<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27864
THE PARTS SOURCE, INC.
d/b/a Ace Auto Parts
(Exact name of registrant as specified in its charter)
FLORIDA 59-3149403
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1751 S. Missouri Avenue, Clearwater, Florida 34616
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(813) 588-0377
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES NO X
----- -----
At April 30, 1996, 3,185,000 shares of Common Stock of the Registrant were
outstanding.
<PAGE> 2
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Condensed Statements of Earnings--Three months ended
March 31, 1995 (unaudited) and March 31, 1996 3
Condensed Balance Sheets--December 31, 1995 and
March 31, 1996 (unaudited) 4
Condensed Statement of Stockholders' Equity (Deficit)--
Year ended December 31, 1995 and three months ended
March 31, 1996 5
Condensed Statements of Cash Flows--Three months ended
March 31, 1995 (unaudited) and March 31, 1996 6
Notes to Condensed Financial Statements--March 31, 1996
(unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION 12
SIGNATURES 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Net sales $5,515,607 $6,240,718
Cost of goods sold 3,480,090 3,923,603
---------- ----------
Gross profit 2,035,517 2,317,115
Operating, selling, general and administrative expenses 1,845,002 2,105,775
---------- ----------
Earnings from operations 190,515 211,340
---------- ----------
Other income (expense)
Interest expense (155,220) (162,372)
Other, net 4,584 6,801
---------- ----------
(150,636) (155,571)
---------- ----------
Net earnings $ 39,879 $ 55,769
========== ==========
Pro forma information
Historical net earnings $ 39,879 $ 55,769
Income tax expense 11,201 20,986
---------- ----------
Pro forma net earnings $ 28,678 $ 34,783
========== ==========
Pro forma net earnings per common share $ .01 $ .02
========== ==========
Weighted average common shares outstanding 2,000,000 2,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE> 4
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
CONDENSED BALANCE SHEETS
<TABLE>
December 31, March 31,
1995 1996
------------ -----------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 192,026 $ 258,358
Accounts receivable
Trade, net of allowance for doubtful accounts of $59,971 1,318,421 1,460,959
Stockholders 152,222 152,222
Other-primarily suppliers 537,914 578,812
Inventories 8,042,989 8,355,577
Prepaid expenses 54,148 134,130
----------- -----------
Total current assets 10,297,720 10,940,058
PROPERTY AND EQUIPMENT, NET 1,464,002 1,658,380
OTHER ASSETS
Goodwill, net of accumulated amortization of $20,731 and $24,473 110,964 107,222
Other 145,525 276,887
----------- -----------
256,489 384,109
----------- -----------
$12,018,211 $12,982,547
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current installments of long-term obligations $251,668 $259,154
Current installments of notes payable, related parties 109,555 110,225
Accounts payable, trade 5,712,550 6,606,654
Accrued liabilities 394,249 476,429
----------- -----------
Total current liabilities 6,468,022 7,452,462
LONG-TERM OBLIGATIONS, less current portion 5,683,077 5,615,222
NOTES PAYABLE, RELATED PARTIES, less current portion 446,179 447,571
OTHER LIABILITIES 87,827 78,417
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - -
Common stock 2,000 2,000
Accumulated deficit (668,894) (613,125)
----------- -----------
(666,894) (611,125)
----------- -----------
$12,018,211 $12,982,547
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
<PAGE> 5
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Accumulated
Stock Deficit Total
------ ----------- ----------
<S> <C> <C> <C>
Balance at January 1, 1995 $2,000 $ (821,279) $(819,279)
Net earnings - 152,385 152,385
------ ----------- ----------
Balance at December 31, 1995 2,000 (668,894) (666,894)
Net earnings (unaudited) - 55,769 55,769
------ ----------- ----------
Balance at March 31, 1996 (unaudited) $2,000 $ (613,125) $(611,125)
====== =========== ==========
</TABLE>
The accompanying notes are an integral part of this condensed statement.
5
<PAGE> 6
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings $ 39,879 $ 55,769
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 46,222 55,877
Other (4,105) (4,168)
Changes in assets and liabilities:
Increase in accounts receivable (277,440) (183,436)
Increase in inventories (575,704) (312,588)
Increase in prepaid expenses (22,031) (79,982)
Decrease in other assets 6,398 12,960
Increase in accounts payable 935,919 894,104
Decrease in accrued liabilities (12,744) (13,128)
Decrease in other liabilities (5,000) (5,000)
--------- ---------
Net cash provided by operating activities 131,394 420,408
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (113,408) (254,222)
Proceeds from disposition of property and equipment 7,285 7,467
--------- ---------
Net cash used in investing activities (106,123) (246,755)
--------- ---------
Cash flows from financing activities:
Repayments of long-term obligations (93,800) (58,307)
Deferred offering costs - (49,014)
--------- ---------
Net cash used in financing activities (93,800) (107,321)
--------- ---------
Increase (decrease) in cash and cash equivalents (68,529) 66,332
Cash and cash equivalents, January 1 233,448 192,026
--------- ---------
Cash and cash equivalents, March 31 $ 164,919 $ 258,358
========= =========
Supplemental cash flow information:
Interest paid $ 167,608 $ 171,673
========= =========
Non cash investing and financing activities:
During the three months ended March 31, 1995, the Company incurred
approximately $10,482 of obligations under capital leases for the acquisition
of equipment.
</TABLE>
The accompanying notes are an integral part of these condensed statements.
6
<PAGE> 7
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. The condensed financial
statements as of March 31, 1996 and for the three months ended March 31, 1996
and 1995 are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim periods. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of results that may be expected for the
year ending December 31, 1996. The condensed financial statements should be
read in conjunction with the financial statements and notes thereto, together
with management's discussion and analysis of financial condition and results of
operations, included in the prospectus dated April 8, 1996.
NOTE B: INITIAL PUBLIC OFFERING
On April 8, 1996, the Company completed an initial public offering of 1,185,000
shares of common stock, par value of $.001 per share, for $8.00 per share. The
offering generated net proceeds to the Company of $7,988,600 after deducting
offering expenses of $259,000. A portion of such proceeds were used to reduce
approximately $5,600,000 of long-term indebtedness. The remaining proceeds
will be used to expand operations and for general working capital purposes.
The following reflects the pro forma effect as if the Company would have
received the net proceeds from the initial public offering as of March 31,
1996:
<TABLE>
<S> <C>
Working capital $ 5,965,588
Total assets 15,267,347
Long-term debt, including current portion 322,798
Notes payable, related parties, including current portion 405,574
Accumulated deficit (613,125)
Stockholders' equity 7,377,475
</TABLE>
7
<PAGE> 8
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE C: PRO FORMA NET EARNINGS PER COMMON SHARE
Pro forma net earnings per common share is computed by dividing pro forma net
earnings by the weighted average number of shares of common stock outstanding
during each period. Pro forma net earnings includes a pro forma provision for
income taxes assuming the Company had been subject to income taxes during the
period it was an S Corporation for income tax purposes.
If the initial public offering of 1,185,000 shares of common stock had occurred
on January 1, 1996 and approximately $5,551,600 of the total net proceeds had
been applied to the reduction of debt, pro forma net earnings per share would
have been $.07 for the three months ended March 31, 1996 (assuming 2,693,947
weighted average common shares outstanding).
NOTE D: INCOME TAXES
For the three months ended March 31, 1996 the Company was taxed as an S
Corporation under the provisions of the Internal Revenue Code. As such, the
Company's taxable income was includable in the individual income tax returns of
its stockholders for federal and state income tax purposes. Accordingly, no
provisions for federal and state income taxes has been recorded in the
accompanying historical financial statements.
In conjunction with the completion of the initial public offering, the Company
has terminated its S Corporation election and has become subject to corporate
income taxes from that date forward. As a result, in the quarter ended June
30, 1996, the Company will be required to record a net deferred tax liability
of approximately $45,000 with a corresponding charge to earnings for the
period.
8
<PAGE> 9
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for the
three months ended March 31, 1995 and March 31, 1996 should be read in
conjunction with the Condensed Financial Statements of the Company with the
accompanying notes.
Results of Operations
The following table sets forth selected financial information derived from the
Company's statements of earnings expressed as a percentage of net sales for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 63.1 62.9
----- -----
Gross profit 36.9 37.1
Operating, selling, general and administrative expenses 33.4 33.7
----- -----
Earnings from operations 3.5 3.4
----- -----
Other income (expenses)
Interest expense (2.8) (2.6)
Other, net 0.0 0.1
----- -----
Net earnings 0.7% 0.9%
===== =====
</TABLE>
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
1996.
Net Sales. Product sales increased by approximately $725,000 or 13.1% from
$5.5 million for the three months ended March 31, 1995 to $6.2 million for the
three months ended March 31, 1996. $123,000 of this increase was due to an
increase in sales relating to the opening of one new store in December of 1995.
An additional $602,000 or 10.9% increase in same store sales resulted from
continued improvement in the Company's customer service.
Cost of Goods Sold. Cost of goods sold increased from $3.5 million for the
three months ended March 31, 1995 to $3.9 million for the three months ended
March 31, 1996. This increase was primarily attributable to sales increases.
Cost of goods sold as a percentage of sales was relatively constant.
9
<PAGE> 10
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
Operating, Selling, General and Administrative ("OSG&A) Expenses. OSG&A
expenses increased $260,773 from $1.8 million for the three months ended March
31, 1995 to $2.1 million for the three months ended March 31, 1996. The
increased dollar amount of OSG&A expenses resulted primarily from additional
store sales and delivery expenses to support the increased sales volume; an
annual sales promotion event and other overhead expenses incurred in
anticipation of new store growth. OSG&A expenses as a percentage of net sales
was relatively constant.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". This pronouncement requires impairment
losses to be recorded on long-lived assets used in operations when impairment
indicators are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
Company has adopted SFAS 121 in the first quarter of 1996 and the adoption had
no material effect to the financial statements.
SFAS No 123 "Accounting for Stock Based Compensation" has been issued by the
FASB in October, 1995. As it relates to stock options granted to employees,
SFAS No. 123 permits companies who have not done so already to, either adopt
the accounting method promulgated by Accounting Principles Board Opinion No. 25
(APB No. 25) "Accounting for Stock Issued to Employees" to measure
compensation, or to adopt the fair value base method prescribed by SFAS No.
123. Management has not adopted the provisions of SFAS No. 123 related to stock
options. However, the Company has implemented the remaining provisions of SFAS
No. 123, effective January 1, 1996.
Liquidity and Capital Resources
The Company's primary capital requirements have been the funding of new store
acquisitions, increased inventory levels and accounts receivables and the
expansion of the Company's delivery fleet of vehicles. New store acquisitions
and the expansion of the delivery fleet have been funded by borrowings secured
by the Company assets and personal guarantees of Messrs. Thomas and Robert Cox.
The Company has also used trade credit to finance its inventory expansion and
has been successful in negotiating extended payment terms from its suppliers
through volume purchases. The Company believes that it will be able to
continue financing its inventory growth through the extension of favorable
payment terms by its vendors, but there can be no assurance that the Company
will be successful in doing so.
The Company proposes to expand its operations by acquiring 8 to 12 stores in
the next nine month period. The total cost is expected to range from $2.4 to
$5.1 million. Approximately $2.4 million of the funds needed will be supplied
from the initial public offering that occurred in April 1996 with the balance to
come from debt financing. There is no assurance that such debt financing will
be available in which event the Company will have to scale back its growth
program.
10
<PAGE> 11
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
Management believes that the net proceeds to the Company from the initial
public offering, the Company's existing cash, cash expected to be provided by
operating activities, and debt financing available after the offering, will be
sufficient to fund both short and long-term capital and liquidity needs of the
Company. If cash flow from operations and available debt financing are not
sufficient, the Company will be required to seek additional financing to meet
its acquisition strategy. There can be no assurance that such financing would
be available in amounts or on terms acceptable to the Company.
11
<PAGE> 12
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use
only)
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Parts Source, Inc.
d/b/a Ace Auto Parts
--------------------------------------------
(Registrant)
May 13, 1996
- - --------------------
(Date)
/s/ Robert B. Morgan
--------------------------------------------
Robert B. Morgan
Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 258,358
<SECURITIES> 0
<RECEIVABLES> 1,520,930
<ALLOWANCES> 59,971
<INVENTORY> 8,355,577
<CURRENT-ASSETS> 10,940,058
<PP&E> 2,053,124
<DEPRECIATION> 394,744
<TOTAL-ASSETS> 12,982,547
<CURRENT-LIABILITIES> 7,452,462
<BONDS> 6,062,793
0
0
<COMMON> 2,000
<OTHER-SE> (613,125)
<TOTAL-LIABILITY-AND-EQUITY> 12,982,547
<SALES> 6,240,718
<TOTAL-REVENUES> 6,240,718
<CGS> 3,923,603
<TOTAL-COSTS> 2,105,775
<OTHER-EXPENSES> (6,801)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,372
<INCOME-PRETAX> 55,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,769
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
