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 September 30, 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 X NO
--------- ----------
At October 31, 1996, 3,412,273 shares of Common Stock of the Registrant were
outstanding.
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C> <C>
Item 1. Financial Statements
Condensed Statements of Operations--Three and nine months ended
September 30, 1995 and September 30, 1996 (unaudited) 3
Condensed Balance Sheets--December 31, 1995 and
September 30, 1996 (unaudited) 4
Condensed Statement of Stockholders' Equity (Deficit)--
Year ended December 31, 1995 and nine months ended
September 30, 1996 (unaudited) 5
Condensed Statements of Cash Flows--Nine months ended
September 30, 1995 and September 30, 1996 (unaudited) 6
Notes to Condensed Financial Statements --September 30, 1996
(unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
---------------------- -----------------------
1995 1996 1995 1996
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $5,839,990 $6,462,262 $17,276,412 $19,158,078
Cost of goods sold 3,682,791 3,995,502 10,903,173 11,993,887
---------- --------- ----------- -----------
Gross profit 2,157,199 2,466,760 6,373,239 7,164,191
Operating, selling, general and 2,027,420 2,357,085 5,820,114 6,711,855
administrative expenses ---------- --------- ---------- ----------
Earnings from operations 129,779 109,675 553,125 452,336
---------- --------- ---------- ----------
Other income (expense)
Interest expense (169,705) (17,813) (499,220) (243,243)
Other, net 14,256 6,585 32,218 42,921
---------- --------- ---------- ----------
(155,449) (11,228) (467,002) (200,322)
---------- --------- ---------- ----------
Net earnings (loss) before income taxes (25,670) 98,447 86,123 252,014
Provision for income taxes:
Establishment of deferred income taxes - - - 44,400
Current and deferred income taxes - 36,823 - 73,600
---------- --------- ---------- ----------
Net earnings (loss) $ (25,670) $ 61,624 $ 86,123 $ 134,014
========== ========= ========== ==========
Pro forma information
Historical net earnings (loss) before
income taxes $ (25,670) $ 98,447 $ 86,123 $ 252,014
Provision (benefit) for income taxes (7,211) 36,823 24,192 94,610
---------- --------- ---------- ----------
Pro forma net earnings (loss) $ (18,459) $ 61,624 $ 61,931 $ 157,401
========== ========= ========== ==========
Pro forma net earnings (loss) per
common share $ (.01) $ .02 $ .03 $ .06
========== ========= ========== ==========
Weighted average common shares
outstanding 2,000,000 3,185,000 2,000,000 2,758,996
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 192,026 $ 575,351
Accounts receivable
Trade, net of allowance for doubtful accounts
of $60,000 and $112,000 1,318,421 1,551,631
Stockholders 152,222 --
Other-primarily suppliers 537,914 660,727
Inventories 8,042,989 9,624,492
Prepaid expenses and other 54,148 124,722
------------ ------------
Total current assets 10,297,720 12,536,923
PROPERTY AND EQUIPMENT, NET 1,464,002 2,066,593
OTHER ASSETS
Goodwill, net of accumulated amortization
of $21,000 and $31,000 110,964 101,087
Other 145,525 89,458
------------ ------------
256,489 190,545
------------ ------------
$ 12,018,211 $ 14,794,061
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current installments of long-term obligations $ 251,668 $ 89,373
Current installments of notes payable, related parties 109,555 167,326
Accounts payable, trade 5,712,550 2,133,534
Accrued liabilities 394,249 466,820
------------ ------------
Total current liabilities 6,468,022 2,857,053
LONG-TERM OBLIGATIONS, less current portion 5,683,077 4,173,112
NOTES PAYABLE, RELATED PARTIES, less current portion 446,179 193,035
OTHER LIABILITIES 87,827 59,597
DEFERRED INCOME TAXES -- 101,289
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock -- --
Common stock 2,000 3,185
Additional paid-in capital -- 7,941,670
Accumulated deficit (668,894) (534,880)
------------ ------------
(666,894) 7,409,975
------------ ------------
$ 12,018,211 $ 14,794,061
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Additional Accumulated
Stock Paid in Capital Deficit Total
------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $2,000 - $(668,894) $(666,894)
Net earnings (unaudited) - - 134,014 134,014
Net proceeds from initial public offering (unaudited) 1,185 $7,941,670 - 7,942,855
----- --------- -------- ---------
Balance at September 30, 1996 (unaudited) $3,185 $7,941,670 $(534,880) $7,409,975
===== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of this condensed statement.
5
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(unaudited)
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash Cash flows from operating activities:
Net earnings $ 86,123 $ 134,014
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 138,667 214,019
Deferred income taxes, net -- 37,000
Other (13,612) (7,305)
Changes in assets and liabilities, net of acquisitions of businesses:
(Increase) in accounts receivable (862,081) (355,283)
(Increase) in inventories (1,060,779) (1,020,595)
(Increase) decrease in prepaid expenses and other 15,802 (6,285)
(Increase) decrease in other assets (75,096) 56,067
Increase (decrease) in accounts payable 2,146,876 (3,579,016)
Increase in accrued liabilities 30,185 72,571
(Decrease) in other liabilities (15,000) (15,000)
----------- -----------
Net cash provided by (used in) operating activities 391,085 (4,469,813)
----------- -----------
Cash flows from investing activities:
Cash paid for acquisitions of businesses -- (602,423)
Purchases of property and equipment (310,648) (773,718)
Proceeds from disposition of property and equipment 37,982 26,175
----------- -----------
Net cash used in investing activities (272,666) (1,349,966)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings under line of credit -- 3,920,000
Repayments of long-term obligations (187,772) (5,659,751)
Net proceeds from initial public offering -- 7,942,855
----------- -----------
Net cash provided by (used in) financing activities (187,772) 6,203,104
----------- -----------
Increase (decrease) in cash and cash equivalents (69,353) 383,325
Cash and cash equivalents, January 1 233,448 192,026
----------- -----------
Cash and cash equivalents, September 30 $ 164,095 $ 575,351
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
6
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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
September 30, 1996 and for the three and nine months ended September 30, 1995
and 1996 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 nine months ended September
30, 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: ACQUISITIONS OF BUSINESSES
During the second quarter of 1996, the Company acquired substantially all the
assets of two auto parts stores. These acquisitions were accounted for as
purchases and accordingly, the purchase price was allocated to the assets and
liabilities based upon estimated fair value as of the date of acquisition. The
Company paid consideration totaling approximately $603,000 and assumed
liabilities totaling approximately $24,000 in exchange for approximately
$627,000 of assets. The results of operations of each acquisition is included in
the accompanying statements of operations from the acquisition date. Had the
acquisitions occurred at the beginning of 1995 or 1996, the results would not
have been materially different from those reported.
NOTE C: 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 $7,942,855 after deducting
offering expenses of $304,745. A portion of such proceeds were used to reduce
approximately $5,600,000 of long-term indebtedness. The remaining proceeds were
used to expand operations and for general working capital purposes.
7
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
NOTE D: LINES OF CREDIT
In October 1996, the Company amended its revolving line of credit agreement,
dated August 1996. The agreement, as amended, provides for up to $12 million of
borrowings subject to the amount of eligible inventory and accounts receivable.
Also, the amount available under the Company's $500,000 non-revolving line of
credit is limited to the purchase price of the assets being funded. These lines
of credit are available through September 30, 1998 and bear interest at the
London Interbank Offered Rates (LIBOR) plus 2%. These lines, among other
provisions, require the Company to maintain, at a minimum, a current ratio of
one, the ratio of total liabilities to tangible net worth not to exceed 2.25 to
1 and a times interest earned multiple of 1.25 or greater. At September 30,
1996, the Company had borrowings of $3,920,000 outstanding under its revolving
line of credit.
NOTE E: PRO FORMA NET EARNINGS (LOSS) PER COMMON SHARE
Pro forma net earnings (loss) per common share is computed by dividing pro forma
net earnings (loss) by the weighted average number of shares of common stock
outstanding and assuming exercise of dilutive stock options computed by the
treasury stock method using the average market price during each period. Primary
and fully dilutive earnings per share are essentially the same. Pro forma net
earnings (loss) includes a pro forma provision (benefit) for income taxes
assuming the Company had been subject to income taxes as a C Corporation for all
periods presented prior to its initial public offering.
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 $.03 and $.11 for the three and nine months ended September 30, 1996,
respectively (assuming 2,693,947 weighted average common shares outstanding).
NOTE F: INCOME TAXES
The Company was taxed as a S Corporation prior to the completion of its initial
public offering on April 8, 1996. Upon completion of its initial public
offering, the company terminated its S Corporation election and became subject
to federal and state income taxes as a C Corporation. As a result, on April 8,
1996, the Company recorded a net deferred tax liability of $44,400 which
represents the tax effect of the cumulative temporary differences existing on
this date with a corresponding charge to the provision for income taxes. For the
nine months ended September 30, 1996, the provision for income taxes consists of
the one-time charge and the income taxes recorded related to net earnings
subsequent to April 8, 1996.
8
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
NOTE G: STATEMENTS OF CASH FLOW
Supplemental disclosures of cash flow information:
Nine Months Ended
September 30,
(unaudited)
-----------------------
1995 1996
---------- ----------
Cash paid for interest $ 506,000 $ 269,000
========== ==========
Supplemental schedule of noncash investing and financing activities:
During the nine months ended September 30, 1995, the Company incurred
approximately $10,482 of obligations under capital leases for the
acquisition of equipment.
The Company purchased substantially all the assets of two auto parts
stores during the nine months ended September 30, 1996. In conjunction
with the acquisitions, assets acquired and liabilities assumed were as
follows:
Fair value of assets acquired $626,763
Cash paid 602,423
--------
Liabilities assumed $ 24,340
========
NOTE H: SUBSEQUENT EVENTS
In September 1996, while negotiating with APS for new terms on its supply
agreement, the Company utilized its line of credit to pay down its trade
payables to APS by $4 million. As a condition of this payment, Autoparts Finance
Company, Inc., a subsidiary of APS, agreed to purchase 227,273 shares of Common
Stock of the Company in a private transaction at $11.00 per share (the fair
market value at that date). The purchase was consummated on October 25, 1996.
This transaction will increase stockholders' equity by $2.5 million.
On October 25, 1996, the Company acquired from APS the business of six auto
parts stores located in the state of Florida. The purchase price of the stores
was approximately $2.7 million. Approximately $2.4 million of the purchase price
was paid with cash received from the sale of Common Stock described above. The
balance of the purchase price will be paid from the Company's line of credit.
The Company intends to continue the operations of each of the acquired stores as
auto parts stores.
9
<PAGE>
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 and nine months ended September 30, 1995 and September 30, 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 operations expressed as a percentage of net sales for
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
------------------ ------------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 63.1 61.8 63.1 62.6
------ ------ ------ ------
Gross profit 36.9 38.2 36.9 37.4
Operating, selling, general and
administrative expenses 34.7 36.5 33.7 35.0
------ ------ ------ ------
Earnings from operations 2.2 1.7 3.2 2.4
Other income (expense)
Interest expense (2.9) (0.3) (2.9) (1.3)
Other, net 0.3 0.1 0.2 0.2
------ ------ ------ ------
Net earnings (loss) before income taxes (0.4) 1.5 0.5 1.3
Provision (benefit) for income taxes - (0.6) - (0.6)
------ ------ ------ ------
Net earnings (loss) (0.4)% .9% 0.5% 0.7%
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996.
NET SALES. Product sales increased by approximately $622,000 or 10.7% from $5.8
million for the three months ended September 30, 1995 to $6.5 million for the
three months ended September 30, 1996. $544,000 of this increase was due to an
increase in sales relating to the opening of one store in December of 1995, the
purchase of two stores in the second quarter of 1996 and the opening of one new
store in September of 1996. The remaining $78,000 or 1.3% increase in net sales
resulted from same store sales growth.
10
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COST OF GOODS SOLD. Cost of goods sold increased from $3.7 million for the three
months ended September 30, 1995 to $4.0 million for the three months ended
September 30, 1996. This increase was primarily attributable to sales increases.
Cost of goods sold as a percentage of sales decreased primarily from a one-time,
$80,000 cash discount realized from new vendor negotiations.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE ("OSG&A") EXPENSES. OSG&A
expenses increased approximately $330,000 from $2.0 million for the three months
ended September 30, 1995 to $2.4 million for the three months ended September
30, 1996. The increased dollar amount of OSG&A expenses resulted primarily from
additional store personnel and delivery expenses to support the increased sales
volume and other overhead expenses incurred in anticipation of acquiring new
stores. The increase in OSG&A expenses as a percentage of net sales resulted
primarily from overhead expenses incurred in anticipation of acquiring new
stores.
INTEREST EXPENSE. Interest expense decreased $151,892 from $169,705 for the
three months ended September 30, 1995 to $17,813 for the three months ended
September 30, 1996. The decreased interest expense resulted primarily from the
repayment of debt from the initial public offering completed on April 8, 1996.
PROVISION FOR INCOME TAXES. The Company was taxed as a S Corporation prior to
the completion of its initial public offering on April 8, 1996, therefore, no
income taxes were recorded for the three months ended September 30, 1995. The
provision for income taxes for the three months ended September 30, 1996 of
$36,823 is related to the net earnings recorded subsequent to April 8, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996.
NET SALES. Product sales increased by approximately $1.9 million or 10.9% from
$17.3 million for the nine months ended September 30, 1995 to $19.2 million for
the nine months ended September 30, 1996. $1,013,000 of this increase was due to
an increase in sales relating to the opening of one new store in December of
1995, the purchase of two new stores in the second quarter of 1996 and the
opening of one new store in September 1996. The remaining $869,000 or 5.0%
increase in net sales resulted from same store sales growth.
COST OF GOODS SOLD. Cost of goods sold increased from $10.9 million for the nine
months ended September 30, 1995 to $12 million for the nine months ended
September 30, 1996. This increase was primarily attributable to sales increases.
Cost of goods sold as a percentage of sales decreased primarily from a one-time,
$80,000 cash discount realized from new vendor negotiations.
11
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE ("OSG&A") EXPENSES. OSG&A
expenses increased approximately $892,000 from $5.8 million for the nine months
ended September 30, 1995 to $6.7 million for the nine months ended September 30,
1996. The increased dollar amount of OSG&A expenses resulted primarily from
additional store personnel and delivery expenses to support the increased sales
volume and other overhead expenses incurred in anticipation of acquiring new
stores. The increase in OSG&A expenses as a percentage of net sales resulted
primarily from overhead expenses incurred in anticipation of acquiring new
stores.
INTEREST EXPENSE. Interest expense decreased $255,977 from $499,220 for the nine
months ended September 30, 1995 to $243,243 for the nine months ended September
30, 1996. The decreased interest expense resulted primarily from the repayment
of debt from the initial public offering completed on April 8, 1996.
PROVISION FOR INCOME TAXES. The Company was taxed as a S Corporation prior to
the completion of its initial public offering on April 8, 1996. In conjunction
with the completion of the initial public offering, the Company was required to
record the cumulative tax effect of its net deferred income taxes of $44,400 on
this date. As a result, the provision for income taxes for the nine months ended
September 30, 1996 includes this one-time charge and the income taxes related to
the net earnings recorded subsequent to April 8, 1996.
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 on 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 employee stock options.
However, the Company has implemented the remaining provisions of SFAS No. 123,
effective January 1, 1996.
12
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources`
The Company's primary capital requirements have been the repayment of long-term
debt and trade payables, funding of new store acquisitions and openings,
increased inventory levels, expansion of the delivery vehicle fleet and new
computer enhancements. These capital requirements have been funded by trade
credit, net proceeds from an initial public offering of common stock which
occurred on April 8, 1996, lines of credit and the private placement of
unregistered common stock.
In September 1996, while negotiating with APS for new terms on its supply
agreement, the Company utilized its line of credit to pay down its trade
payables to APS by $4 million. As a condition of this payment, Autoparts Finance
Company, Inc., a subsidiary of APS, agreed to purchase 227,273 shares of Common
Stock of the Company in a private transaction at $11.00 per share (the fair
market value at that date). The purchase was consummated on October 25, 1996.
On October 25, 1996, the Company acquired from APS the business of six auto
parts stores located in the state of Florida. The six auto parts stores are
located in Ocala, Wildwood, Orlando, Cape Canaveral and Belleview. Each of the
new stores marks the Company's first entry into the respective markets. As a
result of the acquisition, the Company now operates 33 auto parts stores, all
located in the state of Florida. The purchase price of the stores was
approximately $2.7 million. Approximately $2.4 million of the purchase price was
paid with cash received from the sale of Common Stock described above. The
availability of such funds resulted from the prior utilization of the Company's
line of credit with the Barnett Bank, N.A. to pay down the accounts payable to
APS which is also described above. The balance of the purchase price will be
paid from the Company's line of credit. The Company intends to continue
the operations of each of the acquired stores as auto parts stores.
The Company proposes to continue to expand its operations primarily through
acquisitions. In October 1996, the Company amended its existing $7 million
revolving line of credit with Barnett Bank N. A. by increasing the borrowing
limit to $12 million. The borrowing limit for the revolving line is determined
by the amount of eligible inventory and accounts receivable. This line of credit
is available through September 30, 1998 and carries a variable interest rate of
the London Interbank Offered Rates (LIBOR) plus 2%. This line, among other
provisions, requires the Company to maintain, at the minimum, a current ratio of
one to one, the ratio of total liabilities to tangible net worth not to exceed
2.25 to 1 and a times interest earned multiple of 1.25 or greater.
Management believes that the Company's existing cash, cash expected to be
provided from operations, trade credit from its vendors and existing lines of
credit will be sufficient to meet the Company's working capital and capital
expenditure requirements for at least the next 12 month period.
13
<PAGE>
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
On November 1, 1996, the Company filed a Form 8-K with the Securities and
Exchange Commission disclosing the acquisition of six auto parts stores from
APS, Inc. and the sale to Autoparts Finance Company, Inc., a subsidiary of APS,
of 227,273 shares of Common Stock of the Company in a private transaction at
$11.00 per share (the fair market value at the date of the agreement).
14
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
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)
November 13, 1996
- ---------------------------
(Date) /s/ Robert B. Morgan
-------------------------------------------
Robert B. Morgan
Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE PARTS SOURCE, INC. (D/B/A ACE AUTO PARTS) FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 573,351
<SECURITIES> 0
<RECEIVABLES> 1,663,631
<ALLOWANCES> 112,000
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0
0
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<EPS-PRIMARY> .05
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</TABLE>
