<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-------------------------------
Commission File No. 000-28243
parts.com, Inc.
---------------
(Name of Small Business Issuer 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
----------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number:(407) 302-1314
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the Registrant (1) has filed all reports to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such a shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
X
------- -------
YES NO
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant's sales for the most recent fiscal year were $1,364,694.
The aggregate market value of the voting stock held by non-affiliates of the
Company, (9,839,198 SHARES), based upon the average closing bid and asked prices
of the Company's common stock on March 15, 2000, was approximately $125,450,000.
There were 23,128,706 shares of common stock outstanding as of February 29,
2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Description of Business...........................................................................................1
Item 2. Description of Properties.........................................................................................10
Item 3. Legal Proceedings.................................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders...............................................................11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................................11
Item 6. Selected Financial Data...........................................................................................17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................................................17
Item 8. Financial Statements and Supplementary Data.......................................................................F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................................................................21
PART III
Item 10. Directors, Executive Officers of the Registrant, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act....................................................21
Item 11. Executive Compensation............................................................................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................................28
Item 13. Certain Relationships and Related Transactions....................................................................29
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................................31
Signatures........................................................................................................32
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Annual Report on Form 10-KSB,
including information with respect to the Company's future business plans,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the results of the Company to differ materially from
those indicated by such forward-looking statements. These factors include those
set forth in Part II, Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Form 10-SB on file with the
Securities and Exchange Commission and other documents the Company files from
time to time with the Securities and Exchange Commission.
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Parts.com (the "Company") is a provider of turnkey electronic services
designed to provide Internet-based business and on-line buying solutions. The
Company has two principal divisions - "parts.com" and "ReallyKnow.com."
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.
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 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 13 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 13. 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 13. 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 13. 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
1
<PAGE> 4
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 (per Information
Week Online, November 6, 1998). 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 auto parts market at nearly $600 billion ("Big Dents in Auto
Parts," April 12,1999). As reported by Automotive News, there are six
automotive parts suppliers worldwide with sales in excess of $10 billion each
("Biggest Suppliers Cleared Hurdles to Grow In 1998," June 21, 1999). The
estimated United States market for automotive parts is $127 billion, as
reported by Motor Equipment Manufacturer's Association (MEMA Market Analysis,
The Report of the Vehicle Parts Industry). Although we are initially focusing
on the United States market, we intend to make parts.com the
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 ("Small Computer Firms Are Making Inroads,"
March 2, 1998). 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 web 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 by bringing new value to suppliers, buyers and
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 on-line 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.
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 means of communication between businesses in that industry. We
believe our business model will afford us a competitive advantage over the
current methods
2
<PAGE> 5
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., Ford, Subaru, Chevrolet), 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
3
<PAGE> 6
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 offers "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
4
<PAGE> 7
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/territory 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 Really.Know.com products are: collecting
service fees for the use of software 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 29, 2000, parts.com has signed up approximately 104
franchised dealerships throughout the United States, representing approximately
34 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 81 Platinum
Suppliers and 102 Gold Suppliers. In addition, parts.com has Platinum and Gold
contracts pending with many other dealerships across the United States.
Furthermore, 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, there are no executed or pending contracts.
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 is 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 29, 2000, the Miratouch system has been installed in two dealerships
in Florida, one in Ohio and one in Massachusetts.
5
<PAGE> 8
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, develop the
applications, customize the hardware and create 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."
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 provides 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
6
<PAGE> 9
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 recently 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 the future implementation of 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 shortly. 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, most of our initial customer base has been
Original Equipment Manufacturer ("OEM") dealerships locating parts for their
business trading partners, as well as their at-location customers. Shortly, 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;
- - retailers;
- - sporting event/attraction companies; and
- - 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.
7
<PAGE> 10
Competition
Competition for our parts.com business comes 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 in February 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.
In February 2000, the "Big 3" Automakers (General Motors, Ford and
DaimlerChrysler) announced that they would join forces to create an auto parts
procurement network on the internet, combining Ford's current exchange, run by
Oracle, and GM's exchange, run by Commerce One. This network will focus on the
procurement, manufacture and distribution of parts to be used for the
production of new vehicles. The primary area of focus for parts.com is one
which parts are being procured, manufactured, and distributed in order to
replace original parts when they fail. Although these two areas have some
overlap, they are completely different with respect to operations - so
different, in fact that each is a separate industry within itself.
The manufacturers are the companies that actually make the majority of
the parts for the "Big 3". This exchange alliance (unnamed at present) between
the "Big 3" will strive to create a standard means of communication and
purchasing process between the "Big 3" and manufacturers that supply them.
It is important to note that the "Big 3" cannot circumvent their
existing dealerships with regard to new car sales and automotive parts sales,
due to the strength of the state franchise laws and current dealership sales
and service agreements between the "Big 3" and their dealer network. Nearly
every state has legislation with respect to dealer operating policies and
procedures, thus mandating that new vehicle sales and original equipment
manufacturer parts must be sold through a state licensed franchised dealer.
As a result of the foregoing, the Company does not believe that the
"Big 3" alliance will have a significant negative impact on its operations.
The global automobile parts industry is estimated to be a $600 billion
industry. We are focusing initially on the domestic market. However, the
Company's web site went "live" on January 23, 2000 and, to date, has no
significant 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 global $600 billion
automotive parts industry.
-- Manufacturers. It is our belief that on-line sales by
manufacturers of automotive parts represent 10% of market share.
8
<PAGE> 11
-- 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 of 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 for 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.
9
<PAGE> 12
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 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 (subsequently renamed "reallyknow.com.") 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 (reallyknow.com)
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 February 29, 2000, the Company had a total staff of 45
employees, comprised of 26 technical professionals, 6 sales and marketing
personnel and 13 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.
ITEM 2. DESCRIPTION OF PROPERTIES
We own the office building that is the Company's headquarters at 121
East First Street, Sanford, Florida 32771, which is approximately twenty miles
10
<PAGE> 13
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 $20,000 9% first
mortgage which will be paid off in full in January 2004 by monthly principal
and interest payments of $260. The office building and the lot are subject to a
first mortgage and second mortgage and loan agreements. 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, and there are no pending
material legal proceedings of which the Company is aware.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted on by shareholders during the last quarter of
the fiscal year ended December 31, 1999:
(a) By written consent dated November 8, 1999, holders of
11,892,257 shares of the Company's then issued and outstanding common stock,
representing 57% of the then issued and outstanding shares, approved the
Company's (i)amended and restated articles of incorporation, including the
"blank check" preferred stock provided therein; and (ii)adopted new bylaws.
(b) By written consent dated November 12, 1999, holders of
11,846,257 shares of the Company's then issued and outstanding common stock,
representing 56% of the then issued and outstanding shares, approved the
Company's acquisition of FlexRadio, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Market Information. 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.
HIGH LOW
---- ---
Fiscal Year Ended:
-----------------
December 31, 1999
Fourth Quarter $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(1) 2.50 2.50
- --------------------
(1) Nasdaq Trading & Marketing Services did not have price information prior
to September 1998.
11
<PAGE> 14
Holders. As of December 31, 1999 there were approximately 200 record holders of
the Company's common stock; however, there were approximately 3,800 beneficial
owners. Dividends. 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.
Our board of directors, without further action by the stockholders,
are 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.
Recent Sales of Unregistered Securities. The Company issued the following
unregistered securities during the fiscal year ended December 31, 1999:
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 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 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.
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
12
<PAGE> 15
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 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 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 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 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 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
13
<PAGE> 16
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 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 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 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.
14
<PAGE> 17
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 47,500 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.
15
<PAGE> 18
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 an aggregate of 609,776 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
16
<PAGE> 19
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 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
Statement of Operations Data:
- ----------------------------- From Inception
Year Ended January 27, 1998
December 31, 1999 To December 31, 1998
----------------- --------------------
<S> <C> <C>
Net Sales $ 1,364,694 $ 377,599
Cost of Sales $ 1,137,223 $ 302,109
Operating and other Expenses $ 5,223,679 $ 1,941,298
------------- -------------
Net Loss $ (4,996,208) $ (1,865,808)
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
- ------------------
December 31, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Current Assets $ 1,363,843 $ 274,525
Total Assets $ 10,970,767 $ 1,257,126
Current Liabilities $ 1,321,707 $ 760,273
Total Liabilities $ 1,719,683 $ 805,563
Working Capital (Deficit) $ 42,136 $ (485,748)
Stockholders' Equity $ 9,251,084 $ 451,563
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN ITEM 8 OF THIS ANNUAL
REPORT. ALL STATEMENTS RELATED TO THE COMPANY'S CHANGING FINANCIAL OPERATIONS
AND EXPECTED FUTURE GROWTH CONSTITUTE FORWARD-LOOKING STATEMENTS. THE ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED OR EXPRESSED IN SUCH
STATEMENTS.
Overview
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 doubt about the Company's ability to continue as a going
concern. The Company incurred net losses of $4,996,208 and $1,865,808 for the
year ended December 31, 1999 and the Period from Inception January 27, 1998
through December 31, 1998, respectively. At December 31, 1999, the Company had
an accumulated deficit of $6,862,016. 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,
17
<PAGE> 20
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.
Results of Operations
Year ended December 31, 1999 compared to the period from Inception (January 27,
1998) to December 31, 1998
For the year ended December 31, 1999, the Company's revenue increased
$987,095 or 261% compared to the period from Inception (January 27, 1998) to
December 31, 1998 due to sales from its UEP/MTV Pinnacle acquisition reflective
of one year, 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. In connection with the implementation of its
current business plan for Reallyknow.com which concentrates the Company's
advertising activities in the e-commerce sector, the Company is no longer
involved in the production of radio and television advertising. For the year
ended December 31, 1999 and the period ended December 31, 1998, the Company
generated gross revenues of approximately $777,000 and $233,000, respectively,
from the production of radio and television media.
Operating and other expenses increased $3,282,381 or 169% 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 $1.26 million at December
31, 1998 to $10.9 million at December 31, 1999 is due to a combination of
factors that include: the acquisition of Flex Radio's patent, capital
expenditures incurred for the purchase of the Company's building/headquarters
and the related building improvements; deferred costs associated with the
acquisition of the building and the acquisition of Livecode, Inc. .
The increase in the Company's liabilities to $1,719,683 at December
31, 1999 compared to $805,563 at December 31, 1998 is attributable to
borrowings under mortgages payable related to the Company's office building,
the increase in accounts payable and accrued expenses due to the Company's
increased operations and an increase in deferred revenue related to the
Company's e-commerce parts exchange.
The increase in stockholders' equity from $451,563 at December 31,
1998 to $9,251,084 at December 31, 1999 is due to the acquisition of Flex
Radio's Patent, the acquisition of Livecode, Inc. and certain financing
activities throughout the period, discussed below.
During the year ended December 31, 1999, the Company's operations used
approximately $1.4 million of cash. In order to fund its operating losses, the
Company sold approximately 2.8 million shares of its common stock through
private placements raising approximately $2.5 million. Additionally, the
Company executed three $50,000 convertible promissory notes with private
parties in September and October, 1999. These promissory notes were each
increased to $100,000. At or near year-end, the holders of these notes
converted $304,888 of principal and accrued interest into 609,776 shares of
common stock. Further, the Company converted approximately $2,676,211 of
accounts payable, outstanding notes and fees owed for consulting services and
employment contracts and salary bonuses into 1,515,907 shares of common stock.
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.
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
18
<PAGE> 21
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 equity financing to fund its business plan. Without
short or long-term financing, in order to meet its current and future capital
needs, the Company will depend on cash receipts from annual territory fees, fee
revenue generated from its e-commerce website and proceeds from the sale of
additional shares of common stock. There can be no assurance, however, that the
Company will be successful in obtaining any such additional financing through
equity financing.
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 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.
19
<PAGE> 22
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: Digex, Teligent, Inc.,
Sprint Corp. and BellSouth Corp.
We 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.
20
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this report appear beginning at
page F-1 as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 F-3
and December 31, 1998
Consolidated Statements of Operations for the Year Ended F-5
December 31, 1999 and for the Period From
Inception January 27, 1998 through December 31, 1998
Consolidated Statements of Stockholders' Equity for the Year F-6
Ended December 31, 1999 and for the Period From
Inception January 27, 1998 through December 31, 1998
Consolidated Statements of Cash Flows for the Year Ended F-7
December 31, 1999 and for the Period From
Inception January 27, 1998 through December 31, 1998
Notes to Consolidated Financial Statements F-10
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
parts.com, Inc. and Subsidiary
Sanford, Florida
We have audited the accompanying consolidated balance sheets of parts.com, Inc.
and Subsidiary (the Company) as of December 31, 1999 and 1998, and the related
consolidated statements of operations and stockholders' equity, and cash flows
for the year ended December 31, 1999 and 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
parts.com, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1999 and 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 year ended December 31, 1999 and the period
ended 1998, the Company incurred net losses of approximately $4,996,000 and
$1,866,000, respectively, and had negative cash flows from operations of
approximately $1,412,000 and $238,000, respectively. In addition, 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 statements 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
February 25, 2000
F-2
<PAGE> 25
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,180,833 $ 65,509
Accounts receivable trade, net
of allowance for doubtful
accounts of $53,885 in 1999 50,597 48,787
Inventory 54,589 --
Deferred costs and other current
assets 77,824 160,229
----------- ----------
Total Current Assets 1,363,843 274,525
----------- ----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$126,284 and $85,000, respectively 823,221 209,758
DEFERRED LOAN COSTS, net of
accumulated amortization of
$10,137 in 1999 248,363 --
OTHER ASSETS, net of
accumulated amortization of
$235,526 in 1999 415,400 2,414
PATENT, net of accumulated amortization
of $249,550 in 1999 6,167,450 --
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED,
net of accumulated
amortization of $380,288
and $40,549, respectively 1,952,490 770,429
----------- ----------
Total Assets $10,970,767 $1,257,126
=========== ==========
</TABLE>
See Accompanying Notes
F-3
<PAGE> 26
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 565,814 $ 310,184
Other current liabilities 158,352 206,255
Bank and other note payable -- 27,000
Current portion of mortgages payable 1,428 --
Current portion of capitalized leases 10,113 19,334
Deferred revenue 586,000 197,500
------------ -----------
Total Current Liabilities 1,321,707 760,273
LONG TERM PORTION OF BANK NOTE AND
MORTGAGES PAYABLE 397,976 10,788
LONG TERM PORTION OF CAPITALIZED LEASES -- 10,252
OTHER LIABILITIES -- 24,250
------------ -----------
Total Liabilities 1,719,683 805,563
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value,
10,000,000 shares authorized,
no shares issued and outstanding -- --
Common Stock, $.001 par value,
50,000,000 shares authorized,
23,051,206 and 11,187,500 shares
issued and outstanding, respectively 23,051 11,188
Additional paid-in capital 16,090,049 2,323,183
Stock subscription receivable -- (17,000)
Accumulated deficit (6,862,016) (1,865,808)
------------ -----------
Total Stockholders' Equity 9,251,084 451,563
------------ -----------
Total Liabilities and
Stockholders' Equity $ 10,970,767 $ 1,257,126
============ ===========
</TABLE>
See Accompanying Notes
F-4
<PAGE> 27
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
Inception
January 27,1998,
Year Ended Through
December 31, December 31,
1999 1998
------------- ----------------
<S> <C> <C>
NET SALES $ 1,364,694 $ 377,599
COST OF SALES 1,137,223 302,109
------------ -----------
GROSS PROFIT 227,471 75,490
------------ -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,380,179 354,867
AMORTIZATION 824,815 40,549
DEPRECIATION 65,288 14,279
STOCK BASED COMPENSATION 1,815,264 1,524,150
INTEREST 64,133 7,453
ASSET IMPAIRMENT CHARGE 74,000 --
------------ -----------
TOTAL EXPENSES 5,223,679 1,941,298
------------ -----------
NET LOSS $ (4,996,208) $(1,865,808)
============ ===========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.34) $ (.20)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,513,144 9,517,856
============ ===========
</TABLE>
See Accompanying Notes
F-5
<PAGE> 28
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 YEAR ENDED DECEMBER 31, 1999
<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 (17,000) -- 431,250
Issuance of common stock
in payment of expenses and
satisfaction of liabilities 440,000 440 1,119,560 -- -- 1,120,000
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 2,810,153 2,810 2,431,214 -- -- 2,434,024
Issuance of stock options to
officers and directors -- -- 253,000 -- -- 253,000
Issuance of common stock to acquire
LiveCode, Inc. 600,000 600 1,501,200 -- -- 1,501,800
Issuance of common stock
to acquire FlexRadio, Inc. 6,200,000 6,200 6,410,800 -- -- 6,417,000
Issuance of Common Stock
for accounts payable, conversion
of notes payable and services 2,253,553 2,253 3,170,652 -- -- 3,172,905
Stock subscription receivable -- -- -- 17,000 -- 17,000
Net loss for the period -- -- -- -- (4,996,208) (4,996,208)
----------- -------- ------------ -------- ----------- -----------
Balances,
December 31, 1999 23,051,206 $ 23,051 $ 16,090,049 $ -- $(6,862,016) $ 9,251,084
=========== ======== ============ ======== =========== ===========
</TABLE>
See Accompanying Notes
F-6
<PAGE> 29
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Inception
January 27,1998,
Year Ended Through
December 31, December 31,
1999 1998
------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(4,996,208) $(1,865,808)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 824,815 40,549
Depreciation 65,288 14,279
Stock based compensation 1,815,264 1,524,150
Asset impairment charge 74,000 --
Changes in operating assets and
liabilities, net of acquisitions:
Receivables (1,810) 35,973
Inventory (54,589) --
Other current assets 82,405 (32,147)
Deferred revenue 388,500 88,000
Accounts payable and accrued
expenses 288,427 (45,577)
Other current liabilities 101,418 2,367
----------- -----------
Net cash used in
operating activities (1,412,490) (238,214)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property and
equipment (561,025) (93,758)
Payments for other assets (30,078) --
Acquisition costs paid, net
of cash acquired -- (3,511)
----------- -----------
Net cash used in
investing activities (591,103) (97,269)
----------- -----------
</TABLE>
See Accompanying Notes
F-7
<PAGE> 30
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Period From
Inception
January 27,1998,
Year Ended Through
December 31, December 31,
1999 1998
------------ ----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
convertible promissory notes 300,000 --
Borrowing under mortgages
payable 400,500 --
Repayments of mortgages payable (1,096) --
Repayments of other liabilities (24,250) (7,000)
Repayments of bank note payable (37,788) (11,712)
Repayments of capitalized leases (19,473) (4,117)
Proceeds from issuance of
common stock 2,501,024 423,821
----------- -----------
Net cash provided by
financing activities 3,118,917 400,992
----------- -----------
INCREASE IN CASH 1,115,324 65,509
CASH, AT BEGINNING OF PERIOD 65,509 --
----------- -----------
CASH, AT END OF PERIOD $ 1,180,833 $ 65,509
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 62,737 $ 4,287
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Year Ended December 31, 1999:
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 246,407 shares of Common Stock in satisfaction of $157,139 of
amounts due to officers and directors.
See Accompanying Notes
F-8
<PAGE> 31
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES, CONTINUED:
Year Ended December 31, 1999, Continued:
Issuance of 615,000 shares of Common Stock in payment of consulting fees,
deferred loan costs and deferred consulting fees, in the aggregate amount
of $1,529,014.
Issuance of 189,500 shares of Common Stock in connection with employment
contracts and employee bonuses, in the aggregate amount of $228,964.
Issuance of 6,200,000 shares of Common Stock in connection with the
acquisition of FlexRadio, Inc. valued at $6,417,000.
Issuance of 609,776 shares of Common Stock in satisfaction of $300,000 of
convertible promissory notes and $4,888 of accrued interest.
Issuance of 127,870 shares of Common Stock in satisfaction of the third
mortgage in the amount of $182,000 and $9,806 of accrued interest.
Issuance of 425,000 shares of Common Stock in payment of $741,094 in bonuses
to officers and key employees.
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> 32
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, AND DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - parts.com, Inc. ("the Company") is a provider of
Internet-based business and online buying solutions. The Company
(formerly Miracom Corporation) 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. 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.
ACQUISITIONS - 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
F-10
<PAGE> 33
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 $2.50 per share, which represents 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
the issuance of 40,000 shares of the Company's Common Stock.
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 were 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. 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. Flex intends to provide improved customer service
by assisting clients in making advertising/media decisions which best
fit their needs.
The purchase price of Flex was based upon an independent
valuation of the estimated fair value of Flex as of the date of
acquisition. The 6,200,000 shares were valued at $1.035 per share,
which represents a 10% discount from the market price per share based
upon the average 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.
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 year ended December 31, 1999, assuming the business combinations
described above occurred on January 27, 1998 or the date of formation
of the acquired company if later than January 27, 1998:
F-11
<PAGE> 34
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
Period Ended December 31, 1998, Unaudited (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>
Year Ended December 31, 1999, Unaudited
------------------------------------------------------------------------
Pro-Forma Pro
Parts LiveCode(D) Flex(E) Adjustments Forma
------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,364,694 $ 161,450 $ -- $(161,450)(A) $ 1,364,694
161,450 (A)
(126,817)(B)
Costs and expenses (6,360,902) (92,586) (7,926) (784,336)(C) (7,211,117)
------------ ----------- --------- --------- -----------
Net (loss) income $ (4,996,208) $ 68,864 $ (7,926) $(911,153) $(5,846,423)
============ =========== ========= ========= ===========
Basic and dilutive
net loss per common
share $ (.32)
-----------
Weighted average
common shares 18,236,684
===========
</TABLE>
(A) Pro forma adjustment to eliminate LiveCode revenues earned from UEP and
related UEP costs.
F-12
<PAGE> 35
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
(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.
(E) Represents operations of Flex through the date of its merger with the
Company on October 21, 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.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements at December 31, 1999, include the accounts of the
Company and its wholly-owned subsidiary Flex as well as the activity of
DTR through the date of its dissolution in August 1999. 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 year ended December 31, 1999 and the
period from inception through December 31, 1998, the Company incurred
losses of $4,996,208 and $1,865,808, respectively and had working
capital of $42,136 at December 31, 1999. 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 December 31, 1999, the
Company had cash of $1,180,833 and working capital of $42,136.
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 from
the cash generated by its operating divisions and through the private
placement of equity and debt securities. The Company is presently
exploring possibilities with respect to significant expansion of its
existing customer base in its 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
F-13
<PAGE> 36
PARTS.COM, INC.
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
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.
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 revisions 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 year ended December 31,
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 consumer 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 distribution and vehicle line that the customer
purchases. Annual fees will be amortized into income over a period of
12 months commencing with the date the customer begins fulfilling parts
orders for the web site. Unamortized fees are recorded as deferred
revenue. 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 became operational on January 23, 2000.
During the period ended December 31, 1998 and the year ended December
31, 1999, the Company recognized no revenues from e-commerce
transactions.
F-14
<PAGE> 37
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
Reallyknow.com revenues and all costs and expenses related to
sales of Kiosks will be recognized at the time the products are
delivered. In connection with the implementation of its current
business plan for Reallyknow.com which concentrates the Company's
advertising activities in the e-commerce sector, the Company is no
longer involved in the production of radio and television advertising.
For the year ended December 31, 1999 and the period ended December 31,
1998, the Company generated gross revenues of approximately $777,000
and $233,000, respectively, from the production of radio and television
media.
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 carrying
value of capitalized lease obligations approximate their fair value.
The fair value of mortgages payable and other debt instruments are
based upon the present value of future cash flows discounted at
estimated current borrowing rates available to the Company for each
type of debt instrument.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash and accounts receivable. Cash is held in
banks and other financial institutions and at times may exceed
federally insured limits. The Company has not incurred any losses on
its cash deposits and it does not believe it is exposed to any
significant credit risk therefrom. 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.
OTHER ASSETS - Deferred consulting fees included in other assets
are being amortized over the terms of the related consulting agreements
ranging from one to two years. The cost of acquiring the Internet
domain names will be amortized over a period of five years commencing
with the activation of the website in January 2000.
F-15
<PAGE> 38
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
PATENT - Patents are carried at cost less accumulated
amortization which is calculated on a straight line basis over the
estimated useful life of the asset of five years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - Excess of
cost over fair value of net assets acquired is amortized on the
straight-line method over five years.
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 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.
F-16
<PAGE> 39
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
2. DEFERRED COSTS AND OTHER CURRENT ASSETS:
A summary of deferred costs and other current assets at December
31, 1999 and December 31, 1998 is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Deferred costs $ - $ 150,000
Prepaid expenses 77,824 -
Deposits and receivables from
officers and employees - 10,229
----------- -----------
$ 77,824 $ 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 December 31, 1999 and
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Land, building and improvements $ 600,966 $ --
Furniture and fixtures 22,855 7,440
Assets acquired under capitalized
leases 60,483 60,483
Computers and related equipment 265,201 145,373
Leasehold improvements -- 81,462
--------- ---------
949,505 294,758
Less: accumulated depreciation and
amortization (126,284) (85,000)
--------- ---------
$ 823,221 $ 209,758
========= =========
Depreciation and amortization
expense $ 65,288 $ 14,279
========= =========
Depreciation and amortization
of assets acquired under
capitalized leases $ 12,097 $ 3,024
========= =========
</TABLE>
F-17
<PAGE> 40
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
Assets acquired under capitalized leases consist primarily of
computers and related equipment.
The carrying value of land, building and improvements at December
31, 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 charge. The property was purchased from Stonestreet
Investments, Inc., which is owned by four directors and one key
employee of the Company who are also major stockholders of the Company.
4. OTHER ASSETS:
Other assets at December 31, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred consulting fees $ 588,064 $ --
Internet domain 47,870 --
Deposits 14,992 2,414
--------- ---------
650,926 2,414
Less: accumulated amortization (235,526) --
--------- ---------
$ 415,400 $ 2,414
========= =========
Amortization expense $ 235,526 $ --
========= =========
</TABLE>
5. NOTES AND MORTGAGES PAYABLE:
BANK NOTE PAYABLE - The Bank note payable, in the original
principal amount of $45,500, bore interest at 2% over the lender's
prime rate and was payable in monthly principal installments of $1,900
from July 1, 1998 through June 1, 2000. Interest was also payable
monthly. The outstanding principal balance of the note on December 31,
1998, was $33,588 . The principal balance of the note plus accrued
interest was paid in full during 1999.
CONVERTIBLE PROMISSORY NOTES - During the year ended December 31,
1999, The Company issued Convertible Promissory Notes ("the Notes") in
the original principal amount of $300,000. The notes bore interest at
rates ranging from 9% to 10% and were payable in full, including
accrued interest one year from their date of issuance. The holders also
had the option to convert the notes plus accrued interest into shares
of Common Stock at a conversion price of $.50 per share. The conversion
price was based on recent private placement transactions. In December
1999, the holders converted the notes plus all accrued interest into
609,776 shares of common stock.
F-18
<PAGE> 41
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
MORTGAGES PAYABLE - The Company's real property is subject to the
following mortgages at December 31, 1999:
<TABLE>
<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
Other, with interest at 9% per annum, payable in
monthly installments of principal and interest
of $260, through February 2009. 19,404
---------
399,404
Less current portion 1,428
---------
Long-term portion 397,976
=========
</TABLE>
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.
As of December 31, 1999, the net book value of the real property
collateralizing the above mortgages was approximately $595,000.
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 subsequent to December 31,
1999, are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -----------
<S> <C>
2000 $ 1,428
2001 1,562
2002 1,708
2003 1,869
2004 2,044
Thereafter 390,793
-----------
Total $ 399,404
===========
</TABLE>
F-19
<PAGE> 42
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
6. CAPITALIZED LEASES:
The Company leases certain equipment under capital lease
arrangements. Future minimum lease payments under these agreements
subsequent to December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
------------ ----------
<S> <C>
2000 $ 9,622
2001 1,178
----------
Total minimum lease payments 10,800
Less amount representing
interest at 9.9% to 25.5% 687
----------
Present value of minimum
lease payments $ 10,113
==========
</TABLE>
In January 2000, the Company liquidated the balances due under
the capitalized leases. Accordingly, the present value of minimum
lease payments has been classified as a current liability in the
accompanying consolidated balance sheet at December 31, 1999.
7. INCOME TAXES:
The difference between the Company's effective income tax rate
and the federal statutory rate at December 31, 1999, and December 31,
1998, is reconciled below:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Federal benefit expected (34)% (34)%
State taxes (4) (2)
Permanent items 3 --
Increase in valuation allowance 35 36
--- ---
0.0 % 0.0 %
=== ===
</TABLE>
F-20
<PAGE> 43
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1999, and December 31, 1998, are
approximately as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Deferred Tax Assets
Net operating losses $ 1,814,000 $ 657,000
Stock based compensation 365,000 --
Deferred income 220,000 --
Other 28,000 --
----------- ---------
Gross deferred tax asset 2,427,000 657,000
Less valuation allowance (2,427,000) (657,000)
----------- ---------
Deferred tax asset $ -- $ --
=========== =========
</TABLE>
There were no deferred tax liabilities as of December 31, 1999,
and December 31, 1998.
As of December 31, 1999, the Company had estimated net operating
loss carryforwards of approximately $4,800,000 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.
On November 12, 1999, the Company amended its articles of
Incorporation to grant the Board of Directors of the Company the
authority 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 stockholders.
The Company has adopted the disclosure-only provisions of SFAS
No. 123. Accordingly, compensation expense recognized for the issuance
of stock options to employees is computed as the difference between the
exercise price of the stock option and the market price of the common
stock on the date the option is granted. For the year ended December
31, 1999, employees of the Company were issued options to purchase a
total of 790,000 shares of the Company's Common Stock, at exercise
prices ranging from $1,50 to $3.00 per share expiring from August 2000
to February 2009, which resulted in compensation expense of $253,000 in
the accompanying financial statements.
Had compensation cost for the Company's issuance of common stock
F-21
<PAGE> 44
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
options during the year ended December 31, 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 per common
share would have been increased to the unaudited pro forma amounts
indicated below:
<TABLE>
<CAPTION>
<S> <C>
Net loss as reported $(4,996,208)
Proforma net loss $(7,034,925)
Net loss per share as reported $ (.34)
Proforma net loss per share $ (.48)
</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 Year ended
December 31, 1999; dividends yield of 0%; expected average annual
volatility of 133.86%; average annual risk free interest rate of 6%;
and expected terms averaging approximately seven 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 December 31, 1999, consist of 550,000 non qualified
options and 240,000 incentive options. 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.
The following summarizes stock option activity for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Exercise
Amount Price Range
-------- -----------
<S> <C> <C>
Outstanding as of December 31, 1998 - - -
Granted 790,000 $1.50-$3.00
Exercised - - -
Forfeited - - -
--------
Outstanding as of December 31, 1999 790,000 $1.50-$3.00
========
Number of shares exercisable as of
December 31, 1999 183,335 $3.00
========
Weighted average fair value of options
granted $ 2.58
========
</TABLE>
F-22
<PAGE> 45
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
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 year
ended December 31, 1999, the Company issued 2,810,153 shares of Common
Stock, in private placements at per share prices ranging from $.50 to
$1.50, and received net cash proceeds of $2,434,024.
During the year ended December 31, 1999, and the period ended
December 31, 1998, the Company issued 2,253,553 and 440,000 shares of
Common Stock, respectively, 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 December 31, 1999, the Company had reserved the following
shares of Common Stock for issuance:
<TABLE>
<CAPTION>
<S> <C>
Stock option plan 860,000
Options exercisable at $1.50
to $3.00 per share 790,000
---------
Total 1,650,000
=========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1999, the Company liquidated
$157,139 of amounts due to officers and directors by issuance of
246,407 shares of Common Stock. 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.
In connection with the purchase of the land, building and
improvements, the Company issued a third mortgage note to Stonestreet
Investments, Inc., which is owned by five officers of the Company who
are also major stockholders of the Company. The note bore interest at
9.5% per annum and required payments of principal and interest in
varying amount through June 30, 2002, with all remaining principal and
accrued interest due and payable on July 30, 2002. By agreement among
the parties all required payments under the mortgage were deferred
indefinitely. On November 30, 1999, the Company issued 127,870 shares
of Common Stock in full satisfaction of the $182,000 principal balance
of the note plus $9,806 of accrued interest.
The shares of Common Stock issued in the above transactions were
valued at per share prices approximating recent private placements of
Common Stock less a 10% discount from market.
During the year ended December 31, 1999, the Company issued a
total of 425,000 shares of Common Stock to officers and directors and a
key employee in payment of bonuses, at a per share price of $1.74 for
an aggregate of $741,094.
F-23
<PAGE> 46
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
A summary of selling, general and administrative expenses for the
year ended December 31, 1999, and for the period ended December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Salaries and related taxes $ 813,846 $ 177,640
Advertising and marketing 144,021 1,800
Rent and lease 61,855 15,807
Stockholder relations 212,981 375
Telephone and utilities 99,183 13,808
Travel and entertainment 176,904 50,684
Office expense and supplies 169,978 6,849
Dues and subscriptions 33,660 9,013
Legal and accounting fees 357,502 34,059
Insurance 47,527 2,092
Other 262,722 42,740
---------- ----------
Total $2,380,179 $ 354,867
========== ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
The Company leased office space from an unrelated third party
through mid August 1999. Total rental expense was $36,885 and $11,878
for the year ended December 31, 1999 and the period ended December 31,
1998, respectively.
The Company has entered into employment agreements with certain
officers and key employees which provide for annual base salaries
aggregating $704,000. The agreements range from fourteen months to
three years. Certain of the agreements provide for an automatic one
year extension of the term on the annual anniversary date of the
agreement. Each agreement provides that the officer or key employee is
entitled to participate in all employment benefit programs generally
available to company employees, including health care and disability
plans, stock option plans and any retirement plan.
In connection with two of the agreements the individuals were
each granted options to purchase 120,000 shares of Common Stock at
prices ranging from $1.50 to $1.75 per share of restricted Common
Stock.
12. SUBSEQUENT EVENT:
On February 11, 2000, the Company, in connection with M&M/Mars
Incorporated entered into an agreement to be an associate sponsor of a
NASCAR Winston Cup race car for the entire NASCAR season from February
17, 2000, through November 19, 2000. The Company made an initial
payment of $200,000 and is committed to make an additional payment of
$200,000 in May 2000. The Company has also committed to issue 34,000
shares of Common Stock
F-24
<PAGE> 47
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1999 AND DECEMBER 31, 1998
12. SUBSEQUENT EVENT (continued):
to Mars Incorporated as additional consideration. The shares of Common
Stock were valued at $16.20 per share for an aggregate of $550,800,
which represents a 10% discount from market as of the date of the
contract.
F-25
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its certified
public accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's officers and directors and their respective ages as of
February 29, 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-Chief Executive Officer, Chief Technology Officer,
Director
Ian Hart 36 Chief Financial Officer
Jeffrey M. Odato 44 Vice President, National Sales, Director
Michael R. Fouts 42 Director of Business Affairs, Director
David Lampert 32 Senior Vice President of Software Development, Director
DuWayne J. Peterson 67 Director
</TABLE>
The following sets forth a description of the officers' and directors'
business experience during the past five years or more and other biographical
information:
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.
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.
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
21
<PAGE> 49
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.
JEFFREY M. ODATO has been a director of the Company and the Vice
President, National 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.
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
Operating Officer of DeFalco Advertising, Inc., Heathrow, Florida from February
1992 through December 1996.
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.
DUWAYNE J. PETERSON was appointed as an independent director of the
Company in February, 2000. Mr. Peterson is President of DuWayne Peterson
Associates, a consulting firm specializing in the effective management of
information technology. Prior to forming his firm in 1991, he held the position
of Executive Vice President Operations, Systems and Telecommunications at
Merrill Lynch.
All of the Company's officers and directors, except Mr. Peterson,
devote substantially all of their time to the Company's business.
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 for directors who are also
employees of the Company. It does however, intend to compensate outside board
members for both their time spent at board and committee meetings and for travel
costs incurred on behalf of the company.
Significant Employees
The following individuals, although not executive officers of the Company, are
significant employees:
David McComas, 31, was a co-founder of Direct Touch Research, Inc. and
was a director of the Company from September 1998 through February 2000. He
presently is 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.
Jon F. Palazzo, 31, joined the Company in October 1999 as its Vice
President of Aftermarket Operations and generally has responsibility for the
22
<PAGE> 50
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who beneficially own more than 10% of a registered class
of our equity securities (referred to as "reporting persons"), to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Reporting persons are required by Securities and Exchange Commission regulations
to furnish us with copies of all Section 16(a) forms they file and the Company
is required to report any delinquent filings made during its most recent fiscal
year. The Company was not a reporting company under the Exchange Act during
fiscal year ended December 31, 1999 and therefore its directors, officers and
10% beneficial owners were not required to file ownership reports during 1999.
ITEM 11. 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 or key employees at the end
of the fiscal year or who had previously 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-
</TABLE>
23
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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-
Strategic 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 these 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 and a key employee . 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 $3.50. See "-- Stock Option Grants."
(6) Represents sales commissions paid.
Stock Option Grants
The following table sets forth information concerning individual grants
of options to purchase Common Stock made to executives individuals during 1999.
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates
of
Number of Percent of Stock Price
Securities Total Exercise Appreciation for
Underlying Options or Option Term(1)
Options Granted to Base Price Expiration ----------------------
Name Granted Employees ($/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
</TABLE>
24
<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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.
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 December
31, 1999, stock options to purchase 790,000 shares of common stock were
outstanding under the plan. Accordingly, 860,000 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 sole discretion, from among those eligible. In granting
options, the compensation committee (when created) will consider 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
25
<PAGE> 53
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 Exchange Act.
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 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.
Employment Agreements
We entered into employment agreements (as amended) with the following
Executives and key employee:
<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 Lampert Apr. 1999-Apr. 2002 $72,000 Senior Vice President of
Software Development
David McComas Oct. 1998-Oct. 2001 $72,000 Strategic Business
Development
</TABLE>
All provisions contained in the employment agreements for the
above-named executives and key employee are identical. Under each agreement,
the individual 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
26
<PAGE> 54
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' and/or key 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 individual's
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
employment without cause, the individuals 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 individuals 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
agreements contain nonsolicitation and noncompetition provisions that are
intended to survive the termination of employment for a period of two years.
In August 1999, the Company entered into an employment agreement with
Ian Hart. He serves as our 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.
In October 1999, the Company entered into an employment agreement with
Jon Palazzo. He serves as our Vice President of AfterMarket Operations 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. Palazzo 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 $1.50 per share. These
stock options vest over 18 months. Mr. Palazzo was also granted 10,000 shares
of restricted common stock to be forfeited should he voluntarily terminate his
employment prior to April 27, 2000 or should we discharge him for cause prior
to April 27, 2000. If the
27
<PAGE> 55
Company terminates Mr. Palazzo'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. Palazzo 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.
ITEM 12. 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 February 29, 2000, held by
persons or groups believed by the Company to beneficially own more than 5% of
the Company's outstanding stock, by directors and officers of the Company, and
by all directors and officers and affiliates of the Company as a group. Unless
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. The address of each of the
individuals listed in the table is c/o the Company, 121 East First Street,
Sanford, Florida 32771.
Percentage ownership in the following table is based on 23,128,706
shares of common stock outstanding as of February 29, 2000. 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 February 29, 2000 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)(3) 5,334,247 23%
Scott A. Anderson (1) 604,009 3%
Jeffrey M. Odato (1) 393,627 2%
Michael R. Fouts (1) 1,410,309 6%
David M. Lampert (4) 517,218 2%
David McComas (1) 1,686,796 7%
Ian J. Hart (2) 90,000 *
Select Media Ltd. 1,119,500 5%
57 Kinkel Street
Westbury, N.Y. 11590
SML, Inc. 1,610,000 7%
320 Golf Brook Circle #102
Longwood, FL 32779
Flex Technologies, Inc. (5) 2,194,000 10%
DuWayne J. Peterson (6) 40,000 *%
225 South Lake Avenue
Pasadena, CA 91101
All directors and officers 13,294,508 57%
and affiliates as a
group (12 persons)
</TABLE>
- --------------------
* Less than one percent
(1) Includes 36,667 shares of common stock issuable upon exercise of stock
options.
(2) Includes 40,000 shares of common stock issuable upon exercise of stock
options.
(3) Includes 2,194,000 shares owned by Flex Technologies, Inc. for which Shawn
D. Lucas holds a proxy.
(4) Shares are held in a family trust for which Mr. Lampert and his wife are
co-trustees.
28
<PAGE> 56
(5) Shawn D. Lucas holds a voting proxy for these shares.
(6) Includes 10,000 shares of common stock issuable upon exercise of stock
options.
ITEM 13. 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.
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. Messrs. Lucas, Anderson, Fouts and Odato are directors
and shareholders of the Company. Mr. McComas is a significant employee and a
major 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.
29
<PAGE> 57
Gramzow Revocable Trust (the "Gramzow Loan") and an unsecured loan in the
amount of $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). In December 1999, the StoneStreet loan was retired by
payment to StoneStreet of 127,870 shares of the Company's common stock. The
carrying value of land, building and improvements at December 31, 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.
Effective October 4, 1999, November 29, 1999, and November 30, 1999,
the Company repaid and aggregate of $157,139 of amounts due to its principal
shareholders, directors and/or officers with the issuance of 246,407 shares of
common stock. Messrs. Lucas, Anderson, McComas, Odato Fouts, Lambert and Hart
received 3,672; 59,435; 6,508; 20,737; 99,099; 36,504 and 10,000 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 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.
See "Summary Compensation Table" and "Stock Option Grants" in Item 11 of this
report for information concerning bonuses and stock options granted to the
Company's officers, directors and a key employee.
30
<PAGE> 58
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
<S> <C>
3.1 Amended and Restated Articles of Incorporation
3.1.1 Amendment to Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
3.2.1 Amendment to Amended and Restated Bylaws
4.1 Stock Option Plan
4.2 Form of Stock Option Agreement for Messrs. Lucas, Anderson,
Odato, Fouts and McComas
4.3 Form of Registration Rights Agreement between Registrant and
certain shareholders of Registrant
10.1 Employment Agreement for Shawn D. Lucas and amendment
10.2 Employment Agreement for Scott A. Anderson and amendment
10.3 Employment Agreement for David Lampert and amendment
10.4 Employment Agreement for Ian Hart
10.5 Employment Agreement for Jeffrey Odato and amendment
10.6 Employment Agreement for Michael Fouts and amendment
10.7 Employment Agreement for David McComas and amendment
10.8 Form of Indemnification Agreement for Officers and Directors
10.9.1 Contract for Sale and Purchase between Registrant and Karl O.
Stairs and Helen L. Stairs
10.9.2 Contract for Sale and Purchase between Registrant and Stone
Street Investments, Inc.
10.10.1 Loan Agreement between Registrant and Eugene W. Gramzow, Trustee
10.10.2 Mortgage in favor of Eugene W. Gramzow, Trustee
10.10.3 Mortgage Note in favor of Eugene W. Gramzow, Trustee
10.11.1 Mortgage in favor of Stone Street Investments, Inc.
10.11.2 Mortgage Note in favor of Stone Street Investments, Inc.
10.12.1 Mortgage in favor of Eugene W. Gramzow, Trustee
10.12.2 Mortgage Note in favor of Eugene W. Gramzow, Trustee
10.13 Acquisition Agreement between Registrant and Direct Touch
Research, Inc.
10.14.1 Acquisition Agreement between Registrant and Unity Equity
Partners, Inc. ("UEP")
10.14.2 Amendment to Acquisition Agreement between Registrant and UEP
</TABLE>
31
<PAGE> 59
<TABLE>
<S> <C>
10.14.3 Amended and Restated Assumption Agreement between Registrant and
UEP
10.15.1 Acquisition Agreement between Registrant and MTV/Pinnacle
Advertising Group, Inc.
10.15.2 Amendment to Acquisition Agreement between Registrant and
Pinnacle
10.15.3 Amended and Restated Assumption Agreement between Registrant and
Pinnacle
10.16 Acquisition Agreement between Registrant and LiveCode, Inc.
10.17 Agreement and Plan of Merger between Registrant, FlexRadio, Inc.,
Flex Acquisition, Inc. and the shareholders of FlexRadio, Inc.
10.18 Employment Agreement for Jon Palazzo
10.19 Employment Agreement for Daniel Lampert and Amendment
27 Financial Data Schedule*
</TABLE>
- --------------
* Filed herewith. Remainder of exhibits previously filed as exhibits to the
Company's registration statement on Form 10-SB which was filed on February
24, 2000, and is incorporated herein by reference.
(b) Reports on Form 8-K. NONE
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act of 1934, as amended,
the Registrant has caused this Report on Form 10-KSB to be signed on its behalf
by the undersigned, thereunto duly authorized in Sanford, Florida on the 16th
day of March 2000.
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
By: /s/ Shawn D. Lucas
----------------------------------
Shawn D. Lucas
President, Chairman and
Co-Chief Executive Officer
By: /s/ Ian J. Hart
----------------------------------
Ian J. Hart, Chief
Financial Officer
32
<PAGE> 60
In accordance with Section 13 or 15(a) of the Exchange Act of 1934, as
amended, this Report on Form 10-KSB has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Shawn Lucas Director, President
- ----------------------- and Co-Chief Executive
Shawn Lucas Officer (Principal Executive
Officer) March 16, 2000
/s/ Ian J. Hart Chief Financial
- ----------------------- Officer (Principal
Ian J. Hart Financial Officer) March 16, 2000
/s/ Scott Anderson Director, Co-Chief Executive
- ----------------------- Officer and Chief Technology
Scott Anderson Officer March 16, 2000
/s/ David Lampert Director and Senior Vice
- ----------------------- President March 16, 2000
David Lampert
/s/ DuWayne J. Peterson Director March 16, 2000
- -----------------------
DuWayne J. Peterson
/s/ Michael Fouts Director March 16, 2000
- -----------------------
Michael Fouts
/s/ Jeffrey Odato Director and Vice President March 16, 2000
- -----------------------
Jeffrey Odato
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,180,833
<SECURITIES> 0
<RECEIVABLES> 104,482
<ALLOWANCES> (53,885)
<INVENTORY> 54,589
<CURRENT-ASSETS> 1,363,843
<PP&E> 949,505
<DEPRECIATION> (126,284)
<TOTAL-ASSETS> 10,970,767
<CURRENT-LIABILITIES> 1,321,707
<BONDS> 0
0
0
<COMMON> 23,051
<OTHER-SE> 9,228,033
<TOTAL-LIABILITY-AND-EQUITY> 10,970,767
<SALES> 1,364,694
<TOTAL-REVENUES> 1,364,694
<CGS> 1,137,223
<TOTAL-COSTS> 1,137,223
<OTHER-EXPENSES> 5,085,546
<LOSS-PROVISION> 74,000
<INTEREST-EXPENSE> 64,133
<INCOME-PRETAX> (4,996,208)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,996,208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,996,208)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
