10-Q 1 f10q-063001.txt FORM 10-Q 06-30-01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO____________ Commission File Number: 333-78659 AUTOTRADECENTER.COM INC. (Exact name of registrant as specified in its charter) ARIZONA 86-0879572 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 15170 NORTH HAYDEN ROAD, SUITE 5, SCOTTSDALE, ARIZONA 85260 (Address of principal executive offices) (Zip Code) (480) 556-6701 (Registrant's telephone number, including area code) 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. X Yes No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 41,932,049 SHARES OF COMMON STOCK, NO PAR VALUE, AS OF JUNE 30, 2001 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flow Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 AUTOTRADECENTER.COM INC. CONSENSED CONSOLIDATED BALANCE SHEETS ASSETS

See Notes to Condensed Consolidated Financial Statements 3 AUTOTRADECENTER.COM INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See Notes to Condensed Consolidated Financial Statements 4 AUTOTRADECENTER.COM INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

See Notes to Condensed Consolidated Financial Statements 5 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) NOTE A - PRESENTATION OF FINANCIAL STATEMENTS The condensed consolidated financial statements of AutoTradeCenter.com Inc. ("AUTC") or the "Company," which refers to AutoTradeCenter.com Inc. and its subsidiaries have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows of AUTC as of June 30, 2001 and for all of the periods presented. These statements are condensed and do not include all of the information required by generally accepted accounting principles in a full set of financial statements. These statements should be read in conjunction with AUTC's financial statements and notes thereto included in AUTC's Annual Report on Form 10-K for its fiscal year ended March 31, 2001. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Auto Network Group of Arizona, Inc. ("ANET-AZ"), Pinnacle Dealer Services, Inc. ("PDS"), National Dealer Services ("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden Remarketing Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com Inc. ("BTC"). All material intercompany accounts and transactions have been eliminated. AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to the laws of the State of Arizona on July 10, 1997 and began operations on September 22, 1997. In December 1998, the Company changed its name from Auto Network USA, Inc. to Auto Network Group, Inc. In March 1999, the Company again changed its name to AutoTradeCenter.com Inc. to more properly reflect its future direction as an Internet based wholesaler and remarketer of used automobiles. The wholesale automobile business principally involves activities related to redistributing used vehicles, typically acquired from franchised and independent auto dealers, lessors, banks and other finance companies and reselling them to other franchised and independent dealers. Prior to December 31, 2000 the Company engaged in these activities either as a fee-based service or as a principal. As a principal (land-based operations), the Company performed these services through independent wholesale brokers. Each broker bought, titled, and sold vehicles in the name of the Company. In November 2000, the Company decided to discontinue all of its land-based operations in order to concentrate efforts on remarketing used vehicles utilizing the Internet. Accordingly, it sold its land-based subsidiaries located in New Mexico, Texas, and Oregon on December 29, 2000, and transferred ownership of substantially all vehicles owned by its Scottsdale, Arizona operations on February 28, 2001 to certain of its former brokers. NOTE B - EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share have been computed based on the weighted average number of common shares outstanding. The number of common shares outstanding due not include 375,000 shares issued and held in escrow subject to release based on a prior earn-out agreement with the Company's former land-based subsidiary in San Antonio. The Company issued, in April 2001, 93,750 shares pursuant to this agreement. Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and the assumed conversion of debt and preferred stock. Since the Company operated at a loss for all periods stated the computation of diluted earnings per share would be anti-dilutive. Accordingly basic and diluted earnings (loss) per share are equivalent. 6 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) NOTE C - INFORMATION REGARDING DISCONTINUED OPERATIONS Net assets from discontinued operations at June 30, and March 31, 2001 primarily consisted of uncollected receivable balances from former independent contractor wholesale automobile brokers. As of August 13, 2001 these uncollected accounts have been turned over to independent third parties for collection. The disposition of the land-based operations represents the disposal of a business segment under APB Opinion No. 30. Accordingly, the condensed consolidated statements of operations and cash flows for the three months ended June 30, 2000 have been reclassified to reflect the discontinuance of all land-based operations. NOTE D - PROPERTY AND EQUIPMENT

NOTE E - STOCKHOLDERS' EQUITY Preferred and Common Stock During May of 2001, a holder of 204 series D convertible preferred shares elected to convert such shares to common shares. Based on the formulae contained in the terms of the preferred shares, 111,732 shares of common stock were issued. These shares will become registered and available for sale (subject to certain lock-up provisions) upon the acceptance by the Securities and Exchange Commission of previous filings on Form S-1 and Form 10-K. NOTE F - SUBSEQUENT EVENT On May 16, 2001, a director of the Company loaned the Company $150,000. On May 31, 2001, the note was rewritten and increased to $200,000 and is due upon the Company's receipt of specific trade accounts receivable The note bears interest at the rate of 12% per annum and is secured by these specific trade accounts. On July 16, 2001, this director loaned the Company an additional $65,000 under a new note with the same terms and conditions as the original note. Subsequent principal payments have reduced the balances due at July 26, 2001 on both notes to approximately $115,000. As part of the financing arrangement with Eagle Capital Group, LLC as described below, the due dates on the notes have been extended until after August 31, 2001. 7 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) On July 26, 2001, the Company entered into a financing arrangement with Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line of credit up to $1,300,000. The loan provides for an initial advance of $250,000, followed by a thirty-day review period during which Eagle will complete its legal due diligence with respect to, among other items, the Company's intellectual property. The review period grants Eagle the right to discontinue funding of the line of credit if the Company's intellectual property is deficient in certain material respects. The loan is due June 30, 2002 bearing interest at the rate of 12% per annum that is payable monthly. The Company paid a commitment fee of $13,000 and is obligated to pay a one percent (1%) facility fee of up to $13,000 each quarter. The Company is also required to pay monthly principal payments of not less than 5% of the outstanding loan balance once the Company achieves positive cash flow. The loan is secured by all assets including but not limited to furniture, fixtures, leasehold, personal property, and intellectual property. The loan is convertible into common stock of the Company at any time before the due date thereof, including any extensions, at the lesser of the average bid price following the date of the first advance and the earlier of the conversion date or the termination date or $0.10 per share. The Company also issued Eagle a warrant which allows Eagle, for a period of 90 days from the termination date of the loan, to purchase common shares at $0.10 per share in an amount equal to the difference between (a) 13,000,000 and (b) the number of shares of common stock issued upon prior conversion of any amounts under the loan. In addition, the Company issued a warrant to Eagle that allows Eagle to purchase, for a period of up to five years, up to 6,500,000 shares of Common Stock at an exercise price of $0.125 per share. If the Company prepays the loan in full at any time prior to December 31, 2001, the Company will issue to Eagle 1,500,000 shares of Common Stock as consideration. In addition, the Company issued to Eagle 1,300 shares Series E Preferred Stock, at a par value of $0.10 per share. The Series E Preferred Stock grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle will have two representatives on the Company's board of directors. The Company also entered into a Facilities Use and Administrative Services Agreement with an affiliate of Eagle for the use of office facilities, software development, marketing, accounting, and other management services that may vary from time to time. The fee for these services will be negotiated between the parties in good faith as business practices and circumstances change. On July 26, 2001, as part of the agreement with Eagle, the Company consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer in the amounts of $336,807 and $402,000, respectively. The consolidated note bears interest at 12% payable monthly. In addition, the Company is obligated to make principal payments of $25,000 per month in November and December 2001, and $50,000 per month principal payments from January 2002 through May 2002. The balance of the note is due June 30, 2002. Any principal payment may be converted into Common Stock at the sole discretion of the lender at the rate of $0.10 per share, upon three days written notice. The Company also issued a warrant to purchase one share of Common Stock for every two shares of Common Stock received upon conversion. The warrant exercise price is $0.125 per share and expires five years from issuance. The note is subordinated to the first lien of Eagle. As a result of this transaction, the Company is required to reset the pricing of the units sold in March through April 2001 pursuant to a private placement. The anti-dilution clause contained in the private placement requires the Company to issue 9,948,027 shares of its common stock and 4,959,013 additional stock purchase warrants exercisable at $0.125 per share. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements. All period references are for the three-month periods ending June 30, 2000 and 2001. GENERAL The presentation includes a discussion of us with our wholly owned subsidiaries, NDSCo.com, Inc., AutoTradeCenter Remarketing Services, Inc. formerly Walden Remarketing Services, Inc., and BusinessTradeCenter.com Inc., as well as subsidiaries in which we formerly carried out our land-based operations. These subsidiaries are Auto Network Group of Arizona, Inc., Auto Network Group of New Mexico, Inc., Auto Network Group Northwest, Inc., Auto Network Group of Eastern Pa., Inc., Auto Group of San Antonio Ltd., Auto Network Group of Denver Inc., and Pinnacle Dealer Services, Inc. As of December 29, 2000, we sold our interest in our land-based operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to Automotive Disposition Management Services, Inc., an affiliated Arizona corporation, in exchange for a 16% interest in Automotive Disposition. In the first quarter of the fiscal year ended March 31, 2002, 430,675 of our common shares held in escrow pending an earn-out agreement with the management of our former subsidiary in Oregon were exchanged for 9% of our interest in Automotive Disposition Management Services, Inc. thereby reducing our interest therein to approximately 7%. Automotive Disposition is a private company owned by Jules Gollins, the manager of the New Mexico land-based operation, and by Mark Moldenhauer, one of our founders, a principal shareholder, and former officer and director. We disposed of our land-based operations in Scottsdale, Arizona, as of February 28, 2001, thereby discontinuing all land-based operations and allowing us to focus on providing automotive remarketing services via the Internet. OVERVIEW We began operations on September 22, 1997 and completed our first fiscal year on March 31, 1998. On June 1, 1998, we opened the office and warehouse facility in Albuquerque, New Mexico. We acquired Pinnacle Dealer Services, Inc. in August 1998 to provide financing for the purchase of vehicles. On July 20, 1999, we opened our office and warehouse facility in Bend, Oregon. On April 1, 2000, we began operations in the Philadelphia, Pennsylvania area, with the incorporation of Auto Network Group of Eastern Pa., Inc. At the same time, we began operations in San Antonio, Texas, with the establishment of Auto Group of San Antonio Ltd., a Texas limited partnership. In each of these transactions, we entered into a management consulting agreement with the individual or entity responsible for managing each respective operation. Under these agreements, certain of our common shares were issued to such managers, subject to forfeiture based on both future earnings levels and continuity of management. In addition, we made stock options available to these managers, which could be earned based on future performance. On August 2, 2000, we formed a new wholly owned subsidiary, Auto Network Group of Denver, Inc., and leased a facility in Denver, Colorado. In January 1999, we announced the development of our Internet site WWW.AUTOTRADECENTER.COM. No revenues have been generated from the operations of this site, which is now used for informational purposes only. However, effective February 1, 2000, a new web site developed for American Honda Finance Corporation, powered by our technology, began generating revenue. We generated $291,587 of revenue in the year ended March 31, 2000 from remarketing activities that were not related either to our Internet remarketing business or our land-based operations. Our existing remarketing agreement with Honda Finance Corporation gives us an exclusive contract to remarket, over the Internet through January 31, 2004, all of the vehicles returned to Honda and Acura after termination of a lease. These are referred to in the industry as "off-lease" vehicles. The Honda web site, www.hfcarsales.com, became operational in all Honda and Acura dealerships by June 15, 2000 upon completion of a phase in period beginning April 2000. We developed a pilot program for Suzuki, similar to the program developed for Honda, utilizing our Internet technology systems and procedures to remarket their program vehicles 9 to dealers. The Suzuki pilot program began in September 2000 (www.suzukiproline.com) and we signed an agreement with Suzuki in January 2001 to remarket their program cars over the Internet for a one-year period. In April of 2001, we entered into an agreement to remarket off-lease Volvo vehicles with Volvo Finance North America for 15 months, commencing April 30, 2001. We anticipate the Volvo Finance web site, www.volvoride.com, will be completed by September 15, 2001. Due to the discontinuance of our land-based operations, we now focus all of our efforts on deriving revenues from fees charged to remarket vehicles over the Internet. RESULTS OF OPERATIONS Net losses were $1,410,263 ($0.03 per share) for the three months ended June 30, 2001 as compared to net losses from continuing operations of $972,154 ($0.03 per share) and $48,501 (nil per share) from discontinued operations for the three months ended June 30, 2000. INTERNET REVENUES. Internet revenues were $583,655 for the three months ended June 30, 2001 as compared to $169,650 for the same period last year. Substantially all revenue for the quarter ended June 30, 2001 was earned from remarketing over 10,000 Honda and Acura vehicles under our contract with American Honda Finance Corporation. We remarketed fewer than 100 Suzuki vehicles following the activation of our Suzuki website in May 2001. For the quarter ended June 30, 2000, we sold approximately 4,500 Honda and Acura vehicles following our roll out of the Honda program in April 2000. COST OF REVENUES. Cost of revenues in addition to salary and wages included our website hosting costs and an allocated share of operating expenses and overhead. Salary and wages were lower in the current quarter as compared to the first quarter of last year even though we more than tripled our revenues. We were able to operate more efficiently as a result of experience following the launch of our Internet programs. PRODUCT DEVELOPMENT. Our product development expenses consisted primarily of compensation for product development personnel and outside consulting costs. Product development expense remained relatively constant for the June 2001 quarter, as compared to the June 2000 quarter. The bulk of our product development costs are capitalized into cost of software in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use used in determining the amount of software costs developed in-house to be capitalized. We apply Emerging Issues Task Force 00-02 Accounting for Website Development Costs in determining the amount of website development costs to be capitalized. These standards require capitalization of certain direct development costs associated with internal use software and website development costs. Costs to be capitalized include internal and external direct project costs including, among others, payroll and labor, material, and services. These costs are included in software and are being amortized over a period not to exceed three years beginning when the software is substantially ready for use. Costs incurred on new projects, projects in a preliminary phase and projects that contract negotiations have not begun, as well as maintenance, and training costs are charged to expense as incurred. During the three months ended June 30, 2001 we capitalized over $600,000 in software development costs as compared to less than $50,000 during the same quarter last year. GENERAL AND ADMINISTRATIVE. Our general and administrative expense consists primarily of compensation for administrative personnel, including our executive officers, facility expenses and fees for outside professional services. General and administrative expenses increased by $74,374 to $381,958 from $307,584 in the quarter ended June 30, 2001 as compared to our first quarter ended June 30, 2000. The increase primarily is attributable to increases in salaries and wages and professional fees. Salaries for certain individuals formerly working for our now discontinued land-based operations were included in general and administrative expenses for the current period. Certain other general and administrative expenses, part of which were absorbed by our discontinued operations, also currently are included in general and administrative expense. 10 DEPRECIATION AND AMORTIZATION. Amortization of our software that drives our Internet sites increased to $900,473 for the period ended June 30, 2001 as compared to amortization of $324,678 for the same period last year. The increase of $575,795 primarily relates to the reclassification of purchased goodwill to cost of software in the third quarter of our fiscal year ended March 31, 2001. At that time we also changed our estimate of the useful life of such software from ten years to 36 months. Amortization also increased as a result of additional capitalized software costs. Depreciation of our furniture, fixtures, and computer equipment was approximately the same for each period. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2001 our cash balance was $24,182 as compared to $209,068 at March 31, 2001. Current liabilities at June 30, 2001 were $1,458,777 as compared to current assets of $387,131. We were able to meet our current obligations, as they became payable due to the infusion of cash as described in the subsequent events below. We generated cash of $248,412 in our operating activities for the quarter ended June 30, 2001, the major components of which were our net losses for the period from continuing operations of $1,410,263, offset by the non-cash charges for depreciation and amortization of $1,007,786, other non cash items totaling $120,380 and an increase in payables of $473,931 including $49,207 advanced to us by one of our directors. For the quarter ended June 30, 2000, net cash used in operating activities was $2,012,980. The major component contributing to the cash used in operations for the quarter ended June 30, 2000 were our net losses for the period of $972,154 and $48,501 from continuing operations and discontinued operations, respectively. Cash primarily was provided by the non-cash charges for depreciation and amortization of $445,534 Other accounts affecting our cash balances included cash used by our discontinued operations of $2,497,887 offset by increases in borrowings from our bank line of credit of $670,996 and the conversion of $300,000 in debt owed to one of our former officers and directors to common stock. Cash also was generated by the net increase in accounts payable of $112,059. Our investing activities for the quarters ended June 30, 2001 and 2000, were primarily for the purchase of computer hardware and software required for business expansion and our e-commerce and Internet operations. For the quarter ended June 30, 2001 we acquired computer software valued at $620,000. For the quarter ended June 30, 2000 used cash of $123,083 to acquire software, hardware, company cars, and office furniture and fixtures. Financing activities for the quarter ended June 30, 2001 consisted in the issuance of 746,808 of our common shares at $0.25 per share as part of the private placement started in March 2001. For the quarter ended June 30, 2000, we received $10,000 from the proceeds of issuance of common shares. ANTICIPATED TRENDS AND PLAN OF OPERATION We intend to continue the development of our Internet sites. We believe that focusing on providing automotive remarketing services via the Internet will improve our long-term prospects for profitability. While the land-based operations generated a substantial amount of revenue, the gross profit margins were low and insufficient to cover operating expenses relating to the land-based operations. These operating expenses consisted primarily of selling commissions, interest expenses (for financing inventory and accounts receivable), bad debt expense, and office overhead. In addition, the land-based operations were capital-intensive. In contrast, the Internet operations generate a lower amount of revenue, but result in higher profit margins. Our agreement with American Honda Finance Corporation will generate revenues for the next three years. We anticipate a greater number of car sales on our Honda website resulting in increased revenues in the months to come as a larger number of vehicles are being returned upon termination of leases and will be available to all Honda and Acura dealers in the United States. In addition our amended contract with American Honda Finance Corporation will provide additional revenue for each car sold on our website. With the definitive agreement signed with American Suzuki Motor Corporation in January 2001, we expect to generate added revenue from the Suzuki site. We entered into an agreement to remarket off-lease Volvo vehicles with Volvo Finance North America for 15 months, commencing April 30, 2001. We anticipate the Volvo Finance web site, www.volvoride.com, will be 11 completed by September 15, 2001. We anticipate entering into similar contracts with other manufacturers and financial institutions to assist them in remarketing their inventories of used vehicles; however, no such other contracts exist at this time. The Company has sustained operating losses and negative cash flow since its inception, resulting in no tangible net worth at June 30, 2001. Currently we are operating at a cash flow deficit as revenues from Internet operations do not cover operating expenses. We project that cash flow from operations will reach a break-even level during our quarter ended December 31, 2001. Accordingly, we require no less than $1,300,000 of cash through external sources to fund our operations and service our long and short-term debt until we achieve positive cash flow from operations. We plan to finance this deficit from additional capital in the form of equity or debt or both to be raised in a private placement. In the event this capital is not raised, our Internet operations will be severely limited and meeting our existing overhead will be difficult. This limitation adversely may affect shareholder value. We have addressed these concerns by: (1) Obtaining a new line of credit, effective July 26, 2001, for up to $1,300,000 to fund our operating needs until the projected future revenue sources are developed; (2) Continuing our efforts to raise up to an additional $500,000 under terms similar to those of the private placement of equity securities in March and April of 2001; (3) Implementing plans to generate positive cash flow and operating profits by increasing revenues through the expansion of its Internet remarketing of off-lease and program vehicles with its current customers and others and develop new products and services for its current customer base and others and; (4) further reducing our cash requirements for software and website development and continuing to reduce our costs of operations. There is no assurance, however, that the Company will be able to implement its business plan as outlined above. In the event that the Company is unable to obtain positive cash flow prior to exhausting its new line of credit, it must obtain additional financing in the form of equity or debt to continue operations. SUBSEQUENT EVENT On July 26, 2001, we entered into a financing arrangement with Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line of credit up to $1,300,000. The loan provides for an initial advance of $250,000, followed by a thirty-day review period during which Eagle will complete its legal due diligence with respect to, among other items, the Company's intellectual property. The review period grants Eagle the right to discontinue funding of the line of credit if the Company's intellectual property is deficient in certain material respects. The loan is due June 30, 2002. It bears interest at the rate of 12% per annum payable monthly. We paid a commitment fee of $13,000 and are obligated to pay a one percent (1%) facility fee of up to $13,000 each quarter. We also are required to pay monthly principal payments of not less than 5% of the outstanding loan balance once we achieve positive cash flow. The loan is secured by all assets including, but not limited to, furniture, fixtures, leasehold, personal property, and intellectual property. The loan is convertible into our common stock at any time before the due date thereof, including any extensions, at the lesser of the average bid price following the date of the first advance and the earlier of the conversion date or the termination date or $0.10 per share. We also issued Eagle a warrant which allows Eagle, for a period of 90 days from the termination date of the loan, to purchase common shares at $0.10 per share in an amount equal to the difference between (a) 13,000,000 and (b) the number of shares of common stock issued upon prior conversion of any amounts under the loan. In addition, we issued a warrant to Eagle that allows Eagle to purchase, for a period of up to five years, up to 6,500,000 shares of common stock at an exercise price of $0.125 per share. If we prepay the loan in full at any time prior to December 31, 2001, we will issue to Eagle 1,500,000 shares of common stock as consideration. In addition, we issued to Eagle 1,300 shares Series E preferred stock, at a par value of $0.10 per share. The Series E preferred stock grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle will have two representatives on our board of directors. 12 We also entered into a Facilities Use and Administrative Services Agreement with an affiliate of Eagle for the use of office facilities, software development, marketing, accounting, and other management services that may vary from time to time. The fee for these services will be negotiated between the parties in good faith as business practices and circumstances change. On July 26, 2001, as part of the agreement with Eagle, we consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer of $336,807 and $402,000, respectively. The consolidated note bears interest at 12% payable monthly. In addition, we are obligated to make principal payments of $25,000 per month in November and December 2001, and $50,000 per month principal payments from January 2002 through May 2002. The balance of the note is due June 30, 2002. Any principal payment may be converted into common stock at the sole discretion of the lender at the rate of $0.10 per share, upon three days written notice. We also issued a warrant to purchase one share of common stock for every two shares of common stock received upon conversion. The warrant exercise price is $0.125 per share and expires five years from issuance. The note is subordinated to the first lien of Eagle. As a result of this transaction, we are required to reset the pricing of the units sold in March through April 2001 pursuant to a private placement. The anti-dilution clause contained in the private placement required us to issue 9,948,027 shares of our common stock and 4,959,013 additional stock purchase warrants exercisable at $0.125 per share. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse affect upon the financial condition, results of operations or cash flows of the Company. See "Forward-Looking Statements" above. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended June 30, 2001, the Company issued shares of common stock as follows: o 748,808 shares pursuant to a private placement for $186,702 o 25,000 shares to deJong & associates for services valued at $6,750 o 111,732 shares upon conversion of 204 shares of Series D Convertible Preferred Stock o 93,750 shares per the earn-out agreement with the former managers of AutoGroup of San Antonio LTD. valued at $35,156 o 375,000 shares issued and held in escrow for future distribution based on the earn-out agreement with the former managers of AutoGroup of San Antonio LTD. No underwriters were used in the above transactions. The Company relied upon the exemption from registration contained in Section 4(2) as to all of the transactions. All of the purchasers were deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in the registrant's business. Restrictive legends were placed on the stock certificates evidencing the shares. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report:

b) Reports on Form 8-K: NONE. 16 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, thereunto duly authorized. AUTOTRADECENTER.COM INC. Date: August 13, 2001 By: /S/ M.H. FEINSTEIN ----------------------------------------- M.H. Feinstein, Chief Financial Officer 17

AUTOTRADECENTER COM INC 10-Q