UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________TO____________
Commission File Number: 333-78659
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0879572
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, ARIZONA 85260
(Address of principal executive offices) (Zip Code)
(480) 951-8040
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
33,291,937 SHARES OF COMMON STOCK, NO PAR VALUE, AS OF SEPTEMBER 30, 2000
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flow
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
AutoTradeCenter.com Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
September 30,
2000 March 31,
(Unaudited) 2000
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 854,310 $ 4,355,738
Accounts receivable - trade, net 8,495,924 5,743,845
Accounts receivable - employees and brokers, net 690,594 332,122
Inventory 5,254,089 4,648,492
Prepaid expenses and other 171,986 110,272
------------- -------------
Total current assets 15,466,903 15,190,469
------------- -------------
Property and equipment, net 1,491,176 1,423,398
------------- -------------
Intangible assets, net 12,800,761 13,506,484
------------- -------------
Total assets $ 29,758,840 $ 30,120,351
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 6,612,166 $ 4,401,858
Accounts payable - employees and related parties 2,226 -
Notes payable - related party 4,555,817 4,086,128
Notes payable - bank 1,764,831 1,112,418
Accrued liabilities 230,283 245,049
------------- -------------
Total current liabilities 13,165,323 9,845,453
------------- -------------
Non-current liabilities:
Long-term debt - related party - 1,819,500
------------- -------------
Total non-current liabilities - 1,819,500
------------- -------------
Stockholders' equity:
Convertible preferred stock, Series C; $.10 par value;
400,000 shares authorized; 20,800 issued, 12,600 and 20,800 shares
outstanding at September 30, 2000 and March 31, 2000, respectively;
liquidation preference $110.00 per share 1,154,921 1,906,536
Convertible preferred stock, Series D; $.10 par value;
600,000 shares authorized; 31,200 issued, 16,300 and 31,200 shares
outstanding at September 30, 2000 and March 31, 2000, respectively;
liquidation preference $100.00 per share 1,494,064 2,859,805
Common stock, no par value; 100,000,000 shares authorized;
33,291,937 and 27,652,609 shares issued and outstanding
at September 30, 2000 and March 31, 2000, respectively 22,358,564 19,779,542
Retained deficit (8,414,032) (6,090,485)
------------- -------------
Total stockholders' equity 16,593,517 18,455,398
------------- -------------
Total liabilities and stockholders' equity $ 29,758,840 $ 30,120,351
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
AutoTradeCenter.com Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 44,628,211 $ 34,353,054 $ 84,094,842 $ 68,648,490
Cost of sales 42,259,304 33,116,143 79,540,903 65,570,756
------------- ------------- ------------- -------------
Gross profit 2,368,907 1,236,911 4,553,939 3,077,734
------------- ------------- ------------- -------------
Operating expenses:
Selling 1,769,223 710,324 3,311,532 1,963,218
General and administrative 1,178,998 519,824 2,217,988 863,802
Depreciation and amortization 467,148 61,636 931,108 147,887
------------- ------------- ------------- -------------
Total operating expenses 3,415,369 1,291,784 6,460,628 2,974,907
------------- ------------- ------------- -------------
Income (loss) from operations (1,046,462) (54,873) (1,906,689) 102,827
------------- ------------- ------------- -------------
Other income (expense):
Miscellaneous 18,650 16,911 68,944 42,978
Bad debt expense (75,000) - (75,000) -
Interest expense (200,081) (263,633) (410,803) (455,416)
------------- ------------- ------------- -------------
Total other income (expense) - net (256,431) (246,722) (416,859) (412,438)
------------- ------------- ------------- -------------
Loss before income taxes (1,302,893) (301,595) (2,323,548) (309,611)
Income tax benefit - 54,987 - 55,549
Minority interest in loss of subsidiaries - 47,330 - 50,320
------------- ------------- ------------- -------------
Net loss $ (1,302,893) $ (199,278) $ (2,323,548) $ (203,742)
============= ============= ============= =============
Weighted average common
shares outstanding - basic 32,940,112 20,735,084 32,472,273 20,685,084
============= ============= ============= =============
Basic loss per share $ (0.04) $ (0.01) $ (0.07) $ (0.01)
============= ============= ============= =============
Weighted average common
shares outstanding - diluted 32,940,112 20,735,084 32,472,273 20,685,084
============= ============= ============= =============
Diluted loss per share $ (0.04) $ (0.01) $ (0.07) $ (0.01)
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
AutoTradeCenter.com Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,323,548) $ (203,742)
Depreciation and amortization 931,108 147,887
Bad debt expense 75,000 -
(Increase) decrease in:
Accounts receivable (3,185,551) (1,310,846)
Inventory (605,597) (162,665)
Prepaid expenses and other current assets (44,135) (116,734)
Increase (decrease) in:
Accounts payable 2,212,534 445,288
Accrued liabilities (14,767) (151,002)
------------- -------------
Net cash provided by (used in) operating activities (2,954,956) (1,351,814)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (374,597) (90,613)
Sale of property and equipment 63,856 59,044
------------- -------------
Net cash provided by (used in) investing activities (310,741) (31,569)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings 40,483,323 51,174,637
Repayment of borrowings (39,830,910) (51,577,933)
Proceeds from borrowings - related party 912,841 1,796,267
Repayment of borrowings - related party (1,962,652) (139,447)
Proceeds from issuance of common stock 161,667 200,000
------------- -------------
Net cash provided by financings activities (235,731) 1,453,524
------------- -------------
Net change in cash (3,501,428) 70,141
Beginning cash balance 4,355,738 297,752
------------- -------------
Ending cash balance $ 854,310 $ 367,893
============= =============
Supplemental disclosures:
Interest paid $ 410,803 $ 455,416
============= =============
Income taxes paid $ - $ -
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE A - PRESENTATION OF FINANCIAL STATEMENTS
The condensed consolidated financial statements of AutoTradeCenter.com
Inc. ("AUTC") or the "Company," which refers to AutoTradeCenter.com Inc, and its
subsidiaries have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These statements reflect
all adjustments (including all normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations, and cash flows of AUTC as of September 30, 2000 and for all of
the periods presented. These statements are condensed and do not include all of
the information required by generally accepted accounting principles in a full
set of financial statements. These statements should be read in conjunction with
AUTC's financial statements and notes thereto included in AUTC'S Annual Report
on Form 10-K for its fiscal year ended March 31, 2000.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Auto Network Group of Arizona, Inc.
("ANET-AZ"), Auto Network Group of New Mexico, Inc. ("ANET-NM"), Auto Network
Group Northwest, Inc. ("ANET-NW"), Auto Network Group of Pennsylvania, Inc.
("ANET-PA"), Auto Group of San Antonio LTD. ("AUTC-SA"), Pinnacle Dealer
Services, Inc. ("PDS"), National Dealer Services ("NDSCo"), AutoTradeCenter
Remarketing Services Inc. formerly Walden Remarketing Services, Inc. ("Walden
Remarketing"), and BusinessTradeCenter.com Inc. ("BTC"). All material
intercompany accounts and transactions have been eliminated.
NOTE B - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) 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. Since the Company operated at a loss for
all periods stated the computation of diluted earnings per share would be
anti-dilutive. Accordingly basic and diluted earnings (loss) per share are
equivalent.
NOTE C - SEGMENT REPORTING
The Company is required to report information about operating segments
in and related disclosures about products and services, geographic areas and
major customers. For the year ended March 31, 2001 the Company is reporting
income in two segments: (1) Land-based operations and (2) Internet operations.
Information relating to the Company's segments is more fully presented in
Management's Discussion and Analysis contained elsewhere in this Quarterly
Report.
6
<PAGE>
NOTE D- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
----------- -----------
<S> <C> <C>
Trade accounts receivable $ 8,730,530 $ 5,828,411
Due from employees and independent wholesale brokers 1,657,713 1,378,092
----------- -----------
10,388,243 7,206,503
Allowance for doubtful accounts 1,201,725 1,130,536
----------- -----------
Total $ 9,186,518 $ 6,075,967
=========== ===========
The allowance for doubtful accounts consist of the following:
Beginning of the year $ 1,130,536 $ 90,055
Provision for bad debts 75,000 1,045,970
Write offs 3,811 5,489
Recoveries - -
----------- -----------
End of the quarter $ 1,201,725 $ 1,130,536
=========== ===========
</TABLE>
NOTE E - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
----------- -----------
<S> <C> <C>
Goodwill $13,746,926 $13,746,926
Other 3,228 21,278
----------- -----------
13,750,154 13,768,204
Less accumulated amortization 949,393 261,720
----------- -----------
$12,800,761 $13,506,484
=========== ===========
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
Preferred and Common Stock
During June of 2000, holders of $750,000 and $1,125,000 of series C and
series D convertible preferred shares (7,500 and 11,250 respectively) elected to
convert such shares to common shares. Based on the formulae contained in the
terms of the preferred shares, 1,925,678 shares of common stock were issued
during the second calendar quarter of the fiscal year ending March 31, 2001. In
July of 2000, other holders of 700 and 1,050 shares of series C and D
convertible stock, respectively, have elected to convert their shares into
179,213 common shares. In September 2000, we issued 308,404 shares of common
stock to other holders upon the conversion of 2,600 shares of Series D
convertible preferred stock. Upon issuance, these shares will become registered
and available for sale (subject to certain lock-up provisions) upon the
acceptance by the Securities and Exchange Commission of previous filings on Form
S-1 and Form 10-K. We also issued 218,875 common shares for $161,667 upon the
exercise of stock options during the six months ended September 30, 2000.
7
<PAGE>
NOTE G - ACQUISITION OF SUBSIDIARIES.
AUTO GROUP OF SAN ANTONIO, LTD.
Effective April 1, 2000, the Company opened an office and warehouse
wholesale operation in San Antonio, Texas. Auto Group of San Antonio Ltd., a
Texas limited partnership, conducts business in San Antonio. The Company is the
sole limited partner and the sole owner of a newly formed limited liability
company which serves as the general partner.
AUTO NETWORK GROUP OF EASTERN PA., INC.
Effective April 1, 2000, the Company opened an office and warehouse
wholesale operation in the Philadelphia, Pennsylvania area. The business in
Pennsylvania is conducted by Auto Network Group of Eastern Pa., Inc., a
Pennsylvania corporation. The Company is the sole shareholder of this
Pennsylvania operation. As of September 30, 2000, we decided to close our
operations in Pennsylvania since certain performance obligations by the local
management were not met. We anticipate that closing this operation will result
in a loss, the extent of which is not determinable at this time. However, as of
September 30, 2000, we have established an allowance for losses of $150,000
respecting our Pennsylvania operation.
8
<PAGE>
ITEM 2. 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 for the respective three and six-month periods ending September
30, 1999 and 2000.
GENERAL
The presentation includes a discussion of us with our wholly owned
subsidiaries, Auto Network Group of Arizona, Inc. ("ANET-AZ"), Auto Network
Group of New Mexico, Inc. ("ANET-NM"), Auto Network Group Northwest, Inc.
("ANET-NW"), Auto Network Group of Pennsylvania, Inc. ("ANET-PA") Auto Group of
San Antonio Ltd. ("ANET-SA"). Auto Network Group of Denver Inc., ("ANET-D')
Pinnacle Dealer Services, ("PDS") Inc., National Dealer Services ("NDSCo"),
AutoTradeCenter Remarketing Services Inc. formerly Walden Remarketing Services,
Inc. ("Walden Remarketing"), and BusinessTradeCenter.com Inc. ("BTC")
As a result of the acquisition of our subsidiaries, as further
described in the following paragraphs, the trend information should be carefully
read and evaluated.
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. Auction Finance Group, with whom we had a
contract to provide such financing services, recently was acquired by an outside
third party who subsequently terminated Auction Finance's agreement with us.
Accordingly, we will receive no additional revenue from this source. The loss of
this revenue will not be material to us. We currently are exploring alternative
finance programs that may be made available to our dealer network for retail
customers who purchase used cars from these dealers.
On July 20, 1999, we opened our office and warehouse facility in Bend,
Oregon. On April 1, 2000, we began operations in the Philadelphia, Pennsylvania
area, with the incorporation of Auto Network Group of Eastern Pa., Inc. At the
same time, we began operations in San Antonio, Texas, with the establishment of
Auto Group of San Antonio Ltd., a Texas limited partnership. In each of these
transactions, we entered into a management consulting agreement with the
individual or entity responsible for managing each respective operation. Under
these agreements, certain of our common shares have been issued to such
managers, subject to forfeiture based on both future earnings levels and
continuity of management. In addition, options to acquire additional common
shares can be earned by management based on future performance. As part of our
agreements certain of these managers have contributed debt subordinate to our
interest to each operation to help provide liquidity and protect us from the
first losses, if any, sustained by these operations. On August 2, 2000, we
formed a new wholly owned subsidiary, Auto Network Group of Denver, Inc., and
leased a facility in Denver, Colorado. We anticipate that Auto Network Group of
Denver, Inc. will allow us to increase our presence in this area resulting in
additional revenue and income.
In January 1999, we announced the development of our Internet site
WWW.AUTOTRADECENTER.COM. Our now wholly owned subsidiary,
BusinessTradeCenter.com, owns and operates the site development and technology
for the site. The start-up costs for the development of the site were not
material, since the prior minority owner of BusinessTradeCenter.com contributed
the technology for the site design for its ownership interest. Through
9
<PAGE>
October 31, 2000, no revenues had been generated from the operations of this
site. Effective February 1, 2000, a new web site powered by our technology began
generating revenue. Access to this web site is limited to American Honda Finance
Corporation and its dealer base. Our remarketing agreement with Honda Finance
Corporation gives us an exclusive contract to remarket, over the Internet, all
of Honda's off-lease vehicles for two years. The Honda web site became
operational in all Honda and Acura dealerships by June 15, 2000 upon completion
of a phase in period beginning April 2000. The opportunity to enter into the
agreement with American Honda Finance Corporation (`Honda") and others resulted
directly from our acquisition of Walden Remarketing Services on March 31, 1999.
Walden Remarketing Services is now known as AutoTradeCenter Remarketing
Services. We have initiated a pilot program with American Suzuki Motor
Corporation ("ASMC") similar to the program developed for Honda, utilizing our
Internet technology systems and procedures to remarket their program vehicles to
dealers. The pilot program began in September 2000. Through October 31, 2000 we
have sold substantially all of the AMSC Suzuki vehicles uploaded on the site and
are expanding our web-enhanced vehicle-remarketing program known as ("PROLine")
to the western United States.
In December 1999, we introduced our second Internet site,
WWW.TRADEINCARSONLINE.COM, which has been designed to facilitate the Internet
car buying process by providing a firm bid on trade-ins. We initiated a pilot
program in Arizona in May 2000. As a result of this pilot program we have
determined that, to be commercially successful, we will have to substantially
change our software and program content. Not -with -standing our perceived
program changes we have entered into a strategic alliance with
WWW.AUTOBYTEL.COM, an Internet company that sells new cars on line. Our
non-binding letter of intent with Autobytel.com calls for us to make a firm bid
on trade-ins from their prospective customers. If we are successful in acquiring
cars through this program we intend to wholesale such cars either through our
land-based operations (Auto Network Group) or over the Internet to our dealer
network. This alliance has not proved to be commercially successful at this
time, however we continue to discuss executing an agreement with Autobytel.com
Inc. In addition, we are currently discussing a program with an on-line used
car-buying service, wherein we will provide, for a buy fee, used cars to such
service, utilizing both our Internet remarketing programs and our land-based
operations. We anticipate reaching a final agreement with this company before
the end 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net (loss) was $(1,302,893) or $(0.04) per share for the three months
ended September 30, 2000, as compared to a net loss of $(199,278) or ($ 0.01 per
share) for the three months ended September 30, 1999.
For the quarter ended September 30, 2000, we reported consolidated net
sales of $44,628,211 as compared to sales of $34,353,054 for the quarter ended
September 30, 1999.
For the fiscal year ending March 30, 2001 we are reporting our results
of operations in two segments: Land-Based and Internet:
10
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT - SEGMENT REPORTING
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------
LAND-BASED INTERNET TOTAL
------------------------------------------------
<S> <C> <C> <C>
Net sales $44,374,696 $253,515 $44,628,211
Cost of sales 42,259,304 - 42,259,304
------------------------------------------------
Gross profit 2,115,392 253,515 2,368,907
------------------------------------------------
Operating expenses:
Selling 1,588,623 180,600 1,769,223
General and administrative 429,526 285,600 715,126
Depreciation and amortization 7,660 34,821 42,481
------------------------------------------------
Total operating expenses 2,025,809 501,021 2,526,830
------------------------------------------------
Income (loss) from operations 89,583 (247,506) (157,923)
------------------------------------------------
Other income (expense):
Miscellaneous 2,801 - 2,801
Bad debt expense (75,000) - (75,000)
Interest expense (201,576) - (201,576)
------------------------------------------------
Total other income (expense) - net (273,775) - (273,775)
------------------------------------------------
Loss before Corporate expenses $(184,192) $(247,506) $(431,698)
------------------------------------------------
Corporate expenses
Salary 218,793
Other 227,734
Depreciation and amortization 424,668
------------
871,195
------------
Loss before income taxes $(1,302,893)
============
</TABLE>
11
<PAGE>
LAND-BASED OPERATIONS
The following tables present sales; cost of sales, and profit analysis
for the three-month periods ended September 30, 1999 and 2000.
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SALES COST OF SALES PROFIT ANALYSIS
------------------ -----------------------------------------------------
Amount Number Average Amount Gross Gross Gross
of cars sales profit profit profit as a
sold price per car percent of
sales
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona $22,793,340 1,433 $15,906 $22,328,725 $ 464,615 $ 324 2.04%
New Mexico 9,148,614 855 10,700 8,529,979 618,635 724 6.76%
Oregon 2,411,100 140 17,222 2,257,439 153,661 1,098 6.37%
----------------------------------------------------------------------------------------------
$34,353,054 2,423 $14,149 $33,116,143 $1,236,911 $ 509 3.60%
==============================================================================================
THREE MONTHS ENDED SEPTEMBER 30, 2000
SALES COST OF SALES PROFIT ANALYSIS
------------------ -----------------------------------------------------
Amount Number Average Amount Gross Gross Gross
of cars sales profit profit profit as a
sold price per car percent of
sales
----------------------------------------------------------------------------------------------
Arizona $21,242,700 1,193 $17,806 $20,619,720 $ 622,981 $ 522 2.93%
New Mexico 9,613,891 886 10,851 9,029,230 584,661 660 6.08%
Oregon 7,106,119 399 17,810 6,614,074 492,044 1,233 6.92%
San Antonio 6,162,241 527 11,693 5,748,943 413,298 784 6.71%
Pennsylvania 249,745 51 4,897 247,337 2,408 47 Nil
----------------------------------------------------------------------------------------------
Total $44,374,696 3,056 $14,521 $42,259,304 $2,115,392 $ 692 4.77%
==============================================================================================
</TABLE>
Operating income from our land-based operations for the second quarter
of fiscal 2001, as compared to the second quarter of fiscal 2000, were
positively affected by profitable operations in our San Antonio and New Mexico
subsidiaries, and adversely has been affected by negative results in
Pennsylvania, and Arizona. Our operating loss in Pennsylvania, totaling
$160,713, was exacerbated by our decision to close our operations in
Pennsylvania due to the manager's failure to live up to his contractual
obligations including, among other things, his failure to make the capital
contribution agreed to when we began these operations. Included in the loss for
Pennsylvania for the quarter is an allowance for losses of $150,000 which we
estimate will be sustained in closing this facility and collecting the balance
of the $300,000 advanced by us to this operation. It is possible that additional
allowances respecting final resolution of this advance will be required. We are
pursuing all legal remedies available to us to collect the balance of this
advance from the former manager.
12
<PAGE>
As we discussed last quarter, our New Mexico operations, which showed a
loss for the first quarter of our fiscal year ended March 31, 2001, turned
around resulting in over $35,000 in profit during the second quarter of 2001. In
comparison, during the second quarter of our fiscal year ended March 31, 2000,
our New Mexico operations earned $37,626. Our Oregon operation earned $32,863
for the three months ended September 30, 2001 compared to a loss of $555 in the
same period last year. We earned $18,031 in San Antonio during the quarter. The
San Antonio operation began in April 2000.
Arizona's decline in sales and gross profit substantially is due to
the termination of work for hire agreements with two high volume brokers during
the second quarter of our fiscal year ended March 31, 2000. The higher number of
cars sold and the lower sales price per car sold last year was primarily due to
the liquidation of vehicles previously acquired by these brokers. In order to
sell certain of these vehicles we were required to reduce sales prices resulting
in lower gross margins. Gross margins per car sold increased to $522 during the
second quarter of 2001 as compared to $324 during the second quarter of 2000 as
a result thereof. However our Arizona subsidiary has not been able to reduce
sufficiently its fixed costs of operations to operate profitably. We continue to
suffer losses in Arizona due to such high fixed costs of operations that were
incurred to support a much larger volume of sales than currently is being
generated. We are reevaluating all of our land-based operations including
Arizona in an effort to return to profitability in this segment. We did not
increase our allowances for doubtful accounts (they were decreased by $75,000)
or increase reserves to reduce inventory to net-realizable value as the
previously established allowances and reserves adequately valued these assets at
September 30, 2000. A substantial portion of the allowance for losses and
reserves established by us in the fiscal year ended March 31, 2000 was directly
related to inventory acquired by and sales booked by the above-mentioned
brokers. Sales data regarding our operations in Denver are included in Arizona
as in prior quarters.
Gross profit as a percent of sales was 4.77% for the quarter ended
September 30, 2000, as compared to 3.60% for the quarter ended September 30,
1999. Higher margins earned by our New Mexico, Oregon, and San Antonio
land-based operations more than offset lower margins from our Arizona and
Pennsylvania operations. Average gross profit per car sold increased to $670 per
car in the second quarter of 2001 as compared to $509 per car in the second
quarter of 2000. The increase primarily was due to increased profitability in
Arizona sales, as well as higher profits per car sold, from operations outside
of Arizona as a percent of total sales.
Total operating expenses before depreciation and amortization increased
$788,001 to $2,018,149 for the three months ended September 30, 2000, as
compared to $1,230,148 during the same period in 1999. All of this increase is
related to selling expenses which increased $878,299 due in part to higher
revenue earned during the current quarter. Selling expenses were 3.58% of
revenues for the quarter ended September 30, 2000, as compared to 2.07% in the
comparable quarter in 1999. The lower selling expense as a percent of sales
during the quarter ended September 30, 1999 was primarily due to the liquidation
of automobiles with no sales commissions as discussed above. General and
administrative expenses decreased by $90,298 due to the adoption of segment
accounting where by certain items included in expense in the quarter ended
September 30, 1999 were included in the Internet segment in the current quarter.
For our fiscal year ending March 31, 2001, we adopted for the first
time segment accounting to report the results of operations from our land-based
business separately from our Internet operations. For our fiscal year ended
March 31, 2000, all corporate overhead was included in operating expenses of our
land-based operations, our only revenue source and single segment. In the first
quarter of our fiscal year ended March 31, 2001, as we began to earn revenue
from our Internet operations, we charged direct operating expenses to land-based
and Internet operations respectively. Expenses not directly related to these
revenue-producing segments are considered corporate overhead and deducted from
income (loss) from operations generated by our operating segments.
Interest expense was $200,081 for the quarter ending September 30, 2000
as compared to $263,633 for the quarter ended September 30, 1999. Funds obtained
from borrowings are used to finance our accounts receivable and inventory in our
land-based operations. The effective annualized rate of interest was
approximately 11% for both periods.
13
<PAGE>
INTERNET OPERATIONS
Net sales from our Internet operations were $253,515 for the three
months ended September 30, 2000. Substantially all of this revenue was earned
from our contract with American Honda Finance Corporation. The first Honda and
Acura vehicles were listed on our site in April 2000, available only to dealers
in California. By June 15, 2000, all Honda and Acura dealers in the United
States were utilizing the Honda remarketing Internet site to acquire off-lease
vehicles. We marketed approximately 7,800 vehicles during the quarter.
Operating expenses for our Internet segment include salaries for
management, sales, marketing and our call-center. We maintain a call-center to
better serve all Honda and Acura Dealers 24 hours per day, 7 days per week.
General and administrative expenses include over $150,000 for hosting and
maintaining our Honda Web site. We also spent approximately $50,000 for travel
and other costs related to marketing and promotion. The balance of operating
expenses is made up of normal business expenses. Depreciation primarily is from
computer equipment required to run our Internet sites as well as office
furniture and equipment.
CORPORATE EXPENSES
Corporate expenses primarily are made up of executive salaries and
related costs, including executive travel, professional fees including, among
others, legal fees and audit fees, and other professional services related to
public relations and capital accumulation.
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER
30, 1999
Net (loss) was $(2,323,548) or $(0.07) per share for the six months
ended September 30, 2000 as compared to a net loss of $(203,742) or $(0.01 per
share) for the six months ended September 30, 1999.
For the six months ended September 30, 2000, we reported consolidated
net sales of $84,094,842 as compared to sales of $68,648,490 for the six months
ended September 30, 1999.
For the fiscal year ending March 30, 2001, we are reporting our results
of operations in two segments: Land-Based and Internet:
14
<PAGE>
AUTOTRADECENTER.COM INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT - SEGMENT REPORTING
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------
LAND-BASED INTERNET TOTAL
-------------------------------------------------
<S> <C> <C> <C>
Net sales $83,649,877 $ 444,965 $84,094,842
Cost of sales 79,540,903 - 79,540,903
-------------------------------------------------
Gross profit 4,108,974 444,965 4,553,939
-------------------------------------------------
Operating expenses:
Selling 3,003,026 308,506 3,311,532
General and administrative 842,331 492,999 1,335,330
Depreciation and amortization 26,085 67,914 93,999
-------------------------------------------------
Total operating expenses 3,871,442 869,419 4,740,861
-------------------------------------------------
Income (loss) from operations 237,532 (424,454) (186,922)
-------------------------------------------------
Other income (expense):
Miscellaneous 15,578 - 15,578
Bad debt expense (75,000) - (75,000)
Interest expense (410,803) - (410,803)
-------------------------------------------------
Total other income (expense) - net (470,225) - (470,225)
-------------------------------------------------
Loss before Corporate expenses $ (232,693) $(424,454) $ (657,147)
-------------------------------------------------
Corporate expenses
Salary 411,364
Other 417,928
Depreciation and amortization 837,109
---------------
Total Corporate expenses 1,666,401
---------------
Loss before income taxes $(2,323,548)
===============
</TABLE>
15
<PAGE>
LAND-BASED OPERATIONS
The following tables present sales; cost of sales, and profit analysis
for the six-month periods ended September 30, 1999 and 2000.
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SALES COST OF SALES PROFIT ANALYSIS
------------------ -----------------------------------------------------
Amount Number Average Amount Gross Gross Gross
of cars sales profit profit profit as a
sold price per car percent of
sales
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona $49,315,383 2,910 $ 16,947 $ 47,560,623 $1,764,760 $ 606 3.58%
New Mexico 16,922,007 1,497 11,304 15,762,695 1,159,312 774 6.85%
Oregon 2,411,100 140 17,222 2,257,439 153,661 1,098 6.37%
----------------------------------------------------------------------------------------------
$68,648,490 4,547 $ 15,098 $ 65,570,757 $3,077,733 $ 677 4.48%
==============================================================================================
SIX MONTHS ENDED SEPTEMBER 30, 2000
SALES COST OF SALES PROFIT ANALYSIS
------------------ -----------------------------------------------------
Amount Number Average Amount Gross Gross Gross
of cars sales profit profit profit as a
sold price per car percent of
sales
----------------------------------------------------------------------------------------------
Arizona $40,616,771 2,302 $ 17,644 $ 39,228,535 $1,388,236 $ 603 3.42%
New Mexico 18,261,140 1,633 11,183 17,229,509 1,031,631 632 5.65%
Oregon 11,985,746 750 15,981 11,139,377 846,369 1,128 7.06%
San Antonio 11,649,613 970 12,010 10,869,727 779,886 804 6.69%
Pennsylvania 1,136,607 205 5,544 1,073,756 62,851 307 5.53%
----------------------------------------------------------------------------------------------
Total $83,649,877 5,860 $ 14,275 $ 79,540,903 $4,108,974 $ 701 4.91%
==============================================================================================
</TABLE>
Operating income from our land-based operations for the six months
ended September 30, 2000, as compared to the comparable period of our previous
fiscal year, positively was affected by profitable operations in our San
Antonio, New Mexico and Oregon subsidiaries, and adversely affected by negative
results in Pennsylvania, and Arizona.
Our operating loss in Pennsylvania, totaling $172,612, was exacerbated
by our decision to close our operations in Pennsylvania due to the manager's
failure to live up to his contractual obligations, that among other things
included his failure to make the capital contribution, agreed to when we began
these operations. Included in the loss for Pennsylvania for the period is an
allowance for losses of $ 150,000 which we estimate will be sustained in closing
this facility and collecting the balance of the $300,000 advanced by us to this
operation. It is possible that additional allowances respecting final resolution
of this advance will be required. We are pursuing all legal remedies available
to us to collect the balance of this advance from the former manager.
16
<PAGE>
As we discussed last quarter, our New Mexico operations, which showed a
loss for the first quarter of fiscal 2001, turned around resulting in total
operating income for the first six months of 2001 of $28,983. In the first six
months of our fiscal year ended March 31, 2000, our New Mexico operations earned
$62,990. Our Oregon operation earned $68,159 for the six months ended September
30, 2000 as compared to a loss of $555 in the same period last year. We earned
$54,335 in San Antonio during the first six months of this year. The San Antonio
operation began in April 2000.
Arizona's decline in sales and gross margins in the first six months
of our fiscal year ended March 31, 2001, substantially is due to the termination
of work for hire agreements with two high volume brokers during the second
quarter of our last fiscal year. These brokers have not been replaced. We
continue to suffer losses in Arizona due to high fixed costs of operations that
were incurred to support a much larger volume of sales than currently is being
generated. We are reevaluating our entire land-based operations including
Arizona in an effort to return to profitability in this segment. Gross margins
per car sold in Arizona were approximately the same this year and last year. We
did not increase our allowances for doubtful accounts (they were decreased by $
75,000), or increase reserves to reduce inventory to net-realizable value as the
previously established allowances and reserves adequately valued these assets at
September 30, 2000. A substantial portion of the allowance for losses and
reserves established by us in the fiscal year ended March 31, 2000 was directly
related to inventory acquired by and sales booked by these same brokers. Sales
data regarding our operations in Denver are included in Arizona as in prior
quarters.
Gross profit as a percent of sales was 4.91% for the six months ended
September 30, 2000, as compared to 4.48% for the six months ended September 30,
1999. Higher margins earned by our New Mexico, Oregon, and San Antonio
land-based operations more than offset lower margins from our Arizona operation.
Average gross profit per car sold increased to $701 per car for the first six
months of fiscal 2001 as compared to $677 per car for the first six months of
fiscal 2000. The increase primarily was due to increased per car profitability
from Arizona sales, as well as higher profits per car sold, from operations
outside of Arizona as a percent of total sales.
Total operating expenses before depreciation and amortization increased
$1,018,337 to $3,845,357 for the six months ended September 30, 2000 as compared
to $2,827,020 during the same period in 1999. All of this increase is related to
selling expenses which increased $1,039,808 primarily due to commissions paid on
higher sales revenues during the first six months of our fiscal year ended March
31, 2001 as compared to the prior year. Selling expenses were 3.59% of revenues
for the six months ended September 30, 2000, as compared 2.86% in the comparable
six months in 1999. The lower selling expense as a percent of sales during the
six months ended September 30, 1999 was primarily due to the liquidation of
automobiles with no sales commissions during the period. General and
administrative expenses decreased by $21,471 due to the adoption of segment
accounting where by certain items included in expense in the six months ended
September 30, 1999 were included in the Internet segment during the current six
months.
For our fiscal year ended March 31, 2001, we adopted for the first time
segment accounting to report the results of operations from our land-based
business separately from our Internet operations. For our fiscal year ended
March 31, 1999, all corporate overhead was included in operating expenses of our
land-based operations, our only revenue source and single segment. In the first
quarter of 2001, as we began to earn revenue from our Internet operations, we
charged direct operating expenses to land-based and Internet operations
respectively. Expenses not directly related to these revenue-producing segments
are considered corporate overhead and deducted from income (loss) from
operations generated by our operating segments.
Interest expense was $410,803 for the six months ending September 30,
2000 as compared to $455,416 for the six months ended September 30, 1999. Funds
obtained from borrowings are used to finance our accounts receivable and
inventory in our land-based operations. The effective annualized rate of
interest was approximately 11% for both periods.
INTERNET OPERATIONS
Net sales from our Internet operations were $444,965 for the six months
ended September 30, 2000. Substantially all of this revenue was earned from our
contract with American Honda Finance Corporation. The first
17
<PAGE>
Honda and Acura vehicles were listed on our site in April 2000, available only
to dealers in California. By June 15, 2000, all Honda and Acura dealers in the
United States were utilizing the Honda remarketing Internet site to acquire
off-lease vehicles. We marketed approximately 12,000 vehicles during the first
six months of the current year.
Operating expenses for our Internet segment for the six months ended
September 30, 2000 include salaries for management, sales, marketing and our
call-center. We maintain a call-center to better serve all Honda and Acura
Dealers 24 hours per day, 7 days per week. General and administrative expenses
include approximately $200,000 for hosting and maintaining our Honda Web site.
We also spent approximately $100,000 for travel and other costs related to
marketing and promotion. The balance of operating expenses is made up of normal
business expenses. Depreciation primarily is from computer equipment required to
run our Internet sites as well as office furniture and equipment.
CORPORATE EXPENSES
Corporate expenses primarily are made up of executive salaries and
related costs, including executive travel, professional fees including, among
others, legal fees and audit fees, and other professional services related to
public relations and capital accumulation.
In addition to depreciation and amortization allocated directly to our
Land-Based and Internet segments, depreciation and amortization for the three
and six months ended September 30, 2000, included in corporate expense, totaled
$467,148 and $931,108 respectively, as compared to total depreciation and
amortization for the same periods last year of $61,636 and $147,887. The
substantial increase in depreciation and amortization primarily is due to
amortization of goodwill resulting from our acquisitions during our fiscal year
ended March 31, 2000 of NDSCo, the minority interest in BTC, and ANET-NW. As a
result of these acquisitions intangible assets-net increased to $12,800,761 at
September 30, 2000 from $2,776,380 at September 30, 1999.
FINANCIAL CONDITION
The following table sets out assets used by our operating and corporate
segments:
AUTOTRADECENTER.COM
ASSETS USED BY BUSINESS SEGMENTS
9/30/2000
<TABLE>
<CAPTION>
LAND-BASED INTERNET CORPORATE TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets $15,445,244 $ 21,659 $15,466,903
Fixed Assets 1,166,481 324,695 1,491,176
Intangibles and other 512 12,800,249 12,800,761
-------------------------------------------------------------------
Total $16,611,725 $346,866 $ 12,800,249 $29,758,840
</TABLE>
Total assets decreased by $361,511 to $29,758,840 at September 30,
2000 as compared to $30,120,351 at March 31, 2000. Total liabilities increased
by $1,500,370 to $13,165,323 at June 30, 2000 from $11,664,953 at March 31,
2000. The increase in liabilities is directly related to our use of cash
(burn-rate) to fund our Internet and land-based operations during the first six
months of our fiscal year ended March 31, 2001. During this period we used in
excess of $200,000 per month to fund operations. Additionally we used over
$300,000 to acquire property and equipment needed to expand our operations.
During the first six months of our fiscal year ended March 31, 2001,
holders of $820,000 and $1,485,000 of our series C and series D convertible
preferred shares (8,200 and 14,900 shares, respectively) elected to convert
18
<PAGE>
such shares to common shares. Based on the formulae contained in the terms of
the preferred shares we issued 484,775 shares of common stock during the second
calendar quarter of the fiscal year ending March 31, 2001. Since these
shareholders made a firm election to convert their preferred shares prior to
September 30, 2000, our financial statements have been prepared giving effect to
such conversion. These shares will become registered and available for sale
(subject to certain lock-up provisions) upon the effectiveness of a registration
statement covering these shares filed with the Securities and Exchange
Commission.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) decreased
during the six months ended September 30, 2000 by $3,043,436. At September 30,
2000 working capital was $ 2,301,580, as compared to $3,071,192 at June 30, 2000
and $5,345,016 at March 31, 2000. A substantial amount of the decrease from
March 31, 2000 is due to the reclassification of $1,819,500 of long-term debt to
short-term debt as the maturity date for such debt was less than twelve months
as of September 30, 2000.
We used $2,954,956 of cash to support our operating activities for the
six months ended September 30, 2000, as compared to $1,351,814 for the six
months ended September 30, 1999. The major components contributing to the use of
cash funds for operations for the six months ended September 30, 2000, other
than our net loss for the period of $2,323,548 reduced by $931,108 for
depreciation and amortization and $75,000 for an addition to our allowance for
bad debt, were the increase in accounts receivable of $3,185,551 and the
increase in inventory of $605,597, less the increase in accounts payable of
$2,212,534. Other changes in current assets and liabilities resulted in a
further use of cash of $58,902. Accounts receivable, inventories, and accounts
payable increased primarily due our use of funds to support our start-up of
Internet operations and to the expansion of our land-based operations to San
Antonio and Pennsylvania. For the period ending September 30, 1999, accounts
receivable increased $1,310,846, inventories increased $162,665, and prepaid
expenses and other current assets increased $116,734. Additional uses of cash
were the decrease in accounts payable of $445,288 and the decrease in accrued
liabilities of $151,002. The changes in these assets and liabilities primarily
resulted from our business expansion in Arizona and our initiation of operations
in New Mexico.
Our investing activities for the six months ended September 30, 2000
and 1999 required a use of cash of $310,741 and $31,569, respectively. For the
six months ended September 30, 2000, our investing activities comprised solely
of the net purchase of property and equipment. Property and equipment acquired
in the six months ended September 30, 2000 primarily were computer hardware and
software required for business expansion and our e-commerce and Internet
operations. During the six months ended September 30, 1999 we added $31,569 of
furniture and equipment net of dispositions.
We repaid net borrowings during the first six months of our fiscal year
ending March 31 2001 in the amount of $397,398, as compared to additional
borrowings of $1,653,524 during the same period last year. We increased cash
from the sale of common shares primarily related to the exercise of previously
issued stock options. Proceeds from such issuances were $161,667 during the
current period and $200,000 last year
On March 26, 1999, we obtained a $3,000,000 revolving line of credit
with Wells Fargo Business Credit, Inc. that provided sufficient short-term
liquidity and capital to implement our business plan, including providing for
the expansion into other markets. The note that evidences this obligation to
Wells Fargo Business Credit bears interest at 1.5% over prime and has been
extended from its original due date of March 31, 2000 to June 30, 2000, and
subsequently to November 30, 2000. The amount outstanding on our revolving line
of credit at September 30, 2000 was $1,764,831. At March 31, 2000 our bank line
of credit was $1,112,418. We intend to renegotiate or replace this credit
facility by November 30, 2000.
Total debt at September 30, 2000 was $6,320,648. $4,555,817 of this
debt is due to former officers and directors, shareholders and related parties
and is due in various installments through March 31, 2001. At March 31, 2000
total long and short-term debt was $7,018,046. During the six months ended
September 30, 2000, net repayments of debt due to former officers, directors,
and shareholders other than notes payable directly by certain land-based
subsidiaries was $1,049,811. In addition a note payable to a former officer,
director, and shareholder of $300,000 was converted into equity through the
issuance of common shares.
19
<PAGE>
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. If we are unable to renegotiate or replace our notes and
credit lines and/or we are not successful in our planned equity raising
activities, we will be required to reduce the amount of vehicle purchases and
may be required to slow down developing our Internet activities. These actions,
if required, will result a reduction in our sales that could result in
unanticipated losses.
ANTICIPATED TRENDS
Management anticipates that the current level of sales will increase
during our fiscal year ending March 2001. The expected sales increase is
attributable to the expansion of our wholesale operations into the San Antonio,
Texas, market as of April 1, 2000, and our expansion into the Denver market as
of August 2, 2000. As of September 30, 2000, we decided to close our operations
in Pennsylvania since certain performance obligations by the local management
were not met. We anticipate that closing this operation will result in a loss,
the extent of which is not determinable at this time. In addition to our
wholesale operation expansion efforts, our agreement with American Honda Finance
Corporation will generate revenues for the balance of our fiscal year. Our pilot
program with American Suzuki Motor Corporation began generating revenue in
September 2000. We anticipate a greater number of car sales on our Internet
sites resulting in increased revenues in the months to come as a larger number
of vehicles are coming off lease and will be available to all Honda and Acura
dealers in the United States. Our programs with Autobytel and other Internet new
car retailers are currently under development and accordingly, we cannot
estimate a start date for earning revenue from this or similar programs.
We estimate that approximately $5 million will be required to fund our
e-commerce operations both to augment our current operations and to expand into
new markets, $2 million will be needed for marketing programs, $2 million for
the Internet development which includes capital expenditures, and $5 million for
the cash needs required to support the increase in inventory and accounts
receivable that will be generated from the anticipated growth of our land-based
operations. In addition, repayment of current short term and long term debt
could require up to another $7 million. We are currently in the process of
reevaluating our total needs and the appropriate financing to address such needs
with input from investment banking firms and others.
OTHER
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 2000, the
Company's Annual Report to Shareholders, as well as statements made by the
Company in periodic press releases, oral statements made by the Company's
officials to analysts and shareholders in the course of presentations about the
Company, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by the forward looking statements. Such factors include, among other
things, (1) general economic and business conditions; (2) interest rate changes;
(3) the relative stability of the debt and equity markets; (4) competition; (5)
the availability and cost of used vehicles used in the Company's business; (6)
demographic changes; (7) government regulations particularly those related to
Internet commerce; (8) required accounting changes; (9) equipment failures,
power outages, or other events that may interrupt Internet communications; (10)
disputes or claims regarding the Company's proprietary rights to its software
and intellectual property; and (11) other factors over which the Company has
little or no control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management,
the outcome of these matters will not have a material adverse affect
upon the financial condition, results of operations or cash flows of
the Company. See "Forward-Looking Statements" below.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, 484,775 shares of common
stock were issued upon conversion of the Company's Series C and Series
D convertible preferred stock.
During the quarter ended September 30, 2000, 218,875 shares of common
stock were issued upon exercise of previously issued stock options.
Effective September 30, 2000, the 232,500 shares of common stock issued
in April 2000, and held in escrow for Edward McCusker in connection
with the establishment of Auto Network Group of Eastern Pa., Inc., were
cancelled when Mr. McCusker failed to meet his obligations to us under
the terms of his contract.
No underwriters were used in the above transactions. The Company relied
upon the exemption from registration contained in Section 4(2) as to
all of the transactions. All of 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report:
<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. (1)<F1>
2.2 Agreement Concerning the Exchange of Common Stock Between AutoTradeCenter.com Inc. and Auto
Network Group of Northwest, Inc. (1)<F1>
3.1 Articles of Incorporation, as amended (1)<F1>
3.2 Bylaws (1)<F1>
4.1 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series A Preferred Stock (1)<F1>
4.2 Statement Pursuant To Section 10-602 of The Arizona Business Corporation Act of Auto Network USA,
Inc. Regarding Series B Preferred Stock (1)<F1>
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company, Inc. (1)<F1>
4.4 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series C Preferred Stock (3)<F3>
4.5 Statement Pursuant to Section 10-602 of The Arizona Business Corporation Act of
AutoTradeCenter.com Inc. Regarding Series D Preferred Stock (3)<F3>
10.1 Stock Option Plan (1)<F1>
10.2 Evelyn Felice loan documents (1)<F1>
10.3 Mark Moldenhauer loan documents (1)<F1>
10.4 Pinnacle Financial Corporation loan documents (1)<F1>
10.5 Eastlane Trading Limited loan documents (1)<F1>
10.6 Norwest Bank loan documents (1)<F1>
10.7 Mike and Debbie Stuart loan documents (1)<F1>
10.8 Purchase of Goodwill Agreement with JBS, LLC (1)<F1>
10.9 Promissory Notes used for acquisition of Walden Remarketing Services, Inc. (1)<F1>
10.10 Consulting Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker dated April 20, 1999 (1)<F1>
10.12 Sample "Work for Hire Agreement" (1)<F1>
10.13 Agreement with Auction Finance Group, Inc. (1)<F1>
10.14 Purchase Agreement with Lloydminister Enterprises Inc. and Kindersley Holdings Inc. dated March
23, 2000 (2)<F2>
10.15 Amended and Restated Secured Promissory Note dated March 31, 2000 to Mark Moldenhauer (3)<F3>
10.16 Amended and Restated Secured Promissory Note dated March 31, 2000 to Pinnacle Financial
Corporation (3)<F3>
10.17 Loan Extension from Wells Fargo Business Credit, Inc. (3)<F3>
21 Subsidiaries of the registrant (3)<F3>
27 Financial Data Schedule
---------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-78659).
(2)<F2> Incorporated by reference to the exhibits filed to the current report on Form 8-K dated March 23, 2000 (File No. 333-78659).
(3)<F3> Incorporated by reference to the exhibits filed to the registration statement on Form S-1 (File No. 333-37090).
</FN>
</TABLE>
b) Reports on Form 8-K: NONE.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTRADECENTER.COM INC.
Date: November 14, 2000 By: /S/ M.H. FEINSTEIN
------------------------------------
M.H. Feinstein, Chief Financial Officer
23
