-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TNdHBpReSz5B5LG1zp4+QuSVYTpTeLCugm3ruzqco7L1uaVqBcfiafFszSSuNS8S UTL7cre3Z3rDVnPGqfiZxw== 0000937599-98-000004.txt : 19980518 0000937599-98-000004.hdr.sgml : 19980518 ACCESSION NUMBER: 0000937599-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AID AUTO STORES INC /DE/ CENTRAL INDEX KEY: 0000937599 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLE SUPPLIES & NEW PARTS [5013] IRS NUMBER: 112254654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13710 FILM NUMBER: 98622981 BUSINESS ADDRESS: STREET 1: 275 GRAND BLVD STREET 2: P.O. BOX 281 CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163387889 10-Q 1 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. AID AUTO STORES, INC. CONTENTS -------- 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 Aid Auto Stores, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS March 31, 1998 Dec. 31,1997 -------------- ------------ 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 =========== ===========
The accompanying notes are an integral part of these statements. 3 Aid Auto Stores, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1998 Dec. 31, 1997 -------------- ------------- 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 =========== ===========
The accompanying notes are an integral part of these statements. 4 Aid Auto Stores, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, ---------------------------- 1998 1997 ----------- ----------- 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 ========= =========
The accompanying notes are an integral part of these statements. 5 Aid Auto Stores, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ---------------------------- 1998 1997 ------------ ------------- 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) ---------- ----------
6 Aid Auto Stores, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
Three Months Ended March 31, --------------------------- 1998 1997 ------------ ------------ 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
The accompanying notes are an integral part of these statements 7 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 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 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 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 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 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 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 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 EX-10 2 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. 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 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 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 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 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 EX-27 3
5 3-MOS DEC-31-1998 MAR-31-1998 186,021 0 702,765 0 11,806,447 13,916,603 4,439,215 0 22,102,197 14,280,073 0 0 0 3,958 0 3,791,882 4,512,439 4,512,439 2,480,333 5,143,600 0 0 356,809 (986,408) 0 (986,408) 0 0 0 (986,408) 0 0
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