AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FEBRUARY 16, 2007 REGISTRATION NO.: XXXXXXX
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AFTERSOFT GROUP, INC.
(Name of small business issuer in its charter)
DELAWARE 6770
(State or other jurisdiction (Primary Standard Industrial
of incorporation) Classification Code Number)
84-1108035
(I.R.S. Employer
Identification No.)
Savannah House, 11-12 Charles II Street,
London, UK SW1Y 4QU
011 44 207 451 2468
(Address and telephone number of principal executive offices and
principal place of business)
----------------------
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, Delaware 19808
(302) 636 5401
(Name, address, and telephone number of agent for service)
Copies of communications to:
L. STEPHEN ALBRIGHT, ESQ.
ALBRIGHT & BLUM, P.C.
17337 Ventura Boulevard, Suite 208
Encino, California 91316
(818) 789-0779
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this registration statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
======================= ============ ================ ================= ================
PROPOSED MAXIMUM PROPOSED
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE
----------------------- ------------ ---------------- ----------------- ----------------
Common Stock, par value
$0.0001 per share
("Common Stock") 71,250,000 $0.775 $55,218,750 $5,908.41
======================= ============ ================ ================= ================
(1) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based of
the average of the bid and ask prices per share of our common stock, as reported
on the OTC Bulletin Board on February 12, 2007.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this Prospectus is not complete and may be changed. Our
Majority Stockholder may not distribute or otherwise sell these securities until
the registration statement filed with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to sell these securities, and it is
not soliciting offers to buy these securities in any state where the offer or
sale is not permitted.
PROSPECTUS
Dated February 16, 2007, Subject to completion
AFTERSOFT GROUP, INC.
71,250,000 SHARES OF COMMON STOCK
We have prepared this prospectus (the "Prospectus") to allow our majority
stockholder, Auto Data Network, Inc., (the "Majority Stockholder" or "ADN") to
distribute all 71,250,000 shares of our common stock (the "Shares") owned by ADN
to ADN's shareholders as a dividend to its shareholders to effect ADN's
previously announced spin-off of all of the Shares. We are not selling any
securities for our own account under this Prospectus. Neither we nor ADN are
receiving any consideration for the Shares, nor will either of us have any
voting or dispositive power with respect to the Shares after the Shares are
dividended to ADN's shareholders. ADN's shareholders who receive the dividend of
Shares will receive the Shares without restriction on resale. The certificates
evidencing the Shares will bear no legend unless the recipient of the dividend
is our affiliate. Shareholders of ADN who receive the dividend and are not our
affiliates may dispose of the Shares, if they so elect, without registration in
jurisdictions where offers and sales are permitted and without delivery of any
prospectus.
ADN plans to distribute the dividend to its shareholders as soon as practicable
after this Registration Statement of which this Prospectus is a part is declared
effective by the Securities and Exchange Commission. The ex-dividend date is
expected to be no later than three (3) business days following the date upon
which the Securities and Exchange Commission declares this Registration
Statement effective.
Our common stock is quoted on the OTC Bulletin Board under the symbol "ASFG.OB"
On February 12, 2007, the high and low bid prices of our common stock were 0.90
and 0.65 per share, respectively, as reported by the OTC Bulletin Board.
An investment in our securities involves a high degree of risk. We urge you to
read carefully the "Risk Factors" section beginning on page 6 where we describe
specific risks associated with an investment in Aftersoft Group, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY [ ], 2007.
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TABLE OF CONTENTS
PAGE
----
PART I
Prospectus Summary...................................................... 3
Risk Factors ........................................................... 6
Disclosure Regarding Forward-Looking Statements ........................ 11
Use of Proceeds ........................................................ 11
Determination of Offering Price ........................................ 11
Dilution ............................................................... 12
Majority Stockholder Distributing Securities............................ 12
Plan of Distribution ................................................... 12
Legal Proceedings ...................................................... 13
Management ............................................................. 14
Security Ownership of Certain Beneficial Owners and Management.......... 15
Description of Securities............................................... 16
Experts................................................................. 16
Disclosure of Securities and Exchange Commission Position on
Indemnification for Securities Act Liabilities ...................... 16
Description of Business................................................. 17
Management's Discussion and Analysis or Plan of Operation............... 24
Description of Property................................................. 32
Certain Relationships and Related Transactions.......................... 32
Market for Common Equity and Related Stockholder Matters................ 32
Executive Compensation ................................................. 33
Changes and Disagreements with Accountants on Accounting and
Financial Disclosures................................................ 34
Financial Information................................................... F-1
PART II
Indemnification of Directors and Officers............................... i
Other Expenses of Issuance and Distribution............................. i
Recent Sales of Unregistered Securities ................................ i
Exhibits ............................................................... ii
Undertakings ........................................................... ii
2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. THE SHARES COVERED BY THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART WILL BE DIVIDENDED BY THE MAJORITY
SHAREHOLDER TO ITS SHAREHOLDERS TO EFFECT A PREVIOUSLY ANNOUNCED SPIN-OFF OF THE
COMPANY TO THE SHAREHOLDERS OF THE MAJORITY SHAREHOLDER. THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE THE DIVIDEND IS DISTRIBUTED. WE ARE NOT SELLING ANY
SECURITIES FOR OUR OWN ACCOUNT UNDER. NEITHER WE NOR THE MAJORITY SHAREHOLDER
ARE RECEIVING ANY CONSIDERATION FOR THE SHARES, NOR WILL EITHER OF US HAVE ANY
VOTING OR DISPOSITIVE POWER WITH RESPECT TO THE SHARES AFTER THE SHARES ARE
DIVIDENDED TO THE SHAREHOLDERS OF THE MAJORITY SHAREHOLDER. THE SHAREHOLDERS OF
THE MAJORITY SHAREHOLDER WHO RECEIVE THE DIVIDEND OF SHARES WILL RECEIVE THE
SHARES WITHOUT RESTRICTION ON RESALE. THE CERTIFICATES EVIDENCING THE SHARES
WILL BEAR NO LEGEND UNLESS THE RECIPIENT OF THE DIVIDEND IS OUR AFFILIATE.
SHAREHOLDERS OF ADN WHO RECEIVE THE DIVIDEND AND ARE NOT OUR AFFILIATE MAY
DISPOSE OF THE SHARES, IF THEY SO ELECT, WITHOUT REGISTRATION. THE INFORMATION
IN THIS PROSPECTUS MAY ONLY BE ACCURATE AS OF THE DATE OF THIS PROSPECTUS
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY DISPOSITION OF
OUR COMMON STOCK.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information elsewhere in this Prospectus, including our financial statements and
the notes to those statements and the section titled "Risks Factors," regarding
us and the common stock being offered for sale by means of this Prospectus.
UNLESS THE CONTEXT INDICATES OR REQUIRES OTHERWISE, (I) THE TERM "AFTERSOFT"
REFERS TO AFTERSOFT GROUP, INC. AND ITS PRINCIPAL OPERATING SUBSIDIARIES; (II)
THE TERM "MAM SOFTWARE" REFERS TO MAM SOFTWARE LIMITED; (III) THE TERM "AFS"
REFERS TO AFTERSOFT NETWORK N.A., INC. AND ITS OPERATING SUBSIDIARIES; (IV) THE
TERM "EXP DEALER SOFTWARE" REFERS TO EXP DEALER SOFTWARE LIMITED AND ITS
OPERATING SUBSIDIARIES; AND (V) THE TERMS "WE," "OUR," "OURS," "US" AND THE
"COMPANY" REFER COLLECTIVELY TO AFTERSOFT GROUP.
CORPORATE BACKGROUND
Our principal executive offices are located at Savannah House, 11-12 Charles II
Street, London UK SW1Y 4QU and our phone number is 44 207 451 2468.
In December 2005,W3 Group, Inc. ("W3") consummated a reverse acquisition and
changed its corporate name to Aftersoft Group, Inc. Previously, W3 was
incorporated in February 1988 in Colorado and changed its state of incorporation
to Delaware in May 2003. On December 21, 2005, an Acquisition Agreement (the
"Agreement") was consummated among W3, a separate Delaware corporation named
Aftersoft Group, Inc. ("Oldco") and Auto Data Network, Inc. ("ADN") in which W3
acquired all of the issued and outstanding shares of Oldco in exchange for
issuing 32,500,000 shares of common stock of W3, par value $0.0001 per share
(the "Common Stock"), to ADN, which was then the sole shareholder of the
Company. At the time of the acquisition, W3 had no business operations.
Concurrent with the acquisition, W3 changed its name to Aftersoft Group, Inc.
and its corporate officers were replaced. The Board of Directors of the Company
appointed three additional directors designated by ADN to serve until the next
annual election of directors. As a result of the acquisition, former W3
shareholders owned 1,601,167, or 4.7% of the 34,101,167 total issued and
outstanding shares of Common Stock and ADN owned 32,500,000 or 95.3% of the
Company's Common Stock. On December 22, 2005, Oldco changed its name to
Aftersoft Software, Inc. and is currently inactive. On August 25, 2006 the
Company's wholly owned subsidiary Aftersoft Dealer Software Limited ("Aftersoft
Dealer Software") acquired 100% of the issued and outstanding shares of EXP
Dealer Software Limited ("EXP Dealer Software") from ADN in exchange for issuing
28,000,000 shares of Common Stock to ADN. On February 1, 2007, the Company
consummated an agreement to acquire Dealer Software and Services Limited, a
subsidiary of ADN, in exchange for issuing 16,750,000 shares of Common Stock to
the shareholders of Dealer Software and Services Limited. As a result, ADN owns
71,250,000 shares or approximately 89.25% of our 79,821,167 shares of Common
Stock outstanding. ADN is sometimes referred to in this Prospectus as the
"Majority Stockholder".
3
THE COMPANY
Aftersoft provides software, information and services to businesses engaged in
the automotive aftermarket in the U.S., UK and Canada and to the automotive
dealership market in the UK. The automotive aftermarket consists of businesses
associated with the life cycle of a motor vehicle from when the original
manufacturer's warranty expires to when the vehicle is scrapped. Products sold
by businesses engaged in this market include the parts, tires and auto services
required to maintain and improve the performance or appeal of a vehicle
throughout its useful life.
The Company's business management systems, information products and online
services permit its customers to manage their critical day-to-day business
operations through automated point-of-sale, inventory management, purchasing,
general accounting and customer relationship management.
Our customer base consists of wholesale parts and tire distributors, retailers,
franchisees, cooperatives, auto service chains and single location auto service
businesses with high customer service expectations and complex commercial
relationships.
The Company's revenues are derived from the following:
o Business management systems comprised of proprietary software
applications, implementation and training; and
o Subscription-based services, including software support and
maintenance, information (content) products and online services.
DESCRIPTION OF THE BUSINESS
The Company has three wholly owned direct subsidiaries which operate separately:
MAM Software and EXP Dealer Software in the UK and AFS in the U.S.
The Company aims to meet the business needs of customers who are involved in the
maintenance and repair of automobiles and light trucks in three key segments of
the automotive aftermarket, namely parts, tires and auto service.
MAM Software
MAM Software provides business management software to businesses engaged in the
automotive aftermarket in the UK. MAM Software specializes in providing reliable
and competitive software solutions to the motor factoring (jobber), retailing,
and wholesale distribution sectors. It also develops applications for vehicle
repair management and provides solutions to the retail and wholesale tire
industry. All MAM Software programs are based on the Microsoft Windows family of
operating systems. Each program is fully compatible with the other applications
in their range, enabling them to be combined to create a fully integrated
package. MAM Software is based in Sheffield, UK.
AFS
AFS develops open business automation and distribution channel eCommerce systems
for the automotive aftermarket supply chain. These systems are used by more than
3,000 leading aftermarket outlets, including tier one manufacturers, program
groups, warehouse distributors, tire and service chains and independent
installers. AFS products and services enable companies to generate new sales,
operate more cost efficiently, accelerate inventory turns and maintain stronger
relationships with suppliers and customers. AFS has three wholly owned
subsidiaries operating separate businesses: AFS Warehouse Distribution
Management, Inc. and AFS Tire Management, Inc., which are both based in Dana
Point, California, and AFS Autoservice, Inc., which is based in Allentown,
Pennsylvania. Together, these three subsidiaries comprise one of the largest
providers of software to businesses engaged in the automotive aftermarket in the
U.S. AFS Tire Management, Inc. was formerly known as CarParts Technologies, Inc.
EXP Dealer Software
EXP Dealer Software sells proprietary software and professional services to the
automotive dealership sector of the automotive market in the UK. Management
software and services tailored to automotive dealers represent a potential
market of $15 billion worldwide with the top five current suppliers to this
market representing less than 15% of this total.
4
EXP Dealer Software has three direct operating subsidiaries. MMI Automotive
Limited, ("MMI Automotive") is based in Swindon, UK. Dealer Software and
Services Limited ("DSS") is based in London, UK. Both provide software products
and services to automotive dealerships to help increase business efficiency and
profitability within these low-margin businesses. Their clients include Ford UK,
Honda, Mitsubishi UK, Vauxhall (General Motors), Audi, and Volkswagen. Chester,
UK-based Anka Design Limited ("Anka Design") is a "below the line" advertising
and design business serving the automotive and technology sectors. Dealer
Software and Services Limited owns a minority interest of DCS Automotive, which
is a division of DCS Group, PLC. DCS Automotive is a leading provider of dealer
management systems ("DMS") to the automotive retail sector in Europe.
THE OFFERING
Shares to be distributed by the
Majority Stockholder ...................... 71,250,000 shares of Common Stock
(the "Shares")
Shares outstanding prior to the
distribution .............................. 79,821,167
Shares to be outstanding
following the dividend ................... 79,821,167
Use of proceeds ........................... We will not receive any proceeds
from the distribution. We estimate
the expenses related to the
distribution, such as printing,
legal and accounting will be
approximately $85,000.
Risk Factors .............................. An investment in our Common Stock
is subject to significant risks.
You should carefully consider the
information set forth in the "Risk
Factors" section beginning on page
6 as well as other information
set forth in this Prospectus,
including our financial statements
and related notes.
Dividend policy ........................... We intend to retain any earnings to
finance the development and growth
of our business and retire
liabilities. Accordingly, we do not
anticipate that we will declare any
cash or stock dividends on our
Common Stock for the foreseeable
future. See "Market for Common
Equity and Related Stockholder
Matters" on page 33.
Plan of Distribution ...................... The Shares of Common Stock will be
distributed by the Majority
Stockholder pursuant to this
Prospectus through a dividend to
the ADN Shareholders in the manner
described under "Plan of
Distribution" on page 12 to effect
ADN's previously announced spin-off
of all of the Shares.
OTC Bulletin Board symbol ................. ASFG.OB
5
SUMMARY FINANCIAL DATA
The following summary financial information is taken from our financial
statements included elsewhere in this Prospectus and should be read along with
the financial statements and the related notes in their entirety.
INCOME STATEMENT DATA
(In thousands, except share data)
Six Months Ended Years Ended
--------------------------- ----------------------------
December 31, December 31, June 30, June 30,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(unaudited) (unaudited) (audited) (audited)
Total revenue ................... $ 12,639 $ 9,624 $ 19,261 $ 22,062
Costs and operating expenses .... $ 10,824 $ 9,334 $ 20,503 $ 19,670
Net income / (loss) ............. $ 1,877 $ 369 $ (972) $ 1,938
Net income / (loss) per share ... $ 0.03 $ 0.01 $ (0.03) $ 0.06
Weighted average number of shares 54,657,167 32,587,020 33,651,233 30,701,671
BALANCE SHEET DATA
December 31, December 31, June 30, June 30,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(unaudited) (unaudited) (audited) (audited)
Total assets .................... $ 41,059 $ 34,471 $ 34,421 $ 34,597
Cash ............................ $ 767 $ 112 $ 423 $ 194
Total liabilities ............... $ 13,726 $ 11,372 $ 11,663 $ 11,810
Working capital (deficiency) .... $ (3,130) $ (3,137) $ (3,954) $ (3,517)
Shareholders' equity ............ $ 27,333 $ 23,099 $ 22,758 $ 22,787
RISK FACTORS
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS ARE SUBJECT TO A NUMBER
OF RISK FACTORS, BOTH THOSE THAT ARE KNOWN TO US AND IDENTIFIED BELOW AND OTHERS
THAT MAY ARISE FROM TIME TO TIME. THESE RISK FACTORS COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE SUGGESTED BY FORWARD-LOOKING STATEMENTS
IN THIS DOCUMENT AND ELSEWHERE, AND MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION OR OPERATING RESULTS. IF ANY OF THOSE RISK FACTORS SHOULD OCCUR,
MOREOVER, THE TRADING PRICE OF OUR SECURITIES COULD DECLINE, AND INVESTORS IN
OUR SECURITIES COULD LOSE ALL OR PART OF THEIR INVESTMENT IN OUR SECURITIES.
THESE RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY'S
PROSPECTS. THE MATERIAL BELOW SUMMARIZES CERTAIN RISKS AND IS NOT INTENDED TO BE
EXHAUSTIVE.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND TO PREDICT OUR FUTURE OPERATING RESULTS.
We were known as W3 Group, Inc. and had no operations in December 2005, at which
time we engaged in a reverse acquisition; therefore, we have limited historical
operations. Two of our subsidiaries, MAM UK Limited and AFS Tire Management,
Inc. (f/k/a CarParts Technologies, Inc.) have operated since 1984 and 1997,
respectively, as independent companies under different management until our
parent, ADN, acquired MAM Software in April 2003 and CarParts Technologies, Inc.
in August 2004. We have now integrated a third subsidiary as a result of the
acquisition of EXP Dealer Software from ADN in August 2006. Its MMI Automotive
subsidiary has been in operation since March 1981. In February 2007 we acquired
Dealer Software and Services ("DSS") from ADN. DSS owns a minority interest of
DCS Automotive Limited, which was established in 1976. DCS Automotive is a
leading provider of dealer management systems (DMS) to the automotive retailer
sector in Europe and is a division of DCS Group, PLC. Since the reverse merger
in December
6
2005, we have been primarily engaged in organizational activities, including
developing a strategic operating plan and developing, marketing and selling our
products.
WE MAY FAIL TO ADDRESS RISKS WE FACE AS A DEVELOPING BUSINESS WHICH COULD
ADVERSELY AFFECT THE IMPLEMENTATION OF OUR BUSINESS PLAN.
We are prone to all of the risks inherent in the establishment of any new
business venture. You should consider the likelihood of our future success to be
highly speculative in light of our limited operating history, as well as the
limited resources, problems, expenses, risks and complications frequently
encountered by entities at our current stage of development.
To address these risks, we must, among other things,
o implement and successfully execute our business and marketing
strategy;
o continue to develop new products and upgrade our existing
products;
o respond to industry and competitive developments;
o attract, retain, and motivate qualified personnel; and
o obtain equity and debt financing on satisfactory terms and in
timely fashion in amounts adequate to implement our business
plan and meet our obligations.
We may not be successful in addressing these risks. If we are unable to do so,
our business prospects, financial condition and results of operations would be
materially adversely affected.
WE MAY FAIL TO SUCCESSFULLY DEVELOP, MARKET AND SELL OUR PRODUCTS.
To achieve profitable operations, we, along with our subsidiaries, must continue
to successfully improve, market and sell existing products and develop, market
and sell new products. Our product development efforts may not be successful.
The development of new software products is highly uncertain and subject to a
number of significant risks. The development cycle--from inception to installing
the software for customers--can be lengthy and uncertain. The ability to market
the product is unpredictable and may cause delays. Potential products may appear
promising at early stages of development, and yet may not reach the market for a
number of reasons.
WE PLAN TO RAISE CAPITAL WITHIN THE NEXT FEW MONTHS AND THE FAILURE TO DO SO
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE PLANS AND RESULTS.
We plan to raise funds through a private placement of securities in the next two
to three months to finance acquisitions and to reduce the Company's outstanding
obligations. There can be no assurance that the Company will succeed in raising
sufficient financing on acceptable terms or in a timely matter.
ADDITIONAL ISSUANCES OF SECURITIES WILL DILUTE YOUR STOCK OWNERSHIP AND COULD
AFFECT OUR STOCK PRICE.
Our Articles of Incorporation authorize the issuance of an aggregate of
100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, on
such terms and at such prices as the Board of Directors of the Company may
determine. As of February 6, 2007, the Company had 79,821,167 shares of Common
Stock issued and outstanding and no Preferred Stock issued. An amendment to the
Articles of Incorporation to increase the number of authorized shares of Common
Stock to 150,000,000 shares was approved by written consent on January 16, 2007
by the holders of a majority of the voting power of outstanding Common Stock.
The Company has filed an Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission. The Amendment will become effective twenty (20) days after we mail
the Information Statement to our securityholders and after the filing a
Certificate of Amendment to our Certificate of Incorporation with the Delaware
Secretary of State. The additional shares are intended to provide us with the
necessary flexibility to undertake and complete plans within the next two to
three months to raise funds through a private placement of securities of an
7
as-yet undetermined amount of as-yet undetermined securities at an as-yet
undetermined price. Neither the approval of the amendment to increase our
authorized stock nor the filing of same with the Delaware Secretary of State are
pre-requisites for the approval and effectiveness of this Registration
Statement.
In addition, we may pursue acquisitions that could include issuing equity, but
we have no current arrangements to do so.
Any such issuances of securities would have a dilutive effect on current
ownership of Aftersoft stock. The market price of our Common Stock could fall in
response to the sale of a large number of shares, or the perception that sales
of a large number of shares could occur.
WE OR OUR SUBSIDIARIES ARE ENGAGED IN LITIGATION WHICH COULD MATERIALLY
ADVERSELY AFFECT US IF NOT RESOLVED OR SETTLED ON FAVORABLE TERMS.
In the course of operating our business, we or our subsidiaries are subject to
litigation from time to time and are currently engaged in some litigation which
could materially adversely affect us or the price of our securities if not
resolved or settled on favorable terms. See "Legal Proceedings" on page 13.
WE MAY ENCOUNTER SIGNIFICANT FINANCIAL AND OPERATING RISKS IF WE GROW OUR
BUSINESS THROUGH ACQUISITIONS.
As part of our growth strategy, we may seek to acquire or invest in
complementary or competitive businesses, products or technologies. The process
of integrating acquired assets into our operations may result in unforeseen
operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our
business. We may allocate a significant portion of our available working capital
to finance all or a portion of the purchase price relating to possible
acquisitions although we have no immediate plans to do so. Any future
acquisition or investment opportunity may require us to obtain additional
financing to complete the transaction. The anticipated benefits of any
acquisitions may not be realized. In addition, future acquisitions by us could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, any of which could materially adversely affect our
operating results and financial position. Acquisitions also involve other risks,
including entering markets in which we have no or limited prior experience.
AN INCREASE IN COMPETITION FROM OTHER SOFTWARE MANUFACTURERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR ABILITY TO GENERATE REVENUE AND CASH FLOW.
Competition in our industry is intense. Potential competitors in the U.S. and
Europe are numerous. Most have substantially greater capital resources,
marketing experience, research and development staffs and facilities than us.
Our competitors may be able to develop products before us or develop more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow.
THE PRICES WE CHARGE FOR OUR PRODUCTS MAY DECREASE AS A RESULT OF COMPETITION
AND OUR REVENUES COULD DECREASE AS A RESULT.
We face potential competition from very large software companies, including
Oracle, Microsoft and SAP that could offer Enterprise Resource Planning ("ERP")
and Supply Chain Management ("SCM") products to our target market of small- to
medium-sized businesses servicing the automotive aftermarket. The Company has
not competed with any of these larger software and service companies directly to
date, however there can be no assurance that those companies will not develop or
acquire a competitive product or service in the future. Our business would be
dramatically affected by price pressure if these larger software companies
attempted to gain market share through the use of highly discounted sales and
extensive marketing campaigns.
IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, OUR TECHNOLOGIES AND
PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.
The software industry is characterized by rapid and significant technological
change. We expect that automotive technology will continue to develop rapidly,
and our future success will depend on our ability to develop and maintain a
competitive position through technological development.
8
WE DEPEND ON PATENT AND PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR
TECHNOLOGIES AND PRODUCTS, WHICH RIGHTS MAY NOT OFFER US SUFFICIENT PROTECTION.
The software industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and processes. Our
success will depend on our ability to obtain and enforce protection for products
that we develop under U.S. and foreign patent laws and other intellectual
property laws, preserve the confidentiality of our trade secrets and operate
without infringing the proprietary rights of third parties.
We also rely upon trade secret protection for our confidential and proprietary
information. Others may independently develop substantially equivalent
proprietary information and techniques or gain access to our trade secrets or
disclose our technology. We may not be able to meaningfully protect our trade
secrets which could limit our ability to exclusively produce products.
We require our employees, consultants, and parties to collaborative agreements
to execute confidentiality agreements upon the commencement of employment or
consulting relationships or collaboration with us. These agreements may not
provide meaningful protection of our trade secrets or adequate remedies in the
event of unauthorized use or disclosure of confidential and proprietary
information.
IF WE BECOME SUBJECT TO ADVERSE CLAIMS ALLEGING INFRINGEMENT OF THIRD-PARTY
PROPRIETARY RIGHTS, WE MAY INCUR UNANTICIPATED COSTS AND OUR COMPETITIVE
POSITION MAY SUFFER.
We are subject to the risk that we are infringing on the proprietary rights of
third parties. Although we are not aware of any infringement by our technology
on the proprietary rights of others and are not currently subject to any legal
proceedings involving claimed infringements, we cannot assure you that we will
not be subject to such third-party claims, litigation or indemnity demands and
that these claims will not be successful. If a claim or indemnity demand were to
be brought against us, it could result in costly litigation or product shipment
delays or force us to stop selling such product or providing such services or to
enter into royalty or license agreements.
OUR SOFTWARE AND INFORMATION SERVICES COULD CONTAIN DESIGN DEFECTS OR ERRORS
WHICH COULD AFFECT OUR REPUTATION, RESULT IN SIGNIFICANT COSTS TO US AND IMPAIR
OUR ABILITY TO SELL OUR PRODUCTS.
Our software and information services are highly complex and sophisticated and
could, from time to time, contain design defects or errors. We cannot assure you
that these defects or errors will not delay the release or shipment of our
products or, if the defect or error is discovered only after customers have
received the products, that these defects or errors will not result in increased
costs, litigation, customer attrition, reduced market acceptance of our systems
and services or damage to our reputation.
IN THE EVENT OF A FAILURE IN A CUSTOMER'S COMPUTER SYSTEM INSTALLED BY US, A
CLAIM FOR DAMAGES MAY BE MADE AGAINST US REGARDLESS OF OUR RESPONSIBILITY FOR
THE FAILURE, WHICH COULD EXPOSE US TO LIABILITY.
We provide business management solutions that we believe are critical to the
operations of our customers' businesses and provide benefits that may be
difficult to quantify. Any failure of a customer's system installed by us could
result in a claim for substantial damages against us, regardless of our
responsibility for the failure. Although we attempt to limit our contractual
liability for damages resulting from negligent acts, errors, mistakes or
omissions in rendering our services, we cannot assure you that the limitations
on liability we include in our agreements will be enforceable in all cases, or
that those limitations on liability will otherwise protect us from liability for
damages. Furthermore, there can be no assurance that our insurance coverage will
be adequate or that coverage will remain available at acceptable costs.
Successful claims brought against us in excess of our insurance coverage could
seriously harm our business, prospects, financial condition and results of
operations. Even if not successful, large claims against us could result in
significant legal and other costs and may be a distraction to our senior
management.
9
IF WE LOSE KEY MANAGEMENT OR OTHER PERSONNEL OUR BUSINESS WILL SUFFER.
We are highly dependent on the principal members of our management staff. We
also rely on consultants and advisors to assist us in formulating our
development strategy. Our success also depends upon retaining key management and
technical personnel, as well as our ability to continue to attract and retain
additional highly-qualified personnel. We may not be successful in retaining our
current personnel or hiring and retaining qualified personnel in the future. If
we lose the services of any of our management staff or key technical personnel,
or if we fail to continue to attract qualified personnel, our ability to
acquire, develop or sell products would be adversely affected.
OUR MANAGEMENT AND INTERNAL SYSTEMS MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL
GROWTH.
Our success will depend in significant part on the expansion of our operations
and the effective management of growth. This growth will place a significant
strain on our management and information systems and resources and operational
and financial systems and resources. To manage future growth, our management
must continue to improve our operational and financial systems and expand,
train, retain and manage our employee base. Our management may not be able to
manage our growth effectively. If our systems, procedures, controls, and
resources are inadequate to support our operations, our expansion would be
halted and we could lose our opportunity to gain significant market share. Any
inability to manage growth effectively may harm our ability to institute our
business plan.
BECAUSE WE HAVE INTERNATIONAL OPERATIONS, WE WILL BE SUBJECT TO RISKS OF
CONDUCTING BUSINESS IN FOREIGN COUNTRIES.
International operations constitute a significant part of our business, and we
are subject to the risks of conducting business in foreign countries, including:
o difficulty in establishing or managing distribution
relationships;
o different standards for the development, use, packaging and
marketing of our products and technologies;
o our ability to locate qualified local employees, partners,
distributors and suppliers;
o the potential burden of complying with a variety of foreign
laws and trade standards; and
o general geopolitical risks, such as political and economic
instability, changes in diplomatic and trade relations, and
foreign currency risks and fluctuations.
THE MARKET FOR OUR COMMON STOCK IS LIMITED AND YOU MAY NOT BE ABLE TO SELL YOUR
COMMON STOCK.
Our Common Stock is currently traded on the Over-The-Counter Bulletin Board, not
on a national securities exchange. The market for purchases and sales of the
Company's Common Stock is limited and therefore the sale of a relatively small
number of shares could cause the price to fall sharply. Accordingly, it may be
difficult to sell shares quickly without significantly depressing the value of
the stock. Unless we are successful in developing continued investor interest in
our stock, sales of our stock could continue to result in major fluctuations in
the price of the stock.
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS.
The market price of the securities of software companies has been especially
volatile. Thus, the market price of our Common Stock is likely to be subject to
wide fluctuations. If our revenues do not grow or grow more slowly than we
anticipate, or, if operating or capital expenditures exceed our expectations and
cannot be adjusted accordingly, or if some other event adversely affects us, the
market price of our Common Stock could decline. If the stock market in general
experiences a loss in investor confidence or otherwise fails, the market price
of our Common Stock could fall for reasons unrelated to our business, results of
operations and financial condition. The market price of our stock also might
decline in reaction to events that affect other companies in our industry even
if these events do not directly affect us.
10
IF SECURITIES OR INDUSTRY ANALYSTS DO NOT PUBLISH RESEARCH REPORTS ABOUT OUR
BUSINESS, OF IF THEY MAKE ADVERSE RECOMMENDATIONS REGARDING AN INVESTMENT IN OUR
STOCK, OUR STOCK PRICE AND TRADING VOLUME MAY DECLINE.
The trading market for our Common Stock may be influenced by the research and
reports that industry or securities analysts publish about our business. We do
not currently have and may never obtain research coverage by industry or
securities analysts. If no industry or securities analysts commence coverage of
our company, the trading price of our stock could be negatively impacted. In the
event we obtain industry or security analyst coverage, if one or more of the
analysts downgrade our stock or comment negatively on our prospects, our stock
price would likely decline. If one of more of these analysts cease to cover us
or our industry or fails to publish reports about our Company regularly, our
Common Stock could lose visibility in the financial markets, which could also
cause our stock price or trading volume to decline.
WE DO NOT INTEND TO DECLARE DIVIDENDS ON OUR COMMON STOCK.
We will not distribute dividends to our stockholders until and unless we can
develop sufficient funds from operations to meet our ongoing needs and implement
our business plan. The time frame for that is inherently unpredictable, and you
should not plan on it occurring in the near future, if at all.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Risk Factors," "Business" and in
other sections of this Prospectus that are forward-looking statements. In some
cases, you can identify these statements by forward-looking words such as "may,"
"might," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial performance, or anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results, level
of activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by the
forward-looking statements, including those factors discussed under the section
entitled "Risk Factors." You should specifically consider the numerous risks
outlined under "Risk Factors." Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness or
any of these forward-looking statements.
USE OF PROCEEDS
Neither the Company nor the Majority Stockholder will receive any proceeds from
the distribution of the Shares. Once the shares are registered, the Majority
Stockholder will dividend the Shares to its shareholders in order to effect the
Majority Stockholder's previously announced spin-off of the Shares. Shareholders
of the Majority Stockholder who receive the dividend and are not our affiliates
may dispose of the Shares, if they so elect, without registration or delivery of
any prospectus in jurisdictions where offers and sales are permitted and neither
we nor the Majority Stockholder will receive any proceeds of any such
disposition by those shareholders.
DETERMINATION OF OFFERING PRICE
The Majority Stockholder intends to dividend the Shares to its stockholders as
soon as practicable after the Registration Statement of which this Prospectus is
a part is declared effective by the Securities and Exchange Commission;
consequently, there is no offering price being established for the dividend of
the Shares to the shareholders of the Majority Stockholder. If any shareholder
of the Majority Stockholder who receives the Shares in the dividend by the
Majority Stockholders thereafter disposes of the Shares, such shareholder may
determine the price at which those Shares are resold and neither the Company nor
ADN will determine any such price.
11
DILUTION
As of February 6, 2007, we had 79,821,167 shares of Common Stock issued and
outstanding. This number includes the Shares. Further, neither the registration
of the Shares nor the subsequent distribution of the Shares by the Majority
Stockholder will have a dilutive effect on our stock.
MAJORITY STOCKHOLDER DISTRIBUTING SECURITIES
ADN (sometimes also referred to in this Prospectus as the Majority Stockholder)
intends to distribute the Shares, all of which are presently owned by ADN, as a
previously announced dividend to shareholders of ADN as soon as practicable
after the Registration Statement of which this Prospectus is a part is declared
effective by the Securities and Exchange Commission. The ex-dividend date for
that distribution of the Shares is expected to be no later than three (3)
business days following the date upon which the Securities and Exchange
Commission declares this Registration Statement effective. The following table
sets forth the name of the Majority Stockholder, the number of shares owned by
the Majority Stockholder and the number of shares whose distribution is covered
by the Registration Statement of which this Prospectus is a part. We are not
selling any securities for our own account under this Prospectus. Neither we nor
ADN are receiving any consideration for the Shares, nor will either of us have
any voting or dispositive power with respect to the Shares after the Shares are
dividended to ADN's shareholders. ADN's shareholders who receive the dividend of
Shares will receive the Shares without restriction on resale. The certificates
evidencing the Shares will bear no legend no restriction on transfer unless the
recipient of the dividend is our affiliate. Shareholders of ADN who receive the
dividend and are not our affiliates may dispose of the Shares, if they so elect,
without registration in jurisdictions where offers and sales are permitted and
without delivery of any prospectus.
Pursuant to Rule 416 under the Securities Act, the Registration Statement of
which this Prospectus is a part also covers any additional shares of our Common
Stock which become issuable in connection with such Shares because of any stock
dividend, stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in the number
of outstanding shares of our Common Stock. The following table has been prepared
on the assumption that all Shares offered under this Prospectus will be
distributed as a dividend to the shareholders of the Majority Stockholder. Since
its acquisition by the Majority Stockholder in December 2005, the Company has
operated as a subsidiary of the Majority Stockholder. The Company will cease to
be a subsidiary of the Majority Stockholder upon consummation of the dividend of
the Shares by the Majority Stockholder. Percentages in the table below are based
on 79,821,167 shares of our Common Stock issued and outstanding as of February
6, 2007.
-------------------------------- -------------- ---------------- ---------------- ----------------- -----------------
Number of Percentage of Number of Percent of
Shares Held Number of Ownership Shares Being Ownership
Name and Address of Prior to Shares to Be Prior to Distributed as Following the
Selling Shareholder Offering Offered Offering a Dividend Distribution
(1)
-------------------------------- -------------- ---------------- ---------------- ----------------- -----------------
Auto Data Network, Inc.
712 Fifth Avenue 71,250,000 71,250,000 89.25% 71,250,000 0%
19th Floor
New York, NY 10019
(1) As promptly as practicable after the Registration Statement of which this
Prospectus is a part is declared effective by the Securities and Exchange
Commission, ADN intends to distribute all of the Shares to shareholders of ADN
in consummation of a previously-announced dividend by ADN.
PLAN OF DISTRIBUTION
ADN, our majority stockholder, is distributing all 71,250,000 Shares owned by
ADN to shareholders of ADN as a dividend to its shareholders to effect ADN's
previously announced spin-off of all of the Shares. ADN plans to distribute the
dividend to its shareholders as soon as practicable after this Registration
Statement of which this Prospectus is a part is declared effective by the
Securities and Exchange Commission. The ex-dividend date is expected to be no
later than
12
three (3) business days following the date upon which the Securities and
Exchange Commission declares this Registration Statement effective.
ADN's shareholders who receive the dividend of Shares will receive the Shares
without restriction on resale. The certificates evidencing the Shares will bear
no legend unless the recipient of the dividend is our affiliate. Shareholders of
ADN who receive the dividend and are not our affiliates may dispose of the
Shares, if they so elect, without registration in jurisdictions where offers and
sales are permitted and without delivery of any prospectus. ADN's shareholders
who receive the dividend of Shares (and their respective donees, transferees and
other successors in interest who may dispose of Shares after the date of this
Prospectus whether in a sale or other disposition or otherwise as a gift,
partnership or other non-sale-related transfer), will act independently of the
Company and of ADN in making any decisions with respect to the timing, manner
and size of any subsequent disposition of Shares by any of them.
LEGAL PROCEEDINGS
From time to time, the Company is subject to various legal claims and
proceedings arising in the ordinary course of business. The ultimate disposition
of these proceedings could have a materially adverse effect on the consolidated
financial position or results of operations of the Company.
As previously reported in the Company's Form 10-QSB filed on February 14, 2007,
the Company was informed of a verdict against CarParts Technologies, Inc.
("CarParts") in favor of Aidan McKenna in litigation in the Court of Common
Pleas of Allegheny County, Pennsylvania. The judgment was for the principal
amount of $3,555,000 and stems from a complaint filed by Mr. McKenna on November
13, 2002 regarding an asset purchase transaction. CarParts is now known as AFS
Tire Management, Inc. ("AFS Tire"). AFS Tire is a wholly owned subsidiary of
Aftersoft Network N.A, Inc., which, in turn, is a wholly owned subsidiary of the
Company.
In a companion case to the aforementioned action, Mr. McKenna filed a Request
for Entry of Sister State Judgment in the Superior Court of California for
Orange County seeking the enforcement of his Pennsylvania judgment against
CarParts in Orange County, California. In response, CarParts filed a Motion to
Vacate Entry of Judgment on Sister State Judgment or to Stay Enforcement of
Judgment. The hearing on that motion was set for and heard on September 7, 2006.
At the hearing, CarParts' motion was denied.
In September 2006, Mr. McKenna filed another action in the Court of Common Pleas
of Allegheny County, Pennsylvania. This new action seeks to enforce Mr.
McKenna's previously described judgment against CarParts against several new
entities, including AFS Tire Management, Inc., AFS Warehouse Distribution
Management, Inc., AFS Autoservice, Inc., Auto Data Network, Inc. and the
Company. This new action alleges that all of these entities are liable for
payment of the CarParts judgment obtained by Mr. McKenna.
The Company is actively engaged in negotiations to resolve both of the
outstanding claims brought by Mr. McKenna. Any such settlement could involve the
issuance by the Company of securities. Any such issuance of securities would
dilute the interests of existing stockholders. Definitive settlement agreements
might require that some or all of the securities issued in any settlement would
be preferred stock or other senior securities with rights superior and prior to
those of holders of Common Stock with respect to dividends, liquidation, voting
or otherwise, including affirmative or negative covenants restricting the
Company. Any settlement might also require the payment of substantial sums of
cash. Any of the foregoing might adversely affect the holders of the Common
Stock or restrict the ability of the Company to implement its business plan
absent additional financing. Failure to achieve settlements might result in
litigation expense and distraction of management attention from business
operations, and might otherwise have a materially adverse effect on the Company
if Mr. McKenna were to enforce claims against the Company or any of its assets.
The Company presently anticipates that on-going negotiations with Mr. McKenna
will result in definitive agreements with them satisfactory to the Company. In
connection with the acquisition by the Company from ADN of corporate assets
including the business which is subject to the litigation by Mr. McKenna, ADN
gave the Company the benefit of certain representations made to ADN when the
business was acquired by ADN, and management of the Company would seek to rely
upon those representations if matters are not resolved to the satisfaction of
the Company.
Homann Tire LTD filed a complaint against the Company's subsidiary AFS Tire
Management, Inc. (f/k/a CarParts Technologies, Inc.) in California District
Court on August 11, 2005 regarding the Company's obligations pursuant to a
software license agreement that it entered into with Homann Tire on October 18,
2002. Homann Tire LTD filed a complaint against the Company's subsidiary AFS
Tire Management, Inc. in California District Court on August 11, 2005
13
regarding the Company's obligations pursuant to a software license agreement
that it entered into with Homann on October 18, 2002. The Company continues to
negotiate with Homann and anticipates completing an agreement in the near
future.
MANAGEMENT
Our executive officers, directors and other significant employees and their ages
and positions are as follows:
Name Age Position
--------------------------------------------------------------------------------
Ian Warwick 47 Chief Executive Officer and Chairman of the
Company
Michael O'Driscoll 54 Chief Financial Officer and Director of the
Company
Michael Jamieson 39 Chief Operating Officer and Director of the
Company; Chief Executive Officer of MAM
Software
Simon Chadwick 38 Vice President of Strategy and Technology
of the Company
IAN WARWICK has served as Chief Executive Officer and Chairman of the Board
since December 2005. Since 1994, Mr. Warwick has built early-stage technology
companies, some of which have culminated in stock market listings. Mr. Warwick
has extensive experience of corporate finance, particularly linked to
fundraising and private equity placements. Mr. Warwick is also Chief Executive
Officer, President and Chairman of Auto Data Network, Inc., which is the largest
shareholder of the Company.
MICHAEL O'DRISCOLL has served as Chief Financial Officer and been a director of
Aftersoft Group since July December 2005. From 1995 to date December 2005, Mr.
O'Driscoll serves as a Non-Executive Chairman of QV Foods Limited, a large
produce supplier to Marks & Spencer, Sainsbury, Tesco and the UK wholesale
market. QV Foods is a private company with annual revenue of 45 million GBP.He
is also a non-executive director of its holding company A.H.Worth Limited.
Previously Mr. O'Driscoll served as Financial Director and Secretary of
Merrydown plc where he oversaw the float on the Unlisted Securities Market of
London Stock Exchange as Chief Financial Officer, ultimately taking it to full
listing at 60 million GBP market capitalization.
MICHAEL JAMIESON has served as Chief Operating Officer and a director of
Aftersoft since December 2005. Mr. Jamieson has served as Chief Executive
Officer of Aftersoft's subsidiary MAM Software Limited since 2004. Mr. Jamieson
joined MAM in 1991 in its installation and configuration department and has held
a number of positions within MAM's implementation and support departments until
his appointment as Department Manager for Workshop and Bodyshop Systems in 1995.
Mr. Jamieson was promoted to the position of Associate Director of Workshop and
Bodyshop Systems in 2002 before taking his current role as CEO in 2004.
SIMON CHADWICK has served as Vice President of Strategy and Technology since
December 2005. Mr. Chadwick has spent the last nine years managing and directing
early-stage technology companies, a number of which have culminated in stock
market listings. Mr. Chadwick also has extensive experience of strategic
planning and technology solutions, having served as Chief Technology Officer in
a number of businesses. Mr. Chadwick has previously served as a consultant to
the advertising industry while spending several years as operations director at
an advertising agency.
The Company does not have a separate audit committee currently, but intends to
form one at the next board meeting. The board of directors has determined that
Michael O'Driscoll is a financial expert as defined in Regulation S-B
promulgated under the Securities Act. Mr. O'Driscoll is not independent as that
term is used in Schedule 14A of the Exchange Act. The Company also intends to
establish a compensation committee and corporate governance and nominating
committees.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following tables set forth certain information regarding the
beneficial ownership of the Common Stock as of February 6, 2007 by (a) each
stockholder who is known by the Company to own beneficially 5% or more of the
outstanding Common Stock; (b) all directors; (c) (i) the Company's chief
executive officer, and (ii) the Company's only highly compensated executive
officer other than the chief executive officer who was serving as an executive
officer of the Company at the end of the Company's last completed fiscal year;
and (d) all executive officers and directors as a group. Except as otherwise
indicated, all persons listed below have (i) sole voting power and investment
power with respect to their shares of Common Stock, except to the extent that
authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to their shares of Common Stock. The
percentage of beneficial ownership is based upon 79,821,167 shares of Common
Stock outstanding as of February 6, 2007. Unless otherwise identified, the
address of the directors and officers of the Company listed above is c/o
Aftersoft Group, Inc., Savannah House, 11-12 Charles II Street, London UK SW1Y
4QU.
Percent of class
Name and Address of Amount and Nature of of Common
Beneficial Owner Beneficial Ownership Stock(1)
Auto Data Network, Inc.(3) 71,250,000 89.25%
712 Fifth Avenue 19th Floor
New York, NY 10019
Ian Warwick (2) (3) 0 0%
Chief Executive Officer
and Chairman
Michael Jamieson (3) 0 0%
Chief Operating Officer and
Director of the Company and
Chief Executive Officer of
MAM Software Ltd.
Michael O'Driscoll (3) 0 0%
Chief Financial Officer and
Director
Executive Officers and Directors 0 0%
as a group (4 persons)
(1) Based on a total of 79,821,167 shares of Common Stock outstanding. In
accordance with Securities and Exchange Commission rules, each person's
percentage interest is calculated by dividing the number of shares that
person beneficially owns by the sum of (a) the total number of shares
outstanding on February 6, 2007 plus (b) the number of shares such
person has the right to acquire within sixty (60) days of February 6,
2007.
(2) Mr. Warwick, as the Chief Executive Officer of ADN, has power to vote
and dispose of Common Stock owned by ADN. Mr. Warwick disclaims
beneficial ownership of the 71,250,000 shares of Common Stock held by
ADN.
(3) None of the parties will be beneficial owners of Aftersoft shares
immediately upon consummation.
15
DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL STOCK
NUMBER OF AUTHORIZED AND OUTSTANDING SHARES. Currently, our Articles of
Incorporation authorize the issuance of an aggregate of 100,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock, on such terms and at such
prices as the Board of Directors of the Company may determine. An amendment to
the Articles of Incorporation to increase the number of authorized shares of
Common Stock to 150,000,000 shares was approved by written consent on January
16, 2007 by the holders of a majority of the voting power of our outstanding
Common Stock. The Company has filed an Information Statement pursuant to Section
14(c) of the Securities Exchange Act of 1934, as amended, with the Securities
and Exchange Commission. The Amendment will become effective twenty (20) days
after we mail the Information Statement to our securityholders and after the
filing a Certificate of Amendment to our Certificate of Incorporation with the
Delaware Secretary of State.
As of February 6, 2007, the Company had 79,821,167 shares of Common Stock issued
and outstanding and no Preferred Shares issued.
VOTING RIGHTS. Holders of shares of Common Stock are entitled to one vote for
each share on all matters to be voted on by the stockholders. Holders of Common
Stock have no cumulative voting rights. Accordingly, the holders of in excess of
50% of the aggregate number of shares of Common Stock issued and outstanding
will be able to elect all of our directors and to approve or disapprove any
other matter submitted to a vote of all stockholders.
OTHER. Holders of Common Stock have no preemptive rights to purchase our Common
Stock.
DIVIDEND. We have never declared or paid cash dividends on our Common Stock, and
our board of directors does not intend to declare or pay any dividends on the
Common Stock in the foreseeable future.
TRANSFER AGENT. Shares of Common Stock are registered at the transfer agent and
are transferable at such office by the registered holder (or duly authorized
attorney) upon surrender of the Common Stock certificate, properly endorsed. No
transfer shall be registered unless we are satisfied that such transfer will not
result in a violation of any applicable federal or state securities laws. The
transfer agent for our Common Stock is Corporate Stock Transfer, 3200 Cherry
Creek Drive South Suite 430 Denver, Colorado 80209.
EXPERTS
The consolidated financial statements included in this prospectus of Aftersoft
Group, Inc. and subsidiaries as of June 30, 2006 and for each of the years in
the two-year period then ended, have been audited by Corbin & Company, LLP, an
independent registered public accounting firm, as stated in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Albright & Blum, P.C., attorneys at law, 17337 Ventura Boulevard, Suite 208,
Encino, CA 91316 has passed upon the validity of the securities being offered
hereby. Albright & Blum, P.C. was not hired on a contingent basis, nor will it
receive a direct or indirect interest in the business of issuer. Further, it is
not nor will be a promoter, underwriter, voting trustee, director, officer, or
employee of the issuer.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law authorizes us to indemnify
any director or officer under prescribed circumstances and subject to certain
limitations against certain costs and expenses, including attorneys' fees
actually and reasonably incurred in connection with any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being one of our directors or officers if it
is
16
determined that the person acted in accordance with the applicable standard of
conduct set forth in such statutory provisions.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Aftersoft pursuant to the foregoing provisions, or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
DESCRIPTION OF BUSINESS
We provide software, information and services to the automotive aftermarket in
the U.S., UK and Canada and to the automotive dealership market in the UK. The
automotive aftermarket consists of businesses associated with the life cycle of
a motor vehicle--from when the original manufacturer's warranty expires to when
the vehicle is scrapped. The market includes the parts, tires and auto services
required to maintain and improve the performance or appeal of a vehicle
throughout its useful life.
We provides business management systems, information products and online
services that businesses engaged in the automotive aftermarket use to manage
their critical day-to-day business operations through automated point-of-sale,
inventory management, purchasing, general accounting and customer relationship
management.
Our customer base consists of wholesale parts and tire distributors, retailers,
franchisees, cooperatives, auto service chains and single location auto service
businesses with high customer service expectations and complex commercial
relationships.
The automotive dealership market consists of businesses that sell automobiles
from single site, independent dealerships to franchised, multi-site dealerships.
We service these businesses with business management systems that enable them to
service customers more fully, keep accurate record of automobiles in stock, and
service department work and costs, thus helping dealerships manage the whole
client relationship more efficiently and profitably.
The Company's revenues are derived from the following:
o Business management systems comprised of proprietary software
applications, implementation and training; and
o Subscription-based services, including software support and
maintenance, information (content) products and online
services.
The Company has three wholly owned direct subsidiaries which operate separately:
MAM Software Limited ("MAM Software") and EXP Dealer Software Limited ("EXP
Dealer Software") in the UK and Aftersoft Network N.A., Inc. ("AFS") in the U.S.
MAM SOFTWARE
MAM Software is a leading provider of software to the automotive aftermarket in
the UK. MAM Software specializes in providing reliable and competitive business
management solutions to the motor factoring (jobber), retailing, and wholesale
distribution sectors. It also develops applications for vehicle repair
management and provides solutions to the retail and wholesale tire industry. All
MAM Software programs are based on the Microsoft Windows family of operating
systems. Each program is fully compatible with the other applications in their
range, enabling them to be combined to create a fully integrated package. MAM
Software is based in Sheffield, UK.
AFS
AFS develops open business automation and distribution channel eCommerce systems
for the automotive aftermarket supply chain. These systems are used by more than
3,000 leading aftermarket outlets, including tier one manufacturers, program
groups, warehouse distributors, tire and service chains and independent
installers. AFS products and services enable companies to generate new sales,
operate more cost efficiently, accelerate inventory turns and maintain stronger
17
relationships with suppliers and customers. AFS has three wholly owned
subsidiaries operating as separate businesses: AFS Warehouse Distribution
Management, Inc. and AFS Tire Management, Inc., which are both based in Dana
Point, California, and AFS Autoservice, Inc., which is based in Allentown,
Pennsylvania. Together, these three subsidiaries comprise one of the largest
providers of software to businesses engaged in the automotive aftermarket in the
U.S. AFS Tire Management, Inc. was formerly known as CarParts Technologies, Inc.
EXP DEALER SOFTWARE
EXP Dealer Software sells proprietary software and professional services to the
dealership sector of the automotive market in the UK. Management software and
services tailored to automotive dealers represent a potential market of $15
billion worldwide with the top five current suppliers to this market
representing less than 15% of this total. EXP Dealer Software has three direct
operating subsidiaries. MMI Automotive Limited, ("MMI Automotive") is based in
Swindon, UK. Dealer Software and Services Limited, ("DSS") is based in London,
UK. Both provide software products and services to automotive dealerships to
help increase business efficiency and profitability within these low margin
businesses. Their clients include Ford UK, Honda, Mitsubishi UK, Vauxhall
(General Motors), Audi and Volkswagen. Chester, UK-based Anka Design Limited
("Anka Design") is a "below the line" advertising and design business serving
the automotive and technology sectors. Dealer Software and Services Limited
("DSS") owns a minority interest of DCS Automotive, which is a division of DCS
Group, PLC. DCS Automotive is a leading provider of dealer management systems
("DMS") to the automotive retail sector in Europe.
INDUSTRY OVERVIEW
The Company aims to meet the business needs of customers who are involved in the
maintenance and repair of automobiles and light trucks in three key segments of
the automotive aftermarket, namely parts, tires and auto service.
In the U.S., the automotive aftermarket generated $160 billion in sales in 2005,
an annualized growth rate of 5% over 2004 and the largest increase since 2000,
according to the Automotive Aftermarket Industry Association ("AAIA"). In the
UK, it cost approximately $27 billion a year to maintain Britain's 30 million
vehicles, according to a 2004 report by the UK Department of Trade and Industry.
Longer warranties defer the start of aftermarket revenue, except for running
spares and service parts, accident damage, and optional add-ons like security,
entertainment and customization. Sales of new vehicles in Britain amount to $42
billion each year. Maintaining those 30 million vehicles, however, creates the
annual $27 billion aftermarket, comprised of $25 billion in spare parts and
fitting charges and $2 billion in inspection revenues.
The Company believes that growth in the automotive aftermarket will continue to
be driven by the following factors:
o gradual growth in the aggregate number of vehicles in use;
o an increase in the average age of vehicles in operation;
o fewer new vehicles being purchased due to a slowdown in the
economy;
o growth in the total number of miles driven per vehicle per
year; and
o increased vehicle complexity.
PRODUCTS AND SERVICES
Meeting the needs of the automotive aftermarket requires a combination of
business management systems, information products and online services that
combine to deliver benefits for all parties involved in the timely repair of a
vehicle. The Company provides systems and services that meet these needs and
help its customers to meet their customers' expectations. These products and
services include:
1. business management systems comprised of the Company's
proprietary software applications, implementation and training
and third-party hardware and peripherals;
2. information products such as an accessible catalog database
related to parts, tires, labor estimates, scheduled
maintenance, repair information, technical service bulletins,
18
pricing and product features and benefits that are used by the
different participants in the automotive aftermarket;
3. online services and products that provide online connectivity
between manufacturers, warehouse distributors, retailers and
automotive service providers. These products enable electronic
data interchange throughout the automotive aftermarket supply
chain between the different trading partners. They also enable
procurement and business services to be projected over the Web
to an expanded business audience; and
4. customer support and consulting services that provide phone
and online support, implementation and training.
1. BUSINESS MANAGEMENT SYSTEMS
AFS's business management systems meet the needs of warehouse distributors,
parts stores and automotive service providers as follows:
WAREHOUSE DISTRIBUTORS
o AFS Warehouse Distribution Management, Inc.: DirectStep. This
product is designed for and targeted at warehouse distributors
that seek to manage multiple locations and inventories on a
single system. AFS Warehouse provides distributors a complete
business management system for inventory management, customer
maintenance, accounting, purchasing and business analytics.
The products enable online trading and services including
price and product information updating integrated with AFS
Autoservice, Inc.'s Autopart and VAST products, which are used
by parts stores and automotive service providers.
PARTS STORES
o AFS Autoservice, Inc.: Autopart. This product is designed for
and targeted at parts store chains that seek to manage
multiple locations and inventories on a single system for a
regional area and are also suited to managing single location
franchisees or buying group members. The product provides
point-of-sale, inventory management, electronic purchasing
capabilities and a fully integrated accounting module. It also
allows the parts stores to connect with automotive service
providers through AFS Autoservice's online services.
AUTOMOTIVE SERVICE PROVIDERS
o AFS Autoservice, Inc.: VAST. This product is designed for and
targeted at large- to medium-size automotive service chains
that seek to manage multiple locations and inventories for a
regional area is also suited to managing single location
stores that are part of a franchise or a buying group. VAST
provides point-of-sale, inventory management, electronic
purchasing and customer relationship management capabilities.
It also allows the automotive service providers to connect
with parts and tires warehouse distributors and parts stores
through AFS's online services and products. The Company is in
the process of renegotiating the existing arrangements whereby
the VAST product was originally acquired and anticipates
successful consummation of those negotiations.
o AFS Autoservice, Inc.: Autowork. This product is designed for
and targeted at small, single-store automotive installers. The
Autowork product provides estimate, job card, parts
procurement and invoice capabilities. It also allows the
automotive installer to connect with parts distributors
through the Company's online services and products.
o AFS Autoservice, Inc.: Autopart. This product is designed for
and targeted at parts store chains that seek to manage
multiple locations and inventories on a single system for a
regional area. It is also suited to managing single location
franchisees or buying group members. The product provides
point-of-sale, inventory management, electronic purchasing
capabilities and a fully integrated accounting module. An
Autopart PDA module is also available to allow field sales
personnel to record sales activity in real time on handheld
devices while on the road. The PDA module also allows the
sales representative to maintain their stock and synchronize
in real time while traveling or later locally with Autopart
directly. It also allows parts stores to connect with
automotive service providers through AFS Autoservice's online
services.
In addition to the above principal products, AFS also services, maintains and
provides upgrades for, but does not actively
19
sell, three additional products for its aftermarket customers. These
products--ASP, BDG and Tradera--track inventory, perform accounting functions
and execute point-of-sale operations such as invoicing and billing.
AUTOMOTIVE DEALERSHIPS
o MMI Automotive Limited.: Automate. This product is designed
for and targeted at large- to medium-size automotive
dealerships, companies and dealer groups that need instant
access to real-time management reports giving actual data on
screen or in Windows spreadsheet formats. Automate offers
marketing ("CRM"), accounts, vehicle and parts sales, stock
management, service and workshop diary and service management
in a module format. All of the modules work together to
provide a real-time, on-line Management Information Systems
("MIS") with integrated modules providing seamless data
transfer and control. Automate integrates fully with our
Target CRM/CCRM products and together they provide an
information and marketing framework designed to maximize
profitability, efficiencies and customer loyalty.
o MMI Automotive Limited.: Target CRM/CCRM. These products are
designed for and targeted at automotive dealerships, companies
and dealer groups. The Target CRM version of the product is
specifically focused on medium- to small- size businesses, and
the Target CCRM is targeted at large- to medium- size
group-based businesses that require centralized control.
Target CRM/CCRM is fully integrated within Automate dealer
management systems (DMS) and can be integrated with any other
DMS software.
o Dealer Software and Services Limited.: Global DMS. Is designed
to manage and report on every area of dealerships business,
from sales to aftersales, offering Vechile management, Parts,
Service and Bodyshop management, Marketing and Customer Care
and Finance. All this information is made available in real
time so that management can monitor every aspect of the
business
o Dealer Software and Services Limited.: DCS Showroom. This
powerful, customer facing sales aid, integrates into Global
DMS supporting the entire vehicle sales process, or can be
used as a standalone solution. Designed to improve the
profitability of deals, effectively manage prospects, promote
a professional image to both prospects and customers and
maximise the efficiency of the entire vehicle sales process.
2. INFORMATION PRODUCTS
The Company provides product catalog and vehicle repair information required to
enable point-of-sale transactions. These proprietary database products and
services generate recurring revenues through monthly or annual subscription
fees.
MAM Software develops and maintains proprietary information products that
differentiate its products from those of the majority of its competitors in the
UK. In the U.S. and Canada, AFS develops and maintains a proprietary workflow
capability that integrates information products sourced from its suppliers to
its automotive parts and tire customers, including warehouse distributors, parts
stores and automotive service providers.
AutoCat. MAM Software's principal information service is AutoCat, which provides
access to a database of over 9 million unique automobile vehicle applications
for approximately 500,000 automotive parts product lines in the UK market.
Business systems software used by the warehouse distributor, parts store and
auto service provider enable the user to access information about parts quickly
and accurately. MAM Software charges a monthly or annual subscription fee for
its information products and provides customers with periodic updates via
compact discs. In the UK, there are approximately 1,300 aftermarket company
subscribers to our information products.
In addition, information products developed or resold by AFS include Interchange
Catalog, a database that provides cross references of original equipment
manufacturer part numbers to aftermarket manufacturer part numbers; Price
Updating, a service that provides electronic price updates following a price
change by the part manufacturer; Labor Guide, a database used by automotive
service providers to estimate labor hours for purposes of providing written
estimates of repair costs to customers; Scheduled Service Intervals, a database
of maintenance intervals; and Tire Sizing, a database that cross-references
various tire products and applications.
20
3. ONLINE SERVICES
Both AFS and MAM Software offer online e-commerce services in the form of
system-to-system and web browser implementations. These online services connect
the automotive aftermarket from manufacturers through warehouse distributors and
parts stores to automotive service providers for the purpose of purchasing parts
and tires, fleet and national account transaction processing and online product
price information.
OpenWebs(TM) e-Commerce Gateway Services. In the U.S. and Canada, AFS's
e-Commerce gateway services use automotive industry standard messaging
specifications to deliver online services that connect the automotive
aftermarket supply chain for the purpose of purchasing parts and tires, fleet
and national account transaction processing, online product and price updating
for parts and tires.
OpenWebs(TM) e-Commerce Browser Services. In the U.S. and Canada, AFS's
e-Commerce browser services enable warehouse distributors and parts stores to
provide an online service to automotive service providers for the purpose of
purchasing ofparts and tires, accessing account information and other
browser-based channel management services.
Autonet. In the UK, MAM Software's Autonet online services connect
manufacturers, warehouse distributors, parts stores and automotive service
providers for the purpose of purchasing of parts and tires, fleet and national
account transaction processing and product information and price distribution.
AutoCat+. MAM Software's UK product information database is available for access
and distribution as a Web-driven service called AutoCat+ in which the database
and access software have been enhanced to enable service professionals to look
up automotive products for themselves, view diagrams and select the parts for
their vehicle. This enhanced version of the AutoCat product is used by parts
stores and the professional installer segments of the automotive parts
aftermarket in the UK. AFS resells a similar online service in the U.S. and
Canada called VAST.
4. CUSTOMER SUPPORT, CONSULTING AND TRAINING
We provide comprehensive support, consulting and training to our customers to
ensure the successful use of our products and services. We believe this extra
level of commitment and service builds customer relationships, enhances customer
satisfaction and maximizes customer retention. These services consist of the
following:
o Phone and online support. Customers can call dedicated support
lines to speak with knowledgeable personnel who provide
support and perform on-line problem solving as required.
o Implementation, education and training consulting. Our
consulting and training teams work together to minimize the
disruption to a customer's business during the implementation
process of a new system and to maximize the customer's benefit
from the use of the system through training.
AFS and MAM Software companies also provide a customer-only section on their
intranet sites that allows customers direct access to newsgroups, on-line
documentation and information related to products and services. New customers
enter into support agreements, and most retain such service agreements for as
long as they own the system. Monthly fees vary with the number of locations and
the software modules, information products and online services subscribed to.
The agreements are generally month-to-month agreements. We offer training at
both AFS and MAM Software's facilities, the customer's facilities and online for
product updates or to introduce specific new capabilities.
The MAM Software's UK catalog information product and other information services
are delivered by its AutoCat team. The AutoCat team sources, standardizes and
formats data collected in an electronic format from over 130 automotive parts
manufacturers. MAM Software provides this data to its customers in a variety of
formats. MAM Software previously produced catalog updates on compact discs
approximately four times a year from its facilities in Wareham, England, but has
recently updated the system to AutoCat+, which allows customers to subscribe to
receive online updates via the Internet.
21
DISTRIBUTION
There are two primary vertical distribution channels for aftermarket parts and
tire distribution: the traditional wholesale channel and the retail channel.
AUTOMOTIVE AFTERMARKET DISTRIBUTION CHANNELS
o Traditional Wholesale Channel. The wholesale channel is the
predominant distribution channel in the automotive
aftermarket. It is characterized by the distribution of parts
from the manufacturer to a warehouse distributor, to parts
stores and then to automotive service providers. Warehouse
distributors sell to automotive service providers through
parts stores, which are positioned geographically near the
automotive service providers they serve. This distribution
method provides for the rapid distribution of parts. The
Company has products and services that meet the needs of the
warehouse distributors, parts stores and the automotive
service providers.
o Retail Channel. The retail channel is comprised of large
specialty retailers, small independent parts stores and
regional chains that sell to "do-it-yourself" customers.
Larger specialty retailers, such as Advance Discount Auto
Parts, AutoZone, Inc., O'Reilly Automotive, Inc. and CSK Auto
Corporation carry a greater number of parts and accessories at
more attractive prices than smaller retail outlets and are
gaining market share. The business management systems used in
this channel are custom developed by the large specialty
retailers and for the small to medium businesses purchased
from business systems providers. The Company has products and
services that support the retail channel.
In addition to these two primary channels, some aftermarket parts and tires end
up being distributed to new car dealers. The business management systems used in
this channel have unique functionality specific to new car dealerships. The
Company sells a small number of products into the auto service provider side of
car dealerships. Aftermarket wholesalers of parts and tires provide online
purchasing capabilities to some new car dealerships.
PRODUCT DEVELOPMENT
Our goal is to add value to our customers' businesses through products and
services designed to create optimal efficiency. To accomplish our goal, our
product development strategy consists of the following three key components:
o Integrating all of our products so that our software solutions
work together seamlessly, thereby eliminating the need to
switch between applications;
o Enhancing our current products and services to support our
changing customer needs; and
o Providing a migration path to our business management systems,
reducing a fear that many customers have that changing systems
will disrupt businesses.
SALES AND MARKETING
The Company's sales and marketing strategy is to acquire customers and retain
them by cross selling and up-selling a range of commercially compelling business
management systems, information products and online services.
Within the parts, tire and auto service provider segments, each division sells
and markets through a combination of field sales, inside sales, and independent
representatives. The Company seeks to partner with large customers or buying
groups and leverage their relationships with their customers or members.
Incentive pay is a significant portion of the total compensation package for all
sales representatives and sales managers. Outside sales representatives focus
primarily on identifying and selling to new customers complemented by an inside
sales focus on selling upgrades and new software applications to its installed
customer base.
The Company's marketing approach aims to leverage its reputation for customer
satisfaction and for delivering systems, information and services that improve a
customer's commercial results. The goal of these initiatives is to maximize
customer retention and recurring revenues, to enhance the productivity of the
field sales team, and to create the cross-selling and up-selling opportunities
for its systems, information products and online services.
AFS also has agreements with eight software distributors in North America to
sell its products. We pay distributors a
22
percentage for each software package they sell. The client pays the distributor
directly for any professional services rendered to deploy the software. This is
becoming a less important part of AFS's sales strategy as our in-house sales
representatives generate most of our sales.
RESEARCH AND DEVELOPMENT
The Company spent approximately $3.09 million in fiscal 2006 on research and
development, with approximately $1.96 million spent by AFS and $1.13 million by
MAM Software. In fiscal 2005, the Company spent approximately $2.67 million on
research and development, with $2.09 million spent by AFS and $580,000 by MAM
Software.
PATENT AND TRADEMARK
MAM Software holds a UK trademark for its Autonet product.
CUSTOMERS
For its fiscal year ended June 30, 2006, no single customer accounted for more
than 10% of the Company's total revenues. Our top ten customers accounted for
20% of total revenues. Some of the AFS's top customers in North America include
Autopart International, Monro Muffler Brake, Fountain Tire and U.S. Tire and
Exhaust. In the UK market, MAM Software's top customers include Unipart
Automotive, Motoserv, Sutton Autofactors, Euro Car Parts and Auto Battery
Service and EXP's customers include Honda (UK), Vauxhall (General Motors), Ford,
Audi, Mazda, Volkswagen and Nissan (UK).
COMPETITION
In the U.S. and Canada, AFS and DSS compete primarily with Activant, Inc. and
several smaller software companies, including iCarz, Autologue and Wrenchead,
Inc. that provide similar products and services to the U.S. automotive
aftermarket.
Additionally, an ongoing competitive threat to the Company is custom developed
in-house systems, information products and online services. For example,
AutoZone, Inc. and Genuine Parts Company's NAPA Parts Group both developed their
own business management systems and electronic automotive parts catalogs for
their stores and members.
Several large enterprise resource planning and software companies, including
Microsoft Corporation, Oracle Corporation and SAP AG have made public
announcements regarding the attractiveness of various small and medium
enterprise vertical markets and have established new accounts in non-automotive
markets. The Company has not competed with any of these larger software and
service companies directly to date, however there can be no assurance that those
companies will not develop or acquire a competitive product or service in the
future.
In the UK, MAM Software competes primarily with Activant, Inc. and several other
smaller software companies including EGO and RAMDATA.
In the UK, MMI Automotive competes at two levels. Firstly with larger
established players such as ADP that are seeking sales within the large- to
medium- sized businesses and also with several other smaller software companies
that are working to establish themselves within this market.
EMPLOYEES
The Company has 201 full-time employees: 54 at AFS, 117 at MAM Software, 27 at
EXP Dealer Software and 3 at Aftersoft Group. The three in Aftersoft Group are
all in management. AFS has 54 employees in the U.S. comprised of 9 in
management, 4 in sales and marketing, 11 in research and development, 25 in
professional services and support and 5 in general and administration. MAM
Software has 117 employees in the UK comprised of 7 in management, 19 in sales
and marketing, 18 in research and development, 64 in professional services and
support and 9 in general and administration EXP Dealer Software has 27 employees
in the UK comprised of 3 in management, 3 in sales and marketing, 6 in research
and development, 13 in professional services and support and 2 in general and
administration.
23
All of our employees have executed customary confidentiality and restrictive
covenant agreements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Some of the statements contained in this Form SB-2, which are not purely
historical, are 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, including, but not limited to, statements regarding the Company's
objectives, expectations, hopes, beliefs, intentions or strategies regarding the
future. In some cases, you can identify forward-looking statements by the use of
the words "may," "will," "should," "expects," "plans," "intends," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those terms or other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, our
actual results could differ materially from those disclosed in these statements
due to various risk factors and uncertainties affecting our business, including
those detailed in the "Risk Factors" section. We caution you not to place undue
reliance on these forward-looking statements. We do not assume responsibility
for the accuracy and completeness of the forward-looking statements and we do
not intend to update any of the forward-looking statements after the date of
this report to conform them to actual results. You should read the following
discussion in conjunction with our financial statements and related notes
included elsewhere in this report.
OVERVIEW
We develop and market business and supply chain management software solutions to
small- and medium-size firms in the automotive aftermarket in the U.S and UK and
automotive dealer management software solutions in the UK. The Company aims to
meet the business needs of customers who are involved in the maintenance and
repair of automobiles and light trucks in three key segments of the automotive
aftermarket, namely parts, tires and auto service. Our customers include parts
manufacturers, retailers, tire and service chains, independent installers and
wholesale distributors. We are among the largest suppliers to the U.S. market,
which, according to the AAIA Aftermarket factbook 2006/2007, represents a $160
billion market opportunity with approximately 53,500 potential clients, based on
2005 figures. We're also a significant player in the UK market, which is an
estimated $27 billion market opportunity with approximately 30 million vehicles
in circulation, according to a 2004 report by the UK Department of Trade and
Industry.
The Company has three wholly owned direct subsidiaries which operate separately:
MAM Software and EXP Dealer Software in the UK and AFS in the U.S. Our companies
offer products and services to meet the needs of businesses that manage large
and diverse inventories amid complex supply chains and distribution
environments, all of which require specialized and sophisticated software
services to operate efficiently.
MAM Software a leading provider of software to businesses engaged in the
automotive aftermarket in the UK. MAM Software specializes in fully integrated
business management solutions for the motor factoring (jobber), retailing, and
wholesale distribution sectors. MAM also develops applications for vehicle
repair management and provides solutions to the retail and
AFS develops open business automation and distribution channel eCommerce systems
for the automotive aftermarket supply chain in the U.S. and Canada. More than
3,000 leading aftermarket outlets in the U.S. use these systems, including tier
one manufacturers, program groups, warehouse distributors, tire and service
chains and independent installers. AFS has three wholly owned subsidiaries
operating as separate businesses: AFS Warehouse Distribution Management, Inc.,
AFS Autoservice, Inc. and AFS Tire Management, Inc. AFS Tire Management, Inc.
was formerly known as CarParts Technologies, Inc.
EXP Dealer Software provides proprietary software and professional services for
automotive dealerships as well advertising and design services focused on the
automotive and technology sectors. The UK-based group has three direct operating
subsidiaries: MMI Automotive Limited, Dealer Software and Services Limited and
Anka Design Limited.
RESULTS OF OPERATIONS
THE COMPANY'S RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
COMPARED WITH THE YEAR ENDED JUNE 30, 2005 WERE AS FOLLOWS:
The Company reported revenues of $19,261,000, which is a decrease of 12.7% from
$22,062,000 generated in the previous fiscal year.
24
Our gross profit decreased from $12,837,000 to $9,515,000. The Company forecasts
gross profit to increase in line with higher revenue in fiscal year 2007 due to
the refocusing of its sales operations.
Our research and development expenses increased to $3,089,000 from $2,665,000 in
the previous fiscal year, due primarily to increased activity developing new
products and supporting existing ones.
Sales and marketing expenses decreased to $1,904,000 from $1,970,000 in the
previous fiscal year. These expenses decreased 3% as a result of employees who
left the Company.
General and administrative expenses increased to $4,489,000 from $4,389,000 in
the previous fiscal year. This year, the Company incurred $1,049,000 in expenses
related to reorganization. Without that expense, the Company's general and
administrative expenses decreased 32% in fiscal 2006. We expect substantially
less expense related to reorganization in fiscal 2007.
Depreciation and amortization expenses decreased to $1,275,000 from $1,421,000
in the previous year as a result of surplus fixed assets that we disposed of
this year.
The Company had a loss of $972,000 this fiscal year compared with a profit of
$1,938,000 in the previous year, mainly because of a drop in revenue at our AFS
subsidiary. We attribute this decrease in revenue in large part to a lack of
focus by senior members of the management team, who no longer work for the
Company. After taking into account the costs associated with reorganization
incurred during the year, the Company's net income for the year would be
$77,000.
THE COMPANY'S RESULTS OF OPERATIONS FOR THE INTERIM PERIOD JULY 1 TO DECEMBER
31, 2006 AS COMPARED WITH THE PERIOD FROM JULY 1 TO DECEMBER 31, 2005, WERE AS
FOLLOWS:
Revenues of $6,788,000 and $12,639,000 for the three and six months ended to
December 31, 2006 compared with $4,845,000 and $9,624,000 for the three and six
months ended December 31, 2005, was in line with the Company expectations, with
strong sales and revenues from the UK-based businesses and the U.S. businesses
showing flat sales, but with revenue from maintenance and support services
remaining steady. We expect that sales and revenue will continue to increase in
both UK operations (MAM Software and EXP Dealer Software) over the coming
quarter. We expect sales and revenues from the U.S. businesses to increase
during the coming period as we continue to roll out our AutoPart product to
existing and new clients and increased marketing presence raises awareness of
AFS and its associated products and services. Our present funding from ongoing
sales and revenue will continue to sustain the Company through the coming year
in line with projections while allowing us to expand into the U.S. marketplace.
Cost of Revenues. Total cost of revenues for the three and six months ended
December 31, 2006, was $2,676,000 and $5,317,000 compared with $2,290,000 and
$4,729,000 for the same periods of December 31, 2005. This was consistent with
the increase in revenues during the period. Margins have improved due to a
change in the product mix, which includes less hardware costs, thereby
generating better margins.
The total gross profit was $4,112,000 for the three months ended and $7,322,000
for the six months ended December 31, 2006, as compared with $2,555,000 and
$4,895,000 for the same period in 2005.
Operating Expenses. The following tables set forth, for the periods indicated,
the Company's operating expenses and the variance thereof.
25
For the Three Months
Ended December 31,
----------------------- Variance Variance
2006 2005 $ %
---------- ---------- ---------- ----------
Research and development ........ $ 853,000 $ 763,000 $ 90,000 11.8%
Sales and marketing ............. 591,000 487,000 104,000 21.4%
General and administrative ...... 1,033,000 699,000 334,000 47.8%
Depreciation and amortization ... 532,000 265,000 267,000 100.8%
---------- ---------- ---------- ----------
Total Operating Expenses ........ $3,009,000 $2,214,000 $ 795,000 35.9%
========== ========== ========== ==========
For the Six Months
Ended December 31,
----------------------- Variance Variance
2006 2005 $ %
---------- ---------- ---------- ----------
Research and development ........ $1,628,000 $1,536,000 $ 92,000 6.0%
Sales and marketing ............. 1,111,000 966,000 145,000 15.0%
General and administrative ...... 1,853,000 1,559,000 294,000 18.9%
Depreciation and amortization ... 915,000 544,000 371,000 68.2%
---------- ---------- ---------- ----------
Total Operating Expenses ........ $5,507,000 $4,605,000 $ 902,000 19.6%
========== ========== ========== ==========
Operating expenses increased by $795,000 for the three months to December 31,
2006 compared with the three months ended December 31, 2005, and increased by
$902,000 for the six months ended December 31, 2006 compared with the six months
ended December 31, 2005. This is due to the following:
Research and Development Expenses. Increased slightly during the period due to a
first full quarter's expenses from EXP Software.
Sales and Marketing. Higher expenditure due to increased activities in the USA.
General and Administrative. Increased by $334,000 and $294,000 for the three
months and six months to December 31, 2006 and 2005, respectively. This was
primarily due to an increase in payroll related expenses and first full
quarter's expenses from EXP Software.
Depreciation and Amortization. Depreciation and amortization expenses increased
due mainly to amortization of additional intangibles which were acquired in
connection with the acquisition of EXP Dealer Software Limited in the first
quarter of the fiscal year ending June 30, 2007
Interest Expense. Interest expense increased by $1,000 and $10,000 for the three
months and six months to December 31, 2006 and 2005, respectively. This increase
was a result of the increase in interest rates in 2006 over 2005.
Other Income. Of the $500,000 reported for the six months ended December 31,
2006, the Company realized $487,000 of miscellaneous income due to the release
of a long-term liability relating to discontinued operations which is no longer
required. For the six months ended December 31, 2005, the Company realized
$18,000 of net other income. Other income for the three months ended December
31, 2006 and 2005 was $4,000 and $17,000, respectively.
Income Taxes. Increased by $244,000 and $81,000 for the three months and six
months to December 31, 2006 and 2005, respectively, primarily due to an increase
in net income over 2005.
Net Income. As a result of the above, the Company realized net income amounting
to $938,000 and $1,877,000 for the three and six months ended December 31, 2006,
respectively, compared with net income of $532,000 and $369,000 for the three
and six months ended December 31, 2005, respectively.
26
OFF BALANCE SHEET ARRANGEMENTS
The Company's only off balance sheet arrangements are its operating leases. The
Company leases its facilities and certain equipment pursuant to month-to-month
and non-cancelable operating lease agreements that expire on various dates
through August 2011. Terms of the leases provide for monthly payments ranging
from $500 to $13,500. For the years ended June 30, 2006 and 2005, the Company
incurred rent expense totaling approximately $600,000 and $643,000,
respectively.
CURRENT PRODUCTS AND SERVICES
Meeting the needs of the automotive aftermarket requires a combination of
business management systems, information products and online services that
combine to deliver benefits for all parties involved in the timely repair of a
vehicle. Our products and services include:
o Business management systems comprised of our proprietary
software applications, implementation and training and
third-party hardware and peripherals;
o Information products such as an accessible catalog database
related to parts, tires, labor estimates, scheduled
maintenance, repair information, technical service bulletins,
pricing and product features and benefits, which are used by
the different participants in the automotive aftermarket;
o Online services and products that connect manufacturers,
warehouse distributors, retailers and automotive service
providers via the internet. These products enable electronic
data interchange throughout the automotive aftermarket supply
chain among the different trading partners. They also enable
procurement and business services to be projected over the
internet to an expanded business audience. Some UK clients use
our information products on their own websites and intranets;
some clients in North America and the UK use our systems and
branded software to obtain relevant and up-to-date information
via the internet; and
o Customer support and consulting services that provide phone
and online support, implementation and training.
NEED FOR TECHNOLOGY SOLUTIONS
A variety of factors drive the automotive market's need for sophisticated
technology solutions, including the following:
INVENTORY MANAGEMENT. Industry sources suggest that approximately 35% of parts
produced are never sold and 30% of parts stocked are never sold. Approximately
25% of parts sold are eventually returned due to insufficient knowledge or
capability by either the parts supplier counterman or the auto service provider
installer. Clearly, there is substantial inefficiency in the automotive
aftermarket supply chain. This inefficiency results in excess inventory carrying
costs, logistical costs and the over-production of parts and tires at the
manufacturer level. Overcoming these challenges requires the combination of
business systems software, information products, and connectivity services we
offer.
COMPETITION. In the U.S., the need for technology solutions has been accelerated
by the expansion of large specialty parts retailers such as Advance Auto Parts,
Inc. and large auto service chains like Monro Muffler and Brake Inc. This
expansion has driven smaller competitors to computerize or upgrade their
existing systems with more modern business management solutions enabled for
information products and online services. Many of the systems used by smaller
competitors today are older, character-based or systems developed in-house that
have a limited ability to integrate current information products and online
services.
VOLUME AND COMPLEXITY OF INFORMATION. Businesses in the automotive aftermarket
manage large volumes of information from numerous sources with complex
inter-relationships. There are over 4.5 million different stock-keeping units
("SKUs") available to parts sellers in the product catalogs used by the U.S.
automotive aftermarket. The numbers of SKUs increase in the order of some 5%
each year. Moreover, manufacturers update product information and product prices
with increasing frequency as they improve their internal processing and try to
keep pace with consumer trends. As a result, most automotive aftermarket
businesses require sophisticated inventory management systems, accurate and
timely information on parts, tires, and repair delivered through online services
to communicate, manage and present this volume of data effectively.
27
CUSTOMER SERVICE REQUIREMENTS. Consumer demand for same-day repair service and
the need to optimize thru-put of repair bays forces automotive service providers
to demand prompt and accurate delivery of specific parts and tires from their
suppliers. Getting the required product promptly depends on all the parties
having access to timely information about product price and availability. To
meet these demanding customer service requirements successfully, automotive
aftermarket participants need business management systems, product information
and online services that enable workers to reliably and accurately transact
their business between warehouse distributors, parts stores and automotive
service providers.
REGIONAL EFFICIENCIES. The use and availability of a combination of business
management systems, information products and online services has resulted in the
development of regional trading networks among auto service provider chains,
stores and warehouse distributors of parts and tires. This enables participants
to achieve the efficiencies and customer service levels that are critical to
being competitive and successful against the larger retail and service chains in
the automotive aftermarket.
AREAS OF GROWTH
We believe that there is a clear need for our services and products in the
aftermarket segment, which in 2005 grew at an annualized rate of 5% over 2004.
We believe that similar levels of demand may be expected in the coming year.
We expect growth in the automotive aftermarket will continue to be driven by:
o gradual growth in the aggregate number of vehicles in use;
o an increase in the average age of vehicles in operation;
o fewer new vehicles being purchased due to a slow down in the
economy;
o growth in the total number of miles driven per vehicle per
year; and
o increased vehicle complexity.
PLANS FOR GROWTH
We see opportunities to expand the breadth of our client base within the
automotive industry and diversify into new industries with similarly complex
needs. We plan to offer tailored business management and distribution software
to the wholesale distributor market and the auto dealer management sector of the
automotive industry. We also plan to expand and diversify our client and product
mix in the UK to serve the lumber and hardware industries, which we believe have
an unmet need for the efficiency offered by our suite of business software
solutions and services. Our growth plans include adapting and updating our
software products to serve other vertical markets as well as through potential
acquisitions.
ACQUISITIONS: AUTOMOTIVE DEALER MANAGEMENT SERVICES (THE "DMS" MARKET)
Management software and services tailored to automotive dealers represent a
potential market of $15 billion worldwide with the top 5 suppliers representing
less than 15% of this total. As part of the strategy to serve that market, on
August 25, 2006, the Company acquired ADN's dealer management services ("DMS")
business, EXP Dealer Software. EXP Dealer Software is based in London and has
three direct operating subsidiaries. Two of these subsidiaries are MMI
Automotive, which is based in Swindon, UK, and Anka Design, which is based in
Chester, UK. MMI Automotive provides proprietary software and professional
services to dealerships to help increase business efficiency and profitability
within these low margin businesses. It presently serves clients such as Ford UK,
Honda, Mitsubishi UK and Vauxhall (General Motors). Anka Design is a "below the
line" advertising and design business serving the automotive and technology
sectors. We believe the acquisition of EXP Dealer Software will benefit the
Company as it immediately opens up opportunities to cross sell products between
MMI Automotive, and our existing client base. It also gives us direct access to
a dedicated team of advertising and design professionals to support our UK and
European marketing efforts.
28
DEALER SOFTWARE AND SERVICES LIMITED ("DSS")
As an ongoing part of the Company's strategy to serve the DMS market, on
February 1, 2007 the Company acquired ADN's stake in DCS Automotive Ltd by
acquiring Dealer Software and Services Limited ("DSS"). DSS is based in London,
UK. DSS provides its own proprietary software and professional services to
dealerships to help increase business efficiency, customer retention and
profitability within this low margin market.
NEW MARKET OPPORTUNITIES: THE LUMBER AND HARDWARE MARKET AND ADDITIONAL
TERRITORIES
We have identified the lumber and hardware as industries that could benefit from
the business management and distribution systems developed by MAM Software for
its customers in the automotive aftermarket. The market consists of independent
lumber and building materials yards, independent hardware retailers, home
improvement centers, retail nurseries and garden centers. In the U.S., there are
approximately 31,500 small and medium-size businesses that generated $105
billion in revenue in 2005, according to the 2005 annual report by the North
American Retail Hardware Association ("NRHA"). The NRHA forecasts compounded
annualized growth rate of about 5.75% for the period 2004 through 2009.
We believe that there are many opportunities in other parts of the world where
we could sell our technologies and services. We are considering expanding into
markets such as South Africa, Australia and India, and may wish to establish
operations in partnership with regional businesses to assist us in both the
sales and administrative aspects of building a global business.
PRODUCT DEVELOPMENT: WHOLESALE DISTRIBUTOR MARKETS
MAM Software has modified its Autopart product to enable it to serve wholesale
distributors of products, including electrical supplies, medical supplies,
plumbing, heating and air conditioning, brick, stone and related materials, and
industrial supplies, services, machinery and equipment. We have started to
promote this product, Trader, within the UK market and expect to see revenue
from this product within the final quarter of this fiscal year. We believe there
is a significant market opportunity for such a product within the U.S. and UK.
Each market has approximately 31,000 small and medium sized businesses that
between them generate approximately $295 billion in sales annually.
The Company will continue to explore opportunities to grow the business through
acquisitions to develop its customer base in other areas, particularly the
wholesale distributor marketplace.
STRATEGIC GOALS
We hope to increase our share of the North American market by (i) expanding our
OpenWebs(TM) sales team, (ii) increasing the sales and marketing presence of our
Autopart product, and (iii) focusing on the service station element of the
market. In the UK and Europe we expect to continue to grow our market share
through (i) an increased marketing presence, (ii) alliances with major
manufacturers and national retail chains within the automotive aftermarket, and
(iii) moving our supply chain management software into additional vertical
markets. We believe that our successful experience within the automotive market
will translate well into other vertical markets that have similarly complex
supply chains. By developing specific sales teams with relevant market
experience and supporting with them suitable marketing collateral, we believe
that within two years these teams will generate significant revenue and
earnings.
DEVELOPMENT COSTS
Our plan of operation in the next twelve months includes a strategy for growth
within our existing subsidiaries, expanding into the lumber and hardware
industries and potential new territories and adapting existing products to serve
the wholesale distributor marketplace in other industries. We estimate that the
operational and strategic development plans we have identified will require
approximately $10,000,000, which is an increase of approximately 5% over the
2006 fiscal year, excluding depreciation and amortization. We expect to spend
approximately $3,000,000 on research and development, $4,600,000 in general and
administrative expenses and $2,400,000 on sales and marketing in our growth
plan.
29
LIQUIDITY AND CAPITAL RESOURCES
To date, all of our profits have been generated in Europe, but with the
introduction of new products and efforts to streamline U.S. operations, we
expect to see an increase in overall revenues with a contribution from U.S.
operations in fiscal 2007. However internal revenues will not prove sufficient
to support our growth plans and settle outstanding liabilities. To implement our
future corporate plans, the Company hopes to develop plans and agreements to
undertake and complete within the next two to three months to raise funds
through the private placement of an as-yet undetermined amount of as-yet
undetermined securities at an as-yet undetermined price. There can be no
assurance that such funding will be available on acceptable terms, in timely
fashion or even available at all. Should new funds be delayed, we plan to reduce
the burden on our current funding to a sustainable level and to tailor our
development programs accordingly.
EMPLOYEES
We anticipate recruiting additional sales teams and professional services
personnel at AFS gradually over the next fiscal year as needed. Our projection
is based on the availability of revenues to support new hires.
SUMMARY
We have identified a number of opportunities to widen our client base within the
automotive industry and beyond to other vertical markets that struggle to manage
similarly complex businesses. We have successfully integrated our newly acquired
auto dealership management unit, EXP Dealer Software into the group structure
and that unit has started to contribute to revenues. We have also started to
expand into the UK's lumber and hardware market, which we believe has an unmet
need for solutions to manage their relationships and inventory with greater
efficiency. We have also entered the wholesale distributor marketplace, which we
believe will be well served by our inventory and tracking products and services
and plan to explore potential acquisitions to increase our customer base in that
area.
Over the last 6 months, we have worked to maximize customer retention by
continuing to supply and develop products that streamline and simplify customer
operations, thereby increasing their profit margin. By supporting our customer's
recurring revenues, we expect to continue to build our own revenue stream. We
believe that we can continue to grow our customer base and retain existing
clients over the coming 6 months. While we believe our revenue will support the
current business going forward, though it will not prove sufficient to support
our growth plans and settle outstanding liabilities. Our plans for growth over
the coming 6 months will require additional capital to hire sales staff to
target new markets effectively and to support expanding operations overall as
well as make acquisitions possible.
We believe our plan will strengthen our relationships with our existing
customers and provide new income streams by targeting new markets and
introducing new products. Taken together, we anticipate these plans will return
value to our shareholders.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies, among others,
affect the Company's more significant judgments and estimates used in the
preparation of the Company's financial statements:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make required
payments. The allowance for doubtful accounts is based on specific
identification of customer accounts and the Company's best estimate of the
likelihood of potential loss, taking into account such factors as the financial
condition and payment history of major customers. The Company evaluates the
collectibility of the Company's receivables at least quarterly. The allowance
for doubtful accounts is subject to estimates based on the historical actual
costs of bad debt experienced, total accounts receivable amounts, age of
accounts receivable and any knowledge of the customers' ability or inability to
pay outstanding balances. If the financial condition of the Company's customers
were to deteriorate, resulting in impairment of their ability to make payments,
additional allowances may be required. The differences could be material and
could significantly impact cash flows from operating activities.
SOFTWARE DEVELOPMENT COSTS
Costs incurred to develop computer software products to be sold or otherwise
marketed are charged to expense until technological feasibility of the product
has been established. Once technological feasibility has been established,
computer software development costs (consisting primarily of internal labor
costs) are capitalized and reported at the lower of amortized cost or estimated
realizable value. Purchased software development is recorded at its estimated
fair market value. When a product is ready for general release, its capitalized
costs are amortized using the straight-line method over a period of three years.
If the future market viability of a software product is less than anticipated,
impairment of the related unamortized development costs could occur, which could
significantly impact the recorded net income/loss of the Company.
GOODWILL
SFAS 142, Goodwill and Other Intangible Assets, addresses how intangible assets
that are acquired individually or with a group of other assets should be
accounted for in the financial statements upon their acquisition and after they
have been initially recognized in the financial statements. SFAS 142 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. In
addition, SFAS 142 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition. SFAS 142
provides specific guidance for testing goodwill and intangible assets that will
not be amortized for impairment. Goodwill will be subject to impairment reviews
by applying a fair-value-based test at the reporting unit level, which generally
represents operations one level below the segments reported by the Company. An
impairment loss will be recorded for any goodwill that is determined to be
impaired. The Company performs impairment testing on all existing goodwill at
least annually. If the actual fair value of the reporting unit is less than
estimated, impairment of the related goodwill could occur, which could
significantly impact the recorded net income/loss of the Company.
LONG-LIVED ASSETS
The Company's management assesses the recoverability of long-lived assets by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. If the actual fair value of the
long-lived assets are less than estimated, impairment of the related asset could
occur, which could significantly impact the recorded net income/loss of the
Company.
REVENUE-RECOGNITION
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions."
Accordingly, software license revenue is recognized when persuasive evidence of
an arrangement exists, delivery of the product component has occurred, the fee
is fixed and determinable, and collectibility is probable. If any of these
criteria are not met, revenue recognition is deferred until such time as all of
the criteria are met. In accordance with SOP 98-9, the Company accounts for
delivered elements in accordance with the residual method when arrangements
include multiple product components or other elements and vendor-specific
objective evidence exists for the value of all undelivered elements. Revenues on
undelivered elements are recognized once delivery is complete.
30
In those instances where arrangements include significant customization,
contractual milestones, acceptance criteria or other contingencies (which
represents the majority of the Company's arrangements), the Company accounts for
the arrangements using contract accounting, as follows:
1) When customer acceptance can be estimated, expenditures are capitalized
as work in process and deferred until completion of the contract at
which time the costs and revenues are recognized.
2) When customer acceptance cannot be estimated based on historical
evidence, costs are expensed as incurred and revenue is recognized at
the completion of the contract when customer acceptance is obtained.
The Company records amounts billed to customers in excess of recognizable
revenue as customer advances and deferred revenue in the accompanying
consolidated balance sheets.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the enactment occurs. Deferred
taxation is provided in full in respect of taxation deferred by timing
differences between the treatment of certain items for taxation and accounting
purposes.
DESCRIPTION OF PROPERTY
Our corporate headquarters are Savannah House, 11 Charles II Street, London SW1Y
4QU, UK. Our phone number is 44 207 451 2468. The Company also has offices at
712 Fifth Avenue 19th Floor, New York, New York 10019. The phone number is 646
723 8968. The Company leases approximately 600 square feet at its corporate
headquarters and approximately 300 square feet in the New York office.
AFS has offices at 34052 La Plaza Drive, Suite 201, Dana Point, California
92675. The main telephone number is 949 488 8860. AFS Warehouse and AFS Tire
Management also have offices at that address. AFS Autoservice has an office at
7310 Tilghman Street, Allentown, Pennsylvania 18106. The phone number is 800 803
9762. The California offices total approximately 3,400 square feet and are
leased at an aggregate a monthly cost of $7,672. The Allentown, Pennsylvania
office is approximately 8,735 square feet in size and is leased for a monthly
cost of $9,463.
MAM Software makes use of three offices. It has headquarters at 1 Station Road,
Deepcar, Sheffield, S36 2SQ, UK. The phone number is 44 114 283 7135. It also
has a regional office at 15 Duncan Close, Red House Square, Moulton Park,
Northampton, NN3 6WL, UK. The phone number is 44 160 449 4001. It has second
regional office at Leanne Business Centre, Sandford Lane, Wareham, Dorset, BH20
4DY, UK. The phone number is 44 192 955 0922. MAM Software leases approximately
17,970 square feet at its headquarters at a monthly cost of $13,884;
approximately 1,223 square feet at its Northampton office at a monthly cost of
$1,943; and approximately 2,400 square feet at its Wareham office at a monthly
cost of $2,558.
EXP Dealer Software has its headquarters at Savannah House, 11 Charles II
Street, London SW1Y 4QU, UK. Dealer Software and Services Limited is also based
at Savannah House and makes use of EXP Dealer Software's office space. MMI
Automotive Ltd makes use of two offices: its company headquarters at Block A,
Delta 500, Delta Business Park, Swindon, SN5 7XE UK. The phone number is 44 179
364 5300. It also has a regional office at Vicarage Farm Road, Peterborough, PE1
5TP UK. The phone number is 44 173 334 0621. MMI Automotive leases approximately
3960 square feet at its Swindon office at a monthly cost of $8,789; and
approximately 2,500 square feet at its Peterborough office at a monthly cost of
$2,220. Anka Design makes use of offices at Herons Way, Chester Business Park,
Chester, CH4 9QR UK. The phone number is 44 124 489 3138. Anka Design leases
approximately 500 square feet at its Chester office at a monthly cost of $2,805.
31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Warwick is also Chief Executive Officer and Chairman of ADN, which is the
Majority Shareholder of the Company.
During the 2006 fiscal year the Company had the following transactions with
Aftersoft's parent company, ADN: From time to time ADN advances funds to the
Company. Such advances, totaling $14,000 at June 30, 2006, are non-interest
bearing and currently have no specific due date. During the year payments
totaling $617,000 were advanced to the Aftersoft Group with repayments of
$219,000, giving a net effect of $398,000. The Company transferred its note
receivable with a related party known as MAM North America, Inc. ("MAM North
America") in the amount of $510,000 to ADN. ADN agreed to accept the assignment
for all the issued shares of MAM North America from the Company and repaid the
$510,000 note receivable on October 1, 2005 by allowing the Company to reduce
its balance of loans due to ADN. Furthermore MAM North America has indemnified
MAM UK against all past or current liabilities. In fiscal 2006, the Company sold
property and equipment to ADN for a $308,000 reduction in advances due to the
parent company, resulting in a gain on sale of $308,000. On June 10, 2006, the
Company sold 100% of the outstanding Common Stock of Euro Soft (which by then
had its own operations) to a third party for $1,400,000. The proceeds from the
sale of Euro Soft were offset against amounts due to the parent company.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our Common Stock is traded on the Over-The-Counter Bulletin Board under the
symbol "ASFG.OB". As of January 31, 2007, there were approximately 434
shareholders of record and 79,821,167 shares of Common Stock issued and
outstanding.
The following table shows the range of high and low bids per share of
Aftersoft's Common Stock as reported by the OTCBB for the fiscal year periods
indicated. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
2005
--------------------------
HIGH LOW
------------ ------------
1st Quarter ended September 30 $ .04 $ .03
2nd Quarter ended December 31 $ .06 $ .03
3rd Quarter ended March 31 $ .35 $ .04
4th Quarter ended June 30 $ .75 $ .03
2006
--------------------------
HIGH LOW
------------ ------------
1st Quarter ended September 30 $ 1.70 $ .35
2nd Quarter ended December 31 $ 1.69 $ 1.05
3rd Quarter ended March 31 $ 1.35 $ .65
4th Quarter ended June 30 $ 1.15 $ .65
2007
--------------------------
HIGH LOW
------------ ------------
1st Quarter ended September 30 $ 1.02 $ 1.01
2nd Quarter ended December 31 $ 1.40 $ . 51
January 1 to February 12, 2007 $ .90 $ .65
Prior to December 22, 2005 the Company traded as W3 Group, Inc. under the symbol
"WWWT.OB". On May 9, 2005, W3 Group completed a one (1) for fifteen (15) reverse
stock split.
32
DIVIDENDS
We have never declared or paid dividends on our Common Stock, and our board of
directors does not intend to declare or pay any dividends on the Common Stock in
the foreseeable future. Our earnings are expected to be retained for use in
expanding our business. The declaration and payment in the future of any cash or
stock dividends on the Common Stock will be at the discretion of the board of
directors and will depend upon a variety of factors, including our future
earnings, capital requirements, financial condition and such other factors as
our board of directors may consider to be relevant from time to time.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
We do not have any equity compensation plans and therefore no shares are
authorized to be issued for such a purpose.
TRANSFER AGENT
The transfer agent for our Common Stock is Corporate Stock Transfer, 3200 Cherry
Creek Drive South Suite 430 Denver, Colorado 80209. Their phone number is 303
282 4800.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended June 30,
2006 concerning the compensation paid and awarded to all individuals serving as
(a) our chief executive officer, (b) each of our four other most highly
compensated executive officers (other than our chief executive officer) at the
end of our fiscal year ended June 30, 2006 whose total annual salary and bonus
exceeded $100,000 for these periods, and (c) up to two additional individuals,
if any, for whom disclosure would have been provided pursuant to (b) except that
the individual(s) were not serving as our executive officers at the end of our
fiscal year ended June 30, 2006:
33
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------
Other
Annual
Compen- Other
Fiscal sation Compen-
Name and Principal Position Year Salary($) Bonus($) ($) sation
----------------------------- ---- ------- ------- ------- --------
Current
Ian Warwick ............ 2006 -- -- -- --
Chief Executive Officer, 2005 -- -- -- --
President and Director 2004 -- -- -- --
Michael O'Driscoll ..... 2006 -- -- -- --
Chief Financial Officer 2005 -- -- -- --
and Director 2004 -- -- -- --
Michael Jamieson ....... 2006 -- -- -- --
Chief Operating Officer 2005 -- -- -- --
and Director 2004 -- -- -- --
Michael Jamieson ....... 2006 156,011(1) -- -- --
Chief Executive Officer 2005 105,000 8,750 -- --
of MAM Software Ltd. 2004 77,974 -- -- --
Simon Chadwick ......... 2006 -- -- -- --
Vice President of 2005 -- -- -- --
Strategy and Technology 2004 -- -- -- --
Former
Paul Van Den Berg ...... 2005 153,040 -- -- --
Former President of AFS 2005 -- -- -- --
Tire Management, Inc. 2004 -- -- -- --
(f/k/a CarParts
Technologies, Inc.)
(1) Calculated salary of 79,618 GBP based on the February 9, 2007 currency
conversion rate of 1GBP = $1.9595.
The Company has no stock option, retirement, pension, or profit-sharing programs
for the benefit of directors, officers or other employees. The Board of
Directors may recommend adoption of one or more such programs in the future.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
34
FINANCIAL STATEMENTS
AFTERSOFT GROUP, INC.
Index to Consolidated Financial Statements
CONTENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of June 30, 2006 F-3
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the years ended June 30, 2006 and 2005 F-4
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2006 and 2005 F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2006 and 2005 F-6
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Managers and
Members Aftersoft Group, Inc.
We have audited the accompanying consolidated balance sheet of Aftersoft Group,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of June 30,
2006, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity and cash flows for each of the years in the
two-year period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit on its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aftersoft Group,
Inc. and subsidiaries as of June 30, 2006, and the results of their operations
and their cash flows for each of the years in the two-year period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/S/ CORBIN & COMPANY, LLP
----------------------------
CORBIN & COMPANY, LLP
Irvine, California
October 13, 2006
F-2
Aftersoft Group, Inc.
Consolidated Balance Sheet
(In thousands, except share data)
As of
June 30, 2006
---------------
ASSETS
Current Assets
Cash $ 423
Accounts receivable, net of allowance of $332 3,409
Note receivable 950
Inventories 246
Other 231
---------------
Total Current Assets 5,259
---------------
Property and Equipment, Net 155
---------------
Other Assets
Goodwill 22,061
Amortizable intangible assets, net 5,644
Software development costs, net 1,256
Other long-term assets 46
---------------
Total Other Assets 29,007
---------------
Total Assets $ 34,421
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,707
Accrued expenses 1,396
Accrued consulting fees 550
Accrued legal expenses 1,970
Payroll and other taxes 655
Amounts due to parent company 14
Current portion of long-term debt 898
Deferred revenue 1,216
Taxes payable 807
---------------
Total Current Liabilities 9,213
Long-Term Liabilities
Deferred revenue 1,073
Deferred income taxes 880
Long-term debt 10
Other 487
---------------
Total Liabilities 11,663
---------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock
Par value $0.0001 per share; 10,000,000 shares authorized,
none issued and outstanding --
Common stock
Par value $0.0001 per share; 100,000,000 shares authorized,
35,071,167 shares issued and outstanding 4
Additional paid-in capital 21,962
Accumulated other comprehensive loss (388)
Retained earnings 1,180
---------------
Total Stockholders' Equity 22,758
---------------
Total Liabilities and Stockholders' Equity $ 34,421
===============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
Aftersoft Group, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share data)
For the year For the year
ended ended
June 30, June 30,
2006 2005
------------ ------------
Revenues $ 19,261 $ 22,062
Cost of revenues 9,746 9,225
------------ ------------
Gross Profit 9,515 12,837
------------ ------------
Operating Expenses
Research and development 3,089 2,665
Sales and marketing 1,904 1,970
General and administrative 4,489 4,389
Depreciation and amortization 1,275 1,421
------------ ------------
Total Operating Expenses 10,757 10,445
------------ ------------
Operating Income (Loss) (1,242) 2,392
------------ ------------
Other Income (Expense)
Interest expense (130) (105)
Gain on sale of property and equipment 224 --
Other, net 20 (12)
------------ ------------
Total other income (expense), net 114 (117)
------------ ------------
Pre-tax income (loss) from continuing operations (1,128) 2,275
Provision for income taxes 714 337
------------ ------------
Income (loss) from continuing operations (1,842) 1,938
Income from discontinued operations, net of tax 448 --
Gain on sale of discontinued operations 422 --
------------ ------------
Net Income (Loss) (972) 1,938
Foreign currency translation gain (86) 32
------------ ------------
Total Comprehensive Income (Loss) $ (1,058) $ 1,970
============ ============
Earnings (loss) per share attributed to common stockholders -
basic and diluted
Net income (loss) from continuing operations $ (0.05) $ 0.06
Discontinued operations 0.02 --
------------ ------------
Net income (loss) $ (0.03) $ 0.06
============ ============
Weighted average number of shares of common stock outstanding - basic and
diluted 33,651,233 30,701,671
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
Aftersoft Group, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Common Stock
Other
Additional Comprehensive Retained
Shares Amount Paid-in-Capital Income (Loss) Earnings Total
Balance as of July 1, 2004 14,321,667 $ 1 $ 9,062 $ (334) $ 214 $ 8,943
Acquisition of Car Parts Technologies 18,178,333 2 11,872 - - 11,874
Foreign currency translation - - - 32 - 32
adjustments
Net income - - - - 1,938 1,938
-------------------- --------------- ----------------- -------------- ------------
Balance as of June 30, 2005 32,500,000 3 20,934 (302) 2,152 22,787
Shares issued in connection with 1,601,167 1 (1) - - -
merger with W3 Group, Inc.
Common stock issued to a consultant 470,000 - 499 - - 499
for services performed
Common stock issued for the 500,000 - 530 - - 530
acquisition of software licenses
Foreign currency translation - - - (86) - (86)
adjustments
Net loss - - - - (972) (972)
-------------------- --------------- ----------------- -------------- ------------
Balance as of June 30, 2006 35,071,167 $ 4 $ 21,962 $ (388) $ 1,180 $ 22,758
==================== =============== ================= ============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Aftersoft Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)
For the year For the year
ended ended
June 30, June 30,
2006 2005
----------- -----------
Cash Flows from operating activities :
Net income (loss) $ (972) $ 1,938
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities :
Depreciation and amortization 1,275 1,421
Deferred income taxes -- 118
Gain on sale of property and equipment (224) --
Gain on sale of discontinued operations (422) --
Common stock issued for consulting services 499 --
Changes in assets and liabilities (net of the effect of acquisition and
divestiture) :
Trade accounts receivable (752) 194
Inventories 112 107
Prepaid expenses and other assets (126) 155
Accounts payable 18 542
Taxes payable 780 219
Deferred revenue (305) (4,497)
Accrued expenses and other liabilities 1,587 386
----------- -----------
Net cash provided by (used in) operating activities 1,470 (189)
----------- -----------
Cash Flows from investing activities :
Cash acquired in acquisition -- 490
Purchase of property and equipment (62) (311)
Proceeds from the sale of property and equipment 103 --
Capitalized software development costs (551) (285)
----------- -----------
Net cash used in investing activities (510) (106)
----------- -----------
Cash Flows from financing activities :
Proceeds from related party advances 617 349
Proceeds from long-term debt -- 256
Payment on long-term debt (1,043) (155)
Payments on related party advances (219) --
----------- -----------
Net cash (used in) provided by financing activities (645) 450
----------- -----------
Effect of exchange rate changes (86) 32
----------- -----------
Net increase in cash 229 187
Cash at beginning of year 194 7
----------- -----------
Cash at end of year $ 423 $ 194
=========== ===========
Continued
F-6
Aftersoft Group, Inc.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
For the year For the year
ended ended
June 30, June 30,
2006 2005
------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the year for :
Interest $ 130 $ 105
Income taxes $ 182 $ 15
Non-cash investing and financing transactions during the year for :
Settlement of note receivable by offsetting against amounts due
to parent company $ 510
Shares issued for acquisition of software licenses $ 530
Proceeds from sale of office equipment offset against
amounts due to parent company $ 308
Proceeds from sale of Euro Soft offset against amounts due to
parent company $ 450
Euro Software Services Limited divestiture :
Accounts receivable $ 880
Software licenses 530
Accounts payable (240)
Income taxes payable (192)
Gain on sale 422
------------
$ 1,400
============
Shares issued for Car Parts Technologies, Inc. acquisition :
Cash $ 490
Other current assets 1,132
Property and equipment 140
Other long-term assets 37
Other current liabilities (3,264)
Deferred income (4,872)
Long-term debt (1,151)
Other long-term liabilities (487)
Goodwill 14,549
Amortizable intangibles 5,300
------------
$ 11,874
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
AFTERSOFT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation
Aftersoft Group, Inc. (the "Company") is a subsidiary of Auto Data Network, Inc.
("ADN, Inc."), which owns approximately 93% of the outstanding common stock.
Subsequent to year end, ADN, Inc. is in the process of distributing to its
stockholders the shares it holds in the Company.
Aftersoft Group is a leading provider of business and supply chain management
solutions primarily to automotive parts manufacturers, retailers, tire and
service chains, independent installers and wholesale distributors in the
automotive aftermarket. The Company conducts its businesses through wholly owned
subsidiaries with operations in Europe and North America. MAM Software Limited
("MAM UK") is based in Sheffield, UK. Aftersoft Network N.A., Inc. is comprised
of AFS Warehouse Distribution Management, Inc. and AFS Tire Management Inc.,
which are based in San Juan Capistrano, California and AFS Autoservice, Inc.,
which is based in Allentown, Pennsylvania.
On December 21, 2005, W3 Group, Inc. ("W3") consummated an Acquisition Agreement
("Agreement") to acquire all 1,500 of the outstanding shares of common stock of
Old Aftersoft Group, Inc. ("Oldco") owned by ADN, Inc. in exchange for the
issuance of 32,500,000 newly issued shares of W3, par value $0.0001 per share
(the "Common Stock").
Pursuant to the Agreement and as a result of consummation of the Agreement, the
existing shareholders of W3 owned 1,601,167 shares, or approximately 4.7% of the
34,101,167 total outstanding shares of the Common Stock and ADN, Inc. owned
32,500,000 shares or approximately 95.3% of the total outstanding shares.
Concurrent with the closing of the transaction, the Board of Directors of W3
appointed three additional directors designated by ADN to serve until the next
annual election of directors. In addition, concurrent with the close of the
transaction, W3 (1) changed its corporate name from W3 Group, Inc. to Aftersoft
Group, Inc., (2) changed its corporate address to California, and replaced the
corporate officers. The acquisition was recorded as a reverse acquisition,
whereby the assets and liabilities and 32,500,000 outstanding shares of common
stock of Oldco (reported as a 21,667:1 stock split and reflected retroactively
for all periods presented) were reported at their historical cost and the
1,601,167 shares of W3 reflected as being issued by the Company on December 21,
2005 as a corporate reorganization. In addition, the results of Oldco for all
periods presented prior to the reverse acquisition are reported as the results
of the Company.
The Company operates on a June 30 fiscal year end.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in the consolidated financial
statements.
F-8
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
The Company maintains cash balances at financial institutions that are insured
by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At June
30, 2006, the Company had $15,000 of balances in these accounts in excess of the
FDIC insurance limits. For banks outside of the United States, the Company
maintains its cash accounts at credit worthy financial institutions.
Customers
The Company performs periodic evaluations of its customers and maintains
allowances for potential credit losses as deemed necessary. The Company
generally does not require collateral to secure its accounts receivable. Credit
risk is managed by discontinuing sales to customers who are delinquent. The
Company estimates credit losses and returns based on management's evaluation of
historical experience and current industry trends. Although the Company expects
to collect amounts due, actual collections may differ from the estimated
amounts.
No customer accounted for more than 10% of the Company's revenues during the
years ended June 30, 2006 and 2005.
Segment Reporting
The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires public companies to report selected segment information
in their quarterly reports issued to stockholders. It also requires entity-wide
disclosures about the product, services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. The Company believes it operates in only one segment and as such has
not presented additional segment disclosures.
Geographic Concentrations
The Company conducts business in the United States, Canada and the United
Kingdom ("UK"). From customers' headquartered in their respective countries, the
Company derives 1% of its revenues from Canada, 31% of its revenues from the
United States, and 68% from its UK operations during the year ended June 30,
2006 compared to 1% from Canada, 42% from the United States and 57% from the UK
for the year ended June 30, 2005. At June 30, 2006, the Company maintains 98% of
its net property and equipment in the UK with the remaining 2% in North America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Significant estimates made by the Company's
management include, but are not limited to, the collectibility of accounts
receivable, the recoverability of long-lived assets and valuation of deferred
tax assets. Actual results could materially differ from those estimates.
F-9
Fair Value of Financial Instruments
The Company's consolidated financial instruments consist of cash, accounts
receivable, related party loans, long-term debt, accounts payable and accrued
expenses. The carrying values of such instruments classified as current,
approximate their fair values as of June 30, 2006 due to their short-term
maturities. The difference between the fair value and recorded values of the
related party loans and long-term debt are not significant due to the lack of
significant differential between current prevailing rates of similar instruments
and the rates of the Company's non-current instruments.
Cash and Cash Equivalents
For the 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.
Inventories
Inventories are stated at the lower of cost or current estimated market value.
Cost is determined using the first-in, first-out method. Inventories consist
primarily of hardware that will be sold to customers. The Company periodically
reviews its inventories and records a provision for excess and obsolete
inventories based primarily on the Company's estimated forecast of product
demand and production requirements. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess
inventories.
Property and Equipment
Property and equipment are stated at cost, and are being depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the assets
or the related lease terms. Equipment under capital lease obligations is
depreciated over the shorter of the estimated useful lives of the related assets
or the term of the lease. Maintenance and routine repairs are charged to expense
as incurred. Significant renewals and betterments are capitalized. At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the statement of operations.
Software Development Costs
Costs incurred to develop computer software products to be sold or otherwise
marketed are charged to expense until technological feasibility of the product
has been established. Once technological feasibility has been established,
computer software development costs (consisting primarily of internal labor
costs) are capitalized and reported at the lower of amortized cost or estimated
realizable value. Purchased software development cost is recorded at its
estimated fair market value. When a product is ready for general release, its
capitalized costs are amortized using the straight-line method over a period of
three years. If the future market viability of a software product is less than
anticipated, impairment of the related unamortized development costs could
occur, which could significantly impact the recorded net income (loss) of the
Company.
Goodwill
Statement of Financial Accounting Standards No. 142, ("SFAS 142"), "Goodwill and
Other Intangible Assets," addresses how intangible assets that are acquired
individually or with a group of other assets should be accounted for in the
financial statements upon their acquisition and after they have been initially
recognized in the financial statements.
F-10
SFAS 142 requires that goodwill and intangible assets that have indefinite
useful lives not be amortized but rather be tested at least annually for
impairment, and intangible assets that have finite useful lives be amortized
over their useful lives. In addition, SFAS 142 expands the disclosure
requirements about goodwill and other intangible assets in the years subsequent
to their acquisition.
SFAS 142 provides specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. Goodwill will be subject to
impairment reviews by applying a fair-value-based test at the reporting unit
level, which generally represents operations one level below the segments
reported by the Company. An impairment loss will be recorded for any goodwill
that is determined to be impaired. The Company performs impairment testing on
all existing goodwill at least annually. Based on its analysis, the Company's
management believes that no impairment of the carrying value of its goodwill
existed at June 30, 2006. There can be no assurance however, that market
conditions will not change or demand for the Company's products and services
will continue which could result in impairment of goodwill in the future.
Long-Lived Assets
The Company's management assesses the recoverability of other long-lived assets
by determining whether the depreciation and amortization of long-lived assets
over their remaining lives can be recovered through projected undiscounted
future cash flows. The amount of long-lived asset impairment, if any, is
measured based on fair value and is charged to operations in the period in which
long-lived asset impairment is determined by management. At June 30, 2006, the
Company's management believes there is no impairment of its long-lived assets.
There can be no assurance, however, that market conditions will not change or
demand for the Company's products and services will continue, which could result
in impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions."
Accordingly, software license revenue is recognized when persuasive evidence of
an arrangement exists, delivery of the product component has occurred, the fee
is fixed and determinable, and collectibility is probable.
If any of these criteria are not met, revenue recognition is deferred until such
time as all of the criteria are met. In accordance with SOP 98-9, the Company
accounts for delivered elements in accordance with the residual method when
arrangements include multiple product components or other elements and
vendor-specific objective evidence exists for the value of all undelivered
elements. Revenues on undelivered elements are recognized once delivery is
complete.
In those instances where arrangements include significant customization,
contractual milestones, acceptance criteria or other contingencies (which
represents the majority of the Company's arrangements), the Company accounts for
the arrangements using contract accounting, as follows :
1) When customer acceptance can be estimated, expenditures are capitalized as
work in process and deferred until completion of the contract at which
time the costs and revenues are recognized.
2) When customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion
of the contract when customer acceptance is obtained.
F-11
The Company records amounts billed to customers in excess of recognizable
revenue as deferred revenue in the accompanying consolidated balance sheets.
Revenues for maintenance agreements are recognized ratably over the terms of the
service agreement.
Advertising Expense
The Company expenses advertising costs as incurred. For the years ended June 30,
2006 and 2005, advertising expense totaled $48,000 and $40,000, respectively.
Reorganization Expenses
During fiscal 2006, the Company incurred $999,000 of expenses related to the
reverse merger and other related costs. These one-time expenses have been
included within general and administration expenses in the consolidated
statement of operations.
Foreign Currency
Management has determined that the functional currency of its subsidiaries is
the local currency. Assets and liabilities of the UK subsidiary are translated
into U.S. dollars at the year-end exchange rates. Income and expenses are
translated at an average exchange rate for the year and the resulting
translation gain (loss) adjustments are accumulated as a separate component of
stockholders' equity, which totaled ($86,000) and $32,000 for the years ended
June 30, 2006 and 2005, respectively.
Foreign currency gains and losses from transactions denominated in other than
respective local currencies are included in income. The Company had no foreign
currency gains (losses) for all periods presented.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a period
from non-owner sources. For the years ended June 30, 2006 and 2005, the
components of comprehensive income (loss) consist of foreign currency
translation gains (losses).
Income Taxes
The Company accounts for domestic and foreign income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes."
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. Deferred taxation is provided in full in respect of taxation
deferred by timing differences between the treatment of certain items for
taxation and accounting purposes.
F-12
Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per common share are computed based on the weighted
average number of shares outstanding for the year. Diluted earnings (loss) per
share are computed by dividing net income (loss) by the weighted average shares
outstanding assuming all potential dilutive common shares were issued. Basic and
diluted earnings (loss) per share are the same for the periods presented, as the
Company has no dilutive securities.
The following is a reconciliation of the numerator and denominators of the basic
and diluted earnings (loss) per share computation for the years ending June 30 :
2006 2005
------------ ------------
Numerator for basic and diluted income (loss) per share :
Net income (loss) available to common stockholders $ (972,000) $ 1,938,000
Denominator for basic and diluted
income (loss) per common share :
Weighted average number of shares of
common stock outstanding 33,651,233 30,701,671
Net income (loss) per common share
available to common stockholders $ (0.03) $ 0.06
============ ============
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004), "Share-based Payment" ("Statement 123(R)") to provide
investors and other users of financial statements with more complete and neutral
financial information by requiring that the compensation cost relating to
share-based payment transactions be recognized in financial statements.
The cost will be measured based on the fair value of the equity or liability
instrument used. Statement 123 (R) covers a wide range of share based
compensation arrangements including share options, restricted share plans,
performance based awards, share appreciation rights, and employee share purchase
plans. Statement 123(R) replaces SFAS No. 123 and supersedes APB25. The Company
will be required to apply Statement 123(R) beginning July 1, 2006. The Company
does not believe the adoption of Statement 123(R) will have a significant impact
on its overall results of operations or financial position as it has no
stock-based compensation arrangements as of June 30, 2006.
NOTE 2. Acquisitions and Divestitures
Aftersoft Network N.A. Inc (Formerly CarParts Technologies Inc)
The accompanying consolidated statements of operations include the results of
operations of the acquired entity from the date of acquisition.
On August 6, 2004, 100% of the stock of CarParts Technologies was acquired for
stock of the Company valued at $11,874,262.
F-13
The purchase price was allocated to the fair value of the assets acquired, as
follows :
Cash $ 490,000
Current assets 1,132,000
Property and equipment 140,000
Other long-term assets 37,000
Other current liabilities (3,264,000)
Deferred income (4,872,000)
Long-term debt (1,151,000)
Other long-term liabilities (487,000)
------------
Estimated fair value of tangible net liabilities assumed (7,975,000)
Goodwill 14,549,000
Amortizable intangibles 5,300,000
------------
$ 11,874,000
============
Euro Software Services Limited
On January 17, 2006, the Company acquired 100% of the outstanding common stock
of Euro Software Services Limited ("Euro Soft") from a third party for 500,000
shares of its unregistered common stock valued at $1.06 per share (based on the
closing price at the date of the transaction). As Euro Soft had no operations,
customers, accounts receivable or accounts payable at that date, the Company
considered the transaction an acquisition of software licenses.
On June 10, 2006, the Company sold 100% of the outstanding common stock of Euro
Soft (which by then had its own operations) to a third party for $450,000 in
cash and $950,000 and a non-interest bearing note due in installments of cash or
publicly traded buyer stock of $450,000 in December 2006 and $500,000 in June
2007. The initial $450,000 cash payment was paid by the third party directly to
ADN, Inc. in satisfaction of advances to the Company from ADN, Inc.
The operations of Euro Soft and its subsequent sale are considered discontinued
operations.
The sale of Euro Soft resulted in a gain on the sale of discontinued operations
as follows :
Accounts receivable sold $ 880,000
Software licenses sold 530,000
Accounts payable assumed (240,000)
Income taxes payable assumed (192,000)
-----------
Net assets sold 979,000
Consideration received 1,400,000
-----------
Gain on sale of discontinued operations $ 422,000
===========
F-14
Included in discontinued operations of the Company are the following
results of Euro Soft between January 17, 2006 and June 10, 2006 :
Revenues $ 880,000
Cost of sales 240,000
-----------
Income from operations 640,000
Income taxes 192,000
-----------
Income from discontinued operations, net of tax $ 448,000
===========
NOTE 3. Transactions with Parent Company
The Company transferred its note receivable with a related party known as MAM
North America, Inc. ("MAM North America") in the amount of $510,000, to ADN,
Inc. ADN, Inc. agreed to accept the assignment for all the issued shares of MAM
North America, Inc. from the Company and repaid the $510,000 note receivable on
October 1, 2005 by allowing the Company to reduce its balance of loans due to
ADN, Inc. Furthermore MAM North America has indemnified MAM UK against all past
or current liabilities.
In fiscal 2006, the Company sold property and equipment to ADN, Inc. for a
$308,000 reduction in advances due to the parent company, resulting in a gain on
sale of $308,000.
From time to time ADN, Inc. advances funds to the Company. Such advances,
totaling $14,000 at June 30, 2006, are non-interest bearing and currently have
no specific due date.
NOTE 4. Property and Equipment
Property and equipment consist of the following as of June 30, 2006 :
Leasehold improvements $ 120,000
Computer and office equipment 23,000
Equipment under capital leases 128,000
Furniture and equipment 269,000
-----------
540,000
Less : Accumulated depreciation (385,000)
-----------
$ 155,000
===========
Depreciation expense on fixed assets for the years ended June 30, 2006 and 2005
was $241,000 and $254,000, respectively.
F-15
NOTE 5. Intangible Assets
Intangible assets consist of the following as of June 30, 2006 :
Assets not subject to amortization :
Goodwill $ 22,061,000
------------
Assets subject to amortization :
Completed software technology (9-10 years useful life) $ 3,213,000 Customer
contracts / relationships (10 years useful life) 3,750,000 Automotive data
services (20 years useful life) 346,000
------------
7,309,000
Less : Accumulated amortization (1,665,000)
------------
Amortizable intangible assets, net $ 5,644,000
============
Software development costs $ 1,664,000
Less : Accumulated amortization (408,000)
------------
Software development costs, net $ 1,256,000
============
For the years ended June 30, 2006 and 2005, the Company recognized amortization
expense on its software development and goodwill costs of $1,034,000 and
$1,167,000, respectively.
Estimated future amortization of intangibles is as follows :
Years Ending June 30,
-------------------
2007 $ 1,308,000
2008 1,308,000
2009 899,000
2010 753,000
2011 753,000
Thereafter 1,879,000
------------
Total $ 6,900,000
============
F-16
NOTE 6. Long-Term Debt
Long-term debt consists of the following as of June 30, 2006 :
Notes payable to former owners of acquired businesses, bearing interest at 8%
per annum; payable in monthly installments of interest of $11,098 and increasing
periodically to $20,905 through May 2007, at which time the remaining balance
is due, secured by certain assets of the Company $ 687,000
Note payable to former owners of acquired businesses, bearing interest at 9% per
annum; payable in monthly installments of principal and interest of $13,177
through May 2007, secured by certain assets of the Company 186,000
Capital lease obligations, with various interest rates ranging from 12% to 18%,
secured by related equipment, payable in installments through December 2009 31,000
Other 4,000
------------
908,000
Less : Current maturities (898,000)
------------
$ 10,000
============
Future maturities of long-term obligations at June 30, 2006 are as follows :
Years Ending June 30,
--------------
2007 $ 898,000
2008 8,000
2009 1,000
2010 1,000
--------------
Total $ 908,000
==============
NOTE 7. Income Taxes
The Company has United States federal and state tax net operating loss
carryforwards available for future periods of approximately $50 million at June
30, 2006, expiring through 2025. As a result of the changes in the ownership of
the Company, as defined in Section 382 of the Internal Revenue Code, there may
be limitations on the amount of net operating loss carry-forwards that may be
utilized in the future, estimated at $11 million.
The provision for income taxes consists of the following for the years ended
June 30, 2006 and 2005 :
2006
=============================================================
USA Federal USA State UK Corporate Total
------------- ------------- ------------- -------------
Current $ -- $ -- $ 714,000 $ 714,000
Deferred -- -- -- --
------------- ------------- ------------- -------------
Total $ -- $ -- $ 714,000 $ 714,000
============= ============= ============= =============
F-17
2005
=============================================================
USA Federal USA State UK Corporate Total
------------- ------------- ------------- -------------
Current $ -- $ 2,000 $ 217,000 $ 219,000
Deferred -- -- 118,000 118,000
------------- ------------- ------------- -------------
Total $ -- $ 2,000 $ 335,000 $ 337,000
============= ============= ============= =============
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets consist of the following at June 30,
2006 :
Deferred tax assets :
Net operating loss carryforwards $ 6,416,000
Deferred revenue 604,000
Long-term liabilities 209,000
Reserves and accruals 150,000
-----------
Total deferred tax assets 7,379,000
-----------
Deferred tax liabilities :
Other acquired amortizable intangibles (2,190,000)
Software development costs (394,000)
Depreciation and amortization (319,000)
State taxes (351,000)
-----------
Total deferred tax liabilities (3,256,000)
-----------
Valuation allowance (5,003,000)
-----------
Net deferred tax liabilities $ (880,000)
===========
The Company believes that uncertainty exists with respect to future realization
of the U.S. deferred tax assets and has established a valuation allowance for
the full amount as of June 30, 2006. The Company established an allowance of
approximately $4.5 million when it purchased CarParts Technologies.
The provision (benefit) for income taxes for the years ended June 30, 2006 and
2005 differs from the amount computed by applying the U.S. Federal income tax
rates to net income (loss) from continuing operations before taxes as a result
of the following :
June 30, June 30,
2006 2005
----------- -----------
Taxes at statutory rates applied to income (loss) from
continuing operations before taxes $ (384,000) $ 773,000
----------- -----------
State taxes, net of federal effect (68,000) 71,000
Non-deductible expenses 30,000 37,000
Research and development relief (UK) -- (51,000)
Differential in UK corporate tax rate 113,000 (5,000)
Change in valuation allowance 1,023,000 (488,000)
----------- -----------
Total adjustments 1,098,000 (436,000)
----------- -----------
Provision for income taxes $ 714,000 $ 337,000
=========== ===========
F-18
NOTE 8. Commitments and Contingencies
Legal Matters
From time to time, the Company is subject to various legal claims and
proceedings arising in the ordinary course of business. The ultimate disposition
of these proceedings could have a materially adverse effect on the financial
position or results of operations of the Company.
The Company has been informed of a verdict against it in a litigation in the
Court of Common Please of Allegheny County, Pennsylvania, in favor of Aidan
McKenna totaling $3,555,000, which it intends to vigorously appeal. The Company
filed a claim against McKenna for $1,000,000 for breach of contract alleging
that McKenna continued to conduct business in the Open Webs Corporation in
violation of the asset purchase agreement. The Company has made a provision of
$1,650,000 in its legal expense accrual account to cover the cost of any final
settlement with respect to this litigation as of June 30, 2006.
Homann Tire Ltd. filed a complaint against CarParts Technologies, Inc in
California District Court on August 11, 2005. The complaint seeks $271,048 in
damages and alleges breach of contract, breach of warranty and intentional and
negligent misrepresentative. The Company maintains the complaint is without
merit.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Delaware. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. In
connection with its customers' contracts, the Company indemnifies its customers
in case the software sold violates any US patent. The duration of the guarantees
and indemnities varies, and is generally tied to the life of the agreement.
These guarantees and indemnities do not provide for any limitation of the
maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying consolidated balance sheet.
Operating Leases
The Company leases its facilities and certain equipment pursuant to
month-to-month and non-cancelable operating lease agreements that expire on
various dates through August 2011. Terms of the leases provide for monthly
payments ranging from $500 to $13,500. For the years ended June 30, 2006 and
2005, the Company incurred rent expense totaling approximately $600,000 and
$643,000, respectively. Future annual minimum payments under non-cancelable
operating leases are as follows :
Years Ending June 30,
-------------------
2007 $ 363,000
2008 236,000
2009 94,000
2010 98,000
2011 100,000
Thereafter 17,000
---------------
$ 908,000
===============
F-19
NOTE 9. Stockholders' Equity
During the year ended June 30, 2006, the Company issued 1,601,167 shares in the
W3 reorganization (see Note 1).
In 2006, 470,000 shares of common stock were issued to a consultant valued at
$1.06 per share, for services relating to the W3 Group reverse merger and
reported in general and administrative expenses.
The Company acquired software licenses in its transaction with Euro Soft during
the year. The consideration was satisfied by the issuance of 500,000 common
stock of the Company, valued at $1.06 per share (see Note 2).
NOTE 10. Subsequent Events (unaudited)
On August 25, 2006, the Company, through a wholly owned subsidiary, Aftersoft
Dealer Software Limited ("Aftersoft Dealer Software"), completed the acquisition
(the "Acquisition") of EXP Dealer Software Limited ("EXP Dealer Software") from
ADN, Inc. EXP Dealer Software owns and operates ADN, Inc's dealer management
("DMS") business. Pursuant to the terms of a Share Sale Agreement (the
"Agreement") dated August 4, 2006 among the Company, Aftersoft Dealer Software
and ADN, Inc., Aftersoft Dealer Software acquired 100% of the outstanding shares
of EXP Dealer Software from ADN, Inc. in exchange for 28,000,000 shares of the
Company's common stock. As the transaction is with the Company's majority
shareholder, the net assets acquired will be recorded in the Company's books at
their historical net book value, totaling a net deficit of approximately
$500,000.
F-20
BACK COVER OF PROSPECTUS
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL FEBRUARY________, 2009, (TWO YEAR ANNIVERSARY OF EFFECTIVE DATE) ALL
DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of our Certificate of Incorporation states: "No director shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law, (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article Seventh shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment."
Section 145 of the Delaware General Corporation Law authorizes us to indemnify
any director or officer under prescribed circumstances and subject to certain
limitations against certain costs and expenses, including attorneys' fees
actually and reasonably incurred in connection with any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being one of our directors or officers if it
is determined that the person acted in accordance with the applicable standard
of conduct set forth in such statutory provisions.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Advanced
Media pursuant to the foregoing provisions, or otherwise, we have been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate the following expenses in connection with this registration.
Securities and Exchange Commission registration fee .............. $ 2,500
Printing costs ................................................... 2,500
Accounting fees and expenses ..................................... 30,000
Legal fees and expenses .......................................... 45,000
Miscellaneous .................................................... 5,000
-------
Total ............................................................ $85,000
=======
None of the expenses incurred in connection with this registration are being
paid by the Selling Majority Shareholder.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued 470,000 shares of Common Stock to Brockington Securities in
2006 valued at $499,000 as consideration for consultation services in connection
the Company's reorganization. The Company issued 500,000 shares of Common Stock
to Euro Software Services Limited ("Euro Software") in 2006 valued at $530,000
in consideration for 100% of the issued and outstanding shares of Euro Software.
The Company issued 16,750,000 shares of Common Stock to the shareholders of
Dealer Software and Services Limited ("DSS") on February 1, 2007 in
consideration for 100% of the issued and outstanding shares of DSS, to be valued
at the net book value of DSS at that date since the transaction is a common
control merger. The issuances of shares were exempt from registration in
accordance with Section 4(2) of the Securities Act of 1933, as amended, (the
"Act") as a transaction by the Company not involving any public offering and the
purchasers met the "accredited investor" criteria required by the rules and
regulations promulgated under the Act.
i
ITEM 27. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference as part
of this Registration Statement:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- -----------------------------------------------------------------
3(i).1 Articles of Incorporation of Aftersoft Group, Inc. (the named W3
Group, Inc.) file with the Delaware Secretary of State on March
17, 2003.
3(i).2 State of Delaware Agreement of Meger Between W3 Group, Inc., a
Delaware Domestic Corporation (now known as Aftersoft Group,
Inc.) and W3 Group, Inc., a Colorado corporation regarding the
merger of the two corporations with the survivor corporation
being the Delaware corporation, which was filed with the Delaware
Secretary of State on May 7, 2003.
3(i).3 Certificate of Amendment to Aftersoft Group, Inc.'s (then known
as W3 Group, Inc.) Certificate of Incorporation increasing the
authorized stock of the corporation to 110,000,000 shares,
100,000,000 in common stock, par value $0.0001 per share and
10,000,000 of preferred stock, pare value $0.0001 per share,
while simultaneously effecting a fifteen (15) for one (1) reverse
stock split, which was filed with the Delaware Secretary of State
on April 20, 2005.
3(i).4 Certificate of Amendment to Certificate of Incorporation changing
the name of the company to AFTERSOFT GROUP, INC. from W3 Group,
Inc., filed with the Delaware Secretary of State on December 22,
2005.
3(ii) By Laws (incorporated by reference to Exhibit 3(ii) to the
Company's Form 10-KSB filed on November 17, 2006)
4.1 Form of Certificate of Common Stock (filed herewith)
5.1 Opinion of Albright & Blum, P.C. regarding the legality of the
securities being registered (filed herewith)
10.1 Share Sale Agreement relating to EXP Dealer Software Limited
dated August 4, 2006 among Auto Data Network, Inc., Aftersoft
Group, Inc. and Aftersoft Dealer Software Limited (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on August 31, 2006).
10.2 Share Sale Agreement relating to Dealer Software and Services
Limited dated February 1, 2007 between Aftersoft Group, Inc. and
Auto Data Network, Inc. (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on
February 7, 2007)
13.1 Form 10-QSB for the quarter ended September 30, 2006 filed on
November 17, 2006 (incorporated by reference )
13.2 Form 10-QSB for the quarter ended December 31, 2006 filed on
February 14, 2007 (incorporated by reference)
21 List of subsidiaries (filed herewith)
23.1 Consent of Corbin & Company LLP
23.2 Consent of Albright & Blum, P.C (See Exhibit 5.1 filed herewith)
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering; and
ii
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
iii
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2, as amended, and authorized this
registration statement to be signed on its behalf by the undersigned, in London,
UK, on February 16, 2007.
AFTERSOFT GROUP, INC.
A Delaware corporation, Registrant
By: /S/ IAN WARWICK
----------------------------------------
IAN WARWICK
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Ian Warwick Chairman, Chief Executive February 16, 2007
----------------------- Officer and Director
(Principal Executive Officer)
Ian Warwick
/s/ Michael O'Donnell Chief Financial Officer and February 16, 2007
----------------------- Director
Michael O'Donnell (Principal Financial Officer)
/s/ Michael Jamieson Chief Operating Officer and February 16, 2007
----------------------- Director
Michael Jamieson
S-1
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- -----------------------------------------------------------------
3(i).1 Articles of Incorporation of Aftersoft Group, Inc. (the named W3
Group, Inc.) file with the Delaware Secretary of State on March
17, 2003.
3(i).2 State of Delaware Agreement of Meger Between W3 Group, Inc., a
Delaware Domestic Corporation (now known as Aftersoft Group,
Inc.) and W3 Group, Inc., a Colorado corporation regarding the
merger of the two corporations with the survivor corporation
being the Delaware corporation, which was filed with the Delaware
Secretary of State on May 7, 2003.
3(i).3 Certificate of Amendment to Aftersoft Group, Inc.'s (then known
as W3 Group, Inc.) Certificate of Incorporation increasing the
authorized stock of the corporation to 110,000,000 shares,
100,000,000 in common stock, par value $0.0001 per share and
10,000,000 of preferred stock, pare value $0.0001 per share,
while simultaneously effecting a fifteen (15) for one (1) reverse
stock split, which was filed with the Delaware Secretary of State
on April 20, 2005.
3(i).4 Certificate of Amendment to Certificate of Incorporation changing
the name of the company to AFTERSOFT GROUP, INC. from W3 Group,
Inc., filed with the Delaware Secretary of State on December 22,
2005.
3(ii) By Laws (incorporated by reference to Exhibit 3(ii) to the
Company's Form 10-KSB filed on November 17, 2006)
4.1 Form of Certificate of Common Stock (filed herewith)
5.1 Opinion of Albright & Blum, P.C. regarding the legality of the
securities being registered (filed herewith)
10.1 Share Sale Agreement relating to EXP Dealer Software Limited
dated August 4, 2006 among Auto Data Network, Inc., Aftersoft
Group, Inc. and Aftersoft Dealer Software Limited (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on August 31, 2006).
10.2 Share Sale Agreement relating to Dealer Software and Services
Limited dated February 1, 2007 between Aftersoft Group, Inc. and
Auto Data Network, Inc. (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on
February 7, 2007)
13.1 Form 10-QSB for the quarter ended September 30, 2006 filed on
November 17, 2006 (incorporated by reference )
13.2 Form 10-QSB for the quarter ended December 31, 2006 filed on
February 14, 2007 (incorporated by reference)
21 List of subsidiaries (filed herewith)
23.1 Consent of Corbin & Company LLP
23.2 Consent of Albright & Blum, P.C (See Exhibit 5.1 filed herewith)
EX-1