Registration No 333-42418
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
CARPARTSONSALE.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 44113 65-0911444
(State or jurisdiction (Primary Standard (I.R.S. Employer
of corporation or Industrial Classification Identification No.)
organization) Code Number)
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 market symbol "CPOS."
<PAGE>
"RISK FACTORS" START ON PAGE 5 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 [X].
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 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.
<PAGE>
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.
<PAGE>
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
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 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 100
shares, with a 300 share minimum. 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 September 30,
2001 except that we will have only until June 30, 2001 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.
The date of this prospectus is July 26, 2000
1
<PAGE>
TABLE OF CONTENTS
Page
Prospectus summary 3
Risk factors 5
Forward looking statements 8
Use of proceeds 8
Capitalization 11
Dilution 12
Management's discussion and analysis 13
Business 16
Business Description 22
Management 30
Principal stockholders 34
Related party transactions 35
Plan of distribution 36
Description of capital stock 42
Experts 45
Legal matters 45
Where you can find more information 45
Financial statements I
2
<PAGE>
PROSPECTUS SUMMARY
CARPARTSONSALE
We are a online seller of high-performance and specialty equipment.
High-performance and specialty equipment includes all products used to modify
the performance, appearance and/or handling of vehicles. These products are not
normally a part of vehicles as they come from the factory. According to the 1997
Specialty Equipment Market Association market report, the high-performance and
specialty equipment market reached $6.32 billion at the manufacturer level and
retail sales were $17.65 billion. We operate several related online communities
and store fronts. We also operate a combined distribution and retail location in
Texas, and another distribution location in California.
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
"CARPARTS".
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<PAGE>
SUMMARY FINANCIAL INFORMATION
INCOME SHEET DATA: APRIL 19,199 THRU JULY 31, 2000
<TABLE>
<CAPTION>
Inception To Inception To Three Months Ended
April 30, 2000 July 31, 1999 July 31, 2000
-------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES: 2,157,732 404,258 985,180
COSTS OF REVENUE 1,535,440 262,560 701,850
Selling expenses 312,514 79,358 148,219
General and administrative 669,604 115,668 231,716
Depreciation and amortization 70,837 14,669 22,266
Total operating expenses 1,052,955 209,695 402,201
LOSS FROM OPERATIONS (430,663) (67,997) (118,871)
Interest Income 2,864 (663) 1,469
NET LOSS $ (427,799) $ (68,660) $ (117,402)
NET LOSS PER COMMON SHARE,
basic and diluted $ (0.03) $ * $ (.01)
<FN>
*Less than $.01 per share
</FN>
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
31-Jul-00
Actual Minimum Maximum
<S> <C> <C> <C>
Current assets 1,480,467 3,480,467 12,080,467
Long Term Assets 392,163 392,163 392,163
Total assets 1,872,630 3,872,630 12,472,630
Current liabilities 222,089 222,089 222,089
Total stockholders' equity 1,650,541 3,650,541 12,250,541
<FN>
For the minimum number of shares under the offering, the as adjusted
balance sheet data at July 31, 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 July 31, 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 HAVE AN ACCUMULATED DEFICIT.
We have an accumulated deficit of $427,799 from our first year of
operation, with an additional loss of $117,402 occurring in the first quarter of
the second year. Our total accumulated deficit at July 31, 2000 $545,201.
WE HAVE A NEGATIVE CASH FLOW FROM OPERATIONS SINCE OUR INCEPTION.
We had a negative cash flow from operations of $1,119,593 in our first
fiscal year. This negative cash flow was primarily the result of inventory
acquisition of $947,000 and a net loss of $427,799.
THE SHARES YOU PURCHASE IN THIS OFFERING WILL BE IMMEDIATELY AND SUBSTANTIALLY
DILUTED.
The initial public offering price is higher than the net tangible book
value per share of our common stock. Purchasers of our common stock will
experience immediate and substantial dilution. The dilution will be 96% or $5.30
per share if the minimum is sold and 88% or $4.86 per share if the maximum is
sold.
THE TWO FOUNDER OF CARPARTSONSALE ARE ALSO THE OWNERS OF LONE STAR CLASSICS.
The two founding partners are also owners of Lone Star Classics. Lone
Star introduced customers to CarParts, which represented over 40% of our sales.
There could be the potential for a conflict of interest arising out of this
relationship. Currently CarPartsOnSale pays Lone Star Classics a commission
equal to 30% of sales for all referrals generated by Lone Star. This commission
is based on the total sale generated by these referrals and the gross profit
margins gained by CarPartsOnSale. The commission structure is evaluated every
quarter and may be adjusted as necessary. In no event will the gross profits
minus the commissions paid to Lone Star be less than the total gross profit
margin we receive from our best non related wholesale customers.
WE DID NOT ENGAGE AN INDEPENDENT APPRAISER TO EVALUATE THE FAIR MARKET VALUE OF
OUR ACQUISITIONS.
We did not engage an independent appraiser to evaluate the fair market
value of our acquisitions of Crown Communications. You have no assurance the
value we assessed is the fair market value. The remaining goodwill associated
with this transaction is $157,038.
OUR FUTURE SUCCESS DEPENDS TO SIGNIFICANT EXTENT ON THE EFFORTS AND ABILITIES OF
SENIOR MANAGEMENT.
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 do not have key man life
insurance on any of our management or employees.
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.
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<PAGE>
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.
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.
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
6
<PAGE>
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.
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.
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 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-dealers 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 or the American Stock Exchange.
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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 $300,000 15.00% $1,800,000 16.98%
Marketing and advertising 675,000 33.75% 3,600,000 33.96%
JV's/Acquisitions 250,000 12.50% 2,300,000 21.70%
Facilities 325,000 16.25% 700,000 6.60%
Computer equipment 150,000 7.50% 600,000 5.66%
Working capital and general
corporate purposes 300,000 15.00% 1,600,000 15.09%
$2,000,000 100.00% $10,600,000 100.00%
</TABLE>
"New product development" costs includes those associated with
developing 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
direct marketing campaigns
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>
"JV's/Acquisitions" cost include those cost associated with research,
development and purchase price of any Acquisitons or joint ventures. At this
time we have not researched or developed any potential acquisitons or joint
ventures. Once we begin this process we will focus on complimentary businesses
that have a stronger presence in areas where we are not as exclusively on
foreign performance parts.
"Facilities" costs consist of the following:
leasehold improvements
furniture
equipment
the development of additional facilities to house our operations
"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 new 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 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 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.
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<PAGE>
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 amounts above are estimates and may be subject to change. At this time we
believe this to be the best representation of the projected allocation of
proceeds, and do not foresee any substantial deviation. However the level and
timing of each project will depend on numerous factors such as,
- changes in competition or other conditions in our industry;
- the amount of revenues resulting from our operation;
- the progress of our product development activities;
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.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at July 31, 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
July 31, 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;
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 (275,177) (275,177) (275,177)
Accumulated deficit (545,201) (545,201) (545,201)
Total stockholders' equity $1,650,541 $3,650,541 $12,250,541
</TABLE>
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<PAGE>
DILUTION
Our net tangible book value at July 31, 2000 is $1,384,782 or $.08 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 July 31, 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 July 31, 2000 would be $3,384,782 or $.19 per share in
the event that the minimum number of shares offered in this offering are sold,
or $11,984,782 or $.63 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 $5.31 per share
to new investors in the event that the minimum number of shares offered in this
offering are sold or $4.87 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.......................... .08 .08
Increase per share attributable to new investors........................... .11 .55
----- -----
As adjusted net tangible book value per share after offering.................. .19 .63
----- -----
Dilution per share to new investors ....................................... $5.31 $4.87
===== =====
Percentage that new investors' shares are diluted............................. 97% 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 $2,196,000 $2,200,000 4,396,000
Percentage of consideration paid 49.95% 50.05% 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 $2,196,000 $11,000,000 $13,196,000
Percentage of consideration paid 16.64% 83.36% 100%
Average consideration per share of common
Stock $0.13 $5.50 $0.69
</TABLE>
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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 a capital expense. Website development and product expenses in the
year ended April 30, 2000 were approximately $160,000, of which approximately
$86,000 were capitalized.
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. We have a referral program whereby
other companies that refer customers to us 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.
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 significant
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
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<PAGE>
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.
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 2000.
REVENUE
Our revenue increased $580,922 or 144% from $404,258 for the period
ending July 31, 1999 to $985,180 for the period ending July 31, 2000. Primarily
due to the increase in Internet related sells. In our first period of operations
Lone Stars' customers represented over 67% of our revenues compared to less than
44% of our revenues for the period ending July 2000
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased $68,861 or 87% from $79,358 to
148,219. The increase is due to the additional selling commissions paid to
business accounts for sales to their customers.
GENERAL AND ADMINISTRATIVE EXPENSES
G&A expenses increased $116,048 or 100% from $115,668 to $231,716. This
increase was the result of growing our operations.
BUSINESS SEGMENTS
We have three retail operations, which represent two business segments.
CarPartsOnSale.com and The Razing Zone represent the auto parts segment. This
segment constitutes Business to Business and Business to Consumer Internet and
retail walk in auto parts sales. Crown Communication represents the publishing
segment. This segment consists of Internet sales of publishing material and die
cast models to the consumer. The auto parts segment represents 89% of sales,
100% of net loss and 98% of cash flow for the year ended April 30, 2000. The
publishing segment represents 11% of sales and 2% of cash flow for the same
period. For the period ending July 31, 2000 the auto parts segment was 95% of
sales, 100% of net loss and 100% of cash requirements, the publishing segment
was the balance. For the period ending July 31, 1999 the auto parts segment was
85% of sales, 100% of net loss and 99% of the cash required.
OTHER INCOME AND EXPENSES
We received interest income on our interest bearing cash accounts.
LIQUIDITY AND CAPITAL RESOURCES.
We had not achieved profitable operations through April 30,2000 or July
31, 2000. However, management believes our net working capital which was
$1,258,378 at July 31, 2000 and $1,389,436 at April 30, 2000 will be sufficient
to allow adequate time for us to fully implement our 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
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<PAGE>
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 ($1,128,000).
Approximately $947,000 of this amount was used to acquire inventory.
We had cash and cash equivalents at July 31, 2000 of $147,000 and
$98,000 at April 30, 2000. We had working capital of $1,258,378 and $1,389,436
respectively. 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.
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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BUSINESS
OVERVIEW
THE COMPANY
CarPartsOnSale is a Texas-based corporation that sells high-performance and
specialty automobile parts, along with aftermarket replacement parts via the
Internet. Our primary focus is in the high-performance and specialty equipment
area. In 1996 high-performance and specialty equipment sales were over $6
billion at the manufacturer level and retail sales topped $17 billion, as
reported in 1997 Specialty Equipment Market Association market report. The
Automotive Parts and Accessories Assoication reports in their 1998 retail market
trends publicaiton that the automobile aftermarket replacement parts market is
over $32 billion. Car Parts currently owns and operates several related Internet
sites - including carpartsonsale.com - which offer over 1 million car parts.
CarParts 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, CarParts 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 "CarParts" refer jointly to
CarPartsOnSale.com, Inc., The Racing Zone, Inc., Crown Communications, Inc.,
and/or their respective divisions, as appropriate.
Today, CarParts 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. CarParts' 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 CarParts, we plan 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
CarParts is a retailer that combines an Internet-based operation
carpartsonsale.com, with a storefront, The Racing Zone, to market and distribute
auto parts used by do-it-yourself and professional mechanics. We specialize in
high-performance parts used to build or improve hot rod style cars. CarParts
also offers replica classic cars, publications for do-it yourself auto
enthusiasts, original or aftermarket manufactured replacement auto parts, and
specialized auto accessories and automotive supplies. CarParts has also recently
opened one of the largest auto related cyber swap meets on the web.
MARKETING AND SALES STRATEGY
Management believes we provide 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. CarParts 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.
CarParts currently has secured supply relationships with over 100 performance
part manufacturers. These relationships give CarParts access to low wholesale
prices . This low pricing combined with CarParts' experience and the efficiency
of a well-executed e-commerce strategy provide a competitive advantage to
attract this customer segment.
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CarParts has started serving independent car part retailers by providing them
CarParts consignment kiosks. These kiosks will feature attractive designs and
tie directly to the CarParts ordering system thereby allowing retailers who
currently don't offer performance parts to enter the category with no setup
outlays or ongoing inventory costs.
CarParts 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.
Currently our overall business to business initiative represents about 25% of
our total sales. The split between kiosks and repair shop sales is about equal.
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, CarParts has started bringing together businesses and
amateur mechanics who will buy, sell and exchange auto parts. In the future
these customers will either lease a booth, or pay a transaction fee, for the
right to list their products on our site. To date we have not focused much
effort on this aspect of our business, however it has continued to grow in
listing and page views each month. 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 performance parts market as a reliable,
rapid, low-cost e-commerce site, CarParts will focus more energy into the
replacement parts market. This will be a lower margin, volume-driven strategy
enabled by CarParts' relationship with one a large independent auto parts
distributor who will fulfill CarParts' 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 specialty 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.
17
<PAGE>
INDUSTRY OVERVIEW
The automotive aftermarket is composed of three major segments; repair parts,
service and specialty equipment. The repair parts segment provides products
designed for maintaining or repairing the vehicle. These products are very
similar to their original factory counterparts. The service segment provides
maintenance and repair services for our vehicles. In contrast, the specialty
equipment segment encompasses all products and services used to modify the
performance, appearance and/or handling of vehicles and relatd equipment such as
motorcycles, ATVs, boats and other power units. These products and services are
not normally a part of vehicles as they come from the factory.
According to the 1997 Specialty Equipment Market Association market report 1996
sales of automotive specialty products reached $6.32 billion at manufacturer
level and retail sales were $17.65 billion. An increase of 45.2 percent from
1990, when the manufacturers' sales of specialty equipment was $4.352 billion.
This high-performance and specialty market has traditionally been dominated by
fragmented, independent parts shops and a few large catalog operations. The
Automotive Parts and Accessories Association reports in their 1998 retail market
trends publication that the automobile aftermarket replacement parts market in
the U.S. is $158 billion, of which, sales to do-it-youself enthusiasts comprise
$32 billion.
These aftermarket parts industries currently rely 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. CarParts, 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
CarParts' 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
CarParts 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
18
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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.
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
CarParts 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 CarParts system, which will increase CarParts'
buying power with suppliers, thereby effecting even greater discounts to be
passed through the value chain to an ever-growing user base.
PERFORMANCE AND SPECIALTY PARTS INDUSTRY HIGHLIGHTS
The following information was obtained using the 1997 Specialty Equipment Market
Association market report. Over the last decade the specialty equipment market
has experienced an average annual growth rate of nearly 8 percent. During the
same time frame the overall automotive aftermarket grew by an average of 3.4
percent, and U.S. Gross Domestic Product showed an average annual growth of 2.36
percent.
Table 1. Manufacturer Sales by Market Segment 1996
SEGMENT 1996 REVENUES ($ BILLIONS) % OF TOTAL REVS.
------------------------ -------------------------- ----------------
Specialty Accessories
and Appearance $ 3.23 51.1%
Racing and Performance $ 1.52 24.1%
Wheels, Tires, and
Suspension $ 1.57 24.8%
Total $ 6.32 100.0%
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Since 1990, speed shops and performance retailers have lost market share in
virtually every product group reviewed by this project. Some of the largest
decreases have been in exhaust products, custom wheels, ignition products,
carburetor and fuel system products, and chassis and brake products.
While some retail outlet types have experienced declines in their specialty
equipment sales since 1990, mail order has increased its market share in
two-thirds of the product groups studied. Two product groups in particular have
shown large shifts to mail order sales-carburetor and fuel system products, and
engine products.
REPLACEMENT AUTO PARTS INDUSTRY HIGHLIGHTS
INDUSTRY SIZE
Sales of automotive aftermarket products and services in 1998 totaled $159
billion. The industry encompasses:
o service and repair;
o do-it-yourself parts and accessories;
o tires and tubes;
o gasoline and other fuels;
o lubricants.
After several years of slowing growth, sales of do-it-yourself parts and
accessories grew slightly faster than the overall industry to comprise $32
billion in 1998. Table 1 segments the total automotive aftermarket in 1998.
Table 2. Automotive Aftermarket Segments 1998
SEGMENT 1998 REVENUES ($ 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 CARPARTS' IMPACT
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 3. 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
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Auto Parts Wholesale
Parts Depot Company
Jobber Retailers General Parts
Genuine Parts
O'Reilly Auto Parts
Fisher AP
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.
CarParts will attempt to change the industry structure by offering wholesale
prices direct to do-it-yourself and professional customers. Currently CarParts
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 CarParts' potential impact is best characterized by thefollowing
example:
Table 4. Example of how a Replacement part moves through the distribution chain.
Performance parts follow the same process, but margins are higher at each step.
STEP IN DISTRIBUTION CHAIN CAR PARTS PROCESS TRADITIONAL PROCESS
-------------------------- ------------------- --------------------
CarParts pays $100
Jobber Pays $106 $120
Retailer pays $106 $120
Garage pays $122 $132-144
Consumer pays $122 + shipping $145-160 + sales tax
CarParts 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. We 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
CarParts 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,
we 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 CarParts' money saving
efficiency
Strategic Focus
CarParts has a simple mission: provide outstanding customer service, discounted
prices, offer the widest possible variety of high-performance, specialty,
accessories and replacement auto parts and fill orders quickly. We intend 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, CarPartsOnSale today offers 1 million over the
Internet and has 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:
o focuses on dominating the online retailing of performance car parts and
brings more performance part consumers to the online channel;
o extends the CarParts' value proposition to independent parts retailers
and professional mechanics;
o makes CarParts 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 CarParts' 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 CarParts to
offer the widest variety of products at discounted prices;
Development of the CarParts brand in a way that engenders loyalty and
respects the self-sufficiency and talent of automotive hobbyists;
A clear focus on the target market: higher-margin products sold to
high-performance automotive hobbyists at the lowest possible price.
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The Car Parts on Sale Advantage
The CarPartsOnSale concept is a new method of attracting do-it-yourself and
professional mechanics to purchase their performance parts, replacement parts,
and accessories through our online virtual parts warehouse superstore.
THE CARPARTSONSALE GUARANTEE:
"YOU WILL RAPIDLY RECEIVE THE HIGHEST QUALITY PRODUCT
AT THE LOWEST PRICE AVAILABLE OR YOUR MONEY BACK."
Operations
CarPartsOnSale currently operates over 20 web sites, three warehouses, a
publishing company, and a retail performance auto parts store. We employ 16
people full-time and offer over 1 million parts for sale through its website.
FULFILLMENT DIRECT FROM MANUFACTURER. CarParts fills about 30% of customer
orders from its warehouse inventory. The bulk of orders are received by
CarParts, transmitted to original manufacturers and shipped directly to the
consumer or shop directly from the manufacturer. For those manufacturers not
currently shipping CarParts orders direct to customers, CarParts plans to
established a temporary network of part-time representatives paid on a
piece-part basis who live nearby the manufacturer's production facility.
CarParts 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 CarParts representative then makes direct shipping
arrangements. Ultimately, CarParts will try to establish direct-ship
capabilities with every major performance part manufacturer.
INTERNET, PHONE OR FAX ORDERING. CarPartsOnSale 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 CarParts costs.
CUSTOMER DATABASE. Each CarParts 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 CarParts' success is access to wholesale prices.
CarParts has access to Warehouse Distributor prices from most major performance
product manufacturers such as Holley Performance Products and Edelbrock.
CarParts, through The Racing Zone, has access to all Ford Motorsports parts at
Warehouse Distributor pricing. These Warehouse Distributor designations allow
CarParts 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.
STAR AUTOMOTIVE FOR REPLACEMENT PARTS. Currently, only about twelve percent of
CarParts 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%). CarParts has
reached an agreement with one of the nation's largest independent supplier of
replacement parts--Star--whereby Star will take orders from CarParts and ship
products directly to the do-it-yourselfer or professional mechanic. CarParts is
currently working to tie together Star and carpartsonsale.com database systems
to allow real-time inventory visibility and fully automatic order fulfillment.
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CONTENT AND COMMUNITY
CarPartsOnSale.com will feature functionalities important to do-it-yourselfers
and professional mechanics that will build the CarParts brand, drive new traffic
to the site, and engender stickiness to the site for users.
PRODUCT REVIEWS. CarParts 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. Carparts 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 CarParts products.
BULLETIN BOARD/CHAT. Carpartsonsale.com's website should 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. CarParts is also targeting auction sales as a lucrative extension.
Currently we offer a limited number of parts for sale on some of the more
popular auction sites, while developing our own functionality. In the future
these offerings will be expanded and CarParts will offer its own auction
functionality where any consumer or shop can sell or barter their surplus wares.
Current Programs
BUSINESS TO BUSINESS
CarPartsOnSale 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.
We see 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, CarParts 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.
We may seek to acquire a company that currently serves small high-performance
garages as part of this program. Currently we have made no arrangements,
agreements or understandings to acquire such company.
BUSINESS TO PERFORMANCE CONSUMER
Carparts intends to dominate performance parts Internet retailing by fully
exploiting the cross-marketing opportunities from the various CarParts 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 CarParts 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, a retail storefront in Arlington, Texas.
This program may also include purchasing or merging with other regional auto
parts retailers with substantial Internet sales. Currently we have made no
arrangements, agreements or understandings to acquire or merge with any such
company.
We will continue to take advantage of our relationship with Lone Star Classics,
which has provided us with
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substantial revenues and valued customers. As our business has continued to
grow, Lone Star's customers have become an ever decreasing portion of our sales.
We expect this trend to continue in the future. We currently have plans designed
to develop other relationships like the one we have with Lone Star, which may
result in this type of revenue continuing to represent over 40% of sales.
From a technological and marketing perspective the Business to Consumer strategy
will be enhanced by CarParts' 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 CarParts will mine and use later for targeted marketing efforts.
BUSINESS TO GENERAL PARTS CONSUMER
This effort should start in late 2000. During this phase CarPartsOnSale will
center on switching more do-it-yourself consumers to purchasing general
replacement parts over the Internet, and refining the CarParts 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 CarParts.
ADVERTISING REVENUE
CarParts 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
CarPartsOnSale 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
our 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.
CarParts 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 our 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 CarParts community grows
unto itself product reviews become broader, chatroom activity more broad scale,
event-presence more visible and transaction-intensity grows, thus improving our
leverage with suppliers.
CarPartsOnSale 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 CarParts 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
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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 cars. 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
We believe 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
CarParts will expend its marketing resources on traditional and untraditional
marketing, advertising and public relations in order to effectively reach and
stimulate each target customer.
In efforts to obtain the most extensive exposure in the marketplaces, we have
allocated $2 million in fiscal 2001 for advertising and promotion. For the
fiscal years 2002-03 we may commit up to 35% of sales to the critical area of
marketing and brand building. Such a significant investment should secure
CarParts as one of the leading online provider of performance and replacement
parts to do-it-yourselfers and professionals. Starting in 2003 CarParts will
commence harvesting this initial investment, but will continue to allocate 3%-4%
of total sales in advertising and brand-building efforts.
MEDIA PURCHASES. CarpartsOnSale's internal marketing and advertising staff will
coordinate production of carpartsonsale.com advertising programs. We will use
outside production services on a competitive bid basis for specified projects
requiring talent or services not available within CarParts. We consider
efficient and effective media placement for the carpartsonsale.com virtual
performance parts superstore to be a critical aspect for its success. CarParts
will spend the majority of marketing resources in this category, so a clear
strategy and effective implementation to achieve maximum weight is paramount.
CARPARTS' overall advertising objective is to achieve maximum results for the
dollars spent, and management anticipates that medium will be differentially
effective between various markets. CarPartsOnSale 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. We have 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 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.
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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. We have established 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, CarParts 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. CarParts considers as its competition companies that offer
for sale: high-performance specialty parts and publications,
aftermarket-manufactured parts and accessories, and kit cars. We do not consider
companies that sell salvaged auto parts or parts for antique/classic replica
cars to be competitors. The competition can be broken into two groups: online
and offline.
1. ONLINE COMPETITION
CarParts enjoys two significant advantages over current competitors who are
attempting to retail car parts over the
Internet. First, CarParts has access to warehouse distributor pricing when
buying its parts from the 100 of the top performance parts manufacturers. This
arrangement enables CarParts 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, CarParts' 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.
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2. OFFLINE COMPETITION
Ninety-nine percent of all performance auto parts are purchased offline through
retailers, jobbers, or catalogs. CarParts' 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
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.
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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 October, 2000, we had a total of 17 employees. Since we are a
small company, all management and most other employees perform multiple
functions, however the primary functions can be grouped as follows, 4
management, 2 accounting, 4 technical, 4 sales and 3 shipping/support. None of
our employees are represented by a union, 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
CarParts 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 CarParts operations. Thus we will
subcontract with many specialized service providers and talented individuals in
the beginning stages to maximize results while reducing startup costs and
overhead.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current executive officers and directors:
NAME AGE POSITION
-------------------- --- --------------------------------------------
Scott Hudson 37 president, chief executive officer, director
Stephen Newmark 42 vice president, director
Mike Davis 42 secretary, director
Barry Yankelevitz 56 treasurer, director
Curt Scott 54 director
Scott Condron 37 director
Earnest Henderson 44 director
Set forth below is a brief description of the background of our
officers and directors.
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.
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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. Mr.
Yankelvitz holds a Series 7 license through Questar Capital Corp.
Scott Condron was elected as an independent director on September 19, 2000. In
June 1999 Mr. Condron joined Financial Technologies International as Senior Vice
President, Capital Markets Technology. From January 1993 until May 1999 Mr.
Condron was employed by Republic National Bank where he held various role in the
financial engineering department. He holds a BS from Rochester Institute of
Technology.
Earnest Henderson was elected as an independent director on September 19, 2000.
In March 1999 Mr. Henderson joined as Technology Architect for EMC Corporation.
From 1988 to March 1999, he held various systems engineering positions at Amdahl
Corporation. He holds a BS in Computing Science from Texas A&M 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
elected Scott Condron and earnest Henderson as directors on September 19, 2000
during a special meeting. 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, Scott Condron, Earnest Henderson and Barry Yankelvitz. 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, Steve
Newmark, Scott Condron and Earnest Henderson. The compensation committee
generally reviews and approves our executive 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> <C> <C>
Scott E. Hudson 1999 80,000
President and chief
executive officer
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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.
2000 STOCK OPTION PLANS
We have adopted the 2000 employee stock option plan in order to motivate our
qualified employees 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, to our key employees.
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
executive employees.
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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. Stock options, whether incentive stock
options or nonqualified 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. The 2000 consultant plan was amended on October 2, 2000, to provide that
no options will have a maturity in excess of five years. 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 July 31, 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, which were issued prior to October 2, 2000 amendment
discussed above, 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, 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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of July 31, 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
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
All officers and directors 16,480,000 97.1% 94.8% 86.8%
as a group (6 persons)
</TABLE>
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RELATED PARTY TRANSACTIONS
A significant portion of CarPartsOnSale's sales are referred by Lone Star
Classics, Inc. ("Lone Star"). A majority of Lone Star is owned by
CarPartsOnSale's two founding shareholders. During the period ended April
30, 2000, $991,935 of our auto parts sales were to customers referred to us
by Lone Star. Under the agreement between CarPartsOnSale 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, we
had 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 us. CarPartsOnSale has a referral
program whereby other parties that refer customers to us 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 October 31, 2000, we have an unsecured advance receivable from an
officer in the amount of $7,500. The receivable in non-interest bearing and
is due on demand. This receivable will be offset against the $35,000 salary
payable due this officer.
As of October 31, 2000 we have stock subscriptions receivables of $111,600,
which we expect will be paid in full by January 31, 2001. This receivable
has been ratified by a majority of the independent directors on the
Company's board of directors, who did not have an interest in the
transations and who had access, at the Company's expense, to the Company's
or independent legal counsel.
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.
Each past transaction with any officers, directors or five percent
stockholders were on terms no less favorable to us than would be available
from unaffiliated third parties.
The Company will maintain at least two independent directors on it board of
directors.
We lack sufficient disinterested, independent directors to ratify past
material transactions at the time the transactions were initiated. 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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<PAGE>
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.
STATE REGISTRATION
We have filed for registration in all but two states. We will only
accept subscriptions from investors resident in the states where we qualify. 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.
We have implemented certain marketing concepts to reach a broader
audience for our securities. This plan submits limited number of URLs we have
registered to most of the major search engines. As these URLs are accepted by
the search engines, consumers who use the Internet to search for IPOs might find
a listing for the CarPartsOnSale.com IPO. These URLs will be used exclusively to
display our "tombstone" ad, with a link to our prospectus page. The URLs we have
currently registered are; private-stock-offering.com, direct-purchase-stock.com,
private-offering.com, buying-stock-share.com, investing-in-stock.com. At this
time we have not placed our "tombstone" with any third party agencies, however
we may do so as long as the practice is in accordance with SEC release No.
33-7856. We may also use a variety of print or radio media. All marketing
concepts should conform to SEC rulings regarding such matters.
No sales commissions will be paid to any of our officers or directors.
Prospective investors must purchase the shares in increments of 100 shares, with
a 300 share minimum. Until we have sold at least 400,000 shares, we will not
accept subscriptions for any shares. No officers, directors or promoters of
CarPartsOnSale will purchase shares in the offering in order to achieve the
minimum offering amount. All proceeds of this offering will be deposited in an
interest bearing escrow account with First American Stock Transer. 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 September 30, 2001, except that we will have only until June 30,
2001 to sell at least 400,000 shares. We may decide to cease selling
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<PAGE>
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;
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
First American Stock Transfer, 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"
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<PAGE>
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:
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]. Any investor who wishes to revoke
their consent for electronic delivery will not be excluded
from this offering.
DOES COMPLETING THE "SUBSCRIPTION INTEREST" FORM OBLIGATE ME TO BUY SHARES?
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<PAGE>
No. You are under no obligation to purchase any shares until
all of the following have occurred:
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
our escrow agent is First American Stock Transfer
proceeds from the sale of the shares will be deposited into an
interest bearing account until the minimum offering amount is
sold;
in the event the proceeds are insufficient to meet the 400,000
share minimum requirement, proceeds
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<PAGE>
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
16,103,123 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 second anniversary of the completion date of the offering;
the date all funds have been sent to investors if the offering
was terminated; or
the date the shares become "covered securities" as defined in
Section 18(b)(1) of the Securities Act of 1933. These are
securities listed or authorized for listing on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market, or other national securities exchanges which
the Securities and Exchange Commission has determined have
listing standards substantially simular to the listing
standards applicable to those securities.
During the term of the lock-in agreement, beginning on the first anniversary of
the date the offering is completed, two and one-half percent of the shares
covered under the agreement shall be released from the lock-in provision each
quarter.
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<PAGE>
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.
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
42
<PAGE>
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.
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 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. 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
43
<PAGE>
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.
TRANSFER AGENT
The transfer agent for the common stock will be First American Stock
Transfer, Inc. Phoenix Arizona.
OHIO SUITABILITY REQUIREMENTS
Purchasers who are residents of the State of Ohio must meet the following
financial criteria:
a minumum annual gross income of $65,000 and a minimum net worth of
$65,000, exclusive of home, home furnishings and automobiles, or
in the alternative, a minimum net worth of $150,000, exclusive of home,
home furnishings and automobiles
44
<PAGE>
EXPERTS
Our financial statements as of April 30, 2000 and for the period
from inception to 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. 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. 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.
45
<PAGE>
CARPARTSONSALE.COM, INC.
CARPARTSONSALE.COM, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
I
<PAGE>
CARPARTSONSALE.COM, INC.
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>
CARPARTSONSALE.COM, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
ASSETS
July 31, 2000 April 30, 2000
------------- --------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 147,825 $ 98,039
Trade accounts receivable - no allowance for
doubtful accounts considered necessary 123,237 102,602
Receivable for common stock issuance - 295,750
Employee advances and other receivables 8,286 7,745
Inventory 1,161,310 1,017,038
Prepaid expenses 39,809 52,312
---------- ----------
Total current assets 1,408,467 1,573,486
PROPERTY AND EQUIPMENT, net 58,581 63,723
GOODWILL, net of accumulated amortization of $52,345
and $41,877 157,038 167,506
OTHER ASSETS 176,544 107,278
---------- ----------
Total assets $1,872,630 $1,911,993
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 25,595 $ 25,745
Accounts payable and accrued liabilities 182,864 144,666
Payable to related party 13,630 13,639
---------- ----------
Total current liabilities 222,089 184,050
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, 25,000,000 shares authorized, par value of $0.01,
17,016,931 and 16,947,966 shares issued and outstanding,
respectively 170,170 169,480
Common stock - subscribed (0 and 68,965 shares, respectively) - 690
Additional paid-in capital 2,300,749 2,300,749
Receivable from stockholders (275,177) (315,177)
Accumulated deficit (545,201) (427,799)
---------- ----------
Total stockholders' equity 1,650,541 1,727,943
---------- ----------
Total liabilities and stockholders' equity $1,872,630 $1,911,993
========== ==========
See accompanying notes to these consolidated financial statements
</TABLE>
III
<PAGE>
CARPARTSONSALE.COM, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Inception To Inception to
July 31, 2000 July 31, 1999 April 30, 2000
------------- ------------- --------------
(Unaudited) (Unaudited)
REVENUES:
<S> <C> <C> <C>
Auto parts sales, net $ 933,892 $ 344,559 $1,925,918
Publication and model sales, net 51,288 59,699 231,814
---------- ---------- ----------
Total revenue 985,180 404,258 2,157,732
COSTS OF REVENUE 701,850 262,560 1,535,440
---------- ---------- ----------
GROSS PROFIT 283,330 141,698 622,292
OPERATING EXPENSES:
Selling expenses 148,219 79,358 312,514
General and administrative 231,716 115,668 669,604
Depreciation and amortization 22,266 14,669 70,837
---------- ---------- ----------
Total operating expenses 402,201 209,695 1,052,955
---------- ---------- ----------
LOSS FROM OPERATIONS (118,871) (67,997) (430,663)
INTEREST INCOME, NET 1,469 (663) 2,864
---------- ---------- ----------
NET LOSS $ (117,402) $ (68,660) $ (427,799)
=========== ========== ==========
NET LOSS PER COMMON SHARE, basic and diluted $ (.01) $ * $ (0.03)
=========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 17,016,932 16,455,105 16,762,616
=========== ========== ==========
<FN>
*Less than $.01 per share
</FN>
</TABLE>
See accompanying notes to these consolidated financial statements
IV
<PAGE>
CARPARTSONSALE.COM, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 19, 1999) TO July 31, 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
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 - - - - - - (427,799) (427,799)
---------- ------- ------- ------ ---------- ---------- ---------- -----------
BALANCES, April 30, 2000 16,947,966 $169,480 68,966 $ 690 $2,300,749 $ (315,177) $ (427,799) $ 1,727,943
Repayment of receivable from
stockholders (unaudited) - - - - - 40,000 - 40,000
Common shares issued (unaudited) 68,965 690 (68,965) (690) - - - -
Net loss for period (unaudited) - - - - - - (117,402) (117,402)
---------- ------- ------- ------ ---------- ---------- ---------- -----------
BALANCES, July 31, 2000 (unaudited) 17,016,931 $170,170 - $ - $2,300,749 $ (275,177) $ (545,201) $ 1,650,541
========== ======== ======= ====== ========== ========== ========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
V
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Inception To Inception to
July 31, 2000 July 31, 1999 April 30, 2000
------------- ------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(117,402) $ (68,660) $ (427,799)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 22,266 14,669 70,837
Stock based compensation expense 15,407 3,408 40,126
Salaries paid with common stock 40,000 30,000 120,000
(Increase) decrease in current assets:
Trade receivables (20,635) (112,935) (86,474)
Inventory (144,272) (812,396) (947,386)
Prepaid Expenses (2,904) - -
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 38,198 36,323 105,370
Payable to related party (9) 13,639 13,639
Other (542) - (7,906)
--------- --------- -----------
Net cash used by operating activities (169,893) (895,952) (1,119,593)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (57,675) (62,980)
Increase in other assets (75,921) (2,103) (124,584)
Cash acquired in acquisitions of subsidiaries - 3,423 3,423
--------- --------- -----------
Net cash used by investing activities (75,921) (56,355) (184,141)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (150) (220) (756)
Proceeds from sales of common stock, net of offering costs 295,750 964,823 1,402,529
--------- --------- -----------
Net cash provided by financing activities 295,600 964,603 1,401,773
--------- --------- -----------
NET INCREASE IN CASH 49,786 12,296 98,039
CASH, beginning of period 98,039 - -
--------- --------- -----------
CASH, end of period $ 147,825 $ 12,296 $ 98,039
========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 674 $ 663 $ 4,093
Common stock issued to acquire companies $ - $ 245,025 $ 245,025
Stock based compensation for prepaid expense $ - $ 57,934 $ 52,312
Exercise of common stock options for receivables $ - $ - $ 295,750
Net assets acquired from Crown Communications $ - $ 35,804 $ 35,804
</TABLE>
See accompanying notes to these consolidated financial statements
VI
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(the period subsequent to April 30, 2000 is unaudited)
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 On Sale, 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. (The Racing Zone), 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. (Crown) 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. Inventory consisted of the
following:
<TABLE>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Performance Auto Parts $ 1,098,846 $ 953,160
"Classic car" models, memorabilia and publications 62,464 63,878
------------ ------------
$ 1,161,310 $ 1,017,038
============ ============
</TABLE>
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, and
$10,469 and $10,469 for the periods ending July 31, 2000 and 1999,
respectively.
WEB SITE DEVELOPMENT COSTS
The Company accounts for web site development costs in accordance with
Emerging Issues Task Force No. 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT
COSTS. Capitalized costs are amortized on a straight-line basis over five
years. Capitalized web site development costs were $108,721 and $69,225 at
July 31, 2000 and April 30, 2000 respectively, net of accumulated
amortization of $23,940 and $17,305, respectively.
VII
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
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 July 31, 2000 and
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 July 31, 2000 or
April 30, 2000. However, management believes the Company's net working
capital which was $1,258,378 at July 31, 2000 and $1,389,436 at April 30,
2000 will be sufficient to allow adequate time for the Company to fully
implement its business plan.
UNAUDITED INFORMATION
The consolidated balance sheet as of July 31, 2000 and the consolidated
statements of operations for the three month periods ended July 31, 2000
and 1999 were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all
adjustments (consisting only of normal recurring accruals) which are
necessary to properly reflect the consolidated financial position of the
Company as of July 31, 2000 and the results of operations for the three
months ended July 31, 2000 and 1999.
2. ACQUISITIONS
THE RACING ZONE, INC.
On April 19, 1999, the Company acquired all the outstanding common stock of
The Racing Zone 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 operations. The
results of The Racing Zone are included in the accompanying financial
statements beginning April 19, 1999.
VIII
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
CROWN COMMUNICATIONS, INC.
On April 27, 1999, the Company acquired all the outstanding common stock of
Crown 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 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:
July 31, 2000 April 30, 2000
------------- --------------
Leasehold improvements $ 41,793 $ 41,793
Office equipment and software 33,584 33,584
--------- ---------
75,377 75,377
Less accumulated depreciation (16,796) (11,654)
--------- ---------
$ 58,581 $ 63,723
========= =========
Depreciation expense for property and equipment of $11,654 was recognized
for the period ended April 30, 2000, and $5,142 and $4,200, respectively,
for the periods ending July 31, 2000 and 1999.
4. NOTE PAYABLE
The Company has a note payable with a financial institution with a balance
of $25,745 and $25, 595, respectively, at April 30, 2000 and July 31, 2000.
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.
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. The two founding stockholders'
total compensation of $120,000, $40,000 and $30,000 respectively, for the
periods ending April 30, 2000, July 31, 2000 and July 31, 1999, was offset
against the stock subscriptions receivable. The balance of stock
subscriptions receivable from these individuals of $315,177 and $275,177,
respectively, as of April 30, 2000 and July 31, 2000, 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.
IX
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
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.
7. 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.
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
X
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
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
======= ======= ======
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 $ (427,799)
Pro forma $ (625,769)
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
XI
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
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, July 31, 2000 and July 31, 1999, $991,935, 4494,063 and $264,526,
respectively, 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, July 31, 2000
and July 31, 1999, $297,397, $148,219 and $79,358, respectively, of
commission expense to Lone Star was recognized. As of April 30, 2000 and
July 31, 2000, the Company has trade accounts receivable of $94,440 and
$87,785, respectively, 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 and July 31, 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, $10,239 and $13,652 for the period ended April 30, 2000, July
31, 2000 and July 31, 1999. The lease calls for monthly rental payments of
$3,412.
Future minimum rental payments under this non-cancellable operating lease
agreement are as follows:
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.
BUSINESS SEGMENT INFORMATION
The Company's operations are principally managed on a products basis based
on three operating segments: CarPartsOnSale.com (CPOS), The Racing Zone and
Crown. CPOS and The Racing Zone are aggregated for purposes of determining
reporting segments. Each sells high performance auto parts to the same type
of customer and distributes their products using retail, phone sales and
the internet. This is the Auto Parts segment. Crown is considered a
separate reporting segment because it operates several internet web sites
that sell "classic car" models, memorabilia and publications. This is the
Publishing segment.
XII
<PAGE>
CARPARTSONSALE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the period subsequent to April 30, 2000 is unaudited)
Management evaluates the performance of its reporting segments based on
segment earnings or loss before income taxes, interest, depreciation and
amortization.
Summarized segment information is as follows:
<TABLE>
<CAPTION>
Three Months
Ended Inception To Year Ended
July 31, 2000 July 31, 1999 April 30, 2000
------------- ------------- --------------
<S> <C> <C> <C>
Segment Revenues:
Auto Parts Segment $ 933,892 $ 344,559 $ 1,925,918
Publishing Segment 51,288 59,699 231,814
---------- ---------- -----------
Total Segment Revenues $ 985,180 $ 404,258 $ 2,157,732
---------- ---------- -----------
Segment Income (Loss):
Auto Parts Segment $ (97,257) $ (53,991) $ (362,434)
Publishing Segment 652 663 2,608
----------- ---------- -----------
Total Segment Income (Loss) (96,605) (53,328) (359,826)
Depreciation and Amortization (22,266) (14,669) (70,837)
Interest, Net 1,469 (663) 2,864
----------- ----------- -----------
Net Loss $ (117,402) $ (68,660) $ (427,799)
========== =========== ===========
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
<S> <C> <C>
Segment Assets:
Auto Parts Segment $ 1,497,184 $ 1,588,672
Publishing Segment 41,864 48,537
----------- ------------
Total Segment Assets 1,539,048 1,637,209
Goodwill resulting from
business acquisitions, net 157,038 167,506
Corporate Assets 176,544 107,278
----------- ------------
Total Assets $ 1,872,630 $ 1,911,993
=========== ============
</TABLE>
XIII
<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 25,000
Accounting Fees and Expenses 45,000
Legal Fees and Expenses 25,000
Printing and Engraving 5,000
Marketing 65,000
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.
From April 9, 1999, through July 31, 2000, the Registrant issued 507,930 options
to 12 individuals to acquire its common stock pursuant to the Registrant's 2000
employee stock option plan and Registrant's 2000 consultant stock option plan.
No independent consideration was received by the Registrant in connection with
the issuance of said options.
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).
All of the sales of unregistered securities were to accredited investors, who
received a copy of a private placement document, prepared in accordance with
applicable securities regulations.
<PAGE>
ITEM 27. EXHIBITS.
Number Description
------ -----------
3.01 Articles of Incorporation of the Registrant.
3.02 Amendment of Articles of Incorporation.
3.03 Bylaws of the Registrant.
4.01 Specimen Common Stock Certificate.
5.01 Form of Opinion of Cokinos, Bosien & Young, a Professional
Corporation, regarding the legality of the securities being
registered.
10.01 Form of Indemnification Agreement between the Registrant and
its executive officers and directors.
10.02 Form of Subscription Agreements for this offering.
10.03 Lock In Agreement
23.01 Consent of Hein + Associates LLP.
23.02 Consent of Cokinos,Bosien & Young, a Professional Corporation
27.01 Financial Data Schedule.
99.01 Escrow Agreement
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>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Fort Worth, Texas,
on the 21st day of September, 2000.
CarPartsOnSale.com, Inc.
BY:/s/ SCOTT E. HUDSON
-----------------------------
SCOTT E. HUDSON, President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Scott E. Hudson, with full power of substitution, his/her true and lawful
attorney-in-fact and agent to do any and all acts and things in his/her name and
on his/her behalf in his/her capacities indicated below which he may deem
necessary or advisable to enable CarPartsOnSale.com, Inc. to comply with the
Securities Act of 1933, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for him/her in his/her name in the capacities stated below, any and all
amendments, including post-effective amendments thereto, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in such connection, as
fully as to all intents and purposes as we might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on the dates indicated.
Signature Title Date
/s/SCOTT E. HUDSON President, Director Sept. 21, 2000
------------------
Scott E. Hudson
/s/STEVE NEWMARK Vice President, Director Sept. 21, 2000
-----------------
Steve Newmark
/s/MIKE DAVIS Secretary, Director Oct. 3, 2000
--------------
Mike Davis
/s/BARRY YANKELVITZ Tresurer, Director Sept. 22, 2000
-------------------
Barry Yankelevitz
