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As filed with the Securities and Exchange Commission on February 24, 2000
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------
parts.com, Inc.
(Exact Name of Small Business Issuer Specified in Its Charter)
NEVADA 88-0344869
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
121 EAST FIRST STREET
SANFORD, FLORIDA 32771
(407) 302-1314
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Principal Executive Offices)
-------------------------------
Securities to be Registered Pursuant to Section 12(b) of the Act:
NONE
Securities to be Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
===============================================================================
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TABLE OF CONTENTS
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Page
PART I
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Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis 16
Item 3. Description of Property 19
Item 4. Security Ownership of Certain Beneficial Owners and Management 20
Item 5. Directors and Executive Officers 21
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related Transactions 26
Item 8. Description of Securities 27
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity and Related Stockholder Matters 31
Item 2. Legal Proceedings 31
Item 3. Changes in and Disagreements with Accountants 31
Item 4. Recent Sales of Unregistered Securities 32
Item 5. Indemnification Of Directors And Officers 33
PART F/S
Item 1. Financial Statements F-1
PART III
Item 1. Index to Exhibits
Item 2. Description of Exhibits
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WITH THE EXCEPTION OF HISTORICAL FACTS STATED HEREIN, THE FOLLOWING DISCUSSION
MAY CONTAIN FORWARD-LOOKING STATEMENTS REGARDING EVENTS AND FINANCIAL TRENDS
WHICH MAY AFFECT THE COMPANY'S FUTURE OPERATING RESULTS AND FINANCIAL POSITION.
SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE
COMPANY'S ACTUAL RESULTS AND FINANCIAL POSITION TO DIFFER MATERIALLY INCLUDE,
IN ADDITION TO OTHER FACTORS IDENTIFIED IN THIS REGISTRATION STATEMENT, THE
COMPANY'S OPERATING LOSSES, ITS NEED FOR ADDITIONAL CAPITAL, ITS ABILITY TO
DEVELOP ITS PRODUCTS AND DEPENDENCE ON KEY PERSONNEL, ALL OF WHICH ARE SET
FORTH IN MORE DETAIL IN THE SECTIONS ENTITLED "FACTORS WHICH MAY AFFECT FUTURE
RESULTS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS." THE INFORMATION CONTAINED
IN THIS DOCUMENT IS ACCURATE ONLY AS OF THE DATE OF THIS DOCUMENT. IN THIS
DOCUMENT, REFERRALS TO "THE COMPANY," "WE," "OUR," AND "US" REFER TO PARTS.COM,
INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
parts.com, Inc. ("the Company") was incorporated in Nevada on
September 13, 1995, under the name I.E.L.S., Inc., which company had no
material operations and whose common stock was traded on the OTC Electronic
Bulletin Board. In September 1998, I.E.L.S. completed an exchange agreement
with Direct Touch Research, Inc. ("DTR"), a closely held Florida corporation
that also had no material operations. Pursuant to the exchange agreement, all
outstanding shares of DTR common stock were exchanged for 5,542,000 shares of
I.E.L.S. common stock. As a result, DTR became a wholly owned subsidiary of
I.E.L.S. and I.E.L.S. changed its name to the Miracom Corporation. On January
5, 2000, Miracom Corporation changed its name to parts.com, Inc. DTR was
subsequently dissolved as a corporation in August 1999. As a result of this
transaction, DTR stockholders became owners of approximately 61% of the
Company's then outstanding common stock and assumed 100% control of the
Company's board of directors. The effect of the transaction was a reverse
acquisition of I.E.L.S. by DTR. The purpose of the transaction was to provide
the founders of DTR with a more viable structure in the form of a
publicly-traded company that would enable them to facilitate the growth of
their business plan through acquisitions and to attract and retain necessary
technical personnel. For additional information regarding the transaction, see
"Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In September 1998, the Company acquired all of the assets, liabilities
and business of United Equity Partners, Inc., a Florida corporation ("UEP"). In
that transaction, the Company issued a total of 150,000 shares of common stock
to UEP. UEP subsequently distributed those shares to its shareholders and UEP
was dissolved in August 1999. For additional information regarding the
transaction, see "Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Also in September 1998, the Company acquired all of the assets,
liabilities and business of MTV/Pinnacle Advertising Group, Inc., a Florida
corporation ("Pinnacle"). In that transaction, the Company issued a total of
582,000 shares of common stock to Pinnacle. Pinnacle subsequently distributed
those shares to its shareholders and Pinnacle was dissolved in August 1999. For
additional information regarding the transaction, see "Item 7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
In May 1999, the Company acquired all of the assets and business
operations and assumed all the outstanding liabilities of LiveCode, Inc.
("LiveCode") a Florida corporation in exchange for 600,000 shares of the
Company's common stock and a six-month non-interest bearing $20,000 promissory
note in favor of the LiveCode stockholders. Effective September 30, 1999, the
note was repaid by the issuance of 40,000 shares of the Company Common Stock.
For additional information regarding the transaction, see "Item 7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
In October 1999, the Company acquired all of the outstanding common
stock of FlexRadio, Inc. ("FlexRadio"), a Florida corporation, in exchange for
6,200,000 shares of the Company's common stock which shares were issued to the
shareholders of FlexRadio. For additional information regarding this
transaction, see "Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The principal offices of the Company are located at 121 East First
Street, Sanford, Florida 32771 and its telephone number is (407) 302-1314. Our
web sites are located at www.parts.com, www.parts.net, www.theparts.com,
www.theparts.net, www.miracomcorp.com, www.miracomcorp.net, www.miratouch.com.,
www.reallyknow.com. Information contained on our web sites is not part of this
registration statement.
The Company is a provider of turnkey electronic commerce services
designed to provide Internet-based business and on-line buying solutions. The
Company has two principal divisions - "parts.com" and "ReallyKnow.com."
We are filing this Form 10-SB to become a reporting company under the
Securities Exchange Act of 1934, as amended in accordance with NASD rules
pertaining to OTC Bulletin Board companies.
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MARKET AND INDUSTRY OVERVIEW
The Internet is an increasingly significant global medium for
communications, content and online commerce. The World Trade Organization
estimated that the number of Internet users would likely be 300 million by 2000.
Internet traffic is estimated to be doubling every 100 days, according to the
U.S. Department of Commerce, equating to an annual growth rate exceeding 700%.
E-commerce applications are increasing exponentially; market research firm
Forester Research estimates that the total revenue from goods and services
purchased over the Internet could exceed $3.2 trillion by 2003.(1) Reflecting
their increasing functionality, accessibility and overall usage, the Internet
and online services are evolving into an attractive commercial medium and a
unique sales and marketing channel that can successfully compete with retail
stores, mail-order catalogs and television home shopping networks. Online
retailers can interact directly with customers and update their featured
selections, shopping interfaces, product pricing and visual presentations on a
continuous basis.
Auto parts Industry. The worldwide auto parts industry is large,
growing and relatively fragmented. Business Week magazine estimates that the
value of the global auto parts market at nearly $600 billion.(2) As reported by
Automotive News, there are six automotive parts suppliers worldwide with sales
in excess of $10 billion each.(3) The estimated United States market for
automotive parts is $127 billion as reported by the Motor & Equipment
Manufacturers Association. (4) Although, we are initially focusing on the United
States Market, we intend to make parts.com the global
business-to-business e-commerce parts exchange that eliminates the
inefficiencies of current parts distribution methods through the maximization of
the efficiencies afforded through the Internet. See "-- Our Strategy."
Data Gathering and Market Research Industry. The need for quantifiable
information and computer equipment and data in the automotive industry is
growing rapidly. Automotive News reported that the market for these products
amounted to $900 million in 1998.(5) For many years, dealers have relied on
information from Arbitron radio surveys, Nielsen Diaries or a particular
broadcast "representative" that somehow instinctively knew each particular
automobile dealer's market. We intend to make ReallyKnow.com one of the leading
real time electronic data gathering businesses.
OUR STRATEGY
parts.com. We commenced development of our parts.com division in March 1998 and
our parts.com site went "live" on January 23, 2000. We developed our parts.com
division to capitalize on the unrealized opportunities in business-to-business
e-commerce bringing new value to suppliers, buyers and
(1) Information Week Online, "E-Commerce Market Could Hit $3.2 Trillion by
2003," November 6, 1998 at www.informationweek.com/story/IWK1998110650004.
(2) Business Week, "Big Dents in Auto parts," April 12, 1999, No. 3624.
(3) Automotive News, "Biggest Suppliers Cleared Hurdles to Grow In 1998,"
June 21, 1999, No. 5825 p. 1.
(4) MEMA Market Analysis, The Report of the Vehicle Parts Industry (1999 Pocket
Overview).
(5) Automotive News, "Small Computer Firms Are Making Inroads," March 2, 1998
p. 10.
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distributors. We intend to use the parts.com proprietary technology and
logistics model to bring strong brand recognition, customer loyalty and supplier
relationships in the online auto parts industry. We believe our e-commerce
business-to-business model will be superior to that of the capital and real
estate-intensive, traditional original equipment manufacturer component
business.
PARTS.COM
Our initial focus of operations for our parts.com division is the
automotive component industry with our e-commerce web site located at
www.parts.com. We believe the automotive industry is particularly well-suited
for on-line services for the distribution of automotive parts and accessories
(hereinafter collectively referred to as "automotive parts") for several
reasons. First, it is an existing business community linked on-line for the
distribution of automotive parts. Second, there is a large market for
automotive parts. Third, the national, regional and local dynamics are
excellent for implementing our Internet-based business model. Fourth, we
perceived a need in the automotive parts industry for a more efficient method
to access inventory and distribute automotive parts because there exists no
standardized communication between businesses in that industry. We believe our
business-model will afford us a competitive advantage over the current methods
of warehousing, distributing and ordering of automotive parts. We have designed
our Internet-based business model to provide access to a "virtual" inventory of
automotive parts. We anticipate that our Internet-based business model will
offer cost advantages to both the supplier and buyer of automotive parts as a
result of : improving inventory management by having access to "real time"
information on inventory status and sales trends; minimizing the time and labor
involved in trying to locate a part; improving margins on automotive parts for
certain automotive businesses by providing them access, through parts.com, to
the inventory of manufacturers of automotive parts who are part of the
parts.com automotive parts community.
Through parts.com, we intend to make the supply chain operate more
efficiently and more profitably for customers than the current distribution
system. Currently, automobile dealerships, service centers and garages order
automotive parts from certain "middle men" such as warehouse distributors (i.e.,
NAPA, Carquest, General parts, etc.), "jobbing stores" (i.e., Anderson
Wholesale, Barnes Motor & parts, etc.), and retailers (i.e., Pep Boys, Auto
Zone, Discount parts, etc.). Each warehouse distributor has its own platform and
software managing its inventory and sales information. There are currently many
such different systems and a customer's operating system must be compatible with
that of the vendors from whom they buy parts. Auto parts are warehoused by
distributors in regional or district warehouses and are transported to local
stores and thereafter local service centers or garages. These storage and
transportation costs are factored into the price of the parts. When a dealer or
garage needs a part that they do not have on hand, they may have to call several
warehouses, jobbers, retailers or other service centers or garages before
locating the part - all of which is time consuming and labor intensive. If parts
they do not have on hand are required for different vehicle lines (i.e.,
different makes of cars), then the same calls must be made for each part to
several different sources. Once the part is located, the buyer and the seller
then have to process the order, and the seller must collect the funds - all of
which is time consuming and labor intensive.
In addition, automobile manufacturers normally sell to large retailers
and warehouse distributors only, while other automotive businesses are normally
restricted from buying product directly from those manufacturers because they do
not order on the same volume as large retailers and warehouse distributors.
parts.com plans to include in its parts.com inventory base OEM inventory (i.e.,
parts sold by Ford, Chrysler, General Motors and other automobile and truck
manufacturers) and aftermarket inventory which automotive businesses such as
dealerships, service centers and garages can access directly without having to
order from the warehouse distributor or other "middle man." The benefits to both
the manufacturer and the buyer are two-fold. On the manufacturer's side, through
the parts.com web site, the manufacturer will be able to track in "real time"
sales from the point-of-sale of its parts inventory and plan its manufacturing
and inventory needs accordingly. Currently, manufacturers rely on information
provided on a delayed basis by retailers and warehouse distributors who are the
middle men providing product to other automotive businesses. As a result,
manufacturers and warehouse distributors must maintain certain levels of
inventory at all times to meet demand. Inventory that is not utilized in a
certain period of time, must be replaced with updated inventory - thus
necessitating write-offs. The manufacturer may also increase its margin on
products sold through Parts.com since it will not have to factor in the mark-ups
of various middle men down the distribution chain. On the buyer's side, the
buyer will have access to the additional part numbers provided by the
manufacturer and potentially better prices (and therefore better margins) than
it could get by buying products from a warehouse distributor or a retailer.
Our strategy is to provide a more efficient mechanism for:
communication between customers and suppliers; locating parts; delivering those
parts to the customer through our suppliers; increasing sales for the
dealerships, service centers and garages; processing orders for parts; tracking
inventory and sales trends in "real time" to enable suppliers to more accurately
project inventory needs in market areas. We intend to accomplish this by using
the Internet to create a "standardized" means of communication by linking
manufacturers, warehouse distributors, dealerships, service centers and garages,
providing them access to a "virtual" inventory of automotive parts where they
can enter into our parts.com site, locate the parts they need and order them
from the nearest available source, and process those orders - thus saving time
and labor costs in the search for and ordering of parts. We intend to make
available real-time information on inventory location and availability to both
buyers and sellers of parts via the Internet. Our site will offer "real-time"
information on the availability of inventory and the type of parts actually
being sold and the geographic locations of those sales. We anticipate that such
point-of-sale information will assist parts suppliers in the planning of
production schedules and inventory strategies --focusing on inventory that is in
demand and decreasing inventory that is slow-moving, and thus decreasing
over-all inventory carrying costs and potential write-offs of over-stocked
parts. In addition, labor-intensive menial tasks such as phone calls, sales
history review, and inventory charting will be replaced with the advent of
real-time inventory data. Labor associated with the processing of transactions
will be minimized as our e-commerce site will process transactions and deposit
sales proceeds directly into the vendor's account.
parts.com utilizes a unique business model concurrent with our
e-commerce web site to reward suppliers throughout the network chain. We have
divided the United States into various regions. Each region has three levels of
suppliers for 34 vehicle lines. Examples of vehicle lines are Chrysler, Ford,
Chevrolet, Dodge, Nissan, Jeep, Eagle, Mercedes Benz, etc. Each region will have
one Platinum Supplier for each vehicle line. The Platinum Supplier will have the
first opportunity to pick, pack, ship or deliver all parts orders which
originate in its region and vehicle line responsibility. If the Platinum
Supplier cannot fulfill an order or portion of an order as a result of not
having the part available or not being able to fulfill the order within the
customer's time parameters, the order will then be automatically referred to the
next level of supplier, the "Gold Supplier."
The Gold Supplier Network will be comprised of a much broader base of
suppliers who reside within the same regions as the Platinum Suppliers and
support the same product lines. The Gold Supplier will act as a fail-safe or
secondary fulfillment source if the Platinum Supplier does not have or cannot
timely deliver the part. The broad base of Gold Suppliers within a region will
also facilitate meeting a customer's time-sensitive delivery deadlines. Certain
ratios are applied for the Platinum Supplier to share in the sale generated by
the Gold Supplier.
Completing the supply chain is the Silver Supplier Network, which will
serve as the ultimate fail-safe parts locator network and back-up to the Gold
Supplier Network. The Silver Supplier will be the final source to which a parts
request will default in the rare instance when neither the Platinum Supplier nor
the Gold Supplier can fulfill an order. If an order is filled by a Silver
Supplier, both the Gold Supplier and the Platinum Supplier participate in the
revenue generated from that sale.
The Company sets the price at which suppliers will fill orders from
their inventory in retail and wholesale transactions conducted through
parts.com, which price is a percentage (set by parts.com) over the supplier's
cost for the automotive part. The only variables for the pricing model are
shipping costs which may vary from region to region, and the supplier's cost if
that cost should vary from region to region. Platinum Suppliers receive an
overriding percentage transaction fee on all orders in their respective regions
(even if they do not pick, pack and ship the orders). Platinum Suppliers do not
necessarily have first pick on all orders within their region. Speed of delivery
and availability of product will dictate whether the Platinum, Gold or Silver
Suppliers will fulfill the order. Since parts.com customers ultimately determine
the time frame in which they need the product, our system will route the order
to the closest member-dealer that can fulfill the order within the specified
time parameters, regardless of dealer/supplier status.
Thus, our business model creates a "virtual inventory" to those seeking
automotive parts and accessories and likewise increases the probability of
locating a part. Dealerships, service centers and garages can save the expense
of carrying duplicative inventory and inventory that is not commonly needed. Our
business model offers better cash flow management by limiting multi-layers of
labor. We process the orders, collect payment and distribute the revenue from
the suppliers' sales directly to their accounts. They can track in real-time the
sales orders fulfilled, the potential orders missed by that location, inventory
source and the status of their respective inventories.
Initially, our revenue for parts.com will be derived from capturing a
small transaction fee on each business-to-business and consumer sale and from
charging supplier fees for signing up as Platinum, Gold or Silver suppliers.
Additional revenue streams that we wish to develop in the future as we further
enhance our parts.com and ReallyKnow.com products are: collecting service fees
for the use of applications that we make available through parts.com (i.e.,
vendor-managed inventory applications, VIN identification packages); license
fees to other service industries, associations or companies that may desire to
use our system to develop and operate portals for products; fees for
web-enabling/integrating organizations to the Internet in connection with our
parts.com system; fees for providing virtual training sessions; fees for
advertising and real-time trend reporting; subscriptions for reports on buying
habits, sales, lost sales, trends, etc.
As of February 11, 2000, parts.com has signed up approximately 96
franchised dealerships throughout the United States, representing approximately
30 vehicle lines. Many of these dealers have multiple locations for several
different automotive lines and they have signed contracts as Platinum and/or
Gold Suppliers. Some Platinum Suppliers are also Gold Suppliers in certain
defined market areas. Of those dealerships, there are approximately 80 Platinum
Suppliers and 97 Gold Suppliers. In addition, parts.com has Platinum and Gold
contracts pending with many other dealerships across the United States. In
addition, parts.com has identified several international automotive parts
suppliers with a view to penetrating markets outside of the United States.
Although parts.com has had discussions and meetings with the international
suppliers, no contracts have been entered into or are pending yet.
REALLYKNOW.COM.
We formed the ReallyKnow.com division in 1999 for the purpose of
revolutionizing the market research industry through our patent-pending
technologies by offering real-time data gathering capability. We commenced
development of the Miratouch product in 1998, initially as on-site kiosks and
most recently as PC-based software. Both versions feature a touch-screen on-site
survey used in conjunction with value added read/write business cards of
accurate, unbiased, concrete facts for use by a myriad of businesses. While the
concept of on-site surveys is not new, the touch screen on-site survey is in its
infancy. Department/specialty stores, grocery/supermarkets, hotels,
restaurants/food service, retail, sporting events, theatres and many more
industries all benefit from real-time data gathering. We believe that the
Miratouch product can save both time and money over the conventional
face-to-face interviewing, mail surveys or costly one time customized research.
All software application changes (Questions and Answers, Reports) are handled
entirely through on-line technology. This reduces time-consuming and costly
travel expenses and allows Miratouch clients to change the questions to address
different needs. ReallyKnow.com's latest addition, FlexRadio, offers a radio
frequency detection device that is designed to provide real time data, superior
research, technical proficiency and market analysis.
Our revenue from our ReallyKnow.com product initially will be derived
from three sources: First, sales to dealerships of the research system. Second,
sales of value business cards to automobile dealerships for their salesmen to
use in connection with our research system. Each business card will have a
magnetic strip and when given to the customer, the customer will be offered
incentives to participate in the on-line survey. Points will be recorded on the
magnetic strip each time the customer inserts the card into the Miratouch
system and answers survey questions. Points can be redeemed for promotions -
such as free or discounted oil changes, car washes, etc. The third revenue
stream will be derived from consulting services when we are retained by
dealerships to interpret the data gathered through our Miratouch system.
With regard to the Company's ReallyKnow.com (Miratouch) product, as of
February 11, 2000, the Miratouch system has been installed in two dealerships in
Florida, one in Ohio and one in Massachusetts.
The Company's FlexRadio product of its ReallyKnow.com division is
designed to provide real-time marketing information through tracking the radio
listening habits of consumers. The Company's target market for our FlexRadio
technology is any industry sector that relies upon qualitative and quantitative
information pertaining to the listening habits of consumers (i.e., radio,
automotive and advertisers). Consumers may in fact resist having their listening
habits monitored. At the time they purchase a vehicle, consumers will be
notified of the monitoring device; they will be presented with a form which, if
they elect to have the monitoring device activated, will indicate their
acknowledgement and consent in writing prior to activation. Consumers will also
have the option to deactivate the device at any time. While it remains to be
determined at what point the FlexRadio monitoring device will be installed in
the automotive radio, whether at the dealerships or at the manufacturing level,
it is the Company's goal to have the system installed by the automobile
manufacturer.
OUR SOLUTION
With our parts.com division, businesses and customers enter the
parts.com domain through our Internet site. To purchase auto parts, buyers
simply click on a buy button and follow prompts that guide them in supplying
shipping and payment information. In addition to ordering parts, buyers can
post request for proposals/request for quotes, conduct targeted searches for
hard to find auto parts, browse through highlighted selections of the web site,
shop for accessories, read and post reviews on automobiles and automobile
parts, register for personalized services, participate in promotions and check
their order status. Suppliers can post overstocked or obsolete parts, post
catalogs and display their company news instantly. A patent application is
pending. See "-- Intellectual Property."
Our ReallyKnow.com division provides a real-time electronic data
gathering system (Miratouch) that permits real time data gathering and market
analysis of consumer information. The Miratouch kiosk is an automated
computer-assisted marketing research product that is conducted on-site at a
merchant's location and online through use of the Internet. With the Miratouch
solution, the merchant can receive collected marketing research results
on-demand. We believe that we have created multiple user-friendly front-end
designs (i.e., user interfaces) which allow customers the ability to offer
different looks, types of information and varied narration, developed the
applications, customized the hardware and created reporting via the Internet to
maximize usage of our system. A patent application is pending for the Miratouch
system and its related intellectual property. The Company has also filed and is
awaiting registration for Miratouch trademarks and copyrights. See "--
Intellectual Property."
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Our ReallyKnow.com's FlexRadio division will rely upon a technology for which
we have a pending patent, namely the installing of data transmission units in
automobiles to monitor radio-listening habits on a real time basis. See
"-- Intellectual Property."
SALES AND MARKETING
Through our parts.com division, our goal is to be the worldwide source
for automotive parts. Our marketing strategy is designed to strengthen the
parts.com brand name, increase customer traffic to the parts.com store, build
strong customer loyalty, maximize repeat purchases and develop incremental
revenue opportunities. parts.com will provide increasingly targeted and
customized services by using the extensive customer preference and behavioral
data obtained through its online sales. As a marketing channel, the Internet
has proven to be unique in facilitating rapid and effective experimentation
analysis, instant user feedback and efficient "redecorating of the store" for
each customer. We intend to employ a variety of media, program and product
development and value added promotional activities to achieve our marketing
goals for parts.com. We intend to place advertisements on various high profile
and high-traffic conduit Internet sites. We also plan to extend parts.com's
market presence through an Affiliates Program, that we hope will grow to
include thousands of enrolled members. The program will enable Affiliate web
sites in each product category to offer parts to their customer base for
fulfillment by parts.com.
Our marketing program for parts.com to date has included several
direct mail campaigns to the 22,000 dealer/supplier candidates throughout the
United States for our parts.com e-commerce exchange. We have taken out
full-page advertisements in one of the leading automotive dealer trade
publications (Automotive News). We plan on attending industry trade shows and
conventions and presented an exhibit booth at one of the automotive industry's
largest conventions, the National Automobile Dealers Association Convention
held in Orlando, Florida in January 2000. We are presently developing for
future implementation a mass communications marketing campaign which will
include television and radio.
ReallyKnow.com's marketing strategy incorporates plans to sell its
products through several channels including conventions, advertising agencies,
direct mail, print, outbound telemarketing and referrals. ReallyKnow.com's
advertising and promotion plan is to position itself as one of the leaders in
real time electronic data gathering. ReallyKnow.com will use media strategies
that include: developing a program to advertise its message, image and products
in trade magazines; developing a video/direct-mail campaign targeted at
specific audiences that benefit from utilizing ReallyKnow.com's research
products and services; developing relationships with advertising agencies with
respect to their hardware and software and enhancing these agencies'
performance which will enable them to maintain long-term relationships with
their clients.
As of this date, we have created marketing materials for ReallyKnow.com
and distributed them to over 22,000 auto dealers throughout the United States in
order to market the product and assess potential levels of customer interest. We
have also placed demonstration units with various automobile dealerships to
gather feedback from the dealers regarding the effectiveness of the user
interface and web-enabled software. Based upon the feedback from these
demonstration units and upon consulting with several focus groups, we have
created a newer release of our product which is due to be introduced into the
marketplace in March 2000. We also showcased our latest ReallyKnow.com product
at the National Automotive Dealers' Association convention held in Orlando in
January 2000.
CUSTOMERS
For our parts.com division, we anticipate that most of our initial
customer base will be Original Equipment Manufacturer ("OEM") dealerships
locating parts for their business trading partners, as well as their
at-location customers. Shortly thereafter, we expect to see our OEM dealerships
begin to source after-market parts direct from manufacturers utilizing the
parts.com business model. Finally, by allowing buyers to list "want ads" for
hard-to-find items and suppliers to post over-stocked or obsolete products,
parts.com should be positioned to realize a significant source of revenue
through its trade-out/auction service as well.
We believe our ReallyKnow.com's initial market segment will be the retail
automotive industry where Automotive News estimates that there are more than
23,000 new car dealers, 70,000 used car dealers, 130,000 automobile repair and
service shops and 22,000 rental car locations in the U.S. The expansion markets
for the ReallyKnow.com market research include:
- - supermarkets;
- - hotels/motels;
- - restaurants and food service companies;
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- - retailers
- - sporting event/attraction companies;
- - theatres and others.
We expect the typical customer of ReallyKnow.com's real-time electronic
data gathering technology business products to be people who control the
expenditure of advertising and marketing dollars for their companies and people
who currently use advertisements to generate sales leads.
COMPETITION
We expect competition for our parts.com business from a variety of other
online companies. These competitors could include:
- - various online parts sellers and vendors of other component based
products;
- - indirect competitors specializing in online commerce or deriving a
substantial portion of their revenues from electronic commerce who may
offer component parts as an extension to their existing product lines;
and
- - manufacturers and retail vendors of parts and accessories, including
large specialty parts sellers that have significant brand awareness,
sales volume and customer bases.
Toyota and Republic Industries have recently announced their intention
to devote resources to online commerce in the near future. HyundaiUSA.com has
already launched an Internet web site to sell auto parts online. partsVoice has
begun locating a number of auto parts through an online web site for dealers.
Additionally, traditional "brick-and-mortar" companies like CSK Auto and Haun
Automotive have already built e-commerce sites. Advance Auto parts and CSK Auto
recently announced a joint venture to launch an internet web site. GA eXpress, a
provider of enterprise-wide database solutions and data migration tools,
announced on February 9, 2000 that it will partner with The Reynolds and
Reynolds Company, a provider of information systems, to develop a system whereby
automotive retailers may engage in eCommerce and exchange data via the Internet
with trading partners.
However, the automobile parts industry is estimated to be a $600
billion industry globally. The market in the United States for automotive parts
is estimated to be $127 billion. We are focusing initially on the domestic
market. However, the Company's site went "live" on January 23, 2000 and thus to
date has no market penetration. The information on market share of various types
of automotive parts sellers who sell via the Internet is based solely on our
internal estimates.
-- On-line parts sellers (those who sell exclusively over the
Internet). We believe that currently no on-line parts seller (or even
a group of on-line sellers) has more than 1% of the total global $600
billion automotive parts industry.
-- Manufacturers. It is our belief that on-line sales by
manufacturers of automotive parts represent approximately 10% of
market share.
-- Retailers. Presently, we believe that there exists only two
automotive parts retailers (CSK Auto and Advance Auto) that expect to
generate significant revenues on the Internet.
-- Warehouse Distributors. Currently, we are aware of three
warehouse distributors taking initiative to generate significant
revenues from the Internet and they include: Hahn Automotive
Warehouse (operating independently), Motor Age, Inc. and The parts
House (operating jointly to fulfill Wrenchead.com's orders - an
on-line seller). We estimate the total market share for those three
companies at less than 1%.
-- OEMs (Ford, Toyota, Chrysler, etc.). We believe that these
companies are very limited in selling parts through the Internet
directly to consumers because of existing franchise agreements with
their dealership networks.
Although our belief is speculative, we believe that over-all our
business model will prove to have a competitive edge over that of our current
and potential competitors because our parts.com system is not designed
exclusively for the automotive parts industry but is adaptable to any parts
industry (i.e., consumer electronics, airplanes, appliances, computers, marine
products, housewares, etc). Thus, once our model is proven in the automotive
parts industry, we plan on expanding it to other types of parts. Further, we
believe our name and web site, "parts.com," is adaptable to any parts industry,
not only automotive parts (unlike names such as "Wrenchead.com"), and the
building of our brand name will be leveraged by its adaptability to any kind of
part. For example, once we expand into other parts industries, anyone needing a
part can log onto the Internet with the word "parts.com" or "parts.net" and will
access our site.
Competition for ReallyKnow.com exists from some companies in a broad
sense related to the data research gathering industry. Companies such as Nielsen
Media Research, The Arbitron Company, JD Power and Associates all produce
research largely through telemarketing. These companies however, do not produce
statistical data in a real-time format. We believe our Miratouch solution is the
first "real-time" web-enabled research data gathering system that will be made
available to automobile dealerships through which they will be able to
accumulate qualitative and quantitative data on consumers who visit their
showrooms and take the time to complete the survey. Unlike other possible
competitors in market research, we believe that the Miratouch solution is one of
the few systems that relies on the Internet as its conduit for information for
data storage and retrieval. Our current competitors in the research marketplace
for automobile dealerships are The Dohring Corporation and Friedman/Swift. These
companies utilize systems whereby they survey consumers who have purchased from
their client's dealerships as well as customers who have purchased from their
client's competition. After surveying these consumers, companies like Dohring
and Friedman/Swift provide their clients with quantitative and qualitative data
relative only to the survey results that they receive. Typical surveys cost
thousands of dollars and only provide their clients with information that is not
only dated, but is only a measure of a specific point in time. The Miratouch
system allows dealerships the ability to generate questions and receive similar
types of feedback in a "real-time" and continuous format, thus enabling
dealerships to gather specific types of information over any period of time.
Thus, dealerships will be able to see changes in consumer trends as they occur
and not on a delayed basis. We believe only one company - The Dohring Company -
has a similar product that offers an on-line feature to data collection.
However, its product is currently being marketed for use at special events for
users of the product to obtain a "snapshot" of marketing data obtained over a
short time span (rather than a continuing "real time" format) and is not
specifically geared to the automobile industry.
RELATIONSHIPS WITH SUPPLIERS
We do not rely on any single vendor or group to fulfill our auto parts
orders for parts.com. We do rely on two main suppliers to manufacture and
produce Miratouch's proprietary products--Factura and MicroTouch, Inc. We have
no minimum purchase commitment requirements or minimum inventory level
requirements with these vendors and there exist alternative sources from which
we may contract for the manufacture of the Miratouch kiosk and related
components.
INTELLECTUAL PROPERTY
In February, 1999, we purchased for cash and stock the exclusive
rights, title and interest in and to the Internet Domain Names (a.k.a. "Unified
Resource Locator" or "URL") and any trademarks or service marks in connection
with "www.parts.com" and "www.parts.net." We also own the URL's for many
web-hosting sites on behalf of our customers. Our primary URL's that are the
property of
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the Company include the following: www.theparts.com, www.theparts.net,
www.miratouch.com, www.reallyknow.com, www.reallyknow.net, www.flexradio.com and
www.flexradio.net.
In October 1998, Shawn Lucas and Scott Andersen, officers, directors
and shareholders of the Company, assigned to us all of their right, title and
interest in and to a pending patent application with respect to the technology
for the Miratouch product. A utility patent for the technology was filed with
the U. S. Patent & Trademark Office in October 1998. The Miratouch solution is
an automated computer-assisted marketing research product that is conducted
on-site at a merchant's location and online through use of the Internet. With
the Miratouch solution, the merchant can receive collected marketing research
results on-demand.
In May 1999, Messrs. Shawn Lucas and Scott A. Anderson assigned to
FlexRadio, Inc. all of their right, title and interest in and to a provisional
patent application filed in May 1999 for a radio frequency detection and
reporting service. These pending patent rights were acquired by the Company when
it acquired all of the common stock of FlexRadio, Inc. This technology is being
developed for real time marketing research and will be a part of our
ReallyKnow.com division. We expect to file a utility patent for this technology
by May 2000.
In December 1999, we filed a provisional patent application for our
parts.com system and intend to follow-up with a utility patent application as
soon as practicable, but in any event prior to December 2000. The parts.com
technology is an automated computer-assisted system for searching for and
selecting automotive parts from a virtual inventory of parts from various
sources in the distribution chain, processing orders and distributing revenue
among the vendors, and tracking inventory, orders and revenue.
The provisional patent applications provide the basis for filing a U.S.
utility application and any desired foreign applications, which must be filed
within 12 months of the filing of the provisional applications. Once the utility
application is filed, the review process by the U.S. Patent and Trademark Office
normally takes two to three years. Once patents are issued, the term of the
patent is normally 20 years from the date of the utility patent application.
EMPLOYEES
As of the date of this registration statement, the Company had a total
staff of 35 employees, comprised of 20 technical professionals, 6 sales and
marketing personnel and 9 administrative personnel. All employees are full-time.
No employees are represented by a labor union or subject to a collective
bargaining agreement. Management believes that employee relations are good.
The Company's success will depend in large part upon the ability to
attract, retain and motivate highly skilled employees. Qualified technical
professionals are in great demand and are likely to remain a scarce resource for
the foreseeable future. Although the Company expects to continue to attract
sufficient numbers of highly skilled employees and to retain senior personnel
for the foreseeable future, there can be no assurance that the Company will be
able to continue to do so.
FACTORS THAT MAY AFFECT FUTURE RESULTS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING US. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT
WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OR OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
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RISKS RELATED TO THE COMPANY GENERALLY
OUR AUDITORS HAVE QUALIFIED THEIR REPORT ON OUR FINANCIAL STATEMENTS WITH
RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN
As noted in the Company's Report of Independent Certified Public
Accountants, the Company has experienced significant operating losses and an
accumulated deficit which raise substantial doubt about the Company's ability to
continue as a going concern. The Company incurred net losses of $1,988,541 and
$1,865,808 for the nine months ended September 30, 1999 (unaudited) and the
Period from Inception January 27, 1998 through December 31, 1998, respectively.
At September 30, 1999, the Company had an accumulated deficit of $3,854,349
(unaudited). The Company is continuing its efforts to increase its sales volume
and attain a profitable level of operations. However, there is no assurance that
the Company's efforts will be successful. There are many events and factors in
connection with the development, manufacture and sale of the Company's products
over which the Company has little or no control, including without limitation,
marketing difficulties, lack of market acceptance of our products, superior
competitive products based on future technological innovation and continued
growth of e-commerce businesses. There can be no assurance that future
operations will be profitable or will satisfy future cash flow requirements. The
report of Moore Stephens Lovelace, P.A., our independent auditors, with respect
to our financial statements and the related notes thereto, indicate that, at the
date of the report, we incurred net losses and had negative cash flow from
operations. Moore Stephens Lovelace, P.A. qualified their report to indicate
that these matters raise substantial doubt, at such date, about our ability to
continue as a going concern. Our financial statements do not include any
adjustments that might result from this uncertainty. See "Management's
Discussion and Analysis" and our financial statements and the related notes.
WE NEED ADDITIONAL CAPITAL.
The Company must raise additional capital in the near term to continue
its business plan. We are working with financial sources to raise additional
capital but there are no guarantees that we will be able to raise sufficient
capital on a timely basis and on reasonable terms. In light of the Company's
limited resources and the competitive environment in which we operate, any
inability to obtain additional financing may cause the Company to discontinue
operations. Additional financing could involve dilution to the interests of the
Company's then-existing stockholders.
WE HAVE A LIMITED OPERATING HISTORY AND MAY EXPERIENCE RISKS ENCOUNTERED BY
EARLY-STAGE COMPANIES.
We have a very limited operating history for you to use in evaluating
our business. Our business and prospects must be considered in light of the
risks, expenses and difficulties that companies encounter in the early stages of
development, particularly companies in new and rapidly evolving markets like the
Internet and e-commerce. These risks include our ability to:
- manage our growth effectively;
- anticipate and adapt to the rapid changes that characterize our market;
- increase levels of traffic to our Web site;
- continue to develop and upgrade our technology and customer service;
- expand our supplier network;
- respond to competitive developments in our market;
- expand our sales and marketing efforts; and
- continue to identify, attract, retain and motivate qualified personnel.
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THE REVENUE AND PROFIT POTENTIAL OF OUR BUSINESS MODEL IS UNPROVEN.
Our business model is to generate revenues from the following sources:
- an e-commerce for businesses and consumers to search for and purchase
automotive parts and accessories; and
- real-time marketing research for the automotive industry, initially,
using information derived from our real-time, interactive Miratouch
product.
Our business model is new and our ability to generate revenue or profits
is unproven. We have initially focused on the automotive industry and our
success is dependent on our ability to attract customers to, and expand our
suppliers for our parts.com web site, and our ability to attract customers for
our marketing research programs launched through Miratouch. There is no
assurance that we will be successful in doing so.
OUR FINANCIAL RESULTS MAY FLUCTUATE AND MAY BE DIFFICULT TO FORECAST.
Our quarterly revenues, expenses and operating results will be
unpredictable. We expect that our operating results will fluctuate in the
future due to a number of factors, some of which are beyond our control. These
factors include:
- our ability to attract businesses and customers to our Web site;
- our ability to attract and retain suppliers with large parts
inventories;
- our ability to control our gross margins;
- our ability to timely process orders and maintain customer
satisfaction;
- the availability and pricing of parts from suppliers;
- product obsolescence and price erosion
- consumer confidence in encrypted transactions in the Internet
environment;
- our ability to obtain cost effective advertising on other entities'
Web sites;
- the effectiveness of off-line advertising in generating additional
traffic to our Web site;
- the amount and timing of costs relating to expansion of our
operations;
- technical difficulties consumers and businesses might encounter in
using our Web site;
- suppliers' delays in shipments to customers/businesses as a result of
computer systems failures, strikes or other problems with our
suppliers' delivery service;
- delays in processing orders as a result of computer systems failures,
Internet brown-outs or problems with our credit card processing
providers; and
- general economic conditions and economic conditions specific to the
Internet and e-commerce.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING BRAND AWARENESS AND THE FAILURE TO DO SO
COULD SIGNIFICANTLY HARM OUR BUSINESS AND FINANCIAL CONDITION.
We believe that the importance of brand recognition will increase as
more companies engage in commerce over the Internet. Development and awareness
of the parts.com and Miratouch brands will depend largely on our marketing
efforts. If suppliers do not perceive us as an effective marketing and sales
channel for their parts, or if businesses and consumers do not perceive us as
offering an efficient and desirable way to purchase parts, we will be
unsuccessful in promoting and maintaining our parts.com brand. Similarly,
potential customers for our Miratouch product must perceive a need for real
time
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market research. In order to attract and retain businesses and customers and
promote our brands, we must increase our marketing and advertising budgets
significantly. If we are unable to successfully promote our brands or achieve a
leading position in e-commerce, our business could be significantly harmed.
IF WE FAIL TO MAINTAIN SATISFACTORY RELATIONSHIPS WITH OUR SUPPLIERS, OUR
BUSINESS WOULD BE MATERIALLY HARMED.
We will be highly dependent upon our suppliers to provide inventory for
sale through our parts.com site. The availability of merchandise can be
unpredictable. We will rely on a network of suppliers for all automotive parts.
We do not have long-term supply contracts with any of our suppliers. We cannot
be certain that our current suppliers will continue to provide inventory for
sale at our site. We must also attract additional suppliers. We cannot be
certain that we will be able to establish new supplier relationships that ensure
merchandise will be available through our Web site.
Our suppliers will process and ship merchandise directly to other
businesses and customers. We have limited control over their shipping
procedures, and shipments by these suppliers could be delayed by factors that
are beyond our control. Most parts we sell carry a warranty supplied either by
the manufacturer or the supplier. In addition, although we are not obligated to
accept parts returns, we could be compelled to accept returns from businesses
and customers without receiving reimbursements from the suppliers or
manufacturers if their warranties are not honored. Our business will be
significantly harmed if we are unable to develop and maintain satisfactory
relationships with suppliers on acceptable commercial terms, if we are unable
to access sufficient parts inventories, if the quality of service provided by
these suppliers falls below a satisfactory standard or if our level of returns
exceeds our expectations.
WE FACE INTENSE COMPETITION IN THE E-COMMERCE MARKET, AND WE CANNOT ASSURE YOU
THAT WE WILL BE ABLE TO COMPETE SUCCESSFULLY.
The e-commerce market is new, rapidly evolving and intensely
competitive, and we expect competition to intensify in the future. Barriers to
entry are minimal, and competitors may develop and offer similar services in
the future. Our business could be severely harmed if we are not able to compete
successfully against current or future competitors. Although we believe that
there may be opportunities for several providers of products and services
similar to ours, a single provider may dominate the market. We believe there is
no current dominant e-commerce provider in our markets. We expect that
additional companies will offer competing e-commerce solutions in the future.
In addition, our customers and suppliers may become competitors in the
future. Increased competition is likely to result in loss of market share which
could harm our business. Our parts suppliers are major parts distributors who
have significantly more resources than we do. We anticipate that some of our
business customers will be large distributors and auto parts stores who also
have significantly more resources than we do.
Virtually all of our potential competitors have longer operating
histories, larger customer bases and greater brand recognition in the markets
in which we compete and significantly greater financial, marketing, technical
and other resources. Our competitors may be able to devote significantly
greater resources to marketing and promotional campaigns.
Some of our competitors may establish cooperative relationships among
themselves or directly with suppliers to obtain exclusive or semi-exclusive
sources of parts. In addition, we anticipate that there
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will be consolidation in our industry. Accordingly, it is possible that new
competitors or alliances among competitors and suppliers may emerge and rapidly
acquire market share. In addition, manufacturers may elect to sell their parts
directly. Increased competition is likely to reduce our operating margins,
cause us to lose market share or diminish our brand. If any of these things
occur, our business would be significantly harmed.
OUR GROWTH AND FUTURE SUCCESS DEPEND ON OUR ABILITY TO GENERATE TRAFFIC TO OUR
WEB SITE.
Our ability to sell parts through our Internet site depends
substantially on our ability to attract user traffic to our Web site. We
anticipate spending significant amounts of money for on-line advertising to
attract and retain users to our Web site. In addition, we intend to pursue an
off-line advertising campaign through traditional media forms such as print,
radio and television. If we are unable to generate traffic to our Web site cost
effectively, or if our efforts to promote our services and products using both
on-line and off-line media are not successful, our growth and business
prospects will be substantially limited.
IF WE FAIL TO IMPROVE OUR FINANCIAL AND MANAGERIAL CONTROLS AND REPORTING
SYSTEMS AND PROCEDURES, AND IF WE DO NOT EFFECTIVELY EXPLAIN, TRAIN AND MANAGE
OUR WORKFORCE, OUR BUSINESS WILL SUFFER DRAMATICALLY AND WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS PLAN.
Successful implementation of our business plan requires an effective
planning and management process. Our business will suffer dramatically if we do
not effectively manage our growth. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and we will need to expand, train and manage our workforce. We plan
to continue to add to our sales and marketing, customer support and technical
personnel. Rapid growth may place a significant strain on our management
systems and resources. Our future performance may also depend on the effective
integration of acquired businesses. This integration, even if successful, may
take a significant period of time and expense, and may place a significant
strain on our resources.
WE WILL RELY ON THIRD PARTIES TO MAINTAIN OUR CRITICAL SYSTEMS AND, IF THESE
THIRD PARTIES FAIL TO ADEQUATELY PERFORM THEIR SERVICES, WE COULD EXPERIENCE
DISRUPTIONS IN OUR OPERATIONS.
We will rely on a number of third parties for Internet and
telecommunications access, delivery services and credit card processing. We
will have limited control over these third parties and no long-term
relationships with any of them. From time to time, we expect to experience
temporary interruptions in our Web site connection and telecommunications
access. Slow Internet transmissions or prolonged interruptions in our Web site
connection or telecommunications access would materially harm our business.
We will rely on our suppliers to timely ship parts our customers order
from them. Should they be unable to deliver parts for a sustained time period
as a result of a strike or other reason, our business would be harmed. In
addition, delays in shipment could result due to computer systems failures or
other problems related to our third-party service providers.
OUR BUSINESS MAY SUFFER FROM CAPACITY CONSTRAINTS OR SYSTEM INTERRUPTIONS.
A key element of our strategy is to generate a high volume of traffic
to our Web site. Our revenues will depend substantially on the number of
businesses and customers who use our Web site to purchase parts. Accordingly,
the satisfactory performance, reliability and availability of our Web site,
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transaction-processing systems, network infrastructure and delivery and
shipping systems are critical to our operating results, as well as to our
reputation and ability to attract and retain customers and maintain adequate
customer service levels.
We may periodically experience systems interruptions, including
Internet disruptions. Any systems interruptions, including Internet disruptions
that make our Web site inaccessible or reduce our order fulfillment performance
would reduce the volume of parts we are able to sell, which could harm our
business. An increase in the volume of traffic to our Web site could adversely
affect the capacity of the software or hardware deployed by us, which could
lead to slower response time or even system failures. We will be required to
continually enhance and expand our transaction-processing systems, network
infrastructure, and other technologies to accommodate a substantial increase in
the volume of traffic on our Web site. We cannot assure you that we will be
successful in these efforts or that we will be able to accurately project the
rate or timing of increases, if any, in the use of our Web site or timely
expand and upgrade our systems and infrastructure to accommodate these
increases. We cannot assure you that our network or our suppliers' networks
will be able to timely achieve or maintain a sufficiently high capacity of data
transmission, especially if our Web site traffic increases. If we fail to
achieve or maintain our capabilities for high capacity data transmission,
consumer demand for our services could decline.
WE MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS UNLESS WE KEEP UP WITH RAPID
TECHNOLOGICAL CHANGES.
The Internet and electronic commerce industries are characterized by:
- rapidly changing technology;
- changes in consumer demands;
- frequent introductions of new services or products that embody new
technologies; and
- evolving industry standards and practices that could render our Web
site and proprietary technology obsolete.
Our future performance will depend, in part, on our ability to license or
acquire leading technologies, enhance our existing services and respond to
technological advances and emerging industry standards and practices on a
timely and cost-effective basis. Developing Web site and other proprietary
technology involves significant technical and business risks. We also cannot
assure you that we will be able to successfully use new technologies or adapt
our Web site and proprietary technology to emerging industry standards. We may
not be able to remain competitive or sustain growth if we do not adapt to
changing market conditions or customer requirements.
IF WE ENCOUNTER SYSTEM FAILURE, SERVICE TO OUR CUSTOMERS COULD BE DELAYED OR
INTERRUPTED. SERVICE DELAYS OR INTERRUPTIONS COULD SEVERELY HARM OUR BUSINESS
AND RESULT IN A LOSS OF CUSTOMERS.
Our ability to successfully maintain an e-commerce Web site and
provide acceptable levels of customer service largely depends on the efficient
and uninterrupted operation of our computer and communications hardware and
network systems. Any interruptions could severely harm our business and result
in a loss of customers. Our computer and communications systems are located in
Sanford, Florida. Although we will periodically back up our databases to tapes
and store the backup tapes offsite, we will not maintain a redundant site. Our
systems and operations are vulnerable to damage or interruption from human
error, sabotage, fire, flood, earthquake, power loss, telecommunications
failure and similar events. Although we will take certain steps to prevent a
system failure, we cannot assure you that our measures will be successful and
that we will not experience system failures in the future. Moreover, we may
experience delays and interruptions in our telephone and Internet access which
will prevent customers
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from accessing our Web site. The occurrence of any system failure or similar
event could harm our business dramatically. In addition, we may move to third
party hosting of our servers. We cannot assure you that this transition, if
undertaken, would be effected without interruptions. Further, any such
third-party host could be subject to the same risks of system failure as our
current site.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE LOSE KEY PERSONNEL.
Our future performance depends substantially on the continued service
of our senior management and other key personnel. In particular, our success
depends upon the continued efforts of our management personnel, including Shawn
D. Lucas, our President, Scott A. Anderson, our Chief Technology Officer and
David Lampert, our Senior Vice President of Software Development. We have
long-term employment agreements with our present key personnel, but have no key
person life insurance.
OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY
SKILLED PERSONNEL.
We believe that our future success will depend upon our ability to
hire, train and retain other highly skilled personnel. Competition for quality
personnel is intense. We cannot be sure that we will be successful in hiring,
assimilating or retaining the necessary personnel, and our failure to do so
could adversely affect our business and financial condition.
IF WE DO NOT ADEQUATELY ADDRESS "YEAR 2000" ISSUES, WE MAY INCUR SIGNIFICANT
COSTS AND OUR BUSINESS COULD SUFFER.
Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our suppliers, to operate properly with
regard to the Year 2000 and thereafter could require us to incur significant
unanticipated expenses to remedy any problems and could cause system
interruptions and loss of data. Any of these events could harm our reputation
and adversely affect our business. (See "Year 2000 Readiness Disclosure
Statements" in the "MANAGEMENT'S DISCUSSION AND ANALYSIS" section of this
registration statement.)
WE MAY NOT BE ABLE TO SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS.
Our ability to compete effectively will depend on our ability to
maintain the proprietary nature of our services and technologies, including our
proprietary software. Although we have two patent applications pending, we hold
no patents and rely on a combination of trade secrets and copyright laws,
non-disclosure, and other contractual agreements to protect our rights in our
technological know-how and proprietary services. We depend upon confidentiality
agreements with our officers, directors, employees and consultants to maintain
the proprietary nature of our technology. These measures may not afford us
sufficient or complete protection, and others may independently develop
know-how and services similar to ours, otherwise avoid our confidentiality
agreements, or produce patents or copyrights that would materially adversely
affect our business, prospects, financial condition and results of operations.
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RISKS RELATED TO THE INTERNET AND E-COMMERCE INDUSTRIES
OUR SUCCESS DEPENDS ON THE INTERNET'S ABILITY TO ACCOMMODATE GROWTH IN
E-COMMERCE.
The use of the Internet for retrieving, sharing and transferring
information among businesses, buyers, suppliers and partners has only recently
begun to develop. If the Internet were not able to accommodate growth in
e-commerce, our business would suffer. The recent growth in the use of the
Internet has caused frequent periods of performance degradation. Our ability to
sustain and improve our services is limited, in part, by the speed and
reliability of the networks operated by third parties. Consequently, the
emergence and growth of the market for our services is dependent on
improvements being made to the Internet infrastructure to alleviate overloading
and congestion.
A LACK OF DEVELOPMENT OF THE E-COMMERCE MARKET WOULD NEGATIVELY AFFECT US.
If the e-commerce market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of e-commerce, including the following:
- e-commerce is at an early stage and buyers may be unwilling to shift
their traditional purchasing to online purchasing;
- businesses may not be able to implement e-commerce applications on
these networks;
- increased government regulation or taxation may adversely affect the
viability of e-commerce;
- insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and
- adverse publicity and consumer concern about the reliability, cost,
ease of access, quality of services, capacity, performance and
security of e-commerce transactions could discourage its acceptance
and growth.
Even if the Internet is widely adopted as a means of commerce, the
adoption of our network for procurement, particularly by companies that have
relied on traditional means of procurement, will require broad acceptance of
the new approach. In addition, companies that have already invested substantial
resources in traditional methods of procurement, or in-house e-commerce
solutions, may be reluctant to adopt our e-commerce solution.
SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER USE OF OUR PRODUCTS AND
SERVICES.
A fundamental requirement to conduct business-to-business e-commerce
is the secure transmission of information over public networks. If members are
not confident in the security of e-commerce, they may not effect transactions
on our e-commerce Web site which would severely harm our business. We cannot be
certain that advances in computer capabilities, new discoveries in the field of
cryptography, or other developments will not result in the compromise or breach
of the algorithms we use to protect content and transactions on our e-commerce
Web site or proprietary information in our databases. Anyone who is able to
circumvent our security measures could misappropriate proprietary, confidential
member information, place false orders or cause interruptions in our
operations. We may be required to incur significant costs to protect against
security breaches or to alleviate problems caused by breaches. Further, a
well-publicized compromise of security could deter people from using the
Internet to conduct transactions that involve transmitting confidential
information. Our failure to prevent security breaches, or well-publicized
security breaches affecting the Internet in general could adversely affect our
business.
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INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD ADVERSELY AFFECT OUR
BUSINESS.
We are currently not regulated by any government agency, other than
regulations applicable to businesses generally, laws applicable to auction
companies and auctioneers, and laws or regulations directly applicable to
Internet commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing,
sales tax, and characteristics and quality of products and services.
Furthermore, the growth and development of Internet commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on companies conducting business over the Internet. New laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet auctions and increase our cost of doing business. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, auction regulation, sales tax,
libel and personal privacy is uncertain and may take years to resolve.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by some foreign governments that could impose taxes on the sale of
goods and services and other Internet activities. In October 1998, the Internet
Tax Freedom Act was signed into law, placing a three-year moratorium on new
state and local taxes on Internet commerce. However, it is possible that future
laws imposing taxes or other regulations on commerce over the Internet could
substantially impair the growth of electronic commerce and as a result have a
negative effect on our business.
In addition, because our service is available over the Internet in
multiple states and because we sell merchandise to numerous consumers resident
in multiple states, we could be required to qualify to do business as a foreign
corporation in each state in which our services are available. We are qualified
to do business in only two states, and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us
to taxes and penalties for the failure to qualify. Any new legislation or
regulation, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could have a material adverse
effect on our business.
FAILURE TO MAINTAIN ACCURATE DATABASES COULD SERIOUSLY HARM OUR BUSINESS AND
REPUTATION.
We must update and maintain extensive databases of the parts and
e-commerce transactions for our customers. Our computer systems and databases
must allow for expansion as our business grows without losing performance.
Database capacity constraints may result in data maintenance and accuracy
problems which could cause a disruption in our service and our ability to
provide accurate information to our customers. These problems may result in a
loss of customers, which could severely harm our business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other financial
information included herein.
16
<PAGE> 17
<TABLE>
<CAPTION>
Statement of Operations Data:
- ----------------------------- Nine Months From Inception
Ended September 30, January 27, 1998
1999 To December 31, 1998
---------------- --------------------
<S> <C> <C>
Revenues $ 1,153,414 $ 377,599
Cost of Sales $ 876,552 $ 302,109
Operating and other Expenses $ 2,265,403 $ 1,941,298
------------- -------------
Net Loss $ (1,988,541) $ (1,865,808)
<CAPTION>
Balance Sheet Data:
- ------------------ Sept. 30, 1999 December 31, 1998
------------------------- -----------------
<S> <C> <C>
Current Assets $ 211,151 $ 274,525
Total Assets $ 3,536,082 $ 1,257,126
Current Liabilities $ 1,126,049 $ 760,273
Total Liabilities $ 1,508,865 $ 805,563
Working Capital (Deficit) $ (914,898) $ (485,748)
Stockholders' Equity $ 2,027,217 $ 451,563
</TABLE>
RESULTS OF OPERATIONS
Nine months ended September 30, 1999 compared to the period from Inception,
January 27, 1998 to December 31, 1998
For the nine months ended September 30, 1999, the Company's revenue
increased $775,815 or 205% compared to the period from Inception (January 27,
1998) to December 31, 1998 due to sales from its UEP/MTV Pinnacle acquisition
reflective of nine months, whereas in the prior period, this division produced
sales for only three months (from the date of acquisition, September 30, 1998
through December 31, 1998.) The date of inception is reported as January 27,
1998 (the incorporation date of DTR) rather than September 13, 1995 (the
incorporation date of I.E.L.S.) because the consummation of the exchange
agreement between DTR and I.E.L.S. was in effect a recapitalization of DTR,
similar to a reverse acquisition of I.E.L.S. by DTR. Therefore, this
registration statement presents the financial statements of DTR.
Operating and other Expenses increased $324,105 or 17% from the prior
period arising primarily from the increased level of operations, amortization
of goodwill associated with the Company's acquisitions and the asset impairment
charge of $74,000 related to property and equipment.
Liquidity and Capital Resources
The increase in the Company's assets from $1.3 million at December 31,
1998 to $3.5 million at September 30, 1999 is due to a combination of factors
that include: capital expenditures incurred for the purchase of the Company's
building/headquarters and the related improvements; deferred costs associated
with the acquisition of the building and the acquisition of Livecode, Inc.
The increase in the Company's liabilities to $1,508,865 at September
30, 1999 compared to $805,563 at December 31, 1998 is primarily attributable to
borrowings under mortgages payable related to the Company's office building and
the increase in accounts payable and accrued expenses due to the Company's
increased operations.
The increase in stockholders' equity from $451,563 at December 31,
1998 to $2,027,217 at September 30, 1999 is due to the acquisition of Livecode,
Inc. and certain financing activities throughout the period, discussed below.
17
<PAGE> 18
During the nine months ended September 30, 1999, the Company's
operations used approximately $1.1 million of cash. In order to fund its
operating losses, the Company sold 1,845,153 shares of its common stock through
a Rule 504 offering and subsequent private placements raising approximately $1.2
million. Additionally, the Company executed a $50,000 promissory note with a
private party in September 1999. Further, the Company converted approximately
$883,871 of accounts payable, outstanding notes and fees owed for consulting
services into 546,091 shares of common stock. For more detail on these
activities see "ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES."
In May 1999, the Company financed the acquisition of its office
building and adjacent parking lot with a $380,000 loan from a private party and
gave the lender a first mortgage on the office building and a second mortgage on
the parking lot. For a description of the terms of the loan, see "ITEM 3.
DESCRIPTION OF PROPERTY."
The ability of the Company to satisfy its obligations depends in part
on its ability to reach a profitable level of operations and secure both short
and long-term financing for the development and expansion of its two main
business divisions, Parts.com and ReallyKnow.com. The Company is currently in
negotiations with financial institutions and other private lenders to provide
additional funding through a combination of debt and equity financing to fund
its business plan. Without short or long-term financing, the Company will
attempt to sell additional shares of common stock to meet its current and future
capital needs. There can be no assurance, however, that the Company will be
successful in obtaining any such additional financing. Subsequent to September
30, 1999, the Company conducted private placements of its common stock and as of
December 31, 1999, absent any future capital raises, we believe we have
sufficient cash reserves to fund our operations through July 2000. For more
detail on the subsequent private placements, see "ITEM 4. RECENT SALES OF
UNREGISTERED SECURITIES."
Year 2000 Readiness Disclosure Statements
Many currently installed computer systems and software products are
unable to distinguish between 20th century dates and 21st century dates. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with these "Year 2000" requirements. Our business is
dependent on the operation of numerous systems that could potentially be
impacted by Year 2000 related problems. Those systems include, among others:
- hardware and software systems used by us to process transactions
and deliver other services to our customers;
- including our proprietary software systems, as well as hardware
and software supplied by third parties;
- communications networks, such as the Internet and private
intranets, on which we depend to permit electronic commerce
transactions by our customers;
- the internal systems of our customers and suppliers;
- the hardware and software systems used internally by us in the
management of our business; and
- non-information technology systems and services used by us in
our business, such as telephone systems and building systems.
We have internally reviewed the proprietary software systems we use to
process transactions and deliver other services to our customers. Although we
believe that our internally developed applications and systems are designed to
be Year 2000 compliant, we utilize third-party equipment and software that may
not be Year 2000 compliant. Failure of third-party or currently owned equipment
or software to operate properly with regard to the Year 2000 could require us
to incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. To date, we have incurred $15,000 in connection with our
Year 2000 compliance activities. We believe that additional expenditures to
upgrade our internal systems and
18
<PAGE> 19
applications and replace non-compliant systems will not exceed $10,000 and will
not be material to our business, prospects, financial condition, and results of
operations. We have utilized, and intend to continue to utilize, general
working capital in order to fund these activities. We have not had to defer any
information technology projects as a result of these activities.
Furthermore, the success of our efforts may depend on the success of
our customers in dealing with their Year 2000 issues. Many of these
organizations are not Year 2000 compliant, and the impact of widespread
customer failure on our systems is difficult to determine. Customer
difficulties due to Year 2000 issues could interfere with electronic commerce
transactions or information, which might expose us to significant potential
liability. If customer failures result in the failure of our systems, our
business, prospects, financial condition, and results of operations would be
materially adversely affected. Furthermore, the purchasing patterns of these
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to become Year 2000 compliant. The costs
of becoming Year 2000 compliant for current or potential customers may result
in reduced funds being available to purchase and implement our applications and
services.
We have implemented a Year 2000 program to assess and monitor Year
2000 issues with all of our significant customers, suppliers, and other third
parties. We have appointed a single individual to head our Year 2000 program.
The following significant parties, which provide us with essential or critical
systems, have certified through Year 2000 compliance testing or vendor
certification that such systems are Year 2000 compliant: Teligent, Inc., Sprint
Corp. and BellSouth Corp.
We have conducted a formal assessment of our Year 2000 exposure in
order to determine what steps beyond those identified by our internal review
may be advisable. We developed a contingency plan for handling Year 2000
problems that are not detected and corrected prior to their occurrence and
completed this plan in December 1998. Our most likely worst case Year 2000
scenario is unknown at this time. Our failure to address any unforeseen Year
2000 issue could materially adversely affect our business, prospects, financial
condition, and results of operations.
To date, we have not experienced any problems arising from the passage
of January 1, 2000 and the potential that computer systems and software products
could fail or malfunction because they may not be able to distinguish 21st
century dates from 20th century dates. To date, we have not received notice of
any such problems from any of our vendors.
ITEM 3. DESCRIPTION OF PROPERTY
We own the office building that is the Company's headquarters at 121
East First Street, Sanford, Florida 32771, which is approximately twenty miles
northeast of Orlando. The building has approximately 8,000 square feet of space
and is in historic downtown Sanford. We also own a 5,000 square foot parking
lot located one block from our office. The lot is subject to a 9% first
mortgage in favor of American Note Investments, Inc. The loan balance of
$20,000 will be paid off in full in January 2004 by monthly principal and
interest payments of $260 through January 2004. The office building and the lot
are subject to a first mortgage and second mortgage and loan agreements in
favor of Eugene W. Gramzow, Trustee for the Eugene W. Gramzow Revocable Trust.
The promissory notes secured by the mortgage are for $380,000. Interest is
calculated at 15% per annum and is payable at $4,750 per month, with the
principal balance and any accrued but unpaid interest due and payable in full
on May 31, 2016. The President of the Company has executed a conditional
personal guaranty in connection with these mortgage notes.
The office building and the lot are also subject to a third mortgage in
favor of StoneStreet Investments, Inc., a Florida corporation owned by five
officers and/or directors of the Company, some of whom are principal
shareholders of the Company. The promissory note secured by the mortgage is in
the amount of $182,000. Interest is calculated at 9-1/2% per annum. Principal
and interest are amortized over 15 years, payable at $1,441 per month for the
initial five months; thereafter, the monthly payment increases to $1,900 for the
remainder of the term. The balance of any outstanding principal and accrued
19
<PAGE> 20
but unpaid interest is due and payable in full on July 31, 2002. However, in
December 1999, the StoneStreet loan was retired by the payment to StoneStreet
of 127,870 shares of common stock.
At December 31, 1999, the carrying value of land, building and
improvements has been reduced by $74,000, which amount represents the excess of
the purchase price of the property over its appraisal value at the date of
purchase.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of the Company's common stock as of December 31, 1999, by the
following individuals or groups:
- Each person or entity who is known by the Company to own
beneficially more than 5% of the Company's outstanding stock;
- Each of the executive officers named in the summary compensation
table;
- Each director of the Company; and
- All directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals
listed in the table is c/o the Company, 121 East First Street, Sanford, Florida
32771. Except as otherwise indicated, and subject to community property laws
where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
Percentage ownership in the following table is based on 23,031,206
shares of common stock outstanding as of December 31, 1999. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options, warrants or
other conversion rights that are presently exercisable or exercisable within 60
days of December 31, 1999 are deemed to be outstanding and beneficially owned
by the person holding the options, warrants or conversion rights for the
purpose of computing the percentage of ownership of that person, but are not
treated as outstanding for the purpose of computing the percentage of any other
person.
<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES BENEFICIALLY OWNED AS A
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS OUTSTANDING
<S> <C> <C>
Shawn D. Lucas (1)(2) 5,454,247 24%
Scott A. Anderson (1) 604,009 3%
Jeffrey M. Odato (1) 440,913 2%
Michael R. Fouts (1) 1,560,174 7%
David M. Lampert (3) 568,008 2%
David McComas (1) 1,691,082 7%
Ian J. Hart 50,000 *
SML, Limited 1,116,500 5%
57 Kinkel Street
Westbury, N.Y. 11590
SML, Inc. 1,608,000 7%
320 Golf Brook Circle
No. 102
Longwood, FL 32779
Flex Technologies, Inc. (4) 2,294,000 10%
5417 Leonard Lane
New Port Richey, FL 34652
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
All directors and executive officers 13,552,187 60%
as a group (7 persons)
</TABLE>
- --------------------
* Less than one percent
(1) Includes 36,667 shares of common stock issuable upon exercise of stock
options.
(2) Includes 2,294,000 shares purchased by Flex Technologies, Inc. for which
Shawn D. Lucas holds a proxy.
(3) Shares are held in a family trust for which Mr. Lampert and his wife are
co-trustees.
(4) Shawn D. Lucas holds a voting proxy for these shares.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their ages as of December
31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Shawn D. Lucas 31 Chairman, Co-Chief Executive Officer and President
Scott A. Anderson 31 Co-CEO, Chief Technology Officer, Director
Jeffrey M. Odato 43 National Sales Manager, Director
Michael R. Fouts 42 Director of Business Affairs, Director
David McComas 30 Strategic Business Development, Director
David Lampert 32 Senior Vice President of Software Development, Director
Ian Hart 35 Chief Financial Officer
</TABLE>
BACKGROUND INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Shawn D. Lucas has served as the Chairman, Co-Chief Executive Officer
of the Company since September 1998. He co-founded the original entity, Direct
Touch Research, Inc., Sanford, Florida, in January 1998 and has also been the
Company's President since June 1999. Prior to co-founding the Company, Mr. Lucas
was the Vice President of Media for MTV/Pinnacle Advertising Group, Inc.,
Sanford, Florida from January 1997 to September 1998. MTV Pinnacle Advertising
Group provided advertising services primarily to automobile dealerships. From
January 1996 to January 1997, Mr. Lucas was the Vice President of Media for
Defalco Advertising, Inc., Heathrow, Florida. From April 1992 to January 1996,
he was Vice President of Media for DeFalco West Advertising, Inc., Los Angeles,
California. Both DeFalco companies are automotive marketing and advertising
companies. From October 1990 to April 1992, Mr. Lucas worked for DeFalco
Advertising, Inc., Heathrow, Florida. Prior to that time, Mr. Lucas worked for
John Lucas Chevrolet in Oregon. Mr. Lucas is a shareholder, officer and director
of StoneStreet Investments, Inc. Sanford, Florida, a real estate investment
company.
Scott A. Anderson has served as Co-Chief Executive Officer and Chief
Technology Officer of the Company since September 1998. He co-founded the
original entity, Direct Touch Research, Inc. in January 1998. From January 1996
through September 30, 1998, he was President of United Equity Partners, Inc.,
Sanford, Florida, an Internet technology and work flow solutions company. From
May 1995 through January 1997, he was the MIS Director for DeFalco Advertising,
Inc., Heathrow, Florida. Mr. Anderson is a shareholder, officer and director of
StoneStreet Investments, Inc.
Jeffrey M. Odato has been a director of the Company and the National
Sales Manager Sales since September 1998. Mr. Odato was Executive Vice
President of Sales and Marketing for the Company from September 1998 to
November 1999. Prior to joining the Company, he was the President of MTV
Pinnacle Advertising Group, Inc., Sanford, Florida, from January 1997 to
September 1998. He served as the President of DeFalco Advertising, Inc.,
Heathrow, Florida, from October 1993 to January 1997. Mr. Odato is a
shareholder, officer and director of StoneStreet Investments, Inc.
Michael R. Fouts has been a director of the Company since September
1998 and has served as our Director of Business Affairs since November 1999.
From September 1998 to November 1999, Mr. Fouts was Senior Executive Vice
President of Business Affairs and Human Resources for the Company. Mr. Fouts was
the Chief Executive Officer of MTV Pinnacle Advertising Group, Inc., Sanford,
Florida, from January 1997 to September 1998. Prior to that time, he was Chief
21
<PAGE> 22
Operating Officer of a DeFalco Advertising, Inc., Heathrow, Florida from
February 1992 through December 1996. Mr. Fouts is a shareholder, director and
officer of StoneStreet Investments, Inc.
David McComas was a co-founder of Direct Touch Research, Inc. and has
been a director of the Company since September 1998 and serves as our executive
in charge of Strategic Business Development. From September 1998 through May
1999 he served as the President of the Company. From April 1993 to September
1998, he was Senior Vice President, Sales and Marketing for Sub-Solutions, Inc.
of Clearwater, Florida an operator of Subway franchises. Mr. McComas also
operates four Subway franchises which he has owned since 1989. Mr. McComas is a
shareholder, officer and director of StoneStreet Investments, Inc.
David M. Lampert has been a director of the Company and the Senior Vice
President of Software Development since April 1999. From October 1998 to April
1999, Mr. Lampert served as President of Livecode, Inc., Altamonte Springs,
Florida, an internet and workflow solutions company. Prior to that, he was
employed as a Senior Programmer/Analyst for Computer Sciences Corporation (CSC)
Financial Services Group, Winter Park, Florida, from October 1996 to October
1998. CSC is a computer consulting company. From 1985 to October 1996, Mr.
Lampert was Director of Development and Webmaster for Techware Corporation,
Orlando, Florida, which designed and created educational software and web sites.
Mr. Lampert is the brother of Daniel Lampert, an employee of the Company.
Ian Hart joined the Company in October 1999 as our Chief Financial
Officer. From October 1998 to September 1999, he served as Chief Financial
Officer of Sims Communications, Inc., Irvine, California, a healthcare related
transaction processing company. Prior to that, he was Chief Financial Officer
for Data Systems West, Los Angeles, California, from April 1998 through October
1998. Data Systems West is a network integrator of information solutions for
businesses. From December 1996 to April 1998, he was Chief Financial Officer for
D2 Electrical Contracting, Inc, Corona, California, an industrial electrical
subcontractor. From October 1994 to November 1997, Mr. Hart worked as a
financial consultant with Merrill Lynch, Pasadena, California. From 1992 to
October 1995, he was Vice President of Secondary Marketing for Fallbrook
Mortgage Corporation of Woodland Hills, California, a mortgage banker. From 1986
to 1992, he worked as a CPA in public practice with a local accounting firm and
Ernst & Whinney, Century City, California.
All of the Company's officers and directors devote substantially all of their
time to the Company's business.
SIGNIFICANT EMPLOYEES
The following individuals, although not executive officers of the
Company, are significant employees for purposes of disclosure under the
Commission's rules.
Jon F. Palazzo, 31, joined the Company in October 1999 as its Vice
President of Aftermarket Operations and generally has responsibility for the
operation of the aftermarket parts operations of the parts.com division, sales
and marketing in aftermarket parts and establishing strategic alliances with
suppliers with respect to aftermarket parts. Prior to joining the Company, Mr.
Palazzo was National Sales Manager for Management Information Systems, Group,
Inc. ("MISG") (a division of Motor and Equipment Manufacturers Association),
Research Triangle Park, North Carolina from July 1998 to October 1999,
responsible for new business in the automotive vertical market. MISG develops
and manages e-commerce programs for members of trade associations and industry
communities. From August 1995 to July 1998, he was an International Trade
Specialist with E. Boyd & Associates, Inc., Raleigh, North Carolina, responsible
for contract negotiations for the sale of commodity items from North and Central
America to world markets. E. Boyd & Associates is an international trade and
distribution company. From 1990 to August, 1995, he was International Product
Manager for the Worldwide Aftermarket Operations, Southfield, Michigan, a
division of Federal-Mogul Corporation, an automotive parts manufacturer.
Daniel M. Lampert, 35, joined the Company in April 1999 when the Company
acquired the assets and business of LiveCode, Inc., a company in which Mr.
Lampert was a shareholder. At that time, Mr. Lampert was appointed the
Company's Manager/Director of Quality Assurance. In July 1999, he became the
Company's Director of Operations. From July 1998 to April 1999, Mr. Lampert was
a shareholder and employee of LiveCode, Inc., Orlando, Florida, serving as a
Director from July 1998 to October 1998 and its Chief Operating Officer from
October 1998 to April 1999. From February 1998 to the present, he has served as
the sole owner and principal of his company, Daniel Lampert Communications
Corporation, Orlando, Florida, a company that performed web and business
services. From November 1983 to the present, Mr. Lampert has served as the sole
owner and principal of Techware Corporation, Orlando, Florida, a company that
designed and created educational software and web sites. Mr. Lampert is the
brother of David Lampert, a director of the Company.
BOARD OF DIRECTORS AND COMMITTEES
Our bylaws provide that our board of directors may select the number
of directors that comprise the board. Directors are elected at the annual
meeting and serve for a one-year term until their successors are elected and
qualified. The board of directors currently consists of six members and we
anticipate expanding the size of the board of directors to include independent
directors.
The Company has no compensation committee. The board of directors
currently makes all compensation decisions. The Company anticipates forming and
implementing a compensation committee and an audit committee during 2000.
DIRECTOR COMPENSATION FOR ATTENDANCE AT MEETINGS
During 1998 and 1999, the Company paid its employee-directors $7,500
for their service as directors, but ceased paying those fees as of April, 1999.
The Company has no plan of reinstating director fees in the future. Although
the Company has not effected a compensation program for non-employee directors,
the Company intends to have its non-employee directors participate in its stock
option plan. All directors will be reimbursed for their expenses in attending
board and committee meetings.
22
<PAGE> 23
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid by the Company for
services by our co-Chief Executive Officers and other most highly compensated
individuals who were serving as executive officers at the end of the fiscal
year or who had served as executive officers ("Named Executive Officers") for
the fiscal years ended December 31, 1999 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
--------------------------- ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- ----------------------------------------- ------ ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Shawn D. Lucas 1999 $ 121,875(2) $ 96,875(4) 110,000(5) $11,566(6)
President, Chairman Co-CEO 1998 $ 33,394 $ -0- -0- $ -0-
Scott A. Anderson 1999 $ 113,908(2) $ 96,875(4) 110,000(5) $14,732(6)
Co-CEO and Chief Technology Officer 1998 $ 31,950 $ -0- -0- $ -0-
Michael R. Fouts 1999 $ 113,908(2) $ 145,313(4) 110,000(5) $ -0-
Director of Business Affairs 1998 $ 29,550 $ -0- -0- $ -0-
David Lampert 1999 $ 59,252(3) $ 175,000(4) $ -0-
Sr. Vice President, Software Development 1998 $ -0- -0- $ -0-
David McComas 1999 $ 113,908(2) $ 96,875(4) 110,000(5) $ -0-
Director of Business Development 1998 $ 18,990 $ -0- -0- $ -0-
Jeffrey M. Odato 1999 $ 113,908(2) $ 96,875(4) 110,000(5) $ 4,667(6)
National Sales Manager 1998 31,950 $ -0- -0- $ -0-
</TABLE>
- --------------
(1) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to the Named Executive
Officers. The aggregate amount of such compensation for the Named
Executive Officers is less than 10% of the total annual salary and bonus.
(2) Includes $5,508 of salary for the period August 30, 1999 to October 22,
1999 paid in 3,672 shares of restricted common stock. The closing price of
a share of common stock on November 30, 1999, the date of payment, was
$5.00 per share.
(3) Includes $18,252 of salary for the period June 1, 1999 to November 30,
1999 paid in 36,504 shares of restricted common stock. The closing price
of a share of common stock on November 29, 1999, the date of payment, was
$4.75 per share.
(4) Bonus paid in an aggregate of 375,000 shares of restricted stock to these
officers. The closing price of a share of common stock on the dates of
grant ranged from $1.1875 to $1.9375 per share.
<TABLE>
<CAPTION>
Closing Price of a
Name Bonus Shares Date of Grant Share on Grant Date
- ---- ------------ ------------- -------------------
<S> <C> <C> <C>
Shawn D. Lucas 50,000 11/11/99 $1.9375
Scott A. Anderson 50,000 11/11/99 $1.9375
David McComas 50,000 11/11/99 $1.9375
Jeffrey M. Odato 50,000 11/11/99 $1.9375
Michael R. Fouts 75,000 11/11/99 $1.9375
David Lampert 75,000 11/11/99 $1.9375
David Lampert 25,000 10/21/99 $1.1875
</TABLE>
(5) Represents the number of shares of common stock subject to options on
February 12, 1999, the date of grant. The closing price of a share of
common stock on the date of grant was $3.50. See "-- Stock Option Grants."
(6) Represents sales commissions paid.
STOCK OPTION GRANTS
The following table sets forth information concerning individual
grants of options to purchase Common Stock made to the Named Executive Officers
during 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Potential Realizable
Value at
Assumed Annual Rates
of
Number of Percent of Stock Price
Securities Total Exercise Appreciation for
Underlying Options or Option Term(1)
Options Granted to Base Price Expiration ----------------------
Name Granted Employees ($/Share) Date 5%($) 10%($)
- --------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shawn D. Lucas 110,000(2) 16% $3.00 2/12/09 $537,535 $855,935
Scott A. Anderson 110,000(2) 16% $3.00 2/12/09 $537,535 $855,935
Michael R. Fouts 110,000(2) 16% $3.00 2/12/09 $537,535 $855,935
David Lampert -0- -0- -0- -0- -0- -0-
David McComas 110,000(2) 16% $3.00 2/12/09 $537,535 $855,935
Jeffrey M. Odato 110,000(2) 16% $3.00 2/12/09 $537,535 $855,935
</TABLE>
- ---------------
(1) In accordance with the rules of the Commission, the potential realizable
values for such options shown in the table are based on assumed rates of
stock price appreciation of 5% and 10% compounded annually from the date
the respective options were granted to their expiration date. These
assumed rates of appreciation do not represent the Company's estimate or
projection of the appreciation of shares of Common Stock of the Company.
(2) Options were granted on February 12, 1999 and vest in thirds over three
years commencing October 1, 1999.
No options were exercised during fiscal 1999.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
We entered into employment agreements (as amended) with the following
executives:
<TABLE>
<CAPTION>
Officer Term Salary Position
- ------- ---- ------ --------
<S> <C> <C> <C>
Shawn D. Lucas Oct. 1998-Oct. 2001 $72,000 Co-CEO, President
Scott A. Anderson Oct. 1998-Oct. 2001 $72,000 Co-CEO, Chief Technology Officer
Jeffrey M. Odato Oct. 1998-Oct. 2001 $72,000 National Sales Manager
Michael R. Fouts Oct. 1998-Oct. 2001 $72,000 Director of Business Affairs
David McComas Oct. 1998-Oct. 2001 $72,000 Strategic Business Development
David Lampert Apr. 1999-Apr. 2002 $72,000 Senior Vice President of Software
Development
</TABLE>
All provisions contained in the employment agreements for the
above-named executives are identical. Under each agreement, the executive is
required to devote at least 40 hours per week to the Company. The executive is
entitled to participate in all employee benefit programs available to Company
employees generally, including participation in health care and disability
plans, stock option plans and any retirement plan. The original term of the
agreements is three years; however, on each anniversary of the commencement
date, the term is automatically extended for an additional year. The agreements
provide for discretionary performance bonuses as determined by the board of
directors.
The Company may terminate the executives' employment for cause or
without cause at any time, subject to the approval of a majority of the board
of directors. If the Company terminates the executive without cause he is paid
for his then existing annual base salary for a period of three years, payable
weekly or in accordance with our payroll practices at the time. An additional
six months of insurance coverage is provided for them under the Company's
medical and disability plans. Upon termination of
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employment without cause, the executives will be released from the
non-competition provisions of their employment agreements, but the
non-disclosure and provisions relating to proprietary information will remain
in effect.
The executives may terminate their employment at any time upon 90
days' written notice to the Company, except in the event of a change of
control, when 10 days' notice is required. The agreements contain
nonsolicitation and noncompetition provisions that are intended to survive the
termination of employment for a period of two years.
In addition, in April 1999, the Company entered into an employment
agreement (as amended) with Daniel Lampert. He serves as our Director of
Operations and receives an annual salary of $72,000. The agreement expires in
April, 2002; however, on each anniversary date, the term automatically extends
for an additional year. The Company may terminate Mr. Lampert's employment for
cause or without cause at any time, subject to the approval of a majority of the
board of directors. If the Company terminates Mr. Lampert without cause, he is
to be paid for his then existing annual base salary for a period of three years,
payable in accordance with our standard payroll practices. An additional six
months of insurance coverage is also to be provided for him under the Company's
medical and disability plans. Upon termination of employment without cause, Mr.
Lampert will be released from the non-competition provisions of his employment
agreement, but the non-disclosure and provisions relating to proprietary
information will remain in effect. Mr. Lampert may terminate his employment at
any time upon 90 days' written notice to the Company, except in the event of a
change of control, when 10 days' notice is required. The agreement contains
nonsolicitation and noncompetition provisions that are intended to survive the
termination of employment for a period of two years. The agreement also requires
Mr. Lampert to devote at least 40 hours per week to the Company.
Also, in August 1999, the Company entered into an employment agreement
with Ian Hart. He serves as the Chief Financial Officer and receives an annual
salary of $100,000. The agreement expires on December 31, 2000, subject to
renewal for successive one year terms, and unless otherwise terminated under
the agreement. Under his agreement, Mr. Hart received stock options pursuant to
our 1998 Stock Option Plan to purchase an aggregate of 120,000 shares of common
stock at an exercise price of $1.75 per share. These stock options vest over 18
months. Mr. Hart was also granted 10,000 shares of restricted common stock to
be forfeited should he voluntarily terminate his employment prior to April 4,
2000 or should we discharge him for cause prior to April 4, 2000. If the
Company terminates Mr. Hart's employment without cause, he will continue to be
paid his base salary and be provided health insurance benefits (and life
insurance benefits, if any) for the greater of the remaining term of the
agreement or eight months. Mr. Hart may terminate the agreement upon 90 days'
prior notice to us. The agreement contains nonsolicitation and noncompetition
provisions that survive termination of his employment for two years.
STOCK OPTION PLAN
The Company's stock option plan currently authorizes the award of
1,650,000 shares of common stock in the form of stock options. As of October 1,
1999, stock options to purchase 670,000 shares of common stock were outstanding
under the plan. Accordingly, 980,000 shares of common stock are available for
future awards under the plan. The plan is designed as a means to retain and
motivate qualified and competent persons who provide services to the Company
and its subsidiaries, if any.
All employees of the Company are eligible to be granted awards under
the plan, as are directors, consultants and independent contractors of the
Company or its subsidiaries. Awards under the plan are made by the board of
directors, or if instituted by the board of directors, by the compensation
committee, in its
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sole discretion, from among those eligible. In granting options, the
compensation committee (when created) will considers current levels of
compensation, the need to provide incentives to particular employees, past
performance, comparison to employees at comparable companies and the Company's
overall performance.
The plan is currently administered by the board of directors. The
board makes all decisions or determinations by either a majority vote of its
members at a meeting or by the unanimous written approval of its members. The
board may adopt, alter or repeal any administrative rules, guidelines and
practices for carrying out the purposes of the plan. The board has the right to
determine, among other things, the persons to whom awards are granted, the
terms and conditions of any awards granted, the number of shares of common
stock covered by the awards, the exercise price of options and the term
thereof.
If there is a change in the common stock due to a stock dividend or
recapitalization, the plan provides for appropriate adjustment in the number of
shares available for grant under the plan and the number of shares and the
exercise price per share under any option then outstanding under the plan, so
that the same percentage of the Company's issued and outstanding shares shall
remain subject to being optioned under the plan or subject to purchase at the
same aggregate exercise price under any such outstanding option, as applicable.
Unless otherwise provided in any option, the committee may change the option
price and/or number of shares under any outstanding option when, in its
discretion, such adjustment becomes appropriate so as to preserve but not
increase benefits under the plan. The aggregate number of shares subject to
options granted to any one optionee under the Plan may not exceed 660,000,
subject to adjustment as described above. However, no incentive stock options
(as defined in Section 422 of the Internal Revenue Code) may be granted to a
person who is not also an employee of the Company.
The plan provides for the granting of both incentive stock options and
nonqualified stock options. Options may generally be granted under the plan on
such terms and at such prices as determined by the committee, except that the
per share exercise price of any incentive stock options cannot be less than the
fair market value of a share of the common stock on the date of grant. Each
option is exercisable after the period or periods specified in the option
agreement, but no option may become exercisable after the expiration of ten
years from the date of grant. The committee may accelerate the exercisabilty or
vesting of any option or shares previously acquired by the exercise of any
options, and, in the event of a change in control, unless otherwise provided in
the option, each outstanding option will become immediately fully exercisable.
Incentive stock options granted to an individual who owns (or is deemed to own)
at least 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries must have an exercise price of at least 110%
of the fair market value of the Common stock subject to such option on the date
of grant and a term of no more than five years. Incentive stock options granted
under the plan are not transferable other than by will or by the laws of
descent and distribution. Nonqualified stock options are also not transferable
unless the prior written consent of the committee is obtained and such transfer
does not violate Rule 16b-3 under the Securities Exchange Act of 1934.
The committee may permit the option price to be paid by cash,
certified or official bank check, personal check if accepted by the committee,
money order, shares of common stock that have been held for at least 6 months
(or such other shares as the Company determines will not cause the Company to
recognize for financial accounting purposes, a charge for compensation
expense), withholding of shares of common stock, any cashless exercise
procedure approved by the committee, other consideration deemed appropriate by
the committee, or a combination of the above. The plan also authorizes the
Company to make or guarantee loans to optionees to enable them to exercise
their options. Such loans must (i) provide for recourse to the optionee, (ii)
bear interest at the prime rate of the Company's principal lender, (iii) be
secured
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<PAGE> 26
by the shares of Common Stock purchased, and (iv) contain such other terms as
the committee in its sole discretion shall reasonably require. The committee
has the authority to amend or terminate the plan or any options, provided that
no such action may substantially impair the rights or benefits of the holder of
any outstanding option without the consent of such holder, and provided further
that certain amendments to the plan are subject to shareholder approval.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1998, I.E.L.S., Inc., a Nevada corporation with no
material operations, completed an exchange agreement with Direct Touch
Research, Inc. a Florida corporation with no material operations, pursuant to
which all shares of DTR common stock were exchanged for 5,542,000 shares of
I.E.L.S. common stock. Three of the original shareholders and promoters of
I.E.L.S. agreed to have 1,610,000 shares of their stock redeemed by I.E.L.S.
for an aggregate consideration of $1,610.00. At the time of the completion of
the share exchange, the prior shareholders and promoters of DTR held 5,542,000
shares and the I.E.L.S. shareholders held 4,200,000 shares (prior to redemption
and cancellation of the 1,610,000 referenced above). As a result, DTR became a
wholly owned subsidiary of I.E.L.S. and I.E.L.S. changed its name to the
Company. A total of 987,000 additional shares were issued to the following
persons for related consulting services: Consolidated Capital Group, Inc.
(300,000 shares); Roger Tichenor (300,000 shares); Pow Wow, Inc. (300,000
shares) and Douglas Hackett (87,000 shares). The Company subsequently dissolved
DTR in August 1999.
In September 1998, the Company acquired all of the business, assets
and liabilities of United Equity Partners, Inc., a Florida corporation, for
150,000 shares of the Company common stock. UEP, a company owned by Scott A.
Anderson and Michael R. Fouts, provided website design and maintenance services
for businesses. The assets acquired consisted primarily of computer equipment,
accounts receivable and maintenance contracts. The Company also assumed trade
payables of approximately $90,000. UEP was subsequently dissolved in August
1999.
In September 1998, the Company acquired all of the business, assets
and liabilities of MTV/Pinnacle Advertising Group, Inc., a Florida corporation
("Pinnacle"), for 582,000 shares of the Company common stock. Pinnacle, a
company owned by Jeffrey M. Odato and Michael R. Fouts, provided advertising
services primarily to automobile dealerships. The assets acquired consisted
primarily of accounts, receivables, computer and office equipment. The Company
also assumed trade payables of approximately $469,000.
In September 1998, the Company retired a $40,000 obligation owed to
Michael Fouts, an officer, director and shareholder of the Company, by issuing
him 40,000 shares of the Company's Common Stock.
In September 1998, the Company issued 400,000 shares of common stock to
Select Media, Inc., a beneficial owner of over 5% of the Company's issued and
outstanding common stock, pursuant to the terms of a consulting agreement
entered into with Select Media, Inc.
In May 1999, the Company acquired all of the assets and business
operations and assumed all of the outstanding liabilities of LiveCode, Inc.
("LiveCode") a Florida corporation in exchange for 600,000 shares of the
Company's common stock and a six-month non-interest bearing $20,000 promissory
note in favor of the stockholders of LiveCode. The Company, whose President was
David Lampert, provides software solutions and other computer-related services
to various industries. Effective September 30, 1999, the $20,000 note was
repaid by the issuance of 40,000 shares of the Company common stock.
On October 21, 1999, the Company acquired all of the outstanding
common stock of FlexRadio, Inc., ("FlexRadio") for 6,200,000 shares of the
Company common stock, a transaction valued at $6,417,000. The 6,200,000 shares
of stock were issued to FlexRadio's stockholders according to their respective
ownership percentages-Flex Technologies, Inc. (a Florida corporation owned by
Walter Anderson, father of the Company Co-CEO and Chief Technology Officer
Scott Anderson-2,294,000 shares), Shawn Lucas (our co-CEO and
President-1,922,000 shares), Official Sports Management, Inc. (a Florida
corporation owned by Ross Reback-496,000 shares) and Select Media, Inc. (a
Florida corporation owned by George DeMakos-1,488,000 shares). Under the terms
of the acquisition, the Company obtained the rights to FlexRadio's provisional
patent application for a radio frequency detection and reporting device.
FlexRadio technology will enable radio stations to track program and
advertising effectiveness in a real time format. The Company will combine
FlexRadio's technology with its ReallyKnow.com's Miratouch division's
web-enabled real time market research business, thus expanding the reach of
real time data gathering for businesses.
In May 1999, the Company purchased the office building that is its
headquarters and a future parking facility for $562,000. The sellers of the
property were Karl and Helen Stairs and StoneStreet Investments, Inc., a
Florida corporation ("StoneStreet"), owned by Messrs. Lucas, Fouts, Odato,
Anderson and McComas, each of whom is a director and shareholder of the
Company. The purchase was financed with secured loans totaling $380,000 from an
unrelated party, Eugene E. Gramzow, Trustee for the Eugene W. Gramzow Revocable
Trust (the "Gramzow Loan") and an unsecured loan in the amount of
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$182,000 in favor of StoneStreet Investments, Inc. $432,000 of the loans were
used to purchase the property and the remaining loan proceeds were used to
complete approximately $160,000 worth of improvements to the property and the
building. The Gramzow Loan is secured by the following: (i) a first mortgage
against the Company's headquarters and second mortgage against the parking lot;
(ii) a conditional personal guaranty by Shawn D. Lucas; and (ii) a pledge of a
total of 100,000 shares of the Company common stock by Scott A. Anderson,
Michael R. Fouts, Jeffrey M. Odato and David McComas (each of whom pledged
25,000 shares). The loan from StoneStreet is secured by a second mortgage on
the Company's headquarters and a third mortgage on the parking lot. For a
description of the terms of the loans, see Item 3 "DESCRIPTION OF PROPERTY."
However, in December 1999, the StoneStreet loan was retired by the payment to
StoneStreet of 127,870 shares of common stock.
In February 1999, the board of directors granted a 10-year
non-qualified stock option under the Company's stock option plan, to each of
Shawn D. Lucas, David McComas, Scott A. Anderson, Jeffrey M. Odato and Michael
R. Fouts. Each option is exercisable for 110,000 shares at an exercise price of
$3.00 per share commencing October 1, 1999 as to one-third, October 1, 2000 as
to one-third, and October 1, 2001 for the balance of one-third. The options are
subject to termination under certain circumstances and the exercise dates are
subject to acceleration upon a change of control (as defined in the Company's
stock option plan).
Effective September 30, 1999, the Company repaid $85,546 worth of debt
to its principal shareholders, directors and/or officers with the issuance of
171,091 shares of common stock. Messrs. Anderson, McComas, Odato and Fouts
received 55,763; 2,836; 17,065 and 95,427 shares respectively.
On October 21, 1999, the Company acquired all of the outstanding
common stock of FlexRadio, Inc., ("FlexRadio") for 6,200,000 shares of the
Company common stock, a transaction valued at $6,417,000. The 6,200,000 shares
of stock were issued to FlexRadio's owners - Flex Technologies, Inc., Shawn
Lucas, Official Sports Management, Inc. and Select Media, Inc.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The following description of our capital stock is only a summary and
is qualified in its entirety by reference to the actual terms of the capital
stock contained in our amended and restated articles of incorporation and
amended and restated bylaws.
The Company's authorized capital stock consists of 50,000,000 shares
of common stock, par value $.001 per share, 23,031,206 shares of which are
issued and outstanding at December 31, 1999. The outstanding shares of Common
Stock are fully paid and non-assessable. The Company is further authorized to
issue up to 10,000,000 shares of "blank check preferred stock," par value $.001
per share, none of which are issued and outstanding as of the date hereof.
COMMON STOCK
The holders of common stock are entitled to one vote per share for the
election of directors and
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with respect to all other matters submitted to a vote of stockholders. Shares
of common stock do not have cumulative voting rights, which means that the
holders of more than 50% of such shares voting for the election of directors
can elect 100% of the directors if they choose to do so and, in such event, the
holders of the remaining shares so voting will not be able to elect any
directors. Current holders of the Company's common stock will have majority
voting control. As a result, such persons will be in the position to
effectively control the affairs of the Company.
Upon any liquidation, dissolution or winding-up of the Company, the
assets of the Company, after the payment of company debts and liabilities and
any liquidation preferences of, and unpaid dividends on, any class of preferred
stock which may then be outstanding, if at all, will be distributed pro-rata to
the holders of the common stock. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.
Holders of the Company's common stock are entitled to receive such
dividends as the board of directors may from time to time declare to be paid in
accordance with Nevada law and if the Company has sufficient surplus or net
earnings. The Company has never paid cash dividends. The Company seeks growth
and expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends in the foreseeable future.
The Company may issue additional shares of its common stock in the
future for such valid corporate purposes, as management may determine, in its
sole discretion, which could then cause dilution to the Company's then common
stockholders.
PREFERRED STOCK
Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding. The board of directors may, without
stockholder approval, issue preferred stock with dividend rates, redemption
prices, preferences on liquidation or dissolution, conversion rights, voting
rights and any other preferences, which rights and preferences could adversely
affect the voting power of the holders of common stock. Issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions or other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or could discourage or delay a
third party from acquiring, a majority of our outstanding stock.
REGISTRATION RIGHTS
Holders of 1,410,000 shares of common stock have piggyback
registration rights entitling them to include those shares in a registration
statement filed by the Company for an offering of its shares. The Company is
obligated to pay the costs of such registration, but the holders of the common
stock that is registered are responsible for the payment of their own selling
commissions, broker fees and fees of their own legal counsel. Those
registration rights expire in 2002.
The holders of stock options for 550,000 shares of the Company's
common stock have piggyback registration rights entitling them to include
shares underlying their options in a registration statement filed by the
Company for an offering of its shares. The Company is obligated to pay the
costs of such registration, but the holders of the common stock that is
registered are responsible for the payment of their own selling commissions,
broker fees and fees of their own legal counsel. Those registration rights
expire in 2009.
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Registration of shares of common stock pursuant to the exercise of
demand, piggyback registration rights under the Securities Act would result in
such shares becoming freely tradable without restriction under the Securities
Act immediately upon the effectiveness of such registration.
CERTAIN PROVISIONS OF NEVADA LAW AND OUR CORPORATE GOVERNANCE DOCUMENTS
Certain provisions of Nevada law and the Company's Amended and
Restated Articles of Incorporation ("Articles of Incorporation") and the
Company's Amended and Restated Bylaws ("Bylaws"), may deter or frustrate a
takeover attempt of the Company that a stockholder might consider in its best
interest.
CERTAIN BUSINESS COMBINATIONS. Once the Company becomes subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended,
the Company will be subject to the "affiliated transactions" provisions of the
Nevada Revised Statutes. These provisions require, subject to certain
exceptions, that certain business combinations and corporate transactions with
beneficial owners of more than 10 percent of a corporation's voting stock, or
any entity or individual controlled by such owner (an "interested stockholder")
be approved (i) by a majority of the board of directors or (ii) by the holders
of a majority of the voting shares other than those beneficially owned by an
"interested stockholder." These provisions to not apply to any combination of a
resident domestic corporation whose current articles of incorporation expressly
state that the corporation is not to be governed by these provisions. Our
Articles of Incorporation currently do not contain such an exclusionary
provision.
ACQUISITION OF A CONTROLLING INTEREST. Under Nevada law, voting rights
must be conferred on "control shares" acquired in specified control share
acquisitions, generally only to the extent conferred by resolution approval by
the stockholders, excluding the shares acquired in a control share acquisition.
Shares are acquired in a control share acquisition when a person acquires a
"controlling interest" in a corporation. A "controlling interest" is defined as
the ownership of shares that, except for the application of the statute, would
have voting power that, when added to all other shares that the acquirer owns
or has the power to vote, would give the acquirer (directly, indirectly, alone,
or in association with others) voting power in excess of certain statutory
parameters. Nevada's "control shares" statute apply to a Nevada corporation
having 200 or more stockholders (at least 100 of whom are stockholders of
record and residents of Nevada) and which does business in Nevada directly or
through an affiliated corporation. If a corporation's articles of incorporation
or bylaws provide that the "control shares" statutes do not apply, then those
provisions are not applicable. Our Articles of Incorporation and Bylaws,
however, currently do not contain such an exclusionary provision.
SPECIAL MEETINGS OF STOCKHOLDERS. The Company's Bylaws provide that
any special meeting of stockholders may be called only by the Chairman of the
Board, the President or upon the affirmative note of at least a majority of the
members of the Board of Directors, or upon the written demand of the holders of
not less than 25% of the votes entitled to be cast at a special meeting.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates
for election as directors at an annual or special meeting of
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stockholders, must provide timely notice thereof in writing. To be timely with
respect to an annual meeting, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 120 days nor more than 180 days prior to the first anniversary of the date
of the Company's notice of annual meeting for the pervious year's annual
meeting. However, if no annual meeting was held in the previous year or the
date of the annual meeting has been changed to be more than 30 calendar days
earlier than the date contemplated by the previous year's notice of annual
meeting, such notice by the stockholder must be delivered or received not later
than the close of business on the fifth day following the date on which notice
of the date of the annual meeting is given to stockholders or made public,
whichever first occurs. To be timely with respect to a special meeting, a
stockholder's notice must be delivered to or mailed and received at the
principal office of the Company not later than the close of business on the
fifth day following the date on which notice of a special meeting is given to
stockholders or the public, whichever occurs first. The Company's Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude stockholders from bringing matters before
the stockholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK. Under the Articles
of Incorporation, the Company is authorized to issue additional common stock
and up to 10,000,000 shares of preferred stock in one or more series, having
terms fixed by the board of directors without stockholder approval, including
voting, dividend or liquidation rights that could be greater than or senior to
the rights of holders of common stock. The existence of authorized but unissued
and unreserved shares of common stock and preferred stock may enable the board
of directors to issue shares to persons friendly to current management which
would render more difficult or discourage an attempt to obtain control of the
Company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management. Issuance of shares
of common stock or preferred stock could also be used as an anti-takeover
device.
These provisions of our Articles of Incorporation and Bylaws are
intended to: enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors; reduce the vulnerability of the Company to an unsolicited
acquisition proposal; discourage certain types of transactions that may involve
an actual or threatened change of control of the Company; and discourage
certain tactics that may be used in proxy fights.
These provisions, however, could have the effect of discouraging
others from making tender offers for our shares and, as a consequence, they
also may inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts. These provisions also may have
the effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Alpha Tech
Stock Transfer of Salt Lake City, Utah.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The shares of common stock of the Company are traded on the
Over-The-Counter Electronic Bulletin Board under the symbol "MIRM." The
following table sets forth for the periods indicated the high and low bid
prices of our common stock, as obtained from Nasdaq Trading & Marketing
Services. The quotations reflect prices between dealers in securities, without
retail mark-up, markdown or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
Fiscal Year Ended:
-----------------
<S> <C> <C>
December 31, 1999
Fourth Quarter (1) $20.00 $ 1.03
Third Quarter-- 2.19 1.06
Second Quarter-- 3.81 1.31
First Quarter-- 6.37 2.19
Fiscal Year Ended:
-----------------
December 31, 1998
Fourth Quarter 8.53 2.00
Third Quarter(2) 2.50 2.50
</TABLE>
- --------------------
(1) The rise in the Company's stock price during this quarter occurred after
November 23, 1999, the filing date of this registration statement. The
Company does not know of any reason for the price fluctuations during the
periods other than the Company was transformed from a shell company (as
I.E.L.S., Inc.) into a viable business through the formation of a business
plan, the acquisition of businesses, the acquisition and development of
technology, the hiring of employees, and media exposure from the interview
of the Company's President on the CNBC television network.
(2) Nasdaq Trading & Marketing services did not have price information prior
to September 1998.
On January 26, 2000, the most recent practicable date prior to the
filing of this amended registration statement, the closing bid price per share
of our common stock was $22.75.
As of December 31, 1999 there were approximately 200 record holders of
the Company common stock; however, there were approximately 3,800 beneficial
owners.
The Company has never paid a dividend on its common stock, and does
not intend to pay dividends on its common stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, as such, and the
Company has no knowledge of any actions, suits, orders, investigations or
claims pending or threatened against or affecting the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There exists no disagreement between the Company and its accountants
on any matter of accounting principles or practice or financial statement
disclosure.
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ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On September 10, 1998, the Company issued a total of 5,542,000 shares
of common stock to Shawn Lucas, Scott Anderson and David McComas, the three
shareholders of Direct Touch Research, Inc. ("DTR"), pursuant to a share
exchange agreement under which the Company received all of the issued and
outstanding shares of DTR. The Company also issued a total of 987,000 shares of
common stock to four investors as a finder's fee in connection with the share
exchange between the Company and DTR. The issuance of the shares was made in
reliance on Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act of 1933"). Each investor was provided information about the
Company or had access to such information, and each investor was provided
opportunities to ask questions of management concerning the information
provided or made available. The investors confirmed their investment intent,
and the certificates for the securities bear a legend accordingly.
On September 30, 1998, the Company issued 150,000 shares of common
stock to United Equity Partners, Inc., a Florida corporation ("UEP") in exchange
for all of the assets, liabilities and business of UEP. Each of the two
shareholders of UEP, Michael Fouts and Scott Anderson, was an officer and
director of the Company and as such an accredited investor. The issuance of the
shares was made in reliance on Section 4(2) of the Securities Act. UEP and each
of such shareholder confirmed in writing its and his investment intent, and the
certificates for the securities bear a legend accordingly.
On September 30, 1998, the Company issued 582,000 shares of common
stock to MTV Pinnacle Advertising, Inc., a Florida corporation ("Pinnacle") in
exchange for all of the assets, liabilities and business of Pinnacle. Each of
the two shareholders of Pinnacle, Michael Fouts and Jeffrey Odato was an officer
and director of the Company and as such an accredited investor. The issuance of
the shares was made in reliance on Section 4(2) of the Securities Act. Pinnacle
and each of such shareholders confirmed in writing its and his investment
intent, and the certificates for the securities bear a legend accordingly.
Subsequent to the issuance of the shares to Pinnacle, the former shareholders of
Pinnacle caused Pinnacle to distribute to three employees of Pinnacle a total of
30,000 of the shares as a bonus for their service. The three employees were
provided information about the Company or had access to such information, and
each employee was provided opportunities to ask questions of management
concerning the information provided or made available. Each employee confirmed
in writing his investment intent, and the certificates for the securities bear a
legend accordingly.
On September 30, 1998, the Company issued to Michael Fouts an
executive officer and director of the Company (an accredited investor) 40,000
shares of common stock in repayment of $40,000 of liabilities owed to such
officer/director by the Company. The issuance of the shares was made in
reliance on Section 4(2) of the Securities Act. The purchaser confirmed in
writing his investment intent, and the certificate for the securities bears a
legend accordingly.
On September 30, 1998, the Company issued to an accredited investor,
Select Media, Inc., 400,000 shares of common stock for consulting services. The
issuance of the Shares was made in reliance on Section 4(2) of the Securities
Act. The investor confirmed in writing that he had investment intent, and the
certificate for the securities bears a legend accordingly. In addition, the
investor was provided information about the Company or had access to such
information, and the investor was provided opportunities to ask questions of
management concerning the information provided or made available.
From approximately November 5, 1998 through March 23, 1999, the
Company sold an aggregate of 1,421,653 shares of common stock for gross
proceeds of $999,774 to 38 accredited investors and 9 non-accredited investors
in an offering made in reliance on Rule 504 of Regulation D promulgated under
the Securities Act. The offers and sales were made by the officers and
directors of the Company without compensation for same.
From April 23, 1999 through August 31, 1999, the Company sold an
aggregate of 1,320,000 shares of unregistered common stock for gross proceeds of
$660,000 to 7 accredited investors and 0 non-accredited investors. The shares
were issued in reliance on Section 4(2) of the Securities Act. Each purchaser
confirmed in writing that he had investment intent, and the certificates for the
securities bear a legend accordingly. In addition, each investor was provided
information about the Company or had access to such information, and the
investors were provided opportunities to ask questions of management concerning
the information provided or made available.
On February 4, 1999, the Company issued 10,000 shares of common stock
to an accredited investor, Condor Logistics, Inc., for software design and
consulting services. The shares were issued in reliance upon Section 4(2) of
the Securities Act. The investor was provided information about the Company or
had access to such information, and the investor was provided opportunities to
ask questions of management concerning the information provided or made
available. The investor confirmed in writing its investment intent, and the
certificates for the securities bear a legend accordingly.
On February 4, 1999, the Company issued 100,000 shares of common stock
to an accredited investor, Rubik Moradian, for software design and consulting
services. The shares were issued in reliance upon Section 4(2) of the
Securities Act. The investor was provided information about the Company or had
access to such information, and the investor was provided opportunities to ask
questions of management concerning the information provided or made available.
The investor confirmed in writing its investment intent, and the certificates
for the securities bear a legend accordingly.
On April 1, 1999, the Company issued 10,000 shares of common stock to
James A. Sims, Jr. and Jeffrey W. Sims in exchange for the domain Internet
domain names of "parts.com" and "parts.net." The securities were issued in
reliance on Section 4(2) of the Securities Act. Each investor was provided
information about the Company or had access to such information, and each
investor was provided opportunities to ask questions of management concerning
the information provided or made available. Each confirmed in writing his
investment intent, and the certificates for the securities bear a legend
accordingly.
On May 28, 1999, the Company issued 600,000 shares of common stock to
LiveCode, Inc., a Florida corporation ("LiveCode") in exchange for all of the
assets, liabilities and business of LiveCode. The shares were issued in
reliance upon Section 4(2) of the Securities Act. The two shareholders of
LiveCode (Daniel Lampert and his spouse, and David Lampert and his spouse and
as such, each couple is counted as one shareholder) were provided information
about the Company or had access to such information, and they were provided
opportunities to ask questions of management concerning the information
provided or made available. The investors confirmed his or her investment
intent, and the certificates for the securities bear a legend accordingly.
On May 4, 1999, the Company issued as an origination fee in connection
with a $380,000 loan made to the Company: (i) a stock option for 20,000 shares
of common stock to Eugene W. Gramzow, Trustee for the Eugene W. Gramzow
Revocable Trust, (ii) a stock option for 10,000 shares to Michael Gramzow,
(iii) a
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<PAGE> 33
stock option for 10,000 shares to Robert Gramzow, and (iv) a stock option for
10,000 shares to Matthew Gramzow. Each option was exercisable for a total
purchase price of $10.00. In May 1999 all Holders exercised their options for
$10.00 and were each issued 10,000 shares resulting in a total issuance of
50,000 shares. The issuance of the options and the common stock issued upon
exercise of the options were made in reliance on Section 4(2) of the Securities
Act. Mr. Eugene Gramzow, an accredited investor, made investment decisions for
his four sons and the trust. Mr. Eugene Gramzow was given information about the
Company or had access to such information, and he was provided opportunities to
ask questions of management concerning the information provided or made
available. Each of Mr. Gramzow and his four sons confirmed in writing their
investment intent, and the certificates for the securities bear a legend
accordingly.
On May 4, 1999, the Company issued as a broker fee in connection with
the above-referenced $380,000 loan: (i) 28,000 shares of common stock to, an
accredited investor, Advanced Investment Corp., an Oregon corporation and
mortgage broker and a finder's fee of (ii) 12,000 shares of common stock to
Patrick Seber, an accredited investor, and (iii) 20,000 shares of Common Stock
to, an accredited investor, John P. Lucas, brother of our president and Co-CEO.
The securities were issued in reliance on Section 4(2) of the Securities Act.
Each investor was provided information about the Company or had access to such
information, and each investor was provided opportunities to ask questions of
management concerning the information provided or made available. Each
confirmed in writing his investment intent, and the certificates for the
securities bear a legend accordingly.
On April 21, 1999, the Company issued 5,000 shares of common stock as a
bonus to an employee. The securities were issued in reliance on Section 4(2) of
the Securities Act. The employee was provided information about the Company or
had access to such information, and the employee was provided opportunities to
ask questions of management concerning the information provided or made
available. He confirmed in writing his investment intent, and the certificate
for the securities bears a legend accordingly.
On April 13, 1999, the Company issued 50,000 shares of common stock to
Keith Grubb for consulting services. The shares were issued in reliance upon
Section 4(2) of the Securities Act. The investor was provided information about
the Company or had access to such information, and the investor was provided
opportunities to ask questions of management concerning the information provided
or made available. The investor confirmed in writing its investment intent, and
the certificates for the securities bear a legend accordingly.
On August 9, 1999, the Company issued 20,000 shares of common stock to
Mark Cristini, an accredited investor, for consulting services. The shares were
issued in reliance upon Section 4(2) of the Securities Act. The investor was
provided information about the Company or had access to such information, and
the investor was provided opportunities to ask questions of management
concerning the information provided or made available. The investor confirmed in
writing his investment intent, and the certificate for the securities bears a
legend accordingly. This investor was also issued 75,000 shares of common stock
on November 23, 1999 for consulting services and 40,000 shares on November 29,
1999 as a business referral fee. The investor confirmed in writing his
investment intent, and the certificates for the securities bear a legend
accordingly.
On July 15, 1999, the Company issued 20,000 shares of common stock to
an accredited investor, Smart Communications, Inc., for consulting services. The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investor was provided information about the Company or had access to such
information, and the investor was provided opportunities to ask questions of
management concerning the information provided or made available. The investor
confirmed in writing its investment intent, and the certificate for the
securities bears a legend accordingly. This investor was also issued 40,000
shares of common stock by the Company on November 1, 1999 for consulting
services. The investor confirmed in writing his investment intent, and the
certificate for the securities bears a legend accordingly.
On September 30, 1999, a total of 171,091 shares of common stock were
issued to four officers and directors of the Company (each an accredited
investor) in payment of a total of $85,546 of advances made by such officers and
directors on behalf of the Company. The securities were issued in reliance on
Section 4(2) of the Securities Act. Each investor confirmed in writing his
investment intent, and the certificates bear a legend accordingly.
On September 30, 1999, a total of 40,000 shares of common stock were
paid by the Company to the former shareholders of LiveCode in satisfaction of a
$20,000 note payable to them in respect of the Company's acquisition of
LiveCode. The Securities were issued in reliance on Section 4(2) of the
Securities Act. The investors were provided information about the Company or
had access to such information, and the investors were provided opportunities
to ask questions of management concerning the information provided or made
available. The investors confirmed their investment intent, and the
certificates for the securities bear a legend accordingly.
On May 10, 1999, the Company issued 20,000 shares of common stock to
Visual & Co., an accredited investor, as a loan fee in connection with a loan
previously made to the Company and repaid. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investor was provided
information about the Company or had access to such information, and the
investor was provided opportunities to ask questions of management concerning
the information provided or made available. The investor confirmed in writing
its investment intent, and the certificates for the securities bear a legend
accordingly.
On October 4, 1999, the Company issued 10,000 shares of common stock
Ian Hart, (the Chief Financial Officer of the Company and as such an accredited
investor) in connection with an employment contract. The securities were issued
in reliance on Section 4(2) of the Securities Act. The investor was provided
information about the Company or had access to such information, and the
investor was provided opportunities to ask questions of management concerning
the information provided or made available. The investor confirmed in writing
its investment intent, and the certificates for the securities bear a legend
accordingly.
On October 5, 1999, the Company issued 20,000 shares of common stock to
an accredited investor, Anthem Communications, for consulting services. The
shares were issued in reliance upon Section 4(2) of the Securities Act. The
investor was provided information about the Company or had access to such
information, and the investor was provided opportunities to ask questions of
management concerning the information provided or made available. The investor
confirmed in writing its investment intent, and the certificates for the
securities bear a legend accordingly. In addition, on December 1, 1999, this
investor was issued 30,000 shares of common stock as consulting fees. The
investor confirmed in writing its investment intent, and the certificates for
the securities bear as legend accordingly.
On October 21, 1999, the Company acquired Flex Radio, Inc. ("Flex")
for 6,200,000 shares of common stock, a transaction valued at $6,417,000, which
shares were issued to the four shareholders of Flex, three of whom were
accredited investors. The securities were issued in reliance on Section 4(2) of
the Securities Act. The investors were provided information about the Company
or had access to such information, and the investors were provided
opportunities to ask questions of management concerning the information
provided or made available. The investors confirmed their investment intent,
and the certificates for the securities bear a legend accordingly.
On October 22, 1999, the Company issued 25,000 shares of common stock
to Todd Hilditch, an accredited investor, in respect of a consulting services.
The shares were issued in reliance upon Section 4(2) of the Securities Act. The
investor was provided information about the Company or had access to such
information, and the investor was provided opportunities to ask questions of
management concerning the information provided or made available. The investor
confirmed in writing its investment intent, and the certificates for the
securities bear a legend accordingly.
On October 25, 1999, the Company sold to Ian Hart, an executive officer
of the Company and as such an accredited investor, and Jon F. Palazzo, an
employee of the Company, 15,000 shares of common stock and 40,000 shares of
common stock, respectively, at a price of $.50 per share. The securities were
issued in reliance on Section 4(2) of the Securities Act. Mr. Palazzo was
provided information about the Company or had access to such information, and he
was provided opportunities to ask questions of management concerning the
information provided or made available. All investors confirmed in writing their
investment intent, and the certificates for the securities bear a legend
accordingly.
On October 29, 1999, the Company issued to Don Williams, an accredited
investor, 20,000 shares of common stock in satisfaction of a $10,000 account
payable owed to him. Also, on November 26, 1999, the Company issued 5,000 shares
of common stock to this investor in satisfaction of an account payable of
$10,000. The shares were issued in reliance upon Section 4(2) of the Securities
Act. The investor was provided information about the Company or had access to
such information, and the investor was provided opportunities to ask questions
of management concerning the information provided or made available. The
investor confirmed in writing its investment intent, and the certificates for
the securities bear a legend accordingly.
On October 27, 1999, the Company issued 10,000 shares of common stock
to Jon Palazzo, an employee of the Company, pursuant to the terms of an
employment agreement. The shares were issued in reliance upon Section 4(2) of
the Securities Act. The investor was provided information about the Company or
had access to such information, and the investor was provided opportunities to
ask questions of management concerning the information provided or made
available. The investor confirmed in writing its investment intent, and the
certificates for the securities bear a legend accordingly.
On October 29, 1999, the Company issued 25,000 shares of common stock
to an accredited investor, Summit Media Partners, Inc., for consulting services.
The shares were issued in reliance upon Section 4(2) of the Securities Act. The
investor was provided information about the Company or had access to such
information, and the investor was provided opportunities to ask questions of
management concerning the information provided or made available. The investor
confirmed in writing its investment intent, and the certificate for the
securities bears a legend accordingly.
On October 29, 1999, the Company issued to 16 employees, two of whom
were accredited investors, a total of 132,000 shares of common stock as
bonuses. The securities were issued in reliance on Section 4(2) of the
Securities Act. The investors were provided information about the Company or
had access to such information, and the investors were provided opportunities
to ask questions of management concerning the information provided or made
available. The investors confirmed in writing their investment intent, and the
certificates for the securities bear a legend accordingly.
On November 3, 1999, the Company issued a total of 52,500 shares of
common stock to three employees pursuant to employment agreements. The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investors were provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investors
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
On November 8, 1999, the Company sold 25,000 shares of common stock at
$.50 per share (for proceeds of $12,500) to two accredited investors, Select
Media, Inc. and Edwards Capital Corporation. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investors were provided
information about the Company or had access to such information, and the
investors were provided opportunities to ask questions of management concerning
the information provided or made available. The investors confirmed in writing
their investment intent, and the certificates for the securities bear a legend
accordingly.
On November 11, 1999, the Company issued as bonuses a total of 425,000
shares of common stock to six executive officers and/or directors of the
Company (all accredited investors) and one other employee. The securities were
issued in reliance on Section 4(2) of the Securities Act. The employee was
provided information about the Company or had access to such information, and
the employee was provided opportunities to ask questions of management
concerning the information provided or made available. All investors confirmed
in writing their investment intent, and the certificates for the securities
bear a legend accordingly.
On November 24, 1999, the Company sold 80,000 shares of common stock to
an accredited investor, the Trogan Family Trust, for $.625 per share for
proceeds of $50,000. The securities were issued in reliance on Section 4(2) of
the Securities Act. The investors were provided information about the Company or
had access to such information, and the investors were provided opportunities to
ask questions of management concerning the information provided or made
available. The investors confirmed in writing their investment intent, and the
certificates for the securities bear a legend accordingly.
On November 29, 1999, the Company issued 36,504 shares of common stock
to David Lampert, a director of the Company (as such, an accredited investor)
in respect of $18,252 of deferred salary. The shares were issued in reliance
upon Section 4(2) of the Securities Act. The investor confirmed his investment
intent, and the certificates for the securities bear a legend accordingly.
On November 30, 1999, the Company sold 780,000 shares of common stock
in a private placement to 7 accredited investors for proceeds of $1,170,000
($1.50 per share). The securities were issued in reliance on Section 4(2) of the
Securities Act. The investors were provided information about the Company or had
access to such information, and the investors were provided opportunities to ask
questions of management concerning the information provided or made available.
The investors confirmed in writing their investment intent, and the certificates
for the securities bear a legend accordingly.
On November 30, 1999, the Company issued 127,870 shares of common stock
to StoneStreet Investments, Inc. (a company owned by executive officers and/or
directors of the Company, and as such is an accredited investor). The shares
were issued to pay off outstanding principal and accrued interest of $191,806
owed on a loan and mortgage held by StoneStreet. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investor confirmed in
writing its investment intent, and the certificates for the securities bear a
legend accordingly.
On November 30, 1999, the Company issued 10,452 shares of common stock
to Daniel Lampert, an employee of the Company, in respect of $15,678 of
deferred salary. The shares were issued in reliance upon Section 4(2) of the
Securities Act. The investor was provided information about the Company or had
access to such information, and the investor was provided opportunities to ask
questions of management concerning the information provided or made available.
The investor confirmed his investment intent, and the certificates for the
securities bear a legend accordingly.
On December 29, 1999 and December 31, 1999, three accredited investors
converted $304,888 of outstanding principal and accrued interest owed on three
convertible notes into 203,014 shares of common stock of the Company. The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investors were provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investors
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ARTICLES OF INCORPORATION AND BYLAWS. Our Articles of Incorporation
and Bylaws provide that directors, officers and certain other persons may be
indemnified to the fullest extent authorized by Nevada law. We believe that
these provisions will assist us in attracting or retaining qualified
individuals to serve as directors or officers.
NEVADA LAW. Subsection 1 of Section 78.7502 of the NRS empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation. We
can indemnify against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation.
Subsection 2 of Section 78.7502 of the NRS empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in accordance with the standard set forth above. No
indemnification may be made in respect of any claim as to which such person
shall have been adjudged by a court to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which such action or suit was brought or other court of
competent jurisdiction determines that such person is fairly and reasonably
entitled to indemnity for such expenses.
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Subsection 3 of Section 78.7502 of the NRS further provides that, to
the extent a director or officer of a corporation has been successful on the
merits or otherwise in the defense of any action, suit or proceeding, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in his defense.
Indemnification provided for under Nevada law shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled
and that the scope of indemnification shall continue as to directors, officers,
employees or agents who have ceased to hold such positions. Finally, Nevada law
empowers the corporation to purchase and maintain insurance or make other
financial arrangements on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him
in any such capacity whether or not the corporation would have the authority to
indemnify him against such liabilities and expenses.
INDEMNIFICATION AGREEMENTS
As permitted under Nevada law, the Company has entered into
indemnification agreements with its directors and its executive officers. The
indemnitee under the agreement is entitled to indemnification against all
expenses actually and reasonably incurred by him or on his behalf in connection
with serving as a witness in any proceeding (as defined in the agreements) by
virtue of his status with the Company. The agreements also provide a procedural
mechanism under which the indemnitee can claim and obtain indemnification,
including a procedure for the board of directors or independent counsel to
determine entitlement to indemnification under specific situations. In the
event the indemnitee does not receive the indemnification to which he would
otherwise be entitled under the terms of the agreement, the indemnitee is
entitled to seek a judicial determination. In the event an indemnitee seeks a
judicial adjudication to enforce his rights under, or to recover damages for
breach of, the agreement, he is entitled to recover from the Company his
reasonable legal fees and other expenses in connection with the legal
proceeding, subject to proration in the event the amount of the award is less
than the amount of indemnification sought.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
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<PAGE> 35
PART F/S
ITEM 1. FINANCIAL STATEMENTS
The financial statements filed as part of this registration statement
appear beginning at page F-1 of this registration statement as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION) F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of September 30, 1999 F-3
(Unaudited) and December 31, 1998
Consolidated Statements of Operations for the Nine Months Ended F-5
September 30, 1999 (Unaudited) and for the Period From
Inception January 27, 1998 through December 31,1998
Consolidated Statements of Stockholders' Equity for the Nine Months F-6
Ended September 30, 1999 (Unaudited) and for the Period From
Inception January 27, 1998 through December 31, 1998
Consolidated Statements of Cash Flows for the Nine Months Ended F-7
September 30, 1999 (Unaudited) and for the Period From
Inception January 27, 1998 through December 31, 1998
Notes to Consolidated Financial Statements F-10
MTV PINNACLE ADVERTISING GROUP, INC. AND UNITED EQUITY PARTNERS, INC. F-28
Report of Independent Certified Public Accountants F-29
Combined Balance Sheets as of September 30, 1998 and December 31, 1997 F-30
Combined Statements of Operations and Accumulated Deficit for the F-32
Nine Months Ended September 30, 1998 and the Year Ended
December 31, 1997
Combined Statements of Cash Flows for the Nine Months Ended F-33
September 30, 1998 and the Year Ended December 31, 1997
Notes to Combined Financial Statements F-35
LIVECODE, INC. F-42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-43
FINANCIAL STATEMENTS
Balance Sheets as of May 28, 1999 (Unaudited) and
December 31, 1998 F-44
Statements of Income for the Period January 1, 1999 Through May 28, 1999
(Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-45
Statements of Stockholders' Equity for the Period January 1, 1999 Through
May 28, 1999 (Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-46
Statements of Cash Flows for the Period January 1, 1999 Through May 28,
1999 (Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-47
Notes to Financial Statements F-48
FLEXRADIO, INC. F-51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-52
FINANCIAL STATEMENTS
Balance Sheet as of September 30, 1999 F-53
Statement of Operations for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-54
Statement of Stockholders' Deficiency for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-55
Statement of Cash Flows for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-56
Notes to Financial Statements F-57
</TABLE>
35
<PAGE> 36
PARTS.COM,INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of
September 30, 1999 (Unaudited) and
December 31, 1998 F-3-4
Consolidated Statements of Operations
For the Nine Months Ended September
30, 1999 (Unaudited) and For the
Period From Inception January 27,
1998, through December 31, 1998 F-5
Consolidated Statements of
Stockholders' Equity For the Nine
Months Ended September 30, 1999
(Unaudited) and For the Period From
Inception January 27, 1998, Through
December 31, 1998 F-6
Consolidated Statements of Cash Flows
For the Nine Months Ended September
30, 1999 (Unaudited) and For the
Period From Inception January 27,
1998, Through December 31, 1998 F-7-9
Notes to Consolidated Financial
Statements F-10-27
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
parts.com, Inc. and Subsidiary
Sanford, Florida
We have audited the accompanying consolidated balance sheet of the parts.com,
Inc. and Subsidiary (formerly Miracom Corporation and Subsidiary) as of December
31, 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period January 27, 1998 (date of inception)
through 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 audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of parts.com, Inc. and
Subsidiary as of December 31, 1998, and the results of their operations and
their cash flows for the period January 27, 1998 (date of inception) through
December 31, 1998 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, during the period ended December 31, 1998, the
Company has incurred a net loss of approximately $1,866,000 and had negative
cash flows from operations of approximately $238,000. In addition, the Company
had a deficiency in net working capital of approximately $486,000 as of
December 31, 1998 and a substantial portion of its assets are intangible; the
ultimate realization of which is uncertain. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statement do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ Moore Stephens Lovelace, P.A.
- ---------------------------------
Certified Public Accountants
Orlando, Florida
November 10, 1999,
except for a portion
of Note 1, as to which
the date is January 5,
2000.
F-2
<PAGE> 38
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 21,919 $ 65,509
Accounts receivable trade 110,414 48,787
Inventory 78,216 --
Deferred costs and other current
assets 602 160,229
---------- ----------
Total Current Assets 211,151 274,525
---------- ----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$105,662 and $85,000, respectively 742,655 209,758
DEFERRED LOAN COSTS, net of
accumulated amortization of
$6,336 and $-0-, respectively 252,164 --
OTHER ASSETS, net of
accumulated amortization of
$124,451 and $-0-, respectively 260,983 2,414
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED,
net of accumulated
amortization of $263,649
and $40,549, respectively 2,069,129 770,429
---------- ----------
Total Assets $3,536,082 $1,257,126
========== ==========
</TABLE>
See Accompanying Notes
F-3
<PAGE> 39
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 713,120 $ 310,184
Other current liabilities 158,068 206,255
Bank and other note payable 11,820 27,000
Convertible promissory note 50,000 --
Current portion of mortgages payable 182,000 --
Current portion of capitalized leases 11,041 19,334
Deferred revenue -- 197,500
----------- -----------
Total Current Liabilities 1,126,049 760,273
LONG TERM PORTION OF BANK NOTE AND
MORTGAGES PAYABLE 380,000 10,788
LONG TERM PORTION OF CAPITALIZED LEASES 2,816 10,252
OTHER LIABILITIES -- 24,250
----------- -----------
Total Liabilities 1,508,865 805,563
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value,
50,000,000 shares authorized,
14,178,744 and 11,187,500 shares
issued and outstanding, respectively 14,179 11,188
Additional paid-in capital 5,867,387 2,323,183
Stock subscription receivable -- (17,000)
Accumulated deficit (3,854,349) (1,865,808)
----------- -----------
Total Stockholders' Equity 2,027,217 451,563
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,536,082 $ 1,257,126
=========== ===========
</TABLE>
See Accompanying Notes
F-4
<PAGE> 40
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
Inception
Nine January 27,1998,
Months Ended Through
September 30, December 31,
1999 1998
------------- ----------------
(Unaudited)
<S> <C> <C>
NET SALES $ 1,153,414 $ 377,599
COST OF SALES 876,552 302,109
------------ ------------
GROSS PROFIT 276,862 75,490
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,640,632 354,867
AMORTIZATION 353,887 40,549
DEPRECIATION 44,667 14,279
STOCK BASED COMPENSATION 107,585 1,524,150
INTEREST 44,632 7,453
ASSET IMPAIRMENT CHARGES 74,000 --
------------ ------------
TOTAL EXPENSES 2,265,403 1,941,298
------------ ------------
NET LOSS $ (1,988,541) $ (1,865,808)
============ ============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.16) $ (.20)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,640,338 9,517,856
============ ============
</TABLE>
See Accompanying Notes
F-5
<PAGE> 41
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION JANUARY 27, 1998 THROUGH DECEMBER 31, 1998,
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Stock
-------------------------- Paid In Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization,
January 27, 1998 675,000 $ 6,750 $ -- $ -- $ -- $ 6,750
I.E.L.S Transaction:
Acquisition of existing common
shares, net of acquisition costs
of $7,429 4,200,000 4,200 (11,629) -- -- (7,429)
Cancellation of restricted shares (1,610,000) (1,610) 1,610 -- -- --
Issuance of common stock to DTR
stockholders 5,542,000 5,542 (5,542) -- -- --
Issuance of common stock
in payment of consulting
services 987,000 987 443,163 -- -- 444,150
Receipt of DTR common stock (675,000) (6,750) -- -- -- (6,750)
----------- ----------- ----------- ----------- ----------- -----------
Balances after recapitalization 9,119,000 9,119 427,602 -- -- 436,721
Issuance of common stock to
acquire MTV and UEP 732,000 732 328,668 -- -- 329,400
Issuance of common stock, for cash
in private placements, net of
$-0- of offering costs 896,500 897 447,353 -- -- 448,250
Issuance of common stock
in payment of expenses and
satisfaction of liabilities 440,000 440 1,119,560 -- -- 1,120,000
Stock subscription receivable -- -- -- (17,000) -- (17,000)
Net loss for the period -- -- -- -- (1,865,808) (1,865,808)
----------- ----------- ----------- ----------- ----------- -----------
Balances,
December 31, 1998 11,187,500 11,188 2,323,183 (17,000) (1,865,808) 451,563
Issuance of common stock, for
cash in private placements,
net of $50,000 of common stock
for offering costs, (Unaudited) 1,845,153 1,845 1,159,679 -- -- 1,161,524
Issuance of common stock to acquire
LiveCode, Inc., (Unaudited) 600,000 600 1,501,200 -- -- 1,501,800
Issuance of Common Stock
for accounts payable, conversion
of notes payable and services,
(Unaudited) 546,091 546 883,325 -- -- 883,871
Stock subscription receivable,
(Unaudited) -- -- -- 17,000 -- 17,000
Net loss for the period, (Unaudited) -- -- -- -- (1,988,541) (1,988,541)
----------- ----------- ----------- ----------- ----------- -----------
Balances,
September 30, 1999, (Unaudited) 14,178,744 $ 14,179 $ 5,867,387 $ -- $(3,854,349) $ 2,027,217
=========== =========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes
F-6
<PAGE> 42
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Inception
Nine January 27,1998,
Months Ended Through
September 30, December 31,
1999 1998
------------- ----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,988,541) $(1,865,808)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 353,887 40,549
Depreciation 44,667 14,279
Stock based compensation 107,585 1,524,150
Asset impairment charges 74,000 --
Changes in operating assets and
liabilities, net of acquisitions:
Receivables (61,627) 35,973
Inventory (78,216) --
Other current assets 159,627 (32,147)
Deferred revenue (197,500) 88,000
Accounts payable and
accrued expenses 415,733 (45,577)
Other liabilities 24,562 2,367
----------- -----------
Net cash used in
operating activities (1,145,823) (238,214)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property and
equipment (469,564) (93,758)
Payments for other assets (20,780) --
Acquisition costs paid, net
of cash acquired -- (3,511)
----------- -----------
Net cash used in
investing activities (490,344) (97,269)
----------- -----------
</TABLE>
See Accompanying Notes
F- 7
<PAGE> 43
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Period From
Inception
Nine January 27,1998,
Months Ended Through
September 30, December 31,
1999 1998
------------- ----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from convertible
promissory note 50,000 --
Borrowing under mortgages
payable 380,000 --
Repayments of other liabilities (24,250) (7,000)
Repayments of bank note payable (25,968) (11,712)
Repayments of capitalized leases (15,729) (4,117)
Proceeds from issuance of
common stock 1,228,524 423,821
----------- -----------
Net cash provided by
financing activities 1,592,577 400,992
----------- -----------
INCREASE (DECREASE) IN CASH (43,590) 65,509
CASH, AT BEGINNING OF PERIOD 65,509 --
----------- -----------
CASH, AT END OF PERIOD $ 21,919 $ 65,509
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 32,534 $ 4,287
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Nine Months Ended September 30, 1999, (Unaudited):
Issuance of 600,000 shares of Common Stock in connection with the
acquisition of LiveCode, Inc., valued at $1,501,800.
Issuance of promissory note in the original principal amount of $20,000 in
connection with the acquisition of LiveCode, Inc.
Issuance of 40,000 shares of Common Stock, valued at $.50 per share, in
satisfaction of the $20,000 promissory note issued in connection with
the acquisition of LiveCode, Inc.
Issuance of 171,091 shares of Common Stock in satisfaction of $85,546 of
amounts due to officers and directors.
See Accompanying Notes
F-8
<PAGE> 44
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES, CONTINUED:
Nine Months Ended September 30, 1999, (Unaudited), Continued:
Issuance of 335,000 shares of Common Stock in payment of consulting fees,
deferred loan costs and deferred consulting fees, in the aggregate
amount of $778,325.
Period from Inception January 27, 1998, Through December 31, 1998:
Issuance of 732,000 shares of Common Stock valued at $329,400 in connection
with the acquisition of MTV Pinnacle Advertising, Group, Inc. and United
Equity Partners, Inc.
Issuance of 40,000 shares of Common Stock in repayment of $40,000 of loans
from an officer and stockholder.
Issuance of 400,000 shares of Common Stock valued at $1,080,000 in payment
of consulting fees.
Issuance of 987,000 shares of Common Stock valued at $444,150 in payment of
consulting services.
See Accompanying Notes
F-9
<PAGE> 45
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, (UNAUDITED) AND DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - parts.com, Inc. (formerly Miracom Corporation)
("the Company") was incorporated in Nevada on September 13, 1995, under
the name I.E.L.S., Inc., which had no revenue and insignificant
expenses, assets and liabilities and whose common stock was traded on
the OTC, Bulletin Board. The Company is currently a provider of
Internet-based business and online buying solutions. Effective
January 5, 2000, the Company changed its name from Miracom Corporation
to parts.com, Inc.
Effective September 8, 1998, the Company acquired 100% of the
outstanding common stock of Direct Touch Research, Inc. ("DTR") a
closely held corporation that had no revenue and insignificant
expenses, assets and liabilities, in exchange for 5,542,000 shares of
the Company's Common Stock. As a result of this transaction DTR
stockholders became owners of approximately 61% of the Company's then
outstanding Common Stock and assumed 100% control of the Company's
Board of Directors. For accounting purposes, the acquisition has been
treated as a recapitalization of DTR with DTR as the acquirer (reverse
acquisition) with no goodwill. Accordingly, the historical financial
statements prior to September 1998 are those of DTR. DTR was
incorporated on January 27, 1998. In connection with the reverse
acquisition, the Company issued 987,000 shares of Common Stock in
payment of consulting services in the amount of $444,150 which is
included in stock based compensation in the accompanying statement of
operations for the period ended December 31, 1998. The shares were
valued at $.45 per share, which represents a 10% discount from market
on the date of the reverse acquisition. Market price for the Company's
Common Stock was determined based upon private sales to unrelated
parties, since no active trading market existed at that time. In
connection with the DTR transaction, stockholders of I.E.L.S., Inc.
agreed to return 1,610,000 restricted shares of Common Stock for
cancellation.
Effective September 30, 1998, the Company acquired all of the
assets and business operations and assumed all of the outstanding
liabilities of MTV Pinnacle Advertising Group, Inc. ("MTV") and United
Equity Partners, Inc. ("UEP") in exchange for the issuance of an
aggregate of 732,000 shares of the Company's Common Stock. MTV was
engaged in the business of providing full service advertising to
commercial customers and UEP was engaged in the business of providing
Internet hardware and software solutions. The purchase price was
allocated to the assets acquired based upon their estimated fair
values at the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired was approximately
$811,000 and is being amortized on a straight line basis over 5 years,
beginning October 1, 1998. The purchase price of $329,400 was
determined by valuing the 732,000 shares of the Company's Common Stock
at $.45 per share, which represents a 10% discount from market on the
date of the acquisition. Market price for the Company's Common Stock
was determined based upon private sales to unrelated parties, since no
active trading market existed at that time.
On May 28, 1999, the Company acquired all of the assets and
business operations and assumed all of the outstanding liabilities of
LiveCode, Inc. ("LiveCode") a closely held corporation in exchange for
600,000 shares of the Company's Common Stock and a promissory note in
the original principal amount of $20,000. LiveCode was engaged in the
business of software development and from its inception through May 28,
1999, its major source of operating revenues was from services
performed under one contract for UEP. The purchase price of $1,521,800
was determined by valuing the 600,000 shares of the Company's Common
Stock at $2.503 per share, which represents
F-10
<PAGE> 46
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999, (UNAUDITED) AND DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
a 10% discount from market, based upon the average of the high and low
trading prices on the OTC Bulletin Board on May 28, 1999, plus the
promissory note of $20,000.
Approximately $47,000 was distributed to the LiveCode
stockholders as of the effective date of the acquisition. Subsequent to
the acquisition, the operations of LiveCode were merged into the
Company. The excess of the purchase price over the fair value of the
net assets acquired was $1,521,800 and is being amortized on a straight
line basis over 5 years beginning June 1, 1999.
Effective September 30, 1999, the promissory note was repaid by
issuance of 40,000 shares of the Company's Common Stock.
The above acquisitions were accounted for by the purchase method
of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues,
costs or expenses related to these acquisitions prior to their
respective closing dates.
Following are the Company's unaudited pro forma results for the
period from inception, January 27, 1998, through December 31, 1998, and
the nine months ended September 30, 1999, assuming the business
combinations described above and in Note 12 occurred on January 27,
1998 or the date of formation of the acquired company if later than
January 27, 1998:
<TABLE>
<CAPTION>
(Unaudited)
Period Ended December 31, 1998 (A)
------------------------------------------------------------------------
MTV/ Pro-Forma Pro
Parts UEP(D) LiveCode Adjustments Forma
------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 377,599 $ 1,386,260 $ 163,700 $(163,700)(B) $ 1,763,859
163,700 (B)
Costs and expenses (2,243,407) (1,655,837) (85,546) (260,310)(C) (4,081,400)
------------ ----------- --------- ----------- -----------
Net (loss) income $ (1,865,808) $ (269,577) $ 78,154 $ (260,310) $(2,317,541)
============ =========== ========= =========== ===========
Basic and dilutive
net loss per common
share $ (.22)
-----------
Weighted average
common shares 10,364,128
===========
</TABLE>
(A) Flex was formed on March 10, 1999, and accordingly, had no operations during
the period ended December 31, 1998.
(B) Pro-forma adjustment to eliminate LiveCode revenues earned from UEP and
related UEP costs.
(C) Pro-forma adjustment for amortization of excess of costs over net assets
acquired of MTV/UEP and LiveCode assuming the business combinations
occurred on January 27, 1998 (MTV/EUP) and July 7, 1998 (date of inception)
of LiveCode.
(D) Represents operations of MTV/UEP through the date of their merger with the
Company on September 30, 1998.
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended September 30, 1999
------------------------------------------------------------------------
Pro-Forma Pro
Parts LiveCode(D) Flex Adjustments Forma
------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,153,414 $ 161,450 $ -- $(161,450)(A) $ 1,153,414
161,450 (A)
(126,817)(B)
Costs and expenses (3,141,955) ( 92,586) (7,926) (748,650)(C) (3,956,484)
------------ ----------- --------- ----------- -----------
Net (loss) income $ (1,988,541) $ (68,864) $ (7,926) $ (875,467) $(2,803,070)
============ =========== ========= =========== ===========
Basic and dilutive
net loss per common
share $ (.16)
-----------
Weighted average
common shares 17,619,018
===========
</TABLE>
(A) Pro forma adjustment to eliminate LiveCode revenues earned from UEP and
related UEP costs.
(B) Pro-forma adjustment for amortization of excess of costs over net assets
acquired of LiveCode assuming the business combination occurred on July 7,
1998 (date of inception of LiveCode).
(C) Pro-forma adjustment for amortization of patent costs of Flex assuming the
business combination occurred on March 10, 1999 (date of inception of
Flex).
(D) Represents operations of LiveCode through the date of its merger with the
Company on May 28, 1999.
These unaudited 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
business combinations been in effect on January 27, 1998, or of future
results of operations.
F-11
<PAGE> 47
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements at December 31, 1998, include the accounts of the
Company and its wholly-owned subsidiary DTR. The activity prior to the
Parts/DTR merger (September 8, 1998) is that of DTR. All significant
intercompany transactions and balances have been eliminated for all
periods presented.
CONTINUED OPERATIONS - The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As shown in the accompanying
financial statements during the nine months ended September 30, 1999
and the period from inception through December 31, 1998, the Company
incurred losses of $1,988,541 and $1,865,808, respectively and had a
deficiency in working capital of $914,898 and $485,748 at September
30, 1999 and December 31, 1998, respectively. These factors among
others may indicate the Company will be unable to continue as a going
concern for a reasonable period of time. The accompanying consolidated
financial statements do not include any adjustments relating to the
outcome of this uncertainty.
LIQUIDITY AND PLAN OF OPERATIONS - As of September 30, 1999
(Unaudited), and December 31, 1998, the Company had cash of $21,919
and $65,509 and a deficiency in working capital of $914,898 and
$485,748 respectively.
The Company's continuation as a going concern is dependant upon
its ability to generate sufficient cash flow to meet its obligations
on a timely basis. The Company's primary source of liquidity has been
through the private placement of equity and debt securities and from
the cash generated by its operating divisions. The Company is
presently exploring possibilities with respect to significant
expansion of its existing customer base in all operating divisions in
order to eventually achieve profitable operations. However, there can
be no assurance that the Company will be successful in achieving
profitable operations or acquiring additional capital or that such
capital, if available, will be on terms and conditions favorable to
the Company. Based upon its current business plan, the Company
believes it will generate sufficient cash flow through operations and
external sources of capital to continue to meet its obligations in a
timely manner.
UNAUDITED DATA - The accompanying consolidated financial
statements and all data included in the notes to consolidated financial
statements as of September 30, 1999, and for the nine months then ended
are unaudited. In the opinion of management, the financial statements
reflect all adjustments which include only normal recurring adjustments
necessary to state fairly the financial position and results of
operations as of September 30, 1999, and for the nine months then
ended.
F-12
<PAGE> 48
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
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 disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates.
REVENUE AND EXPENSE RECOGNITION - Revenues are generally
recognized when the service has been performed and related costs and
expenses are recognized when incurred. Contracts for the development
of software that extend over more than one reporting period are
accounted for using the percentage-of-completion method of accounting.
Revenue recognized at the financial statement date under these
contracts is that portion of the total contract price that costs
expanded to date bears to the total anticipated final cost, based on
current estimates of cost to complete. Revisions in total costs and
earnings estimates during the course of the contract are reflected in
the accounting period in which the circumstances necessitating the
revision become known. At the time a loss on a contract becomes known
the entire amount of the estimated loss is recognized in the financial
statements. Costs attributable to contract disputes are carried in the
accompanying balance sheet only when realization is probable. Amounts
received on contracts in progress in excess of the revenue earned,
based upon the percent of completion method, are recorded as deferred
revenue and the related costs and expenses incurred are recorded as
deferred costs. For the period ended December 31, 1998 and the nine
months ended September 30, 1999, the Company performed services under
one significant software development contract which was completed
during the quarter ended March 31, 1999.
Parts.com transaction fee revenues on business to business and
consumer sales will be recognized at the time the transaction is
completed. Because individual sellers, rather than the Company make
the actual product sale, the Company will have no cost of goods sold,
no procurement, carrying or shipping costs and no inventory. A
substantial majority of customer accounts will be settled by directly
charging credit card numbers provided by sellers. Provisions for
estimated uncollectible accounts and authorized credits will be
recorded as percentages of revenues and will be provided for at the
time of revenue recognition.
The Company charges annual territory fees to customers based
upon each level of service that the customer purchases. Annual fees
will be amortized into income over a period of 12 months commencing
with the date the customer signs on to the web site. Unamortized fees
will be recorded as unearned income. Sales commissions associated with
annual territory fees will be recorded as prepaid expenses and will be
charged against income as the related revenue is recognized.
The e-commerce web site is scheduled to become operational in
January 2000. During the period ended December 31, 1998 and the nine
months ended September 30, 1999, the Company had no revenues from
e-commerce transactions.
Reallyknow.com revenues and all costs and expenses related to
sales of Kiosks will be recognized at the time the product is
delivered.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Cash, accounts receivable,
accounts payable, accrued expenses and other current liabilities are
reflected in the consolidated financial statements at fair value
because of the short-term maturity of these instruments. The fair
value of capitalized lease obligations approximate their fair value.
Fair value for these instruments is calculated using discounted cash
flows.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of accounts receivable. Concentrations of credit
risk with respect to trade receivables, in the opinion of management,
are limited due to the lack of concentration of large balances due
from any individual customer.
INVENTORY - Inventory is valued at the lower of cost or market.
Cost is determined by either the first-in, first-out or average cost
methods. Inventory consists of Kiosk units available for sale. The
Company does not maintain any inventory related to its e-commerce
operations.
PROPERTY AND EQUIPMENT - Property and equipment is stated at
cost. Depreciation is provided on the straight-line method at rates
based on the estimated useful lives of individual assets or classes of
assets. Building and related improvements are depreciated over 25
years and furniture and fixtures and computers and related equipment
are depreciated over 3 years. Improvements to leased properties or
fixtures are amortized over their estimated useful lives or lease
period, whichever is shorter.
Leased property meeting certain criteria is capitalized and the
present value of the related lease payment is recorded as a liability.
Amortization of capitalized leased assets is computed on the
straight-line method over the estimated useful lives of assets
acquired ranging from three to five years.
Expenditures for repairs and maintenance are expensed as
incurred. Expenditures which materially increase values, or extend
useful lives are capitalized.
DEFERRED LOAN COSTS - Deferred loan costs in connection with the
acquisition of the mortgage financing to purchase the Company's office
building are being amortized on a straight line basis over the
seventeen year term of the loan, commencing in May 1999.
F-13
<PAGE> 49
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
OTHER ASSETS - Deferred consulting fees included in other assets
are being amortized over the two year term of the related consulting
agreement, commencing on January 1, 1999. The internet domain will be
amortized over a period of five years commencing with the activation
of the web site, which is scheduled to occur in January 2000.
INCOME TAXES - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." SFAS No. 109 requires recognition
of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based upon the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. The Company has incurred losses since its
inception. Due to the uncertainty of the realization of the tax loss
carryforward, the Company has established a 100% valuation allowance
against the carryforward benefit.
NET LOSS PER SHARE OF COMMON STOCK - The basic and diluted net
loss per common share in the accompanying consolidated statements of
operations are based upon the net loss divided by the weighted average
number of shares outstanding during the periods presented. Diluted net
loss per common share is the same as basic net loss per common share
since the inclusion of all potentially dilutive common shares that
would be issuable upon the exercise of outstanding stock options and
the convertible promissory note would be anti-dilutive.
STOCK OPTION PLAN - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock issued to
Employees." Compensation cost for stock options, if any, is measured
as the excess of the quoted market price of the Company's stock at the
date of grant over the amount the employee must pay to acquire the
stock. Restricted stock is recorded as compensation cost over the
requisite vesting periods based upon the market value on the date of
grant.
SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value
based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of
accounting as described above, and has adopted the disclosure
requirements of SFAS No. 123.
YEAR 2000 ISSUES (UNAUDITED) - The "Year 2000" issue effects the
Company's installed computer systems, network elements, software
applications and other business systems that have time sensitive
programs that may not properly reflect or recognize the Year 2000.
Because many computers and computer applications define dates by the
last two digits of the year "00" may not be properly identified as
Year 2000. This error could result in miscalculations or system
failures. The Year 2000 issue does not materially effect the Company's
computer systems, software or other business systems. The Company has
conducted a review to identify areas that could be affected and has
developed an implementation plan to ensure compliance. The Company
believes that with the
F-14
<PAGE> 50
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
YEAR 2000 ISSUES (UNAUDITED), CONTINUED:
modifications made to its existing software the issue will not pose
significant operational concerns nor have a material impact on
financial position or results of operations. The cost of modifications
was not material and has been expensed as incurred. However, failures
of computer systems maintained by third parties could have a material
impact on the Company's ability to conduct business. The Company has
requested that its major independent suppliers and support providers
confirm that they will be Year 2000 compliant.
2. DEFERRED COSTS AND OTHER CURRENT ASSETS:
A summary of deferred costs and other current assets at
September 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Deferred costs $ - $ 150,000
Deposits and receivables from
officers and employees 602 10,229
----------- -----------
$ 602 $ 160,229
=========== ===========
</TABLE>
Deferred costs consist of amounts paid in excess of costs
recognized in connection with a contract accounted for using the
percent of completion method of accounting.
3. PROPERTY AND EQUIPMENT:
A summary of property and equipment at September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Land, building and improvements $ 599,659 $ --
Furniture and fixtures 21,021 7,440
Assets acquired under capitalized
leases 60,483 60,483
Computers and related equipment 167,154 145,373
Leasehold improvements -- 81,462
--------- ---------
848,317 294,758
Less: accumulated depreciation and
amortization (105,662) (85,000)
--------- ---------
$ 742,655 $ 209,758
========= =========
</TABLE>
F-15
<PAGE> 51
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
3. PROPERTY AND EQUIPMENT, CONTINUED:
<TABLE>
<S> <C> <C>
Depreciation and amortization
expense $ 44,667 $ 14,279
=========== ===========
Depreciation and amortization
of assets acquired under
capitalized leases $ 9,072 $ 3,024
=========== ===========
</TABLE>
Assets acquired under capitalized leases consist primarily of
computers and related equipment.
The carrying value of land, building and improvements at
September 30, 1999, has been reduced by $74,000, which amount
represents the excess of the purchase price of the property over its
appraised value at the date of purchase. The amount has been included
in asset impairment charges. The property was purchased from
Stonestreet Investments, Inc., which is owned by five officers of the
Company who are also major stockholders of the Company.
4. OTHER ASSETS:
Other assets at September 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Deferred consulting fees $ 331,870 $ --
Internet domain 47,870 --
Deposits 5,694 2,414
--------- ---------
385,434 2,414
Less: accumulated amortization (124,451) --
--------- ---------
$ 260,983 $ 2,414
========= =========
Amortization expense $ 124,451 $ --
========= =========
</TABLE>
5. NOTES AND MORTGAGES PAYABLE:
BANK NOTE PAYABLE - The Bank note payable, in the original
principal amount of $45,500, bears interest at 2% over the lenders
prime rate and is payable in monthly principal installments of $1,900
from July 1, 1998 through June 1, 2000. Interest is also payable
monthly. The outstanding principal balance of the note on September
30, 1999 and December 31, 1998, was $11,820 and $33,588 respectively.
F-16
<PAGE> 52
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
CONVERTIBLE PROMISSORY NOTE - The Convertible Promissory Note
("the Note") in the original principal amount of $50,000 bears
interest at 9% per annum and is due and payable in a single balloon
payment of principal and interest on September 24, 2000. The note,
including accrued interest may be prepaid in full prior to maturity,
without penalty. The holder also has the option, with the Company's
consent, to increase the note by $50,000 under the same terms and
conditions. In November 1999, the holder increased the note by $50,000
(See Note 12). The note is collateralized by the Company's real
property located in Sanford, Florida, and is subordinate to $562,000
of existing indebtedness applicable to such property.
Provided the note has not been prepaid prior to maturity, the
holder may convert the principal balance of the note plus any accrued
interest, before or at the scheduled maturity date of the note into
shares of the Company's Common Stock at a conversion price of $.50 per
share.
MORTGAGES PAYABLE - The Company's real property is subject to
the following mortgages at September 30, 1999:
<TABLE>
<CAPTION>
(Unaudited)
-----------
<S> <C>
First mortgage note, with interest at 15% per annum, interest
payable monthly in the amount of $4,375, principal and
unpaid interest payable on May 31, 2016 $ 350,000
Second mortgage note, with interest at 15% per annum, interest
payable monthly in the amount of $375, principal and unpaid
interest payable on May 31, 2016 30,000
Third mortgage note, with interest at 9.5% per annum, payable in
monthly payments of interest only from May 6, 1999 through
January 31, 2000, in the amount of $1,441; monthly payments
of principal and interest from February 1, 2000 through June
30, 2002, in the amount of $1,900; principal balance plus
accrued interest due and payable on July 31, 2002
182,000
-----------
Total $ 562,000
===========
</TABLE>
F-17
<PAGE> 53
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
MORTGAGES PAYABLE, CONTINUED:
The first and second mortgages are also collateralized by a
pledge of 100,000 shares of the Company's Common Stock owned by four
officers of the Company, and by the conditional guarantee of the
President of the Company.
The third mortgage note is payable to Stonestreet Investments,
Inc., which is owned by five officers of the Company, who are also
major stockholders of the Company. Pursuant to an agreement between
the Company, the five officers and Stonestreet Investments, Inc., all
required payments under the mortgage are being deferred indefinitely.
As of September 30, 1999, the $182,000 principal balance of the
third mortgage has been classified as a current liability in the
accompanying consolidated balance sheet.
As of September 30, 1999, the net book value of the real
property collateralizing the above mortgages was $597,588.
OTHER NOTES PAYABLE - In September 1998, The Company assumed a
note from a related party in the original principal amount of $15,000.
The note provided for interest at the rate of 9.5% per annum and was
payable in three monthly installments of principal and interest. The
loan was paid in full in January 1999.
DEBT MATURITIES - Debt maturities of the bank note payable,
convertible promissory note and mortgages payable subsequent to
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ending
September 30, (Unaudited)
-------------------- -----------
<S> <C>
2000 $ 243,820
Thereafter 380,000
-----------
Total $ 623,820
===========
</TABLE>
F-18
<PAGE> 54
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
DEBT MATURITIES, CONTINUED:
Maturities of the bank note payable and other note payable
subsequent to December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 27,000
2000 10,788
Thereafter --
-----------
Total $ 37,788
===========
</TABLE>
6. CAPITALIZED LEASES:
Future minimum lease payments subsequent to September 30, 1999
and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Twelve Month Period From
---------------------------------------
September 30, December 31,
Period 1999 1998
---------- ------------ ------------
(Unaudited)
<S> <C> <C>
1999 $ - $ 20,705
2000 15,273 12,218
2001 3,166 3,242
2002 - 413
2003 - -
----------- -----------
Total minimum lease payments 18,439 36,578
Less amount representing
interest at 9.9% to 25.5% 4,582 6,992
----------- -----------
Present value of minimum
lease payments 13,857 29,586
Less current portion 11,041 19,334
----------- -----------
Long term portion $ 2,816 $ 10,252
=========== ===========
</TABLE>
F-19
<PAGE> 55
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
7. INCOME TAXES:
The difference between the Company's effective income tax rate
and the federal statutory rate at September 30, 1999, and December 31,
1998, is reconciled below:
<TABLE>
<CAPTION>
1999 1998
----------- ------
(Unaudited)
<S> <C> <C>
Federal (benefit) expected (34)% (34)%
State taxes (2) (2)
Increase in valuation allowance 36 36
---- ----
0.0 % 0.0 %
==== ===
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities at September 30, 1999, and December 31, 1998, are
approximately as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
(Unaudited)
<S> <C> <C>
Deferred Tax Assets
Net operating losses $ 609,000 $ 657,000
Other -- --
--------- ---------
Gross deferred tax asset 609,000 657,000
Less valuation allowance (609,000) (657,000)
--------- ---------
Deferred tax asset $ -- $ --
========= =========
</TABLE>
There were no deferred tax liabilities as of September 30, 1999,
and December 31, 1998.
As of September 30, 1999, and December 31, 1998, the Company had
estimated net operating loss carryforwards of approximately $3,516,000
and $1,825,000, respectively, available to offset future taxable
income. The net operating loss carryforwards expire through the year
2019. Under U.S. federal tax law, certain changes in ownership of a
company may cause a limitation on future utilization of these loss
carryforwards.
8. STOCKHOLDERS' EQUITY:
On March 13, 1998, The Company's Board of Directors authorized a
70 for 1 split of its Common Stock effective for holders of record on
such date. All shares and per share amounts in the accompanying
consolidated financial statements have been restated to give effect to
the stock split.
F-20
<PAGE> 56
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
8. STOCKHOLDERS' EQUITY, CONTINUED:
The Company has adopted the disclosure-only provisions of SFAS
No. 123. Accordingly, no compensation cost has been recognized for the
issuance of stock options to employees. For the nine month period
ended September 30, 1999, employees of the Company were issued options
to purchase a total of 670,000 shares of the Company's Common Stock,
at exercise prices ranging from $1.75 to $3.00 per share expiring from
August 2000 to February 2009.
Had compensation cost for the Company's issuance of common stock
options during the nine months ended September 30, 1999 been
determined based upon the fair value at the date of grant consistent
with the provisions of SFAS No 123, the Company's net loss and net
loss per common share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Unaudited
--------------
<S> <C>
Net loss as reported $(3,128,888)
Proforma net loss $(4,969,082)
Net loss per share as reported $ (.25)
Proforma net loss per share $ (.39)
</TABLE>
The Company utilizes the Black-Scholes option pricing model to
calculate the fair value of each individual issuance of options with
the following assumptions used for grants during the nine months ended
September 30, 1999; dividends yield of 0%; expected average annual
volatility of 133.86%; average annual risk free interest rate of 6%;
and expected terms averaging three years.
The Company's stock option plan provides for the granting of
either incentive stock options or non qualified stock options to key
employees and non-employee members of the Company's Board of Directors
for up to a maximum of 1,650,000 shares of common stock. Options
outstanding at September 30, 1999, consist of 550,000 non qualified
options and 120,000 incentive options. The options granted under the
plan are to purchase common stock at not less than fair market value
at the date of grant. Employee options are generally exercisable one
year from date of grant in cumulative annual installments of 33% and
no options are exercisable after ten years from date of grant.
There were no stock options outstanding prior to February 12,
1999.
F-21
<PAGE> 57
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
8. STOCKHOLDERS' EQUITY, CONTINUED:
The following summarizes stock option activity for the nine
months ended September 30, 1999:
<TABLE>
<CAPTION>
Exercise
Amount Price Range
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Outstanding as of December 31, 1998 - - -
Granted 670,000 $1.75-$3.00
Exercised - - -
Forfeited - - -
--------
Outstanding as of September 30, 1999 670,000 $1.75-$3.00
========
Number of shares exercisable as of
September 30, 1999 36,667 $3.00
========
Weighted average fair value of options
granted $ 2.78
========
</TABLE>
The exercise price of options granted approximate their fair
market value on the date of grant.
During the period ended December 31, 1998, the Company issued
896,500 shares of Common Stock, in private placements at a per share
value of $.50, and received cash proceeds of $448,250. During the nine
months ended September 30, 1999, the Company issued 1,845,153 shares
of Common Stock, in private placements at per share prices ranging
from $.50 to $1.50, and received cash proceeds of $1,211,524.
During the periods ended September 30, 1999, and December 31,
1998, the Company issued 546,091 and 440,000 shares of Common Stock in
payment of accounts payable, conversion of notes payable and services.
Shares issued to liquidate recorded liabilities were valued based upon
the amount of the recorded liability satisfied and all other shares
were valued at a 10% discount to market for shares issued for services
rendered or goods received and were recorded as an asset or charged to
expense based upon the nature of the transaction.
At September 30, 1999, the Company had reserved the following
shares of Common Stock for issuance:
<TABLE>
<CAPTION>
(Unaudited)
-----------
<S> <C>
Stock option plan 980,000
Options exercisable at $1.75
to $3.00 per share 670,000
Convertible promissory note,
convertible at $.50 per share 100,000
---------
Total 1,750,000
=========
</TABLE>
F-22
<PAGE> 58
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
9. RELATED PARTY TRANSACTIONS:
At December 31, 1998, deferred costs and other current assets
include $8,998 due from officers and other current liabilities include
$79,600 due to officers. Effective September 30, 1999, the Company
liquidated the $85,546 outstanding balance due to officers by issuance
of $171,091 shares of Common Stock.
10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
A summary of selling, general and administrative expenses for
the nine months ended September 30, 1999, and for the period ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Period Ended
September 30, December 31,
1999 1998
----------------- -----------
(Unaudited)
<S> <C> <C>
Salaries and related taxes $ 640,542 $ 177,640
Advertising 33,590 1,800
Rent and lease 60,080 15,807
Stockholder relations 124,079 375
Telephone 71,476 13,808
Travel and entertainment 94,423 50,684
Office expense and supplies 61,154 6,849
Dues and subscriptions 29,945 9,013
Professional fees 294,173 34,059
Insurance 35,620 2,092
Other 195,550 42,740
---------- ----------
Total $1,640,632 $ 354,867
========== ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
The lease agreement, including amendments thereto, for office
facilities expired on June 30, 1999. The Company continued to occupy
the space on a month to month basis from July 1, 1999 through mid
August 1999. Total rental expense was $37,684 and $11,878 for the nine
months ended September 30, 1999 and the period ended December 31,
1998, respectively.
F-23
<PAGE> 59
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
11. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Company has entered into three year employment agreements
with its six most senior executive officers. The agreements provide
for annual salaries of $72,000, as amended. Under each employment
agreement, the executive is entitled to participate in all employment
benefit programs available to Company employees generally, including
participation in health care and disability plans, stock option plans
and any retirement plan. The term of the agreements is for three
years, however, on each anniversary of the commencement date, the term
is automatically extended for an additional year. The agreements
provide for discretionary performance bonuses as determined by the
Board of Directors. The Company may terminate the executives'
employment for cause or without cause at any time, subject to the
approval of a majority of the Board of Directors. If the Company
terminates the executives without cause they are paid for their then
existing annual salary for a period of three years, payable weekly or
in accordance with payroll practices at the time. An additional six
months of insurance coverage is provided for them under the Company's
medical and disability plans. Upon termination of employment without
cause, the executives will be released from the noncompetition
provisions of their employment agreements, but the nondisclosure and
provisions relating to propriety information will remain in effect.
The executives may terminate their employment at any time upon 90 days
written notice to the Company, except in the event of a change of
control, when 10 days notice is required. The agreements contain
nonsolicitation and noncompetition provisions that are intended to
survive the termination of employment for a period of two years.
In April 1999, the Company entered into an employment agreement
with a key employee who is to receive an annual salary of $72,000, as
amended. This agreement expires in April 2002, however, on each
anniversary date, the term automatically extends for an additional
year. The Company may terminate this employee's employment, for cause
or without cause, at any time, subject to the approval of a majority
of the Board of Directors. If the Company terminates the employee
without cause, he is to be paid for his then existing annual salary
for a period of three years, payable weekly or in accordance with
payroll practices at the time. An additional six months of insurance
coverage is provided to him under the Company's medical and disability
plans. Upon termination of employment without cause, this employee
will be released from the noncompetition provisions of his employment
agreement, but the non disclosure and provisions relating to
proprietary information will remain in effect. This agreement may be
terminated at any time upon 90 days written notice to the Company,
except in the event of a change of control, when 10 days notice is
required. The agreement contains nonsolicitation and noncompetition
provisions that are intended to survive the termination of employment
for a period of two years.
F-24
<PAGE> 60
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
11. COMMITMENTS AND CONTINGENCIES, CONTINUED:
In August 1999, the Company entered into an employment agreement
with an officer whom is to receive an annual salary of $100,000. The
agreement with the officer expires on December 31, 2000 and is subject
to renewal for successive one year terms, unless otherwise terminated.
Under this agreement the officer was granted stock options pursuant to
the Company's Stock Option Plan to purchase an aggregate of 120,000
shares of common stock at an exercise price of $1.75 per share. The
stock options vest over 18 months. The officer was also granted 10,000
shares of restricted common stock which would be forfeited should the
officer voluntarily terminate employment prior to April 4, 2000 or the
Company discharge the officer for cause prior to April 4, 2000. If the
Company terminates the officers' employment without cause, he will
continued to be paid his base salary and be provided health insurance
benefits, life insurance benefits, if any, for the greater of the
remaining term of the agreement or eight months. The officer may
terminate the agreement upon 90 days written notice to the Company,
except in the event of a change of control, when 10 days notice is
required. The agreement contains nonsolicitation and noncompetition
provisions that are intended to survive the termination of employment
for a period of two years.
12. SUBSEQUENT EVENTS:
Subsequent to September 30, 1999, the Company executed $100,000
worth of Convertible Promissory Notes ("Notes") in favor of two
individuals. Interest on the Notes is payable at 10% per annum on a
quarterly basis. The Notes are due in October and November 2000 and
are collateralized by restricted shares of the Company's Common Stock,
held in escrow for the duration that the Notes are outstanding. The
Notes are also convertible into shares of the Company's Common Stock
at a rate of $.50 per share.
In November 1999, the Company consented to increase one of their
Convertible Promissory Notes (See Note 5) and the holder increased the
note by an additional $50,000 under the same terms and conditions.
On October 21, 1999, the Company acquired all of the outstanding
Common Stock of FlexRadio, Inc. ("Flex") for 6,200,000 shares of the
Company's Common Stock. The majority stockholders of Flex are also
stockholders, directors and officers of the Company. Under the terms
of the purchase, the Company obtained the rights to Flex's provisional
patent application (its sole asset) for a radio frequency detection
and reporting service for providing real time research. From its
inception through October 21, 1999, Flex had no significant
operations. A key advantage is that Flex will be able to improve
current methods of monitoring consumers radio listening habits which
to this date, utilizes paper, telephone and limited electronic surveys
to quantify and tabulate data for the advertising industry. Moreover,
Flex intends to provide improved customer service by assisting clients
in making the best advertising/media decisions which best fit their
needs.
F-25
<PAGE> 61
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
12. SUBSEQUENT EVENTS, CONTINUED:
The following unaudited condensed pro-forma balance sheet
reflects the above described transactions as if they were consummated
as of September 30, 1999 (see Note 1 for the unaudited condensed
pro-forma Results of Operations):
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------------
As Pro-Forma Pro
Reported Adjustments Forma
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets $ 211,151 $ 150,000(1) $ 361,151
Property and equipment, net 742,655 - 742,655
Deferred charges and other
assets, net 513,147 - 513,147
Goodwill, net 2,069,129 - 2,069,129
Patent - 6,417,000(2) 6,417,000
------------ ------------ ------------
Total Assets $ 3,536,082 $ 6,567,000 $ 10,103,082
============ ============ ============
LIABILITIES:
Current liabilities $ 1,126,049 $ 150,000(1) $ 1,276,049
Long-term debt and
capitalized leases 382,816 - 382,816
------------ ------------ ------------
Total liabilities 1,508,865 150,000 1,658,865
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 14,179 6,200(2) 20,379
Additional paid in capital 5,867,387 6,410,800(2) 12,278,187
Accumulated deficit (3,854,349) - (3,854,349)
------------ ------------ ------------
Total Stockholders' Equity 2,027,217 6,417,000 8,444,217
------------ ------------ ------------
Total Liabilities and
Stockholders Equity $ 3,536,082 $ 6,567,000 $ 10,103,082
============ ============ ============
</TABLE>
F-26
<PAGE> 62
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
12. SUBSEQUENT EVENTS, CONTINUED:
(1) Issuance of $150,000 of Convertible Promissory Notes for Cash.
(2) Issuance of 6,200,000 shares of Common Stock, valued at $6,417,000, in
exchange for 100% of the Common Stock of Flex. The purchase price of Flex
was based upon an independent valuation of the estimated fair value of Flex
as of the date of acquisition, after giving effect to the 10% discount to
market relating to the 6,200,000 shares of Common Stock issued in the
acquisition. The 6,200,000 shares were valued at $1.035 per share, which
represents a 10% discount from market based upon the average of the high
and low trading prices, on October 21, 1999, as reported on the OTC
Electronic Bulletin Board. The total purchase price of $6,417,000 was
allocated to Flex's provisional patent application, which represented
Flex's sole asset at the date of acquisition.
On November 12, 1999, the Company amended its articles of
incorporation to grant the Board of Directors of the Company the power to
issue up to 10,000,000 shares of Preferred Stock, par value $.001 per
share, and to determine the price , rights, preferences, privileges, and
restrictions, including voting rights of these shares without further vote
or action by the stockholders.
In October 1999, the Company issued approximately 550,000 shares of
its Common Stock to officers, directors and employees of the Company.
F-27
<PAGE> 63
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-29
Combined Balance Sheets as of
September 30, 1998 and December 31,
1997 F-30-31
Combined Statements of Operations and
Accumulated Deficit for the Nine
Months Ended September 30, 1998 and
the Year Ended December 31, 1997 F-32
Combined Statements of Cash Flows for
the Nine Months Ended September 30,
1998 and the Year Ended December 31,
1997 F-33-34
Notes to Combined Financial
Statements F-35-41
</TABLE>
F-28
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
parts.com, Inc. and Subsidiary
Sanford, Florida
We have audited the accompanying combined balance sheets of MTV Pinnacle
Advertising Group, Inc. and United Equity Partners, Inc. (the Company) as of
September 30, 1998 and December 31, 1997, and the related combined statements
of operations and accumulated deficit, and cash flows for the nine months ended
September 30, 1998 and the year ended December 31, 1997. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of MTV
Pinnacle Advertising Group, Inc. and United Equity Partners, Inc. as of
September 30, 1998 and December 31, 1997, and the combined results of their
operations and their cash flows for the nine months ended September 30, 1998
and the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, effective at the close of business on September 30, 1998,
parts.com, Inc. and Subsidiary (formerly Miracom Corporation and Subsidiary)
acquired all of the assets and business operations and assumed all of the
liabilities of MTV Pinnacle Advertising Group, Inc. and United Equity Partners,
Inc. Subsequent to the acquisition, MTV Pinnacle Advertising Group, Inc. and
United Equity Partners, Inc. were dissolved.
/s/ Moore Stephens Lovelace, P.A.
- ---------------------------------
Certified Public Accountants
Orlando, Florida
November 10, 1999,
except for a portion
of Note 1, as to which
the date is January 5,
2000.
F-29
<PAGE> 65
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,511 $ 8,349
Accounts receivable trade 84,760 149,873
Deferred costs and other current assets 128,082 4,168
-------- --------
Total Current Assets 216,353 162,390
-------- --------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$70,722 and $38,994, respectively 138,257 126,643
DEPOSITS 2,414 2,414
-------- --------
Total Assets $357,024 $291,447
======== ========
</TABLE>
See Accompanying Notes
F-30
<PAGE> 66
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC
COMBINED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 354,551 $ 169,358
Other current liabilities 114,944 61,699
Bank note payable 22,800 11,400
Current portion of capitalized leases 19,592 13,814
Other notes payable -- 6,100
Due to affiliate 15,000 --
Deferred revenue 109,500 --
Officers' loans 138,644 133,906
--------- ---------
Total Current Liabilities 775,031 396,277
--------- ---------
LONG TERM PORTION OF BANK NOTE PAYABLE 17,000 34,100
LONG TERM PORTION OF CAPITALIZED
LEASES 14,111 17,111
OTHER LIABILITIES 31,250 54,750
--------- ---------
Total Liabilities 837,392 502,238
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common Stock:
MTV Pinnacle Advertising Group, Inc.,
$.01 par value, 500,000 shares
authorized; 90,000 issued and
outstanding, respectively 900 900
United Equity Partners, Inc.,
$.01 par value, 400,000
shares authorized; 150,000 issued
and outstanding, respectively 1,500 1,500
Accumulated deficit (482,768) (213,191)
--------- ---------
Total Stockholders' Deficiency (480,368) (210,791)
--------- ---------
Total Liabilities and
Stockholders' Deficiency $ 357,024 $ 291,447
========= =========
</TABLE>
See Accompanying Notes
F-31
<PAGE> 67
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
NET SALES $ 1,386,260 $ 1,125,842
COST OF SALES 614,123 416,642
----------- -----------
GROSS PROFIT 772,137 709,200
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 991,456 779,565
DEPRECIATION AND AMORTIZATION 31,728 28,263
INTEREST 18,530 12,581
LITIGATION SETTLEMENT -- 100,000
----------- -----------
TOTAL EXPENSES 1,041,714 920,409
----------- -----------
NET LOSS FOR THE PERIOD (269,577) (211,209)
ACCUMULATED DEFICIT,
at beginning of period (213,191) (1,982)
----------- -----------
ACCUMULATED DEFICIT,
at end of period $ (482,768) $ (213,191)
=========== ===========
</TABLE>
See Accompanying Notes
F-32
<PAGE> 68
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(269,577) $(211,209)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Amortization and depreciation 31,728 28,263
Litigation settlement -- 100,000
Changes in operating assets and liabilities:
Receivables 65,113 (137,778)
Other current assets (123,914) 832
Deferred income 109,500 --
Accounts payable and
accrued expenses 185,193 162,928
Other liabilities 53,245 31,699
--------- ---------
Net cash provided by (used in)
operating activities 51,288 (25,265)
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property and
equipment (32,425) (64,684)
Payments for other assets -- (2,414)
--------- ---------
Net cash used in
investing activities (32,425) (67,098)
--------- ---------
</TABLE>
See Accompanying Notes
F-33
<PAGE> 69
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC
COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from (to) Affiliate, net 15,000 --
Borrowings under bank note
payable -- 45,500
Borrowings under other notes
payable -- 11,500
Borrowings from stockholders' 4,738 64,465
Repayments of bank note payable (5,700) --
Repayments of other notes payable (6,100) (5,400)
Payment of litigation obligations (23,500) (15,250)
Repayments of capitalized leases (8,139) (5,587)
Issuance of common stock -- 900
-------- --------
Net cash used in (provided by)
financing activities (23,701) 96,128
-------- --------
(DECREASE) INCREASE IN CASH (4,838) 3,765
CASH AT BEGINNING OF PERIOD 8,349 4,584
-------- --------
CASH AT END OF PERIOD $ 3,511 $ 8,349
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,060 $ 8,464
======== ========
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Property and equipment acquired
under capitalized leases $ 10,917 $ 36,512
======== ========
</TABLE>
See Accompanying Notes
F-34
<PAGE> 70
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
1. ORGANIZATION:
MTV Pinnacle Advertising Group, Inc. ("MTV") began operations in
1997, and is engaged in the business of providing full service
advertising to commercial customers. United Equity Partners, Inc.
("UEP") began operations in 1996, and is engaged in the business of
providing Internet hardware and software solutions. Effective at the
close of business on September 30, 1998, parts.com, Inc. (formerly
Miracom Corporation) ("Parts") acquired all of the assets and business
operations and assumed all of the outstanding liabilities of MTV and
UEP in exchange for 732,000 shares of Parts common stock. Subsequent to
the acquisition the operations of MTV and UEP were merged into Parts.
In August 1999, both MTV and UEP were dissolved.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying combined financial
statements include the accounts of MTV and UEP, ("the Company") and do
not include any adjustments for its merger with Parts. All significant
intercompany transactions and balances have been eliminated in
combination.
GOING CONCERN MATTERS - The accompanying financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. As shown in the accompanying financial statements
during the nine months ended September 30, 1998 and the year ended
December 31, 1997, the Company incurred losses of $269,577 and
$211,209, respectively and had a deficiency in working capital of
$558,678 at September 30, 1998. These factors among others may
indicate the Company will be unable to continue as a going concern for
a reasonable period of time. The financial statements do not include
any adjustments relating to the outcome of this uncertainty.
LIQUIDITY AND PLAN OF OPERATIONS - As of September 30, 1998, the
Companies had cash of $3,511 and a deficiency in working capital of
$558,678.
Effective at the close of business on September 30, 1998, Parts
acquired all of the assets and business operations and assumed all of
the outstanding liabilities of MTV and UEP. Subsequent to the
acquisition the operations of MTV and UEP were merged into Parts as
operating divisions.
F-35
<PAGE> 71
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
LIQUIDITY AND PLAN OF OPERATIONS, Continued
The ability of the Company to meet future obligations in relation to
the orderly payment of the outstanding liabilities and recurring
operating expenses is dependent upon their ability to expand their
existing customer base to generate sufficient revenues and achieve
profitable operations and to obtain the necessary funding from Parts
until profitable operations are achieved. Since the acquisition, Parts
has provided the required funding to enable the Company to operate in
an orderly manner, but there is no assurance that Parts will be able to
obtain the necessary funding for its other operations and continue to
provide funding to its MTV and UEP divisions. Parts primary source of
liquidity has been through the private placement of equity and debt
securities and from the cash generated from its operating divisions.
PREPARATION OF FINANCIAL STATEMENTS - 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 disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
REVENUES, COSTS AND EXPENSES - Revenues are generally recognized
when the service has been performed and related costs and expenses are
reorganized when incurred. Contracts for the development of software
that extend over more than one reporting period are accounted for
using the percentage-of-completion method of accounting. Revenue
recognized at the financial statement date under these contracts is
that portion of the total contract price that costs expanded to date
bears to the total anticipated final cost, based on current estimates
of cost to complete. Revisions in total costs and earnings estimates
during the course of the contract are reflected in the accounting
period in which the circumstances necessitating the revision become
known. At the time a loss on a contract becomes known the entire
amount of the estimated loss is recognized in the financial
statements. Costs attributable to contract disputes are carried in the
accompanying balance sheet only when realization is probable. Amounts
received on contracts in progress in excess of the revenue earned,
based upon the percent of completion method, are recorded as deferred
revenue and the related costs and expenses incurred are recorded as
deferred costs. For the period ended December 31, 1998 and the nine
months ended September 30, 1999, the Company performed services under
one significant software development contract which was completed
during the quarter ended March 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Cash, accounts receivable,
accounts payable, accrued expenses and other current liabilities are
reflected in the combined financial statements at fair value because
of the short-term maturity of these instruments. The book value of
capitalized lease obligations and officers' loans closely approximate
their fair value. Fair value for these instruments is calculated using
discounted cash flows.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of accounts receivable. Concentrations of credit
risk with respect to trade receivables, in the opinion of management,
are limited due to the lack of concentration of large balances due
from any individual customer.
PROPERTY AND EQUIPMENT - Owned property and equipment is valued
at cost. Depreciation is provided on the straight-line method at rates
based on the estimated useful lives of individual assets or classes of
assets. Furniture and fixtures and computers and other operating
equipment are depreciated over three years. Improvements to leased
properties or fixtures are amortized over their estimated useful lives
or lease period, whichever is shorter.
F-36
<PAGE> 72
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
PROPERTY AND EQUIPMENT, Continued
Leased property meeting certain criteria is capitalized and the
present value of the related lease payments are recorded as a
liability. Amortization of capitalized leased assets is computed on
the straight-line method over the estimated useful lives of assets
acquired ranging from 3 to 5 years.
Normal repairs and maintenance are expensed as incurred.
Expenditures which materially increase values, or extend useful lives
are capitalized. Replacements are capitalized and the property and
equipment accounts are relieved of the items being replaced. The
related costs and accumulated depreciation of disposed assets are
eliminated and any gain or loss on disposition is included in income.
INCOME TAXES - Prior to their acquisition by Parts both MTV and
UEP had elected to be treated as Subchapter S Corporations, U.S. Small
Business Corporations, pursuant to the provisions of the Internal
Revenue Code. Accordingly, the Companies were not liable for corporate
income taxes, since their net income or loss for each calendar year was
passed directly through to their stockholders' and reported on their
individual income tax returns. Subsequent to September 30, 1998, both
MTV and UEP filed final corporate income tax returns. Their operations
for all periods subsequent to September 30, 1998, will be included in
the consolidated income tax return of the Company.
The Company has incurred losses since its inception. The
potential benefit from the net operating losses that would have been
available to the Company if it had been taxed as a C corporation,
would be fully allowed for due to the uncertainty of realization.
Accordingly, the accompanying financial statements do not include a
pro-forma presentation for the effects on the Company as if it were
taxed as a C corporation since inception.
YEAR 2000 ISSUES, (UNAUDITED) - Because many computerized
systems use only two digits to record the year in date fields (for
example, the year 1998 is recorded as "98"), such systems may not be
able to process dates accurately in the year 2000 and after.
The Company's management has made efforts to determine the
possible effects of Year 2000 issues on its operations and is
implementing remedial actions. Management will also attempt to
determine if its significant customers, vendors and other third
parties upon which it relies have addressed or will be able to address
any affected systems on a timely basis. Management does not expect the
potential disruption from Year 2000 issues to have a material effect
on the Company's business operations, but the outcome remains
uncertain. The accompanying financial statements do not contain
provisions or adjustments related to the ultimate outcome of this
uncertainty.
F-37
<PAGE> 73
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
3. DEFERRED COSTS AND OTHER CURRENT ASSETS:
A summary of deferred costs and other current assets at
September 30, 1998 and December 31, 1997 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Deferred Costs $ 125,000 $ -
Other receivables 3,082 4,168
----------- -----------
$ 128,082 $ 4,168
=========== ===========
</TABLE>
Deferred costs consist of amounts paid in excess of costs
recognized in connection with a contract accounted for using the
percent of completion method of accounting.
4. PROPERTY AND EQUIPMENT:
A summary of property and equipment at September 30, 1998 and
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Furniture and fixtures $ 5,671 $ 4,987
Assets acquired under capitalized
leases 60,483 57,763
Computers and other operating equipment 129,291 96,853
Leasehold improvements 13,534 6,034
----------- -----------
208,979 165,637
Less: accumulated depreciation and
amortization (70,722) (38,994)
----------- -----------
$ 138,257 $ 126,643
=========== ===========
Depreciation and amortization
of assets acquired under
capitalized leases $ 11,553 $ 8,865
=========== ===========
</TABLE>
Assets acquired under capitalized leases consist primarily of
computers and related equipment.
F-38
<PAGE> 74
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
5. BANK NOTE PAYABLE:
The Bank note payable, in the original principal amount of
$45,500, bears interest at 2% over the lenders prime rate and is
payable in monthly principal installments of $1,900 from July 1, 1998
through June 1, 2000. Interest is also payable monthly. The
outstanding principal balance of the note on September 30, 1998 and
December 31, 1997, was $39,800 and $45,500 respectively. Scheduled
principal payments subsequent to September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ending
September 30,
--------------------
<S> <C>
1999 $ 22,800
2000 17,000
-----------
Total $ 39,800
===========
</TABLE>
6. CAPITALIZED LEASES:
Future minimum lease payments subsequent to September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Twelve Month
Period Ending
September 30,
--------------
<S> <C>
1999 $ 20,700
2000 15,880
2001 5,067
2002 413
-----------
Total minimum lease payments 42,060
Less amount representing
interest at 9.9% to 25.5% 8,357
-----------
Present value of minimum
lease payments 33,703
Less current portion 19,592
-----------
Long term portion $ 14,111
===========
</TABLE>
F-39
<PAGE> 75
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
7. RELATED PARTY TRANSACTIONS:
At September 30, 1998, and December 31, 1997, the Company was
indebted to certain officers in the aggregate amounts of $138,644 and
$133,906. The loans bear interest at 9.5% per annum and are due on
demand.
At September 30, 1998, the Company is indebted to an affiliate
in the amount of $15,000, representing a non interest bearing advance
from an affiliate.
During the period ended September 30, 1998, MTV borrowed an
aggregate of $15,000, from the father of one of its officers and major
stockholders. The note provided for interest at the rate of 9.5% per
annum and was payable in three monthly installments of principal and
interest. The loan was paid in full in January 1999.
At September 30, 1998, the Company accounts payable includes
$50,000 due to LiveCode, Inc., a company that was acquired by the
Company in May 1999.
8. GENERAL AND ADMINISTRATIVE EXPENSES:
A summary of general and administration expenses for the nine
months ended September 30, 1998 and the year ended December 31, 1997,
is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1998 1997
----------------- -----------
<S> <C> <C>
Salaries and related taxes $ 658,855 $ 415,380
Rent 57,659 39,685
Telephone 58,050 45,120
Travel and entertainment 23,822 42,258
Office expense and supplies 24,355 46,529
Professional fees 31,908 125,541
Insurance 32,896 11,813
Other 103,911 53,239
----------- -----------
Total $ 991,456 $ 779,565
=========== ===========
</TABLE>
F-40
<PAGE> 76
MTV PINNACLE ADVERTISING GROUP, INC.
AND UNITED EQUITY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, CONTINUED
9. LITIGATION SETTLEMENT:
On June 25, 1997, MTV entered into a settlement agreement
relating to certain outstanding litigation, whereby the parties to the
litigation agreed to dismiss , with prejudice, all outstanding
lawsuits which were filed against them in exchange for $100,000 to be
paid in equal monthly installments of $2,500.
The accompanying combined financial statements for the year
ended December 31, 1997 include a charge of $100,000 to reflect the
cost of the settlement.
At September 30, 1998 and December 31, 1997, the balances due
under the settlement agreement are included in the accompanying
combined balance sheets as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
<S> <C> <C>
Other current liabilities $ 30,000 $ 30,000
Other liabilities 31,250 54,750
----------- -----------
$ 61,250 $ 84,750
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
The lease agreement, including amendments thereto, for office
facilities expired on June 30, 1999. The Companies continued to occupy
the space on a month to month basis from July 1, 1999 through mid
August 1999. Required rental payments for the period from September
30, 1998 until the date the companies vacated the premises were
approximately $50,000. Total rental expense was $31,677 and $33,011
for the nine months ended September 30, 1998 and the year ended
December 31, 1997, respectively.
F-41
<PAGE> 77
LIVECODE, INC.
INDEX TO FINANCIAL STATEMENTS
---------
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-43
FINANCIAL STATEMENTS
Balance Sheets as of May 28, 1999 (Unaudited) and
December 31, 1998 F-44
Statements of Income for the Period January 1, 1999 Through May 28, 1999
(Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-45
Statements of Stockholders' Equity for the Period January 1, 1999 Through
May 28, 1999 (Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-46
Statements of Cash Flows for the Period January 1, 1999 Through May 28,
1999 (Unaudited) and for the Period July 7, 1998
(Date of Inception) Through December 31, 1998 F-47
Notes to Financial Statements F-48
</TABLE>
F-42
<PAGE> 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
parts.com, Inc. and Subsidiary
Sanford, Florida
We have audited the accompanying balance sheet of LiveCode, Inc. (the Company)
as of December 31, 1998, and the related statements of income, stockholders'
equity, and cash flows for the period July 7, 1998 (date of inception) through
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 audit.
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 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 LiveCode, Inc. as of December
31, 1998, and the results of its operations and cash flows for the period July
7, 1998 (date of inception) through December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Moore Stephens Lovelace, P.A.
- ---------------------------------
Certified Public Accountants
Orlando, Florida
January 19, 2000
F-43
<PAGE> 79
LIVECODE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MAY 28, December 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 15,930 $ 147,914
Accounts receivable, related party 25,421 25,000
--------- ---------
TOTAL CURRENT ASSETS 41,351 172,914
OFFICE EQUIPMENT, net of accumulated depreciation of
$1,889 and $937, respectively 5,667 5,240
--------- ---------
TOTAL ASSETS $ 47,018 $ 178,154
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred revenue $ -- $ 150,000
--------- ---------
TOTAL CURRENT LIABILITIES -- 150,000
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value; 7,500 shares authorized;
100 shares issued and outstanding 100 100
Stock subscription receivable (100) (100)
Retained earnings 47,018 28,154
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 47,018 28,154
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,018 $ 178,154
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 80
LIVECODE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Period
July 7, 1998
PERIOD (Date of Inception)
JANUARY 1, 1999 Through
THROUGH December 31,
MAY 28, 1999 1998
--------------- -------------------
(UNAUDITED)
<S> <C> <C>
NET SALES $ 161,450 $ 163,700
--------- ---------
COSTS AND OPERATING EXPENSES
Salaries and related taxes 72,098 72,714
Advertising 412 438
Insurance 3,020 2,241
Professional fees 10,820 4,681
Office expenses 5,956 6,345
Rent 280 --
Depreciation 952 937
--------- ---------
TOTAL COSTS AND OPERATING EXPENSES 93,538 87,356
--------- ---------
OPERATING INCOME 67,912 76,344
INTEREST INCOME 952 1,810
--------- ---------
NET INCOME $ 68,864 $ 78,154
========= =========
NET INCOME PRIOR TO PRO-FORMA ADJUSTMENTS $ 68,864 $ 78,154
PRO-FORMA PROVISION FOR INCOME TAXES
(UNAUDITED) (15,000) (18,000)
--------- ---------
PRO-FORMA NET INCOME (UNAUDITED) $ 53,864 $ 60,154
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 81
LIVECODE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 7, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998 AND
FOR THE UNAUDITED PERIOD JANUARY 1, 1999 THROUGH MAY 28, 1999
<TABLE>
<CAPTION>
Common Stock Stock
---------------------- Subscription Retained
Shares Amount Receivable Earnings Total
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION,
JULY 7, 1998 100 $ 100 $ (100) $ -- $ --
NET INCOME FOR THE PERIOD -- -- -- 78,154 78,154
DISTRIBUTIONS TO STOCKHOLDERS -- -- -- (50,000) (50,000)
-------- -------- -------- -------- --------
BALANCES, DECEMBER 31, 1998 100 100 (100) 28,154 28,154
NET INCOME FOR THE PERIOD
(UNAUDITED) -- -- -- 68,864 68,864
DISTRIBUTIONS TO STOCKHOLDERS
(UNAUDITED) -- -- -- (50,000) (50,000)
-------- -------- -------- -------- --------
BALANCES, MAY 28, 1999
(UNAUDITED) 100 $ 100 $ (100) $ 47,018 $ 47,018
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 82
LIVECODE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
July 7, 1998
PERIOD (Date of Inception)
JANUARY 1, 1999 Through
THROUGH December 31,
MAY 28, 1999 1998
--------------- -------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 68,864 $ 78,154
Adjustment to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 952 937
Changes in operating assets and liabilities
Accounts receivable (421) (25,000)
Deferred revenue (150,000) 150,000
--------- ---------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (80,605) 204,091
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for office equipment (1,379) (6,177)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,379) (6,177)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments for stockholder distributions (50,000) (50,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (50,000) (50,000)
--------- ---------
INCREASE (DECREASE) IN CASH (131,984) 147,914
CASH, BEGINNING OF PERIOD 147,914 --
--------- ---------
CASH, END OF PERIOD $ 15,930 $ 147,914
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 83
LIVECODE, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 28, 1999 (UNAUDITED) AND DECEMBER 31, 1998
NOTE 1 - ORGANIZATION
LiveCode, Inc. ("LiveCode") was incorporated in Florida on July 7,
1998. LiveCode was engaged in the business of software development and
from its inception through May 28, 1999, its major source of operating
revenues was from services performed for United Equity Partners, Inc.
("UEP"), and parts.com, Inc. ("Parts"). Parts acquired the assets,
business operations and liabilities of UEP in September 1998.
On May 28, 1999, Parts acquired all of the assets, business operations
and liabilities of LiveCode in exchange for 600,000 shares of Parts
common stock and a promissory note in the original principal amount of
$20,000. LiveCode distributed approximately $47,000 to its
stockholders as of the effective date of the acquisition. Subsequent
to the acquisition, LiveCode will be dissolved.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of LiveCode
and do not include any adjustments for its merger with Parts.
UNAUDITED DATA
The accompanying financial statements, and all data included in the
notes to the financial statements as of May 28, 1999, and for the
period then ended are unaudited. In the opinion of management, the
financial statements reflect all adjustments (which include only
normal, recurring adjustments) necessary to state fairly the financial
position and results of operations as of May 28, 1999, and for the
period then ended.
ESTIMATES
The presentation 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 disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE AND EXPENSE RECOGNITION
Revenues are recognized when the service has been performed and
related costs and expenses are recognized when incurred. Contracts for
the development of software that extend over more than one reporting
period are accounted for using the percentage of completion method of
accounting. Revenue recognized at the financial statement date under
these contracts is that portion of the total contract price that costs
expended to date bears to the total contract price that cost expended
to date bears to the total anticipated final cost, based on
management's current estimates of cost to complete. Revisions in total
costs and earnings estimates during the course of the contract are
reflected in the accounting period in which the circumstances
necessitating the revision become known. At the time a loss on a
contract becomes known, the entire amount of the estimated loss is
recognized in the financial statements. Costs attributable to contract
disputes are carried in the accompanying balance sheet only when
realization is probable. Amounts received on contracts in progress in
excess of the revenue earned, based upon the percentage-of-completion
method, are recorded as deferred revenue. For the periods ended
December 31, 1998 and May 28, 1999, LiveCode performed services under
one significant software development contract which was completed
during the quarter ended March 31, 1999.
F-48
<PAGE> 84
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash. LiveCode
maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. LiveCode has not experienced any
losses in such accounts. LiveCode believes it is not exposed to any
significant credit risk on cash.
OFFICE EQUIPMENT
Office equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets
over three years.
INCOME TAXES
Prior to its acquisition by Parts, LiveCode had elected to be treated
as a Subchapter S Corporation, U.S. Small Business Corporation,
pursuant to the provisions of the Internal Revenue Code. Accordingly,
LiveCode was not liable for corporate income taxes since its net
income for each calendar year was passed directly through to its
stockholders and was reported on their individual income tax returns.
Accordingly, no provision for income taxes has been included in the
accompanying financial statements (see Note 4). Subsequent to its
merger with Parts, LiveCode intends to file a final corporate income
tax return. LiveCode's operations for all periods subsequent to May
28, 1999 will be included in the consolidated income tax return of
Parts.
YEAR 2000 ISSUES (UNAUDITED)
The Year 2000 issue affects the Company's installed computer systems,
network elements, software applications and other business systems
that have time sensitive programs that may not properly reflect or
recognize the Year 2000. Because many computers and computer
applications define dates by the last two digits of the year, "00" may
not be properly identified as Year 2000. This error could result in
miscalculations or system failures. The Year 2000 issue does not
materially affect the Company's computer systems, software or other
business systems. The Company has conducted a review to identify areas
that could be affected and has developed an implementation plan to
ensure compliance. The Company believes that with the modifications
made to its existing software, the issue will not pose significant
operational concerns nor have a material impact on financial position
or results of operations. The cost of modifications was not material
and has been expensed as incurred. However, failures of computer
systems maintained by third parties could have a material impact on
the Company's ability to conduct business. The Company has requested
that its major independent suppliers and support providers confirm
that they will be Year 2000 compliant.
NOTE 3 - OFFICE EQUIPMENT
Office equipment in the amount of $7,556 and $6,177 at May 28, 1999
(unaudited) and December 31, 1998, respectively, consist primarily of
computers and related equipment.
F-49
<PAGE> 85
NOTE 4 - PRO-FORMA INCOME TAXES (UNAUDITED)
In connection with the completion of the acquisition of LiveCode by
Parts, LiveCode terminated its S Corporation election and became
subject to corporate income taxes from that date forward. LiveCode's
operations for all periods subsequent to May 28, 1999, will be
included in the consolidated income tax return of Parts.
The statements of income for the period from inception July 7, 1998
and the period from January 1, 1999 through May 31, 1999 (unaudited)
include a presentation of the pro-forma effect on income taxes as if
the Company's income had been subjected to federal and state income
taxes as a C Corporation.
Reconciliation of the federal statutory income tax rate of 18% (using
graduated rates) to the pro-forma effective income tax rate reflected
in the accompanying statement of income is as follows:
<TABLE>
<CAPTION>
Period
July 7, 1998
PERIOD (Date of Inception)
JANUARY 1, 1999 Through
THROUGH December 31,
MAY 28, 1999 1998
--------------- -------------------
(UNAUDITED) (Unaudited)
<S> <C> <C>
Federal income tax at statutory rates 17.0% 18.0%
State income taxes 4.5 3.6
Non-deductible expenses -- 1.0
---- ----
Income tax expense 21.5% 22.6%
==== ====
</TABLE>
NOTE 5 - RELATED-PARTY TRANSACTIONS
From its inception through May 28, 1999, LiveCode's major source of
operating revenues was from services performed for UEP, a wholly owned
subsidiary of Parts.
As of May 28, 1999 (unaudited) and December 31, 1998, LiveCode had a
$25,000 account receivable from UEP, which amount was received in full
subsequent to May 28, 1999.
F-50
<PAGE> 86
FLEXRADIO, INC.
INDEX TO FINANCIAL STATEMENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-52
FINANCIAL STATEMENTS
Balance Sheet as of September 30, 1999 F-53
Statement of Operations for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-54
Statement of Stockholders' Deficiency for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-55
Statement of Cash Flows for the Period March 10, 1999
(Date of Inception) Through September 30, 1999 F-56
Notes to Financial Statements F-57
</TABLE>
F-51
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
parts.com, Inc. and Subsidiary
Sanford, Florida
We have audited the accompanying balance sheet of FlexRadio, Inc., a development
state enterprise, (the Company) as of September 30, 1999, and the related
statements of operations, stockholders' deficiency, and cash flows for the
period March 10, 1999 (date of inception) through September 30, 1999. 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 audit.
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 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 FlexRadio, Inc. as of
September 30, 1999, and the results of its operations and cash flows for the
period March 10, 1999 (date of inception) through September 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, on October 21, 1999, a wholly owned subsidiary of
parts.com, Inc. acquired 100 percent of the outstanding common stock of
FlexRadio, Inc.
/s/ Moore Stephens Lovelace, P.A.
- ---------------------------------
Certified Public Accountants
Orlando, Florida
January 19, 2000
F-52
<PAGE> 88
FLEXRADIO, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 97
-------
TOTAL CURRENT ASSETS 97
PATENT, NET OF ACCUMULATED AMORTIZATION OF $271 3,795
-------
TOTAL ASSETS $ 3,892
=======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 5,818
-------
TOTAL CURRENT LIABILITIES 5,818
STOCKHOLDERS' EQUITY
Common stock, $ .01 par value, 5,000,000 shares authorized;
322,581 shares issued and outstanding 3,226
Additional paid-in capital 4,742
Stock subscription receivable (1,968)
Deficit accumulated during development stage (7,926)
-------
TOTAL STOCKHOLDERS' DEFICIENCY (1,926)
-------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,892
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE> 89
FLEXRADIO, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 10, 1999 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
REVENUE $ --
GENERAL AND ADMINISTRATIVE EXPENSES
Amortization 271
Bank charges 133
Organization expense 2,253
Research and development 4,800
Taxes and licenses 90
Travel and entertainment 379
-------
TOTAL EXPENSES 7,926
-------
NET LOSS FOR THE PERIOD $(7,926)
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE> 90
FLEXRADIO, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD MARCH 10, 1999 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Stock During
----------------------- Paid-In Subscription Development
Shares Amount Capital Receivable Stage Total
------- ------ ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION -
MAY 26, 1999 296,774 $2,968 $ -- $(1,968) $ -- $ 1,000
ISSUANCE OF COMMON STOCK
FOR CASH 25,807 258 4,742 -- -- 5,000
NET LOSS FOR THE PERIOD -- -- -- -- (7,926) (7,926)
------- ------ ------ ------- ------- -------
BALANCES - SEPTEMBER 30, 1999 322,581 $3,226 $4,742 $(1,968) $(7,926) $(1,926)
======= ====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE> 91
FLEXRADIO, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For The Period March 10, 1999 (Date of Inception)
Through September 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,926)
Adjustment to reconcile net loss to net cash used in operating activities
Amortization 271
Changes in operating assets and liabilities
Accounts payable 5,818
-------
NET CASH USED IN OPERATING ACTIVITIES (1,837)
CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs incurred (4,066)
-------
NET CASH USED IN INVESTING ACTIVITIES (4,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from stockholder 5,000
Issuance of common stock for cash 6,000
Repayment of loan from stockholder (5,000)
-------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,000
-------
INCREASE IN CASH 97
CASH, BEGINNING OF PERIOD --
-------
CASH, END OF PERIOD $ 97
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE> 92
FLEXRADIO, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 10, 1999 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1999
NOTE 1 - ORGANIZATION
FlexRadio, Inc. ("Flex") was organized in Florida on March 10, 1999.
Flex has filed a provisional patent application for a radio frequency
detection and reporting service for providing research which will be
able to improve current methods of monitoring consumers radio
listening habits which to this date, utilizes paper, telephone and
limited electronic surveys to quantify and tabulate data for the
advertising industry. In addition, Flex intends to provide improved
customer service by assisting clients in making advertising/media
decisions which best fit their needs. From its inception through
September 30, 1999, Flex had no significant operations.
On October 21, 1999, parts.com, Inc. ("Parts") acquired 100 percent
of the outstanding common stock of Flex in exchange for 6,200,000
shares of Parts common stock. The majority stockholders of Flex are
also stockholders, directors and officers of Parts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Flex and
do not include any adjustments for its subsequent merger with Parts.
GOING CONCERN MATTER
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As shown
in the accompanying financial statements, during the period ended
September 30, 1999, Flex incurred a net loss of $7,926 and had a
deficiency in working capital of $5,721 and has no current source of
revenue. These factors, among others, may indicate that Flex will be
unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to
the outcome of this uncertainty.
LIQUIDITY AND PLAN OF OPERATIONS
As of September 30, 1999, Flex had cash of $97 and a deficiency in
working capital of $5,721.
On October 21, 1999, Parts acquired all of the outstanding common
stock and assumed all of the outstanding liabilities of Flex.
F-57
<PAGE> 93
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The presentation 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 disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
PATENT COSTS
Patent costs are being amortized on a straight-line basis over five
years.
REVENUES, COSTS AND EXPENSES
Revenues are recognized when the service has been performed and
related costs and expenses are recognized when incurred.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse (see Note 3).
YEAR 2000 ISSUES (UNAUDITED)
The Year 2000 issue affects the Company's installed computer systems,
network elements, software applications and other business systems
that have time sensitive programs that may not properly reflect or
recognize the Year 2000. Because many computers and computer
applications define dates by the last two digits of the year, "00" may
not be properly identified as Year 2000. This error could result in
miscalculations or system failures. The Year 2000 issue does not
materially affect the Company's computer systems, software or other
business systems. The Company has conducted a review to identify areas
that could be affected and has developed an implementation plan to
ensure compliance. The Company believes that with the modifications
made to its existing software, the issue will not pose significant
operational concerns nor have a material impact on financial position
or results of operations. The cost of modifications was not material
and has been expensed as incurred. However, failures of computer
systems maintained by third parties could have a material impact on
the Company's ability to conduct business. The Company has requested
that its major independent suppliers and support providers confirm
that they will be Year 2000 compliant.
F-58
<PAGE> 94
NOTE 3 - INCOME TAXES
The difference between the Company's effective income tax rate and the
federal statutory rate at September 30, 1999 is reconciled below:
<TABLE>
<S> <C>
Federal benefit expected (34.0)%
State income taxes (3.6)
Increase in valuation allowance 37.6
----
0.0%
====
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities at September 30, 1999 are approximately as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Organization expense and amortizable costs $ 800
Net operating loss 1,800
-------
Gross deferred tax asset 2,600
Less valuation allowance (2,600)
-------
Deferred tax asset $ --
=======
</TABLE>
During 1999, the deferred tax asset valuation allowance increased
$2,600. There were no deferred tax liabilities as of September 30,
1999.
As of September 30, 1999, the Company has a net operating loss
carryforward of approximately $5,300 available to offset future
taxable income. The net operating loss carryforward expires in the
year 2019. Under U.S. federal tax law, certain changes in ownership of
a company will cause a limitation on future utilization of these loss
carryforwards.
F-59
<PAGE> 95
PART III
ITEM 1. INDEX TO EXHIBITS
The exhibits filed as part of this registration statement are listed
below and are attached to this registration statement as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
<S> <C>
2.1 Amended and Restated Articles of Incorporation
2.1.1 Amendment to Amended and Restated Articles of Incorporation
2.2 Amended and Restated Bylaws
2.2.1 Amendment to Amended and Restated Bylaws
3.1 Stock Option Plan
3.2 Form of Stock Option Agreement for Messrs. Lucas, Anderson,
Odato, Fouts and McComas
3.3 Form of Registration Rights Agreement between Registrant and
certain shareholders of Registrant
6.1 Employment Agreement for Shawn D. Lucas and amendment
6.2 Employment Agreement for Scott A. Anderson and amendment
6.3 Employment Agreement for David Lampert and amendment
6.4 Employment Agreement for Ian Hart
6.5 Employment Agreement for Jeffrey Odato and amendment
6.6 Employment Agreement for Michael Fouts and amendment
6.7 Employment Agreement for David McComas and amendment
6.8 Form of Indemnification Agreement for Officers and Directors
6.9.1 Contract for Sale and Purchase between Registrant and
Karl O. Stairs and Helen L. Stairs
6.9.2 Contract for Sale and Purchase between Registrant and Stone
Street Investments, Inc.
6.10.1 Loan Agreement between Registrant and Eugene W. Gramzow, Trustee
6.10.2 Mortgage in favor of Eugene W. Gramzow, Trustee
6.10.3 Mortgage Note in favor of Eugene W. Gramzow, Trustee
6.11.1 Mortgage in favor of Stone Street Investments, Inc.
6.11.2 Mortgage Note in favor of Stone Street Investments, Inc.
6.12.1 Mortgage in favor of Eugene W. Gramzow, Trustee
6.12.2 Mortgage Note in favor of Eugene W. Gramzow, Trustee
6.13 Acquisition Agreement between Registrant and Direct Touch
Research, Inc.
6.14.1 Acquisition Agreement between Registrant and United Equity
Partners, Inc. ("UEP")
6.14.2 Amendment to Acquisition Agreement between Registrant and UEP
6.14.3 Amended and Restated Assumption Agreement between Registrant and UEP
6.15.1 Acquisition Agreement between Registrant and MTV/Pinnacle Advertising Group,Inc.
6.15.2 Amendment to Acquisition Agreement between Registrant and Pinnacle
6.15.3 Amended and Restated Assumption Agreement between Registrant and Pinnacle
6.16 Acquisition Agreement between Registrant and LiveCode, Inc
</TABLE>
<PAGE> 96
<TABLE>
<S> <C>
6.17 Agreement and Plan of Merger between Registrant, FlexRadio, Inc., Flex Acquisition, Inc. and the
shareholders of FlexRadio, Inc.
6.18 Employment Agreement for Jon Palazzo
6.19 Employment Agreement for Daniel Lampert and Amendment
10 Consent of Moore Stephens Lovelace, P.A. Certified Public Accountants*
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- --------------
* Filed herewith; remainder of exhibits previously filed.
<PAGE> 97
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Sanford, State of Florida, on the 24th day of February, 2000.
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
By: /s/ Shawn D. Lucas
--------------------------------------------
Shawn D. Lucas
President, Chairman and Co-CEO
By: /s/Ian J. Hart
--------------------------------------------
Ian J. Hart, Chief Financial Officer
<PAGE> 98
ITEM 1. INDEX TO EXHIBITS
The exhibits filed as part of this registration statement are listed
below and are attached to this registration statement as indicated.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
2.1 Amended and Restated Articles of Incorporation
2.1.1 Amendment to Amended and Restated Articles of Incorporation
2.2 Amended and Restated Bylaws
2.2.1 Amendment to Amended and Restated Bylaws
3.1 Stock Option Plan
3.2 Form of Stock Option Agreement for Messrs. Lucas, Anderson,
Odato, Fouts and McComas
3.3 Form of Registration Rights Agreement between Registrant and
certain shareholders of Registrant
6.1 Employment Agreement for Shawn D. Lucas and amendment
6.2 Employment Agreement for Scott A. Anderson and amendment
6.3 Employment Agreement for David Lampert and amendment
6.4 Employment Agreement for Ian Hart
6.5 Employment Agreement for Jeffrey Odato and amendment
6.6 Employment Agreement for Michael Fouts and amendment
6.7 Employment Agreement for David McComas and amendment
6.8 Form of Indemnification Agreement for Officers and Directors
6.9.1 Contract for Sale and Purchase between Registrant and Karl O.
Stairs and Helen L. Stairs
6.9.2 Contract for Sale and Purchase between Registrant and Stone
Street Investments, Inc.
6.10.1 Loan Agreement between Registrant and Eugene W. Gramzow, Trustee
6.10.2 Mortgage in favor of Eugene W. Gramzow, Trustee
6.10.3 Mortgage Note in favor of Eugene W. Gramzow, Trustee
6.11.1 Mortgage in favor of Stone Street Investments, Inc.
6.11.2 Mortgage Note in favor of Stone Street Investments, Inc.
6.12.1 Mortgage in favor of Eugene W. Gramzow, Trustee
6.12.2 Mortgage Note in favor of Eugene W. Gramzow, Trustee
6.13 Acquisition Agreement between Registrant and Direct Touch
Research, Inc.
6.14.1 Acquisition Agreement between Registrant and Unity Equity
Partners, Inc. ("UEP")
6.14.2 Amendment to Acquisition Agreement between Registrant and UEP
6.14.3 Amended and Restated Assumption Agreement between Registrant and
UEP
6.15.1 Acquisition Agreement between Registrant and MTV/Pinnacle
Advertising Group, Inc.
6.15.2 Amendment to Acquisition Agreement between Registrant and
Pinnacle
6.15.3 Amended and Restated Assumption Agreement between Registrant and
Pinnacle
6.16 Acquisition Agreement between Registrant and LiveCode, Inc.
6.17 Agreement and Plan of Merger between Registrant, FlexRadio, Inc.,
Flex Acquisition, Inc. and the shareholders of FlexRadio, Inc.
6.18 Employment Agreement for Jon Palazzo
6.19 Employment Agreement for Daniel Lampert and Amendment
10 Consent of Moore Stephens Lovelace, P.A. Certified Public
Accountants*
27.1 Financial Data Schedule
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* Filed herewith; remainder of exhibits previously filed.
<PAGE> 1
Exhibit 10
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports on the combined financial statements of MTV Pinnacle
Advertising Group, Inc. and United Equity Partners, Inc. for the year ended
December 31, 1997 and the nine months ended September 30, 1998, dated November
10, 1999, except for a portion of Note 1, as to which the date is January 5,
2000; and on the consolidated financial statements of parts.com, Inc. and
Subsidiary (formerly Miracom Corporation and Subsidiary) for the period January
27, 1998 (date of inception) through December 31, 1998, dated November 10, 1999,
except for a portion of Note 1, as to which the date is January 5, 2000; and on
the financial statements of LiveCode, Inc. for the period July 7, 1998 (date of
inception) through December 31, 1998, dated January 19, 2000; and on the
financial statements of FlexRadio, Inc. for the period March 10, 1999 (date of
inception) through September 30, 1999, dated January 19, 2000; included in
amendment number one to the Registration Statement, filed on Form 10-SB, of
parts.com, Inc. and Subsidiary dated on or about February 24, 2000.
/s/ Moore Stephens Lovelace, P.A.
---------------------------------
Certified Public Accountants
Orlando, Florida
February 24, 2000
