U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 33-30422-A
BRAKE HEADQUARTERS, U.S.A., INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 22-3048534
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
33-16 Woodside Avenue
Long Island City, New York
(Address of principal executive offices)
11101
(Zip Code)
(718) 779-4800
(Registrant telephone number including area code)
Not Applicable (Former name, former address and formal fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ____ NO ____
(Not applicable, as the Registrant is not required to file reports)
Class Outstanding at May 7, 1996
Common Stock, $0.001 par value 3,416,197
<PAGE>
BRAKE HEADQUARTERS, USA
FORM 10-Q
QUARTERLY REPORT
For the Three Months Ended March 31, 1996
=====================================================================
Page to Page
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements -
Consolidated Balance Sheets - March 31, 1996
(Unaudited) and December 31, 1995 (Audited)........................ 3
Consolidated Statements of Income For The Three
Three Month Periods ended March 31, 1996 and
March 31, 1995 (Unaudited)......................................... 4
Consolidated Statements of Cash Flows For The
Three Month Periods ended March 31, 1996 and
March 31, 1995 (Unaudited)......................................... 5
Notes to Consolidated Financial Statements (Unaudited)............. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................8-10
PART II .................................................................... 11
Item 6. Exhibits and Reports on Form 8-K.................................. 11
Signatures.................................................................. 12
2
<PAGE>
BRAKE HEADQUARTERS U.S.A.,
INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996
(Unaudited) December 31, 1995
----------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 31,900 $ 17,895
Accounts receivable, less allowance
for doubtful accounts
of $287,891 7,836,231 5,623,117
Inventory 7,660,440 7,873,131
Prepaid expenses and other current assets 359,902 387,767
Due from President 56,603 51,604
Deferred tax asset 345,345 345,345
------- -------
Total current assets 16,290,421 14,298,859
Property and Equipment - net 914,744 921,120
Other Assets 147,378 276,315
------- -------
Total Assets $ 17,352,543 $ 15,496,294
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 3,738,627 $ 2,869,762
Notes and acceptances payable 5,080,823 8,075,196
Current portion of long-term debt 87,100 65,038
------ ------
Total current liabilities 8,906,550 11,009,996
Long-term Debt 4,454,744 630,494
--------- -------
Total liabilities 13,361,294 11,640,490
---------- ----------
Commitments and Contingencies (see notes)
Shareholders' Equity:
Series A preferred stock -
$.25 par value; authorized 2,200,000
shares, none issued.
Series B preferred stock -
$.001 par value; authorized, isssued
and outstanding 1,000 shares 1 -
Common stock - $.001 par value;
authorized 6,000,000 and 20,000,000
shares, issued and outstanding
3,416,197 shares. 3,416 3,416
Additional paid-in capital 13,064,259 13,014,260
Accumulated deficit (9,076,427) (9,161,872)
---------- ----------
Total shareholders' equity 3,991,249 3,855,804
--------- ---------
Total Liabilities and Shareholders'
Equity $ 17,352,543 $ 15,496,294
=============== ==============
</TABLE>
See Notes to consolidated Financial Statements
3
<PAGE>
BRAKE HEADQUARTERS
U.S.A., INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Sales $ 8,446,375 $ 7,084,216
Less returns and allowances (612,494) (290,261)
-------- --------
Net sales 7,833,881 6,793,955
Cost of goods sold 5,728,683 4,975,223
--------- ---------
Gross profit 2,105,198 1,818,732
--------- ---------
Operating expenses:
Selling, general and administrative 1,738,909 1,335,449
--------- ---------
Income from operations 366,289 483,283
------- -------
Other income (expense):
Interest expense (266,844) (140,955)
Gain on foreign currency transactions - 10,367
-------- ------
Income before provision for income taxes 99,445 352,695
Provision for income taxes 14,000 131,158
------ -------
Net income $ 85,445 $ 221,537
============== =============
Net income per common and common
equivalent share $ 0.02 $ 0.08
============== =============
Weighted average number of common and
common equivalent shares outstanding 3,666,464 2,657,577
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 5,620,767 $ 5,211,902
Cash paid to suppliers and employees (4,568,378) (5,493,031)
Interest paid (233,573) (140,955)
Taxes paid (3,888) (267,284)
------ --------
Net cash used in operating activities (814,928) (689,368)
-------- --------
Cash flows used in investing activity-capital expenditures (14,016) (383,876)
------- --------
Cash flows from financing activities:
Net borrowings (repayments) under notes and
acceptances payable (2,959,241) 764,867
Proceeds from issuance of long-term debt 3,824,250 333,884
Principal payments on long-term debt (22,060) (2,629)
------- ------
Net cash provided by financing activities 842,949 1,096,122
------- ---------
Net increase in cash 14,005 22,878
Cash at beginning of period 17,895 11,991
------ ------
Cash at end of period $ 31,900 $ 34,869
============== =============
Reconciliation of net loss to net cash used in
operating activities:
Net income $ 85,445 $ 221,537
Adjustments to reconcile net loss to
net cash used in operating activities:
(Gain) on foreign currency transactions - (10,367)
Depreciation and amortization 20,392 27,559
Changes in assets and liabilities:
Accounts receivable (2,213,114) (1,582,053)
Inventory 212,691 (117,217)
Prepaid expenses and other current assets 27,865 (10,525)
Other assets 128,937 32,772
Due from President (4,999)
Accounts payable and accrued expenses 940,452 748,976
------- -------
Net cash used in operating activities $ (802,331) $ (689,368)
============== =============
</TABLE>
Supplemental information of non-cash financing activities:
The President purchased 1,000 shares of Series B stock for
$50,000 which was paid for by a reduction in dividends payable to him.
See Notes to Consolidated Financial Statements
5
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation:
- ----------------------
The accompanying unaudited consolidated financial statements of Brake
Headquarters U.S.A., Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
There has been no significant changes of accounting policies since December 31,
1995.
Earnings per common and common equivalent share is based on the weighted number
of common and common equivalent shares (when dilutive) outstanding during the
year computed in accordance with the treasury stock method. Net income used in
the determination of earnings per share has been adjusted for preferred dividend
requirements. Contingently returnable shares are not considered oustanding for
earnings per share unless all conditions for release have been attained.
Note 2
Notes and Acceptances Payable:
- ------------------------------
In February 1996, the Company refinanced one of its bank agreements with a new
two year agreement with a new bank that allows for borrowings of an additional
$1,000,000. The Company has combined lines of credit totalling $10,000,000. The
Company's second line of credit will be reviewed for renewal. The notes and
acceptances payable are collateralized by substantially all the assets of the
Company. The President/majority shareholder has guaranteed a portion of one of
the bank facilities. No guarantees exist on the new two year agreement.
In January 1996, the Company obtained another $100,000 loan from the City of
Fairfield, Illinois at a rate of 5% per annum, for the purpose of purchasing
equipment for the Fairfield, Illinois distribution center. As of April 30, 1996,
the Company has borrowed $67,300.
6
<PAGE>
Note 3
Stockholders' Equity
- --------------------
Common Stock - In March 1996, the Company decreased its shares of authorized
common stock to 6,000,000 shares.
In March 1996, the Company amended its Certificate of Incorporation to authorize
the issuance of 1,000 shares of Series B preferred stock to be held by the
President. As the sole shareholder of the Series B preferred stock, which will
vote as a separate class, the President has the exclusive right to elect a
majority of the Company's Board of Directors until the earlier of the redemption
dates of March 31, 2001 or the reporting by the Company of at least $75,000,000
in revenue for any year through December 31, 2000. In the event of any
liquidation, dissolution or winding-up, the holder of Series B preferred stock
will be entitled to an aggregate preference of $50,000, his basis in the stock;
any remaining proceeds of liquidation will be distributed pro rata to holders of
the common stock. The amendment also eliminated all remaining authorized shares
of Series A preferred stock.
In March 1996, the President purchased 1,000 shares of Series B preferred stock.
The $50,000 purchase price was funded by a reduction of the $112,730 dividend
payable to him.
Note 4
Contingencies and Commitments
- -----------------------------
In December 1995, the Company commenced an action against a former customer to
collect $971,000 of accounts receivable. The defendant has filed a counterclaim
against the Company and the Company's President seeking compensatory and
punitive damages of $25 million. The Company believes its claim is meritorious
and believes the counter claim against the Company is without merit and will
vigorously defend this lawsuit.
The Company intends to enter into an agreement to purchase a new computer system
for approximately $475,000 which will be financed over a five year period.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's consolidated
financial statements and the related notes included elsewhere herein.
Results of Operations
- ---------------------
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995
Gross sales for the three months ended March 31, 1996 increased by
$1,362,159, or 19.2%, to $8,446,375 compared to $7,084,216 for the three months
ended March 31, 1995. The increase was due primarily to the increased sales to
existing customers and the Company's introduction of new under-car part product
lines. The Company expanded its customer base during the three months ended
March 31, 1996 to include sales to new customers who were not customers during
the comparable period in 1995. In addition, another large retail chain, which
became a customer in late 1993, accounted for approximately 26% of the Company's
revenues for the three months ended March 31, 1996.
Gross profit for the three months ended March 31, 1996 increased by
$286,466, or 15.8%, to $2,105,198, compared to $1,818,732 for the three months
ended March 31, 1995. Gross profit margin as a percentage of net sales for the
three months ended March 31, 1996 increased to 26.9% from 26.8% for the three
months ended March 31, 1995. There were no significant changes in gross profit
percentage between the periods ended March 31, 1996 and 1995.
Operating expenses for the three months ended March 31, 1996 increased by
$403,460, or 30.2% to $1,738,909 compared to $1,335,449 for the three months
ended March 31, 1995. These increases were a result of higher costs, associated
with higher increased sales volume, and a continued building of the
infrastructure needed to provide a high level of service to the Company's
customers; offset, in part, by the implementation of certain cost controls. In
April 1995, the Company purchased its Midwest Distribution Center in Fairfield,
Illinois, which it previously rented. In June 1995, the Company completed
construction to double the size of this facility. In August 1995, the Company
acquired an additional five contiguous acres of property for future expansion of
the Midwest Distribution Center.
Income from operations decreased by $116,994, or 24.2%, to $366,289 for the
three months ended March 31, 1996, compared to $483,283 for the three months
ended March 31, 1995 as a result of increased operating expenditures.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest expense for the three months ended March 31, 1996, increased by
$125,889, or 89.3% to $266,842, compared to $140,955 for the three months ended
March 31, 1995. The increase was a result of additional borrowings by the
Company in support of the growth in sales and assets.
Net income as a percentage of net sales for the three months ended March
31, 1996 was 1.1% as compared to 3.3% for the three months ended March 31, 1995.
As a result of the foregoing, the Company's net income for the three
months ended March 31, 1996 decreased by $136,092 to $85,445 or $.02 earnings
per share, as compared to $221,537, or $.08 earnings per share for the three
months ended March 31,1995.
Liquidity and Capital Resources
- -------------------------------
The Company has continued to use funds generated from operations, bank
borrowings to support operations, finance working capital requirements and lease
and improve facilities.
The Company has agreements with two banks to provide lines of credit,
bankers' acceptances, and letters of credit facilities. These facilities
currently provide for aggregate borrowing of up to $10,000,000 at March 31,
1996. The balance due under the Company's loan facilities amounted to $8,615,183
at March 31, 1996. The lines of credit expire at various dates through February
1998, at which time they will be reviewed for renewal. Interest accrues on the
outstanding principal balances at rates from prime (which was 8.25% at March 31,
1996) to .75% above prime. Both lines are secured by a pledge of substantially
all of the Company's assets and one line is partially guaranteed by the
President/majority shareholder. The agreements contain covenants which require
the maintenance of certain amounts of net worth and certain financial ratios.
The Company has maintained compliance with its loan covenants and maintained
good relations with its primary lender for a period of 17 years.
In January 1996, the Company obtained another $100,000 five year loan from
the City of Fairfield, Illinois bearing interest at 5% per annum to be used to
purchase equipment for its Fairfield distribution center. To date, $67,300 has
been funded.
Cash used in operations during the three months ended March 31, 1996 was
$802,331 as compared with $689,368 used in operations during the three months
ended March 31, 1995. This change was due mainly to the increase in accounts
receivable of $2,213,114 offset by the corresponding increase in accounts
payable and accrued expenses of $940,952.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cash received from customers during the three months ended March 31, 1996
amounted to $5,620,767, an increase of $408,865, or 7.8% over the same period in
1995. At the same time, cash paid to suppliers and employees during the three
months ended March 31, 1996 decreased by $912,056 or 16.6% over the same period
in 1995 to $4,580,975, as the Company utilized the proceeds of sales and
increased borrowing to pay suppliers and finance its growth through conservative
cash flow management.
During the three months ended March 31, 1996, the Company made a concerted
effort to control the growth of inventory while ensuring sufficient product
availability. As a result, inventory decreased by $212,691, or 2.7%, to
$7,660,440 from $7,873,131. Accounts receivable increased by $2,213,114, or
39.4%, from January 1, 1996 to March 31, 1996. The increase in accounts
receivable was a result of the corresponding growth in sales and extended terms
given to certain customers because of market conditions.
The Company anticipates signing a contract for a new computer system which
management believes will improve the efficiency of operations. The cost of this
expenditure will be financed over a 5 year period and will not significantly
affect the cash flows of the Company.
10
<PAGE>
PART II
Other Information
ITEM 6
Exhibits and Reports on Form 8-K
[a] None.
[b] No reports on Form 8-K were filed during the quarter ended March 31,
1996.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRAKE HEADQUARTERS, USA
/s/ Joseph Ende
Joseph Ende, Chief Executive Officer
DATE: May 15, 1996
/s/ Marc Ruskin
Marc J. Ruskin, Chief Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,900
<SECURITIES> 0
<RECEIVABLES> 8,124,122
<ALLOWANCES> (287,891)
<INVENTORY> 7,660,440
<CURRENT-ASSETS> 16,290,421
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,352,543
<CURRENT-LIABILITIES> 13,361,294
<BONDS> 750,369
0
1
<COMMON> 3,416
<OTHER-SE> 3,987,832
<TOTAL-LIABILITY-AND-EQUITY> 17,352,543
<SALES> 7,833,881
<TOTAL-REVENUES> 7,833,881
<CGS> 5,728,683
<TOTAL-COSTS> 1,738,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266,844
<INCOME-PRETAX> 99,445
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 85,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,445
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
