UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the third quarterly period ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
--------------------- ---------------------
Commission File Number: 001-13657
---------
STANDARD AUTOMOTIVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2018607
- ------------------------------------------- --------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
321 Valley Rd., Hillsborough Township, NJ 08876-4056
- ------------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(908) 369-5544
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of March 3, 1998 the registrant had a total of 3,095,000 shares of
Common Stock outstanding and 1,150,000 shares of Preferred Stock outstanding.
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Index to Form 10-Q
December 31, 1997
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
STANDARD AUTOMOTIVE CORPORATION
Balance Sheets at March 31, 1997 and December 31, 1997 3
Statements of Income for the three and nine months ended
December 31, 1997 4
Statements of Cash Flows for the nine months ended
December 31, 1997 5
Notes to Financial Statements 6-8
AJAX MANUFACTURING COMPANY
Balance Sheets at March 31, 1997 and December 31, 1997 9
Statements of Income for the three and nine months ended
December 31, 1996 and 1997 10
Statements of Cash Flows for the nine months ended December
31, 1996 and 1997 11
Notes to Financial Statements 12-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II. OTHER INFORMATION
Item 5. Subsequent Events 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
STANDARD AUTOMOTIVE CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
----------- -----------
1997 1997
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ - $ -
Capitalized acquisition and financing costs 375,000 1,480,000
----------- -----------
Total assets $ 375,000 $ 1,480,000
=========== ===========
Liabilities and Shareholders' Equity
Accrued expenses $ 375,000 $ 1,196,000
Accrued obligation on settlement of Bridge Notes payable - 275,000
Bridge Notes payable - 325,000
----------- -----------
Total current liabilities 375,000 1,796,000
Commitments and contingencies
Shareholders' equity:
Preferred stock, $ .001 par value 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $ .001 par value 10,000,000 shares authorized,
1,567,500 issued and outstanding 2,000 2,000
Common stock subscription receivable (2,000) (2,000)
Accumulated deficit - (316,000)
----------- -----------
Total shareholders' (deficit) - (316,000)
----------- -----------
Total liabilities and shareholders' (deficit) $ 375,000 $ 1,480,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Statements of Income
<TABLE>
<CAPTION>
Nine months Three months
----------- ------------
Ended December 31, 1997
--------------------------
<S> <C> <C>
Revenues $ - $ -
Interest expense related to Bridge Notes 316,000 144,000
----------- -----------
Total expenses 316,000 144,000
Loss before income taxes (316,000) (144,000)
Tax benefit - -
----------- -----------
Net income $ (316,000) $ (144,000)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
December 31, 1997
-----------------
<S> <C>
Cash flows from operating activities:
Net loss $(316,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion interest expense related to settlement of Bridge Notes payable 275,000
Amortization of financing fees 32,000
Deferred taxes -
Accounts receivable -
Prepaid expenses -
Accounts payable and accrued expenses (316,000)
Income taxes payable -
---------
Net cash used in operating activities (325,000)
Cash flows from by investing activities:
Proceeds from issuance of Bridge Notes 325,000
---------
Net cash provided by investing activities 325,000
---------
Net increase in cash and cash equivalents -
Cash and cash equivalents, beginning of period -
---------
Cash and cash equivalents, end of period $ -
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Notes to Financial Statements
December 31, 1997
BASIS OF PRESENTATION AND OPERATIONS
General
The financial statements as of and for the three and nine months ended
December 31, 1997 are unaudited; however in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim period have been
made. In November 1997, Standard Automotive Corporation ("Standard") effected a
.758162-for-one reverse stock split, which reduced the number of shares of
Standard outstanding from 2,067,500 to 1,567,500. All references to share and
per share data have been restated to reflect the effects of the split.
Organizational
Standard Automotive Corporation was formed and incorporated in January
1997. Standard has conducted no operations from the date of inception up through
the date of the completion of the acquisition of Ajax Manufacturing Company
("Ajax"), other than incurring certain costs related to this transaction.
Standard has capitalized approximately $375,000 and $1,480,000 of such costs at
March 31, 1997 and December 31, 1997, respectively. The acquisition agreement
was executed in August 1997. The acquisition of Ajax was financed from the
proceeds of an Initial Public Offering ("IPO") of Standard's common and
preferred stock. Of the total amount of 3,000,000 authorized shares of Preferred
Stock, Standard had reserved 1,150,000 shares in connection with the acquisition
of Ajax. Of the total amount of 10,000,000 authorized shares of Common Stock,
Standard had reserved 1,495,000 in connection with the acquisition.
In January 1998, Standard completed its IPO of 1,495,000 Shares of Common
Stock and 1,150,000 Shares of Convertible Redeemable Preferred Stock both of
which commenced trading on the American Stock Exchange with the symbols "AJX"
and "AJX.Pr", respectively. Standard received aggregate gross proceeds of
$28,750,000 from the offering.
Concurrent with the IPO Standard completed its acquisition of Ajax
Manufacturing Company, Inc. for consideration approximating $24,000,000. The
exact purchase price is subject to adjustment by the parties and will be based
on the financial position of Ajax on the closing date. Such estimate has not as
yet been completed.
Standard maintains its books and records on the accrual basis of
accounting.
Common Stock was issued to Standard's founders and principals at nominal
values, which approximated management's assessment of the fair values of such
securities at the date of issuance. At that time, Standard had conducted no
business and the probability of consummating the acquisition of Ajax could not
be predicted with any degree of certainty.
Taxes
Based on an assessment of all available evidence, including the lack of
historical positive operating trends, management concluded that the realization
of the deferred tax asset (approximately $126,000 at December 31, 1997) could
not be considered more likely than not. Accordingly, a valuation allowance was
established against the deferred tax asset.
Related Party Transaction
In January 1998, the Company entered into a consulting contract with a
Director of Standard for annual compensation of $100,000 and 75,000 warrants at
105% of the IPO share price which approximated the fair market value at the time
of grant.
In February 1998, the Company issued 225,000 warrants at fair market value
to a Director and Officer of Standard who is also the Secretary and Vice
President.
6
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Notes to Financial Statements
December 31, 1997
Bridge Financing
In August 1997, Standard obtained $325,000 in Bridge Financing ("Bridge
Notes") from third party investors. Upon completion of the IPO, Standard repaid
the principal amount of Bridge Notes along with interest thereon at the annual
rate of 12% from the date of issuance and issued holders of the Bridge Notes
32,5000 shares of common stock to equal the principal amount of the bridge
notes, determined by the initial public offering price of $10.00 per share of
Standard's common stock. Standard incurred a charge to operations in the period
that the Bridge Notes were outstanding. Interest expense on the anticipated
issuance of common stock to Bridge Notes investors totaled $275,000 for the nine
months ended December 31, 1997. Interest expense on the Bridge Notes and
amortization of related fees totaled $17,000 and $24,000, respectively, through
December 31, 1997.
Unaudited Combined Financial Statements
The following unaudited combined Balance Sheet and Statement of Income are
tabulations of the financial condition of Standard and Ajax as if they were
combined at December 31, 1997, without giving effect to any potential IPO and/or
closing adjustments.
<TABLE>
<CAPTION>
Unaudited Combined Balance Sheets STANDARD AJAX Combined
------------ ------------ ------------
As at December 31, 1997
-------------------------------------------
<S> <C> <C> <C>
Assets (Actual)
Cash and cash equivalents $ -- $ 488,000 $ 488,000
Accounts receivable, net -- 2,047,000 2,047,000
Inventory -- 8,177,000 8,177,000
Prepaid expenses -- 221,000 221,000
Deferred taxes -- 252,000 252,000
------------ ------------ ------------
Total current assets -- 11,185,000 11,185,000
Capitalized acquisition and financing costs 1,480,000 -- 1,480,000
Property and equipment, net -- 1,129,000 1,129,000
Loans receivable - related parties -- 326,000 326,000
------------ ------------ ------------
Total assets $ 1,480,000 $ 12,640,000 $ 14,120,000
============ ============ ============
Liabilities and Shareholders' Equity
Accounts payable $ -- 2,171,000 $ 2,171,000
Accrued expenses 1,196,000 611,000 1,807,000
Accrued obligation on Bridge Notes payable 275,000 -- 275,000
Note payable 325,000 -- 325,000
Income taxes payable -- 980,000 980,000
------------ ------------ ------------
Total current liabilities 1,796,000 3,762,000 5,558,000
Deferred income taxes payable -- 12,000 12,000
------------ ------------ ------------
Total liabilities 1,796,000 3,774,000 5,570,000
Shareholder's equity:
Common stock 2,000 1,000 3,000
Common stock subscription receivable (2,000) -- (2,000)
Contributed capital -- 270,000 270,000
Retained earnings (accumulated deficit) (316,000) 8,595,000 8,279,000
------------ ------------ ------------
Total shareholders' equity (deficit) (316,000) 8,866,000 8,550,000
------------ ------------ ------------
Total liabilities and shareholders' equity $ 1,480,000 $ 12,640,000 $ 14,120,000
============ ============ ============
</TABLE>
7
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Notes to Financial Statements
December 31, 1997
Unaudited Combined Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
STANDARD AJAX Combined
------------ ------------ ------------
For the nine months ended December 31, 1997
--------------------------------------------
<S> <C> <C> <C>
Revenues $ -- $ 19,850,000 $ 19,850,000
Cost of revenues -- 15,032,000 15,032,000
Selling, general and administrative expenses -- 1,275,000 1,275,000
------------ ------------ ------------
Total operating costs and expenses -- 16,307,000 16,307,000
------------ ------------ ------------
Operating income -- 3,543,000 3,543,000
Interest expense related to Bridge Notes (316,000) -- (316,000)
Other income (expense) -- (790,000) (790,000)
------------ ------------ ------------
Income before provision for income taxes (316,000) 2,753,000 2,437,000
Provision for income taxes -- 1,110,000 1,110,000
------------ ------------ ------------
Net income (316,000) 1,643,000 1,327,000
Retained earnings (accumulated deficit),
beginning of period -- 6,952,000 6,952,000
------------ ------------ ------------
Retained earnings (accumulated deficit),
end of period $ (316,000) $ 8,595,000 $ 8,279,000
============ ============ ============
</TABLE>
8
<PAGE>
Ajax Manufacturing Company
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------
1997 1997
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,558,000 $ 488,000
Accounts receivable, net of allowance for doubtful accounts
of $30,000 and $55,000, respectively 2,536,000 2,047,000
Inventory 3,515,000 8,177,000
Prepaid expenses 220,000 221,000
Deferred taxes 205,000 252,000
----------- -----------
Total current assets 8,034,000 11,185,000
Property and equipment, net of accumulated depreciation and
amortization of $2,539,000 and $2,638,000, respectively 994,000 1,129,000
Loans receivable - related parties 300,000 326,000
----------- -----------
Total assets $ 9,328,000 $12,640,000
=========== ===========
Liabilities and Stockholder's Equity
Accounts payable $ 1,179,000 $ 2,171,000
Accrued expenses 670,000 611,000
Income taxes payable 244,000 980,000
----------- -----------
Total current liabilities 2,093,000 3,762,000
Deferred income taxes 12,000 12,000
----------- -----------
Total liabilities 2,105,000 3,774,000
Commitments and contingencies
Stockholder's equity:
Common stock, no par value 100 shares authorized, 75 shares
issued and outstanding 1,000 1,000
Contributed capital 270,000 270,000
Retained earnings 6,952,000 8,595,000
----------- -----------
Total stockholder's equity 7,223,000 8,866,000
----------- -----------
Total liabilities and stockholder's equity $ 9,328,000 $12,640,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Ajax Manufacturing Company
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Nine months ended Three months ended
December 31, December 31,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 16,907,000 $ 19,850,000 $ 8,126,000 $ 8,680,000
Operating costs and expenses:
Cost of revenues 13,108,000 15,032,000 6,162,000 6,152,000
Selling, general and administrative
expenses 1,777,000 1,275,000 704,000 475,000
------------ ------------ ------------ ------------
Total operating costs and expenses 14,885,000 16,307,000 6,866,000 6,627,000
------------ ------------ ------------ ------------
Operating income 2,022,000 3,543,000 1,260,000 2,053,000
Interest expense -- -- -- --
Other income (expense):
Excise tax settlement -- (829,000) -- --
Investment income 50,000 39,000 18,000 7,000
------------ ------------ ------------ ------------
Income before income taxes 2,072,000 2,753,000 1,278,000 2,060,000
Provision for income taxes 891,000 1,110,000 565,000 824,000
------------ ------------ ------------ ------------
Net income 1,181,000 1,643,000 713,000 1,236,000
Retained earnings, beginning of period 5,224,000 6,952,000 5,692,000 7,359,000
------------ ------------ ------------ ------------
Retained earnings, end of period $ 6,405,000 $ 8,595,000 $ 6,405,000 $ 8,595,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Ajax Manufacturing Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended December 31,
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,181,000 $ 1,643,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt provision -- 25,000
Depreciation and amortization 113,000 99,000
Deferred taxes -- (47,000)
Accounts receivable (2,266,000) 464,000
Inventory (584,000) (4,662,000)
Other receivables 94,000 --
Prepaid expenses 13,000 (1,000)
Accounts payable and accrued expenses 1,256,000 933,000
Income taxes payable (369,000) 736,000
----------- -----------
Net cash used in operating activities (562,000) (810,000)
----------- -----------
Cash flows from investing activities:
Issuance of note receivable - related parties (307,000) (26,000)
Acquisition of property and equipment (80,000) (234,000)
----------- -----------
Net cash used in investing activities (387,000) (260,000)
----------- -----------
Cash flows provided by (used in) financing activities:
----------- -----------
Net cash provided by (used in) financing activities -- --
----------- -----------
Net decrease in cash and cash equivalents (949,000) (1,070,000)
Cash and cash equivalents, beginning of period 1,482,000 1,558,000
----------- -----------
Cash and cash equivalents, end of period $ 533,000 $ 488,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes 791,000 415,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
December 31, 1997
BASIS OF PRESENTATION AND OPERATIONS
Business Description
Ajax Manufacturing Company ("Company") principally manufactures and
refurbishes trailer chassis at its Hillsborough, New Jersey facility. The
Company also manufactures industrial waste and refuse containers. Certain
transactions of the Company were initially executed under the name of an
inactive, affiliated corporation controlled by the Company's Stockholder, which
related costs were funded by the Company and reflected in the accompanying
financial statements.
The financial statements as of and for the three and nine month periods
ended December 31, 1996 and 1997 are unaudited; however in the opinion of
management all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results of interim periods are not necessarily
indicative of the results to be obtained in a full fiscal year.
Sale of Company
On January 26, 1998 the Company's Stockholder completed the sale of the
Company to an independent third party, Standard Automotive Corporation
("Standard"), for consideration approximating $24,000,000. The exact purchase
price is subject to adjustment by the parties and will be based on the financial
position of the Company on the closing date. Such estimate has not as yet been
completed.
In connection with the sale, the Company has executed a lease with its
Stockholder for an initial term of five years with four renewal options totaling
twenty years. The annual base rent over the initial term will be $620,000.
Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue when the product is inspected and accepted
by its customers or the customers' authorized agent and title has transferred.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Inventory at December 31, 1997 has been costed using the gross-profit
method that has been utilized in arriving at the cost of sales for the three and
nine months ended December 31, 1997 and 1996.
Short term Borrowings
In November 1995, the Company entered into a revolving line of credit
agreement with a bank (the "Agreement") which permits borrowings up to the
lesser of (1) $2,000,000 or (2) the sum of defined account receivables and
inventory levels, plus $750,000. Interest on the revolving line of credit is
payable monthly at the bank's rate, plus 2%. There was no outstanding balance as
of March 31, 1997 and December 31, 1997.
The Agreement contained certain restrictions, including prohibitions on
additional borrowings or guarantees, the sale of assets and the payment of
dividends. The Company was also required to maintain certain financial ratios.
As of December 31, 1997, the Company was in compliance with all financial and
operating covenants as specified in the Agreement. Substantially all of the
assets of the Company are pledged as collateral against outstanding borrowings.
This Agreement was terminated upon completion of the sale of the Company, as
previously discussed above.
12
<PAGE>
Ajax Manufacturing Company
Notes to Financial Statements
December 31, 1997
Related Party Transactions
Lease Obligations with Stockholder
The Company leases its manufacturing and office facilities from its sole
Stockholder on a monthly basis. Rent expense incurred by the Company for the
nine months ended December 31, 1997 is $465,000. At December 31, 1997 prepaid
rent totaled $51,667.
Selling, General and Administrative Expenses
The Company does not have employment agreements with its President; also
the Company's Stockholder and his son, an officer of the Company ("Officer").
The Stockholder's and Officer's compensation varies with the overall performance
of the Company and is generally subject to limitations imposed by financial
institutions, which had outstanding indebtedness with the Company. Salary and
incentives expense for the Company's Stockholder was $288,000 for nine months
ended December 31, 1997. Salaries and incentives expense for the Officer was
$142,000 for the nine months ended December 31, 1997.
Loans
At December 31, 1997 the Company had loan receivables of $326,000 from
related parties, principally an Officer and the Stockholder. The loans do not
bear interest or stipulate payment terms; accordingly, the receivables were
considered non-current. The Stockholder loans were repaid upon completion of the
sale of the Company.
Commitments and Contingencies
Internal Revenue Service ("IRS") Review
Revenue derived from sales of the Company's manufactured chassis is
subject to Federal excise tax. The Company uses certain estimates and valuation
assumptions in calculating excise tax liabilities. In July 1997, the IRS
notified the Company of an assessment totaling $1,722,000, (which includes
$287,000 of penalties) for the period from March 1995 through December 1996. In
November 1997, the Company and its outside counsel, based on discussions with
the IRS, decided to pursue a settlement agreement upon which the Company paid
approximately $829,000 to settle this matter. The Company recognized the effects
of this settlement as a charge in the six month period ended September 30, 1997.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
financial statements and notes thereto included in Standard Automotive
Corporation's Registration Statement on Form S-1 and the related Prospectus of
January 22, 1998.
AJAX MANUFACTURING COMPANY
Results of Operations
Overview
The Company manufactures and remanufactures trailer chassis. All of its
chassis are made to order and revenues are recognized when the finished product
is inspected and accepted by the customer or its agent. The market for chassis
is cyclical and is affected by overall economic conditions, in particular the
needs of the transportation industry. Remanufacturing existing chassis tends to
be counter-cyclical to manufacturing new chassis. To reduce the effect of
industry cyclicality on its business, in September 1996, the Company began to
manufacture roll-off refuse containers. Sales of such containers comprised less
than 1% of the Company's sales for the three and nine months ended December 31,
1997 and 1996.
The Company anticipates that the number of chassis it remanufactures will
increase as compared to the number of new chassis it manufactures as a result of
(i) a contemplated increase in the Company's marketing of its remanufacturing
capabilities, (ii) the potentially large number of purchasers of remanufactured
chassis among the lessors and steamship lines that use the Company's chassis,
(iii) the fact that the container chassis fleet is growing and aging and (iv)
potential regulatory changes affecting the container chassis fleet. The customer
provides the chassis that the Company remanufactures.
Results of Operations
The following discussion provides information regarding the Company's
results of operations for the nine months ended December 31, 1997 in comparison
to the nine months ended December 31,1996 and the results of operations for the
three months ended December 31, 1997 in comparison to the three months ended
December 31, 1996.
The following table sets forth, as a percentage of revenues, certain items
in the Company's statements of operations for the three and nine month periods
ended December 31, 1996 and 1997.
December 31,
------------
Nine months ended Three months ended
----------------- ------------------
1996 1997 1996 1997
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 77.5 75.7 75.8 70.9
Selling, general and administrative
expenses 10.5 6.4 8.7 5.5
----- ----- ----- -----
Operating income 12.0 17.9 15.5 23.6
Other income (expense) 0.3 (4.0) 0.2 0.1
----- ----- ----- -----
Income before provision for taxes 12.3 14.0 15.7 23.7
Provision for income taxes 5.3 5.6 7.0 9.5
----- ----- ----- -----
Net income 7.0% 8.4% 8.7% 14.2%
===== ===== ===== =====
14
<PAGE>
Comparison of the Nine Month Periods Ended December 31, 1997 and 1996
Revenues for the nine months ended December 1997, were $19,850,000, an
increase of 17% from revenues of $16,907,000 in 1996. The increase in revenues
reflects an increase of approximately $1,613,000 in sales of remanufactured
chassis offset by a decrease of approximately $806,000 in sales of new chassis.
Also sales of replacement parts and kits to other refurbishers increased in
1997, by $1,939,000 as compared to 1996. During 1997, revenues from new chassis,
remanufactured chassis, spare parts/replacement kits and roll-off containers
represented 42%, 45%, 12% and 1% of revenues, as compared to 1996 of 54%, 42%,
4% and 0%, respectively.
Cost of revenues increased to $15,032,000 in the nine months ended
December 31, 1997, compared to $13,108,000 in 1996. Cost of revenues as a
percentage of revenues decreased to 76% of revenues in 1997 from 78% of revenues
in 1996 due to the increase in sales volume and a more favorable product mix.
Selling, general and administrative expenses ("SG&A") were $1,275,000
during the nine months ended December 31, 1997, a decrease of 28% from the
$1,777,000 of SG&A incurred during 1996. The decrease in SG&A is primarily
attributable to the fact that the Company accrued $856,000 for officers'
incentives during 1996 and accrued $188,000 in such incentives during 1997. The
decrease in officers' incentives is partially offset by increases in 1997, as
compared to 1996, of $130,000 in officers' salaries; $46,000 in office personnel
salaries, $15,000 in legal and professional fees and provision for bad debts of
$25,000. As a result of the increase in revenues and the decrease in SG&A, SG&A
represented approximately 6% of revenues in 1997, as compared to 11% of revenues
in 1996.
Other income (expense) for the nine months ended December 31, 1997
included a charge of $829,000 related to the settlement of an assessment of
excise tax liabilities with the Internal Revenue Service. In November 1997,
based on the information obtained and compiled by its outside counsel,
management reached an agreement and settled the excise tax liability assessed by
the Internal Revenue Service.
Comparison of the Three Month Periods Ended December 31, 1997 and 1996
Revenues for the three months ended December 31, 1997, were $8,680,000 an
increase of 7% from revenues of $8,126,000 during 1996. The increase in revenues
reflects an increase of approximately $951,000 in sales of remanufactured
chassis offset by a decrease of approximately $1,492,000 in sales of new chassis
and continued growth in sales of replacement parts and kits, which increased in
1997, by $793,000 as compared to revenues in 1996. During 1997, revenues from
new chassis, manufactured chassis, spare parts/replacement kits and roll-off
containers represented 48%, 41%, 11% and 0% of revenues, as compared to 1996 of
67%, 31%, 2% and 0%, respectively.
Cost of revenues decreased to $6,152,000 in the three months ended
December 31, 1997, compared to $6,162,000 in 1996. Cost of revenues as a
percentage of revenues decreased to 71% of revenues in 1997 from 76% of revenues
1996 due to the increase in sales volume and a more favorable product mix.
Selling, general and administrative expenses ("SG&A") were $475,000 during
the three months ended December 31, 1997, a decrease of 32% from the $704,000 of
SG&A incurred during 1996. The decrease in SG&A is primarily attributable to the
fact that the Company accrued $285,000 for officers' incentives during the three
months ended December 31, 1996 and accrued $63,000 of such incentives during
1997. The decrease in officers' incentives is partially offset by increases of
$70,000 in officers' salaries, $13,000 in office personnel salaries and
provision for bad debts of $25,000. Despite the increase in revenues, SG&A
represented approximately 6% of revenues in 1997, as compared to 9% of revenues
in 1996.
Other income (expense) was $7,000 for the three months ended December 31,
1997, a decrease of 61% from other income of $18,000 during 1996. Other income
consisted entirely of investment income and the decline was attributable to the
use of excess cash required to fund the Federal Excise tax settlement in
November 1997.
15
<PAGE>
Liquidity and Capital Resources
Historically and prior to the sale of the Company, the Company had
financed its operations through debt provided by its sole stockholder and loans
from financial institutions. In addition, to provide the Company with working
capital, Carl Massaro varied the amount of his compensation to reflect the
performance of the Company's business. The Company had a revolving line of
credit agreement with a bank permitting borrowing up to the lesser of $2,000,000
or the sum of certain inventory and receivables plus $750,000. As of December
31, 1997 there were no amounts outstanding on the Company's bank credit
facilities. Upon the completion of the sale of the Company, the facility was
terminated.
Capital expenditures, primarily for the acquisition of equipment at the
Company's facility were $234,000 for the nine months ended December 31, 1997.
The Company anticipates that capital expenditures during fiscal 1999 will exceed
those of the preceding years as the Company expands its roll-off refuse
container business, increases efficiency and output in its chassis line and
expands its product line to include intermodal containers. Although the Company
anticipates it will be able to finance such expenditures out of cash flow from
operations, capitalized equipment leases and funds remaining from the IPO, the
Company could require substantial additional capital if it were to seek to
expand its product lines by substantially modifying or modernizing its facility,
open additional facilities or acquire a new businesses within the chassis
industry or other related industries.
The Company used $810,000 in operating activities during the nine months
ended December 31, 1997, as compared to $562,000 used in 1996. The use of cash
in operating activities during the nine months ended December 31, 1997, reflects
primarily an increase of approximately $4,700,000 in the Company's inventory in
order to facilitate the increase in sales. Additionally, the Company funded
$829,000 as a non-recurring expense for the aforementioned IRS settlement
agreement. Net cash used by investing activities was $260,000 during the nine
months ended December 31, 1997, as compared to $387,000 used in investing
activities during 1996. The use of cash in investing activities during the
earlier period reflects a loan of $307,000 to a related party.
The terms on which the Company manufactures and remanufactures chassis
provide for payment within 30 days of acceptance and the Company's accounts
receivable were collected in an average of less than 30 days.
At December 31, 1997, the Company had working capital of $7,423,000 which
is sufficient to meet all of its current operating requirements and, if
necessary, such needs could be met out of the remaining cash on hand resulting
from Standard's IPO.
STANDARD AUTOMOTIVE CORPORATION
Results of Operations
Standard Automotive Corporation ("Standard") had no operating results
prior to the nine month period ended December 31, 1997.
At December 31, 1997, all of the Standard's assets represent capitalized
acquisition and financing costs. Standard has capitalized approximately $375,000
and $1,480,000 of such costs at March 31, 1997 and December 31, 1997,
respectively. Immediately following the completion of Standard's IPO all
relevant costs were charged to paid-in-capital. Related interest expense of
$316,000 was charged in the period.
Liquidity and Capital Resources
In January 1998, the Standard completed its IPO of 1,495,000 Shares of
Common Stock and 1,150,000 Shares of Convertible Redeemable Preferred Stock both
of which are trading on the American Stock Exchange with the symbols "AJX" and
"AJX.Pr", respectively. The Company received aggregate gross proceeds of
$28,750,000 from the offering.
16
<PAGE>
Concurrent with its IPO Standard completed its acquisition of Ajax
Manufacturing Company, Inc. for consideration approximating $24,000,000. The
exact purchase price is subject to adjustment by the parties and will be based
on the financial position of Ajax on the closing date. Such estimate has not as
yet been completed.
Until the completion of Standard's IPO it was funded by a combination of
the $325,000 in Bridge Notes and advances from Standard's founders and
principals. In February 1998, the Standard repaid the advances and Bridge Notes
including accrued interest on the notes with proceeds from the IPO.
Item 5. Subsequent Events
In February 1998, Barclay Investments, Inc., a New Jersey corporation,
entered into a Stock Purchase Agreement to purchase 100% of the stock of CPS
Trailer Company, Inc., a Missouri corporation, and a Stock Purchase Agreement to
purchase 100% of the stock of R & S Truck Body Company, Inc., a Kentucky
corporation. Subsequent thereto, Standard entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") to purchase 100% of the stock of
Barclay Investments, Inc. from its owners, Andrew A. Levy, Farzana S. Habib,
Richard Friedman, Jeffrey Markowitz and Glenn Goldfinger. Andrew A. Levy,
Farzana S. Habib and Glenn Goldfinger are current shareholders of Standard.
The Stock Purchase Agreement calls for the purchase of 100% of the stock
of Barclay Investments, Inc. in exchange for 185,000 shares of common stock of
Standard. In addition, in connection with the acquisition, Standard is obligated
to pay Redstone Capital Corporation, a company of which Andrew A. Levy is
President, a fee of $600,000 for arranging the transactions. Standard is not
obligated to close the purchase of Barclay Investments, Inc. under the Stock
Purchase Agreement unless it simultaneously closes the purchase of CPS Trailer
Company, Inc. and R & S Truck Body Company, Inc.
Founded in 1979, CPS Trailer Co., Inc., located in Oran, MO, with annual
revenues over $12,000,000 is an innovative manufacturer of a variety of truck
trailers for hauling commodities in agricultural, construction, and
waste-hauling applications. CPS's products are sold in all 50 states through
dealers. CPS is in the process of completing a 60,000 square foot addition to
its plant, almost doubling its manufacturing capacity, to accommodate its new
aluminum body fabrication unit.
The Stock Purchase Agreement among Barclay Investments, Inc., CPS Trailer
and the shareholder of CPS Trailer provides for the payment by the purchaser of
$7,000,000, plus an amount equal to five-sixths of the net income of CPS Trailer
for the period from January 1, 1998, through the closing date; plus shares of
common stock of Standard with a value of $1,250,000 (based upon the average
closing price of the common stock for the ten days prior to closing). In
addition, the selling shareholder shall receive $1,000,000 in April 2002, if the
cumulative EBITDA of CPS Trailer for the fiscal years 1998 through 2001 exceeds
$6,000,000. In addition, upon completion of the acquisition Charles Siebert, the
sole shareholder of CPS Trailer, and Judy Siebert, his wife, shall enter into
four year employment agreements providing for initial base salaries of $100,000
and $65,000, respectively.
Founded in 1969, R&S Truck Body Company, Inc., located in Allen, KY, with
annual revenues over $20,000,000 designs, manufactures and sells customized dump
truck bodies and trailers, specialized truck suspension systems and related
products and parts. R&S also acts as a distributor for truck equipment
manufactured by other companies, including cranes, tarpaulins, spreaders, plows
and specialized service bodies. Products are sold both directly and through
distributors throughout various regions of the United States east of the
Mississippi River. R&S is in the process of completing construction on a new
145,000 square foot plant, more than doubling its current manufacturing space.
The plant is being financed under a very favorable development program with the
State of Kentucky that will provide, among other benefits, substantial future
tax credits.
The Stock Purchase Agreement among Barclay Investments, Inc., R&S Truck
Body Company and the shareholders of R&S Truck Body provides for the payment by
the purchaser of $11,900,000, plus an amount equal to the earnings of R&S Truck
Body for the period from January 1, 1998, through the closing
17
<PAGE>
date; plus shares of common stock of Standard with a value of $1,000,000 (based
upon the average closing price of the common stock for the ten days prior to
closing). In addition, upon completion of the acquisition William L. Smith, one
of the shareholders of R&S Truck Body, shall enter into a three year Consulting
Agreement providing for a consulting fee of $8,333 per month.
The closing of the three Stock Purchase Agreements is contingent upon
certain matters, including the successful completion of a due diligence review
by Standard and the consummation of a financing satisfactory to Standard to
enable it to pay the amounts due. Standard has retained Furman Selz LLC to act
as its investment banker in connection with a debt offering to finance the
contemplated acquisitions.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.1 Stock Purchase Agreement between Barclay Investments, Inc., CPS
Trailer Company, Inc. and the shareholder of CPS Trailer Company,
Inc.
10.2 Stock Purchase Agreement between Barclay Investments, Inc., R&S
Truck Body, Inc. and the shareholders of R&S Truck Body, Inc.
10.3 Stock Purchase Agreement between Standard Automotive Corporation,
Barclay Investments, Inc. and the shareholders of Barclay
Investments, Inc.
18
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANDARD AUTOMOTIVE CORPORATION
------------- -------------------------------------------------
(Registrant)
Date: March 6, 1998 /s/ STEVEN MERKER
------------- -------------------------------------------------
Steven Merker
Chairman of the Board of Directors
Date: March 6, 1998 /s/ ROY CECCATO
------------- -------------------------------------------------
Roy Ceccato
Chief Financial Officer and Director
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Combined
Unconsolidated Balance Sheet and Statement of Income found on pages 7 & 8 of the
company's Form 10-Q for the three months ending December 31, 1997 and is
qualified in its entirety by reference to such combined unconsolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 488,000
<SECURITIES> 0
<RECEIVABLES> 2,102,000
<ALLOWANCES> 55,000
<INVENTORY> 8,177,000
<CURRENT-ASSETS> 11,185,000
<PP&E> 3,767,000
<DEPRECIATION> 2,638,000
<TOTAL-ASSETS> 14,120,000
<CURRENT-LIABILITIES> 5,558,000
<BONDS> 0
0
0
<COMMON> 3,000
<OTHER-SE> 8,547,000
<TOTAL-LIABILITY-AND-EQUITY> 14,120,000
<SALES> 19,850,000
<TOTAL-REVENUES> 19,850,000
<CGS> 15,032,000
<TOTAL-COSTS> 16,307,000
<OTHER-EXPENSES> (790,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (316,000)
<INCOME-PRETAX> 2,437,000
<INCOME-TAX> 1,110,000
<INCOME-CONTINUING> 1,327,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,327,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
