SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-15303
ENTRADE INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 52-2153008
-------------------------------- ------------------
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
500 Central Avenue, Northfield, IL 60093
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (847) 784-3300
Not Applicable
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 4, 2000
------------------------------- -----------------------------
Common Stock, without par value 17,742,680
<PAGE>
ENTRADE INC.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000
and June 30, 1999 . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Changes in
Shareholders' Equity (Deficit)
Six Months Ended June 30, 2000. . . . . . . . . . . . . 7
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and
June 30, 1999 . . . . . . . . . . . . . . . . . . . . . 10
Notes to Condensed Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 29
Item 3. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . . 35
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 36
Item 2. Changes in Securities and Use of Proceeds . . . . . 36
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 37
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
ASSETS
------
Current assets:
Cash and equivalents . . . . . . . . . $ 9,251 9,667
Receivables, less allowance for
doubtful accounts of $10 in
2000 and 1999. . . . . . . . . . . . 1,834 812
Inventories held for resale. . . . . . 111 --
Available-for-sale securities. . . . . 2,384 4,386
Other. . . . . . . . . . . . . . . . . 558 461
-------- --------
Total current assets . . . . . . 14,138 15,326
-------- --------
Property, plant and equipment,
net of accumulated depreciation
of $451 and $178, respectively . . . . 8,346 7,363
Other assets:
Intangibles, principally excess
of cost over net assets
acquired, net of accumulated
amortization of $3,234 and
$1,088, respectively . . . . . . . . 52,248 54,394
Investment in and advances to
affiliates . . . . . . . . . . . . . 29,588 3,554
Other. . . . . . . . . . . . . . . . . 97 121
-------- --------
Total Assets . . . . . . . . . . $104,417 80,758
======== ========
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
LIABILITIES
-----------
Current liabilities:
Revolving line of credit . . . . . . . $ 2,999 1,229
Notes payable, including amounts
due to related parties of
$3,625 . . . . . . . . . . . . . . . 9,625 --
Current maturities of long-term
debt, including amounts due to
related parties of $0 in 2000
and $7,000 in 1999 . . . . . . . . . 136 9,364
Cash overdraft . . . . . . . . . . . . -- 473
Accounts payable . . . . . . . . . . . 3,441 1,345
Accrued expenses . . . . . . . . . . . 2,659 2,850
Income taxes payable . . . . . . . . . 1,083 1,081
Liabilities of discontinued
operations . . . . . . . . . . . . . 3,875 3,875
Obligations expected to be
settled by the issuance of
common stock to related parties. . . 2,500 --
-------- --------
Total current liabilities. . . . 26,318 20,217
-------- --------
Long-term debt . . . . . . . . . . . . . 929 7,978
Obligations expected to be settled
by the issuance of common stock
to related parties . . . . . . . . . . 7,000 4,743
-------- --------
Total liabilities. . . . . . . . 34,247 32,938
-------- --------
Commitments and contingencies
(Note 10). . . . . . . . . . . . . . . -- --
Redeemable warrants (Note 6) . . . . . . 481 --
Mandatorily redeemable convertible
preferred stock (Note 7) . . . . . . . -- --
SHAREHOLDERS' EQUITY
--------------------
Preferred stock, $1,000 par value,
authorized 4,000,000 shares;
no shares issued or outstanding. . . . -- --
Common stock, no par value;
authorized 40,000,000 shares;
issued 17,733,590 shares in 2000
and 15,082,186 shares in 1999. . . . . -- --
Additional paid-in capital . . . . . . . 166,428 119,539
Deferred stock compensation. . . . . . . (3,839) (4,929)
Unrealized appreciation of
investments. . . . . . . . . . . . . . 5,104 7,106
Accumulated deficit. . . . . . . . . . . (98,004) (73,896)
-------- --------
Total shareholders' equity . . . 69,689 47,820
-------- --------
Total liabilities and
shareholders' equity . . . . . $104,417 80,758
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE>
<TABLE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . $ 3,679 -- 7,509 --
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold, exclusive of depre-
ciation and amortization . . . . . . . . . . . . 1,505 -- 3,061 --
Selling, general and administrative,
exclusive of compensation related
to stock options . . . . . . . . . . . . . . . . 8,760 1,462 16,550 2,446
Compensation related to stock options. . . . . . . 415 1,472 1,090 1,772
Depreciation . . . . . . . . . . . . . . . . . . . 151 240 273 310
Amortization of goodwill . . . . . . . . . . . . . 1,073 -- 2,146 --
-------- -------- -------- --------
11,904 3,174 23,120 4,528
-------- -------- -------- --------
Operating loss . . . . . . . . . . . . . . . . . . . (8,225) (3,174) (15,611) (4,528)
-------- -------- -------- --------
Other income (expense):
Net interest (expense) income, exclusive of
amortization of discount on notes payable. . . . (601) 121 (769) 207
Amortization of discount on notes payable. . . . . (1,138) -- (1,138) --
Gain on sale of investments. . . . . . . . . . . . 8,089 -- 8,089 --
Equity loss in affiliates. . . . . . . . . . . . . (2,457) -- (3,239) --
-------- -------- -------- --------
3,893 121 2,943 207
-------- -------- -------- --------
Loss before income taxes . . . . . . . . . . . . . . (4,332) (3,053) (12,668) (4,321)
Provision for income taxes . . . . . . . . . . . . . (1) -- (2) --
-------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . (4,333) (3,053) (12,670) (4,321)
-------- -------- -------- --------
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(Unaudited in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Dividends applicable to:
Redeemable preferred stock . . . . . . . . . . . . -- (130) -- (194)
Deemed dividend on mandatorily redeemable
convertible preferred stock. . . . . . . . . . . (23,190) -- (23,226) --
Gain on redemption of mandatorily
redeemable convertible preferred stock . . . . . 11,788 -- 11,788 --
-------- -------- -------- --------
Loss applicable to common shares . . . . . . . . . . $(15,735) (3,183) (24,108) (4,515)
======== ======== ======== ========
Per share loss applicable to common shares:
Basic and diluted loss applicable
to common shares . . . . . . . . . . . . . . . . $ (0.90) (0.37) (1.43) (0.54)
======== ======== ======== ========
Weighted average number of shares of
common stock outstanding . . . . . . . . . . . . 17,440 8,655 16,920 8,331
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<CAPTION>
ACCUMULATED
DEFERRED OTHER TOTAL
COMMON STOCK ADDITIONAL STOCK COMPRE- SHARE-
---------------------- PAID-IN COMPEN- HENSIVE ACCUMULATED HOLDERS'
SHARES DOLLARS CAPITAL SATION INCOME DEFICIT EQUITY
----------- ------- ---------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999. . . 15,082,186 -- $119,539 (4,929) 7,106 (73,896) $ 47,820
--------
Comprehensive loss:
Net loss . . . . . . . -- -- -- -- -- (12,670) (12,670)
Net decrease in
unrealized
appreciation of
investments . . . . . -- -- -- -- (2,002) -- (2,002)
--------
Comprehensive
loss . . . . . . . (14,672)
--------
Other changes in
shareholders' equity:
Exercise of warrants
to purchase
common stock . . . . 127,667 -- 513 -- -- -- 513
Exercise of options
to purchase
common stock . . . . 1,028,868 -- 3,503 -- -- -- 3,503
Sale of common stock,
net of selling
costs. . . . . . . . 220,368 -- 6,532 -- -- -- 6,532
Payments of notes
with issuance of
common stock . . . . 278,985 -- 4,743 -- -- -- 4,743
Deferred stock-
based compensa-
tion expense
recognized . . . . . -- -- -- 1,090 -- -- 1,090
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - CONTINUED
(Unaudited in thousands, except share data)
ACCUMULATED
DEFERRED OTHER TOTAL
COMMON STOCK ADDITIONAL STOCK COMPRE- SHARE-
---------------------- PAID-IN COMPEN- HENSIVE ACCUMULATED HOLDERS'
SHARES DOLLARS CAPITAL SATION INCOME DEFICIT EQUITY
----------- ------- ---------- --------- ----------- ----------- --------
Allocation of
proceeds to and
amortization of
beneficial con-
version feature. . . -- -- 3,189 -- -- (3,189) --
Allocation of
proceeds to and
amortization of
contingent bene-
ficial conversion
feature. . . . . . . -- -- 20,037 -- -- (20,037) --
Gain on redemption
of mandatorily 31,516
redeemable conver-
tible preferred
stock. . . . . . . . -- -- (22,870) -- -- 11,788 (11,082)
Issuance of common
stock to purchase
additional interest
in affiliates. . . . 964,000 -- 15,243 -- -- -- 15,243
Issuance of warrants
to purchase common
stock. . . . . . . . -- -- 15,999 -- -- -- 15,999
--------
36,541
---------- -------- -------- -------- -------- -------- --------
Balance at
June 30, 2000. . . . . 17,733,590 -- $166,428 (3,839) 5,104 (98,004) 69,689
========== ======== ======== ======== ======== ======== ========
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - CONTINUED
(Unaudited in thousands, except share data)
<FN>
The fair value of warrants granted during the six months ended June 30, 2000 and in 1999 was estimated
using the Black-Scholes option pricing model with the following weighted average assumptions:
2000 1999
------ ------
Expected life (years). . 3.7 5.0
Interest rate. . . . . . 6.0% 6.0%
Volatility . . . . . . . 59.0% 60.0%
Dividend yield . . . . . -- --
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Six Months Ended
--------------------------
June 30, June 30,
2000 1999
---------- -----------
Net cash flows used by
operating activities . . . . . . . . . $ (12,093) (3,781)
---------- ----------
Cash flows from investing activities:
Advances to NA Acquisition Corp. . . . -- (2,728)
Investment in affiliates . . . . . . . (6,413) --
Increase in inventories. . . . . . . . (111) --
Decrease in restricted cash. . . . . . -- 934
Additions to property, plant
and equipment. . . . . . . . . . . . (1,283) --
Other. . . . . . . . . . . . . . . . . 24 (89)
---------- ----------
Net cash flows used by
investing activities . . . . . . . . . (7,783) (1,883)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock
options and warrants . . . . . . . . 4,016 4,406
Proceeds from the issuance of
notes payable. . . . . . . . . . . . 8,625 --
Net proceeds from the sale of
common stock and warrants. . . . . . 7,000 --
Net decrease in current maturities
of long-term debt. . . . . . . . . . (5,777) --
Decrease in cash overdraft . . . . . . (473) --
Net proceeds from issuance of
mandatorily redeemable
convertible preferred stock
and warrants . . . . . . . . . . . . 28,579 --
Net proceeds from sale of interest
in affiliate . . . . . . . . . . . . 10,000 --
Buyback of mandatorily redeemable
convertible preferred stock. . . . . (34,280) --
Proceeds from revolving
line of credit . . . . . . . . . . . 1,770 --
---------- ----------
Net cash flows provided by
financing activities . . . . . . . . . 19,460 4,406
---------- ----------
Decrease in cash and
cash equivalents . . . . . . . . . . . (416) (1,258)
Cash and equivalents,
beginning of period. . . . . . . . . . 9,667 11,753
---------- ----------
Cash and equivalents, end of period. . . $ 9,251 10,495
========== ==========
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited in thousands)
Six Months Ended
--------------------------
June 30, June 30,
2000 1999
---------- -----------
Supplemental schedule:
Interest paid. . . . . . . . . . . . . $ 748 --
Non-cash investing and financing
activities:
Warrants issued in acquisition
of businesses. . . . . . . . . . . $ 9,544 --
warrants issued in exchange for
services . . . . . . . . . . . . . 468 --
Common stock issued to purchase
shares in affiliates . . . . . . . 15,243 --
Common stock issued to settle
obligations to related parties . . 4,743 --
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Registrant, Entrade Inc. ("Entrade"), formerly NA Acquisition Corp.,
incorporated in Pennsylvania in February 1999, is an e-commerce software
technology company and a creator of and an investor in business-to-business
e-commerce marketplaces in targeted industries. Entrade has presented
financial reports on a condensed consolidated basis compared to earlier
periods of reports of ARTRA Group Incorporated ("ARTRA"), a Pennsylvania
corporation, which became a wholly owned subsidiary of Entrade as of
September 23, 1999 pursuant to the Agreement and Plan of Merger described
below. Through November 20, 1998, ARTRA operated in one industry segment
as a manufacturer of packaging products principally serving the food
industry. The packaging products business was conducted by ARTRA's wholly
owned subsidiary, Bagcraft Corporation of America ("Bagcraft"), which
business was sold on November 20, 1998.
As discussed in Note 3, on February 23, 1999, ARTRA entered into an
agreement with Entrade and WorldWide Web NetworX Corporation ("WorldWide")
providing for the merger of a wholly owned subsidiary of Entrade with and
into ARTRA. At the time of the merger, Entrade owned all of the
outstanding capital stock of entrade.com, Inc. ("entrade.com") and 25% of
the Class A Common Stock of AssetTrade.com, Inc. ("AssetTRADE.com").
On September 22, 1999, ARTRA's shareholders approved ARTRA's merger with
Entrade and on September 23, 1999, the merger was completed. As a result
of the merger, ARTRA became a wholly owned subsidiary of Entrade, and
Entrade's common stock became listed and commenced trading on the New York
Stock Exchange under the symbol "ETA" on September 24, 1999.
As of June 30, 2000, Entrade has invested cash, services and/or its
proprietary software technology to gain equity positions in eight e-
commerce marketplaces. In October 1999, Entrade also completed the
acquisition of all of the issued and outstanding common stock of Public
Liquidations Systems, Inc. and Asset Liquidation Group, Inc., d/b/a
Nationwide Auction Systems ("Nationwide"). Nationwide has been in
operation for 20 years and is one of the nation's largest volume public
auction firms in the disposition of municipality, law enforcement,
corporate and utility company surplus property, primarily vehicles and
equipment. Nationwide also conducts auctions of real property and jewelry.
These condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not
include all the disclosures required in the annual report on Form 10-K.
Accordingly, the accompanying condensed consolidated financial statements
should be read in conjunction with the Entrade annual report on Form 10-K
for the fiscal year ended December 31, 1999 as filed with the Securities
and Exchange Commission. The condensed consolidated balance sheet as of
December 31, 1999 was derived from the audited consolidated financial
statements included in the Entrade annual report on Form 10-K.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all normal recurring adjustments necessary to
present fairly Entrade's financial position as of June 30, 2000, and the
results of operations and changes in cash flows for the three and six month
periods ended June 30, 2000 and June 30, 1999. Reported interim results of
operations are based in part on estimates that may be subject to year-end
adjustments. In addition, these quarterly results of operations are not
necessarily indicative of those expected for the full fiscal year. The
accompanying condensed consolidated financial statements reflect
reclassifications of prior year amounts to conform to current year
presentation.
<PAGE>
The Company has been successful in completing several rounds of private
equity financing with its last round totaling approximately $8.6 million
during May 2000. However, the Company has incurred substantial losses and
negative cash flows from operations. For the year ended December 31, 1999,
the Company incurred a loss from operations of approximately $12.6 million
and negative cashflows from operations of $9.5 million. For the six months
ended June 30, 2000, the Company incurred a loss from operations of
approximately $15.6 million and negative cashflows from operations of $12.1
million. As of December 31, 1999 and June 30, 2000, the Company had
accumulated deficits of approximately $73.9 and $98 million, respectively.
Management anticipates that losses may increase from current levels because
of additional costs and expenses related to brand development, marketing
and other promotional activities as a result of the Company's launch of its
e-commerce software operation. Certain of these costs could be reduced if
working capital decreased significantly. Failure to generate sufficient
revenues, raise additional capital or reduce certain discretionary spending
could have a material adverse effect on the Company's ability to achieve
its intended business objectives.
NOTE 2. PORTFOLIO COMPANY GROSS TRANSACTION VOLUME AND NET REVENUE EARNED
Net revenue in the statement of operations reflects the licensing and
related fees charged to non-consolidated affiliates and third parties and,
for auction and/or sales transactions, the commissions earned on such
transactions, rather than the gross transaction value, only for companies
whose results are consolidated into the statement of operations.
NOTE 3. CHANGE OF BUSINESS
ENTRADE
On February 23, 1999, ARTRA entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Entrade, WorldWide, and WWWX Merger
Subsidiary, Inc. ("Merger Sub"), a wholly owned subsidiary of Entrade.
Terms of the Merger Agreement required the Merger Sub to merge into ARTRA
(the "Merger"), with ARTRA being the surviving corporation for financial
reporting purposes.
On September 22, 1999, ARTRA's shareholders approved the transaction and on
September 23, 1999, the Merger was completed. As a result of the Merger,
ARTRA became a wholly owned subsidiary of Entrade, and the common
shareholders of ARTRA became holders of 83% of the common stock of Entrade.
Under the terms of the Merger Agreement, the ARTRA common shareholders
received one share of Entrade no par common stock in exchange for each
share of ARTRA no par common stock. All stock options and warrants issued
by ARTRA and outstanding on the closing date of the Merger were converted
on a one-for-one basis into Entrade stock options and warrants. For
financial reporting purposes, Entrade's condensed consolidated financial
statements are compared to ARTRA's financial statements for earlier
periods, with shareholder's equity and share information restated to
reflect the effect of the Merger Agreement. All shareholders' equity and
share information has been restated to reflect this recapitalization.
Entrade's common stock became listed and commenced trading on the New York
Stock Exchange under the symbol "ETA" on September 24, 1999.
Entrade owns all of the outstanding capital stock of entrade.com and, as of
June 30, 2000, owned 16.62% (computed on a fully diluted basis) of the
Class A Common Stock of AssetTRADE.com. entrade.com is an e-commerce
software technology subsidiary of Entrade that provides an Internet-based
business-to-business transaction engine and related e-commerce solutions
for target markets. AssetTRADE.com provides business-to-business online
services that facilitate the remarketing of industrial machinery, equipment
and parts. These services are designed to enhance the current operation of
asset recovery teams and procurement groups of industrial companies.
<PAGE>
In connection with the execution of the Merger Agreement, on February 23,
1999, Entrade acquired certain software and intellectual property and 25%
of the shares of Class A Common Stock of AssetTRADE.com from WorldWide, in
exchange for 1,800,000 shares of Entrade common stock, $800,000 in cash and
a note for $500,000, paid upon the consummation of the Merger. On
February 16, 1999, Entrade had agreed with Energy Trading Company, a
wholly-owned subsidiary of Peco Energy Company, to issue to Energy Trading
Company 200,000 shares of Entrade common stock, and to pay Energy Trading
Company $100,000, paid upon the consummation of the Merger, in exchange for
certain retained rights Energy Trading Company held in the assets purchased
by Entrade. Entrade also agreed with both WorldWide and Energy Trading
Company that it would provide a minimum of $4,000,000 in funding for
entrade.com. Under separate loan agreements, ARTRA agreed to lend Entrade
up to $2,000,000 and advance an additional $250,000 to fund the $800,000
cash payment to WorldWide and to provide funding for entrade.com until the
consummation of the Merger. Under the Merger Agreement, ARTRA also agreed
to guarantee the $4,000,000 funding for entrade.com.
In August 1999, WorldWide agreed to lend Entrade up to $500,000 to fund
Entrade's operations for the period from the date of the loan to the
closing date under the Merger Agreement. Borrowings totaling $405,000 were
repaid to WorldWide prior to closing the Merger.
The acquisition has been accounted for as a purchase. The operating
results of the acquired entities have been included in Entrade's condensed
consolidated financial statements since the effective date of acquisition,
and the acquired entities losses for the period from February 23, 1999
until the effective date of the Merger in September 1999 have also been
reflected in Entrade's condensed consolidated financial statements. The
amount of the purchase price allocated to intangible assets acquired of
approximately $10 million is being amortized over five years.
WorldWide, which held 1,775,000 shares of Entrade common stock at June 30,
2000, is subject to a lockup under the Merger Agreement for sales or
transfers of its Entrade shares until the first anniversary after the
closing of the Merger, subject to (a) exceptions for pledges or the
distribution of up to 25% of the Entrade shares to WorldWide's shareholders
and (b) an agreement entered into in April 2000 between Entrade and
WorldWide that permits WorldWide to sell up to 50,000 shares of Entrade
common stock in each month prior to the first anniversary after the closing
of the Merger. Subject to the lockup provision applicable to WorldWide,
WorldWide shareholders that receive the distribution may utilize Rule 144
to sell shares.
NATIONWIDE
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Public Liquidations Systems, Inc. and Asset
Liquidation Group, Inc., d/b/a Nationwide Auction Systems ("Nationwide").
Nationwide has been in operation for 20 years and is one of the nation's
largest volume public auction firms in the disposition of municipality, law
enforcement, corporate and utility company surplus property, primarily
vehicles and equipment. Nationwide also conducts auctions of real property
and jewelry. Nationwide conducts its auctions at its facilities or at off-
site locations. Nationwide has six auction facilities located in
California, Missouri, Delaware, New Mexico and Georgia.
The consideration paid for Nationwide consisted of cash of $6,000,000;
1,570,000 shares of Entrade common stock; short-term promissory notes (the
"Notes") in the principal amount of $4,800,000; and promissory notes (the
"Term Notes") in the principal amount of $14,000,000, with a final maturity
of October 1, 2001. The Notes and the Term Notes provide for interest at
an annual rate of 8.0%. 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.
<PAGE>
In January 2000, the Notes, net of amounts due from a selling shareholder
of $139,000, plus accrued interest, were converted into 278,985 shares of
Entrade common stock. Accordingly, at December 31, 1999, net amounts due
on the Notes plus accrued interest were reclassified in Entrade's
consolidated balance sheet as obligations expected to be settled by the
issuance of common stock. The total amount reclassified, including accrued
interest, was $4,743,000.
In March 2000, Entrade entered into an agreement with the Nationwide
selling shareholders to convert the Term Notes with a remaining principal
balance of $10,500,000 into 265,621 shares of Entrade common stock. The
Term Notes originally provided for principal payments of $3,500,000 in
October 2000 and $7,000,000 in October 2001. Completion of this trans-
action is subject to approval by Entrade's shareholders.
In May 2000, the Nationwide selling shareholders ("Sellers") participated
in the private sale of promissory notes in the aggregate amount of
$2,000,000. The Sellers agreed to purchase $1,000,000 of the Secured Notes
and Entrade agreed to exchange an aggregate of $1,000,000 of the Term Notes
for $1,000,000 of the newly issued Secured Notes (See Note 6: Promissory
Notes and Related Warrants). In addition, in consideration for, among
other things, the additional capital and the continued personal guarantee
of certain debt and a performance bond by one of the Sellers, Entrade is
currently renegotiating with the Sellers in reference to the terms of the
payoff of the Term Notes through the issuance of additional Entrade common
stock, which, when finalized, will be subject to shareholders approval.
The 1999 Nationwide acquisition has been accounted for as a purchase. The
operating results of Nationwide have been included in Entrade's condensed
consolidated financial statements since the effective date of acquisition.
The amount of the purchase price allocated to intangible assets acquired,
principally goodwill, of approximately $45 million is being amortized over
20 years.
Holders of approximately 1,848,985 shares of common stock that were issued
in the Nationwide acquisition were prohibited from selling more than
978,985 shares until May 31, 2000, subject to adjustment in certain
circumstances. At June 30, 2000, the Holders have not exercised their
right to sell any portion of the shares originally issued as part of the
acquisition.
E-COMMERCE MARKETPLACES
Effective October 4, 1999, Entrade acquired all of the then issued Series A
Preferred Stock of printeralliance.com ("Printeralliance Preferred") for
cash of $500,000 and a license to the entrade.com e-commerce software. A
privately owned e-commerce company, printeralliance.com was formed in 1999
to establish a buying group of independent commercial printers in order to
obtain cost savings on supplies, equipment and other services. The
Printeralliance Preferred shares acquired by Entrade are convertible into a
61% common stock ownership interest in printeralliance.com at the option of
Entrade. Accordingly, the acquisition has been accounted for as a purchase
and the operating results of printeralliance.com have been included in
Entrade's condensed consolidated financial statements since the effective
date of acquisition. The amount of the purchase price allocated to
intangible assets acquired is being amortized over five years. In the
first quarter of 2000, Entrade also invested $1,000,000 to acquire an
additional issue of Printeralliance Preferred shares, which are convertible
into a 3% common stock ownership interest. This additional investment
increased Entrade's equity interest to 64%. In June 2000, Entrade invested
an additional $350,000 in printeralliance.com through the purchase of
convertible notes, each with a 15% coupon.
In October 1999, entrade.com licensed its technology to Pricecon-
tainer.com, Inc. ("Pricecontainer.com") in return for a 15% ownership
interest. Pricecontainer.com is establishing itself as an on-line
reservation system for a variety of trans-oceanic and maritime logistics
services. Entrade accounts for its investment in Pricecontainer.com using
the cost method.
<PAGE>
utiliparts.com, Inc., d/b/a GlobalPowerAssets.com, is owned 80% by
entrade.com and 20% by AssetTRADE.com. GlobalPowerAssets.com intends to
create an e-commerce marketplace in the utility industry utilizing
entrade.com's e-commerce software, to provide investment recovery, internal
inventory optimization and asset disposition consulting services.
On February 10, 2000, Entrade agreed with Associates First Capital
Corporation ("Associates") to organize TruckCenter.com, Inc.
("TruckCenter.com") a new company designed to create a business-to-business
e-commerce marketplace for the sale of trucks and related services,
including financing, certification, warranty and third party inspection.
The TruckCenter.com Website was launched and became transactional on
April 15, 2000. For the six-month period following the launch, Associates
has agreed to list its truck inventory on the TruckCenter.com Website and
not on any other Website unaffiliated with Associates. Subject to its
independent underwriting guidelines, Associates also intends to provide
financing for purchasers transacting business over the TruckCenter.com
Website.
Under the terms of the original agreement with Associates, Entrade has
provided TruckCenter.com with funding in an aggregate of approximately
$3,281,000 with cash and services as of June 30, 2000.
On May 15, 2000, Associates' option to purchase from Entrade 40% (computed
on a fully diluted basis) of the common stock of TruckCenter.com at par
value expired. The Company is currently negotiating with Associates to
determine the ownership interest the Associates will ultimately obtain.
On February 18, 2000, Entrade's wholly-owned subsidiary, entrade.com,
entered into an agreement to acquire 1,011,667 shares of Series A
Convertible Preferred Shares, par value $.001 per share, of
TradeTextile.com ("TradeTextile Preferred"), a warrant to acquire 288,778
shares of the TradeTextile Preferred and a warrant to acquire 333,609
shares of the TradeTextile Preferred in exchange for (a) $3,500,000, to be
paid in installments subject to certain conditions, (b) a warrant to
acquire up to 75,000 shares of Entrade common stock and (c) a license to
TradeTextile.com of entrade.com's software technology. Pursuant to the
terms of the agreement, entrade.com will own 35% of TradeTextile.com on a
fully-diluted basis, assuming the full exercise of its warrants to purchase
the TradeTextile Preferred. TradeTextile.com, using the entrade.com
technology, facilitates the online trading of yarns, fabrics, garments, raw
materials, chemicals, and textile quotas, initially targeting the Chinese
textile industry.
In May 2000, Entrade negotiated a deferment of the remaining installments
for the purchase of the TradeTextile Preferred shares. The unpaid balance
of $1,000,000 bears interest at 8.0% and is payable and due monthly in
arrears with quarterly principal payments beginning in the fourth quarter
of 2000.
On March 9, 2000, Entrade agreed with Textron Financial Corporation, a
subsidiary of Textron Inc., to organize a new entity to be known as
AssetControl.com, which is intended to be a business-to-business e-commerce
marketplace for the sale of surplus industrial equipment, excess inventory
and commercial real estate. Entrade owns 38.0% of AssetControl.com with
the remainder owned 47.5% by Textron Financial, 9.5% by ATM Service (a
majority owned subsidiary of WorldWide), and 5.0% by Safeguard Scientifics
Inc. As part of the consideration for this agreement, Entrade issued to
Textron Financial Corporation a warrant to acquire up to 1,000,000 shares
of Entrade common stock. The warrant initially vests 250,000 shares with
the remaining 750,000 shares scheduled to vest based upon certain
performance standards for AssetControl.com.
On April 5, 2000, Entrade's subsidiary, entrade.com, agreed with a
majority-owned subsidiary of Gondwana Resources NL Pty Ltd. ("Gondwana") to
organize a new entity known as Entrade Asia Pacific, subject to Gondwana
shareholder approval and their obtaining sufficient funding. In June 2000,
<PAGE>
the shareholders' of Gondwana approved the proposed agreement to organize a
new entity. However, the agreement was terminated due to the inability of
Gondwana to obtain the requisite funding to complete the transaction.
In June 2000, Entrade completed the investment of an additional $400,000,
for a total of $500,000, in CommerceHealth.com which provides procurement
process solutions and consulting services for the large hospital market.
Entrade has an approximate 6% ownership of CommerceHealth.com.
NOTE 4. INVESTMENT IN AssetTRADE.com
On February 23, 1999, Entrade acquired 25% of the outstanding shares of
Class A Common Stock of AssetTRADE.com, a provider of business-to-business
online services that facilitate the remarketing of industrial machinery,
equipment and parts.
On April 12, 2000, Entrade entered into a Stock Purchase Agreement with
Positive Asset Remarketing, Inc. ("PAR"), a Nevada corporation, and certain
other parties, pursuant to which Entrade terminated a prior agreement to
acquire PAR, and agreed to acquire from PAR 7,350,000 shares of the Class A
Common Stock of AssetTRADE.com, Inc., in exchange for cash payment for
$3,488,000 and 964,000 shares of Entrade's Common Stock, subject to
adjustment in certain cases. On April 20, 2000, Entrade sold 6,000,000
shares of Class A Common Stock of AssetTRADE.com, for $10,000,000 which
resulted in a gain of $8,069,000. At June 30, 2000, Entrade owned 16.62%
(computed on a fully diluted basis) of the Class A Common Stock of
AssetTrade.com.
Summarized financial data for AssetTRADE.com for the six month period ended
June 30, 2000 and the twelve month period ended December 31, 1999 is as
follows (in thousands):
June 30, December 31,
2000 1999
----------- ------------
Revenues . . . . . . . . . . . . . . $ 100 $ --
======== ========
Operating loss . . . . . . . . . . . $(11,417) $ (1,831)
======== ========
Net loss . . . . . . . . . . . . . . $(11,170) $ (1,778)
======== ========
Current assets . . . . . . . . . . . $ 4,506 $ 4,719
Noncurrent assets. . . . . . . . . . 16,296 283
-------- --------
$ 20,802 $ 5,002
======== ========
Current liabilities. . . . . . . . . $ 9,204 $ 1,030
Noncurrent liabilities . . . . . . . 5,000 --
Redeemable preferred stock . . . . . 19,134 5,750
Shareholders' deficit. . . . . . . . (12,536) (1,778)
-------- --------
$ 20,802 $ 5,002
======== ========
NOTE 5. INVESTMENT IN COMFORCE CORPORATION
At June 30, 2000 and December 31, 1999, ARTRA owned 1,525,000 shares of
common stock of Comforce Corporation ("Comforce"), an ownership interest of
approximately 9.0%, which was classified in ARTRA's consolidated balance
sheet in current assets as "Available-for-sale securities." At June 30,
2000 and December 31, 1999, the gross unrealized gain relating to ARTRA's
investment in Comforce, reflected as a separate component of shareholders'
equity, was $5,104,000 and $7,106,000, respectively. The investment in
Comforce common stock is subject to liquidity and market price risks. An
attempt to sell a large number of the Comforce shares over a limited period
<PAGE>
could be expected to result in a reduction of the market price of those
shares.
In January 1996, ARTRA's board of directors approved the sale of 200,000 of
ARTRA's Comforce common shares to certain of the officers, directors and
key employees of ARTRA for non-interest bearing notes totaling $400,000.
The notes are collateralized by the related Comforce common shares.
Additionally, the noteholders have the right to put their Comforce shares
back to ARTRA in full payment of the balance of their notes.
ARTRA had concluded that, for reporting purposes, it had effectively
granted options to those officers, directors and key employees to acquire
200,000 of ARTRA's Comforce common shares. Accordingly, in January 1996,
these 200,000 Comforce common shares were removed from ARTRA's portfolio of
"available-for-sale securities" and were classified in its consolidated
balance sheet as other receivables with an aggregate value of $400,000,
based upon the value of proceeds to be received upon future exercise of the
options.
The disposition of these 200,000 Comforce common shares resulted in a gain
that was deferred and will not be recognized in ARTRA's financial
statements until the options to purchase these 200,000 Comforce common
shares are exercised. Prior to the fourth quarter of 1997, no options to
acquire any of the 200,000 Comforce common shares had been exercised.
During the fourth quarter of 1997, options to acquire 59,500 of these
Comforce common shares were exercised resulting in a realized gain of
$225,000. During 1998, options to acquire 84,750 of these Comforce common
shares were exercised resulting in a realized gain of $320,000. During
1999, options to acquire 20,000 of these Comforce common shares were
exercised resulting in a realized gain of $66,000. During 2000, options to
acquire 5,250 of these Comforce common shares were exercised resulting in a
gain of $20,000.
At June 30, 2000 and December 31, 1999, options to acquire 32,000 and
37,250, respectively, Comforce common shares, remained unexercised and were
classified in ARTRA's consolidated balance sheet as other receivables with
aggregate values of $64,000 based upon the value of proceeds to be received
upon future exercise of the options.
NOTE 6. PROMISSORY NOTES AND RELATED REDEEMABLE WARRANTS
During the week of May 15, 2000, Entrade agreed to issue approximately
$10,625,000 from the private sale of promissory notes ("Notes") and related
warrants to certain related and unrelated individual accredited investors,
including the former owners of Nationwide, one of whom is a Director, and
two additional Directors. Entrade also exchanged term note obligations of
$1,000,000 due October 1, 2001 (Note 3. Change of Business - Nationwide)
for Notes as incentive for the former owners of Nationwide to enter into
the Note agreement. The Notes, due July 15, 2001, bear interest at a rate
of 15.0% per annum payable in arrears on a quarterly basis. The Notes may
be pre-paid at any time at Entrade's option, subject to certain pre-payment
fees. Of the total amount of Notes issued, notes with an aggregate face
value of $7,000,000 are secured by 100% of the issued and outstanding stock
of Nationwide. The remaining $4,625,000 of Notes are unsecured obligations
of Entrade. The Company received $8,625,000 in cash proceeds and
$2,000,000 in the form of a note which is due on September 15, 2000.
In connection with the issuance of the Notes, Entrade has issued redeemable
warrants to purchase shares of Entrade common stock, at the rate of
warrants to purchase 40,000 shares per $1,000,000 face amount of Notes.
The warrants have an exercise price of $16.21 per share and are exercisable
at any time until May 15, 2005. Entrade allocated the value of the
warrants issued through June 30, 2000 at $1,138,000 based on the fair value
of warrants granted and the proceeds received from the issued notes;
resulting in a discounting of the Notes issued. Upon maturity of the Notes
or the occurrence of an event of default, the investors have the option to
continue to hold the warrants or to put them to Entrade for an amount equal
<PAGE>
to five percent of the initial principal amount of the Notes. Entrade
notified the Note holders in June that a technical default existed at
closing due to a cross default triggered by a previously unidentified
technical default on the Nationwide bank revolving line of credit. Both
defaults were cured through a waiver from the lending bank. A similar
cross default at June 30, 2000, was also cured through a waiver from the
lending bank.
NOTE 7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In March 2000, Entrade raised approximately $28,579,000 in net proceeds
from the sale of 30,000 shares of Entrade's Series A mandatorily redeemable
convertible non-voting preferred stock (the "Series A Preferred Stock").
The investors also received warrants to purchase 400,000 shares of Entrade
common stock at an exercise price of approximately $41.38 per share,
subject to adjustment in certain circumstances. The Series A Preferred
Stock, $1,000 par value, bore a 6.0% dividend payable at Entrade's option
in either cash or common stock. For the first 15 months after issuance of
the Series A Preferred Stock, and subject to certain registration rights
and other conditions, Entrade had the right to convert all or part of the
Series A Preferred Stock at the lesser of $78.73 per share or 91% of the
lowest closing sale price of Entrade's common stock during the two
consecutive trading days ending on the date of the election. In addition,
Entrade had the right during this period to redeem the preferred stock at
115% of its value. Entrade had to redeem or convert all of the Series A
Preferred Stock within two years of the date of its issuance, and, until
the Series A Preferred Stock was redeemed or converted, Entrade could not
pay dividends on its common stock without the approval of the preferred
stockholders. To the extent that the fair market value of the common stock
received upon conversion of the Series A Preferred Stock would have been
deemed to exceed the carrying value of the Series A Preferred Stock, a
beneficial conversion feature would have existed. A deemed dividend to the
Series A Preferred Stock shareholders would have been reflected to the
extent of any beneficial conversion feature which would have increased the
net loss available to common shareholders.
The Series A Preferred Stock contained a feature pursuant to which the
maximum conversion price per share and the terms of the warrant adjusted
upon the occurrence of certain events, including in the event that the
price of Entrade's common stock closed at a sale price lower than
approximately $20.69 per share for any 15 trading days in a 20 trading day
period or the price of Entrade's common stock closed at a sale price lower
than $15.00 per share for any two consecutive trading days. As a result of
either of such events, the maximum conversion price for the Series A
Preferred Stock would have adjusted to the lesser of 120% of the
"Liquidation Default Date Price" or 91% of the lower closing price of
Entrade's common stock during the two consecutive trading days ending on
the date of the conversion election. The Liquidation Default Date Price
was the arithmetic average of the 15 lowest trading prices in such 20-
trading day period (in the case of such trigger) or the middle three of the
five trading days ending on the second consecutive day on which Entrade's
common stock closed at a sale price lower than $15.00 per share (in the
case of such trigger). Also as a result of any such events, the warrant
exercise price would adjust to a price equal to the Liquidation Default
Date Price and the number of shares issuable upon exercise of the warrant
would have increased to a number equal to the prior number times a
fraction, the numerator of which was the prior exercise price of the
warrant and the denominator of which is the revised exercise price of the
warrant.
Because the closing sale price of Entrade's common stock on April 13 and
14, 2000, was less than $15.00 per share, the investors had the right to
convert the Series A Preferred Stock at a conversion price equal to the
lesser of $19.44 or 91% of the lower closing sale price of Entrade's common
stock during the two consecutive trading days ending on the date of such
election. Following such event, Entrade had one business day to exercise
its right to redeem the Series A Preferred Stock at 115% of par.
<PAGE>
Entrade issued the redemption notice on April 17, 2000. On April 20, 2000,
holders of 300 shares of the Series A Preferred Stock elected to convert
those shares into 31,516 shares of Entrade common stock and Entrade
redeemed the remaining 29,700 issued and outstanding shares of that Series
A Preferred Stock redeemed for an aggregate payment of approximately
$34,280,000. The redemption of the Series A Preferred Stock triggered both
a deemed dividend of $23,190,000 and a gain of approximately $11,788,000
resulting in a net charge to retained earnings of $11,402,000. This
increased the loss per share applicable to common shares in the second
quarter of 2000 by $0.50.
The investors' original right to receive warrants to purchase 400,000
shares of Entrade common stock at an exercise price of approximately $41.38
has been adjusted such that they currently have warrants to purchase
approximately 1,021,000 shares of Entrade common stock at an exercise price
of approximately $16.21 per share. These warrants expire in March 2003
and, subject to certain conditions, will continue to adjust in both share
amount and exercise price if Entrade issues additional shares of its common
stock or certain equivalents at a price per share below the current
exercise price of approximately $16.21. As of July 31, 2000, Entrade has
not issued additional shares of its common stock or certain equivalents at
a price per share below the current exercise price of the outstanding
warrants.
NOTE 8. INCOME TAXES
No income tax benefit was recognized in connection with Entrade's 2000 and
1999 pre-tax losses due to Entrade's tax loss carryforwards and the
uncertainty of future taxable income.
At December 31, 1999, Entrade and its subsidiaries had Federal income tax
loss carryforwards of approximately $14,800,000 expiring principally in
2012 - 2019, available to be applied against future taxable income, if any.
In recent years, Entrade has issued shares of its common stock to repay
various debt obligations, upon exercise of stock options and warrants, as
consideration for acquisitions, to fund working capital obligations and as
consideration for various other transactions. Section 382 of the Internal
Revenue Code of 1986 limits a corporation's utilization of its Federal
income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, Entrade is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should Entrade continue to issue a
significant number of shares of its common stock, it could trigger a
limitation on its ability to utilize its Federal income tax loss
carryforwards.
NOTE 9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing the income
available to common shareholders, net earnings (loss), less redeemable
preferred stock dividends, by the weighted average number of shares of
common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income
available to common shareholders, net earnings (loss), less redeemable
preferred stock dividends, by the weighted average number of shares of
common stock and common stock equivalents (stock options and warrants),
unless anti-dilutive, during each period.
Earnings (loss) per share for the three and six month periods ended
June 30, 2000 and 1999 was computed as follows (in thousands, except per
share amounts):
<PAGE>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
-------------------- --------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
AVERAGE SHARES OUTSTANDING:
Weighted average shares
outstanding . . . . . . 17,440 17,440 8,655 8,655
Common stock equivalents
(options/warrants). . . -- -- -- --
-------- -------- -------- --------
17,440 17,440 8,655 8,655
======== ======== ======== ========
(LOSS):
Net loss . . . . . . . . $ (4,333) (4,333) (3,053) (3,053)
Dividends applicable to:
Redeemable preferred
stock. . . . . . . . -- -- (130) (130)
Deemed dividends on
mandatorily redeem-
able convertible
preferred stock. . . (23,190) (23,190) -- --
Gain on redemption of
mandatorily redeem-
able convertible
preferred stock. . . 11,788 11,788 -- --
-------- -------- -------- --------
Loss applicable to
common shares. . . . . . $(15,735) (15,735) (3,183) (3,183)
======== ======== ======== ========
PER SHARE AMOUNTS:
Loss per shares
applicable to
common shares. . . . . $ (0.90) (0.90) (0.37) (0.37)
======== ======== ======== ========
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
-------------------- --------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
AVERAGE SHARES OUTSTANDING:
Weighted average shares
outstanding. . . . . . 16,920 16,920 8,331 8,331
Common stock equivalents
(options/warrants) . . -- -- -- --
-------- -------- -------- --------
16,920 16,920 8,331 8,331
======== ======== ======== ========
(LOSS):
Net loss . . . . . . . . $(12,670) (12,670) (4,321) (4,321)
Dividends applicable to:
Redeemable preferred
stock. . . . . . . . -- -- (194) (194)
Deemed dividends on
mandatorily redeem-
able convertible
preferred stock. . . (23,226) (23,226) -- --
Gain on redemption
of mandatorily
redeemable conver-
tible preferred
stock. . . . . . . . 11,788 11,788 -- --
-------- -------- -------- --------
Loss applicable to
common shares . . . . $(24,108) (24,108) (4,515) (4,515)
======== ======== ======== ========
<PAGE>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
-------------------- --------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
PER SHARE AMOUNTS:
Loss per shares
applicable to
common shares. . . . . $ (1.43) (1.43) (0.54) (0.54)
======== ======== ======== ========
NOTE 10. LITIGATION
In addition to legal proceedings and claims that arise in the ordinary
course of business, none of which management considers to be material,
Entrade and/or its subsidiaries are involved in the following proceedings.
ARTRA and its subsidiaries are the defendants in various business-related
litigation, environmental matters and product liability claims. At June 30,
2000 and December 31, 1999, ARTRA had accrued current liabilities of
$1,400,000 for potential business-related litigation and environmental
liabilities. No liabilities were accrued for the product liability claims
because no reasonable basis exists on which such claims could be
quantified.
PRODUCT LIABILITY CLAIMS
Since 1983, ARTRA has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former ARTRA subsidiary. Reports from outside
counsel indicate, as of June 30, 2000, pending claims asserted by
approximately 47,500 plaintiffs (excluding loss of consortium claims) in 16
states. It is probable that a significant number of additional claims will
be asserted in the future. ARTRA has no reasonable basis on which to
quantify the potential cost to it of these pending and unasserted claims.
ARTRA's primary insurance carriers paid approximately $13,000,000 in
disposition of asbestos and other product liability claims from 1983
through September 1998, when ARTRA's primary insurance carriers asserted
that ARTRA's primary insurance coverage for the claims had been exhausted.
Beginning in September 1998, certain of ARTRA's excess insurance carriers,
under a reservation of the right to deny coverage at a subsequent date,
assumed the defense of the claims and paid defense, settlement and
indemnity costs relating to these claims, pursuant to an interim agreement,
which costs totaled approximately $17,500,000 through December 31, 1999.
The interim agreement expired as of January 31, 2000.
Until January 31, 2000, pursuant to the interim agreement, certain of
ARTRA's excess insurance carriers funded defense and indemnity costs as
they became due. Under the interim agreement, the claims were administered
by one of ARTRA's principal excess insurers, which was one of the
participants in the expired interim agreement. Since January 31, 2000,
that excess insurer has not administered the claims. From January 1, 2000
through June 30, 2000 the excess insurers have paid $585,000 in defense
costs. ARTRA estimates that defense, settlement and indemnity expenses
incurred between January 1, 2000 and June 30, 2000 were approximately
$9,700,000 of which approximately $1,309,000 was subject to the interim
agreement through January 31, 2000 and was advanced by excess insurers, or
is subject to potential reimbursement from the excess insurers. During the
time period February 1, 2000 through June 30, 2000 ARTRA estimates that
approximately $8,391,000 in defense settlement and indemnity expenses were
incurred which are subject to potential reimbursement from the excess
insurers.
<PAGE>
Negotiations are continuing with the principal excess insurer and the other
excess insurers regarding the establishment of a permanent funding, claims
administration and coverage agreement. Unless and until such a permanent
agreement is reached, as to which ARTRA can provide no assurance, ARTRA
intends, unless litigation should become necessary in light of the
positions of the excess carriers or other circumstances, to: (i) administer
the claims and (ii) fund defense, settlement and indemnity costs to the
extent necessary and then seek reimbursement in settlement and defense
costs from the excess insurance carriers. At June 30, 2000 ARTRA has
advanced $245,000 which is subject to potential reimbursement from certain
excess insurers. It is also possible that these excess insurance carriers
could cease making payments at any time on the basis of their various
reservations of rights.
ARTRA and two of its excess insurers currently have a dispute as to the
existence of certain insurance coverage, in the approximate amount of
$25,000,000, for the period 1968 through 1974. These carriers contend that
the policies for this period, if they ever existed, are "lost." If ARTRA
were to be unable to locate all or some of these policies or provide
sufficient evidence of their existence, then, absent the negotiation of an
agreement with the carriers, as to which ARTRA can provide no assurance, a
court could find that no coverage existed for all or some of the periods in
question. In that event, a court might find ARTRA responsible for funding
its pro rata share of payments for defense and indemnity costs. A similar
issue exists with respect to an unknown amount of primary and excess
insurance coverage by unknown insurers for the period 1947 through 1962,
for which ARTRA has not been able to locate policies, with potential effect
similar to that possible with respect to the 1968 through 1975 period.
If ARTRA were unable to conclude a permanent agreement with its excess
insurance carriers regarding the claims or with respect to coverage for the
potential gaps described herein, if ARTRA were ultimately unsuccessful in
attempting to marshal any such insurance, if a court were to determine that
gaps in coverage exist, or if a court were to determine that ARTRA is
responsible for a portion of the defense and indemnity costs associated
with those potential gaps in coverage, there could be a material adverse
effect on ARTRA's financial condition. ARTRA's financial condition could
also be materially adversely affected to the extent, if any, that its
existing insurance coverage and any to which it might become entitled in
the future is not sufficient to respond fully to the claims.
ARTRA has the following amounts of excess insurance it believes are
available to indemnify ARTRA against its liability on some or all of the
claims: (a) approximately $204,000,000 for which ARTRA has policies, less
amounts expended from September 1998 through June 30, 2000 and such
additional amounts as have been paid or committed since June 30, 2000; (b)
an additional amount which may total as much as $45,000,000 for which ARTRA
thus far has been unable to locate insurance policies but for which ARTRA
has certain evidence of coverage, and (c) any potentially applicable
coverage in an undetermined amount for any other policies that may exist
over certain years, which ARTRA is investigating. There is also potential
additional coverage from two excess insurers, which ARTRA believes are or
may be involved in insolvency proceedings. In the event ARTRA were unable
to satisfy the claims through a combination of insurance coverage and its
own net assets, or in the event that ARTRA does not receive timely
reimbursement from its excess carriers of amounts ARTRA may be required to
expend on defense, settlement and indemnity payments, it is possible that
ARTRA could be forced to seek protection under the federal bankruptcy laws
and that Entrade would lose its entire investment in ARTRA.
If the combination of insurance coverage and ARTRA's assets are not
sufficient to satisfy asbestos and product liability claims against it, it
is also possible that the plaintiffs presenting the claims could attempt to
pursue legal action against Entrade. Entrade believes that no valid basis
exists for, and it would have meritorious defenses against, the imposition
of ARTRA's liability for the asbestos and product liability claims against
Entrade, and Entrade would vigorously defend itself against any attempt to
<PAGE>
impose such liability. In the event of an unfavorable outcome of such
legal action, however, there could be a material adverse effect upon
Entrade's financial condition and results of operations.
ENVIRONMENTAL MATTERS
EPA NOTICES ALLEGING ENVIRONMENTAL VIOLATIONS
In April 1994, the EPA notified ARTRA that it was a potentially responsible
party for the disposal of hazardous substances (principally waste oil) at a
disposal site in Palmer, Massachusetts, generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division of Harvel
Industries, Inc., a majority owned subsidiary of ARTRA. In 1985, Harvel was
merged into ARTRA's Fil-Mor subsidiary. This site has been included on the
EPA's National Priorities List. In February 1983, Harvel sold the assets
of Clearshield to Envirodyne Industries, Inc. The alleged waste disposal
occurred in 1977 and 1978, at which time Harvel was a majority-owned
subsidiary of ARTRA. In May 1994, Envirodyne and its Clearshield National,
Inc. subsidiary sued ARTRA for indemnification in connection with this
proceeding. The cost of clean-up at the Palmer, Massachusetts site has
been estimated to be approximately $7,000,000 according to proofs of claim
filed in the adversary proceeding. A committee formed by the named
potentially responsible parties has estimated the liability respecting the
activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability, and no
assurances can be given that it will not substantially exceed $400,000.
LAWSUITS SEEKING RECOVERY OF ENVIRONMENTAL CLEAN-UP COSTS
In a case titled Sherwin-Williams Company v. ARTRA Group Incorporated,
filed in 1991 in the United States District Court for Maryland, Sherwin-
Williams Company brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland, for recovery of costs
of investigation and clean-up of hazardous substances that were stored,
disposed of or otherwise released at the manufacturing facility. This
facility was owned by Baltimore Paint and Chemical Company, formerly a
subsidiary of ARTRA from 1969 to 1980. Sherwin-Williams's current
projection of the cost of clean-up is approximately $5,000,000 to
$6,000,000. ARTRA has filed counterclaims against Sherwin-Williams and
cross claims against other former owners of the property. ARTRA also is
vigorously defending this action and has raised numerous defenses.
Currently, the case is in discovery, and ARTRA cannot determine what, if
any, its liability may be in this matter.
ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California in respect to the Operating Industries, Inc. site in Monterey
Park, California. This site is included on the EPA's National Priorities
List. ARTRA's involvement stemmed from the alleged disposal of hazardous
substances by The Synkoloid Company, a subsidiary of Baltimore Paint and
Chemical Company, which was formerly owned by ARTRA. Synkoloid
manufactured spackling paste, wall coatings and related products, certain
of which generated allegedly hazardous substances as a by-product of the
manufacturing process. ARTRA presently estimates the total liability for
clean-up costs at this site to be approximately $500,000.
If the combination of insurance coverage and ARTRA's assets are not
sufficient to satisfy environmental claims against it, it is also possible
that the plaintiffs presenting the claims could attempt to pursue legal
action against Entrade. Entrade believes that no valid basis exists for,
and it would have meritorious defenses against, the imposition of ARTRA's
liability for the environmental claims against Entrade, and Entrade would
vigorously defend itself against any attempt to impose such liability. In
the event of an unfavorable outcome of such legal action, however, there
could be a material adverse effect upon Entrade's financial condition and
results of operations.
<PAGE>
OTHER CASES
Bagcraft Packaging, LLC and Packaging Dynamics, LLC filed suit against
ARTRA and its BCA Holdings, Inc. subsidiary in the Circuit Court of Cook
County, Illinois, on November 22, 1999, alleging that ARTRA breached a non-
compete agreement entered into in connection with the sale of certain
assets to Bagcraft Packaging, LLC by hiring Mark Santacrose as Chief
Executive Officer and President of ARTRA. The plaintiffs seek damages in
excess of $5,000,000. ARTRA is vigorously defending itself in this action.
In addition, on or about March 16, 2000, Christi Mottola Enterprises, Inc.
("CME"), filed a complaint in the Superior Court of California, Orange
County, naming as defendants Don Haidl, Corey Schlossmann, Nationwide
Auction Systems, and Does 1 to 100, alleging interference with contract and
with prospective economic advantage, civil conspiracy and violation of
California's Unfair Business Practices Act. CME seeks 20 percent of
157,000 Entrade shares Haidl allegedly agreed to transfer to JDK &
Associates, Inc. in connection with Entrade's acquisition of Nationwide (or
an equivalent amount as damages), consequential losses, punitive damages
and "restitution and disgorgement of all income, consideration, or
compensation, in any form, received by the defendants in conjunction with
the acquisition of Nationwide by Entrade."
Management does not believe that the outcome of either of these two cases
will have a material adverse effect upon Entrade's financial condition and
results of operations.
NOTE 11. BUSINESS SEGMENTS
Through November 20, 1998, the Company's ARTRA subsidiary operated in one
industry segment as a manufacturer of packaging products principally
serving the food industry. The packaging products business was conducted
by ARTRA's wholly-owned Bagcraft subsidiary, which business was sold on
November 20, 1998.
As discussed in Note 3, on February 23, 1999, ARTRA entered into an
agreement with Entrade providing for the merger of a wholly-owned
subsidiary of Entrade with and into ARTRA. On September 22, 1999, ARTRA's
shareholders approved the transaction and on September 23, 1999, the merger
was completed. As a result of the merger, ARTRA became a wholly-owned
subsidiary of Entrade. Entrade is a business-to-business company
specializing in the creation of e-commerce marketplaces.
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Nationwide, which has operated for 20 years and
is one of the nation's largest volume public auction firms in the
disposition of municipality, law enforcement, corporate and utility company
surplus property. In addition to vehicles and equipment, Nationwide
conducts real property and jewelry auctions.
The Company has adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 requires certain
disclosures about operating segments in a manner that is consistent with
how management evaluates the performance of the segments. At June 30,
2000, Entrade's two reportable segments consist of development stage
business services provided principally by the software technology licensing
and e-commerce marketplaces and the transaction services business conducted
principally by Nationwide.
<PAGE>
The following table summarizes financial information for Entrade's
reportable segments for the three and six month periods ended June 30, 2000
and 1999, respectively (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
Development stage
businesses . . . . . . $ 233 -- 450 --
Transaction services . . 3,446 -- 7,059 --
-------- -------- -------- --------
$ 3,679 -- 7,509 --
======== ======== ======== ========
Operating loss:
Development stage
businesses . . . . . . $ 4,145 -- 8,689 --
Transaction services . . 548 1,472 1,244 1,772
Corporate expenses . . . 3,532 1,702 5,678 2,756
-------- -------- -------- --------
Operating loss . . . . . . 8,225 3,174 15,611 4,528
Other income (expense):
Equity in loss of
affiliates . . . . . . (2,457) -- (3,239) --
Gain on sale of
investments. . . . . . 8,089 -- 8,089 --
Net interest (expense)
income . . . . . . . . (601) 121 (769) 207
Amortization of discount
on note payable. . . . (1,138) -- (1,138) --
-------- -------- -------- --------
Loss before income
taxes. . . . . . . . . $ 4,332 3,053 12,668 4,321
======== ======== ======== ========
Capital expenditures:
Development stage
businesses . . . . . . $ 210 -- 496 --
Transaction services . . 29 -- 359 --
Corporate. . . . . . . . 126 -- 428 --
-------- -------- -------- --------
$ 365 -- 1,283 --
======== ======== ======== ========
Depreciation and
amortization:
Development stage
businesses . . . . . . $ 543 -- 1,077 --
Transaction services . . 553 -- 1,209 --
Corporate. . . . . . . . 31 -- 36 --
-------- -------- -------- --------
$ 1,127 -- 2,322 --
======== ======== ======== ========
<PAGE>
The following table summarizes financial information for Entrade's
responsible segments for the six month periods ended June 30, 2000, and
1999, respectively.
Six Months Ended
June 30,
------------------------
2000 1999
-------- --------
Total assets:
Development stage business . . . . . . . $ 10,378 --
Transaction services . . . . . . . . . . 52,337 --
Corporate. . . . . . . . . . . . . . . . 12,114 16,921
Investment in and advances
to affiliates. . . . . . . . . . . . . 29,588 --
-------- --------
$104,417 16,921
======== ========
During the three and six months ended June 30, 2000, there were no
significant intersegment sales. No one customer accounted for more than 10%
of the Company's total revenues. No significant revenues were generated by
development stage business during the three or six months ended June 30,
2000.
NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") released Issue 00-2,
"Accounting for Web Site Development Costs." EITF Issue 00-2 establishes
standards for determining the capitalization or expensing of incurred costs
relating to the development of Internet web sites based upon the respective
stage of development. The Issue is effective for fiscal quarters beginning
after June 30, 2000 (including costs incurred for projects in process at
the beginning of the quarter of adoption). The Company plans to adopt the
provisions of EITF 00-2 effective July 1, 2000. The Company's web site
development costs for all periods through June 30, 2000 have been expensed.
The capitalization of a major portion of the Company's web site development
costs could have a significant effect on the results of operations in the
remainder of fiscal year 2000 and future periods.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25"(the
"Interpretation"). The Interpretation is intended to clarify certain
issues that have arisen in practice since the issuance of APB 25. The
Company adopted the provisions of this pronouncement during the first
quarter of 2000.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition. The Company believes its revenue recognition policy is in
compliance with SAB No. 101.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments and hedging activities
and requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The Statement, as amended, is effective for fiscal years
beginning after June 15, 2000. As the Company does not have any derivative
instruments or hedging activities, SFAS No. 133 is not expected to have a
material effect on the Company's financial results.
<PAGE>
NOTE 13. SUBSEQUENT EVENTS
Entrade and eBreviate, a subsidiary of EDS, announced the formation of a
strategic alliance to offer buyers, sellers and internet marketplaces an
extensive suite of e-commerce software and services. The two companies
will also actively market each other's software and services, as well as
jointly pursue other e-commerce opportunities.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This Report contains forward-looking statements based on the Company's
current expectations, estimates, projections, beliefs and assumptions.
Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," "may," "will" and variations of these words or
similar expressions are intended to identify forward-looking statements.
In addition, any statements that refer to expectations, projections or
other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. Such statements
are not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict. Therefore,
actual Company results could differ materially and adversely from those
anticipated in any forward-looking statements as a result of numerous
factors, many of which are described in the "Risk Factors" section in the
Company's prospectus filed with the SEC on February 10, 2000. You should
carefully consider those risks, in addition to the other information in
this Report and in the Company's other filings with the SEC, before
deciding to invest in the Company or to maintain or increase your
investment. The Company undertakes no obligation to revise or update
publicly any forward-looking statements for any reason.
The following discussion supplements the information found in the financial
statements and related notes:
GENERAL BUSINESS
Entrade is an e-commerce software technology company and a creator of and
an investor in business-to-business e-commerce marketplaces in targeted
industries. Entrade utilizes a blend of proprietary web enabled business-
to-business e-commerce technology through Entrade Commerce business
development and management talent, funding and strategic alliances to
launch e-commerce marketplaces. Entrade's model involves working with
leaders in targeted industries to create neutral marketplaces that bring
together multiple sellers and buyers. Through a diversified portfolio of
companies and a "Bricks and Clicks" strategy, Entrade has developed a
competency in asset management, asset disposition and fulfillment.
Entrade marketplaces are intended to generate multiple revenue streams
including transaction fees, membership and listing fees, fees from
ancillary services such as credit, financing, appraisal, escrow and
warranty, and advertising. Entrade also generates revenue by licensing its
technology through various licensing arrangements.
During the first six months of 2000, Entrade has continued to execute on
its strategy of creating business-to-business e-commerce marketplaces. The
following table contains a summary as of June 30, 2000 of the e-commerce
companies in which Entrade has an interest and the marketplace each company
is pursuing. In addition, the table indicates the quarter Entrade's
ownership interest in each company began and the period in which each
company launched its website.
Owner-
ship
Interest
(1) at Owner-
June 30, ship Website
Company e-commerce marketplace 2000 Date Launched
------- -------------------------- -------- -------- --------
Asset-
Control.com Sale of surplus industrial 38% Q1 2000 May 2000
equipment, excess inventory
and commercial real estate
<PAGE>
Owner-
ship
Interest
(1) at Owner-
June 30, ship Website
Company e-commerce marketplace 2000 Date Launched
------- -------------------------- -------- -------- --------
AssetTRADE.com Industrial machinery, equip- 16.62% Q1 1999 Apr 2000
ment and parts remarketing
Commerce-
Health.com On-line institutional health- 6% Q2 2000 Beta
care procurement system Testing
printer-
alliance.com Buying group of independent 64% Q4 1999 Apr 2000
commercial printers in order
to obtain cost savings on
supplies, equipment and
other services
Trade-
Textile.com Trading of excess yarns and 21% Q1 2000 Mar 2000
fabrics, garments, raw
materials, chemicals, and
textile quotas, initially
targeting the Chinese
textile industry
GlobalPower
Assets.com Asset recovery and internal 80%(2) Q2 1999 Jun 2000
inventory management ser-
vices to utility industry
Truck-
Center.com Sale of trucks and related 100%(3) Q1 2000 Apr 2000
services including financing,
certification, warranty and
third party inspection
Pricecon-
tainer.com On-line reservation system 15% Q4 1999 Apr 2000
designed to facilitate
trans-oceanic shipping and
logistics
(1) On a fully-diluted basis.
(2) Does not reflect Entrade's additional ownership due to
AssetTRADE.com's 20% interest in GlobalPower Assets.com
(3) See Note 3 to the condensed consolidated financial
statements "Change of Business - e-commerce Marketplaces"
for a description of the ownership of TruckCenter.com.
On February 10, 2000, Entrade agreed with Associates First Capital
Corporation to organize a new entity to be known as TruckCenter.com to
create a business-to-business e-commerce marketplace for the sale of trucks
and related services, including financing, certification, warranty and
third party inspection.
On February 18, 2000, Entrade entered into an agreement to acquire shares
of Series A Convertible Preferred Shares of TradeTextile.com.
TradeTextile.com provides business-to-business e-commerce for the trading
of yarns, fabrics, garments, raw materials, chemicals, and textile quotas,
initially targeting the Chinese textile industry.
<PAGE>
On March 9, 2000, Entrade agreed with Textron Financial Corporation, a
subsidiary of Textron Inc., to organize a new entity to be known as
AssetControl.com to create a business-to-business electronic commerce
marketplace for the sale of surplus industrial equipment, excess inventory
and commercial real estate.
On March 20, 2000, Entrade raised approximately $28,579,000 in net proceeds
from the sale of 30,000 shares of its Series A Mandatorily Redeemable
Convertible preferred stock. See Note 6 to the financial statements
"Mandatorily Redeemable Convertible Preferred Stock" and the "Liquidity
Capital Resources" section relating to the redemption of the Series A
Mandatorily Redeemable Convertible Preferred Stock and other matters
affecting Entrade's ongoing results of operations.
In June 2000, Entrade invested an additional $400,000, for a total of
$500,000, in CommerceHealth.com which provides procurement process
solutions and consulting services for the large hospital market. Entrade
has an approximate 6% ownership of CommerceHealth.com.
Entrade also owns all of the outstanding capital stock of Nationwide,
operating as a public auction firm for the disposition of municipality, law
enforcement, corporate and utility company surplus property, primarily
vehicles and equipment. In addition, Nationwide conducts auctions of real
property and jewelry. Entrade also owns all of the Series A Preferred
Stock (convertible into a 61% common stock ownership interest) of
printeralliance.com, and in the first quarter of 2000 acquired an
additional 3% interest for $1,000,000 bringing its total interest to 64%.
In June 2000, Entrade invested an additional $350,000 in
printeralliance.com through the purchase of convertible notes, each with a
15% coupon. Entrade also owns a 15% interest in Pricecontainer.com and has
continued to develop the business of utiliparts.com, Inc., d/b/a
GlobalPowerAssets.com, in which Entrade holds an 80% interest.
RESULTS OF OPERATIONS
PORTFOLIO COMPANY GROSS TRANSACTION VOLUME AND NET REVENUE EARNED
Net revenue in the statement of operations reflects the licensing and
related fees charged to non-consolidated affiliates and third parties and,
for auction and/or sales transactions, the commissions earned on such
transactions, rather than the gross transaction value, only for companies
whose results are consolidated into the statement of operations. Financial
data for Entrade's portfolio companies (whether accounted for in the
statement of operations on the consolidation, equity or cost methods)
regarding gross transaction value and total net revenue for the three and
six month periods ended June 30, 2000 is as follows (in thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
2000 2000
----------- -----------
Portfolio companies exclusive of
Nationwide
Gross transaction volume . . . . . . $ 21,569 26,723
-------- --------
Net revenue. . . . . . . . . . . . . 1,108 1,521
-------- --------
Nationwide
Gross transaction volume . . . . . . 19,281 39,834
-------- --------
Net revenue. . . . . . . . . . . . . 3,446 7,059
-------- --------
All portfolio companies
Total gross transaction volume . . . 40,850 66,557
-------- --------
Total net revenue. . . . . . . . . . $ 4,554 8,580
======== ========
<PAGE>
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 VS. THREE AND
SIX MONTH PERIODS ENDED JUNE 30, 1999
Revenues of $3,679,000 and $7,509,000 for the three and six month periods
ended June 30, 2000 reflect the results principally from the auction fees
and related revenue of Nationwide, which was acquired in the fourth quarter
of 1999. Revenues of $233,000 and $450,000 were earned by Entrade's e-
commerce businesses during the three and six month periods ended June 30,
2000, respectively. The cost of revenues for the three month periods ended
June 30, 2000 represents the cost of sales of Nationwide.
Selling, general and administrative expenses from operations were
$8,760,000 and $16,550,000 for the three and six month periods ended
June 30, 2000, respectively, as compared with $1,462,000 and $2,446,000 for
the respective prior year periods. The increase from 1999 to 2000 is due
primarily to increases in personnel and related costs, consulting, legal,
and professional fees related to the development of Entrade's various e-
commerce marketplaces and proprietary software. Entrade incurred non-cash
compensation charges of $415,000 and $1,090,000 during the three and six
month periods ended June 30, 2000 as compared to $1,472,000 and $1,772,000
for the respective prior year periods.
During the three and six month periods ended June 30, 2000, Entrade had net
interest expense of $601,000 and $769,000 as compared to net interest
income of $121,000 and $207,000 during the three and six month periods
ended June 30, 1999, respectively. During the three months ended June 30,
2000, Entrade incurred charges of $1,138,000 for the amortization of the
discount incurred in connection with the private placement of promissory
notes. In April 2000, Entrade sold 6,000,000 shares of Class A Common
Stock of AssetTRADE.com which resulted in a gain of $8,069,000. In
addition, 5,250 shares of Comforce common stock was sold for a gain of
$20,000.
Entrade's consolidated working capital decreased by $7,289,000 to
($12,180,000) at June 30, 2000, as compared to consolidated working capital
of ($4,891,000) at December 31, 1999. Entrade used working capital to
invest in its affiliates, retire debt, fund operating expenses, and for the
acquisition of assets. This use of working capital was partially offset by
proceeds from the exercise of stock options and warrants, and the private
placement of notes.
LIQUIDITY AND CAPITAL RESOURCES
Entrade has sustained significant net losses and negative cash flows from
operations in the first six months of 2000. Entrade's ability to meet its
obligations in the ordinary course of business is dependent upon its
ability to establish profitable operations and to raise additional
financing through public or private equity financing, bank financing or
other sources of capital.
Entrade was unable to recognize an income tax benefit in connection with
its first six months of 2000 due to its tax loss carryforwards and the
uncertainty of future taxable income.
Entrade's cash and cash equivalents decreased $416,000 during the six
months ended June 30, 2000. Cash flows used by operating activities of
$12,093,000 and cash flows used by investing activities of $7,783,000 were
less than cash flows from financing activities of $19,460,000. Operating
activities used cash flows to fund Entrade's net loss for the six months
ended June 30, 2000 including amounts used to support its affiliates.
Investing activities used cash flows to invest in Entrade's affiliates and
for the acquisition of assets. Financing activities provided cash flows
from the exercise of stock options, warrants, and private placements
entered into during the six months ended June 30 of fiscal 2000.
<PAGE>
In March 2000, Entrade raised approximately $28,579,000 in net proceeds
from the sale of the Company's Series A mandatorily redeemable convertible
preferred stock ("Series A Preferred Stock"). In April 2000, Entrade sold
6,000,000 shares of Class A Common Stock of AssetTRADE.com and used the
$10,000,000 of proceeds from such sale, along with cash on hand, to satisfy
the redemption of 29,700 shares of the Series A Preferred Stock issued in
March for approximately $34,280,000, which materially decreased the cash
available to Entrade to finance its continuing e-commerce operations.
During the week of May 15, 2000, Entrade agreed to issue approximately
$10,625,000, $2,000,000 of the proceeds of which are in the form of a note
which is due on September 15, from a private placement of promissory notes
and related warrants to certain individual accredited investors. See
Note 7 - Mandatorily Redeemable Convertible Preferred Stock to the
condensed consolidated financial statements in Item 1 of Part 1 to this
Form 10-Q report.
Management believes that, upon obtaining the additional $2,000,000 of
funding due on September 15, current working capital is sufficient to
continue its current operations into the fourth quarter of this year or,
without the additional capital, through the third quarter of this year. If
Entrade desires to make additional strategic acquisitions or invest in
additional joint ventures, Entrade will require additional capital beyond
that which is currently anticipated. Management has engaged investment
banking firms to raise additional capital in order to fund its operations
and execute its e-commerce business plan into 2001. Adequate financing may
not be available to Entrade on favorable terms or at all. If adequate
funds are not available on acceptable terms, or at all, Entrade will not be
able to continue or expand its e-commerce business operations, which would
materially harm its business, results of operations and financial
condition.
Management believes that Entrade's Nationwide subsidiary generates adequate
cash flow and earnings from operations to continue its operations as
currently conducted whether or not Entrade receives adequate financing to
continue its e-commerce operations.
As of June 30, 2000, Entrade has a commitment to provide approximately
$1,000,000 in cash to TradeTextile.com. Management anticipates that
Entrade will be able to satisfy this commitment only upon the receipt of
additional funding from outside sources.
On March 31 and June 30, 2000, Nationwide triggered a technical default in
its bank revolving line of credit. These defaults triggered cross defaults
in the Entrade promissory notes. All defaults were cured through waivers
from the lending bank.
OPERATING PLAN
During 1999, Entrade entered the business of developing business-to-
business e-commerce marketplaces primarily through its acquisition of
entrade.com, printeralliance.com and other equity interests. Entrade also
entered the land-based asset disposition public auction business through
its October 1999 acquisition of Nationwide. In 2000, Entrade invested in
TruckCenter.com, AssetControl.com, TradeTextile.com, CommerceHealth.com and
began the buildout of its software company on a stand-alone basis. Entrade
intends to continue to expand these businesses in 2000. For a description
of the acquisitions, see Note 3, "e-commerce Marketplaces" to Condensed
Consolidated Financial Statements included in Item 1 of Part I of this
Form 10-Q report.
NATIONWIDE AUCTION SYSTEMS
On April 19, 1999, Entrade entered into a letter of intent to purchase all
of the issued and outstanding common stock of Public Liquidations Systems,
Inc. and Asset Liquidation Group, Inc., d/b/a as Nationwide Auction
Systems. Nationwide is a public auction firm for the disposition of
municipality, law enforcement, corporate and utility company surplus
property. In addition to vehicles and equipment, Nationwide conducts real
property and jewelry auctions.
<PAGE>
On October 19, 1999, Entrade completed the acquisition of all of the
outstanding capital stock of Nationwide. Entrade paid the following
amounts to close the transaction: (a) 1,570,000 shares of Entrade common
stock; (b) promissory notes (the "Notes") with a total principal amount of
$4,800,000, maturing on November 29, 1999; (c) $6,000,000 cash; and (d)
promissory notes (the "Term Notes") with a total 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 out of cash in its accounts. 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.
In January 2000, the Notes, net of amounts due from a selling shareholder
of $139,000, plus accrued interest, were converted into 278,985 shares of
Entrade common stock. Accordingly, at December 31, 1999, net amounts due
on the Notes plus accrued interest were reclassified in the Entrade's
consolidated balance sheet as obligations expected to be settled by the
issuance of common stock. The total amount reclassified, including accrued
interest, was $4,743,000.
In March 2000, Entrade entered into an agreement with the Nationwide
selling shareholders to convert the Term Notes with a remaining principal
balance of approximately $10,500,000 into 265,621 shares of Entrade common
stock. The Term Notes originally provided for principal payments of
$3,500,000 in October 2000 and $7,000,000 in October 2001. Completion of
this transaction is subject to approval by Entrade's shareholders.
The Nationwide acquisition has been accounted for as a purchase. The
operating results of Nationwide have been included in Entrade's
consolidated financial statements since the effective date of acquisition.
The amount of the purchase price allocated to intangible assets acquired,
principally goodwill, of approximately $45 million is being amortized over
20 years.
Holders of approximately 1,848,985 shares of common stock that were issued
in the Nationwide acquisition were prohibited from selling more than
978,985 shares until May 31, 2000, subject to adjustment in certain
circumstances.
Entrade also entered into an employment agreement with an individual to
serve as an executive officer of Nationwide. The initial term of the
employment agreement is three years. The term will automatically be
extended on each anniversary of the agreement commencing the third
anniversary for one year unless either party gives notice that it does not
wish to extend the employment term not later than 90 days preceding such
anniversary date. In connection with such employment, this individual was
issued a nonqualified stock option for the purchase of 200,000 shares of
Entrade common stock at an exercise price of $9.00 per share. The option
became exercisable in full on the date of the closing of the Nationwide
acquisition. As of the closing date of the Nationwide acquisition, this
individual was appointed as a director of Entrade.
LITIGATION
Entrade and/or its subsidiaries are involved in several legal proceedings.
See Note 10 to Condensed Consolidated Financial Statements "Litigation,"
included in Item 1 of Part I of this Form 10-Q report.
NET OPERATING LOSS CARRYFORWARDS
In recent years, Entrade has issued shares of its common stock to repay
various debt obligations, upon exercise of stock options and warrants, as
consideration for acquisitions, to fund working capital obligations and as
consideration for various other transactions. Section 382 of the Internal
Revenue Code of 1986 limits a corporation's utilization of its Federal
income tax loss carryforwards when certain change in the ownership of a
corporation's common stock occurs.
<PAGE>
In management's opinion, Entrade is not currently subject to such
limitations regarding the utilization of its Federal income tax loss
carryforwards. Should Entrade continue to issue a significant number of
shares of common stock, it could trigger a limitation that would prevent it
from utilizing a substantial portion of its federal income tax loss
carryforwards.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") released Issue 00-2,
"Accounting for Web Site Development Costs." EITF Issue 00-2 establishes
standards for determining the capitalization or expensing of incurred costs
relating to the development of Internet web sites based upon the respective
stage of development. The Issue is effective for fiscal quarters beginning
after June 30, 2000 (including costs incurred for projects in process at
the beginning of the quarter of adoption). The Company plans to adopt the
provisions of EITF 00-2 effective July 1, 2000. The Company's web site
development costs for all periods through June 30, 2000 have been expensed.
The capitalization of a major portion of the Company's web site development
costs could have a significant effect on the results of operations in the
remainder of fiscal year 2000 and future periods.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25" (the
"Interpretation"). The Interpretation is intended to clarify certain
issues that have arisen in practice since the issuance of APB 25. The
Company had adopted the provisions of this pronouncement during the first
quarter of 2000.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition. The Company believes its revenue recognition policy is in
compliance with SAB No. 101.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments and hedging activities
and requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The Statement, as amended, is effective for fiscal years
beginning after June 15, 2000. As the Company does not have any derivative
instruments or hedging activities, SFAS No. 133 is not expected to have a
material effect on the Company's financial results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Registrant since December 31, 1999. ARTRA's investment in Comforce common
stock is subject to liquidity and market price risks.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by Part II, Item 1 of Form 10-Q is hereby
incorporated by reference to Note 10 to Entrade's condensed consolidated
financial statements for the three and six months ended June 30, 2000,
included in Item 1 of Part I of this Form 10-Q report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the second quarter of 2000, Entrade issued unregistered shares of
its common stock, as follows:
On March 27, 2000, Entrade closed a private placement financing transaction
with several institutional accredited investors. Under the terms of the
private placement, Entrade issued 30,000 shares of redeemable convertible
preferred stock, with an initial par value of $1,000 per share. The non-
voting preferred stock bore a 6.0% dividend, which Entrade could pay, at
its election, in either cash or common stock. For the first fifteen months
after issuance of the preferred stock, and subject to certain registration
requirements and other restrictions, Entrade had the right to elect to
redeem, all or part of the preferred stock at the lesser of $78.73 or 91.%
of the lower closing sale price of Entrade's common stock during the two
consecutive trading days ending on the date of such election. In addition,
Entrade had the right, during such period, to redeem the preferred stock at
115% of par. Entrade had to redeem or convert all of the preferred stock
within two years of the date of its issuance, and, until the preferred
stock was redeemed or converted, Entrade could not pay dividends on its
common stock without the approval of the preferred stockholders. In
conjunction with the agreement, Entrade also issued warrants to the
investors to purchase 400,000 shares of its common stock at approximately
$41.38 per share. These securities were sold to several accredited
investors pursuant to an exemption from registration under the Act,
pursuant to Regulation D promulgated thereunder. Proceeds were to be used
for general corporate purposes. Subsequently, on April 20, 2000, Entrade
redeemed 29,700 shares of the preferred stock and issued 31,516 shares of
common stock upon conversion of the remaining share of the preferred stock.
Pursuant to the terms of the warrants, the investors now have a right to
acquire 1,021,080 shares of common stock at approximately $16.21 per share.
See Note 7 to the Condensed Consolidated Financial Statements included in
Item 1 of Part 1 of this Form 10-Q report.
In addition, Entrade issued:
On April 12, 2000 Entrade issued 964,000 shares of its common stock as
partial consideration for its purchase of 7,350,000 shares of the Class A
Common Stock of AssetTRADE.com, Inc. Such shares were issued in reliance
upon an exemption from registration pursuant to Section 4(2) under the
Securities Act of 1933, as such transaction did not involve a public
offering.
Warrants for the purchase of an aggregate of 400,000 shares of common stock
were issued to the purchasers of the Mandatorily Redeemable Convertible
Preferred Stock issued by Entrade in March 2000. The initial exercise price
of the warrants was approximately $41.38 per share. On April 20, 2000,
pursuant to the adjusted terms of these warrants, the warrants became
exercisable for an aggregate of 1,021,080 shares of common stock at an
exercise price of approximately $16.21 per share.
The Company agreed to issue warrants for the purchase of an aggregate of
385,000 shares of common stock to the participants of the May 15, 2000,
Private Placement issued by Entrade in May 2000. The exercise price of the
warrants was $16.21 per share. All of the above warrants were issued
pursuant to an exemption from registration under Section 4(2) of the Act.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Stock Purchase Agreement dated as of April 19, 2000
among Entrade Inc. and Internet Capital Group, Inc.
(b) Reports on Form 8-K:
The registrant filed the following current reports on Form 8-K during the
quarter ended June 30, 2000:
1. A Form 8-K was filed on April 17, 2000 to report under Item 5
that among other things, Entrade had completed the agreement with Gondwana
Resources NL of the formation of Entrade Asia Pacific to develop B2B e-
commerce marketplaces in the Asia-Pacific region.
2. A Form 8-K was filed on April 20, 2000 to report under Item 5
that among other things, Entrade had completed the sale of 6,000,000 shares
of class A common stock of asseTrade.com, Inc. to Internet Capital Group,
Inc. for $10,000,000.
3. A Form 8-K was filed on April 24, 2000 to report under Item 5
that among other things, Entrade had completed the redemption of its Series
A Convertible Preferred Stock for an aggregate cash payment of
$34,280,113.58 and the issuance of 31,516 shares of Entrade common stock.
<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 thereunder duly authorized.
ENTRADE INC.
------------------------
Registrant
Dated: August 21, 2000 /s/ Mark F. Santacrose
--------------------------------
Mark F. Santacrose
President and
Chief Executive Officer
Dated: August 21, 2000 /s/ Norman Smagley
--------------------------------
Norman Smagley
Executive Vice President and
Chief Financial Officer
