<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-27227
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
---------------------
AUTOMOTIVE ONE PARTS STORES, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 5013 59-1867299
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
701 WEST CHURCH STREET
ORLANDO, FLORIDA 32802
(407) 422-1110
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
ROBERT H. GENTRY, III
PRESIDENT
AUTOMOTIVE ONE PARTS STORES, INC.
701 WEST CHURCH STREET
ORLANDO, FLORIDA 32802
(407) 422-1110
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
RANDOLPH H. FIELDS, ESQ. WILLIAM M. PRIFTI, ESQ.
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & 220 BROADWAY
QUENTEL, P.A. SUITE 204
111 NORTH ORANGE AVENUE, SUITE 2050 LYNNFIELD, MA 01940
ORLANDO, FLORIDA 32801 TELEPHONE: (781) 593-4525
TELEPHONE: (407) 420-1000 TELECOPIER: (781) 593-5222
TELECOPIER: (407) 420-5909
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Units(2).............................................. $20,160,000 $6,166.82
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(3)....................... $20,160,000 $ (4)
- ----------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase Warrants(5)(6)....... $ 187,510 $ (4)
- ----------------------------------------------------------------------------------------------------------------------
Total............................................. $20,347,510 $6,166.82
======================================================================================================================
</TABLE>
Previously Paid $9,582
Amended Fee $6,166.82
Amount Due $0
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 (o) under the Securities Act of
1933, as amended.
(2) Includes an aggregate of 1,200,000 shares of Common Stock and 1,200,000
Five-Year Redeemable Common Stock Purchase Warrants (the "Warrants") to be
offered to the public in 1,200,000 Units. Each Unit consists of one share of
Common Stock and one Warrant and will be sold to the public for $6.125 per
Unit. The Common Stock and the Warrants offered hereby will be issued
separately and will be separately tradable immediately upon issuance.
(3) Includes (i) 1,200,000 shares of Common Stock offered hereby, (ii) 1,200,000
shares of Common Stock issuable upon exercise of the Five-year Redeemable
Common Stock Purchase Warrants (the "Warrants") offered hereby, (iii)
180,000 shares of Common Stock subject to the Underwriters' over-allotment
option, (iv) 180,000 shares of Common Stock issuable upon exercise of
Warrants subject to Underwriters' over-allotment option, (v) 120,000 shares
of Common Stock issuable upon exercise of Underwriters' Warrants and (vi)
120,000 shares of Common Stock underlying the Warrants issuable upon
exercise of Underwriters' Warrants.
(4) Included in Units. No additional registration fee is required.
(5) Includes (i) 1,200,000 Warrants offered hereby, (ii) 180,000 Warrants
subject to the Underwriters' over-allotment option and (iii) 120,000
Warrants subject to the Underwriters' Warrants.
(6) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement also covers such indeterminable additional shares of Common Stock
as may become issuable as a result of any future anti-dilution adjustment in
accordance with the terms of the Warrants.
---------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1997
AUTOMOTIVE ONE LOGO
AUTOMOTIVE ONE PARTS STORES, INC.
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Automotive One Parts Stores, Inc., a Florida corporation (the "Company"),
hereby offers (the "Offering") 1,200,000 shares of common stock, $.01 par value
(the "Common Stock"), of the Company and 1,200,000 Five-year Redeemable Common
Stock Purchase Warrants (the "Warrants"). The Common Stock and the Warrants
offered hereby (sometimes hereinafter collectively referred to as the
"Securities") will be separately tradable immediately upon issuance. Each
Warrant entitles the holder to purchase one share of Common Stock at a price of
$7.20 per share (the "Exercise Price"). The Warrants are each redeemable by the
Company for $.10 per Warrant, upon thirty days' prior written notice to the
Warrant holders, provided the closing price of the Common Stock exceeds $9.00
per share for a period of ten consecutive trading days, ending on the third day
prior to the date of the Company's redemption notice. See "Description of
Securities."
Prior to this Offering, there has been no public market for the Company's
Common Stock or Warrants, and there can be no assurance that such a public
market will develop or be sustained after the completion of the Offering. The
Company has submitted an application for the listing of the Common Stock and
Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols [AONE] and
[AONEW], respectively, and on the Boston Stock Exchange ("BSE") under the
symbols [AOC] and [AOW], respectively. For discussion of the factors considered
in determining the offering prices of the Common Stock and Warrants, see
"Underwriting."
------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE AND
SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED
UNDER THE CAPTION "RISK FACTORS" WHICH APPEAR BEGINNING ON PAGE 8 OF THIS
PROSPECTUS. SEE ALSO "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS
TO PUBLIC COMMISSIONS(1) TO COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock...................... $6.00 $.60 $5.40
Per Warrant.................................... $0.125 $.0125 $.1125
Total(3)....................................... $7,350,000 $735,000 $6,615,000
=======================================================================================================================
</TABLE>
(1) In addition, the Company has agreed to pay the Underwriters in the form
of: (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of this Offering, of which $25,000 has been paid to the present
Underwriter, and (ii) an Underwriters' Warrant ("Underwriters' Warrant")
for the purchase of (a) 120,000 shares of Common Stock, and (b) 120,000
Warrants at 150% of the initial public Offering price exercisable for a
period of four years, commencing one year after the date of this
Prospectus (the "Effective Date"). The Company and the Underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act").
See "Underwriting."
(2) Before deducting expenses, estimated at $556,000, payable by the
Company, including the Underwriters' non-accountable expense allowance.
(3) The Company and certain shareholders (the "Selling Shareholders") have
granted to the Underwriters an option, exercisable within 45 days from
the date of this Prospectus, to purchase up to 180,000 additional
Securities, on the same terms set forth above, solely for the purpose of
covering over-allotments, if any. Up to 94,478 shares of Common Stock
which are subject to the over-allotment option may be purchased from the
Selling Shareholders, and the Company will not receive any proceeds from
the sale of such Common Stock. The Warrants included in the Securities
which are subject to the over-allotment option will be issued by the
Company. If the over-allotment option is exercised in full, excluding
the Underwriter's non-accountable expense allowance, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $8,452,500, $845,250,
$7,097,069 and $510,181, respectively. See "Principal and Selling
Shareholders" and "Underwriting."
-------------------------
The Securities offered by this Prospectus are being offered by the
Underwriters on a "firm commitment" basis subject to prior sale, when, as and if
accepted by the Underwriters, approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer without notice and reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Securities will be made in Orlando, Florida on or about
February , 1998.
NUTMEG SECURITIES, LTD.
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1998
<PAGE> 3
[PHOTOGRAPHS OF COMPANY FACILITIES
WITH OVERLAY OF AREA MAP
SHOWING STORE LOCATION.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. Unless
otherwise specified, all references herein reflect a 23,600 for one split of the
Company's Common Stock which will be effected for shareholders of record
immediately prior to consummation of this Offering. Further, unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
Automotive One Parts Stores, Inc. (the "Company" or "Automotive One") was
incorporated in Florida in November 1978. The Company is a specialty supplier
and retailer of automotive replacement parts, tools, supplies, equipment and
accessories ("Automotive Products") to both professional mechanics and service
technicians ("Professional Installers") and "do-it-yourself" ("DIY") customers.
The Company operates 14 auto parts stores, one machine shop, one speed shop, and
one warehouse facility in Central Florida, all of which are located in or within
one hour's drive of Orlando, Florida. The Company determined that some of its
stores service overlapping geographical areas. Thus, the Company closed one
store in each of July 1997, and August 1997, and, by the end of the second
quarter of 1998, intends to close two additional stores. The inventory from the
closed stores will be either returned to the Company's suppliers for credit or
transferred to other stores. The Company plans to either sell or lease the
properties vacated as a result of the closures. Management of the Company hopes
to retain the same market share in those market areas but at a reduced overhead
cost. In June 1997, the Company also closed a manufacturing unit located on the
premises of its corporate headquarters. All of the auto parts stores are
traditional stores selling both to Professional Installers and DIY customers.
The Company also maintains approximately 100 vehicles which guarantee the
delivery of parts to Professional Installers within 30 minutes. The Company's
customized computerized inventory control system allows it to determine the
exact location of each item of its inventory, sales from each store and other
general accounting features. Stores carry an extensive product line of brakes,
belts, hoses, filters, cooling system parts, tuneup parts, shock absorbers,
gaskets, batteries, bearings, engine parts, remanufactured alternators and
starters, chassis parts and exhaust systems, and other hard parts ("Hard
Parts"). In addition, the Company also carries: (i) maintenance items, such as
oil, antifreeze, fluids, engine additives and appearance products; (ii)
accessories such as floor mats and seat covers; (iii) automotive tools; and (iv)
professional service equipment. For the year ended December 31, 1996,
approximately 95% of the Company's sales was derived from Hard Parts, and 5%
from other merchandise. Approximately 75% of the Company's product sales was
derived from Professional Installers and the remaining 25% from DIY customers
during 1996.
The Company maintains its principal executive offices at 701 W. Church
Street, Orlando, Florida 32802; telephone (407) 422-1110, fax (407) 422-1041.
The Company was organized under the laws of the State of Florida in November
1978 succeeding to a sole proprietorship which commenced operations in Kentucky
in 1934.
OPERATING STRATEGIES
Accumulation of Market Share. By serving both the Professional Installer
and DIY markets through its store network, the Company believes it is able to:
(i) reach most consumers of Automotive Products within its market; (ii) offer a
broader selection of stock keeping units ("SKU's"); and (iii) provide responsive
customer service with its technically trained sales personnel and in-house
delivery force.
Inventory Management and Distribution System. The Company has agreed to
buy approximately 75% of its merchandise from A.P.S., Inc. ("APS"), a national
distributor of automotive replacement parts headquartered in Houston, Texas. APS
carries over 160,000 SKU's and distributes its products through approximately
150 suppliers. The Company's stores have next day access to these products
through a Product Purchase Agreement with APS.
3
<PAGE> 5
The Company also owns and operates its own approximately 30,000 square foot
warehouse facility. This facility is used to inventory certain items which the
Company purchases directly from manufacturers. Thus, the Company is able to
price such parts competitively within the market. The warehouse provides all the
Company's stores with same-day delivery service.
Customer Service. The Company believes that each Company store attracts
new customers and retains existing customers by conducting a variety of
advertising and promotional programs and by offering: (i) in store service
through technically trained sales personnel, (ii) call-in-delivery service
available to all wholesale customers, (iii) an extensive selection of SKU's
stocked in each store, (iv) same day or next day delivery of Automotive
Products, (v) attractive stores in convenient locations, (vi) full-time sales
personnel, (vii) competitive pricing, and (viii) a counter in each store
specifically designated for wholesale customers to provide quick service. The
Company's management believes that the Company's commitment to service
excellence has provided the foundation of a strong relationship with both the
Professional Installer and DIY segments of the aftermarket automotive parts
industry. The Company believes that while pricing is essential in the highly
competitive environment of the automotive aftermarket business, ultimately it is
customer satisfaction (whether the customer is a Professional Installer or a
DIY) through customer service that will generate increased sales and
profitability.
Development of Repeat Customers. The Company is committed to developing
repeat customers through (i) trained and experienced sales personnel who provide
customer service, (ii) a high concentration of convenient and accessible
neighborhood locations, (iii) prompt delivery service to wholesale customers
through approximately 100 vehicles and (iv) a broad selection of brand name and
other high quality products with an emphasis on replacement Hard Parts.
GROWTH STRATEGIES
Repayment of Debt. The Company has experienced recent losses due to
increased debt and an inability to take advantage of available vendor discount
programs due to cash constraints. The Company's growth strategy involves
repayment of a portion of the debt from the Offering proceeds, refinancing the
remainder of the debt, consolidating certain stores in the Orlando market, and
acquiring additional auto parts businesses in Florida and other areas in the
Southeastern United States.
The Company will be repaying approximately $3.0 million in debt including
accrued and unpaid interest currently owed to APS from the Offering proceeds.
The Company will seek to refinance the remainder of the debt owed to APS on more
favorable terms, which refinancing has been made a condition of this Offering by
the Underwriters. As a result of the debt repayment, the Company believes it
will substantially reduce to 232,000 per year the interest payments it currently
makes to service its debt obligations to APS. Further, the Company will be able
to take advantage of discounts offered by APS and other vendors for early
payments of invoices.
Senior Credit Facility. On October 29, 1997, the Company obtained a
non-binding commitment from Finova Capital Corporation ("Finova") to provide up
to $4,000,000 to the Company (the "Finova Credit Facility") in accordance with
the terms of a loan and security agreement (the "Credit Agreement"). Finova's
execution of and performance under the Credit Agreement is subject to a number
of conditions, including, but not limited to, the closing of this Offering and
the receipt by the Company of the proceeds of this Offering. The Credit
Agreement is to be executed and closed simultaneously with the closing of this
Offering. The Company will use a portion of these funds, approximately
$3,000,000, to repay the remaining indebtedness to APS. The remainder of the
funds available under the Finova Credit Facility will be used by the Company to
facilitate its growth strategy or for working capital. See "Business -- Senior
Credit Facility" and "Use of Proceeds."
Consolidation or Closing of Overlapping Stores. The Company has 11 auto
parts stores located in the Orlando market and 3 stores located in Brevard
County serving Titusville, Cocoa Beach and Melbourne. The Company has closed two
stores and plans to close two additional stores by the end of the second quarter
of 1998. The Company expects to retain the same market share in those areas but
at a reduced overhead cost since the Company has other existing stores serving
the same market areas.
4
<PAGE> 6
New Store Openings. Due to the recent trend of consolidation in the
aftermarket automotive parts industry at the expense of smaller independent
operators and less specialized mass merchandisers, the Company anticipates its
future growth will occur primarily as a result of acquisitions of single and
multiple store operations. The Company plans to concentrate its efforts on
acquiring stores in other Florida locations and in markets in the Southeastern
United States. The Company's strategy for additional store openings is to expand
into population pockets of 75,000 to 100,000 inhabitants within metropolitan
areas with populations of 1,000,000 or more.
Continuing Improvement of Merchandising. The Company stocks a broad line
of nationally recognized products (under the "Big A" label of APS) for domestic
and imported vehicles. The Company constantly seeks to improve its merchandising
concepts, primarily by broadening product selection and emphasizing the sale of
replacement Hard Parts. The Company plans on updating certain stores to improve
merchandise presentation and in-stock positions.
5
<PAGE> 7
THE OFFERING
Securities Offered......... 1,200,000 shares of Common Stock, $.01 par value.
1,200,000 Warrants. Each Warrant entitles the
holder, for $7.20, to purchase one share of Common
Stock for a period of five years commencing on the
date of this Prospectus (the "Effective Date"). The
Warrants are each redeemable by the Company for
$.10 per Warrant at any time, upon thirty days'
prior written notice to the Warrant holders,
provided the average closing price of the Common
Stock exceeds $9.00 per share for a period of ten
consecutive trading days ending on the third day
prior to the date of the Company's redemption
notice. See "Description of
Securities -- Warrants."
Securities Outstanding
Prior to the Offering.... 2,360,000 shares of Common Stock(1)
Securities Outstanding
Subsequent to the
Offering(2).............. 3,560,000 shares of Common Stock(1)
1,200,000 Warrants(1)
Estimated Net
Proceeds(3).............. $6,059,000
Use of Proceeds by
Company.................. The Company intends to use the net proceeds of this
Offering for repaying loans from APS and certain
other loans (including loans from certain
principals of the Company in the approximate
aggregate amount of $466,000), working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors............... Investment in the Securities offered hereby are
speculative and involve a high degree of risk and
immediate substantial dilution. See "Risk Factors"
and "Dilution."
Proposed NASDAQ SmallCap
Market Symbols(4)........ Common Stock -- [AONE]
Warrants -- [AONEW]
Proposed BSE Symbols(4).... Common Stock -- [AOC]
Warrants -- [AOW]
- ---------------
(1) Does not include (i) 500,000 shares of Common Stock reserved for future
issuance under the Company's 1997 Stock Option Plan, (ii) 120,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriters'
Warrants, and (iii) 120,000 shares of Common Stock reserved for issuance
upon exercise of Warrants issuable upon exercise of the Underwriters'
Warrants. See "Management -- Consulting Agreements" and "-- Stock Option
Plan."
(2) Does not include 180,000 additional shares of Common Stock or 180,000
Warrants issuable upon exercise of the Underwriters' over-allotment option.
See "Underwriting."
(3) After deducting expenses of this Offering payable by the Company estimated
at $1,291,000 (inclusive of commissions and underwriting discounts and
assuming no exercise of the Underwriters' over-allotment option).
(4) Although the Company has applied for listing the Securities for quotation on
the NASDAQ SmallCap Market and the Boston Stock Exchange, there can be no
assurance that the Company's securities will be accepted for listing or that
if listed it will be able to continue to meet the requirements for continued
quotation, or that a public trading market will develop or that if such
market develops, it will be sustained. The Company may also apply for
listing the Securities on the Chicago Stock Exchange. See "Risk
Factors -- Lack of Prior Market for Securities, "-- Possible Delisting of
Securities; NASDAQ SmallCap Market," "-- Penny Stock Regulation."
6
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following financial data as of December 31, 1996 and for the years
ended December 31, 1995 and 1996 has been derived from the financial statements
of the Company which have been audited by Grant Thornton LLP, independent
certified public accountants, whose report on the Balance Sheet as of December
31, 1996 and the related Statements of Operations, Shareholders' Equity and Cash
Flows for each of the two years in the period ended December 31, 1996, is
included elsewhere herein. The selected financial information set forth below as
of October 31, 1997 and for the ten months ended October 31, 1996 and 1997 have
been derived from the unaudited financial statements of the Company and includes
all adjustments the Company considers necessary for a fair presentation of
results of operations for the periods presented. Operating results for the ten
months ending October 31, 1997 are not necessarily indicative of the results
which may be expected for the full year ended December 31, 1997. The summary
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Financial Statements (including the Notes thereto) presented elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
SUMMARY BALANCE SHEET DATA
Working capital (deficiency)................................ $(2,492,698) $ 3,396,111
Total assets................................................ 9,955,848 12,550,260
Total liabilities........................................... 10,024,310 6,559,722
Shareholders' equity (deficit).............................. (68,462) 5,990,538
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED DECEMBER 31, OCTOBER 31,
------------------------- -------------------------
1995(2) 1996(3) 1996 1997(4)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT DATA
Net sales................................... $11,691,338 $12,094,341 $10,291,236 $ 9,206,871
Cost of goods sold.......................... 7,689,551 8,075,176 6,871,217 5,727,418
----------- ----------- ----------- -----------
Gross profit................................ 4,001,787 4,019,165 3,420,019 3,479,453
Selling, general and administrative
expenses.................................. 3,986,570 4,463,849 3,773,117 3,549,708
----------- ----------- ----------- -----------
Earnings (loss) from operations............. 15,217 (444,684) (353,098) (70,255)
Gain on sale of property.................... -- -- -- 185,707
Rental income............................... 165,245 191,804 159,837 143,355
Interest expense............................ (495,174) (785,088) (655,851) (638,532)
Offering costs.............................. -- -- -- (68,714)
----------- ----------- ----------- -----------
Net loss.................................... $ (314,712) $(1,037,968) $ (849,112) $ (448,439)
=========== =========== =========== ===========
Net (loss) per common share(5)(6)(7)........ $ (0.13) $ (0.44) $ (0.36) $ (0.19)
=========== =========== =========== ===========
Weighted average common shares
outstanding(6)............................ 2,360,000 2,360,000 2,360,000 2,360,000
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale of 1,200,000 shares of Common Stock and
1,200,000 Warrants at the assumed public offering prices of $6.00 per share
and $.125 per Warrant, less underwriting discounts and commissions and
estimated Offering expenses payable by the Company, and the application of
net proceeds therefrom. (See "Use of Proceeds"). No effect has been given to
the exercise of the (i) Warrants, (ii) the Underwriters' over-allotment
option, (iii) the Underwriters' Warrants, or (iv) outstanding options.
(2) There were 17 stores opened and operating as of January 1, 1995. No stores
were opened or closed during the 1995 fiscal year. As of December 31, 1995,
the Company had 17 stores opened and operating. See
"Business -- Properties."
(3) There were 17 stores opened and operating as of January 1, 1996. No stores
were opened or closed during the 1996 fiscal year. As of December 31, 1996,
the Company had 17 stores opened and operating. See
"Business -- Properties."
7
<PAGE> 9
(4) There were 17 stores opened as of January 1, 1997. Two stores were closed
during this period. Store 2 was closed on August 25, 1997 and Store 18 was
closed on July 31, 1997. Concurrent with the closing of Store 2, Store 16
was opened. As of October 31, 1997, the Company had 16 stores opened and
operating. See "Business -- Properties."
(5) Prior to this Offering, the Company was taxed as an S corporation.
Simultaneously with the consummation of this Offering, the Company will
convert to "C" Corporation status. Pro forma net loss for the years ended
December 31, 1995 and 1996 and the ten months ended October 31, 1996 and
1997 is not presented herein, because the Company has cumulative net
operating losses and it is not more likely than not that the tax benefit
will be realized. Therefore, the historical and pro forma net loss would be
the same for all periods presented. See Note I to Financial Statements.
(6) Adjusted to give effect to 23,600-for-one stock split to be effected
immediately prior to consummation of this Offering.
(7) Supplemental pro forma loss per common share for the year ended December 31,
1996 and the ten months ended October 31, 1997 giving effect to the
reduction of outstanding indebtedness of approximately $3.0 million from the
use of a portion of the Offering's proceeds and the increased number of
shares, is ($0.25) and ($0.06) per common share (assuming 2,922,978 and
2,940,806 weighted average common shares outstanding, respectively).
8
<PAGE> 10
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree of
risk and substantial dilution and should only be purchased by investors who can
afford to lose their entire investment. Prospective investors, prior to making
an investment, should carefully consider the following risks and speculative
factors, as well as other information set forth elsewhere in this Prospectus,
associated with this Offering, including the information contained in the
Financial Statements herein and Notes thereto.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act, which represent the Company's
expectations or beliefs. The words "believe," "expect," "anticipate,"
"estimate," "project," "intend" and similar expressions identify forward-looking
statements, which speak only as of the date such statement was made.
Forward-looking statements may include, but not be limited to, future results of
operations, growth plans, integration of new operations, financing needs,
industry trends, consumer demand and levels of competition. These statements by
their nature involve substantial risks and uncertainties, some of which cannot
be predicted or quantified. Future events and actual results could differ
materially from those expressed in, contemplated by or underlying any such
forward-looking statements. Statements in this Prospectus, including those
contained in the section entitled "Risk Factors," in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and in the Notes to the Company's Financial Statements, describe
factors, among others, that could contribute to or cause such differences.
Recent Losses; Going Concern. The Company had net losses of $314,712 and
$1,037,968 and $448,439 for the years ended December 31, 1995 and 1996 and the
ten months ended October 31, 1997 respectively and a working capital deficiency
of $1,847,194 and $2,492,698 at December 31, 1996 and October 31, 1997,
respectively. Furthermore, the Company has approximately $5.8 million of
outstanding indebtedness including interest, that matures no later than February
28, 1998. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The Company's independent certified public
accountants have issued its report which includes an explanatory paragraph for a
going concern uncertainty on the Company's financial statements as of December
31, 1996 and for the year then ended. The Company's ability to continue as a
going concern and achieve positive earnings is dependent upon the Company's
successful implementation of its operating strategy which includes (1) reducing
certain debt from proceeds of this Offering; (2) completing its search for a
qualified Chief Financial Officer candidate to oversee the financial aspects of
the Company's business; (3) evaluating the network of its store locations in
order to determine the most advantageous number and locations of its stores to
effectively and efficiently serve the central Florida market and implementing
the results of such evaluation; and (4) implementing certain cost containment
programs in order to reduce the current level of selling, general and
administrative expenses. There can be no assurance that the implementation of
these plans along with management's plans to use a portion of the proceeds from
this Offering to reduce debt will result in increased profitability in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Financial Statements and Notes thereto presented
elsewhere in this Prospectus.
Reliance on One Supplier; Bankruptcy of Principal Vendor. The Company's
business has historically been dependent in a material respect upon its close
relationship with its principal vendor, APS, and its ability to purchase
products from this vendor at favorable prices and favorable terms, including
those offered through financial incentives such as cooperative advertising
arrangements, other marketing incentive programs and non-financial benefits such
as distribution services. The Company has entered into a product purchasing
agreement with APS ending in October 2000 to purchase a minimum average of 75%
of the Company's cost of goods sold, less certain allowable exceptions, over any
given consecutive four month billing period. During the year ended December 31,
1996, APS supplied the Company with approximately 70% of its total inventory of
stock items, which represented at least 55.4% of the Company's cost of goods
sold, after deduction of certain allowable exceptions. See
"Business -- Purchasing" and "-- Inventory Management."
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<PAGE> 11
APS, along with its parent and affiliated companies, filed for protection
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on or about
February 2, 1998. The Company is continuing to buy parts from APS under its
agreement with APS. However, if APS were to discontinue business or void its
agreement with the Company under the Bankruptcy Code, the Company would be
required to locate and purchase parts from alternative vendors. If the Company
was unable to identify and enter into agreements with alternative vendors of
similar parts that offer similar programs to APS, or there is a disruption of
the Company's vendor relationship with APS, or there is a material change in any
terms of purchase, advertising, incentive or other programs offered by APS, that
would likely have a material adverse affect on the Company's business. While the
Company has identified and discussed supply and distributor relationships with
alternative vendors of similar parts which offer similar programs to APS, there
can be no assurance that the Company will be successful in entering into new
relationships with such vendors, or if such arrangements were entered into, that
they would be available to the Company on acceptable terms, or on terms
competitive with those currently offered by APS. See "Business -- Purchasing"
and "-- Inventory Management."
Growth through Acquisitions. The Company's growth strategy includes
pursuing acquisition opportunities. There can be no assurance that the Company
will be able to successfully identify suitable acquisition candidates, secure
financing on acceptable terms, complete acquisitions, integrate acquired
operations into existing operations or expand into new markets. There can also
be no assurance that future acquisitions will not have an adverse effect upon
the Company's operating results, particularly in the fiscal quarters immediately
following the completion of such acquisitions while the operations of the
acquired business are being integrated into the Company's operations. Once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by the acquired
company's existing operations, or otherwise perform as expected. In addition,
the Company competes for acquisition and expansion opportunities with companies
that have substantially greater resources. See "Business -- Growth Strategy" and
"-- Competition."
Need for Additional Financing. The Company is dependent upon the proceeds
of this Offering to reduce the approximately $3,000,000 of it's indebtedness to
APS, to implement its growth strategy and to finance its working capital
requirements. The Company intends to satisfy the remainder of its indebtedness
to APS from a portion of the proceeds to be obtained from the Finova Credit
Facility. Additionally, the Company anticipates expanding its business through
acquisitions. To facilitate these acquisitions, the Company intends to utilize
up to $2,000,000 of the proceeds from this Offering and any remaining funds that
may be available under the Finova Credit Facility, as well as obtaining, if and
to the extent necessary to appropriately implement the Company's growth
strategies, additional lines of credit. However, currently the Company has not
entered into any preliminary agreements or understandings for any additional
lines of credit with any lenders. To the extent that the Company incurs
indebtedness to fund growth, the Company will be subject to the risks associated
with incurring additional indebtedness, including the risks that interest rates
may fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness. There can be no assurance that the Company will be
successful in obtaining a line of credit or, if obtained, that it will be
available to the Company on commercially reasonable terms, or that it will be
sufficient for the Company's growth. If the proceeds of this Offering and the
funds available pursuant to the Finova Credit Facility are not sufficient to
fully implement the Company's growth strategies, and if additional financing is
not available, the Company may have to curtail its long-range growth strategy.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Additionally, the Finova Credit Facility expires two years after the
closing of this Offering, subject only to subsequent annual renewals at Finova's
sole discretion. If Finova does not renew the Credit Facility it is unlikely
that the Company will be financially capable of satisfying its obligation to
repay Finova. The Company would seek to refinance the indebtedness due to Finova
at that time. However, there can be no assurances that the Company will be
successful in obtaining a new line of credit or, if obtained, that it will be
available to the Company on commercially reasonable terms, or that it will be
sufficient for the Company's needs.
Competition. Both the Professional Installer and DIY portions of the
Company's business are highly competitive. The Company's major competitors in
the Professional Installer portion of its business include
10
<PAGE> 12
independent warehouse distributors and parts stores, automobile dealerships and
national warehouse distributors and associations, such as National Automotive
Parts Association ("NAPA"), Carquest and All Pro. Competitors in the DIY portion
of the Company's business include national and regional automotive parts chains
such as AutoZone, Western Auto and Pep Boys, independently owned parts stores,
automobile dealerships and mass or general merchandise, discount and convenience
chains that carry Automotive Products. Many of the Company's competitors are
larger and have greater financial resources than the Company. Some of the larger
DIY competitors have entered into the Professional Installer portion of the
business and this could have material adverse effect on the Company's
operations. See "Business -- Competition."
Dependence of Key Executive. The success of the Company is dependent on
the services and efforts of its existing key management personnel. Robert H.
Gentry, III has an employment agreement with the Company. The loss of the
services of Mr. Gentry would have a material adverse effect on the Company's
business. The Company has obtained a key-man life insurance policy on Robert H.
Gentry, III, but will not maintain life insurance policies covering any other
officer or employee. Pursuant to the terms of the Credit Agreement with Finova
and as a condition to Finova's obligations under the Credit Facility, the
key-man life insurance policy will be collaterally assigned to Finova at the
closing of this Offering. The Company's success and plans for future growth will
depend on its ability to attract and retain additional qualified personnel.
There is no assurance that the Company will be able to hire or retain such
personnel in the future. See "Management."
Control by Management. Robert H. Gentry, III is currently the sole
director of the Company and as such has sole authority to manage the policies
and direction of the Company. The Company anticipates having in place an
expanded board of at least four additional members by the Effective Date, at
least three of whom will be independent directors. The Company has identified
Messrs. Lawrence S. Goldfarb, William H. Burns and Stanley G. Miller as director
candidates and those individuals have agreed to serve on the board once they are
elected. See "Management."
Immediate and Substantial Dilution. Upon completion of this Offering, the
pro forma net tangible book value per share of the Common Stock would be $1.68,
representing an immediate dilution of $4.32 of net tangible book value per
share, or 72.0%, to the public investors and an increase of $1.85 per share to
existing shareholders. The exercise of the Warrants will result in further
dilution to the public investors. See "Dilution."
Benefits to Affiliates and Insiders from Offering Proceeds. Certain
benefits will accrue to certain shareholders and management as a result of the
Offering. Robert H. Gentry, III, the Company's principal shareholder, President
and Chief Executive Officer, advanced the Company approximately $430,000 for
working capital during 1997 and secured a loan to obtain such funds with a
mortgage on his residence. The outstanding principal balance of approximately
$320,000 plus Mr. Gentry's costs incurred in connection with the loan will be
paid from Offering proceeds. Further, to the extent that the Company applies a
portion of the net proceeds of this Offering to reduce the Company's obligations
to APS and Autoparts Finance Company, Inc. ("AFCO"), an affiliate of APS, Mr.
Gentry, and certain other family members, will be relieved of their personal
guarantees of such indebtedness. In addition, the Company is indebted to
Lawrence S. Goldfarb, a director nominee,in the approximate amount of $146,000,
including interest, for advances to the Company during 1996 and 1997. The
Company plans to repay that obligation from proceeds of this Offering. See "Use
of Proceeds" and "Certain Transactions."
Control by Current Shareholders. Upon consummation of this Offering,
Robert H. Gentry, III, and his sisters, Marguerite Seifert and Jennifer Rideout
will beneficially own approximately 66%, of the shares of Common Stock
outstanding. Together, they will be in a position to control the affairs of the
Company. For example, those shareholders, individually and as a group, or
together with others, including directors and executive officers of the Company,
will be able to control the outcome of shareholder votes, including votes
concerning the election of directors, the adoption of amendments to the
Company's articles of incorporation or bylaws and the approval of certain
mergers and other significant corporate transactions, including a sale of
substantially all of the Company's assets. Such control by existing shareholders
could also have the effect of
11
<PAGE> 13
delaying, deferring or preventing a change in control of the Company. Mrs.
Rideout is the wife of William Rideout, the Company's Vice President of
Purchasing and Inventory. Marguerite Seifert is employed by the Company in its
Accounts Payable and Human Resources Departments. See "Beneficial Ownership of
Principal Stockholders and Management" and "Description of Securities."
No Dividends Anticipated. The Company does not intend to pay dividends in
the foreseeable future. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company. See
"Dividend Policy."
No Prior Public Market; Arbitrary Determination of Offering Prices;
Possible Volatility of Securities. Prior to this Offering, there has been no
public market for the Company's Securities. Accordingly, there can be no
assurance that an active trading market will develop or, if developed, that it
will be sustained upon the completion of this Offering or that the market prices
of the Securities will not decline below the initial public offering prices. The
initial public offering prices of the Securities and the terms of the Warrants
have been arbitrarily determined by negotiations between the Company and the
Underwriters and do not necessarily bear any relationship to the Company's
assets, book value, net earnings, net sales or other established criteria of
value, and should not be considered indicative of the actual value of the
Securities. See "Underwriting." The stock market has, from time to time,
experienced extreme price and volume fluctuations, which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic and other external factors, as well as
period-to-period fluctuations in financial assets of the Company, may have a
significant impact on market prices of the Securities.
Prior S Corporation Status and Other Tax Matters. The Company has been
treated as an S Corporation for federal (and most state) tax purposes, however,
the Company will convert to a C Corporation upon the close of this Offering.
Unlike a C Corporation, an S Corporation is generally not subject to income tax
at the corporate level. In the event that the Internal Revenue Service were to
deny such S Corporation status for periods during which the Company was treated
as an S Corporation by reason of the failure to satisfy the S Corporation
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company would be subject to income tax as a C Corporation. Any net operating
losses related to the Company's operation as an S Corporation will not be
available to offset taxable income, if any, of the Company once it converts to C
Corporation status.
Potential Adverse Effect of Redemption of Warrants. The Warrants are
subject to redemption by the Company. Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Warrants at the
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of the redemption. The holders of the Warrants
will automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised before
they are redeemed. The holders of Warrants will not possess any rights as
shareholders of the Company unless and until the Warrants are exercised. See
"Description of Securities -- Warrants."
Current Prospectus and State Blue Sky Registration in Connection with
Exercise of Warrants. The Company will be able to issue shares of its Common
Stock upon exercise of the Warrants only if there is a then current prospectus
relating to the Common Stock issuable upon the exercise of the Warrants under an
effective registration statement filed with the Securities and Exchange
Commission ("SEC") and only if such Common Stock is then qualified for sale or
exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of Warrants reside. Although the
Company will use its best efforts to meet such requirements, there can be no
assurance that the Company will be able to do so. The failure of the Company to
meet such requirements may deprive the Warrants of any value and cause the
resale or other disposition of Common Stock issued upon the exercise of the
Warrants to become unlawful. See "Description of Securities -- Warrants."
Possible Adverse Impact on Market of Warrant Exercise. In the event of the
exercise of a substantial number of Warrants within a reasonably short period of
time after the right to exercise commences, the
12
<PAGE> 14
resulting increase in the amount of Common Stock of the Company in the trading
market could substantially affect the market price of the Common Stock. See
"Description of Securities -- Warrants."
Possible Adverse Impact of Underwriters' Warrants. In connection with the
Offering, the Company will sell to the Underwriters, for nominal consideration
of $10, Underwriters' Warrants exercisable for 120,000 shares of Common Stock
and 120,000 Warrants, exercisable per share at 150% of the initial public
offering price. The Underwriters' Warrants will be exercisable for a period of
four years, commencing one year after the date of this Prospectus. The
Underwriters' Warrants will not be redeemable by the Company. The holders of the
Underwriters' Warrants will have the opportunity to profit from a rise in the
market price of the Securities, if any, without assuming the risk of ownership.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriters'
Warrants are outstanding. At any time when the holders thereof might be expected
to exercise them, the Company would probably be able to obtain additional
capital on terms more favorable than those provided by the Underwriters'
Warrants.
The Underwriters have "piggy back" and demand registration rights with
respect to the Common Stock issuable upon exercise of the Underwriters' Warrants
(and the Warrants issuable thereunder). Any future exercise of these
registration rights may cause the Company to incur substantial expense and could
impair the Company's ability to raise capital through the public sale of its
securities. See "Dilution," "Shares Eligible for Future Sale" and
"Underwriting."
Effect of Certain Charter and Bylaw Provisions; Antitakeover
Effects. Certain provisions of Florida law and the Company's Amended and
Restated Articles of Incorporation ("Articles of Incorporation") may deter or
frustrate a takeover attempt of the Company that a shareholder might consider in
his best interest. The Company is subject to the "affiliated transactions" and
"control share acquisition" provisions of the Florida Business Corporation Act.
These provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares other
than those beneficially owned by an "interested shareholder" or by a majority of
disinterested directors. Voting rights must also be conferred on "control
shares" acquired in specified control share acquisitions, generally only to the
extent conferred by resolution approval by the shareholders, excluding holders
of shares defined as "interested shares." The Company's Articles of
Incorporation, among other things, provide that (i) any action required or
permitted to be taken by the shareholders of the Company may be effected only at
an annual or special meeting of shareholders, and not by written consent of the
shareholders, (ii) any meeting of the shareholders may be called only the Board
of Directors or upon the written demand of the holders of not less than 50% of
the votes entitled to be cast at a special meeting, (iii) an advance notice
procedure must be followed for nomination of directors and for other shareholder
proposals to be considered at annual shareholders' meetings, and (iv) the
Company's Board of Directors, divided into three classes, each of which serves
for staggered three year periods. In addition, the Company will be authorized to
issue additional shares of Common Stock and up to five million shares of
preferred stock in one or more series, having terms fixed by the Board of
Directors without shareholder approval, including voting, dividend or
liquidation rights that could be greater than or senior to the rights of holders
of Common Stock. Issuance of additional shares of Common Stock or new shares of
Preferred Stock could also be used as an anti-takeover device. Except as set
forth herein, the Company has no current intentions or plans to issue additional
Common Stock or issue Preferred Stock. See "Description of Securities."
Possible Dilutive Effect of Options and Warrants and Adverse Effect on
Market Price. No assurance can be given as to the effect, if any, that future
sales of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market price of the Common Stock from time to time.
Sales of substantial amounts of Common Stock (including shares issued upon the
exercise of warrants or stock options), or the possibility that such sales could
occur, could adversely affect the market price of the Common Stock and could
also impair the Company's ability to raise capital through an offering of its
equity securities in the future. The Company has established a Stock Option Plan
for employees, officers, directors and consultants, and has reserved 500,000
shares of Common Stock for issuance upon exercise of stock options that will be
granted under the Plan in the future. The issuance of any additional shares by
the Company in the future may result in a reduction of the book value or market
price of the then outstanding Common Stock. For
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<PAGE> 15
the life of the Warrants, the non-public warrants, and options granted in the
future, the holders thereof may be given the opportunity to profit from a rise
in the market price of the Common Stock. Any rise in the market price of the
Common Stock may encourage the holders to exercise such warrants or options,
which may result in a dilution of the interests of other shareholders. As a
result, the Company may find it more difficult to raise additional equity
capital if it should be needed for the business of the Company while such
warrants and options are outstanding. See "Description of Securities."
Shares Eligible for Future Sale; Registration Rights; Possible Adverse
Effect on Future Market Prices. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely affect
the market price of the Common Stock. Upon completion of this Offering, the
Company will have outstanding 3,560,000 shares of Common Stock, of which the
1,200,000 shares of Common Stock and 1,200,000 Warrants sold in this Offering
will be freely tradable. Of the remaining shares, the Company anticipates that
2,360,000 shares, or 2,265,522 giving effect to the Underwriters over-allotment
option, will be subject to an agreement with the Representative under which such
shares may not be offered, sold or otherwise disposed of for a period of twelve
months after the date of this Prospectus without the prior written consent of
the Representative, but will thereafter be eligible for sale pursuant to Rule
144 of the Securities Act. See "Description of Securities -- Registration
Rights" and "Shares Eligible for Future Sale."
Possible Delisting of Securities; NASDAQ SmallCap Market. Prior to this
Offering, there has been no established trading market for the Company's
Securities and there is no assurance that a trading market for such Securities
will develop after the completion of this Offering. If a trading market does in
fact develop for the Securities offered hereby, there can be no assurance that
it will be sustained. Trading in such Securities is subject to official notice
of issuance that the Common Stock and the Warrants have been approved for
trading on the SmallCap Market of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). If the listing is approved, the continued
trading of the Common Stock and the Warrants on the NASDAQ SmallCap Market is
conditioned upon the Company meeting certain criteria. The National Association
of Securities Dealers ("NASD"), which administrators NASDAQ, currently requires
that, in order for a company's securities to be listed on the NASDAQ SmallCap
Market, the Company must have among other requirements: (a) either $4,000,000 in
net tangible assets (total assets, excluding goodwill, minus total liabilities),
or $50,000,000 market capitalization or $750,000 net income (in the latest
fiscal year or 2 of the last 3 fiscal years); (b) a public float of 1,000,000
shares having a market value of at least $5,000,000; (c) a minimum bid price of
not less than $4 per share; (d) 3 market makers; and (e) round lot shareholders
(holders of 100 shares or more) of at least 300. Continued Listing of the
Company's Securities on the NASDAQ SmallCap Market requires, among, other
things: (a) either $2,000,000 in net tangible assets or $35,000,000 market
capitalization or $500,000 net income (in the last fiscal year or 2 of the last
3 fiscal years); (b) a public float of 500,000 shares having a market value of
at least $4,000,000; (c) a minimum bid price of not less than $1 per share; (d)
2 market makers; and (e) round lot shareholders of at least 300. While NASDAQ
requirements to continue a Company's listing are less strenuous, there can be no
assurances that the Company will continue to meet such standards. If the Company
fails to meet any of these criteria, the Common Stock and/or the Warrants could
be delisted from trading on the NASDAQ SmallCap Market, which delisting could
materially adversely affect the trading market for the Common Stock and/or the
Warrants. In such event, trading in the Securities would be conducted in the
over-the-counter market known as the NASD OTC Electronic Bulletin Board, or the
"pink sheets", whereupon trading in the Company's securities would be subject to
the "Penny Stock" regulations. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's Common Stock. There can be no assurance that the Securities
will not be delisted. See "Underwriting."
Penny Stock Regulation. In the event the Common Stock is delisted from
trading on NASDAQ SmallCap Market and the trading price of the Common Stock is
less than $5.00 per share, trading in the Common Stock would also be subject to
the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities
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<PAGE> 16
Enforcement Remedies and Penny Stock Reform Act of 1990 also require additional
disclosure in connection with any trades involving a stock defined as a "penny
stock" (generally, according to recent regulations adopted by the Securities and
Exchange Commission of less than $5.00 per share, subject to certain
exceptions), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirements could severely limit the market liquidity of the
Common Stock and the ability of purchasers in this Offering to sell their
securities in the secondary market. There can be no assurance that the Common
Stock will not be treated as a penny stock.
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<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock and 1,200,000 Warrants offered hereby will be approximately $6.1
million ($6.5 million if the Underwriters' over-allotment option is exercised in
full) at an Offering price of $6.00 per share and $.125 per Warrant after
deducting aggregate underwriting discounts and the estimated expenses of the
Offering approximating $1,291,000 ($1,361,000 if the Underwriters'
over-allotment is exercised in full). See "Underwriting." The Company expects
such funds to be utilized approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ----------------------- ------------- -------------
<S> <C> <C>
Repayment of APS/AFCO Debt(1)............................... $3,000,000 49.5%
Repayment of Debt to Related Parties(2)..................... 466,000 7.7
Acquisitions and Expansion(3)............................... 2,000,000 33.0
Working Capital(4).......................................... 593,000 9.8
---------- ----
Total(5).......................................... $6,059,000 100%
========== ====
</TABLE>
- ---------------
(1) To be paid to APS and AFCO upon the closing of this Offering. The $3,000,000
allocation of proceeds set forth above will only be sufficient to pay
approximately half of the amount due to APS and AFCO for loans to the
Company. The Company intends to utilize the proceeds from the Finova Credit
Facility to refinance the remainder of the APS and AFCO indebtedness, and
thereby retire that debt in full. The Company intends to retire the full APS
and AFCO indebtedness by closing this Offering and the Finova Credit
Agreement simultaneously. The Underwriters will not close this Offering
unless the Finova Credit Facility is closed prior to or simultaneously with
this Offering. The Company and the Underwriters intend to close this
Offering no later than five (5) business days following the date this
prospectus is declared effective by the SEC. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Senior Credit Facility."
(2) This amount will be used to repay Robert H. Gentry, III, the principal
shareholder, an officer and director of the Company, and Lawrence Goldfarb,
a director nominee, for loans they have made to the Company. Of the $466,000
allocated above, approximately $320,000 shall be paid to Barnett Bank, N.A.
to repay a mortgage on Mr. Gentry's residence used to secure a loan with an
original principal amount of $500,000 for the benefit of the Company. The
Company also intends to repay $146,000 owed to Lawrence Goldfarb, a director
nominee. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Certain Transactions".
(3) To be used for the implementation of the Company's growth and expansion
strategies, acquisition of new locations for the Company's auto parts stores
and expansion, where appropriate, of existing facilities.
(4) To be used for implementation of the Company's growth strategy,
refurbishment of several stores, the hiring of a Chief Financial Officer and
general corporate purposes. The Company also intends to renegotiate interest
rates on outstanding indebtedness due to various holders of mortgages
against the Company's properties. Such amounts total approximately $730,000
and bear interest at rates currently ranging from 11.0% to 16.0% per annum.
To the extent the Company is unsuccessful in its renegotiations, it will
repay such indebtedness. If the Representative exercises the Underwriter's
over-allotment option, the Company, the Selling Shareholders and the
Representative have agreed that the first 85,522 shares of the Common Stock
shall be sold by and on behalf of the Company. The proceeds from this sale
and the sale of the related Warrants, approximately $466,000, shall be
allocated to Working Capital by the Company.
(5) If the Representative exercises the Underwriter's over-allotment option and
sells 85,522 shares and related warrants allocated for sale by the Company
thereunder, the net total proceeds to the Company will be approximately
$6,525,000.
The foregoing represents the Company's current estimate of the allocation
of the net proceeds of the Offering based upon certain assumptions relating to
the costs associated with the Company's business
16
<PAGE> 18
operations. The Company believes that the net proceeds of this Offering will
satisfy the Company's capital requirements for at least twelve months.
Prior to expenditures, the net proceeds of this Offering will be invested
principally in high grade short-term interest-bearing investments. Any proceeds
received upon exercise of the over-allotment option or any of the Company's
Warrants will be used for working capital.
DILUTION
The net tangible book deficit of the Company at October 31, 1997 was
($401,065) or ($0.17) per share of Common Stock. Net tangible book value
(deficit) per share is determined by dividing the net tangible book value
(deficit) of the Company (total tangible assets less total liabilities) by the
number of shares of Common Stock outstanding. After giving effect to the receipt
of net proceeds from the sale of the shares of Common Stock and warrants offered
hereby by the Company at an Offering price of $6.00 per share of Common Stock,
and $.125 per Warrant and after deducting estimated offering expenses and
underwriting discounts, the net tangible book value of the Company at October
31, 1996, would have been approximately $5,990,538 or $1.68 per pro forma share
of Common Stock, representing an immediate dilution of $4.32 (or approximately
70.5%) per share to the public investors. This represents an immediate and
substantial dilution to new investors purchasing Common Stock in this Offering.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $6.00
Net tangible book (deficit) per share before Offering....... ($0.17)
Increase in net tangible book value per share attributable
to public investors....................................... 1.85
------
Pro Forma net tangible book value per share after
Offering(1)(2)............................................ 1.68
-----
Dilution per share to public investors(5)................... $4.32
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of the date of
this Prospectus, the number of shares of Common Stock purchased, the percentage
of total shares purchased, the total consideration paid, the percentage of total
consideration paid and the average price per share paid by the existing
stockholders of the Company and the investors in this Offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION(1)(2) PRICE(1)
---------------------- -------------------------- ---------
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........ 2,360,000 66.3%(4) $ 262,006 3.5%(4) $0.11(4)
Public Investors(3)(4)....... 1,200,000 33.7%(4) 7,200,000(4) 96.5%(4) $6.00(4)
--------- ----- ----------- -----
Total.............. 3,560,000 100.0% $ 7,462,006 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Gives effect to the 23,600-for-one stock split to be effected immediately
prior to consummation of this Offering.
(2) Does not include: (a) up to 180,000 shares and 180,000 Warrants subject to
issuance under the overallotment option; (b) 120,000 shares and 120,000
Warrants (and shares issuable thereunder) subject to the Underwriters'
Warrants and (c) other outstanding warrants. To the extent that any warrants
are exercised, there may be further dilution to the public investors.
(3) In the event that the Underwriters exercise their over-allotment option in
full, the net tangible book value after this Offering would be $1.77 per
share which would result in an immediate dilution of $4.23 to the public
investors.
(4) Allocates no value to the Warrants offered hereby.
(5) Assumes no exercise of Warrants related to the Offering.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company
at October 31, 1997, and as adjusted to give effect to the sale of 1,200,000
shares of Common Stock and 1,200,000 Warrants by the Company in the Offering at
an Offering price of $6.00 per share of Common Stock and $.125 per Warrant, and
the application of the net proceeds therefrom. This information should be read
in conjunction with the financial statements and the notes thereto, as well as
"Summary Financial Information," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
---------------------------
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion................... $6,862 $ 3,407
------ -------
Shareholders' equity
Preferred Stock, $.01 par value; authorized: 5,000,000
shares; issued and outstanding: none................... -- --
Common Stock, $.01 par value; authorized: 20,000,000
shares; issued and outstanding: 2,360,000 actual and
3,560,000 as adjusted.................................. 24 36
Additional paid-in capital.................................. 435 6,482
Accumulated deficit......................................... (527) (527)
------ -------
Total Shareholders' equity (deficit).............. (68) 5,991
------ -------
Total capitalization...................................... $6,794 $ 9,398
====== =======
</TABLE>
- ---------------
(1) Gives effect to the 23,600-for-one stock split to be effected immediately
prior to consummation of this Offering.
(2) Does not include: (a) up to 180,000 shares and 180,000 Warrants subject to
issuance under the overallotment option; (b) 120,000 shares and 120,000
Warrants (and shares issuable thereunder) subject to the Underwriters
Warrant; or (c) other outstanding warrants.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company. Future
dividend policy will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Company's Board
of Directors. See "Description of Securities."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
This discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that might cause
such a difference include but are not limited to those discussed in "Risk
Factors."
OVERVIEW
The Company opened its first store in Florida in 1978 and by 1996 expanded
to 15 stores, one speed shop, one machine shop, and one warehouse. In 1996, the
Company opened a manufacturing unit at its headquarters to manufacture axles.
Historically, the Company purchased its merchandise directly from various
manufacturers and distributors, including APS. However, in October, 1993, the
Company entered into a product purchasing agreement with APS, a national
distributor of auto parts, from which the Company purchases approximately 75% of
its inventory stock items. The agreement was subsequently amended in October
1995. The Company determined that some of its stores service overlapping
geographic areas, thus management decided to close stores 2, 14, 17, and 18.
Stores 2 and 18 were closed during the ten months ended October 31, 1997. The
Company intends to close stores 17 and 14 during the first and second quarter of
1998, respectively. Approximately 80% of the Company's sales are to Professional
Installers that utilize the Company's telephone ordering and delivery systems.
Therefore, the Company does not anticipate a significant decline in net sales
attributable to these stores due to its ability to continue to deliver its
products to these customers from its remaining store locations. For the year
ended December 31, 1996 and the ten months ended October 31, 1997 the net
aggregate sales for the aforementioned stores were approximately $2,005,000 and
$1,531,000, respectively. The direct operating expenses for the aforementioned
stores for the same periods were $458,000 and $424,000, respectively. These
direct operating expenses include store personnel compensation and related
benefits, building rent and utility costs, insurance, vehicle costs,
advertising, and various sales costs. Management believes that the direct
operating expenses attributable to store personnel compensation and benefits,
building rent and utilities, insurance costs and certain advertising and selling
costs for the aforementioned stores can be reduced by approximately 75 to 80%.
The Company also plans to expand into other markets in Florida and the Southeast
generally through the acquisition of existing stores and/or the opening of new
stores.
RESULTS OF OPERATIONS
The following table sets forth certain selected historical operating
results for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, OCTOBER 31,
---------------- ----------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 65.8 66.8 66.8 62.2
------ ------ ------ ------
Gross profit.......................................... 34.2 33.2 33.2 37.8
Selling, general and administrative expenses............ 34.1 36.9 36.7 38.6
------ ------ ------ ------
Earnings (loss) from operations....................... .1 (3.7) (3.5) (.8)
Rental income........................................... 1.4 1.6 1.6 1.6
Interest expense........................................ (4.2) (6.5) (6.4) (6.9)
Gain on sale of property................................ -- -- -- 2.0
------ ------ ------ ------
Offering costs.......................................... -- -- -- (.8)
Net earnings (loss)..................................... (2.7)% (8.6)% (8.3)% (4.9)%
====== ====== ====== ======
</TABLE>
19
<PAGE> 21
Ten Months Ended October 31, 1996 Compared to Ten Months Ended October 31, 1997
Net Sales. Product sales decreased by approximately $1,084,000, or
approximately 10.6%, from $10,291,236 in the ten months ended October 31, 1996
to $9,206,871 in the ten months ended October 31, 1997. This decrease was
primarily attributable to the reorganization of the Company's product portfolio
and revisions made to the Company's purchase criteria policy. During the
refurbishment of the Company's product portfolio, certain low margin product
lines (mainly consisting of accessories) were removed from the product mix, and
as a result of the deletion of these lines the sales for this period declined,
while the Company's gross profit increased from 33.2% to 37.8%. Also,
contributing to the reduction in sales was the loss of most of the business of a
large regional account, management's decision to raise the quantity of the
Company's minimal product order amount and the requirements to qualify for an
open account credit, which are within the Company's purchase criteria policy.
Cost of Goods Sold. Cost of goods sold decreased from $6,871,217 or 66.8%
of net sales during the ten months ended October 31, 1996 to $5,727,418 or 62.2%
of net sales during the ten months ended October 31, 1997. This decrease in
dollar amounts was primarily attributable to the decrease in net sales and the
Company's ability in 1997 to purchase certain product lines on more favorable
terms compared to the same period in 1996. In addition, in order to expand the
Company's relationship with an existing regional account, the Company replaced
certain obsolete inventory held by that regional account which resulted in a
one-time expense write-off for obsolete inventory totaling $118,021 during the
ten months ended October 31, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased from $3,773,117 or 36.7% of net sales
during the ten months ended October 31, 1996 to $3,549,708 or 38.6% of net sales
during the ten months ended October 31, 1997. The decreased dollar amount of
SG&A expenses resulted primarily from (1) a reduction of overtime costs
resulting from improved utilization of store employees, (2) the one time expense
incurred during the ten months ended October 31, 1996 for the settlement of a
lawsuit totaling approximately $50,000 and (3) reduced healthcare and other
insurance costs as the result of management's negotiation of new insurance
policies.
Interest Expense. Interest expense decreased from $655,851 or 6.4% of net
sales during the ten months ended October 31, 1996 to $638,532 or 6.9% of net
sales during the ten months ended October 31, 1997. This dollar decrease was
primarily attributable to a reduction in the overall weighted average interest
rate which was partially offset by an increase in the average outstanding
indebtedness as a result of the Company's need to increase its borrowings to
fund operations.
Gain on Sale of Property. During the ten months ended October 31, 1997 the
Company sold property not being used in its core business which resulted in a
gain of $185,707. There were no such sales during the ten months ended October
31, 1996.
Rental Income. The Company receives rental income from various commercial
and residential properties it owns that are not related to its core business.
Rental income decreased minimally from $159,837 during the ten months ended
October 31, 1996 to $143,355 during the ten months ended October 31, 1997.
Offering Costs. The Company expensed $68,714 of its offering costs during
the ten months ended October 31, 1997 as a result of a delay in the Company's
Offering.
Income Taxes. The are no income taxes recorded in the ten months ended
October 31, 1996 and 1997 because the Company was an S Corporation.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Net Sales. Product sales increased by approximately $400,000, or
approximately 3.5%, from $11,691,338 in 1995 to $12,094,341 in 1996. This
increase was primarily due to (1) the substantial expansion of an arrangement
with one of the Company's regional accounts during 1996 which resulted in
increased sales and (2) the continued improvement in the Company's customer
service. Total net sales to such regional account was less than 10% of the
Company's total net sales in 1995 and 1996. See "Business -- Operating
Strategy."
20
<PAGE> 22
Cost of Goods Sold. Cost of goods sold increased from $7,689,551 or 65.8%
of net sales in 1995 to $8,075,176 million or 66.8% of net sales in 1996. The
increased dollar amount was primarily attributable to the Company's inability to
take advantage of vendor discount programs due to the Company's cash constraints
while offering sales discounts to the Company's regional accounts. Further,
marginal working capital during 1996 periodically prohibited the Company from
maintaining adequate inventory on certain items. Therefore, the Company
satisfied customer demand for such items by buying from competitors at prices
that generated minimal gross margins. In addition, in connection with its
expanded relationship with a regional account in 1996, the Company replaced
certain obsolete inventory held by that account with the Company's products at
no cost to the customers, which resulted in a one-time expense write-off for
obsolete inventory totaling $118,021 during 1996. The Company also opened a
manufacturing unit in 1996 which was not profitable. Management ceased
operations of this unit in June 1997.
Selling, General and Administrative Expenses. SG&A expenses increased from
$3,986,570 or 34.1% of net sales in 1995 to $4,463,849 or 36.9% of net sales in
1996. The increased dollar amount of SG&A expenses resulted primarily from (1)
hiring additional sales personnel in anticipation of the Company's planned
growth strategies ($330,000), (2) expenses incurred in establishing and
operating the manufacturing unit opened in 1996 ($38,000), (3) the expenses
associated with the settlement of a lawsuit ($50,000) and (4) the increased
operating expenses resulting from the Company's inadequate cash position.
Interest Expense. Interest expense increased from $495,174 in 1995 or 4.2%
of net sales to $785,088 in 1996 or 6.5% of net sales. This increase was
primarily attributable to an increase in weighted average outstanding
indebtedness from 1995 to 1996. In October 1995, the Company consolidated
various obligations into two loans from APS and AFCO totaling $4.95 million.
Many of the obligations that were consolidated were non-interest bearing.
However, the APS and AFCO loans bear interest at interest rates ranging from 10%
to prime plus 2% (10.25% at December 31, 1996), which substantially increased
the Company's interest expense. In addition, in October 1995, APS began to
charge the Company interest of 10% per annum on its open account balance.
Rental Income. The Company receives rental income from various commercial
and residential properties it owns that are not related to its core business.
Rental income increased from $165,245 in 1995 to $191,804 in 1996.
Income Taxes. There are no income taxes recorded in 1995 and 1996 because
the Company was an S Corporation.
SFAS No. 128, Earnings Per Share and SFAS No. 129, Disclosure of
Information about Capital Structure, will be effective for the Company's
financial statements issued after December 15, 1997. Early adoption of the new
standards is not permitted. SFAS 128 eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. SFAS
No. 129 requires disclosing information about an entity's capital structure. The
adoption of these new standards is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in 1998
and expects no material impact to the Company's financial statement
presentation.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach, along with interim reports.
21
<PAGE> 23
The management approach requires disclosing financial and descriptive
information about an enterprise's reportable operating segments based on
reporting information the way management organizes the segments for making
business decisions and assessing performance. It also eliminates the requirement
to disclose additional information about subsidiaries that were not
consolidated. The Company plans to adopt SFAS No. 131 in 1998 with impact only
to the Company's disclosure information and not its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TEN MONTHS ENDED OCTOBER 31,
----------------------- -----------------------------
1995 1996 1996 1997
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............. $(3,763,058) $ 320,812 $ 275,036 $(406,520)
Net cash provided by (used in)
investing activities............. (198,264) (248,186) (200,594) 182,852
Net cash provided by (used in)
financing activities............. 3,846,424 (86,536) (88,304) 216,580
----------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. $ (114,898) $ (13,910) $ (13,862) $ (7,088)
=========== ========= ========= =========
</TABLE>
During 1996, the Company's operations provided $320,812 compared to using
approximately $3.8 million of cash during 1995. The increase in cash provided by
operations in 1996 was due primarily to an increase in the timing of payments on
the Company's trade accounts payable and certain other working capital
liabilities due to cash constraints. In addition, in 1995 the Company
substantially reduced the amount of non-interest bearing working capital
liabilities and consolidated certain other indebtedness through the use of
proceeds obtained from interest bearing debt obtained from APS and AFCO. The
increase in cash provided from operations was also due to a slower increase in
the build up of inventory in 1996. In 1995 the Company began to expand its
product line to carry more accessory items and tools based on recommendations
made by its primary supplier. As a result, per store inventory increased
substantially in 1995. The expansion of inventory continued in 1996, however, at
a slower pace as the Company achieved its desired product mix. The Company
averaged 1.5 inventory turns in 1996 which is lower than the industry average of
2.5 turns as a result of this expansion. Toward the end of 1996 the Company
began to reevaluate this new product mix and during the first quarter of 1997
has refined its product mix to focus its efforts on the distribution of Hard
Parts. Management currently reviews inventory movement reports weekly to
identify any slow moving and excess inventory. In addition, the Company performs
cycle counts on at least a monthly basis. Once identified as slow moving or
obsolete, such inventory items are adjusted to the lower of cost or market. The
effects of the above resulting increases were partially offset by the increase
in the net loss in 1996 compared to 1995. The Company's allowance for doubtful
accounts represents 23.4% of the total trade accounts receivable at October 31,
1997.
The accounts receivable by days outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TEN MONTHS ENDED OCTOBER 31,
----------------------- ----------------------------
1996 1997
--------- ---------
<S> <C> <C>
Current............................. $501,850 $462,156
30 days............................. 133,662 72,902
31-60 days.......................... 28,343 30,872
61-90 days.......................... 14,678 13,809
over 90 days........................ 217,898 333,136
-------- -----------
$896,431 $912,875
======== ===========
</TABLE>
The increase in over 90 days for the ten months ended October 31, 1997
compared to the year ended December 31, 1996 is attributable to approximately
twelve accounts which became delinquent during 1997.
22
<PAGE> 24
The Company's policy is to not write off older receivables while it pursues
collection. These accounts have been placed on a payment plan which management
believes will bring the accounts current within the next twelve months.
The increase in cash used in operations for the ten months ended October
31, 1997 compared to the same period in 1996 was primarily attributable to the
payments to APS for inventory purchased in prior periods and the payment for
weekly purchases of inventory from APS in accordance with the Loan Modification
Agreement. Also contributing to the increase in cash used in operations were the
costs incurred in connection with the Company's planned public offering. These
increases were partially offset by a reduction in the Company's inventory levels
resulting from management's efforts to reduce overall store inventories and
improve its product mix.
The Company used cash for investing activities in the amount of $198,264,
$248,186 and $200,594 in 1995 and 1996 and the ten months ended October 31,
1996, respectively, for the purchase of property and equipment. The Company
provided cash from investing activities in the amount of $182,852 during the ten
months ended October 31, 1997 primarily from proceeds from the sale of land and
building not used in its core business. This increase was partially offset by
purchases of real property and equipment of $45,298.
Net cash used in financing activities in the year ended December 31, 1996
was $86,536 compared to net cash provided from financing activities in 1995 of
$3,846,424. Cash provided by financing activities in the year ended December 31,
1995 was primarily from the proceeds of loans from APS and AFCO. The proceeds
from such indebtedness was used primarily to reduce the amount of non-interest
bearing working capital liabilities and to consolidate certain other
indebtedness. Cash was used in the year ended December 31, 1996 primarily for
the repayment of debt. The increase in cash provided from financing activities
during the ten months ended October 31, 1997 was primarily attributable to the
proceeds from a $430,000 loan from the principal owner of the Company and was
partially offset by the scheduled repayment of debt.
As a result of the foregoing, the Company's independent certified public
accountants issued its report, which included an explanatory paragraph for a
going concern uncertainty, on the Company's financial statements as of December
31, 1996. The ability of the Company to continue as a going concern is dependent
on the consummation of this Offering and repayment of the APS and AFCO
obligations in the approximate amount of $5.8 million including accrued interest
of approximately $639,000 and the improvement of its future operations.
Management believes the repayment of those obligations will save the Company
approximately $232,000 in annual interest.
The Company had working capital deficiencies of $1,847,194 and $2,492,698
at December 31, 1996 and October 31, 1997, respectively. Since 1995, the
Company's cash flows have not been sufficient to finance operations due to its
substantial debt service, inability to take advantage of vendor discounts, and
increased selling, general and administrative expenses. As a result, during 1996
and the first ten months of 1997, the Company has been dependent on loans from
third parties in order to maintain its operations. In the second quarter of
1997, the Company borrowed $430,000 from Robert H. Gentry, III, a shareholder
and principal of the Company, who borrowed those funds from a bank. During 1996
and 1997 the Company borrowed $135,000 from Lawrence Goldfarb, a director
candidate whose company, S&G Automotive Warehouse, Inc., is one of the Company's
vendors. The $319,588 loan outstanding to Mr. Gentry at October 31, 1997, plus
his expenses incurred in connection with that loan, and the obligation owed to
Mr. Goldfarb ($135,000, plus accrued interest) will be paid from the proceeds of
this Offering.
In October 1995, APS and its financing affiliate, AFCO, loaned the Company
$2,450,000 (the "APS Note") and $2,500,000 (the "AFCO Note"), respectively, for
reduction of certain mortgage obligations and other debt. The APS Note had a one
year term and accrued interest of 10% per annum and matured in October 1996. The
AFCO Note has a term of 15 years, with a principal and interest payment payable
monthly at prime, plus 2% (10.25% at December 31, 1996). APS and AFCO obtained a
security interest in all of the Company's personal and real property in
connection with those loans. The outstanding principal balance and accrued and
unpaid aggregated default and non-default interest at January 31, 1997 was
approximately $2,666,679 and $132,455, respectively, on the APS loan, and
$2,465,467 and $204,529, respectively, on the AFCO loan.
23
<PAGE> 25
On February 20, 1997, the Company entered into a Loan Modification
Agreement with APS and AFCO. Under the terms of this agreement, the APS Note and
AFCO Note will continue to accrue interest at their specific contractual
interest rates, however, no payments of principal and interest will be required
until the maturity date. The maturity date is the earlier of the date the
Company receives proceeds from its planned initial public offering of shares of
its Common Stock, or July 31, 1997. Effective July 31, 1997 the Loan
Modification Agreement was amended to extend the maturity date to December 31,
1997 (the "Second Amendment"). On December 22, 1997, the Company entered into a
Third Amendment to Loan Agreement (the "Third Amendment") to extend the maturity
date to February 28, 1998. The Third Amendment reaffirms and incorporates the
terms and conditions of the preceding amendments and the initial loan agreement
(the Second Amendment and Third Amendment may sometimes be referred to hereafter
as the "Amendments"). In addition, from July 31, 1997 to the maturity date, the
Company is required to pay APS before the close of business on Monday of each
week an amount equal to the preceding week's purchases. During the period from
February 27, 1997 through July 31, 1997, the Company purchased from APS
approximately $80,000 of product per week. The outstanding principal balance and
accrued and unpaid aggregated default and non-default interest at October 31,
1997 was approximately $2,666,679 and $715,462, respectively, on the APS loan
and $2,465,467 and $441,747, respectively, on the AFCO loan.
The Company's compliance with the financial covenants under the terms of
the original loan agreements with APS and AFCO were waived under the terms of
the Amendments. The Amendments contain certain financial and other covenants
that, among other things, require the Company to (1) make timely payments to APS
for its merchandise purchases, and (2) complete its planned initial public
offering by February 28, 1998. Failure to comply with the covenants included in
the Amendments would cause the Company to be in default under the terms of such
agreement. Should such default occur APS and AFCO could foreclose on the
Company's assets collateralizing the APS Note and AFCO Note. As long as the
Company complies with the terms of the Amendments and repays by the maturity
date, the outstanding principal and accrued and unpaid interest amounts due
under the APS Note and AFCO Note, along with certain amounts due APS for
merchandise purchases, the default interest charge due to APS and AFCO of
approximately $460,000 and $58,000, respectively, at October 31, 1997 will be
waived. As of December 22, 1997, the Company was in compliance with the terms of
the Amendments.
In January 1997, the Company was 60 days in arrears of its open account
with APS and at that time owed $1,363,036. The Company has since been making
substantial payments on that account and at October 25, 1997, the account
balance was at approximately $1,062,000 (which amount contemplates a $71,000
credit from APS for returns). The account is considered current when the balance
is approximately $400,000. Once the account is current, as defined, the Company
will be able to take advantage of APS's 2% discount for early payment of
invoices, which it has not been able to do since February, 1996.
By making more efficient use of its alliance with APS, repaying the AFCO
and APS Notes, renegotiating certain high interest rate mortgage loans
(approximately $730,000), taking advantage of the discount offered by APS to
customers with current accounts, and by instituting cost containment programs,
management believes that the proceeds to the Company from this Offering and cash
expected to be provided by operating activities will be sufficient to fund the
capital needs of the Company for at least the next 12 months. However, there can
be no assurance that the Company can return to profitability and generate
sufficient cash flows in the future to meet its obligations when due. The
Company's future performance is subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control.
As part of its growth strategy, the Company plans to expand into other
urban areas in Florida and the Southeast. To facilitate acquisitions, the
Company intends to utilize up to $2,000,000 of the proceeds of this Offering and
any remaining funds that may be available under the Finova Credit Facility (to
the extent not used for Working Capital), and, if and to the extent necessary to
appropriately implement the Company's growth strategies, to seek additional
lines of credit after the close of this Offering. The Company currently does not
have any preliminary agreements or understandings with any lenders for any
additional lines of credit. To the extent that the Company incurs indebtedness
to fund growth, the Company will be subject to the risks associated with
incurring additional indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on any
such indebtedness. There can be no assurance that
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the Company will be successful in obtaining a line of credit or, if obtained,
that it will be available to the Company on commercially reasonable terms, or
that it will be sufficient for the Company's growth. If the proceeds of this
Offering and the funds available pursuant to the Finova Credit Facility are not
sufficient to fully implement the Company's growth strategy, and if additional
financing is not available, the Company may have to curtail its long-range
growth strategy.
INFLATION AND SEASONALITY
The Company does not believe its operations are materially affected by
inflation. The Company has been successful, in many cases, in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volume of
purchases and selective forward buying.
Although store sales have historically been somewhat higher in the second
and third quarters (March through August), the Company does not consider its
business to be materially affected by seasonality.
INDUSTRY OVERVIEW
According to industry estimates, the size of the domestic automotive
aftermarket for replacement parts, maintenance items and accessories is believed
to be in excess of $70 billion of which approximately $3.4 billion is generated
in the State of Florida. The Company believes that the market is growing because
of, among other things: (i) an increase in the size and age of the country's
automotive fleet, (ii) an increase in the number of miles driven annually per
vehicle, (iii) the increased number and higher cost of new cars and (iv) the
higher cost of replacement parts as a result of technological changes in more
recent models of vehicles.
The automotive aftermarket distribution channels are highly fragmented. The
Company believes, however, that the industry is consolidating as national and
regional specialty retail chains gain market share at the expense of smaller
independent operators and less specialized mass merchandisers. General repair
garages are being replaced by specialists and some stations are concentrating on
non-repair services. The Company believes that the DIY market is changing due to
the lack of tools and skills necessary to repair the newer, complex vehicle
systems. Today's consumers are depending more on the professional service
technicians. Automotive specialty chains with multiple locations in given market
areas are believed to enjoy competitive advantages in purchasing, distribution,
advertising and marketing compared to most small independent operators. In
addition, the increase in the number of automotive replacement parts caused by
the significant increase in recent years in the variety of domestic and imported
vehicle makes and models has made it difficult for smaller independent operators
and less specialized mass merchandise chains to maintain inventory selection
broad enough to meet customer demands. The Company believes that this has
created a competitive advantage for those automotive chains, such as the
Company, that have the resources and distribution capability to deliver an
inventory selection broad enough to meet customer needs.
The automotive aftermarket essentially operates three different types of
auto part outlets, the retail store, the traditional store, and the wholesale
store. These stores basically service two distinct types of customers, the
Professional Installer and the DIY customer. Each of the three different types
of outlets carries a different type of inventory selection -- a mixture of Hard
Parts and accessories (waxes, chemicals, car covers, etc.) Following are brief
descriptions of each type of outlet, its customer base, type of inventory, and
general marketing concept:
Retail Store. The retail store customer base is the DIY customer. The
store emphasizes accessories but carries Hard Parts. Both consist of mainly fast
moving items with limited stocking of less popular items. The retail store
relies on heavy advertising, sales clerks and extended store hours.
Traditional Store. The traditional store customer base is a mix of the
Professional Installer and DIY customers with a larger percentage of sales to
Professional Installers. The store emphasizes Hard Parts but carries
accessories. The larger mix of Professional Installers requires slow selling
items to be stocked as well as the fast moving items. The store uses outside
salesmen to call on the Professional Installers, has knowledgea-
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ble employees and offers free delivery service. It generally spends less on
advertising than the retail store and keeps fewer store hours.
Wholesale Store. The wholesale customer base is limited to the
Professional Installer. Inventory consists of Hard Parts only. The store uses
outside salesmen to call on the Professional Installer, has knowledgeable
employees and offers free delivery service. Store hours are limited and
advertising is generally at a minimum.
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BUSINESS
The Company is a specialty supplier and retailer of automotive replacement
parts, tools, supplies, equipment and accessories to both Professionals
Installers and DIY customers. The Company operates 14 auto parts stores, one
speed shop that retails high-performance items primarily to the car enthusiast,
one machine shop engaged in the building and reconditioning of certain engine
parts, and one warehouse facility that holds inventories of specific high-volume
items which are purchased in bulk directly from manufacturers, all of which are
located in, or within a one hour drive of Orlando, Florida. The Company also
maintains approximately 100 vehicles that can make most deliveries to its
wholesale customers within 30 minutes. Stores carry an extensive product line of
Hard Parts including brakes, belts, hoses, filters, cooling system parts, tune-
up parts, shock absorbers, gaskets, batteries, bearings, engine parts,
remanufactured alternators and starters, and chassis parts. In addition, the
Company carries (i) maintenance items, such as oil, antifreeze, fluids, engine
additives and appearance products; (ii) accessories, such as floor mats and seat
covers; (iii) automotive tools and (iv) professional service equipment. For the
fiscal year ended December 31, 1996, approximately 95% of the Company's product
sales was derived from Hard Parts and 5% from other merchandise. Approximately
75% of the Company's sales was derived from Professional Installers and the
remaining 25% from DIY customers during fiscal 1996.
STORE OPERATIONS
The Company's stores are traditional stores that generally range in size
from 3,000 to 8,000 square feet. The Company believes that its stores are
"destination stores" generating their own traffic rather than relying on the
traffic created by the presence of other stores in the immediate vicinity.
Consequently, all stores are freestanding buildings situated on or near major
traffic thoroughfares, which offer ample parking and easy customer access. Each
store carries a mixture of Hard Parts and accessories. The stores carry
16,000-18,000 different SKU's of which 15,000-17,500 represent Hard Parts. The
store sales are generated by a full-time technically trained sales force, a
call-in delivery service for wholesale customers, an extensive selection of
SKU's stocked in each store, express delivery for Professional Installers (with
approximate 30-minute delivery time) on in stock items, and a separate center
for Professional Installers in each store to facilitate quick service.
Company stores service two distinct types of customers -- the Professional
Installer (wholesale) customer and the DIY (retail) customer. The Company's
stores average 75% in Professional Installer sales and 25% in DIY sales. The
Company also provides a delivery service to its wholesale customers with
approximately 100 vehicles. Each of the Company's 14 stores also receive
inventory deliveries nightly from APS and four to six deliveries daily from the
Company's own warehouse. The deliveries replenish each store with the inventory
sold the previous day and also provides a store with the ability to special
order SKU's not normally stocked by the Company's stores. This enables the
Company to provide fast response service to both the wholesale and DIY
customers.
The Company's stores offer the Professional Installer and the DIY customer
a wide selection of nationally recognized brand names and "Big A" (APS private
label) products for domestic and imported automobiles, vans and trucks. In 1996,
new and remanufactured automotive Hard Parts, such as engines and transmission
parts, alternators, starters, water pumps, and brake shoes and pads, accounted
for approximately 95% of the Company's total sales. Each store also carries an
extensive selection of maintenance items, such as oil, antifreeze, fluids,
engine additives, appearance products, and accessories, such as floor mats and
seat covers, automotive tools and professional service equipment.
OPERATING STRATEGY
Accumulation of Marketshare. Because the Company pursues both the
Professional Installer and the DIY portions of the automotive aftermarket
through its store network, the Company believes that it is able to reach most
consumers of automotive products within its market areas. The demand generated
by this customer base permits the Company to offer a broad selection of SKUs and
restock and fill special orders from its principal supplier, APS, and from the
Company's own warehouse facilities, on an overnight or in some
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cases, a same-day basis. The Company maintains a warehouse for products it
purchases directly from the manufacturers; however, because of its distribution
arrangement with APS, the Company does not need to maintain a warehouse for
those products supplied by APS. This allows the Company to utilize its working
capital and management resources for store operations, but still provide its
customers with up to 160,000 SKUs. See "-- Alternative Vendors," "Purchasing"
and "Inventory Management."
Quality Workforce. The Company believes that its service to both the
Professional Installer and DIY portions of the automotive market results in
additional benefits not generally enjoyed by competitors serving only one
portion of the market. Because the Company deals with the more
technically-oriented Professional Installer, the Company's sales personnel are
required to be more technically proficient, particularly with regard to Hard
Parts. The Company has found that such technical proficiency is also valued by
its DIY consumers, thereby enhancing the Company's ability to fulfill its
customer service strategy. The Company's philosophy is to be a wholesale
customer's one call and a DIY customer's one stop for all their automotive
needs.
Equity Financing. To enhance its potential for better financial
performance, the Company must reduce its debt obligations and improve
operations. Approximately $3.0 million of this Offering's net proceeds will be
used to reduce debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Further, the Company intends to retain a
Chief Financial Officer and is focusing on implementing improved receivables,
inventory and cash management systems.
The Company also plans to use some of its working capital to refurbish some
of its stores for improved merchandise presentation, and to consolidate four of
its stores that have overlapping markets into two stores. Although the Company
expects to retain market share and reduce overhead costs as a result of the
consolidation, there can be no assurance that market fluctuations, increased
competition, or other factors will not adversely impact these or other stores.
Inventory Management and Distribution System. The Company has formed an
alliance with APS, a national distributor of automotive replacement parts, which
allows the Company's stores to have next day access to over 160,000 SKUs.
Simultaneously with the APS alliance, the Company also maintains its own square
foot warehouse from which it provides same-day delivery, of inventory purchased
directly from manufacturers, to its stores. In the past, the Company maintained
a mix of high volume and lower volume items. The costs associated with carrying
the slower moving inventory affected the Company's profitability in 1995 and
1996. The Company plans to improve its operating strategy by warehousing
primarily high volume items and to take better advantage of APS's ability to
carry slower moving inventory. See "-- Alternative Vendors."
Customized Computer Information Software. The Company has developed a
customized computer software program that provides inventory management and
accounts payable information to management on a timely basis. The computer
system and software is networked between the Company's corporate office and each
of the stores. By inputting data at each store, the software collates, organizes
and produces reports on inventory status, location and quantity, and accounts
payable aging and status. The Company believes that its computer software is one
of the more advanced software packages utilized in the industry. By delivering
faster and more accurate information to management, the Company believes that it
can improve in-stock positions and lower inventory carrying cost, all of which
management believes will help to increase profitability. The software is
continually upgraded to improve the quality of and speed with which the
information can be made available to management. The system is also capable of
accommodating the addition of new stores as the Company implements its growth
plan.
Customer Service. The Company believes it is not only in the business of
selling auto parts, but just as important, is in the service business. Heavy
emphasis is placed on having professional personnel provide responsive customer
service. Employees receive extensive on-the-job training.
The Company's number one priority is customer satisfaction. The Company
seeks to attract new Professional Installer and DIY customers and to retain
existing customers by conducting a variety of advertising and promotional
programs and by offering: (i) superior in-store service through highly
motivated, technically-proficient sales people; (ii) an extensive selection of
SKUs stocked in each store; (iii) next day
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delivery of over 160,000 SKUs, and same day delivery for inventory maintained at
the Company's warehouse; (iv) attractive stores in convenient locations; (v)
competitive pricing and (vi) a national warranty program.
Each of the Company's sales personnel is required to be technically
proficient in the workings and application of Automotive Products. This degree
of technical proficiency is essential because of the significant portion of the
Company's business represented by the Professional Installer. The Company has
found that the typical DIY customer often seeks assistance from sales people,
particularly in connection with the purchase of Hard Parts. The Company believes
that the ability of its sales personnel to provide such assistance is valued by
the DIY customers, and therefore is likely to result in repeat DIY business.
Alternative Vendors. APS, along with its parent and affiliated companies,
filed for protection under Chapter 11 on or about February 2, 1998. The
management of the Company believes, based on discussions with APS, that the
Chapter 11 proceedings involving APS will not have a material adverse affect on
their business relationship or the Company's business. However, the management
of the Company has identified and begun discussions with alternative vendors who
can supply similar parts to the Company, under similar programs and on
competitive terms and price points. Several alternative vendors have expressed a
strong interest in obtaining the Company's business if APS is unable to continue
to serve as the Company's principal vendor. Based on the foregoing, the
management of the Company does not believe that the outcome of the APS's Chapter
11 proceedings will have a material adverse effect on the Company or its
business. See "Risk Factors -- Reliance on One Supplier; Bankruptcy of Principal
Vendor."
GROWTH STRATEGY
Horizontal Integration. In addition to improving the efficiency of its
internal operations, the Company's growth strategy is to expand its operations
in other urban areas of Florida and the Southeast by purchasing automotive parts
stores as they become available on terms acceptable to the Company, as well as
opening new stores. The Company's growth to date has been accomplished primarily
by opening new stores instead of acquiring existing businesses. However, the
Company believes that because of the recent trend in consolidation occurring in
the auto parts industry, its future growth will occur as a result of
acquisitions of both single and multiple store operations. Depending on the
competitive characteristics of the industry, the Company plans to pursue all
future acquisition opportunities in addition to, or in place of, new store
openings. Key factors considered by the Company in the opening of new stores or
the acquisition of existing automotive parts stores include population density
and growth-patterns, age and per capita income, vehicle traffic counts, the
number and type of existing automotive repair facilities, other auto parts
stores and other competitors within a predetermined radius, and the operational
strength of such competitors. Although the cost to acquire the business of an
independently owned parts store varies, depending primarily on the amount of
inventory and the size of real estate, if any, being acquired, the Company
estimates that the average cost to acquire such a business and convert it to a
Company store ranges from approximately $230,000 to $355,000, excluding real
estate. Of this amount, approximately $175,000 to $300,000 is allocable to
inventory and the remainder to fixed assets. The Company estimates that an
additional $55,000 would be needed to fund the stores' operations for the
initial four month period of operations. In the event acquisitions in a targeted
area are not possible, or impractical, the Company may attempt to lease a store
site and refurbish it as a Company store. The costs associated with opening a
new leased location are slightly greater than acquiring a business and
converting it to a Company store. The Company plans to focus on expanding into
areas having population pockets of 75,000 to 100,000 in an overall statistical
market area of approximately 1,000,000 population. Although the Company has
identified possible acquisition candidates, the Company has not entered into any
definitive agreements with them. None of such candidates are affiliated with the
Company, its management or shareholders, either directly or indirectly. However,
if the Company were to enter into any such transactions in the future involving
either directly or indirectly affiliates of the Company, the transactions would
be negotiated arm's length transactions. The Company anticipates that it will
consummate acquisitions through the use of cash and/or stock. To facilitate its
growth, the Company anticipates that it will be able to negotiate a line of
credit once the APS and AFCO obligations are repaid. There is no assurance that
the Company will be able to successfully identify acquisition candidates or to
successfully finance or complete such transactions. See "Risk Factors -- Growth
through Acquisitions."
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Increasing Existing Store Sales. Same store growth through increased sales
and profitability is also an important part of the Company's growth strategy. To
achieve improved sales and profitability at Company stores, the Company
continually strives to improve upon the service provided to its customers. The
Company believes that while pricing is essential in the highly competitive
environment of the automotive aftermarket business, ultimately it is customer
satisfaction (whether of the Professional Installer or the DIY customer),
resulting from superior customer service, that generates increased sales and
profitability.
Quality Assurance Reviews. In order to help assure continuous store
improvement and overall high level of customer service, the Company conducts
"Quality Assurance Reviews" of each of its stores semi-annually. Each review
encompasses a comprehensive agenda of store characteristics and performance
criteria. The review teams are comprised of store managers from high performing
locations, as well as senior management from the Company's corporate office. A
written evaluation is prepared for each store reviewed. The review team meets
with the location manager to discuss the evaluation and to provide direction in
seeking improvements in store performance. Management believes these reviews
help to improve overall store performance.
PURCHASING
In October, 1995, the Company entered into a product purchase agreement
with APS, a national distributor of a broad array of "Big A" brand and
manufacturers branded automotive replacement parts, as well as tools, equipment,
supplies and accessories. Under the terms of this agreement, the Company agreed
to purchase, for a period of five years, merchandise from APS over any given
four month consecutive billing period at a minimum average of 75% of the
Company's cost of goods, less certain exceptions. Purchases under this agreement
aggregated approximately $4.5 million during both years ended December 31, 1995
and 1996. Due to the fact that the Company has not been current on certain debt
obligations owed APS, it has not been able to take advantage of discounted
payment terms offered by APS. See "Risk Factors -- Recent Losses; Going
Concern." However, the Company expects to bring its open account with APS
current before the close of this Offering and as a result will be able to take
advantage of APS's discount payment terms.
APS operates approximately 28 warehouses throughout the United States with
the nearest warehouse to the Company's stores being located in Ocala, Florida.
APS has been able to provide the Company with next day delivery of needed parts.
The Company participates in several APS "Big A" programs, among which are
the following:
- A national warranty program ("NWP"). The Company is able to offer its
customers a NWP, good at approximately 2,100 Big A parts sources
across the country. This program is fully funded by APS.
- A national advertising program. The Company believes that national
advertising is helpful in markets such as Orlando's four county market
area. The national advertising program, plus the NWP, gives the
Company stores added recognition and a competitive edge.
- A national account program. This program makes the Company a
pre-approved vendor to most national service centers such as
Firestone, Sears, Montgomery Ward, etc.
In addition to the above programs, APS provides the Company with: (i) brand
name products; (ii) pricing economies through increased purchasing power and
(iii) various services, including assistance in marketing, cataloging and
inventory control.
APS is a publicly held corporation whose shares of common stock are traded
on the NASDAQ National Market System. According to reports filed by APS with the
Securities and Exchange Commission, APS, formed in 1989, believes that it is the
second largest warehouse distributor of automotive replacement parts in the
United States. It supplies parts to more than 1,800 "Big A" parts stores owned
by independent jobbers and over 300 APS-owned auto parts stores. For the year
ended January 27, 1997, APS had net sales of approximately $858 million and a
net loss of approximately $10.8 million because of a first year write off in
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connection with a major acquisition. Its total stockholders' equity at January
27, 1997 was approximately $114.6 million.
A disruption of the Company's vendor relationship with APS, or a material
change in any of the terms of purchase, advertising, incentive or other programs
offered by APS, would likely have a material adverse effect on the Company's
business. However, the Company believes that if its relationship with APS were
to end, it would be able to replace APS with another distributor of similar
parts which offers similar programs.
In addition to purchasing products from APS, the Company purchases in bulk
certain items directly from manufacturers, which it stores in its 32,000 square
foot warehouse. Purchasing such items direct in bulk enables the Company to
price such parts competitively and increase its gross margin.
INVENTORY MANAGEMENT
Through its alliance with APS, a national distributor of a broad range of
"Big A" brand manufacturers branded replacement parts, the Company is provided
next day access to over 160,000 different SKU's. The alliance with APS provides
the Company with flexibility and competitiveness in the aftermarket segments of
the industry. The Company constantly seeks to improve its merchandising concepts
by expanding product selection and emphasizing the sale of the high-margin Hard
Parts. As a result of its alliance with APS, the Company does not inherit all of
the extraordinary costs associated with carrying such a large inventory, such as
(i) development and maintenance of large warehouse facilities (larger than the
Company's current warehouse which houses certain items; (ii) planning,
procurement, and management of inventories and (iii) providing distribution
methods of inventory between different locations. APS provides the Company with
the ability to return slow moving APS inventory, thereby virtually eliminating
loss from obsolescence. The Company also utilizes its own 32,000 square foot
warehouse to inventory certain parts it orders direct from manufacturers to take
advantage of purchase price discounts offered on purchases from certain of its
vendors. The Company plans to improve its operating strategy by warehousing
primarily high volume items and to take better advantage of APS's ability to
carry slower moving inventory.
APS, along with its parent and affiliated companies, filed for protection
under Chapter 11 on or about February 2, 1998. Although APS has historically
been the Company's principal vendor, in light of the recent Chapter 11 filing by
APS, the Company has identified and begun discussions with alternative vendors
who, if APS were unsuccessful in its attempt to reorganize under Chapter 11,
could replace APS as the principal vendor to the Company with minimal impact on
the Company's business. See "Risk Factors -- Reliance on One Supplier;
Bankruptcy of Principal Vendor" and "Business -- Alternative Vendors." However,
based on discussions between APS and the Company, management of the Company does
not expect any material change to or interruption of its business relationship
with APS.
MARKETING
Since a majority of the Company's revenues are derived from the sale of
Automotive Products to the Professional Installer, the Company devotes
substantial time and energy to the development of its Professional Installer
business. These businesses include gas stations, new and used car dealership
service centers, oil change and quick lube shops, tire centers, muffler shops
and auto mechanic garages. There are four full-time sales people operating from
the Company's stores dedicated solely to calling upon and selling to the
Professional Installer. Moreover, each store manager participates in these
activities by calling on existing and potential new Professional Installers on a
regular and periodic basis. The Company has approximately 100 vehicles to
provide prompt delivery service to the Professional Installer. Approximately 70
inside technically trained sales personnel market products to retail and
wholesale customers.
The Company anticipates promoting sales to DIY consumers through an
advertising program which includes direct mail, newspaper and limited radio and
television advertising in selected markets. Newspaper advertisements are
generally directed toward specific product and price promotions, frequently in
connection with specific sales events and promotions. The Company also sponsors
several automotive related events in its market area each year in an effort to
reach wholesale and retail customers. Such events include sponsoring a trade
show and conducting training clinics several times a year for the Professional
Installers which focus on
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electrical, emission control, chassis and suspension, and air conditioning. The
Company believes that its advertising and promotional activities have resulted
in significant name recognition in its market area.
The Company believes that a competitive pricing policy is essential in
order to compete successfully. Product pricing is generally established to meet
the pricing policies of competitors in the market area selected by each store.
Most automotive products sold by the Company are priced at discounts from the
manufacturer's suggested list prices and additional savings are offered through
volume discounts and special promotional pricing.
COMPETITION
The automotive parts aftermarket is highly competitive. Automotive
products, similar or identical to those sold at the Company's stores, are
generally available from a variety of different competitors in the communities
served by the Company's stores. The principle arenas of competition are delivery
time and location, customer service, merchandise selection and availability, and
price. The Company competes either directly or indirectly with each of these
areas for the business of both Professional Installers and DIY customers.
The Company's major competitors in the Professional Installer portion of
its business include independent warehouse distributors and independently owned
parts stores, automobile dealers and national warehouse distributors and
associations, such as National Automotive Parts Association (NAPA), Carquest,
All Pro, Ace Auto Parts, and Steego. The more traditional of those stores
emphasize Hard Parts which cater to the Professional Installers, but also carry
accessories and other items as demanded by the DIY segment. Those stores
typically use outside sales representatives to call on Professional Installers,
maintain operating hours similar to wholesale stores and generally spend less on
advertising than retail stores.
Competitors in the DIY portion of the Company's business within its current
market area include automotive parts chains such as AutoZone, Western Auto,
Discount Auto Parts and Pep Boys, independently owned parts stores, automobile
dealerships and mass or general merchandisers, discount and convenience chains
that carry automotive products. Such retail stores emphasize accessories and
carry few Hard Parts in inventory. They compete for the DIY customers through
heavy advertising, strong in-store customer service, and extended operating
hours. Some of the larger DIY competitors have entered into the Professional
Installer portion of the business and this could have a material adverse effect
on the Company's operations.
Since the Company's primary target market is the Professional Installer,
the Company is faced with a significant amount of direct competition from
wholesale stores. The customer base for wholesale stores is the Professional
Installer. The wholesale store limits inventory to Hard Parts, offers free
delivery service, and uses knowledgeable outside sales representatives to call
on the Professional Installers. Companies competing in this segment include
National Automotive Parts Association -- "NAPA" and APS -- "Big A."
The focus of the Company's business is on the Professional Installer
segment of the aftermarket auto parts industry. The Company, along with its
successful competitors, will compete based upon the changing needs of its
customer environment. The Company's management believes that the needs of
today's mechanics, in order of importance, are as follows: delivery time
(location), customer service, and pricing. Currently, physical location of the
store is the fundamental component of a quick delivery time. Turnaround time,
the amount of time needed to repair a car and return it to its owner, is a
primary need of the Company's secondary customer, the car owner; therefore to
help expedite a reasonable turnaround time, the parts must be delivered to the
Professional Installer quickly.
Customer service, as it applies to the Professional Installers, is
reflected in order processing time (a main ingredient of quick delivery) and
product knowledge. The multiple tasks which are combined to create order
processing time include - understanding the order, referencing the item code,
confirming the part in inventory, negotiating a price, pulling the part from
inventory, packaging the goods, and routing delivery drivers. Product knowledge
is considered a valuable competitive advantage in this industry segment based
upon the fact that often the mechanic will counsel with the parts person in
order to accurately diagnose the problem and select the appropriate replacement
part.
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Although product pricing should be competitive, the Company's management
believes that having the lowest price will not guaranty the sale and that
delivery time and customer service have priority over price.
Although the Company believes that it competes effectively in its market
area with many locations in the Orlando metropolitan area, its emphasis on
customer service, and its competitive pricing, some of its competitors, or their
parent organizations, are larger in terms of sales volume and have access to
greater capital and management resources.
EMPLOYEES
As of December 15, 1997, the Company had 164 full-time employees, 65 of
whom were employed at the Company's stores including 6 at its machine shop, 74
of whom were engaged as delivery personnel, 22 of whom were engaged as corporate
and administrative personnel, and 3 of whom worked at the warehouse facility.
The Company's employees are not subject to a collective bargaining agreement.
The Company considers its relations with its employees to be excellent.
SERVICE MARKS AND TRADEMARKS
The Company owns no registered marks or trademarks. The Company believes
that its business is not materially dependent on any patent, trademark, service
mark or copyright.
LEGAL
The Company has instituted a lawsuit (the "Lawsuit") against The Parts
Source, Inc. d/b/a Ace Auto Parts, a prior aborted suitor, and certain former
employees of the Company for certain tortious acts alleged to have caused damage
to the Company estimated at approximately $1.5 million. The Company is also
seeking an injunction against the defendants in its Lawsuit. The Lawsuit,
currently in the pleading and discovery stage, was filed on March 20, 1997, in
the Circuit Court in and for Orange County, Florida. In the opinion of
management, the ultimate outcome of this lawsuit should not have a material
adverse impact on the Company's financial position, results of operations or
liquidity.
SENIOR CREDIT FACILITY
The Company has obtained a non-binding commitment from Finova Capital
Corporation (previously defined as "Finova") to provide a revolving line of
credit (previously defined as the "Finova Credit Facility") of up to four
million dollars ($4,000,000) to the Company in accordance with the terms of a
loan and security agreement (previously defined as the "Credit Agreement").
Finova's execution of and performance under the Credit Agreement is subject to a
number of conditions, including, but not limited to, the closing of this
Offering and the receipt by the Company of the proceeds of this Offering. The
Company intends to use up to $3,000,000 provided by this Credit Facility,
together with approximately $3,000,000 from the proceeds of this Offering, to
repay in full the indebtedness to APS. The remainder of the Finova Credit
Facility may be utilized by the Company as working capital or for acquisitions
in furtherance of the Company's growth strategy. The proceeds from the Finova
Credit Facility will not be available to the Company, assuming the Credit
Agreement is executed and all its conditions are satisfied by the Company, until
this Offering is closed. The Company intends to close the Credit Agreement
simultaneously with the closing of this Offering, such closing is to occur no
later than five (5) business days following the date this prospectus is declared
effective by the SEC.
To secure the Credit Facility, the Company has agreed to grant Finova a
first priority security interest in substantially all of its personal property,
including without limitation, all of its eligible accounts receivable,
equipment, machinery, vehicles, general intangibles and inventory, and a first
mortgage lien upon certain parcels of real estate (specifically including the
following properties: (i) 100 South Parramore, Orlando, FL; (ii) 701 and 711
West Church Street, Orlando, FL; (iii) 714, 718, and 720 West Pine Street,
Orlando, FL; (iv) 5251 South US Highway 17-92, Casselberry, FL; (v) 2535 French
Avenue, Sanford, FL; and (vi) 409 East Michigan Road, Orlando, FL). In addition
to other conditions set forth in the Credit Agreement, the proceeds from this
Credit Facility will be made available to the Company based upon the
33
<PAGE> 35
Company's ability to provide sufficient security for such advances, calculated
as follows: seventy percent (70%) of the value of certain accounts receivable
deemed eligible for advance by Finova and fifty percent (50%) of the value of
certain inventory deemed eligible for advance by Finova.
The Company will pay to Finova monthly interest on the aggregate daily loan
balance at a floating rate equal to the Prime Rate plus two percent (2%). The
"Prime Rate" is the rate announced from time-to-time by Citibank, N.A. New York,
New York. The minimum monthly interest charge for the Finova Credit Facility is
fifteen thousand dollars ($15,000). Interest charges are computed on the basis
of a year of three hundred sixty (360) days and actual days elapsed are payable
to Finova in arrears on the first business day of each month and are subject to
increase following a default.
The initial term of the Credit Facility is two years, with annual renewals
thereafter at the discretion of Finova. In the event that the Credit Facility is
for any reason terminated prior to the expiration of the initial term, the
Company will be obligated to pay Finova an early termination fee of three
percent (3%) of the total Credit Facility if terminated during the first year of
the initial term, and one percent (1%) of the total Credit Facility if
terminated during the second year of the initial term.
On the closing date of this Credit Facility, which is scheduled to occur
simultaneously with the closing of this Offering, the Company will pay to Finova
a one time Closing fee in the amount of one and a half percent (1 1/2%), or
$60,000, of the total amount of this Credit Facility ($4,000,000) less a $20,000
portion of such fee which has previously been paid to Finova. With respect to
each fiscal quarter, during the tenure of this Credit Facility, the Company
shall also be obligated to pay to Finova an unused line fee of one half of one
percent ( 1/2%) of the unused portion of the Credit Facility, which will be
calculated and paid on a quarterly basis effective the first quarter after the
closing of this transaction.
The Credit Facility contains the usual and customary default covenants and
remedy provisions associated with similar revolving debt instruments. Upon
receipt by the Company of a written notice of default from Finova and the
Company's failure to cure such default during the applicable cure period, Finova
may, at its option and in accordance with the terms of the Credit Agreement,
cease making loans to the Company, terminate the Credit Agreement, impose a
default interest rate and/or declare the full payment immediately due and
repayable.
PROPERTIES
The Company operates, in the central Florida metropolitan area, 14 auto
parts stores, one speed shop (which retails high-performance items to car
enthusiasts), one machine shop and one warehouse. All of these facilities are
owned by the Company except for two stores, which are leased. The Company's
headquarters and administrative offices, which include the Company's warehouse,
machine shop, and manufacturing unit (which was closed on June 1, 1997), consist
of six buildings totaling 48,000 square feet and are located on 2.5 acres in
Orlando.
The Company also owns a 32,000 square foot warehouse in Virginia which the
Company leases to a manufacturing company and receives rental income from that
property of approximately $42,000 per year. The Company also owns 10 other
commercial and residential properties in the Orlando area and one residential
property in Virginia from which it receives aggregate rental income of
approximately $132,000 per year. These properties are commercial and residential
properties.
Nine of the Company's real properties are encumbered by approximately
$1,379,000 in outstanding notes, maturing between December 1, 1997 and March 3,
2010, with varying interest rates ranging from 7.00% to 16% per annum. The
aggregate monthly installments are approximately $23,323, including interest.
The Company is current in its payments of those obligations. The Company intends
to renegotiate the interest rates on $730,000 of these loans.
With the exception of the Virginia property, all of the Company's
properties are encumbered by a mortgage and/or a security agreement in favor of
APS and AFCO securing two loans with an aggregate current balance of $5.8
million (including accrued and unpaid interest) at October 1, 1997. Interest
accrues at interest rates varying from 10% to prime plus 2% (10.50% at October
31, 1997), and the outstanding principal
34
<PAGE> 36
balance and accrued interest is due and payable on or before December 31, 1997.
The Company plans to retire this debt by using a combination of $3,000,000 from
the proceeds of this Offering and a portion of the funds received from
refinancing the balance of the APS indebtedness which refinancing has been made
a condition to closing this Offering by the Underwriters. On October 29, 1997,
the Company obtained a commitment from Finova to provide up to $4,000,000
pursuant to the terms and conditions of the Credit Agreement to be executed
simultaneously with the closing of this Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
35
<PAGE> 37
The following property schedule and accompanying footnotes identifies the
Company's corporate offices, warehouse and retail outlets, their approximate
square footage, whether leased or owned, and whether they are to be sold or
refurbished, which are in process or planned to occur within the next 18 months.
All lease agreements are with non-affiliated parties and on commercially
reasonable terms and conditions.
PROPERTY SCHEDULE: CORPORATE OFFICES, WAREHOUSES AND STORES
<TABLE>
<CAPTION>
RENT DESCRIPTION
GENERAL SQUARE -----------------------------
STORE # LOCATION DESCRIPTION FOOTAGE OWN/RENT EXPENSE TERM
- --------- ----------------------------- ---------------------------------- ------- -------- --------- -----------------
<C> <S> <C> <C> <C> <C> <C>
1 6464 E. Colonial, Orlando Traditional retail parts store 3,200 Rent $ 1,378 month-to-month(1)
2 2619 N. Pine Hills Rd., Traditional retail parts store (2) 3,800 Own
Orlando
3 1409 N. Main, Kissimmee Traditional retail parts store 3,500 Own
4 100 S. Parramore, Orlando Traditional retail parts store (3) 5,000 Own
Warehouse 701 W. Church St., Orlando Distribution center (4) 32,000 Own
Corporate Pine Street Corporate offices 5,000 Own
Corporate 733 W. Church St., Orlando Corporate offices 12,000 Own
6 1803 S. Orange, Orlando Speed parts store 3,800 Own
7 5251 S. US Hwy. 17-92, Traditional retail parts store(5) 6,000 Own
Casselberry
8 725 W. Church St., Orlando Machine shop 8,000 Own
9 2535 French Ave., Sanford Traditional retail parts store 3,980 Own
12 104448 E. Colonial, Orlando Traditional retail parts store(6) 4,000 Own
14 715 N. Powers, Orlando Traditional retail parts store(7) 3,205 Own
15 736 S. Dillard, Winter Garden Traditional retail parts store(8) 4,200 Own
16 1271 LaQuinta Drive, Suite $2,300.67
13, Orlando Traditional retail store (9) 6,000 Rent + tax 9/97-8/00
17 380 W. Hwy. 434, Winter Traditional retail parts store(10) 2,684 Own
Springs
18 71 Geneva Drive, Oveido Traditional retail parts store(11) 2,000 Rent $ 909.50 month-to-month
21 1411 Cypress Dr., Melbourne Traditional retail parts store 4,800 Own
24 3412 Aloma Ave., Winter Park Traditional retail parts store(12) 4,400 Own
25 37 S. Park Ave., Titusville Traditional retail parts store 3,160 Own
27 710 W. King, Cocoa Traditional retail parts store 5,600 Own
<CAPTION>
PROPERTIES TO BE:
------------------
STORE # SOLD REFURBISHED
- --------- ---- -----------
<C> <C> <C>
1
2 x
3
4
Warehouse x
Corporate x
Corporate x
6 x
7
8
9
12
14 x
15
16
17 x
18
21 x
24 x
25 x
27
</TABLE>
- ---------------
(1) This lease is for a month-to-month term, terminable by either party upon
15 days notice.
(2) The Company closed Store 2 on August 25, 1997. Management expects the
revenue generated by the sales from Store 2 to be captured, instead by
Stores 4 and 15, located in a similar and nearby geographic region. In
accordance with the Company's growth strategy, the Company utilized the
inventory from Store 2 to open a store in a new geographic region where
the Company had no other presence. This new store is now designated Store
16. The Company has leased the property underlying Store 2 to an unrelated
third party pursuant to a lease requiring rental payments of $1,600 per
month and granting the lessee an option to purchase the real property for
approximately $160,000.
(3) The Company intends to expand Store 4 in order to better position this
store to absorb some of the revenue previously generated by Stores 2 and
14, which the Company intends to close in the second quarter of 1998.
(4) The Company intends to expand its Warehouse and distribution center by
taking in inventory from Stores 2, 14, 17 and 18, which are closed or
scheduled to be closed.
(5) The Company intends to expand Store 7 in order to better position this
store to absorb some of the revenue previously generated by Store 17,
which the Company intends to close.
(6) The Company intends to expand Store 12 in order to better position this
store to absorb some of the revenue previously generated by Store 18,
which the Company closed on July 31, 1997.
(7) The Company intends to close Store 14 during the second quarter of 1998.
The Company intends to transfer the inventory at this location to its
Warehouse for use as inventory at other of the Company's stores.
Management expects the revenue generated by the sales from this store to
be captured, instead by Stores 4 and 15, located in a similar and nearby
geographic region.
(8) The Company intends to expand Store 15 in order to better position this
store to absorb some of the revenue previously generated by Stores 2,
which the Company closed on August 25, 1997 and 14, which the Company
intends to close.
(9) The Company opened Store 16 with the inventory from Store 2 in a new
geographic region where the Company had previously had no other presence,
in furtherance of its grow strategy.
(10) The Company intends to close Store 17 during the first quarter of 1998. It
is expected that the inventory at this location will either be returned to
APS to reduce the outstanding balance of that loan or transferred to Store
7 for use as inventory. Management expects the revenue generated by the
sales from this store to be captured, instead by Store 7, located in a
similar and nearby geographic region.
(11) The Company closed Store 18 on July 31, 1997. The inventory at this
location was returned to APS to reduce the outstanding balance of that
loan and transferred to Stores 12 and 24 for use as inventory. Management
expects the revenue generated by the sales from this store to be captured,
instead by Stores 12 and 24, located a in similar and nearby geographic
region.
(12) The Company intends to expand Store 24 in order to better position this
store to absorb some of the revenue previously generated by Store 18,
which the Company closed on July 31, 1997.
36
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Robert H. Gentry, III.................. 54 President, Chief Executive Officer and
Director
William H. Burns, Jr................... 50 Director (nominee)
Lawrence S. Goldfarb................... 70 Director (nominee)
Daniel T. Guilfoile.................... 37 Director (nominee)
Stanley G. Miller...................... 64 Director (nominee)
David O. O'Neal........................ 55 Vice President
Patrick J. Power....................... 27 Vice President -- Corporate Development
and Investor Relations
Herchel L. Rideout..................... 51 Vice President
</TABLE>
ROBERT H. GENTRY, III, has served as President, Chief Executive Officer,
and a Director of the Company since 1980. From 1978 to 1980, Mr. Gentry was the
Company's Chief Operating Officer and was responsible for managing the Company's
stores and inventory. Mr. Gentry has been involved in the automotive parts
industry for over 34 years. Mr. Gentry attended the University of Kentucky where
he studied Accounting and Business Administration.
WILLIAM H. BURNS, JR., is a director nominee. From 1995 to 1996, Mr. Burns
was the Executive Vice President and Chief Operating Officer of Virtuem
Entertainment, Inc., a Chicago-based start-up corporation in the business of
entertainment, retail sales and interactive technology. From 1993 to 1995, Mr.
Burns held the position of President of the Entertainment Center Division of the
Blockbuster Entertainment Group, a new operating division responsible for the
concept development, start-up and operation of the initial Blockbuster
entertainment centers as well as the identification of acquisition candidates
for Blockbuster in the entertainment field. From 1969 through 1993, Mr. Burns
held various development and operations positions with the Walt Disney World
Company both in Orlando, Florida and Burbank, California. Mr. Burns earned a
Masters in Business Administration from Rollins College and a Bachelor of
Science in Journalism from the University of Florida.
LAWRENCE S. GOLDFARB, is a director nominee. Since 1980, Mr. Goldfarb has
served as the President of S & G Automotive Warehouse, Inc., a seller of
automotive replacement parts in central Florida. Mr. Goldfarb has been involved
in the automotive parts industry for over 50 years.
DANIEL T. GUILFOILE, is a director nominee and the director designee of
Nutmeg Securities Ltd. (the "Representative"). Mr. Guilfoile has been employed
with the Representative since 1990, where he has served as the Director of
Investment Banking since January 1, 1997. From 1992 to December 31, 1996 Mr.
Guilfoile served as Vice President of Syndicate and Corporate Finance for the
Representative. Mr. Guilfoile received a Bachelor of Arts degree in Economics
from Villanova University in 1982 and a Masters of Finance degree from Fordham
University in 1988.
STANLEY G. MILLER, is a director nominee. Although Mr. Miller has been
retired since March, 1992 he previously served as Senior Vice President for
Exide Corporation, one of the largest manufacturers of automobile batteries.
DAVID O. O'NEAL, has served as Vice President of Management Information
Systems since joining the Company in 1993. Prior thereto, from 1990 to 1993, Mr.
O'Neal was a Senior Programming Analyst at Autopower Corp., a software
development firm in Orlando. Mr. O'Neal earned a Masters of Business
Administration from the University of Central Michigan and a Bachelors of
Computer Science from the University of Southern Illinois.
37
<PAGE> 39
PATRICK J. POWER, was appointed Vice President of Corporate Development and
Investors Relations effective October 1, 1996. From November 1995 to October
1996, Mr. Power was the Director of Investor Relations for Eckler Industries,
Inc. (now known as "SmartChoice Automotive Group, Inc.", Titusville, Florida).
Prior to and concurrent with working for Eckler Industries, Mr. Power served as
the Director of Strategic Planning for Greyhouse Services Corporation, a
subsidiary of Florida Gulf Capital and Equity Corporation, from March 1994 to
October 1996. During the period from March 1993 to March 1994, Mr. Power was
employed as a researcher of municipal and federal fixed income financial
products by Olde Discount Stock Brokers Corporation. Mr. Power received a
B.S.B.A. in Finance from the University of Central Florida in 1993.
HERCHEL L. RIDEOUT, JR., was appointed Vice President of Purchasing and
Inventory in 1996. From 1980 to 1996, Mr. Rideout worked for Automotive One in a
variety of positions of increasing responsibility in the areas of business
operations and employee management, including Store Operations
Manager -- Central Florida Region, Director of Risk Management, and Human
Resources Manager. Mr. Rideout is the brother-in-law of Mr. Gentry.
The Board and Shareholders of the Company have authorized the expansion of
the Board to 5 members and the selection of Messrs. Miller, Goldfarb, Burns and
Guilfoile, the nominee directors identified above, to serve on the Board with
Mr. Gentry commencing on the Effective Date.
The Company intends to hire a qualified chief financial officer and other
management personnel as soon as possible. The Company has allocated a portion of
the proceeds from this Offering for use in attracting and retaining the services
of qualified management personnel. See, "Use of Proceeds."
BOARD COMMITTEES
The Board of Directors has established an Audit Committee consisting of
Messrs. Burns, Goldfarb and Miller, to review the results and scope of the audit
and other services provided by the Company's independent certified public
accountants.
EXECUTIVE COMPENSATION
The following table sets forth cash compensation paid by the Company to, as
well as any other compensation paid to or earned by, the President and Chief
Executive Officer of the Company and those executive officers compensated at or
greater than $100,000 for services rendered the Company in all capacities during
the fiscal years ended December 31, 1995 and 1996. For information regarding
current compensation paid to the Company's executive officers, see "Employment
Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
YEAR OTHER ANNUAL
NAME AND POSITION ENDED SALARY BONUS COMPENSATION(1)
- ----------------- ------------ ------- ------- ---------------
<S> <C> <C> <C> <C>
Robert H. Gentry, III........................ 12/31/96 $60,000 -- $30,000
President, CEO............................... 12/31/95 60,000 -- 30,000
</TABLE>
- ---------------
(1) Reflects payments made by the Company for life insurance policies and
vehicle leases or payments.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive compensation for
serving as directors. The Company anticipates compensating its independent
directors for their services in the form of fees and/or stock options, yet to be
determined; however, the Representative's designee shall serve without
compensation. All directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attending
38
<PAGE> 40
meetings of the Board of Directors and for other expenses incurred in their
capacity as directors of the Company.
EMPLOYMENT AGREEMENTS
On May 13, 1997, the Company entered into a five-year employment agreement
with Robert H. Gentry, III, the Company's President and CEO. Upon expiration of
its initial five-year term, the agreement is renewable for successive two-year
periods. Under the agreement, Mr. Gentry's annual salary is $80,000 for 1997,
increasing to $100,000 January 1, 1998 through December 31, 1999, and $120,000
January 1, 2000 through December 31, 2002. The employment agreement provides
that the Company's Board of Directors shall use its best efforts to establish by
April 1, 1998 a bonus program and a discretionary stock option plan for
executive officers of the Company which will be tied to the Company's
performance. The agreement provides that in the event Mr. Gentry's employment is
terminated "without cause", he shall receive compensation and benefits equal to
those he was receiving immediately prior to said termination for the greater of
the remainder of the employment term or twelve months. In the event Mr. Gentry's
employment is terminated for any other reason, including for "cause", he will
receive severance payments in an amount equal to the compensation that Mr.
Gentry was receiving immediately prior to such termination for a period of
twelve months. Under the employment agreement, Mr. Gentry will also be entitled
to five weeks paid vacation, either an automobile or an automobile allowance of
$800 per month, and reimbursements for expenses incurred in connection with
Company business.
Effective June 1, 1997, the Company entered into a three-year employment
agreement with Patrick J. Power to serve as the Company's Vice President of
Corporate Development and Investor Relations. Under the agreement, Mr. Power's
annual salary is $35,000 per year, accruing as of June 1, 1997 but payable
commencing on the closing of this Offering in accordance with the Company's
normal payroll practices. The employment agreement provides for a starting bonus
of $35,000, representing, in part, accrued but unpaid salary, to be paid on the
Closing of this Offering. The employment agreement further provides that the
Company's Board of Directors, in their sole and exclusive discretion, may grant
a bonus to Mr. Power based on extraordinary performance or contributions to the
Company. The agreement provides that in the event Mr. Power's employment is
terminated "without cause", he shall receive compensation and benefits equal to
those he was receiving immediately prior to said termination for the greater of
the remainder of the employment term or six months. The employment agreement
recognizes that Mr. Power is engaged in other endeavors and requires Mr. Power
to devote only that portion of his time as is reasonably necessary to perform
his duties. Mr. Power will not receive any vacation, sick days or healthcare
coverage, but has been granted 30,000 non-qualified stock options under the
Company's 1997 Stock Option Plan. The options shall vest over a three year
period, and be exercisable for a period of not less than five years.
STOCK OPTION PLAN
In May 1997, the Company established a 1997 Employee Stock Option Plan (the
"Plan") under which 500,000 shares of Common Stock are reserved for issuance
upon exercise of stock options. The Plan is designed to serve as an incentive
for retaining qualified and competent employees. The Company's Board of
Directors, or a committee thereof (the "Committee"), will administer and
interpret the Plan and will be authorized to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of the Company and consultants.
The Plan provides for the granting of both incentive stock options and
non-qualified stock options. Options will be granted under the Plan on such
terms and at such prices as determined by the Committee, except that the per
share exercise price of incentive stock options cannot be less than the fair
market value of the Common Stock on the date of grant and the per share exercise
price of non-qualified stock options may not be less than 85% of the fair market
net value of the stock at the time of grant. Each option will be exercisable
after the period or periods specified in the option agreement, but no option can
be exercised until six months after the date of grant or after the expiration of
10 years from the date of grant. Options granted under the Plan will not be
transferable other than by will or by the laws of descent and distribution.
39
<PAGE> 41
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of
cessation of employment are available for further grants.
The Company has granted 30,000 non-qualified Common Stock options under the
Plan to Mr. Patrick J. Power, Vice President -- Corporate Development and
Investor Relations.
The Company may grant independent directors of the Company non-qualified
stock options outside of the Plan.
INDEMNIFICATION, DIRECTORS AND OFFICERS
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a derivative
proceeding, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a non-derivative proceeding, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as a director, whether or not
the corporation would have the power to indemnify him against such liability
under the FBCA.
The Company's Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws provide that the Company shall indemnify all directors and
officers of the Company to the full extent permitted by the FBCA. Under such
provisions, any director or officer, who in his capacity as such, is made or
threatened to be made, a party to any suit or proceeding, may be indemnified if
the Board of Directors determines such director or officer acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the Company. The Amended and Restated Articles of
Incorporation, Amended and Restated Bylaws and the FBCA further provide that
such indemnification is not exclusive of any other rights to which such
individual may be entitled under the Amended and Restated Articles of
Incorporation, the Amended and Restated Bylaws, any agreement, vote of
shareholders or disinterested directors or otherwise.
It is anticipated that the Company's Board of Directors and executive
officers will enter into indemnification agreements with the Company. The
agreements follow the indemnification and expense advancement provisions of
FBCA. In addition, the indemnitee under the agreements is entitled to
indemnification against all expenses actually and reasonably incurred by him or
on his behalf in connection with serving as a witness in any proceeding (as
defined in the agreement) by virtue of his or her status with the Company. The
agreements also provide a procedural mechanism under which the indemnitee can
claim and obtain indemnification, including a procedure for the Board or
independent counsel to determine entitlement to indemnification under specific
situations. In the event the indemnitee does not receive the indemnification to
which he would otherwise be entitled under the terms of the agreement, the
indemnitee is entitled to seek a judicial determination. In the event the
indemnitee seeks a judicial adjudication to enforce his or her rights under, or
to recover damages for breach of, the agreement, the indemnitee is entitled to
recover from the Company his or her reasonable legal fees and other expenses in
connection with the legal proceeding, subject to proration in the event the
amount of the aware is less than the amount of indemnification sought.
The Company and the Underwriters have agreed to indemnify each other
(including officers and directors) against certain liabilities arising under the
Securities Act. See "Underwriting."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the
40
<PAGE> 42
Company has been advised that in the opinion of the Securities Exchange
Commission ("SEC"), such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of October 1, 1997 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company who
owns any shares of Common Stock, (iii) each stockholder that has granted
over-allotment options to the Underwriters (the "Selling Shareholders") and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
PERCENT SHARES BENEFICIALLY
BENEFICIALLY OWNED AFTER OFFERING
SHARES BENEFICIALLY OWNED AFTER PERCENTAGE OF IF OVER-ALLOTMENT
OWNED PRIOR TO THE OFFERING SHARES OPTIONS ARE
OFFERING(2)(3) IF OVER-ALLOTMENT SUBJECT TO EXERCISED IN FULL(2)
NAME AND ADDRESS OF ------------------- OPTIONS ARE NOT OVER-ALLOTMENT ---------------------
BENEFICIAL OWNER(1) NUMBER PERCENT EXERCISED OPTIONS NUMBER PERCENT
- ------------------- --------- ------- ----------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Gentry, III....... 1,652,000 70.0% 46.4% (7) 1,588,367 42.5%
Marguerite Siefert.......... 354,000 15.0% 9.9% (7) 340,371 9.1%
Jennifer Rideout............ 354,000 15.0% 9.9% (7) 340,371 9.1%
Stanley G. Miller(4)........ -0- -- --
William H. Burns, Jr.(4).... -0- -- --
Lawrence S. Goldfarb(4)..... -0- -- --
Patrick J. Power(5)......... -0- -- --
All Officers and Directors
as a group (8
persons)(6)............... 2,360,000 100.0% 66.2% 2,269,109 60.7%
</TABLE>
- ---------------
(1) The address of each of the beneficial owners identified is c/o Automotive
One Parts Stores, Inc., 701 West Church Street, Orlando, FL 32802.
(2) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Exchange Act as consisting of sole or shared
voting power (including the power to dispose or direct the disposition of)
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire such
power(s) during the next 60 days. Unless otherwise noted, beneficial
ownership consists of sole ownership, voting and investment rights.
(3) Gives effect to the 23,600-for-one stock split to be effected prior to
consummation of this Offering.
(4) Messrs. Miller, Burns and Goldfarb are director candidates.
(5) Mr. Power is an officer of the Company.
(6) Includes the director candidates.
(7) The Company, the Selling Shareholders and the Representative have agreed
that of the 180,000 shares available for sale in the Underwriter's
over-allotment, the first 85,522 shares shall be sold on behalf of the
Company. The proceeds to the Company resulting from the sale of the 85,522
shares shall be allocated to working capital. See "Use of Proceeds." The
Shares allocable to and the proceeds resulting from the sale of the
remaining 94,478 shares subject to the Underwriter's over-allotment options
shall be apportioned between Mr. Gentry, Ms. Siefert and Ms. Rideout in
accordance with their percentage of holdings.
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<PAGE> 43
CERTAIN TRANSACTIONS
In April 1997, Mr. Gentry borrowed $500,000 from Barnett Bank, N. A., which
is secured by Mr. Gentry's residence. In turn, Mr. Gentry loaned approximately
$446,000 of those funds to the Company for operations, evidenced by a promissory
note made by the Company in favor of Mr. Gentry bearing interest at the rate of
8% per annum and maturing February 12, 2002. The Barnett Bank note has a term of
thirty years and bears interest at 7.25% per annum. The monthly payments are
$3,410.88. The Company will repay the Barnett Bank loan from the net proceeds of
this Offering and will reimburse Mr. Gentry's out-of-pocket costs made in
connection with the Barnett Bank loan whereupon Mr. Gentry's note will be
canceled. The Company owed Mr. Gentry $319,588 at October 31, 1997.
S & G Automotive Warehouse, Inc., a supplier of merchandise to the Company,
is owned by Lawrence Goldfarb, a nominated director of the Company. During the
years ended December 31, 1995 and 1996, and the ten months ended October 31,
1996 and 1997, the Company paid to S & G Automotive Warehouse, Inc. $191,395,
$226,037, $164,284 and $303,506, respectively, for merchandise.
During 1996, Lawrence Goldfarb, a nominated director, loaned the Company an
aggregate of $95,000 at an interest rate of 10% per annum. The outstanding
principal balance of those loans were consolidated into one note and currently
totals $95,000 and $135,000 at December 31, 1996 and October 31, 1997,
respectively. The note accrues interest at 10% per annum and is payable upon the
earlier of the closing of this Offering or December 31, 1997. The Company
anticipates repaying that obligation from the proceeds of this Offering.
During 1995 and 1996, the Company made advances to and borrowed money from
officers, shareholders and family members from time to time. The Company owed
$67,000 and $86,272 to these individuals at December 31, 1996 and July 31, 1997,
respectively. In addition, these individuals owed the Company $70,384 and
$61,591 at December 31, 1996 and October 31, 1997, respectively.
The Company does not anticipate any new transactional activity between the
Company and its officers, directors, 5% shareholders or their affiliates, other
than S & G Automotive Warehouse, Inc. However, in the event any such
transactions were proposed, including any new transactions with S & G Automotive
Warehouse, Inc., they would be subject to full disclosure to and authorization
by a majority of the independent Board members or a Board-appointed committee
not having an interest in the transaction, full disclosure to and approval of a
majority of the shareholders who do not have an interest in the transaction, or
the transaction is fair and reasonable as to the Company under Florida law at
the time it is authorized by the Board or the shareholders. Further, affiliated
transactions having fair market values exceeding certain statutory amounts are
required to be approved by holders of two-thirds of the voting shares other than
the shares beneficially owned by the shareholder interested in the transaction,
unless the transaction is approved by a majority vote of disinterested
directors.
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<PAGE> 44
DESCRIPTION OF SECURITIES
The following summary description relating to the capital stock and
Warrants does not purport to be complete and is qualified in its entirety by
reference to the Amended and Restated Articles and ByLaws of the Company, and
the Warrant Agreement, which are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
GENERAL
As of the date of this Prospectus, the outstanding capital stock of the
Company consisted of 100 shares of Common Stock held by three shareholders of
record. Immediately prior to the consummation of this Offering the Company will
complete a recapitalization (the "Recapitalization") pursuant to which all
outstanding shares of Common Stock will be split 23,600-for-one and exchanged
simultaneously on a one-for-one basis for shares of the Company's newly
authorized Common Stock.
The Company's Board of Directors and shareholders have approved the Amended
and Restated Articles of Incorporation and the Amended and Restated Bylaws
("Bylaws") to become effective on the Effective Date of this Offering, and the
following discussions describe the provisions of the Company's capital stock,
Amended Articles and Bylaws that will be in effect after this offering. The
following summary description relating to the capital stock does not purport to
be complete and is qualified in its entirety by reference to the Amended
Articles and Bylaws of the Company which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Upon consummation
of the Offering, the authorized capital stock of the Company will consist of
20,000,000 shares of common stock, $.01 par value ("Common Stock"), and
5,000,000 shares of "blank check" preferred stock, $.01 par value ("Preferred
Stock"). Upon the closing of this Offering, there will be 3,560,000 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share. The holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of legally available funds. Shares of
Common Stock are not redeemable and have not preemptive, conversion or similar
rights. The outstanding shares of Common Stock issuable hereby will be, when and
if issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
stockholders to issue up to 5,000,000 shares of Preferred Stock in one or more
series. The Board of Directors is authorized to establish from time to time the
number of shares to be included in and the designation of, any such series, to
determine or alter the rights, preferences, privileges and restrictions, there
of without further action by the shareholders. The Board of Directors of the
Company has not designated any new series of Preferred Stock. Satisfaction of
any divided preferences of outstanding Preferred Stock, if any, would reduce the
amount of funds available for the payment of dividends on Common Stock. Also,
the holders of Preferred Stock, if any, would normally be entitled to receive a
preference payment in the event of any liquidation or other dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. In addition, any outstanding shares of Preferred Stock having conversion
rights would potentially increase the number of shares of Common Stock
outstanding.
WARRANTS
Redeemable Common Stock Purchase Warrants. Each Warrant offered hereby
entitles the holder thereof to purchase one share of Common Stock at a price of
$7.20 per share. Each Warrant is redeemable, in whole or in part, by the Company
at a price of $.10 per Warrant, upon thirty days' prior written notice to the
Warrant holders, provided that the closing price of the Company's Common Stock
exceeds $9.00 per share for a period of ten consecutive trading days ending on
the third day prior to the date of the Company's redemption
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<PAGE> 45
notice. Pursuant to applicable federal and state securities laws, in the event a
current prospectus is not available, the Warrants may not be exercised by the
holders thereof and the Company will be precluded from redeeming the Warrants.
There can be no assurance that the Company will not be prevented by financial or
other considerations from maintaining a current prospectus. Any Warrant holder
that does not exercise prior to the redemption date, as set forth in the
Company's notice of redemption, will forfeit the right to purchase the Common
Stock underlying the Warrants, and after the redemption date or upon conclusion
of the exercise period any outstanding Warrants will become void and be of no
further force or effect, unless extended by the Board of Directors of the
Company. See "Underwriting" for the terms of the Warrants issuable pursuant to
the Underwriters' Warrants.
The number of shares of Common Stock that may be purchased is subject to
adjustment upon the occurrence of certain events including a dividend
distribution to the Company's shareholders or a subdivision, combination or
reclassification of the outstanding Common Stock. Further, the Warrant exercise
price is subject to adjustment in the event the Company issues additional stock
or rights to acquire stock at a price per share that is less than the current
market price per share of Common Stock on the record date established for the
issuance of additional stock or rights to acquire stock. The term "current
market price" is defined as the average of the daily closing prices for the
twenty consecutive trading days ending three days prior to the record date.
However, the Warrant exercise price will not be adjusted in the case of the
issuance or exercise of options pursuant to the Company's stock option plans,
the issuance of the Underwriters' Warrants or any other options or warrants
outstanding as of the date of this Offering. The Warrant exercise price is also
subject to adjustment in the event of a consolidation or merger where a
distribution by the Company is made to its shareholders of the Company's assets
or evidences of indebtedness (other than cash or stock dividends) or pursuant to
certain subscription rights or other rights to acquire Common Stock. The
Warrants are also subject to price adjustment upon the occurrence of certain
events including subdivisions or combinations of the Common Stock.
The Company may at any time, and from time to time, extend the exercise
period of the Warrants, provided that written notice of such extension is given
to the Warrant holders prior to the expiration date then in effect. Also, the
Company may reduce the exercise price of the Warrants for limited periods or
through the end of the exercise period if deemed appropriate by the Board of
Directors of the Company, in addition to the adjustments to the exercise price
arising from certain events as discussed above. Any extension of the terms
and/or reduction of the exercise price of the Warrants will be subject to
compliance with Rule 13e-4 under the Exchange Act including the filing of a
Schedule 13E-4. Notice of any extension of the exercise period and/or reduction
of the exercise price will be given to the Warrant holders. The Company does not
presently contemplate any extension of the exercise period nor does it
contemplate any reduction in the exercise price of the Warrants.
The Warrants are to be issued pursuant to the terms and conditions of a
Warrant Agreement between the Company and American Stock Transfer & Trust
Company.
REGISTRATION RIGHTS
For a description of the registration rights contained in the Underwriters'
Warrants, see "Underwriting".
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW, CHARTER PROVISIONS, UNISSUED STOCK
The Company has opted out of those certain Florida laws enacted to deter or
frustrate takeovers of Florida corporations. Certain provisions of the Company's
Amended Articles and Bylaws, however, may deter or frustrate a takeover attempt
of the Company that a shareholder might otherwise consider in its best interest.
The Company is subject to the "affiliated transactions" provisions of the
Florida Business Corporation Act (the "FBCA"). These provisions require, subject
to certain exceptions, that an "affiliated transaction" be approved by the
holders of two-thirds of the voting shares other than those beneficially owned
by an "interested shareholder" or by a majority of disinterested directors.
Certain provisions of the Company's Amended Articles or Bylaws provide that
(i) commencing with the consummation of this offering, any action required or
permitted to be taken by the shareholders of the Company may be effected only at
an annual or special meeting of shareholders, and not by written consent of the
shareholders, (ii) any meeting of shareholders may be called only by the
Chairman of the Board, or upon
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<PAGE> 46
the affirmative vote of at least a majority of the members of the Board of
Directors or upon the written demand of the holders of not less than 10% of the
votes entitled to be cast at a special meeting, and (iii) an advance notice
procedure must be followed for the nomination of directors and for other
shareholder proposals to be considered at annual meetings of shareholders. In
general, notice of intent to nominate a director or to raise business at such
meetings must be received by the Company not less than 60 nor more than 90 days
before the meeting, and must contain certain information concerning the person
to be nominated or the matters to be brought before the meeting and concerning
the shareholder submitting the proposal. The affirmative vote of at least a
majority of the directors or the holders of at least 66 2/3% of the voting power
of the Company's voting stock is required to alter, amend or repeal, or adopt
any provision inconsistent with, the provisions described in this paragraph.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors. The Board of
Directors is divided into three classes, with the directors of each class to be
elected for staggered terms of three years and to serve until their successors
are duly elected and qualified or until their earlier resignation, death or
removal from office.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Amended Articles of Incorporation provide that
shareholders seeking to bring business before an annual meeting of shareholders,
or to nominate candidates for election as directors at an annual or special
meeting of shareholders, must provide timely notice thereof in writing. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 120 days nor more
than 180 days prior to the first anniversary of the date of the Company's notice
of annual meeting for the previous year's annual meeting. However, if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed to be more than 30 calendar days earlier than the date contemplated by
the previous year's notice of annual meeting, such notice by the shareholder
must be delivered or received not later than the close of business on the fifty
day following the date on which notice of the date of the annual meeting is
given to shareholders or made public, whichever first occurs. The Company's
Amended Articles also specify certain requirements for a shareholder's notice to
be in proper written form. These provisions may preclude shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
Certain Effects of Authorized but Unissued Stock. Upon consummation of
this Offering, the Company will be authorized to issue additional Common Stock
and up to five million shares of preferred stock in one or more series, having
terms fixed by the Board of Directors without shareholder approval, including
voting, dividend or liquidation rights that could be greater than or senior to
the rights of holders of Common Stock. The existence of authorized but unissued
and unreserved shares of Common Stock and Preferred Stock may enable the Board
of Directors to issue shares of persons friendly to current management which
would render more difficult or discourage an attempt to obtain control of the
Company by means of proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management. Issuance of shares
of Common Stock or Preferred Stock could also be used as an anti-takeover
device. The Company has no current intentions or plans to issue any such shares
of Common Stock or Preferred Stock. See "Description of Capital Stock."
TRANSFER AND WARRANT AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the warrant agent
for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 3,560,000 shares
of Common Stock outstanding (3,649,139 shares, if the Underwriters'
over-allotment option is exercised in full), of which 1,200,000 shares offered
hereby (1,380,000 shares, if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act. The remaining 2,265,522 shares are deemed
to be "restricted securities," as that term is defined under Rule 144, in that
such shares were issued and sold by the Company in private transactions not
involving a public offering and, as such, may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. The shareholders holding the 2,265,522 shares of restricted
Common Stock will be eligible to sell such shares under Rule 144 as of the date
of this Prospectus, subject to certain volume and other limitations. However,
those shareholders have agreed not to sell those shares for a period of one year
from the Effective Date, without the prior consent of the Representative. Sales
of such shares in the public market, or the availability of such shares for
sale, could adversely affect the market price for the Common Stock. The
Representative may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company (or person whose
shares are aggregated with an affiliate), who has owned restricted shares of
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 35,600 shares based
on the number of shares expected to be outstanding after this Offering exclusive
of the over-allotment) or, if the Common Stock is quoted on NASDAQ, the average
weekly trading volume during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. A person who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
No prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such securities for sale will have
on the market prices of such securities prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for
these securities and could impair the Company's ability in the future to raise
additional capital through the sale of its equity securities.
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<PAGE> 48
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to the Underwriters, severally and not jointly, and
the Underwriters have severally and not jointly agreed to purchase from the
Company, on a "firm commitment" basis, if any are purchased, the number of
Securities (exclusive of Securities issuable upon exercise of the underwriters'
over-allotment option) set forth opposite their respective names below:
<TABLE>
<CAPTION>
SHARES OF
UNDERWRITERS COMMON STOCK & WARRANTS
- ------------ -----------------------
<S> <C>
Nutmeg Securities, Ltd. ....................................
---------
Total............................................. 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Securities offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Securities offered hereby (other than those covered by the over-allotment
option described below) if any such shares are purchased.
The Underwriters, for whom Nutmeg Securities, Ltd. is acting as
Representative (the "Representative"), propose to offer the Securities directly
to the public at the public offering price set forth on the cover page of this
Prospectus and may allow certain dealers who are National Association of
Securities Dealers, Inc. ("NASD") members to offer a part of the Securities at a
price which represents a concession not in excess of $ per share and
$ per Warrant. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share and $ per
Warrant to certain other dealers.
Prior to this Offering, there has not been any public market for the Common
Stock or the Warrants. The initial public offering prices of the shares of
Common Stock and the Warrants and the exercise price and other terms of the
Warrants were determined by negotiations between the Company and the
Representative and do not necessarily relate to the assets, book value or
results of operations of the Company or any other established criteria of value.
Certain Selling Shareholders and the Company have granted to the
Underwriters an option, exercisable for 45 days from the date of this
Prospectus, to purchase up to an aggregate of 180,000 additional shares of
Common Stock and 180,000 additional Warrants, at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Representative may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the sale of the
Securities offered hereby. If the Underwriter's over-allotment option is
exercised, the Company shall be entitled to sell and receive the proceeds from
the first 85,522 shares of Common Stock sold.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be provided to officers, directors or persons controlling the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and is therefore
unenforceable.
The Company has agreed to pay to the Underwriters at the closing of the
Offering a non-accountable expense allowance of 3% of the aggregate offering
price of the shares of Common Stock and Warrants offered hereby (including any
shares of Common Stock and Warrants purchased pursuant to the Underwriters'
over-allotment option), of which $27,500 was paid to a previous broker-dealer
and $25,000 to the present Representative.
Certain shareholders who will beneficially hold an aggregate of 2,360,000
shares of Common Stock (assuming the underwriters' warrant is not exercised)
following the close of the Offering, have agreed that for a twelve month period
following the date of this Prospectus, they will not, without the prior written
consent of the Representative offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock of the
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<PAGE> 49
Company or any securities convertible into, or exercisable or exchangeable for
Common Stock of the Company.
The Company has agreed to sell to the Representative or its designees, for
$10.00, common stock purchase warrants (the "Underwriters' Warrants")
exercisable for 120,000 shares of Common Stock and 120,000 Warrants at a
purchase price of 150% of the initial public offering prices for these
Securities. The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated, except to officers, partners or affiliates of the Underwriters,
for a period of twelve months after the Effective Date, and is exercisable for
four years commencing one year from the Effective Date (or until the close of
business five years after the Effective Date) (the "Exercise Term"). During the
Exercise Term, the holders of the Underwriters' Warrants are given, at nominal
cost, the opportunity to profit from a rise in the market price of the Company's
Common Stock. To the extent that the Underwriters' Warrants are exercised,
dilution of the interests of the Company's stockholders will occur. Further, the
terms on which the Company will be able to obtain additional equity capital may
be adversely affected since the holders of the Underwriters' Warrants can be
expected to exercise it any time when the Company would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriters' Warrants. Any profit realized by the
Underwriters on the sale of the shares of Common Stock underlying the
Underwriters' Warrants may be deemed additional underwriting compensation. The
Company has also agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds from the sale of the Securities
offered hereby of which $52,500 has been prepaid by the Company.
The Underwriters have been given certain "piggyback" and demand
registration rights with respect to the Common Stock underlying the
Underwriters' Warrants for a period of four years commencing one year from the
date of this Prospectus (or until the close of business five years after the
Effective Date). The exercise of any of such registration rights by the
Underwriters may result in dilution to the interest of the Company's
shareholders, hinder efforts by the Company to arrange future financing of the
Company and/or have an adverse effect on the market price of the Securities.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock and
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Representative, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or dealer participating in the Offering) for the
account of other Underwriters, the selling concession with respect to shares of
Common Stock and Warrants that are distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock and Warrants at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken they may be discontinued at
any time.
Beginning twelve months from the Effective Date of the Offering, the
Company has agreed with the Representative that the Company will pay to the
Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee") equal
to 3% of the exercise price of the Warrants which are exercised pursuant to a
solicitation of exercise of the warrants or in connection with a redemption and
to the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission (including NASD Notice to Members 81-38). Such
Warrant Solicitation Fee will be paid to the Underwriters if (a) the market
price of the Common Stock on the date that any Warrant is exercised is greater
than the exercise price of the Warrant; (b) the exercise of such Warrant was
solicited by the Underwriters; (c) prior specific written approval for
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<PAGE> 50
exercise is received from the customer if the Warrant is held in a discretionary
account: (d) disclosure of this compensation agreement is made prior to or upon
the exercise of such Warrant; (e) solicitation of the exercise is not in
violation of Regulation M of the Exchange Act; (f) the Underwriters provided
bona fide services in exchange for the Warrant Solicitation Fee; and (g) the
Underwriters have been specifically designated in writing by the holders of the
Warrants as the broker. Unless granted an exemption by the Commission from
Regulation M under the Exchange Act, the Underwriters will be prohibited from
engaging in any market making activities or solicited brokerage activities with
respect to the Securities for the period from five business days prior to any
solicitation by the Underwriters of the exercise of any Warrant until the
termination of such solicitation activity by the Underwriters. The foregoing
5-day restriction period is reduced to one day where the security has an average
daily trading volume of $100,000 and the public float for the issuer's equity
securities is at least $25 million; and, there is no restrictive period where
the average daily trading volume of the security is $1 million and the public
float for the issuer's equity securities is at least $150 million. As a result,
the Underwriters may be unable to continue to provide a market for the
Securities during certain periods while the Warrants are exercisable.
The Company has agreed that, for a period of five years following the
completion of this Offering, it will use its best efforts to cause the election
to its Board of Directors one designee of the Representative, provided that such
designee is reasonably acceptable to and approved by the Company.
The underwriting agreement provides for the retention of the Representative
for a period of 24 months at the rate of $3,000 per month to continue the
development of interest and sponsorship in the Common Stock of the Company.
The foregoing includes a summary of certain provisions of the Underwriting
Agreement which has been filed as an exhibit to the Registration Statement.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., Orlando,
Florida. Certain matters are being passed upon for the Underwriters by William
M. Prifti, Esq., Lynnfield, MA.
EXPERTS
The financial statements of the Company at December 31, 1996, and for each
of the two years in the period ended December 31, 1996, appearing in this
Prospectus and in the Registration Statement, have been audited by Grant
Thornton LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
is included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is not presently a reporting company and does not file reports
or other information with the SEC. Upon effectiveness of the Registration
Statement filed with the SEC in connection with this Offering, the Company will
become a reporting company. Further, the Company will register its securities
under the Exchange Act. Accordingly, upon effectiveness of its Exchange Act
registration, the Company will be subject to the additional report requirements
of the Exchange Act and in accordance therewith will file reports, proxy
statements and other information with the SEC. In addition, after the effective
date of this Offering, the Company intends to furnish its shareholders with
annual reports containing audited financial statements and interim reports, in
each case as it may determine to furnish or as may be required by law. The year
end of the Company is December 31 of each year.
The Company has filed with the Washington, D. C. Office of the SEC a
Registration Statement on Form SB-2 (with all amendments, exhibits and
schedules, thereto, the "Registration Statement") under the Securities Act of
which this Prospectus forms a part. This Prospectus does not contain all of the
information
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<PAGE> 51
set forth in the Registration Statement, as permitted by the rules and
regulations of the SEC. For further information with respect to the Company and
the Securities offered hereby, reference is hereby made to such Registration
Statement. Statements contained in this Prospectus concerning the provisions or
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
Copies of the Registration Statement may be inspected without charge at the
SEC's principal office at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549; and at the following Regional Offices of the Commission, except that
copies of the exhibits may not be available at certain of the Regional Offices:
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of all or any part of such material may be obtained from
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 upon
payment of certain fees prescribed by the SEC. The SEC maintains a worldwide web
site on the Internet at http://www.sec.gov that contains reports and other
information concerning the Company filed electronically with the SEC.
50
<PAGE> 52
AUTOMOTIVE ONE PARTS STORES, INC.
FINANCIAL STATEMENTS INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets as of December 31, 1996 and October 31, 1997
(unaudited)............................................... F-3
Statements of Operations for the years ended December 31,
1995 and 1996 and the ten months ended October 31, 1996
and 1997 (unaudited)...................................... F-4
Statement of Shareholders' Equity for the years ended
December 31, 1995 and 1996 and the ten months ended
October 31, 1997 (unaudited).............................. F-5
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the ten months ended October 31, 1996
and 1997 (unaudited)...................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Automotive One Parts Stores, Inc.
We have audited the accompanying balance sheet of Automotive One Parts
Stores, Inc. as of December 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Automotive One Parts Stores,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,037,968 during the year ended December 31,
1996 and, as of that date, the Company had a working capital deficiency of
approximately $1,847,000. 1997 operations have not been adequate to generate
sufficient cash flow in order to satisfy obligations maturing December 31, 1997
totaling approximately $5,331,000 at December 31, 1996 and $5,772,000 at October
31, 1997. The Company's major creditors, APS, Inc. and Autoparts Finance
Company, Inc., have extended the maturity of $5,132,000 plus accrued and unpaid
interest of $639,000 of such indebtedness to February 28, 1998. These factors,
among others as discussed in Note C to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters, including an initial public
offering which is in process, are also described in Note C. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
GRANT THORNTON LLP
Tampa, Florida
May 14, 1997, except for Note C
as to which the date is December 22, 1997
F-2
<PAGE> 54
AUTOMOTIVE ONE PARTS STORES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 32,124 $ 25,036
Receivables
Trade accounts, less allowance for doubtful accounts of
$210,000............................................... 686,431 702,875
Note from vendor.......................................... 180,000 160,745
Employee and officer advances............................. 74,444 61,592
Inventories................................................. 5,575,768 5,454,034
Prepaid expenses............................................ 910 910
---------- ----------
Total current assets.............................. 6,549,677 6,405,192
PROPERTY AND EQUIPMENT, net................................. 2,490,246 2,376,153
PROPERTY HELD FOR SALE OR LEASE............................. 862,197 823,351
OTHER ASSETS................................................ 49,349 351,152
---------- ----------
Total assets...................................... $9,951,469 $9,955,848
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt........................ $5,501,621 $5,735,719
Checks written in excess of cash............................ 62,509 93,194
Accounts payable............................................ 2,356,045 1,903,756
Accrued expenses............................................ 267,557 463,356
Interest payable............................................ 209,139 701,865
---------- ----------
Total current liabilities......................... 8,396,871 8,897,890
LONG-TERM DEBT, less current portion........................ 1,174,621 1,126,420
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding................... -- --
Common stock, $0.01 par value, 20,000,000 shares authorized,
2,360,000 issued and outstanding.......................... 23,600 23,600
Additional paid-in capital.................................. 434,932 434,932
Accumulated deficit......................................... (78,555) (526,994)
---------- ----------
Total shareholders' equity (deficit).............. 379,977 (68,462)
---------- ----------
Total liabilities and shareholders' equity
(deficit)...................................... $9,951,469 $9,955,848
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 55
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED DECEMBER 31, OCTOBER 31,
------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $11,691,338 $12,094,341 $10,291,236 $9,206,871
Cost of goods sold........................ 7,689,551 8,075,176 6,871,217 5,727,418
----------- ----------- ----------- ----------
Gross profit............................ 4,001,787 4,019,165 3,420,019 3,479,453
Selling, general and administrative
expenses................................ 3,986,570 4,463,849 3,773,117 3,549,708
----------- ----------- ----------- ----------
Earnings (loss) from operations......... 15,217 (444,684) (353,098) (70,255)
Other income (expense)
Gain on sale of property................ -- -- -- 185,707
Rental income........................... 165,245 191,804 159,837 143,355
Interest expense........................ (495,174) (785,088) (655,851) (638,532)
Offering costs.......................... -- -- -- (68,714)
----------- ----------- ----------- ----------
Net loss........................ $ (314,712) $(1,037,968) $ (849,112) $ (448,439)
=========== =========== =========== ==========
Net loss per common share............... $ (0.13) $ (0.44) $ (0.36) $ (0.19)
=========== =========== =========== ==========
Weighted average common shares
outstanding.......................... 2,360,000 2,360,000 2,360,000 2,360,000
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 56
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995..................... $23,600 $238,406 $ 1,274,125 $ 1,536,131
Contributed capital -- contribution of
inventory.................................... -- 196,526 -- 196,526
Net loss....................................... -- -- (314,712) (314,712)
------- -------- ----------- -----------
Balance at December 31, 1995................... 23,600 434,932 959,413 1,417,945
Net loss....................................... -- -- (1,037,968) (1,037,968)
------- -------- ----------- -----------
Balance at December 31, 1996................... 23,600 434,932 (78,555) 379,977
Net loss (unaudited)........................... -- -- (448,439) (448,439)
------- -------- ----------- -----------
Balance at October 31, 1997 (unaudited)........ $23,600 $434,932 $ (526,994) $ (68,462)
======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 57
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEARS ENDED DECEMBER 31, OCTOBER 31,
------------------------- ---------------------
1995 1996 1996 1997
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net earnings (loss)....................... $ (314,712) $(1,037,968) $(849,112) $(448,439)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Gain on sale of property............... -- -- -- (185,707)
Depreciation and amortization.......... 173,318 181,410 150,833 155,796
Interest expense added to principal.... -- 231,684 -- --
Changes in assets and liabilities:
Trade accounts receivable............ (118,047) 25,762 (12,552) (50,796)
Employee and officer advances
receivable........................ (22,483) (51,961) (7,242) 47,204
Inventories.......................... (1,275,368) (646,563) (30,979) 121,734
Prepaid expenses and other assets.... (33,710) 14,490 (11,454) (282,548)
Accounts payable..................... (1,887,386) 1,339,526 556,514 (452,289)
Accrued expenses..................... (274,002) 102,547 111,096 195,799
Interest payable..................... (10,668) 161,885 367,932 492,726
----------- ----------- --------- ---------
Net cash provided by (used in)
operating activities............ (3,763,058) 320,812 275,036 (406,520)
----------- ----------- --------- ---------
Cash flows from investing activities
Acquisition of property and equipment..... (198,264) (248,186) (200,594) (45,298)
Proceeds from sale of property and
equipment.............................. -- -- -- 228,150
----------- ----------- --------- ---------
Net cash provided by (used in) investing
activities............................. (198,264) (248,186) (200,594) 182,852
----------- ----------- --------- ---------
Cash flows from financing activities:
Net change in checks written in excess of
cash................................... 106,375 (43,866) (36,508) 30,684
Proceeds from long-term debt.............. 5,662,992 368,377 311,771 513,972
Repayments of long-term debt.............. (1,922,943) (411,047) (363,567) (328,076)
----------- ----------- --------- ---------
Net cash provided by (used in)
financing activities............ 3,846,424 (86,536) (88,304) 216,580
----------- ----------- --------- ---------
Net decrease in cash........................ (114,898) (13,910) (13,862) (7,088)
Cash, beginning of year..................... 160,932 46,034 46,034 32,124
----------- ----------- --------- ---------
Cash, end of year........................... $ 46,034 $ 32,124 $ 32,172 $ 25,036
=========== =========== ========= =========
Supplemental cash flow information:
Cash paid for interest.................... $ 505,842 $ 391,519 $ 286,309 $ 76,183
=========== =========== ========= =========
</TABLE>
Non-cash financing activities:
During 1996, approximately $232,000 of interest payable was added to the
principal of the note payable.
During 1995, approximately $197,000 of inventory was contributed by a
related party to the Company.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 58
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- DESCRIPTION OF ORGANIZATION AND BUSINESS
BUSINESS
Automotive One Parts Stores, Inc. (the "Company") was incorporated in
Florida in November 1978. The Company is a specialty supplier and retailer of
automotive replacement parts, tools, supplies, equipment and accessories to both
professional installers and, do-it-yourself customers throughout the Central
Florida area.
In connection with the planned initial public offering, the Board of
Directors plans to increase the Company's Common Stock authorized from 100
shares of $1.00 par value to 20,000,000 shares of $0.01 par value Common Stock.
The Company's increase in the issued and outstanding Common Stock will be
effected through a stock split whereby each share of common stock will be
exchanged for 23,600 shares of new Common Stock. All share and per share data
presented herein have been retroactively restated for all periods in
contemplation of this planned transaction.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. There were no cash
equivalents at December 31, 1996 or October 31, 1997.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined by the first-in, first-out (FIFO) method.
The Company periodically evaluates its inventory for obsolescence and
expenses any inventory considered obsolete.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are provided for using the
straight-line or declining balance methods over the estimated service lives of
the assets. Accelerated methods are used for tax purposes.
Property held for sale is stated at the lower of cost or estimated net
realizable value and includes certain property no longer used in the Company's
operations.
Expenditures for additions, major renewals or betterments are capitalized
and expenditures for repairs and maintenance are charged to earnings as
incurred.
DEFERRED OFFERING COSTS
Deferred offering costs, which are included in other assets at December 31,
1996 and October 31, 1997, amounted to approximately $31,000 and $333,000,
respectively. These costs consist of legal and accounting fees and other direct
costs attributable to the Company's current planned initial public offering.
These costs are being deferred until the proceeds from the offering have been
received, at which time they will be charged
F-7
<PAGE> 59
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
against the gross proceeds. Offering costs totalling approximately $69,000 were
charged to expense as a result of a delay in the offering. If the offering is
not successful, the remaining costs will be charged to earnings.
ADVERTISING
The Company expenses its share of all advertising costs as such costs are
incurred. The portion of advertising expenditures which are to be recovered from
vendors and other cooperative programs are recorded as receivables. The Company
does not defer any portion of its share of advertising costs. During the years
ended December 31, 1995 and 1996 and the ten months ended October 31, 1996 and
1997, the Company incurred advertising costs of approximately $73,000 and
$76,000, $60,000 and $32,000, respectively.
INCOME TAXES
The Company is taxed as an S Corporation under the provisions of the
Internal Revenue Code. As such, the Company's taxable income is 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 have been recorded in the accompanying historical financial statements.
In conjunction with the completion of the initial public offering, the
Company will terminate its S Corporation election and become subject to
corporate income taxes from that date forward (See Note I).
CONCENTRATION OF RISK
The Company grants credit to customers who meet pre-established credit
requirements. The Company does not require collateral when trade credit is
granted to customers. Credit losses are provided for in the financial statements
and have consistently been within management's expectations.
Currently, the Company purchases most of its inventory from one vendor. A
sufficient number of other suppliers and/or manufacturers could supply the same
inventory. A disruption of this vendor relationship, or a material reduction in
any of the terms of purchase, advertising, incentive or other programs, would
likely materially, adversely affect the Company's business.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of ("SFAS"). Under SFAS No. 121, impairment
losses on long-lived assets are recognized when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. The impairment loss is equal
to the difference between the carrying amount of the long-lived asset and the
estimated fair value of such asset. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The adoption of SFAS
No. 121 by the Company did not result in an impairment loss. The Company did not
incur an impairment loss during the year ended December 31, 1996 and the ten
months ended October 31, 1997.
STOCK BASED COMPENSATION
Effective January 1, 1996 the Company adopted SFAS No. 123, Accounting for
Stock Based Compensation. 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. If APB No. 25's
method is followed, pro forma disclosures are required as if SFAS No. 123
accounting recognition method was adopted. SFAS No. 123 pertains to stock
options granted after December 31, 1995. Management has determined not to adopt
SFAS No. 123's accounting recognition provisions related to stock options
granted to employees and accordingly, will continue following APB No. 25's
accounting provisions. All other provisions of SFAS No. 123 have been
F-8
<PAGE> 60
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
implemented effective January 1, 1996. The implementation of SFAS No. 123 did
not have an effect on the Company's financial statements.
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements and related notes thereto for October
31, 1996 and 1997 include all normal and recurring adjustments which in the
opinion of management are necessary for a fair presentation and are prepared on
the same basis as the audited annual statements. The interim results are not
necessarily indicative of the results that may be expected for the full year.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 128, Earnings Per Share and SFAS No. 129, Disclosure of
Information about Capital Structure, will be effective for the Company's
financial statements issued after December 15, 1997. Early adoption of the new
standards is not permitted. SFAS 128 eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. SFAS
No. 129 requires disclosing information about an entity's capital structure. The
adoption of these new standards is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in 1998
and expects no material impact to the Company's financial statement
presentation.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach, along with interim reports. The management
approach requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information the
way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose additional
information about subsidiaries that were not consolidated. The Company plans to
adopt SFAS No. 131 in 1998 with impact only to the Company's disclosure
information and not its results of operations.
NOTE C -- REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. Continuation of the Company as a going concern
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. However, the Company had a net
loss of $1,037,968 and $448,439 for the year ended December 31, 1996 and the ten
months ended October 31, 1997, respectively and a working capital deficiency of
$1,847,194 and $2,492,698 at December 31, 1996 and October 31, 1997,
respectively. In addition, the Company was in default under the terms of its
indebtedness to APS, Inc. ("APS") and Autoparts Finance Company, Inc. ("AFCO"),
an affiliate of APS, at December 31, 1996. In February 1997, the Company entered
into a Loan Modification Agreement with APS and AFCO whereby the maturity date
on such indebtedness was extended to not later than July 31, 1997, (See Note E).
The Loan Modification Agreement was amended effective July 31, 1997, to extend
the maturity date to December 31,
F-9
<PAGE> 61
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997. On December 22, 1997, the Loan Modification Agreement was further amended
to extend the maturity date to February 28, 1998. The Company is not currently
able to generate sufficient cash flows from its existing operations to repay the
amounts due to APS and AFCO by the maturity date of such indebtedness. These
factors, among others, raise substantial doubt about the ability of the Company
to continue as a going concern.
Management recognizes that the Company must generate additional financial
resources and reduce operating costs to continue its operations as follows:
- The Company has obtained a commitment for a $4 million senior credit
facility available upon the successful completion of the contemplated
initial public offering. A portion of the proceeds form this facility
will be used to repay APS and AFCO.
- The Company is in the process of completing an initial public offering
of its Common Stock in order to generate sufficient proceeds, in
conjunction with the aforementioned credit facility, to repay APS and
AFCO and to finance the acquisition of additional auto parts stores.
- During November 1997 the Company received loan proceeds of
approximately $205,000 from the mortgage of a parcel of its land. The
proceeds from the loan will be used to support its need for working
capital.
- The Company is evaluating its current network of store locations in
order to determine the most advantageous number and location of its
stores in order to effectively and efficiently serve the central
Florida market, its primary service area. To date the Company has
identified four existing stores that can be merged into two store
locations.
- The Company has begun to institute certain cost containment measures
in order to reduce its current level of selling, general and
administrative expenses. Management cannot presently determine the
financial impact of these cost containment measures, however, it
believes such cost containment measures will not have an impact on the
services provided to its customers.
If the Company is not successful in completing its planned initial public
offering and is unable to obtain alternative financing in order to repay APS and
AFCO, APS and AFCO could foreclose on substantially all the assets of the
Company.
In view of the matters described in the preceding paragraphs,
recoverability of a substantial portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to generate
sufficient proceeds from its planned initial public offering to repay its
obligations to APS and AFCO, and to succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset and liability amounts that
might be necessary should the Company be unable to continue in existence.
F-10
<PAGE> 62
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, LIFE OCTOBER 31,
1996 (YEARS) 1997
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 1,026,177 $1,026,177
Buildings........................................... 2,055,859 40 2,055,859
Vehicles............................................ 1,067,303 3-5 1,073,012
Equipment........................................... 825,535 5 825,535
Computer equipment.................................. 243,291 2 260,635
Furniture and fixtures.............................. 39,151 5-7 39,151
------------ ----------
5,257,316 5,280,369
Less: accumulated depreciation and amortization..... 2,767,070 2,904,216
------------ ----------
$ 2,490,246 $2,376,153
============ ==========
</TABLE>
NOTE E -- LONG-TERM DEBT
Long-term debt consists of the following:
MORTGAGE LOANS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Various notes payable; maturing between December 1997 and
March 2010, varying interest rates ranging from 7% to 12.95%
per annum, due in monthly installments of $19,461 including
interest; collateralized by real property................... $1,129,418 $1,036,936
Adjustable rate note payable to AFCO, interest at the prime
rate plus 2% per annum (10.25% at December 31, 1996)
principal and interest due and payable not later than
December 31, 1997; collateralized by real property,
inventory, equipment, and all other assets of the
Company..................................................... 2,465,467 2,465,467
Note payable to APS; 10% interest per annum, principal and
interest due and payable not later than December 31, 1997;
collateralized by real property, inventory, equipment, and
all other assets of the Company............................. 2,666,679 2,666,679
VEHICLE LOANS
7.25% to 11% notes payable to banks; due in monthly
installments of $5,436 including interest through October
1999; collateralized by vehicles............................ 112,859 58,217
INVENTORY LOANS
9% note payable to a vendor; payable in monthly installments
of $5,612, including interest through February 1, 1998;
collateralized by inventory................................. 74,322 27,282
</TABLE>
F-11
<PAGE> 63
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
UNSECURED LOANS
7.50% unsecured demand note payable to an individual; due in
monthly installments of $500 plus accrued interest, through
August 2002................................................. 34,000 28,500
10% to 12% unsecured demand notes payable to individuals;
principal due on demand with quarterly payments of accrued
interest.................................................... 126,497 173,198
RELATED PARTY LOANS
Unsecured note payable to the principal shareholder; 8%
interest per annum, principal and interest is due and
payable at February 12, 2000................................ -- 319,588
12% unsecured demand note payable to an individual; with
interest in the amount of $650 due in monthly
installments................................................ 65,000 65,000
Non-interest bearing demand notes payable to an officers and
directors................................................... 2,000 21,272
---------- ----------
Total long-term debt.............................. 6,676,242 6,862,139
Less current portion.............................. 5,501,621 5,735,719
---------- ----------
$1,174,621 $1,126,420
========== ==========
</TABLE>
Aggregate maturities of long-term obligations are as follows for the years
ending December 31,
<TABLE>
<S> <C>
1997........................................................ $5,501,621
1998........................................................ 148,343
1999........................................................ 112,597
2000........................................................ 108,000
2001........................................................ 118,509
Thereafter.................................................. 687,172
----------
$6,676,242
==========
</TABLE>
The note payable to APS ("APS Note") matured on October 24, 1996 and had
not been repaid by the Company as of December 31, 1996. In addition, the Company
ceased making scheduled payments on the adjustable rate note due to AFCO ("AFCO
Note") during the year ended December 31, 1996. As a result of these conditions,
the Company was in default of these obligations along with its trade accounts
payable balance due to APS of approximately $1,333,000 at December 31, 1996. As
a result of the default on its indebtedness to APS and AFCO, the Company
incurred an additional default interest charge on such indebtedness totaling
approximately $113,000 at December 31, 1996.
On February 20, 1997, the Company entered into a Loan Modification
Agreement with APS and AFCO. Under the terms of this agreement, the APS Note and
AFCO Note will continue to accrue interest at their specific contractual
interest rates, however, no payments of principal and interest will be required
until the maturity date. The maturity date is the earlier of the date the
Company receives proceeds from its planned initial public offering of shares of
its Common Stock, or July 31, 1997. On July 31, 1997 the Loan Modification
Agreement was amended to extend the maturity date to December 31, 1997. On
December 22, 1997, the Loan Modification Agreement was further amended to extend
the maturity date to February 28, 1998. In addition, from the date of the Loan
Modification Agreement and the maturity date, the Company is required to pay APS
before the close of business on Monday of each week an amount equal to the
preceding week's purchases of merchandise from APS.
F-12
<PAGE> 64
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's compliance with the financial covenants under the terms of
the original loan agreements with APS and AFCO were waived under the terms of
the Loan Modification Agreement. The Loan Modification Agreement contains
certain financial and other covenants that, among other things, require the
Company to: 1) make timely payments to APS for its merchandise purchases; 2)
file a Registration Statement with the Securities and Exchange Commission in
connection with the Company's planned initial public offering by May 31, 1997
and 3) complete its planned initial public offering by July 31, 1997. On July
31, 1997 the Loan Modification Agreement was amended to extend the maturity date
to December 31, 1997, and was subsequently amended to extend the maturity date
to February 28, 1998. Failure to comply with the covenants included in the Loan
Modification Agreement would cause the Company to be in default under the terms
of such agreement. Should such default occur APS and AFCO could foreclose on the
Company's assets collateralizing the APS Note and AFCO Note. As long as the
Company complies with the terms of the Loan Modification Agreement and repays by
the maturity date, the outstanding principal and accrued and unpaid interest
amounts due under the APS Note and AFCO Note, along with certain amounts due APS
for merchandise purchases, the default interest charge due to APS and AFCO will
be waived. As of October 31, 1997, the Company was in compliance with the terms
of the Loan Modification Agreement. The APS Note and AFCO Note balances are
included in the current portion of long-term debt as of December 31, 1996 and
October 31, 1997.
Management believes that APS and AFCO will not require repayment in full of
the Company's outstanding indebtedness, including any accrued and unpaid
interest, on February 28, 1998, as long as the Company continues to proceed with
its planned initial public offering and is in compliance with the remainder of
the covenants included in the Loan Modification Agreement dated February 20,
1997 and remains in compliance with such other covenants until the initial
public offering is completed. However, no assurances can be given that APS and
AFCO will not require repayment of such indebtedness on February 28, 1998.
NOTE F -- SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors is authorized, without further shareholder action,
to divide any or all shares of the authorized Preferred Stock into series and to
fix and determine the designation, preferences, privileges, options or other
special rights, and qualifications, limitations, or restrictions thereon, of any
series so established, including voting powers, dividend rights, liquidation
preferences, redemption rights, and conversion privileges. In May 1997, the
Board has authorized 5,000,000 shares of $0.01 par value preferred stock. No
shares of Preferred Stock have been issued and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
COMMON STOCK
In connection with its planned public offering, the Company plans to effect
a stock split (See Note A).
STOCK OPTION PLAN
In May 1997, the Company established a 1997 Employee Stock Option Plan (the
"Plan") under which 500,000 shares of Common Stock have been reserved for
issuance upon exercise of stock options. The Plan is designed to serve as an
incentive for retaining qualified and competent employees. The Company's Board
of Directors, or a committee thereof (the "Committee"), will administer and
interpret the Plan and will be authorized to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of the Company and consultants.
The Plan provides for the granting of both incentive stock options and
non-qualified stock options. Options will be granted under the Plan on such
terms and at such prices as determined by the Committee,
F-13
<PAGE> 65
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
except that the per share exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant and the
per share exercise price of non-qualified stock options will not be less than
par value on the date of grant. Each option will be exercisable after the period
or periods specified in the option agreement, but no option can be exercised
until six months after the date of grant or after the expiration of 10 years
from the date of grant. Options granted under the Plan will not be transferable
other than by will or by the laws of descent and distribution.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of
cessation of employment are available for further grants. The Company has
granted a non-qualified option to purchase 30,000 shares of Common Stock under
the Plan to its Vice President of Corporate Development and Investor Relations.
These Options are exercisable at the Offering price.
NOTE G -- COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
In 1995, the Company entered into a product purchase agreement with APS, a
national distributor of replacement auto parts. Under the terms of this
agreement, the Company agreed, for a fifteen-year period commencing on January
1, 1995, to purchase 75% of the resale merchandise inventory from APS, less
certain exceptions and not perform a bulk transfer of assets nor transfer its
leasehold interests in properties where it conducts business without giving APS
a 45-day written notice and giving APS the right of first refusal. In February
1997, in connection with the modification of the Company's loan agreements (see
Note E) with APS and AFCO in February 1997; the Company and APS amended the
product purchase agreement. Under the terms of this amended agreement, the term
of the agreement was reduced from fifteen years to five years. In addition, the
period required to provide APS with written notice of the Company's intent to
bulk transfer its assets and/or transfer its leasehold interests was reduced
from 45 days to 20 days. Purchases under the agreement with APS aggregated
approximately $4.5 million in both 1995 and 1996.
The Company has a $180,000 agreement with APS for the reimbursement of
costs incurred by the Company to refurbish certain of its store locations. Such
costs were incurred by the Company in connection with the execution of the
product purchase agreement with APS. At October 31, 1997 the Company had a
receivable of $160,745 in connection with this agreement.
APS, along with its parent and affiliated companies, filed for protection
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on or about
February 2, 1998. The Company is continuing to buy parts from APS under its
agreement with APS. However, if APS were to discontinue business or void its
agreement with the Company under the Bankruptcy Code, the Company would be
required to locate and purchase parts from alternative vendors. If the Company
was unable to identify and enter into agreements with alternative vendors of
similar parts that offer similar programs to APS, or there is a disruption of
the Company's vendor relationship with APS, or there is a material change in any
terms of purchase, advertising, incentive or other programs offered by APS, that
would likely have a material adverse affect on the Company's business. While the
Company has identified and discussed supply and distributor relationships with
alternative vendors of similar parts which offer similar programs to APS, there
can be no assurance that the Company will be successful in entering into new
relationships with such vendors, or if such arrangements were entered into, that
they would be available to the Company on acceptable terms, or on terms
competitive with those currently offered by APS. Management of the Company does
not believe that the outcome of the APS Chapter 11 proceedings will have a
material adverse effect on the Company or its business.
F-14
<PAGE> 66
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases two of its stores under month-to-month leases. All other
facilities are owned by the Company. The Company also leases an insignificant
amount of equipment.
LITIGATION
The Company has instituted a lawsuit (the "Lawsuit") against The Parts
Source, Inc. d/b/a Ace Auto Parts, a prior aborted suitor and certain former
employees of the Company for certain tortious acts alleged to have caused damage
to the Company estimated at approximately $1.5 million dollars. The Company is
also seeking an injunction against the defendants in its Lawsuit. The Lawsuit,
currently in the pleading and discovery stage of the case, was filed on March
20, 1997, in the Circuit Court in and for Orange County, Florida. In the opinion
of management, the ultimate outcome of this Lawsuit should not have a material
adverse impact on the Company's financial position, results of operations or
liquidity.
NOTE H -- RELATED PARTY TRANSACTIONS
The Company makes advances to and borrows money from officers, shareholders
and family members from time to time. As discussed in Note E above, the Company
owed $67,000 and $86,272 to these individuals at December 31, 1996 and October
31, 1997, respectively. In addition, these individuals owed the Company $70,384
and $61,591 at December 31, 1996 and October 31, 1997, respectively.
During the year ended December 31, 1995 the son of the principal
shareholder of the Company contributed inventory to the Company that had a
carrying value (cost) to the son of $196,526, which also approximated the fair
value of such inventory.
Subsequent to December 31, 1996, the principal shareholder of the Company
loaned $446,000 to the Company for operations. The loan plus out-of-pocket costs
and interest payments made by such individual are to be repaid from the proceeds
of the Company's planned initial public offering.
At December 31, 1996 and October 31, 1997, respectively the Company had
outstanding indebtedness to a director candidate of $95,000 and $135,000 at an
interest rate of 10.0% per annum. The Company plans to repay such indebtedness,
including any accrued and unpaid interest from the proceeds of the Company's
planned initial public offering.
NOTE I -- PRO FORMA INFORMATION
PRO FORMA INCOME TAXES
In conjunction with the completion of its planned initial public offering,
the Company will terminate its S Corporation election and become subject to
corporate income taxes from that date forward.
The statements of operations for all periods presented reflect the pro
forma effect on income taxes (benefits) as if the Company's losses had been
subjected to federal and state income taxes as a C Corporation.
In the determination whether to recognize any tax benefits from the
Company's operating losses on a pro forma basis, management considered the
Company's history of net operating losses. During the two years ended December
31, 1996, the Company incurred a cumulative net loss of approximately $1.3
million. Management believes using the more likely than not criteria established
by SFAS No. 109, Accounting for Income Taxes, that no tax benefits should be
recognized for any reported period.
F-15
<PAGE> 67
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of the federal statutory income tax rate of 34% to the
effective income tax rate reflected herein is as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED OCTOBER 31,
-------------- ------------------
1995 1996 1996 1997
----- ----- ------- -------
<S> <C> <C> <C> <C>
Federal income tax (benefit) at statutory rates..... (34.0)% (34.0)% (34.0)% (34.0)%
State income taxes, net of Federal benefit.......... (3.3) (3.3) (3.3) (3.3)
Net operating losses, not currently utilizable...... 37.3 37.3 37.3 --
Utilization of net operating loss carryforwards..... -- -- -- 37.3
----- ----- ----- -----
Income tax expense.................................. --% --% --% --%
===== ===== ===== =====
</TABLE>
Since the Company's cumulative net operating losses have passed directly to
its S Corporation shareholders, the losses will not be available to the Company
upon conversion to C Corporation status.
At December 31, 1995 and 1996 and October 31, 1996 and 1997, there were
differences between the bases for the Company's assets and liabilities as
reported for income tax return purposes and as reported for financial statement
purposes. The aggregate bases difference at these dates are not material to the
Company (principally accrued vacation, depreciation and inventory).
NOTE J -- NET LOSS PER COMMON SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period (see Note A). Pro
forma net loss is the same as historical net loss because no pro forma provision
for income taxes is required as a result of the historical net losses for all
years presented, assuming the Company had been subject to income taxes during
the period it was an S Corporation for income tax purposes. Net loss per share
does not include the assumed exercise of these warrant since the inclusion would
have been anti-dilutive.
The Company is contemplating an initial public offering of which
approximately $3.0 million of the total proceeds therefrom will be used to pay
down or retire debt. The supplementary pro forma net income (loss) per common
share for 1996 and the seven months ended October 31, 1997 as if this debt was
retired at the beginning of the respective periods, would be $(0.25) and $0.03 a
share respectively (assuming 2,922,978 and 2,940,806 weighted average common
shares outstanding).
NOTE K -- FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and October 31, 1997, the carrying amount of cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short-term maturities of these items.
The carrying amounts of current and long-term portions of debt approximate
fair market value since the interest rates on these instruments generally
approximate market interest rates.
F-16
<PAGE> 68
(FOUR PHOTOGRAPHS OF COMPANY WAREHOUSE,
MACHINE SHOP, AND STORES WITH COMPANY LOGO
IN CENTER OF PAGE.)
<PAGE> 69
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER OR BROKER/DEALER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 9
USE OF PROCEEDS....................... 16
DILUTION.............................. 17
CAPITALIZATION........................ 18
DIVIDEND POLICY....................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 19
INDUSTRY OVERVIEW..................... 25
BUSINESS.............................. 27
MANAGEMENT............................ 37
PRINCIPAL AND SELLING SHAREHOLDERS.... 41
CERTAIN TRANSACTIONS.................. 42
DESCRIPTION OF SECURITIES............. 43
SHARES ELIGIBLE FOR FUTURE SALE....... 46
UNDERWRITING.......................... 47
LEGAL MATTERS......................... 49
EXPERTS............................... 49
AVAILABLE INFORMATION................. 49
FINANCIAL STATEMENTS INDEX............ F-1
</TABLE>
------------------
UNTIL 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
1,200,000 SHARES
OF COMMON STOCK
AND
1,200,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
AUTOMOTIVE ONE LOGO
AUTOMOTIVE ONE PARTS
STORES, INC.
-------------------------
PROSPECTUS
-------------------------
NUTMEG SECURITIES, LTD.
495 POST ROAD EAST
WESTPORT, CT 06880
(203) 226-1857
FEBRUARY , 1998
======================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute. The
Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its executive officers and directors to the fullest extent permitted
by law either now or hereafter. The Registrant is also entering into an
agreement with each of its directors and certain of its officers wherein it is
agreeing to indemnify each of them to the fullest extent permitted by law. In
general, Florida law permits a Florida corporation to indemnify its directors,
officers, employees and agents, and persons serving at the corporation's request
in such capacities for another enterprise against liabilities arising from
conduct that such persons reasonably believed to be in, or not opposed to, the
best interest of the corporation and, with respect to any criminal action or
proceeding, had not reasonable cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or Federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant by
any officer or director.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee............................................ $ 9,582
National Association of Securities Dealers, Inc............. 2,535
NASDAQ listing fee.......................................... 10,000*
Boston Stock Exchange Listing Fee........................... 15,000*
Printing and engraving expenses............................. 65,000*
Accounting fees and expenses................................ 50,000*
Legal fees and expenses..................................... 150,000*
Blue sky fees and expenses.................................. 25,000*
Transfer agent and registrar fees........................... 7,500*
Underwriters' non-accountable expense allowance (assuming no
exercise of over-allotment option)........................ 220,500
Miscellaneous............................................... 883*
--------
Total............................................. $556,000
========
</TABLE>
- ---------------
* Estimated expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE> 71
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement**
1.2 Agreement Among Underwriters**
1.3 Selected Dealer Agreement**
3.1 Form of Amended and Restated Articles of Incorporation(1)**
3.2 Form of Amended and Restated ByLaws(2)**
4.1 Form of Underwriters' Warrant Agreement**
4.2 Specimen of Common Stock Certificate**
4.3 Specimen of Redeemable Common Stock Purchase Warrant**
4.4 Form of Warrant Agreement between the Company and American
Stock Transfer & Trust Company**
4.5 Form of 12-month Lock-Up Agreement**
5 Form of Opinion of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P. A., Counsel for the Company**
10.1 1997 Stock Option Plan**
10.2 Promissory Note in the principal amount of $2,450,000 in
favor of A. P. S., Inc.**
10.3 Promissory Note in the principal amount of $2,500,000 in
favor of Autoparts Finance Company, Inc.**
10.4 Loan Agreement between the Company, Autoparts Finance
Company, Inc., and A.P.S., Inc.**
10.4.1 Loan Modification Agreement between the Company, A.P.S.,
Inc., and Autoparts Finance Company, Inc.**
10.4.2 Second Amendment to Loan Agreement between the Company,
A.P.S., Inc., and Autoparts Finance Company, Inc. effective
July 31, 1997.**
10.4.3 Third Amendment to Loan Agreement between the Company,
A.P.S., Inc. and Autoparts Finance Company, Inc. dated
December 22, 1997.**
10.5 Amended and Restated Guaranty Agreement between Robert H.
Gentry, III and Janice Sue Gentry, his wife, A.P.S., Inc.
and Autoparts Finance Company, Inc.**
10.6 Product Purchase Agreement, between A.P.S., Inc. and the
Company.**
10.6.1 First Amendment to Product Purchase Agreement dated February
20, 1997 between A.P.S., Inc. and the Company.**
10.7 Form of Indemnification Agreement between the Company and
Indemnitee.**
10.8.1 Employment Agreement between the Company and Robert H.
Gentry, III.**
10.8.2 Employment Agreement between the Company and Patrick J.
Power.**
10.9 Financial Consulting Agreement between the Underwriter and
the Company**
10.10 Form of Loan and Security Agreement between the Company and
Finova Capital Corporation.**
23.1 Consent of Independent Certified Public Accountants.**
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P. A. (included in Exhibit 5).
27 Financial Data Schedule (for SEC use only).**
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Originally executed opinion to be filed by amendment
(1) Refiled here to reflect an amendment to Article IX, Section A regarding the
Company's number of shareholders necessary to call a special meeting of
shareholders.
(2) Refiled here to reflect an amendment to Article VIII regarding the Company's
decision to opt out of certain Florida laws concerning "Affiliated
Transactions" and "Control Share Acquisitions."
II-2
<PAGE> 72
ITEM 28. UNDERTAKINGS.
(a) The small business issuer will:
(1) file, during any period in which it offers or sells securities, 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, as amended (the "Act");
(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 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; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the 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.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The small business issuer will provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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 Act and will be governed by the final adjudication of such
issue.
(d) The small business issuer will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the small business issuer under Rule 424(b)(l) or (4) or 497(h)
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement on Form SB-2
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on February 17, 1998.
AUTOMOTIVE ONE PARTS STORES, INC.
By: /s/ ROBERT H. GENTRY, III
------------------------------------
Robert H. Gentry, III
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 4 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT H. GENTRY, III Sole Director, President, February 17, 1998
- ----------------------------------------------------- and Chief Executive
Robert H. Gentry, III Officer
</TABLE>
II-4
