10QSB 1 v04558_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MAY 31, 2004 AUTO DATA NETWORK, INC. (Exact name of registrant as specified in its charter) Delaware 000-24609 13-3944580 ------------------------------- ---------- ------------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File No.) Identification No.) 5 Century Place, Lamberts Road, Tunbridge Wells, Kent, United Kingdom TN2 3EH ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: 011 44 1892 511 566 ------------------- Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 3 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 [_] Class Outstanding at July 12, 2004 ----- ------------------------------ Common stock, $0.001 par value 28,540,114 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AUTO DATA NETWORK, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) MAY 31,2004 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,385,740 Inventory 2,714,010 Accounts Receivable 9,663,471 Prepayments and Taxes 1,525,978 Other Accounts Receivable 4,212,731 ------------ TOTAL CURRENT ASSETS $ 26,501,930 ============ OTHER ASSETS Accounts Receivable after more than one year 3,515,897 Tangible Fixed Assets 1,349,122 Intangible Assets 1,452,047 Goodwill 22,530,768 Investments 10,958,797 TOTAL ASSETS 66,308,561 ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Bank loans and overdrafts 540,076 Other short term loans 38,369 Accounts payable $ 5,942,329 Accrued expenses 1,406,693 Deferred revenue 1,797,641 Other current liabilities 1,544,130 Accrued tax 2,210,611 ------------ TOTAL CURRENT LIABILITIES 13,479,849 ------------ LONG TERM LIABILITIES Deferred income 1,038,443 Other 13,260 TOTAL LIABILITES 14,531,552 ============ STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, $.001 par value; authorized 25,000,000 shares; 7,484,000 7,484 Common stock, $.001 par value; authorized 50,000,000 shares; 26,740,114 issued and outstanding 26,740 Additional paid in capital 48,084,917 Retained earnings 2,868,624 Accumulated other comprehensive loss (324,499) ------------ Current post-acquisition profit 1,113,743 TOTAL STOCKHOLDERS' EQUITY 51,777,009 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 66,308,561 ============ The accompanying notes are an integral part of these financial statements. AUTO DATA NETWORK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MAY 31 ---------------------------- 2004 2003 ------------ ------------ REVENUES $ 16,080,235 $ 3,322,289 COSTS OF REVENUE 9,082,783 1,657,129 GROSS MARGIN 6,997,452 1,665,160 OPERATING EXPENSES Personnel 3,105,586 471,951 Sales and Marketing 263,458 69,256 General and Admin 1,764,487 531,378 Depreciation and Amortisation 191,340 18,355 TOTAL OPERATING EXPENSES 5,324,871 1,090,940 ------------ ------------ NET OPERATING PROFIT 1,672,581 574,220 ============ ============ INTEREST AND FINANCE CHARGES (155,623) (13,906) FOREIGN EXCHANGE GAIN/(LOSS) (5,485) -- ------------ ------------ (161,108) (13,906) NET PROFIT BEFORE TAX 1,511,473 560,314 PROVISION FOR TAXATION 226,721 (205,910) SHARE OF LOSS IN ASSOCIATE COMPANY 48,203 -- DIVIDEND TO PREFERENCE SHAREHOLDERS 122,806 -- NET PROFIT ATTRIBUTABLE TO COMMON STOCKHOLDERS 1,113,743 354,404 PROFIT PER COMMON SHARE, BASIC AND DILUTED $ 0.05 0.03 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 24,369,545 13,552,289 ============ ============ The accompanying notes are an integral part of these financial statements. AUTO DATA NETWORK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended May 31, 2004 2003 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Profit 1,113,743 $ 354,404 Adjustments to reconcile net profit to net cash (used) in operating activities Depreciation and other non-cash charges 191,340 18,355 Addback share of losses in associate companies 48,203 -- Changes in operating assets and liabilities (Increase)/Decrease in Accounts receivable 3,145,097 (4,775,556) (Increase) in Other current assets (4,588,428) (1,027,625) Increase/(Decrease) in Accounts payable (1,179,858) 4,797,584 Increase in Accrued expenses 659,389 441,728 Increase in Other current liabilities 488,168 1,204,070 ----------- ----------- NET CASH PROVIDED BY/(USED IN)OPERATING ACTIVITIES (122,346) 1,012,960 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of land and buildings 1,241,426 -- Capital expenditure -- (441,840) Payment for purchase of Subsidiaries - net of cash acquired (5,244,904) (4,314,556) Investment in Associate (11,007,000) -- ----------- ----------- NET CASH (USED) IN INVESTING ACTIVITIES (15,010,478) (4,756,396) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Common Stock - net of fund raising expenses 3,328,584 3,976,275 Issuance of Preferred Stock - net of funding costs 16,716,840 -- Loans receivable after more than one year (640,439) -- Bank borrowing (601,376) 49,389 Repayment of long term Bank Borrowings (1,561,714) -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 17,241,895 4,025,664 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES (5,796) (40,156) ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS 2,103,275 242,072 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,282,465 722,961 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 8,385,740 965,033 =========== =========== The accompanying notes are an integral part of these financial statements. AUTO DATA NETWORK, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The information contained in this report is unaudited, but in our opinion reflects all adjustments necessary to make the financial position and results of operations for the interim periods a fair presentation of our operations and cash flows. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These statements should be read along with the Consolidated Financial Statements and Notes that go along with the Company's audited consolidated financial statements, as well as other financial information for the fiscal year ended February 29, 2004 as presented in the Company's Annual Report on Form 10-KSB. The results of operations and cash flows for the three months ended May 31, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year ending February 28, 2005. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Auto Data Network, Inc. (incorporated in Delaware on November 6, 1996) and its wholly owned subsidiaries Auto Data Network (UK) Limited, Allcars Retail Limited, County Services and Products Limited, E-Com Multi (UK) Limited, MMI Automotive Limited, Ifact Limited, Avenida Technologies Limited, Alliance Consultancy Limited and MAM Software Limited. All significant inter-company accounts and transactions have been eliminated. GOING CONCERN The accompanying consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, market penetration and profitable operations from the sale of its products. While management has been successful in raising capital and plans to raise additional equity capital, there can be no assurance that these plans will be achieved. NATURE OF BUSINESS Auto Data Network Inc., is a group of companies which provide software products and services to the automotive industry. The company offers a suite of software products that provides an integrated solution to all operational aspects of an automotive dealership. This allows dealerships to operate their businesses more efficiently and achieve considerable cost savings. The suite of software is easily deployed and provides solutions to increasingly valuable and important areas of a dealership business, such as aftermarket and finance. CONCENTRATIONS OF CREDIT RISK The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. FOREIGN CURRENCY TRANSLATION The Company's primary functional currency is the British Pound. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Expenses are translated at the average exchange rates in effect during the year. Translation gains and losses not reflected in earnings are reported in accumulated other comprehensive losses in stockholders' deficit. SIGNIFICANCE OF ESTIMATES The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts and disclosures contained in these financial statements. Actual results could differ from those estimates. STOCK BASED COMPENSATION The Company has elected to adopt the disclosure only provisions of SFAS No. 148 and will continue to follow APB Opinion No. 25 and related interpretations in accounting for stock options granted to its employees and directors. Accordingly, employee and director compensation expense is recognized only for those options whose price is less than the market value at the measurement date. When the exercise price of the employee or director stock options is less then the estimated fair value of the underlying stock on the grant date, the Company records deferred compensation for the difference and amortizes this amount to expense in accordance with FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Options or Award Plans, over the vesting period of the options. Stock options and warrants issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction With Selling Goods or Services, and recognized over the related service period. . INCOME PER SHARE In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (SAB) No. 98, basic net loss per common share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Under SFAS No. 128, diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Such common equivalent shares have not been included in the computation of net loss per share as their effect would have been anti-dilutive Three Months Ended May 31, 2004 2003 ---------------------- Numerator - Net profit $1,113,743 $ 354,404 Denominator - Weighted average shares outstanding 24,369,545 13,552,289 Net profit per share $ 0.05 $ 0.03 INCOME TAXES Income taxes are recorded in accordance with SFAS No. 109, Accounting for Income Taxes. This statement requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company is subject to income taxes in the United States of America, United Kingdom, and the state of New York. As of May 31, 2004 and 2003, the Company had net operating profit for income tax reporting purposes of approximately $1,113,743 and $354,404, respectively, FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include cash equivalents and accounts and notes payable. Because of the short- term nature of these instruments, their fair value approximates their recorded value. The Company does not have material financial instruments with off-balance sheet risk. RECLASSIFICATIONS Certain amounts included in prior periods' financial statements have been reclassified to conform to the current year's presentation. NOTE 2- EQUITY TRANSACTIONS Between February 12, 2004, and March 30, 2004, the Company sold an aggregate total of 5,105,881 shares of Series B-1 Preferred Stock Convertible Notes, of which 764,581 Series B-1 Preferred Shares were sold to those preferred stockholders who elected to exercise their preemption rights, and between March 31, 2004 and May 20, 2004 the Company sold an aggregate total of 272,526 shares of Series B-2 Preferred Stock Convertible Notes ("Series B Preferred Stock"). All of these sales were made in reliance upon exemptions from registration under the Securities Act of 1933, as amended (the "Act"). We sold all of the Series B Preferred Stock for $3.80 per share. Each of the Series B Preferred Stock shares is currently convertible into two (2) shares of our common stock. For each five (5) shares of Series B Preferred Stock purchased, subscribing investors received warrants to purchase two (2) shares of the Company's common stock at an initial exercise price equal to $2.50 per share. In addition, the Company issued warrants to purchase up to 1,068,085 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.90 per share. NOTE 3 - COMMITMENTS The company's corporate headquarters are located at 5 Century Place, Lamberts Road, Tunbridge Wells, Kent TN2 3EH, United Kingdom. ADN also has offices at 712 Fifth Avenue 19th Floor New York NY10019 and in London at 32 Haymarket, London SW1Y 4TP. The company occupies approximately 1500 square feet on one floor at its corporate headquarters, which is leased, approximately 300 square feet on one floor in the New York office, and approximately 600 square feet on one floor at the London office. The aggregate cost to the Company for its office accommodation is $31,800 per month. FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED This Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This filing includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. Sentences in this document containing verbs such as "believe," "plan," "intend," "anticipate," "target," "estimate," "expect," and the like, and/or future-tense or conditional constructions ("will," "may," "could," "should," etc.) constitute forward-looking statements that involve risks and uncertainties. Items contemplating, or making assumptions about, actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements. Although forward-looking statements in this Report on Form 10-QSB reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by management. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in, or anticipated by, the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes, include without limitation, those discussed in our Annual Report on Form 10-KSB for the year ended February 29, 2004. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Report. Readers are urged to carefully review and consider the various disclosures made by us in our Annual Report on Form 10-KSB for the year ended February 29, 2004, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. The following discussion should be read along with the Consolidated Financial Statements and Notes to our audited financial statements for the fiscal year ended February 29, 2004. OVERVIEW Auto Data Network Inc., ("ADN") is a group of companies which provide software products and services to the automotive industry. The company's primary market is automotive dealerships, of which there are approximately 78,000 in North America and 92,000 in Europe, representing a $15 billion market for related software and services. The company offers a suite of software products that provides an integrated solution to all operational aspects of an automotive dealership. This allows dealerships to operate their businesses more efficiently and achieve considerable cost savings. The suite of software is easily deployed and provides solutions to increasingly valuable and important areas of a dealership business, such as aftermarket and finance, which generate 48% of a dealership's profits from 12% of overall revenues, and 35% of profits from 2% of revenues respectively. The company's software is designed and retailed in a modular frame-work. This allows dealerships to select the software products and services most suited to their current business needs. This frame-work approach ensures that each software module can communicate with the next, and so critical business information can be shared in real-time. Moreover, this integration creates an information platform across all businesses which use ADN software, allowing each participant to benefit from relevant, real-time data related to the purchase and sale of motor vehicles, automotive parts and related services in specific markets. The company's customers are able to generate new sales, operate more cost efficiently, accelerate inventory turns and maintain stronger relationships with suppliers and customers. From its four principal subsidiaries, the company generates sales from two product segments; aftermarket service products and information services. These two segments supply real-time, transactional services to manufacturers, dealerships and consumers, producing industry-wide revenue generation, communication, and information collection and collaboration. ADN's executive team has extensive operating experience, and has delivered to its strategic roadmap through establishing strong relationships with leading participants in the British, European and North American automotive industry. The company's strategy has been developed to reinforce and increase market share by leveraging existing relationships in different automotive distribution channels and providing a broad range of solutions, information and service offerings. This strategy is supported by the objectives of the management; o To accomplish and capitalize on industry integration; and o To deliver and expand our offering of information and solutions to our subscribers. Since inception, the company has acquired eight separate businesses in these areas and developed two internally. The key to the successful integration of various industry infrastructures will be the creation and maintenance of an information architecture designed to ensure that all data that is captured is evaluated, structured and repackaged in a suitable, value-added format for resale. ADN plans to expand its service offering. Revenues will increasingly be generated through subscriptions to our services and information products and transaction fees. The company intends to increase the depth of information services offered to customers, in order that the specific data needs of industry participants can best served. This will widen the potential customer base and provide the company the opportunity to increase access charges as the service offering becomes more differentiated. INFORMATION SUPPORT AND SERVICES As a software and information services company, the company's integrated product, service, training and technology solutions enable automotive retailers and other companies in their supply chain to manage their businesses profitably and serve their customers efficiently. OUR MARKETPLACE The sales, distribution, servicing and after-market industry for motor vehicles is large and represents $1.7 trillion of economic activity in North America alone. The market is hungry for change and the introduction of new products and services which make conducting business more efficient and offer new opportunities for revenue generation. Technologies such as the Internet, broadband data transmission, wireless and handheld digital devices are creating entirely new ways to share information and conduct business in the automotive retailing marketplace. CONSUMERS are armed with more information than ever before. They clearly expect an improved experience at the point of sale, whether they enter the physical bricks and mortar of an automotive retailer or make their purchase through the click of a mouse. CAR MANUFACTURERS continually need to reduce the cost of distribution they strive to create build-to-order manufacturing strategies that will deliver the vehicles to match consumer requirements. They want to free up capital and inventory and improve customer service. AUTOMOTIVE RETAILERS want to know more about the consumer and to do a better job of marketing their products to them. Improved access to actionable data about their customers will help them establish long-term relationships through sophisticated CRM programs. They need to better integrate their physical and online retailing strategies to create a strong brand. They want to improve the vehicle-shopping, purchase and service experience while improving efficiency and profitability. Allied products and services providers-like financial institutions, insurance companies, collision repair facilities and transport and vehicle divisions want to lower costs, streamline processes and provide more value for the consumer by better sharing of data and integrating services. The transformation of the automotive industry is underway. ADN intend to capitalize on this transformation and lead the market in the provision of solutions and award-winning software. In the U.K. alone the automotive industry is a substantial revenue-generating sector of the economy, with thousands of participating businesses. More than 2.5 million new vehicles were registered in 2003 in the UK market, with a sales value of over $75 billion, as reported by The Society of Motor Manufacturers and Traders Ltd. ("SMMT"). In addition, there were approximately 6.7 million used vehicle sales in 2000, worth over $65 billion annually, according to SMMT. This same source states that additional incremental sales of insurance, spare parts and other auto related products created a total U.K. market in excess of $160 billion in 2000. Of the new vehicle sales each year, SMMT estimates that over 50% are sold to the fleet, leasing and rental markets. Over 30 different manufacturers compete in this market, through approximately 7,500 franchised retailers (31,000 outlets in total). The retail automotive industry as a whole, though a multi-billion dollar industry, is characterized by disconnected businesses which inhibits the collection and utilization of critical transaction-related information. There has been significant consolidation among manufacturers, but the dealer networks, which serve as the primary means for distribution of products, tend to be entrepreneurial and highly fragmented. The absence of efficient information exchange makes the industry unwieldy, unresponsive to market changes and operationally inefficient. Many of the business units can be compared to islands of information: disconnected from their immediate partners, within what we view as the three primary industry channels - manufacturers, retailers and consumers. Linkage between different channels is limited due to antiquated software systems with no common technology platforms or information infrastructure. These barriers to information supply and analysis increase inefficiencies throughout the industry. Without a system that facilitates compatibility these inefficiencies will only be exacerbated as the industry's reliance on technology grows. In Europe recent changes in retail automotive distribution legislation has created an environment for consolidation in the market. Traditionally, retailers specialized in one geographic market with one franchise. To gain economies retail operations have begun to consolidate with many companies running multi-franchised sales and service organizations requiring more sophisticated software solution s to support and operate their business. The company believes that the industry suffers from similar problems in Europe and in the U.S. The impact of global competitive pressures are forcing the automotive industry to reduce margins and look for areas where efficiencies can be improved and new revenue streams located and utilised. A need exists to build a universal network through which the automotive industry can communicate and conduct business. OUR STRATEGY The company's strategy is to build upon its existing business by acquiring Dealer Management System ("DMS") providers, the traditional software providers to dealerships, and additional support services to create a consolidated dealership solution. ADN will only acquire profitable businesses that are accretive to both the company's earnings per share and overall product offering. Core to the company's strategy is to provide customers with cost savings and new revenue opportunities through access to consolidated data and historic vehicle information. DESCRIPTIONS OF BUSINESS Listed below is a description of each of the main operating entities within the group: MAM SOFTWARE LTD MAM creates and markets software products and is currently the leading supplier of software applications for parts and accessories to the automotive industry factors, distributors, and retailers in the UK based upon an industry wide comparison of suppliers' sales figures over the last 3 years. MAM's products are tailored for companies engaged in parts supply, distribution and retailing, vehicle repair and servicing and engine and component reconditioning. MAM's software applications reduce supply market inefficiencies by allowing suppliers, dealers and customers to communicate with each other electronically via the Internet, allowing the development of off-site operations and total supply chain solutions. MAM's software applications are linked directly to the major manufacturers of automotive parts and accessories in the UK to monitor inventory levels, facilitating sales by providing real-time data to the distributors and dealers. MAM's software applications: AutoPart, AutoWork, Autoshop and AutoDMS are designed as enterprise management systems for parts and accessories resellers, workshops, and bodyshops, and dealerships, respectively, which operate in the automotive aftermarket, trading primarily as factors, distributors or retailers. AutoCat, another software offering, is a comprehensive CD based electronic parts catalogue inquiry system, designed to give instant access to information on vehicle parts. Additionally, MAM markets AutoNet, which offers tailored Internet solutions for the automotive industry, providing licensees with a variety of Internet connectivity options, from simple Internet connection to full e-mail and Web hosting services. When a subscriber purchases a software application from MAM, the company will supply, configure and install the complete hardware support and networks to the subscriber's specification and satisfaction. Once the software and hardware are in place, MAM provides training programs, both on and off-site, to educate dealership and dealer group owners, managers, sales staff, manufacturers and supplier personnel about implementing an effective supply program. In addition, MAM provides unlimited telephone and on-site software and hardware support and maintenance to address technical questions about our services as they arise. MAM collects revenue in the form of fees from distributors and dealers licensing MAM's software applications. The treatment for the revenue recognition of these fees has been approved by MAM's UK auditors and is treated in accordance with SOP-97-2. MAM is currently the leading supplier of parts systems and software applications to the body shop market, where it supplies Brown Brothers, a Unipart company, the largest supplier of parts and materials in the UK, with approximately an 80% market share. For the third year running in 2000, MAM was recognized by the Institute of Transport Management with the distinction of "Best Aftermarket Software Company" in Britain. PRODUCTS AND SERVICES. MAM currently offers the following comprehensive data and information services, integrative services and database products: NEW VEHICLE PRICES AND OPTIONS, which aids retailers and manufacturers in making pricing comparisons; STANDARD EQUIPMENT COLOURS AND TRIM, which aids retailers and manufacturers in processing vehicle orders and making comparisons in pricing and options; TECHNICAL SPECIFICATIONS DATA, such as load bearing and turning circles, which gives manufacturers essential data; PARTS CATALOGUING, which allows aftermarket players and Internet-based platforms to track parts supplies; Service Maintenance and Repair Time Data, which allows fleet operators to track repair data, and body shops and insurance companies to monitor repair costs; TOTAL LIFE COSTS, which aids European consumer groups and manufacturers in making vehicle comparisons; Optimum Finance Contract Data and Software, which gives retailers information and aids them in assessing their financing options; STOCK AVAILABILITY, which aids dealers in locating vehicles by a consumer location; USED VEHICLE PRICING, which provides real-time vehicle sale pricing by region; NEW VEHICLE DATA, which provides manufacturers with real-time data necessary for planning and understanding the various retail incentives available; and FUTURE VALUES, providing fleet operators and financing companies with data needed for risk planning. COUNTY SERVICES AND PRODUCTS LTD County has initially developed nine products both in warranty and insurance based services, which have enabled it to amass a large database containing car buying trends and customer choices which have been built up over the last ten years. It also has a very strong liaison with all the major insurance underwriters assisting it to develop further products and being able to resell the data to the underwriters. Vehicle insurance is a lucrative sales opportunity for automotive dealerships. For a typical dealership, insurance, when taken with financial services, contributes 35% of profits from just 2% of revenues. County provides dealership solutions that are fully compliant with newly introduced legislation by the European Union to regulate the selling of insurance products. Under these new regulations, dealerships wishing to sell insurance products to their customers must be registered with, and authorized by, the Financial Services Authority. To assist customers in adhering to these legislative changes, County's services include comprehensive compliance and training. Furthermore, the services provide access to an extensive range of motor insurance products, which allow dealership customers to select and cost from a wider range of packages. PRODUCTS AND SERVICES. The products that County markets are highly competitive and designed to increase revenue and margin for the dealers whilst offering increased consumer services and flexibility of terms for the dealers to give them an advantage over their competition. By using County software applications a dealer can store and access information that will help him to quickly calculate and recalculate deals by providing profit margin calculations and real-time information, all of which allows the dealer greater flexibility in negotiations. County have also developed legal fees cover, a reward for stolen vehicles and insurance against mileometers being tampered with. The company has developed bespoke software in Insurance, Warranty and Financial services. AVENIDA TECHNOLOGIES LIMITED Auto Data Network Inc acquired Avenida, a provider of software and real time data services to the automotive industry on 1st September 2003. Avenida , based in Coventry UK, develops software to address the most pressing challenges of the automotive industry - issues such as the coordination of activities between manufacturers and dealers, information exchange between suppliers and manufacturer, reducing costs to stay competitive and increasing customer retention. Avenida software accelerates the flow of information throughout an organization by removing the barriers between applications, data stores and network platforms, so increasing its efficiency. Furthermore, Avenida takes these benefits outside the enterprise by pushing its technology boundaries to include selected trading partners and customers. Avenida reduces data-management costs while ensuring data is accurate and up-to-date, regardless of its location. Avenida's software connects existing, legacy systems to those of trading partners using the latest XML standards and 'rules based' processing. Using Avenida, businesses benefit from the centralization and sharing of the critical business services, processes, messages, and vocabularies that make up the transactions exchanged between trading partners. Avenida offers an Internet-based solution to reflect the increasingly distributed nature of the automotive industry. Streamlined business information is able to flow between dealerships, manufacturers, aftermarket service providers and other distribution 'value chain' companies. Messaging to exchange customer records, orders, shipment information and other business information, within automotive product configuration and sales systems, is already in use with a number of clients including Land Rover, MG Rover, Ford (NYSE: F), BMW (Frankfurt: BMWG.F), Rolls Royce, ADN's recently announced release of 'Version 21' software by its subsidiary, MAM Software Inc., will benefit from the rules-based translation technology developed by Avenida. The combination of these two technologies, which utilize new open standards, such as Microsoft's (NASDAQ: MSFT) .NET initiative and XML, will provide integration services that universally connect automotive applications, data stores and network platforms--even across technical and organizational boundaries--and enable those resources to work together within one framework. This provides a foundation from which automotive companies, and their trading partners, are able to leverage existing information assets from a portfolio of Internet-based applications. ALL CARS LTD. Allcars.com is an interactive Web site designed to allow UK dealers to market used cars to the consumer. Effectively, it operates as a vehicle locator for the consumer. In 2002, with the benefit of trials and marketing tests, the site was up graded with more services and easier navigation and interaction. After the relaunch of this new version there are currently in excess of 2,000 dealers marketing on the Web site. On the 19th March 2002 ADN, Inc purchased E-com Multi Limited from E-com Multi Pty Limited of Australia. Kerridge Computer Co Ltd had previous sold a five year license of its Autosell auction software package and its respective goodwill and business to E-com Multi Limited of England the license remains unaffected by the change of ownership. We intend to fully integrated Kerridge's dealer management system data into our Network as this system integrates with the major dealership computer systems and will allow us to access more data that we can repackage and resell PRODUCTS AND SERVICES. The Web site provides dealerships and prospective buyers with access to information concerning used vehicle locations, automotive-related products, such as insurance, warranty, finance and vehicle accessories, generates visibility for our dealership subscribers' inventories and increases traffic to dealership and supplier Web sites. AllCars' alliances with dealer management systems providers allows us to provide automatic uploads of available vehicles from dealer servers directly onto the site, relieving dealers of the administrative burden of updating this content. We believe this data extraction service gives us a competitive edge over other sites that do not offer this feature. The AllCars Web site user has the option of browsing a variety of search and selection options for specifications and prices for new and used cars from every major automobile manufacturer and local dealer. Additionally, the site offers a variety of value-added features, including links to car guides and news reports, a car auction facility, financing options for corporate and consumer vehicle purchasers, a free Web page for dealerships, RAC road information and route planning, vehicle insurance and warranty information, links to Halford Ltd.'s Web site (a discounted automobile accessories site) and access for consumers to book vehicles for servicing. Allcars Ltd integrates through the ORBIT platform to operate "Autoauction," an on-line vehicle search engine, which creates a transaction hub for the sale of surplus inventory from automotive retailers. Autoauction is used by three major insurance companies to locate replacement vehicles written-off in accidents. The autoauction information service is also provided for the location of vehicles offered for sale by all subscribing dealers. The subscribing dealers utilize this proprietary network to locate and purchase vehicles to fit specific customer requirements. The information services offers a huge virtual stock of used vehicles at no extra cost so that the sales opportunities are maximized for both the retailer and stockholding dealer The Allcars Retail information service also enables consumers to locate their ideal vehicle by visiting their local dealer and using our online portal. This is an innovative and highly successful vehicle retailing services that allows the consumer unlimited choice of vehicles to purchase by detailing the type of vehicle and style options required, instead of by brand name. The vehicles that meet the consumers requested options together with location and cost are then displayed to the dealer. The suite guides the consumer to the most appropriate vehicle and immediately allowing the dealership to satisfy the request by the connection to Auto Auctions and Orbit Data Interchange. From these services ADN receives monthly fees from dealerships connected to the Orbit Data Interchange that list the automobile inventory on the Auto Auction information service and a monthly license fee from the dealership for the online terminal with proprietary software. The group also offers end-to-end single-source networking management, seamless high-speed Internet connectivity, technical support and consulting services. As the automotive sector increasingly relies on Internet communications with retailers, we offer a single point of contact throughout the supply chain. IFACT LIMITED In January, 2004 the Company completed the acquisition of IFact, Ltd. IFAct Ltd delivers effective and viable long-term solutions that focus on the regulatory requirements of the General Insurance Standards Council. IFAct is one of the leading compliance consultancy practices in the United Kingdom specialising in providing expertise and support solutions on FSA regulation and compliance, and is one of a series of targeted acquisitions being made by Auto Data to extend its range of specialist services to dealership customers. INVESTMENT IN CARPARTS TECHNOLOGIES, INC On July 29, 2003 the company announced the completion of a strategic investment in CarParts Technologies, Inc.. CarParts Technologies, Inc. (CarParts) is a leading provider of software systems to the automotive aftermarket supply chain. Over 3,000 customers, including leading automotive aftermarket outlets, tier 1 manufacturers, program groups, warehouse distributors, tire and service chains and independent installers across all 50 U.S. states and Canada, rely on CarParts software. Under the terms of the agreement, Auto Data Network has provided a loan of $2 million to fund the continued growth of the company. INVESTMENT IN DCS AUTOMOTIVE LIMITED On March 15, 2004, ADN announced that it has invested $11 million in DCS Automotive, Europe's largest dealer management system (DMS) provider and a division of DCS Group, PLC., for a one-third equity interest. DCS Automotive is European leader in the provision of IT business solutions to the automotive retail sector in Europe. Established in 1976, DCS Automotive has evolved from a supplier of dealer management systems and now specializes in flexible, connective technologies and services designed exclusively for the automotive industry. Under the terms of the investment, ADN has the right to purchase the remaining two-thirds equity interest in DCS Automotive upon the completion of certain financial performance criterion by DCS. Revenues from DCS' existing business are projected to reach $60 million this year. Upon the exercising of ADN's right to purchase the remaining two thirds of DCS Automotive, Stephen Yapp, CEO of DCS Automotive's parent DCS Group plc, will join ADN's board of directors. DCS Automotive has offices in the UK, France, Germany, Spain, Switzerland and Asia, as well as agents and representations throughout the rest of the world. Its customers include the world's leading manufacturers, distributors and retail motor groups, including Renault, Volkswagen, BMW and leading distributor groups across Europe. MMI AUTOMOTIVE LIMITED On March 18, 2004 ADN, announced the completion of its purchase of MMI-Automotive Limited (MMI), a leading provider of business management and marketing systems for the United Kingdom and European automotive industry. MMI, founded in 1981, is a leader in Microsoft Windows(R) based dealer management systems (DMS) and customer relations marketing systems (CRM) for both automotive dealers and manufacturers. MMI's products include Automate DMS, a real-time dealer management system designed for automotive dealerships and dealer groups - endorsed by several major automobile manufacturers; Target CRM, a system to help dealerships, dealer groups and manufacturers generate more revenue through the strategic management of customer relationships; Target CCRM, a centralized customer relationship management system for multi-site or multi-franchise dealers; and TimePro, a time recording and management system. MMI also offers design and consultancy services for dealer websites and product development. MMI's software provides a comprehensive dealer management system inclusive of vehicle and parts sales, inventory management, service management and records, accounting systems, as well as manufacturer links. Its fully integrated customer relations management system provides an information and marketing framework designed to maximize profitability, effectiveness and customer loyalty. COMPANY STATUS The Company has made significant progress in developing its product portfolio. The Company's principal business purpose is to create a group of automotive software companies providing real time data and transactional services to the automotive industry. Services are integrated onto a single transaction platform and data network. The platform provides an integrated communications channel that allows all automotive industry participants to transact with each other and within a single, secure environment. The company has invested substantial funds developing its technology platform since inception and will now commercialise this platform via an acquired customer base. Between February 12, 2004, and March 30, 2004, the Company sold an aggregate total of 5,105,881 shares of Series B-1 Preferred Stock and between March 31, 2004 and May 20, 2004 the Company sold an aggregate total of 272,526 shares of Series B-2 Preferred Stock Convertible Notes ("Series B Preferred Stock"). We sold all of the Series B Preferred Stock for $3.80 per share resulting in gross proceeds of $20,437,947. On March 15, 2004 the company announced that it had invested $11million in DCS Automotive Holdings Limited, Europe's largest dealer management system provider and a division of DCS Group PLC, for a one third equity interest. The company has the right to purchase the remaining two-thirds equity interest in DCS Automotive Holdings Limited upon the completion of certain financial performance criteria by DCS Automotive Holdings Limited. On March 18, 2004 a Share sale agreement was completed to acquire the whole issued share capital of MMI- Automotive Ltd (MMI) a leading provider of business management and marketing systems for the United Kingdom and European automotive industry. The Company continues to develop its product portfolio and its recent acquisitions and investments have increased its customer base. The Company is on track towards unifying its diverse product range onto a single, technology infrastructure which will allow every customer access to each product and service offered. The Company intends to supplement its product offering with additional software products in order to provide automotive customers with a turn-key solution to their business needs. The likelihood of the Company's success must be considered in light of the fluctuating business purchasing cycles with respect to software and technology, and the highly competitive and regulatory environment in which we operate. The Company may not be successful in addressing the challenges brought by our environment. If we are unable to do so, our business prospects, financial condition and results of operations would be materially adversely affected. RESULTS OF OPERATIONS During the first quarter ended May 31, 2004, work continued on product development programs as planned and the individual items are detailed below. In the quarter ended May 31, 2004, compared to the quarter ended May 31, 2003: General and administrative expenses increased from $531,378 in the quarter ended May 31, 2003, to $1,764,487 in the corresponding quarter for 2003. The main reason for the increase was the further development of the Company's infrastructure to support its planned growth. In the quarter ended May 31, 2004 the Company reported an increase in revenues to $16,080,235, up from $3,322,289 in the corresponding quarter from the previous year, reflecting the continuing impact of our acquisition program. The company made a net profit of $1,113,743 in the quarter ended May 31, 2004 which compares with a net profit of $354,404 for the corresponding quarter in 2003. The Company's performance in this quarter is reflective of its ongoing expansion. It is anticipated that the company will be able to meet its financial obligations through internal net revenue in the foreseeable future. Total assets have increased to $62,098,306. Liquidity & Capital Resources - Between February 12, 2004, and March 30, 2004, the Company sold an aggregate total of 5,105,881 shares of Series B-1 Preferred Stock Convertible Notes, of which 764,581 Series B-1 Preferred Shares were sold to those preferred stockholders who elected to exercise their preemption rights, and between March 31, 2004 and May 20, 2004 the Company sold an aggregate total of 272,526 shares of Series B-2 Preferred Stock Convertible Notes ("Series B Preferred Stock"). All of these sales were made in reliance upon exemptions from registration under the Securities Act of 1933, as amended (the "Act"). The Company sold all of the Series B Preferred Stock for $3.80 per share. Each of the Series B Preferred Stock shares is currently convertible into two (2) shares of our common stock. For each five (5) shares of Series B Preferred Stock purchased, subscribing investors received warrants to purchase two (2) shares of the Company's common stock at an initial exercise price equal to $2.50 per share. In addition, the Company issued warrants to purchase up to 1,068,085 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.90 per share. The Company used these funds primarily to complete its investment in DCS Automotive Limited and working capital to accelerate the development of its lead products. We believe this funding will be sufficient to support our business plan. Should we come up against any unforeseen problems, the Company will revisit its budget and adjust its costs to allow the Company to operate until sufficient long term funding is achieved. However, a key element of our business strategy is to continue to acquire and develop new technologies and products that we believe offer unique market opportunities and/or complement our existing product lines. ITEM 3. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer have, as of the end of the period covered by this Report, reviewed our process of gathering, analyzing and disclosing information that is required to be disclosed in our periodic reports (and information that, while not required to be disclosed, may bear upon the decision of management as to what information is required to be disclosed) under the Exchange Act of 1934, including information pertaining to the condition of, and material developments with respect to, our business, operations and finances. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our process provides for timely collection and evaluation of information that may need to be disclosed to investors. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no significant changes in the Company's internal controls over financial reporting that occurred during the quarter ended May 31, 2004, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position. ITEM 2. CHANGES IN SECURITIES Between February 12, 2004, and March 30, 2004, the Company sold an aggregate total of 5,105,881 shares of Series B-1 Preferred Stock Convertible Notes, of which 764,581 Series B-1 Preferred Shares were sold to those preferred stockholders who elected to exercise their preemption rights, and between March 31, 2004 and May 20, 2004 the Company sold an aggregate total of 272,526 shares of Series B-2 Preferred Stock Convertible Notes ("Series B Preferred Stock"). All of these sales were made in reliance upon exemptions from registration under the Securities Act of 1933, as amended (the "Act"). We sold all of the Series B Preferred Stock for $3.80 per share. Each of the Series B Preferred Stock shares is currently convertible into two (2) shares of our common stock. For each five (5) shares of Series B Preferred Stock purchased, subscribing investors received warrants to purchase two (2) shares of the Company's common stock at an initial exercise price equal to $2.50 per share. In addition, the Company issued warrants to purchase up to 1,068,085 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.90 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION There is no other information to report that is material to the Company's financial condition not previously reported. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit No. Description ----------- --------------------------------------------------------------- 32 Certification of CEO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.1 Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) REPORTS ON FORM 8-K On April 6, 2004, we reported that on March 15, 2004, the Company issued a press release regarding the closing of its acquisition of a one-third equity interest in DCS Automotive Holdings Limited for $11 million and its right to purchase the remaining two-thirds equity interest in DCS Automotive Holdings Limited upon the completion of certain financial performance criteria by DCS Automotive Holdings Limited. On March 19,2004, we reported that on March 12, 2004, the Company issued a press release regarding the closing of a private equity financing of $16.5million through the sale of Series B-1 Preferred Stock and warrants. SIGNATURE 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. /s/ Christopher Glover ------------------------ Christopher Glover Chief Executive Officer