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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 28, 1998
Automotive Performance Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-23705 86-0850090
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(State of incorporation) (Commission (I.R.S. Employer ID No.)
file number)
1207 N. Miller Road, Tempe, Arizona 85281
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(Address of principal executive offices ) (Zip Code)
Issuer's telephone number 602-967-5990
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Klein Engines & Competition Components, Inc.
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(former name or former address, if changed since last report)
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8-K INFORMATION
Item 5. Other events
Attached is management's description of the business with discussion and
analysis of the Company post merger.
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8-K INFORMATION
AUTOMOTIVE PERFORMANCE GROUP, INC.
INTRODUCTION
Automotive Performance Group, Inc., is a Delaware corporation (the "Company" or
"APG") headquartered in Redmond, Washington, and Phoenix, Arizona. APG was
formed in April 1998 as a holding company for investments in high performance
automotive related businesses. APG: (1) owns and operates Team Scandia
("Scandia"), a motor sports race team that competes in the Indianapolis Racing
League ("IRL") and the National Hot Rod Association's ("NHRA") Top Fuel series,
(2) holds a 50% ownership stake in Scandia Bodine racing, LLC ("Scandia
Bodine"), a racing team that competes in the National Association for Stock Car
Auto Racing ("NASCAR") Winston Cup series, (3) holds a 50% ownership in Cristen
Powell Enterprises and Jimmy Kite Enterprises, companies of a leading NHRA drag
racer and a leading IRL driver, respectively, (4) owns Royal Purple Motor Oil
which markets and retails exclusively a line of high-performance synthetic
lubricants under the Royal Purple(TM) brand name ("Royal Purple"), (5) owns
Klein Engines and Competition Components, Inc. ("Klein Engines" or "Klein"), a
manufacturer of high performance engines and components for motor sports and
specialty applications, and (6) owns and operates D3Design Works, formerly "Apex
Communications," a full service designing agency, specializing in digital media
and information technology for the high performance automotive industry.
The objective of the Company is to develop and successfully market a broad
spectrum of mutually-supportive brands of goods and services for the high
performance automotive industry.
The Company's subsidiaries experienced significant losses in 1997, but losing
operations were sold off and the merged Company is positioned to return to
profitability by mid-1999. See Management's Discussion and Analysis of
Operations below.
BUSINESS
Automotive Performance Group, Inc., was formed in April 1998 as a holding
company for investments in high performance automotive industry related
businesses. APG operations include Klein Engines and Competition Components,
Inc., a manufacturer and reconditioner of high performance engines and specialty
components; Royal Purple Motor Oil, Inc., a marketer of high performance
synthetic lubricants; a race team, Team Scandia, which competes in both the Indy
Racing League and the National Hot Rod Association; a 50% ownership interest in
Scandia Bodine, a competitor in NASCAR's Winston Cup series; 50% ownership
interest in the marketing rights to leading NHRA dragster driver, Cristen
Powell; a 50% ownership interest in the marketing rights to leading IRL race car
driver, Jimmy Kite; and D3Design Works, an information technology and services
consulting firm.
Following the merger of Klein Engines and International Motor Sports Group, Inc.
("IMSG"), APG's activities generally include the following:
- High Performance Engines / Specialty Engine Components
- High Performance Synthetic Lubricants
- Race Team Operation
- Properties / Branded Products
- Support Services
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HIGH PERFORMANCE ENGINES / SPECIALTY ENGINE COMPONENTS
Klein Engines designs, develops, manufactures, assembles, sells and reconditions
a wide variety of high-performance engines and specialty components for
high-performance engines.
Klein markets its engines primarily to entities engaged in automotive, marine
and airplane racing activities. Klein currently supplies racing engines for the
Indianapolis Racing League, American Indy Car Series, National Hot Rod
Association drag racing, American Sprint Car Series, World of Outlaws sprint
cars, United States Automobile Club midget cars, and others.
Klein's specialty component business currently consists of two areas of focus:
crankshafts and cylinder heads. With respect to cylinder heads, Klein recently
entered into an agreement to produce a line of high-performance heads utilizing
patented design features for use on large block truck, marine and industrial
engines. Klein engages in continuing research to develop or acquire rights to
produce additional high-performance components to add to its portfolio of
products. Klein believes that developing the in-house capability to manufacture
all of the components that make up the "rotating mass" of high-performance
engines, particularly crankshafts, connecting rods and pistons, will improve the
quality and availability of those components for use in Klein's engines.
MOTOR SPORTS OVERVIEW
GENERAL
The motor sports industry is undergoing a period of unprecedented growth in
popularity. Attendance at events such as NASCAR Winston Cup, NASCAR Busch Grand
National, NASCAR Craftsman truck series, and Championship Auto Racing Teams,
Inc. ("CART"), Indianapolis Racing League and National Hot Rod Association
races, increased 11.0% in 1997 versus 1996. Overall motor sports attendance has
shown strong growth over the five years, 1993 to 1997:
ATTENDANCE FIGURES FOR THE MOTOR SPORTS INDUSTRY
(in thousands)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
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<S> <C> <C> <C> <C> <C>
NASCAR
WINSTON CUP 4,020 4,896 5,327 5,588 6,091
BUSCH 1,165 1,302 1,604 1,666 1,943
CRAFTSMAN -- -- 552 811 920
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SUB-TOTAL 5,185 6,198 7,483 8,065 8,954
GROWTH YR TO YR 9.1% 19.5% 20.7% 7.8% 11.0%
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CART 1,964 2,015 2,260 2,366 2,491
IRL -- -- -- 1,144 1,347
NHRA 1,649 1,732 1,853 1,869 2,168
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SUB-TOTAL 3,613 3,747 4,113 5,379 6,006
GROWTH YR TO YR 3.6% 3.7% 9.8% 30.8% 11.7%
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TOP TIER EVENTS 8,798 9,945 11,596 13,444 14,960
GROWTH YR TO YR 6.7% 13.0% 16.6% 15.9% 11.3%
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SPORTSCAR 766 292 431 450 531
ARCA 438 496 509 615 n.a.
</TABLE>
n.a. - not available
Source: Goodyear Racing Division, Goodyear Tire & Rubber Company
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The major segments of the motor sports industry in North America follow:
SPORTS CAR RACING--Professional sports car racing, held on road courses
throughout North America, were sanctioned by the Company's ex-subsidiary
Professional SportsCar Racing, Inc. or the Sports Car Club of America ("SCCA")
through its affiliates the United States Road Racing Championship ("USRRC") and
SCCA Pro Racing.
STOCK CAR RACING--Stock car races, held on high-speed ovals and road courses,
are sanctioned by NASCAR, ARCA and others. NASCAR has contributed greatly to the
growth in popularity of motor sports racing in general and stock car racing in
particular. The Company does not currently promote or have any association with
NASCAR or ARCA sanctioned events.
However, Scandia Bodine currently competes in NASCAR's Winston Cup series.
INDY CAR RACING--"Indy Cars" are open-wheeled cares that take their name from
the Indianapolis Motor Speedway, site of the most famous motor race in the
world, the "Indianapolis 500". Indy car racing is sanctioned by two
associations: the United States Auto Club ("USAC") which oversees the
Indianapolis 500 and the other races comprising the Indy Racing League, and
Championship Auto Racing Teams, Inc., which oversees a successful series of Indy
car races. APG does not currently promote, or have plans to promote, Indy car
races. However, APG's Team Scandia currently competes in the IRL.
DRAG RACING--Drag racing events, including Top Fuel dragsters, "Funny Cars," Pro
Stock Cars and Motorcycles, are sanctioned in the United States by the NHRA and
the International Hot Rod Association ("IHRA"). APG does not currently promote
drag car races. However, Team Scandia fields a team in the NHRA's Top Fuel
dragster series.
BUSINESS OF MOTOR SPORTS
Motor sports races are generally heavily promoted annual events, with a number
of supporting events surrounding the main race event. Other events include the
running of one or more support races, qualifying sessions, practice sessions,
parades, autograph sessions and other related events, all of which are designed
to maximize the spectators' entertainment experience. The primary participants
in the business of motor sports, other than the sanctioning bodies discussed
above, are the spectators, the sponsors, the track owners, the drivers, the team
owners and the vendors of officially licensed merchandise.
THE DRIVERS. A majority of drivers contract independently with team owners while
select drivers own their teams. Drivers receive income from contracts with team
owners, sponsorship fees and prize money. Successful drivers on the NASCAR
circuit may also generate income from personal endorsements and souvenir sales.
The public personae of the drivers in any race series are important assets to
the sanctioning bodies, team owners and race promoters as they help generate fan
interest and ticket sales, sponsorship and merchandise sales.
MERCHANDISE VENDORS. The growing popularity of motor sports events, combined
with the demographics of the spectators, is conducive to revenue growth for
vendors of racing-related merchandise and souvenirs. For example, sales of
apparel, souvenirs and collectibles licensed by NASCAR and NASCAR drivers
climbed from approximately $60 million in 1990 to about $1 billion in 1997.
RACE TEAM OPERATION
Through its ownership of Team Scandia and its interest in Scandia Bodine Racing,
LLC, APG participates as a competitor in several high profile race series
including: NASCAR's Winston Cup Series, the Indianapolis Racing League and the
National Hot Rod Association's Top Fuel Series. APG plans to utilize its
participation in these race series as part of the "selling" and the generation
of proprietary investment opportunities such as Klein Engines and marketing
rights to Royal Purple. Like many team owners, Team Scandia takes advantage of
the hospitality surrounding events to market itself to potential sponsors for
all of its lines of business and to generate economically attractive investment
opportunities for APG. Central to APG's
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incorporation of the race team into the Company is that the team will, at a
minimum, operate at break even by the end of 1998.
TEAM SCANDIA. In June 1997, the Company acquired the operations of Team Scandia,
Inc. Team Scandia competes in both the IRL (Indy Car) and NHRA (Top Fuel
Dragster) race series. Team Scandia is headquartered in Indianapolis, Indiana,
and has 40 employees.
Team Scandia qualified a record seven cars for the 1996 Indy 500 and six cars
for the 1997 race. Team Scandia's primary IRL driver is Jimmy Kite, a 21 year
old native of Stockridge, Georgia, who made the jump to the IRL from midgets and
Silver Crown cars in 1997.
Team Scandia fields one entrant in the NHRA's Top Fuel Dragster series. The car
is driven by nineteen year old Cristen Powell and is sponsored by Reebok,
Sequent Computer Systems, Inc., and Royal Purple Motor Oil. (See paragraph,
"Properties and Branded Products.")
Through its ownership of Team Scandia, APG participates as a competitor in
several high profile race series including: the IRL and the NHRA. APG believes
this participation provides an opportunity to use its other products, thereby
lending credibility to the marketing of those products.
SCANDIA BODINE RACING, LLC. In October 1997, the Company acquired a 50% interest
in Scandia Bodine Racing, LLC ("Scandia Bodine"). Scandia Bodine was formed to
purchase the assets of BDR Motorsports which was a participant in NASCAR's
Winston Cup Series. With its driver, Brett Bodine, and the familiar #11 car,
Scandia Bodine is a respected competitor on the circuit and Brett Bodine
currently ranks 15th among drivers in the 1998 Winston Cup standings.
Brett Bodine is a native of Chemung, New York, and has been driving in NASCAR's
Winston Cup series since making his debut in1986. His first Winston Cup victory
came in his 80th start at North Wilkesboro in 1990. During the 1997 season,
Bodine had 27 starts with two top ten finishes and a top qualifying effort of
third.
The Company has invested more than $1.0 million into Scandia Bodine. After
receiving a preferential return of its initial $1.0 million investment, APG is
entitled to receive 50% of any distributions made by Scandia Bodine. Andrew L.
Evans, the Chairman, CEO and President of APG, is the Manager of Scandia Bodine.
APG intends to use its contacts and marketing skill to attract sponsorship for
the Scandia Bodine #11 car that will be sufficient to enable the team to contend
to win each race it enters and to operate at break even or a modest profit. In
addition, APG intends to mount a campaign to market Brett Bodine and the team to
generate non-race related revenues.
Scandia Bodine has 20 employees and has its base of operations in Mooresville,
North Carolina.
PROPERTIES AND BRANDED PRODUCTS
APG believes that there are many attractive business opportunities associated
with professional motor sports, including the areas of celebrity management
(drivers), automotive products, apparel and other consumer goods. To capitalize
on these opportunities, the Company formed a business unit for the purpose of
acquiring products, or the marketing rights to products or personalities, that
can be promoted through APG's growing portfolio of high performance automotive
properties. APG's first initiatives in this area are Cristen Powell Enterprises,
Jimmy Kite Enterprises, Royal Purple Motor Oil and development of "branded" Team
Scandia and venue merchandise.
CRISTEN POWELL ENTERPRISES. Cristen Powell is a nineteen year old native of
Portland, Oregon. Powell began raising eyebrows when she attended Frank Hawley's
drag racing school on her sixteenth birthday. She debuted in competition in the
NHRA Super Comp division in 1995 and
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later moved up to the Alcohol Dragster category. In 1996 she participated in
over 30 events, qualifying at 12 national events, setting 6 track records and
qualifying first 4 times. In the process, she set a national alcohol dragster
elapsed time record with a 5.44 second run. In 1997, Cristen made the jump to
the Top Fuel division and rocked the racing world when she became the youngest
woman, and the second youngest person, to win a national championship event when
she captured the Mopar Parts Nationals at Englishtown, New Jersey, on May 19th,
1997. She has also passed the 300-mile per hour barrier several times. APG owns
50% of the marketing rights to Cristen Powell Enterprises and actively markets
her name and celebrity.
JIMMY KITE ENTERPRISES. Jimmy Kite is a twenty-one year old native of
Stockridge, Georgia. Kite has driven professionally since age eight and had
planned to run both midget and USAC Silver Crown series in 1997. However, a
startling victory in the Copper World Classic Silver Crown race in Phoenix in
February propelled him to a shot at driving in the IRL for Team Scandia. In four
events, Kite consistently ran with the race leaders in qualifying and practice,
led his second race (Charlotte) for 11 laps and finished a season best sixth on
October 11th in the Las Vegas 500K. APG owns 50% of the marketing rights to
Jimmy Kite Enterprises.
HIGH PERFORMANCE SYNTHETIC LUBRICANTS
In April, 1997, IMSG (now APG) through its subsidiary, Royal Purple Motor Oil,
Inc. ("RPM"), obtained worldwide, exclusive rights to market and sell a variety
of high-performance synthetic lubricants developed by Royal Purple, Inc. Royal
Purple, Inc., was founded in 1985 by John and Jody Williams, father and son,
with over 50 years of aggregate experience developing and marketing specialty
lubricants. Royal Purple lubricants are formulated using select synthetic
molecules and a proprietary system of additives and produce superior performance
relative to both currently available synthetic products as well as standard
mineral oils.
RPM is owned 100% by APG; however, Royal Purple, Inc., holds an option
exercisable into a 20% ownership stake in RPM. In addition, Royal Purple Motor
Oil has issued options to certain key executives of RPM. Under the terms of the
option agreement with Royal Purple, Inc., options issued to management will
dilute only APG's holdings in RPM while Royal Purple Inc.'s ownership on a
fully-diluted basis will remain at 20%.
Under the agreement with Royal Purple, Inc., RPM has the exclusive worldwide
rights to market Royal Purple products to consumers through retail channels of
distribution. RPM intends to develop and implement programs to obtain retail
placement for Royal Purple products; particularly through promotional activities
in the high performance automotive arena. RPM will be responsible for all
marketing and promotion costs related to the sale of Royal Purple. As part of
the agreement, Royal Purple, Inc. will sell RPM bulk Royal Purple products at
cost.
Royal Purple synthetic lubricants have achieved brand name recognition and
credibility in the industrial market and more recently in the high performance
motor racing arena. Royal Purple's "word of mouth" reputation in the racing
world was the basis of the Company's interest in Royal Purple. Royal Purple's
synthetic racing oils are currently in use by top competitors in NASCAR, CART,
IRL, NHRA and SportsCar.
Royal Purple has established a relationship with NAPA Auto Parts whereby NAPA is
considering becoming a sponsor of Team Scandia's NHRA Top Fuel team and use the
association as a promotional platform to roll out Royal Purple synthetic motor
oil into NAPA locations in 1998.
Management believes that the Royal Purple agreement provides APG, through RPM,
with a low-risk opportunity to introduce a fully-developed, proven,
high-performance line of synthetic lubricants to consumers. The structure of the
agreement with Royal Purple, Inc., limits the Company's financial risk
associated with this project to the amount of capital it invests into the Royal
Purple Motor Oil project.
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SUPPORT SERVICES
D3Design Works, formerly "Apex Communications," is a full service designing
agency, specializing in digital media and information technology. D3Design Works
has designed and developed a number of Internet websites for the high
performance automotive industry including Team Scandia, Royal Purple and Klein
Engines.
DISCONTINUED ACTIVITIES
The Company discontinued its sanctioning of sports car racing in 1997 and has
sold off money-losing Professional SportsCar Racing, Inc., Sebring International
Raceway, Inc., and Mosport Entertainment Park. All three businesses were
requiring more investment with no outlook for a reasonable return.
MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATION. The Company has yet to report a profit. Losses were incurred
as a result of the Company's ventures into race track ownership and operation,
and race sanctioning. Both former IMSG properties, Sebring Raceway in Florida
and Mosport in Ontario, Canada, were recently sold, as was IMSG's interest in
Professional SportsCar Racing, Inc. With those weaker businesses no longer
affecting the Company's financial picture, profits are expected by mid-1999 as
APG consolidates its remaining businesses and carefully assesses new ventures
for their ability to strengthen APG and its subsidiaries.
The objective of Management is to profit from the synergistic benefits of
offering a broad line of mutually-supportive branded goods and services. The
strategy Management plans is to continue to pursue its measured program of
affiliation with and acquisition of high performance automotive related
companies.
The recent merger with Klein Engines and Competition Components is an example of
the implementation of the above strategy. Klein Engines' reputation for
producing high-quality, dependable and competitive racing engines and components
dovetails well with the reputations earned by the Company's other enterprises.
Klein's association with Team Scandia has already resulted in Klein receiving
work from various Indy Car Racing teams, rebuilding and refreshing Aurora
engines which is more profitable work than the bulk of engine work done by Klein
in recent years. Klein intends to sell surplus real estate to help finance the
modernization and computerization of production facilities giving it a capacity
to take a higher volume of business more efficiently without adding to its fixed
overhead.
As part of the mutual benefits enjoyed by both companies, the merger will bring
to Klein Engines the capital resources that will enable it, among other things,
to continue its development of core business lines, including the Diatron line
of high-performance engine components.
The interest of consumers and spectators in APG's offerings is expected by
Management to continue to grow, inspiring more and more interest from team
sponsors and high performance automotive related companies, both looking to
strengthen their brand images through affiliation with the winners at APG and
its enterprises.
Team Scandia continues to refine and consolidate racing team activities and
plans to purchase a Taurus stock car to be driven by its sensational new driver
Jimmy Kite. The Taurus is considered by many to be the best in stock car racing,
which is more popular than other forms of racing.
The Company is in the process of developing a marketing plan to promote its high
performance synthetic lubricant Royal Purple in the mass markets where it
believes that the profit potential for the product is exceptional.
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The Company has an aggressive search underway for additional acquisitions to add
to its mix of companies that support high performance motor sports.
LIQUIDITY AND CAPITAL RESOURCES.
By selling off non-performing assets in 1997, the combined Company ended the
year with about $7,000,000 in current assets, half of which was in cash. Klein
Engines is in the process of selling unproductive real estate which it believes
is worth approximately $800,000 and should add between $300,000 and $350,000
cash to Klein and improve cash flow by approximately $5,000 per month. Klein is
expected to reduce inventory by at least 50% over the next year with the aid of
a new computerized inventory control and production plan, which should be fully
installed by August of 1998. Stricter guidelines regarding customer deposits and
faster delivery should reduce receivables considerably. The Company believes
improved inventory management and reduced receivables could add as much as
$500,000 cash to the Company by year end.
The company instituted a one-for-twenty reverse-stock-split to help facilitate
raising new capital to support its acquisition program.
RESULTS OF OPERATIONS.
The Company has produced a pro-forma statement of operations that consolidates
the operations of Klein and IMSG for the twelve months ended December 31, 1997,
to show how they would have operated as a merged company in 1997. Many of the
operations responsible for these losses have been discontinued. In 1997, the
Company sold wholly owned subsidiaries which were responsible for $5,552,403 of
the operating losses in 1997. The operating loss includes a gain on the disposal
of an asset of $1,582,832 and losses from the disposal of assets of $1,875,120.
RACE TEAM OPERATIONS
Team Scandia qualified six cars for the Indy 500 in 1997, which the Company
believes was much too aggressive for any one company's ability to attract
sponsors and manage itself efficiently. This aggressive program contributed
substantially to the operating losses of the Company in 1997. At the present
time, Team Scandia is only campaigning one Indy car racing team and it believes
that it can break even over the ensuing year with a more focused effort.
HIGH PERFORMANCE ENGINES / SPECIALTY ENGINE COMPONENTS
Klein Engines and Competition Components, Inc., incurred an extraordinarily high
increase in operating expenses due to the acquisition of real estate, the
introduction of new products, and additions to payroll associated with the
company's preparation to become a fully reporting public company. The Company
also incurred unusual non-recurring professional fees of approximately $100,000
associated with the pending merger and filing its Form-10, which has brought the
Company into full reporting status with the Securities and Exchange Commission.
Payroll has since been reduced by approximately $10,000 per month and the
pending sale of some of the real estate acquired in 1997 will reduce cash
requirements by approximately $5,000 per month.
HIGH PERFORMANCE SYNTHETIC LUBRICANTS
In 1997, the Company acquired worldwide, exclusive rights to market and retail a
variety of high-performance synthetic lubricants developed by royal Purple, Inc.
These products have been received enthusiastically in the industrial market and
high performance motor racing arena. While the Company continues to believe that
the products have great promise, they have yet to contribute profitably and
Royal Purple Motor Oil is expected to continue operating at a loss
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until a new marketing plan is in place and the products establish a significant
market share. At the present time, the Company is not forecasting a time when
the product will add to profits.
PROPERTIES AND BRANDED PRODUCTS
Cristen Powell and Jimmy Kite are showing great promise. They are very
competitive on the race track and receive a great deal of press attention at
each event. However, anticipated revenue from product licenses will take some
time to develop. The leverage from this area is considerable when and if either
driver wins a championship.
RISK AND UNCERTAINTIES. Matters discussed herein, contain forward-looking
statements that involve risk and uncertainties. The Company's results may differ
significantly from results indicated by forward looking statements. Factors that
might cause some differences, include, but are not limited to:
- - Changes in general economic conditions, including but not limited to the
public's interest in racing, and shifts in leisure time pursuit preferences;
- - Changes in government regulations affecting racing, sponsors, customers,
and/or the Company and/or its subsidiaries;
- - Risks generally involved in the high performance automotive business;
- - Competition;
- - The ability of the Company to successfully exploit its properties, develop
markets for products produced by its subsidiaries, control costs and
inventories, and continue to satisfy its customers;
- - The Company's ability to raise sufficient debt and equity capital to
perfect business plans and to enable it to continue in existence;
- - The occurrences of incidents which could subject the Company to liability
or fines.
EXECUTIVE OFFICERS, DIRECTORS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
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<S> <C>
Andrew L. Evans Chairman of the Board and President of APG, and President of Team Scandia
Thomas G. Klein Vice Chairman of the Board and President of Klein Engines and Competition
Components, Inc.
James R. Medley Treasurer, Director
James E. Dunn President of Royal Purple Motor Oil, Inc.
Jennifer Burns Vice President of Marketing
Bruce A. Butcher Secretary, Director
Thomas H. Carmody Director
Ronnie Lott Director
Terry E. Nish Director
William H. Tempero Director
</TABLE>
ANDREW L. EVANS, CHAIRMAN OF THE BOARD AND PRESIDENT OF APG, AND PRESIDENT OF
TEAM SCANDIA. In addition to his duties on behalf of Automotive Performance
Group, Inc., and Team Scandia, Mr. Evans is the President and Chairman of the
Board of Dominion Income
<PAGE> 10
Management Corp. which he founded in 1986. Dominion invests primarily in the
equity securities of both public and private companies. Mr. Evans has
participated in most segments of the securities business including as an
investor, trader, and broker. Mr. Evans graduated from Whitman College in 1974
and pursued graduate studies at Yale University.
THOMAS G. KLEIN, VICE CHAIRMAN OF THE BOARD AND PRESIDENT OF KLEIN ENGINES AND
COMPETITION COMPONENTS, INC. Mr. Klein has served as Chairman of the Board,
President, and Chief Executive Officer of Klein Engines and Competition
Components, Inc., since May 1996. Mr. Klein served as the Chairman of the Board,
President, and Chief Executive Officer of K-Way from December 1992 until the
Reverse Acquisition in May 1996. Mr. Klein has been involved in the motorsports
industry as a race car driver, owner and builder since 1960, and as a builder of
high performance engines since 1965.
JAMES R. MEDLEY, TREASURER AND DIRECTOR. Mr. Medley has served as a director of
Klein Engines since December 1997. Since March 1976, Mr. Medley has served as
President of Laux Medley Norris, Inc., which provides investment advice and
business counsel. Mr. Medley currently serves as Treasurer and Chief Financial
Officer of Leading-Edge Earth Products, Inc., a publicly traded development
stage company engaged in developing and manufacturing building construction
components.
JAMES E. DUNN, PRESIDENT OF ROYAL PURPLE MOTOR OIL, INC. Mr. Dunn is responsible
for the development and execution of APG's plans to introduce a line of consumer
products under the Royal Purple brand name. Mr. Dunn was previously a Director
of business marketing at Apple Computer. Mr. Dunn also held senior positions in
brand management while at Apple, including that of Power Macintosh brand
manager. Prior to joining Apple, Mr. Dunn was President of DiTechs, Inc., a high
technology startup in the computer aided design sector. Mr. Dunn holds an MBA
from St. Mary's College of California and an Aeronautical Engineering Degree
from San Jose State.
JENNIFER BURNS, VICE PRESIDENT OF MARKETING. Ms. Burns attended Dekalb College
between 1988-1990 and University of California, Los Angeles from 1995-1996
studying Business and Production in Film and Television. While attending
college, Ms. Burns accepted a position with Christian Dior as their National
Spokesperson in 1989. She then moved into the position of Marketing Director for
the Southeast region. From 1989-1992, she launched many of Christian Dior's
successful marketing campaigns. Ms. Burns accepted a position with Walt Disney
Studios in the Film and Television division in Los Angeles in 1995. She oversaw
corporate dealings and strategic partnerships for many film and television
projects. In 1997 she joined International Motor Sports Group as Vice-President
of Marketing.
BRUCE A. BUTCHER, SECRETARY AND NON-VOTING DIRECTOR. Occupation: Attorney.
Education: BS (Physics), BA (Political Science), J.D., LLM (International law),
JSD; New York University Founder's Day Award (Law). Admitted: Washington State,
New York State, Eastern and U.S. Western District Courts-Washington; U.S.
District Courts, Central District Oklahoma, Southern District of California.
Supreme Court Clerk-Washington State. Attorney-Advisor, General Counsel-U.S.
Department of Commerce. International, General Business and Securities practice.
THOMAS H. CARMODY, DIRECTOR. Mr. Carmody is a Senior Vice President and General
Manager of Operations of Reebok International, Ltd., where he has management
responsibility for Reebok's North American operations including sales, marketing
and distribution. Mr. Carmody was formerly a Director of Marketing for Nike and
a Deputy District Attorney for Santa Clara County, California.
RONNIE LOTT, DIRECTOR. Mr. Lott, a four-time Super Bowl Champion as a member of
the San Francisco 49ers, has recently joined the FOX NFL SUNDAY program team.
Mr. Lott also owns and operates DreamSports, a sports marketing and promotions
company. He is the founder of All-Stars Helping Kids, a non-profit charity to
raise funds for youth organizations. In 1991, Mr.
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Lott's book Total Impact (co-written with Jill Lieber of USA Today) was a New
York Times best-seller for two months.
TERRY E. NISH, DIRECTOR. Mr. Nish has served as a director of Klein Engines
since December 1997. Mr. Nish currently serves as President of Servi-Tech, Inc.,
a manufacturer and supplier of machinery and parts to the beverage industry that
he founded in 1969. Mr. Nish is an owner and driver of the VESCO/NISH
Streamliner which, powered by a 480 cubic inch small block Chevy engine built by
Klein Engines, currently holds the world record for its category of 344.561
miles per hour.
WILLIAM H. TEMPERO, DIRECTOR. Mr. Tempero has served as a director of Klein
Engines since May 1996. Mr. Tempero owns and operates Bill Tempero's High
Performance Center in Fort Collins, Colorado. Mr. Tempero also is a founder and
President of the American Indy Car Series and a four-time champion of the
American Indy Car Series. Mr. Tempero also was one of the original founders of
the Champion Auto Racing Teams.
<PAGE> 12
Automotive Performance Group, Inc.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combined condensed financial statements
have been derived from the financial position and historical results of
operations of International Motor Sports Group, Inc. (IMSG) and Klein Engines
and Competition Components, Inc. (Klein) as of and for the year ended December
31, 1997. Effective April 15, 1998, Klein exchanged 7,833,902 shares of its
common stock for an equal number of shares of Automotive Performance Group,
Inc.'s (APGI) common stock, and IMSG exchanged 108,930,887 shares of its common
stock for an equal number of shares of APGI. This resulted in IMSG being the
accounting acquirer in the transaction.
The unaudited pro forma combined condensed financial statements are presented
for informational purposes only and do not purport to be indicative of the
operating results that actually would have occurred if the merger of IMSG and
Klein into Automotive Performance Group, Inc. (APGI) had been consummated on
January 1, 1997, nor which may result from future operations. The pro forma
adjustments are based on available information and certain assumptions that the
Company believes are reasonable. The acquisition has been accounted for using
the purchase method of accounting. These pro forma financial statements should
be read in conjunction with the historical financial statements and related
notes of IMSG and Klein and the merger document.
<PAGE> 13
Automotive Performance Group, Inc.
Pro Forma Combined Condensed Balance Sheet
December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS Pro-Forma Pro-Forma
IMSG Klein Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 3,510,537 $ 27,280 $ 3,537,817
Accounts receivable 883,272 306,401 (14,795)(1) 1,174,878
Prepaid expenses and other 124,223 26,831 151,054
Inventory -- 1,039,664 1,039,664
Notes receivable 1,732,812 -- (600,000)(1) 1,132,812
------------ ------------ ------------ ------------
Total current assets 6,250,844 1,400,176 (614,795) 7,036,225
PROPERTY, PLANT AND EQUIPMENT, net 4,290,041 2,375,703 847,031 (3)(4) 7,512,775
OTHER ASSETS
Investments in and notes receivable from affiliates 643,833 290,000 933,833
Goodwill 82,783 -- -- 82,783
------------ ------------ ------------ ------------
$ 11,267,501 $ 4,065,879 $ 232,236 $ 15,565,616
============ ============ ============ ============
LIABILITIES
CURRENT LIABILITIES
Note payable to affiliate $ 287,907 32,950 320,857
Current maturities of long-term obligations 1,463,125 191,622 1,654,747
Credit facility -- 600,000 (600,000)(1) --
Deferred revenue 100,000 100,000
Provision for operating loss 40,000 40,000
Income taxes payable -- 77,759 77,759
Accrued liabilites -- 121,628 121,628
Accounts payable 1,045,140 305,404 (14,795)(1) 1,335,749
------------ ------------ ------------ ------------
Total current liabilities 2,936,172 1,329,363 (614,795) 3,650,740
LONG-TERM OBLIGATIONS, less current maturities 81,570 1,669,651 1,751,221
RELATED PARTY NOTES PAYABLE 16,305,500 -- (16,305,500)(2) --
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - authorized 13,000,000 shares
of $.01 par value; none issued and outstanding
Common stock - authorized, 130,000,000 shares of $.01
par value; 5,774,487 shares issued and outstanding 424,338 7,862 (374,455)(2)(3)(5) 57,745
Additional contributed capital 14,232,494 2,554,238 15,708,831 (2)(3)(5) 32,495,563
Warrants -- 10,000 (10,000)(3)(5) --
Cumulative translation adjustment (116,504) -- -- (116,504)
Accumulated deficit (22,596,069) (1,505,235) 1,828,155 (22,273,149)
------------ ------------ ------------ ------------
(8,055,741) 1,066,865 17,152,531 10,163,655
------------ ------------ ------------ ------------
$ 11,267,501 $ 4,065,879 $ 232,236 $ 15,565,616
============ ============ ============ ============
</TABLE>
See notes to Pro Forma Combined Condensed Balance Sheet.
<PAGE> 14
Automotive Performance Group, Inc.
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(1) Elimination of intercompany notes and interest receivable.
(2) Record conversion of related party notes payable into common stock.
(3) Record the merger of Klein and IMSG into APGI.
(4) Revaluation to fair value of acquired property and equipment of Klein.
(5) Adjust common stock for 20 to 1 reverse stock split.
<PAGE> 15
Automotive Performance Group, Inc.
Consolidated Pro Forma Statement of Operations
Year ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
IMSG Klein Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 7,135,314 $ 2,491,685 $ -- $ 9,626,999
Expenses
Direct expenses 7,128,278 1,999,966 -- 9,128,264
Selling, general and administrative 6,533,019 1,902,958 -- 8,436,977
Depreciation expense 2,596,818 166,277 44,580(1) 2,807,675
Loss on investments in affiliates 932,894 -- -- 932,894
------------ ------------ ------------ ------------
17,191,009 -- 44,580 21,304,810
------------ ------------ ------------ ------------
Operating loss (10,055,695) (1,577,536) (44,580) (11,677,811)
Other income (expense)
Interest (575,497) (181,590) 367,500(2) (369,587)
Other (88,475) 67,788 -- (20,687)
------------ ------------ ------------ ------------
(663,972) (93,802) 367,500 (290,274)
------------ ------------ ------------ ------------
Loss from continuing operations before income taxes (10,719,667) (1,671,338) 322,920 (12,068,065)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations before
discontinued operations and extraordinary item (10,719,667) (1,671,338) 322,920 (12,066,065)
Discontinued operations
Loss from operations of discontinued venue division (2,049,801) -- -- (2,049,801)
Gain on disposal of venue division including provision
of $40,000 for operating losses during phase-out period 1,582,832 -- -- 1,582,832
Loss from operations of discontinued
race sanctioning division (3,502,602) -- -- (3,502,602)
Loss from disposal of race sanctioning division (1,875,120) -- -- (1,875,120)
------------ ------------ ------------ ------------
Loss from discontinued operations (5,844,691) -- -- (5,844,691)
------------ ------------ ------------ ------------
Loss before extraordinary item (16,564,358) (1,671,338) 322,920 (17,912,776)
Extraordinary item
Gain from extinguishment of debt 517,168 -- -- 517,168
------------ ------------ ------------ ------------
NET LOSS $(16,047,190) $ (1,671,338) $ 322,920 $(17,395,606)
============ ============ ============ ============
</TABLE>
<PAGE> 16
Automotive Performance Group, Inc.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the
revaluation of Klein's acquired property and equipment. The acquired
assets will be depreciated over service lives from five years to twenty
years.
(2) Adjustment to eliminate interest expense associated with related party
notes converted into common stock.
