<PAGE>
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, 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 May 12, 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
March 31, 1997
=====================================================================
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements -
Consolidated Balance Sheets - March 31, 1997
(Unaudited) and December 31, 1996 ............................. 3
Consolidated Statements of Income For The
Three Month Periods Ended March 31, 1997
and March 31, 1996 (Unaudited)................................. 4
Consolidated Statements of Cash Flows For The
Three Month Periods Ended March 31, 1997
and March 31, 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 - EXHIBITS AND REPORTS ON FORM 8-K............................. 9
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>
March 31, 1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 345,463 $ 536,928
Accounts receivable, less allowance for doubtful
accounts of $372,000 6,942,810 7,252,018
Inventory 8,887,927 10,636,820
Prepaid expenses and other current assets 362,740 384,648
Deferred tax asset 375,000 375,000
------------ ------------
Total current assets 16,913,940 19,185,414
Property and Equipment - net 1,462,153 1,453,179
Other Assets 247,008 227,189
Due from President 60,874 55,874
Deferred Acquisition Costs 296,250 --
Deferred Tax Asset 101,988 101,988
------------ ------------
Total Assets $ 19,082,213 $ 21,023,644
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,310,297 $ 4,639,419
Accrued expenses and other current liabilities 189,554 318,611
Notes and acceptances payable 3,561,092 4,546,556
Current portion of long-term debt 159,980 162,018
------------ ------------
Total current liabilities 7,220,923 9,666,604
------------ ------------
Long-term Debt 5,948,206 5,850,645
------------ ------------
Total liabilities 13,169,129 15,517,249
------------ ------------
Commitments and Contingencies (see notes)
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
and 20,000,000 shares, issued and outstanding 4,262,564
4,209,384 shares 4,262 4,209
Additional paid-in capital 15,503,908 15,130,511
Accumulated deficit (9,595,087) (9,628,326)
------------ ------------
Total shareholders' equity 5,913,084 5,506,395
------------ ------------
Total Liabilities and Shareholders' Equity $ 19,082,213 $ 21,023,644
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31, March 31,
1997 1996
----------- -----------
Sales $ 8,144,874 $ 8,446,375
Less returns and allowances (613,454) (612,494)
----------- -----------
Net sales 7,531,420 7,833,881
Cost of goods sold 5,620,325 5,728,683
----------- -----------
Gross profit 1,911,095 2,105,198
Operating expenses:
Selling, general and administrative 1,769,619 1,738,909
----------- -----------
Income from operations 141,476 366,289
----------- -----------
Other income (expense):
Other income 114,846 --
Interest expense (202,083) (266,844)
----------- -----------
(87,237) (266,844)
----------- -----------
Income before provision for income taxes 54,239 99,445
Provision for income taxes 21,000 14,000
----------- -----------
Net income $ 33,239 $ 85,445
=========== ===========
Net income per common and common equivalent share $ .01 $ .02
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 4,219,284 3,666,464
=========== ===========
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, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 7,822,715 $ 5,620,767
Cash paid to suppliers and employees (6,932,216) (6,202,225)
Interest paid (202,083) (233,573)
Taxes paid (28,322) (3,888)
----------- -----------
Net cash provided by (used in) operating activities 660,094 (818,919)
----------- -----------
Cash flows used in investing activities-capital expenditures (33,818) (14,016)
----------- -----------
Net cash used in investing activities (33,818) (14,016)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 77,200
Net repayments under notes and acceptances
payable (985,464) (2,994,373)
Proceeds from issuance of long-term debt 130,022 3,868,372
Principal payments on long-term debt (20,630) (22,060)
Principal payments on obligations under capital leases (13,869)
Loans to President (5,000) (4,999)
----------- -----------
Net cash (used in) provided by financing activities (817,741) 846,940
----------- -----------
Net (decrease) increase in cash (191,465) 14,005
Cash at beginning of period 536,928 17,895
----------- -----------
Cash at end of period $ 345,463 $ 31,900
=========== ===========
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $ 33,239 $ 85,445
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 24,844 20,392
Changes in assets and liabilities:
Accounts receivable 309,208 (2,213,114)
Inventory 1,748,893 212,691
Prepaid expenses and other current assets 21,908 27,865
Other assets (19,819) 128,937
Accounts payable and accrued expenses (1,458,179) 918,865
----------- -----------
Net cash provided by (used in) operating activities $ 660,094 $ (818,919)
=========== ===========
</TABLE>
Supplemental information of non-cash financing activities:
During the quarter ended March 31, 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 quarter ended March 31,
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.
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, 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.
Earnings 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 December 31, 1996. The bank waived the covenant through June 30, 1997
and amended the terms of the agreement. 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
Stockholders' Equity
The Company received $77,200 from the exercise of warrants and options
during the quarter ended March 31, 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 March 31, 1997.
6
<PAGE>
Note 4
Commitments and Contingencies
In July 1996, the Company entered into an agreement to purchase a new
computer system for approximately $475,000 which is financed over a five year
period.
Note 5
Other Income
The Company received $100,000 from the sale of certain assets previously
written-off. Such amount is included in other income during the quarter ended
March 31, 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 Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Gross sales in the three months ended March 31, 1997 decreased by
$301,501, or 3.6%, to $8,144,874 compared to $8,446,375 for the three months
ended March 31, 1996. This was primarily due to the loss of a major customer.
The Company was able to acquire new customers which provided additional revenue
to replace a portion of revenue lost. Additionally the Company acquired ABS
Brakes, Inc. in August 1996, whose sales of approximately $307,000 were not
included in the comparable quarter for 1996.
Gross profit for the three months ended March 31, 1997 decreased by
$194,103, or 9.2% to $1,911,095 compared to $2,105,198 for the three months
ended March 31, 1996. Due to the aggressive marketing strategy adopted by the
Company to replace the lost customer, the Company reduced sales prices on some
accounts to increase sales volume.
Operating expenses during the three months ended March 31, 1997 were
$1,769,619 an increase of $30,710 or 1.8% from $1,738,909 for the three months
ended March 31, 1996. Expenses of approximately $51,000 from ABS Brakes, Inc.
were not included in the comparable quarter for 1996, therefore expenses
decreased on a comparable basis by approximately 20,000 or 1.1%.
7
<PAGE>
Income from operations for the three months ended March 31, 1997 was
$141,476 versus $366,289 for the same period in 1996. This represents a decrease
of $224,813 or 61.4%, primarily due to decreased sales and decreased gross
profit.
Other income for the three months ended March 31, 1997 includes $100,000
which relates to the sale of certain intangible assets previously written-off by
the Company.
Interest expense during the three months ended March 31, 1997 was $202,083
a decrease of $64,761 over the interest expense of $266,844 during the
corresponding period in 1996. The decrease is attributed to repayment of
approximately $985,000 on existing credit lines, and reduced interest costs
associated with the new line of credit.
As a result of the foregoing, the Company recorded a net income for the
three months ended March 31, 1997 of $33,239 or $.01 per share, as compared to
net income of $85,445, or $.02 per share for the three months ended March 31,
1996.
Liquidity and Capital Resources
The Company has continued to use funds generated from operations and 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,
1997. The balance due under these two loan facilities amounted to approximately
$8,524,000 at March 31, 1997. 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 7.44%-9.0%. 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 three months ended March 31, 1997
was $660,094 as compared with $ 818,919 used in operations during the three
months ended March 31, 1996. This change was due mainly to the decrease in
accounts receivable of $309,208 and the decrease in inventory of $1,748,893.
This was partially offset by the corresponding decrease in accounts payable and
accrued expenses of $1,458,179.
Cash received from customers during the three months ended March 31, 1997
amounted to $7,822,715, an increase of $2,201,948, or 39.2% over the same period
in 1996. The Company utilized the proceeds of sales to pay suppliers and reduce
bank debt.
During the three months ended March 31, 1997, the Company made a concerted
effort to reduce inventory while ensuring sufficient product availability. As a
result, inventory decreased by $1,748,893, or 16.4% to $8,887,927 from
$10,636,820. Accounts receivable decreased by $309,208, or 4.3%, from January 1,
1997 to March 31, 1997. The decrease in accounts receivable was a result of
additional collection efforts.
8
<PAGE>
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 March 31,
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.
By:
---------------------------------------
Joseph Ende, Chief Executive Officer
DATE:
By:
---------------------------------------
Marc J. Ruskin, Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 345,463
<SECURITIES> 0
<RECEIVABLES> 7,314,810
<ALLOWANCES> 372,000
<INVENTORY> 8,887,927
<CURRENT-ASSETS> 16,913,940
<PP&E> 1,847,964
<DEPRECIATION> (385,811)
<TOTAL-ASSETS> 19,082,213
<CURRENT-LIABILITIES> 7,220,923
<BONDS> 0
0
1
<COMMON> 4,262
<OTHER-SE> 5,908,821
<TOTAL-LIABILITY-AND-EQUITY> 19,082,213
<SALES> 7,531,420
<TOTAL-REVENUES> 0
<CGS> 5,620,325
<TOTAL-COSTS> 1,769,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,083
<INCOME-PRETAX> 54,239
<INCOME-TAX> 21,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 114,846
<CHANGES> 0
<NET-INCOME> 33,239
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
