As of March 31, 1999, all 6,750 shares of Series A preferred stock had
been converted into 7,499,250 shares of common stock, and warrants exercisable
to purchase 1,499,850 shares were issued and outstanding.
During the period ended March 31, 1998, we consummated $1,255,000 of
vehicle sale and purchase transactions with Specialty Cars of Scottsdale, which
is owned by Mike Stuart and Mark Moldenhauer. At March 31, 1998, we had recorded
in accounts receivable $37,522 due from Specialty Cars. Also during this period,
we consummated $800,000 of vehicle sale and purchase transactions with Dove
Motor Company, which is owned by Joseph Seaverns, a principal shareholder. At
March 31, 1998, we had recorded an account payable of $15,999 to Dove Motors.
The amount of each sale or purchase was for a value equivalent of what would
have been attained by an independent third party. At March 31, 1999, these
accounts had been paid in full.
During the period ending March 31, 1998, we paid $4,000 for
professional services to MRM Consultants, an entity owned by Mark Moldenhauer.
At March 31, 1998 and March 31, 1999, he was owed $11,500 and $-0-,
respectively.
On May 5, 1998, we obtained a line of credit from First International
Bank of Arizona in the amount of $500,000. The note was secured by a first lien
on all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to us to the bank's line of
credit. On May 7, 1998, the Company granted each of Messrs. Erskine, Stuart, and
Moldenhauer two-year options to purchase 100,000 restricted shares of common
stock at a price of $.75 per share. On March 26, 1999, the note was paid.
On March 26, 1999, we obtained a $3,000,000 revolving line of credit
from Norwest Business Credit, Inc. The note is due March 31, 2000, and is
secured by a first lien on all inventory, accounts receivable, equipment, and
general intangibles. The interest rate paid is 1.5% over the bank's prime rate.
Messrs. Stuart, Moldenhauer, and Butterwick, who are officers, directors, and/or
principal stockholders, personally guaranteed the note. On December 31, 1998, we
granted each of Messrs. Stuart, Moldenhauer, and Butterwick three-year options
to purchase 250,000 restricted shares of common stock at a price of $1.00 per
share, the closing bid on the common stock at December 31, 1998, in
consideration for providing their personal guarantees on the line of credit.
AUTO NETWORK GROUP OF NEW MEXICO, INC. TRANSACTIONS. On June 1, 1998,
Auto Network Group of New Mexico entered into a lease for an office and
warehouse facility in Albuquerque, New Mexico, with G & B Investments LLC, an
entity owned and controlled by Bruce Burton and Jules Gollins. The lease expires
on May 31, 1999. Messrs. Burton and Gollins are two of the principals who manage
the Auto Network Group of New Mexico operations. The amount of lease payments
made under this agreement was $26,732 for the year ended March 31, 1999.
Also on June 1, 1998, we entered into a Purchase of Goodwill Agreement
with JBS, LLC, an entity whose members comprise the management team of Auto
Network Group of New Mexico. In consideration for the goodwill which Auto
Network Group of New Mexico is receiving from JBS, JBS was granted a total of
800,000 restricted shares of our common stock valued at $.20 per share as
follows: 266,667 shares issued upon execution of the agreement, held in escrow,
and subject to forfeiture if Auto Network Group of New Mexico is not doing
business as of June 1, 1999; 266,667 shares to be earned for the period June 1,
1998 through March 31, 1999 if pre-tax earnings of Auto Network Group of New
Mexico are at least $60,000; and 266,666 shares to be earned for the period
April 1, 1999 through March 31, 2000 if pre-tax earnings of Auto Network Group
of New Mexico are at least $120,000. In addition, JBS may earn options to
purchase restricted shares of our common stock at the rate of 5 options for
every dollar of pre-tax earnings of Auto Network Group of New Mexico in excess
of $60,000 for the period ending March 31, 1999, and 5 options for every dollar
of pre-tax earnings of Auto Network Group of New Mexico in excess of $120,000
for the year ended March 31, 2000. The options are to be exercisable for a
period of 3 years from date of grant at the bid price as of March 31, 1999 or
2000, respectively.
For the period from June 1, 1998 through March 31, 1999, Auto Network
Group of New Mexico had pre-tax earnings of $107,962, resulting in JBS, LLC
earning 239,810 options, exercisable at $3.00 per share.
25
<PAGE>
On June 1, 1998, we loaned $250,000 to Auto Network Group of New
Mexico. The related promissory note is due June 30, 2000 and earns interest at
12% per annum, payable monthly.
PINNACLE DEALER SERVICES, INC. TRANSACTIONS. On August 20, 1998, we
acquired Pinnacle Dealer Services, Inc., an Arizona corporation owned and
controlled by Debbie Stuart, Mark Moldenhauer, and Cambridge Consulting Group,
LLP for 300,000 restricted shares of common stock. Debbie Stuart is the wife of
Mike Stuart.
WALDEN REMARKETING TRANSACTIONS. As of March 31, 1999, we acquired
Walden Remarketing Services, Inc., a Minnesota corporation, by issuing the
shareholders of Walden Remarketing a total of 2,050,000 restricted shares of
common stock, cash of $125,000, and promissory notes in the aggregate principal
amount of $425,000. The promissory notes accrue interest at the rate of 12% per
annum and require us to make 18 equal monthly payments of principal and interest
beginning May 1, 1999.
In connection with the acquisition of Walden Remarketing, Dennis E.
Hecker, the principal shareholder of that company, provided a personal guaranty
with respect to the full disclosure of liabilities of that company.
On April 20, 1999, we entered into a consulting agreement with Dennis
E. Hecker as part of our acquisition of Walden Remarketing. Mr. Hecker has
agreed to provide consulting services to us for a period of three years ending
April 20, 2002. We granted Mr. Hecker an option to purchase 3,000,000 shares of
our common stock at $3.00 per share. The options, which expire April 20, 2009,
vest according to a schedule that is based on the trading price of the common
stock. We have agreed to register the shares issuable upon exercise of the
options. As of this date, none of the options has vested.
SELLING STOCKHOLDERS
SERIES B PREFERRED STOCK
The following table sets forth information regarding beneficial
ownership of shares of our Series B Preferred Stock as of July 16, 1999. We are
registering shares of common stock issuable upon conversion of the Series B
Preferred Stock. The shares are being registered to permit public secondary
trading of such shares, and each of the selling stockholders may offer the
common stock for resale as they wish. Assuming that the selling stockholders
convert all of their Series B preferred stock into common stock and sell all of
their common stock, the selling stockholders will not own any common stock of
our company. None of the selling stockholders has had any position, office, or
material relationship with us within the past three years.
<TABLE>
<CAPTION>
SERIES B PREFERRED STOCK OWNED COMMON STOCK ISSUABLE
UPON CONVERSION(*)<F1>
<S> <C> <C>
Indenture of Trust, James F. Cool Trustee 25,000 shares 609,756 shares
Phoenix Financial Ltd. 10,000 shares 243,902 shares
Glicine Societe Anonyme 10,000 shares 243,902 shares
Windsor Capital Finance, Inc. 2,000 shares 48,780 shares
<FN>
<F1>
* Assumes the conversion of the shares using the floor price of $0.41 per
share. See "Description of Securities Series B Preferred Stock" for an
explanation of the conversion formula.
</FN>
</TABLE>
The securities offered through this prospectus by the selling
stockholders will be acquired through the conversion of Series B Preferred
Stock. The selling stockholders purchased the Series B preferred stock in a
private placement. We agreed to register the securities for resale by the
selling stockholders to permit them to sell the shares as they wish in the
market or in privately negotiated transactions. The selling stockholders have
agreed that they will convert no more than 2,500 shares of Series B Preferred
Stock per week.
We have agreed to bear the expenses of registering the common stock,
but not broker discounts and commissions if the selling stockholders resell the
common stock
26
<PAGE>
WARRANTS
We issued warrants to purchase 100,000 shares of common stock to
Anthony & Company, Inc., dba Anthony Advisors, in connection with our offering
of Series B Preferred Stock. The warrants, which are exercisable at $1.00 per
share through August 10, 2001, contain registration rights. We have agreed to
bear the expenses of registering the shares issuable upon exercise of the
warrants, but not any broker discounts or commissions incurred upon the resale
of these shares.
DESCRIPTION OF SECURITIES
We are authorized to issue up to 100,000,000 shares of common stock, no
par value, and 1,000,000 shares of preferred stock, $0.10 par value per share.
The following is a summary of the material provisions contained in our articles
of incorporation and bylaws. You may wish to refer to our articles of
incorporation and bylaws for more information. The section entitled "Available
Information" in this prospectus describes how you can inspect or obtain copies
of these documents. As of July 16, 1999, there were issued and outstanding
20,485,084 shares of common stock and 47,000 shares of Series B Preferred Stock.
COMMON STOCK
Each share of common stock has one vote with respect to all matters
voted upon by the shareholders.
Holders of common stock are entitled to receive dividends, when and if
declared by our board of directors, out of company funds legally available for
the payment of dividends. We have never declared a dividend on our common stock
and have no present intention of declaring any dividends in the future.
Holders of common stock do not have any preemptive rights or other
rights to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of our company, holders
of the common stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities and
any liquidation payments due to holders of preferred stock.
All outstanding shares of common stock, and shares of common stock
issuable upon conversion of the Series B Preferred Stock, when issued and paid
for, will be fully paid and not liable for further call or assessment.
PREFERRED STOCK
Our articles of incorporation authorize us to issue up to 1,000,000
shares of preferred stock, in one or more series, with such rights, preferences,
qualifications, limitations, and restrictions as shall be set forth in a
statement filed with the State of Arizona authorizing the issuance of such
stock. We have established a Series A Preferred Stock consisting of 6,750 shares
and a Series B Preferred Stock consisting of 250,000 shares. No shares of Series
A Preferred Stock are outstanding. There are 47,000 shares of Series B Preferred
Stock issued and outstanding.
SERIES B PREFERRED STOCK
CONVERSION. Each share of Series B Preferred Stock is convertible into
shares of our common stock using a conversion price equal to 65% of the average
closing bid price for the common stock for the 10 trading days immediately
preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $10 = # of shares of
------------------------------------ --------------
65% of average closing bid price common stock
Instead of issuing fractional shares, the number of shares will be
rounded up to the nearest whole share.
The minimum conversion price is $0.41 per share provided that we
continue to generate profits on a quarterly basis, there are no material adverse
changes, and we do not raise any additional capital that will result in
27
<PAGE>
dilution of the per share net tangible book value, excluding any options,
warrants, and convertible securities outstanding as of the date of this
prospectus.
This prospectus covers the shares of common stock issuable upon
conversion of the Series B Preferred Stock.
LIQUIDATION PREFERENCE. In the event of liquidation, dissolution, or
the winding up of our company, whether voluntary or involuntary, any holder of
the Series B Preferred Stock shall be entitled to receive a distribution of
$10.00 for each share of Series B Preferred Stock. This amount will be paid out
of the assets of our company prior to any distribution of assets with respect to
any other shares of capital stock.
OPTIONAL REDEMPTION. We shall have the right and option to call,
redeem, and acquire any or all of the shares of Series B Preferred Stock at a
price equal to $11.00 per share, at any time, so long as such shares have not
previously converted to common stock. Before we can do so, we must give at least
30 days' notice to the holders of the Series B Preferred Stock that provides
them with the redemption date. However, the holders of the Series B Preferred
Stock have the right during the 30-day period immediately following the date of
the notice of redemption to convert their shares of Series B Preferred Stock
into common stock. If the shares are converted during this 30-day period, this
call option shall be deemed not to have been exercised by us with respect to the
shares so converted. The notice of redemption shall require the holders to
surrender to us, on or before the redemption date, to our transfer agent, the
certificates representing the shares of Series B Preferred Stock to be redeemed.
Even if the certificates representing the shares called for redemption have not
been surrendered for redemption and cancellation on or after the redemption
date, such shares shall be deemed to be expired and all rights of the holders of
these shares shall cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series B Preferred
Stock shall have no voting rights except to the extent required by the Arizona
Business Corporation Act, and the Series B Preferred Stock shall be entitled to
no preemptive rights.
TRANSFER AGENT
The transfer agent for our common and preferred stock is Standard
Registrar & Transfer Agency, P.O. Box 14411, Albuquerque, New Mexico 87191.
PLAN OF DISTRIBUTION
All or a portion of the securities offered through this prospectus by the
selling stockholders may be delivered and/or sold in transactions from time to
time on the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale. These transactions will be at market prices
prevailing at the time, at prices related to such prevailing prices, or at
negotiated prices. The selling stockholders may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders. The selling stockholders and any
broker-dealers that participate in the distribution may under certain
circumstances be deemed to be "underwriters" within the meaning of federal
securities laws. Any commissions received by such broker-dealers and any profits
realized on the resale of securities by them may be deemed to be underwriting
discounts and commissions under federal securities laws.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholders and, if they act as agent for
the purchaser of the securities, from such purchaser. Broker-dealers may agree
with the selling stockholders to sell a specified number of securities at a
stipulated price per share. To the extent such a broker-dealer is unable to do
so acting as agent for the selling stockholders, it may purchase as principal
any unsold securities at the price required to fulfill the broker-dealer
commitment to the selling stockholders. Broker-dealers who acquire securities as
principal may then resell these securities in transactions which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices. In connection
with such resales
28
<PAGE>
broker-dealers may pay to or receive from the purchasers of these securities
commissions computed as described above. To the extent required under the
federal securities laws, a supplemental prospectus will be filed, disclosing
(a) the name of any such broker-dealers;
(b) the number of securities involved;
(c) the price at which such securities are to be sold;
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
(e) that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus, as supplemented; and,
(f) other facts material to the transaction.
Under applicable rules and regulations under federal securities laws,
any person engaged in the distribution of the resale of securities may not
simultaneously engage in market making activities with respect to the securities
of our company for a period of two business days prior to the commencement of
such distribution. In addition, the selling stockholders will be subject to
applicable provisions of the federal securities laws, and the rules and
regulations under these laws, including Regulation M, which provisions may limit
the timing of purchases and sales of the securities by the selling stockholders.
The selling stockholders will pay all commissions and other expenses
associated with the sale of the common stock by them. The shares of common stock
offered through this prospectus are being registered because of our contractual
obligations with the selling stockholders, and we have paid the expenses of the
preparation of this prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 16, 1999, the company has 20,485,084 shares of common stock
and 47,000 shares of Series B Preferred Stock outstanding. Of the 20,485,084
shares of common stock, 8,768,417 shares are freely tradable without restriction
and 11,716,667 shares are restricted. Of the restricted shares, 11,421,667 are
held by "affiliates" of the Company. An "affiliate" of an issuer is a person
that directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such issuer. An "affiliate" can
sell his shares only if the shares are registered under federal securities laws
or exempt from registration. The SEC's Rule 144 is a type of exemption from
registration. With respect to the remaining 295,000 restricted shares, none are
currently eligible for sale under Rule 144.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume of the then outstanding
shares during the four calendar weeks preceding each such sale. Furthermore, a
person who is not deemed an "affiliate" of the company and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
There are also outstanding as of July 16, 1999, warrants and options to
purchase 4,901,161 shares of common stock, a promissory note which can be
converted into 3,000,000 shares of common stock, and 47,000 shares of Series B
Preferred Stock which are convertible into a maximum of 1,146,341 shares of
common stock.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings and we do not know
of any proceedings that are contemplated.
29
<PAGE>
EXPERTS
We have included the consolidated financial statements of the company
for the period ended March 31, 1998, in reliance upon the report of Price Kong &
Company, P.A., independent certified public accountants, whose report has been
included in this prospectus upon the authority of that firm as experts in
accounting and auditing.
We have included the consolidated financial statements of the company
for the period ended March 31, 1999, in reliance upon the report of Neff &
Ricci, LLP, independent certified public accountants, whose report has been
included in this prospectus upon the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We have not previously been subject to the reporting requirements under
federal securities laws. We have filed with the SEC a registration statement on
Form S-1 and amendments to the registration statement with respect to the
securities offered through this prospectus. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules that are part of the registration statement. For further information
with respect to us and the securities, you should review the registration
statement and the exhibits and schedules. Statements made in this prospectus
regarding the contents of any contract or document filed as an exhibit to the
registration statement are not necessarily complete. You should review the copy
of such contract or document that has been filed as an exhibit.
You can inspect the registration statement, as well as the exhibits and
the schedules, filed with the SEC without charge, at the office of the SEC at
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. You can also
obtain copies of these materials from the SEC's Public Reference Section at 450
Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The SEC maintains
a web site on the Internet that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at HTTP://WWW.SEC.GOV.
We have a web site on the Internet at AutoTradeCenter.com.
REPORTS TO STOCKHOLDERS
As a result of filing the registration statement, we will become
subject to the reporting requirements of the federal securities laws, and will
be required to file periodic reports, proxy statements, and other information
with the SEC. We will furnish our shareholders with annual reports containing
audited financial statements certified by independent public accountants
following the end of each fiscal year, proxy statements, and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year following the end of such fiscal quarter.
30
<PAGE>
AUTOTRADECENTER.COM INC.
AND
SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999
AND
FROM JULY 10, 1997 (INCEPTION) THROUGH MARCH 31, 1998
F-1
<PAGE>
CONTENTS
PAGE
Independent Auditors' Report 1.
Consolidated Balance Sheet 2.
Consolidated Income Statement 3.
Consolidated Statement of Changes in Stockholders' Equity 4.
Consolidated Statement of Cash Flows 5.
Notes to Consolidated Financial Statements 6.
F-2
<PAGE>
NEFF & RICCI LLP
- ----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AutoTradeCenter.com, Inc. and Subsidiaries
We have audited the consolidated balance sheet of AutoTradeCenter.com, Inc. and
Subsidiaries as of March 31, 1999, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
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 audit. The financial statements of
AutoTradeCenter.com, Inc. and Subsidiaries as of March 31, 1998, were audited by
other auditors whose report dated August 6, 1998, expressed an unqualified
opinion on those statements, except for Note M as it relates to the prior period
pro forma information.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
AutoTradeCenter.com, Inc. and Subsidiaries as of March 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/Neff & Ricci LLP
Albuquerque, New Mexico
June 14, 1999
F-3
<PAGE>
[Letterhead of Price Kond & Company, P.A.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Auto Network USA, Inc.
We have audited the accompanying balance sheet of Auto Network USA, Inc. an
Arizona corporation as of March 31, 1998, and the related statements of income,
stockholders' equity, and cash flows for the period from inception (July 10,
1997) to March 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from 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 audit provides 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 Auto Network USA, Inc. as of
March 31, 1998, and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
/s/ Price Kong & Co.
Price Kong & Company, P.A.,
Phoenix, Arizona
August 6, 1998
1-A
F-4
<PAGE>
<TABLE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
ASSETS
MARCH 31,
=================================
1999 1998
================ ================
<S> <C> <C>
Current assets:
Cash $ 297,752 $ -
Accounts receivable - trade 4,971,798 1,667,801
Accounts receivable - employees and related parties 324,248 37,522
Inventory 5,005,274 2,182,898
Prepaid expenses and other 79,153 5,000
---------------- ----------------
Total current assets 10,678,225 3,893,221
---------------- ----------------
Property and equipment, net 168,444 53,948
---------------- ----------------
Intangible assets, net 2,151,023 14,676
---------------- ----------------
Total assets $ 12,997,692 $ 3,961,845
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 4,198,742 $ 1,888,521
Accounts payable - employees and related parties 250,251 27,499
Notes payable - related party 1,902,833 682,000
Notes payable - bank 1,268,500 -
Notes payable - other 301,000 -
Accrued liabilities 269,117 89,492
---------------- ----------------
Total current liabilities 8,190,443 2,687,512
---------------- ----------------
Non-current liabilities:
Deferred income taxes 7,010 3,465
Long-term debt - related party 1,968,613 150,000
Long-term debt - other - 381,000
---------------- ----------------
Total non-current liabilities 1,975,623 534,465
---------------- ----------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series A; $0.10 par value;
750,000 shares authorized; 6,750 issued, 3,848 shares
outstanding in 1998 - 382,251
Convertible preferred stock, Series B; $10.00 par value;
250,000 shares authorized; 47,000 issued and
outstanding in 1999 372,037 -
Common stock, no par value; 100,000,000 shares authorized;
20,385,084 and 13,226,622 shares issued and outstanding
in 1999 and 1998, respectively 2,331,964 345,233
Retained earnings 127,625 12,384
---------------- ----------------
Total stockholders' equity 2,831,626 739,868
---------------- ----------------
Total liabilities and stockholders' equity $ 12,997,692 $ 3,961,845
================ ================
</TABLE>
See notes to consolidated financial statements.
2
F-5
<PAGE>
<TABLE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
<CAPTION>
FROM JULY 10,
1997
(INCEPTION)
FOR THE YEAR THROUGH
ENDED MARCH MARCH 31,
31, 1999 1998
================= ==================
<S> <C> <C>
Net sales $ 97,665,410 $ 31,581,117
Cost of sales 93,411,919 30,280,247
----------------- ------------------
Gross profit 4,253,491 1,300,870
----------------- ------------------
Operating expenses:
Selling 2,772,192 905,303
General and administrative 935,528 274,388
Depreciation and amortization 27,858 3,429
----------------- ------------------
Total operating expenses 3,735,578 1,183,120
----------------- ------------------
Income from operations 517,913 117,750
----------------- ------------------
Other income (expense):
Miscellaneous 70,687 12,553
Interest expense (416,779) (114,404)
----------------- ------------------
Total other income (expense) - net (346,093) (101,851)
----------------- ------------------
Income before income taxes 171,820 15,899
Income tax expense 56,579 3,515
----------------- ------------------
Net income $ 115,241 $ 12,384
================= ==================
Basic earnings per share $ 0.008 $ 0.001
================= ==================
Diluted earnings per share $ 0.008 $ 0.001
================= ==================
See notes to consolidated financial statements.
3
F-6
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JULY 10, 1997 (INCEPTION)
THROUGH MARCH 31, 1998 AND THE YEAR ENDED MARCH 31, 1999
SERIES A, CONVERTIBLE SERIES B, CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- --------------------- --------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ -------------------- ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance, July 10,
1997 (inception) -
Issued common stock to
founders 9,000,000 $ 30,000 $ 30,000
December 1997 - Issued
common stock
pursuant to Rule 504 of
Regulation D 1,002,500 25,062 25,062
February 1998 - Issued
convertible
Series A preferred stock 6,750 $ 675,000 675,000
March 1998 - converted
preferred shares
into common shares: 1,111 to 1 (2,902) (290,171) 3,224,122 290,171 -
Preferred stock offering costs (2,578) (2,578)
Net income from July 10,1997
(inception)
through March 31, 1998 $ 12,384 12,384
---------- ----------- ------------------- ------------------------ ---------- -------------
Balance - March 31, 1998 3,848 382,251 - - 13,226,622 345,233 12,384 739,868
June 1998 - Issued common
shares under
goodwill agreement 266,667 53,333 53,333
August 1998 - Issued common
shares for purchase
of subsidiary 300,000 47,814 47,814
November 1998 - Issued
convertible
Series B preferred stock 35,000 $281,242 281,242
December 1998 - Issued
convertible
Series B preferred stock 12,000 90,795 90,795
March 1999 - converted
preferred shares
into common shares: 1,111 to 1 (3,848) (382,251) 4,275,128 382,251 -
March 1999 - Issued common
shares under
goodwill agreement 266,667 53,333 53,333
March 1999 - Issued common
shares for purchase
of subsidiary 2,050,000 1,450,000 1,450,000
Net income for the year ended
March 31, 1999 115,241 115,241
---------- ----------- ------------------- ------------------------ ---------- -------------
Balance - March 31, 1999 - $ - 47,000 $372,037 20,385,084 $2,331,964 $ 127,625 $ 2,831,626
========== =========== =================== ======================== ========== =============
</TABLE>
See notes to consolidated financial statements.
4
F-7
<PAGE>
<TABLE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
FROM JULY 10,
FOR THE YEAR 1997 (INCEPTION)
ENDED MARCH THROUGH MARCH
31, 1999 31, 1998
------------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 115,241 $ 12,384
Adjustments to reconcile net income to net cash provided
by operating activities - Depreciation and amortization 27,858 3,429
(Increase) decrease in:
Accounts receivable (3,492,114) (1,705,323)
Inventory (2,822,376) (2,182,898)
Prepaid expenses and other current assets (70,906) (17,700)
Increase (decrease) in:
Accounts payable 2,448,261 1,916,020
Accrued liabilities 95,445 89,491
Deferred income taxes 3,545 3,465
------------------ -------------------
Net cash provided by (used in) operating activities (3,695,046) (1,881,132)
------------------ -------------------
Cash flows from investing activities:
Purchase of property and equipment (158,287) (57,225)
Sale of property and equipment 56,277 -
Investment in other assets (605) (2,128)
Net cash paid for acquisitions (79,570) -
------------------ -------------------
Net cash provided by (used in) investing activities (182,185) (59,353)
------------------ -------------------
Cash flows from financing activities:
Proceeds from borrowings 6,771,533 1,601,000
Repayment of borrowings (4,185,500) (769,000)
Proceeds from long-term debt 1,216,913 381,000
Proceeds from issuance of convertible preferred stock 372,037 672,422
Proceeds from issuance of common stock - 55,063
------------------ -------------------
Net cash provided by financings activities 4,174,983 1,940,485
------------------ -------------------
Net change in cash 297,752 -
Beginning cash balance - -
------------------ -------------------
Ending cash balance $ 297,752 $ -
================== ===================
Supplemental disclosures:
Interest paid $ 355,006 $ 107,960
================== ===================
Income taxes paid $ 73,527 $ -
================== ===================
</TABLE>
See notes to consolidated financial statements.
5
F-8
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCORPORATION AND NATURE OF BUSINESS
AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to
the laws of the State of Arizona on July 10, 1997 and began operations on
September 22, 1997. In December 1998, the Company changed its name from Auto
Network USA, Inc. to Auto Network Group, Inc. In March 1999 the Company again
changed its name to AutoTradeCenter.com Inc. to more properly reflect its future
direction as an internet based wholesaler 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 used-car
dealers. The Company provides this service either as a fee-based service or as a
principal to the transaction. As a principal, the Company takes title to the
vehicle being redistributed.
The Company performs these services through independent wholesale
brokers. Each broker buys and sells in the name of the Company. Currently, the
Company has adopted two methods of compensating each broker. Under the first
arrangement, which is used in most cases, the broker retains the profit and loss
in excess of a fixed fee charged by the Company for the services it provides to
the brokers. Under the second arrangement, the Company and the broker share the
profit and loss in accordance with negotiated percentage splits.
AutoTradeCenter.com Inc. stock is traded on the NASD Bulletin Board
under the symbol AUTC. The Company is not required, and has not voluntarily
elected to become, a reporting entity and therefore, has not filed Forms 10K,
10Q and other information documents with the Securities and Exchange Commission.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Auto Network Group of New Mexico,
Inc. ("ANET-NM"), Pinnacle Dealer Services, Inc., and Walden Remarketing
Services, Inc. ("Walden Remarketing"), and its 55% owned subsidiary
BusinessTradeCenter.com Inc. ("BTC"). All material intercompany accounts and
transactions have been eliminated.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities,
disclosures at the date of the financial statements and reported
6
F-9
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INVENTORY
Inventory consists entirely of used vehicles that are stated at the
lower of cost or market. The cost of used vehicles is determined on a specific
identification basis. The cost of each vehicle includes the purchase price plus
transportation and reconditioning expenses. The Company reduces the carrying
value of each vehicle if the total cost exceeds the net realizable value of the
vehicle.
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.
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, 1999, there had
been no write down of goodwill.
REVENUE RECOGNITION
Revenue and the corresponding cost of the sale is recognized when
vehicles are sold to customers evidenced by a sale and a purchase order,
respectively. The Company pays for the vehicle and receives payment from its
customers when the vehicle title is presented. It is not unusual for a title to
lag several days behind the recordation of the vehicle purchase and physical
delivery; correspondingly, a vehicle may be sold and delivered to a customer
prior to the delivery of the title and the receipt of cash.
7
F-10
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share have been computed based on the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the increase in average common shares outstanding that would result from the
assumed exercise of outstanding stock options and the assumed conversion of debt
and preferred stock.
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. Such amounts were not material in 1999 or 1998.
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.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
March 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Trade accounts receivable $5,061,853 $1,667,801
Due from employees and independent wholesale brokers 324,248 -0-
Related party -0- 37,522
--------- ---------
5,386,101 1,705,323
Allowance for doubtful accounts 90,055 -0-
--------- ---------
Total $5,296,046 $1,705,323
========= =========
</TABLE>
The related party account receivable at March 31, 1998 arose from
transactions with Scottsdale Car Company. The receivable was paid in the
subsequent fiscal period.
8
F-11
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31,
-----------------------------
CATEGORY Life/Method 1999 1998
-------- ----------- ---- ----
<S> <C> <C> <C>
Computers and equipment 3 years/SL $ 40,490 $25,207
Software/systems design 10 years/SL 9,509 -0-
Vehicles 3 years/SL 80,442 6,678
Furniture and fixtures 7 years/SL 46,021 8,712
Leasehold improvements 5 years/SL 16,628 16,628
-------- ------
193,090 57,225
Less allowance for depreciation 24,646 3,277
-------- ------
$168,444 $53,948
======= ======
</TABLE>
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Goodwill $2,139,862 $ -0-
Other 15,433 14,828
--------- ------
2,155,295 14,828
Less accumulated amortization 4,272 152
--------- ------
$2,151,023 $14,676
========= ======
</TABLE>
NOTE E - LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consists of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
RELATED PARTY AND AFFILIATES: 1999 1998
- ----------------------------- ---- ----
<S> <C> <C>
* Notes payable to officer, 12% interest payable monthly, collateralized
by inventory, due January 15, 1999, November 17, 1999 and 30 day
renewable terms, subordinated to senior debt (see 1.<F1> and 2.<F2> below)
$ 852,000 $ 552,000
* Note payable to officer, 12% interest payable monthly, collateralized
by inventory, due October 1, 1999, subordinated to senior debt 50,000 -0-
* Notes payable to an entity controlled by two officers and directors of
the Company, 12% interest payable monthly, collateralized by inventory,
due December 15, 1998, October 11, 1999 and 30 day renewable terms,
subordinated to senior debt (see 2.<F2> below) 717,500 200,000
* Note payable to an entity owned by an wholesale broker that buys and
sells vehicles for the Company, 12% interest payable monthly, due on
demand -0- 80,000
* Note payable to a shareholder of an entity acquired by the Company,
9
F-12
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
March 31,
--------------------------
RELATED PARTY AND AFFILIATES: 1999 1998
- ----------------------------- ---- ----
12% interest, principal and interest payable monthly, due October 1,
2000 425,000 -0-
* Note payable to an entity controlled by two officers of ANET-NM, 15%
interest payable monthly, due June 30, 2000, subordinated to senior
debt (see 3.<F3> below) 198,116 -0-
* Note payable to an officer of ANET-NM, 15% interest payable monthly,
due upon 30 days notice, subordinated to senior debt 123,084 -0-
* Note payable to an entity that is a major shareholder of the Company,
12% interest payable monthly, due April 1, 2000 (see 4.<F4> below) 1,500,246 -0-
* Notes payable to officers and major shareholders, 12% interest payable
quarterly, due March 31, 2001, convertible into stock of subsidiary 5,500 -0-
--------- -------
3,871,446 832,000
BANK:
* $3,000,000 revolving line of credit, 1.5% over prime, secured by all
accounts receivable, inventory, equipment and certain intangibles,
partially guaranteed by three officers, due March 31, 2000 (see 5.<F5>
below) 1,268,500 -0-
OTHER:
* Note payable to an unrelated third party, 12% interest payable monthly,
due September 22, 1999 301,000 381,000
--------- --------
Total long-term debt and notes payable 5,440,946 1,213,000
--------- ---------
Less current portion of long-term debt and notes payable:
Related party and affiliates 1,902,833 682,000
Bank 1,268,500 -0-
Other 301,000 -0-
--------- ---------
Total current portion of long-term debt and notes payable 3,472,333 682,000
--------- ---------
Total long-term debt $1,968,613 $ 531,000
========= =======
<FN>
<F1>
1. A note in the amount of $300,000 is convertible, at the option of note
holder, into shares of the Company's common stock at a conversion price
of $0.10 per share. The option expires 30 days after the term of the
note.
<F2>
2. Various notes maturing during the year were extended by mutual
agreement and not paid when they became due.
<F3>
3. The note is convertible at any time into shares of the Company's common
stock at the bid price of the common stock at date of conversion.
<F4>
4. The note is convertible, prior to acceptance of payment in full of the
outstanding balance, into shares of the Company's common stock at a
conversion price of $1.03 per share.
<F5>
5. Subject to the bank's approval, the loan may be increased to the lessor
of 85% of the eligible accounts receivable or $3 million. In addition,
the loan requires net income and equity limits be met and limits
capital expenditures, officers' pay and additional indebtedness.
</FN>
</TABLE>
All long-term debt in the amount of $1,968,613 at March 31, 1999 matures during
the year ending March 31, 2001.
10
F-13
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE F - COMMITMENTS AND CONTINGENCIES
Walden Remarketing, a wholly owned subsidiary, may be contingently
liable for certain liabilities of former divisions that were reorganized into
another entity prior to Walden Remarketing's merger with the Company. The former
majority shareholder of Walden Remarketing, and currently a major shareholder of
the Company, has personally guaranteed to indemnify the Company against any
future claims or losses of Walden Remarketing that relate to the business
activities prior to March 31, 1999.
NOTE G - 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 approximate fair value because of the short-term
maturity of these instruments.
LONG-TERM DEBT (INCLUDING AMOUNTS DUE WITHIN ONE YEAR)
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.
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 297,752 $ 297,752 $ -0- $ -0-
Long-term debt (including amounts due
within one year) 5,440,946 5,440,946 1,213,000 1,213,000
</TABLE>
NOTE H - INCOME TAXES
The Company's effective tax rate approximates the statutory tax rate.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Currently payable:
Federal $42,564 $ -0-
State 9,470 50
------- -------
Total currently payable 53,034 50
------ -------
11
F-14
<PAGE>
<CAPTION>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
March 31,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred:
Federal 3,154 1,951
State 391 1,514
------- -----
Total deferred 3,545 3,465
------ -----
Total $56,579 $3,515
====== =====
</TABLE>
The deferred tax liabilities relate primarily to the temporary
differences resulting from differences between book and tax depreciation.
NOTE I - 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.
The computation of basic and dilutive earnings per common share is as
follows:
<TABLE>
From July 10, 1997
Year ended (inception) Through
MARCH 31, 1999 MARCH 31, 1998
-------------- ---------------
<S> <C> <C>
Income available to common stockholders:
Basic $115,241 $12,384
Effect of dilutive securities - convertible debt 68,573 5,914
------- -----
Diluted $183,814 $18,298
======= ======
------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding - basic 13,726,397 9,844,084
Conversion of Series A preferred stock 4,181,427 1,978,270
Conversion of Series B preferred stock 388,235 -0-
Exercise of stock options 167,260 22,105
Exercise of warrants 844,655 449,955
Conversion of debt 3,518,771 1,184,211
--------- ---------
Weighted average number of common shares outstanding - diluted 22,826,745 13,478,625
------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic $0.008 $0.001
===== =====
Diluted $0.008 $0.001
===== =====
</TABLE>
12
F-15
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE I - EARNINGS PER SHARE (CONTINUED)
As described in Notes E, K and L, the Company has convertible debt,
contingently issuable stock, options, warrants and convertible preferred stock.
This potential common stock has been included in the earnings per share
calculations.
NOTE J - OPERATING LEASES
The Company leases its facility in Scottsdale, Arizona from an
unrelated third party under an operating lease expiring September 30, 2002. As
more fully explained in Note K, the Company opened a facility in Albuquerque,
New Mexico on June 1, 1998 and entered into an operating lease with a related
party expiring on May 31, 1999. Both of these leases require the Company to pay
all maintenance, insurance, and taxes on the leased property. The following
schedule shows the future minimum lease payments required by year under the
operating leases:
Year ending March 31, 2000 $167,312
2001 165,762
2002 166,812
2003 83,631
--------
$583,517
=======
The Company sub-leases a portion of its Scottsdale facility to an
independent third party on a monthly basis for $2,000 per month. Rental expense
was $195,312 and $75,860 for the year ended March 31, 1999 and the period ending
March 31, 1998, respectively.
NOTE K - BUSINESS ACQUISITIONS
AUTO NETWORK GROUP OF NEW MEXICO, INC. ("ANET-NM")
On June 1, 1998, the Company entered into a Purchase of Goodwill
Agreement with JBS, LLC, an entity whose members comprise the management team of
ANET-NM. In consideration for the goodwill which ANET-NM is receiving from JBS,
JBS was granted a total of 800,000 restricted shares of the Company's common
stock valued at $.20 per share as follows: 266,667 shares issued upon execution
of the Agreement, held in escrow, and subject to forfeiture if ANET-NM is not
doing business as of June 1, 1999 (see Note O); 266,667 shares to be earned for
the period June 1, 1998 through March 31, 1999 if pre-tax earnings of ANET-NM
are at least $60,000; and 266,666 shares to be earned for the period April 1,
1999 through March 31, 2000 if pre-tax earnings of ANET-NM are at least
$120,000. In addition, JBS may earn options to purchase restricted shares of the
Company's common stock at the rate of 5 options for every dollar of pre-tax
earnings of ANET-NM in excess of $60,000 for the period ending March 31, 1999,
and 5 options for every dollar of pre-tax earnings of ANET-NM in excess of
$120,000 for the year ended March 31, 2000. The options are to be exercisable
for a period of 3 years from date of grant at the bid price as of March 31, 1999
or 2000, respectively.
13
F-16
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE K - BUSINESS ACQUISITIONS (CONTINUED)
For the period from June 1, 1998 through March 31, 1999, ANET-NM had
pre-tax earnings of $107,962 resulting in JBS, LLC earning 239,810 options,
exercisable at $3.00 per share.
The goodwill purchased was $106,666 and is being amortized on a
straight-line basis over 10 years.
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 (see Note M).
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $47,813 and is being amortized on a straight-line basis
over 10 years.
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 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.
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. The Company has agreed to register the shares
issuable upon exercise of the options. As of March 31, 1999, none of the options
had vested.
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.
The acquisitions described above were accounted for by the purchase
method of accounting for business combinations. Accordingly, the accompanying
consolidated statements of
14
F-17
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE K - BUSINESS ACQUISITIONS (CONTINUED)
operations do not include any revenues or expenses related to these acquisitions
prior to the respective closing dates. The cash portions of the acquisitions
were financed through available cash and borrowings from the Company's line of
credit. The following schedule shows the pro-forma results for the year ended
March 31, 1999 and the period ending March 31, 1998 assuming the acquisitions
occurred on September 22, 1997, the commencement of operations for the Company:
<TABLE>
<CAPTION>
From July 10,
1997 (inception)
Year ended Through
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net revenues $98,605,590 $32,046,740
Net income $101,971 $7,883
Net earnings per common share:
Basic $0.006 $0.001
Diluted $0.006 $0.001
</TABLE>
These pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combinations been in effect on September
22, 1997, or of future results of operations.
As a result of the acquisitions, the Company had the following non-cash
activity during the year ended March 31, 1999:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable, net $ 98,609
Prepaid expenses 3,520
Property and equipment 34,655
Goodwill 2,141,158
---------
Total assets acquired 2,277,942
---------
Liabilities assumed:
Accounts payable 84,712
Accrued liabilities 84,180
---------
Total liabilities assumed 168,892
---------
Notes payable issued 425,000
Value of common stock issued 1,604,480
---------
Net cash paid $ 79,570
======
</TABLE>
15
F-18
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE L - 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").
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of its $0.10 par
value preferred stock on terms and conditions determined by the Board of
Directors at date of issuance.
SERIES A
On February 2, 1998, the Company sold 6,750 shares of Series A
preferred stock to Eastlane Trading Limited for $675,000. Each share is
convertible into 1,111 shares of common stock. For each share of common stock
issued upon conversion of the Series A preferred stock, one warrant to purchase
common stock is issued. Five warrants are exercisable to purchase one share of
common stock at $.25 per share. As of March 31, 1999, all 6,750 shares of Series
A preferred stock had been converted into 7,499,250 shares of common stock, and
warrants exercisable to purchase 1,499,850 shares were issued and outstanding.
SERIES B
During November and December, 1998 the Company issued 47,000 shares of
Series B preferred stock ("Series B") for $470,000. Each share of Series B
preferred stock is convertible into shares of common shares using a conversion
price equal to 65% of the average closing bid price for the common stock for the
10 trading days immediately preceding the date of conversion. Each share of
Series B preferred stock is entitled to a $10 liquidation preference over common
stockholders. The Series B preferred stock is non voting.
The Company shall have the right and option upon notice to the holders
of the Series B preferred stock to call, redeem, and acquire any or all of the
shares of Series B preferred stock at a price equal to $11.00 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 B 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 B preferred
stock in accordance with the terms described above.
On May 17, 1999, the Company filed Form S-1 Registration Statement
under the Securities Act of 1933 to register the common shares to be issued upon
conversion of the Series B preferred stock. (see Note O).
16
F-19
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE L - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
On August 5, 1997, the shareholders of the Company adopted the 1997
Stock Option Plan ("Plan"), which provides for the granting of both incentive
stock options and non-qualified options to eligible employees (including
independent wholesale brokers), officers, and directors of the Company.
Initially, a total of 1,000,000 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under this Plan (the "Option
Pool"). The Option Pool is adjusted annually on the beginning of the Company's
fiscal year to a number equal to 10% of the number of shares of common stock of
the Company outstanding at the end of the Company's last completed fiscal year,
or 1,000,000 shares, whichever is greater. For the fiscal years' beginning April
1, 1998 and April 1, 1999, the Option Pool was 1,000,000 shares and 2,038,508,
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.
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 price of the employees'
stock option equal the market value of the underlying stock at the grant date,
as in the case of options granted to the Company's employees.
SFAS 123 pro-forma numbers are as follows:
<TABLE>
<CAPTION>
From July 10, 1997
Year ended (inception) Through
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net income as reported under APB 25 $115,241 $12,384
Net income (loss) pro forma under SFAS 123 $(234,979) $10,783
Basic net income per common share-
as reported under APB 25 $0.008 $0.001
Diluted net income per common share-
as reported under APB 25 $0.008 $0.001
Basic net income (loss) per common share-
pro forma under SFAS 123 $(0.017) $0.001
Diluted net income (loss) per common share-
pro forma under SFAS 123 $(0.017) $0.001
</TABLE>
17
F-20
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE L - STOCKHOLDERS' EQUITY (CONTINUED)
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:
<TABLE>
<CAPTION>
From July 10, 1997
Year ended (inception) Through
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Expected dividend yield 0.00% 0.00%
Risk-free interest rate 4.67% 5.11%
Expected volatility 149% 53%
Expected life (in months) 43 59
</TABLE>
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 year ending
March 31, 1999 and the period ending March 31, 1998 were $1.68 and $0.45 per
share, respectively.
During the year ending March 31, 1999 and the period ending March 31,
1998, the Company granted stock options to certain of its employees and
independent wholesale brokers to purchase up to 1,361,499 and 175,000 shares,
respectively, of the Company's common stock that would be restricted pursuant to
Rule 144 of the SEC. 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 option prices range
from $0.15 to $2.00. At March 31, 1999 and March 31, 1998, 1,206,499 and 0
shares, respectively, were eligible for exercise. The weighted average
exercisable price was $0.94 and $0.15 for the year ended March 31, 1999 and the
period ending March 31, 1998, respectively.
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. The price at which the options may be exercised varies from $0.32
to $5.00. At March 31, 1999 and March 31, 1998, the total outstanding options
were 2,164,812 and 850,000, respectively.
18
F-21
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE M - RELATED PARTY TRANSACTIONS
During the year ended March 31, 1999 and the period ended March 31,
1998, the Company consummated a total of $486,275 and $800,000 of vehicle sales
and $2,055,000 and $1,255,000 in purchase transactions with two entities owned
by officers, directors and other major stockholders of the Company. At March 31,
1998, the Company had recorded in accounts receivable $37,522 due from one of
these entities. Likewise at March 31, 1998, the Company had recorded an account
payable of $15,999 to another related entity. At March 31, 1999, these accounts
had been paid in full.
During the period ending March 31, 1998, the Company paid $4,000 for
professional services to MRM Consultants, an entity owned by an officer and
director. At March 31, 1998 he was owed $11,500. At March 31, 1999, the account
had been paid in full.
On May 5, 1998, the Company obtained a line of credit from its
commercial bank in the amount of $500,000. The note was secured by a first lien
on all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to the Company to the
bank's line of credit. On May 7, 1998, the Company granted each of Messrs.
Erskine, Stuart, and Moldenhauer two-year options to purchase 100,000 restricted
shares of Common Stock at a price of $.75 per share. On March 26, 1999, the note
was refinanced.
Effective June 1, 1998 ANET-NM entered into a lease agreement with G &
B Investments, LLC, an entity owned by two of the principals managing the
Albuquerque operations. The lease terminates on May 31, 1999 but is
automatically renewed unless a 30 day cancellation notice is received by either
party. The lease is an operating lease whereby ANET-NM is responsible for all
operating costs. The amount of the lease is $2,500 per month.
As described in Note K, on August 20, 1998 the Company acquired
Pinnacle Dealer Services ("PDS") for 300,000 restricted shares of common stock.
PDS was owned by three officers of the Company. The value assigned to the
transaction was $47,813.
On March 26, 1999, the Company obtained a $3,000,000 line of credit
from a financial institution. The note is due March 31, 2000, and is secured by
a first lien on all inventory, accounts receivable, equipment, and general
intangibles. Messrs. Stuart, Moldenhauer, and Butterwick personally guaranteed
the note. In consideration of the personal guarantees, the Company granted each
of Messrs. Stuart, Moldenhauer, and Butterwick three-year options to purchase
250,000 restricted shares of common stock at a price of $1.00 per share.
Pursuant to a Financial Services Agreement with Cambridge Management
Associates, LLP, an entity whose managing partner became an officer of the
Company on April 2, 1999, 300,000 stock options vested on March 26, 1999. The
options are exercisable at $0.32 per share.
The Company has entered into various lending arrangements with
officers, directors and other affiliated entities owned or controlled by
officers, directors and other key personnel of the
19
F-22
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE M - RELATED PARTY TRANSACTIONS (CONTINUED)
Company. As more fully detailed in Note G, at March 31, 1999 and March 31, 1998
the outstanding balance on these notes was $3,871,446 and $832,000,
respectively. The total interest paid to these entities on all financing
activities for the year ended March 31, 1999 and the period ended March 31, 1998
was $286,824 and $58,436, respectively.
Related party payables at March 31, 1999 include $185,000 due to a
major shareholder, normal commissions of $37,423 due to officers of ANET-NM, and
$27,828 due to affiliated entities for business expenses incurred on behalf of
the Company.
NOTE N - CONCENTRATIONS
The Company is engaged primarily in one line of business - wholesale
activities of used automobiles - which represents 100% of consolidated sales.
During the year ended March 31, 1999, the Company purchased used
vehicles from Canada for resale in the United States. The total amount of
vehicles purchased in Canada was $3,350,955 including transportation and vehicle
inspections.
The Company utilizes independent brokers as its sales force in the
purchase and sale of used vehicles. For the year ended March 31, 1999 and the
period ending March 31, 1998, a significant portion of the Company's sales were
generated by a few of these brokers. Consequently, loss of the services of one
of more of these high volume sales producers would have had an impact upon the
financial results. As the Company continues its expansion plans, any future
negative results from the loss of any one broker's services will be minimized.
NOTE O - SUBSEQUENT EVENTS
On April 2, 1999, 200,000 options granted to an officer vested. The
options are exercisable at $0.32 per share.
On May 17, 1999 the Company filed with the Securities and Exchange
Commission Form S-1 to register under the Securities Act of 1933 the common
shares to be issued upon the conversion of the Series B preferred stock and
certain warrants attributable to the sale of the Series B preferred stock. Once
the registration becomes effective, the Company will become a reporting entity,
and as such will be required to file Forms 10K, 10Q and other information
documents with the Securities and Exchange Commission.
On June 1, 1999, pursuant to the Purchase of Goodwill Agreement with
JBS, LLC, an entity whose members comprise the management team of ANET-NM,
266,667 shares of the Company's common stock that had been held in escrow were
released.
20
F-23
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE O - SUBSEQUENT EVENTS (CONTINUED)
On June 14, 1999, the Company was notified that a major client of
Walden Remarketing was terminating the existing contract for remarketing
services currently provided by the Company. Management is discussing new
services opportunities with the client.
21
F-24
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
(FORMERLY WALDEN FLEET SERVICES, INC.)
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND YEAR ENDED DECEMBER 31, 1998
F-25
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
TABLE OF CONTENTS
For the Three Months Ended March 31, 1999 and Year Ended December 31, 1998
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT.................................................1
BALANCE SHEETS...............................................................2
STATEMENTS OF INCOME AND RETAINED EARNINGS...................................3
STATEMENTS OF CASH FLOWS.....................................................4
NOTES TO THE FINANCIAL STATEMENTS..........................................5-8
SCHEDULES OF OPERATING EXPENSES..............................................9
F-26
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Walden Remarketing Services, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Walden Remarketing - a
division of Walden Remarketing Services, Inc. (an S corporation - formerly
Walden Fleet Services, Inc.) as of March 31, 1999 and December 31, 1998, and the
related statements of income and retained earnings and cash flows for the three
months ended March 31, 1999 and year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Walden Remarketing - a division
of Walden Remarketing Services, Inc. as of March 31, 1999 and December 31, 1998,
and the results of its operations and its cash flows for the three months ended
March 31, 1999 and year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information is
presented on page 9 for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/BOECKERMANN, HEINEN & MAYER, P.A.
BOECKERMANN, HEINEN & MAYER, P.A.
Certified Public Accountants
Minneapolis, Minnesota
June 7, 1999
F-27
<PAGE>
Walden Remarketing - A Division of
Walden Remarketing Services, Inc.
Balance Sheets
March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 45,430 $ 115,177
Accounts Receivable 98,609 63,030
Prepaid Expenses 4,816 0
---------- ----------
Total Current Assets $ 148,855 $ 178,207
---------- ----------
PROPERTY AND EQUIPMENT $ 107,641 $ 107,641
Accumulated Depreciation (72,986) (68,453)
---------- ----------
Net Property and Equipment $ 34,655 $ 39,188
---------- ----------
TOTAL ASSETS $ 183,510 $ 217,395
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 24,712 $ 16,353
Distributions Payable 60,000 0
Accrued Expenses
Due to Affiliated Company 33,457 20,983
Other 50,723 43,838
---------- ----------
Total Current Liabilities $ 168,892 $ 81,174
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $.01 Par Value, 1,000,000
Authorized, 800 Shares Issued and
Outstanding $ 8 $ 8
Additional Paid-in Capital 72 72
Retained Earnings 14,538 136,141
---------- ----------
Total Stockholders' Equity $ 14,618 $ 136,221
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,510 $ 217,395
========== ==========
See Accompanying Notes to the Financial Statements
- --------------------------------------------------------------------------------
2
F-28
<PAGE>
Walden Remarketing - A Division of
Walden Remarketing Services, Inc.
Statements of Income and Retained Earnings
For the Three Months Ended March 31, 1999 and Year Ended December 31, 1998
- --------------------------------------------------------------------------------
1999 1998
---------- -----------
REVENUE $ 241,745 $ 931,246
OPERATING EXPENSES 203,348 734,277
---------- -----------
OPERATING INCOME $ 38,397 $ 196,969
---------- -----------
OTHER INCOME (EXPENSE)
Interest Income $ 0 $ 443
Loss on Disposal of Property and
Equipment 0 (10,510)
---------- -----------
NET OTHER INCOME (EXPENSE) $ 0 $ (10,067)
---------- -----------
NET INCOME $ 38,397 $ 186,902
RETAINED EARNINGS, Beginning of Year 136,141 (50,761)
DISTRIBUTIONS TO STOCKHOLDERS (160,000) 0
---------- -----------
RETAINED EARNINGS, End of Year $ 14,538 $ 136,141
========== ===========
See Accompanying Notes to the Financial Statements
- --------------------------------------------------------------------------------
3
F-29
<PAGE>
Walden Remarketing - A Division of
Walden Remarketing Services, Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 1999 and Year Ended December 31, 1998
- --------------------------------------------------------------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 38,397 $ 186,902
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation 4,533 22,990
Loss on Disposal of Property and
Equipment 0 10,510
Changes in Assets and Liabilities
Receivables (35,579) 107,135
Prepaid Expenses (4,816) 2,132
Accounts Payable and Accrued
Expenses 27,718 7,771
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,253 $ 337,440
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Related Party Liability $ 0 $ (300,000)
Payments to Former Shareholder 0 (10,000)
Distribution to Shareholder (100,000) 0
---------- -----------
NET CASH USED BY FINANCING ACTIVITIES $(100,000) $ (310,000)
---------- -----------
NET INCREASE (DECREASE) IN CASH $ (69,747) $ 27,440
CASH, Beginning of Year 115,177 87,737
---------- -----------
CASH, End of Year $ 45,430 $ 115,177
========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends Declared But Not Paid $ 60,000 $ 0
========== ===========
See Accompanying Notes to the Financial Statements
- --------------------------------------------------------------------------------
4
F-30
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Walden Remarketing Services, Inc., which changed its name from Walden Fleet
Services, Inc. on March 31, 1999, consists of three divisions performing the
following activities: 1) provides customized vehicle remarketing services
primarily to institutional accounts, 2) provides floor plan loans to automobile
dealers, and 3) leases fleets of vehicles to daily rental car operators. These
financial statements represent only the financial position and operations of
Walden Remarketing - a division of Walden Fleet Services, Inc. which derives its
revenues from auctions throughout the United States.
This summary of significant accounting policies of Walden Remarketing - a
division of Walden Remarketing Services, Inc. (the "Division") is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Division considers all highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents. At times, cash may be
in excess of FDIC insurance limits.
ACCOUNTS RECEIVABLE
The Division uses the allowance method to account for bad debts. This method
provides allowances for doubtful receivables equal to the estimated losses that
will be incurred in the collection of receivables. The balance was $0 at March
31, 1999 and December 31, 1998.
- --------------------------------------------------------------------------------
5
F-31
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment consists of computer equipment and furniture and is
stated at cost. Depreciation is provided using straight-line and accelerated
methods based on the following estimated useful lives:
Amount
-----------------------
March 31, December 31,
Category Lives 1999 1998
- -------------------------------------- ------------ ---------- ------------
Computer Equipment and Software
- at Cost 5 years $ 105,097 $ 105,097
Furniture - at Cost 7 years 2,544 2,544
---------- ------------
$ 107,641 $ 107,641
Accumulated Depreciation (72,986) (68,453)
---------- ------------
$ 34,655 $ 39,188
========== ============
ADVERTISING COSTS
The Division charges advertising costs to operations when incurred. Advertising
expense incurred for the three months ended March 31, 1999 and year ended
December 31, 1998 was $29,837 and $128,734, respectively.
INCOME TAXES
Walden Remarketing Services, Inc., by unanimous consent of its shareholders, has
elected to be treated as a "Small Business Corporation" for income tax purposes
under Subchapter "S" of the Internal Revenue Code and a similar section in the
State Code effective in 1995. In accordance with the provisions of such
election, the Company's income and losses are passed through to its shareholders
who will pay all income taxes on corporate earnings; accordingly, no provision
for income taxes has been made.
PRESENTATION
The financial statements of the Division as of March 31, 1999 and for the three
months then ended represent balances immediately before the March 31, 1999
merger (see Note 5).
- --------------------------------------------------------------------------------
6
F-32
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 2: RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Division engages in transactions with
various affiliated companies related through common management and ownership.
For the three months ended March 31, 1999 and year ended December 31, 1998,
approximately $110,000 and $408,000, respectively, for salaries, rent and a
substantial portion of other administrative expenses were paid for by an
affiliate and were reimbursed by the Division. The Division's operating leases
for facilities and equipment are all with related companies. No leases are
longer than one year. Rental expense for the three months ended March 31, 1999
and year ended December 31, 1998 was $16,752 and $64,329, respectively.
Due to/from affiliate consists of cash advances and outstanding balances for
intercompany expense allocations.
Interest is not charged on related party balances.
Walden Remarketing Services, Inc. may benefit from management personnel of
affiliated companies. During the three months ended March 31, 1999 and year
ended December 31, 1998, no expenses related to management personnel have been
recorded for the Division.
NOTE 3: EMPLOYEE BENEFIT PLAN
Walden Remarketing Services, Inc. co-sponsors a defined contribution retirement
plan with a group of affiliated companies. Participation in the plan is
available to all employees who meet specified age and service requirements. The
Division matches employee contributions within certain limitations. The
Division's matching contribution expense was $424 for the three months ended
March 31, 1999 and $1,668 for the year ended December 31, 1998.
NOTE 4: INTERDIVISIONAL RECORDKEEPING
As described in Note 1, Walden Remarketing Services, Inc. consists of three
distinct operating divisions which record their operations independently;
however, certain expenses that affect more than one division are allocated based
on management's judgment. Wages and related personnel costs are charged to each
division based on actual amounts for those employees working specifically for
that division. Wages for those employees who work for all divisions, mostly
clerical, have been estimated and allocated based on management's judgment.
Also, because Walden Remarketing Services, Inc. started as a remarketing
company, all of the common stock is shown in this division.
- --------------------------------------------------------------------------------
7
F-33
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 5: OWNERSHIP CHANGE
On March 30, 1999, Walden Remarketing Services, Inc. ("Walden") declared a
distribution to the shareholder of record of all assets and liabilities not
relating to the remarketing business (this represents the floor plan and leasing
divisions). On March 31, 1999, Walden, a Minnesota corporation, entered into a
merger agreement with Auto Network Group, Inc., an Arizona corporation, as the
surviving corporation, via a statutory merger pursuant to Internal Revenue Code
Section 368(a)(1)(A).
NOTE 6: CONCENTRATION OF RISK AND MAJOR CUSTOMERS
Principally all of the Division's revenues are from two customers. A vendor
agreement exists, which was extended through July 31, 1999, for one customer.
Per correspondence dated June 11, 1999, the customer has notified the Division
of their intent to discontinue the relationship effective August 31, 1999.
Revenue earned per the agreement was $32,500 monthly with this customer. A motor
vehicle remarketing agreement exists, which was extended through March 31, 2000,
for the other customer, which identifies how revenues are earned.
The accounts receivable balance at March 31, 1999 consists of amounts due from
the Division's two major customers. They represent 67% and 33% of the accounts
receivable balance.
The accounts receivable balance at December 31, 1998 was 100% due from one of
the Division's two major customers.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Walden Remarketing Division may be contingently liable for certain liabilities
of the floor plan and leasing divisions (formerly Walden Fleet Services, Inc. -
see Note 5).
- --------------------------------------------------------------------------------
8
F-34
<PAGE>
WALDEN REMARKETING - A DIVISION OF
WALDEN REMARKETING SERVICES, INC.
SCHEDULES OF OPERATING EXPENSES
For the Three Months Ended March 31, 1999 and Year Ended December 31, 1998
- --------------------------------------------------------------------------------
1999 1998
----------------- -----------------
% of % of
Amount Sales Amount Sales
---------- ------ --------- ------
OPERATING EXPENSES
Advertising $ 29,837 12.3 $128,734 13.8
Contributions 0 0.0 3,700 0.4
Delivery 1,532 0.6 8,192 0.9
Depreciation 4,533 1.9 22,990 2.5
Insurance 3,662 1.5 16,475 1.8
Meals and Entertainment 3,960 1.6 14,364 1.5
Miscellaneous 364 0.2 4,172 0.4
Office Supplies 1,191 0.5 5,066 0.5
Postage 1,903 0.8 10,828 1.2
Printing 119 0.0 189 0.0
Rent - Building 9,000 3.7 36,000 3.9
Rent - Equipment 7,752 3.2 28,329 3.0
Repairs and Maintenance 937 0.4 3,339 0.4
Retirement Plan 424 0.2 1,668 0.2
Salaries and Wages 85,116 35.2 303,678 32.6
Taxes - Payroll 6,297 2.6 20,408 2.2
Telephone 9,486 3.9 35,491 3.8
Travel 36,696 15.2 83,652 9.0
Vehicle 539 0.2 7,002 0.8
-------- ---- -------- ----
Total Operating Expenses $203,348 84.1 $734,277 78.8
======== ==== ======== ====
- --------------------------------------------------------------------------------
9
F-35
<PAGE>
<TABLE>
AUTOTRADECENTER.COM, INC.
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED MARCH 31, 1999
(UNAUDITED)
<CAPTION>
HISTORICAL STATEMENTS
-----------------------------------
WALDEN
AUTOTRADE- REMARKETING PRO FORMA PRO FORMA
CENTER.COM, INC. SERVICES, INC. ADJUSTMENTS RESULTS
<S> <C> <C> <C> <C>
Net sales $ 97,665,410 940,180 - $ 98,605,590
Cost of sales 93,411,919 513,994 - 93,925,913
--------------------------------------------------------------------
Gross profit 4,253,491 426,186 - 4,679,677
Selling, general and
administrative expense 3,735,578 237,545 (a) 198,538 4,147,160
(d) (24,501)
Income from operations 517,913 188,641 (174,037) 532,517
--------------------------------------------------------------------
Other income (expense) 70,686 (10,067) (c) 10,510 71,129
Interest expense (416,779) (b) (35,417) (452,196)
--------------------------------------------------------------------
(346,093) (10,067) (24,907) (381,067)
--------------------------------------------------------------------
Income before
income taxes 171,820 178,574 198,944 151,450
Income tax expense 56,579 - (e) (7,100) 49,479
--------------------------------------------------------------------
Net income $ 115,241 178,574 191,844 $ 101,971
====================================================================
Basic earnings per share $ .008 $ .006
=============== ===============
Diluted earnings per share $ .008 $ .006
=============== ===============
Weighted average shares outstanding for:
Basic earnings per share 13,726,397 15,776,397
=============== ===============
Dilated earnings per shares 22,826,745 24,876,745
=============== ==========
</TABLE>
F-36
<PAGE>
AUTOTRADECENTER.COM, INC.
NOTES TO THE PRO FORMA INCOME STATEMENT
MARCH 31, 1999
NOTE 1. DESCRIPTION OF THE TRANSACTION
As of March 31, 1999, AutoTradeCenter.com., Inc. (the Company) acquired Walden
Remarketing Services, Inc. (Walden Remarketing), a Minnesota Corporation, by
issuing to the shareholders of Walden Remarketing a total of 2,050,000
restricted shares of common stock, cash of $125,000 and promissory notes in the
aggregate principal amount of $425,000.
NOTE 2. PRO FORMA PRESENTATION
The Pro Forma presentation shows the estimated results of operations for the
year ended March 31, 1999, had the two entities been combined as of April 1,
1998. The presentation does not include the effects of any increase in sales
that may have resulted due to the combination.
A description of the proforma adjustments is as follows:
a. Add the amortization of goodwill acquired and amortized over 10 years.
b. Add interest expense for the promissory notes issued as part of the
acquisition.
c. Remove the loss on disposal of Walden Remarketing assets that is
considered nonrecurring.
d. Remove administrative expenses that are expected to be redundant when
the entities' operations are combined.
e. Adjust income tax expenses for the effects of the combination.
F-37
<PAGE>
[BACK COVER OF PROSPECTUS]
Dealer Prospectus Delivery Obligation
Until _____________, 1999, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee........$214.92
Accounting fees and expenses.........................
Blue sky fees and expenses...........................
Legal fees and expenses..............................
Transfer agent fees and expenses.....................
Printing expenses....................................
Miscellaneous expenses...............................
Total................................................$
All amounts are estimates except the SEC filing fee and NASD filing
fee. The Selling Stockholders will be bearing the cost of their own brokerage
fees and commissions and their own legal and accounting fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arizona Business Corporation Act and Article 9 of the Registrant's
Articles of Incorporation permit the Registrant to indemnify its officers and
directors and certain other persons against expenses in defense of a suit to
which they are parties by reason of such office, so long as the persons
conducted themselves in good faith and the persons reasonably believed that
their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding the officer or director was adjudged liable on the basis that
he or she derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the registrant's inception, it has issued and sold securities
which were not registered under the Securities Act of 1933, as follows:
<TABLE>
COMMON STOCK:
<CAPTION>
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
8/97 Jeff Erskine, Mike Stuart, Mark 9,000,000 shares $.003333 per share $30,000 cash
Moldenhauer, Joe Seaverns,
Candy Seaverns, Victor Felice
and John Carrante
12/97 34 persons who were associates or 1,002,500 shares $0.025 per share $25,062.50 cash
acquaintances of Mark
Moldenhauer and who have
previously invested in
this type of offering
2/98 - 3/99 Eastlane Trading Limited, 7,499,250 shares (and Conversion of 6,750 shares of Series A
Silhouette Investments warrants to Preferred Stock
Ltd., and Flagstone purchase
Automotive Inc. 1,499,850 shares at
$.25 per share)
II-1
<PAGE>
3/99 Shareholders of Walden 2,050,000 shares These shares were issued in exchange for
Remarketing Services, Inc. the shares of Walden Remarketing Services, Inc.
4/99 M&A West, Inc. 100,000 shares $2.00 per share $200,000 cash
</TABLE>
No underwriters were used in the above transactions. The registrant
relied upon the exemption from registration contained in Section 4(2) as to the
first transaction and acquisition of Walden Remarketing Services, and Rule 504
as to the other transactions. With regard to the first transaction for founders'
stock and Walden Remarketing Services acquisition, the purchasers were deemed to
be sophisticated with respect to the investment in the securities due to their
financial condition and involvement in the registrant's business. Restrictive
legends were placed on the stock certificates evidencing the shares issued in
the Section 4(2) transactions.
<TABLE>
SERIES A PREFERRED STOCK:
<CAPTION>
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
2/98 Eastlane Trading Limited 6,750 shares $100 per share $675,000 cash
</TABLE>
No underwriters were used in the above transaction. The registrant
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933. The purchaser was deemed to be sophisticated with
respect to this investment in securities of the registrant by virtue of its
financial condition and previous investment experience. A restrictive legend was
placed on the stock certificates evidencing the Series A Preferred Stock.
<TABLE>
SERIES B PREFERRED STOCK:
<CAPTION>
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
11/98 - 3 accredited and 1 non-accredited 47,000 shares $10 per share $470,000 cash
12/98 investors
</TABLE>
The registrant entered into a Consulting Agreement with Anthony &
Company, Inc. dba Anthony Advisors (the "Consultant"). Under the terms of the
Consulting Agreement, the registrant appointed the Consultant as its exclusive
agent for the purpose of introducing to the registrant persons interested in
investing in the Series B Preferred Stock. The Consultant was not authorized to
negotiate the terms of the transaction with any introduced investor on behalf of
the registrant or to execute the transaction on behalf of the registrant. For
its services, the registrant agreed to pay the Consultant a fee of $440,000 and
warrants to purchase up to 300,000 shares of the registrant's Common Stock at
$.50 per share. The registrant relied upon the exemption from registration
contained in Rule 506 of Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this
registration statement:
<TABLE>
<CAPTION>
REGULATION S-K
NUMBER DOCUMENT
<S> <C>
2.1 Agreement and Plan of Reorganization between Auto Network Group, Inc. and Walden Remarketing Services,
Inc.*<F1>
3.1 Articles of Incorporation, as amended*<F1>
3.2 Bylaws*<F1>
4.1 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA, Regarding
Series A Preferred Stock*<F1>
4.2 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA, Regarding
Series B Preferred Stock*<F1>
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc.*<F1>
5.1 Opinion regarding legality*<F1>
10.1 Stock Option Plan*<F1>
10.2 Evelyn Felice loan documents*<F1>
II-2
<PAGE>
<CAPTION>
REGULATION S-K
NUMBER DOCUMENT
<S> <C>
10.3 Mark Moldenhauer loan documents*<F1>
10.4 Pinnacle Financial Corporation loan documents*<F1>
10.5 Eastlane Trading Limited loan documents*<F1>
10.6 Norwest Bank loan documents*<F1>
10.7 Mike and Debbie Stuart loan documents*<F1>
10.8 Purchase of Goodwill Agreement with JBS, LLC*<F1>
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc.
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999*<F1>
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999*<F1>
10.12 Sample "Work for Hire Agreement"
10.13 Agreement with Auction Finance Group, Inc.
10.14 Promissory Note from Auto Network Group of New Mexico, Inc. to Pinnacle Financial Corporation dated
May 13, 1999
10.15 Secured Promissory Note from Autotradecenter.com Inc. to Mark Moldenhauer dated June 22, 1999
10.16 Secured Promissory Note from Autotradecenter.com Inc. to Pinnacle Financial Corporation dated June 22, 1999
21 Subsidiaries of the registrant*<F1>
23.1 Consent of Price Kong & Company, P.A.
23.2 Consent of Neff & Ricci, LLP
23.3 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (incorporated by reference into Exhibit 5.1)
27 Financial Data Schedule
99.1 Schedule Re: Valuation and Qualifying Accounts - Year Ended March 31, 1999
<FN>
<F1>
*Filed previously
</FN>
</TABLE>
(b) The following financial statement schedules are filed with
this registration statement: None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent not more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale,
State of Arizona, on July 19, 1999.
AUTOTRADECENTER.COM INC.
By: /S/ MIKE STUART
Mike Stuart, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President and a director
/s/ MIKE STUART (Principal Executive Officer) July 19, 1999
Mike Stuart
Vice President, Secretary and a
/s/ MARK MOLDENHAUER Director July 19, 1999
Mark Moldenhauer
Treasurer
(Principal Financial and Accounting
/s/ ROGER L. BUTTERWICK Officer) July 19, 1999
Roger L. Butterwick
</TABLE>
II-5
<PAGE>
PROMISSORY NOTE
$384,573.13 Phoenix, Arizona
March 31, 1999
FOR VALUE RECEIVED, the undersigned, AUTO NETWORK GROUP, INC., an
Arizona corporation, (hereinafter the "Borrower") promises to pay to the order
of Dennis E. Hecker, a Minnesota resident, and his heirs and assigns
(hereinafter the "Lender"), at 500 Ford Road, Minneapolis, Minnesota 55426, or
at such other place as the holder hereof may from time to time in writing
designate, in lawful money of the United States of America, the principal sum of
Three Hundred Eighty Four Thousand Five Hundred Seventy Three and 13/100 Dollars
($384,573.13) together with interest on the outstanding principal amount hereof
at the rate of twelve percent (12%) per annum. All payments hereunder shall be
first applied to the accrued and unpaid interest and then to the principal
amount of this Note. The principal amount hereof and accrued interest shall be
paid in eighteen consecutive equal monthly installments of $23,452.06 on the
first day of each month commencing on May 1, 1999.
Borrower may prepay this Note in whole or in part without penalty or
privilege.
If any payment provided for hereunder is not made when due in
accordance with the terms and conditions of this Note and such failure has
continued for ten (10) days after the Lender has given written notice to the
undersigned of such default, then the holder hereof may, at his option, by
notice in writing to the Borrower, declare immediately due and payable the
entire principal balance hereof and all interest accrued thereon and the same
shall thereupon be immediately due and payable without further notice or demand.
Notices to Borrower shall be sent to the address set forth below Borrowers
signature on this Note.
The Borrower hereby agrees to pay all costs and collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due.
This Note is issued in and shall be governed by the laws of the State
of Minnesota. The Borrower hereby consent to the exclusive jurisdiction of the
state and federal courts in the State of Minnesota in connection with any
proceeding to effect collection of this Note.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
<PAGE>
Nothing herein contained nor any transaction related hereto shall be
construed or shall operate so as to require the Borrower or any person liable
for the repayment hereof to pay interest in an amount or at a rate greater than
the maximum allowed, from time to time, by applicable laws, if any. Should any
interest or other charges, including any property, tangible or intangible, or
other items of value received by the Lender, imposed against or paid by the
Borrower or any party liable for the payment of the indebtedness evidenced
hereby result in a computation or earning of interest in excess of the maximum
legal rate of interest permitted under applicable law in effect while such
interest is being earned, then any and all of that excess shall be and is waived
by the Lender, and all of that excess shall be automatically credited against
and in reduction of the principal balance hereof, without premium, with the same
force and effect as though the Borrower had specifically designated such extra
sums to be so applied to principal and the Lender to accept such extra
payment(s) as a premium-free prepayment, and any portion of the excess that
exceeds the principal balance shall be paid by the Lender to the Borrower or to
any party liable for the payment of the indebtedness evidenced by this Note, as
applicable, it being the intent of the parties hereto that under no
circumstances shall the Borrower or any party liable for the payment of the
indebtedness evidenced hereby be required to pay interest in excess of the
maximum rate allowed by any applicable laws. The provisions of this Note is
hereby modified to the extent necessary to conform with the limitations and
provisions of this paragraph, and this paragraph shall govern over all other
provisions in any document or agreement now or hereafter existing. This
paragraph shall never be superseded or waived unless there is a written document
executed by the Lender and the Borrower, expressly declaring the usury
limitation of this Note to be null and void, and no other method or language
shall be effective to supersede or waive this paragraph.
All makers, endorsers, sureties, guarantors and other accommodation
parties hereby waive presentment for payment, protest and notice of nonpayment
and consent, without affecting their liability hereunder, to any and all
extensions, renewals, substitutions and alterations of any of the terms of this
Note and to the release of or failure by the Lender to exercise any rights
against any party liable for or any property securing payment thereof.
AUTO NETWORK GROUP, INC.
By:/s/MIKE STUART
Mike Stuart, President
Address: 8135 E. Burtherus, Suite 3
Scottsdale, AZ 85260
<PAGE>
SCHEDULE OF PROMISSORY NOTES ISSUED BY
AUTO NETWORK GROUP, INC.
TO SHAREHOLDERS OF WALDEN REMARKETING SERVICES INC.
NAME AND ADDRESS OF MONTHLY
WALDEN SHAREHOLDER PRINCIPAL AMOUNT PAYMENT
Robert H. Binns $5,182.93 $316.07
2112 Peachtree Blvd.
St. Cloud, FL 34769
Roger L. Bjork $1,036.59 $63.21
13048 Cardinal Creek Road
Eden Prairie, MN 55346
James Gustafson $1,036.59 $63.21
10514 106th Place North
Maple Grove, MN 55369
Richard J. Kadrie $1,036.59 $63.21
1215 Hawthorne Ave. East
St. Paul, MN __________
Colette A. Marcilliat $5,182.93 $316.07
1004 Mount Curve, Apt. Upper
Minneapolis, MN 55305
Susan A. Miller $1,036.59 $63.21
10011 Saratoga Way
Maple Grove, MN 55369
Thomas P. Palme $4,146.34 $252.85
1106 McKusick Road Lane North
Stillwater, MN 55082
Donna C. Rizner $5,182.93 $316.07
11481 99th Place North
Maple Grove, MN 55369
Darrell C. Rooney $1,036.59 $63.21
8931 Hidden Meadow Road
Woodbury, MN 55125
<PAGE>
Michael K. Schrank $5,182.93 $316.07
7503 Bristol Village Curve
Bloomington, MN 55438
Alan R. Siskind $5,182.93 $316.07
1280 Zircon Lane
Plymouth, MN 55447
Matthew J. Steffen $1,036.59 $63.21
1270 Ferndale Place North
Minneapolis, MN 55447
Theresa M. Watzl $2,073.17 $126.43
20720 Mushtown Road
Prior Lake, MN 55372
Thomas L. Youngquist $2,073.17 $126.43
900 Northshore Drive West
Orono, MN 55364
$425,000.00 $25,917.38
<PAGE>
WORK FOR HIRE AGREEMENT
This Work for Hire Agreement (this "Agreement") is made effective as of this
______________________ day of _____________________, 199_________, by and
between Auto Network Group, Inc., of 8135 East Butherus, Scottsdale, AZ 85260,
(hereinafter referred to as "AN", and the party who will be providing the
services shall be referred to as "Broker".
1. DESCRIPTION OF SERVICES. Beginning on _________________________, Broker will
provide the following services (collectively, the "Services"): Buying ans
selling motor vehicles on a wholesale basis.
2. PAYMENT FOR SERVICES. AN will pay compensation to Broker for the Services on
a monthly basis, the amount to be determined by the difference of the price paid
for the vehicles (including reconditioning and all other related costs) and the
price the vehicles sold at, less an agreed upon fee per vehicle.
3. TERM/TERMINATION. This Agreement may be terminated by either party upon 30
days written notice to the other party. In the event either party terminates
this Agreement, Broker is responsible for selling his inventory with no loss to
AN.
4. RELATIONSHIP OF THE PARTIES. It is understood by the parties that Broker is
an independent contractor with respect to AN, and not an employee of AN. AN will
not provide fringe benefits, including health insurance benefits, paid vacation,
or any other employee benefit, for the benefit of Broker. The parties further
understand that AN does not provide specific training to Broker and Broker is
forbidden from taking instructions from any AN employee. Broker is responsible
for his own assistant(s), has the freedom to set his own hours of work, and is
responsible for his own business and traveling expenses
5. CONFIDENTIALITY. Broker will not at any time or in any manner, either
directly or indirectly, use for the personal benefit of Broker, or divulge,
disclose, or communicate in any manner any information that is proprietary to
AN. Broker will protect such information and treat it as confidential. This
provision shall continue to be effective after the termination of this
Agreement. Upon termination of this Agreement, Broker will return to AN all
records, notes, documentation and other items that were used, created, or
controlled by Broker during the term of this Agreement.
6. INDEMNIFICATION. Broker does hereby agree to indemnify and hold AN harmless
from and against any and all losses, claims, damages, liabilities and/or
obligations of any kind and description, including any reasonable attorneys
fees, incurred by AN in investigating, defending or settling such losses,
claims, damages, liabilities and/or obligations arising out of, or related to,
the services provided to AN
<PAGE>
by Broker hereunder.
7. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties, and there are no other promises or conditions in any other agreement
whether oral or written.
8. SEVERABILITY. If any provision of this Agreement shall be held to be invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Agreement is
invalid or unenforceable, but that by limiting such provision it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
Party contracting services:
Auto Network Group, Inc.
By: _________________________________
Mike Stuart
President
Service Provider:
Printed Name:________________________
___________________________________
Signature
<PAGE>
THE AUCTION FINANCE AUCTION OPTION PLUS AGREEMENT
WITH AUTO NETWORK USA
This Agreement ("Agreement") made as of the 20 day of AUGUST, 1998
("the Effective Date"), is between "Auto Network USA" and its affiliate Pinnacle
Dealers Services, Inc., collectively referred to as "AUTONET", whose address is
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, AZ 85260 , and the Auction Finance
Program ("TAFP") a Delaware corporation whose address is 930 Washington Avenue,
4th floor, Miami Beach, Florida 33139. TAFP is a wholly-owned subsidiary of the
Auction Finance Group, Inc.
RECITALS
A. Auto Network USA is an independent auto dealer that provides a means
through which individuals, companies and automobile dealers may purchase used
vehicles.
B. TAFP is in the business of providing licensed automobile dealers
(Dealers) with Credit Lines and making loans to them to purchase vehicles from
Auto Network USA.
C. TAFP desires Auto Network USA to assist it in extending Credit Lines
and making loans to their dealer customers for inventory purchased from them.
D. Auto Network USA believes that its vehicle sales would be enhanced
through the provision of Credit Lines by TAFP to Dealers that purchase vehicles
from Auto Network USA. Credit lines will be marketed by TAFP through Pinnacle
Dealer Services, Inc.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
TERMS
1. OBLIGATION OF AUTO NETWORK USA. During the term of this Agreement, Auto
Network USA hereby grants to TAFP an exclusive license to provide third
party loans and extensions of Credit Lines to Dealers at Auto Network
USA's facilities who use the Auction Option Plus Program, and Auto Network
USA hereby agrees that it shall enter into no other agreement nor shall it
engage in any other activities to promote or encourage its registered
Dealers to enter into any agreements with any company or companies
competing with TAFP in extending credit lines or short term loans to
Dealers. In the event a dealer is declined a credit line or short term
loan through TAFP; Auto Network USA is authorized to offer additional
outside sources of financial assistance for the purpose of extending
credit lines or short term loans to its dealers. In the event a dealer is
declined a credit line or short term loan through TAFP, Auto Network USA
is authorized to offer additional outside sources of financial assistance
for the purpose of extending credit lines or short term loans to its
dealers.
1.1 CONFIDENTIALITY. Auto Network USA shall maintain strict
confidentiality with respect to any proprietary information
which it obtains from TAFP concerning its organization,
operations, and business.
1.2 SUPPORT SERVICES. Auto Network USA shall provide such other
services and support as reasonably required by TAFP in order
to conduct its business at Auto Network USA.
1.3
ACCESS TO FACILITY. Auto Network USA shall provide TAFP's
employees and representatives with reasonable access to Auto
Network USA's management and its facilities during normal
business hours.
1.4 INFORMATION REGARDING DEALERS. Auto Network USA shall provide
to TAFP ------------------------------ information reasonably
requested by TAFP that is known by Auto Network USA and
related to events occurring within 12 months from the date of
the request, which may include the following information about
Dealers who have applied for Credit Lines, as well as other
information regarding the business practices and/or
creditworthiness of those Dealers: (i) whether Dealer has
defaulted in any of its obligations to Auto Network USA, (ii)
whether Dealer has passed a bad check to Auto Network USA,
(iii) whether Dealer has materially failed to comply with Auto
Network USA's policies and procedures, and (iv) whether Dealer
has consistently or frequently misrepresented the condition of
title or of vehicles consigned for sale or sold to Auto
Network USA.
1.5 MARKETING. Auto Network USA and TAFP will jointly distribute
marketing and promotional materials regarding the availability
of TAFP's services.
1.6 AUTO NETWORK USA'S EMPLOYEES, AGENTS AND REPRESENTATIVES. In
the event any of Auto Network USA's employees, agents or
representatives perform services for TAFP, Auto Network USA
shall use its good faith effort to correct any mistakes and
minimize any loss or damage to TAFP from the negligence or
other conduct of Auto Network USA's employees, agents or
representatives.
1.7 AVERAGE PURCHASE PRICE. Auto Network USA agrees to renegotiate
a lower incentive rate than the established amount ($15.00)
for each vehicle purchased through TAFP, if the average
purchase price is below $10,000.
2. OBLIGATIONS OF TAFP. TAFP shall extend Credit Lines to qualified
registered Dealers of Auto Network USA for the purchase of vehicles.
2.1 AVAILABLE FUNDING. TAFP will maintain adequate cash reserves
or credit lines to service approved Dealer credit lines based
upon historical utilization rates.
2.2 CONFIDENTIALITY. TAFP shall maintain strict confidentiality
with respect to any information which it obtains about Auto
Network USA or Auto Network USA's customers, or the
organization, operations, or business of any of the foregoing.
2.3 COMPLIANCE WITH LAW. TAFP shall at all times, take all
necessary and appropriate measures to comply with all laws or
regulations applicable to the conduct of its business.
<PAGE>
2.4 ADVERTISING AND PROMOTION. TAFP may display signs and other
identifying materials at Auto Network USA premises to inform
Dealers of TAFP's services at Auto Network USA. TAFP agrees to
provide credit applications exclusively using Pinnacle Dealer
Services, Inc. logo.
2.5 PAYMENT TO AUTO NETWORK USA. TAFP shall remit on the 15th day
after month end $15.00 for each vehicle purchased through TAFP
providing that the average purchase price is above $10,000 and
the average floor plan term is six weeks.
3. TERM AND TERMINATION. This Agreement shall remain in effect for ten years
from the effective date and shall automatically renew for successive ten
year periods unless terminated. This Agreement may be terminated earlier
as follows:
3.1 By either party upon 90 days prior written notice prior to the
end of each ten year term of this Agreement.
3.2 By the non-breaching party upon a material breach or violation
of any or all of the covenants, agreements or obligations set
forth in this Agreement of the breaching party, if the
breaching party has failed to cure such default within 30 days
after notice from the non-breaching party.
3.3 By either party after120 days of the commencement of any
involuntary or voluntary petition, case, proceeding or other
action against a party under the Bankruptcy Code or seeking
reorganization, arrangement, readjustment of its debts, the
appointment of a receiver or conservator, or any other relief
under any existing or future law of any jurisdiction, relating
to bankruptcy, insolvency, reorganization of relief of debtors
generally; provided that such proceeding has not been vacated,
discharged, stayed, bonded or dismissed within 30 days of the
institution of such proceeding.
4. NO JOINT VENTURE. The parties understand and agree that this Agreement
does not create an agency relationship between the parties nor are the
parties joint venturers, partners, co- ventures to the extent Auto Network
USA's employees, agents or representatives provide services for TAFP, they
are independent contractors, and nothing contained in this Agreement is
intended to make either party a general or specific agent, legal
representative, subsidiary, joint venturer, partner, employee or servant
of the other. The parties agree that neither party will make any excerpted
or implied agreements, warranties or representations for other party or
represent that their relationship is anything other than that of
independent business enterprises. Each party has separate business
operations and conducts separate business activities and shall maintain
their separate business interests and operations and shall act
independently of each other. Nothing contained in this Agreement shall be
deemed in fact or law to make either party an employee, agent, partner,
Auto Network USA or joint venturer of the other. All payments to be made
by TAFP to Auto Network USA under this Agreement shall be made without
deduction for taxes, withholding or any other charges. Auto Network USA
shall be responsible for the payment of any and all taxes with respect to
such compensation, and the payment of its employees, agents and
representatives salaries and compensation.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION BY TAFP. TAFP shall indemnify, defend and hold
Auto Network USA and its successors and assigns harmless
against any loss, claim, damage, cost, obligation, liability,
penalty and expense, including all legal and other expenses
reasonably incurred in connection with defending against any
such loss, claim, damage, liability or action (herein
collectively referred to as "Damages") in respect of,
occasioned by, arising out of or resulting from any breach or
default of any obligation of TAFP contained in this Agreement,
or which occurs through the actions or omissions of TAFP's
employees, agents, representatives.
5.2 INDEMNIFICATION BY AUTO NETWORK USA. Auto Network USA shall
indemnify, defend and hold TAFP and its successors and assigns
harmless against any Damages in respect of, occasioned by,
arising out of or resulting from any breach or default or
obligation of Auto Network USA contained in this Agreement, or
which occurs through the actions or omissions of Auto Network
USA's employees, agent or representatives for conduct that is
willful, grossly negligent or criminal.
6. COOPERATION. If the joint consent, reasonable consent, or mutual consent
of a party or the parties is required under the terms of this Agreement,
then each party or such party shall in good faith attempt to reach a
consensus or its consent, and no party shall unreasonably withhold its
consent to any requested approval.
6.1 ARBITRATION. If the parties cannot resolve any dispute which
may arise between them within 30 days after the dispute
arises, the matter may be submitted by either party to
arbitration in Dade County, Florida, for resolution. The
arbitration board shall consist of one person mutually
acceptable to the parties. Subject to the provisions of
Section 6.3, the parties shall equally share the reasonable
costs, fees and expenses for the arbitrator selected and for
all costs incurred to conduct the arbitration, and shall be
responsible for paying its own fees, costs and expenses,
including without limitation, its attorneys' fees and costs
and any travel related expenses. The arbitration proceeding
will be governed by the Commercial Rules of Arbitration
adopted by the American Arbitration Association and by Florida
law. In the absence of fraud, bad faith, or an error of law
appearing on the face of the ruling of the arbitrator, the
parties to the arbitration shall be bound by the ruling of the
arbitrator.
6.2 GOVERNING LAW. This Agreement and the interpretation of its
terms shall be governed by the laws of the State of Florida,
without application of conflicts of law principles subject to
the provisions of Section 7, the parties acknowledge and agree
that the Circuit Courts of Dade County, Florida and/or the
Federal District Court for Florida shall be the venue and
exclusive and proper forum in which to adjudicate any case or
controversy arising directly or indirectly under, or in
connection with this Agreement, they will not contest or
challenge the jurisdiction or venue of such courts. Auto
Network USA hereby submits to the personal jurisdiction of
such courts, notwithstanding any provision of any United
States or state law to the contrary.
6.3 ATTORNEYS' FEES AND EXPENSES. In the event of a dispute
arising out of this Agreement, the prevailing party shall be
entitled to its reasonable attorneys' fees and expenses and
costs reasonably incurred in any such proceedings. In such
event and wherever provision is otherwise made in this
Agreement for payment for attorneys' or counsels' fees or
expenses incurred by such party, such provision shall include,
but not be limited to, attorneys' or counsels' (including
paralegal' and similar persons') fees and expenses,
accountant's fees and expenses, and all expenses and costs
incurred in any and all judicial, bankruptcy, reorganization,
administrative, arbitration, or other proceedings, including
appellate proceedings, and any
Page 2
<PAGE>
proceeding instituted to collect or enforce any judgment or
other relief granted or awarded whether such fees or expenses
arise before proceedings are commenced or after entry of a
final judgment.
7. MISCELLANEOUS.
7.1 NOTICES. All notices, demands or requests provided for or
permitted to be given pursuant to this Agreement must be in
writing and shall be either: (i) delivered by hand, (ii) sent
by nationally recognized overnight courier service next
Business Day delivery, or (iii) sent by telecopier and
confirmed by U.S. mail, to the party at the address set forth
in the preamble to this Agreement or to such other address as
a party may hereafter by notice designate to the other party.
7.2 ENTIRE AGREEMENT. This Agreement and the Procedures Manual
contain the sole and entire agreement among the parties with
respect to its subject matter and supersedes any and all other
prior written or oral agreements between them with respect to
such subject matter.
7.3 AMENDMENT. No amendment or modification of this Agreement
shall be valid unless in writing and duly executed by all
parties to this Agreement.
7.4 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors
and assigns.
7.5 WAIVER. Waiver by any party of any breach of any provision of
this Agreement shall not be considered as or constitute a
continuing waiver of a waiver of any other breach of the same
or any other provision of this Agreement.
7.6 CAPTIONS. The captions contained in this Agreement are
inserted only as a matter of convenience of reference and in
no way define, limit, extend or describe the scope of this
Agreement or the intent of any of its provision.
7.7 CONSTRUCTION. In the construction of this Agreement, whether
or not so expressed, words used in the singular or in the
plural, respectively, include both the plural and the singular
and the masculine, feminine and neuter genders include all
other genders.
7.8 SECTION REFERENCES. All references to Sections contained in
this Agreement shall be deemed to be reference of Sections of
this Agreement, except to the extent that any such reference
specifically refers to another documents. All references to
Sections shall be deemed to also refer to all subsections of
such Sections, if any.
7.9 SEVERABILITY. In the event that any portion of this Agreement
is determined by a court of competent jurisdiction to be
illegal or unenforceable, it shall affect no other provisions
of this Agreement and the remainder of this agreement shall be
valid and enforceable in accordance with its terms.
7.10. ASSIGNMENT. This Agreement may not be assigned without the
written consent of all parties, which consent shall not
unreasonably be withheld.
7.11 SUCCESSORS, OFFICERS AND DIRECTORS. The provisions of this
Agreement with respect to exclusivity, non-competition, and
confidentiality shall be binding upon the successors in
interest to the parties hereto, and to their officers and
directors. Each party shall cause its officers and directors
to enter into an agreement binding them to such provisions for
the terms provided in this Agreement.
7.12 OTHER DOCUMENTS. The parties shall take all such actions and
execute all such documents which may be necessary to carry out
the purposes of this Agreement, whether or not specifically
provided for in this Agreement.
7.13 COUNTERPARTS. This Agreement may be executed and delivered in
two or more counterparts, each of which shall be deemed to be
an original and all of which, taken together, shall be deemed
to be one agreement.
THIS AGREEMENT has been duly executed as of the Effective Date.
AUTO NETWORK USA
By: /S/MARK MOLDENHAUER
Name: MARK MOLDENHAUER
Title: SECRETARY
THE AUCTION FINANCE PROGRAM
By: /S/STEVE SIMON
Steve Simon, C.E.O.
Page 3
<PAGE>
PROMISSORY NOTE
$300,000.00 Dated May 13, 1999
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 13th day of May by
and between Auto Network Group of New Mexico, Inc., a New Mexico corporation
having its office at 420 Wisconsin , N.E., Albuquerque, New Mexico 87108 AND
Jules Gollins, an individual residing at 4051 East Fairfield Street, Mesa,
Arizona 85205, both personally and for and on behalf of Auto Network Group of
New Mexico, Inc., AND Suzanne Gollins, an individual residing at 4051 East
Fairfield Street, Mesa, Arizona 85205, AND Bruce Burton, an individual, residing
at 12800 Comanche N.E. #94, Albuquerque, New Mexico 87111, AND Darlene Burton,
an individual, residing 12800 Comanche N.E. #94, Albuquerque, New Mexico 87111,
AND Stuart Bailey, an individual residing at 7716 Eagle Rock Avenue,
Albuquerque, New Mexico 87122 AND Cheryl Bailey, an individual, residing at 7716
Eagle Rock Avenue, Albuquerque, New Mexico 87122, hereinafter referred to as the
BORROWERS, AND,
Pinnacle Financial Corporation, having its office at 8135 E. Butherus,
Suite 3, Scottsdale, Arizona 85260, hereinafter referred to as the LENDER.
Borrowers hereby jointly and severally promise to pay to the order of
Lender the sum of Three Hundred Thousand Dollars ($300,000.00), together with
interest thereon at the rate of twelve percent (12%) per annum on the unpaid
balance. Said sum shall be paid as follows:
Interest payments of Three Thousand Dollars ($3,000.00) payable in
arrears on the 13th day of each month beginning June 13, 1999; and,
The principal amount of Three Hundred Thousand Dollars ($300,000.00)
shall be payable on May 13, 2000 unless such termination of this Note shall
occur in which case all principal amount shall become immediately due and
payable.
This note may be prepaid, in full, at any time, without penalty.
The proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as security
and as collateral against the eventual repayment of this Note. Lender shall have
the right to verify and confirm this collateral at any time and violation of
this security shall be cause for the immediate termination of this Note.
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (18%) per annum.
<PAGE>
PROMISSORY NOTE DATED MAY 13, 1999
PAGE 2
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgment of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note as
principals and not as sureties.
Signed in the presence of:
/s/ROGER L. BUTTERWICK /s/JULES GOLLINS
Witness Auto Network Group of New Mexico, Inc.
Jules Gollins, President
INDIVIDUAL BORROWERS AND GUARANTORS
We the undersigned jointly and severally guaranty the prompt and punctual
payment of all monies due under the aforesaid note and agree to remain bound
until fully paid.
Signed in the presence of:
/s/ROGER L. BUTTERWICK /s/JULES GOLLINS
Witness ROGER L. BUTTERWICK Jules Gollins, Individual Guarantor
/s/JULES GOLLINS /s/SUZANNE GOLLINS
Witness JULES GOLLINS Suzanne Gollins, Individual Guarantor
/S/JULES GOLLINS /s/BRUCE BURTON
Witness Bruce Burton, Individual Guarantor
<PAGE>
PROMISSORY NOTE DATED MAY 13, 1999
PAGE THREE
/S/JULES GOLLINS /s/DARLENE BURTON
Witness Darlene Burton, Individual Guarantor
/S/JULES GOLLINS /s/STUART BURTON
Witness Stuart Bailey, Individual Guarantor
/S/JULES GOLLINS /s/CHERYL BURTON
Witness Cheryl Bailey, Individual Guarantor
<PAGE>
SECURED PROMISSORY NOTE
$100,000.00 Dated June 22, 1999
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 22nd day of June,
1999, by and between Autotradecenter.com Inc., a Arizona corporation having its
office at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260, AND,
Mark Moldenhauer, having his office at 8135 E. Butherus, Suite 3,
Scottsdale, Arizona 85260, hereinafter referred to as the LENDER.
Borrower promises to pay to the order of Lender the sum of One Hundred
Thousand Dollars ($100,000.00), together with interest thereon at the rate of
twelve percent (12%) per annum on the unpaid balance. Said sum shall be paid as
follows:
Interest payments of One Thousand Dollars ($1,000.00) payable in arrears
on the 22nd day of each month beginning July 22, 1999; and,
The principal amount of One Hundred Thousand Dollars ($100,000.00)
shall be payable on December 22, 1999 unless such termination of this Note shall
occur in which case all principal amount shall become immediately due and
payable.
This Note may be extended on a month-to-month basis.
This note may be prepaid, in full, at any time, without penalty.
This Note shall be secured by $100,000 worth of free and clear
inventory at all times.
The proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as security
and as collateral against the eventual repayment of this Note. Lender shall have
the right to verify and confirm this collateral at any time and violation of
this security shall be cause for the immediate termination of this Note.
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (18%) per annum.
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
<PAGE>
PROMISSORY NOTE DATED JUNE 22, 1999
PAGE 2
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgment of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note as
principals and not as sureties.
Signed in the presence of:
/s/DEBBIE STUART /s/MIKE STUART
Witness Autotradecenter.com Inc.
Mike Stuart, President
<PAGE>
SECURED PROMISSORY NOTE
$200,000.00 Dated June 22, 1999
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 22nd day of June,
1999, by and between Autotradecenter.com Inc., a Arizona corporation having its
office at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260, AND,
Pinnacle Financial Corporation, having its office at 8135 E. Butherus,
Suite 3, Scottsdale, Arizona 85260, hereinafter referred to as the LENDER.
Borrower promises to pay to the order of Lender the sum of Two Hundred
Thousand Dollars ($200,000.00), together with interest thereon at the rate of
twelve percent (12%) per annum on the unpaid balance. Said sum shall be paid as
follows:
Interest payments of Two Thousand Dollars ($2,000.00) payable in arrears
on the 22nd day of each month beginning July 22, 1999; and,
The principal amount of Two Hundred Thousand Dollars ($200,000.00)
shall be payable on December 22, 1999 unless such termination of this Note shall
occur in which case all principal amount shall become immediately due and
payable.
This Note may be extended on a month-to-month basis.
This note may be prepaid, in full, at any time, without penalty.
This Note shall be secured by $200,000 worth of free and clear
inventory at all times.
The proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as security
and as collateral against the eventual repayment of this Note. Lender shall have
the right to verify and confirm this collateral at any time and violation of
this security shall be cause for the immediate termination of this Note.
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (18%) per annum.
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
<PAGE>
PROMISSORY NOTE DATED JUNE 22, 1999
PAGE 2
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgment of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note as
principals and not as sureties.
Signed in the presence of:
/s/DEBBIE STUART /s/MIKE STUART
Witness Autotradecenter.com Inc.
Mike Stuart, President
<PAGE>
Certified Public Accountants & Business Consultants
[Letterhead of Price Kong & Company, P.A.]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
AUTOTRADECENTER.COM INC.
We consent to incorporation by reference in the registration statement
dated July 20,1999 on Form S-1 of AUTOTRADECENTER.COM INC. of our
report dated August 6, 1998, relating to the balance sheet of
AUTOTRADECENTER.COM INC., an Arizona corporation as of March 31, 1998,
and the related statements of income, stockholders' equity, and cash
flows for the period from inception (July 10, 1997) to March 31, 1998.
Sincerely,
/S/PRICE, KONG & COMPANY, P.A.
Price, Kong & Company, P.A.
Phoenix, Arizona
July 20, 1999
300 East Osborn Road
Suite 200
Phoenix, Arizona 85012
Fax: 602-279-4537
Voice: 602-279-0890
[Letterhead of Neff & Ricci LLP]
To the Board of Directors
AutoTradeCenter.com, Inc.
We consent to the incorporation by reference in the registration statement on
Form S-1 of AutoTradeCenter.com, Inc. of our report dated June 14, 1999,
relating to the consolidated balance sheet of AutoTradeCenter.com, Inc. and
subsidiaries as of March 31, 1999, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
/s/Neff & Ricci LLP
Albuquerque, New Mexico
July 19, 1999
CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
7001 Prospect Place NE o Albuquerque, NM 87110
(505)883-6612 o Fax (505)830-6282 o e-mail: [email protected]
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, AND THE NOTES THERETO, WHICH MAY BE FOUND
BEGINNING ON PAGE F-1 OF THE COMPANY'S FORM S-1 REGISTRATION STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 297,752
<SECURITIES> 0
<RECEIVABLES> 5,061,853
<ALLOWANCES> 90,055
<INVENTORY> 5,005,274
<CURRENT-ASSETS> 10,678,225
<PP&E> 193,090
<DEPRECIATION> 24,646
<TOTAL-ASSETS> 12,997,692
<CURRENT-LIABILITIES> 8,190,443
<BONDS> 1,975,623
0
372,037
<COMMON> 2,331,964
<OTHER-SE> 127,625
<TOTAL-LIABILITY-AND-EQUITY> 12,997,692
<SALES> 97,665,410
<TOTAL-REVENUES> 97,665,410
<CGS> 93,411,919
<TOTAL-COSTS> 2,772,192
<OTHER-EXPENSES> 963,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (416,779)
<INCOME-PRETAX> 171,820
<INCOME-TAX> 56,579
<INCOME-CONTINUING> 115,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,241
<EPS-BASIC> 0.008
<EPS-DILUTED> 0.008
</TABLE>
<TABLE>
AUTO TRADECENTER.COM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED MARCH 31, 1999
<CAPTION>
COLUMN C ADDITIONS
-----------------------------
(2) -
COLUMN B - (1) - CHARGED TO
BALANCE AT CHARGED TO OTHER COLUMN D - COLUMN E -
BEGINNING OF COSTS AND ACCOUNTS - DEDUCTIONS - BALANCE AT END
COLUMN A - DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
<S> <C> <C> <C> <C> <C>
(a) Allowance for
doubtful accounts $ - 90,055 - - 90,055
</TABLE>
