SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 25, 2003
-------------------------------
The CattleSale Company
(Exact name of registrant as specified in its charter)
Delaware 001-07636 74-1605174
---------------------------- -------------------------- -----------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
9901 IH-10 West, Suite 800, San Antonio, Texas 78230-2292
---------------------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 210-558-2898
-----------------------------
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
March 5, 2003 as set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The information set forth in Item 7(a) of the required
Financial Statements of the Registrant's Current Report on Form 8-K dated March
5, 2003 is hereby amended and restated in its entirety as follows:
Page
The audited combined balance sheets of CattleSale.com Livestock
Commission Co., LLC and CS Auction Productions Co., LLC as of
April 30, 2002 and June 30, 2001 and the related combined state-
ments of operations, cash flows and change in member's deficit
for the period from July 1, 2001 through April 30, 2002 and for
the years ended June 30, 2001 and 2000.................................. 3
The unaudited combined balance sheet of CattleSale.com Livestock
Commission Co., LLC and CS Auction Productions Co., LLC as of
December 31, 2002 and the related combined statements of opera-
tions and cash flows for the eight month periods ended
December 31, 2002 and the combined statement of operations for
the eight month period and the combined statement of cash flows
for the nine month period ended December 31, 2001...................... 19
(b) Pro Forma Financial Information.
The information set forth in Item 7(b) of the required
Financial Statements of the Registrant's Current Report on Form 8-K dated March
5, 2003 is hereby amended and restated in its entirety as follows:
The pro forma condensed statement of operations for the twelve month
period ended December 31, 2002 and the pro forma condensed Balance
Sheet as of December 31, 2002 ......................................... 23
2
Combined Financial Statements
CATTLESALE.COM LIVESTOCK
COMMISSION CO., LLC AND
CS AUCTION PRODUCTIONS CO., LLC
3
TABLE OF CONTENTS
Page No.
INDEPENDENT AUDITORS' REPORT ......................................... 5
FINANCIAL STATEMENTS
Combined Balance Sheets ............................................ 6
Combined Statements of Operations .................................. 7
Combined Statements of Cash Flows................................... 8
Combined Statements of Changes in Member's Deficit ................. 10
Notes to Combined Financial Statements ............................. 11
4
INDEPENDENT AUDITORS' REPORT
To the Member
CattleSale.com Livestock Commission Co., LLC and
CS Auction Productions Co., LLC
Hinsdale, Illinois
We have audited the accompanying combined balance sheets of CattleSale.com
Livestock Commission Co., LLC and CS Auction Productions Co., LLC, as of April
30, 2002 and June 30, 2001, and the related combined statements of operations,
cash flows and changes in member's deficit for the period from July 1, 2001,
through April 30, 2002, and for the years ended June 30, 2001 and 2000. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of CattleSale.com
Livestock Commission Co., LLC and CS Auction Productions Co., LLC, as of April
30, 2002 and June 30, 2001, and the results of their operations and their cash
flows for the period from July 1, 2001, through April 30, 2002, and for the
years ended June 30, 2001 and 2000, in conformity with U.S. generally accepted
accounting principles.
The accompanying combined financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note B to the combined
financial statements, the member's deficit, lack of financial resources, and the
recurring operating losses raise substantial doubt about their ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
BALUKOFF, LINDSTROM & Co., P.A.
June 30, 2002
5
CattleSale.com Livestock Commission Co., LLC
and CS Auction Productions Co., LLC
Combined Balance Sheets
April 30, 2002 and June 30, 2001
April 30, 2002 June 30, 2001
-------------------- --------------------
CURRENT ASSETS
Cash $ 1,263 $ -
Accounts receivable 1,840 684,061
-------------------- --------------------
TOTAL CURRENT ASSETS 3,103 684,061
OTHER ASSETS
Software costs, net 9,492 16,273
Website development costs, net 48,648 83,397
Lease deposits - 3,000
------------------- --------------------
$ 61,243 $ 786,731
==================== ====================
CURRENT LIABILITIES
Deficit in cash $ - $ 571,263
Accounts payable 598 133,476
Payable to parent 947,829 611,513
Current portion of capital leases 10,255 14,580
-------------------- --------------------
TOTAL CURRENT LIABILITIES 958,682 1,330,832
LONG-TERM OBLIGATIONS
Capital lease payables, less current portion 8,282 12,645
MEMBER'S DEFICIT
Member's deficit (905,721) (556,746)
-------------------- --------------------
------------------- --------------------
$ 61,243 $ 786,731
==================== ====================
See accompanying notes.
6
CattleSale.com Livestock Commission Co., LLC
and CS Auction Productions Co., LLC
Combined Statements of Operations
For the period July 1, 2001 through April 30, 2002 and
Years Ended June 30, 2001 and 2000
July 1, 2001 July 1, 2000 July 1, 1999
through through through
April 30, 2002 June 30, 2001 June 30, 2000
Revenues $30,556,862 $69,859,216 $33,757,460
Cost of Goods Sold 30,085,361 68,904,424 33,296,958
---------- ---------- ----------
Gross Profit 471,501 954,792 460,502
Selling, General and Administrative Expenses 817,648 1,745,980 938,286
------- --------- -------
Operating Loss (346,147) (791,188) (477,784)
Other Income/(Expense)
Impairment of assets -- (3,092,596) --
Interest income 2,247 4,204 4,310
Interest expense (5,075) (19,099) (14,767)
------- -------- --------
(2,828) (3,107,491) (10,457)
------- ----------- --------
Net Loss $(348,975) $(3,898,679) $(488,241)
========== ============ ==========
See accompanying notes.
7
CattleSale.com Livestock Commission Co., LLC
and CS Auction Productions Co., LLC
Combined Statements of Cash Flows
For the Period from July 1, 2001 through April 30, 2002 and
Years Ended June 30, 2001 and 2000
July 1, 2001 July 1, 2000 July 1, 1999
through through through
April 30, 2002 June 30, 2001 June 30, 2000
Cash Flows from Operating Activities
Net Loss $(348,975) $(3,898,679) $(488,241)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation -- 7,767 15,744
Amortization 41,530 107,986 24,749
Impairment of assets -- 3,092,596 --
Changes in assets and liabilities
Accounts receivable 682,221 (437,367) (246,694)
Lease deposits 3,000 (277) (2,631)
Accounts payable (132,878) (27,716) 160,564
Payable to parent CattleSale.com., Inc. -- 174,980 524,346
Payable to parent AEI Environmental, Inc. 336,316 611,513 --
--------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 581,214 (369,197) (12,163)
Cash Flows from Investing Activities
Purchase of fixed assets -- (3,024) --
Investment in website development costs -- -- (122,470)
---------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities -- (3,024) (122,470)
Cash Flows From Financing Activities
Member equity contributions -- -- 15,775
Proceeds from shareholder note payable -- -- 105,936
Payments on shareholder note payable -- -- (171,436)
Payment on capital lease obligation (8,688) (25,404) (9,959)
---------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (8,688) (25,404) (59,684)
------- -------- --------
Net Increase (Decrease) in Cash 572,526 (397,625) (194,317)
Cash (Deficit) at Beginning of Year (571,263) (173,638) 20,679
--------- --------- ------
Cash (Deficit) at End of Period $1,263 $(571,263) $(173,638)
====== ========== ==========
8
Combined Statements of Cash Flows
(continued)
July 1, 2001 July 1, 2000 July 1, 1999
through through through
April 30, 2002 June 30, 2001 June 30, 2000
Supplemental disclosures of cash flow information
Interest paid $5,075 $19,099 $14,767
Noncash investing and financing activities
Purchases of equipment with capital leases $-- $-- $62,589
Contribution from AEI Environmental, Inc. $-- $3,250,000 $--
Creation of goodwill from contribution $-- $3,101,793 $--
Contribution of receivable from
CattleSale.com, Inc. $-- $731,534 $--
See accompanying notes.
9
CattleSale.com Livestock Commission Co., LLC
and CS Auction Productions Co., LLC
Combined Statements of Changes in Member's Deficit
For the Period from July 1, 2001 through April 30, 2002 and
Years Ended June 30, 2001 and 2000
Balance at July 1, 1999 $(3,153)
Net Loss (488,241)
---------
Balance at June 30, 2000 (491,394)
Distribution of liabilities to CattleSale.com Inc. 583,327
Contribution from AEI Environmental, Inc. 3,250,000
Net Loss (3,898,679)
-----------
Balance at June 30, 2001 (556,746)
Net Loss (348,975)
---------
Balance at April 30, 2002 $(905,721)
==========
10
CattleSale.com Livestock Commission Co., LLC and
CS Auction Productions Co., LLC
Notes to Combined Financial Statements
April 30, 2002 and June 30, 2001
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
General
CattleSale.com Livestock Commission Co., LLC and CS Auction Productions Co., LLC
(collectively "CattleSale" or the "Company") is a licensed and bonded livestock
dealer, which operated throughout the western United States. Historically,
regional representatives go to sellers' ranches and collect biographical
information and photographs of the cattle to be consigned. The description and
photographs are posted to the Company's web-site with an asking price in an
online catalog. Prospective buyers visit the web site to preview the
consignment. Buyers have the option to accept the asking price or place a bid on
the cattle. The cattle are sold when either the buyer or the seller accepts the
other's offer. All transactions regarding the sale of cattle are recorded in
CattleSale.com Livestock Commission Co., LLC and all other operating
transactions are recorded in CS Auction Productions Co., LLC.
As of April 30, 2002, there were no operations or regional representatives;
however, the Company was negotiating with major new regional representatives and
independent agency agreements were subsequently executed. Regional
representatives historically are independent contractors retained by the Company
and receive a commission for each sale transaction made on behalf of the
Company.
Entities
CattleSale.com, Inc. was organized on March 2, 1998 as an "S-Corporation" in
accordance with regulations promulgated by the Internal Revenue Service. During
1999, CattleSale.com, Inc. formed two wholly-owned subsidiaries: CattleSale.com
Livestock Commission Co., LLC and CS Auction Productions Co., LLC. As more fully
described in Note F, AEI Environmental, Inc. ("AEI") acquired certain assets and
assumed certain liabilities of the Company on September 22, 2000 pursuant to a
"Limited Liability Company Purchase Agreement" dated August 15, 2000. The net
assets were acquired for $3,250,000 in cash. The acquired assets included the
entire ownership interests in CattleSale.com Livestock Commission Co., LLC and
CS Auction Productions Co., LLC. Accordingly, AEI became the sole member of the
two subsidiary limited liability corporations as of September 22, 2000.
Reporting Periods and Presentation
The combined financial statements are presented in compliance with the
regulatory reporting requirements of the U.S. Securities and Exchange Commission
("SEC"). As more fully described in Note H, the Company has executed a letter of
intent to merge with Canal Capital Corporation ("Canal"), an SEC registrant. In
accordance with regulatory reporting requirements, Canal must furnish audited
financial statements of the Company for a three-year period. AEI's fiscal year
11
ends on June 30. The most recent three-year "period" for the Company includes
the fiscal years ended June 30, 2001 and 2000, and the period from July 1, 2001,
through April 30, 2002.
Principles of Consolidation
The combined financial statements include the accounts of CattleSale.com
Livestock Commission Co., LLC and CS Auction Productions Co., LLC. All
significant intercompany accounts and transactions have been eliminated. The
financial statements present the assets, liabilities, equity deficit and
operations of the Company on a stand-alone basis, exclusive of the accounts of
CattleSale.com, Inc., and AEI Environmental, Inc.
Cash and Cash Equivalents
For cash flow reporting purposes, the Company considers highly liquid
investments with maturity of three months or less to be cash equivalents. All
significant cash deposits are maintained with Columbia River Bank.
Equipment
Equipment, including capitalized equipment acquired by leases, is recorded at
cost. Depreciation expense, including the amortization of capital lease assets,
is calculated for financial reporting purposes using the straight-line method
based on the estimated useful lives of five to seven years.
Goodwill and Other Intangibles
Goodwill consists of the cost associated with the acquisition of
CattleSale.com's net assets referred to above, using "push down" accounting as
prescribed by SEC Staff Accounting Bulletin No. 54. The Company amortizes
goodwill on a straight-line basis over a 40-year period. The provision for
amortization for 2001 was $58,150.
Other intangible assets include web-site development costs and software costs.
Costs associated with the development of the Company's web-site that meet the
criteria in Statement of Position (SOP) 98-1 are capitalized and amortized over
three years. Amortization of such development costs was $34,748, $41,699, and
$19,335 for the periods ending in 2002, 2001, and 2000, respectively. Software
is amortized over an estimated useful life of three years on a straight-line
basis. Software amortization was $6,781, $8,137, and $7,161, for the periods
ending in 2002, 2001, and 2000, respectively.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company reviews long-lived assets and identifiable
intangibles to be held and used in the business to determine if impairment
exists whenever events and changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. In completing this evaluation,
the Company compares the best estimate of future cash flows, excluding interest
costs, with the carrying value of the goodwill and intangibles. See Note G.
Significant Customers and Suppliers
The Company has no customers or suppliers whose business with the Company
exceeded 10% of total revenues or expenses for any of the periods ended April
30, 2002.
12
Revenue and Cost Recognition
The Company, under contract with cattle sellers and approved buyers, brokers
cattle sales throughout the western United States. The sales transaction
consists of two portions: a non-refundable deposit which is paid by the buyer
and immediately transferred to the seller at between $30-50 per head of cattle,
depending on the type of cattle. The balance of the sale is due when the
shipment of the cattle is made. The Company's revenue consists of the sales
price of the cattle and the commission earned on the transaction. Cost of sales
consists of payments made to the seller for the cattle and the commissions paid
to the regional representatives.
Revenue and the related costs of sales are recognized in part when the
non-refundable deposit is received from the buyer. The remainder of the revenue
and cost of sales is recognized when the transfer of the cattle between the
seller and the buyer has occurred.
The Company records revenue at the gross amount received from the buyers. The
amounts paid to the sellers and commissions paid to the regional representatives
are then recorded as costs of sales and selling costs, respectively. The Company
has determined that the following circumstances support this position:
a. The Company acts as a principal in the transaction. The Company enters into a
separate contract with the seller and the buyer to purchase and sell the cattle,
respectively. According to the terms of the contracts, the Company maintains the
right to remove a sale from its web site at any time and reserves the right to
refuse a bid at any time.
b. The Company takes title to the cattle during the period in which the cattle
are removed from the seller's property but before they are loaded onto the
buyer's property.
c. The Company has the risks and rewards of ownership, such as the risk of loss
for collection, delivery, or returns.
Credit Risk
The Company grants credit to customers in the cattle industry. The accounting
loss incurred if all parties failed entirely to perform on their obligation is
equal to the balance outstanding for trade accounts receivable. The Company has
not experienced credit losses and has not recorded a bad debt reserve.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising costs for
2002, 2001, and 2000 were $109,381, $191,708 and $95,151, respectively.
Income Taxes
CattleSale.com, Inc. owned the Company during the portion of the reporting
period from July 1, 1999 through September 21, 2000. As an "S" Corporation, all
income taxes are the responsibility of the individual shareholders. Accordingly,
the Company recorded no income taxes for the aforementioned period. AEI has not
13
allocated income tax benefit or expense to the Company for the periods
subsequent to September 21, 2000. All tax benefits and expenses are maintained
at AEI.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and reported
revenues and expenses. Significant estimates used in preparing the combined
financial statements include those assumed in determining the future cash flows
associated with long-lived asset impairment calculations. It is at least
reasonably possible that the significant estimates used will change within the
next year. Actual results could differ from those estimates.
Recently Issued Accounting Statements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires business
combinations to be accounted for by the purchase method starting July 1, 2001.
SFAS 142 requires intangible assets to be amortized over their useful life if
determinable. Intangible assets with indeterminable lives (such as goodwill) are
no longer subject to amortization; rather they are subject to impairment by
applying a fair-value-based test. SFAS 142 is generally effective for fiscal
years beginning after December 15, 2001. However, the non-amortization
provisions regarding goodwill are effective immediately.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred. SFAS
143 will be effective for years beginning after June 15, 2002, although earlier
adoption is permitted.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 slightly changes and clarifies the
accounting for long-lived assets. SFAS 144 will be effective for years beginning
after December 15, 2001, although earlier adoption is permitted.
The Company believes that the adoption of these accounting standards will not
have any material effect on the combined financial statements of the Company.
NOTE B - GOING CONCERN
The Company incurred a net loss of $348,975 during the period July 1, 2001
through April 30, 2002, and incurred net losses of $3,898,679 and $488,241 for
the years ended June 30, 2002 and 2001, respectively. As of April 30, 2002, the
Company had a working capital deficiency of $955,579 and member's deficit of
$905,721. In light of current results of operations and cash flow, the Company
is dependent upon the proposed merger with Canal and an associated private
placement by AEI discussed in Note H to satisfy its cash operating needs.
14
Management believes proceeds from the equity offering would provide the Company
sufficient capital to meet its working capital requirements and to further
develop a state of the art e-commerce portal.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern. While the Company and AEI are
expending their best efforts to consummate the aforementioned equity offering,
there can be no assurance that they will be successful in this regard. The
losses and deficits referred to above raise substantial doubt about the
Company's ability to continue as a going concern. The combined financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE C - LEASES
The Company acquired various furniture, equipment, and software under capital
leases. Amortization expense for these fixed assets and software is included in
depreciation expense. Information for capital leased asset cost and related
accumulated amortization is as follows at April 30, 2002:
Accumulated
Cost Amortization
Furniture and fixtures $ 21,825 $21,825
Software 13,790 13,790
------ ------
$35,615 $35,615
======= =======
NOTE D - CAPITAL LEASE OBLIGATIONS
A summary of the capital lease obligations at April 30, 2002 and June 30, 2001
is as follows:
April 30, 2000 June 30, 2001
Capital lease for accounting software package,
bearing interest at 31.32%, payable in monthly installments
of $574 through September 2002, currently in default. $5,081 $7,219
Capital lease for phone equipment, bearing interest at
36.996%, payable in monthly installments of $260
through August 2002 currently in default. 1,639 3,004
15
Capital lease for computer equipment, bearing interest at
45.146%, payable in monthly installments of $497 through
March 2005, currently in default. 10,919 11,865
Capital lease for computer equipment, bearing interest at
28.07%, payable in monthly installments of $92 through
May 2002, currently in default. 898 898
Capital lease for office equipment, bearing interest at
48.327%, payable in monthly installments of $407
through July 2002, currently in default. -- 4,239
--------- -----
18,537 27,225
Less current portion 10,255 14,580
------ ------
$8,282 $12,645
====== =======
Maturities on the capital lease obligations for each of the next three years at
April 30, 2002 are as follows:
2003 $15,535
2004 5,965
2005 5,965
------
27,465
Less amount representing interest 8,928
---------
Present value of net minimum lease payments $18,537
=======
NOTE E - RELATED PARTY TRANSACTIONS
Two of the Company's owners/directors also are qualified buyers and sellers who
use the Company's web site to purchase and/or sell cattle. Transactions with
related parties are as follows:
Year ended June 30, 2000:
Bill Freeman, former shareholder in Cattlesale.com,
Inc. and former officer and director of AEI:
Revenue from sales as a buyer $ 225,505
Cost of sales as seller 2,986,785
Neal Kottke, former shareholder in Cattlesale.com,
Inc. and former director of AEI:
Revenue from sales as a buyer $ 130,233
Cost of sales as a seller 381,185
16
Year ended June 30, 2001:
Bill Freeman, former shareholder in CattleSale.com, Inc. and
former officer and director of AEI:
Revenue from sales as a buyer $ 6,803,429
Cost of sales as seller 3,033,974
Neal Kottke, former shareholder in CattleSale.com,
Inc. and former director of AEI:
Revenue from sales as a buyer $ 145,452
Cost of sales as a seller 1,845,546
Period ended April 30, 2002:
Bill Freeman, former shareholder in CattleSale.com, Inc. and
former officer and director of AEI:
Revenue from sales as a buyer $ 336,718
Cost of sales as seller 266,398
Neal Kottke, former shareholder in CattleSale.com,
Inc. and former director of AEI:.
Revenue from sales as a buyer $ -
Cost of sales as a seller 627,080
Bill Freeman and Neal Kottke resigned as directors of AEI during the period
ended April 30, 2002.
AEI has pledged its investment in the ownership interest in the Company as
collateral on certain AEI debt.
NOTE F - CHANGE IN MEMBER
As discussed in Note A, the original member of the Company was CattleSale.com,
Inc. On September 22, 2000, AEI purchased the ownership interests of the
Company. Consideration given by AEI consisted of $3,250,000 of cash paid
directly to CattleSale.com, Inc. Since the cash payment was not accounted for in
the bank accounts of the Company, the activity is recorded as a noncash
transaction for the statement of cash flows. The cash payment to CattleSale.com,
Inc. has been presented as a contribution in the statement of changes in
member's deficit. CattleSale.com, Inc. retained certain assets and liabilities
of the Company as a result of the sale.
The member's deficit balance for CattleSale.com, Inc. was $583,327 as of
September 22, 2000. CattleSale.com, Inc. had a receivable from the Company of
17
approximately $732,000 on September 22, 2000. CattleSale.com, Inc. contributed
the receivable to the Company resulting in $148,207 of member equity prior to
the AEI contribution.
The total value of the Company was $3,250,000 based on the purchase price paid
by AEI. The Company determined the fair value of existing assets at the time of
the change in ownership approximated the carrying amount of $148,207. The excess
purchase price of $3,101,793 was assigned to goodwill.
NOTE G - IMPAIRMENT LOSS
At June 30, 2001, the Company evaluated, in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," whether there had been an impairment of any long-lived assets
as a result of changes in circumstances and the significant operating losses
incurred for the year. The evaluation determined that an impairment existed with
respect to certain long-lived assets of the Company and, accordingly, the
unamortized carrying amounts of these assets were written down to their
estimated discounted cash flow, resulting in the following impairment loss for
the year ended June 30, 2001:
Goodwill $3,043,643
Equipment 48,953
----------
$3,092,596
NOTE H - PROPOSED MERGER WITH CANAL CAPITAL CORPORATION
On April 26, 2002, AEI Environmental, Inc. entered into a letter of intent with
Canal Capital Corp. Under the terms of the letter of intent, Canal Capital Corp.
will purchase the Company free of all liens, claims and encumbrances for a
purchase price of $1,200,000. The purchase price will also include shares of a
series of preferred stock of the Canal Capital Corp., as outlined in the letter
of intent, and shares of common stock of Canal Capital Corp., representing
seventy percent of the outstanding common stock of Canal Capital Corp. on a
fully diluted basis. The letter of intent provides for a concurrent private
placement of $2,500,000 of common or preferred stock of Canal Capital Corp. AEI
Environmental, Inc. is responsible for arranging the private placement. The
$1,200,000 purchase price discussed above is to be paid out of proceeds of the
private placement.
18
Cattlesale.com Livestock Commissions Co., LLC
and CS Auction Productions Co., LLC
Combined Balance Sheet
(Unaudited)
December 31, 2002
ASSETS
Current assets
Cash, including certificate of deposit of $25,371 $74,889
Accounts receivable 3,925
Prepaid expenses 3,427
-----
Total current assets 82,241
Other assets
Computer equipment 11,833
Software costs 30,093
Website development costs 125,096
-------
167,022
Accumulated depreciation (120,823)
---------
46,199
Total Assets $128,440
========
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities
Accounts payable $14,507
Accrued expenses and deposits 8,702
Payable to parent company 1,452,801
---------
Total current liabilities 1,476,010
Member's deficit (1,347,570)
-----------
Total Liabilities and Member's Deficit $128,440
========
19
Cattlesale.com Livestock Commissions Co., LLC
and CS Auction Productions Co., LLC
Combined Statements Of Operations
(Unaudited)
Eight Months Ended December 31,
2002 2001
Revenues $4,786,088 $40,599,107
Cost of goods sold 4,702,299 39,967,081
--------- ----------
Gross Profit 83,789 632,026
Selling, general and administrative
expenses 532,779 1,159,639
------- ---------
Operating profit (loss) (448,990) (527,613)
Other income (expense)
Interest income (371) (1,405)
Interest expense 5,057 8,362
Gain on settlement of capital leases (11,827) (698)
-------- --------
Net Loss $(441,849) $(533,872)
========== ==========
20
Cattlesale.com Livestock Commissions Co., LLC
and CS Auction Productions Co., LLC
Combined Statements of Cash Flows
(Unaudited)
Eight Months Nine Months
Ended Ended
December 31, 2002 December 31, 2001 (A)
Cash Flows from Operating Activities:
Net loss $(441,849) $(3,638,152)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for depreciation and amortization 29,977 59,892
Gain on settlement of capital leases (11,827) (698)
Impairment of assets -- 3,092,596
Change in accounts receivable (2,085) 223,941
Change in prepaid expenses (3,947) (8,414)
Change in deficit in cash -- (659,835)
Change in accounts payable 13,909 743,939
Change in accrued expenses and deposits 8,702 --
------ -----------
Total adjustments 34,729 3,451,421
------ ---------
Net cash used in operating activities (407,120) (186,731)
Cash Flows from Investing Activities:
Purchase of equipment and software (17,516) --
--------- --
Net cash used in investing activities (17,516) --
Cash Flows from Financing Activities:
AEI Environmental, Inc. funding (B) 504,972 375,008
Payments on capital leases (6,710) (9,219)
-------- -------
Net cash provided from
financing activities 498,262 365,789
------- -------
Net Increase in Cash and Cash Equivalents 73,626 179,058
Cash and Cash Equivalents at beginning of period 1,263 3,594
------ -----
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $74,889 $182,652
======== ========
(A) A combined balance sheet as of April 30, 2001 is not readily available;
accordingly, the combined statement of cash flows for the eight months ended
December 31, 2001 cannot be determined without unreasonable effort or expense.
21
Combined Statements of Cash Flows
Continued
(B) On May 1, 2002, the Company began accounting for the cash received from AEI
Environmental, Inc. as a financing activity. While this was previously accounted
for as an operating activity, for purposes of these comparative financial
statements, the cash received from AEI Environmental, Inc. for the period ended
December 31, 2001 has been reclassified as a financing activity.
22
Pro Forma Financial Information (Unaudited)
The accompanying unaudited condensed pro forma balance sheet and
condensed statement of operations of the Company for the year ended December 31,
2002 give effect to the acquisition of the Interests as if it had occurred on
January 1, 2002. The pro forma condensed statement of operations also gives
effect to the deconsolidation of the Company's German subsidiary as if it had
occurred on December 31, 2001.
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the acquisition of the
Interests been consummated as of January 1, 2002, nor is the information
necessarily indicative of future operating results.
23
The CattleSale Company and Subsidiaries
Pro Forma Combined Balance Sheet
(Unaudited)
December 31, 2002
($'s in 000's)
As Reported CattleSale Adjustments Pro Forma
Current Assets
Cash, including certificate of deposit of $25 $1,344 $75 $1,419
Investment in limited partnership 6 -- 6
Accounts receivable, net 213 4 217
Prepaid expenses and other current assets 139 3 142
-------------------------------------------------
Total current assets 1,702 82 1,784
Other Assets
Goodwill -- -- 400 (5) 400
Fixed assets, net 14 46 90 (5)
(30) (6) 120
Other assets 110 -- -- 110
-------------------------------------------------
124 46 460 630
Total assets $1,826 $128 $460 $2,414
===== ==== ==== ======
Current Liabilities
Accounts payable $88 $14 $102
Accrued expenses and deposits 207 9 216
Payable to parent company -- 1,453 (1,453) (4) --
------------------------------------------------
Total current liabilities 295 1,476 (1,453) 318
Deferred rent 36 -- -- 36
Deferred federal income tax 400 -- -- 400
Stockholder's equity
Preferred stock Series A. Shares Authorized 500,000;
250,000 shares issued and outstanding
(liquidation preference $2,500,000) -- -- 2,500 (7) 2,500
Preferred stock Series B. Shares Authorized
4,000,000; 2,450,000 shares issued and outstanding
(liquidation preference $24,500,000) -- -- 454 (5)
4,889 (7) 5,343
Successor Common stock of $0.01 par value. Shares
Authorized 50,000,000; shares issued and
Outstanding 9,984,726 pre-closing and
19,577,894 at closing 100 -- 96 (5) 196
Paid in capital 7,389 -- (7,389) (7) 0
Accumulated deficit (6,394) (1,348) 1,453 (4)
(60) (5)
(30) (6) (6,379)
Total stockholder's equity 1,095 (1,348) 1,913 1,660
---------------------------------------------------
Total liabilities and stockholder's equity $1,826 $128 $460 $2,414
====== ==== ==== ======
24
The CattleSale Company and Subsidiaries
Pro Forma Statement of Operations
For the year ended December 31, 2002
(unaudited)
($'s in 000's)
Total Pro
As Reported CattleSale (3) Adjustments Forma
----------- -------------- ------------ -----
Pro Forma Revenue -- 5,847 -- 5,847
Operating costs and expenses
Costs of sales -- 5,747 5,747
Selling, general and administrative 1,387 580 30 (6)
(169) (8) 1,828
Trust expense 532 532
Impairment of assets 349 349
Restructuring costs 15 _____ 15
-- ---- -----
Total operating cost and expenses 2,283 6,327 (139) 8,471
----- ----- -- -----
Operating income (loss) (2,283) (480) (139) (2,624)
Non-operating income (expense):
Interest income 25 2 27
Interest expense -- (5) (5)
Equity in loss of limited partnership (42) (42)
Other, net (226) 12 312 (8) 98
Income (loss) before income taxes and
Extraordinary credits and cumulative effect of
change in accounting principle (2,526) (471) 451 (2,546)
Income taxes (benefit) -- -- --
Income (loss) before extraordinary credits and
Cumulative effect of change in accounting principle (2,526) (471) 451 (2,546)
Extraordinary credits:
Deconsolidation of company subsidiary 3,165 (3,165) (1) --
Impairment of reorganization value in excess of amounts
allocable to identifiable assets (1,941) 1,941 (1) --
Cumulative effect of change in accounting principle (988) 988 (1) --
Net income (loss) $(2,290) $ (471) (215) (1) (2,546)
======== ======== ========= =======
Cumulative dividend on preferred stock (675) (675)
Net loss available to common shareholders $(2,290) $ (471) $(460) $(3,221)
======= ======= ====== =======
Net income (loss) per common share $(.12) $(.02) $(.02) $(.16)
====== ====== ===== ======
Average common shares outstanding:
Basic and Fully Diluted (2) 19,577,894
25
Notes to the Pro Forma Combined Balance Sheet and Statement of Operations
(1) Assumes extraordinary items and change in accounting principle occurred on
December 31, 2001.
(2) On February 25, 2003, the date of the acquisition of the Interests,
9,593,168 additional shares of Common Stock were issued to the seller
representing 49% of the outstanding shares.
(3) The Subsidiaries suspended their operations during the period of February
through June 2002 in order to implement necessary operational changes and
efficiencies.
(4) As part of the Acquisition Agreement, the Company did not assume this
liability.
(5) The estimated purchase price and preliminary adjustments to historical book
value of the CattleSale transaction are as follows:
Purchase Price:
Estimated value of common and preferred stock issued $550
Book value of net assets acquired (60)
----
Purchase price in excess of net assets acquired $490
====
Preliminary allocation of purchase price in excess of net
assets acquired:
Increase in other assets to estimated fair value $90
Estimated goodwill 400
---
$490
====
The Purchase Price consisted of the issuance of 9,593,168 shares of
Common Stock and 1,323,000 shares of convertible preferred stock, Series B.
(6) Depreciation expense on other assets.
(7) Represents the dividend of 250,000 shares of Preferred Stock Series A and
1,127,000 shares of Preferred Stock Series B.
(8) Assumes deconsolidation of the Company's German subsidiary occurred on
December 31, 2001.
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
The CattleSale Company
(Registrant)
Date: April 25, 2003
By: /s/ Phillip P. Krumb
-----------------------------
Phillip P. Krumb
Chief Financial Officer