SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 1997
Commission file number 0-15210
AUTOCORP EQUITIES, INC.
Exact name of registrant as specified in its charter
NEVADA 87-0522501
(State of Incorporation) (I.R.S. Employer ID#)
2980 E. Northern Ave Suite B1
Phoenix, Arizona 85028
(Address of principal office & Zip Code)
(602) 482-5737
(Registrants telephone number including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x]
Common Stock, $.001 par value 685,928
----------------------------- -------
(Title of class) (Number of shares
outstanding 6/30/97)
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
AUTOCORP EQUITIES, INC. ("AUTOCORP" or the "Company") is a sub-prime
automobile lender with retail and wholesale vehicle sales operations that
include a vehicle consignment service for other sub-prime companies through its
Lender Liquidation Centers. The Company was incorporated January 2, 1986 as
VIVATAE, INC. and completed its initial public offering in May 1986. In November
1986, the Company acquired all of the outstanding stock of Eagle Entertainment,
Inc. and changed its name to EAGLE ENTERTAINMENT, INC. Through its subsidiaries
the Company provided performance guarantees for motion picture productions.
In September 1990, the Company divested its entertainment subsidiaries and
acquired subsidiaries in the retailing and financing of motor vehicles. The
Company changed its name to EAGLE HOLDINGS, INC. and then to EAGLE AUTOMOTIVE
ENTERPRISES, INC. in October 1993 to better reflect the automotive nature of its
business.
On March 28, 1994, the Company exchanged the shares of its automotive
subsidiaries for all of the stock of Diamond Entertainment II, Inc., a Utah
corporation licensed by the Samuel Goldwyn Company to produce live productions
of the "American Gladiators", and changed its name to CHARIOT ENTERTAINMENT,
INC. on April 6, 1994. With the expiration of the Goldwyn Licensing Agreement on
December 31, 1994, the Company re-entered the business development stage.
On September 30, 1996, the Company changed its name to AUTOCORP EQUITIES,
INC. in anticipation of once again attracting a business combination candidate
in the automotive industry.
On July 23, 1997, the Company acquired 100% of the issued and outstanding
shares of common stock of Consumer Investment Corporation (CIC); Consumer
Insurance Services, Inc. (CIS) and Lender's Liquidation Centers, Inc. (LLC,
collectively described as the "CIC Companies") in an exchange of shares whereby
3,677,500 shares of Company common stock was issued to the shareholders of the
CIC Companies.
(b) The Company
The Company operates a combined used vehicle sales and finance business.
Through its subsidiary Consumer Investment Corporation ("CIC"), the Company
underwrites, finances and services installment sales contracts generated by its
own financing and vehicle sales operations. CIC concentrates on financing
vehicles purchased by sub-standard credit purchasers, i.e. persons with low
incomes and credit problems. The Company also operates an insurance company
through its subsidiary Consumer Insurance Services, Inc. ("CIS") formed to
insure the vehicles that are collateral for the loans which the Company
originates and purchases. Autocorp presently operates five (5) used vehicle
sales facilities through its subsidiary Lenders Liquidation Centers, Inc.
("LLC") which sell reconditioned, repossessed and other used vehicles, and has
plans to increase the number of such liquidation centers to 9 (nine) by year-end
1997. Through August 30, 1997, Management estimates the CIC Companies to have
generated revenues in excess of $3,000,000 with assets in excess of $5,000,000.
The Company is in the process of filing the required 8-K audited financial
information on the CIC Companies.
<PAGE>
Consumer Investment Company ("CIC") was formed in 1995 and is a wholly
owned subsidiary of Autocorp.
Business: CIC is licensed in the State of Arizona as a sales finance
company. It engages in the business of underwriting, purchasing, arranging
credit enhancement and loan servicing, and reselling high yield purchase money
vehicle loans. Loans are acquired primarily from vehicle sales generated by the
five retail car lots operated by Lenders Liquidation Centers, Inc. ("LLC") in
the State of Arizona and New Mexico. The terms of each vehicle loan requires the
borrowers to carry liability, collision, and comprehensive insurance on their
vehicles. The Company purchases loans from LLC at a discount from face value.
The Company has established cash reserves and has formed an insurance company to
insure the loans. See Consumer Insurance Services, Inc., below. Once the vehicle
loans are insured, the Company may hold the loans or resell them on the
commercial market for a profit.
Marketing: CIC has previously entered into a Dealer Agreement with
Travelers Acceptance Corporations ("TAC") a California corporation engaged in
the business of purchasing various types of retail installment contracts which
include motor vehicle sales agreements ("Contracts"). The agreement with TAC
generally means that CIC sells Contracts to TAC at a price equal to 70% of the
Contract amount. TAC services the loan, i.e., collects the payments due, and
remits to CIC an amount equal to 20% of the loan payments. In the event the
payments become difficult to collect, CIC becomes responsible to make the
collections and if necessary, repossess the vehicle involved. After payment of
70% of the loan balance to TAC, CIC then becomes owner of the repossessed
vehicle and will recondition it and attempt to resell it, generally, through the
Liquidation (resale) Centers described above. TAC has also provided a form of
credit line in that it has agreed to buy contracts from CIC in an amount of up
to approximately $570,000 per month. The Company has recently entered into a
Master Purchase and Sale Agreement with AutoPrime, Inc. ("AutoPrime"), a Texas
corporation, to also serve as another source to purchase CIC loan contracts.
Loan Servicing: The Loans in which the CIC invests are generally
serviced by either CIC or another finance company ("Loan Servicer") such as TAC.
The Loan Servicer is responsible for record keeping and collection of payments,
and general enforcement of the vehicle loan contracts.
Insurance: All vehicle loan agreements require the borrower to maintain
liability, collision and comprehensive damage insurance. CIC requires all
Borrowers to purchase a Lender's Single Interest Insurance Policy, which insures
the Company's loans from physical damage to vehicles, confiscation and skip
costs, instrument non-filing, and repossessed vehicle costs.
Consumer Insurance Services, Inc. ("CIS") is a holding
company/insurance agency founded by the principals of CIC in November, 1996. CIS
is owner of Consumer Insurance Company, (Cayman), a Cayman Islands Company (CIS
and Cayman Island Company are referred to together as the "Insurance Company").
The Insurance Company is authorized to do business in the United States. It is a
wholly owned subsidiary of Autocorp.
The business of the Insurance Company is "captive" in that it sells a
"Lenders Single Interest" policy as loan insurance for each person who finances
the purchase of a vehicle through the Company. CIS also markets its LSI policy
to other lenders.
In order to fund the Insurance Company, CIC advanced a total of
$171,583 to cover capitalization costs of $120,000 and start-up expenses of
$51,583, thereby reducing the
<PAGE>
amount available to purchase loan contracts, for reserves and other uses. Of the
$120,000 capitalization costs, $60,000 was invested in a certificate of deposit
for a letter of credit with United States Fidelity and Guaranty Company ("USF&G"
and $60,000 was placed in a savings account. USF&G provides the insurance
policies and the Company is a re-insurer of USF&G. These capitalization costs
were required to be made by the government of the Cayman Islands as a financial
reserve for the Insurance Company. The total amount of advances made to the
Insurance Company, or on its behalf, is evidenced by an unsecured promissory
note of the Company in the amount of $171,583 carrying interest at 24% per annum
payable on demand.
Management of the Company believes that the potential income from the
sale of insurance is equal to or greater than the income from loan contracts.
Lenders Liquidation Centers, Inc. ("LLC") was originally formed late in
1996 by the principals of CIC as a resale outlet and reconditioning center for
vehicles repossessed by CIC. LLC is to operate in concert with the CIC's loan
insurance program, which is intended to remedy defaulted CIC loans. The concept
of LLC is to have a single reconditioning center in a region that feeds
satellite Company-owned resale lots. CIC's informal marketing study and initial
results of its operations indicated that there is considerable demand for the
re-marketing of its own and other lenders' repossessed vehicles. LLC currently
has a letter of intent with WFS Financial, Inc. ("WFS") to consign its vehicles
in the Phoenix metropolitan area for resale of its recovered autos and trucks.
LLC recently secured a $1,500,000 floorplan line of credit from Automotive
Finance Corporation ("AFC") to use in its lenders re-marketing consignment
program. LLC is presently operating four (4) facilities located in the Maricopa
County, Arizona cities of Mesa, Phoenix, Scottsdale and Glendale, and one (1)
facility in Albuquerque, New Mexico and one (1) facility in Santa Fe, New
Mexico. Expansion into Austin, Texas and Tucson, Arizona is planned for October
1997.
LLC was originally funded by loans from CIC. To date, approximately $1,100,895,
has been advanced to LLC.
(c) Financial Information about Industry Segments
The automobile finance industry was estimated to be in excess of 370
billion in 1996. The market is divided by the types of vehicles sold (new versus
used) and the worthiness of the borrower. Generally banks, savings and loans,
credit unions, large independent finance companies and captive finance companies
such as Ford Motor Credit, GMAC, Chrysler Credit tend to provide financing for
the purchase of new motor vehicles purchased by prime customers.
The sub-prime segment of this overall market is believed to be
approximately $60 billion and is comprised of both private and public companies
providing credit availability to consumers who are higher credit risks and who
have limited access to traditional financing sources. Independent finance
companies tend to provide financing for used vehicles sold through new and used
dealerships at higher interest rates commensurate with the higher risk
associated with the sub-prime consumer.
The sub-prime market has been fueled by the significant increase in the
sale of used motor vehicles. This increase has resulted from a number of factors
including (i) the high price of new cars (ii) the increased availability of
newer late model cars through leasing programs and factory fleet incentive
programs and (iii) the increased availability of financing alternatives provided
by the growth in the number of independent finance companies in the sub-prime
segment of the market.
<PAGE>
(d) Narrative Description of the Business
The Company's current business plan is to (i) expand operations as a
sub-prime lender to purchasers of motor vehicles sold by the Company's own LLC
retail car dealerships (ii) expand the marketing of its Lender's Single Interest
Insurance Policy to other sub-prime finance companies and (iii) expand LLC's
vehicle consignment service to large sub-prime finance companies like WFS. The
Company has opened five Lender's Liquidation Centers in 1997 in Arizona and New
Mexico and plans to add six more facilities throughout Texas, Nevada, Arizona
and New Mexico in 1998. The Company also operates its own full service vehicle
reconditioning centers and engages in the wholesaling of motor vehicles.
It is emphasized that the business objectives discussed herein are
extremely general and are not intended to be restrictive upon the discretion of
management.
The Company will also consider growth through acquisitions and will not
restrict its search for any specific kind of automotive firms, but may acquire a
venture in its preliminary or development stage, may participate in a business
which is already in operation or in a business in various stages of its
corporate existence. It is impossible to predict at this stage the status of any
venture in which the Company may participate because any such venture may need
additional capital, may merely desire to have its shares publicly traded, or may
seek other perceived advantages which the Company may offer. In some instances,
the business endeavors may involve the acquisition or merger with a corporation
which does not need substantial additional cash but which desires to establish a
public trading market for its common stock.
The Company will be subject to certain reporting obligations to the
Securities and Exchange Commission and must submit information about significant
acquisitions including certified financial statements for up to three prior
fiscal years. Thus, it is the intention of management to look for acquisition
candidates which can meet these requirements. The Company is in the process of
filing the required 8-K audited financial information on the CIC Companies.
ITEM 2. OFFICE FACILITIES AND EMPLOYEES
The Company leases a 2,500 sq. ft. executive office space at 2980 E.
Northern Ave Suite B1, Phoenix, Arizona 85028 at a monthly expense of $1,500.
The Company leases five dealership facilities for its LLC operations at a
combined monthly expense of $18,000. The Company has 60 employees.
ITEM 3. PROPERTIES
The Company presently has leaseholds, significant assets in the form of
$2,000,000 of motor vehicle inventory and finance contracts receivable and
working capital.
ITEM 4. LEGAL PROCEEDINGS
Currently there are no material legal or regulatory proceedings to which
the Company is a party and no such proceedings are known by management to be
threatened or contemplated against the Company.
<PAGE>
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 6. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
(a) Market Information
The Company's common stock is traded in the over-the-counter market and is
reported in the NASD Bulletin Board under the symbol "ACOR". The following table
shows, for the periods presented, the high and low closing bid quotations for
the common stock. The quotations represent prices between dealers and do not
include retail markups, markdowns, or commissions and may not reflect actual
transactions.
PERIOD ENDING (QUARTER) BID HIGH BID LOW
Sep. 30, 94 $0.50 $0.50
Dec. 31, 94 $0.10 $0.10
Mar. 30, 95 $0.05 $0.05
June 30, 95 $0.05 $0.05
Sep. 30, 95 $0.05 $0.05
Dec. 31, 95 $0.05 $0.05
Mar. 30, 96 $0.05 $0.05
June 30, 96 $0.12 $0.12
Sep. 30, 96 $0.12 $0.12
Dec. 31, 96 $0.12 $0.12
Mar. 30, 97 $0.12 $0.12
June 30, 97 $1.12 $0.12
(b) Holders
The approximate number of record holders of the Company's common stock as
of June 30, 1997 is 342 and the company estimates that there are approximately
600 beneficial owners.
(c) Dividends
The Company has not paid any cash dividends to date and does not anticipate
or contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
<PAGE>
ITEM 7. SELECTED FINANCIAL DATA
The Company is authorized to issue 110,000,000 shares of its common stock
with a par value of $.001 and 10,000,000 of preferred stock.
ITEM 8. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The Company is a sub-prime automobile lender with retail and wholesale
vehicles sales operations that includes a vehicle consignment service to other
sub-prime companies through its Lenders Liquidation Centers. The following
discussion of the operations and financial condition should be read in
conjunction with the audited financial statements and notes thereto appearing
elsewhere in this Form 10-KSB.
Liquidity and Capital Resources:
For the twelve months ending June 30, 1997, the Company had total assets of
$404,986 and total stockholders equity of $191,391. During the same period the
Company had current assets of $4,986 and current liabilities of $213,595 which
would have otherwise resulted in a substantial lack of liquidity but for the
acquisition of the CIC Companies on July 23, 1997 [see Item 1(b)]. For the
period ending June 30, 1996, the Company had total assets of $400,000 and total
stockholder's equity of $83,407. During the same period the Company had
virtually no current assets and current liabilities of $316,593. Historically
the Company's working capital needs have been satisfied through financing
activities primarily consisting of the sale of shares of the Company's Common
Stock. The Company anticipates meeting its working capital needs during the
current fiscal year primarily with proceeds resulting from a public offering or
the private placement of Company securities.
At June 30, 1997, the Company showed an operating loss of $204,866. The
Company believes that it will require additional funds to continue its plan of
expansion and acquisitions, meeting its reporting obligations under the Exchange
Act and supporting general and administrative overhead. The Company will seek to
borrow such funds and/or raise such funds through the private or public sale of
its Common Stock. No assurances can be given that such financing will be
available or that it can be obtained on terms satisfactory to the Company.
During the next twelve months the Company will stress the opening of
Lenders Liquidation Centers and the acquisition of existing new and/or used
retail automobile dealerships. The Company is currently contemplating
undertaking a new offering of its debt and/or equity securities in order to
achieve its business objectives over the next twelve months. Unless the Company
is able to raise additional capital from borrowing or the sale of corporate debt
and/or equity securities, the Company may encounter a shortage of capital to
accomplish its business objectives.
Results of Operations:
Included herein are audited financial statements of the Company covering
the 12 month period ending June 30, 1997. For the years ended June 30, 1996 and
1997, the Company had net operating loss of ($313,103), and ($204,866)
respectively with no revenues. The Company has short term debts consisting of
past due trade payables and an outstanding judgment.
<PAGE>
ITEM 9. FINANCIAL STATEMENTS
The Independent Auditor's Report and Financial Statements of the Company,
including the notes, are set forth on pages F-1 through F-11 and are hereby
incorporated by reference.
ITEM 10. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No independent accountant has resigned or has been dismissed by the Company
as a result of any disagreements on accounting principles and practices and
financial statement disclosures and nor has the Company received an adverse or
qualified opinion during the past two years. The Company chose to engage the
independent auditing services of Evers & Company, Ltd. for the June 30, 1997
audit.
PART III
ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS
(a) Identification of Directors
The directors of the Company are as follows:
William O. Merritt, 53, Co-Chairman, Director
Andrew J. Kacic, 50, Co-Chairman, Director
Stanley F. Wilson, 49, Director
Vincent W. Bustillo, 37, Director
Dennis W. Miller, 49, Director
E. Wayne Mclaws, 50, Director
Efrain R. Diaz, 42, Director
(b) Identification of Executive Officers
The Executive Officers of the Company are as follows:
William O. Merritt - CEO;
Andrew J. Kacic - President;
Stanley F. Wilson - Secretary;
Vincent W. Bustillo - Treasurer.
<PAGE>
(c) Significant Employees
The Company has the following significant employees: William O. Merritt
- - CEO; Andrew J. Kacic - President; Stanley F. Wilson - Secretary; Vincent W.
Bustillo - Treasurer.
Other than Mr. Kacic, all the directors will work substantially full
time on the Company's business.
(d) Family Relationships
There are no family relationships existing in the Company.
(e) Business Experience
1. Background.
William O. Merritt, 53, is Co-Chairman and Chief Executive Officer of AutoCorp.
Mr. Merritt founded Consumer Leasing Company in 1990 which was one of the first
sub-prime auto leasing companies in the country. In 1995 Mr. Merritt founded
Consumer Investment Corporation with AutoCorp Director Dennis W. Miller. During
this period he co-owned two "buy-here, pay here" lots until he sold his
interests in 1992. Mr. Merritt received a Bachelor of Arts degree in Business
Administration from California State University in Long Beach, California in
1970.
Andrew J. Kacic, age 50, is Co-Chairman of the Board of Directors and President
of Autocorp. Mr. Kacic was from August 1992 to December 1995 the Founder and
President of American Resources of Delaware, Inc. ("ARI"). From January 1995 to
December 1995 Mr. Kacic was CEO and a Director of Bullet Sports International.
Mr. Kacic also served as a Director and Vice President of ARI's wholly owned
subsidiary, Southern Gas. From 1991 to August 1992, Mr. Kacic was President of
Standard Oil and Exploration of Delaware, Inc. Since 1977, Mr. Kacic has been a
principal of A.J. Kacic & Associates, Inc., a Tucson, Arizona investment banking
consulting firm, also known as Advisory Services, Inc. In such capacity, Mr.
Kacic has represented both individuals and corporations in acquiring primary and
secondary financing, along with business restructuring and marketing. From 1980
to March 1988, he founded and served as Chief Executive Officer of Securities
Network, Inc. (Formerly Design Capital Securities Crop.), a Tucson, Arizona
licensed NASD broker-dealer with more than of 120 registered representatives.
From 1988 to 1990, Mr. Kacic was associated with a Tucson, Arizona insurance
firm, and currently holds various insurance licenses. As a direct result of the
stock market crash of 1987, Mr. Kacic filed bankruptcy in July 1990. The
bankruptcy has been discharged and Mr. Kacic is in good standing with the NASD
and all regulatory bodies although he is not currently a licensed securities
registered representative.
Stanley F. Wilson, 49, serves Autocorp as a Director, Secretary and General
Counsel. Mr. Wilson is an attorney and former automotive executive. In his
private law practice he concentrated on the representation of franchised new car
and truck dealers form 1979 to 1988. Mr. Wilson holds a Juris Doctorate degree
from the University of Nebraska (1974); and Bachelor of Arts degree from Arizona
State University (1970). He has also served as Executive Vice President of the
Arizona Automobile Dealers Association (1988-92) and General Counsel to the
Nebraska New Car & Truck Dealers Association (1979-88). Mr. Wilson was President
of the Company from October 1993 to March 28, 1994 when it was known as Eagle
Automotive Enterprises, Inc. and President of the Company from September 1994 to
the acquisition date of the CIC Companies. Mr. Wilson, a former County Court
<PAGE>
Judge for Lancaster County, Nebraska (1983-86), is owner and President of
Optimum Investments, Inc. (1994 to present).
Vincent W. Bustillo, 38, serves Autocorp as its Treasurer and is a Director. He
is a CPA and will oversee all accounting functions of the Company. He received
his Bachelor of Science degree in Accounting from Arizona State University in
1983. He has been a Certified Public Accountant since 1988, and has operated his
own CPA firm since 1990, in Tempe, Arizona. From 1988 to 1990 he was a managing
accountant with De Greete and Company, P.C.. From 1987 to 1988 he was a
self-employed CPA, and from 1983 to 1987 he was with the accounting firm Acosta,
Cordova & Pittman, CPA, P.C. in Phoenix, Arizona. He held an NASD Series 7
securities license as a Registered Representative with Southmark Financial
Services in Dallas, Texas and GRH Securities in Tempe, Arizona from 1987 to
1993.
Dennis Miller, 49, Autocorp Director. His duties will primarily involve general
management and development of CIS. From 1983 to 1990 he was employed by
Primerica Financial Services, Inc., a large financial securities company
involved in the sales of securities and he was responsible for opening,
developing and managing their offices in Arizona, California and New Mexico. At
the time he left, he was a Regional Vice President. Mr. Miller has been in the
automobile business since 1990. From 1990 to 1991 he operated an automobile
detail shop and operator of a car lot and vehicle financing. In 1991 he became a
partner of William O. Merritt in the automobile sales and financing business.
During the same period, he was a loan broker for Western Funding, Inc., a
company engaged in the financing business. In November 1993, he became a 50%
shareholder and secretary/treasurer of companies which are affiliates or
predecessors of CIC.
Efrain R. Diaz, 42, Autocorp Director. Mr. Diaz attended Arizona State
University and has been licensed since 1983 with the NASD as a Registered
Representative. Mr. Diaz served as a Regional Vice President for Primerica from
1985 to 1992 and still maintains his registered representative status with
Primerica. From 1991 to 1992 he was a sales representative for Farm Bureau
Insurance Co., in Phoenix, Arizona, and from June 1991 to September 1995 was
Food and Beverage Director of the Quality Inn - South Mountain, in Phoenix,
Arizona.
E. Wayne McLaws, 50, serves Autocorp as a Vice President - Financial Resources
and as a Director. Since 1990, he has been President of National Financial
Trust, a company engaged in estate planning, located in Phoenix, Arizona. From
1985 to 1989, he was a Senior Vice President of Primerica Services, Inc., in
Duluth, Georgia. Prior to that he was employed by the Phoenix Police Department
as a police information officer responsible for liaison with the community and
for developing programs such as "Blockwatch", crime prevention, executive
protection and anti-terrorism.
2. Directorships. William O. Merritt, CEO of the Company, is a director
of CIC Fund V, Inc.; Andrew J. Kacic, President of the Company, is a director of
A.J. Kacic & Associates, Inc.; Stanley F. Wilson, Secretary of the Company, is a
director of Optimum Investments, Inc.; Dennis W. Miller is a director of CIC
Fund V, Inc.
(f) Involvement in Certain Legal Proceedings
Not applicable
(g) Compliance with Section 16(a) of the Exchange Act
Not applicable.
<PAGE>
ITEM 12. EXECUTIVE COMPENSATION
(a) Cash Compensation
All officers of the Company are salaried with a base compensation of
$60,000. Mr. Wilson accrued a salary in 1995 and 1996 of $7,500 a month.
(b) Compensation Pursuant to Plans
The Company adopted a Non-Statutory Stock Option Plan on March 20, 1997 and
registered 2,000,000 shares pursuant to said Plan by means of a Form S-8 Filing
on April 18, 1997.
(c) Other Compensation
William Merritt is the holder of stock options on 550,000 shares at the
option price of $.56 per share granted pursuant to an Amended and Restated
Stock Option Agreement of July 23, 1997.
There is no other compensation paid to executive officers.
(d) Compensation of Directors
None.
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth information with respect to the beneficial
ownership of the Company's Shares as of September 30, 1997, for (i) all persons
known by the Company to be the beneficial owners of more than 5% of the common
stock of the Company (ii) each director of the Company.
Beneficially
Name Owned Percent
---- ----- -------
Vincent W. Bustillo 735,500 15.5%
Efrain R. Diaz 735,500 15.5%
E. Wayne McLaws 735,500 15.5%
William O. Merritt 735,500 15.5%
Dennis W. Miller 735,500 15.5%
Stanley F. Wilson 728,500 15.3%
CIC Fund V, Inc(1) 300,000 6.3%
(1) CIC Fund V, Inc. is owned by William O. Merritt and Dennis W. Miller
<PAGE>
(b) Change in Control
On July 23, 1997, the Company completed a share exchange agreement whereby
the shareholders of Consumer Investment Corporation, Consumer Insurance
Services, Inc. and Lenders Liquidation Centers, Inc. (the "CIC Companies")
received 3,600,000 shares of the Company's common stock in exchange for 100% of
the issued and outstanding shares of the CIC Companies.
ITEM 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements examined and reported upon by Evers & Company, Ltd,
Independent Certified Public Accountants, containing Balance Sheets at June 30,
1997 and Statements of Operations, Shareholder's Equity and Cash Flows for the
that period.
2. 8-K - August 7, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the city of Phoenix,
Arizona, on the 13th day of October, 1997.
AUTOCORP EQUITIES, INC.
Dated: October 13, 1997 By /s/ Stanley F. Wilson
-------------------------
Stanley F. Wilson
Secretary
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
AutoCorp Equities, Inc.:
We have audited the accompanying balance sheet of AutoCorp Equities, Inc. ( a
development stage company) as of June 30, 1997 and the related statements of
operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AutoCorp Equities, Inc. as of
June 30, 1997 and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
As described in Note 12 to the financial statements, the Company acquired 100%
of the outstanding stock of Consumer Investment Corporation, Consumer Insurance
Services, Inc. and Lenders Liquidation Centers, Inc., which resulted in the
shareholders of the acquired companies owning the majority of the stock of
AutoCorp Equities, Inc.. The transaction is expected to be accounted for as a
reverse acquisition. As such, the historical operations of AutoCorp Equities,
Inc. will no longer be presented as a going concern and the operations of the
acquired companies will be presented.
Evers & Company, Ltd.
October 3, 1997
Phoenix, Arizona
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
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<S> <C> <C>
Current Assets:
Cash $ 42 --
Advances to officer 4,944 --
----------- -----------
Total current assets 4,986 --
----------- -----------
Prepaid advertising 400,000 400,000
----------- -----------
$ 404,986 400,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, related party $ -- 107,442
Accounts payable 31,088 31,552
Judgment and accrued interest payable 182,507 177,599
----------- -----------
Total current liabilities 213,595 316,593
----------- -----------
Commitments, contingencies and subsequent events (see notes)
Shareholders' equity:
Preferred stock, par value $.001; 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, par value $.001; 110,000,000 shares
authorized, 702,198 and 156,532 shares issued
and outstanding in 1997 and 1996, respectively 686 156
Additional paid-in-capital 9,173,113 8,931,793
Deficit accumulated during the development stage (8,401,408) (8,196,542)
Less treasury stock (569,000) --
Stock subscription receivable (12,000) (652,000)
----------- -----------
191,391 83,407
----------- -----------
$ 404,986 400,000
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Statements of Operations
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Development
Stage
1997 1996 (Cumulative)
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $ -- -- 78,365
General and administrative expenses 187,172 138,749 969,565
---------- ---------- ----------
Net loss from operations (187,172) (138,749) (891,200)
Other income (expense)
Costs of abandoned business combination agreements (20,750) -- (20,750)
Miscellaneous 7,964 -- 7,964
Interest expense (4,908) -- (4,908)
---------- ---------- ----------
(17,694) -- (17,694)
---------- ---------- ----------
Net loss before discontinued operations (204,866) (138,749) (908,894)
---------- ---------- ----------
Discontinued operations -- (174,354) (7,664,068)
---------- ---------- ----------
Net loss before income taxes (204,866) (313,103) (8,572,962)
Provision for income taxes -- -- --
---------- ---------- ----------
Net loss $ (204,866) (313,103) (8,572,962)
========== ========== ==========
Net loss per share $ (0.71) (2.00) (48.14)
========== ========== ==========
Weighted average number of shares outstanding 287,858 156,532 178,083
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AUTOCORP EQUITIES, INC.
Statements of Changes in Shareholders' Equity
(A Development Stage Company)
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------ Paid-In Subscriptions Treasury Accumulated
Shares Amount Capital Receivable Stock Deficit Total
---------- -------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 2,992,913 $ 2,993 6,895,884 -- (2,826,145) 171,554 4,244,286
Adjustment for stock split (2,893,149) (2,893) 2,893 -- -- -- --
---------- -------- ---------- --------- ---------- ---------- ----------
Balance at June 30, 1993, as adjusted
for split 99,764 100 6,898,777 -- (2,826,145) 171,554 4,244,286
Shares issued for cash 4,445 4 239,996 -- -- -- 240,000
Shares issued for consulting 3,458 3 174,388 -- -- -- 174,391
Shares issued for cash and note receivable 1,859 2 59,998 -- -- -- 60,000
Shares issued for licensing agreement 4,975 5 559,723 -- -- -- 559,728
Shares issued for note receivable 15,220 15 651,985 (652,000) -- -- --
Settlement with subsidiaries -- -- -- -- 2,826,145 -- 2,826,145
Net loss for the year ended June 30, 1994 -- -- -- -- -- (6,910,305) (6,910,305)
---------- -------- ---------- --------- ---------- ---------- ----------
Balance at June 30, 1994 129,721 129 8,584,867 (652,000) -- (6,738,751) 1,194,245
Shares issued to Diamond Entertainment
for expenses 25,000 25 326,038 -- -- -- 326,063
Exercise of options 6,667 7 19,883 -- -- -- 19,890
Shares issued for cash, exercise of options 6,667 7 993 -- -- -- 1,000
Canceled and returned shares (11,523) (12) 12 -- -- -- --
Net loss for the year ended June 30, 1995 -- -- -- -- -- (1,144,688) (1,144,688)
---------- -------- ---------- --------- ---------- ---------- ----------
Balance at June 30, 1995 156,532 156 8,931,793 (652,000) -- (7,883,439) 396,510
</TABLE>
See accompanying notes to financial statements
<PAGE>
AUTOCORP EQUITIES, INC.
Statements of Changes in Shareholders' Equity
(A Development Stage Company)
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------ Paid-In Subscriptions Treasury Accumulated
Shares Amount Capital Receivable Stock Deficit Total
-------- -------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 156,532 156 8,931,793 (652,000) -- (7,883,439) 396,510
Net loss for the year ended June 30, 1996 -- -- -- -- -- (313,103) (313,103)
-------- -------- ---------- --------- -------- ---------- --------
Balance at June 30, 1996 156,532 156 8,931,793 (652,000) -- (8,196,542) 83,407
Cancellation of stock (16,270) (16) 16 -- -- -- --
Issuance of stock for cash and subscription 130,666 131 81,869 (12,000) -- -- 70,000
Issuance of stock to officer for reduction
in advances 405,000 405 149,445 -- -- -- 149,850
Issuance of stock for services 10,000 10 9,990 -- -- -- 10,000
Cancellation of stock subscription -- -- -- 652,000 (569,000) -- 83,000
Net loss for the year ended June 30, 1997 -- -- -- -- -- (204,866) (204,866)
-------- -------- ---------- --------- -------- ---------- --------
Balance at June 30, 1997 685,928 $ 686 9,173,113 (12,000) (569,000) (8,401,408) 191,391
======== ======== ========== ========= ======== ========== ========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Development
Stage
1997 1996 (Cumulative)
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (204,866) (313,103) (8,572,962)
Adjustments to reconcile net loss to net
cash used in operating activities:
Assets written off and discontinued operations -- -- 5,494,475
License written off -- -- 658,319
Amortization of prepaid expenses -- -- 356,002
Salary accrual to officer 90,000 -- 90,000
Stock issued for services 10,000 -- 1,070,182
Compensation related to canceled stock subscription 83,000 -- 83,000
Decrease in barter credits -- 94,606 --
Increase (decrease) in advances to officer (52,536) 107,442 54,906
Increase in prepaid expenses -- -- (3,000)
Increase in receivables -- -- (139,400)
Decrease in deposits and other assets -- -- 182,680
Increase in judgments payable 4,908 177,599 182,507
Decrease in accounts payable (464) (66,544) 19,815
---------- ---------- ----------
Net cash used in operating activities (69,958) -- (523,476)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock 70,000 -- 370,890
---------- ---------- ----------
Net increase (decrease) in cash 42 -- (152,586)
Cash, beginning of year -- -- 152,628
---------- ---------- ----------
Cash, end of year $ 42 -- 42
========== ========== ==========
Supplementary Disclosure of Noncash Financing and Investing Activities
- ----------------------------------------------------------------------
During 1997, the Company's president acquired 405,000 shares of common stock for a reduction in his note payable
of $149,850
</TABLE>
See accompanying notes to financial statements
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1997 and 1996
1. Summary of significant accounting policies
------------------------------------------
a. Basis of presentation
---------------------
The following is a summary of significant accounting policies followed
by AutoCorp Equities, Inc. (the Company). The policies conform
with generally accepted accounting principles and require
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses as
well as disclosures of contingent assets and liabilities in the
financial statements. Actual results could differ from those
estimates.
b. Operations
----------
The Company has been in the development stage since July 1, 1993 and
has been concentrating substantially all of its efforts in raising
capital in order to generate significant operations.
c. Income taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and
their respective tax bases, including operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect in deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
d. Net Loss Per Share
------------------
Net loss per share is computed based upon the weighted average number
of shares outstanding during the period, which was assumed to be
287,858 and 156,532 for the years ended June 30, 1997 and 1996,
respectively and 178,083 during the development stage.
2. Organization and operations
---------------------------
The Company was incorporated in Colorado on January 2, 1986 under the name
Vivatae, Inc. and completed its initial public offering in May, 1986.
In November, 1986, the Company acquired all of the outstanding stock of
Eagle Entertainment, Inc. and changed its name to Eagle Entertainment,
Inc. (EEI). Through its subsidiaries, EEI provided performance
guarantees for motion picture productions.
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1997 and 1996
2. Organization and operations, continued
--------------------------------------
In September, 1990, the Company divested its subsidiaries and acquired
Arizona based corporations engaged in retailing and financing of motor
vehicles.
On January 3, 1992, the Company changed its name to Eagle Holdings, Inc.
On October 20, 1993, the Company formed a Nevada Corporation named
Eagle Automotive Enterprises, Inc. Eagle Holdings, Inc. was then merged
into Eagle Automotive Enterprises, Inc., a shell corporation without
any substantial assets or equity.
On March 28, 1994, the Company divested its automotive subsidiaries and
acquired Diamond Entertainment II, Inc., a Utah /corporation licensed
by the Samuel Goldwyn Company to produce live productions of "American
Gladiators" On April 6, 1994, the Company changed its name to Chariot
Entertainment, Inc.
On December 31, 1994, the Goldwyn Licensing Agreement expired and the
Company divested its subsidiaries to seek business combination
candidates as it re-entered the business development stage.
On September 30, 1996, the Company changed its name to AutoCorp Equities,
Inc.
3. Prepaid advertising
-------------------
Prepaid advertising consists of $800,000 of media due bills which were
exchanged for prepaid rent in 1994. These credits expire on July 20,
2004 and are usable on the American Independent Network. A valuation
allowance of $400,000 has been recorded as an offset to this asset.
4. Notes and advances to/from officer
----------------------------------
Advances to officers are unsecured, non-interest bearing and payable on
demand.
5. Judgment
--------
In October, 1995, a judgment was issued against the Company for $174,354,
plus interest from the date of judgment. Portions of the balance
continue to accrue interest at two different rates of 7% and 10%.
The Company has attempted to negotiate a settlement of the judgment, but
has not yet been successful.
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1997 and 1996
6. Equity transactions
-------------------
During 1997, the Company's board of directors approved a 30 to 1 reverse
stock split. All references in the accompanying financial statements to
the number of common shares and per share amounts have been restated to
reflect the reverse stock split.
During 1997, the Company agreed to cancel certain outstanding stock
subscription agreements in exchange for return of the stock. The
Company has received 13,285 shares of stock which are being held in
escrow by the Company's attorney. The Company is to receive all
proceeds from the sale of the shares as settlement for cancellation of
the subscriptions. Since the Company agreed to accept 13,285 of the
15,222 shares subscribed, an expense of $83,000 has been charged to
earnings.
7. Income taxes
------------
The Company has incurred net losses of over $8,000,000 during the last
four fiscal years. The Company has not filed tax returns during that
period and therefore has not determined the amount of those losses
which may be used to offset future taxable income. The Company plans
to file all tax returns that are due. In addition, the Company's
ability to use those losses may be substantially limited, due to
changes in ownership in July, 1997.
Any tax benefit from the loss carryforwards at June 30, 1997 would be
totally offset by a valuation allowance, since the Company has not yet
developed a history of profitable operations.
8. Related party transactions
--------------------------
During 1997, the Company's president acquired 405,000 shares of common
stock in exchange for his accrued compensation of $90,000 and a
reduction in amounts due him of $59,850. The Company also repaid loans
from the officer of $66,050 and received advances of $13,514 from him.
9. Stock Option Plan
-----------------
On March 20, 1997, the Board of Directors adopted the 1997 Non-Statutory
Stock Option Plan. Under the plan, the Board may grant options to
officers, key employees, directors and consultants. Stock options may
be granted at not less than 20% of the fair market value of the stock
on the date the option is granted. The plan shall expire on March 20,
2007, except that stock options then outstanding shall remain in effect
until they have expired or been exercised. The maximum term of the
options cannot exceed ten years. A total of 2,000,000 shares have been
reserved for issuance under the plan. During the year ended June 30,
1997, options for 310,000 shares were granted and exercised at fair
market value.
<PAGE>
AUTOCORP EQUITIES, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1997 and 1996
10. Disclosures about fair value of financial instruments
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company
disclose estimated fair values for its financial instruments. The
following summary presents a description of the methodologies and
assumptions used to determine such amounts.
Fairvalue estimates are made at a specific point in time and are based on
relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with
precision. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular instrument. Changes in assumptions could
significantly affect the estimates.
Since the fair value is estimated as of June 30, 1997, the amounts that
will actually be realized or paid at settlement of the instruments
could be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the fair
value because of the liquidity of these instruments. The recorded
amount of prepaid expenses approximates market based upon estimates of
trading values. Accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments.
11. Cancellation of business combination agreements
-----------------------------------------------
During 1997, the Company entered into business combination agreements with
Designer Wear, Inc., EEE Holdings, Inc. and Northstar Partners, LTD
which were subsequently rescinded. Expenditures of $20,750, including
advances, related to the proposed combinations have been reflected as a
separate component of the net loss.
12. Subsequent events
-----------------
In July, 1997, the Company acquired 100% of the outstanding stock of
Consumer Investment Corporation, Consumer Insurance Services, Inc. and
Lenders Liquidation Centers, Inc. in exchange for 3,677,500 shares of
common stock to the shareholders of the acquiring companies and 300,000
shares to CIC Fund V. The Company's former president also received
303,500 shares in conjunction with this transaction. This transaction
resulted in the shareholders of the acquired companies owning the
majority of the outstanding stock of AutoCorp..
The acquired companies are engaged in the sales, financing and insurance of
used cars. The Company expects to account for the business combination
as a reverse acquisition.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 404,986
<CURRENT-LIABILITIES> 213,595
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 404,986
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 187,172
<OTHER-EXPENSES> 171,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (204,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (204,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,866)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
