10QSB/A 1 v018849_10qsba.txt UNITED STATES SECURITIES EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended November 30, 2003 AUTO DATA NETWORK INC. (Exact name of registrant as specified in its charter) Delaware 13-3944580 ---------------------- ------------------ State of Incorporation IRS Employer ID No. The Forsythe Centre, Lamberts Road Tunbridge Wells, Kent, UK -------------------------------------- -------- Address of principal Executive Offices Zip Code REGISTRANT'S TELEPHONE NUMBER 011 44 1892 511 566 Check here whether the issuer (1) has filed all reports required to be filed by Sections 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 [ ] As of January 19, 2004 the following shares of the Registrant's common stock were issued and outstanding: Voting common stock 17,610,789 INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements . . . . . . . . . . . . . . . . .3 CONDENSED CONSOLIDATED BALANCE SHEET . . . . . . . . .3 CONDENSED CONSOLIDATED INCOME STATEMENT. . . . . . . .4 STATEMENT OF CASH FLOWS. . . . . . . . . . . . . . . .5 Notes to the Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion And Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 11 Item 2. Changes in Securities. . . . . . . . . . . . . . . . 11 Item 3. Defaults upon Senior Securities. . . . . . . . . . . 11 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 11 Item 5. Controls and Procedures . . . . . . . . . . . . . . 11 Item 5. Other information. . . . . . . . . . . . . . . . . . 11 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 12 Signatures 12 Certificate of Chief Executive Officer 12 Certificate of Chief Financial Officer 13 PART I - FINANCIAL INFORMATION AUTO DATA NETWORK INC. CONSOLIDATED BALANCE SHEET
As Of As Of November 30,2003 February 28,2003 (Unaudited) (Audited) ----------- ----------- ASSETS Current Assets Cash and equivalents $ 8,584,760 $ 722,961 Accounts Receivable 6,116,321 867,106 Other accounts receivable 846,215 0 Prepaid expenses 194,505 1,194 Inventories 316,380 0 ----------- ----------- Total Current Assets 16,058,181 $ 1,591,261 Accounts receivable due after more than one year Other accounts receivable 2,002,898 0 Fixed Assets less accumulated depreciation $ 470,855 $ 54,159 Intangibles 9,061,064 7,498,181 Goodwill 7,473,108 0 ----------- ----------- TOTAL ASSETS $35,066,106 $ 9,143,601 LIABILITIES Current Liabilities Accounts Payable 4,572,844 $ 1,451,366 Accrued Expenses and sundry accounts payable 537,945 279,683 Short-Term Loans 24,677 22,583 Short Bank Borrowing 446,457 289,744 Other current liabilities 826,753 0 ----------- ----------- Total Current Liabilities $ 6,408,676 $ 2,043,376 Other Liabilities Accrued Tax 0 488,000 Taxation payable 1,244,217 0 Value added tax 828,119 0 Long Term Liabilities & Deferred Income 1,117,058 0 ----------- ----------- Total Liabilities $ 9,598,070 $ 2,531,376 STOCKHOLDERS' EQUITY Common Stock, $.001 par value, Authorized 50,000.000 Shares; Issued and Outstanding 14,839,850 Shares 14,840 11,590 Preferred Stock 5,328,300 $.001 Par value issued and outstanding 5,328 Additional Paid in Capital 23,953,550 7,214,749 Accumulated Other Income 169,433 61,827 Accumulated Surplus/Deficit 1,324,885 (675,941) ----------- ----------- Total Stockholders' Equity $25,468,036 $ 6,612,225 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,066,106 $ 9,143,601 =========== ===========
The accompanying notes are an integral part of these financial statements. AUTO DATA NETWORK INC. CONDENSED CONSOLIDATED INCOME STATEMENT
Three months Ending Nine months Ending November 30, November 30, (Unaudited) (Unaudited) 2003 2002 2003 2002 ----------------------- ------------------------ Revenue $ 6,218,593 474,715 $15,095,548 1,026,100 Cost of Revenue 1,359,507 191,747 4,062,729 351,531 ----------------------- ---------------------- Gross Margin 4,859,086 282,968 11,032,819 674,569 Operating Expenses Personnel 1,986,895 0 3,772,629 0 Sales & Marketing 16,252 15,271 159,477 35,300 General & Administrative 1,533,481 50,393 3,831,989 401,652 Depreciation and Amortization 118,939 6,400 337,188 16,107 ------------------------- ----------------------- Total Operating Expenses 3,655,567 72,064 8,101,283 453,059 Net Operating Profit/Loss 1,203,519 210,904 2,931,536 221,510 Interest Expense (18,635) (6,021) (73,213) (12,268) ------------------------- ----------------------- NET PROFIT/LOSS FROM TRADING 1,184,884 204,883 2,858,323 209,242 Net Profit/Loss before tax 1,184,884 204,883 2,858,323 209,232 Provision for Taxation 355,465 87,552 857,497 192,129 ------------------------- ----------------------- Net Profit after Tax 829,419 117,331 2,000,826 17,113 Net Profit Per Share 0.057 0.01 0.137 0.001 Weighted average Number of Shares Outstanding 14,614,850 11,552,298 14,389,850 11,552,289
The accompanying notes are an integral part of these financial statements. AUTO DATA NETWORK INC. CONSOLIDATED STATEMENT OF CASH FLOWS November 30, 2003
For the 3 mos For the 3 mos Ended Ended November 30, 2003 November 30, 2002 (Unaudited) (Unaudited) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income Profit $ 829,419 $ 117,291 Adjustments to Reconcile Net Loss To Cash Used in Operating Activities: Depreciation and other non-cash charges 118,939 6,440 Other Non cash changes Changes in Assets, Liabilities Accounts receivable (572,784) Other current assets (1,701,617) Tangible assets (164,236) Accounts Payable 260,459 Accrued Expenses (12,101) Other Non current liabilities 1,478,215 (112,174) ----------- ----------- Total adjustments (593,125) (105,734) Net Cash Provided/(Used in) Operations 236,294 11,557 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiaries (1,401,420) 0 Investing Activities 0 0 Net cash used in investing Activities (1,401,420) 0 CASH FLOWS FROM FINANCING ACTIVITIES: New Share issue - Common stock 450 0 New Share issue - Preferred stock 3,298 Additional Paid-in Capital 6,469,669 0 Effect of Exchange rates on cash 344,880 0 Other non cash changes 0 0 ----------- ----------- 6,818,297 0 Net Change in Cash and Equivalents 5,653,171 11,557 Cash and Cash Equivalents at Beginning of Period 2,485,132 1,670 ----------- ----------- Cash and Cash Equivalents at End of Period $ 8,138,303 13,227 Bank overdraft (446,457) Supplemental disclosure of cash flow Information Interest paid 25,291
The accompanying notes are an integral part of these financial statements AUTO DATA NETWORK INC. Notes to Financial Statements November 30, 2003 NOTE 1. BASIS OF PRESENTATION The financial statements are prepared on the accrual basis of accounting. Accordingly, revenue is recognized when earned and expenses when incurred. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2003 compared with the same period in the previous year are not necessarily indicative of the results that may be expected for the year ending February 28, 2004. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in the Company's Form 10-KSB for the year ended February 28, 2003. NOTE 2. LIQUIDITY The Company made post tax profit of $514,648 in the year ended February 28, 2003 compared to $2,000,826 in the nine months to November 30,2003 and it is anticipated that the Company will be able to meet its financial obligations through internal net revenue in the foreseeable future As a result, the Company has from time of inception to November 30, 2003 made a net profit from operations of $1,324,885. NOTE 3. STOCK TRANSACTIONS On April 23, 2003 the company issued 2,000,000 (two million) shares of restricted Common stock in part satisfaction of the purchase consideration of MAM Software Limited. The balance of the consideration is to be paid before the financial year end. The company commenced a private placement of 6% Convertible Preferred Stock on July 18, 2003. This private placement finally closed on November 3, 2003 during which the company had sold an aggregate total of 5,328,300 shares of preferred stock, 500,000 were Series A-1 Convertible Promissory Note Preferred Stock and 4,828,000 were Series A-2 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 these preferred shares for $2.50 per share. Each of these preferred shares is currently convertible into two (2) shares of our common stock. In addition to selling those shares, we issued warrants to purchase up to 1,331,000 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.25 per share. The registration statement for the offering became effective on November 21, 2003 pursuant to the SEC's acceptance of the company's SB-2 filing made on November 6, 2003. The estimated net proceeds from this private placement of Convertible Preferred Stock are $11,120,750. NOTE 4. ISSUED SHARE CAPITAL
Shares Value ------ ----- Issued Common Stock, $0.001 par value, at fiscal year end February 28, 2003 11,589,850 11,590 Stock issued for acquisition of Automatrix 190,000 190 Stock issued for the acquisition of MAM Software Limited 2,000,000 $ 2,000 Stock issued to consultants August 11,2003 610,000 610 Stock issued to consultants 450,000 450 Total Issued common stock as of November 30, 2003 14,839,850 $ 14,839 Preferred stock issued as of November 30, 2003 5,328,300 5,328 Total Stock issued 20,168,150 $ 20,168 ADDITIONAL CONTRIBUTED CAPITAL Additional contributed capital at fiscal year end February 28 2003 $ 7,214,749 Acquisition of MAM Software Limited 3,998,000 Acquisition of Automatrix Limited 341,810 Shares issued to consultants 1,324,390 Preferred stock issued 11,074,601 Total 23,953,550
The company lists its Common Stock on the OTC Bulletin Board market (OTCBB - ADNW). Authorised Common stock is 50,000,000 at $0.001 par value and authorized Preferred stock is 25,000,000 at $0.001 par value NOTE 5. CONSOLIDATION The company owns 100% of the equity of all its subsidiaries and the Financial Statements incorporate consolidation of all companies in the group. NOTE 6. DEPRECIATION POLICY AND ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS The Company depreciates all its fixed assets over their useful lives on the following basis: Tangible Assets at the rate of 25% per annum on the reducing balance of the asset value. Intangible Assets at the rate of 3% per annum commencing one year after the asset was acquired but subject to the provisions of SFAS 141 SFAS No. 142, "Goodwill and Other Intangible Assets," changes the current accounting model that requires amortization of goodwill, supplemented by impairment tests, to an accounting model that is based solely upon impairment tests. SFAS No. 142 also provides guidance on accounting for identifiable intangible assets that may or may not require amortization. The provisions of SFAS No. 142 related to accounting for goodwill and intangible assets will be generally effective for the Company at the beginning of 2002, except that certain provisions related to goodwill and other intangible assets are effective for business combinations completed after July 1, 2001. The Company does not believe this statement has any impact to the Company as of December 31, 2002. In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No.143 addresses financial accounting and reporting for obligations associated with the retirement of intangible long-lived assets and associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it has occurred. The asset retirement obligations will be capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal operation of long- lived assets. SFAS No. 143 is effective for years beginning after June 15, 2002, with earlier adoption permitted. Currently, the Company does not believe this statement has any impact on the Company. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and the recognition of impairment of long-lived assets to be held and used. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, with an earlier adoption encouraged. The Company is evaluating the impact of adopting SFAS No. 144 but believes it will not have a material effect on the Company's results of operations or financial position. Long Lived Assets - The company has completed a number of business combinations over the years. These business combinations result in the acquisition of intangible assets and the recognition of goodwill on the company's consolidated balance sheet. The company accounts for these assets under the provisions of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill not be amortized, but instead tested for impairment at least annually. The statement also requires recognized intangible assets with finite useful lives to be amortized over their useful lives. Long-lived assets, goodwill and intangible assets are reviewed for impairment annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable from future cash flows. Future cash flows are forecasted based on management's estimates of future events and could be materially different from actual cash flows. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset exceeds its fair value. NOTE 7. REVENUE RECOGNITION The company recognizes income when services are rendered and licence fees are normally agreed on an annual basis and invoiced monthly in arrears. Invoices for sales of goods such as computer hardware products are issued on dispatch and revenue is recognized on invoice date. NOTE 8. FOREIGN CURRENCY The company's foreign subsidiaries use the local currency as their functioning currency. Accordingly Assets and liabilities are translated into US dollars at year end exchange rates, and revenues and expenses are translated at the average prevailing during the accounting period. NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 148, "Accounting for Stock-Based Compensation -Transition and Disclosure." The new statement, which becomes effective December 2002, requires all entities with stock-based employee compensation arrangements to provide additional disclosures in their summary of significant accounting policies note; permits entities changing to the fair value method of accounting for employee stock compensation to choose from one of three transition methods; and requires interim-period pro forma disclosures if stock-based compensation is accounted for under the intrinsic value method in any period presented. The Company is still assessing this new standard but does not believe that it will have a material effect on its results of operations or financial condition upon adoption. NOTE 10 - SUBSEQUENT EVENT As the Company has previously advised, the Company's independent accountant who was previously engaged as the principal accountant to audit the Company's financial statements, F. E. Hanson Ltd., has been determined to be not current in its registration with the Public Company Accounting Oversight Board. Upon the approval of the Company's board of directors the Company is on this date separately amending its Annual Report on Form 10KSB for the period ending February 29, 2004 to delete the auditor's report from F.E. Hanson Ltd. and label all financial statements periods ending after October 22, 2003 as unaudited. In addition, on this date the Company is separately amending its Quarterly Reports on Form 10QSB for the periods ending November 30, 2003, May 31, 2004, August 31, 2004, and November 30, 2004 to delete any references which may appear therein to audit reports or reviews by F.E. Hanson Ltd. in respect of periods ending after October 22, 2003 and to label any financial statements for periods ending after October 22, 2003 as unaudited. In view of F.E.Hanson Ltd.'s non-registration with the Public Company Accounting Oversight Board, on this date the Company is also advising securityholders that the Company is not current in its reporting under the Securities Exchange Act of 1934 and they may not utilize Rule 144 or similar rules for resales of securities at this time. In addition, they may they may not make purchases or sales of securities in reliance upon prospectuses under any of the Company's Registration Statements on Form SB-2 or Form S-8 filed or amended after October 22, 2003. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ADN RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The information set forth in this Report on Form 10-QSB including, without limitation, that contained in this Item 2, Management's Discussion and Analysis and Plan of Operation, contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual future results will not be different from the expectations expressed in this report. Except for the historical information contained herein, certain matters discussed in this report may be considered "forward-looking statements" within the meaning of The Securities Act of 1933 and The Securities Exchange Act of 1934, as amended by The Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations of the Company and members of its management as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements. These and additional important factors to be considered are set forth in the Safe Harbor compliance Statement for forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of the consolidated financial statements. In addition, Financial Reporting Release No. 61 was released by the SEC, which requires all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. The following discussion is intended to supplement the summary of significant accounting policies as described in Note 1 of the Notes To Condensed Consolidated Financial Statements for the year ended February 28, 2003 included in the Company's annual report on Form 10-KSB for the period then ended. These policies were selected because they represent the more significant accounting policies and methods that are broadly applied in the preparation of the consolidated financial statements. Revenue recognition Sales of computer hardware products are recorded upon shipment to customers. Revenues from software license fees are accounted for in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, "Software Revenue Recognition." The company recognizes revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectibility is reasonably assured. Service revenues, which include computer hardware maintenance, software support, training, consulting and Web hosting are recorded rateably over the contract period or as services are performed. The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence of fair value exists for those elements. Software revenues which do not meet the criteria set forth in Emerging Issues Task Force (EITF) Issue No. 00-3, "Application of AICPA SOP 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware," are recorded rateably over the contract period as services are provided. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. OVERVIEW OF AUTO DATA NETWORK We are a group of established companies which provide software products and services to the automotive industry. The company's main customers are auto dealership in a marketplace of approximately 78,000 dealers in North America and 92,000 dealers in Europe. The company estimates that this represents a $15 billion market for Software and Services specifically for auto dealerships. The company supplies a suite of software solutions and services that enable dealerships to run their businesses more efficiently and achieve considerable cost savings. The majority of the company's current solutions is focused on serving the aftermarket and finance areas of dealerships. These areas are of particular importance since the aftermarket business is responsible for 48% of a dealership's profits from 12% of their overall revenue. The second most profitable area is vehicle finance and insurance this area contributes 35% of profits from 2% of revenues. Our open business automation and distribution channel eCommerce products and services are designed for industry participants interested in relevant, real-time data related to the purchase and sale of motor vehicles and automotive parts and related services in specific markets Our operations are conducted through our four subsidiaries and using our solutions, many companies now generate new sales, operate more cost efficiently, accelerate inventory turns and maintain stronger relationships with suppliers and customers. The Group generates sales from its two divisions, aftermarket service products and information services. These divisions supply real time and transactional services to manufacturers, retailers and consumers producing industry-wide revenue generation, communication and information collection. On April 23, 2003 the company completed the acquisition of MAM Software Limited. MAM Software is the leading European supplier of automotive aftermarket of computer software and systems within the automotive aftermarket and marine trade. It provides a complete range of products covering all aspects of sales, stock and purchase control linked to a full range of accounting systems. These systems apply to Motor Factors and Distributors, Parts Retailers and Garages. MAM Software offers a service that covers installation of new computer systems followed by comprehensive support and maintenance. Its range of software products are known as "Auto Part", a complete system for wholesalers and retailers, "Auto Work", a computer system for garages and workshops, "Autocat", a stand alone electronic catalogue, and "Autonet" a service for establishing and maintaining a presence on the world wide web. MAM Software currently maintains four sites in the United Kingdom and Republic of Ireland. It is considered a pre-eminent system supplier to the Automotive Parts Aftermarket. On August 13, 2003 the company announced an agreeement with 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. ADNW will also acquire CarParts Technologies on a pre-determined formula at the end of 2005. CarParts has developed the world's first application suite that puts the Internet inside its VAST point-of-sale (POS) and back office (DirectStep) automotive aftermarket systems. CarParts has created an industry-specific private trading network, OpenWebs(TM) Intelligent Trading Network, with in-built, secure trading and accounting functionality that lets members buy from, and sell to, any other partner on the network - distributors, manufacturers, even other dealers. Since everyone is connected under trading rules, members can confirm sales to their own customers based on accurate information and reduce their inventory. CarParts' OpenWebs(TM) Intelligent Trading Network integrates with existing industry systems from a standard Microsoft based platform resulting in lower customer installation costs and minimal user training requirements. Using OpenWebs(TM), CarParts has also deployed a leading tire-industry ERP application, Tradera, with advanced tire functionality, tire adjustment warranty tracking, volume bonus accruals and integration with retread software. Computer-to-computer connectivity with leading tire manufacturers provides accurate real-time product information to assist dealerships and repair centres in managing and extending their relationship with customers We market our products to vehicle and parts manufacturers, dealers, consumers and related industry participants, including financial institutions, insurance providers and fleet owners. Our core product offering revolves around three functions: (1) our ability to link the often incompatible systems and data structures of the various participants in the industry into one unified information platform, (2) our ability to assemble and provide relevant, actionable data in real-time to our subscribers, and (3) our breadth of services and product offering designed to facilitate and increase efficiencies using the data we provide to facilitate sales of new and used vehicles, parts and accessories, and various services such as finance, insurance and vehicle servicing. Our product suite includes applications we have developed internally and applications developed by businesses through acquisition. The platform propositions are integrated as a communications channel that allows all automotive sector participants to transact within a single environment, in which transactional data is added and modified on the network. This process creates a unique source of "Intelligent Information(TM)" that can be accessed by subscribing companies to analyze and react to changes in market conditions. We believe that we have the opportunity to become a leading technology company servicing the automotive industry in the next five years if we successfully execute our balanced growth strategy. We anticipate that revenues derived from our current software portfolio will permit us to further develop new products in our development portfolio. We intend to commence marketing our software offering in a combined package, and to continue developing our existing platform technologies with a primary business focus on automotive dealerships. A key element of our business strategy is to continue to acquire, obtain licenses for, and develop new technologies and products that we believe offer unique market opportunities and/or complement our existing product lines. The company commenced a private placement of 6% Convertible Preferred Stock on July 18, 2003. This private placement finally closed on November 3, 2003 during which the company had sold an aggregate total of 5,328,300 shares of preferred stock, 500,000 were Series A-1 Convertible Promissory Note Preferred Stock and 4,828,300 were Series A-2 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 these preferred shares for $2.50 per share. Each of these preferred shares is currently convertible into two (2) shares of our common stock. In addition to selling those shares, we issued warrants to purchase up to 1,331,000 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.25 per share. The registration statement for the offering became effective on November 21, 2003 pursuant to the SEC's acceptance of the company's SB-2 filing made on November 6, 2003. The estimated net proceeds from this private placement of Convertible Preferred Stock are $11,120,750. RESULTS OF OPERATIONS Revenues for the three month period ending November 30, 2003 were $6,218,593, and for the nine months of the year to date $15,095,548 compared to $474,715 and $1,026,100 for the comparable periods in 2002 with the main growth coming from acquisitions in the Data management and aftermarket parts of the business. The revenues were derived from our two operating divisions. We expect that revenues will increase over the coming quarter both organically and from additional acquisitions which we expect to undertake. Our prior history is not indicative or reflective of future revenue performance. Cost of revenues for the three month period ending November, 2003 were $1,359,507 and for the nine months year to date $4,062,729 as compared to $191,747 and $351,531 for the corresponding periods of fiscal 2002. Our cost of revenues has increased as a result of the increased trading activity and further marketing and developing our products. Operating expenses for the three month period ending November 30, 2003 were $3,655,567, 58.8% of revenue and for the nine months year to date $8,101,283, 53.7% of revenue compared to $72,064, 15.2% of revenue and $453,059, 44.2% of revenue, for the corresponding periods for fiscal 2002. The relative increase in operating expenses on the comparable period reflects the acquisitions the company made during the current fiscal year. We expect that our operating expenses will increase in line with revenue growth in the coming quarter. Post tax profit for the three month period ending November 30, 2003 was $829,419 and for the nine months year to date $2,000,826 compared to $117,331 and $17,113 for the corresponding periods in fiscal 2002 LIQUIDITY AND CAPITAL RESOURCES The company commenced a private placement of 6% Convertible Preferred Stock on July 18, 2003. This private placement finally closed on November 3, 2003 during which the company had sold an aggregate total of 5,328,300 shares of preferred stock, 500,000 were Series A-1 Convertible Promissory Note Preferred Stock and 4,828,000 were Series A-2 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 these preferred shares for $2.50 per share. Each of these preferred shares is currently convertible into two (2) shares of our common stock. In addition to selling those shares, we issued warrants to purchase up to 1,331,000 shares of our common stock to various investment advisors and consultants. These warrants are exercisable at the price of $1.25 per share. The registration statement for the offering became effective on November 21, 2003 pursuant to the SEC's acceptance of the company's SB-2 filing made on November 6, 2003. The estimated net proceeds from this private placement of Convertible Preferred Stock are $11,120,750. The company does not currently have a working capital line of credit with any financial institution. Future sources of liquidity will be limited by the Company's ability to close planned acquisitions and obtain additional debt or equity funding. At the present, we believe that our liquidity requirements will be met by the revenues drawn through our operations and Private Placement referred to above. Our liquidity may be negatively affected in the event we are not able to continue to be profitable as a result of any sudden or unexpected increases in expenses or sudden or unexpected decreases in revenues. We also intend to attempt to raise additional capital from public or private placements to investors of our common stock and/or convertible debentures. However, there can be no assurance that we will be able to obtain capital from a placement of our common stock or whether the funds required by the Company will enable us to further develop our operations. Additionally, there is no guarantee that we will be able to raise capital on terms and conditions which are acceptable to us. The inability to raise additional capital may limit our growth. INFLATION Inflation has not had a material effect on our operations. Inflation may affect our ability to generate profit as increased costs may be associated with development of our products and services. In the opinion of management, inflation at this time has not and will not have a material effect on the operations of our company and our subsidiaries. Any increase in inflation or jump in costs may result in an immediate increase in our prices to our clients and subscribers. However, we will evaluate the possible effects of inflation on our Company as it relates to our business and operations and proceed accordingly. ABILITY TO RAISE CAPITAL Our ability to further develop our business and operations is dependent on our ability to raise capital. We will seek to raise capital through equity funding and private placement of our common stock as well as securing lines of credit with credit institutions. There is no guarantee that we will be able to raise capital to further develop its business and operations. Additionally, we may encounter significant costs or unfavorable terms in its efforts to raise capital. Investors are further alerted that any efforts to raise capital through a private placement of our common stock will result in dilution to shareholders of the company. We intend on utilizing any capital raised to undertake additional acquisitions which shall complement our existing products and contribute to further growth of our company. MARKET RISKS INTEREST RATES Because of the company's debt profile, management believes that a one percentage point move in interest rates would not have a material effect on the company's financial statements. FOREIGN CURRENCY EXCHANGE RATES The company has foreign-based operations, located primarily in the UK, which accounted for approximately 100% of net sales and revenues for the three months ended November 30, 2003. In the conduct of its foreign operations the company has inter-company sales, charges and loans between the U.S. parent and its foreign subsidiaries and may receive dividends denominated in different currencies. These transactions expose the company to changes in foreign currency exchange rates. At December 31, 2003, the company had no foreign currency exchange contracts outstanding. Based on the company's overall foreign currency exchange rate exposure at December 31, 2003, management believes that a change in currency rates could have an effect on the company's future financial statements. FACTORS THAT MAY AFFECT FUTURE RESULTS Certain statements in this Management's Discussion and Analysis of the Financial Condition and Results of Operations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on current expectations, estimates, forecasts and projections of future company or industry performance based on management's judgment, beliefs, current trends and market conditions. Forward-looking statements made by the company may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in any forward-looking statement. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. CONTROLS AND PROCEDURES The company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 within 90 days prior to the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are currently no pending legal proceedings against the company. ITEM 2. CHANGES IN SECURITIES The instruments defining the rights of the holders of any class of common stock have been modified by the issue of 6% Convertible Preferred Stock - Series A-1 and A-2 which has a dividend and liquidation preference ahead of the holders of Common Stock. See 8K exhibit filed August 21, 2003 which is hereby incorporated by reference. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There has been no default in the payment of any principal, interest, sinking or purchase fund installment. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the last quarter. ITEM 5 - CONTROLS AND PROCEDURES A review and evaluation was performed by the Company's management, including the Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing of this quarterly report. Based on that review and evaluation, the CEO and CFO have concluded that the Company's current disclosure controls and procedures, as designed and implemented, were effective to ensure that information the Company is required to disclose in this quarterly report is recorded, processed, summarized and reported in the time period required by the rules of the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Company. ITEM 6. OTHER INFORMATION There is no other information to report, which is material to the company's financial condition not previously reported. ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K (a) Form 8K/A filed August 11, 2003 Form 8K filed August 11, 2003 Form 8K filed August 21, 2003, Form 8K/A filed November 5, 2003 and Form 8K filed November 5, 2003. (b) Exhibits 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbannes- Oxley Act of 2002 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002 SIGNATURES In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/ Auto Data Network Inc. Christopher Glover, President Dated: May 18, 2005 /s/ Auto Data Network Inc. Lee Cole, Principal Accounting Officer Dated: May 18, 2005