SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-13710
AID AUTO STORES, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2254654
-------------------- --------------------------------
(State of Incorporation) (IRS Employer Identification Number)
275 Grand Boulevard, Westbury, New York 11590
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number,Including Area Code: (516) 338-7889
Indicate by check mark if 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
-------- ---------
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practical date.
Common Stock (par value $.001 per share) 3,957,596 shares outstanding as of
May 1, 1998.
<PAGE>
AID AUTO STORES, INC.
CONTENTS
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PART I FINANCIAL INFORMATION PAGE
----
Item 1 Consolidated Condensed Financial Statements:
- -------
Balance Sheets as of March 31, 1998 and
December 31, 1997................................ 3 - 4
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 ................... 5
Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 ................... 6 - 7
Notes to Financial Statements ................... 8
Item 2 Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations ............. 9 - 13
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K ................ 14
SIGNATURES .................................................. 15
2
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, 1998 Dec. 31,1997
-------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 186,021 $ 287,941
Accounts receivable - trade, net 702,765 659,667
Notes receivable, net 352,836 358,549
Inventories 11,806,447 12,649,691
Prepaid expenses and other current assets 868,534 955,303
------------ ------------
Total current assets 13,916,603 14,911,151
FIXED ASSETS - AT COST, net 4,439,215 4,651,488
COSTS IN EXCESS OF NET ASSETS ACQUIRED, net 3,373,132 3,441,335
OTHER ASSETS 373,247 396,676
----------- -----------
$ 22,102,197 $ 23,400,650
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1998 Dec. 31, 1997
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Revolving credit line $ 7,220,133 $ 7,866,772
Demand note 3,196,661 2,161,401
Accounts payable 3,079,483 3,464,766
Accrued expenses 291,084 453,085
Current portion of long-term debt 390,629 447,222
Term note 102,083 145,833
------------ ------------
Total current liabilities 14,280,073 14,539,079
LONG-TERM DEBT, net of current portion 1,412,757 1,475,078
DEFERRED OCCUPANCY COSTS 429,982 420,700
NOTE PAYABLE - OFFICER 2,187,500 2,187,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
authorized, 2,000,000 shares;
none issued
Common stock, $.001 par value; authorized,
15,000,000 shares; 3,957,596 shares issued
and outstanding in 1997 and 1996 3,958 3,958
Additional paid-in capital 9,006,809 9,006,809
Retained earnings (5,218,882) (4,232,474)
----------- -----------
3,791,885 4,778,293
----------- -----------
$ 22,102,197 $ 23,400,650
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 4,512,439 $ 6,092,598
Costs and expenses
Cost of sales 2,480,333 3,542,819
Selling and shipping 2,097,178 1,768,739
General and administrative 566,089 576,102
---------- -----------
$ 5,143,600 $ 5,887,660
(Loss) income from operations (631,161) 204,938
Interest expense (356,809) (269,408)
Interest and other income 1,562 6,484
---------- ----------
Loss before income taxes (986,408) (57,986)
Provision for income taxes - -
---------- ----------
NET LOSS $ (986,408) $ (57,986)
========== ==========
Loss per common share
Net loss per common share-basic
and diluted $(.25) $(.01)
====== ======
Weighted average common shares
outstanding 3,957,596 3,957,596
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ -------------
<S> <S> <S>
Cash flows from operating activities
Net loss $ (986,408) $ (57,986)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization 428,878 318,482
Deferred occupancy costs 9,282 10,984
(Increase) decrease in operating assets
Accounts receivable (43,098) (331,266)
Notes receivable 5,713 12,512
Inventories 843,244 367,698
Prepaid expenses and other
current assets (731) (657,320)
Security deposits (185) (4,125)
Other assets 23,614 -0-
Decrease in operating liabilities
Accounts payable (385,283) (621,780)
Accrued expenses (162,001) (128,248)
---------- ----------
Net cash used in operating activities (266,975) (1,091,049)
---------- ----------
Cash flows from investing activities
Capital expenditures (60,902) (125,205)
---------- ----------
Net cash used in investing activities (60,902) (125,205)
---------- ----------
</TABLE>
6
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net borrowings under revolving
credit line $ (646,639) $ 1,111,292
Principal repayment of long-term debt (59,246) (46,686)
Demand note 1,035,260 -0-
Term note (43,750) -0-
Repayment of notes payable under
capital lease obligations (59,668) (66,287)
---------- -----------
Net cash provided by financing activities 225,957 998,319
---------- -----------
Net decrease in cash and cash equivalents (101,920) (217,935)
Cash and cash equivalents, at
beginning of period 287,941 331,019
---------- -----------
Cash and cash equivalents, at
end of period $ 186,021 $ 113,084
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 264,991 $ 233,929
</TABLE>
The accompanying notes are an integral part of these statements<PAGE>
7
<PAGE>
AID AUTO STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of March 31, 1998 and
the consolidated statement of operations and the
consolidated statement of cash flows for the three month
period ended March 31, 1998 have been prepared by the
company without audit. In the opinion of management, all
adjustments (which include only recurring adjustments)
necessary to present fairly the financial position at March
31, 1998, and the results of operations and cash flows for
the periods presented, have been made. Results of operations
for the three month period ended March 31, 1998 are not
necessarily indicative of the operating results to be
expected for the full year.
For information concerning the Company's significant
accounting policies, reference is made to the Company's
audited financial statements for the year ended December 31,
1997 contained in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission. While the
Company believes that the disclosures presented are adequate
to make the information contained herein not misleading, it
is suggested that these statements be read in conjunction
with the consolidated financial statements and the notes
included in the Form 10-K.
B. INVENTORIES
Inventories consists primarily of merchandise purchased for resale.
C. NEW PRONOUNCEMENT
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income, in the first quarter of 1998, which
requires companies to disclose comprehensive income
separately of net income from operations. Comprehensive
income is defined as the change in equity during a period
from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity
during a period, except those resulting from investments by
owners and distributions to owners. The adoption of this
statement had no effect on the Company for the quarters
ended March 31, 1998 and 1997.
D. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997
presentation to conform to the 1998 presentation.
8
<PAGE>
AID AUTO STORES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Aid Auto Stores, Inc. (the "Company"), formed in 1953, is a
retailer, wholesaler and franchiser of automotive parts and
accessories. As of March 31, 1998, the Company supplied products
to 42 Aid Auto Stores, including 22 Company-owned stores and 20
franchised stores, and, through its wholly-owned subsidiary, Ames
Automotive Warehouse, Inc. ("Ames"), to hundreds of non-
automotive chain stores and independent jobbers and installers in
New York, New Jersey and Connecticut. The Aid Auto Stores sell
an extensive variety of name-brand automotive parts, accessories
and chemicals, as well as an assortment of products marketed
under the "Aid" and "Perfect Choice TM" brands, to both do-it-
yourself and commercial customers. Pursuant to a growth strategy
initiated in 1995, the Company commenced the opening of Company-
owned Superstores and de-emphasized its franchise operations. As
of March 31, 1998, the Company opened eight new Superstores and
had acquired (in December 1995) ten franchised Aid Auto Stores in
Long Island, New York, of which nine have been converted and
reopened as Superstores and the remaining store will be converted
to a Superstore. Through termination and non-renewal of
franchise agreements, the number of franchised stores has
decreased since the end of the first quarter of 1997 from 34 to
20. Subject to the availability of substantial debt or equity
financing, the Company intends to open additional Superstores,
which may be accomplished in part by acquisition. In addition,
consistent with its retail Superstore growth strategy, the
Company further de-emphasized its wholesale operations by
reducing the number of its Ames customers by 55% from inception
of the Superstore growth program in 1995 to March 31, 1998. The
number of stores to be opened is subject to significant variation
depending upon, among other factors, the availability of
substantial financing to fund the cost of adding the additional
stores, the level of success of the current Superstores, the
availability of suitable store sites or acquisition candidates,
and the timely development and construction of new stores. The
financial performance of the Company is tied, to a large extent,
to the transition of the Company to the Superstore program and
the future potential of that program. In the event the program is
continued, the Company's operating expenses are expected to
continue to increase and, accordingly, the Company's future
profitability will depend upon increases in revenues from its
Superstore operations, of which there can be no assurance.
9
<PAGE>
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997.
The Company's operating revenues are primarily derived from
net sales consisting of both retail and wholesale sales. Retail
sales are made from the 22 Company-owned Aid Auto Stores.
Wholesale sales include sales to the Company's franchised Aid
Auto Stores, of which 20 existed at March 31, 1998 and 34 at
March 31, 1997, and through Ames, to hundreds of other customers.
Revenues decreased by $1,580,159 (or 25.9%) from $6,092,598 for
the three months ended March 31, 1997 to $4,512,439 for the three
months ended March 31, 1998. The decrease in revenues in 1998 was
due primarily to the decrease of $1,132,241 in wholesale sales to
franchisees and through Ames, from $1,865,659 to $733,418 for the
three months ended March 31, 1997 and 1998, respectively. Retail
sales decreased by $296,400 from $4,051,923 to $3,755,523 for the
three months ended March 31, 1997 and 1998, respectively. The
reduction in wholesale sales for the three month period ended
March 31, 1998 is consistent with the Company's strategy to de-
emphasize its wholesale business and seek to grow its retail
business. The exceptionally mild, auto-friendly winter weather in
the first quarter of 1998 resulted in a decrease in the sale of
certain items (e.g., anti-freeze and other winter chemicals) and
the decreased need for other winter maintenance items. For the
three months ended March 31, 1998, retail sales represented 84%
of total net sales as compared to 68% for the comparable prior
year period.
Cost of sales decreased by $1,062,486 (30.0%) from
$3,542,819 to $2,480,333 for the three months ended March 31,
1997 and 1998, respectively. As a percentage of net sales, cost
of sales decreased from 58.1% to 55.0% for the three month
period ended March 31, 1997 and 1998, respectively, reflecting
the significantly higher margins on retail sales (as compared to
wholesale sales).
Selling and shipping expenses increased by $328,439 (or
18.6%) from $1,768,739 (29.0% of net sales) for the three months
ended March 31, 1997 to $2,097,178 (46.5% of net sales) for the
three months ended March 31, 1998. The increase in absolute
dollars and as percentage of net sales for the quarter was due
primarily to selling expenses associated with the opening of two
new Company-owned stores in 1997 which were fully operational in
the first quarter of 1998. Selling expenses are higher for a
retail operation than for a wholesale operation, reflecting the
nature of those operations.
General and administrative expenses decreased by $10,013 (or
1.7%) from $576,102 (9.5% of net sales) for the three months
ended March 31, 1997 to $566,089 (12.5% of net sales) for the
three months ended March 31, 1998. The decrease in absolute
dollars for the latest three month period was due to the
Company's concentration on reducing its corporate overhead as it
continues to de-emphasize its wholesale operations. The increase
of this expense as a percentage of revenues was due to the
significant decrease in revenues, without a corresponding decrease
in the expense. At the end of the first quarter of 1998, the
Company reduced its corporate workforce by 26% and restructured
its warehouse operations.
Interest expense increased by $87,401 from $269,408 for the
three months ended March 31, 1997 to $356,809 for the three
months ended March 31, 1998. These increases were due to an
increase in the average outstanding debt balance during the first
three months of 1998 as compared to the same period in the prior
year.
10
<PAGE>
For the foregoing reasons, the net loss for the three month
period ending March 31, 1998 was approximately $986,408, as
compared to a net loss of approximately $57,986 for the three
month period ended March 31, 1997.
Liquidity and Capital Resources
The accompanying financial statements have been prepared
in conformity with generally accepted accounting principle, which
contemplates continuation of the Company as a going concern.
However, the Company had a deficit working capital of $363,470 at
March 31, 1998, compared to a positive working capital of
$372,072 at December 31, 1997. The decrease of $735,542 was
primarily caused by the operating loss incurred in three months
ended March 31, 1998 and a decrease in inventory. In addition,
the Company incurred additional indebtedness to a bank in the
form of an unsecured demand note ($3,196,661 at March 31, 1998)
that resulted from the conversion of overdraft balances in the
Company's operating accounts. Management has taken steps at the
end of the first quarter of 1998 to improve its working capital
position by implementing several cost cutting steps which include
the reduction of 26% of the corporate payroll and the reduction
of inventory by 7% in the first quarter of 1998. The effect of
the reduction in costs will be realized in future periods. In
addition, the Company has begun the process to seek to reduce 60%
of space at the Company's distribution center. The Company has
also begun to negotiate with its vendors for assistance
throughout 1998. In connection with the development and
implementation of this financial strategy, the Company has
retained a financial advisor to assist therewith. Furthermore,
the Company has retained Josephthal & Co., Inc. to assist it in
exploring strategic alternatives, which may include, among other
things, a significant acquisition by, or the acquisition of, the
Company. These steps, among others, are intended to enable the
Company to improve its cash flow from operations and working
capital position. However, cash generated from operations alone
would not be sufficient to pay the demand note if the bank were
to demand immediate payment thereof. The bank has indicated to
the Company that it will not pursue such action provided the
Company is successful in its pursuit of strategic alternatives.
There can be no assurance that the Company will be successful in
its attempt to consumate one of the strategic alternatives or
that the bank will otherwise continue to defer seeking payment.
In addition, the Company will continue to pursue substantial
sources of debt or equity financing to improve the working
capital position and continue the growth of the Company, for
which there can be no assurance of obtaining. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence. Management
believes that the steps outlined above are sufficient to provide
the Company with the ability to continue in existence.
Net cash used in operating activities was $266,975 for the
three months ended March 31, 1998 as compared to net cash used in
operating activities of $1,091,049 for the three months ended
March 31, 1997. The decrease in 1998 was attributable primarily
to increases in depreciation and amortization due to the capital
expenditures made in connection with the Superstore growth
program and decreases in accounts payable and inventory at the
warehouse level, as a result of the de-emphasizing of the
wholesale operations, offset in part by the loss incurred in the
three month period ended March 31, 1998 compared to the prior
comparable period. Net cash utilized in investing activities was
$60,902 and $125,205 for the three month period ending March
31, 1998 and 1997, respectively. The decrease reflects decreases
in capital expenditures due to a decrease in the funds available
to fund the Superstore growth strategy. Net cash provided by
financing activities was $225,957 as compared to $998,319 for the
three months ended March 31, 1998 and 1997, respectively.
Financing activities in 1998 reflect the unsecured demand note
the Company currently has offset in part by the repayment of debt
under the revolving credit facility.
11
<PAGE>
The Company receives volume purchasing discounts and
cooperative advertising and development funds from certain of its
suppliers. The amounts of these incentives generally range from
5% to 10% of the listed purchase prices.
On September 29, 1997, the Company entered into a
$10,000,000 revolving credit facility with a financial
institution ("lender"), which at the Company's option, can be
increased to $15,000,000. The agreement expires September 30,
2000. This facility replaced the existing facility which
provided for maximum borrowings of $10,000,000. This new
facility allows the Company to borrow at the prime rate plus 1%.
Maximum borrowings under the revolving credit facility are based
upon the sum of 62% of eligible inventory and 85% of eligible
accounts receivable. The advance rate for inventory gradually
declines over the first year of the agreement to, the lower of
60%, or 80% of the appraised value of the inventory.
Additionally, substantially all of the Company's assets are
pledged as collateral under the new credit agreement. The terms
of the revolving credit facility contain, among other provisions,
financial covenants for maintaining defined levels of net worth,
net earnings before interest, taxes, depreciation and
amortization and annual capital expenditures. Because of the
operating loss reported by the Company for the year ended
December 31, 1997, the Company would not have been in compliance
with such covenants had the lender not granted waivers of such
defaults as of December 31, 1997. Pursuant to a First Amendment,
dated April 24, 1998, the lender amended the financial covenants
and increased the interest rate to the prime rate plus 2%. As of
March 31, 1998, the Company was in compliance with the amended
covenants. There can be no assurance that the Company will be
able to comply with future covenants and/or obtain future waivers
or amendments that would prevent the entire amount of the credit
facility from becoming due and payable. At March 31, 1998,
outstanding borrowings under this facility were $7,220,133, which
reflects the maximum available under the credit facility, and the
interest rate was 9.5%.
In connection with this new facility, the Company was
required to pay an early termination fee of $175,000 to its
previous lender. The fee was paid from the proceeds of a loan to
the Company by the lender in the form of a one year term loan
with principal and interest payable monthly. The term loan
interest rate is at the prime rate plus 1%. Pursuant to the First
Amendment of the credit facility, the term loan will be paid by
July 15, 1998 and will bear interest at the rate of prime plus
2%.
At March 31, 1998, the Company was indebted to the Chief
Executive Officer, President and majority shareholder in the form
of a promissory note aggregating $2,187,500. The note bears
interest monthly at the same rate as the revolving credit
facility with principal payable in quarterly installments through
February 1, 2000. The new revolving credit facility allows the
Company to make quarterly principal payments and scheduled
monthly interest payments so long as prior to and after giving
affect to such payments no default has occurred and is continuing
or would occur on the revolving credit indebtedness as a result
thereof. As of April 14, 1998, the holder of the note has
deferred all principal and interest payments due to April 15,
1999. The note provides for immediate payment thereof upon, among
other things, a change in a majority of the continuing directors
of the Company (as defined in the note) or a demand by the lender
of payment in full of outstanding indebtedness to it.
12
<PAGE>
As of the date hereof, other than in connection with the
implementation of the Superstore growth program, the Company has
no material commitments for capital expenditures.
The Company has used net proceeds ($7,300,000) of its 1995
initial public offering as well as funds from borrowings, to
finance the implementation of its Superstore growth program. The
Company will need to seek substantial additional debt or equity
financing, as the Company's current resources and cash flow from
operations are not sufficient to fund the continuing cost of its
growth program. To the extent that the Company seeks financing
through the issuance of equity securities, any such issuance of
equity securities would result in dilution to the interests of
the Company's stockholders. Additionally, to the extent that the
Company incurs indebtedness to fund increased levels of inventory
or to finance the acquisition of capital equipment or issues debt
securities to fund the Superstore growth program, the Company
will be subject to risks associated with incurring substantial
indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and
interest on any such indebtedness. Other than the Company's
existing line of credit with the lender, the Company has no
current arrangements with respect to, or sources of, additional
financing and it is not anticipated that the existing majority
stockholder will provide any portion of the Company's future
financing requirements or additional personal guarantees. There
can be no assurance that additional financing will be available
to the Company on acceptable terms, or at all.
In December 1997, the Company engaged Josephthal Lyon &
Ross, Inc., an investment banking and securities brokerage firm,
to work closely with the Company to develop and implement its
strategic plan including evaluating appropriate sources of
capital and assisting with selected strategic acquisitions and
other corporate and financial matters. In March 1998, the Company
further retained Josephthal & Co. Inc. to assist the Company in
connection with a possible transaction, which may include among
other things, a significant acquisition by, or the acquisition,
of the Company.
Seasonality
The Company's business is seasonal to some extent primarily
as a result of the impact of weather conditions on store sales.
Store sales and profits have historically been higher in the
second and third quarters (April through September) of each year
than in the first and fourth quarters, for which the Company
generally achieves only nominal profits or incurs net losses.
Weather extremes tend to enhance sales by causing a higher
incidence of parts failure and increasing sales of seasonal
products. However, extremely severe winter weather or rainy
conditions tend to reduce sales by causing deferral of elective
maintenance.
Impact of Inflation
Inflation has not had a material effect on the Company's
operations.
13
<PAGE>
AID AUTO STORES, INC.
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following document is filed as part of this report:
(i) First Amendment to Loan and Security
Agreement, dated April 24, 1998, by
and between Aid Auto Stores, Inc. and
Ames Automotive Warehouse, Inc., and
Foothill Capital Corporation.
(b) Reports on Forms 8-K
Form 8-K, date of report being March 23,
1998, which Form 8-K related to the
extension of the expiration date of the
Company's publicly-traded warrants from
April 10, 1998 to April 10, 1999.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AID AUTO STORES, INC.
--------------------------
(Registrant)
May 15, 1998 By: /s/ Philip L. Stephen
---------------------------------
Philip L. Stephen
Chairman, Chief Executive Officer,
And President (Principal Executive
Officer)
May 15, 1998 By: /s/ Frank Mangano
-------------------------------
Frank Mangano
Chief Financial Officer,
(Principal Financial and Accounting
Officer)
15
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
WHEREAS, Aid Auto Stores, Inc., a Delaware corporation, and
Ames Automotive Warehouse, Inc., a New York corporation, jointly
and severally, (collectively referred to herein as "Borrower"),
having a chief executive office located at 275 Grand Boulevard,
Westbury, New York 11590 entered into a Loan and Security Agreement
with FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333
(referred to herein as "Lender") dated as of September 29, 1997
(the Loan and Security Agreement being herein referred to as the
"Loan Agreement"); and
WHEREAS, Borrower and Lender have agreed to amend the terms
and provisions of the Loan Agreement effective as of the date
stated herein by the provisions set forth below;
NOW, THEREFORE, Borrower and Lender hereby agree that
effective as of the date stated herein as the date of execution by
Lender being April 24, 1998, the Loan Agreement shall be amended
to contain the provisions set forth below and the applicable
provisions of the Loan Agreement shall be superseded to the extent
necessary to give effect to the provisions set forth below:
1. The Section 1.1 definition of Mortgages shall be deleted
and the following inserted in lieu thereof:
"Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by Borrower in favor of
Foothill, the form and substance of which shall be reasonably
satisfactory to Foothill in its reasonable credit judgment, that
encumber the Real Property Collateral and the related improvements
thereto to be granted on or before June 30, 1998.
2. Section 2.3 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
2.3 Term Loan. Foothill has agreed to make a term loan
(the "Term Loan") to Borrower in the original principal amount of
one hundred seventy five thousand ($175,000) Dollars. The Term
Loan as of March 31, 1998 has an outstanding principal balance of
$87,500 which outstanding balance shall be repaid in two (2) equal
monthly installments of principal in the amount of thirty four
thousand twenty seven and 78/00 ($34,027.78) Dollars commencing on
May 1, 1998 and continuing on June 1, 1998 and a final installment
payment of the greater of nineteen thousand four hundred forty four
and 44/00 ($19,444.44) on July 15, 1998 or the then remaining
outstanding principal amount due together with all accrued and
unpaid interest and any charges in connection with the Term Loan in
order for the Term Loan to be paid in full. The outstanding
principal balance and all accrued and unpaid interest under the
Term Loan shall be due and payable upon the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or
otherwise. The unpaid principal balance of the Term Loan may be
prepaid in whole or in part without penalty or premium at any time
during the term of this Agreement with all such prepaid amounts to
be applied to the installments due on the Term Loan in the inverse
order of their maturity. All amounts outstanding under the Term
Loan shall constitute Obligations.
<PAGE>
3. Section 2.5 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
2.5 Overadvances. If, at any time or for any reason,
the amount of Obligations owed by Borrower to Foothill pursuant to
Section 2.1 is greater than either the Dollar or percentage
limitations set forth in Sections 2.1 (an "Overadvance"), Borrower
immediately shall, unless otherwise agreed to by Foothill, pay to
Foothill, in cash, the amount of such excess to be used by Foothill
to repay Advances outstanding under Section 2.1. Foothill will
allow an Overadvance up to the amount of $250,000 to exist after
execution of this First Amendment to Loan and Security Agreement,
provided however that Borrower must on or before June 15, 1998
reduce such Overadvance to an amount not greater than $150,000 and
must further reduce and eliminate such Overadvance on or before
July 15, 1998.
4. Section 2.6(a) of the Loan Agreement deleted in its
entirety and the following inserted in lieu thereof:
a. Interest Rate. Except as provided in clause
(c) below, effective as of May 1, 1998 (i) all Obligations shall
bear interest at a per annum rate of two (2.00) percentage points
above the Reference Rate.
5. Section 2.11(d) of the Loan Agreement shall be deleted in
its entirety and the following inserted in lieu thereof:
(d) Financial Examination and Appraisal Fees.
Foothill's customary fee of six hundred fifty ($650) Dollars per
day per examiner, plus out-of-pocket expenses for each financial
analysis and examination (i.e. audits) of Borrower performed by
personnel employed by Foothill; Foothill's customary appraisal fee
of one thousand five hundred ($1,500) Dollars per day per
appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by personnel employed by Foothill; and, the
actual charges paid or incurred by Foothill if it elects to employ
the services of one or more third Persons to perform such financial
analyses and examinations (i.e. audits) of Borrower or to appraise
the Collateral (including but not limited to appraisers engaged by
Foothill if Foothill elects to conduct, prior to the occurrence of
an Event of Default, not more frequently than on a quarterly basis,
an appraisal of Borrowers Inventory to determine and report to
Foothill as to the liquidation value of such Inventory for
Borrowing Base calculation purposes); and
6. Section 2.11(e) of the Loan Agreement shall be deleted in
its entirety and the following inserted in lieu thereof:
(e) Servicing/Collateral Management Fee. On the
first day of each month during the term of this Agreement, and
thereafter so long as any Obligations are outstanding, a
servicing/collateral management fee in an amount equal to two
thousand five hundred ($2,500.00) Dollars; and
2
<PAGE>
7. Section 6.2(d) of the Loan Agreement shall be deleted in
its entirety and the following inserted in lieu thereof:
(d)(i) on a monthly basis Inventory reports specifying
Borrower's cost and the wholesale market value of its Inventory
with additional detail showing additions to and deletions from the
Inventory, provided that borrowing availability is $200,000 or
greater, but if borrowing availability is less than $200,000,
Borrower shall be required on a weekly basis, to provide Inventory
reports specifying cost and the wholesale market value of its
Inventory with additional detail showing additions to and deletions
from the Inventory, to the extent available; and provided further,
that on the earlier of the implementation of the Borrower's Point
of Sale system and the Borrower's perpetual inventory tracking
system or February 15, 1998, Borrower shall, on a weekly basis,
furnish Inventory reports specifying Borrower's cost and the
wholesale market value of its Inventory by category, with
additional detail showing additions to and deletions from the
Inventory and (ii) Borrower shall contract with RGIS or another
acceptable Inventory counting and verification service acceptable
to Foothill, to conduct and report to Foothill, at Borrower's
expense, not less than two (2) additional times for the remainder
of 1998 and three (3) times in each subsequent year a physical
count of Borrower's Inventory items with the first such physical
count and report being accomplished and delivered to Foothill on or
before July 31, 1998;
8. The first paragraph of Section 6.3(a) of the Loan
Agreement shall be deleted in its entirety and the following
inserted in lieu thereof:
6.3 Financial Statements, Reports, Certificates.
Deliver to Foothill: (a) as soon as available, but in any event
within 45 days after the end of each month during each of
Borrower's fiscal years, a Borrower prepared balance sheet, income
statement, and statement of cash flow covering Borrower's
operations during such period; and (b) (i) immediately, for the
remaining period through July 15, 1998 and on or before the first
day of each July, October, January and April thereafter commencing
July 1, 1998, a budget projection covering a period of thirteen
(13) weeks ("13 Week Period") from each July 15, October 15,
January 15 and April 15 dates commencing July 15, 1998, ("Budget)
created by Borrower and reviewed and confirmed by Argus Management
or the financial and management consultant engaged by Borrower who
shall be acceptable to Foothill, showing by week during each week
of the next 13 Week Period, the projected weekly receipts and
projected weekly expenditures as of the end of each such week for
the next 13 Week Period period and showing for the cash flow
statement only, the weekly cumulative total of the prior four (4)
weeks projected weekly receipts and projected weekly expenditures;
and (ii) for each week beginning May 11, 1998 for the immediately
preceding four (4) week period the actual receipts and actual
disbursements as of the first day of each week during the
immediately preceding four (4) week period; and (c) as soon as
available, but in any event within 90 days after the end of each of
Borrower's fiscal years, financial statements of Borrower for each
such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill in the exercise of
Foothill's reasonable commercial judgement and certified, without
any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do
3
<PAGE>
not have knowledge of the existence of any Default or Event of
Default; and (d) on a weekly basis, commencing on May 11, 1998 and
continuing on each Monday thereafter, a report created by Borrower
and reviewed and confirmed by Argus Management or the financial and
management consultant engaged by Borrower who shall be acceptable
to Foothill, showing the actual receipts and expenditures, on a
cumulative basis to the cumulative weekly projection of receipts
and expenses referenced in (b) above for the immediately ended four
(4) week period together with an explanation of any variances
between the actual and budgeted numbers.
Such audited financial statements shall include a balance sheet,
profit and loss statement, and statement of cash flow and, if
prepared, such accountants' letter to management. If Borrower is
a parent company of one or more Subsidiaries, or Affiliates, or is
a Subsidiary or Affiliate of another company, then, in addition to
the financial statements referred to above, Borrower agrees to
deliver financial statements prepared on a consolidating basis so
as to present Borrower and each such related entity separately, and
on a consolidated basis.
9. Section 7.20(a) of the Loan Agreement shall be deleted in
its entirety and the following inserted in lieu thereof:
7.20 Financial Covenants. Fail to maintain:
(a) Tangible Net Worth. A negative Tangible Net
Worth of ($400,000) or less as of the fiscal quarter ended March
31, 1998, a negative Tangible Net Worth of ($900,000) or less as of
the fiscal quarter ended June 30, 1998 or a negative Tangible Net
Worth of ($460,000) or less as of the fiscal quarter ended
September 30, 1998 or a negative Tangible Net Worth of ($270,000)
or less as of the fiscal quarter ended December 31, 1998; and
10. Section 7.20(b) of the Loan Agreement shall be deleted in
its entirety.
11. Section 8 of the Loan Agreement shall be amended to add
three (3) new Sub-Sections as set forth below:
8.16 If Borrower fails to engage on or before April 30,
1998 and continue to utilize and abide by the recommendations of
Argus Management or another financial and management consultant
acceptable to Foothill in connection with the management and
operation of Borrower's business; or
8.17 If Borrower and/or Argus Management or the financial
and management consultant acceptable to Foothill engaged by
Borrower submits a weekly actual to budget receipts and expenses
report in accordance with Section 6.3.(b) which shows on the first
business day of any week, commencing on May 11, 1998, for the
immediately preceding four (4) week period: (a) the four (4) week
total of the actual receipts as of the first business day of each
week during the prior four (4) week period to be ten (10%) percent
or more below the four (4) week cumulative projected receipts for
such period as shown in the report referenced in 6.3.(b) above; or
(b) the four (4) week total of the actual expenditures as of the
first business day of each week during the prior four (4) week
period to be ten (10%) percent or more below the four (4) week
cumulative projected expenditures for such period as shown in the
report referenced in 6.3.(b) above;
4
<PAGE>
8.18 If Borrower fails to provide Foothill, in form,
scope and substance satisfactory to Foothill, with an intercreditor
and subordination agreement executed by Bankers Trust Company on
or before July 31, 1998 in connection with the existing unsecured
indebtedness owed by Borrower to Bankers Trust.
12. The description contained on Schedule R-1 Real Property
Collateral shall be deleted and the following inserted in lieu
thereof:
472 Union Avenue, Brooklyn, New York 11236 which property
shall be mortgaged to Foothill on or before June 30, 1998
13. Borrower acknowledges that it is in violation of Section
6.3(a) of the Loan Agreement as a result of its failure to provide
monthly financial statements for the months of January and February
1998 on or before March 15, 1998 and that it has further violated
Section 6.3(a) of the Loan Agreement as a result of its failure to
provide an annual financial statement for the 1997 fiscal year on
or before March 30, 1998. Foothill agrees to waive compliance with
Section 6.3(a) as to the annual financial statement as of December
31, 1997 and as to the monthly statements through March 31, 1998.
14. Borrower acknowledges that it is in violation of Section
7.1(b) of the Loan Agreement as a result of its indebtedness to
Bankers Trust Company. Foothill agrees to waive compliance with
Section 7.1(b) as to the above violation through July 31, 1998.
15. Borrower acknowledges that it is in violation of Section
7.20(a) and 7.20(b) of the Loan Agreement. Foothill agrees to
waive compliance with Section 7.20(a) and 7.20(b) as to the above
violation as of December 31, 1997.
16. Borrower acknowledges that it is in violation of Section
7.21 of the Loan Agreement. Foothill agrees to waive compliance
with Section 7.21 as to the above violation as of December 31,
1997.
17. Except as herein amended, all of the terms and provisions
of the Loan Agreement shall remain in full force and effect.
5
<PAGE>
18. Borrower and Lender agree that this First Amendment to
Loan and Security Agreement has been prepared by the mutual effort
of both parties and that in the event of a conflict or interpretive
question with respect to any term, provision or section contained
in this First Amendment to Loan and Security Agreement or the
September 29, 1997 Loan and Security Agreement, that this First
Amendment to Loan and Security Agreement and the September 29, 1997
Loan and Security Agreement shall not be construed more strictly
against any one party than any other party; it being agreed that
both Borrower and Lender have equally negotiated the terms hereof
and thereof.
The date of execution of this First Amendment to Loan and
Security Agreement by Borrower is April , 1998.
LENDER: BORROWER:
FOOTHILL CAPITAL CORPORATION AID AUTO STORES, INC.
By: /s/ Peter Drooff By: /s/ Philip L. Stephen
------------------------ --------------------------
Peter Drooff Philip L. Stephen
Title: Assistant Vice President Title: President
AMES AUTOMOTIVE WAREHOUSE, INC.
By: /s/ Philip L. Stephen
---------------------------
Philip L. Stephen
Title: President
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 186,021
<SECURITIES> 0
<RECEIVABLES> 702,765
<ALLOWANCES> 0
<INVENTORY> 11,806,447
<CURRENT-ASSETS> 13,916,603
<PP&E> 4,439,215
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,102,197
<CURRENT-LIABILITIES> 14,280,073
<BONDS> 0
0
0
<COMMON> 3,958
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,791,882
<SALES> 4,512,439
<TOTAL-REVENUES> 4,512,439
<CGS> 2,480,333
<TOTAL-COSTS> 5,143,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,809
<INCOME-PRETAX> (986,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (986,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (986,408)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
