<PAGE> 1
As filed with the Securities and Exchange Commission on __________, 1998.
Registration No. 333-___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
AUTOMOTIVE PERFORMANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------------
DELAWARE 86-0850090
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1207 N. MILLER ROAD
TEMPE, ARIZONA 85281
(602) 967-5990
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------------
DEAN M. WILLARD
CHIEF EXECUTIVE OFFICER
1207 N. MILLER ROAD
TEMPE, ARIZONA 85281
(602) 967-5990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------------
Copies to:
DAVID C. DRUMMOND, ESQ.
WILSON SONSINI GOODRICH & ROSATI
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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]
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value...... 1,655,000 shs $2.50 $4,137,500 $1,151.00
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked price
of the Common Stock on December 4, 1998.
<PAGE> 2
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 Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 3
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 the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED _________, 1998
1,655,000 SHARES
AUTOMOTIVE PERFORMANCE GROUP, INCORPORATED
COMMON STOCK
------------------------------------
This Prospectus may be used in connection with the offer and sale, from
time to time, of up to 1,655,000 shares (the "Shares") of Common Stock, $.0001
par value per share (the "Common Stock"), of Automotive Performance Group, Inc.
("APG" or the "Company"), for the account of the selling stockholders identified
below (the "Selling Stockholders"), who received the Shares issued pursuant to
an exemption from the registration requirements of the Securities Act of 1933,
as amended, provided by Section 4(2) thereof. All of the Shares covered hereby
are to be sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of the Shares by the Selling Stockholders. The
expenses incurred in registering the Shares, including legal and accounting
fees, will be paid by the Company. None of the shares offered pursuant to this
Prospectus have been registered prior to the filing of the Registration
Statement of which this prospectus is a part.
The Company is applying to the American Stock Exchange to allow trading
of its Common Stock under the symbol "APG."
The Shares offered hereby may be offered and sold, from time to time,
by the Selling Shareholders in one or more transactions on the American Stock
Exchange, in the over-the-counter market, in negotiated transactions or
otherwise. Sales will be effected at such prices and for such consideration as
may be obtainable from time to time. Commission expenses and brokerage fees, if
any, will be paid by the Selling Stockholders. See "Plan of Distribution."
------------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES
OFFERED HEREBY.
------------------------------------
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.
The date of this Prospectus is ________, 1998
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, New York,
New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. In addition, the Commission maintains
a Website (http:\\www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis, and
Retrieval system.
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
shares covered by this prospectus, reference is made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
2
<PAGE> 5
THE COMPANY
In this Prospectus, the words "expects," "anticipates," "believes,"
"intends," "will" and similar expressions identify forward-looking statements,
which are based upon information currently available to the Company, speak only
as of the date hereof and are subject to certain risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements. Factors that may cause such a difference
include, but are not limited to, those discussed in "Risk Factors." Unless
otherwise indicated, the information contained in this Prospectus reflects a 20
for 1 reverse split of the Company's Common Stock effected in April 1998.
Automotive Performance Group, Incorporated ("APG" or the "Company") was
formed to be the parent Company for several high performance automotive- and
specialty chemical-related operating subsidiaries. The objective of the Company
is to develop and successfully market a broad spectrum of integrated mutually
supportive brands of products and services for the high-performance automotive
and specialty chemicals industries. Specialty chemicals comprise an important
and highly profitable part of the overall automotive market as well as certain
non-automotive market niches with extremely high profit margins.
APG has developed a systematic strategy to assemble a portfolio of high
margin brands and products in the high-performance automotive and specialty
chemicals markets that leverage the Company's strengths in brand management,
product marketing, and channel access under one corporate umbrella. APG's
acquisition strategy is focused on four market areas: specialty chemicals,
lubricants, car care, and image. Within each of these sectors, APG seeks out
those products that have high product profitability, premium quality, and market
leadership in their respective markets. Potential acquisition candidates must
have superior product quality and brand leadership in their respective markets.
Each of the four core market targets has high product margins and
benefits from either (1) its premium product positioning or (2) the unique
product attributes for specific applications where efficacy and application are
the primary determinants to the purchasing decision. Premium product positioning
is most commonly associated within the lubricants, car care, and image target
markets. Product efficacy and suitability to the applications define specialty
chemicals. Within the specialty chemicals market segment some products are
unique in the marketplace and enjoy a special pricing dynamic.
The President of the Royal Purple Motor Oil subsidiary has had an
extensive career in the motor oil and chemicals industry. Other management and
most of the Board members also are experienced in various aspects of the
high-performance automotive industry, including operations, sales, marketing,
sponsorship, and finance.
APG is the parent of Royal Purple Motor Oil, Inc. ("Royal Purple Motor
Oil" or "RPMO") which markets and retails exclusively a line of high performance
synthetic lubricants under the Royal Purple(TM) brand name ("Royal Purple").
Royal Purple is the major product line and primary operating subsidiary of APG.
APG is the parent of Klein Engines and Competition Components, Inc.
("Klein Engines" or "Klein"), a manufacturer of high performance engines and
components for motor sports and specialty applications.
APG has interests through its wholly owned subsidiary Automotive
Specialty Chemicals Group, Inc. ("ASCG") (formerly International Motor Sports
Group, Inc. or "IMSG") in racing teams that operate in major racing platforms in
the United States. These racing teams are used as high-profile platforms to
market the Royal Purple Motor Oil product line and also have sponsorships by
various major United States Companies. Teams and team interests include 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; a 50% ownership in Cristen Powell Enterprises, LLC and in
Jimmy Kite Enterprises, LLC, companies of a prominent NHRA drag racer and a
well-received IRL driver, respectively. APG also operates and maintains Team
Scandia ("Scandia"), an award-winning motor sports race team that has competed
in the Indianapolis Racing League ("IRL") and the National Hot Rod Association's
("NHRA") Top Fuel series during the last two years. The support requirement to
operate racing teams in the individual Championships is substantial. Each Team
has anywhere from 3 to 12 cars, and there are, in addition, six 48-foot
tractor-trailers utilized for mechanical and logistic support.
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<PAGE> 6
APG also has a wholly owned subsidiary D3 Design Works, Inc. ("D3").
Located in Issaquah, Washington, D3 is a full service design agency that
integrates cutting edge technology and professional marketing support into the
overall design process. As an "in-house agency" D3 primarily offers the
following services to all APG properties: (i) design and production of marketing
collateral, proposals and presentations, (ii) website design, maintenance and
hosting, (iii) e-commerce solutions, (iv) email configuration and hosting and
general technical communications support.
APG was incorporated in Delaware in March 1998. The Company's principal
operations are located at 1207 N. Miller Road, Tempe, Arizona 85281. Its
telephone number is (602) 449-3125.
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<PAGE> 7
RISK FACTORS
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
The Company was incorporated in March 1998. Accordingly, the Company
has a limited operating history upon which investors may evaluate its business
and prospects. The Company, together with its predecessors, have incurred
significant losses and as of September 30, 1998, the Company had an accumulated
deficit of approximately $33.2 million. The Company intends to expend
significant financial and management resources on the development of additional
services, sales and marketing, technology and operations to support larger-scale
operations and greater service offerings. As a result, the Company expects to
incur additional losses and continued negative cash flow from operations until
at least the third quarter of 1999, and such losses are anticipated to increase
significantly from current levels. There can be no assurance that the Company's
sales will increase or even continue at their current level or that the Company
will achieve or maintain profitability or generate cash from operations in
future periods.
The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. To address these risks, among other things, the Company
must:
- - maintain existing and develop new relationships in the automotive and
specialty chemical industries;
- - implement and successfully execute its business and marketing strategy;
- - continue to develop and upgrade its products;
- - provide superior customer service and order fulfillment;
- - respond to competitive developments; and
- - attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in
addressing such risks, and the failure to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company requires substantial working capital to fund its business.
The Company has experienced negative cash flow from operations since inception
and expects to continue to experience significant negative cash flow from
operations for the foreseeable future. The Company's capital requirements depend
on several factors, including the rate of market acceptance, the ability to
expand the Company's client base, the level of expansion of sales and marketing
and other factors. If capital requirements vary materially from those currently
planned, the Company may require additional financing sooner than anticipated.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the stockholders of the Company will be reduced,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences or privileges senior to those of the holders of the
Company's Series A Preferred Shares. There can be no assurance that additional
financing will be available when needed on terms favorable to the Company or at
all. If adequate funds are not available or are not available on acceptable
terms, the Company may be unable to develop or enhance its services, take
advantage of future opportunities or respond to competitive pressures, which
could have a material adverse effect on the Company's business, financial
condition or operating results.
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<PAGE> 8
DEPENDENCE ON SUPPLIER
The Company's primary business and product line is currently purchased
from a single source. At present, single-sourced components include motor oil
and lubricants. Any interruption in the supply of any of these components, or
the inability of the Company to procure these components from alternate sources
at acceptable prices and within a reasonable time, could result in higher prices
for the Company's products and could have a material adverse effect upon the
Company's business, operating results and financial condition. Qualifying
additional suppliers is time consuming and expensive. The Company has in the
past experienced shortages of available motor oil and lubricants. There can be
no assurance that such shortages will not occur in the future, and any such
occurrence could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Current
Activities."
PRODUCT LIABILITY RISK
Certain of the Company's products, particularly its high performance
engines and certain of its specialty chemicals, are intended to improve
automotive performance, sometimes in extreme or severe conditions. As a result
they are subject to stresses which may increase the product liability risks of
the Company. Purchasers of the Company's products rely on the integrity and
durability of such products. However, there can be no assurance that the
Company's products will provide the intended protection or functionality.
Although the Company has not been subject to any significant product liability
claims to date, there can be no assurance that the Company will not incur
liabilities for product liability claims in the future that could have a
material adverse effect on the Company's financial condition and results of
operations.
COMPETITION
The high-performance automotive and specialty chemicals industries are
intensely competitive, and the Company expects competition to increase in the
future. These industries are characterized by frequent introductions of new or
enhanced products, price competition, continued emergence of new industry
standards, and regulatory developments.
Many of the Company's current and potential competitors have longer
operating histories and substantially greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and a larger
customer base than the Company. As a result, these competitors may be able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. Competitors with a larger customer base may
have a competitive advantage over the Company when selling similar products to
such customers. Although Management believes the Company is competitive on
product quality, many of the Company's competitors, including national and
regional automotive after-market manufacturers as well as foreign manufacturers,
have greater financial, production, distribution and marketing resources than
the Company. The Company's Royal Purple synthetic motor oil requires extensive
marketing, and faces intense marketing efforts by competitors that have far
greater financial resources. See "Business Competition."
RISKS ASSOCIATED WITH ACQUISITIONS BY THE COMPANY
As part of its growth strategy, the Company intends to pursue the
acquisition of other companies that either complement or expand its existing
business. The Company is continually evaluating potential acquisition
opportunities, which may be material in size and scope. Acquisitions involve a
number of risks and difficulties, including:
- - the expansion into new markets and business areas;
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<PAGE> 9
- - the diversion of management's attention to the assimilation of the
operations and personnel of the acquired companies;
- - the integration of the acquired companies' management information
systems with those of the Company;
- - potential adverse short-term effects on the Company's operating
results;
- - the amortization of acquired intangible assets; and
- - the need to present a unified corporate image.
In addition, acquisitions could result in the need to expend
substantial amounts of cash. There can be no assurance that the Company will be
successful in identifying acquisition candidates, that the Company will have
adequate resources to consummate any acquisition, that any acquisition by the
Company will or will not occur, that if any acquisition does occur it will not
have a material adverse effect on the Company's business and results of
operations or that any such acquisition will be successful in enhancing the
Company's business.
COMPLIANCE WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is characterized by the need to
meet a significant number of hazardous waste disposal regulations and standards,
some of which are evolving. The Company's products must comply with various
regulations defined by Federal and in some cases, state environmental protection
agencies. The failure of the Company's products to comply, or delays in
compliance, with the various existing and evolving industry standards could
delay introduction of the Company's products which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, government regulatory policies are likely to continue to have a
major impact on the pricing of existing as well as new products and therefore
are expected to affect demand for such products.
LIMITED PUBLIC MARKET; POSSIBILITY VOLATILITY OF SHARE PRICE
There is presently only a limited market for APG's Common Stock and
there can be no assurance that a broader market will develop. The investment
community could show little or no interest in APG in the future. As a result,
persons receiving APG securities may have difficulty in reselling such
securities should they desire to do so. The Company intends to apply for the
listing on the American Stock Exchange. However, there can be no assurance that
a listing on the American Stock Exchange will be obtained, or if it is obtained,
that such listing will be maintained.
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend to a significant degree upon
the continued contributions of its key management. In particular, the Company
believes that its future success is highly dependent on the following
individuals:
- - Dean Willard, Chairman of the Board of Directors and Chief Executive
Officer;
- - James Dunn, Chief Operating Officer and Director;
- - James Martin, the President and Chief Operating Officer of Royal Purple
Motor Oil and Director; and
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<PAGE> 10
- - Andrew Evans, President of Team Scandia and Director.
The Company does not have employment contracts with, and does not
currently maintain key man life insurance covering, its key personnel.
Management of the Company is dependent to a great degree upon the services of
Dean Willard for over-all administration and financial management as well as the
management and growth of the specialty chemicals business, James Dunn for
operations and marketing of Royal Purple products, and James Martin for
management of Royal Purple Motor Oil. The loss of the services of one of them
could have an adverse effect on the affairs of the Company. See "Business --
Employees" and "Management -- Executive Officers and Directors."
The Company believes its future success will also depend in large part
upon its ability to attract and retain highly skilled management, sales and
marketing, finance and manufacturing personnel. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The loss of the services of any of the
key personnel, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly engineers and sales
personnel, could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
The Company's executive officers, directors and affiliated entities
together beneficially own a majority of the voting control of the Company's
capital stock. As a result, these stockholders, acting together, will be able to
influence significantly and control most matters requiring approval by the
Company's stockholders, including the election of directors. Such a
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal Stockholders."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to
13,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the Company's stockholders. The rights of the Investors will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. Any such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company and may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may affect adversely the market price of and the voting and
other rights of the holders of the Common Stock.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 could have the effect of
delaying or preventing a change of control of the Company. These provisions, and
other provisions of the Certificate of Incorporation, the Company's Bylaws and
Delaware corporate law, may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices.
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<PAGE> 11
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholders.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its stock since
inception. The Company currently anticipates that it will retain all future
earnings for use in the operation and expansion of its business and does not
anticipate paying any cash dividends in the foreseeable future.
COMMON STOCK PRICE RANGE
The Company's Common Stock has traded publicly on the Nasdaq OTC
Bulletin Board under the symbol RACG. The following table sets forth the high
and low closing bid information for the Company's Common Stock during the
calendar periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
Year ended December 31, 1997
First quarter..................................... $47.50 $35.00
Second quarter.................................... 50.00 32.50
Third quarter..................................... 38.75 10.00
Fourth quarter.................................... 32.50 7.50
Year ending December 31, 1998
First quarter..................................... 18.75 5.00
Second quarter.................................... 18.75 2.50
Third quarter..................................... 5.00 1.50
Fourth quarter (through November 30, 1998)........ 5.00 1.50
</TABLE>
Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
On November 30, 1998, the reported last sale price of the Company's
Common Stock was $3.00 per share. As of September 30, 1998, there were
approximately 500 holders of record of the Company's Common Stock.
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial condition and
results of Operations contains forward-looking statements that involve risks and
uncertainties. All forward-looking statements are based on information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth below. This Analysis
should be read in conjunction with the consolidated financial statements and
related notes contained herein.
OVERVIEW
Automotive Performance Group, Inc. ("APG", "the Company") was formed to
be the parent company for several high-performance automotive and specialty
chemical related operating subsidiaries. APG acquired operating subsidiaries
IMSG (now ASCG), Royal Purple Motor Oil and Klein Engines through a series of
mergers in April of 1998. The objective of the Company is to develop and
successfully market a broad spectrum of integrated mutually supportive brands of
products and services for the high-performance automotive and specialty
chemicals industries.
Royal Purple Motor Oil ("Royal Purple")
Royal Purple markets and retails exclusively a line of high performance
synthetic lubricants under the "Royal Purple" brand name. These products have
been received enthusiastically in retail markets as well as in the high
performance motor racing arena. Royal Purple has established a relationship with
NAPA Auto Parts whereby NAPA has become the primary retail outlet for the Royal
Purple product line. Royal Purple sales through NAPA have increased
significantly in 1998 as compared to 1997. Future increases are expected to
require significantly increasing working capital to support inventory
requirements and may strain our supplier's current production capacity.
It is estimated that the total motor oil market is approximately $4
billion in the United States, of which $800 million is estimated to be synthetic
sales. The synthetic oil market is believed to be dominated by two brands, Mobil
and Castrol, which control approximately 52% and 42% of the market,
respectively. Currently, Royal Purple controls less than 1% of the synthetic
lubricant market.
Team Scandia
Team Scandia has interests in racing teams that operate in major racing
platforms in the United States. These racing teams are used as high-profile
platforms to market the Royal Purple Motor Oil product line and obtain
sponsorship from major corporations. Teams and team interests include a 50%
ownership stake in Scandia Bodine Racing, LLC, a racing team that competes in
the National Association for Stock Car Auto Racing ("NASCAR") Winston Cup
series; a 50% ownership in Cristen Powell Enterprises, LLC, and in Jimmy Kite
Enterprises, LLC, companies of a prominent National Hot Rod Association ("NHRA")
drag racer and well-received Indianapolis Racing League ("IRL") driver,
respectively.
Team Scandia is an award winning motor sports race team that has
competed in the IRL and NHRA Top Fuel series during the last two years. The
support requirement to operate racing teams in the individual Championships is
substantial.
During 1998, Team Scandia received sponsorship from Reebok of
approximately $1 million. At this time, it is unclear whether Reebok will
continue to sponsor Team Scandia in 1999. Although the Company is hopeful that
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sponsorship can be obtained, Team Scandia will not participate in racing events
without such sponsorship. Team Scandia will continue to provide services to
other teams.
Klein Engines and Competition Components, Inc. ("Klein Engines")
Klein Engines manufactures high performance engines and components for
use in the Indianapolis Racing League ("INDY"), American Sprint Car Series, and
World of Outlaws sprint cars. The INDY engine market is dominated by Roush
(controlling approximately 40% of the market share), Brayton, and Comptech (each
controlling approximately 15% of the market). Klein Engines is one of the newest
companies to manufacture and refurbish INDY racing engines, and currently
controls less than 1% of the market.
The high quality of Klein engines is one of the key elements for future
sales growth. During 1998, one IRL team contracted with Klein Engines for
engines and services. It is anticipated that at least one, and possibly two,
additional IRL teams will contract with Klein Engines for the 1999 race season.
Klein engines currently contracts to provide engines and or services to
three Sprint teams.
D3 Design Works, Inc. ("D3")
Located in Issaquah, Washington, D3 is a full service design agency
that integrates cutting edge technology and professional marketing support into
the overall design process. D3 primarily functions as an "in-house" agency,
offering the following services to all of the Company's subsidiaries: design and
production of marketing proposals and presentations; website design, maintenance
and hosting; email configuration and hosting, and general technical
communications support.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
For the nine months ended September 30, 1998, the Company reported
sales of $5.5 million and net losses of $10.6 million. Percentage of sales and
net loss by subsidiary for this period are as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of
Subsidiary Consolidated Sales Net Loss
- -------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Royal Purple............................................ 21% 21%
Team Scandia............................................ 42% 34%
Klein Engines........................................... 36% 19%
D3 Design Works......................................... 1%
APG/Corporate........................................... 26%
--- ---
100% 100%
=== ===
</TABLE>
Professional expenses of approximately $2 million were incurred during
the nine months ended September 30, 1998, as compared with professional expenses
of $1.6 million during the same period in 1997. The 1998 professional expenses
primarily related to legal and accounting fees for services rendered in
connection with the filing of Form 10 (which allowed the company to become a
fully reporting company with the SEC), subsequent Form 10-QSB and Form 8-Ks,
merger and acquisition activities, outstanding litigation, and audit services
performed for the Company and subsidiaries.
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For the nine months ended September 30, 1998 and 1997, the Company
recorded a loss from discontinued operations for discontinued venue and race
sanctioning divisions of $345,000 and $4.5 million, respectively.
A $290,000 extraordinary gain was recorded in the nine months ended
September 30, 1998. This gain represents forgiveness of a note payable to an
affiliate of the Company. There was no such gain for the comparable period in
1997.
Team Scandia
Team Scandia qualified two Royal Purple Motor Oil sponsored IRL cars
for the Indy 500 in 1998. This aggressive program contributed substantially to
the operating losses for 1998. Estimated costs associated with this effort were
$3 million.
Race team asset sales have funded a reduction in trade payables and
equipment debt, and have contributed to the daily operating cash needs of Team
Scandia. It is expected that additional asset sales will continue at the current
rate at least during the fourth quarter of 1998.
Headcount at Team Scandia has been reduced from 40 personnel at
December 31, 1997, to 20 at September 30, 1998. Further headcount reductions are
anticipated during the fourth quarter. Optimal headcount for Team Scandia is
anticipated to be 12.
Klein Engines
During the first nine months in 1998, Klein Engines evaluated the
profitability of its product lines. As a result of this evaluation, the Company
has focused its manufacturing efforts on IRL and Outlaw Sprint Cars, and
inventory write downs of approximately $1 million were realized as inventory for
other engine product lines became obsolete.
Headcount reduction from 25 at December 31, 1997 to 10 at September 30,
1998, resulted in higher severance costs during 1998, but will contribute to
future profitability.
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
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.
High Performance Engines / Speciality Engine Components
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<PAGE> 15
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 merger and filing its Form-10SB,
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 until a new marketing plan is in place and the products
establish a significant market share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to mobilize cash, or liquidity, comes from a
number of sources both internally, primarily asset sales and capital lease
financing, and externally, through private placement of preferred stock and
financing agreements with lending institutions.
The Company experienced negative cash flow from operations of $7.2
million for the nine months ended September 30, 1998, compared with $8 million
used in operating activities for the same period in 1997. The 1998 negative cash
flow resulted primarily from the net loss for the period, partially offset by
noncash depreciation, amortization, losses from affiliates, and write down of
impaired goodwill. Additionally, accounts payable increased approximately
$700,000.
Capital expenditures during the nine months ended September 30, 1998,
were approximately $100,000. During the fourth quarter of 1998, new accounting
software and a network server will be purchased and installed. Capital
expenditures relating to this project are expected to be approximately $70,000.
No further material capital expenditures are expected.
The Company anticipates that its computer software applications will be
compatible with the year 2000. The Company is dependent, however, on numerous
vendors and customers, which may incur disruptions as a result of year 2000
software issues. No assurance can be given that the Company's results of
operations will not be impacted by this issue.
Team Scandia and Klein Engines have not been able to make timely
payments to their trade and other creditors from time to time. As of September
30, 1998, Team Scandia and Klein Engines had past due payables of approximately
$930,000 and $515,000, respectively. The company is currently seeking sources of
working capital financing sufficient to fund delinquent balances and meet
ongoing trade obligations (including asset sales and private placements, as
discussed below).
During the nine months ended September 30, 1998, approximately $2
million in assets have been sold to meet operating needs of the Company, at a
gain of approximately $90,000. These asset sales have been primarily
accomplished in Team Scandia and Klein Engines. Team Scandia sold racing assets
with a $900,000 net book value, and realized a gain of $275,000. Klein Engines
sold property with a net book value of $840,000, and realized a loss
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<PAGE> 16
of $180,000. The Company is currently evaluating the sale and leaseback of the
remaining real property held by Klein Engines. Net book value at September 30,
1998 for this real property was approximately $1.86 million.
In May 1998, the Company obtained two $500,000 credit facilities, which
are guaranteed by a member of the Board of Directors. As of September 30, 1998,
there was $60,000 remaining credit available on these facilities. One of the
$500,000 credit facilities matured on October 30, 1998. The Company is currently
in negotiations with the bank to extend the facility due date; however, the bank
could demand payment on the facility.
In November 1998, the Company obtained a $1 million revolving credit
facility, which is guaranteed by a member of the Board of Directors. The
proceeds from this line will be used in the Company's acquisition activities,
and for general corporate purposes. Additionally, the same party guaranteed a
$720,000 equipment loan, which originally matured in October 1998. The balance
is to be paid in 18 monthly installments beginning December 1998.
During the third quarter of 1998, the Company completed a $3.3 million
private placement of Series A Preferred stock priced at $2.00 per share. The
offering commenced in the second quarter of 1998, and $1 million was received
prior to June 30, 1998. The net proceeds to the Company of approximately $3
million were used primarily for operations, Royal Purple inventory purchases,
settlement of Klein Engines and Team Scandia accounts payable, outstanding debt
reduction, and legal settlements.
The Company is currently marketing a second private placement of Series
A Preferred Stock, which is priced at $2.50 per share. The net proceeds from the
sale of the 4,000,000 shares are estimated to be approximately $8.9 million. The
Company expects to use the net proceeds of the offering for working capital, to
finance the growth in sales of Royal Purple, general corporate purposes, as well
as for future acquisitions. The Series A Preferred Stock will not be registered
under the Securities Act of 1933, as amended, and may not be offered or sold
until registered under the Securities Act, or unless sold under an exemption
from registration requirements.
POTENTIAL MERGERS AND ACQUISITIONS
Subsequent to September 30, 1998, the Company has entered into letters
of intent to acquire the following companies: Advanced Chemistry & Technology,
Inc., Products for People, Inc., The Wax Shop, Inc., Boyd's Wheels, Inc., Hot
Rods by Boyd, and Westland Associates, Inc. These companies fall within the
Company's acquisition strategy, which is focused on four market areas: specialty
chemicals, lubricants, car care products, and automotive image products.
The letters of intent are non-binding and there can be no assurance
that the Company will enter definitive agreements with the aforementioned
parties or that any of these potential acquisitions will ultimately be
consummated.
RELATED PARTY TRANSACTIONS
Significant related party transactions have been eliminated in
consolidation. Additionally, certain property leased by the Company for $20,000
per month is owned by a member of the Board of Directors. The lease for this
facility expires in December 1998. It is uncertain at this time if the lease
will be renewed.
As discussed above, a member of the Board of Directors has provided
certain financial guarantees for the Company. As consideration for these
financial guarantees, 272,000 warrants to purchase common stock of the Company
were issued at an exercise price of $.01 per share.
SEASONALITY
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<PAGE> 17
Many of the Company's products are tied to the racing industry. The
season for the racing circuits primarily runs from January through October.
Revenues realized in the first, second, and third quarters tend to be higher
than revenues in the fourth quarter.
FORWARD-LOOKING STATEMENTS
Matters discussed herein contain forward-looking statements. The
Company's actual 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 the public's interest in racing, and shifts
in leisure time pursuit preferences; changes in government regulations affecting
racing, sponsors, customers, the Company, or its subsidiaries; risks generally
involved in the high performance automotive business including, but not limited
to, product liability risk as a result of high performance engines and certain
specialty chemicals which are intended to improve automotive performance,
sometimes in extreme or severe conditions; the ability of the Company to
continue to produce quality products at competitive prices in markets which are
historically intensely competitive; the ability of the Company's supplier of
Royal Purple Motor Oil to continue to meet increasing demand; the ability of the
Company to attract new teams to contract with Klein Engines; the Company's
ability to obtain sponsorship for Team Scandia; the Company's ability to raise
sufficient debt and equity capital to meet increased operating and acquisition
requirements; the Company's ability to recruit and retain key personnel;
unfavorable results in litigation which the Company is currently involved in, or
may become subject to; the ability to effectively integrate the personnel and
operations of acquired companies; compliance with hazardous waste disposal
regulations and standards; and the Company's history of operating losses and
limited operating history.
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<PAGE> 18
BUSINESS
APG was formed to integrate two product-related high-performance
automotive companies, Klein Engines and Royal Purple Motor Oil, together with
high-profile promotional platforms such as racing teams to market
high-performance products in the premium automotive and specialty chemical
sectors. The immediate primary product application is Royal Purple Motor Oil, a
premium synthetic motor oil; this product is believed by Management to have
substantial profit potential for the Company due to its premium performance,
high margin on sales, and a wide growing market. Additional engine chemicals,
lubricants, and performance products are expected to add similarly high, or
higher, profit margins to the Company's net income. Royal Purple and future
specialty chemical products are likely to share many similar attributes. For
example, sales of Royal Purple's synthetic motor oil have risen sharply from
1997 to 1998. Klein Engines is a recognized quality name in the premium engine
development industry and is expected to provide name recognition and product
testing for APG. The Racing Teams, while not a profit center, will be
coordinated by the D3 Design Works communications and marketing subsidiary to
profile the primary product segments through APG. APG's endeavors focus on the
development of premium brands in the high-performance automotive and specialty
chemicals industries. Thus, APG intends to use a selective "targeted" products
and marketing approach powered by its high-profile racing platform.
APG management intends to utilize the benefits of this targeted
approach to the high-performance automotive industry and its primary components,
including lubricants, specialty chemicals, and car care, as an attraction to
acquire other high-performance automotive applications, products, and specialty
chemicals companies with the ultimate goal of assembling an integrated group of
related high-performance, premium product companies. To achieve this objective,
Management has developed a working relationship with additional professional
companies to supply expertise and advice. APG has secured an investment bank,
Wasserstein Perella & Co. ("Wasserstein Perella"), which will help develop the
strategy and provide the funding that will be required for additional
acquisitions in the high-performance automotive aftermarket and specialty
chemicals industries. APG has entered into letters of intent with four companies
(one in each core segment: specialty chemicals, lubricants, car care, and image)
in which it has an interest and is engaged in preliminary discussions with
respect to a possible acquisition or other transaction with each of these
companies.
CURRENT ACTIVITIES
High Performance Synthetic Lubricants
In April, 1997, prior to its acquisition by APG, IMSG through its
wholly owned subsidiary, RPMO, obtained indefinite duration worldwide, exclusive
rights to market and sell a variety of high-performance synthetic lubricants
developed by Royal Purple, Inc. ("Supply Agreement"). Royal Purple, Inc. retains
under the Supply Agreement an exclusive right to supply the lubricants,
production being on a best efforts basis. 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. This proprietary formula produces superior performance
relative to both currently available synthetic products as well as standard
mineral oils. The entire Royal Purple merchandise line now totals 23 separate
products, ranging from synthetic motor oils to automatic transmission fluid.
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 Sports Car.
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Royal Purple has established a relationship with NAPA Auto Parts
whereby NAPA Auto Parts has become the primary retail outlet for the Royal
Purple Product Line and is an associate sponsor of Team Scandia's NHRA Top
Racing Fuel Team.
Royal Purple sales through NAPA Auto Parts have undergone a significant
increase in 1998 over 1997. These increases are expected to require
significantly increased working capital to support inventory requirements and
may strain current production capacity.
Management believes that the RPMO agreement provides APG, through RPMO,
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.
Properties and Branded Products
APG believes that there are many attractive business opportunities
associated with professional motorsports, including the areas of celebrity
management (drivers), automotive products, apparel and other consumer goods. All
of these activities are currently located under APG's ASCG subsidiary. To
capitalize on these opportunities, ASCG formed business units for the purpose of
acquiring products or the marketing rights to products or personalities, that
can be promoted through its growing portfolio of high-performance automotive
properties. The first initiatives in this area were Cristen Powell Enterprises,
Jimmy Kite Enterprises, Royal Purple Motor Oil and development of "branded" Team
Scandia and platform merchandise.
Cristen Powell Enterprises, LLC. Cristen Powell is a nineteen year old
native of Portland, Oregon. Powell attracted attention 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 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 in
first place 4 times. In the process, she set a national alcohol dragster elapsed
time record with a 5.44 second run. In 1997, Powell made the jump to the Top
Fuel division and drew more attention 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. On August 1, 1998 Powell became the "quickest" woman in the world with an
elapsed time of 4.59 seconds. She has also passed the 300-mile per hour barrier
several times. ASCG owns 50% of the marketing rights to Cristen Powell
Enterprises and actively markets her name and celebrity.
Jimmy Kite Enterprises, LLC. Jimmy Kite is a twenty-two year old native
of Stockbridge, Georgia. Kite has driven professionally since age eight and had
planned to run both midget and USAC Silver Crown series in 1997. However, a
surprise victory in the Copper World Classic Silver Crown race in Phoenix in
February propelled him to an opportunity to drive 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. ASCG owns 50% of the marketing
rights to Jimmy Kite Enterprises. In the 1998 INDY 500, Jimmy Kite qualified as
the fastest rookie and the fastest second-day over-all qualifier. He finished
1lth in the 1998 INDY 500 Race.
Race Team Operation
Through its control 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
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marketing rights to Royal Purple Motor Oil. 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. Team Scandia has been an
unprofitable operation historically but has served as an important platform in
1998 as a promotional vehicle for the Royal Purple Motor Oil which is
prominently featured on Team Scandia's IRL cars.
Team Scandia. In June, 1997, IMSG 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 had 40 employees until recently when it scaled back to 20
employees in an effort to break-even by the end of 1998.
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
22 year old native of Stockridge, Georgia, who moved up to the IRL from midgets
and Silver Crown cars in 1997. Team Scandia competed in the INDY 500 in 1998
with two Royal Purple Race cars, one of which driven by Jimmy Kite who finished
11th.
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., Royal Purple Motor Oil, and NAPA Auto
Parts.
Scandia Bodine Racing, LLC. In October, 1997, IMSG 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 in the top thirty amongst 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 in 1986. 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 $1.5 million into Scandia Bodine.
After receiving a preferential return of its initial $1.5 million investment,
APG is entitled to receive 50% of any distributions made by Scandia Bodine. It
cannot be determined at this time whether any market exists for the APG interest
in Scandia Bodine, or if so what valuation would be placed thereon. Andrew L.
Evans, president of Team Scandia, is the Manager of Scandia Bodine. Brett Bodine
is the president of Scandia Bodine. Although fully sponsored, Bodine has not as
yet provided any dividends or revenues to APG and is not expected to be a profit
center. 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.
As Bodine is not anticipated to be a profit center, APG's strategy is
to utilize its NASCAR prominence to promote APG products and services and
generate non-race related revenues.
Scandia Bodine has 20 employees and has its base of operations in
Mooresville, North Carolina where they operate from a 15,000 square foot shop
owned by Scandia Bodine.
High Performance Engines and Specialty Engine Components
Klein Engines has been dedicated to the design, development,
manufacture, assembly, sale and reconditioning of a wide variety of
high-performance engines and specialty components for high-performance engines.
Klein has
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marketed its engines primarily to entities engaged in automotive and marine
racing activities. Klein currently supplies racing engines for the Indianapolis
Racing League ("INDY"), American Sprint Car Series, and World of Outlaws sprint
cars. In the past, Klein Engines also supplied engines for the National Hot Rod
Association drag racing, United States Automobile Club midget cars, and others.
Klein Engines operations are now being scaled back to focus on high
performance "signature" INDY engines and other higher-margin engine projects.
The recent employee cutbacks are significant; in fact, Klein Engines is now a 10
person, specialty car engine developer.
MOTORSPORTS OVERVIEW
The motor sports industry is undergoing a period of rapid 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 motorsports attendance has
shown strong growth over the five years, 1993 to 1997. According to figures
released by Goodyear, total attendance at NASCAR Winston Cup events in 1997 was
approximately 6,000,000 admissions, total IRL attendance was 1,347,000
admissions, and total NHRA admissions 2,168,000. Thus, in all platforms in which
APG teams have a presence, there were estimated about 9,000,000 admissions.
Management believes that the television audience is substantially larger than
the race admissions.
The large number of attendees at race events and television viewers are
believed by the Company to be a prime market for promotion of Company owned
high-performance automotive products and services.
The major segments of the motorsports industry in North America are as
follows:
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 cars that take their name
from the Indianapolis Motor Speedway, site of the "Indianapolis 500." Indy car
racing is sanctioned by two associations: the Indy Racing League which oversees
the Indianapolis 500 and the other races comprising the INDY Racing League
("IRL"), and Championship Auto Racing Teams, Inc., which oversees Champ Car
races. APG does not currently promote, or have plans to promote, Indy car races.
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.
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.
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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.
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. The Company hopes
to transfer the enthusiasm of followers of racing events to Company products
promoted by the racing teams.
PROPOSED BUSINESS OPERATIONS
General
The Company plans on a three-pronged strategy for its future
activities. The first of these strategies is integration of current diverse
Company operations to provide common marketing, administration and support.
Optimization of common assets by various entities to eliminate redundancies is
the second prong. Integration and optimization is well underway between Klein
Engines and Royal Purple; Team Scandia will be integrated and optimized shortly.
The third strategy involves Targeted Cross Marketing with crossover brand
identification such as use of racing teams to promote Royal Purple Motor Oil,
and high-performance brand licensing for Company products and services. Future
acquisitions will be evaluated by these criteria to assure maximum utilization
of newly acquired assets.
ROYAL PURPLE MOTOR OIL
The Product
Royal Purple Motor Oil is a synthetic lubricant, produced by a
proprietary process developed by Royal Purple, Inc. The product is believed to
have superior usable life and improved viscosity with respect to regular motor
oil and other synthetic products. RPMO believes that Royal Purple lubricants
contain the following twelve qualities: maximum film strength; high temperature
stability; low friction coefficient; rapid water separation; environmentally
safe; rust corrosion protection; vibration reduction; longer drain intervals;
energy efficiency; low temperature fluidity; solvency, resulting in cleaner
equipment, and substantial wear reduction. RPMO management maintains that its
product performs particularly well in three areas, compared to its competition:
oxidation stability (reduces corrosion), superior film strength (permits higher
engine pressure), and friction reduction (improves fuel economy).
Royal Purple is "API Warranty Approved," which indicates that it meets
or exceeds the requirements of manufacturer's new car warranties. In addition
the products carry the ILSAC approval for gasoline engines on all industry
grades covered by this certification. In addition, Royal Purple also meets GM's
stringent Corvette specifications.
RPMO has exclusive marketing rights for consumer lubricant
distribution, while industrial lubricant applications are reserved to the
supplier, Royal Purple, Inc., of Houston, Texas (a non-affiliate). Royal Purple
Motor Oil has extensive applications in machine lubrication and is marketed for
engines and motorcycles as well as all types of automotive applications.
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The Market
Management believes that the total motor oil market is approximately $4
billion in the U.S., of which $800 million is believed to be synthetic sales. In
the overall motor oil market, six companies -- Pennzoil, Mobil, Quaker State,
Valvoline, Castrol and Havoline -- are believed to have approximately equal
shares of the market.
The synthetic oil market, however, is believed to be dominated by two
brands, Mobil and Castrol, which control approximately equal shares. Royal
Purple is believed to have less than .2% of the synthetic oil market. Management
believes that Royal Purple Motor Oil is a significantly better product than
competing major synthetic brands, and the existing synthetic market is believed
to have a substantial potential for further market development. The existing
synthetic market is a logical place for expansion, in the opinion of Management,
because it is already believed to be composed of consumers who have made the
choice to purchase a product believed to be of higher quality.
Customers
Management has identified what it believes are the dominant
characteristics of its initial target market. These characteristics include:
- Persons who are passionate about their cars
- Males 16 -- 26 ("X-Generation")
- High Performance Automobile Owners (Males 40 -- 54)
- NASCAR and other Race Fans
This group is believed to be the same group that will be interested in
other high-performance products that APG intends to develop.
An additional market segment, which the Company believes can be
developed, is the growing female auto high-performance consumer. It is believed
that women are increasingly becoming primary purchasers of products to improve
or maintain their car's performance. As an example, a significant number of the
callers to the popular "Car Talk" NPR Radio show are women. Cristen Powell, the
19 year-old female Top Fuel Racer associated with APG, often meets with women at
the race track who are interested in women and racing. These women are logical
targets for APG high-performance automotive products and services.
Marketing Approach
As management of RPMO believes that superior quality is a key factor
for its target market and that Royal Purple Motor Oil has demonstrated superior
quality to its competition, the primary marketing approach is intended to be
association with quality. This association is made by the promotion of Royal
Purple Motor Oil by race cars to achieve brand identification, and by the use of
testimonials to support credibility.
On the RPMO web site, testimonials are used to demonstrate customer
satisfaction and perceived quality. The Company has received endorsements from
the following groups, which are considered important:
- Racing Teams
- ASE Mechanics
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- Lube Technicians
- Auto Parts Countermen
Racing Team endorsements are often cited on the Company web site:
www.synerlec.com/testimon.html. Some examples include a letter from Midwest
Motorsports relating an increase in horsepower on aluminum "Sprint" engines, a
letter from a mechanic and Maintenance Foreman, relaying his gains in
performance on his 1985 Buick V-6 after using Royal Purple, and a letter from a
boat racer citing his positive experience in using Royal Purple compared to
other premium synthetic oils; the latter claimed he believed it was instrumental
in his winning the South African Championship, and he stated that "five Expert
classes this year were won on boats using Royal Purple."
Endorsements by mechanics, lube technicians and countermen are
considered very important to introduce customers to the product. These
endorsements are more difficult to secure, as they arise by experience with the
product and are not readily incorporated in an advertising program. Royal Purple
has also entered into a sales program with each NAPA Auto Parts store.
Management hopes this association will result in auto parts countermen
recommending the product to customers. After use, Management believes the
product will sell itself by its higher performance.
In addition to the endorsements, the Royal Purple logo is used on
racing teams that are a part of APG. In fact, recently the American INDY Car
Series ("AIS") named Royal Purple Synthetic Motor Oil as its exclusive oil
company sponsor. As a result, every American INDY Car will carry the Royal
Purple Logo. For potential users, the Racing Team association is believed to
primarily have the benefit of providing name brand recognition.
The Royal Purple Product Line now includes 23 "SKU" products.
Management has identified what it considers are the success factors it believes
are required for successful product launch, and has defined what is believed
should be the Company response to each factor. The following Chart highlights
factors considered important to Management:
PRODUCT LAUNCH FACTORS
23 ROYAL PURPLE SKU'S
<TABLE>
<CAPTION>
SUCCESS FACTOR CURRENT STATUS APPROACH
- ------------------------- --------------------- ------------------------------
<S> <C> <C>
- - Quality of the Product Good Keep Position
- - R&D (in house) Fair Outsource
- - Manufacturing (in house Fair Outsource
packaging)
- - Distribution Specialty Shops, NAPA More NAPA-type effort
- - Sales Force Small Increase
- - Brand Awareness Now Building Fast More advertising funding
- - Advertising Minimal More advertising; Infomercials
- - Co-op Good Dedicate more money
- - Promotions Good Race Teams
- - Trade Support Good More Contests
- - Racing Endorsements Secure Continue to add
- - ASE Endorsements Building Widen
</TABLE>
22
<PAGE> 25
To achieve a rapid increase in sales, Management has estimated as much
as $8,000,000 in advertising would be desirable. Infomercials, which may cost
$1,000,000 or more each, are considered an excellent vehicle. With the resources
currently available to the Company, unless additional funds are raised, this
type of high-expense effort is not considered feasible. Instead, a more modest
advertising program is planned, together with the effective advertising which is
believed to be provided by cross-marketing with other APG entities, such as the
Race Teams and Klein Engines. Sales have recently begun to increase,
notwithstanding that a large advertising budget has not been in place, mainly by
racing promotions and association with the racing community. Management intends
to maintain this slower, but less expensive approach to marketing on quality and
performance until sales have reached a level that it is deemed advisable to
raise the funds for a major advertising promotions program.
Klein Engines
The Company believes that Klein Engines is capable of producing
high-performance "signature" engines and the Klein name can be "branded" with a
high-performance automotive parts and supplies strategy. The Company's Business
Plan for Klein Engines is to concentrate operations to support INDY engines on a
"signature" basis and to use its brand recognition to cross-promote other
Company products. Klein Engines sustained losses in 1996 and 1997 which has
resulted in a determination to reduce and focus its operations together with
other cost-reduction measures which are intended to make the core engine
business slightly profitable during Calendar 1999. After the core engine
business is made profitable, Management intends to begin formulation of plans
for APG-Klein branded merchandise and parts utilizing Internet marketing. In the
interim, Klein will continue to be a source of marketing for the Royal Purple
Motor Oil line.
Future Businesses
In addition to promotion of its Royal Purple Motor Oil Product Line,
APG is actively seeking new product and business acquisitions in the
high-performance automotive and specialty chemicals industries and has secured
the services of an investment banking firm, Wasserstein Perella. The strategy of
Management is to identify and acquire related high-performance products or
services that can be cross-marketed with common brand identification or to
maximize market penetration and channel utilization to a defined set of buyers.
In many cases a successful brand such as Royal Purple will, under this strategy,
be associated with the APG brand or other APG products; identification of
established brands with APG is intended to provide a common "quality" and
targeted "performance" associated with the APG name. The target market is
currently intended to be the group that attends racing events or includes
television spectators because of APG access to that marketing platform. This
platform is also the platform that is believed will provide the highest return
per marketing dollar because of the interest that group is believed to have in
high-performance automotive product services. Thus, the products and services
which are being sought are those, which Management believes, will appeal to a
mass market in the target group of high-performance automotive, lubricant, car
care, image, and specialty chemicals markets.
PRODUCTION FACILITIES
All Company activities are being consolidated to Tempe, Arizona into
the Klein Engines-owned facilities. One facility is a modern, attractive 16,700
square foot facility that is close to a freeway. Vacant property nearby may also
be secured if considered necessary. The facility is currently configured on a
1.4 acre site with 14,300 square feet for the Klein Engines machine shop, 1,500
square feet for warehouse space, and 900 square feet for office space. A company
building located adjacent to the south has been sold recently. Klein Engines'
property is subject to mortgages which are estimated at current prices to be at
least 80% of value (see "Exhibits").
RPMO has moved to Tempe from Palo Alto, CA. Its staff, which is
primarily in sales and support, can utilize space available in Tempe. In
addition, some research may be conducted from the Klein facility. Except for the
Scandia
23
<PAGE> 26
Bodine NASCAR team, the Race Teams are currently located and serviced in a large
Indianapolis facility leased from an Affiliate of the President of Team Scandia.
The Scandia Bodine NASCAR facility is in North Carolina, where it is
expected to remain because of the availability of stock car mechanics and the
large NASCAR interest in that region.
Team Scandia leases a 40,000 square foot modern fully equipped facility
in Indianapolis from an Affiliate of the President of Team Scandia at a rate of
$20,000/month. This lease expires in December 1998. The rent is currently being
accrued, and is believed to be at market rates.
EMPLOYEES
The number of employees in various organizations that constitute APG is
in flux due to the reorganization and consolidations following the formation of
APG. Royal Purple Motor Oil has 10 employees. It is expected that with the
ramp-up planned for this product, employees of Royal Purple will soon increase.
Scandia Bodine has about 20 employees, mainly high-skilled stock car mechanics.
It is expected this number will stay constant unless this entity pursues some of
the new directions in wind tunnel and other research desired by Management of
APG. The outcome of the arbitration being undertaken on this subject will likely
affect the number of employees. Klein Engines has had about 25 highly-skilled
employees, including a complete administrative staff and marketing personnel,
and now has ten employees to support its new business focus of high-performance
INDY engines. Team Scandia historically has had about 40 highly-skilled
mechanics and support persons. This number now is greatly reduced due to the
decrease in planned IRL races, with the final number approaching 20 persons for
the balance of the year.
APG currently provides administrative support for the various
subsidiaries. Accounting, corporate finance, and clerical support is primarily
located in the corporate offices in Tempe, Arizona. Special marketing support is
also provided by a small staff of technical advertising professionals at D3
Designworks, which specializes in digital media and information technology.
SUPPLIES
Supplies for RPMO are provided under its exclusive Supply Agreement
with Royal Purple, Inc. Oil is provided in bulk and re-packaged under outsource
agreements by RPMO. Royal Purple, Inc. is currently able to meet RPMO purchases
and has a best efforts obligation to meet increases in demand by RPMO.
Significant increases in sales which are expected by Management due to increased
NAPA Auto Parts interest may exceed current plant capacity of Royal Purple, Inc.
or result in unacceptable delays in deliveries. Negotiations are currently
underway to arrange for outsourcing if RPMO production demand can not be
satisfied in a timely manner.
Klein Engines purchases its supplies from a number of companies. In
some areas, such as crankshafts, there occur significant shortages which require
bulk purchases and other hedge devices. With the reduced volume and more focused
business planned for Klein, parts shortages are not expected to have as
significant an impact as in a high production operation.
Various other APG subsidiaries order from a variety of suppliers.
LITIGATION
APG or its subsidiaries is engaged in various litigation matters, none
of which are believed by Management to involve claims for damages against APG or
its subsidiaries of more than 10% of APG's assets. ASCG is engaged in
arbitration with Brett Bodine and Scandia Bodine with respect to control of that
entity and management procedures
24
<PAGE> 27
by Mr. Bodine. The various other lawsuits, either as plaintiff or defendant,
involving alleged breaches of contract related primarily to sponsorship
agreements and race car drivers associated with APG's Team Scandia subsidiary;
certain drivers have alleged breach of employment contract, additional prize
money earned and sought punitive damages. Management is vigorously defending
these actions and has not made any contingency allowance for an unfavorable
outcome.
25
<PAGE> 28
MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------------------------- -----------------------------------------------------------------------------
<S> <C>
Dean M. Willard.......................... Chairman of the Board of Directors, CEO of APG
James E. Dunn............................ Chief Operating Officer of APG; Chief Executive Officer of Royal Purple Motor
Oil; Director
James M. Martin.......................... President, Chief Operating Officer of Royal Purple Motor Oil; Director
Andrew L. Evans.......................... President of Team Scandia; Director
Tammy M. Powers.......................... Chief Financial Officer, Treasurer and Secretary
Jennifer Burns........................... Vice President of Marketing
Joe M. Marenda........................... Vice President of Business Development
James R. Medley.......................... Director
Thomas H. Carmody........................ Director
Ronnie Lott.............................. Director
Terry E. Nish............................ Director
William H. Tempero....................... Director
</TABLE>
DEAN M. WILLARD, 52, Chairman of the Board, CEO of APG. Mr. Willard has
been Chairman of the Board and CEO since October 1998. In 1997, Mr. Willard
founded Advanced Chemistry & Technology, Inc. (AC Tech) which manufactures and
markets aircraft sealants to airframe manufacturers worldwide. Prior to his
tenure at AC Tech, Mr. Willard served as President and Chief Executive Officer
of Courtaulds Aerospace, Inc. which currently has 2,000 employees and annual
revenue of $300 million. Courtaulds was formed in 1989 following the acquisition
of Products Research & Chemical Corporation ("PRC"), a New York Stock Exchange
company. During 1972 through 1989, Mr. Willard held various positions with PRC,
including President and later Chief Executive Officer. Mr. Willard is a
Certified Public Accountant with a B.S. Degree from California State University,
Long Beach.
JAMES E. DUNN, 53, Chief Operating Officer of APG and Chief Executive
Officer of Royal Purple Motor Oil, Director. Mr. Dunn has been a Director of the
Company since May 1998 and Chief Operating Officer since 1997. Mr. Dunn is
responsible for the development and execution of APG's plans to advance a
variety of high-performance automotive businesses including the introduction of
a line of consumer products under the Royal Purple brand name. From 1996 to 1997
he served as a Principal at Dominion Income Management Corp, an investment firm.
From 1988 to 1996 he held several senior positions at Apple Computer, serving as
Power Macintosh brand manager and most recently as a Director of business
marketing. 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.
JAMES M. MARTIN, 51, President, Chief Operating Officer of Royal Purple
Motor Oil, Director. Mr. Martin has been a Director of APG and COO of Royal
Purple Motor Oil since May 1998. From 1997 to 1998, Mr. Martin served as
President of Martin Consulting. Martin Consulting is a lubricant industry
marketing firm. Prior to joining Martin Consulting, Mr. Martin was the Vice
President and Director of Business Development for the Pennzoil Products
Company. Joining Pennzoil in 1964, Mr. Martin was involved in manufacturing,
distribution and marketing operations. As Pennzoil's Vice President and Director
of Business Development, Mr. Martin was responsible for leading the firm's
acquisition efforts including the acquisitions of Armorall, Octane Boost and the
Viscosity Oil Company. Mr. Martin was also responsible for running Pennzoil's
entire racing program for the IRL, CART,
26
<PAGE> 29
NASCAR and NHRA series. Mr. Martin holds a Masters of Business Administration in
Finance and Marketing from the University of Houston.
ANDREW L. EVANS, 47, President of Team Scandia; Director. Mr. Evans has
been a Director of APG since April 1998 and President and CEO of Team Scandia
since 1995. In addition to his duties on behalf of APG and Team Scandia, Mr.
Evans is the President and Chairman of the Board of Dominion Income 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.
TAMMY M. POWERS, 28, Chief Financial Officer, Treasurer and Secretary
of APG. Prior to joining APG in September 1998, Mrs. Powers was the Chief
Financial Officer and Corporate Secretary for Unitech Industries, Inc., a public
company which designs, manufactures, and distributes portable power supplies
with locations in Arizona, Hong Kong, and China. From 1992 to 1997, Mrs. Powers
served as an Audit Manager with Deloitte & Touche, LLP. Mrs. Powers is a
Certified Public Accountant with a B.S. Degree from the University of Arizona,
Tucson.
JENNIFER BURNS, 28, Vice President of Marketing. Ms. Burns attended
Dekalb College from 1988 to 1990 and the University of California, Los Angeles
from 1995 to 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 to 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.
JOE M. MARENDA, 32, Vice President of Business Development. Mr. Marenda
graduated from the University of Southern California in 1988 with a Bachelor of
Arts and from Yale University in 1989 with a Master of Arts. After Yale, Mr.
Marenda joined a consultancy advising international corporations on overseas
investments. Mr. Marenda graduated with an MBA from the University of Virginia's
Darden School of Business in 1995. After Darden, Mr. Marenda co-founded
Renewable Oxygenates, where he was responsible for operations management and the
Company's financial activities. Subsequently, Mr. Marenda worked with an
investment bank specializing in middle- market companies. Mr. Marenda joined
Dominion Income Management Corp. as an associate and APG as Vice President of
Business Development in 1998.
JAMES R. MEDLEY, 57, Director. Mr. Medley has served as a Director of
the Company since April 1998. Since March 1976, Mr. Medley has served as
President of Laux Medley Norris, Inc., an SEC-registered Investment Advisor,
which provides investment advice and business counsel.
THOMAS H. CARMODY, 51, Director. Mr. Carmody has served as a Director
of the Company since April 1998. Mr. Carmody currently serves as President and
CEO of Continential Sports Group, a sports marketing firm. From 1989 to 1998,
Mr. Carmody was a Senior Vice President and General Manager of Operations of
Reebok International, Ltd. where he had management responsibility for Reebok's
North American operations including sales, marketing and distribution. Prior to
joining Reebok, Mr. Carmody served as a Director of Marketing for Nike and a
Deputy District Attorney for Santa Clara County, California.
RONNIE LOTT, 39, Director. Mr. Lott has served as a Director of the
Company since April 1998. Since 1991, Mr. Lott has served as CEO of RML
Enterprises, a sports management firm. 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-
27
<PAGE> 30
Stars Helping Kids, a non-profit charity to raise funds for youth organizations.
In 1991, Mr. 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, 60, Director. Mr. Nish has served as a Director of APG
since its inception and 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, 54, Director. Mr. Tempero has served as a Director
of APG since its inception and as a Director of Klein Engines since May 1996.
Since 1987, Mr. Tempero has owned and operated 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.
28
<PAGE> 31
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following table sets forth total compensation earned during the
fiscal year ended December 31, 1997 by the Chief Executive Officers of the
predecessors to the Company and the one executive officer who earned in excess
of $100,000 in compensation during such year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($) COMPENSATION
- ------------------------------------------------------ ----------------- ---------------- ------------
<S> <C> <C> <C>
Andrew L. Evans (1) -- -- --
Chief Executive Officer and President of IMSG
Thomas Klein (2) $ 72,800 -- --
Chief Executive Officer and President of Klein Engines
James E. Dunn (3) $ 117,500 $25,000 --
Chief Executive Officer and President of RPMO
</TABLE>
(1) Andrew Evans served as CEO and President of IMSG during the fiscal year
ended December 31, 1997, and as CEO and President of APG from its
inception until November 1, 1998. Mr. Evans presently is a Director of
APG and President of Team Scandia and has had no compensation
arrangements with the Company or any subsidiary.
(2) Mr. Klein served as Chief Executive Officer and President of Klein
Engines during the fiscal year ended December 31, 1997, and currently
serves as a consultant to APG.
(3) Mr. Dunn served as Chief Executive Officer and President of RPMO during
the fiscal year ended December 31, 1997, and currently serves as Chief
Operating Officer of APG. During 1997, he was also granted options to
purchase 200,000 shares of Common Stock of RPMO. These options have not
been converted into options to purchase any securities of APG.
EMPLOYMENT AGREEMENTS
All employees are maintained on an "at will" basis at salaries
established by the Board. Thomas Klein, former president of Klein Engines,
entered into an employment agreement with Klein Engines which provided he was to
receive a salary of $125,000, with a severance of one year if terminated without
cause. He also agreed to a "lockup" to his shares for a two-year period, and not
to compete with the Company during employment or for one year thereafter. He
also agreed to assign certain technologies to the Company. This Agreement was
supplanted in part when Mr. Klein retired from the Company.
BENEFITS
A Company-wide health plan is being implemented which will apply to all
employees of APG and subsidiaries. It provides for medical and dental benefits
to the employee, and to his or her spouse and children if chosen on an elective
basis. A 401-k plan is also being instituted and other employee stock incentive
plans are under consideration. To the extent that an Officer or Director is also
an employee, they will participate in these plans being implemented or
considered on a non-discriminatory basis.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
29
<PAGE> 32
The Company's Bylaws provide for indemnification of officers and
directors to the full extent permitted by Delaware Law, if such officer or
director is made a party to any proceeding by reason of the fact that he or she
is or was a director or officer of the corporation.
30
<PAGE> 33
CERTAIN TRANSACTIONS
Team Scandia, a wholly owned subsidiary of APG, was acquired from
Andrew Evans in exchange for 8,000,000 shares of IMSG (exchanged into 400,000
shares of APG in the merger). There was no competitive bid or other valuation of
this transaction which occurred prior to the formation of APG (see "Financial
Statements: Notes"). An airplane owned by an Affiliate of Mr. Evans is used from
time to time for Company business; there has been no charge to ASCG or APG. In
addition, several employees of Dominion Income Management, Corp. provide and
have provided services to ASCG and APG; there has been no charge for these
services. Team Scandia leases its facilities in Indianapolis from an Affiliate
of Mr. Evans, which owns the building, at a rate of $20,000/month, which is
currently being accrued and is in arrears. The lease expires in December, 1998
and is believed to be at market rates. It is intended to reduce the use of these
facilities as a part of the reorganization of the racing team operations and
lease all or a major part thereof to non-affiliates of the Company.
Two of the Directors, Bill Tempero and Terry Nish, have had and may
continue to have various transactions with the Klein Engines subsidiary as both
are engaged in racing-related activities. These may include exchange of services
for engines or service of engines, or sponsorships or promotion, such as Royal
Purple Motor Oil. Either or both may also provide consulting services on a
compensated or non-compensated basis.
James R. Medley has provided consulting services for IMSG, and
subsequently for APG, which he billed at his normal rates. The amount varied,
but was as much as $8,000/month during early 1998 when he devoted a greater
amount of time. Mr. Medley is the principal of an SEC registered Investment
Advisor and he provides business and financial advisory services as an
occupation. Mr. Medley also received Warrants to purchase 6,666 Common Shares of
APG as a part of his compensation as treasurer, and a salary for two months of
$10,000 based on an annual rate of $60,000, plus 40,000 Options vesting over a
four-year period. He may provide additional services to the Company at his
market rates.
Ronnie Lott received Warrants to purchase 1,250 Common Shares of IMSG
(which have since been converted into Warrants to purchase 1,250 Common Shares
of APG) for services previously provided to IMSG.
Other Directors, Officers or employees may have dealings with the
Company, which may include cross-marketing, promotion or sponsorship. It is the
policy of the Board to have such arrangements, which are believed beneficial to
the Company disclosed and reviewed from time to time by independent Board
Members or a Committee thereof.
The APG-IMSG-H merger exchange ratios were not based on an independent
evaluation of the Companies. Thomas Klein, CEO of Klein Engines and APG prior to
the merger was the majority shareholder of APG prior to the merger and in the
position to effect and did effect the merger arrangements for APG. He received
certain benefits in that transaction, such as 50,000 vested option shares at
$2/share, an Employment Agreement at $125,000, and certain registration rights
that were not received by the other shareholders of Klein Engines. Mr. Klein was
the founder of Klein Engines and the number of shares he received therein was
not based on any independent valuation vis-a-vis other shareholders who may have
purchased shares later; persons subsequently purchasing or receiving shares in
Klein Engines made such purchases on the basis of a thin trading market which
Mr. Klein may have been in the position to influence due to his majority
shareholder position. Various Directors of Klein Engines, including Mr. Tempero
and Mr. Nish, may have received promotional shares of Klein Engines.
Affiliates of Mr. Evans purchased 15,271,980 shares of IMSG (exchanged
into 763,599 shares of APG) at $4.00 Common Share (adjusted for the 20-1 split),
and 78,332,040 shares of IMSG (exchanged into 3,916,602 shares of APG) at $5.00
Common Share (adjusted for the 20-1 split). In 1997, Maritime Capital Partners
LP, an affiliate of Mr. Evans, received Warrants to purchase 20,000 Common
Shares of IMSG (which have since been converted into Warrants to purchase 20,000
Common Shares of APG) in consideration for financial accommodations provided to
IMSG in 1997. In May, 1998, Mr. Evans received Warrants to purchase 100,000
Common Shares of APG at an
31
<PAGE> 34
exercise price of $0.01 per share, as consideration for guaranteeing two credit
lines of subsidiaries of $500,000 each. In November, 1998, Mr. Evans received
Warrants to purchase a total of 172,000 Common Shares of APG at an exercise
price of $0.01 per share, as consideration for guaranteeing a $720,000 equipment
loan of Team Scandia and a $1,000,000 credit line of ASCG. Affiliates of Mr.
Evans control a significant portion of the Common Shares (see "Principal
Shareholders"); this may affect the ability of the management of the Company to
be independent.
In 1997, IMSG entered into transactions with 3 drivers: Brett Bodine,
Jimmy Kite, and Christen Powell, in which 50% interests were acquired in
exchange for cash and commitments (see "Financial Statements: Notes"). Various
other non-cash investing activities occurred in 1997 in IMSG. (See "Financial
Statements: Notes.")
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November
30,1998 with respect to all stockholders known to the Company to be the
beneficial owners of more than 5% of its outstanding Common Stock, and share
ownership by each director, each Named Executive Officer, and by all officers
and directors as a group. Unless otherwise indicated, each of the stockholders
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY-OWNED(2) OWNED(2)
- --------------------------------------------------- --------------------- -------------------
<S> <C> <C>
Andrew L. Evans and affiliated entities(3)......... 6,068,118 77.5 %
Entities affiliated with the Lancer Group(4)....... 500,000 6.6 %
James E. Dunn(5)................................... 27,967 *
Thomas Klein(6).................................... 200,910 2.6 %
Thomas Carmody(7).................................. 9,803 *
Ronnie Lott (8).................................... 1,250 *
James M. Martin.................................... 6,077 *
James R. Medley(9)................................. 6,666 *
Terry E. Nish...................................... 750 *
William H. Tempero................................. 500 *
Dean Willard....................................... --- ---
All Officers and Directors as a Group(10).......... 6,123,131 77.8 %
</TABLE>
* Less than 1% of the Company's outstanding Common Stock
(1) The address of the Lancer Group is 375 Park Avenue, Suite 2006, New
York, NY 10152. The address of each of the other named individuals is
c/o Automotive Performance Group, 1207 N. Miller Road, Tempe, Arizona
85281.
(2) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 7,534,046 shares outstanding on an
as-converted basis as of November 30, 1998. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to
such shares. All shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days after November 30,
1998 are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrant for the purpose of computing the
number of shares beneficially owned and the percentage ownership of
such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage
ownership of any other person.
(3) Includes 2,332,977 shares held by Dominion Income Management Corp (of
which Mr. Evans is President), 1,927,619 shares held by Maritime
Capital Partners LP (of which Mr. Evans is the General Partner), 20,000
shares of which are issuable pursuant to warrants currently exercisable
or exercisable within 60 days of November 30, 1998, 580,522 shares held
by Dominion Income Management Corp Profit Sharing Plan (of which
32
<PAGE> 35
Mr. Evans is the Trustee), 500,000 shares held by Matrix Management
Corp. (of which Mr. Evans is the sole shareholder) and 272,000 shares
issuable pursuant to warrants currently exercisable or exercisable
within 60 days of November 30, 1998.
(4) Includes 250,000 shares held by Lancer Offshore Inc., 125,000 shares
held by Lancer Partners L.P., 100,000 shares held by Lancer Voyager and
25,000 shares held by Michael Lauer, President of the Lancer Group.
(5) Includes 25,000 shares issuable pursuant to options currently
exercisable or exercisable within 60 days of November 30, 1998.
(6) Includes 50,000 shares issuable pursuant to options currently
exercisable or exercisable within 60 days of November 30, 1998.
(7) Includes 5,250 shares issuable pursuant to options currently
exercisable or exercisable within 60 days of November 30, 1998.
(8) Includes 1,250 shares issuable pursuant to warrants currently
exercisable or exercisable within 60 days of November 30, 1998.
(9) Includes 6,666 shares issuable pursuant to warrants currently
exercisable or exercisable within 60 days of November 30, 1998.
(10) See notes (3) and (4) through (9).
SELLING STOCKHOLDERS
The following table sets forth as of November 30, 1998 certain
information with respect to the beneficial share ownership of the Selling
Stockholders. The following table assumes the sale of all Shares by each Selling
Stockholder.
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR NUMBER OF BENEFICIALLY
TO SHARES BEING OWNED AFTER
NAME OF SELLING SHAREHOLDER OFFERING OFFERED OFFERING
- -------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Alkis P. Zingas Trust 5,000 5,000 0
Robert R. Asprey 10,000 10,000 0
Jerry & Linda Bassin 17,500 17,500 0
Bear Stearns Security Corp Cust.
FBO Howard Shapiro IRA 5,000 5,000 0
BRT Partnership 50,000 50,000 0
Richard P. Carney Revocable Trust 12,500 12,500 0
Drax Holdings 75,000 75,000 0
Roger Elsas 5,000 5,000 0
Henry Fredricks
Separate Property Trust DTD 10/12/68 12,500 12,500 0
Joseph Giamanco 25,000 25,000 0
Gary Herman 25,000 25,000 0
Mary Kong 12,500 12,500 0
Lancer Offshore Inc. 250,000 250,000 0
Lancer Partners LP 125,000 125,000 0
Lancer Voyager Fund 100,000 100,000 0
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR NUMBER OF BENEFICIALLY
TO SHARES BEING OWNED AFTER
NAME OF SELLING SHAREHOLDER OFFERING OFFERED OFFERING
- -------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Michael Lauer 25,000 25,000 0
Matrix Capital Management Ltd(1) 500,000 500,000 0
Olympia Partners LLC 150,000 150,000 0
Paulson Investment Co. 25,000 25,000 0
William A. Pederson 2,500 2,500 0
Sol Reischer 12,500 12,500 0
Joseph Roselle 50,000 50,000 0
Joel Schoenfeld 12,500 12,500 0
Shadow Capital LLC 50,000 50,000 0
Judy Shapiro 25,000 25,000 0
Michael L. Shinn 5,000 5,000 0
Walnut Capital Corp 50,000 50,000 0
Alan Wolf 12,500 12,500 0
Xanadu Associates LLC 5,000 5,000 0
</TABLE>
(1) Andrew Evans, a director of the Company, is the 100% shareholder of
Matrix Capital Management Ltd.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholders or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in any one or more transactions on the American Stock Exchange, or any
exchange on which the Common Stock may then be listed, in the over-the-counter
market or otherwise in negotiated transactions or a combination of such methods
of sale, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Selling Stockholders
may effect such transactions by selling shares to or through broker-dealers, and
such broker-dealers may sell the Shares as agent or may purchase such Shares as
principal and resell them for their own account pursuant to this Prospectus.
Such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
purchasers of the Shares, for whom they may act as agent (which compensation may
be in excess of customary commissions). In connection with such sales, the
Selling Stockholders and any participating brokers or dealers may be deemed to
be "underwriters" as defined in the Securities Act.
34
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
PREFERRED STOCK
The Company is authorized to issue up to 13,000,000 shares of Preferred
Stock, $.0001 par value, in one or more series, with such voting powers
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions, as shall be set forth
in resolutions providing for the issue thereof adopted by the Board of Directors
in accordance with the laws of the State of Delaware.
As of November 30, 1998, there were 1,655,000 shares of Preferred Stock
outstanding, all of which have since been converted into Common Stock as of
__________, 1998, pursuant to an election by a majority of the holders of
Preferred Stock. The Preferred Stock is designated the Series A Preferred
Shares. The Preferred Stock has the following terms and provisions:
The holder of a share of Preferred Stock is entitled to convert such
share into 1 share of Common Stock at any time, but not later than June 30,
1999.
In the event holders of 51% of the Preferred Shares notify the Company
of an election to convert, all holders of Preferred Shares will be notified and
will be required to convert as well. In addition, unless previously converted to
Common Stock at the option of the holder, Preferred Shares may be converted by
the Company at any time if a merger acquisition or consolidation occurs to which
the company is a party; after June 30, 1999, or sooner at the sole option of the
Company at such time as the company shall have been listed on AMEX or Nasdaq for
a period of not less than three months, or have a net worth of not less than
$10,000,000, or the Company shall have either a firm underwriting at $10,000,000
or more.
The conversion rates reflected above are subject to adjustment as
appropriate in certain circumstances.
DIVIDEND PREFERENCE, LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the company, the holders of the Preferred Stock (unless subject
to conversion or converted) will be entitled to a liquidation preference in the
amount of $2.00 per share less cumulative dividends. In the event of a dividend,
Preferred Shares (unless subject to conversion or converted) will be entitled to
a ten percent preference on dividends (on a share to share not class to class
basis), but not after cumulative dividends per share of $2.00 have been
received. The balance of the dividend will be shared pro rata on a share for
share basis with Common Shares. After Preferred Shares are converted at 1-1,
they participate with other Common Shareholders in dividends or distributions
pro rata, and there is no liquidation or dividend preference.
COMMON STOCK
The Company has authorized capital of 130,000,000 shares of Common
Stock, $.0001 par value, of which approximately 5,879,046 are issued and
outstanding. Approximately 13,750 Common Shares have been set aside for exercise
of Warrants at $4.00/share, 20,000 Common Shares have been set aside for
exercise of Warrants at $2.00/share, 6,666 Common Shares have also been set
aside for exercise of Warrants at $2.00/share, and 272,000 Shares have been set
aside for exercise of Warrants at $.01/share; the Company has recently adopted
an Option Plan and has set aside 4,000,000 shares for that Plan; approximately
855,000 option shares have been granted under that Plan of which approximately
75,000 option shares are currently vested; approximately 27,500 option shares
were granted by a predecessor of which approximately 7,250 are vested and
exercisable by two affiliates at prices ranging from $4 to $20/share.
35
<PAGE> 38
Each share of Common Stock entitles the holder thereof to one vote on
all matters submitted to a vote of the stockholders. Since the holders of Common
Stock do not have cumulative voting rights, holders of more than 50 percent of
the outstanding shares (including votes by Preferred Shareholders) can elect all
of the directors of the Company and holders of the remaining shares by
themselves cannot elect any directors. Holders of Common Stock will be entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor subject to the ten percent preference of
Preferred Shares. In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock have the right to a ratable portion of
the assets remaining after payment of liabilities and any preferences due
Preferred Shareholders. All shares of Common Stock outstanding and to be
outstanding upon completion of this Offering are and will be fully paid and
non-assessable.
TRANSFER AGENT AND ANNUAL REPORT
Colonial Stock Transfer of Salt Lake City, Utah, is the transfer agent
for APG. Each year, the company will prepare and distribute to shareholders an
Annual Report which describes the nature and scope of the Company's business and
operations for the prior year and contains a copy of the Company's audited
financial statements for its most recent fiscal year. Said Report, Quarterly and
other reports are provided to shareholders pursuant to the requirements of the
Securities Exchange Act of 1934. The Common Shares of the Company are registered
under the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Most of the approximately 5,879,046 shares of Common Stock currently
outstanding were offered and sold by the Company in private transactions in
reliance upon an exemption from registration under the Securities Act.
Accordingly, such shares are "restricted securities" as defined by Rule 144
under the Securities Act and cannot be resold without registration except in
reliance on Rule 144 or another applicable exemption from registration. Because
of either prior issuance without restrictions on transfer or because of passage
of time, approximately 270,000 Common Shares of the Company may be publicly
traded as of the time of this Offering. The balance will become tradable under
Rule 144 on April 17, 1999. Of this amount, approximately 80% of the total
outstanding shares will be controlled by the Company's Officers and Directors
and related affiliates as a group.
Approximately 13,750 Common Shares have been set aside for exercise of
Warrants at $4.00/share, 20,000 Common Shares have been set aside for exercise
of Warrants at $2.00/share, 6,666 Common Shares have also been set aside for
exercise of Warrants at $2.00/share, and 272,000 Shares have been set aside for
exercise of Warrants at $.01/share; the Company has recently adopted an Option
Plan and has set aside 4,000,000 shares for that Plan; approximately 855,000
option shares have been granted under that Plan of which approximately 75,000
option shares are currently vested; approximately 27,500 option shares were
granted by a predecessor of which approximately 7,250 are vested and exercisable
by two affiliates at prices ranging from $4 -- $20/share.
In general, under Rule 144 a person (or persons whose shares are
required to be aggregated), including any Affiliate of the Company, who
beneficially owns restricted shares for a period of at least one year is
entitled to sell within any three month period shares equal in number to the
greater of (i) 1 percent of the then outstanding shares of Common Stock (75,000
shares if all of the Preferred Shares offered hereby are sold and converted) or
(ii) the average weekly trading volume of the same class of shares during the
four calendar weeks preceding the filing of the required notice of sale with the
Commission. The seller must also comply with the notice and manner of sale
requirements of Rule 144, and there must be current public information available
about the Company. In addition, any person (or persons whose shares are required
to be aggregated) who is not, at the time of sale, nor during the preceding
three months, an Affiliate of the Company, and who has beneficially owned
restricted shares for at least two years, can sell such shares without regard to
notice, manner of sale, public information or the volume limitations described
above.
36
<PAGE> 39
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Stock
offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheet of IMSG as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997 and the period September 20, 1996
(date of inception) through December 31, 1996 included in this Prospectus have
been included herein in reliance on the report of Grant Thornton LLP, which
report is given on the authority of that firm as experts in auditing and
accounting.
3
<PAGE> 40
AUTOMOTIVE PERFORMANCE GROUP, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................................. F-2
Audited Financial Statements for the Year Ended December 31, 1997 and the Period Ended
December 31, 1996
Consolidated Balance Sheet........................................................................ F-3
Consolidated Statement of Operations.............................................................. F-4
Consolidated Statement of Stockholders' Equity.................................................... F-5
Consolidated Statements of Cash Flows............................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-7
Unaudited Financial Statements for the Period Ended September 30, 1998 and the Period Ended
September 30, 1997
Unaudited Consolidated Condensed Balance Sheet.................................................... F-15
Unaudited Consolidated Condensed Statement of Operations.......................................... F-16
Unaudited Consolidated Condensed Statements of Cash Flows......................................... F-17
Notes to Unaudited Consolidated Condensed Financial Statements.................................... F-18
Unaudited Pro Forma Financial Statements for the Year Ended December 31, 1997
Unaudited Consolidated Condensed Balance Sheet.................................................... F-22
Unaudited Consolidated Condensed Statement of Operations.......................................... F-23
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
International Motor Sports Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of International
Motor Sports Group, Inc. (a Delaware Corporation) and Subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1997 and the
period September 20, 1996 (date of inception) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated 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 consolidated 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 consolidated financial position of International
Motor Sports Group, Inc. and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the year ended December 31, 1997 and the period September 20, 1996 (date of
inception) through December 31, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Seattle, Washington
March 11, 1998
F-2
<PAGE> 42
INTERNATIONAL MOTOR SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash ..................................................................... $ 3,510,537
Accounts receivable (note A3) ............................................ 883,272
Prepaid expenses and other ............................................... 124,223
Notes receivable (note C) ................................................ 1,732,812
------------
Total current assets ............................................. 6,250,844
PROPERTY, PLANT AND EQUIPMENT, net (notes A4, F, G, and I) ................. 4,290,041
OTHER ASSETS
Investments in and notes receivable from affiliates (notes A1 and D) ..... 643,833
Goodwill (note A7) ....................................................... 82,783
------------
$ 11,267,501
============
LIABILITIES
CURRENT LIABILITIES
Note payable to affiliate (note G) ....................................... $ 287,907
Current maturities of long-term obligations .............................. 1,463,125
Deferred revenue ......................................................... 100,000
Provision for operating loss (note O) .................................... 40,000
Accounts payable ......................................................... 1,045,140
------------
Total current liabilities ........................................ 2,936,172
LONG-TERM OBLIGATIONS, less current maturities (note I) .................... 81,570
RELATED PARTY NOTES PAYABLE (note H) ....................................... 16,305,500
COMMITMENTS AND CONTINGENCIES (notes D, E, K, O and P) ..................... --
STOCKHOLDERS' EQUITY (DEFICIT) (notes L, M and N)
Preferred stock-- authorized 5,145,000 shares of $.01 par value; none
issued and outstanding ................................................ --
Common stock-- authorized, 50,000,000 shares of $.01 par value; 42,433,847
shares issued and outstanding ......................................... 424,338
Additional contributed capital ........................................... 14,232,494
Cumulative translation adjustment (note A2) .............................. (116,504)
Accumulated deficit ...................................................... (22,596,069)
------------
(8,055,741)
------------
$ 11,267,501
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 43
INTERNATIONAL MOTOR SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD
SEPTEMBER 20, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 20,
YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues ...................................................... $ 7,135,314 $ 9,186,858
Expenses:
Direct expenses ............................................. 7,128,278 10,585,069
Selling, general and administrative ......................... 6,533,019 3,567,688
Depreciation expense ........................................ 2,596,818 1,660,591
Loss on investments in affiliates (note A1) ................. 932,894 --
------------ ------------
17,191,009 15,813,348
------------ ------------
Operating loss ........................................... (10,055,695) (6,626,490)
Other income (expense):
Interest .................................................... (575,497) (127,048)
Other ....................................................... (88,475) 204,659
------------ ------------
(663,972) 77,611
------------ ------------
Loss from continuing operations before income taxes ...... (10,719,667) (6,548,879)
Income taxes (notes A6 and J) ................................. -- --
------------ ------------
Loss from continuing operations before discontinued
operations and extraordinary item ...................... (10,719,667) (6,548,879)
Discontinued operations (note O)
Loss from operations of discontinued venue division ......... (2,049,801) --
Gain on disposal of venue division including provision of
$40,000 for operating losses during phase-out period ..... 1,582,832 --
Loss from operations of discontinued race sanctioning
division ................................................. (3,502,602) --
Loss from disposal of race sanctioning division ............. (1,875,120) --
------------ ------------
Loss from discontinued operations ........................ (5,844,691) --
------------ ------------
Loss before extraordinary item ........................... (16,564,358) (6,548,879)
Extraordinary item (note O1)
Gain from extinguishment of debt ............................ 517,168 --
------------ ------------
NET LOSS ............................................ $(16,047,190) $ (6,548,879)
============ ============
Loss per common share (note A10)
Loss before discontinued operations and extraordinary item... $ (.37) $ (.57)
Discontinued operations ..................................... (.20) --
Extraordinary item .......................................... .01 --
------------ ------------
NET LOSS ............................................ $ (.56) $ (.57)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 44
INTERNATIONAL MOTOR SPORTS GROUP, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD
SEPTEMBER 20, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Balance at September 20, 1996 ........................... -- $ -- -- $ --
Issuance of common stock in conjunction with the
acquisition of SportsCar .............................. -- -- 3,430,000 200
Issuance of preferred stock in conjunction with the
acquisition of SportsCar .............................. 5,145,000 1,000,000 -- --
Net loss for the period ................................. -- -- -- --
----------- ----------- ---------- --------
Balance at December 31, 1996 ............................ 5,145,000 1,000,000 3,430,000 200
Issuance of common stock for convertible notes and
associated interest ................................... -- -- 24,092,788 275,027
Issuance of common stock for convertible preferred
stock ................................................. (5,145,000) (1,000,000) 5,145,000 51,450
Issuance of common stock for services rendered at fair
value ................................................. -- -- 766,059 7,661
Issuance of common stock for purchase of APEX and Jim
Epler Racing .......................................... -- -- 1,000,000 10,000
Issuance of common stock for purchase of Team Scandia at
cost, assumes pooling as of January 1, 1996 (including
capital contributions of $968,824 in 1997 and
$5,363,306 in 1996 by controlling shareholder) (note B) -- -- 8,000,000 80,000
Foreign currency translation adjustments ................ -- -- -- --
Net loss for the year ................................... -- -- -- --
----------- ----------- ---------- --------
Balance at December 31, 1997 ............................ -- $ -- 42,433,847 $424,338
========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
CONTRIBUTED TRANSLATION ACCUMULATED
CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 20, 1996 ........................... $ -- $ -- $ -- $ --
Issuance of common stock in conjunction with the
acquisition of SportsCar .............................. -- -- -- 200
Issuance of preferred stock in conjunction with the
acquisition of SportsCar .............................. -- -- -- 1,000,000
Net loss for the period ................................. -- -- (6,548,879) (6,548,879)
----------- ------------ ------------ ------------
Balance at December 31, 1996 ............................ -- -- (6,548,879) (5,548,679)
Issuance of common stock for convertible notes and
associated interest ................................... 4,830,985 -- -- 5,106,012
Issuance of common stock for convertible preferred
stock ................................................. 948,550 -- -- --
Issuance of common stock for services rendered at fair
value ................................................. 145,551 -- -- 153,212
Issuance of common stock for purchase of APEX and Jim
Epler Racing .......................................... 190,000 -- -- 200,000
Issuance of common stock for purchase of team Scandia at
cost, assumes pooling as of January 1, 1996 (including
capital contributions of $968,824 in 1997 and
$5,363,306 in 1996 by controlling shareholder) (note B) 8,117,408 -- -- 8,197,408
Foreign currency translation adjustments ................ -- (116,504) -- (116,504)
Net loss for the year ................................... -- -- (16,047,190) (16,047,190)
----------- ------------ ------------ ------------
Balance at December 31, 1997 ............................ $14,232,494 $ (116,504) $(22,596,069) $ (8,055,741)
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 45
INTERNATIONAL MOTOR SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD
SEPTEMBER 20, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 20,
YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER
1997 1996
------------ -----------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net Loss .................................................... $(16,047,190) $(6,548,879)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization ............................... 2,716,081 1,763,990
Deferred revenue ............................................ (637,833) (316,667)
Forgiveness of debt ......................................... (517,168) --
Equity in losses from affiliates ............................ 932,894 --
(Gain) loss on disposal of assets ........................... 72,503 (183,687)
Loss on disposition of subsidiaries ......................... 252,288 --
Common stock issued for services received ................... 153,212 --
Changes in assets and liabilities
Accounts receivable ...................................... (654,353) 749,344
Notes receivable ......................................... (1,632,812) --
Prepaid expenses and other assets ........................ (110,223) 50,167
Accounts payable ......................................... (1,129,147) 278,097
Accrued liabilities ...................................... 218,080 (578,723)
------------ -----------
Net cash used in operating activities ............... (16,383,668) (4,786,358)
Cash flows from investing activities
Purchase of equipment ....................................... (2,217,522) (3,467,977)
Proceeds from sale of subsidiary ............................ 3,500,000 --
Proceeds from disposition of equipment ...................... 85,666 223,231
Investment in subsidiaries, less cash received of $1,384 .... (1,875,784) (889,000)
Investment in affiliates .................................... (1,076,727) --
------------ -----------
Net cash used in investing activities ............... (1,584,367) (4,133,746)
Cash flows from financing activities
Payments on long-term obligations ........................... (1,384,029) (216,519)
Proceeds from long-term obligations ......................... 969,866 1,609,250
Proceeds from note payable to affiliate, net ................ 287,907 --
Proceeds from issuance of common stock ...................... -- 200
Proceeds from issuance of preferred stock ................... -- 1,000,000
Capital contributions to Team Scandia ....................... 968,824 5,363,306
Proceeds from related party notes payable, net .............. 19,745,500 1,947,000
------------ -----------
Net cash provided by financing activities ........... 20,588,068 9,703,237
Effect of exchange rate changes on cash ....................... (116,504) --
------------ -----------
Net increase in cash .......................................... 2,503,529 783,133
Cash at beginning of period ................................... 1,007,008 223,875
------------ -----------
Cash at end of period ......................................... $ 3,510,537 $ 1,007,008
============ ===========
Cash paid during the period for interest ...................... $ 238,273 $ 127,048
============ ===========
Noncash investing and financing activities: see note R
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 46
INTERNATIONAL MOTOR SPORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
International Motor Sports Group, Inc. (the Company) was formed in September
1996 as a holding company for investments in motor sports related businesses.
The Company's wholly-owned subsidiaries include: (1) Team Scandia, a motor
sports race team that competes in the Indianapolis Racing League and National
Hot Rod Association's Top Fuel Series, (2) Royal Purple Motor Oil, Inc., which
markets and sells a line of high-performance lubricants, (3) IMSG Properties,
which operates Mosport Park, a multi-purpose entertainment facility located
outside Toronto, Ontario, and (4) D3 Design Works, formerly "Apex
Communications," which is a full-service designing agency, specializing in
digital mediums. The Company holds 50% ownership interests in Scandia Bodine
Racing LLC, a race team that competes in NASCAR's Winston Cup series, and Jimmy
Kite Enterprises, LLC and Cristen Powell Enterprises, LLC, which are race car
drivers' entities.
A summary of significant accounting polices consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. Investments in 20% to 50% owned affiliates in which
management has the ability to exercise significant influence are included based
on the equity method of accounting. All significant intercompany balances and
transactions have been eliminated.
2. Translation of Foreign Currencies
All balance sheet accounts of foreign operations are translated into US
dollars at the year-end rate of exchange, and statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses from other foreign currency transactions,
such as those resulting from the settlement of foreign receivables or payables,
are also included in the consolidated statement of operations.
3. Accounts Receivable
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is provided. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
4. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives, principally on a straight-line basis. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, whichever is shorter. Estimated service lives of property and
equipment are as follows:
Racing equipment........................................... 3 years
Vehicles and transportation equipment...................... 3 to 5 years
Equipment.................................................. 2 to 10 years
F-7
<PAGE> 47
Leasehold improvements................................. 2 to 10 years
The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes, but accelerated methods are used for
tax purposes.
5. Revenue Recognition
Event related revenues and expenses are recognized upon completion of an
event. Revenues derived from the promotion of the sponsors' businesses are
recorded in the racing season to which they relate based on the number of
sponsored races that have occurred. Revenue from the sale of merchandise and
other goods is recognized at the time of sale.
6. Income Taxes
The Company provides for income taxes based on income reported for financial
reporting purposes. Certain charges to earnings differ as to timing from those
deducted for tax purposes; these relate primarily to accelerated depreciation.
The tax effects of these differences are recorded as deferred income taxes.
7. Goodwill
Intangible assets represent the excess costs of acquiring subsidiaries over
the fair value of net assets acquired at the date of acquisition, which are
amortized using the straight-line method primarily over a 10-year period. The
Company periodically reviews goodwill to assess recoverability. Impairment is
recognized in operating results if expected future operating undiscounted cash
flows of the acquired business are less than the carrying value of goodwill.
8. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
9. Fair Value of Financial Instruments
The carrying amount of all significant financial instruments approximates
fair value under the requirements of "Statement of Financial Accounting
Standards No. 107 -- Disclosure About Fair Value of Financial Instruments."
These instruments are all expected to be collected, converted to equity or paid
during 1998.
10. Loss Per Share
Loss per share is based on the weighted average number of shares
outstanding during each period. The weighted average number of common shares
outstanding was 28,795,174 and 11,430,000 for the year ended December 31, 1997
and the period September 20, 1996 through December 31, 1996, respectively. The
computation for loss per share assuming dilution for the year ended December 31,
1997 and the period September 20, 1996 through December 31, 1996 was
anti-dilutive; and therefore, is not included.
F-8
<PAGE> 48
NOTE B -- BUSINESS COMBINATION
Effective June 28, 1997, the Company purchased Team Scandia, Inc., from the
Chairman of the Board of the Company who had acquired it in 1995. The
acquisition was accomplished by the exchange of 8,000,000 shares of the
Company's common stock for all of the common stock of Team Scandia, Inc. The
transaction was accounted for as an exchange between enterprises under common
control and has been accounted for in a manner similar to a pooling of
interests. Therefore, the net assets and liabilities were accounted for at
historical cost, which totaled $937,671. The consolidated statement of
operations include the results of operations of Team Scandia, Inc. from January
1, 1996.
NOTE C -- NOTES RECEIVABLE
Notes receivable consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Note receivable on the sale of subsidiary, SportsCar Racing, Inc.; 10%
interest; due May 1998 (see note O2)................................... $ 600,000
Note receivable in conjunction with option agreement; interest at 12%,
payable on demand after January 31, 1998; collateralized by equipment
and fixtures (see note E).............................................. 600,000
Note receivable in connection with a long-term lease; due upon final
disposition of the venue division (Mosport Park) (note O1)............. 532,812
-----------
$ 1,732,812
===========
</TABLE>
NOTE D -- TRANSACTIONS WITH AFFILIATES
In September 1997, the Company acquired a 50% interest in Scandia Bodine
Racing, LLC, (SBR) a NASCAR Winston Cup Team previously owned by veteran NASCAR
driver Brett Bodine. The Company paid $1,000 for class A stock for a 50% voting
interest and contributed $1,000,000 for class B stock which has a liquidation
preference. The operating agreement provides that the Company is to be allocated
100% of the losses until such time as its aggregate capital account balance
related to both class A and class B stock equals zero. Thereafter, net losses
will be allocated based upon ownership percentages. The Company will be
allocated 100% of all of the SBR's profits to the extent of prior allocations of
annual net losses absorbed as described above. The Company has recorded losses
from SBR totaling approximately $880,000 as of December 31, 1997. The Company
has also guaranteed bank loans to SBR of approximately $1,025,000. Additionally,
the Company has entered into promissory notes and advanced $500,000 to SBR for
operations. These notes bear interest at 8% and are due on demand.
In 1997, the Company acquired 50% interests in two separate race car
drivers' enterprises for approximately $76,000 in cash and a commitment to
provide up to a total of $600,000.
NOTE E -- LOAN AGREEMENT AND OPTION
On September 16, 1997, the Company entered into a loan agreement and option
with Klein Engines and Competition Components, Inc. (Klein) to provide $560,000,
evidenced by a promissory note, in exchange for an option granted by Klein's
majority stockholder to acquire all of the shares of Klein's majority
stockholder in exchange for shares of the Company's common stock. The option
expires on March 31, 1998 and requires the Company to exchange one share of its
common stock for each share of Klein stock received. The Klein stock is being
held in an escrow account until such time that the option is exercised or
expires. In conjunction with the exercise of the option, the Company is required
to enter into a five year employment contract with the former Klein majority
stockholder as president of Klein, nominate him for the Company's board of
directors, and grant options to purchase 1,000,000 shares of the Company's
common stock at $1 per share.
F-9
<PAGE> 49
The note bears interest at 12% and is payable on demand after January 31,
1998. The note is collateralized by all of Klein's equipment and fixtures. At
December 31, 1997, $560,000 was outstanding under this note and the Company had
also advanced Klein an additional $40,000.
NOTE F -- PROPERTY, PLANT AND EQUIPMENT -- AT COST
Property, plant and equipment consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Racing equipment.......................................... $ 9,068,450
Vehicles and transportation equipment..................... 2,204,371
Equipment................................................. 390,004
Office and computer equipment............................. 335,814
Furniture and fixtures.................................... 48,133
Leasehold improvements.................................... 267,499
------------
12,314,271
Less accumulated depreciation and amortization............ 8,024,230
------------
$ 4,290,041
============
</TABLE>
NOTE G -- NOTES PAYABLE TO AFFILIATE
A subsidiary of the Company has a demand note payable to a related party for
up to $2,000,000, which is collateralized by all assets of IMSG Properties. The
amount outstanding totaled $287,907 at December 31, 1997. The note does not bear
interest and will be paid in full upon the sale of IMSG Properties (note O1).
NOTE H -- NOTES PAYABLE TO RELATED PARTIES
The Company has unsecured demand notes including imputed interest at 8% of
$367,500 due to related parties totaling $16,305,500 as of December 31, 1997. It
is the Company's and the note holder's intention to convert the notes payable
into shares of the Company's common stock. The conversion is contingent on the
authorization of additional shares of the Company's common stock.
NOTE I -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to a bank in monthly installments of $64,125, plus interest at
7.85%; final payment due October 1998;
collateralized by equipment.............................................. $ 641,250
Note payable to a bank in monthly installments of $51,470, plus
interest at 7.5%; final payment due September 1998;
collateralized by equipment.............................................. 770,455
Note payable to a bank in monthly installments of $5,523, plus
interest at prime plus 2.5% (12% at December 31, 1997); final
payment due June 2000; collateralized by vehicle......................... 113,870
Other...................................................................... 19,120
-----------
1,544,695
Less current maturities.................................................. 1,463,125
-----------
$ 81,570
===========
</TABLE>
F-10
<PAGE> 50
Aggregate maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998 $1,463,125
1999 ...................... 52,435
2000 ...................... 29,135
----------
$1,544,695
==========
</TABLE>
NOTE J -- INCOME TAXES
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109).
The income tax provision reconciled to the tax computed at the statutory
federal rate was:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax benefit at statutory rate .................... $(5,456,000) $(2,227,000)
Non-deductible losses in affiliates .............. 317,000 --
Non-deductible losses of subsidiaries sold ....... 1,987,000 279,000
Pre-acquisition losses of subsidiary accounted for
as a pooling ................................... 543,000 1,925,000
Non-deductible meals and entertainment ........... 51,000 --
Valuation allowance .............................. 2,558,000 23,000
----------- -----------
Total .................................. $ -- $ --
=========== ===========
</TABLE>
The components of deferred taxes are as follows at December 31, 1997:
<TABLE>
<S> <C>
Deferred tax asset:
Excess of book over tax depreciation $ 195,000
Net operating loss carryforward .... 2,580,000
Valuation allowance ................ (2,775,000)
------------
$ --
============
</TABLE>
The Company has established a valuation allowance of $2,775,000 and $23,000
as of December 31, 1997 and 1996, respectively, due to the uncertainty of future
utilization. The valuation allowance was increased by $2,752,000 and $23,000
during the year ended December 31, 1997 and the period September 20, 1996
through December 31, 1997, respectively. At December 31, 1997, the Company had
net operating loss carryforwards for federal income tax reporting purposes of
approximately $7,587,000 available to offset future income which expire in 2011
and 2012.
NOTE K -- COMMITMENTS AND CONTINGENCIES
1. LEASES
The Company leases office equipment and conducts a portion of its operations
in leased facilities classified as operating leases and under month-to-month
agreements. The following is a schedule by years of approximate minimum rental
payments under such operating leases, which expire at various dates through
2002.
F-11
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998.................................................. $ 171,700
1999.................................................. 46,200
2000.................................................. 37,200
2001.................................................. 26,600
2002.................................................. 13,700
---------
Total minimum payments required........................... $ 295,400
=========
</TABLE>
The leases provide for payment of taxes and other expenses by the Company.
Rent expense for leased facilities totaled approximately $586,000 and $674,000
for the year ended December 31, 1997 and the period September 20, 1996 through
December 31, 1996, respectively.
2. LEGAL MATTERS
The Company is engaged in various lawsuits, either as plaintiff or
defendant, involving alleged breaches of contract, related primarily to
sponsorship agreements and race car drivers associated with its subsidiary, Team
Scandia, Inc. Certain drivers have alleged breach of employment contracts,
additional prize money earned and punitive damages.
Management believes that unfavorable outcomes of certain claims and
arbitration proceedings are probable. However, management intends to vigorously
defend against these claims and proceedings. The Company has expensed and
deposited into an escrow account $450,000 for probable uninsured losses and
believes that this is adequate to cover potential claims.
3. COMMITMENTS
In February 1997, the Company formed Royal Purple Motor Oil, Inc. (Royal
Purple), in which 100 shares of Royal Purple's common stock was issued to the
Company at par value of $.01. In April 1997, IMSG acquired exclusive retail
distribution rights to market and sell a line of high performance lubricants
under the Royal Purple(TM)brand name through Royal Purple. In consideration of
the rights granted to the Company, the Company granted the seller the option to
purchase 800,000 shares of Royal Purple's common stock that at the time of
exercise, if any, will represent 20% of Royal Purple's common stock deemed
outstanding, after giving effect to such exercise. The aggregate exercise price
will be $1,000,000. Additionally, the agreement states that the Company or its
affiliates shall invest $5,000,000 in Royal Purple over the period April 1997
through March 1999. As of December 31, 1997, the Company and its affiliates have
contributed cash and sponsorship fees of $2,555,751 to Royal Purple.
Also, the Company has issued an additional 370,000 options to employees to
purchase stock in Royal Purple for $1.25 per share. These options vest 20% per
year and will be fully vested by June 2002.
4. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) plan. All employees are
eligible for this plan upon completion of six months of service and attainment
of age 21. The Company has the option to make discretionary contributions at
year end. The Company did not make any contributions to the plan for 1997 or
1996.
NOTE L -- WARRANTS
During July through September 1997, the Company granted 675,000 common stock
warrants to directors and shareholders to purchase common stock at $1.00 per
share. The warrants are exercisable over a ten-year term and expire in September
2007. In order to prevent dilution, the exercise price is subject to adjustment
based upon recent
F-12
<PAGE> 52
common stock sales as defined the warrant agreement. The exercise price
adjustments are calculated differently based upon whether the adjustment occurs
in the first eighteen months of the exercise period or thereafter.
NOTE M -- STOCK OPTIONS
The Company has a stock option plan accounted for under APB Opinion 25 and
related Interpretations. The plan allows the Company to grant options to
employees for up to 6,215,000 shares of common stock. Options currently
outstanding vest over a five-year period. The options are exercisable at not
less than the market value of the Company's common stock on the date of grant.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the plan been determined based on the fair value of the
options at the grant dates consistent with the method required by Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123), the effect on the Company's net loss would have been immaterial.
A summary of the status of the Company's stock option plan as of December
31, 1997 and 1996, and changes during the periods ending on those dates is
presented below.
<TABLE>
<CAPTION>
1997 1996
------------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of period 1,201,000 $ .20 -- $ --
Granted .......................... 3,275,000 .69 1,201,000 .20
Forfeited ........................ (3,926,000) .61 -- --
---------- --------- --------- ---------
Outstanding at end of period ..... 550,000 $ .71 1,201,000 $ .20
========== ========= ========= =========
</TABLE>
The options outstanding at December 31, 1997 have exercise prices of $.20
and $1 and a remaining contractual life of nine years.
NOTE N -- CONVERTED PREFERRED STOCK
During the second quarter of fiscal 1997, all outstanding shares of the
Company's preferred stock were converted into common stock at the ratio of one
common share for each share of preferred stock. Common shares issued in the
conversion were 5,145,000 shares.
NOTE O -- DISCONTINUED OPERATIONS
During 1997, the Company decided to sell its venue and race sanctioning
operations. Accordingly as of December 31, 1997, these operations were
considered discontinued and sold or offered for sale. These operations are
reflected as discontinued operations in the Company's Consolidated Statements of
Operations for the year ended December 31, 1997.
1. VENUE OPERATIONS
In December 1997, the Company sold its wholly owned subsidiary, Sebring
International Raceway (Sebring), which controlled a venue, Sebring Raceway, and
the world-renowned event, the "12 Hours of Sebring" for $3,500,000. The Company
recorded a loss from Sebring's operations for the year ended December 31, 1997
of $700,206. The gain on the sale of Sebring totaled approximately $1,623,000.
In connection with the sale, a $1,500,000 face value promissory note was
canceled in exchange for $600,000 in cash. This resulted in the forgiveness of
debt totaling $517,168, of which $77,168 represented accrued interest. This has
been reflected in the Consolidated Statements of Operations as an extraordinary
gain.
F-13
<PAGE> 53
In May 1997, the Company formed IMSG Properties, a wholly owned Canadian
subsidiary, to enter into a long-term lease for a multi-purpose entertainment
facility known as Mosport Park. In conjunction with the Company's decision to
sell its venue operations, the Company entered into an option agreement with an
outside party to take an assignment of the Mosport Park lease or to take title
of the Mosport Park property if the Company decides to purchase the said
property outright. The Company has received $100,000 as an option fee and will
receive an additional $200,000 if the option is exercised. If the Company
decides to buy the property, then the outside party will have an option to take
title to the property upon payment to the Company of a price equal to its cost,
as defined in the option agreement, plus $200,000. The option expires May 31,
1998. The assets have been reported at the lower of the carrying amount when the
decision to sell was made, which approximated their carrying value. The current
year loss incurred related to Mosport Park of $1,349,595 and a provision of
$40,000 for operating losses for 1998 has been recorded in the Company's
financial statements as discontinued operations.
2. SANCTIONING OPERATION
In December 1997, the Company sold its wholly owned subsidiary, Professional
SportsCar Racing, Inc. (SportsCar), the primary sanctioning body for
professional sports car racing in North America.
The Company received a note for $600,000 in exchange for all the
intercompany amounts owed to the Company. The Company recorded a loss from
SportsCar's operations for the year ended December 31, 1997 of $3,502,602. The
loss on the sale of SportsCar totaled approximately $1,875,000.
NOTE P -- CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances in financial institutions, which at
times, may exceed federally insured limits. Accounts at each financial
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. Uninsured balances totaled approximately $3,650,000 as of December 31,
1997. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash and cash equivalents.
NOTE Q -- NONCASH INVESTING AND FINANCING ACTIVITIES
In 1997, the Company converted $5,000,000 of convertible debt plus $104,012
of related interest into 24,092,788 shares of common stock. Additionally,
$1,000,000 of preferred stock was converted into 5,145,000 shares of common
stock.
In 1997, the Company acquired the assets and liabilities of Apex
Communications and Jim Epler Racing, Inc. in exchange for $200,000 of its common
stock. In conjunction with the acquisitions, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 500,946
Fair value of the Company's common stock exchanged................. (200,000)
-----------
Liabilities assumed................................................ $ 300,946
===========
</TABLE>
In 1997, the Company sold its subsidiary, SportsCar, in exchange for a
$600,000 note receivable.
F-14
<PAGE> 54
Part I. Financial Information
Item 1. Financial Statements
F-15
<PAGE> 55
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30,
1998
------------
<S> <C>
Current Assets
Cash $ 1,018,043
Accounts receivable, net of allowance for
doubtful accounts of $40,600 585,665
Inventories 718,595
Prepaid expenses and other 98,098
Notes receivable 1,573,000
------------
Total current assets 3,993,401
Property, Plant and Equipment 4,149,201
Other Assets 118,305
------------
$ 8,260,907
============
LIABILITIES
Current Liabilities
Line of Credit $ 939,200
Current maturities of long-term obligations 612,526
Accounts payable 2,361,413
Accrued liabilities 166,452
------------
Total current liabilities 4,079,591
Long-Term Obligations, less current maturities 1,238,283
Stockholders' Equity (Deficit)
Preferred stock - authorized 13,000,000 shares
of $.0001 par value; 1,650,000 issued and
outstanding 166
Common Stock - authorized 130,000,000 shares
of $.0001 par value; 5,879,046 shares issued
and outstanding 588
Additional contributed capital 36,255,504
Cumulative translation adjustment (118,820)
Accumulated deficit (33,194,405)
------------
2,943,033
------------
$ 8,260,907
============
</TABLE>
F-16
<PAGE> 56
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 1,058,289 $ 1,456,277 $ 5,464,834 $ 6,567,970
Expenses
Direct expenses 307,703 2,223,616 4,450,544 5,016,311
Selling, general and administrative 1,334,483 589,910 3,613,283 3,008,585
Salaries, payroll taxes and benefits 658,006 187,751 2,089,555 865,698
Professional expenses 694,322 612,544 2,013,331 1,582,404
Depreciation and amortization 522,512 790,099 1,606,120 1,993,802
Inventory writedown 322,298 -- 971,661 --
Loss on investments in affiliates 100,355 44,498 246,371 44,498
------------ ------------ ------------ ------------
3,939,679 4,448,418 14,990,865 12,511,298
Operating loss (2,881,390) (2,992,141) (9,526,031) (5,943,328)
Other income (expense)
Interest expense (69,428) (196,979) (591,320) (385,340)
Interest income 4,364 8,386 34,927 8,386
Legal settlements (339,875) -- (344,875) --
Other expense (300,949) -- (119,453) --
------------ ------------ ------------ ------------
(705,888) (188,593) (1,020,721) (376,954)
Loss from continuing operations
before discontinued operations
and extraordinary item (3,587,278) (3,180,734) (10,546,752) (6,320,282)
Discontinued operations
Loss from operations of discontinued
venue and race sanctioning divisions -- (2,695,664) (345,247) (4,542,416)
------------ ------------ ------------ ------------
Loss before extraordinary item (3,587,278) (5,876,398) (10,891,999) (10,862,698)
Extraordinary item
Gain from extinguishment of debt -- -- 293,663 --
------------ ------------ ------------ ------------
NET LOSS $ (3,587,278) $ (5,876,398) $(10,598,336) $(10,862,698)
============ ============ ============ ============
Loss per common share
Loss before discontinued operations
and extraordinary item $ (0.62) $ (1.50) $ (2.30) $ (6.78)
Discontinued operations -- (1.27) (0.07) (4.88)
Extraordinary item -- -- 0.06 --
------------ ------------ ------------ ------------
$ (0.62) $ (2.77) $ (2.31) $ (11.66)
============ ============ ============ ============
</TABLE>
F-17
<PAGE> 57
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net cash used in operating activities $(7,204,883) $ (8,039,598)
Cash flows from investing activities:
Purchase of property, plant and equipment (96,855) (2,432,332)
Proceeds from the disposal of equipment 1,973,741 85,666
Cash acquired in Klein acquisition 112,134 --
Decrease (increase) in notes receivable 32,738 (1,159,050)
Investment in affiliates -- (75,728)
----------- ------------
Net cash provided by (used in) investing activities 2,021,758 (3,581,444)
Cash flows from financing activities:
Borrowings on line of credit, net 998,054 --
Payments on long-term obligations (1,258,862) (525,114)
Proceeds from issuance of preferred stock 2,951,439 --
Proceeds from long-term obligations -- 969,865
Proceeds from notes payable, net -- 1,039,976
Proceeds from affiliated party notes payable, net -- 9,030,719
Capital contributions to Team Scandia -- 968,824
----------- ------------
Net cash provided by financing activities 2,690,631 11,484,270
Effect of exchange rate on cash -- (64,134)
----------- ------------
Net decrease in cash (2,492,494) (200,906)
Cash at beginning of period 3,510,537 1,007,008
----------- ------------
Cash at end of period $ 1,018,043 $ 806,102
=========== ============
Cash paid during the period for interest $ 254,577 $ 213,317
=========== ============
</TABLE>
F-18
<PAGE> 58
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 1998.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the period indicated, have been included.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market and consisted of the following at:
<TABLE>
<CAPTION>
September 30, 1998
(unaudited)
-------------
<S> <C>
Raw materials $135,940
Finished goods 582,655
--------
$718,595
========
</TABLE>
NOTE 3 - LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
Basic loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during each period. The weighted
average number of common shares outstanding was 5,841,906 and 2,120,911 for the
three months ended September 30, 1998 and 1997, respectively, and 4,589,314 and
931,666 for the nine months ended September 30, 1998 and 1997, respectively. The
computations for loss per share assuming dilution for the periods ended
September 30, 1998 and 1997, were anti-dilutive; and therefore, are not
included.
NOTE 4 - ACQUISITION
Effective April 17, 1998 through a series of mergers, International Motor
Sports Group, Inc. (IMSG) exchanged 108,930,887 shares of its common stock for
an equal number of shares of Automotive Performance Group, Inc.'s (APGI and the
Company) common stock and Klein Engines and Competition Components, Inc. (Klein)
exchanged 7,833,902 shares of its common stock for an equal number of shares of
APGI. These transactions resulted in IMSG being the accounting acquirer in the
transaction. The acquisition has been accounted for under the purchase method of
accounting.
F-19
<PAGE> 59
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - CONVERSION OF RELATED PARTY NOTES PAYABLE
Effective March 31, 1998, IMSG and its subsidiary, Team Scandia, Inc.,
converted unsecured demand notes payable to related parties into shares of
IMSG's common stock. The demand notes of $15,938,000 plus imputed interest of
$686,259 were converted into 66,497,036 shares of IMSG's common stock or
3,324,852 shares giving effect to the 20 to 1 reverse stock split. On March 30,
1998, the shareholders increased the number of authorized shares of common stock
from 50,000,000 to 130,000,000 and the number of authorized shares of preferred
stock from 5,145,000 to 13,000,000. The shareholders also approved a 20-for-1
reverse stock split effective April 17, 1998, the effective date of the business
combination described in note 4. All per share losses and references to common
stock, warrants and options have been retroactively restated to reflect the
decreased number of common shares outstanding.
NOTE 6 - PREFERRED STOCK
In June 1998, the Company issued 500,000 shares of Series A Preferred Stock
at $2 per share to a director and officer of the Company in conjunction with a
private placement of 1,650,000 preferred shares which are convertible to Common
shares of the Company at a conversion rate of one share of Common stock for each
share of Preferred stock. In August 1998, the remaining 1,150,000 shares of
preferred stock were placed with accredited investors.
NOTE 7 - CONTINGENCIES
The Company is involved in certain claims arising in the normal course of
business (see further discussion in Part II - Item 1). An estimate of the
possible loss resulting from these matters cannot be made; however, the Company
believes that the ultimate resolution of these matters will not have a material
effect on its financial position or results of operations.
NOTE 8 - SUBSEQUENT EVENTS
In November 1998, the Company entered into a loan agreement with a financial
institution maturing in May 1999, whereby the Company will have available a
$1,000,000 borrowing facility. Borrowings under this facility bear interest at
6.65%. A member of the Board of Directors guaranteed the debt. The proceeds from
this line will be used for general corporate purposes and in the Company's
acquisition activities.
A $720,000 equipment loan that originally matured in October 1998 has been
converted to a note payable due over 18 months. A member of the Board of
Directors guaranteed this note. As consideration for these financial guarantees,
172,000 warrants to purchase common stock of the Company were issued at $.01 per
share.
F-20
<PAGE> 60
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.
F-21
<PAGE> 61
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.
F-22
<PAGE> 62
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.
F-23
<PAGE> 63
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>
F-24
<PAGE> 64
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.
F-25
<PAGE> 65
TABLE OF CONTENTS
Page
----
Available Information....................................................2
The Company..............................................................3
Risk Factors.............................................................5
Use of Proceeds..........................................................9
Dividend Policy..........................................................9
Common Stock Price Range.................................................9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations...........................................................10
Business................................................................16
Management..............................................................26
Certain Transactions....................................................31
Principal Stockholders..................................................32
Selling Stockholders....................................................33
Plan of Distribution....................................................34
Description of Capital Stock............................................35
Shares Eligible for Future Sale.........................................36
Legal Matters...........................................................37
Experts.................................................................37
Index to Consolidated Financial
Statements..........................................................F-1
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must not
be relied upon as having been authorized by the Company or the Selling
Shareholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the Shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Under no circumstances
shall the delivery of this Prospectus or any sale made pursuant to this
Prospectus, create any implication that the information contained in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
1,655,000 SHARES
AUTOMOTIVE
PERFORMANCE
GROUP
COMMON STOCK
PROSPECTUS
__________, 1998
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interest, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
In accordance with the DGCL, the Company's Second Restated Certificate
of Incorporation, as amended (the "Certificate"), contains a provision to limit
the personal liability of the directors and officers of the Registrant for
violations of their fiduciary duty. This provision eliminates each director's
and officer's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's or officer's duty of loyalty
to the Registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL providing for liability of directors or
officers for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director or officer
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors and officers for monetary damages
for actions involving a breach of their fiduciary duty of care, including any
such actions involving gross negligence.
Article Sixth of the Company's Certificate and Article VIII, Section 1
of the Company's Restated Bylaws provide for indemnification of the officers and
directors of the Registrant to the fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The fees and expenses incurred by the Company in connection with the
offering are payable by the Company and, other than filing fees, are estimated
as follows:
II-1
<PAGE> 67
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $
American Stock Exchange Filing Fee............................... $
Legal Fees and Expenses.......................................... $
Accounting Fees.................................................. $
Miscellaneous.................................................... $
Total....................................................... $
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
From April through June 1996, the Company issued an aggregate of
1,782,667 shares of Common Stock to Oxford & Bond Company, Helby Trading
Company, and Elizabeth Clutter for a total subscription price of $990,000, or
$.56 per share. The shares were issued pursuant to the exemption provided by
Rule 504 of Regulation D under the Securities Act.
In May 1996, the Company issued an aggregate of 4,250,000 shares to
Thomas G. Klein and the other three stockholders of K-Way, Inc. in exchange for
all of such persons' shares of K-Way.
In June 1996, the Company issued an aggregate of 233,000 shares of
Common Stock to the 15 stockholders of Klein Competition Components, Inc.
("KCC") in exchange for all of such persons' shares of KCC.
In October 1996, the Company issued 26,400 shares of Common Stock to
Accurate Air Conditioning, Inc. as partial payment for the land and building
where the Company conducts its business operations.
From October 1996 through September 1997, the Company issued an
aggregate of 38,536 shares of Common Stock valued at $1.00 per share to six
individuals for various services rendered by them to the Company. In May 1997,
the Company issued 4,000 shares of Common Stock valued at $1.00 per share to one
individual as a portion of the purchase price for equipment acquired by the
Company.
From February through August 1997, the Company issued an aggregate of
403,000 shares of Common Stock to 56 persons for a total purchase price of
$403,000, or $1.00 per share. The Company issued these shares pursuant to the
exemption provided by Rule 506 of Regulation D under the Securities Act.
In April 1996, the Company issued 400,000 shares of Common Stock to
State Mutual Insurance Company of Georgia for a total offering price of
$200,000, or $.50 per share.
In May 1997, the Company issued an aggregate of 500,000 shares to five
individuals in connection with a failed offering of the Company's securities.
In December 1997, the Company issued an aggregate of 3,900 shares of
Common Stock valued at $.375 per share to 26 employees.
In June 1998, the Registrant issued and sold 1,655,000 shares of Series
A Preferred Stock at a purchase price of $2.00 per share to a group of
accredited investors. The sale of such shares was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
II-2
<PAGE> 68
Since January 1997, the Registrant has granted to 25 employees and
directors of the Registrant options to purchase an aggregate of 882,500 shares
of Common Stock at exercise prices ranging from $1.25 to $20.00 per share. The
grant of such options was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof.
ITEM 27. EXHIBITS.
The following exhibits are filed with this Registration Statement:
Exhibit
Number Description
- ------------------------------------
3.1 Certificate of Incorporation of Registrant
3.2 Certificates of Amendment to Certificate of Incorporation
3.3 Bylaws of Registrant
4.1 Form of Certificate evidencing shares of Common Stock+
4.2 Common Stock Purchase Warrant+
4.3 Certificate of Designations with respect to Series A
Preferred Stock of Registrant.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati+
10.1 Loan and Option Agreement dated as of September 16,
1997, among International Motor Sports Group, Inc.,
Andrew L. Evans, Klein Engines & Competition
Components, Inc., and Thomas G. Klein**
10.2 Form of Promissory Note to International Motor
Sports Group, Inc.**
10.3 Registration Rights Agreement dated as of
____________, 1998, between Klein Engines &
Competition Components, Inc. and Thomas G. Klein**
10.4 Deed of Trust dated November 29, 1996 between Klein
Engineered competition Components, Inc. and Bank of
Arizona**
10.5 Note dated November 29, 1996, from Klein Engineered
Competition Components, Inc., as borrower, to Bank
of Arizona, as lender**
10.6 Commercial Security Agreement dated November 29,
1996 between Klein Engineered Competition
Components, Inc. and Bank of Arizona**
10.7 Guaranty of Thomas G. Klein dated November 29, 1996**
10.8 Deed of Trust dated June 30, 1997 between Klein
Engines & Competition Components, Inc. and Century
Bank**
10.9 Promissory Note dated June 30, 1997, from Klein
Engines & Competition components, Inc., as
borrower, to Century Bank, as lender**
10.10 Business Loan Agreement dated June 30, 1997,
between Klein Engines & Competition Components,
Inc. and Century Bank**
10.11 Commercial Guaranty of Thomas G. Klein dated June 30, 1997**
10.12 License Agreement dated July 29, 1997, between
Feuling Advanced Technologies, Inc. and Klein
Engines & Competition Components, Inc.**
10.13 Loan Agreement for Royal Purple Motor Oil *
21 Subsidiaries of Registrant+
23.1 Consent of Grant Thornton LLP
23.2 Consent of Counsel (included in Exhibit 5.1)
24 Power of Attorney (included on page II-7)
II-3
<PAGE> 69
- ------------------
+ to be filed by amendment
* Incorporated by reference to the Quarterly Report on Form 10-QSB filed by
Registrant on August 14, 1998.
** Incorporated by reference to the Registration Statement on Form 10SB
filed by Klein Engines and Competition Components, Inc. (predecessor to
Registrant) on February 2, 1998.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth 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) (Section 230.424(b) of this chapter) 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) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement; provided, however, that (i) and
(ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective amendment
by (i) and (ii) is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against liabilities (other than the payment of the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
II-4
<PAGE> 70
connection with the securities being registered, the Registrant 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 Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form SB-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tempe, State of Arizona on December 16, 1998.
AUTOMOTIVE PERFORMANCE GROUP, INC.
By: /s/ Dean M. Willard
Dean M. Willard,
Chairman of the Board of Directors and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dean M. Willard and Andrew L. Evans, his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendment to this Registration Statement on Form SB-2,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on December 16, 1998.
Signature Title Date
/s/ Dean M. Willard Chairman of the Board of Directors December 16, 1998
_____________________ and Chief Executive Officer
Dean M. Willard
/s/ Tammy Powers Chief Financial and Accounting December 16, 1998
_____________________ Officer
Tammy Powers
/s/ Andrew L. Evans Director December 16, 1998
_____________________
Andrew L. Evans
/s/ Thomas H. Carmody Director December 16, 1998
_____________________
Thomas H. Carmody
/s/ James E. Dunn Director December 16, 1998
_____________________
James E. Dunn
/s/ Ronnie Lott Director December 16, 1998
_____________________
Ronnie Lott
/s/ James M. Martin Director December 16, 1998
_____________________
James M. Martin
/s/ James R. Medley Director December 16, 1998
_____________________
James R. Medley
II-7
<PAGE> 72
EXHIBIT INDEX
Exhibit
Number Description
- ------------------------------------
3.1 Certificate of Incorporation of Registrant
3.2 Certificates of Amendment to Certificate of Incorporation
3.3 Bylaws of Registrant
4.1 Form of Certificate evidencing shares of Common Stock+
4.2 Common Stock Purchase Warrant+
4.3 Certificate of Designations with respect to Series A
Preferred Stock of Registrant.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati+
10.1 Loan and Option Agreement dated as of September 16,
1997, among International Motor Sports Group, Inc.,
Andrew L. Evans, Klein Engines & Competition
Components, Inc., and Thomas G. Klein**
10.2 Form of Promissory Note to International Motor
Sports Group, Inc.**
10.3 Registration Rights Agreement dated as of
____________, 1998, between Klein Engines &
Competition Components, Inc. and Thomas G. Klein**
10.4 Deed of Trust dated November 29, 1996 between Klein
Engineered competition Components, Inc. and Bank of
Arizona**
10.5 Note dated November 29, 1996, from Klein Engineered
Competition Components, Inc., as borrower, to Bank
of Arizona, as lender**
10.6 Commercial Security Agreement dated November 29,
1996 between Klein Engineered Competition
Components, Inc. and Bank of Arizona**
10.7 Guaranty of Thomas G. Klein dated November 29, 1996**
10.8 Deed of Trust dated June 30, 1997 between Klein
Engines & Competition Components, Inc. and Century
Bank**
10.9 Promissory Note dated June 30, 1997, from Klein
Engines & Competition components, Inc., as
borrower, to Century Bank, as lender**
10.10 Business Loan Agreement dated June 30, 1997,
between Klein Engines & Competition Components,
Inc. and Century Bank**
10.11 Commercial Guaranty of Thomas G. Klein dated June 30, 1997**
10.12 License Agreement dated July 29, 1997, between
Feuling Advanced Technologies, Inc. and Klein
Engines & Competition Components, Inc.**
10.13 Loan Agreement for Royal Purple Motor Oil *
21 Subsidiaries of Registrant+
23.1 Consent of Grant Thornton LLP
23.2 Consent of Counsel (included in Exhibit 5.1)
24 Power of Attorney (included on page II-7)
- ------------------
+ to be filed by amendment
* Incorporated by reference to the Quarterly Report on Form 10-QSB filed by
Registrant on August 14, 1998.
** Incorporated by reference to the Registration Statement on Form 10SB
filed by Klein Engines and Competition Components, Inc. (predecessor to
Registrant) on February 2, 1998.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL AUTOMOTIVE PERFORMANCE GROUP, INC.,
ARTICLE I.
NAME OF CORPORATION
The name of the corporation is International Automotive Performance
Group, Inc., (the "Corporation").
ARTICLE II.
REGISTERED OFFICE AND AGENT
The principal office of the corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its Registered Agent at such address is the
Corporation Trust Company.
ARTICLE III.
BUSINESS PURPOSES
The business of designing, manufacturing, testing, servicing,
maintaining, repairing and renovating of specialty, high-performance engines for
motor sports, recreation and related uses. To buy and sell high-performance
engines, their components and related accessories and to generally trade and
deal in high performance products for the automotive aftermarket.
In general, to possess and exercise all the powers and privileges
granted by the general corporation law of the State of Delaware, together with
any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the business
or purposes of the corporation.
The business and purposes specified in the foregoing clauses shall,
except as otherwise expressed, be nowise limited or restricted by reference to
or inference from, the terms of any other clause in this Certificate of
Incorporation, and each of the objects and purposes specified in each of the
foregoing clauses of this Article shall be regarded as independent objects and
purposes.
<PAGE> 2
ARTICLE IV.
CAPITAL STOCK
The aggregate number of shares of stock that the corporation shall have
authority to issue is 143,000,000 at $.0001 par value per share, consisting of
13,000,000 shares of preferred stock, $.0001 par value per share ("Preferred
Stock") and 130,000,000 of common stock, $.0001 par value per share ("Common
Stock").
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate pursuant to the applicable law of the State of Nevada, to establish
from time to time the number of shares to be included in each series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations, or restrictions thereof, including,
but not limited to, the fixing or alteration of the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of shares of Preferred
Stock or any of them; and to increase or decrease the number of shares of any
series subsequent to the issue of the shares of that series, but not below the
number of shares of that series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of that series.
ARTICLE V.
INCORPORATOR
The name and the mailing address of the Incorporator is as follows:
Thomas G. Klein, 1207 North Miller Road, Tempe, AZ 85281.
ARTICLE VI.
GOVERNING BOARD
The number of Directors constituting the Board of Directors of a
corporation is five (5). The names and addresses of the persons who are to serve
as Directors until the next annual meeting of stockholders or until their
successors are elected are:
2
<PAGE> 3
Name Address
Thomas G. Klein 1207 North Miller Road
Tempe, AZ 85281
Richard Berggren 65 Parker Street
Newbury Port, MA 01950
Terry E. Nish 764 W. South Temple
Salt Lake City, UT 84104
William H. Tempero 915 Turman
Ft. Collins, CO 80525
James R. Medley 10002 Aurora Avenue N., #3345
Seattle, WA 98133
ARTICLE VII
OFFICERS' AND DIRECTORS' CONTRACTS
No contract or other transaction between the Corporation and any one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors or officers are financially interested, shall
be either void or voidable because of such relationship or interest, or because
such director or directors are present at the meeting of the Board of Directors,
or a committee thereof, which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested director; or (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote and they authorize, approve or ratify such contract or transaction by vote
or written consent, or (c) the contract or transaction is fair and reasonable to
the Corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorizes, approves, or ratifies such contract or transaction.
3
<PAGE> 4
ARTICLE VIII
LIABILITY OF DIRECTORS AND OFFICERS
No director of officer shall be personally liable to the Corporation of
its stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding the foregoing sentence, a
director or officer shall be liable to the extent provided by applicable law,
(i) for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of dividends in violation of
Section 6, Delaware General Corporation Law.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify , and advance expenses to, to the
fullest extent allowed by Delaware General Corporation Law, any person who
incurs liability or expense by reason of such person acting as a director of the
Corporation. This indemnification with respect to directors shall be mandatory,
subject to the requirement of the Delaware General Corporation Law, in all
circumstances in which indemnification is permitted by the Delaware General
Corporation Law. In addition, the Corporation may, in its sole discretion,
indemnify, and advance expenses to, to the fullest extent allowed by the
Delaware General Corporation Law, any person who incurs liability or expense by
reason of such person acting as an officer, employee or agent of the
Corporation, except where indemnification is mandatory pursuant to the Delaware
General Corporation Law, in which case the Corporation shall indemnify to the
fullest extent required by the Delaware General Corporation Law.
ARTICLE X.
ELECTION NOT TO BE GOVERNED BY DELAWARE
TITLE 8 SECTION 203 GENERAL CORPORATION LAW
The corporation elects not to be governed by Title 8 Section 203 of the Delaware
General Corporation Law.
4
<PAGE> 5
The undersigned, being the incorporator above named for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, makes this certificate and hereby declares and certifies that the
facts herein stated are true and accordingly has hereunto set his hand and seal
this March _____, 1998.
___________________________
Thomas G. Klein
STATE OF ARIZONA )
) SS
COUNTY OF MARICOPA)
Subscribed and sworn to, before me this ________ day of March, 1998.
___________________________
Notary
_______________________
Dated
5
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
International Automotive Performance Group, Inc., a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its member, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of International
Automotive Performance Group, Inc., be amended by changing Article
I thereof so that, as amended said article shall be and read as
follows:
ARTICLE I.
NAME OF CORPORATION
The name of the corporation is Automotive Performance Group,
Inc., (the "Corporation").
FURTHER RESOLVED, that the Certificate of Incorporation of Inter-
national Automotive Performance Group, Inc., be amended by
changing Article VI thereof so that, as amended said article shall
be and read as follows:
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<PAGE> 2
ARTICLE VI.
GOVERNING BOARD
The number of Directors constituting the Board of Directors of a
corporation is four (4). The names and addresses of the persons who are to serve
as Directors until the next annual meeting of stockholders or until their
successors are elected are:
Name Address
---- -------
Thomas G. Klein 1207 North Miller Road
Tempe, AZ 85281
Terry E. Nish 764 W. South Temple
Salt Lake City, UT 84104
William H. Tempero 915 Turman
Ft. Collins, CO 80525
James R. Medley 10002 Aurora Avenue N., #3345
Seattle, WA 98133
SECOND: That no stock has been issued by International Automotive
Performance Group, Inc.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the President of International Automotive Performance
Group, Inc. as caused this certificate to be signed this _____ day of April,
1998.
---------------------------------
Thomas G. Klein, President
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<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Automotive Performance Group, Inc., a corporation organized and existing
under and by virtue of Section 242 of the General Corporation Law of the State
of Delaware,
DOES HEREBY CERTIFY:
That the Board of Directors of said corporation, by the unanimous written
consent of its member, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of International
Automotive Performance Group, Inc., know known as Automotive
Performance Group, Inc., be amended by changing Article IV thereof so
that, as amended said article be and read as follows:
ARTICLE IV.
CAPITAL STOCK
The aggregate number of shares of stock that the corporation shall have
authority to issue is 143,000,000 at $.0001 par value per share, consisting of
13,000,000 shares of preferred stock, $.0001 par value per share ("Preferred
Stock") and 130,000,000 of common stock, $.0001 par value per share ("Common
Stock").
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each series,
and to fix the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations, or restrictions thereof,
including, but not limited to, the fixing or alteration of the dividend rights,
dividend rate, conversion rights, voting rights, rights and
Page 1 of 2
<PAGE> 4
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of shares
of Preferred Stock or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of the shares of that series, but
not below the number of shares of that series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of that series.
IN WITNESS WHEREOF, the President of International Automotive Performance
Group, Inc. as caused this certificate to be signed this _____ day of August,
1998.
_____________________________
James Dunn, Secretary
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<PAGE> 1
Exhibit 3.3
BYLAWS
OF
INTERNATIONAL AUTOMOTIVE PERFORMANCE GROUP, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office shall be located at
1207 N. Miller Road, Tempe, Arizona 85281, in Maricopa County, Arizona or at
such other location or as may be established by the board of directors.
Section 2. OTHER OFFICES. The Corporation also may have offices at such
other places as designated by the board of directors.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders shall be
held at such time and place within or without the State of Delaware as shall be
designated from time to time by the board of directors.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held on the second Thursday in November of each calendar year, if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
10:00 a.m., at which the stockholders shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
articles of incorporation, may be called by the president and shall be called by
the president or secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 4. NOTICE OF MEETINGS. Notices of meetings shall be in writing
and signed by the president or a vice president, or the secretary, or an
assistant secretary, or by such other person or persons as the directors shall
designate. Such notice shall state the purpose or purposes for which the meeting
is called and the time and place where it is to be held, which may be within or
without the State of Delaware. A copy of such notice shall be either delivered
personally or shall
Page 1 of 11
<PAGE> 2
be mailed, postage prepaid, to each stockholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before such
meeting. If mailed, it shall be directed to a stockholder at his address as it
appears upon the records of the Corporation and upon such mailing of any such
notice, the service thereof shall be complete, and the time of the notice shall
begin to run from the date upon which such notice is deposited in the mail for
transmission to such stockholder. In the event of the transfer of stock after
delivery or mailing of the notice of, and before the holding of, the meeting, it
shall not be necessary to deliver or mail notice of the meeting to the
transferee.
Section 5. PURPOSE OF MEETINGS. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 6. QUORUM. Stockholders holding at least a majority of the
voting power, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the articles of incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. RECORD DATE. The board of directors may prescribe a period
not exceeding sixty (60) days before any meeting of the stockholders during
which no transfer of stock on the books of the Corporation may be made, or may
fix a day not more than sixty (60) days before the holding of any such meeting
as the day as of which stockholders entitled to notice of and to vote at such
meetings must be determined. Only stockholders of record on that day are
entitled to notice or to vote at such meeting.
Section 8. VOTING.
(a) An act of stockholders who hold at least a majority of the
voting power and are present at a meeting at which a quorum is present is the
act of the stockholders unless the statutes or articles of incorporation provide
for different proportions.
(b) Every stockholder of record of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the Corporation subject, however, to any
provision respecting voting rights as may be contained in the articles of
incorporation or any amendments thereto or in any certificate setting forth the
rights and preferences of any series of preferred stock as filed by the
Corporation with the State of Nevada.
(c) At any meeting of the stockholders, any stockholder may
designate another person or persons to act as a proxy or proxies as provided by
law. If any stockholder
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<PAGE> 3
designates two or more persons to act as proxies, a majority of those persons
present at the meeting, or, if only one shall be present, then that one shall
have and may exercise all of the powers conferred by such stockholder upon all
of the persons so designated unless the stockholder shall otherwise provide. No
such proxy shall be valid after the expiration of six (6) months from the date
of its creation, unless it is coupled with an interest, or unless the
stockholder specifies in it the length of time for which it is to continue in
force, which may not exceed seven (7) years from the date of its creation.
Subject to the above, any proxy properly created is not revoked and continues in
full force and effect until another instrument or transmission revoking it or a
properly created proxy bearing a later date is filed with or transmitted to the
secretary of the Corporation or another person or persons appointed by the
Corporation to count the votes of stockholders and determine the validity of
proxies and ballots.
Section 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
required or permitted to be taken at a meeting may be taken without a meeting if
a written consent thereto is signed by stockholders holding at least a majority
of the voting power, unless the provisions of the statutes or of the articles of
incorporation require a greater proportion of voting power to authorize such
action, in which case, such greater proportion of written consents shall be
required.
ARTICLE III
DIRECTORS
Section 1. POWERS. The business of the Corporation shall be managed by
its board of directors, which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute, by the articles of
incorporation, or by these bylaws directed or required to be exercised or done
by the stockholders.
Section 2. NUMBER AND TERM OF OFFICE.
(a) The number of directors shall be five. The directors shall
be elected at the annual meeting of the stockholders, and except as provided in
Section 2(b) of this article, each director elected shall hold office until his
or her successor is elected and qualified. Directors need not be stockholders.
(b) Vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining directors
though less than a quorum. When one or more directors shall give notice of his,
her, or their resignation to the board of directors, effective at a future date,
the board of directors shall have power to fill such vacancy or vacancies to
take effect when such resignation or resignations shall become effective, each
director so appointed to hold office during the remainder of the term of office
of the resigning director or directors.
(c) Any director may be removed from office by the vote of
stockholders representing not less than two-thirds (2/3) of the voting power of
the issued and outstanding
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<PAGE> 4
stock entitled to voting power, except that (i) if the articles of incorporation
provide for the election of directors by cumulative voting, no director may be
removed from office under the provisions of this section except upon the vote of
stockholders owning sufficient shares to have prevented his election to office
in the first instance, and (ii) the articles of incorporation may require the
concurrence of a larger percentage of stock entitled to voting power in order to
remove a director.
Section 3. PLACE OF MEETINGS. The board of directors of the Corporation
may hold meetings, both regular and special, at such places as designated by the
board of directors.
Section 4. ANNUAL ORGANIZATIONAL MEETING. The first meeting of each
newly elected board of directors shall be held within thirty (30) days after the
adjournment of the annual meeting of stockholders. No notice of such meeting
shall be necessary to be given to the newly elected directors in order to
legally constitute the meeting, provided a quorum shall be present. In the event
such meeting is not held, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 5. REGULAR MEETINGS. Meetings of the board of directors may be
held without notice at such time and place as shall from time to time be
determined by the board of directors. Section 6. Special Meetings. Special
meetings of the board of directors may be called by the president or secretary
on the written request of two directors. Written notice of special meetings of
the board of directors shall be given to each director by telephone or in
writing at least twenty-four (24) hours (in the case of notice by telephone) or
forty-eight (48) hours (in the case of notice by facsimile or telegram) or three
(3) days (in the case of notice by mail) before the time at which the meeting is
to be held. Every such notice shall state the date, time and place of the
meeting, but need not describe the purpose of the meeting unless required by the
articles of incorporation, these bylaws or provided by law.
Section 7. QUORUM. A majority of the persons serving as directors of
the Corporation, at a meeting duly assembled, shall be necessary to constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the articles of incorporation.
Section 8. COMMITTEES.
(a) The board of directors may, by resolution passed by the
board of directors, designate one or more committees, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the Corporation,
and may have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee must include at least one of the directors of
the Corporation.
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<PAGE> 5
The board of directors may appoint natural persons who are not directors to
serve on committees.
(b) The committees shall keep regular minutes of their
proceedings and report the same to the board of directors when required.
Section 9. ACTION OF DIRECTORS IN LIEU OF MEETING. Any action required
or permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if, before or after the action,
a written consent thereto is signed by all the members of the board of directors
or of the committee, as the case may be, and the written consent is filed with
the minutes of proceedings of the board of directors or committee.
Section 10. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and may be paid a
fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. NOTICE, WHAT CONSTITUTES. Notices to directors and
stockholders shall be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be mailed. Notice to directors may also be given by telegram,
facsimile or telephone.
Section 2. WAIVER OF NOTICE.
(a) Whenever all parties entitled to vote at a meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meetings
shall be as valid as if had at a meeting regularly called and noticed, and at
such meeting any business may be transacted which is not excepted from the
written consent or to the consideration of which no objection for want of notice
is made at the time, and if any meeting be irregular for want of notice or of
such consent, provided a quorum was present at such meeting, the proceedings of
said meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meetings; and such consent or approval of stockholders
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.
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<PAGE> 6
(b) Whenever any notice whatever is required to be given under
the provisions of the statutes, the articles of incorporation or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be chosen by the board of directors at its first meeting and thereafter
after each annual meeting of stockholders. The officers to be elected shall
include a president, a secretary and a treasurer. Any person may hold two or
more offices. The board of directors may also appoint vice presidents and
additional officers or assistant officers as it shall deem necessary.
Section 2. COMPENSATION. The salaries of all officers and agents of the
Corporation shall be fixed by the board of directors.
Section 3. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise
shall be filled by the board of directors.
Section 4. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board of
directors may elect any other officers and appoint any committees, employees or
other agents as it desires who shall hold their offices for the terms and shall
exercise the powers and perform the duties as shall be determined from time to
time by the board of directors to be required by the business of the
Corporation. The directors may delegate to any officer or committee the power to
elect subordinate officers and retain or appoint employees or other agents.
Section 5. THE PRESIDENT. The president shall be the chief executive
officer of the Corporation, shall preside at all meetings of the stockholders
and the board of directors, shall have general and active management of the
business of the Corporation, and shall see that all orders and resolutions of
the board of directors are carried into effect. The president is authorized to
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the Corporation.
Section 6. THE VICE PRESIDENT. The vice president shall, in the absence
or disability of the president, perform the duties and exercise the powers of
the president and shall perform such other duties as the board of directors may
from time to time prescribe.
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<PAGE> 7
Section 7. THE SECRETARY. The secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be prescribed by
the board of directors or president, under whose supervision he or she shall be.
The secretary shall keep in safe custody the seal of the Corporation and, when
authorized by the board of directors, affix the same to any instrument requiring
it and, when so affixed, it shall be attested by his or her signature or by the
signature of the treasurer or an assistant secretary.
Section 8. THE TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep in full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the Corporation as may be
ordered by the board of directors taking proper vouchers for such disbursements,
and shall render to the president and the board of directors, at the regular
meetings of the board of directors, or when the board of directors so requires,
an account of all his or her transactions as treasurer and of the financial
condition of the Corporation. If required by the board of directors, the
treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of his or her office and for the restoration to the
Corporation, in case of his or her death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his control belonging to the
Corporation.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. ISSUANCE. Every stockholder shall be entitled to have a
certificate, signed by the president or a vice president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
When the Corporation is authorized to issue shares of more than one class or
more than one series of any class, there shall be set forth upon the face or
back of the certificate, or the certificate shall have a statement that the
Corporation will furnish to any stockholder upon request and without charge, a
full or summary statement of the voting powers, designations, preferences,
limitations, restrictions and relative rights of the various classes of stock or
series thereof. If any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers
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<PAGE> 8
of such Corporation.
Section 2. TRANSFER AGENT AND REGISTRAR. Whenever any certificate is
countersigned or otherwise by a transfer agent or transfer clerk, and by a
registrar, then a facsimile of the signatures of the officers or agents of the
Corporation may be printed or lithographed upon such certificate in lieu of the
actual signatures.
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<PAGE> 9
Section 3. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 4. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. CLOSING OF TRANSFER BOOKS. The directors may prescribe a
period not exceeding sixty (60) days before any meeting of the stockholders
during which no transfer of stock on the books of the Corporation may be made,
or may fix a day not more than sixty (60) days before the holding of any such
meeting as the day as of which stockholders entitled to notice of and to vote at
such meeting shall be determined; and only stockholders of record on such day
shall be entitled to notice or to vote at such meeting.
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Nevada.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the articles of incorporation, if any,
may be declared by the board of directors at any regular or special meeting
pursuant to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the articles of incorporation.
Section 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and
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the directors may modify or abolish any such reserves in the manner in which it
was created.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the board of directors.
Section 5. SEAL. The Corporation may have a corporate seal in the form
of a circle containing the name of the Corporation, the year of incorporation
and such other details as may be approved by the board of directors. Nothing in
these bylaws shall require the impression of a corporate seal to establish the
validity of any document executed on behalf of the Corporation.
ARTICLE VIII
AMENDMENTS
Section 1. BY STOCKHOLDERS. All bylaws of the Corporation shall be
subject to alteration or repeal, and new bylaws may be made, by the affirmative
vote of stockholders holding of record in the aggregate at least a majority of
the outstanding shares of stock entitled to vote in the election of directors at
any annual or special meeting of stockholders, provided that the notice or
waiver of notice of such meeting shall have summarized or set forth in full
therein, the proposed amendment.
Section 2. BY DIRECTORS. The Board of Directors shall have power to
make, adopt, alter, amend and repeal, from time to time, bylaws of the
Corporation, provided, however, that the stockholders entitled to vote with
respect thereto as in this Article X above-provided may alter, amend or repeal
bylaws made by the Board of Directors, except that the Board of Directors shall
have no power to change the quorum for meetings of stockholders or of the Board
of Directors or to change any provisions of the bylaws with respect to the
removal of directors of the filing of vacancies in the Board resulting from the
removal by the stockholders. In any bylaw regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of stockholders for the election
of Directors, the bylaws so adopted, amended or repealed, together with a
concise statement of the changes made.
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CERTIFICATE OF PRESIDENT
THIS IS TO CERTIFY that I am the duly elected, qualified and acting President of
INTERNATIONAL AUTOMOTIVE PERFORMANCE GROUP, INC.
and that the above and foregoing bylaws constituting a true original
copy were duly adopted as the bylaws of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand.
DATED: _________________________________
_________________________________________
PRESIDENT
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EXHIBIT 23.1
[GRANT THORNTON LOGO]
GRANT THORNTON LLP
We have issued our report dated March 11, 1998, accompanying the financial
statements of International Motor Sports Group, Inc. and Subsidiaries contained
in the Registration Statement on Form SB-2 for Automotive Performance Group,
Inc. We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts."
/s/ Grant Thornton LLP
Seattle, Washington
December 15, 1998
