UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
CarPartsOnSale.com, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
Delaware
(State or jurisdiction of corporation or organization)
44113
(Primary Standard Industrial Classification Code Number)
65-0911444
(I.R.S. Employer Identification No.)
580 Aviator Drive, Ft. Worth, Texas 76179 Phone: (817)-439-0373
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Mr. Scott Hudson, President & CEO
580 Aviator Drive
Ft. Worth, Texas 76179
(817) 439-0373
(817) 439-0397 fax
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
COPIES TO:
Mr. Brian K. Bosien
Cokinos, Bosien & Young
2919 Allen Parkway, Suite 1500
Houston, Texas 77019
(713) 535-5500
(713) 535-5533 fax
2,000,000 SHARES CarPartsOnSale.com, Inc., COMMON STOCK
Proposed NASDAQ SmallCap Market under the symbol "CPOS."
<PAGE>
"RISK FACTORS" START ON PAGE 7 OF THIS PROSPECTUS
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Approximate date of proposed sale to the public: As soon as practical after
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check
the following box.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Tile of each class of securitiesto be Amount tobe Proposed maximum Proposed maximum Amount of
registered registered offering price per aggregate offering registration fee
unit price
<S> <C> <C> <C> <C>
Common Stock,$.01 par value per share 2,000,000 $5.50 $11,000,000 $2,904.00
</TABLE>
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY
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<PAGE>
DETERMINE.
Note: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions to Rule 457 (ss.230.457
of this chapter) relied upon, if the basis of the calculation is not otherwise
evident from the information presented in the table. If the filing fee is
calculated pursuant to Rule 457(o) under the Securities Act, only the title of
the class of securities to be registered, the proposed maximum aggregate
offering price for that class of securities and the amount of registration fee
need to appear in the Calculation of Registration Fee table. Any difference
between the dollar amount of securities registered for such offerings and the
dollar amount of securities sold may be carried forward on a future registration
statement pursuant to Rule 429 under the Securities Act.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted The information
contained in this prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities and
Exchange Commission is declared effective. This prospectus is not an offer to
sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted
2
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 24, 2000
PRELIMINARY PROSPECTUS
CARPARTSONSALE.COM, INC.
2,000,000 SHARES OF COMMON STOCK
This is an initial public offering of up to 2,000,000 shares of our common
stock.
We will be selling a minimum of 400,000 and a maximum of 2,000,000 of our shares
in a direct participation offering. The shares will be sold by our officers and
directors. Until we have sold at least 400,000 shares, we will not accept
subscriptions for any shares. Shares must be purchased in increments of 200
shares. All proceeds of this offering will be deposited in an interest-bearing
escrow account. If we are unable to sell at least 400,000 shares before the
offering ends, we will return all funds, with interest, to subscribers promptly
after the ending of this offering. The offering will remain open until all
shares offered are sold or nine months after the date of this prospectus, except
that we will have only 180 days to sell at least the first 400,000 shares. We
may decide to cease selling efforts prior to such date if we determine that it
is no longer beneficial to continue the offering.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be $5.50 per share.
THE SHARES OFFERED IN THIS OFFERING INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION WITH THE POSSIBILITY OF THE LOSS OF YOUR ENTIRE INVESTMENT.
YOU SHOULD CAREFULLY READ THE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
THAT YOU SHOULD CONSIDER IN DETERMINING WHETHER TO PURCHASE ANY OF THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE PER SHARE OFFERING PROCEEDS,AFTER
NUMBER OF SHARES TO PUBLIC EXPENSES EXPENSES, TO US
---------------- --------------- -------- ---------------
Minimum 400,000 $5.50 $200,000 $ 2,000,000
Maximum 2,000,000 $5.50 $400,000 $10,600,000
We currently have no arrangements with underwriters or broker-dealers to sell
our shares.
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The date of this prospectus is July 26, 2000
<PAGE>
TABLE OF CONTENTS
Page
Prospectus summary 5
Risk factors 7
Forward looking statements 11
Use of proceeds 11
Capitalization 13
Dilution 14
Management's discussion and analysis 15
Business 18
Business Description 24
Management 33
Principal stockholders 37
Related party transactions 38
Plan of distribution 39
Description of capital stock 44
Experts 47
Legal matters 47
Where you can find more information 47
Financial statements I
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<PAGE>
PROSPECTUS SUMMARY
CARPARTSONSALE
CarPartsOnSale.com, Inc. (CPOS) is a Texas-based corporation that sells
high-performance and standard automobile aftermarket parts via the Internet. The
performance parts market is a $4 billion component of the $32 billion automobile
aftermarket parts market. CPOS currently owns and operates several related
Internet sites - including carpartsonsale.com - which offers over 1 million car
parts. The Company also owns The Racing Zone, a performance car parts retail
outlet in Arlington, Texas and Crown publishing, an online automotive community.
This "clicks and mortar" business combination gives both do-it-yourself
consumers as well as automotive parts businesses direct access to
high-performance car parts, replica kit cars and a large selection of original
and aftermarket manufactured replacement auto parts and accessories. For various
financial, contractual, legal, tax, and other reasons, CPOS conducts various
portions of its business through its wholly owned subsidiaries and website
divisions. Although each subsidiary is legally distinct, their respective
operations are described herein on a consolidated basis. Accordingly, throughout
this document, references to "CarPartsOnSale.com, Inc." and "CPOS" refer jointly
to CarPartsOnSale.com, Inc., The Racing Zone, Inc., Crown Communications, Inc.,
and/or their respective divisions, as appropriate.
Our principal executive offices are located at 580 Aviator Drive, Ft. Worth,
Texas 76179. Our telephone number is (817) 439-0373 and our fax number is (817)
439-0397. Our corporate website is www.CarPartsOnSale.com. The information
contained in this website or any of our websites, including carpartsonsale.com,
kitcar.com, cobracountry.com, and mustangcountry.com are not a part of this
prospectus.
THE OFFERING
Shares offered...................... Common stock, par value $.01 per share.
Minimum........................ 400,000 shares
Maximum ....................... 2,000,000 shares
Price per share..................... $5.50
Shares outstanding after this offering
Minimum ....................... 17,416,931 shares
Maximum ...................... 19,016,931 shares
Use of proceeds .................... We plan to use the net proceeds from
this offering for the following purposes:
new product development
marketing and advertising
office, warehouse and retail facilities
personnel
computer equipment
working capital and general corporate
purposes.
UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, WE REFER
TO CARPARTSONSALE.COM, INC. AS "CARPARTSONSALE", "WE", "US" , "OUR" OR "CPOS".
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<PAGE>
SUMMARY FINANCIAL INFORMATION
INCOME SHEET DATA: APRIL 19,199 THRU APRIL 30, 2000
<TABLE>
<S> <C>
Revenues $2,158,000
Costs and expenses:
Cost of Goods Sold 1,535,000
Sales and marketing 313,000
General and administrative,
depreciation and amortization 810,000
Total expenses $2,658,000
Loss from operations ($500,000)
Other income, net 3000
Net income/(loss) ($497,000)
Basic and diluted loss
per share ($0.03)
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
30-Apr-00
Actual Minimum Maximum
<S> <C> <C> <C>
Current assets 1,573,000 3,573,000 12,173,000
Long Term Assets 269,000 269,000 269,000
Total assets 1,842,000 3,842,000 12,442,000
Current liabilities 184,000 184,000 184,000
Total stockholders' equity 1,658,000 3,658,000 12,258,000
<FN>
For the minimum number of shares under the offering, the as adjusted
balance sheet data at April 30, 2000 assumes net proceeds of $2,000,000, net of
$200,000 in offering expenses. For the maximum number of shares under this
offering, the as adjusted balance sheet of April 30, 2000 assumes net proceeds
of $10,600,000, net of $400,000 in offering expenses.
</FN>
</TABLE>
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<PAGE>
RISK FACTORS
The shares offered in this prospectus are speculative and involve a
high degree of risk. If you purchase shares you may lose your entire investment.
Prior to making an investment decision, you should carefully consider all of the
information contained in this prospectus, including the following risk factors.
WE WILL HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING,
AND WE MIGHT USE THEM INEFFECTIVELY.
We will have broad discretion over how we use the net offering
proceeds, and we could spend the proceeds in ways with which you might not
agree. We cannot assure you that we will use these proceeds effectively. We plan
to use the proceeds from this offering for:
new product development
marketing and advertising
office, warehouse and retail facilities
personnel
computer equipment and software
working capital and general corporate purposes.
Our business strategy includes possible growth through acquisitions or
significant investments, and we may use a substantial portion of the offering
proceeds to buy or invest in businesses we have not yet identified.
OUR EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE CONTROL OF OUR COMMON STOCK
AND MAY MAKE DECISIONS THAT ARE NOT IN THE BEST INTEREST OF ALL STOCKHOLDERS.
At the completion of this offering Scott Hudson, Director, President
and Chief Executive Officer, Stephen Newmark, Director and Vice President, Curt
Scott, Director and Media Director, and Mike Davis, Director and Vice President
of Operations, will in the aggregate beneficially own approximately 86.5% of the
outstanding shares of our common stock in the event the maximum number of shares
offered in this offering are sold, or 94.4% of the outstanding shares of our
common stock in the event the minimum number of shares offered in this offering
are sold. Accordingly, They will be able to control the election of directors
and all other matters subject to stockholder votes. This concentration of
ownership may have the effect of delaying or preventing a change of control of
CarPartsOnSale, even if this change of control would benefit shareholders.
WE ARE RELYING ON CERTAIN SUPPLIER RELATIONSHIPS AND THEIR WHOLESALE DISTRIBUTOR
STATUS TO PURCHASE GOODS FOR RESALE AT ACCEPTABLE PROFIT MARGINS. A LOSS OF THIS
ADVANTAGE WOULD RESULT IN SMALLER GROSS PROFIT MARGINS AND SUBSTANTIALLY REDUCE
OUR POTENTIAL FOR PROFITS.
We are relying on certain supplier relationships and their wholesale
distributorships with firms such as Edelbrock, Holley, Ford Motor Sport and MSD
Ignition Company, as major suppliers, to provide products at wholesale
distributor prices affording us a bigger gross profit margin. The loss of any of
these relationships could have a material effect on gross profit margins.
ONLINE SECURITY BREACHES COULD DISRUPT OUR SERVICES, IN WHICH CASE OUR BUSINESS
COULD SUFFER.
Our computer servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any such breaches. We may be unable to prevent
or remedy all security breaches. If any of these breaches occur, we could
temporarily lose the ability to effectively maintain our web sites and services
and as a result lose retail sales and marketing advantage over non internet
competitors and visitors to our websites. Such a breach could also give rise to
liability to third parties, including affected customers.
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<PAGE>
WE MIGHT ONLY SELL THE MINIMUM NUMBER OF SHARES OR LESS THAN THE MINIMUM NUMBER
OF SHARES.
We can have a closing and accept subscriptions for the sale of shares
to investors if at least 400,000 shares have been sold, which is the minimum
number of shares that may be sold in this offering. In the event such minimum
amount, or any amount which is significantly less that the maximum amount of
2,000,000 shares offered in this offering are sold, we may not be able to
develop and market our products and services and increase our market share in
markets in which we compete as aggressively as if more shares were sold. We
would also not be able to take advantage of acquisition or investment
opportunities as aggressively. Additionally, we would not be able to expand our
operations, or significantly increase the size of our work force and
infrastructure to the extent we could if we sold more shares.
We may also be unsuccessful in selling at least 400,000 shares in this
offering, particularly because our officers and directors are selling the shares
in a direct participation offering, without the use of an underwriter. If we
fail to sell at least 400,000 shares in this offering, we will be unable to
accept any subscriptions in the offering. We could also decide, in our
discretion, to not have a closing. Although your funds will be returned to you
promptly by our escrow agent, with interest, you will not have the use of these
funds for other purposes during the time period that your funds were held in
escrow, which could be in excess of nine months.
THE SHARES YOU PURCHASE IN THE OFFERING WILL BE IMMEDIATELY AND SIGNIFICANTLY
DILUTED.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. Purchasers of
our common stock in this offering will experience immediate and substantial
dilution. Dilution represents the difference between the price of a share sold
in this offering and the pro forma net tangible book value per share after the
offering. The dilution will be $5.30 per share or 96% of the offering price per
share if the minimum number of 400,000 shares are sold in the offering and $4.86
or 88% of the public offering price if the maximum number of 2,000,000 shares
are sold in the offering.
ISSUANCE OF SUBSTANTIAL AMOUNTS OF ADDITIONAL SHARES UPON THE EXERCISE OF STOCK
OPTIONS WILL DILUTE OUR STOCKHOLDERS.
As of the date of this prospectus, we have an aggregate of 17,016,931
shares of common stock outstanding. In addition, as of the date of this
prospectus, we have 2,000,000 shares of common stock issuable upon the exercise
of stock options granted or available for grant under two existing stock option
plans. All of such shares may be issued without any action or approval by our
stockholders. The issuance of these shares would dilute the percentage ownership
of our common stock held by our stockholders.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO OUR GROWING
DEPENDENCE ON INTERNET AND MARKETING REVENUE.
Our quarterly results of operations have varied in the past resulting
in continuing operating losses and such losses are likely to continue for the
foreseeable future or vary significantly from quarter to quarter in the future
as we increase our emphasis on the Internet as a source of revenue. As a result,
we believe that quarter-to-quarter comparisons of our operating results may not
be meaningful and you should not rely upon them as an indication of our future
performance. Our operating expenses are based on expected future revenues and
are relatively fixed in the short term. If our revenues are lower than expected,
we could be adversely affected. In addition, during some future periods our
operating results likely will fall below the expectations of public market
analysts and investors. In this event, the market price of our common stock
likely would decline.
BECAUSE WE HAVE HAD SUCH A SHORT OPERATING HISTORY, OUR FUTURE PERFORMANCE IS
DIFFICULT TO PREDICT.
Our operating history makes predicting our future performance difficult
and does not necessarily provide investors with a meaningful basis for
evaluating an investment in our common stock. We began operations in April 1999,
as a result, we have no comparable prior periods to evaluate.
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<PAGE>
INTENSE COMPETITIVE PRESSURES IN THE E-COMMERCE MARKET MAY IMPEDE OUR ABILITY TO
ESTABLISH A SUBSTANTIAL MARKET SHARE THAT WOULD ALLOW US TO BE PROFITABLE.
The e-commerce market is new, rapidly evolving and intensely
competitive. Some of our competitors are already aggressively marketing their
e-commerce services and may be gaining a competitive advantage with such
advertising. We expect competition to further intensify in the future. Barriers
to entry are minimal, and competitors may develop and offer products ands
services similar to ours in the future. We expect additional companies will
offer competing e-commerce solutions in the future and challenge our ability to
compete successfully against current or future competitors. Increased
competition is likely to result in price reductions, reduced gross margins and
or loss of market share, any of which could harm our business.
WE LACKED DISINTERESTED INDEPENDENT DIRECTORS TO APPROVE OR RATIFY OUR PAST
MATERIAL TRANSACTIONS, AND AS A RESULT YOU HAVE NO INDEPENDENT ASSURANCE THAT
SUCH TRANSACTIONS ARE FAIR.
Prior to the date of this prospectus, we had no independent directors.
As a result, no independent director has approved or disapproved any of our
related-party transactions, including our employment stock option plan and our
granting of stock options to past investors.
OUR SHARES COULD BECOME A "PENNY STOCK".
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks". Penny stocks generally are
equity securities with a price of less than $5.00, other than securities
registered on national securities exchanges or quoted on Nasdaq, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system. Prior to a transaction in a
penny stock, a broker-dealer is required to:
deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of
risks in the penny stock market;
provide the customer with current bid and offer quotations for
the penny stock;
explain the compensation of the broker-dealer and its
salesperson in the transaction;
provide monthly account statements showing the market value of
each penny stock held in the customer's account; and
make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction.
These requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our shares become subject to the penny stock rules, investors
may find it more difficult to sell their shares.
WE HAVE NO AGREEMENTS WITH ANY UNDERWRITERS OR BROKER DEALERS, AND WE
MAY BE UNABLE TO ATTRACT MARKET MAKERS.
There is currently no public trading market for the shares. The
development of a public trading market depends upon not only the existence of
willing buyers and sellers, but also on market makers. We may have one or more
closings of the offering. The first closing may not occur until we are able to
sell at least 400,000 shares. Each
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<PAGE>
closing represents the time that investors' subscriptions are accepted and those
shares are issued to investors. After that, we could have additional closings
whenever we receive and accept new subscriptions. Following the completion of at
least the first closing under this offering, we hope that a number of
broker-dealer may become market makers for the shares. Under these
circumstances, the market bid and asked prices for the shares may be
significantly influenced by decisions of the market makers to buy or sell the
shares for their own account, which may be critical for the establishment and
maintenance of a liquid public market in the shares.
Market makers are not required to maintain a continuous two-sided
market and are free to withdraw firm quotations at any time. Additionally, in
order to become listed on the Nasdaq SmallCap Market or Nasdaq National Market,
we need to have at least three registered and active market makers. We currently
have no market makers. No assurance can be given that any market making
activities of any market makers will commence.
We plan to file with NASDAQ Small Cap market under the symbol "CPOS".
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<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus includes "forward-looking statements." These statements
involve known and unknown risks, uncertainties and other factors which could
cause actual results, financial performance, operating performance or
achievements expressed or implied by such forward-looking statements not to
occur or be realized. Such forward-looking statements generally are based upon
our best estimates of future results, performance or achievement, based upon
current conditions, and the most recent results of operations. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "continue," or
similar terms, variations of those terms or the negative of those terms.
Potential uncertainties include among other things, the matters described in the
"Risk Factors" and other sections of this prospectus.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, we do not assume
responsibility for the accuracy or completeness of the forward-looking
statements after the date of this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the common stock, after
deducting offering expenses, are expected to be approximately $2,000,000 if the
minimum number of 400,000 shares are sold or $10,600,000 if the maximum number
of 2,000,000 shares are sold. These proceeds are intended to be utilized
substantially in the dollar amounts and percentage of total proceeds set forth
below:
<TABLE>
<CAPTION>
Application of proceeds Minimum Maximum
<S> <C> <C> <C> <C>
New product development $225,000 11.25% $1,000,000 9.43%
Marketing and advertising 500,000 25.00% 2,000,000 18.87%
JV's/Acquisitions 250,000 12.50% 2,300,000 21.70%
Facilities 325,000 16.25% 500,000 4.72%
Personnel 275,000 13.75% 1,400,000 13.21%
Computer equipment 100,000 5.00% 600,000 5.66%
Working capital and general
corporate purposes 325,000 16.25% 2,800,000 26.42%
$2,000,000 100.00% $10,600,000 100.00%
</TABLE>
"New product development" costs includes those associated with
developing and/or acquiring new partners, new distribution, and web properties.
"Marketing and advertising" costs consist primarily of costs associated
with our efforts to increase traffic flow to our web properties. Such efforts
may include any or all of the following:
Internet advertising, including banner advertisement
radio advertising
television advertising
print advertisements
In the event that we sell exactly or close to the maximum number of
shares in this offering, we plan to significantly increase our advertising
expenditures in all of the types of media listed above. If we sell only the
minimum number of shares in this offering, we would expect to increase our
advertising expenditures to a much lesser degree and will continue to
concentrate our advertisements on Internet banner or other types of Internet
advertisements.
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<PAGE>
"Facilities" costs consist of the following:
leasehold improvements
furniture
equipment
the development of additional facilities to house our operations
"Personnel" costs include the costs associated with hiring and
training, and the ongoing salaries and benefits of, personnel necessary to
satisfy our operational and growth needs. In the event that we sell exactly or
close to the maximum number of shares in this offering, we believe that we will
significantly increase our operations. As a result, we would expect that our
personnel needs would increase significantly, including the possible need for
additional executive officers. If we sell the minimum number of shares in this
offering, we will likely increase our operations by a smaller amount and our
personnel needs will grow to a lesser degree.
"Computer equipment" costs consist of additional office computer
equipment and web service-related equipment. In the event we sell exactly or
close to the maximum number of shares in this offering, and we significantly
increase our operations and move our operations into a newly-built facility, we
plan to add or replace computer equipment to meet our growing needs. If we sell
the minimum number of shares is this offering, our needs for additional computer
facilities will diminish.
"Working capital and general corporate purposes" costs include costs
associated with possible acquisitions and the following costs necessary for our
ongoing operations:
rents
utilities
financing account receivables
existing employee salaries
existing employee benefits
professional and consulting fees
The amounts set forth above are estimates. While our intentions with
regard to the use of the proceeds of this offering are described above, we do
not guarantee that the proceeds of this offering will be used as described in
this prospectus. The actual amount expended to finance any category of expenses
may be increased or decreased by our board of directors, in its discretion, if a
reapportionment or redirection of funds is deemed to be in our best interests.
As such, our board of directors and management will have broad discretion,
subject to their fiduciary duties, in the use of the proceeds from the sale of
the shares offered in this offering. We expect that the level and timing of
expenditures necessary for each of the intended uses described above will depend
upon numerous factors, including:
the progress of our product development activities
the timing and amount of revenues resulting from our operation
changes in competitive, technological or other conditions in
our industry
the accuracy of our estimates of the cost of our proposed uses
of the proceeds of this offering
As discussed above, if the minimum amount is raised, our expansion
plans will be limited. In the event that an amount between the minimum and
maximum amounts if raised, we intend to allocate such proceeds approximately
proportionately to the above uses, but may, dependent on circumstances, allocate
the use of such proceeds in a different manner.
The expansion plans set forth in this prospectus represent our current
plans for the development and
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expansion of our business. We reserve the right when and if the opportunity
arises, to acquire other businesses, products and technologies for the purpose
of expanding our business, as described in this prospectus or otherwise.
We are not currently involved in any negotiations for purchasing any
material business or group of assets. We have no specific plans, arrangements,
understandings or commitments with respect to any acquisition at the present
time, and it is uncertain as to when or if any acquisition will be made. We
expect that any business that we would acquire would be in the automotive
sector, either internet or bricks and mortar; however, no assurance can be given
in this regard. In the event we sell exactly or close to the maximum number of
shares in this offering, we will have a significant degree of flexibility
relating to such acquisition or investment opportunities, while if we sell the
minimum amount of shares in this offering, our ability to take advantage of
business opportunities as they become available will be more limited.
The net proceeds from this offering, together with internally generated
funds, based on historical experience, are expected to be adequate to fund our
working capital needs for at least the next twelve months. Pending use of the
proceeds from this offering as set forth above, we may invest all or a portion
of such proceeds in marketable securities, short-term, interest-bearing
securities, U.S. Government securities, money market investments, equity or debt
securities of other companies or businesses or short-term, interest-bearing
deposits in banks.
CAPITALIZATION
The following table sets forth our capitalization at April 30, 2000, as
adjusted, to give effect to the sale of the minimum number of 400,000 shares of
common stock offered and to the sale of the maximum number of 2,000,000 shares
of common stock offered in this offering, at an assumed public offering price of
$5.50 per share, net of estimated offering costs and after the application of
the net proceeds of such sale.
<TABLE>
<CAPTION>
Actual Minimum Maximum
April 30, 2000
Stockholders' equity:
<S> <C> <C> <C>
Common stock, $.01 par value per
share; 25,000,000 shares authorized;
17,016,931 shares issued and outstanding;
(including 68,965.5 common shares subscribed)
17,416,931 shares issued and outstanding,
as adjusted assuming the minimum number
of shares are sold; 19,016,931 shares
issued and outstanding, as adjusted assuming
the maximum number of shares are sold $170,170 $174,170 $190,170
Additional paid-in capital 2,300,749 4,296,749 12,880,749
Receivable from stockholders (315,177) (315,177) (315,177)
Retained earnings (497,024) (497,024) (497,024)
Total stockholders' equity $4,300,000 $6,300,000 $15,300,000
</TABLE>
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<PAGE>
DILUTION
Our net tangible book value at April 30, 2000 is $1,491,212 or $.09 per
share of common stock. Net tangible book value per share represents the amount
of total tangible assets less liabilities, divided by 17,016,931 the historical
number of shares of common stock issued as of April 30, 2000. After giving
effect to the sale of 400,000 shares in the event that the minimum number of
shares offered in this offering are sold or 2,000,000 shares in the event that
the maximum number of shares offered in this offering are sold, the as adjusted
net tangible book value at April 30, 2000 would be $3,491,212 or $.20 per share
in the event that the minimum number of shares offered in this offering are
sold, or $12,091,212, or $.64 per share in the event that the maximum number of
shares offered in this offering are sold.
This represents an immediate increase in net tangible book value of
$.11 per share to the existing stockholders in the event the minimum number of
shares are sold or $.55 per share to the existing stockholders in the event the
maximum number of shares are sold, and an immediate dilution of $5.30 per share
to new investors in the event that the minimum number of shares offered in this
offering are sold or $4.86 per share to new investors in the event that the
maximum number of shares offered in this offering are sold. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- -------
<S> <C> <C>
Assumed public offering price per share of common stock offered
in this offering before deduction of offering expenses........................ $5.50 $5.50
----- -----
Net tangible book value per share before offering.......................... .09 .09
Increase per share attributable to new investors........................... .11 .55
----- -----
As adjusted net tangible book value per share after offering.................. .20 .64
----- -----
Dilution per share to new investors ....................................... $5.30 $4.86
===== =====
Percentage that new investors' shares are diluted............................. 96% 88%
</TABLE>
The following tables summarize the relative investments of investors in
this offering and our current stockholders, assuming a per share offering price
of $5.50, before deduction of offering expenses:
<TABLE>
<CAPTION>
MINIMUM Stockholders Investors Total
<S> <C> <C> <C>
Number of shares of common stock purchased 17,016,931 400,000 17,416,931
Percentage of outstanding common stock after
Offering 97.70% 2.30% 100%
Gross consideration paid $2,156,000 $2,200,000 4,356,000
Percentage of consideration paid 49.49% 50.51% 100%
Average consideration per share of common
Stock $0.13 $5.50 $0.25
MAXIMUM
Number of shares of common stock purchased 17,016,931 2,000,000 19,016,931
Percentage of outstanding common stock after
Offering 89.48% 10.52% 100%
Gross consideration paid $2,156,000 $11,000,000 13,156,000
Percentage of consideration paid 16.39% 83.61% 100%
Average consideration per share of common
Stock $0.13 $5.50 $0.69
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read with the historical financial
statements, and accompanying notes, included elsewhere in this prospectus.
GENERAL
From inception, April 1999 to date, our revenues have been primarily derived
from sales of performance and replacement auto parts, die-cast models and
automotive print material. Sales have been approximately 85% performance parts
and 5% replacement parts, with the balance of 10% coming from the sale of
die-cast automobile models and printed automotive materials. Our Internet sales
represents approximately 80% of sales and walk in traffic at our fixed retail
location in Arlington, Texas represents approximately 20% of sales, to date. We
intend to increase our future revenues by concentrating on increasing our
Internet revenues.
REVENUES
In our first year of operations we generated a little over $2,150,000
in sales. Our initial revenues were derived approximately 65% from retail sales
at our storefront location and the balance of 35% from Internet direct sales.
Sales have grown from approximately $85,000 in May 1999 to approximately
$250,000 in May 2000. The ratio of our walk in retail sales versus Internet and
business sales has also changed. Currently walk in retail sales represents only
about 20% with the balance coming from business to business and direct internet
sales.
We recognize sales when goods are shipped from us to the customer. All
retail sales are prepaid by credit card. On commercial accounts with established
credit terms, the accounts are assigned a pre approved credit limit and may be
covered by a credit card.
WEBSITE DEVELOPMENT AND PRODUCT EXPENSES
Website development and product costs are continuing to increase
substantially, due to our Internet sales program expansion that started with
inception in April 1999. We expect our web development activities to continue to
increase significantly as we increase our emphasis on generating Internet
product sales and marketing revenues. We currently classify all website
development and product expenses with general and administrative expense.
Website development and product expenses in the year ended April 30, 2000 were
approximately $160,000.
SALES AND MARKETING EXPENSES
We have paid selling commissions of $297,397 to outside affiliates, and
will continue to attract more affiliates under similar structures. Our marketing
expenses have been nominal to date and have not exceeded $15,000 year to date.
We recently hired a business to business sales executive to generate new
commercial accounts. We expect our sales and marketing expenses to increase
substantially in the future Commissions that have been paid through April 30,
2000 have been to a related party. These commissions have been paid at a rate of
30% of sales referred by this related party. The Company has a referral program
whereby other companies that refer customers to the Company are paid a
commission based on the total sales to the referred customers. The commission
percentage is based on the total amount of quarterly sales from the referral
source and ranges from 5% to 10% on a sliding scale for quarterly referral sales
up to $16,000. The commission percentages for referral sources with quarterly
sales in excess of 16,000 are negotiated on a case by case basis.
15
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses have remained constant, with the
exception of increased labor cost due to the hiring of a sales order processing
clerk and our business to business salesperson. We anticipate a substantial
increase in general and administrative expenses in the future to support our
Internet sales growth. We believe that legal and professional fees, salaries and
wages, and general office expenses, will increase significantly to provide for
infrastructure necessary to administer a growing public company. In January of
2000, we granted stock options to employees which currently have an exercise
price of $1.45 per share. The board of directors determined that the fair value
of our common stock was $1.45 per share based on our prior pricing for our
private placement. The stock options granted to employees are intended to be
incentive stock options qualified under Section 422 of the Internal Revenue
Code. These options vest over a period of five years from the date of grant and
have an exercise price of no less than the fair value of our common stock at the
time of grant.
We record compensation expense for options granted to employees if the exercise
price is less than the fair value of the underlying common stock. Because
options issued to employees were granted at the estimated fair value, no
compensation relating to these options was charged to operations.
OTHER INCOME AND EXPENSES
We received interest income on our interest bearing cash accounts.
LIQUIDITY AND CAPITAL RESOURCES.
The Company had not achieved profitable operations through April 30,
2000. However, management believes the Company's net working capital of
$1,389,436 at April 30, 2000 will be sufficient to allow adequate time for the
Company to fully implement its business plan. However, as we continue to
increase our emphasis on Internet advertising and marketing revenue and focus on
significantly increasing the flow of traffic to our websites, we may experience
continuing operating losses. As a result, we may not be able to achieve
profitability.
During the period ending April 30, 2000, we generated insufficient cash
flows from operations to support our business. To support operations, management
invested additional capital, we completed a private placement, and had options
exercised which raised approximately $1,403,000. On April 30, 2000 we had a
$295,000 receivable from stock subscriptions, which were paid in May and June.
During fiscal 2000 we used cash flows from operations of ($1,244,000).
Approximately $947,000 of this amount was used to acquire inventory.
At April 30, 2000 we had cash and cash equivalents of $98,000 and
working capital of $1,389,436. We intend to continue to utilize our resources in
2001 for website development, marketing and advertising, to finance the higher
level of sales necessary to support our anticipated increase in revenues, and
for capital expenditures, including the purchase of computer equipment and
website development. However, our working capital requirements may change
depending upon numerous factors, including, without limitation, the need to
expand our website traffic and Internet advertising. We believe that our
existing cash and cash equivalents and cash generated from operations, if any,
should be sufficient to meet our currently anticipated liquidity and capital
expenditure requirements for at least the next 12 months. There can be no
assurance, however, that we will be successful in attaining our revenue goals,
nor that attaining such goals will have the desired effect on our cash
resources. We have no long-term debt; however, we believe that credit facilities
may be available to us.
We may be required to raise additional funds after this offering,
especially if we only sell the minimum number of shares and, as a result, do not
have the proceeds necessary to implement our business plans to the extent we
desire. There can be no assurance that additional financing will be available
when needed or that if available, such financing will include terms favorable to
us or our stockholders. If such financing is not available when required or is
not available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and results of operations.
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<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Our revenues are all denominated in U.S. dollars. Accordingly, we do
not incur transaction gains and losses related to foreign currencies.
INCOME TAXES
During the periods presented, we did not have a liability for federal
and state income taxes since we incurred net operating losses. The minimum
regular federal income tax rate is currently 34%. At present, the state of
Delaware and Texas do not impose income taxes on corporations but do impose a
business franchise tax on corporations.
SEASONALITY
The automotive performance and replacement parts business are not characterized
by significant seasonal swings in demand, but the strongest demand for both
product lines takes a seasonally adjusted upswing occurring in the fourth
quarter of each year. We expect our net sales and operating results to continue
to be affected by these fluctuations. Our revenues may also experience
substantial variations as a result of a number of factors, such as consumer and
business
preferences and introduction of competing products by competitors, as well as
limited time promotional pricing and other offers. There can be no assurance
that we will achieve consistent growth or profitability on a quarterly or annual
basis.
INFLATION
We believe that inflation has generally not had a material impact on
our operations.
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<PAGE>
BUSINESS
OVERVIEW
THE COMPANY
CPOS is a Texas-based corporation that sells high-performance and standard
automobile aftermarket parts via the Internet. The performance parts market is a
$4 billion component of the $32 billion automobile aftermarket parts market.
CPOS currently owns and operates several related Internet sites - including
carpartsonsale.com - which offer over 1 million car parts. The Company also owns
The Racing Zone, a performance car parts retail outlet in Arlington, Texas and
Crown publishing an online automotive community. This "clicks and mortar"
business combination gives both do-it-yourself consumers as well as automotive
parts businesses direct access to high-performance car parts, replica kit cars
and a large selection of originally and aftermarket manufactured replacement
auto parts and accessories. For various financial, contractual, legal, tax, and
other reasons, CPOS conducts various portions of its business through its wholly
owned subsidiaries and website divisions. Although each subsidiary is legally
distinct, their respective operations are described herein on a consolidated
basis. Accordingly, throughout this document, references to "CarPartsOnSale.com,
Inc." and "CPOS" refer jointly to CarPartsOnSale.com, Inc., The Racing Zone,
Inc., Crown Communications, Inc., and/or their respective divisions, as
appropriate.
Today, CPOS operates an e-commerce site which provides service, discounted
prices, fulfillment, and one of the widest possible variety of high-performance
and replacement auto parts and accessories. CPOS' Internet-oriented business
model eliminates several layers from the fragmented multi-tier distribution
system found in today's auto parts aftermarket creating value for:
manufacturers who sell higher volumes;
consumers who receive lower prices, and better service
In addition to the pure e-commerce currently delivered by CPOS, the Company
plans to create, through its network of web sites, content and community
offerings such as product reviews, auction services, chat, and events calendars
for the highly enthusiastic subculture of do-it-yourself and professional
mechanics.
PRODUCTS AND SERVICES
CPOS is a retailer that combines an Internet-based operation
(carpartsonsale.com) with a storefront operation (The Racing Zone) to market and
distribute auto parts used by do-it-yourself and professional mechanics. The
company specializes in high-performance parts used to build or improve hot rod
style cars. CPOS also offers replica classic cars, publications for
do-it-yourself auto enthusiasts, original or aftermarket manufactured
replacement auto parts, and specialized auto accessories (e.g. mats and mirrors,
spoilers, air dams, etc.), and automotive supplies. CPOS has also recently
opened one of the largest auto related cyber swap meets on the web.
MARKETING AND SALES STRATEGY
Management believes the company provides customers with a unique experience by
combining the variety, efficiency and economy available through the Internet,
with real time advice and consultation provided live by auto parts experts via
The Racing Zone. CPOS plans to build the dominant online brand targeting
do-it-yourself
enthusiasts by appealing to the pride they derive from their mechanic skills.
This will be accomplished in several steps:
BUSINESS-TO-BUSINESS PERFORMANCE PARTS AND AUTOMOTIVE SUPPLIES MARKET.
CPOS currently has secured supply relationships with over 100 performance part
manufacturers. These relationships give CPOS access to low wholesale prices
("warehouse distributor" pricing). This low pricing combined with CPOS'
18
<PAGE>
experience and the efficiency of a well-executed e-commerce strategy provide a
competitive advantage to attract this customer segment.
CPOS has started serving independent car part retailers by providing them CPOS
consignment kiosks. These kiosks will feature attractive designs and tie
directly to the CPOS ordering system thereby allowing retailers who currently
don't offer performance parts to enter the category with no setup outlays or
ongoing inventory costs.
CPOS will also target high-performance auto shops who specialize in converting
or repairing hot hods and street rods with a direct sales campaign that may
include subsidizing the shop's acquisition of a computer and Internet service in
exchange for an exclusive supply agreement.
BUSINESS-TO-CONSUMER PERFORMANCE PARTS CATEGORY.
This niche is valuable because high-performance enthusiasts are customers who
are definable and reachable and they tend to know precisely what they want. This
makes the Internet delivery model an attractive service medium to this consumer
segment. Furthermore, because performance enthusiasts are ego-driven racers and
cruisers whose goal is making a personal statement, they tend to spend more than
average do-it-yourself mechanics whose goal is to save money by avoiding repair
shops.
B-TO-C AND C-TO-C REBUILT AND USED PARTS CATEGORY.
Via its online swap meet, CPOS will bring together numerous businesses and
amateur mechanics who will buy, sell and exchange auto parts. These customers
will either lease a booth, or pay a transaction fee, for the right to list their
products on our site. The new parts section and the swap meet are the same site.
This will allow customers the ability to jump from one section to the other with
a click of the mouse. In this way we give customers more choices while
maintaining their presence on our site.
TARGET REPLACEMENT PARTS.
After establishing its position in the $4 billion performance parts market as a
reliable, rapid, low-cost e-commerce site, CPOS will focus more energy into the
$25 billion replacement parts market. This will be a lower margin, volume-driven
strategy enabled by CPOS' relationship with one a large independent auto parts
distributor who will fulfill CPOS' orders by shipping directly from their
warehouse network to a buyer's home or shop.
ADVERTISING REVENUE.
Businesses have recognized the online commerce opportunity and are increasingly
using the Internet to sell and distribute products and services. As online
commerce and the number of people using the Internet grow, advertisers and
direct marketers are increasingly using the Internet to locate customers,
advertise products or services and facilitate transactions. The eAdvertising
Report estimates that approximately $1.5 billion was spent by U.S. companies on
Internet advertising worldwide in 1998, and this amount is expected to grow to
approximately $2.6 billion by the end of 1999 and to approximately $8.9 billion
in 2002. According to the eAdvertising Report, Internet advertising spending
accounted for approximately 1.2% of the total advertising spending in 1999 and
this amount is predicted to grow to 3.4% in 2002.
While establishing ourselves as one of the premier online automotive site, we
will enact efforts to attract advertising dollars from the premier automotive
and speciality industries.
These strategies will be supported by aggressive use of targeted radio and
television advertising, keyword driven online marketing, direct promotions at
auto shows and races, celebrity endorsements, and affiliate marketing programs.
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<PAGE>
INDUSTRY OVERVIEW
The aftermarket for auto parts in the U.S. is $158 billion, of which, sales to
do-it-yourself enthusiasts comprise $32 billion. The high-performance parts
market is approximately $4 billion and the retail channel has traditionally been
dominated by fragmented, independent parts shops and a few large catalog
operations.
The aftermarket parts industry currently relies on a two-step, or even
three-step-distribution system whereby parts flow from manufacturers to
"warehouse distributors," to "jobbers," to retailers before finally reaching
consumers. CPOS, through its existing relationships with parts suppliers, can
both obtain parts at the lowest prices available and streamline this convoluted
distribution system. It can achieve these objectives using its status as a
"warehouse distributor" with major parts manufacturers to offer wholesale prices
direct to consumers.
Management Team
CPOS' management team combines three ingredients critical to its success:
1. deep domain expertise in auto parts retailing
2. solid comprehension of marketing and operating an Internet-based
business
3. a passion for hot rods and do-it-yourself kit cars that provides a
unique understanding of customer needs.
Biographies on the management team are set forth below in the section entitled
Management.
OPERATIONS
CPOS consists of three retail operations; CarPartsOnSale.com, Crown Publishing
and The Racing Zone. CarPartsOnSale.com was founded in April 1999, and the
website became active in June 1999. CarPartsOnSale.com's user-friendly website
allows customers to search for specialty and replacement parts by general part
category, specific manufacturer, price.
The products offered on the site represent over 1 million items, which in
management's opinion represents some of the most widely sought after car parts
manufactured. The Racing Zone is a retail car parts operation located in
Arlington, Texas with over the counter service and telephone ordering. The
Racing Zone's staff provide live telephone assistance to Carpartsonsale.com
customers with special questions or in need of help with the website. The
ordering system triggers fulfillment either directly from the manufacturer to
the consumer or from The Racing Zone warehouse. To round out the venture Crown
Publishing owns some of the most heavily visited sites for the automotive
enthusiast. They offer a wide range of auto-related products: guides,
editorials, advertising, parts and memorabilia.
INDUSTRY BACKGROUND
INTERNET INDUSTRY
GROWTH OF THE INTERNET AND ONLINE COMMERCE
Over the past several years, the Internet has emerged as a powerful and
efficient new medium, enabling people worldwide to exchange information,
communicate and conduct business electronically. The number of people
using the Internet continues to expand rapidly.
In only five years the Internet has driven a new and powerful economic model for
both consumer and business to business activity. The Internet is fundamentally
changing where people and businesses buy products, and it is also changing how,
what and when they buy. International Data Corp. estimates that the number of
Internet users worldwide will increase from 142 million in 1998 to over 500
million in 2003.
20
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Forrester Research, Inc. predicts that the overall business to business
e-commerce market will increase from $43 billion in 1998 to $1.3 trillion in
2003, and estimates that business to business sites will provide substantial
savings to participants through quicker ordering, faster delivery, fewer errors,
better information and more opportunities to find desired products and services.
The true promise of e-commerce is the rapidly-developing business opportunities
that will available for those who recognize the Internet's significance.
Carpartsonsale.com intends to be at the forefront of this opportunity by
providing amateur mechanics and professional mechanics unprecedented selection,
service and convenience all at the lowest possible prices to the consumers and
small shop owners.
It is already clear that online shopping for a wide variety of products is
extremely popular with consumers and small businesses. Everything from groceries
and books to specialty chemicals and furniture is being sold online every day.
The Internet has brought certain fundamental changes for consumers and
businesses in each industry it has penetrated. These changes include:
FOR CONSUMERS AND SMALL BUSINESSES FOR SUPPLIERS AND DISTRIBUTORS
---------------------------------- ------------------------------------
Lower prices to end users Increased competition
Wider selection Compressed margins
Faster delivery Lower inventories
Added convenience Reduced working capital requirements
Increased level of service Fulfillment challenges
The Company believes it can take advantage of these dynamic changes to the
economy's structure to reduce distribution system costs for the car parts
industry and pass much of that savings along to do-it-yourself and professional
mechanics. This will create a cycle whereby more users will see the benefits of
buying car parts through the CPOS system, which will increase CPOS' buying power
with suppliers, thereby effecting even greater discounts to be passed through
the value chain to an ever-growing user base.
PERFORMANCE AND REPLACEMENT AUTO PARTS INDUSTRY HIGHLIGHTS
INDUSTRY SIZE
Sales of automotive aftermarket products and services in 1998 totaled $159
billion. The industry encompasses service and repair; do-it-yourself parts and
accessories; tires and tubes; gasoline and other fuels; and lubricants. After
several years of slowing growth, sales of do-it-yourself parts and accessories
(including motor oil and chemicals) grew slightly faster than the overall
industry to comprise $32 billion in 1998. Table 1 segments the total automotive
aftermarket in 1998.
Table 1. Automotive Aftermarket Segments 1998
SEGMENT 1998 REVENUES ($ BILLIONS) % OF TOTAL REVS.
------------------------ -------------------------- ----------------
Service and Repair $108 68%
do-it-yourself Parts and
Accessories $27 17%
do-it-yourself Oil and
Chemicals $5 3%
Tires $19 12%
TOTAL $158 100%
INDUSTRY STRUCTURE (AND CPOS'S IMPACT)
21
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The supply base for car parts is fragmented across several hundred
manufacturers.
Currently, manufacturers rely on a multi-tier distribution system to move their
products to market. This means suppliers sell products to Warehouse Distributors
who mark up and resell to jobbers who do one of the following things: (1) markup
and resell products to retailers, or (2) markup and sell products to the public
through their own system of jobber-owned retail sites such as CARQUEST or NAPA.
Table 2 portrays the current industry structure by laying out its value chain
and the major players at each step.
Table 2. Industry Value Chain and Players
STEP IN VALUE CHAIN MAJOR PLAYERS
----------------------- ----------------------------
Manufacturers AC/Delco
Edelbrock
Holley
Warehouse Distributors General Parts
Genuine Parts
O'Reilly Auto Parts
Fisher APW
Auto Parts Wholesale
Parts Depot Company
Jobber Retailers General Parts (via CARQUEST)
Genuine Parts (via
NAPA)O'Reilly Auto Parts
(via AutoValue) Fisher
AP (via Federated)
Retail Chains AutoZone
Advance Auto Parts
Summit Racing
Pep Boys/Parts USA
Performance parts are distributed in a similar fashion. In each step of the
distribution process products are marked up as handling costs, inventory costs,
and profit making are factored into each layer. This unnecessarily increases
prices to end consumers.
CPOS will attempt to change the industry structure by offering wholesale prices
direct to do-it-yourself and professional customers. Currently CPOS believes it
is the only major Internet company, which has achieved this enormous and unique
advantage. The result will be the widest possible product offering at the lowest
possible price relationship. The current industry distribution structure and
CPOS' potential impact is best characterized by thefollowing example:
Table 5. Example of how a Replacement part moves through the distribution chain.
Performance parts follow the same process, but margins are higher at each step.
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STEP IN DISTRIBUTION CHAIN TRADITIONAL PROCESS CPOS PROCESS
-------------------------- ------------------- --------------------
CPOS pays $100
Jobber Pays $106 $120
Retailer pays $106 $120
Garage pays $122 $132-144
Consumer pays $122 + shipping $145-160 + sales tax
(no sales tax) (no shipping)
CPOS customer gets a net savings of 19% to 31%.
TARGET MARKET
As estimated by the Automotive Parts and Accessories Association, 1998
Aftermarket Factbook 15% of the U.S. population maintains and repairs their own
vehicles. Of this group, 24 million consumers are regarded as medium-to-heavy
"do-it-yourselfers" who take on home projects from installing a new
muffler/exhaust system to executing a complete a valve job. They are 85% male
and their average age is 40-45 years. They have an average income of $40,000 -
$50,000, and live predominantly in the Southern U.S. In fact, the automotive
aftermarket is the third largest category for household spending, commanding
over $1,700 of the retail dollars spent in the average American household in
1997. The Company will target this specific market demographic on a national
basis via the Internet and will focus its promotional efforts and retail
expansion in Texas and the Southeastern U.S.
In the future, CarPartsOnSale.com will target a new, developing demographic of
younger do-it-yourself auto enthusiasts and younger professional mechanics who
are computer literate and who understand the advantages of the Internet. For
Internet-savvy auto enthusiasts car parts will be a natural extension combining
their auto hobby with Internet shopping. Perhaps more importantly, as Internet
awareness grows in independent garages and parts stores, young employees with
Internet exposure will help guide those organizations toward online buying.
We intend to use a portion of the proceeds of this offering to
establish an aggressive advertising and marketing program, which we expect to
result in an increase in our Internet market share.
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BUSINESS DESCRIPTION
CPOS offers a unique blend of online efficiency (creating product breadth and
low prices) with hands-on customer service and rapid fulfillment to provide a
satisfying buying experience to a very specific and highly identifiable customer
segment. Management's research finds that this "clicks and mortar" concept
creates a powerful advantage over competitors for two reasons:
First, auto parts consumers are highly value-conscious. They demand high
quality, wide variety and low prices. These are characteristics that
existing retailers, catalogers or online sites struggle to provide given
their physical space limitations, inventory carrying costs, or lack of
relationships with manufacturers. Through its virtual superstore, its
relationships with performance parts manufacturers, and its relationship
with the independent replacement part distributor, Star Automotive Parts,
the Company can offer one of the widest selection of parts at of the lowest
competitive prices.
Second, our capable staff of auto mechanics, hobbyists and enthusiasts
shares the interests and concerns of individual do-it-yourselfers and small
garage operators. This connection will create a brand loyalty that brings
return customers and reduced costs as clients learn CPOS' money saving
efficiency
Strategic Focus
CPOS has a simple mission: provide outstanding customer service, discounted
prices, offer the widest possible variety of high-performance and replacement
auto parts and accessories, and fill orders quickly. The Company intends to
establish itself in the minds of consumers and performance parts shop owners as
the best place to buy high-performance, specialty auto parts.
Management believes that the fragmented supplier base and multi-tier
distribution channels can be effectively concentrated in an online "virtual
superstore" format.
To meet this market opportunity, the Company today offers 1 million parts for
sale over the Internet. The Company has also already set up three fulfillment
warehouses, 2 in Texas and 1 in California, hired 16 employees, and is tying
together a network of over 20 web sites all focused on various special interests
of do-it-yourself performance enthusiasts.
Management believes the following ingredients are key to success in this market:
A clear strategy which: first, focuses on dominating the online retailing
of performance car parts and brings more performance part consumers to the
online channel; second, extends the CPOS' value proposition to independent
parts retailers and professional mechanics; and third, makes CPOS the
preferred supply channel for consumers and business for
originally-manufactured replacement parts.
Experienced management dedicated to rapid execution of the business model
and committed to adopting that model based upon CPOS's experience in the
marketplace;
Disciplined implementation of financial controls and reporting with minimal
overhead;
Aggressive inventory and accounts receivable management that drives high
turnover and provides healthy cash management;
Strong relationships with suppliers and partners that enables CPOS to offer
the widest variety of products at discounted prices;
Development of the CPOS brand in a way that engenders loyalty and respects
the self-sufficiency and talent of
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automotive hobbyists; A clear focus on the target market: higher-margin
products sold to high-performance automotive hobbyists at the lowest
possible price.
The Car Parts on Sale Advantage
The CPOS concept is a new method of attracting do-it-yourself and professional
mechanics to purchase their performance parts, replacement parts, and
accessories through the Company's online virtual parts warehouse superstore.
THE CPOS GUARANTEE:
"YOU WILL RAPIDLY RECEIVE THE HIGHEST QUALITY PRODUCT
AT THE LOWEST PRICE AVAILABLE OR YOUR MONEY BACK."
Operations
CPOS currently operates over 20 web sites, three warehouses, a publishing
company, and a retail performance auto parts store. The Company employs 16
people full-time. CPOS offers over 1 million parts for sale through its website.
FULFILLMENT DIRECT FROM MANUFACTURER. CPOS fills about 30% of customer orders
from its warehouse inventory. The bulk of orders are received by CPOS,
transmitted to original manufacturers and shipped directly to the consumer or
shop directly from the manufacturer. For those manufacturers not currently
shipping CPOS orders direct to customers, CPOS plans to established a temporary
network of part-time representatives paid on a piece-part basis who live nearby
the manufacturer's production facility. CPOS forwards orders to the local
representative who physically goes to the manufacturer and purchases the product
over-the-counter from the manufacturer at near wholesale price. The CPOS
representative then makes direct shipping arrangements. Ultimately, CPOS will
try to establish direct-ship capabilities with every major performance part
manufacturer.
INTERNET, PHONE OR FAX ORDERING. The Company is geared to receive orders through
most mediums. The advantage is: (1) immediate inventory visibility for clients
who will have a Guaranteed Delivery Date on each order, and (2) clients who are
able to simultaneously view online catalog and ordering process while speaking
on the telephone live to a Racing Zone sales associate. This enables clients to
access the expertise of a live sales person for personalized advice on selecting
a part or to navigate the Internet-based ordering system. As each client learns
to use the website they will conduct future purchases in a fully-automated
process enhancing his convenience and reducing CPOS costs.
CUSTOMER DATABASE. Each CPOS customer will become an integral part of an
extensive database that develops individual profiles of consumers and small
businesses for use in highly-targeted marketing efforts. Manufacturers will seek
access to this data for their product development and marketing purposes.
Alliances
"Warehouse Distributor" Designation with Over Top 100 Performance Parts
Manufacturers. A key to CPOS' success is access to wholesale prices. (See
Industry Overview for a complete description of the auto parts aftermarket
industry structure.) CPOS has access to Warehouse Distributor prices from most
major performance product manufacturers such as Holley Performance Products and
Edelbrock. CPOS, through The Racing Zone, has access to all Ford Motorsports
parts at Warehouse Distributor pricing. These Warehouse Distributor designations
allow CPOS to offer parts to the public at a deep discount to retail; even lower
than so-called "discount" retailers. Such Warehouse Distributor status would be
difficult or impossible for other Internet retailers to implement from a
standing start.
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STAR AUTOMOTIVE FOR REPLACEMENT PARTS. Currently, only about twelve percent of
CPOS sales come from replacement parts such as Walker Exhaust and Borg Warner.
These parts are largely commodities; as such there is negligible differentiation
between suppliers, and low gross margins (12%-18%). CPOS has reached an
agreement with one of the nation's largest independent supplier of replacement
parts--Star--whereby Star will take orders from CPOS and ship products directly
to the do-it-yourselfer or professional mechanic. CPOS is currently working to
tie together Star and carpartsonsale.com database systems to allow real-time
inventory visibility and fully automatic order fulfillment.
CONTENT AND COMMUNITY
CarPartsOnSale.com will feature functionalities important to do-it-yourselfers
and professional mechanics that will build the CPOS brand, drive new traffic to
the site, and engender stickiness to the site for users.
PRODUCT REVIEWS. CPOS is attempting to become the "C-net of performance auto
parts" through Crown Publishing, in conjunction with other invited editorial
guests, who will offer valuable content--reviewing new designs and investigating
consumer experiences with particular products. CPOS will also solicit and post
consumer comments on particular products and where appropriate link such
commentary to the ordering catalog so that buyers and potential buyers will be
better informed. For providing such feedback, consumers will be rewarded with
discount coupons for CPOS products.
BULLETIN BOARD/CHAT. Carpartsonsale.com's website will become a gathering place
for enthusiasts to meet other people who share their intense passion for
high-performance cars. Ford, Chevrolet, and Mopar customers will be able to meet
in subgroups to discuss experiences or events. Manufacturer representatives will
be featured in scheduled chat sessions to discuss new products directly with end
users and to encourage and collect consumer feedback.
AUCTION. CPOS is also targeting auction sales as a lucrative extension.
Currently the Company offers a limited number of accessories (primarily car
covers and bug shields) for sale on Ubid.com. In the future these offerings will
be expanded and CPOS will offer its own auction functionality where any consumer
or shop can sell or barter their surplus wares.
Current Programs
BUSINESS TO BUSINESS
The company currently has a strong presence in the Dallas-Ft. Worth-Arlington
area from local marketing efforts, local media coverage, and the presence of the
Racing Zone retail outlet. Expansion plans to consumers are planned in several
programs.
The Company sees the business-to-business marketplace as a tremendous
opportunity to build repeat customers and lower transaction costs for
independent parts retailers as well as garages. As such, CPOS is already
expanding aggressively into the business to business space and is focused
on building relationships with garages and professional mechanics who
specialize in installing high-performance parts and servicing hot-rod style
cars.
The Company may seek to acquire a company that currently serves small
high-performance garages as part of this program
BUSINESS TO PERFORMANCE CONSUMER
CPOS intends to dominate performance parts Internet retailing by fully
exploiting the cross-marketing opportunities
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from the various CPOS online and offline properties. This will be accomplished
by focused marketing and promotional programs such as the current Cobra Kit car
giveaway contest for carpartsonsale.com customers. The CPOS conglomerate's
properties include:
Several websites related to the performance auto enthusiast.
Crown Publishing, including: kitcar.com, cobracountry.com,
mustangcountry.com streetrodcountry.com, et al.
The Racing Zone, the Company's retail storefront in Arlington, Texas.
This program may also include purchasing or merging with other regional auto
parts retailers with substantial Internet sales.
From a technological and marketing perspective the Business to Consumer strategy
will be enhanced by CPOS' unique "Harry the Haggler(R)" feature. Harry is an
animated character who greets each shopper as he or she heads for checkout or
browse the site. He provides some comic relief with his gruff appearance and
typical parts-man parlance, but more importantly he challenges customers to
barter with him in exchange for immediate price breaks and coupons for savings
on future purchases. In the process, Harry helps obtain useful consumer data
that CPOS will mine and use later for targeted marketing efforts.
BUSINESS TO GENERAL PARTS CONSUMER
This effort should start in late 2000. During this phase the Company will center
on switching more do-it-yourself consumers to purchasing general replacement
parts over the Internet, and refining the CPOS marketing and fulfillment models
to provide the lowest cost distribution system for replacement parts. This will
be accomplished by expanding current relationships and database linkages with
Star Automotive and other independent wholesale distributors and manufacturers
to increase the number of parts available and the level of personalized service
provided by CPOS.
ADVERTISING REVENUE
CPOS has not allocated resources toward generating income from potential
advertisers. A campaign has been formulated with prospective clients targeted.
The recently hired VP of marketing and sales will oversee this effort. We expect
to see advertising revenue by the end of the third quarter of 2000.
Brand Marketing, Sales and Advertising
The Company recognizes that its main value proposition is not defended by a
proprietary technology or patent, and that a major key to establishing its
success as the leading "virtual auto parts superstore" is dependent on
establishing a credible and memorable brand. This effort will be driven by the
Company's ability to create value for the customer through:
Supplier relationships that enable significant discounts below other
channels and other online offerings.
Web infrastructure that improves each customer's satisfaction and the
overall buying experience.
Fulfillment logistics that move products quickly and accurately to each end
user.
The brand that these strategies build.
CPOS will utilize these assets to build a brand that stands for value, service,
expertise, and convenience that will drive do-it-yourself and professional
mechanics to the Company's sites. Continued success in the early stages will
create a veritable cycle whereby satisfied consumers spread word of mouth
recommendations to other auto enthusiasts. As the CPOS community grows unto
itself product reviews become broader, chatroom activity more broad scale,
event-presence more visible and transaction-intensity grows, thus improving the
Company's leverage with suppliers.
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The Company is already positioning itself in key search engines and in key
high-traffic areas frequented by auto enthusiasts. It also aggressively promotes
itself through onsite promotions at places and events where auto enthusiasts
gather. The following is a brief outline of how CPOS is gearing up to achieve
dominant brand status:
Brand Marketing Strategy
The brand marketing strategy will first target the performance car enthusiast;
this is an easily identifiable and self-selecting consumer subset. The
performance enthusiast is easy to reach through target publications such as HOT
ROD
MAGAZINE and CAR AND DRIVER. He often attends events such as carhops and races
where promotional efforts can have a strong impact. They are also the
least-price-sensitive of car parts consumers because he is a hobbyist and places
great emotional value in the appearance and performance of their car(s). The
goal of the initial launch as well as the ongoing marketing efforts will be to:
Position CARPARTSONSALE.COM in the minds of each potential, first-time and
repeat customer as having the market's widest selection, lowest prices, and
most outstanding service.
Execute as many sales transactions as possible to develop a loyal customer
base and build a reputation for fast, courteous, accurate fulfillment.
Brand Advertising Strategy
The Company believes that traditional and some untraditional marketing and
advertising methods should be used to drive the success of the
Carpartsonsale.com brand. Until more auto enthusiasts shop online, (management
research points out that over 99% of all parts and kit car transactions are
currently conducted offline) CPOS will expend the its marketing resources on
traditional and untraditional marketing, advertising and public relations in
order to effectively reach and stimulate each target customer.
Therefore, in efforts to obtain the most extensive exposure in the marketplaces,
the Company has allocated $2 million in fiscal 2001 for advertising and
promotion. For the fiscal years 2002-03 the Company may commit up to 35% of
sales to the critical area of marketing and brand building. Such a significant
investment should secure CPOS as one of the leading online provider of
performance and replacement parts to do-it-yourselfers and professionals.
Starting in 2003 CPOS will commence harvesting this initial investment, but will
continue to allocate 3%-4% of total sales in advertising and brand-building
efforts.
MEDIA PURCHASES. The Company's internal marketing and advertising staff will
coordinate production of carpartsonsale.com advertising programs. The company
will use outside production services on a competitive bid basis for specified
projects requiring talent or services not available within CPOS. The Company
considers efficient and effective media placement for the carpartsonsale.com
virtual performance parts superstore to be a critical aspect for its success.
CPOS will spend the majority of marketing resources in this category, so a clear
strategy and effective implementation to achieve maximum weight is paramount.
CPOS' overall advertising objective is to achieve maximum results for the
dollars spent, and management anticipates that medium will be differentially
effective between various markets. The Company expects to leverage its
advertising budgets with strategic marketing programs, supplier support and
co-op advertising campaigns and promotional programs. Following is a summary of
the activities anticipated by management:
BANNER ADVERTISING. The Company has already developed some banner ads and they
will soon initiate highly-targeted banner campaigns on sites that cater
specifically to auto enthusiasts. The banners are interactive and will transport
a visitor directly to the carpartsonsale.com site. Placements and creative
strategies of these banners will be regularly monitored and evaluated for their
effectiveness and sales generation results and only the profitable-return
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websites will be employed on an ongoing basis. Payment will be based on
appropriate click-through rates and commissions.
DATA MINING. An e-mail database will be compiled and used to send out special
promotional information, coupons, and product information. These emails will be
highly targeted according to past purchases, individual preferences, seasons,
etc. Additionally, Carpartsonsale.com sales representatives will be able to
constantly enhance data collection creating an accurate and robust database of
loyal customers.
DIRECT MAIL. Given the zealous nature of the performance car enthusiast,
management believes that direct mail will be a cost-effective way to reach this
easily-identifiable group. Direct mail also offers great potential to build
brand
loyalty with customers and attract prospective customers to the website through
coupons, promotions and descriptive literature.
PUBLIC RELATIONS & PUBLICITY. Two teams will operate the Carpartsonsale.com
ROLLING GARAGE to maximize presence at carhops, racing events, trade shows,
motorcycle runs and other events where do-it-yourself auto enthusiasts gather.
Representatives will distribute literature, run giveaways, and advocate the
brand with real-time online demonstrations. CARPARTSONSALE.COM PR
representatives will also work with opinion leaders, trade magazines, and
industry publications to actively place articles describing our product.
COUPONS, CONTESTS AND GIVEAWAYS. Registered users of the Carpartsonsale.com site
will periodically be eligible for a free kit car, Cobra replica or street rod
reproduction. First time visitors will be offered discount coupons.
CYBER SWAP MEET. The Company has establish an "everything automotive" cyber swap
meet. It is accessible from the Car Parts On Sale home page and structured like
real life swap meets and "flea markets" that take place every weekend throughout
the U.S., however, the site will enable buyers to quickly search for certain
products or browse in a more traditional fashion. To build traffic in the early
stages, sellers will be able to participate in the swap meet free of charge.
Later, after a critical mass is reached, CPOS will charge sellers to rent their
virtual stalls or take a transaction fee based on sales volume executed.
ONLINE COMMUNITIES. Management believes the Carpartsonsale.com site will attract
a thriving community of auto enthusiasts who rely extensively on word-of-mouth
recommendations in their purchasing habits. Additionally, receiving and
directing these visitors, management intends to proactively seek out other
opinion setting websites and, through whatever public forums are available,
educate their users about Carpartsonsale.com.
SALES AND MARKETING
To date we have relied on low pricing, rapid fulfillment and customer service to
provide most of our customer generation. We have attended trade and car shows,
race venues and some direct mail programs to help facilitate name recognition.
We have developed and sales and marketing plan which we will begin to implement
in the third quarter of 2000. This plan includes print, radio and television as
the main source for marketing our brand.
COMPETITION
The ONLINE auto parts market is new, rapidly-evolving, and highly-competitive.
Management expects the competitive environment to intensify in the future.
Barriers to entry are not substantial and current and new competitors could
launch new websites at a relatively low cost. However, much of the traditional
car parts industry is also highly competitive and fragmented, placing a premium
on establishing relationships with a manufacturers and developing a technology
that is well tailored to the parts industry's particular dynamics.
Many of our competitors, especially the offline competitors described below,
have longer operating histories, larger customer bases, greater brand
recognition, and significantly greater financial and marketing resources than
carpartsonsale.com. CPOS considers as its competition companies that offer for
sale: high-performance specialty parts and publications,
aftermarket-manufactured parts and accessories, and kit cars. The company does
not consider companies that sell salvaged auto parts (from wrecking yards) or
parts for antique/classic replica cars to be competitors.
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The competition can be broken into two groups: online (Internet websites) and
offline (traditional retailers or catalogs).
1. ONLINE COMPETITION
CPOS enjoys two significant advantages over current competitors who are
attempting to retail car parts over the
Internet. First, CPOS has access to warehouse distributor pricing when buying
its parts from the 100 of the top performance parts manufacturers. This
arrangement enables CPOS to offer the same part at a 19%-31% discount from
retail prices. Eventually, other car parts e-retailers may be able to garner
sufficient volumes to obtain similar preferred pricing.
Second, CPOS' management team has over 60 years of experience in the car parts
business. Certain members of management have relationships with suppliers that
go back over 9 years and constitute an established reputation in the car parts
industry. Current many of the online competitors are comprised of technologists
who know how to run an Internet company, but who have little significant
experience in the auto parts sphere.
2. OFFLINE COMPETITION
Ninety-nine percent of all performance auto parts are purchased offline through
retailers, jobbers, or catalogs. CPOS' primary challenge is to convince buyers
to change traditional behavior and shop online, however, a significant threat is
posed by the potential of existing players to enter the online retail space.
MAIL ORDER CATALOGS. The most foreboding of possible competitors are the catalog
companies who already have longstanding "warehouse distributor" relationships
with the major performance part manufacturers. The catalogs also have a
well-established brand with consumers and a reputation for delivering discounted
parts direct to do-it-yourself and professional mechanics. These competitors may
also expand their market to compete in the online market.
SOME OF OUR COMPETITORS ARE LISTED BELOW
Autozone
Pep Boys
O'Reileys
Carparts.com
Wrenchead.com
Jeggs
Summit
LITIGATION
Currently we have no outstanding legal proceedings or are we aware of
any potential proceedings. We may be subjected to claims for product and general
liability. These types of claims have been brought, sometimes successfully,
against business such as ours in the past. Any litigation arising from these
claims would likely result in substantial costs and diversion of resources and
management attention, and an unsuccessful defense to one or more such claims
could result in material damages. We have no insurance coverage for these types
of claims.
GOVERNMENT REGULATION
Laws and regulations that apply to Internet communications, commerce
and advertising are becoming more prevalent. The adoption of such laws could
create uncertainty in Internet usage and reduce the demand for all products and
services offered on the Internet. Recently, Congress enacted legislation
regarding children's privacy on the Internet. It is possible that additional
laws and regulations may be proposed or adopted with respect to the Internet,
covering issues such as user privacy, taxation, advertising, intellectual
property rights and information security. Several states have proposed
legislation to limit the use of personal user information gathered online or to
require online services to establish privacy policies. We believe that we are
fully compliant with all existing state and federal privacy laws.
The Federal Trade Commission recently reported that it has no present
intention of proposing legislation to address online privacy in the near future,
and that it believes self-regulation to be the best course of action, except for
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rules enacted to implement the Children's Online Privacy Protection Act, which
governs the collection of personal information from children and the
confidentiality of such information. However, the FTC has initiated action
against at least one online service regarding the manner in which personal
information was collected from users and provided to third parties. We believe
that we are fully compliant will all FTC privacy laws.
We have registered a number of domain names, including
CarPartsOnSale.com, performancepartsonsale.com, cobracountry.com, kitcar.com,
theracingzone.com. Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is evolving. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. The relationship between regulations governing domain
names and laws protecting trademarks and similar intellectual property rights is
unclear. Therefore, we could be unable to prevent third parties from acquiring
domain names that infringe on or otherwise decrease the value of our trademarks
and other proprietary rights. Additionally, there may be online companies in
other countries using domain names that potentially infringe on our trademarks.
We may be unable to prevent them from using these domain names, and this use may
decrease the value of our trademarks and our brand names.
We may be required to obtain licenses from others to refine, develop,
market and deliver new services. We may be unable to obtain any such license on
commercially reasonable terms, if at all, or guarantee that rights granted by
any licenses will be valid and enforceable.
We have not historically emphasized our brand names. However upon
successful completion of this offering we plan to attempt to significantly
strengthen our brand names. As competitive pressures in the online direct
marketing industry increase, brand name strength may become increasingly
important. If we do not strengthen our brand names, we may be unable to maintain
or increase traffic to our websites, which we expect would lead to decreased
revenues from our Internet advertising and marketing clients. We may in the
future devote substantial resources to promote "CarPartsOnSale" or other brand
names, although we do not currently intend to do so. The reputation of our brand
name will depend on our ability to provide a high-quality online experience for
consumers visiting our websites while ordering product. Negative experiences of
consumers or Internet advertisers and marketers with our websites or products
might result in publicity that could damage our reputation and diminish the
strength of our brand names.
EMPLOYEES
As of April, 2000, we had a total of 16 employees, two of which work
for us part time. None of our employees is represented by unions, and we
consider relations with our employees to be good.
FACILITIES
We currently occupy approximately 5,500 square feet in a leased facility in
Arlington, Texas with a monthly payment of $3,500. We also lease a portion of a
23,000 square feet warehouse in Ft. Worth, Texas, with a monthly rental cost of
approximately $500 per month and a small distribution center in Santa Clarita,
California. The lease for the Arlington facility expires in January 2009.
We plan to expand our facilities further in 2001 to accommodate our
anticipated growth. We would expect to lease up to 30,000 square feet of space
in the Dallas/Ft. Worth area that could house our operations for the next
several years.
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MANAGEMENT
CPOS management and development teams are comprised of entrepreneurial
professionals with deep experience in auto parts retailing and operating
Internet-based businesses with genuine passion for high-performance automobiles.
After merging together several related ventures they are now ready to expand the
vision of Carpartsonsale.com and
challenge the inefficient traditional industry structure by going direct to
do-it-yourself and professional consumers.
Development of the business plan requires expertise in many different areas that
could not be supported full-time by CPOS operations. Thus the Company will
subcontract with many specialized service providers and talented individuals in
the beginning stages to maximize results while reducing startup costs and
overhead.
Development team members not listed in the Management Team include experts in
Internet brand building and ad serving, marketing, advertising and field
promotional campaigns, e-commerce technology and systems, website design, and
public relations, legal and accounting services.
Management and Executive Officers of the Company
1.
MANAGEMENT
----------
NAME AGE POSITION
Scott Hudson 37 President
Stephen Newmark 42 Vice-President
Mike Davis 42 Operations Manager
Curt Scott 54 Director of Media Content
Don Barnes 52 VP of Marketing
Troy Hudson 39 Business to Business Sales Manager
Barry Yankelevitz, CPA 56 Director of Accounting
Paul Easter 27 Director of Technology
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current executive officers and directors:
NAME AGE POSITION
----------------- --- --------
Scott E. Hudson 37 president, chief executive officer
Stephen Newmark 42 vice president
Mike Davis 42 secretary
Barry Yankelivitz 56 treasurer
Curt Scott 54 board member
Mike Roberts 48 director nominee
Scott Condron 37 director nominee
Ross Reason 39 director nominee
Set forth below is a brief description of the background of our
officers and directors based on information provided by them to us.
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Scott Hudson co-founded, and has served as Vice-President from April 1999 thru
September when he became President and CEO of CarPartsOnSale.com. From February
1998 until September 1999 he served as Deputy Managing Director of Republic
National Bank of New York, where he oversaw their investment banking equity
division. From July 1995 until June 1997 he served as Managing Director of
Wheelock NatWest, an Asian
investment bank headquartered in Hong Kong, where he oversaw their equity
division. In 1991 he and Mr Newmark co-founded Lone Star Classics a specialty
automotive business. Mr. Hudson holds a BA in Finance from the University of
Texas (Arlington).
Stephen Newmark co-founded, and has served as President from April 1999 thru
September when he became Vice-President of CarPartsOnSale.com. From July 1995
until September 1999 he served as Vice-President/owner of Lone Star Classics, a
specialty automotive business, where he ran the companies daily operations. In
1991 he and Mr Hudson co-founded Lone Star Classics. Prior to running Lone Star
Classics he spend over ten years working as an investment banker. Mr. Newmark
holds a BS in accounting from City University of New York.
Mike Davis has served as Operations Manager since April 1999 of
CarPartsOnSale.com. In 1998 Mr. Davis founded The Razing Zone. Mr. Davis worked
for Allen Samuels Ford from 1983 until August 1998 where he held various
management roles, most recently he served as operations manager for the parts
and service division.
Curt Scott has served as Director of Media Content since April 1999 of
CarPartsOnSale.com. In 1982 Mr. Scott founded Crown Communications, a specialty
automotive publishing company and a online automotive community. Mr. Scott holds
a BA in Finance from the University of North Carolina and a MBA from Georgia
State University.
Barry Yankelvitz has served as Director of Accounting since April 1999 of
CarPartsOnSale.com. In 1989 he founded his own accounting practice. Mr.
Yankelvitz is CPA and holds a BS in accounting from Long Island University.
Our future success depends to a significant extent on the efforts and
abilities of our senior management, particularly Scott E. Hudson, our president
and chief executive officer, Steve Newmark, our vice president, and other key
employees, including our technical and sales personnel. The loss of the services
of any of these individuals could harm our business. We may be unable to
attract, motivate and retain other key employees in the future. Competition for
employees in Internet-related businesses is intense, and in the past we have
experienced difficulty in hiring qualified personnel.
Our board of directors is elected annually by our stockholders. We plan
to elect Mike Roberts, Scott Condron, Ross Reason as directors prior to our
registration statement relating to this offering becoming effective. To date
directors have received no cash compensation for their services to us as
directors, but would be reimbursed for expenses actually incurred in connection
with attending meetings of the board of directors. Following the first closing
of this offering, we will pay $1,000 per fiscal quarter to each of our outside
directors. Members of the board of directors are eligible to participate in our
2000 employee stock option plan.
The audit committee currently consists of Scott E. Hudson, Stephen
Newmark and Barry Yankelvitz. We anticipate that Ross Reason and Mike Roberts
will serve on the audit committee immediately upon their being elected to our
board of directors. The audit committee recommends engagement of our independent
certified public accountants, and is primarily responsible for reviewing and
approving the scope of the audit and other services performed by our independent
certified public accountants and for reviewing and evaluating our accounting
principles and practices, systems of internal controls, quality of financial
reporting and accounting and financial staff, as well as any reports or
recommendations issued by the independent accountants.
The compensation committee currently consists of Scott E. Hudson and
Steve Newmark. We anticipate that Ross Reason, Scott Condron, and Mike Roberts
will serve on the compensation committee immediately upon being elected to our
board of directors. The compensation committee generally reviews and approves
our executive
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compensation and currently administers our 2000 stock option plan.
We currently have no nominating committee.
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid in
the last year to our chief executive officer and all other executive officers.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------ ---- ------ ----- ------------
<S> <C> <C>
Scott E. Hudson 1999 80,000
President and chief
executive officer
Steve Newmark 1999 80,000
Vice President
Mike Davis 1999 60,000
Curt Scott 1999 100,000
</TABLE>
EMPLOYMENT AGREEMENTS
Upon successful completion of this offering we plan to enter into employment
agreements with two of our executives. The employment agreement with Scott E.
Hudson provides for him to serve as the president, chief executive officer and a
director, and provides for an annual base salary of $120,000 and to be eligible
for a bonus to be determined by the compensation committee. The employment
agreement with Steve Newmark provides for him to serve as the vice president,
provides for an annual base salary of $120,000 and to be eligible for a bonus to
be determined by the compensation committee.
Each of these agreements becomes effective upon the first closing of
this offering, expires on the fifth anniversary of the first closing of this
offering and contains restrictions on the employee engaging in competition with
us for the term of the employment agreement and for one year after the term and
provisions protecting our proprietary rights and information. Each agreement
also provides for the payment to the employee of a lump sum equal to three times
the average of the employee's annual compensation for the prior two years, plus
10% upon his termination in the event of a "change in control" of CarPartsOnSale
of the employment agreement, which is defined in the agreements to mean any of
the following:
a change in control as defined in Rule 12b-2 under the
Securities Exchange Act of 1934;
a person, as such term is defined in Sections 13(d) and 14(d)
of the Exchange Act, other than a current director or officer
of CarPartsOnSale becoming the beneficial owner, directly or
indirectly, of 20% of the voting power of our outstanding
securities; or
the members of our board of directors at the beginning of any
two-year period ceasing to constitute at least a majority of
the board of directors unless the election of any new director
during such period has been approved in advance by two-thirds
of the directors in office at the beginning of such two-year
period.
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2000 STOCK OPTION PLANS
We have adopted the 2000 employee stock option plan in order to
motivate our qualified employees, officers, directors, consultants and
independent contractors, to assist us in attracting employees and to align the
interests of such persons with those of our stockholders. The 2000 plan provides
for the grant of "incentive stock
options" within the meaning of the Section 422 of the Internal Revenue Code of
1986, "nonqualified stock options," restricted stock and other types of awards
to our officers, directors, key employees, consultants, agents, advisors and
independent contractors.
The 2000 employee plan, which will be administered by the compensation
committee of the board of directors, authorizes the issuance of a maximum of
1,500,000 shares of common stock, which may be either newly issued shares,
treasury shares, reacquired shares, shares purchased in the open market or any
combination of these types of shares. Incentive stock options may be granted at
an exercise price of not less than the fair market value of shares of common
stock on the date of grant, If any award under the 2000 employee plan
terminates, expires unexercised, or is cancelled, the shares of common stock
that would otherwise have been issuable under the award will be available for
issuance under the grant of new awards.
As of April 1, 2000, our employees have options to purchase an
aggregate of 63,500 shares of common stock outstanding under the 2000 employee
plan. These options currently have an exercise price of $1.45 per share. These
option have a five year vesting period, with an equal amount vesting at the end
of each year in equal installments over five years. No options have been granted
to our executives or board members.
We have adopted the 2000 consultant stock option plan in order to
motivate our qualified consultants and independent contractors, to assist us in
attracting employees and to align the interests of such persons with those of
our stockholders. The 2000 plan provides for the grant of "incentive stock
options" within the meaning of the Section 422 of the Internal Revenue Code of
1986, "nonqualified stock options," restricted stock and other types of awards
to our officers, directors, key employees, consultants, agents, advisors and
independent contractors.
The 2000 consultant plan, which will be administered by the
compensation committee of the board of directors, authorizes the issuance of a
maximum of 500,000 shares of common stock, which may be either newly issued
shares, treasury shares, reacquired shares, shares purchased in the open market
or any combination of these types of shares. Incentive stock options may be
granted at an exercise price of not less than the fair market value of shares of
common stock on the date of grant, If any award under the 2000 consultant plan
terminates, expires unexercised, or is cancelled, the shares of common stock
that would otherwise have been issuable under the award will be available for
issuance under the grant of new awards.
As of April 30, 2000, our consultants and employees have options to
purchase an aggregate of 444,430 shares of common stock outstanding under the
2000 consultant plan. These options currently have an exercise price of $1.45
per share. These options have a ten year maturity, and vest at the end of six
months from the date of the award. No options have been granted to our
executives or board members.
PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS
Our certificate of incorporation and bylaws contain provisions which
reduce the potential personal liability of directors for monetary damages
regardless of whether or not directors have breached their fiduciary duty. The
certificate of incorporation also provides for indemnification of directors and
other persons. We are unaware of any pending or threatened litigation against us
or our directors that would result in any liability for which such director
would seek indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus,
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increase our ability to attract and retain qualified persons to serve as
directors. We believe that the substantial increase in the number of lawsuits
being threatened or filed against corporations and their directors has resulted
in a growing reluctance on the part of capable persons to serve as members of
boards of directors of companies, particularly of companies which are or intend
to become public companies.
Our officers and directors are not currently covered by officers' and
directors' liability insurance. However we may have such a policy, which will
include reimbursement for costs and fees, prior to the completion of this
offering. We have entered into indemnification agreements with each of our
executive officers and directors. The indemnification agreements provide for
reimbursement for all direct and indirect costs of any type or nature whatsoever
including attorneys' fees and related disbursements, that are actually and
reasonably incurred in connection with either the investigation, defense or
appeal of a "proceeding", as defined in the indemnification agreements,
including amounts paid in settlement by or on behalf of an "indemnitee", as
defined such agreements.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons
pursuant to the above provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of April 30, 2000, and as adjusted to reflect the sale of the shares of
common stock offered by this prospectus, of:
each person known by us to beneficially own 5% or more of the
shares of outstanding common stock;
each of our executive officers and directors; and
all of our executive officers and directors as a group.
Except as otherwise indicated, all shares are beneficially owned, and investment
and voting power is held by, the persons named as owners.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OWNERSHIP PERCENTAGE OWNERSHIP
NAME AND ADDRESS OF COMMON STOCK OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
-------------------------- -------------------- -------------------- --------------------------
MINIMUM MAXIMUM
------- -------
<S> <C> <C> <C> <C>
Scott E. Hudson 5,115,000 30.1% 29.4% 26.9%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
Stephen Newmark 6,225,000 36.6% 35.7% 32.7%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
Curt Scott 2,970,000 17.5% 17.1% 15.6%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
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Mike Davis 2,145,000 12.6% 12.3% 11.3%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
Scott Condron 35,000 0.3% 0.2% 0.2%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
Ross Reason 137,931 0.8% 0.8% 0.7%
c/o CarPartsOnSale Corp.
580 Aviator Drive
Ft. Worth Texas 76179
All officers and directors 16,627,931 97.7% 95.4% 87.4%
as a group (6 persons)
</TABLE>
RELATED PARTY TRANSACTIONS
A significant portion of the Company's sales are referred by Lone Star
Classics, Inc. ("Lone Star"). A majority of Lone Star is owned by the
Company's two founding shareholders. During the period ended April 30,
2000, $991,935 of the Company's auto parts sales were to customers referred
to the Company by Lone Star. Under the agreement between the Company and
Lone Star, Lone Star is paid a commission on all sales referred equal to
30% of the total sales price. During the period ended April 30, 2000,
$297,397 of commission expense to Lone Star was recognized. As of April 30,
2000, the Company has trade accounts receivable of $94,440 from Lone Star,
because Lone Star invoices certain of the customers that are referred and
remits the collections net of the commission to the Company. The Company
has a referral program whereby other parties that refer customers to the
Company are paid a commission based on the total sales to the referred
customers. The commission percentage is based on the total amount of
quarterly sales from the referral source and ranges from 5% to 10% on a
sliding scale for quarterly referral sales up to $16,000. The commission
percentage for referral sources with quarterly referrals in excess of
$16,000 are negotiated on a case-by-case basis.
As of April 30, 2000, the Company has an unsecured advance receivable from
an officer in the amount of $7,500. The receivable in non-interest bearing
and is due on demand.
All transactions between us and any or our officers, directors or five
percent stockholders will be on terms no less favorable to us than would be
available from unaffiliated third parties.
We lack sufficient disinterested, independent directors to ratify past
material transactions at the time the transactions were initiated. Upon Mr.
Reason, Mr. Roberts and Mr. Condron becoming independent directors, all
future material related-party transactions and loans, and any forgiveness
of loans, will be approved by a majority of the independent directors who
do not have an interest in the transaction and who have access, at our
expense, to our or independent legal counsel.
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PLAN OF DISTRIBUTION
ARBITRARY DETERMINATION OF OFFERING PRICE
We have determined the initial offering price of the shares arbitrarily.
Among the factors we considered were the following:
the nature and scope of our operations;
our current financial condition and financial requirements;
estimates of our business potential and prospects;
multiples of our trailing and projected revenues and earnings;
multiples of our competitors' trailing are projected revenues
and earnings;
the perceived market demand for our products;
the market capitalization, revenues and profits of comparable
companies.
the economics of the information technology, Internet and
ecommerce industries; and
the general condition of the equities market.
LIMITED STATE REGISTRATION
We will qualify or register the sale of the shares in a limited number
of states. We will not accept subscriptions from investors resident in other
states. In order to comply with any applicable state securities laws, the shares
will be offered or sold in through registered or licensed brokers or dealers in
any states where required.
TERMS OF SALE OF THE SHARES
We will be selling our shares in a direct participation offering on a
"400,000 share minimum, 2,000,000 share maximum" basis through our officers and
directors, who will be offering our shares and distributing this prospectus
primarily over the Internet. No sales commissions will be paid to any of our
officers or directors. Prospective investors must purchase the shares in
increments of 200 shares. Until we have sold at least 400,000 shares, we will
not accept subscriptions for any shares. All proceeds of this offering will be
deposited in an interest bearing escrow account with Bank of America. If we are
unable to sell at least 400,000 shares before the offering ends, we will return
all funds, with interest, to subscribers promptly after the ending of this
offering. We have the right to completely or partially accept or reject any
subscription for shares offered in this offering, for any reason or for no
reason. The offering will remain open until all shares offered in this offering
are sold or nine months after the date of this prospectus, except that we will
have only 180 days to sell at least 400,000 shares. We may decide to cease
selling efforts at any time prior to such date if our board of directors
determines that there is a better use of funds and management time than the
continuation of this offering, including those resulting from:
a significant change in our business;
a significant change in the Internet advertising and marketing
or software industries;
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a lack of further investor interest; or
the existence of a more beneficial financial opportunity.
If this offering is not oversubscribed, within a reasonable time after
effectiveness, we plan to accept all subscriptions as soon as reasonably
practicable. If this offering is oversubscribed or appears likely to be
oversubscribed within a reasonable time after effectiveness, we plan to allocate
the shares among the subscribers in our discretion. Among the factors that we
plan to consider are:
whether or not investors consented to receiving copies of our
preliminary prospectus and final prospectus electronically;
how long subscribers plan to hold the shares; and
the amount of shares subscribers wish to purchase.
We anticipate having one or more closings of this offering, the first of which
cannot be held until we are able to sell at least 400,000 shares. After that, we
could have multiple closings whenever we receive and accept new subscriptions.
INVESTMENT PROCEDURES
We keep the most current version of our prospectus, as filed with the
SEC, posted on one of our websites, located on the Internet at
www.CarPartsOnSale.com/ipo, for investors to view or download. We will update
the website to replace the online prospectus with the most recently filed
version at any time that we are required to distribute any prospectus amendments
to investors. We have also posted an indication of interest form on this
website, which allows an investor to indicate if he or she is interested in
purchasing shares in this offering. Indicating interest does not obligate an
investor in any way. If an investor expresses interest, we then ask for
additional information such as
how many shares he or she would consider purchasing,
how long he or she intends to hold the shares, and
whether and to what extent the investor is willing to accept
electronic delivery of documents.
If an investor indicates that he or she would like to receive the final
version of this prospectus and any other amendments to this prospectus
electronically, we will e-mail a notice to the investor that informs him or her
that an amendment to this prospectus has been filed with the SEC, which will
include a hyperlink to the website as well as its Internet address.
Additionally, upon request, the investor will receive paper copies of any or all
documents from us.
Prior to effectiveness, no one may purchase any shares in this
offering. Following the effectiveness of this offering, in order to purchase
shares in this offering, an investor must complete, date, execute and deliver to
Bank of America, our escrow agent, either a paper copy of our subscription
agreement, together with either a check in the amount corresponding to the cost
of the shares to be purchased, or a wire transfer of funds for that amount or
alternatively, electronically, by clicking on the "I have read the final
prospectus and I agree to subscribe" button and forwarding the proper payment to
our escrow agent. An investor may not necessarily be able to purchase all of or
any of the shares that he or she has requested, depending on availability and
our discretion. The address and wire transfer instructions for our escrow agent
is indicated in the subscription agreement. Following the effectiveness of this
offering, subscription agreements will be available as follows:
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<PAGE>
On the website where we have posted our final prospectus;
Unless an investor has specifically requested electronic delivery of
the final prospectus, we will include the subscription
agreement together with a paper copy of the final prospectus
that we send to such investor; and
An investor can request a paper copy of the subscription agreement
and prospectus by calling us, writing to us, or e-mailing
us at the number or address listed in this prospectus
or on our websites.
On our website, WWW.CARPARTSONSALE.COM/IPO we have posted our
prospectus that explains our subscription procedure and the use of our
Subscription Interest form, in the following question and answer format:
THE FOLLOWING QUESTIONS AND ANSWERS HAVE BEEN DESIGNED TO BETTER HELP YOU
UNDERSTAND OUR SUBSCRIPTION PROCESS. THANK YOU FOR TAKING THE TIME EVALUATE OUR
IPO.
WHAT IS THE "SUBSCRIPTION INTEREST" FORM?
The "Subscription Interest" form is used for us to gauge the
public reaction to our IPO and to inform the public about the
process. You will be asked to answer the follow questions.
your email address, name, phone numbers, address and state of
residence;
the number of shares you are interested in purchasing;
for what period of time you expect to hold the shares; and
whether you will consent to delivery of our prospectus and
other documents electronically.
WHY SHOULD I COMPLETE THE "SUBSCRIPTION INTEREST" FORM?
In the event the IPO is over subscripted one of the criteria
used to determine allocation will be date of interest
It allows us to keep you informed on changes and the effective
date of the offering.
CAN I RECEIVE HARD COPIES OF THE PROSPECTUS?
Yes, however we are going to give precedence to those
subscribers who want to receive the documents electronically
CAN I REVOKE MY CONSENT TO RECEIVE ELECTRONIC DELIVERY OF THESE DOCUMENTS?
Yes. You may notify us that you wish to revoke your consent to
electronic delivery of any or all of our documents at any time
by calling us at (817) 439-0373, writing to us at 580 Aviator
Drive, Ft. Worth, Texas 76179, or e-mailing us at
[email protected].
DOES COMPLETING THE "SUBSCRIPTION INTEREST" FORM OBLIGATE ME TO BUY SHARES?
No. You are under no obligation to purchase any shares until
all of the following have occurred:
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<PAGE>
the offering has been declared effective by the SEC;
you have received a copy of our final prospectus in paper form
or electronically;
you have completed, signed and sent the subscription agreement
to the escrow agent or you have electronically agreed to the
terms of the subscription agreement; and
you sent in a check, your credit card has been approved or you
have wired funds to the escrow agent.
Once each of the above has occurred, you will be legally bound to buy
the shares for which you have
subscribed. We will then decide which subscriptions to accept and for how many
shares, and will promptly notify you. Any payment that you make for shares which
we elect not to sell to you will be refunded to you. We will keep all amounts
paid for accepted subscriptions.
HOW DO I GET A COPY OF THE SUBSCRIPTION AGREEMENT?
Once the offering has been declared effective by the SEC, our
subscription agreement will be made available to you as
follows:
it will be located on the website in a format that allows you
to complete it online and submit it to us electronically
it will be in a printable format on the same website
prospectus
unless you have specifically requested a hard copy delivery of
the final prospectus, we will include the subscription
agreement together with a electronic copy of the final
prospectus that we send to you
if you have not previously completed a "Subscription Interest"
form, you can request a paper copy of the subscription
agreement and prospectus by calling us at (817) 439-0373,
writing to us at 580 Aviator Drive, Ft. Worth, Texas 76179, or
e-mailing us at [email protected].
WHEN WILL I RECEIVE NOTIFICATION OF ACCEPTANCE OF MY SUBSCRIPTION?
Until we have sold at least 400,000 shares in this offering,
we can not accept any subscriptions. Additionally, we have the
right to completely or partially accept or reject any
subscription for shares offered in this offering, for any
reason or for no reason. Among the factors we will consider
may be, but are not limited to, the following:
When you completed the "Subscription Interest" form
whether or not you consented to receiving copies of our
prospectus and annual reports electronically
the amount of shares you wish to purchase
how long you plan to hold the shares
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<PAGE>
USE OF A BROKER-DEALER
We currently have no arrangements with any broker-dealers to offer or
sell any of the shares, and we will not enter into any arrangement with any
broker dealers to sell the minimum number of shares in this offering. Once we
have sold at least the minimum number of shares in this offering, we may utilize
one or more broker-dealers who may offer and sell the shares on terms acceptable
to us. If we determine to use a broker-dealer, such broker-dealer must be a
member in good standing of the National Association of Securities Dealers, Inc.
and registered, if required, to conduct sales in those states in which it would
sell the shares. We will not pay in excess of 10% as a sales commission for any
sales of the shares, nor will our sales commission expenses combined with other
offering expenses exceed 20% of the gross proceeds of this offering.
If a broker-dealer were to sell shares, it is likely that such
broker-dealer would be deemed to be an underwriter of the shares as defined in
Section 2(11) of the Securities Act and we would be required to obtain a
no-objection position from the National Association of Securities Dealers, Inc.
regarding the underwriting and compensation terms entered into between us and
such potential broker-dealer. In addition, we would be required to file a
post-effective amendment to the registration statement of which this prospectus
is a part to disclose the name of such selling broker-dealer and the agreed
underwriting and compensation terms.
We will reimburse our officers and directors for expenses incurred in
connection with the offer and sale of the shares. Our officers and directors are
relying on Rule 3a4-1 of the Exchange Act as a "safe harbor" from registration
as a broker-dealer in connection with the offer and sales of the shares. In
order to rely on such "safe harbor" provisions provided by Rule 3a4-1, an
officer or director must be in compliance with all of the following:
he or she must not be subject to a statutory disqualification;
he or she must not be compensated in connection with such
selling participation by payment of commissions or other
payments based either directly or indirectly on such
transactions;
he or she must not be an associated person of a broker-dealer;
he or she must restrict participation to transactions
involving offers and sale of the shares;
he or she must perform substantial duties for the issuer after
the close of the offering not connected with transactions in
securities, and not have been associated with a broker or
dealer for the preceding 12 months, and not participate in
selling an offering of securities for any issuer more than
once every 12 months; and
he or she must restrict participation to written
communications or responses to inquiries of potential
purchasers.
Our officers and directors intend to comply with the guidelines
enumerated in Rule 3a4-1. Our officers and directors have no current plans to
purchase shares in the offering.
KEY TERMS OF ESCROW AGREEMENT
Under the potential terms of our escrow agreement
proceeds from the sale of the shares will be deposited into an
interest bearing account until the minimum offering amount is
sold;
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in the event the proceeds are insufficient to meet the 400,000
share minimum requirement, proceeds will be returned directly
to investors by the escrow agent with interest and without
deduction for expenses, including escrow agent fees;
the escrowed proceeds are not subject to claims by our
creditors, affiliates, associates or underwriters until the
proceeds have been released to us under the terms of the
escrow agreement; and
the regulatory administrator of any state in which the
offering is registered has the right to inspect and make
copies of the records of the escrow agent relating to the
escrowed funds in the manner described in the escrow
agreement.
LOCK-IN AGREEMENT
Scott E. Hudson, Steve Newmark, Curt Scott and Mike Davis hold in
aggregate 16,455,000 outstanding shares of our common stock and are not subject
to any contractual restriction on the sale of any such shares, other than a
lock-in agreement with us. Under the lock-in agreement, beginning on the day the
offering is completed, they are prohibited from transferring or pledging any of
their shares of our common stock, although they retain all of their power to
vote these shares.
According to its terms, the lock-in agreement will terminate upon any
of the following occurrences:
the first anniversary of the completion date of the offering
the stock has maintained an average price of more than 1.5
times the offering price for a six week period
the date all funds have been sent back to investors if the
offering was terminated
the date the shares become covered securities, which includes
becoming listed on the Nasdaq, Amex, or the New York Stock
Exchange.
During the term of the lock-in agreement, beginning on the six month anniversary
of the date the offering is completed, these holders in aggregate cannot sell
more than one percent of the shares outstanding or more than one weeks average
volume over the prior four weeks in any one month period which ever is greater.
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of common
stock, par value $.01 per share.
COMMON STOCK
GENERAL. We have 25,000,000 authorized shares of common stock, par
value $.01 per share, 17,016,931 of which are issued and outstanding prior to
this offering. All shares which are the subject of this prospectus, when issued
and paid for under this offering, will be validly issued, fully paid and
non-assessable.
VOTING RIGHTS. Each share of our common stock entitles the holder to
one vote, either in person or by proxy, at meetings of stockholders. Our board
of directors is elected annually at each annual meeting of the stockholders. The
holders are not permitted to vote their shares cumulatively. Accordingly, the
holders of more than fifty percent of our voting power can elect all of our
directors.
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DIVIDEND POLICY. All shares of common stock are entitled to participate
ratably in dividends when, as and if declared by our board of directors out of
the funds legally available to distribute dividends. Any such dividends may be
paid in cash, property or additional shares of common stock. We have not paid
any dividends since our inception and presently anticipate that all earnings, if
any, will be retained for development of our business. We expect that no
dividends on the shares of common stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of our board of
directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, general business
conditions and other pertinent facts. There can be no assurance that any
dividends on the common stock will ever be paid.
MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of common stock have no preemptive
or other subscriptions rights, conversions rights, redemption or sinking fund
provisions. In the event of the liquidation or dissolution, whether voluntary or
involuntary, of CarPartsOnSale, each share of common stock is entitled to share
ratably in any assets available for distribution to holders of the equity of
CarPartOnSale after satisfaction of all liabilities.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, we
will have 17,416,931 shares of common stock outstanding if the minimum number of
shares offered in this offering are sold, or 19,016,931 shares of common stock
outstanding if the maximum number of shares offered in this offering are sold.
Of these shares, the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, except for
any shares purchased by an "affiliate" of CarPartsOnSale, which will be subject
to the limitations of Rule 144 adopted under the Securities Act. In general, a
person who has a control relationship with CarPartsOnSale is defined as an
"affiliate." All of the remaining shares are deemed to be "restricted
securities", as that term is defined in Rule 144 under the Securities Act.
In general, under Rule 144, commencing 90 days after the date of this
prospectus, a person, including an affiliate or persons whose shares are
aggregated, who has owned restricted shares of common stock beneficially for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one per cent of the total number of
outstanding shares of the same class or the average weekly trading volume of our
common stock on all exchanges and/or reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. A
person who has not been an affiliate of CarPartsOnSale for at least the three
months immediately preceding the sale and who has beneficially owned shares of
common stock for at least two years is entitled to sell such shares under Rule
144 without regard to the limitations described above.
Of the shares presently outstanding 16,767,966 have been held for over
one year. Accordingly, commencing following the completion of the offering,
these 16,767,966 shares will be eligible for resale under Rule 144 at the rates
and subject to the conditions discussed above and the terms of the lock-in
agreement described above. No predictions can be made as to the effect, if any,
that sales of shares under Rule 144 or otherwise or the availability of shares
for sale will have on the market, if any, prevailing from time to time. The sale
of any substantial number of these shares in the public market could reduce the
market price of the shares and the value of your shares.
LACK OF PUBLIC MARKET FOR OUR SHARES. There has not been a public
market for our common stock and the price of our shares may be very volatile. We
are not sure if and when the shares will start trading, and this may not occur
until well after the first closing of this offering. We could decide not to
facilitate the commencement or continuation of a trading market for the common
stock for an extended period. We cannot predict the extent to which investor
interest in our common stock will lead to the development of an active trading
market or how liquid that market might become. Because no underwriter has sold
any shares to their customers or received options, warrants or shares in this
offering, there is currently little incentive for a financial institution to
provide aftermarket support of the shares. Due to this lack of aftermarket
support, the price of our stock following the offering may decrease, and
investors may be unable to resell their shares at or above the initial public
offering price.
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Additionally, many capital market participants, including investors,
underwriters, market makers and other broker-dealers appear to place significant
value on large operating losses that are generated by Internet companies that
are in the process of capturing market share. Even though we have captured what
we believe is a significant market share in the Internet market industry while
maintaining our profitability, there is no assurance that the investment
community will appropriately recognize our value, and this may negatively affect
the price of our common stock.
After closing this offering, we intend to apply for inclusion of the
shares on the Nasdaq SmallCap Market or the American Stock exchange, depending
on how much we raise in this offering. Under Nasdaq/Amex criteria, an issuer
seeking initial inclusion of its securities on Nasdaq/Amex is required to meet
threshold levels established by Nasdaq/Amex relating to assets, market
capitalization, net income, market value of public float, minimum bid price and
number of market makers, among others. We currently do not meet all of
Nasdaq/Amex's requirements, and we are dependent on the receipt of proceeds of
this offering to satisfy some of these requirements. There is no assurance that
the shares will ever be approved for inclusion on Nasdaq/Amex, and if so, when
such listing will occur. The inability to have the shares listed on Nasdaq/Amex
in a timely manner could materially hinder the development of a public trading
market for the shares.
Nasdaq/Amex also imposes maintenance requirements that, like the
initial listing requirements, require us to meet threshold levels established by
Nasdaq/Amex relating to assets, market capitalization, net income, market value
of public float, minimum bid price and number of market makers, among others.
Although the required maintenance levels are somewhat less stringent than the
initial listing requirements, there is no assurance that the shares will not
become delisted at a future time if the Nasdaq/Amex-imposed maintenance
thresholds are not satisfied at all times. Any delisting could cause a material
decline in the market price of the shares if a market should develop, and
adversely affect the liquidity of the shares.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation contains provisions which may be
deemed to be "anti-takeover" in nature in that such provisions may deter,
discourage or make more difficult the assumption of control of CarPartsOnSale by
another entity or person. In addition to the ability to issue preferred stock,
these provisions include a requirement for a vote of 66-2/3% of the stockholders
in order to approve a number of transactions including mergers and sales or
transfers of all or substantially all of our assets.
The Delaware Corporation Law further contains anti-takeover provisions.
Section 203 of the Delaware Corporation Law provides, with a number of
exceptions, that as a Delaware corporation, we may not engage in any of a broad
range of business combinations with an "interested stockholder", that is, a
person who owns 15% or more of our outstanding voting stock, for a period of
three years from the date that such person became an interested stockholder
unless:
the transaction resulting in a person's becoming an interested
stockholder, or the business combination, is approved by our
board of directors before the person becomes an interested
stockholder;
the interested stockholder acquires 85% or more of our
outstanding voting stock excluding shares owned by persons who
are both our officers and directors, and shares held by
employee stock ownership plans; or
the business combination is approved by our board of directors
and by the holders of at least 66-2/3% of our outstanding
voting stock at an annual or special meeting, excluding shares
owned by the interested stockholder.
46
<PAGE>
TRANSFER AGENT
The transfer agent for the common stock will be First American Stock
Transfer, Inc. Phoenix Arizona.
EXPERTS
Our financial statements as of April 30, 2000 appearing in this
prospectus and registration statement have been audited by Hein + Associates
LLP, independent auditors, as set forth in their report on such financial
statements, appearing elsewhere in this prospectus and in this registration
statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares offered in this offering will be passed upon
for us by Cokinos, Bosien and Young, a Professional Corporation, Houston, Texas.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form SB-2 under
the Securities Act that we filed with the SEC with respect to the shares offered
by this prospectus. We have authorized no one to provide you with any
information other than that provided in the prospectus. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in the prospectus is accurate as of any
date other than the date on the front cover of the document.
47
<PAGE>
This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedule filed with the
registration statement. For further information about us and the shares offered
by this prospectus, reference is made to the registration statement and its
exhibits and schedules. A copy of the registration statement and its exhibits
and schedules may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from such office upon the payment of the fees prescribed by the SEC and
at the SEC regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Please call the SEC at 1800SEC0330
for further information about its public reference room.
The SEC maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants,
including us, that file electronically with the SEC. The Internet address of the
website is http://www.sec.gov. Our registration statement and the exhibits and
schedules we filed electronically with the SEC are available on this site. An
electronic format of this prospectus is also available on our Internet website,
at http://www.CarPartsOnSale.com/ipo. The other information contained on this
website or any other website is not part of this prospectus.
As of the date of this prospectus, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, and we will
file reports and other information with the SEC. Such reports and other
information can be inspected and/or obtained at the locations and websites set
forth above.
48
<PAGE>
CARPARTSONSALE.COM, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
FOR THE PERIOD FROM INCEPTION (APRIL 19, 1999)
TO APRIL 30, 2000
I
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
CarPartsOnSale.Com, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheet of
CarPartsOnSale.Com, Inc. ("the Company") as of April 30, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (April 19, 1999) to April 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of April 30, 2000, and the consolidated results of their operations
and their cash flows for the period from inception (April 19, 1999) to April 30,
2000 in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
June 22, 2000
II
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
APRIL 30, 2000
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 98,039
Trade accounts receivable - no allowance for
doubtful accounts considered necessary 102,602
Receivable for common stock issuance 295,750
Employee advances and other receivables 7,745
Inventory 1,017,038
Prepaid expenses 52,312
----------
Total current assets 1,573,486
PROPERTY AND EQUIPMENT, net 63,723
GOODWILL, net of accumulated amortization of $41,877 167,506
OTHER ASSETS 38,053
----------
Total assets $1,842,768
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 25,745
Accounts payable and accrued liabilities 144,666
Payable to related party 13,639
----------
Total current liabilities 184,050
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, 25,000,000 shares authorized, par value of $0.01,
16,947,966 shares issued and outstanding 169,480
Common stock - subscribed (68,966 shares) 690
Additional paid-in capital 2,300,749
Receivable from stockholders (315,177)
Accumulated deficit (497,024)
----------
Total stockholders' equity 1,658,718
----------
Total liabilities and stockholders' equity $1,842,768
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 19, 1999) TO APRIL 30, 2000
REVENUES:
<S> <C>
Auto parts sales, net $1,925,918
Publication and model sales, net 231,814
----------
Total revenue 2,157,732
COSTS OF REVENUE 1,535,440
----------
GROSS PROFIT 622,292
OPERATING EXPENSES:
Selling expenses 312,514
General and administrative 756,135
Depreciation and amortization 53,531
----------
Total operating expenses 1,122,180
----------
LOSS FROM OPERATIONS (499,888)
INTEREST INCOME, NET 2,864
----------
NET LOSS $ (497,024)
===========
NET LOSS PER COMMON SHARE, basic and diluted $ (0.03)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 16,762,616
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 19, 1999) TO APRIL 30, 2000
COMMON STOCK COMMON STOCK
------------------- SUBSCRIBED ADDITIONAL RECEIVABLE TOTAL
----------------- PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
-------- -------- ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, April 19, 1999 - $ - - $ - $ - $ - $ - $ -
Issuance of common stock to founders
for cash and future services 11,385,000 113,850 - - 1,286,150 (435,177) - 964,823
services
Common stock issued for the
acquisitions of The Racing Zone and
Crown Communications 5,115,000 51,150 - - 193,875 - 245,025
Common stock sold for cash in a
private placement, net of offering
costs of $16,095 312,966 3,130 - - 434,576 - 437,706
Exercise of common stock options 135,000 1,350 68,966 690 293,710 - 295,750
Issuance of common stock options
to consultants - 92,438 - 92,438
Repayment of receivable from
stockholders - - - - - 120,000 - 120,000
Net loss for the period - - - - - - (497,024) (497,024)
---------- ------- ------- ------ ---------- ---------- ---------- -----------
BALANCES, April 30, 2000 16,947,966 $169,480 68,966 $ 690 $2,300,749 $ (315,177) $ (497,024) $ 1,658,718
========== ======== ======= ====== ========== ========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 19, 1999) TO APRIL 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (497,024)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 53,531
Stock based compensation expense 40,126
Salaries paid with common stock 120,000
(Increase) decrease in current assets:
Trade receivables (86,474)
Employee advances and other receivables (7,745)
Inventory (947,386)
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 105,370
Payable to related party 13,639
Other (38,214)
-----------
Net cash used by operating activities (1,244,177)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,980)
Cash acquired in acquisitions of subsidiaries 3,423
-----------
Net cash used by investing activities (59,557)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (756)
Proceeds from sales of common stock, net of offering costs 1,402,529
----------
Net cash provided by financing activities 1,401,773
----------
NET INCREASE IN CASH 98,039
CASH, beginning of period
-
-----------
CASH, end of period $ 98,039
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 4,093
Common stock issued to acquire companies $ 245,025
Stock based compensation for prepaid expense $ 52,312
Exercise of common stock options for receivables $ 295,750
Net assets acquired from Crown Communications $ 35,804
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
CarPartsOnSale.Com, Inc. ("the Company") (a Delaware corporation) was
incorporated on April 19, 1999 as Car Parts Onsale, Inc. The Company
changed its name to CarPartsOnSale.Com, Inc. in December 1999. The Company
is engaged in the sale of high performance auto parts, models and
publications though a retail storefront in Arlington, Texas and through
several Internet websites. The Company's sales are primarily to customers
located throughout the United States.
On April 19, 1999, the Company acquired 100% of the outstanding common
stock of The Racing Zone, Inc., which operates a retail storefront for high
performance auto parts in Arlington, Texas. On April 27, 1999, the Company
acquired 100% of the outstanding common stock of Crown Communications, Inc.
which operates several Internet websites that sell "classic car" models,
memorabilia and publications. These acquisitions are more fully described
in Note 2.
The Company's operations were insignificant from April 19, 1999 to April
30, 1999. Therefore, this period is not separately presented in the
accompanying financial statements.
The accompanying financial statements present the consolidated results of
the Company and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
INVENTORY
Inventory is valued at the lower of cost or market. The cost of inventory
is determined by the average cost method. At April 30, 2000, inventory
consisted of the following:
Performance Auto Parts $ 953,160
"Classic car" models, memorabilia and publications 63,878
----------
$1,017,038
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the assets, which
range from three to five years, or the lease term, if shorter.
Gains and losses resulting from sales and dispositions of property and
equipment are included in current operations. Maintenance and repairs are
charged to operations as incurred.
GOODWILL
Goodwill represents the cost in excess of fair value of the identifiable
net assets acquired in the acquisitions. Goodwill is being amortized on a
straight-line basis over 5 years for Crown Communications. Amortization
expense of $41,877 was recognized for the period ended April 30, 2000.
<PAGE>
LONG-LIVED ASSETS
The Company's policy is to periodically review the net realizable value of
its long-lived assets, including goodwill, through an assessment of the
estimated future cash flows related to such assets. In the event that
assets are found to be carried at amounts in excess of estimated
undiscounted future cash flows, then the assets will be adjusted for
impairment to a level commensurate with a discounted cash flow analysis of
the underlying assets. Based upon its most recent analysis, the Company
believes no impairment of long-lived assets exists at April 30, 2000.
REVENUE RECOGNITION
The Company recognizes revenue at the time product is shipped to the
customer. All sales are recorded net of applicable sales discounts and
estimates for returns and allowances.
STOCK-BASED COMPENSATION
The Company applies Statement of Financial Accounting Standards (SFAS) No.
123 "Accounting for Stock-Based Compensation", which requires recognition
of the value of stock options and warrants granted based on an option
pricing model. However, as permitted by SFAS 123, the Company continues to
account for stock options and warrants granted to directors and employees
pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. See Note 7.
INCOME TAXES
The Company files a consolidated tax return for all the entities. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases,
and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
LIQUIDITY
The Company had not achieved profitable operations through April 30, 2000.
However, management believes the Company's net working capital of
$1,389,436 at April 30, 2000 will be sufficient to allow adequate time for
the Company to fully implement its business plan.
2. ACQUISITIONS
THE RACING ZONE, INC.
On April 19, 1999, the Company acquired all the outstanding common stock of
The Racing Zone, Inc. in exchange for 2,145,000 shares of the Company's
common stock. The acquisition was recorded at the Racing Zone's predecessor
cost as the sole stockholder of the Racing Zone was considered to be a
founding stockholder of the Company as the formation of the Company and the
acquisition occurred on the same date. At the date of acquisition, the
Racing Zone had no tangible assets and no significant
<PAGE>
operations. The results of The Racing Zone, Inc. are included in the
accompanying financial statements beginning April 19, 1999.
CROWN COMMUNICATIONS, INC.
On April 27, 1999, the Company acquired all the outstanding common stock of
Crown Communications, Inc. in exchange for 2,970,000 shares of the
Company's common stock valued at $245,025. The acquisition was accounted
for using the purchase method and the purchase price has been allocated to
the net assets acquired based on their estimated fair values. The results
of Crown Communications, Inc. are included in the accompanying financial
statements beginning April 27, 1999. The excess of the purchase price over
the fair value of the net assets acquired of $209,383 has been recorded as
goodwill and is being amortized using the straight-line method over five
years.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at April 30, 2000:
Leasehold improvements $ 41,793
Office equipment and software 33,584
---------
75,377
Less accumulated depreciation (11,654)
---------
$ 63,723
=========
Depreciation expense for property and equipment of $11,654 was recognized
for the period ended April 30, 2000.
4. NOTE PAYABLE
At April 30, 2000, the Company has a note payable with a financial
institution with a balance of $25,745. The note requires monthly payments
of interest plus $50 of principal with all unpaid principal and interest
due upon maturity of February 14, 2001. The note bears interest at 9.25%
and is unsecured.
5. INCOME TAXES
There was no provision for income taxes for the period ended April 30, 2000
due to the net loss incurred for the period. The Company had no material
deferred tax liabilities at April 30, 2000. The Company's deferred tax
assets were as follows at April 30, 2000:
Deferred tax assets:
Net operating loss $ 151,000
Other 2,000
Valuation allowance (153,000)
---------
$ -
=========
At April 30, 2000 the Company's net operating loss (NOL) carryforward for
federal income tax purposes was approximately $409,000, which will expire,
if unused, in 2020.
<PAGE>
6. STOCKHOLDERS' EQUITY
On April 19, 1999, the two founding stockholders purchased 11,385,000
shares of common stock in exchange for $964,823 in cash and $435,177 of
future services as officers of the Company. During the period ended April
30, 2000, the two founding stockholders' total compensation of $120,000 was
offset against the stock subscriptions receivable. As of April 30, 2000,
the balance of the stock subscriptions receivable from these individuals of
$315,177 is classified in stockholders' equity in the accompanying
financial statements. This receivable is expected to be repaid by the
founding stockholders through future foregone salaries and compensation.
During 1999, the Company completed a private placement of its common stock.
The Company sold 312,966 shares of common stock at $1.45 per share.
Proceeds from the offering totaled $437,706, net of approximately $16,095
of incremental offering expenses. In connection with the private placement,
the investors also received an option to purchase common stock in an amount
equal to the number of shares purchased in the private placement. These
options had an exercise price of $1.45 per share and expired in March 2000.
As of April 30, 2000, the Company had outstanding receivables for common
stock issuance of $295,750 which resulted from the exercise of 203,966
common stock options prior to April 30, 2000. These receivables were
collected by the company in May and June 2000.
STOCK-BASED COMPENSATION
STOCK OPTIONS
The Company's Board of Directors approved and adopted two stock options
plans during the period ended April 30, 2000.
The first plan is titled the Employee Stock Option Plan and 1,500,000
shares of common stock have been reserved for issuance under the plan. At
April 30, 2000, options are outstanding to acquire 63,500 shares. All
options granted under this plan expire five years after the date of grant
and vest at the rate of 20% per year. The option exercise price is equal to
the estimated fair market value of the Company's common stock at the date
of grant. The option holder has three alternatives in which to exercise the
option as follows:
o The option holder may receive the difference between the exercise price
and the fair market value of the common stock at the date of exercise
in cash from the Company.
o The option holder may pay the exercise price from proceeds that
hypothetically would be generated from selling a portion of the stock
at fair market value, and receive the balance in stock.
o The option holder may pay the exercise price and receive the stock.
The second plan is titled the Consultant Stock Option Plan and 500,000
shares of common stock have been reserved for issuance under the plan. At
April 30, 2000, options are outstanding to acquire 444,430 shares, which
have been issued to consultants and employees. All options granted under
this plan expire ten years after the date of grant and completely vest
after six months. The option exercise price is equal to the estimated fair
market value of the Company's common stock at the date of grant.
<PAGE>
In July 1999 and January 2000, the Company granted 147,530 stock options
under the Consultant Stock Option Plan to two consultants in exchange for
services. The options are exercisable at $1.45 per share until expiration
in June 2009 and January 2010. The fair market value of these options, as
determined by the Black-Scholes option pricing model, of $92,438 was
recorded as an expense and a prepaid expense in the amount of $40,126 and
$52,312, respectively, during the period ended April 30, 2000. The weighted
average assumptions used in the Black-Scholes calculation included expected
volatility near zero, risk-free interest rate of 5.6%, no expected
dividends and an expected term of ten years.
The following is a summary of activity for the stock options granted for the
period ended April 30, 2000:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
Outstanding, beginning of period - -
Granted 955,896 $ 1.45
Canceled or expired (244,000) $ 1.45
Exercised (203,966) $ 1.45
-------- -------
Outstanding, end of period 507,930 $ 1.45
========= =======
Exercisable, end of period 261,100 $ 1.45
========= =======
If not previously exercised, all options outstanding at April 30, 2000 will
expire as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
YEAR ENDING APRIL 30, OF SHARES PRICE
--------- --------
2005 63,500 $ 1.45
2009 261,100 $ 1.45
2010 183,330 $ 1.45
-------- -------
507,930 $ 1.45
======== =======
Presented below is a comparison of the weighted average exercise prices and
fair values of the Company's stock options on the measurement date for
options granted to employees and consultants during the period ended April
30, 2000. The exercise price of the options equaled the estimated market
price at the date of grant.
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
--------- -------- ------
642,930 $ 1.45 $ 0.49
======= ======= ======
<PAGE>
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES
As discussed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to employees
since the exercise prices were not lower than the market prices of the
Company's common stock on the measurement date. Had compensation been
determined based on the estimated fair value at the measurement dates for
awards under those plans consistent with the method prescribed by SFAS No.
123, the Company's April 30, 2000 net loss and net loss per share would
have been changed to the pro forma amount indicated below.
Net Loss:
As reported $ (497,024)
Pro forma $ (694,994)
Net Loss per Share:
As reported $ (0.03)
Pro forma $ (0.04)
The estimated fair value of each option granted to employees and
consultants during the period ended April 30, 2000 was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Expected volatility Near zero
Risk-free interest rate 5.7%
Expected dividends -
Expected terms (in years) 7.6
8. RELATED PARTY TRANSACTIONS
A significant portion of the Company's sales are referred by Lone Star
Classics, Inc. ("Lone Star"). A majority of Lone Star is owned by the
Company's two founding stockholders. During the period ended April 30,
2000, $991,935 of the Company's auto parts sales were to customers referred
to the Company by Lone Star. Under the agreement between the Company and
Lone Star, Lone Star is paid a commission on all sales referred equal to
30% of the total sales price (see discussion of the Company's referral
program in Note 9). During the period ended April 30, 2000, $297,397 of
commission expense to Lone Star was recognized. As of April 30, 2000, the
Company has trade accounts receivable of $94,440 from Lone Star, because
Lone Star invoices certain of the customers that are referred and remits
the collections net of the commission to the Company.
As of April 30, 2000, the Company has an unsecured advance receivable from
an officer in the amount of $7,500. The receivable is non-interest bearing
and is due on demand.
9. COMMITMENTS
The Company leases a retail storefront with warehouse space under a lease
agreement which expires in 2009. Rental expense under this operating lease
was $36,876 for the period ended April 30, 2000. The lease calls for
monthly rental payments of $3,412.
Future minimum rental payments under this non-cancellable operating lease
agreement are as follows:
<PAGE>
YEARS ENDING
------------
2001 $ 40,995
2002 40,995
2003 40,995
2004 40,995
2005 40,995
Thereafter 157,116
---------
$ 362,091
=========
The Company has a referral program whereby other parties that refer
customers to the Company are paid a commission based on the total sales to
the referred customers. The commission percentage is based on the total
amount of quarterly sales from the referral source and ranges from 5% to
10% on a sliding scale for quarterly referral sales up to $16,000. The
commission percentage for referral sources with quarterly referrals in
excess of $16,000 are negotiated on a case-by-case basis. See discussion of
the referral relationship with Lone Star in Note 8.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments are cash, amounts receivable and
payable and a note payable. Management believes the fair values of these
instruments, with the exception of the note payable, approximate the
carrying values, due to the short-term nature of the instruments.
Management believes the fair value of the note payable also reasonably
approximates its carrying value, based on expected cash flows and interest
rates.
**********
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the provisions of the Certificate of Incorporation and By-Laws of the
Registrant, each person who is or was a director or officer of Registrant shall
be indemnified by the Registrant as of right to the full extent permitted or
authorized by the General Corporation Law of Delaware. Under such law, to the
extent that such person is successful on the merits of defense of a suit or
proceeding brought against such person by reason of the fact that such person is
a director or officer of the Registrant, such person shall be indemnified
against expenses reasonably incurred in connection with such action, including
attorney's fees. If unsuccessful in defense of a third-party civil suit or a
criminal suit or if such a suit is settled, such a person shall be indemnified
under such law against both (1) expenses, including attorneys' fees, and (2)
judgments, fines and amounts paid in settlement if such person acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and with respect to any criminal
action, had no reasonable cause to believe such person's conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Registrant, or if such suit is settled, such a person shall be indemnified under
such law only against expenses incurred in the defense or settlement of such
suit, including attorneys' fees, if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that if such a person is adjudicated to be
liable in such suit for negligence or misconduct in the performance of such
person's duty to the Registrant, such person cannot be made whole even for
expenses unless the court determines that such person is fairly and reasonably
entitled to be indemnified for such expenses.
After the initial closing of this offering, the Registrant plans to procure
officers' and directors' liability insurance, with policy limits of $3,000,000
and reimbursement for costs and fees, to provide coverage to its officers and
directors. However, such coverage does not currently exist and the Registrant
may determine that the cost of the same is prohibitive. The Registrant has
entered into indemnification agreements with each of its executive officers and
directors. The indemnification agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever, including attorneys'
fees and related disbursements, actually and reasonably incurred in connection
with either the investigation, defense or appeal of a Proceeding, as defined,
including amounts paid in settlement by or on behalf of an Indemnitee, as
defined.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer relative to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, as a result, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which are to be borne by the
Registrant, are as follows:
SEC Registration Fee $ 4,000
Blue Sky Fees and Expenses 45,000
Accounting Fees and Expenses 30,000
Legal Fees and Expenses 25,000
Printing and Engraving 5,000
Marketing 60,000
Miscellaneous 31,000
Total $200,000
--------
All such expenses are estimates only
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April 1999, the Registrant issued 16,500,000 shares of its common stock to
four individuals in connection with the formation of the Registrant and the
acquisition of its two subsidiaries. The Registrant received $1,400,000.00 in
cash and services from two of the individuals and the capital stock of the two
subsidiaries from the other two individuals.
In June 1999, the Registrant issued 312,965.5 shares of its common stock to five
individuals for an aggregate cash consideration of $453,800.00.
In January 2000, the Registrant issued 135,000 shares of its common stock to two
individuals for an aggregate cash consideration of $195,750.00 pursuant to the
exercise by said individuals of certain options granted to them pursuant to the
Registrant's 2000 consultant stock option plan.
In May 2000, the Registrant issued 68,965.5 shares of its common stock to one
individual for an aggregate cash consideration of $100,000.00 pursuant to the
exercise by said individuals of certain options previously granted to him.
Each of the foregoing transactions were effected by the Registrant without the
aid or assistance of underwriters or brokers. Accordingly, no underwriting
discounts or commissions were paid.
Each of the issuances described above were exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2).
<PAGE>
ITEM 27. EXHIBITS.
Number Description
------ -----------
Articles of Incorporation of the Registrant.
Bylaws of the Registrant.
*Specimen Common Stock Certificate.
*Opinion of Cokinos, Bosien & Young, a Professional
Corporation, regarding the legality of the securities being
registered.
*Form of Indemnification Agreement between the
Registrant and its executive officers and directors.
Form of Subscription Agreements for this offering.
Subsidiaries
Consent of Hein + Associates LLP.
*Consent of Cokinos,Bosien & Young, a Professional Corporation
Form of Escrow Agreement between Registrant and Bank
Financial Data Schedule.
* To be filed by amendment
ITEM 28. UNDERTAKINGS.
Registrant undertakes that it will:
3. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts of events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
4. For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and the offering of the securities at that
time as the initial bona fide offering of those securities.
5. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
<PAGE>
EXHIBITS
CERTIFICATE OF INCORPORATION
OF
CAR PARTS ONSALE, INC
FIRST. The name of this corporation shall be:
CAR PARTS ONSALE, INC.
SECOND. Its registered office in the State of Delaware is to be located at 1013
Centre Road, in the City of Wilmington, County of New Castle and its registered
agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations amy be organized
under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
Twenty-Five Million (25,000,000) shares with a par value of One Cent ($.01) per
share, amounting to Two Hundred and Fifty Thousand Dollars ($250,000.00).
FIFTH. The name and address of the incorporator is a follows:
Donna Brooks
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the powers to adopt, amend
or repeal the by-law
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (I) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or whicgh involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal ot this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to anhy acts omission of such
director occuring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named,
has executed, signed and acknowledge this certificate of incorporation this
nineteenth day of April, A.D., 1999
/s/DONNA BROOKS
-----------------------------
Donna Brooks
Incorporator
<PAGE>
BYLAWS
OF
CARPARTSONSALE.COM, INC.
ARTICLE I
OFFICES
Section 1. The registered office of the corporation shall be at 1013
Centre Road, Wilmington, Delaware, and the name of the registered agent of the
corporation at such address shall be The Corporation Service Company.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Meetings of shareholders shall be held at the registered
office of the corporation or at such other place, within or without the State of
Delaware, as may be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. An annual meeting of the shareholders, for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting, shall be held on the fourth Tuesday of March of each
year. Unless otherwise stated in a notice of the meeting, or waiver of such
notice, the annual meeting of the shareholders shall be held at 10:00 a.m. at
the registered office of the corporation.
Section 3. Failure to hold the annual meeting at the designated time
shall not work a dissolution of the corporation. In the event the Board of
Directors fails to call the annual meeting at the designated time, any
shareholder may make demand that such meeting be held within a reasonable time.
Such demand shall be made in writing by certified mail directed to any officer
of the corporation. The annual meeting shall thereafter be called within sixty
(60) days following such demand.
Section 4. Special meetings of the shareholders for any purpose or
purposes may be called by the President, the Board of Directors, or the holders
of not less than one-tenth of all the shares entitled to vote at the meeting. No
business other than that specified in the notice of meeting shall be transacted
at a special meeting.
Section 5.
(a) Written or printed notice stating the place, day, and hour
of the meeting, and in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
person or persons calling the meeting, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid.
(b) Notice may be waived in writing signed by the person or
persons entitled to such notice. Such
<PAGE>
waiver may be executed at any time before or after the holding of such meeting.
Attendance at a meeting shall constitute a waiver of notice, except where the
person attends for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 6. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
the record date shall be the date on which notice of the meeting is mailed.
Section 7. The officer or agent having charge of the corporation's
stock transfer books shall make, at least ten (10) and not more than sixty (60)
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof. Such list shall be
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for a period of ten (10) days prior to such meeting,
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books and to vote at any meeting of shareholders.
Section 8. The holders of a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If a quorum shall not be present or represented at any meeting of
the shareholders, the shareholders entitled to vote, represented in person or by
proxy, shall have power to adjourn the meeting from time to time without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented any business may be transacted which might have been transacted at
the original meeting.
Section 9. At a meeting at which a quorum is present, the vote of the
holders of a majority of the shares represented in person or by proxy shall
decide any question brought before the meeting, unless the question is one upon
which the vote of a greater number is required by law, the Certificate of
Incorporation, or these Bylaws. The shareholders present or represented at a
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 10.
(a) Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to vote of a meeting of
shareholders, expect to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Certificate of Incorporation.
(b) Treasury shares, shares of stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of stock held by this corporation in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting and shall
not be counted in determining the total number of outstanding shares at any
given time.
(c) A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney in
fact. No proxy shall be valid after three (3) years from the date of its
execution unless otherwise provided in the proxy. Each proxy shall be filed with
the Secretary prior to or at the commencement of the meeting.
Section 11. At any meeting of the shareholders, a shareholder may
attend by telephone, radio, television, or similar means of communication which
permits him to participate in the meeting, and a shareholder so attending shall
be deemed present at the meeting for all purposes including the determination of
whether a quorum is present.
Section 12. Any action required by law to be taken at a meeting of the
shareholders of the corporation, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting, without prior notice,
<PAGE>
and without a vote, if a consent in writing setting forth the actions taken
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this Section to the
corporation, written consents signed by a sufficient number of holders or
members to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The business and affairs of the corporation shall be
managed by its Board of Directors.
Section 2. The number of directors shall be one or more. The number of
directors may be increased or decreased from time to time by amendment to these
Bylaws, but no decrease shall have the effect of shortening the term of any
incumbent director. A director need not be a shareholder or a resident of the
State of Delaware.
Section 3. At the first annual meeting of shareholders and at each
annual meeting thereafter, the shareholders shall elect directors to hold office
until the next succeeding annual meeting. Each director shall hold office for
the term for which he is elected and until his successor shall be elected and
shall qualify.
Section 4. At each election for directors, each shareholder entitled to
vote shall have the right to vote, in person or by proxy, the number of shares
owned by him for as many persons as there are directors to be elected and for
whose election he has a right to vote.
Section 5. Any director may be removed either for cause or without
cause at a special meeting called for that purpose. Removal shall be
accomplished by the affirmative vote of a majority in number of shares of
shareholders represented in person or by proxy at such meeting which are
entitled to vote for the election of such director. However, unless the entire
Board is removed, no individual director shall be removed without cause if the
votes of a sufficient number of shares are cast against his removal, which if
cumulatively voted at an election of the entire Board, would be sufficient to
elect one or more directors.
Section 6. A vacancy on the Board of Directors caused by death,
resignation, retirement, disqualification, removal from office, or otherwise,
may be filled either (1) by appointment at the next regular meeting of the Board
of Directors by a majority of the directors then in office, though less than a
quorum, or (2) by election at a special meeting of shareholders called for that
purpose. Each successor director shall be elected or appointed for the unexpired
term of his predecessor in office and shall serve until his successor shall be
elected and shall qualify. Any directorship to be filled by reason of an
increase in the number of directors shall be filled by election at an annual
meeting of shareholders or at a special meeting of shareholder called for that
purpose.
Section 7. The Board of Directors, by resolution adopted by a majority
of the Board of Directors, may
<PAGE>
designate two or more directors to constitute an executive committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in the business and
affairs of the corporation except where action of the Board of Directors is
specified by the Delaware Corporation Law or other applicable law, but the
designation of such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law. The executive committee shall keep
regular minutes of its proceedings and report the same to the Board when
required by the Board.
Section 8. Directors, as such, shall not receive any salary for their
services, but, by resolution of the Board a fixed sum, plus expenses of
attendance, if any, may be paid for attendance at each regular or special
meeting of the Board. Nothing herein shall be construed to preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of the executive committee may, by resolution of the Board of
Directors, be allowed like compensation for attending committee meetings.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. The directors of the corporation may hold regular or special
meetings either within or without the State of Delaware.
Section 2. A regular meeting of the Board of Directors shall be held
without other notice than this Bylaw immediately after and at the same place as
the annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
Section 3. Special meetings of the Board of Directors may be called by
or at the request of the President or any director. Notice of the call of a
special meeting shall be in writing and delivered for transmission to each of
the directors not later than during the third day immediately preceding the day
for which such meeting is called. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the director at
his address as it appears in the records of the corporation with postage thereon
paid. Neither the business proposed to be transacted nor the purpose of any
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 4. Notice of any special meeting may be waived in writing
signed by the person or persons entitled to such notice. Such waiver may be
executed at any time before or after the holding of such meeting. Attendance of
a director at a special meeting shall constitute a waiver of notice of such
special meeting, except where a director attends for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 5. A majority of the number of directors shall constitute a
quorum for the transaction of business. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless otherwise specifically required by law or these Bylaws. If a
quorum is not present at any meeting of directors, the directors present may
adjourn the meeting from time to time, without notice other an announcement at
the meeting, until a quorum is present.
Section 6. At any meeting of the Board, a member may attend by
telephone, radio, television, or similar means of communication which permits
him to participate in the meeting, and a director so attending shall be deemed
present at the meeting for all purposes including the determination of whether a
quorum is present.
Section 7. Any action required or permitted to be taken at a meeting of
the Board of Directors or any executive committee may be taken without a meeting
if a consent in writing setting forth the actions so taken shall be signed by
all of the members of the Board of Directors or executive committee, as the case
may be. Such consent shall have the same force and effect as a unanimous vote at
a meeting, and may be stated as such in any document or instrument filed with
the Secretary of State.
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be elected by the
directors and shall be a President, a Vice President, a Secretary, and a
Treasurer. The Board of Directors may also choose additional vice presidents and
one or more assistant secretaries and assistant treasurers. Any two or more
offices may be held by the same person.
Section 2. The officers of the corporation shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of shareholders. Vacancies or new offices shall be filled at
any meeting of the Board to serve until the next election of officers. Each
officer shall hold office until his successor has been elected and qualified, or
until the death, resignation, or removal of the officer.
Section 3. The Board of Directors may appoint such other officers and
agents as it deems necessary. Such officers and agents shall be appointed for
such terms and shall exercise such powers and perform such duties as may be
determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. Any officer or agent elected or appointed by the Board of
Directors, or member of the executive committee, may be removed at any time by
the affirmative vote of a majority of the whole Board of Directors. Such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment shall not of itself create any contract right.
Section 6. The President shall be the Chief Executive Officer of the
corporation and, subject to the direction of the Board of Directors, shall
supervise and control the business and affairs of the corporation. He shall
preside at all meetings of the shareholders and of the Board of Directors. He
shall see that all orders and resolutions of the Board are carried into effect,
and shall perform such other duties as the Board of Directors may prescribe.
Section 7. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (or in the event there be more
than one vice president, the vice presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the President. Each vice president
shall also have such powers and perform such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
Section 8. The Secretary shall attend all meetings of the shareholders
and of the Board of Directors. He shall keep a true and complete record of the
proceedings, including all votes and resolutions presented at these meetings, in
a book to be kept for that purpose. He shall be custodian of the records and of
the seal of the corporation, and shall affix the same to documents, the
execution of which is duly authorized. He shall give or cause to be given all
notices required by law or by these Bylaws. He shall also perform such other
duties as may be prescribed by the Board of Directors or President.
Section 9.
(a) The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements of 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.
<PAGE>
(b) 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 directors, at the regular
meetings of the Board or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the corporation. The
Treasurer shall also perform such other duties as may be prescribed by the Board
of Directors or the President.
(c) If required by the Board of Directors, the Treasurer shall
give the corporation a bond in such form, in such sum, and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the corporation.
Section 10. In the absence of the Secretary or Treasurer, an assistant
secretary or assistant treasurer, respectively, shall perform the duties of the
Secretary or Treasurer. Assistant treasurers may be required to give bond in the
form described in Section 9(c) of these Bylaws. In general, the assistant
secretaries and assistant treasurers shall have such powers and perform such
duties as the Treasurer or Secretary, respectively, or the Board of Directors or
President may prescribe. The Board of Directors may also transfer the powers or
duties of any officer to any other officer or agent provided that a majority of
the full Board of Directors concurs.
ARTICLE VI
SHARE CERTIFICATES
Section 1. Certificates in such form as may be determined by the Board
of Directors shall be issued for all shares to which shareholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the corporation as they are issued. Each certificate shall state on the
face thereof the holder's name, the number and class of shares, and the par
value of such shares or a statement that such shares are without par value. They
shall be signed by the President or a Vice President, and the Secretary or an
assistant secretary, and may be sealed with the seal of the corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent,
other than the corporation or an employee of the corporation, the signature of
any such officer may be facsimile.
Section 2. The Board of Directors may direct a new certificate
representing shares to be issued, in place of any certificate 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 to be lost or
destroyed. Before authorizing the issuance of a new certificate, the Board of
Directors, in its discretion, may require the owner of such lost or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it may require and/or give the corporation a bond in such form, in such sum,
and with such surety or sureties as it may direct to indemnify the corporation
against any claims that may be made with respect to said certificate.
Section 3. Shares of stock shall be transferable on the books of the
corporation only by the holder thereof in person or by his duly authorized
attorney. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, the
corporation or the transfer agent of the corporation shall issue a new
certificate and record the transaction upon its books.
Section 4. The corporation may treat the holder of record of any share
or shares of stock as the holder in fact thereof, 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 law.
Section 5. Subscriptions for shares shall be paid in full at such time,
or in such installments and at such
<PAGE>
times, as shall be determined by the Board of Directors. Calls for payment on
subscriptions shall be uniform as to all shares of the same class. The Board of
Directors may forfeit any subscription and the amount paid thereon if the
corporation is solvent and any amount due as a result of a call remains unpaid
for a period of twenty (20) days after written demand has been made therefor. If
mailed, such letter demand shall be deemed to be made when deposited in the
United States mail in a sealed envelope addressed to the subscriber at his last
post office address known to the corporation, with postage thereon prepaid.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 2. No loans shall be contracted on behalf of the corporation,
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances. The corporation shall make no loans secured by a
lien on its own shares.
Section 3. There may be created by resolution of the Board of Directors
out of the earned surplus of the corporation such reserve or reserves as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for such other purpose as the directors shall think
beneficial to the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
Section 4. 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 5. The fiscal year of the corporation shall be fixed by
the Board of Directors.
Section 6. The Board of Directors shall provide a corporate seal which
shall be in the form of a circle and shall have inscribed thereon the name of
the corporation.
Section 7. Dividends upon the outstanding shares of the corporation may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the corporation,
subject to the provisions of law and the Certificate of Incorporation. The Board
of Directors may fix in advance a record date for the purpose of determining
shareholders entitled to receive payment of any dividend. The record date may
not be more than fifty (50) days prior to the payment date of such dividend. In
lieu of setting a record date, the Board of Directors may close the stock
transfer books for a period of not more than fifty (50) days prior to the
payment date of such dividend. In the absence of any action by the Board of
Directors, the date upon which the Board of Directors adopts the resolution
declaring such dividend shall be the record date for determining the persons
entitled to receive the dividend.
Section 8. Any shareholder, upon written demand stating the purpose
thereof, shall have the right to examine, in person or by agent or attorney, at
any reasonable time or times, for any proper purpose, the books and records of
account, minutes, and record of shareholders of the corporation. Such person
shall have the right to make extracts therefrom.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended, or repealed at any
meeting of the shareholders at which a quorum is present, by the affirmative
vote of a majority of the shares present at the such meeting, provided notice of
the proposed alteration, amendment, or repeal be contained in the notice of such
meeting, or provided that all shareholders waive such notice or consent to such
action by the shareholders without a meeting, as allowed by other provisions of
these Bylaws. These Bylaws may also be altered, amended, or repealed by the
Board of Directors at any meeting, provided notice of the proposed alteration,
amendment, or repeal be contained in the notice of such meeting or provided that
all directors waive such notice or consent to such action by the Board of
Directors without a meeting, as allowed by other provisions of these Bylaws.
Section 2. The Board of Directors may alter, amend, or repeal Bylaws
adopted by the shareholders.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Form SB-2 Registration Statement and Prospectus of
CarPartsOnSale.com, Inc. of our report dated June 22, 2000 accompanying the
consolidated financial statements of CarPartsOnSale.com, Inc. contained in such
Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Prospectus.
HEIN + ASSOCIATES LLP
Certified Public Accountants
July 25, 2000
Dallas, Texas
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is entered into by and between, INC., LTD.
("Customer") and ("Bank").
WHEREAS, the Customer is in the process of effecting an S-B2 public offering of
its shares common stock (the "Shares"); and
WHEREAS, prospective purchasers of the Shares ("Investors") will be tendering
funds to the Customer, subject to certain conditions; and
WHEREAS, the Customer desires that such funds be deposited at the Bank in an
interest bearing escrow account for safekeeping pending the results of the
offering of the Shares; and
WHEREAS, the parties desire to enter into certain agreements regarding said
escrow account;
NOW, THEREFORE, for Ten Dollars ($10) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties do
hereby agree as follows:
1. Appointment, Acceptance, and Compensation
(a) The Customer hereby appoints the Bank, a state banking association, as
its escrow agent under this Agreement and the Bank hereby accepts such
appointment. This Agreement will govern the relationship between the
Bank and the Customer with respect to the Escrowed Funds (as defined
in Section 3 below).
(b) The Bank shall receive no compensation for its services hereunder.
However, the Bank shall be reimbursed for all out-of-pocket expenses,
including, but not limited to, reasonable attorney's fees, incurred in
connection with the services rendered by the Bank pursuant to this
Agreement. Customer shall pay all expenses of the Bank under this
Agreement directly, and none of such expenses shall be charged against
or paid from the Escrowed Funds.
2. Establishment of Escrow Account. The Bank shall establish a bank account
under the name "CarPartsOnSale.com, Inc., Escrow Account" (the "Escrow
Account"). The Escrow Account shall be separate from any account of the
Customer. The Escrow Account shall bear interest at the prevailing rate.
3. Deposits to Escrow Account. The Customer may, from time to time, deliver,
or cause to be delivered, to the Bank, for deposit into the Escrow Account,
funds received from Investors. Such funds may be delivered by
<PAGE>
check or other instrument, or may be effected by wire transfer. Funds shall
be drawn on domestic branches of United States banks, shall be payable in
United States dollars, and shall be made payable to the order of
"CarPartsOnSale.com, Inc., Escrow Account." All funds delivered by the
Customer to the Bank, when cleared and collected, shall be referred to
herein as the "Escrowed Funds." The Bank is hereby authorized, on behalf of
the Customer, to endorse and forward for presentment and collection all
checks received on account of subscriptions for Shares. If, after the
receipt and deposit by the Bank of any check tendered in connection with
any subscription, such check shall be returned as uncollectable, the Bank
shall immediately return such check to the Customer for disposition.
4. Safekeeping of Funds. The Bank shall hold all funds deposited in the
Escrow Account in safekeeping until (i) the release of the Escrowed Funds
to Customer pursuant to Section 5 below, or (ii) the return of the Escrowed
Funds to the Investors pursuant to Sections 7 and 8 below. Additionally,
the Bank will: (a) allow the administrators of the states listed in
Schedule A the right to inspect and make copies of the records of the Bank
at any reasonable time wherever the records are located; (b) notify the
administrators of such states in writing upon the release of the Escrowed
Funds pursuant to Sections 5 and 8 below; (c) release and return the
Escrowed Funds to the Investors with interest and without any deductions
for expenses, including expenses of the Bank, in the event that the
subscriptions for the Shares are insufficient to meet the minimum offering
amount within the time specified in this Agreement
5. Escrow Release
(a) At such time as the conditions for the release of the Escrowed Funds
shall have been met, as described in Section
(b) below (the "Escrow Release"), the Bank shall immediately release and
deliver the Escrowed Funds to Customer.
(c) As a condition to the release of the Escrowed Funds to Customer, (i)
the total amount of the Escrowed Funds must equal or exceed Two
Million Dollars ($2,000,000); and (ii) Customer must provide the Bank
with a certificate, executed by the Customer under penalties of
perjury, that it has received subscriptions for the minimum number of
Shares as set forth in its prospectus.
6. Additional Deposits. From and after the Escrow Release, Customer may
continue to deposit funds from Investors into the Escrow Account, but shall
be entitled to immediately withdraw said funds upon written request.
7. Rejected Subscriptions. In the event that the Customer rejects any
subscription for any reason, the Bank shall, upon receipt of written
instructions from the Customer, return and deliver the Escrowed Funds
attributable thereto, with interest, if any, and without deduction, to the
Investor from whom the Escrowed Funds were received at the address provided
to the Bank by the Customer . Such funds shall be returned by certified
mail, return receipt requested, and the Bank may complete the return
receipt to such certified mail so that such receipts are returned to the
Customer.
8. Failure to Achieve Escrow Release. In the event that Escrow Release does
not occur on or before May 31, 2001, the Bank shall, not earlier than
thirty (30) days after such date (unless agreed to the contrary by the
Customer) nor more than sixty (60) days after such date, deliver to each
Investor, at the addresses provided by the Customer to the Bank, the
Escrowed Funds held on behalf of each Investor.
9. Ownership of Funds. The Bank does hereby acknowledge and agree that all
Escrowed Funds held in the Escrow Account shall, until disbursed to
Customer in accordance with the provisions of this Agreement, be held for
the benefit of each Investor and each Investor shall be considered the
owner of its respective Escrowed Funds for all purposes.
10. Successor Escrow Agents. The Bank, or any successor escrow agent, may
resign from its duties under this Agreement at any time by giving notice in
writing to the Customer and shall be discharged from its duties under this
Agreement on the first to occur of the appointment of a successor escrow
agent as provided in this Section , or the expiration of thirty (30)
calendar days after such notice is given, and may be discharged from its
duties under this Agreement upon receipt from the Customer of five (5) days
prior written notice of such discharge. In the event of any resignation or
discharge of the Bank, a successor escrow agent shall be appointed by the
Customer. A successor escrow agent shall be selected from among those state
or national banks possessing trust powers whose principal office is located
in the United States of America. Any successor escrow agent shall deliver
to the Customer and the Bank a written instrument accepting
<PAGE>
appointment under this Agreement, and thereupon it shall succeed to all of
the rights and duties of the Bank hereunder, and shall be entitled to
receive the Escrowed Funds. Upon the resignation or discharge of the Bank,
the Bank shall deliver all Escrowed Funds in its possession pursuant to the
terms of this Agreement to such person or persons as the Customer shall
designate in writing.
11. Rights, Privileges, Immunities and Liabilities of the Bank: The following
shall govern the rights, privileges, immunities and liabilities of the
Bank:
(a) Not Party to Other Agreements. The Bank is not a party to, and is not
bound by, any agreements involving the Customer other than this
Agreement.
(b) Indemnification. In the event the Bank becomes involved in any suit,
litigation, or other investigative or legal proceeding in connection
with this Agreement, the Escrowed Funds, or any matter related
thereto, the Customer agrees to indemnify and save the Bank harmless
from all loss, costs, damage, expense, liability, and attorney's fees
suffered or incurred by the Bank as a result thereof, except any such
loss, cost, damage, expense, liability, or attorney's fees that arise
as a result, directly or indirectly, of the Bank's gross negligence or
willful misconduct.
(c) Acting on Notices. The Bank shall have no responsibility for the
genuineness or validity of any document or other item deposited with
it, and shall be protected in acting in accordance with any written
notice, request, waiver, consent, certificate, receipt, authorization,
power of attorney, or other document or instrument that the Bank, in
good faith, believes to be genuine and signed by the proper parties.
(d) Standard of Care. The Bank shall not be liable for anything that it
may do or refrain from doing in connection herewith provided that it
acts in good faith.
(e) Consultation with Counsel. The Bank may consult with legal counsel in
the event of any dispute or question as to the construction of any of
the provisions of this Agreement or its duties hereunder, and it shall
incur no liability and shall be fully protected in acting in
accordance with the opinion and instructions of such counsel.
(f) Discharge of Obligations. The Bank, having transferred the Escrowed
Funds to the Customer or the Investors in accordance with the
provisions of this Agreement, shall be discharged from any further
obligations hereunder.
12. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered or mailed, first
class, certified or registered, postage prepaid, return receipt requested,
addressed to the party for whom they are intended at the following
addresses:
A. If to Bank: Bank address
B. If to Customer: CarPartsOnSale.com address Such names and
addresses may be changed by written notice.
13. Entire Agreement and Amendments. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein and may be amended or terminated (except as expressly
provided herein) only by a written instrument executed by all parties, or
their respective successors or assigns. There are no restrictions,
promises, warranties, covenants, or undertakings other than those expressly
set forth herein.
14. Headings. The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the state of Texas without regard to its
conflict of law rules.
16. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the Bank, the Customer, the Investors, and their successors
and assigns.
17. Provisions Severable. If any one or more covenants, agreements, or
provisions herein shall be held for any reason whatsoever invalid or
unenforceable, then such covenants, agreements, or provisions shall be null
and void and shall be deemed severable from the remainder of this Agreement
and in no way affect the validity of any such remainder.
18. Number and Gender. Whenever required by the context, any reference herein
to the singular shall include the plural, any reference to the plural shall
include the singular, and the gender of any pronoun shall mean
and include the appropriate gender, whether masculine, feminine, or neuter.
19. Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
EXECUTED this the , 2000
<PAGE>
INVESTOR SUBSCRIPTION AGREEMENT
FOR
CARPARTSONSALE.COM, INC.
Persons interested in purchasing shares ("Shares") of Common Stock of
CarPartsOnSale.com, Inc.(the "Company") must complete, execute, and deliver this
Subscription Agreement (the "Agreement") along with their check made payable to
CarPartsOnSale.com, Inc. Escrow Account, Bank Of America, NA, Escrow Agent to:
CarPartsOnSale.com, Inc.
580 Aviator Drive
Ft. Worth, Texas 76179
If and when accepted by the Company, this Agreement shall constitute a
subscription for shares of Common Stock, $.01 par value per share, of the
Company. The minimum investment is $1,100 (200 Shares).
The Company reserves the right to reject in its entirety any subscription which
is tendered or to allocate to any prospective purchaser a smaller number of
Shares than the prospective purchaser has subscribed to purchase. In such event,
the Company will return to you this Agreement your payment (or a pro rata
portion of your payment, if such subscription is rejected only in part), without
interest or deduction.
An accepted copy of this Agreement will be returned to you as your receipt, and
a stock certificate will be issued to you shortly thereafter.
I/we hereby irrevocably tender this Agreement for the purchase of ________
Shares at $5.50 per Share. With this Agreement, I/we tender payment in the
amount of $________ ($5.50 per Share) for the Shares subscribed.
In connection with this investment in the Company, I/we represent and warrant as
follows:
a. Prior to tendering payment for the Shares, I/we received and reviewed
the Company's Offering Circular dated ___________ 2000, and have relied
on no other information or materials in reaching my/our investment
decision.
b. I am/we are bona fide resident(s) of
----------------------------------
(State)
------------------------------------
(Country)
Please register the Shares which I am/we are purchasing as follows:
Name:
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As (check one):
Individual Tenants-in-Common
-----
Existing Partnership Joint Tenants
-----
Corporation Trust
-----
Minor with adult custodian
Under the Uniform Gift
to Minors Act
For the person(s) who will be registered shareholder(s):
Name Telephone
Street Address Social Security or Taxpayer ID number
City State Zip Date of Birth
Signature Date
ACCEPTED BY: CARPARTSONSALE.COM, INC.
By: Date:
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Its:
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