SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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)
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) 441-6650
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 October 31, 1999
------------------------------- -------------------------------
Common stock, no par value 13,957,817
<PAGE>
ENTRADE INC.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended
September 30, 1999 and September 30, 1998 4
Condensed Consolidated Statement of
Changes in Shareholders' Equity
Nine Months Ended September 30, 1999 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999
and September 30, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 17
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 22
About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
September 30, December 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 11,019 $ 11,753
Restricted cash and equivalents 100 1,045
Available-for-sale securities 3,337 8,200
Other 729 270
-------- --------
Total current assets 15,185 21,268
-------- --------
Property, plant and equipment 391 --
Less accumulated depreciation and amortization -- --
-------- --------
391 --
-------- --------
Other assets:
Intangibles, net 10,027 --
Investment in AsseTrade.com 3,523 --
Other 289 --
-------- --------
13,839 --
-------- --------
$ 29,415 $ 21,268
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 105 --
Accrued expenses 774 $ 568
Income taxes 1,108 1,854
Common stock put warrants 340 1,705
Liabilities of discontinued operations 8,312 10,328
-------- --------
Total current liabilities 10,639 14,455
-------- --------
Commitments and contingencies
Redeemable preferred stock -- 2,857
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 and outstanding 12,287,317 shares
in 1999 and 7,864,228 shares in 1998 -- --
Additional paid-in capital 76,369 47,336
Deferred stock compensation (2,804) --
Unrealized appreciation of investments 6,057 10,920
Accumulated deficit (60,846) (54,300)
-------- --------
18,776 3,956
-------- --------
$ 29,415 $ 21,268
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998* 1999 1998*
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ -- $ -- $ -- $ --
------- ------- ------- -------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization -- -- -- --
Selling, general and administrative 2,042 539 6,570 1,691
------- ------- ------- -------
2,042 539 6,570 1,691
------- ------- ------- -------
Operating loss (2,042) (539) (6,570) (1,691)
------- ------- ------- -------
Other income (expense):
Interest income (expense), net 109 (807) 316 (2,794)
Realized gain on disposal of
available-for-sale securities -- -- -- 320
Other income (expense), net -- (1) -- (75)
------- ------- ------- -------
109 (808) 316 (2,549)
------- ------- ------- -------
Loss from continuing operations before income taxes (1,933) (1,347) (6,254) (4,240)
Provision for income taxes -- -- -- --
------- ------- ------- -------
Loss from continuing operations (1,933) (1,347) (6,254) (4,240)
Earnings from discontinued operations -- 1,158 -- 1,968
------- ------- ------- -------
Net loss (1,933) (189) (6,254) (2,272)
Dividends applicable to and loss on
redemption of redeemable preferred stock (6,873) (95) (7,067) (314)
------- ------- ------- -------
Loss applicable to common shares ($8,806) ($ 284) ($13,321) ($2,586)
======= ======= ======= =======
Earnings (loss) per share applicable to common shares:
Basic
Continuing operations ($ 0.97) ($ 0.19) ($ 1.51) ($ 0.58)
Discontinued operations -- 0.15 -- 0.25
------- ------- ------- -------
Net loss ($ 0.97) ($ 0.04) ($ 1.51) ($ 0.33)
======= ======= ======= =======
Weighted average number of shares
of common stock outstanding 9,766 7,864 8,850 7,899
======= ======= ======= =======
Diluted
Continuing operations ($ 0.97) ($ 0.19) ($ 1.51) ($ 0.58)
Discontinued operations -- 0.15 -- 0.25
------- ------- ------- -------
Net loss ($ 0.97) ($ 0.04) ($ 1.51) ($ 0.33)
======= ======= ======= =======
Weighted average number of shares of common stock
and common stock equivalents outstanding 9,766 7,864 8,850 7,899
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- ---------------------------
* As reclassified for discontinued operations.
4
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Deferred Other Total
------------------- Paid-in Stock Comprehensive Accumulated Shareholders'
Shares Dollars Capital Compensation Income (Deficit) Equity
---------- -------- --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 7,864,228 - $47,336 $10,920 ($54,300) $3,956
-----------
Comprehensive income (loss):
Net loss - - - - (6,254) (6,254)
Net decrease in
unrealized appreciation
of investments - - - (4,863) - (4,863)
-----------
Comprehensive income (loss) (11,117)
-----------
Other changes in
shareholders' equity:
Exercise of warrants
to purchase common stock 1,662,289 - 7,327 - - 7,327
Exercise of options to
purchase common stock 52,397 - 205 - - 205
Common stock issued
as consideration for
Entrade assets acquired 2,100,000 - 11,513 - - 11,513
Common stock issued in
exchange for Artra
Series A preferred stock 608,403 - 9,924 - - 9,924
Loss on redemption of
redeemable preferred stock - - (6,775) - - - (6,775)
Stock options issued
and deferred
stock-based compensation - - 4,900 (4,900) - - -
Compensation
expense recognized - - - 2,096 - - 2,096
Outstanding stock options - - 575 - - - 575
Eliminate put liability
for warrants exercised - - 1,364 - - - 1,364
Redeemable preferred
stock dividends - - - - - (292) (292)
----------
Other changes in
shareholders' equity 25,937
----------
---------- -------- ----------- ----------- ------------ ----------- ----------
Balance at
September 30, 1999 12,287,317 - $76,369 ($2,804) $6,057 ($60,846) $18,776
========== ======== =========== =========== ============ =========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 30, September 30,
1999 1998
--------- ---------
<S> <C> <C>
Net cash flows from (used by) operating activities ($ 4,824) $ 1,015
--------- ---------
Cash flows from investing activities:
Purchase of Entrade assets, net of cash acquired (4,099) --
Decrease in restricted cash 945 --
Additions to property, plant and equipment -- (1,951)
Proceeds from sale of COMFORCE common stock -- 170
Other (288) --
--------- ---------
Net cash flows used by investing activities (3,442) (1,781)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 7,532 17
Net decrease in short-term debt -- (118)
Proceeds from long-term borrowings -- 105,839
Reduction of long-term debt -- (107,817)
Repurchase of common stock previously issued
to pay down short-term notes -- (1,518)
Redemption of detachable put warrants -- (1,420)
Other -- (48)
--------- ---------
Net cash flows from (used by) financing activities 7,532 (5,065)
--------- ---------
Decrease in cash and cash equivalents (734) (5,831)
Cash and equivalents, beginning of period 11,753 5,991
--------- ---------
Cash and equivalents, end of period $ 11,019 $ 160
========= =========
Supplemental schedule of noncash
investing and financing activities:
Issue Entrade common stock as
consideration for Entrade assets acquired $ 11,513 --
Exchange Entrade common stock for
Artra redeemable preferred stock 9,924 --
Artra/BCA redeemable preferred stock
received as payment of
Peter Harvey advances -- $ 12,787
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Prior to September 23, 1999, the Registrant operated as Artra Group Incorporated
("Artra"), a Pennsylvania corporation incorporated in 1933. 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 2, on February 23, 1999, Artra entered into an agreement
with Entrade Inc. ("Entrade" or the "Company"), formerly NA Acquisition Corp.,
and WorldWide Web NetworX Corporation ("WorldWide") providing for the merger of
a wholly-owned subsidiary of Entrade with and into Artra. Entrade owns all of
the outstanding capital stock of entrade.com, Inc. ("entrade.com") and 25% of
the Class A Common Stock of asseTrade.com, Inc. ("asseTrade.com").
On September 22, 1999, Artra's shareholders approved the transaction and on
September 23, 1999, the merger (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.
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 Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying condensed consolidated financial statements.
The condensed consolidated balance sheet as of December 31, 1998 was derived
from the audited consolidated financial statements in the Company's annual
report on Form 10-K.
In the opinion of the Company, the accompanying condensed consolidated financial
statements reflect all normal recurring adjustments necessary to present fairly
the Company's financial position as of September 30, 1999, and the results of
its operations and changes in cash flows for the three and nine month periods
ended September 30, 1999 and September 30, 1998. 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 year.
2. CHANGE OF BUSINESS
Entrade Inc.
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 acquisition
agreement require 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 the common shareholders 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.
Additionally, holders of Artra Series A preferred stock received 329 shares of
Entrade common stock for each share of Artra Series A preferred 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, the transaction has been treated as
a recapitalization of Artra with Artra as the acquirer. 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.
7
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Entrade owns all of the outstanding capital stock of entrade.com and 25% of the
Class A Common Stock of asseTrade.com.
entrade.com is an Internet business-to-business electronic commerce
("e-commerce") company seeking to provide asset disposition solutions for the
utility and large industrial manufacturing sectors. asseTrade.com proposes to
develop and implement comprehensive asset/inventory recovery, disposal,
remarketing and management solutions for corporate clients through advanced
Internet electronic business applications, including on-line auctions.
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 Voting Common Stock of asseTrade.com (collectively, the
"Purchased Assets") 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 Purchased Assets.
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 loan 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 guaranty the $4,000,000 funding for
entrade.com.
In August 1999, WorldWide agreed to loan 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
Entrade have been included in the Company's consolidated financial statements
since the effective date of acquisition. However, Entrade losses for the period
from February 23, 1999 until the effective date of the merger in September 1999
have been reflected in the Company's consolidated financial statements as the
economic risks of ownership were assumed by Artra effective February 23, 1999.
The amount of the purchase price allocated to intangible assets acquired of
approximately $10 million is being amortized over 5 years.
The following unaudited pro forma information (in thousands, except per share
amounts) presents a summary of the results of operations of the Company as if a
merger of Artra with a subsidiary of Entrade and the exchange of Artra common
stock and Artra preferred stock for Entrade common stock had been approved by
Artra's shareholders and was effective as of January 1, 1999. Entrade had no
operations and no revenues related to the assets acquired. asseTrade.com had no
operations and no revenues when the 25% voting interest was acquired by Entrade.
Accordingly, no pro forma information is presented for the nine months ended
September 30, 1998 as in the opinion of management this information would not be
meaningful.
Nine Months
Ended
September 30,
1999
--------
Net sales $ 595
========
Net loss $ (7,757)
========
Basic and diluted net loss per common share $ (1.38)
========
8
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
These unaudited pro forma results include certain adjustments, such as
additional amortization expense primarily related to intangible assets. They do
not purport to be indicative of the results of operations which actually would
have resulted had the acquisition occurred on January 1, 1999, or of future
results of operations.
In September 1999, asseTrade.com entered into an agreement with an investor
providing for an initial purchase of shares of asseTrade.com Series A Preferred
Stock. Upon completion of the transaction, subject to certain performance
criteria on the part of asseTrade.com, the investor may purchase additional
shares of asseTrade.com Series A Preferred Stock. Upon completion of the
transaction and assuming the conversion of the asseTrade.com Series A Preferred
Stock into Class A common stock of asseTrade.com, the investor would hold a
31.1% interest in the Class A Common Stock of asseTrade.com and Entrade's
interest in the Class A Common Stock would be approximately 17.5%, or 14.65% on
a fully diluted basis.
Bagcraft
Effective August 26, 1998, Artra and its wholly-owned BCA Holdings, Inc. ("BCA")
subsidiary, the parent of Bagcraft, agreed to sell the business assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The disposition of the Bagcraft business resulted in a net gain of $35,985,000.
The Company's 1998 consolidated financial statements have been reclassified to
report separately the results of operations of Bagcraft. The operating results
(in thousands) for the nine months ended September 30, 1998 of Artra's
discontinued Bagcraft subsidiary consist of:
Net sales $ 94,717
==========
Earnings from operations before
income taxes and minority interest $ 2,425
Provision for income taxes (46)
Minority interest (411)
----------
Earnings from discontinued operations $ 1,968
==========
Earnings per share from discontinued operations $ .25
==========
Liabilities of discontinued operations at September 30, 1999 and December 31,
1998 of $8,312,000 and $10,328,000, respectively, include BCA/Bagcraft
redeemable preferred stock issues (see Note 4), contractual obligations,
environmental matters and other future estimated costs for various discontinued
operations.
3. INVESTMENT IN COMFORCE CORPORATION
At September 30, 1999 the Company's investment in COMFORCE Corporation
("COMFORCE"), 1,525,500 shares, currently a common stock ownership interest of
approximately 9%, was classified in the Company's condensed consolidated balance
sheet in current assets as "Available-for-sale securities." At September 30,
1999 the gross unrealized gain relating to the Company's investment in COMFORCE,
reflected as a separate component of shareholders' equity, was $6,057,000. The
investment in COMFORCE common stock, which represents a significant portion of
the Company's assets at September 30, 1999 and December 31, 1998, is subject to
liquidity and market price risks.
9
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In January 1996, Artra's Board of Directors approved the sale of 200,000 of
Artra's COMFORCE common shares to certain 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.
Based upon the preceding factors, Artra's had concluded that, for reporting
purposes, it had effectively granted options to certain 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 the
Company's portfolio of "Available-for-sale securities" and were classified in
Artra's condensed 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
the Company's financial statements until the options to purchase these 200,000
COMFORCE common shares are exercised.
During the three and nine months ended September 30, 1998, options to acquire
70,750 and 84,750 of these COMFORCE common shares were exercised resulting in
realized gains of $267,000 and $320,000, respectively. At September 30, 1999,
options to acquire 55,750 COMFORCE common shares remained unexercised and were
classified in the Company's condensed consolidated balance sheet as other
current assets with an aggregate value of $112,000, based upon the value of
proceeds to be received upon future exercise of the options.
4. REDEEMABLE PREFERRED STOCK
Artra
In March 1990, Artra issued 3,750 shares of $1,000 par value junior
non-convertible payment-in-kind redeemable Series A Preferred Stock with an
estimated fair value of $1,012,000, net of unamortized discount of $2,738,000 as
partial consideration for the acquisition of the discontinued Bagcraft
subsidiary.
At December 31, 1998, 1,849.34 shares of Series A Preferred Stock were
outstanding with a carrying value of $2,857,000, including accumulated
dividends, net of unamortized discount of $239,000. The Series A Preferred Stock
accrued dividends at the rate of 6% per annum and was redeemable by Artra on
March 1, 2000 at a price of $1,000 per share plus accrued dividends. Accumulated
dividends of $1,246,000 ($674 per share) were accrued at December 31, 1998.
Under the terms of the Artra/Entrade merger, as discussed in Note 2, holders of
Artra Series A Preferred Stock received 329 shares of Entrade common stock (an
aggregate of 608,403 Entrade common shares) for each share of Artra Series A
preferred stock. The Entrade common stock issued, valued at $9,924,000 (based
upon the closing market price of Entrade common stock on the New York Stock
Exchange on September 23, 1999 of $16-5/16), exceeded the carrying value of the
Artra Series A Preferred Stock of $3,149,000, resulting in a loss on redemption
of redeemable preferred stock of $6,775,000. This loss was reflected in the
Company's condensed consolidated financial statements as a direct charge to
additional paid-in capital.
BCA Holdings/ Bagcraft
During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related party received 3,675 shares of BCA Series A preferred stock (6%
cumulative, redeemable preferred stock with a liquidation preference equal to
$1,000 per share). At September 30, 1999 and December 31, 1998, liabilities of
discontinued operations included 1,036.39 and 1,672.18 BCA Series A redeemable
preferred shares with accumulated dividends of $318,000 ($307 per share) and
$514,000 ($307 per share), respectively.
Effective February 15, 1996, BCA, Bagcraft and a former related party entered
into an agreement to exchange certain preferred stock between the companies. Per
terms of the exchange agreement BCA issued 8,135 shares of BCA Series B
preferred stock (13.5% cumulative, redeemable preferred stock with a liquidation
preference equal to $1,000 per share) to
10
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
the former related party in exchange for 41,350 shares of Bagcraft redeemable
preferred stock. At September 30, 1999 and December 31, 1998, liabilities of
discontinued operations included 1,675.79 BCA Series B redeemable preferred
shares with accumulated dividends of $650,000 ($388 per share).
Both the BCA Series A preferred stock and the BCA Series B preferred stock are
redeemable at the option of the issuer for an amount equal to face value plus
accumulated dividends. The BCA Series B preferred stock was redeemable on June
1, 1997.
In October 1999, the Company's board of directors approved an offer to exchange
an aggregate of up to 727,225 shares of Entrade common stock for the BCA Series
A preferred stock and the BCA Series B preferred stock. The offer expires on
November 22, 1999.
At September 30, 1999 and December 31, 1998, liabilities of discontinued
operations included 8,650 shares of Bagcraft 13.5% cumulative, redeemable
preferred stock (liquidation preference equal to $100 per share). Accumulated
dividends of $1,315,000 were accrued at September 30, 1999 and December 31, 1998
($152 per share).
5. INCOME TAXES
No income tax benefit was recognized in connection with the Company's 1999 and
1998 pre-tax losses due to the Company's tax loss carryforwards and the
uncertainty of future taxable income.
At December 31, 1998, Artra and its subsidiaries had Federal income tax loss
carryforwards of approximately $2,400,000 expiring principally in 2010 - 2012,
available to be applied against future taxable income, if any. In recent years,
the Company 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, the Company is not currently subject to such
limitations regarding the utilization of its Federal income tax loss
carryforwards. Should the Company 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.
6. EARNINGS 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 and loss on redemption of redeemable preferred stock, 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 and loss on redemption of redeemable preferred stock, by the weighted
average number of shares of common stock and common stock equivalents (stock
options and warrants), unless anti-dilutive, during each period. For the three
months ended September 30, 1999 and 1998, common stock equivalents totaled
1,271,000 and 119,000 shares, respectively. For the nine months ended September
30, 1999 and 1998, common stock equivalents totaled 1,156,000 and 57,000 shares,
respectively.
11
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Earnings (loss) per share for the three and nine months ended September 30, 1999
and 1998 was computed as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 9,766 9,766 7,864 7,864
Common stock equivalents (options/warrants) -- -- -- --
------- ------- ------- -------
9,766 9,766 7,864 7,864
======= ======= ======= =======
EARNINGS (LOSS):
Loss from continuing operations $(1,933) $(1,933) $(1,347) $(1,347)
Dividends applicable to and
loss on redemption of
redeemable preferred stock (6,873) (6,873) (95) (95)
------- ------- ------- -------
Loss from continuing operations
applicable to common shareholders (8,806) (8,806) (1,442) (1,442)
Earnings from discontinued operations -- -- 1,158 1,158
------- ------- ------- -------
Net loss $(8,806) $(8,806) $ (284) $ (284)
======= ======= ======= =======
PER SHARE AMOUNTS:
Loss from continuing operations
applicable to common shares $ (.97) $ (.97) $ (.19) $ (.19)
Earnings from discontinued operations -- -- .15 .15
------- ------- ------- -------
Net loss applicable to common shares $ (.97) $ (.97) $ (.04) $ (.04)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 8,850 8,850 7,899 7,899
Common stock equivalents (options/warrants) -- -- -- --
------- ------- ------- -------
8,850 8,850 7,899 7,899
======= ======= ======= =======
EARNINGS (LOSS):
Loss from continuing operations $ (6,254) $(6,254) $(4,240) $(4,240)
Dividends applicable to and
loss on redemption of
redeemable preferred stock (7,067) (7,067) (314) (314)
------- ------- ------- -------
Loss from continuing operations
applicable to common shareholders (13,321) (13,321) (4,554) (4,554)
Earnings from discontinued operations -- -- 1,968 1,968
------- ------- ------- -------
Net loss $(13,321) $(13,321) $ (2,586) $ (2,586)
======= ======= ======= =======
PER SHARE AMOUNTS:
Loss from continuing operations
applicable to common shares $ (1.51) $ (1.51) $ (.58) $ (.58)
Earnings from discontinued operations -- -- .25 .25
------- ------- ------- -------
Net loss applicable to common shares $(1.51) $ (1.51) $ (.33) $ (.33)
======= ======= ======= =======
</TABLE>
12
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
7. LEGAL PROCEEDINGS
With exception of legal proceedings and claims that arise in the ordinary course
of Nationwide's business, the only legal proceedings in which Entrade is
presently involved relate to Artra and its subsidiaries, which are the
defendants in various business-related litigation and environmental matters and
product liability claims. At September 30, 1999 and December 31, 1998, Artra had
accrued current liabilities of $1,500,000 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 Group Incorporated, which has been a wholly-owned subsidiary
of Entrade since September 1999, 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 local counsel
indicate, as of December 31, 1999, pending claims asserted by approximately
45,000 plaintiffs (excluding loss of consortium claims), and it is probable that
there are a significant number of additional claims that remain unasserted.
Artra has no reasonable basis on which to quantify the potential cost to it of
the pending claims and any unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in disposition
of the 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. Since September 1998, certain of Artra's excess
insurance carriers, under a reservation of the right to deny coverage liability
at a subsequent date, have, under a temporary agreement which expired on January
31, 2000, assumed the defense of the claims and paid defense, settlement and
indemnity costs relating to the claims of approximately $17,500,000 through
December 31, 1999. Although Artra is engaged in negotiations with its excess
insurance carriers regarding their payment of these defense, settlement and
indemnity costs subsequent to January 31, 2000, we can provide no assurance that
Artra will be able to conclude an agreement with the excess carriers.
Because of the expiration of the temporary agreement and the uncertain
conclusion of Artra's negotiations with the excess insurance carriers, Artra may
have to advance some or all of these costs, which could have a material adverse
effect on Artra's financial condition, and seek reimbursement of these costs
from the excess insurance carriers through litigation or otherwise. If Artra
were unable to conclude a permanent agreement with its excess insurance
carriers, a court could also determine that Artra is responsible for a portion
of the defense and indemnity costs associated with the product liability claims.
Such a finding would also have a material adverse effect on Artra's financial
condition.
Artra's financial condition could also be materially adversely affected to the
extent that its existing insurance coverage and any other insurance coverage to
which it might become entitled in the future is not sufficient to respond to the
product liability claims. Although Artra believes that its remaining insurance
coverage as of December 31, 1999 relating to the claims is not less than
$185,000,000, Entrade can provide no assurance that the coverage will be
adequate to cover Artra's responsibility for the claims. In the event Artra were
unable to satisfy the claims through a combination of insurance coverage and its
own assets, it is possible that Artra could be forced to seek protection under
the federal bankruptcy laws. In such event, Entrade could lose its entire
investment in Artra. It is also possible that the plaintiffs asserting the
claims against Artra could attempt to pursue legal action against Entrade.
Entrade believes that no valid legal basis exists for the imposition of Artra's
liability for the claims against Entrade, and Entrade would vigorously defend
against any attempt to impose such liability.
13
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 Fill-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 still 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 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 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 hazardous substances as a
by-product of the manufacturing process. Artra entered into a consent decree
with the EPA in which it agreed to pay $85,000 for one phase of the clean-up
costs for this site; however, Artra defaulted on its payment obligation. Artra
is presently unable to estimate the total potential liability for clean-up costs
at this site, which clean-up is expected to continue for a number of years. The
consent decree, even if it had been honored by Artra, was not intended to
release Artra from liability for costs associated with other phases of the
clean-up at this site. Artra is presently unable to determine what, if any,
additional liability it may incur in this matter.
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
intends to vigorously defend itself in this action.
While these litigation and environmental matters involve wide ranges of
potential liability, management does not believe the outcome of these matters
will have a material adverse effect on Entrade's financial condition or results
of operations.
14
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
8. OTHER INFORMATION
On June 28, 1999, Artra's board of directors entered into a three-year
employment agreement with Mark F. Santacrose, under which Mr. Santacrose agreed
to become the President and Chief Executive Officer of the Company. In
connection with such employment, Mr. Santacrose received an option to purchase
200,000 shares of the Company's common stock at an exercise price of $10.00 per
share (exercisable immediately) and 100,000 shares of the Company's common stock
at an exercise price of $12.875 per share (exercisable commencing June 28,
2000). The market value of the Company's common stock on the date of grant of
the options was $12.875 per share. Accordingly, at June 30, 1999, the Company
recognized compensation expense of $575,000 related to these stock options.
On February 23, 1999, Artra entered into three-year employment agreements with
four individuals to manage its entry into the Internet business-to-business
e-commerce and on-line auction business. In connection with such employment, the
four individuals received nonqualified stock options for the purchase of
1,600,000 shares of the Company's Common Stock at an exercise price of $2.75 per
share. The options vest in three equal installments over a period ending
February 18, 2001. During the nine months ended September 30, 1999, the Company
recognized compensation expense of approximately $2,100,000 related to these
stock options.
9. SUBSEQUENT EVENTS
On April 19, 1999, Artra 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"). Nationwide, which has operated for over 20 years, 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.
Nationwide conducts the auctions at its facilities or at off-site locations.
Nationwide has six facilities located in California, Missouri, Delaware and
Georgia.
On October 19, 1999, Entrade completed the acquisition of all of the outstanding
capital stock of Nationwide for consideration consisting of the following: (a)
an aggregate of 1,570,000 shares of Entrade common stock; (b) promissory notes
(the "Notes") in the aggregate principal amount of $4,800,000, maturing on
November 29, 1999; (c) an aggregate of $6,000,000 cash; and (d) promissory notes
(the "Term Notes") in the aggregate principal amount of $14,000,000, maturing
October 1, 2001. The Notes and the Term Notes bear interest at an annual rate of
8%. Entrade paid the cash portion of the purchase price with its existing cash
assets. Entrade also issued 80,000 shares of Entrade common stock in payment of
fees to its agent in connection with the closing of the transaction.
Entrade is required to prepay the Notes prior to their maturity date in the
event that it receives in excess of $4,800,000 in debt or equity financing or
does not receive a commitment for such financing by November 15, 1999. In the
event Entrade is required to prepay the Notes or pay the Notes at maturity, as
the case may be, Entrade intends to pay the Notes by delivering shares of
Entrade Common Stock (the "Note Shares") at the rate of the lower of (a) $17 per
share or (b) 85% of the average closing price of Entrade Common Stock on the New
York Stock Exchange on the last five trading days ending on the applicable due
date of the Notes.
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.
15
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Effective October 4, 1999, Entrade acquired all of the Series A Preferred Stock
of printeralliance.com for cash of $500,000. The cash payment was funded by
Entrade's existing cash assets. A privately-owned e-commerce company,
printeralliance.com. was formed in 1999 to establish a buying group of
independent commercial printers. printeralliance.com.'s buying group concept
will offer independent commercial printers cost savings, equipment and other
services as a result of the leveraged buying power of the group. The preferred
shares acquired by Entrade are convertible into a 61% common stock ownership
interest in printeralliance.com.
In October 1999, the Company's board of directors adopted the 1999 Nonqualified
Stock Option Plan For Non-Executive Officer Employees (the "1999 Plan"). The
1999 Plan reserves 1,000,000 shares of the Company's common stock for the
granting of options. The Company subsequently issued options to purchase 636,500
shares of its common stock for prices ranging from $9.00 to $15.75 per share.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion supplements the information found in the financial
statements and related notes:
On February 23, 1999, Artra entered into a merger agreement with WorldWide and
Entrade, at that time a 90% owned subsidiary of WorldWide. As a result of the
merger agreement, Artra became a wholly-owned subsidiary of Entrade, and the
shareholders of Artra became shareholders of Entrade.
In February 1999, Entrade acquired software and other assets necessary for the
conduct of entrade.com's e-commerce business and 25% of the then outstanding
shares of voting common stock of asseTrade.com from WorldWide, in exchange for
1,800,000 shares of Entrade common stock, $800,000 in cash and a note for
$500,000, which Entrade paid upon the closing of the merger. Entrade issued to
Energy Trading Company 200,000 shares of Entrade common stock and paid Energy
Trading Company $100,000 in cash upon closing of the merger, in exchange for
retained rights Energy Trading Company held in the assets acquired by Entrade.
Artra also agreed with both WorldWide and Energy Trading Company that it would
provide a minimum of $4,000,000 in funding for entrade.com. Therefore, the total
consideration for the assets acquired by Entrade was 2,000,000 shares of Entrade
common stock and an aggregate of $5,400,000 in cash and committed funding.
Results of Operations
During the third quarter of 1999, we completed the merger agreement with Artra
and continued the Internet business-to-business electronic commerce business
conducted by entrade.com. As a result of the merger agreement, Artra became a
wholly-owned subsidiary of Entrade. We continued to hold an equity interest in
asseTrade.com, which is developing and implementing comprehensive
asset/inventory recovery, disposal, and remarketing and management solutions for
corporate clients through advanced Internet electronic business applications,
including on-line auctions.
Artra significantly changed its business focus during the fourth quarter of
fiscal year 1998, when it exited its single industry segment, the packaging
products business, conducted by the discontinued Bagcraft subsidiary.
In October 1999, we acquired all of the outstanding capital stock of Nationwide,
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.
Our consolidated financial statements have been reclassified to report
separately the results of operations of the Bagcraft subsidiary in discontinued
operations.
Three Months Ended September 30, 1999 vs. Three Months Ended September 30, 1998
Continuing Operations
Selling, general and administrative expenses from continuing operations were
$2,042,000 for the three months ended September 30, 1999 as compared to $539,000
for the three months ended September 30, 1998. We incurred a compensation charge
of approximately $900,000 during the three months ended September 30, 1999
relating to stock options granted in February 1999 to certain individuals
employed to manage our entry into the Internet business-to-business e-commerce
and on-line auction business. Professional fees increased approximately $400,000
during the three months ended September 30, 1999 as compared to the prior year
period due to expanded corporate development activities.
During the three months ended September 30, 1999, we had net interest income of
$109,000 as compared to net interest expense of $807,000 during the three months
ended September 30, 1998. We used cash proceeds received from the November 1998
sale of the assets of the discontinued Bagcraft subsidiary to pay off
approximately $15,200,000 of borrowings on various loan agreements. We have
invested approximately $9,000,000 as of September 30, 1999 of the remaining net
proceeds in interest bearing cash equivalents.
We were unable to recognize an income tax benefit in connection with the
Company's 1999 and 1998 pre-tax losses due to the Company's tax loss
carryforwards and the uncertainty of future taxable income.
17
<PAGE>
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
Continuing Operations
Selling, general and administrative expenses from continuing operations were
$6,570,000 for the nine months ended September 30, 1999 as compared to
$1,691,000 for the nine months ended September 30, 1998. We incurred a
compensation charge of approximately $2,100,000 during the nine months ended
September 30, 1999 relating to stock options granted in February 1999 to certain
individuals employed to manage our entry into the Internet business-to-business
e-commerce and on-line auction business. We also incurred a compensation charge
of $575,000 during the nine months ended September 30, 1999 relating to stock
options granted under terms of an employment agreement with our recently
appointed president and chief executive officer. Professional fees increased
approximately $500,000 during the nine months ended September 30, 1999 as
compared to the prior year period due to expanded corporate development
activities.
Selling, general and administrative expenses from continuing operations included
$1,305,000 of expenses incurred by Entrade during the nine months ended
September 30, 1999. The Entrade expenses include business development costs of
$280,000, payroll and related costs of $927,000 and net administrative costs of
$98,000.
During the nine months ended September 30, 1999, we had net interest income of
$316,000 as compared to net interest expense of $2,794,000 during the nine
months ended September 30, 1998. We used cash proceeds received from the
November 1998 sale of the assets of the discontinued Bagcraft subsidiary to pay
off approximately $15,200,000 of borrowings on various loan agreements.
We were unable to recognize an income tax benefit in connection with the
Company's 1999 and 1998 pre-tax losses due to the Company's tax loss
carryforwards and the uncertainty of future taxable income.
Discontinued Operations
During the nine months ended September 30, 1998, we had earnings of $1,968,000
at the discontinued Bagcraft subsidiary. No income or loss relating to
discontinued operations was incurred during 1999.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Our cash and cash equivalents decreased $734,000 during the nine months ended
September 30, 1999. Cash flows used by operating activities of $4,824,000 and
cash flows used by investing activities of $3,422,000 exceeded cash flows from
financing activities of $7,532,000. Operating activities used cash flows to fund
the Company's net loss for the nine months ended September 30, 1999 and to pay
liabilities of the discontinued Bagcraft subsidiary. Investing activities used
cash flows for our acquisition of Entrade's assets. Financing activities
provided cash flows from the exercise of stock options and warrants.
Our consolidated working capital decreased by $2,267,000 to $4,546,000 at
September 30, 1999, as compared to consolidated working capital of $6,813,000 at
December 31, 1998. We used working capital to fund operating expenses, pay
liabilities of the discontinued Bagcraft subsidiary and for our acquisition of
Entrade's assets. This use of working capital was partially offset by proceeds
from the exercise of stock options and warrants.
Operating Plan
entrade.com
On February 23, 1999, ARTRA entered into an agreement with Entrade Inc. and
WorldWide providing for the merger of a wholly-owned subsidiary of Entrade with
and into ARTRA. Entrade owns all of the outstanding capital stock of
entrade.com, Inc. and 25% of the Class A Common Stock of asseTrade.com.
18
<PAGE>
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 shareholders of ARTRA
became shareholders of Entrade. Under the terms of the merger agreement, the
ARTRA shareholders received one share of Entrade common stock in exchange for
each share of ARTRA common stock. Additionally, holders of ARTRA Series A
preferred stock received 329 shares of Entrade common stock for each share of
ARTRA Series A preferred stock. All stock options and warrants issued by ARTRA
and outstanding on the closing date of the merger were converted into Entrade
stock options and warrants. Entrade's common stock became listed and commenced
trading on the New York Stock Exchange under the symbol "ETA" on September 24,
1999.
On February 23, 1999, Entrade acquired certain software and intellectual
property and 25% of the shares of Class A Voting Common Stock of asseTrade.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 purchased assets. 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 loan 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 guaranty the $4,000,000
funding for entrade.com.
In August 1999, WorldWide agreed to loan 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.
entrade.com does not expect that it will be required to raise additional funds
during the next twelve months in excess of the $4,000,000 committed to it.
entrade.com believes that it will have sufficient working capital to complete
the planned technology development cycle as well as fund day-to-day operations.
entrade.com has made capital purchases including desk-top computers, laptops,
servers, printers, fax machines and related equipment to support its operations
to date. It is expected that entrade.com will add other equipment only if a
significant number of additional employees are hired.
In addition to its Mount Laurel, New Jersey, headquarters, entrade.com has
opened or plans to open five field offices to manage and oversee marketing and
sales operations. These locations are Philadelphia, Boston, Chicago, New York
and Waterloo, Ontario. Its Chicago office will be Entrade's headquarters.
Management believes entrade.com can implement its current business plan through
its current employees and subcontractors. As entrade.com develops additional
websites and forms other strategic alliances, it intends to hire additional
technical employees, additional project management and marketing professionals
for each formed strategic alliance and newly developed operating business unit.
19
<PAGE>
asseTrade.com
In September 1999, asseTrade.com entered into an agreement with an investor
providing for an initial purchase of shares of asseTrade.com Series A Preferred
Stock. Upon completion of the transaction, subject to certain performance
criteria on the part of asseTrade.com, the investor may purchase additional
shares of asseTrade.com Series A Preferred Stock. Upon completion of the
transaction and assuming the conversion of the asseTrade.com Series A Preferred
Stock into asseTrade.com Class A Common Stock, the investor would hold a 31.1%
interest in the Class A Common Stock of asseTrade.com and Entrade's interest in
the Class A Common Stock would be approximately 17.5%, or 14.65% on a fully
diluted basis.
Nationwide Auction Systems
On April 19, 1999, we 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. 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.
On October 19, 1999, we completed the acquisition of all of the outstanding
capital stock Nationwide. We 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%. We paid the cash portion
of the purchase price out of cash in our accounts. We also issued 80,000 shares
of Entrade common stock in payment of fees to our agent in connection with the
closing of the transaction.
We are required to prepay the Notes prior to their maturity date in the event
that we receive in excess of $4,800,000 in debt or equity financing or do not
receive a commitment for such financing by November 15, 1999. In the event we
are required to prepay the Notes or pay the Notes at maturity, as the case may
be, we intend to pay the Notes by delivering shares of Entrade common stock at
the rate of the lower of (a) $17 per share or (b) 85% of the average closing
price of Entrade common stock on the New York Stock Exchange on the last five
trading days ending on the date of the Notes are due.
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.
printeralliance.com
Effective October 4, 1999, Entrade acquired all of the Series A Preferred Stock
of printeralliance.com for cash of $500,000. The cash payment was funded by
Entrade's existing cash assets. A privately-owned e-commerce company,
printeralliance.com. was formed in 1999 to establish a buying group of
independent commercial printers. printeralliance.com.'s buying group concept
will offer independent commercial printers cost savings, equipment and other
services as a result of the leveraged buying power of the group. The preferred
shares acquired by Entrade are convertible into a 61% common stock ownership
interest in printeralliance.com.
We believe we have adequate funds available to fund our obligations and
operations for the remainder of 1999.
Capital Expenditures
We have no material commitments for capital expenditures as of September 30,
1999.
Investment in COMFORCE Corporation
ARTRA, along with its Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE Corporation ("COMFORCE"), consisting of 1,525,500
shares or approximately 9% of the outstanding common stock of COMFORCE as of
September 30, 1999 with an aggregate value as of that date of $3,337,000.
20
<PAGE>
In January 1996, our Board of Directors approved the sale of 200,000 of ARTRA's
COMFORCE common shares to certain 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.
Based upon the preceding factors, we concluded that, for reporting purposes, we
had effectively granted options to those officers, directors and key employees
to acquire 200,000 of our COMFORCE common shares. Accordingly, in January 1996,
these 200,000 COMFORCE common shares were removed from our portfolio of
"available-for-sale securities" and were classified in the condensed
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.
At September 30, 1999, options to acquire 55,750 COMFORCE common shares remained
unexercised and were classified in our condensed consolidated balance sheet as
other receivables with an aggregate value of $112,000, based upon the value of
proceeds to be received upon future exercise of the options.
Redeemable Preferred Stock
As discussed in Note 4 to our condensed consolidated financial statements, we
have certain redeemable preferred stock issues of the BCA and Bagcraft
subsidiaries which are included in liabilities of discontinued operations at
September 30, 1999.
In October 1999, the Company's board of directors approved an offer to exchange
an aggregate of up to 727,225 shares of Entrade common stock for the BCA Series
A preferred stock and the BCA Series B preferred stock. The offer expires on
November 22, 1999.
Legal Proceedings
With exception of legal proceedings and claims that arise in the ordinary course
of Nationwide's business, the only legal proceedings in which Entrade is
presently involved relate to Artra and its subsidiaries, which are the
defendants in various business-related litigation and environmental matters and
product liability claims. At September 30, 1999 and December 31, 1998 Artra had
accrued current liabilities of $1,500,000, for potential business-related
litigation environmental liabilities and product liability.
Net Operating Loss Carryforwards
At December 31, 1998, we had Federal income tax loss carryforwards of
approximately $2,400,000 expiring principally in 2010 - 2012, available to be
applied against future taxable income, if any. In recent years, we have issued
shares of our 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.
21
<PAGE>
In our opinion, we not currently subject to such limitations regarding the
utilization of its Federal income tax loss carryforwards. Should we 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.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy and currently is
not a significant factor to our company.
Recently Issued Accounting Pronouncements
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 requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 2000. We have not determined what impact this standard,
when adopted, will have on our financial statements.
Year 2000 Compliance
The Year 2000 ("Y2K") issue refers to the inability of many computer programs
and systems to process accurately dates later than December 31, 1999. Unless
these programs are modified to handle the century change, they will likely
interpret the Year 2000 as the year 1900.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. Also, if clients,
distributors, suppliers and other third parties with which we conduct business
do not successfully address these issues, our business, operating results and
financial position could be materially and adversely affected.
In the event that our web-hosting facilities provided by a third party are not
Year 2000 compliant, our production web sites would be unavailable and we would
not be able to deliver services to our users. In the event that the production
and operational facilities that support our web sites are not Year 2000
compliant, some portions of our websites may become unavailable. Our contingency
plans include hosting the production websites directly from our office or from a
development or staging server that is Year 2000 compliant. While we believe that
we will be able to transfer our servers to another service provider within a two
to three- day period if it is necessary to implement this plan, we cannot assume
that we can complete that transfer without significant disruption.
We have surveyed our third party service providers as to their Year 2000
compliance. We and our affiliated entities have exerted our best efforts to
ensure that our hardware and operating systems are Year 2000 compliant. We have
tested these systems and will continue to perform periodic testing to ensure
Year 2000 compliance.
Our corporate entity has limited data processing requirements, which are handled
by personal computers running generic software applications. We believe that our
internal systems are Year 2000 compliant. If these systems are not Year 2000
compliant, they can be quickly updated with new equipment without requiring us
to incur significant costs.
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, 1998. The Company's investment in COMFORCE common
stock is subject to liquidity and market price risks.
22
<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 7 to the Company's condensed
consolidated financial statements for the quarter ended September 30,
1999 included in Part I, Item 1 of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of February 23,
1999 among ARTRA, WorldWide Web NetworX Corporation,
NA Acquisition Corp. (now known as Entrade Inc.) and
WWWX Merger Subsidiary, Inc.; Amendment to Agreement
and Plan of Merger dated as of April 30, 1999; and
Consent and Amendment to Agreement and Plan of Merger
dated as of August 9, 1999 (incorporated by reference
to Appendix A to the Proxy Statement/Prospectus filed
with the Commission on August 20, 1999).
2.2 Stock Purchase Agreement dated as of October 15, 1999
among Entrade Inc., Don Haidl, Corey P. Schlossmann,
Peggy Haidl, as trustee of the Capital Direct 1999
Trust and the Core Capital IV Trust, Public
Liquidation Systems, Inc. and Asset Liquidation
Group, Inc. and the Closing Letter dated as of
October 15, 1999 among all parties to the Stock
Purchase Agreement, without schedules and other
exhibits. Entrade agrees to furnish supplementally
copies of these schedules and other exhibits omitted
to the Commission upon request (incorporated by
reference to Exhibit 2.1 to Form 8-K filed with the
Commission on October 28, 1999).
10.1 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$4,320,000 (incorporated by reference to Form 8-K
filed with the Commission on October 28, 1999).
10.2 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal
amount of $480,000 incorporated by reference to Form
8-K filed with the Commission on October 28, 1999).
10.3 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$12,600,000 incorporated by reference to Form 8-K
filed with the Commission on October 28, 1999).
10.4 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal
amount of $1,400,000 incorporated by reference to
Form 8-K filed with the Commission on October 28,
1999).
10.5 Employment Agreement dated as of October 15, 1999
between Entrade and Corey P. Schlossmann incorporated
by reference to Form 8-K filed with the Commission on
October 28, 1999).
10.6 Stock Option Agreement dated as of October 15, 1999
between Entrade Inc. and Corey P. Schlossmann
incorporated by reference to Form 8-K filed with the
Commission on October 28, 1999).
10.7 Stock Restriction and Registration Rights Agreement
dated as of October 15, 1999 between Entrade Inc. and
the Sellers incorporated by reference to Form 8-K
filed with the Commission on October 28, 1999).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1999. The Company filed Form 8-K on October 6,
1999 to report on Item 2 the consummation of the merger
agreement between the Company and ARTRA. The Company filed
Form 8-K on October 28, 1999 to report on Item 2 the
acquisition of Nationwide.
23
<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: March 2, 2000 /s/ Lawrence D. Levin
- ------------------------- ------------------------------------------
LAWRENCE D. LEVIN
Controller and Chief Accounting Officer
24
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