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 June 30, 1997
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 0-28640
BRAKE HEADQUARTERS U.S.A., INC
(Exact name of Registrant 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 11101
(Address of Principal Executive Offices) (Zip Code)
(718) 779-4800
(Registrant Telephone Number Including Area Code)
Not Applicable
(Former Name, Former Address and Former 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 [ X ] NO [ ]
Class Outstanding at August 6 , 1997
Common Stock, $.001 par value 4,362,671
Class A Common Stock Purchase Warrants
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
FORM 10-Q
QUARTERLY REPORT
June 30, 1997
=====================================================================
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements -
Consolidated Balance Sheets - June 30, 1997
(Unaudited) and December 31, 1996 ................................ 3
Consolidated Statements of Income For The
Three and Six Months Ended June 30, 1997
and June 30, 1996 (Unaudited)..................................... 4
Consolidated Statements of Cash Flows For The
Six Months Ended June 30, 1997
and June 30, 1996 (Unaudited)..................................... 5
Notes to Consolidated Financial Statements (Unaudited)............6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................7-8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 9
Signatures........................................................10
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 331,496 $ 536,928
Accounts receivable, less allowance for doubtful
accounts of $200,000 and $372,000 6,443,759 7,252,018
Inventory 8,643,142 10,636,820
Prepaid expenses and other current assets 290,922 384,648
Deferred tax asset 375,000 375,000
------------ ------------
Total Current Assets 16,084,319 19,185,414
Property and Equipment - Net 1,462,229 1,453,179
Other Assets 242,929 227,189
Due From President 60,874 55,874
Deferred Acquisition Costs 296,250 --
Deferred Tax Asset 101,988 101,988
------------ ------------
Total Assets $ 18,248,589 $ 21,023,644
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,294,539 $ 4,639,419
Accrued expenses and other current liabilities 202,181 318,611
Notes and acceptances payable 3,335,684 4,546,556
Current portion of long-term debt 158,800 162,018
------------ ------------
Total Current Liabilities 5,991,204 9,666,604
Long-term Debt 5,907,918 5,850,645
------------ ------------
Total Liabilities 11,899,122 15,517,249
------------ ------------
Shareholders' Equity:
Series B preferred stock - $.001 par value; authorized,
issued and outstanding 1,000 shares 1 1
Common stock - $.001 par value; authorized 6,000,000
shares, issued and outstanding, 4,362,551 and
4,209,384 shares 4,362 4,209
Additional paid-in capital 15,883,808 15,130,511
Accumulated deficit (9,538,704) (9,628,326)
------------ ------------
Total Shareholders' Equity 6,349,467 5,506,395
------------ ------------
Total Liabilities and Shareholders' Equity $ 18,248,589 $ 21,023,644
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
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BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
ended ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $ 15,553,806 $ 18,018,775 $ 7,408,932 $ 9,572,400
Less returns and allowances (939,410) (1,404,364) (325,956) (791,870)
------------ ------------ ------------ ------------
Net Sales 14,614,396 16,614,411 7,082,976 8,780,530
Cost Of Goods Sold 10,734,881 12,006,050 5,114,556 6,277,367
------------ ------------ ------------ ------------
Gross Profit 3,879,515 4,608,361 1,968,420 2,503,163
Selling, General and Administrative Expenses 3,491,483 4,050,462 1,721,864 2,311,553
------------ ------------ ------------ ------------
Income From Operations 388,032 557,899 246,556 191,610
------------ ------------ ------------ ------------
Other Income (expense):
Other income 132,427 -- 32,427 --
Interest expense (414,085) (478,108) (212,002) (211,264)
Gain on foreign currency transactions 42,996 -- 28,150 --
------------ ------------ ------------ ------------
(238,662) (478,108) (151,425) (211,264)
------------ ------------ ------------ ------------
Income (Loss) Before Provision For Income Taxes 149,370 79,791 95,131 (19,654)
Provision For Income Taxes 59,748 25,000 38,748 11,000
------------ ------------ ------------ ------------
Net Income (loss) $ 89,622 $ 54,791 $ 56,383 $ (30,654)
============ ============ ============ ============
Net Income (Loss) Per Common And $ 0.02 $ 0.02 $ 0.01 $ (0.01)
============ ============ ============ ============
Common Equivalent Share
Weighted Average Number Of Common And
Common Equivalent Shares Outstanding 4,548,094 3,687,054 4,540,045 3,674,719
============ ============ ============ ============
</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>
Six Months Ended
June 30,
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 15,422,655 $14,233,857
Cash paid to suppliers and employees (14,394,760) (15,436,384)
Interest paid (428,370) (418,010)
Taxes paid (39,582) (57,606)
------------- -----------
Net cash provided by (used in) operating activities 559,943 (1,678,143)
------------- -----------
Cash flows used in investing activities-capital expenditures (60,758) (48,053)
------------- -----------
Net cash used in investing activities (60,758) (48,053)
------------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,052
Proceeds from exercise of stock options and warrants 457,200 -
Net repayments under notes and acceptances payable (1,210,872) (2,793,740)
Proceeds from issuance of long-term debt 114,546 4,671,765
Principal payments on long-term debt (60,491) (55,746)
(Loans to) repayments from President (5,000) 19,726
------------- -----------
Net cash (used in) provided by financing activities (704,617) 1,848,057
------------- -----------
Net (decrease) increase in cash (205,432) 121,861
Cash at beginning of period 538,928 17,895
------------- -----------
Cash at end of period $ 331,496 $ 139,756
============= ===========
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $ 89,622 $ 54,791
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 51,708 47,417
Provision for doubtful accounts - 236,374
Changes in assets and liabilities:
Accounts receivable 808,259 (2,360,554)
Inventory 1,993,678 (281,046)
Prepaid expenses and other current assets 93,726 109,804
Other assets (15,740) 50,754
Accounts payable and accrued expenses (2,461,310) 464,317
------------- -----------
Net cash provided by (used in) operating activities $ 559,943 $(1,678,143)
============= ===========
Supplemental information of non-cash financing activities:
During the six months ended June 30, 1996, the President purchased 1,000
shares of Series B preferred stock for $50,000 which was paid for by a
reduction in dividends payable to him. During the six months ended June 30,
1997, thirty thousand shares of common stock were issued to a merger and
acquisition firm. The fair value of the common stock issued ($296,250) is
currently deferred on the consolidated balance sheet.
</TABLE>
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 six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. There has been
no significant changes of accounting policies since December 31, 1996.
Net income per common and common equivalent share is based on the
weighted average number of common and common equivalent shares (when dilutive)
outstanding during the year, computed in accordance with the treasury stock
method.
NOTE 2
Long-term Debt
The Company was in default under one of its credit facilities which
existed at June 30, 1997. The bank has issued a waiver for the defaults through
September 30, 1997. The Company's other credit facility is currently under
review by the bank. Management anticipates this credit facility will be renewed
for another year.
NOTE 3
Shareholders' Equity
The Company has received $457,200 from the exercise of warrants and
options during the six months ended June 30, 1997.
The Company signed a two year agreement with Capital Advisors &
Consultants, Ltd. The agreement provides for common stock to be issued as a
retainer, and a fee to be paid based upon the completion of a merger,
acquisition or joint venture. A total of 30,000 shares of common stock were
issued in March 1997. The Company has recorded the fair market value of the
common stock issued ($296,250) as a deferred asset as of June 30, 1997.
6
<PAGE>
NOTE 4 - Adoption of SFAS 128
The Company will adopt the statement if Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128") in the fourth quarter of
1997, as required. The Company will continue to apply APB Opinion No. 15,
"Earnings Per Share" until the adoption of SFAS 128. The new standard specifies
the computation, presentation and disclosure requirements for earnings per
share. The pro forma earnings per common share computed under the provisions of
SFAS 128 for the quarter ended June 30, 1997 are $ .01 basic earnings per common
share and $ .01 diluted earnings per common share as compared to $ (.01) basic
earnings per share and $ (.01) diluted earning per share for the quarter ended
June 30, 1996. The pro forma earnings per common share computed under the
provisions of SFAS 128 for the six months ended June 30, 1997 are $ .02 basic
earning per common share and $ .02 diluted earnings per common share, as
compared to $ .02 basic earnings per common share and $ .02 diluted earnings per
common share for the six months ended June 30, 1996.
NOTE 5
Other Income
The Company received $100,000 from the sale of certain assets
previously written-off. Additionally, the Company recorded $42,996 as a gain on
foreign currency transactions and a gain on sale of securities in the amount of
$32,427. Such amounts are reported as other income for the period ended June 30,
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1996
and the related notes included elsewhere herein.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended
June 30, 1996
- -------------------------------------------------------------------------------
Gross sales for the three months ended June 30, 1997 decreased by
$2,163,468 or 22.6%, to $7,408,932 compared to $9,572,400 for the three months
ended June 30, 1996. Gross sales for the six months ended June 30, 1997
decreased by $2,464,969, or 13.7%, to $15,553,806 compared to $18,018,775 for
the corresponding period in 1996. The loss of a major customer, Autozone Inc.,
created a decrease in sales of approximately $4.2 million for the six months.
Due to the addition of new customers and expanded sales to current customers.
The net reduction in sales was only $2.4 million.
Gross profit in the three months ended June 30, 1997 decreased by
$534,743, or 21.4% to $1,968,420 compared to $2,503,163 for the three months
ended June 30, 1996. Gross profit for the six months ended June 30, 1997 was
$3,879,515 versus $4,608,361 for the same period in 1996. This represents a
decrease of $728,846 or 15.8%. Gross profit decreased as a result of anticipated
lower sales. However, gross profit margins percentages increased from 25.4% in
the first quarter to 26.5% for the six months ended June 30, 1997.
Operating expenses during the three months ended June 30, 1997 were
$1,721,864, a decrease of $589,689 or 25.5% from $2,311,553 for the three months
ended June 30, 1996. Operating expenses for the first six months of 1997 were
$3,491,483, a decrease of $558,979, or 13.8% from $4,050,462 for the same period
in 1996. Payroll was reduced in anticipation of lower sales, in addition
variable expenses of freight and commissions also decreased in proportion to the
reduction in sales. Operating expenses as a percentage of net sales have
decreased to 23.9% from 24.4% for the six months ended June 30, 1997.
7
<PAGE>
Income from operations for the three months ended June 30, 1997 was
$246,556 versus $191,610 for the same period in 1996. This represents an
increase of $54,946 or 28.7%. For the six months ended June 30, 1997, income
from operations was $388,032 versus $557,899 for the six months of 1996. This
was a decrease of $169,867 or 30.4%. Income from operations for the six months
ended June 30, 1997 decreased due to reduced sales volume. The three months
ended June 30, 1997 showed stronger results due to reductions in Selling General
and Administrative expenses, and improved gross profit margins. Other income
consisted of $32,427 from the purchase and sale of securities, as investments;
The Company received $100,000 from the sale of certain assets previously written
off, and $42,996 from the gain on foreign currency transactions.
Interest expense during the three months ended June 30, 1997 was
$212,002, an increase of $738 over the interest expense of $211,264 during the
corresponding period in 1996. For the six months ended June 30, 1997, interest
expense was $414,085, a decrease of $64,023 compared to $478,108 for the first
six months of 1996. The decrease is attributed to a reduction in the amount of
bank borrowings due to exercise of warrants, collection of accounts receivable,
and reduction in inventory levels.
As a result of the foregoing, the Company recorded a net income for
the three months ended June 30, 1997 of $56,383 or $.01 per share, as compared
to a net loss of $30,654, or $.01 per share for the three months ended June 30,
1996. For the six months ended June 30, 1997, the Company's net income was
$89,622 or $.02 per share, as compared to $54,791 or $.02 per share for the same
period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use funds generated from operations and
proceeds from the exercise of warrants and operations 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 June 30, 1997.
The balance due under these two loan facilities amounted to $8,311,004 at June
30, 1997. The lines of credit expire at various dates through February 1998, at
which time they will be reviewed for renewal. Both lines are secured by a pledge
of substantially all of the Company's assets and both lines are partially
guaranteed by the President/majority shareholder if equity is below $4,250,000.
The agreements contain covenants which require the maintenance of certain
amounts of net worth and certain financial ratios. The Company has maintained
compliance or obtained waivers relating to its loan covenants.
Cash provided by operations during the six months ended June 30, 1997
was $539,943 as compared with $1,678,143 used in operations during the six
months ended June 30, 1996. This change was due mainly to the decrease in
accounts receivable and inventory of $2,801,937 offset by the corresponding
decrease in accounts payable and accrued expenses of $2,461,310, for the period
ended June 30, 1997. During the comparable period in 1996 inventory and
accounts receivable grew by $2,641,600, additionally accounts payable and
accrued expenses also grew by $464,317.
Cash received from customers during the six months ended June 30,
1997 amounted to $15,422,655, an increase of $1,188,798, or 8.4 % over the same
period in 1996. At the same time, cash paid to suppliers and employees during
the six months ended June 30, 1997 decreased by $1,041,624 or 6.7% over the same
period in 1996 to $14,394,760, as the Company utilized the proceeds of sales to
reduce accounts payable.
During the six months ended June 30, 1997, the Company made a
concerted effort to reduce inventory levels while ensuring the sufficient
product availability. As a result, inventory decreased by $1,993,678, or 18.7%
from $10,636,820. Accounts receivable decreased by $808,259 or 11.2%, from
January 1, 1997 to June 30, 1997. The decrease in accounts receivable was a
result of the tightened credit policies and additional effort to collect
accounts receivable in accordance with terms of sale.
8
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PART II - EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
[a] Financial Data Schedule
[b] No reports on Form 8-K were filed during the quarter ended June 30, 1997.
9
<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 U.S.A., INC.
-----------------------------------
Joseph Ende, Chief Executive Officer
DATE:
------------------------------------
Marc J. Ruskin, Chief Financial Officer
