UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 19, 1999
ENTRADE INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-15303 52-2153008
--------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 Central Avenue, Northfield, Illinois 60093
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
N/A
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
On October 19, 1999, Entrade Inc. ("Entrade" or the "Registrant")
completed its acquisition of all of the outstanding capital stock of Public
Liquidation Systems, Inc. and Asset Liquidation Group, Inc., which engage in
business under the name Nationwide Auction Systems (collectively, "Nationwide"),
pursuant to a Stock Purchase Agreement dated as of October 15, 1999 among
Entrade, Nationwide and the stockholders of Nationwide.
The Registrant is filing this amendment to its Form 8-K Current Report,
which was filed initially with the Securities and Exchange Commission on October
28, 1999, for the purpose of reporting under this Item 7: (i) the historical
financial statements of the acquired business; and (ii) the pro forma financial
information.
(a) Historical financial statements of the acquired business.
(b) Pro form financial information.
(c) Exhibits: The following exhibits were filed with the initial filing
on Form 8-K on October 28, 1999:
Exhibit No. Exhibit Description
----------- -------------------
2.1 Stock Purchase Agreement dated as of October
15, 1999 among Entrade Inc., Don Haidl,
Corey P. Schlossmann, Peggy Haidl, as
trustee of the Capital Direct 1999 Trust and
the Core Capital IV Trust, Public
Liquidation Systems, Inc. and Asset
Liquidation Group, Inc. and the Closing
Letter dated as of October 15, 1999 among
all parties to the Stock Purchase Agreement,
without schedules and other exhibits.
Entrade agrees to furnish supplementally
copies of these schedules and other exhibits
omitted to the Commission upon request.
10.1 Promissory Note dated as of October 15, 1999
from Entrade to Don Haidl, in the principal
amount of $4,320,000.
10.2 Promissory Note dated as of October 15, 1999
from Entrade to Corey P. Schlossmann, in the
principal amount of $480,000.
10.3 Promissory Note dated as of October 15, 1999
from Entrade to Don Haidl, in the principal
amount of $12,600,000.
10.4 Promissory Note dated as of October 15, 1999
from Entrade to Corey P. Schlossmann, in the
principal amount of $1,400,000.
10.5 Employment Agreement dated as of October 15,
1999 between Entrade and Corey P.
Schlossmann.
10.6 Stock Option Agreement dated as of October
15, 1999 between Entrade Inc. and Corey P.
Schlossmann.
10.7 Stock Restriction and Registration Rights
Agreement dated as of October 15, 1999
between Entrade Inc. and the Sellers.
The following exhibit is being filed with this report on Form 8-K/A:
23.1 Accountants Consent
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ENTRADE INC.
By: /s/ John G. Hamm
----------------------------
John G. Hamm
Vice President, Treasurer
and Chief Financial Officer
Date: December 2, 1999
<PAGE>
Item 7. (a) Financial Statements of Business Acquired
INDEX TO COMBINED FINANCIAL STATEMENTS
NATIONWIDE AUCTION SYSTEMS
Page
----
Independent Auditors Report ..............................................F-2
Combined Balance Sheets as of
December 31, 1998 and December 31, 1997..........................F-3
Combined Statements of Earnings and Retained Earnings
for each of the three years in the period
ended December 31, 1998..........................................F-4
Combined Statements of Cash Flows
for each of the three years in the period
ended December 31, 1998..........................................F-5
Notes to Combined Financial Statements....................................F-6
Condensed Combined Balance Sheet
as of September 30, 1999 (Unaudited).............................F-12
Condensed Combined Statements of Earnings
for periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...................................F-13
Condensed Combined Statements of Cash flows
for the periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...................................F-14
Notes to Condensed Combined Financial Statements .........................F-15
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Nationwide Auction Systems:
We have audited the accompanying combined balance sheets of Nationwide Auction
Systems (the Company - see note 1(a)) as of December 31, 1998 and 1997 and the
related combined statements of earnings and retained earnings and cash flows for
each of the years in the three year period ended December 31, 1998. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Auction
Systems as of December 31, 1998 and 1997 and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1998 in conformity with generally accepted accounting principles.
March 5, 1999
F-2
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31
-----------------------
Assets 1998 1997
---------- ----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 986,000 1,773,000
Accounts receivable 594,000 392,000
Due from affiliates (note 2) -- 2,000
Inventories 24,000 33,000
Prepaid expenses 17,000 46,000
---------- ----------
Total current assets 1,621,000 2,246,000
---------- ----------
Property and equipment, at cost (notes 3, 4 and 5):
Land 2,021,000 --
Land improvements 754,000 --
Building 295,000 --
Leasehold interest 726,000 --
Office furniture and equipment 212,000 196,000
Leasehold improvements 1,028,000 171,000
Transportation equipment 188,000 209,000
---------- ----------
5,224,000 576,000
Less accumulated depreciation and amortization 315,000 254,000
---------- ----------
Net property and equipment 4,909,000 322,000
---------- ----------
Deposits 70,000 15,000
---------- ----------
$6,600,000 2,583,000
========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Bank lines of credit (note 4) $ 929,000 --
Current installments of long-term debt (note 5) 124,000 78,000
Accounts payable 1,197,000 1,301,000
Accrued expenses 439,000 131,000
Income taxes payable 10,000 12,000
---------- ----------
Total current liabilities 2,699,000 1,522,000
Long-term debt, excluding current installments (note 5) 2,631,000 20,000
---------- ----------
Total liabilities 5,330,000 1,542,000
---------- ----------
Stockholder's equity:
Common stock, no par value
Authorized 5,000 shares; issued
and outstanding 2,600 shares 150,000 150,000
Retained earnings 1,120,000 891,000
---------- ----------
Total stockholder's equity 1,270,000 1,041,000
Commitments and contingencies (notes 6 and 11)
---------- ----------
$6,600,000 2,583,000
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Earnings and Retained Earnings
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues (note 2) $ 19,624,000 11,604,000 10,017,000
Cost of sales 10,671,000 4,224,000 3,561,000
------------ ------------ ------------
Gross profit 8,953,000 7,380,000 6,456,000
Operating expenses 6,507,000 5,100,000 4,816,000
------------ ------------ ------------
Earnings from operations 2,446,000 2,280,000 1,640,000
Interest income (136,000) (152,000) (139,000)
Interest expense 94,000 21,000 58,000
Other expenses, net (note 7) 3,000 384,000 894,000
------------ ------------ ------------
Earnings before income taxes 2,485,000 2,027,000 827,000
State income taxes, all current 39,000 30,000 19,000
------------ ------------ ------------
Net earnings 2,446,000 1,997,000 808,000
Retained earnings at beginning of year 891,000 1,135,000 658,000
Distributions to stockholder (2,217,000) (2,241,000) (331,000)
------------ ------------ ------------
Retained earnings at end of year $ 1,120,000 891,000 1,135,000
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 2,446,000 1,997,000 808,000
----------- ----------- -----------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 79,000 64,000 56,000
Loss on disposal of equipment 9,000 -- --
Loss on sale of limited partnership interest -- -- 380,000
Loss on sale of note receivable -- 399,000 390,000
Loss on disposal of investment in athletic club -- -- 150,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (202,000) (226,000) (2,000)
Stockholder advances -- 450,000 (51,000)
Income tax refund -- -- 199,000
Due from affiliates 2,000 140,000 --
Inventories 9,000 145,000 (25,000)
Prepaid expenses 29,000 (15,000) (11,000)
Deposits (55,000) 110,000 21,000
Increase (decrease) in:
Accounts payable and accrued expenses 204,000 (1,762,000) 1,385,000
Due to affiliates -- -- 148,000
Income taxes payable (2,000) 7,000 2,000
----------- ----------- -----------
Total adjustments 73,000 (688,000) 2,642,000
----------- ----------- -----------
Net cash provided by operating activities 2,519,000 1,309,000 3,450,000
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (4,711,000) (115,000) (666,000)
Investment in athletic club -- -- (150,000)
Proceeds from the sale of property and equipment 36,000 9,000 24,000
----------- ----------- -----------
Net cash used in investing activities (4,675,000) (106,000) (792,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable 2,735,000 -- --
Proceeds from line of credit 929,000 -- --
Repayments of notes payable to bank -- -- (675,000)
Proceeds from issuance of long-term debt -- -- 119,000
Principal payments of long-term debt (78,000) (77,000) (20,000)
Distributions to stockholder (2,217,000) (1,707,000) (331,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,369,000 (1,784,000) (907,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (787,000) (581,000) 1,751,000
Cash and cash equivalents at beginning of year 1,773,000 2,354,000 603,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 986,000 1,773,000 2,354,000
=========== =========== ===========
Supplemental schedule of noncash distributions:
Distribution of real estate to stockholder $ -- (588,000) --
Transfer of real estate related debt to stockholder -- 54,000 --
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Principles
(a) Background
Asset Liquidation Group, Inc. and Public Liquidation Systems, Inc.
dba Nationwide Auction Systems (the Company) were incorporated in
the state of Nevada on September 21, 1988 and September 26, 1990,
respectively. The Company's principal line of business is the
public auction of vehicles, machinery, equipment, jewelry and
other personal property on a consignment basis. Auctions are
primarily held at the Company's sites, but are also held at
various locations throughout the United States.
The entities are owned and controlled by common ownership.
Certain advances to affiliates previously presented as receivables
have been accounted for as distributions to the owner in the
accompanying 1998 financial statements.
Additionally, impairment losses previously recorded in 1997 have
been restated and recorded in 1996. This has resulted in an
increase in other expenses in 1996 and a decrease in other
expenses in 1997.
(b) Revenue
Consigned goods are sold at public auctions to the highest bidder
on an "as-is, where-is" basis. Gross auction proceeds represent
the successful bid price of the merchandise sold. The successful
bidder is required to pay a minimum 25% deposit on the day of the
auction. The balance must be paid by the end of the next business
day, otherwise the deposit is forfeited and the merchandise is
reauctioned. The Company remits to the consignor the gross auction
proceeds less its consignment fee and any direct costs incurred by
the Company which are to be borne by the consignor. Gross proceeds
for 1998, 1997 and 1996 totaled $75,110,000, $66,564,000 and
$56,428,000, respectively.
The buyer is generally required to pay a buyer's premium,
typically a fixed percentage of the successful bid price and a
processing fee. The Company's consignment fee, the buyer's premium
and the processing fees are recorded as revenues upon payment by
the buyer.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with original maturities of three
months or less to be cash equivalents.
(d) Inventories
Inventories, consisting of various merchandise, are stated at the
lower of cost (specific-identification method) or estimated
realizable value. Inventories are acquired through direct
purchases of auctionable merchandise.
F-6
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(e) Asset Impairment
The Company reviews the carrying value of the Company's long-lived
assets if facts and circumstances suggest that it may be impaired.
If this review indicates that the long-lived assets will not be
recoverable, as determined by an undiscounted cash flow analysis
over the remaining amortization period, the carrying value of the
Company's long-lived assets would be reduced to its estimated fair
market value.
(f) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from these estimates.
(g) Depreciation and Amortization
Depreciation of property and equipment is computed using the
straight-line method and accelerated methods over the estimated
useful lives of the related assets ranging from four to five
years. Land improvements and the building are depreciated on a
straight-line basis over the estimated useful lives of 20 to 40
years. Leasehold improvements are amortized on a straight-line
basis over their estimated economic useful life or the life of the
lease, whichever is less.
(h) Income Taxes
The Company has elected to be treated as an S Corporation for
Federal and California state income tax purposes. Under this
election, the stockholder of the corporation is personally liable
for Federal and state income taxes and the Company is liable for a
minimum California state excise tax of 1.5% of taxable income.
Accordingly, the accompanying combined financial statements
contain only a provision for the minimum excise tax.
(i) Comprehensive Income
Effective January 1, 1998, the Company adopted Financial
Accounting Standards Board Statement No. 130 (SFAS No. 130),
Reporting Comprehensive Income. SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. Comprehensive income of the Company is the
same as net income; accordingly, the adoption of SFAS No. 130 did
not affect the Company's financial reporting.
F-7
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(j) Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair
value as of December 31, 1998 and 1997. The carrying amounts
related to cash and cash equivalents, accounts receivable, due
from affiliates and all current liabilities approximate fair value
due to the relatively short maturity of such instruments. The fair
value of long-term debt is estimated by discounting the future
cash flows of each instrument at rates currently available to the
Company for similar debt instruments of comparable maturities by
the Company's banker.
(k) Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No.131 establishes a standard for the way
public business enterprises are to report selected information
about operating segments. The determination of an entity's
operating segments is based upon a management approach, including
the way management organizes the segment within the enterprise for
making operating decisions and assessing performance. Management
currently reviews financial data at the highest level, the
conducting of public auctions. Therefore, under the management
approach of SFAS No. 131, there is only one operating segment.
Accordingly, SFAS No. 131 did not have a material impact on the
combined financial statements.
(2) Related Party Transactions
Gross auction proceeds from the sale of consigned goods on behalf of an
affiliated company aggregated $3,445,000, $470,000 and $711,000 from
which the Company earned commissions, buyers' premiums and fees
aggregating $536,000, $70,000 and $54,000 for 1998, 1997 and 1996,
respectively. The Company has net amounts due from affiliated companies
which are related to the Company by virtue of common ownership. Net
amounts due from these affiliated companies were $0 and $2,000 at
December 31, 1998 and 1997, respectively.
The Company leases one of its office and yard facilities from an informal
partnership in which a partner is also the stockholder of the Company.
See note 6.
(3) Leasehold Interest
Property and equipment includes a leasehold interest valued at $726,000,
the cash consideration paid, representing the Company's right to use
certain land, land improvements and a building through May 8, 2031.
(4) Bank Credit Lines
The Company has two lines of credit with two different banks for total
available borrowings of $3,500,000. The Company's first credit line of
$1,000,000 at December 31, 1997 was reduced to $500,000 as of December
31, 1998. Borrowings under this agreement require monthly interest
payments at the bank's prime rate. As of December 31, 1998, no amounts
are outstanding under this line of credit. The second line of credit was
entered into in 1998 and provides for maximum borrowings of $3,000,000.
Borrowings of $929,000 are outstanding as of December 31, 1998 and
require monthly interest payments at the bank's prime rate plus 1%. The
F-8
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
second credit line includes financial covenants with which the Company is
in compliance with as of December 31, 1998. No amounts were outstanding
under either line at December 31, 1997. The first credit line expires on
June 30, 1999, and the second credit line expires on December 8, 2000.
Both credit lines are secured by the assets of the Company and have been
personally guaranteed by the stockholder of the Company.
(5) Long-Term Debt
Long-term debt is summarized as follows:
1998 1997
---------- ----------
Note payable, due August 28, 1999,
with interest at 10.25% per annum,
secured by property and equipment,
principal and interest payable
monthly in equal installments of $2,563 $ 20,000 47,000
Note payable, due January 1, 2009,
with interest at 8%
secured by real estate 2,222,000 --
Note payable, due January 1, 2004,
with interest at 8.25%,
secured by real estate 513,000 --
Note payable, repaid February 7, 1998 -- 51,000
---------- ----------
2,755,000 98,000
Less current installments 124,000 78,000
---------- ----------
$2,631,000 20,000
========== ==========
The Company obtained approximately $2,735,000 in notes payable in order
to purchase real estate in 1998. The Company has moved its auction
facilities to the newly purchased real estate and has vacated its leased
auction facilities in Northern California. All long-term debt has also
been personally guaranteed by the stockholder of the Company.
Total principal repayments under all long-term debt agreements are
summarized as follows:
1999 $ 124,000
2000 124,000
2001 135,000
2002 147,000
2003 159,000
Thereafter 2,066,000
----------
$ 2,755,000
==========
F-9
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(6) Commitments
The Company leases certain equipment and facilities under noncancelable
operating leases. Future minimum rental payments required under such
operating leases are summarized as follows as of December 31, 1998:
Year ending December 31:
1999 $ 521,000
2000 469,000
2001 379,000
2002 306,000
2003 252,000
Thereafter 420,000
----------
$ 2,347,000
==========
The Company leases one of its office and yard facilities from an informal
partnership in which a partner is the stockholder of the Company. Rental
payments aggregating $257,000, $249,000 and $249,000 were made by the
Company to this partnership for 1998, 1997 and 1996, respectively. Future
lease commitments under this agreement and included in the table above
approximate $1,700,000.
Total rent and related expenses for 1998, 1997 and 1996, including
related party rents, aggregated $652,000, $627,000 and $461,000,
respectively.
(7) Investments
In December 1993, the Company purchased through an affiliate Company, by
virtue of its common ownership, a 50% interest in a limited partnership.
The partnership owns a note secured by a commercial office building and
land in downtown Los Angeles. The cost of the Company's interest was
$400,000. During the year ended December 31, 1996, the Company determined
the value of the investment to be impaired and accepted a $20,000 note
receivable as payment for a 25% interest in the limited partnership. A
loss of $380,000 is included in other expenses (income) in the combined
statement of earnings and retained earnings for 1996.
During 1996, the Company invested $150,000 with a group of individuals to
pursue a business venture to operate an athletic club. The group was
unable to accomplish its objective and the investment was determined to
be impaired. A loss of $150,000 is included in other expenses (income) in
the combined statement of earnings and retained earnings for 1996.
F-10
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(8) Sale of Note Receivable
In December 1994, the Company accepted a note receivable for $470,000
which was secured by a deed of trust on approximately 131 acres of vacant
land in Douglas County, Nevada. The due date of the note was originally
January 2, 1996; however, the borrower has not made any payments. Due to
the borrower's lack of performance, the Company sold the original note
for $80,000 to an unrelated third party. A loss of $390,000 is included
in other expenses (income) in the combined statement of earnings and
retained earnings for 1996.
During 1997, the Company sold certain nonperforming notes receivable from
companies which are affiliated by their common ownership by the
shareholder of the Company to an unrelated party resulting in a net loss
of $399,000 which is included in other expenses (income) in the combined
statement of earnings and retained earnings for 1997.
(9) Profit Sharing Plan
The Company has a qualified, noncontributory profit sharing plan in
effect for certain eligible employees. The plan provides for
contributions by the Company in such amounts as the Board of Directors
may annually determine. There were no contributions made to the plan for
1998, 1997 and 1996.
(10) Stockholder's Equity
During 1997, real estate with a net book value of $585,000 was
distributed to the stockholder. Also during 1997, real estate related
debt of $54,000 was transferred to the stockholder.
(11) Contingencies
The Company is subject to legal proceedings and claims, which arise, in
the ordinary course of business. In the opinion of management, any
ultimate liability with respect to these actions will not materially
affect the financial statements of the Company taken as a whole.
F-11
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED BALANCE SHEET
as of September 30, 1999
(Unaudited in thousands, except share data)
ASSETS
Current assets:
Cash and equivalents $ 811
Accounts receivable 604
Due from stockholder 339
Other 153
------
Total current assets 1,907
Proprerty, plant and equipment, net 6,531
Other 87
------
$8,525
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable $1,229
Current maturities of long-term debt 187
Accounts payable 2,809
Accrued expenses 567
------
Total current liabilities 4,792
------
Commitments and contingencies
Long-term debt, less current maturities 3,199
------
Shareholder's equity
Common stock, no par value,
authorized 5,000 shares;
issued and outstanding 2,600 shares 150
Retained earnings 384
------
534
------
------
$8,525
======
The accompanying notes are an integral part of the condensed combined financial
statements.
F-12
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED STATEMENTS OF EARNINGS
(Unaudited in thousands, except per share data)
Nine Months Ended
September 30,
--------------------
1999 1998
-------- --------
Net revenues $ 12,181 $ 13,849
-------- --------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 5,388 8,223
Selling, general and administrative 5,030 3,755
Depreciation and amortization 151 64
-------- --------
10,569 12,042
-------- --------
Operating income 1,612 1,807
-------- --------
Other income (expense):
Interest income (expense), net (184) 71
Other income, net -- 3
-------- --------
(184) 74
-------- --------
Earnings before income taxes 1,428 1,881
Provision for state income taxes, all current (21) (28)
-------- --------
Net earnings $ 1,407 $ 1,853
======== ========
Earnings (loss) per share
applicable to common shares:
Basic and Diluted $ 0.54 $ 0.71
======== ========
Weighted average number of shares
of common stock and
common stock equivalents outstanding
Basic and Diluted 2,600 2,600
======== ========
The accompanying notes are an integral part of the condensed combined financial
statements.
F-13
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Nine Months Ended
September 30,
------------------
1999 1998
------- -------
Net cash flows provided by (used by) operating activities $ 3,370 ($1,098)
------- -------
Cash flows used for investing activities:
Purchases of property, plant and equipment (1,473) (77)
Proceeds from sale of property, plant and equipment -- 45
------- -------
Net cash flows used for investing activities (1,473) (32)
------- -------
Cash flows from financing activities:
Proceeds from notes payable 763 1,717
Proceeds from line of credit 700 --
Prinicipal payments of long-term debt (531) (78)
Distributions to stockholder (3,004) (1,332)
------- -------
Net cash flows provided by (used by) financing activities (2,072) 307
------- -------
Decrease in cash and cash equivalents (175) (823)
Cash and equivalents, beginning of period 986 1,773
------- -------
Cash and equivalents, end of period $ 811 $ 950
======= =======
The accompanying notes are an integral part of the condensed combined financial
statements.
F-14
<PAGE>
NATIONWIDE AUCTION SYSTEMS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. Acquisition by Entrade Inc.
Asset Liquidation Group, Inc. and Public Liquidation Systems, Inc. dba
Nationwide Auction Systems ("Nationwide" or the "Company") were
incorporated in the state of Nevada on September 21, 1988 and September 26,
1990, respectively. The Company's principal line of business is the public
auction of vehicles, machinery, equipment, jewelry and other personal
property on a consignment basis. Auctions are primarily held at the
Companys sites, but are also held at various locations throughout the
United States.
The entities are owned and controlled by common ownership.
On April 19, 1999, ARTRA Group Incorporated ("ARTRA") entered into a letter
of intent to purchase all of the issued and outstanding common stock of the
Company.
As a result of a merger agreement, in September 1999 ARTRA became a
wholly-owned subsidiary of Entrade Inc ("Entrade").
On October 19, 1999, Entrade completed the acquisition of all of the
outstanding capital stock Nationwide for consideration consisting of the
following: (a) an aggregate of 1,570,000 shares of Entrade common stock;
(b) promissory notes (the "Notes") in the aggregate principal amount of
$4,800,000, maturing on November 29, 1999; (c) an aggregate of $6,000,000
cash; and (d) promissory notes (the "Term Notes") in the aggregate
principal amount of $14,000,000, maturing October 1, 2001. The Notes and
the Term Notes bear interest at an annual rate of 8%. Entrade paid the cash
portion of the purchase price with its existing cash assets. Entrade also
issued 80,000 shares of Entrade common stock in payment of fees to its
agent in connection with the closing of the transaction. Entrade intends to
pay the $4,800,000 in promissory notes due 11/29/99 by delivering
approximately 282,000 shares of its common stock.
2. Revenue Recognition
Consigned goods are sold at public auctions to the highest bidder on an
"as-is, where-is" basis. Gross auction proceeds represent the successful
bid price of the merchandise sold. The successful bidder is required to pay
a minimum 25% deposit on the day of the auction. The balance must be paid
by the end of the next business day, otherwise the deposit is forfeited and
the merchandise is reauctioned. The Company remits to the consignor the
gross auction proceeds less its consignment fee and any direct costs
incurred by the Company which are to be borne by the consignor. Gross
proceeds for the nine months ended September 30, 1999 and 1998 totaled
$70,832,000 and $53,850,000, respectively.
The buyer is generally required to pay a buyer's premium, typically a fixed
percentage of the successful bid price and a processing fee. The Company's
consignment fee, the buyer's premium and the processing fees are recorded
as revenues upon payment by the buyer.
3. Related Party Transactions
Gross auction proceeds from the sale of consigned goods on behalf of an
affiliated company aggregated $3,031,000 and $5,094,000 from which the
Company earned commissions, buyers' premiums and fees aggregating $422,000
and $661,000 for the nine months ended September 30, 1999 and 1998,
respectively. The Company has net amounts due from affiliated companies
which are related to the Company by virtue of common ownership. Net amounts
due from these affiliated companies were $391,000 and $413,000 at September
30, 1999 and 1998, respectively.
The Company leases one of its office and yard facilities from an informal
partnership in which a partner was the stockholder of the Company at
September 30, 1999. Rental payments aggregating $178,000 and $188,000 were
made by the Company to this partnership for the nine months ended September
30, 1999 and 1998, respectively.
F-15
<PAGE>
NATIONWIDE AUCTION SYSTEMS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
4. Bank Credit Line
At September 30, 1999 the Company has a line of credit with a bank that
provides for maximum borrowings of $3,000,000. Borrowings of $1,229,000 are
outstanding as of September 30, 1999 and require monthly interest payments
at the bank's prime rate plus 1%. The credit line includes financial
covenants, certain of which the Company was not in compliance with at of
September 30, 1999. The Company intends to negotiate with the bank to waive
the conditions of noncompliance at September 30, 1999 and to amend its
financial covenants.
The credit line is collateralized by the assets of the Company and, at
September 30, 1999 was personally guaranteed by the stockholder of the
Company.
5. Long-Term Debt
Long-term debt at September 30, 1999 is summarized as follows:
Note payable, due January 1, 2009,
with interest at 8% collateralized by real estate $2,201,000
Note payable, due January 1, 2004,
with interest at 8.25%, collateralized by real estate 450,000
Note payable, due July 15, 2004,
with interest at 8.45% collateralized by real estate,
payable in equal monthly installments of $4,189 423,000
Obligations under capital leases
with interest at 11.25%, collateralized by property
and equipment, payable in monthly in equal
installments of $7,859 312,000
----------
3,386,000
Less current installments 187,000
----------
$3,199,000
==========
The Company obtained approximately $2,735,000 in notes payable in order to
purchase real estate in 1998. The Company has moved its auction facilities
to the newly purchased real estate and has vacated its leased auction
facilities in Northern California.
In June 1999, the Company obtained $425,000 in notes payable in order to
finance certain real estate purchased for cash in March 1999. The Company
uses this real estate as an auction facility in Atlanta, Georgia.
As of September 30, 1999, all long-term debt was personally guaranteed by
the stockholder of the Company.
6. Contingencies
The Company is subject to legal proceedings and claims, which arise, in the
ordinary course of business. In the opinion of management, any ultimate
liability with respect to these actions will not materially affect the
financial statements of the Company taken as a whole.
7. Earnings Per Share
The Company reports earnings per share under the guidelines of SFAS No.
128, "Earnings per Share". Basic earnings per share is computed by dividing
net earnings by the weighted average number of shares of common stock
outstanding during the period.
Diluted earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents, unless anti-dilutive, during the period. There were no common
stock equivalents outstanding during the period.
F-16
<PAGE>
Item 7. (b) Pro form financial information.
The following unaudited pro forma condensed balance sheet as of September
30, 1999 presents the financial position of Entrade as if the acquisition of
Nationwide had been completed as of September 30, 1999.
ENTRADE INC. AND SUBSIDIARIES
PRO-FORMA CONDENSED BALANCE SHEET
September 30, 1999
(Unaudited In Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical Nationwide Pro Forma Adjustments Pro Forma
------------ ------------ ----------------------------- -----------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and equivalents $11,019 $811 ($6,000)(A) $5,830
Restricted cash and equivalents 100 100
Accounts receivable 604 604
Due from former stockholder 339 339
Available-for-sale securities 3,337 3,337
Other 729 153 882
------------ ------------ ------------
Total current assets 15,185 1,907 11,092
------------ ------------ ------------
Property,plant & equipment, net 391 6,531 6,922
Intangibles, net 10,027 46,200 (A) (534)(C) 55,693
Investment in asseTrade.com 3,523 3,523
Other 289 87 (132)(A) 244
------------ ------------ ---------- ---------- ------------
$29,415 $8,525 $40,068 ($534) $77,474
============ ============ ========== ========== ============
CURRENT LIABILITIES
Notes payable $1,229 $8,300 (A) ($4,800)(B) $4,729
Current maturities of long-term debt 187 187
Accounts payable $105 2,809 2,914
Accrued liabilities 774 567 230 (A) 1,571
Income taxes payable 1,108 1,108
Common stock put warrants 340 340
Liabilities of discontinued operations 8,312 8,312
------------ ------------ ------------
10,639 4,792 19,161
------------ ------------ ------------
Long-term debt, less current maturities 3,199 10,500 (A) 13,699
Shareholders' Equity 18,776 534 21,038 (A) 4,800 (B) 44,614
(534)(C)
------------ ------------ ---------- ---------- ------------
$29,415 $8,525 $39,534 $ - $77,474
============ ============ ========== ========== ============
<PAGE>
Notes to the pro forma condensed combined balance sheet:
<FN>
(A) Reflect the consideration paid for all
of the common stock of Nationwide
Cash paid at closing $ 6,000
Number of Entrade common shares issued
Issued to selling shareholders 1,570
Issued to agent as payment of fees 80
-------
Entrade common shares issued 1,650
Market value at October 19, 1999 (less 15% discount) $12.750
-------
21,038
Promissory notes due to selling shareholders
Notes due 11/29/99 4,800
Notes due 10/01/01, payable in instllaments 14,000
Other acquisition related costs 362
-------
Total consideration paid $46,200
=======
(B) Issue shares of Entrade common stock in payment of promissory notes
due 11/29/99.
(C) Eliminate Nationwide equity at acquisition date.
</FN>
</TABLE>
<PAGE>
The following unaudited pro forma condensed statements of operations
for the nine months ended September 30, 1999 and the year ended
December 31, 1998 are presented as if acquisitions of Nationwide and
Entrade.com had been completed as of January 1, 1998.
Entrade had no operations and no revenues related to the assets it
acquired in February 1999 to develop its entry into the Internet
business-to-business e-commerce and on-line auction business. These
assets consisted of assets acquired by its entrade.com subsidiary and
an equity interest in asseTrade.com. asseTrade.com had no operations
and no revenues when the 25% voting interest was acquired by Entrade
in February 1999. Accordingly, no pro forma results of operations are
presented for the Internet business-to-business e-commerce and on-line
auction business for the year ended December 31, 1998, as in the
opinion of management this information would not be meaningful.
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical Entrade.com Nationwide Pro Forma Adjustments Pro Forma
----------- ------------ ------------ ----------------------- ----------
<S> <C> <C> <C> <C>
Net revenues $ - $595 $12,181 $12,776
----------- ------------ ------------ ----------
Costs and expenses:
Cost of sales - - 4,481 4,481
Selling, general and administrative 6,570 1,857 5,935 ($1,305) (A) $790 (D) 13,847
Depreciation and amortization - 43 158 3,213 (B) 3,414
----------- ------------ ------------ ----------
6,570 1,900 10,574 21,742
----------- ------------ ------------ ----------
Operating earnings (loss) (6,570) (1,305) 1,607 (8,966)
----------- ------------ ------------ ----------
Other income (expense):
Interest income (expense), net 316 - (184) (420) (C) (288)
Other income, net - - 5 5
----------- ------------ ------------ ----------
316 - (179) (283)
----------- ------------ ------------ ----------
Earnings (loss) from continuing operations
before income taxes (6,254) (1,305) 1,428 (9,249)
Provision for income taxes - - (21) (21)
----------- ------------ ------------ -------- -------- ----------
Earnings (loss) from continuing operations ($6,254) ($1,305) $1,407 ($1,908) ($790) ($9,270)
=========== ============ ============ ======== ======== ==========
Per share loss from continuing operations
applicable to common shares:
Basic ($0.74) ($0.70)
=========== ==========
Diluted ($0.74) ($0.70)
=========== ==========
Weighted average number of shares
of common stock outstanding:
Basic 8,850 13,220
=========== ==========
Diluted 8,850 13,220
=========== ==========
Notes to the pro forma condensed combined statement of operations:
<FN>
(A) Reverse Entrade.com expenses reported in the Company's consolidated
financial statements.
(B) Amortization of intangible assets acquired.
(C) Interest on promissory notes issued to sellers.
(D) Compensation charge for stock options issued to Nationwide employees.
(E) Pro forma weighted average shares outstanding reflect the effect of the
following transactions:
Shares issued for Entrade transaction 2,000
Finders fee for the Entrade transaction. 100
Entrade common shares exchanged for ARTRA preferred stock 608
Shares issued as consideration for Nationwide acqusition 1,570
Finders fee for the Nationwide transaction. 80
Entrade common shares to pay Nationwide promissory notes 282
--------
4,640
========
</FN>
</TABLE>
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical Nationwide Pro Forma Adjustments Pro Forma
------------- ----------- --------------------- --------------
<S> <C> <C> <C>
Net revenues $ - $19,624 $19,624
------------- ------------ --------------
Costs and expenses:
Cost of sales - 10,671 10,671
Selling, general and administrative 2,660 6,428 $2,250 (C) 11,338
Depreciation and amortization - 79 1,710 (A) 1,789
------------- ----------- --------------
2,660 17,178 23,798
------------- ----------- --------------
Operating earnings (loss) (2,660) 2,446 (4,174)
------------- ----------- --------------
Other income (expense):
Interest income (expense), net (3,392) 42 (980)(B) (4,330)
Other income (expense), net 345 (3) 342
------------- ----------- --------------
(3,047) 39 (3,988)
------------- ----------- --------------
Earnings (loss) from continuing operations
before income taxes (5,707) 2,485 (8,162)
Provision for income taxes - (39) (39)
------------- ----------- ---------------- --------------
Earnings (loss) from continuing operations (5,707) 2,446 ($4,940) (8,201)
============= =========== ================ ==============
Per share loss from continuing operations
applicable to common shares:
Basic ($0.78) ($0.74)
============= ==============
Diluted ($0.78) ($0.74)
============= ==============
Weighted average number of shares of
common stock outstanding:
Basic 7,891 12,532
============= ==============
Diluted 7,891 12,532
=============
<FN>
Notes to the pro forma condensed combined statement of operations:
(A) Amortization of intangible assets acquired.
(B) Interest on promissory notes issued to sellers.
(C) Compensation charge for stock options issued to Nationwide employees.
(D) Pro forma weighted average shares outstanding reflect the effect of the
following transactions:
Shares issued for Entrade transaction 2,000
Finders fee for the Entrade transaction 100
Entrade common shares exchanged for
ARTRA preferred stock 608
Shares issued as consideration for Nationwide acqusition 1,570
Finders fee for the Nationwide transaction. 80
Entrade common shares to pay Nationwide promissory notes 282
-------
4,640
=======
</FN>
</TABLE>
Exhibit 23.1
We consent to the inclusion of our report dated March 5, 1999, with respect to
the combined balance sheets of Nationwide Auction Systems as of December 31,
1998 and 1997, and the related combined statements of earnings and retained
earnings, and cash flows for each of the years in the three year period ended
December 31, 1998, which the report appears in the Form 8-K/A of Entrade Inc.
dated December 2, 1999.
/s/ KMPG LLP
Woodland Hills, California
December 2, 1999
