<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 17, 1997
-----------------
BRAKE HEADQUARTERS U.S.A., INC.
-------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-28640 22-3048534
-------- ------- ----------
(State or Other Jurisdiction (Commission File IRS Employer
of Incorporation) Number) Identification Number)
33-16 Woodside Avenue, Long Island City, N.Y. 11101
---------------------------------------------------
(Address of principal executive offices)(Zip Code)
(718) 779-4800
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K ("Form
8-K") for November 17, 1997 of Brake Headquarters U.S.A., Inc., a Delaware
corporation (the " Company") is submitted in order to provide the audited
historical financial statements and pro forma financial information called for
under Item 7 and to supplement the information originally submitted under Item 2
of Form 8-K. Therefore, the Company hereby amends its Form 8-K in accordance
with Rule 12b-15 under the Securities Exchange Act of 1934.
Item 2. Acquisition or Disposition of Assets
------------------------------------
On November 17, 1997, Brake Headquarters U.S.A., Inc., a Delaware
corporation (the "Registrant"), entered into an Agreement and Plan of Merger
(the "Merger Agreement"), effective November 19, 1997, by and among the
Registrant, Califacq, Inc., a Delaware corporation and a wholly owned subsidiary
of the Registrant ("Merger Sub"), JMCD, Inc., a California corporation ("JMCD"),
and Michael DiAngelo and Jeffrey Chasse, the shareholders of JMCD (the
"Shareholders"). Pursuant to the Merger Agreement, Merger Sub merged with and
into JMCD, with JMCD being the surviving corporation (the "Merger"), and JMCD
became a wholly owned subsidiary of Registrant. On November 14, 1997, JMCD had
acquired substantially all of the assets, subject to the assumption of certain
liabilities, of WAWD-EAP Automotive Products, Inc. ("WAWD"), a wholly owned
subsidiary of Echlin, Inc., as a going concern (the WAWD-EAP Acquisition")
pursuant to the purchase method of accounting. The purchase price for the assets
purchased by JMCD was $7.9 million, of which $6.5 million in cash was paid to
WAWD by the Shareholders and the balance was paid by delivery of a promissory
note of JMCD for $1,400,000 payable to WAWD (the "Purchase Note"), which
Purchase Note was paid in cash at the time of the Merger. JMCD was formed for
the purpose of acquiring such business and had no assets other than those
acquired pursuant to the WAWD-EAP Acquisition. JMCD changed its name to WAWD,
Inc.
Pursuant to the terms of the Merger Agreement, at the Closing the
Registrant paid to the Shareholders $162,000 in cash and 100,000 shares of
Common Stock of the Registrant. Each of the Shareholders also entered into a
three-year Employment Agreement with the Registrant, pursuant to which each
person (a) is being compensated at the base rate of $110,000 per annum,
increasing to $120,000 per annum in the second and third years, (b) received
five-year options to purchase 40,000 shares of the Registrant's Common Stock
exercisable at $6 11/16 per share, and (c) received seven-year options to
purchase 90,000 shares of the Registrant's Common Stock exercisable at $6 11/16
per share, which vest after six and one-half years, but accelerate upon certain
performance levels being achieved. The Shareholders, JMCD and Registrant also
entered into a Pledge and Escrow Agreement, pursuant to the terms of which
one-half of the 100,000 shares received pursuant to the Merger are to be held in
escrow for up to 15 months as collateral security for certain indemnification
provisions in the Merger Agreement.
-2-
<PAGE>
The Registrant financed the acquisition of JMCD partly with the proceeds of
a $600,000 private financing of 8% convertible subordinated promissory notes
consummated on November 6-11, 1997 and a $1,000,000 private financing of 5%
convertible subordinated debentures consummated on November 7, 1997. JMCD
financed the WAWD-EAP Acquisition through financing obtained from The CIT
Group/Credit Finance (the "Lender"). Simultaneously with the Merger, JMCD
entered into a First Amendment to Loan and Security Agreement (the "Amendment")
with the Lender. The Amendment provides, among other things, that (a) the
Shareholders' existing personal guaranties of JMCD's obligations under the
original Loan Agreement would be terminated, (b) interest rates on borrowings
and letters of credit, and certain fees payable to Lender, were reduced, and (c)
the revolving credit facility with the Lender was amended to provide, among
other things, for borrowings of up to 80% of eligible accounts receivable and
45% of eligible inventory with an inventory sublimit of $8,000,000. In addition,
the Registrant was required, under the terms of the Amendment, to make an
aggregate $500,000 cash equity contribution to JMCD. As a result of the Merger,
the Registrant has assumed all of the obligations of JMCD, including but not
limited to, an aggregate of $7.9 million of principal indebtedness. In addition,
the Registrant assumed various trade payables and other liabilities of WAWD. All
obligations of JMCD under such credit facility are secured by a security
interest in favor of the Lender in substantially all of the assets of JMCD.
The Registrant granted to the Lender a warrant to acquire 45,000 shares of
Registrant's Common Stock, at an exercise price of $8.03 per share, which
warrant expires on November 19, 2002, unless extended. The number of shares and
the exercise price of the warrant is subject to adjustment for stock splits,
dividends or similar distributions. The holder of the warrant was granted one
demand registration right and certain "piggyback" registration rights. The
Lender has a put option to require the Registrant to repurchase the warrant for
$75,000 if not previously exercised on the termination of the Loan and Security
Agreement if such date is earlier than November 19, 2000, or otherwise on or
after November 19, 2000. Notwithstanding the foregoing, if the closing price of
the Registrant's Common Stock less the exercise price of the warrant multiplied
by the number of Warrant Shares (the "Spread") exceeds $75,000, the Lender shall
retain the Warrant and not receive the $75,000, but if such Spread is less then
$75,000, the Registrant may require the Lender sell the Warrant Shares and
receive the proceeds, and the Registrant will pay the difference between the
proceeds received and $75,000.
-3-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
1 Independent Auditors' Report, Balance Sheets as of August 31, 1997
and 1996, Statements of Operations and Changes in Investment of
Echlin, Inc. and Statements of Cash Flows for each of the three
years in the period ended August 31, 1997, and Notes to Financial
Statements.
(b) Pro Forma Financial Information
1 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1997, Unaudited Pro Forma Condensed Consolidated
Statements of Income for the year ended December 31, 1996 and for
the nine months ended September 30, 1997, and Notes to Unaudited Pro
Forma Condensed Consolidated Financial Statements.
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.
Balance Sheets as of August 31, 1997 and 1996 and Statements of Operations and
Changes in Investment of Echlin, Inc., and of Cash Flows for Each of the Three
Years in the Period Ended August 31, 1997 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
WAWD-EAP Automotive Products, Inc.:
We have audited the accompanying balance sheets of WAWD-EAP Automotive Products,
Inc. (the "Company") (a wholly owned subsidiary of Echlin, Inc.) as of August
31, 1997 and 1996, and the related statements of operations and changes in
investment of Echlin, Inc. and of cash flows for each of the three years in the
period ended August 31, 1997. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of WAWD-EAP Automotive Products, Inc. as of
August 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1997 in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements, the Company was a
wholly owned subsidiary of Echlin, Inc. and received managerial and
administrative support from Echlin, Inc. Certain expenses included in the
financial statements represent allocations of amounts incurred by Echlin, Inc.
As a result, the Company's financial statements may not be indicative of
conditions that would have existed or results that would have occurred had the
Company operated as an unaffiliated entity.
Deloitte & Touche LLP
San Francisco, California
December 23, 1997
<PAGE>
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.
BALANCE SHEETS
AUGUST 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 176,403 $ 184,547
Accounts receivable, less allowance for doubtful
accounts of $85,962 and $46,105 4,998,148 4,820,873
Inventory, less allowance of $1,111,943 and $847,755 14,016,106 12,759,709
Prepayments to vendors 1,111,513 1,798,645
Other current assets 406,381 554,710
----------- -----------
Total current assets 20,708,551 20,118,484
PROPERTY AND EQUIPMENT - Net 824,758 1,314,590
OTHER ASSETS 99,422 78,233
GOODWILL, net of accumulated amortization of $166,131
and $94,455 1,483,057 1,524,733
----------- -----------
TOTAL ASSETS $23,115,788 $23,036,040
=========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,547,297 $ 4,040,636
Due to Echlin, Inc. 3,092,058 1,313,082
Accrued expenses and other current liabilities 693,040 613,801
----------- -----------
Total current liabilities 7,332,395 5,967,519
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY - Investment of Echlin, Inc. 15,783,393 17,068,521
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $23,115,788 $23,036,040
=========== ===========
</TABLE>
-2-
See notes to financial statements.
<PAGE>
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.
STATEMENTS OF OPERATIONS AND CHANGES IN INVESTMENT OF ECHLIN, INC.
YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SALES $45,157,344 $45,176,653 $52,228,383
LESS RETURNS AND ALLOWANCES 2,535,310 2,643,957 2,598,088
----------- ----------- -----------
NET SALES 42,622,034 42,532,696 49,630,295
COST OF GOODS SOLD 30,288,825 30,419,329 36,266,632
----------- ----------- -----------
GROSS PROFIT 12,333,209 12,113,367 13,363,663
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (11,766,835) (11,299,068) (12,774,713)
CORPORATE ASSESSMENT FROM
ECHLIN, INC. (1,072,701) (1,291,000) (1,626,800)
----------- ----------- -----------
LOSS FROM OPERATIONS (506,327) (476,701) (1,037,850)
OTHER INCOME (EXPENSE), Net (122,881) (103,619) 23,950
----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (629,208) (580,320) (1,013,900)
INCOME TAX BENEFIT 424,080 567,931 676,810
----------- ----------- -----------
NET LOSS (205,128) (12,389) (337,090)
INVESTMENT OF ECHLIN, INC., BEGINNING 17,068,521 18,184,910 19,320,136
DISTRIBUTIONS TO ECHLIN, INC. (1,080,000) (1,104,000) (798,136)
----------- ----------- -----------
INVESTMENT OF ECHLIN, INC., ENDING $15,783,393 $17,068,521 $18,184,910
=========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers $42,852,264 $44,040,519 $53,054,671
Cash paid to suppliers and employees (41,644,877) (42,120,734) (52,622,358)
----------- ----------- -----------
Net cash provided by operating activities 1,207,387 1,919,785 432,313
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (135,531) (348,109) (103,893)
Proceeds from the sale of fixed assets 30,116 43,030
----------- ----------- -----------
Net cash used in investing activities (135,531) (317,993) (60,863)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions to Echlin, Inc. (1,080,000) (1,104,000) (798,136)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (8,144) 497,792 (426,686)
CASH AT BEGINNING OF YEAR 184,547 (313,245) 113,441
----------- ----------- -----------
CASH AT END OF YEAR $ 176,403 $ 184,547 $ (313,245)
----------- ----------- -----------
RECONCILIATION OF NET LOSS
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net loss $ (205,128) $ (12,389) $ (337,090)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 374,279 353,936 383,237
Provision for doubtful accounts 39,857 746 513,827
Provision for inventory reserve 264,188 257,647 (133,431)
Loss on sale of fixed assets 32,509
Changes in assets and liabilities:
Accounts receivable (217,132) 421,931 969,925
Inventory (1,520,585) 3,409,519 2,695,692
Prepayments and other current assets 835,461 482,809 494,798
Other assets (21,189) (59,611) 5,430
Due to Echlin, Inc. 1,778,976 (3,851,584) 1,400,433
Account payable and accrued expenses (121,340) 884,272 (5,560,508)
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,207,387 $ 1,919,785 $ 432,313
=========== =========== ===========
</TABLE>
-4-
See notes to financial statements.
<PAGE>
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business - WAWD-EAP Automotive Products, Inc. (the "Company") sells
after-market automotive parts to retailers and wholesalers. The Company
operates five wholesale warehouses in New Jersey, Georgia, Texas and
California. The Company was a wholly owned subsidiary of Echlin, Inc.
("Echlin").
Sale of the Company - On November 17, 1997, substantially all of the
Company's net assets were acquired by Brake Headquarters U.S.A., Inc.
Basis of Presentation - The accompanying financial statements have been
prepared from the separate records maintained by the Company. The Company
did not maintain stand-alone corporate, treasury, tax or similar support
functions. The purchase price adjustments from the acquisition of the
Company by Echlin in 1994 have been reflected on a push-down basis in the
accompanying financial statements. Certain expenses included in the
financial statements represent allocations of amounts incurred by Echlin
(see Note 2). As a result, the accompanying financial statements may not be
indicative of the conditions that would have existed or results that would
have occurred if the Company had been operated as an unaffiliated entity.
Inventory, consisting of after-market automotive finished goods, is stated
at the lower of cost (first-in, first-out method) or market.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the related assets (5 to 10
years). Leasehold improvements are amortized over the lesser of the term of
the respective lease or the estimated useful lives of the improvements (5
to 10 years).
Goodwill, which resulted from the acquisition of the Company by Echlin, is
being amortized over 40 years.
Foreign currency transaction gains and losses are included in cost of goods
sold.
Revenue Recognition - Revenue from the sale of products is recognized upon
shipment.
Income Taxes - The Company's operations were included in the consolidated
tax returns of Echlin. The Company's income tax benefit was allocated to
the Company by Echlin based on Echlin's ability to utilize the Company's
net operating losses.
Concentration of Credit Risk - The Company's customer base consists
primarily of retailers and wholesalers of after-market automotive
replacement parts throughout North America. On a geographic basis, no area
has a disproportionate concentration of credit risk. During the years ended
August 31, 1997, 1996 and 1995, less than 1% of the Company's sales were
derived from foreign customers. Although the Company is directly affected
by the well-being of the after-market automotive replacement parts
industry, management does not believe significant credit risk exists at
August 31,
-5-
<PAGE>
1997. The Company performs ongoing credit evaluations of its customers'
financial condition. When amounts on specific accounts receivable are
judged to be uncollectable by management, those amounts are charged to the
allowance for doubtful accounts. During the year ended August 31, 1995, the
Company wrote off approximately $900,000 to one customer filing bankruptcy,
which accounted for approximately 2% of the Company's net sales.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from
those estimates.
2. RELATED PARTY TRANSACTIONS WITH ECHLIN
Charges from Echlin were included in the Company's statements of operations
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Selling, general and adminstrative expenses:
Employee benefits and related expenses $ 859,056 $ 465,847 $ 433,329
Other 33,990 32,397 34,292
Corporate assessment from Echlin 1,072,701 1,291,000 1,626,800
Income tax benefit (424,080) (567,931) (676,810)
</TABLE>
Employee benefits and related expenses were charged by Echlin based upon
actual employee benefits and other related expenses paid by Echlin. The
corporate assessment from Echlin was allocated to the Company by Echlin
based on the criteria determined by Echlin. Distributions made to Echlin of
$1,080,000, $1,104,000 and $798,136 in the years ended August 31, 1997,
1996 and 1995, respectively, were based upon the investment balance of
Echlin in the Company.
Management of the Company believes that the related party charges from
Echlin are not necessarily indicative of expenses that would have been
incurred by the Company on a stand-alone basis.
3. COMMITMENTS AND CONTINGENCIES
The Company leases warehouse and office space under noncancelable operating
leases. Aggregate future minimum lease payments are as follows:
Year ending August 31, 1997:
1998 $ 723,104
1999 530,618
2000 336,814
2001 214,606
2002 221,044
Thereafter 74,404
----------
Total $2,100,590
==========
Rent expense for the years ended August 31, 1997, 1996 and 1995 was
$769,479, $698,202 and $523,180, respectively.
-6-
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at August 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Leasehold improvements $ 235,711 $ 153,684
Machinery and equipment 1,709,086 1,948,342
---------- ----------
Total 1,944,797 2,102,026
Less accumulated depreciation and amortization (1,120,039) (787,436)
---------- ----------
Total property and equipment -- net $ 824,758 $1,314,590
========== ==========
</TABLE>
For the years ended August 31, 1997, 1996 and 1995, depreciation and
amortization expense was $332,603, $312,264 and $338,981, respectively.
******
-7-
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following are the unaudited pro forma condensed consolidated balance sheet
of the Company at September 30, 1997 and the unaudited pro forma consolidated
statements of income of the Company for the year ended December 31, 1996 and the
nine months ended September 30, 1997 (the "Pro Forma Financial Statements"). The
pro forma statements of income are based on the historical results of the
Company and give effect to (i) the acquisition by merger of substantially all of
the assets and certain liabilities of WAWD-EAP Automotive Products, Inc.
("WAWD") on November 17, 1997 and (ii) borrowings to finance the WAWD
acquisition (collectively, the "Transactions") as if the Transactions had
occurred on January 1, 1996. The pro forma balance sheet gives effect to the
Transactions as if they had occurred on September 30, 1997. The Pro Forma
Financial Statements do not purport to be indicative of the Company's financial
position or results of operations that would actually have been obtained had the
Transactions been completed as of the dates or for the periods presented, or to
project the Company's financial position or results of operations at any future
date or for any future period. The pro forma adjustments are based upon
available information and upon certain assumptions that the Company believes are
reasonable. In the opinion of management, all adjustments necessary to present
fairly such Pro Forma Financial Statements have been made.
The acquisition of WAWD will be accounted for under the purchase method of
accounting. The total purchase price will be allocated to the assets and
liabilities acquired based upon their relative fair values at the closing date,
based upon studies which are not yet complete. The allocation of the purchase
price reflected herein is subject to revision when additional information from
the studies becomes available. The Company does not expect that the effects of
the final allocation will differ materially from those set forth herein.
-8-
<PAGE>
BRAKE HEADQUARTERS USA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
Brake
Headquarters WAWD Pro Forma
9/30/97 8/31/97 Adjustments Consolidated
------------ ------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets $17,870,938 $20,708,551 $909,000 (a) $39,312,086
(176,403)(b)
Property and equipment, net 1,513,616 824,758 (824,758)(c) 1,513,616
Other assets 464,936 99,422 (99,422)(b) 789,936
325,000 (e)
Goodwill, net 1,483,057 (1,483,057)(b)
Deferred tax asset 101,988 101,988
----------- ----------- ----------- -----------
Total Assets $19,951,478 $23,115,788 $(1,349,640) $41,717,626
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 3,395,337 $ 7,332,395 $(3,232,164)(b) $ 7,495,568
Long-term debt 10,191,891 9,500,000 (d) 19,691,891
Negative goodwill 7,497,167 (c) 7,497,167
Shareholders' equity 6,364,250 15,783,393 (15,783,393)(b) 7,033,000
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $19,951,478 $23,115,788 $(1,349,640) $41,717,626
=========== =========== =========== ===========
</TABLE>
See notes unaudited pro forma condensed consolidated balance sheet
-9-
<PAGE>
BRAKE HEADQUARTERS USA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements Of Income
For The Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Brake Pro Forma
Headquarters WAWD Adjustments Consolidated
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $23,374,179 $34,675,400 $58,049,579
Less returns and allowances (1,327,824) (1,931,310) (3,259,134)
----------- ----------- ---------- -----------
Net sales 22,046,355 32,744,090 54,790,445
Cost of goods sold 16,083,282 23,091,730 39,175,012
----------- ----------- ---------- -----------
Gross profit 5,963,073 9,652,360 15,615,433
Selling, general and administrative expenses 5,396,060 9,069,316 $ (53,757) (b) 14,166,917
(244,702) (b)
Corporate Assestment from Echlin, Inc. 816,703 (629,203) (e) 187,500
----------- ----------- ---------- -----------
Income from operations 567,013 (233,659) (927,662) 1,261,016
----------- ----------- ---------- -----------
Other income (expense):
Other income 221,087 168,307
Interest expense (614,295) (718,000) (c) (1,332,295)
Other expense (52,780) (52,780)
Amortization of negative goodwill 562,300 (a) 562,300
----------- ----------- ---------- -----------
(393,208) (52,780) (155,700) (654,468)
----------- ----------- ---------- -----------
Income (loss) before income taxes 173,805 (286,439) 771,962 (d) 606,548
(Provision) benefit for income taxes (69,500) 86,000 (225,500) (d) (242,000)
----------- ----------- ---------- -----------
Net income $ 104,305 $ (200,439) $ 546,462 $ 364,548
=========== =========== ========== ===========
</TABLE>
Although final results from operations for the year ended December 31, 1997
("1997") are not yet available, the Company estimates that during the fourth
quarter of 1997 it will incur a loss of approximately $1,000,000 which will
offset the previously reported earnings of $104,305 for the nine months ended
September 30, 1997. The projected loss is a result of the Company's loss from
operations incurred in the fourth quarter, and an increase in its allowance for
doubtful accounts.
-10-
<PAGE>
BRAKE HEADQUARTERS USA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements Of Income
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
Brake Pro Forma
Headquarters WAWD Adjustments Consolidated
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $35,948,479 $45,097,043 $81,045,522
Less returns and allowances (3,349,383) (2,738,564) (6,087,947)
----------- ----------- ---------- -----------
Net sales 32,599,096 42,358,479 74,957,575
Cost of goods sold 24,267,823 30,424,146 54,691,969
----------- ----------- ---------- -----------
Gross profit 8,331,273 11,934,333 20,265,606
Selling, general and administrative expenses 8,083,225 11,456,645 $ (71,676)(b) 19,144,863
(323,331)(b)
Corporate Assessment from Echlin, Inc. 1,217,000 (967,000)(e) 250,000
----------- ----------- ---------- -----------
Income (loss) from operations 248,048 (739,312) (1,362,007) 870,743
----------- ----------- ---------- -----------
Other income (expense):
Interest expense (875,305) (956,000)(c) (1,831,305)
Other expense (7,197) (37,366) (44,563)
Amortization of negative goodwill 749,700 (a) 749,700
----------- ----------- ---------- -----------
(882,502) (37,366) (206,300) (1,126,168)
----------- ----------- ---------- -----------
Loss before income taxes (634,454) (776,678) 1,155,707 (f) (255,425)
Benefit for income taxes 168,000 233,000 (323,500)(e) 77,500
----------- ----------- ---------- -----------
Net loss $ (466,454) $ (543,678) $ 832,207 $ (177,925)
=========== =========== ========== ===========
</TABLE>
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<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On November 17, 1997, in a series of transactions, the Company acquired
substantially all of the assets and certain liabilities of WAWD-EAP Automotive
Products, Inc. ("WAWD") for $8,062,000 million in cash, and 100,000 shares of
the Company's common stock valued at $668,750. The Company will account for the
acquisition of WAWD under the purchase method of accounting. The Company's
historical balance sheet at September 30, 1997 and the results of operations for
the year ended December 31, 1996 and for the nine months ended September 30,
1997 do not include WAWD as the acquisition was completed subsequent to
September 30, 1997. The excess of the estimated fair market value of the net
assets acquired over the purchase price has first been allocated to long-term
assets acquired with the remaining excess recorded as negative goodwill, which
is being amortized over a 10 year period.
WAWD has an August 31 fiscal year end. The unaudited pro forma consolidated
statements of income for the year ended December 31, 1996 and the nine months
ended September 30, 1997 reflect the results of operations as though the
acquisition of WAWD had occurred on January 1, 1996. Accordingly, WAWD's results
of operations were adjusted to conform to the Company's year end. The unaudited
pro forma condensed consolidated balance sheet reflects the acquisition of WAWD
as though the acquisition occurred on September 30, 1997.
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<PAGE>
1. The accompanying pro forma condensed consolidated balance sheet as of
September 30, 1997 has been prepared as if the acquisition of WAWD had
occurred on September 30, 1997 and reflects the following adjustments:
(a) The adjustment to cash is comprised of:
Proceeds from the loan from The CIT Group $7,900,000
Proceeds from the convertible subordinated
debentures 1,000,000
Proceeds from convertible subordinated
promissory notes 600,000
Purchase price paid to Echlin, Inc. (7,900,000)
Purchase price paid to stockholders (162,000)
Fees and expenses relating to the acquisition of WAWD (529,000)
and issuance of debt
----------
$ 909,000
==========
(b) Reflects the elimination of assets and liabilities of WAWD that will be
retained by Echlin, Inc. and therefore are excluded from the acquisition as
follows:
Cash $ 176,403
Other assets 99,422
Goodwill, net 1,483,057
Current liabilities (3,232,164)
Shareholder's equity (15,783,393)
(c) Reflects management's preliminary allocation of the purchase price in
accordance with the purchase method of accounting as follows:
Purchase price:
Cash purchase price paid to stockholders $162,000
Fair market value of common stock
issued to stockholders 668,750
Purchase price paid to Echlin, Inc. 7,900,000
Fees and expenses 204,000
----------
$8,934,750
==========
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<PAGE>
The purchase price is allocated as follows to assets and liabilities
acquired:
Historical Fair
Cost Value Adjustment
----------- ----------- -----------
Accounts receivable $ 4,998,148 $ 4,998,148 $ --
Inventory 14,016,106 14,016,106 --
Other current assets 1,517,894 1,517,894 --
Property and equipment 824,758 -- (824,758)
Current liabilities (4,100,231) (4,100,231) --
Negative goodwill -- (7,497,167) (7,497,167)
----------- ----------- -----------
$17,256,675 $ 8,934,750 $(8,321,925)
=========== =========== ===========
(d) Reflects the financing of the WAWD acquisition as follows:
Loan from The CIT Group $7,900,000
Convertible subordinated debentures 1,000,000
Convertible subordinated promissory notes 600,000
----------
$9,500,000
==========
(e) Reflects deferred financing costs of $ 325,000. These costs will be
amortized over the terms of the related financings.
-14-
<PAGE>
2. The accompanying pro forma condensed consolidated statements of income for
the year ended December 31, 1996 and for the nine months ended September 30,
1997 have been prepared by combining the historical results of the Company
and WAWD for such respective periods and reflect the following adjustments:
(a) Reflects the amortization of negative goodwill of $ 7,497,167 over 10 years.
(b) Reflects the elimination of amortization of WAWD goodwill and depreciation
of fixed assets.
(c) Reflects the interest expense related to the financing of the WAWD
acquisition as follows:
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
Loan from The CIT Group of
$7,900,000 at 9.5% $750,000 $563,000
Issuance of 5% $1,000,000
convertible subordinated
debentures 50,000 38,000
Issuance of 8% $600,000
convertible subordinated
promissory notes 48,000 36,000
Amortization of deferred
financing costs 108,000 81,000
-------- --------
$956,000 $718,000
======== ========
(d) For pro forma purposes, the income tax provision was calculated to arrive at
a consolidated benefit of 30% of pretax loss for the year ended December 31,
1996 or a provision of 40% of pretax income for the nine months ended
September 30, 1997.
(e) Reflects the elimination of that portion of the corporate assessment from
Echlin Inc. which will not be incurred subsequent to the acquisition.
-15-
<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 hereunto duly authorized.
BRAKE HEADQUARTERS U.S.A., INC.
Registrant
BY: /s/ Joseph Ende
------------------------------
Joseph Ende, President
Dated: February 2, 1998
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