UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2019

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number: 001‑33264

U.S. AUTO PARTS NETWORK, INC.

(Exact name of registrant as specified in its charter)

Delaware	68‑0623433
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16941 Keegan Avenue, Carson, CA 90746

(Address of Principal Executive Office) (Zip Code)

(424) 702‑1455

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b‑2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).     Yes  ☐   No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol:	Name of Exchange on which registered:
Common Stock, $0.001 par value per share	PRTS	The Nasdaq Stock Market LLC

As of August 7, 2019, the registrant had 35,824,188 shares of common stock outstanding, $0.001 par value.

U.S. AUTO PARTS NETWORK, INC.

QUARTERLY REPORT ON FORM 10‑Q

FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JUNE 29, 2019

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	4
	Consolidated Balance Sheets (Unaudited) at June 29, 2019 and December 29, 2018	4
	Consolidated Statements of Operations and Comprehensive Operations (Unaudited) for the Thirteen and Twenty-six Weeks Ended June 29, 2019 and June 30, 2018	5
	Consolidated Statements of Stockholder’s Equity (Unaudited) for the Thirteen and Twenty-six Weeks Ended June 29, 2019 and June 30, 2018	6
	Consolidated Statements of Cash Flows (Unaudited) for the Twenty-six Weeks Ended June 29, 2019 and June 30, 2018	7
	Notes to Consolidated Financial Statements (Unaudited)	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	27
ITEM 4.	Controls and Procedures	27
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	28
ITEM 1A.	Risk Factors	28
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
ITEM 3.	Defaults Upon Senior Securities	44
ITEM 4.	Mine Safety Disclosures	44
ITEM 5.	Other Information	44
ITEM 6.	Exhibits	45

Unless the context requires otherwise, as used in this report, the terms “U.S. Auto Parts,” the “Company,” “we,” “us” and “our” refer to U.S. Auto Parts Network, Inc. and its wholly-owned and majority-owned subsidiaries. Unless otherwise stated, all amounts are presented in thousands.  

U.S. Auto Parts®, U.S. Auto Parts Network™, Kool-Vue®, JC Whitney®, Carparts.com®, and Evan Fischer®, amongst others, are our United States trademarks. All other trademarks and trade names appearing in this report are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements included in this report, other than statements or characterizations of historical or current fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. Any forward-looking statements included herein are based on management’s beliefs and assumptions and on information currently available to management. We have attempted to identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would”, “will likely continue,” “will likely result” and variations of these words or similar expressions. These forward-looking statements include, but are not limited to, statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, current business indicators, capital needs, financing plans, capital deployment, liquidity, contracts, litigation including our litigation with U.S. customs, the anticipated impact of the issues we are experiencing with U.S. customs including the related trademark issues, product offerings, customers and suppliers, acquisitions, competition and the status of our facilities. Forward-looking statements, no matter where they occur in this document or in other statements attributable to the Company involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part II, Item 1A of this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

3

PART I. FINANCIAL INFORMATION

ITEM 1.Financial Statements

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, In Thousands, Except Par Value and Per Share Liquidation Value)

	June 29,		December 29,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	883	$	2,031
Short-term investments		7		1
Accounts receivable, net		4,040		3,727
Inventory		52,552		49,626
Other current assets		4,908		3,400
Total current assets		62,390		58,785
Deferred income taxes		21,846		21,833
Property and equipment, net		8,557		15,184
Right-of-use - assets - operating leases, net		5,565		—
Right-of-use - assets - financing leases, net		8,513		—
Other non-current assets		2,095		2,163
Total assets	$	108,966	$	97,965
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,344	$	34,039
Accrued expenses		12,236		10,247
Current portion of capital leases payable		—		594
Customer deposits		427		521
Right-of-use - obligation - operating, short term		1,604		—
Right-of-use - obligation - finance, short term		620		—
Other current liabilities		3,275		2,918
Total current liabilities		58,506		48,319
Capital leases payable, net of current portion		—		8,559
Right-of-use - obligation - operating, long term		4,026		—
Right-of-use - obligation - finance, long term		8,070		—
Other non-current liabilities		2,137		2,265
Total liabilities		72,739		59,143
Commitments and contingencies
Stockholders’ equity:
Series A convertible preferred stock, $0.001 par value; $1.45 per share liquidation value or aggregate of $6,017; 4,150 shares authorized; 2,771 shares issued and outstanding at both June 29, 2019 and December 29, 2018		3		3
Common stock, $0.001 par value; 100,000 shares authorized; 35,784 and 34,992 shares issued and outstanding at June 29, 2019 and December 29, 2018 (of which 2,525 are treasury stock)		38		38
Common stock dividend		40		—
Treasury stock		(7,146)		(7,146)
Additional paid-in capital		184,037		183,139
Accumulated other comprehensive income		541		579
Accumulated deficit		(141,286)		(137,791)
Total stockholders’ equity		36,227		38,822
Total liabilities and stockholders' equity	$	108,966	$	97,965

See accompanying notes to consolidated financial statements (unaudited).

4

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS

(Unaudited, in Thousands, Except Per Share Data)

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 29,		June 30,		June 29,		June 30,
	2019		2018		2019		2018
			(As Restated)				(As Restated)
Net sales	$	73,687	$	76,973	$	148,425	$	155,358
Cost of sales (1)		51,924		56,451		106,533		111,617
Gross profit		21,763		20,522		41,892		43,741
Operating expenses:
Marketing		11,321		9,818		22,989		19,800
General and administrative		4,646		4,741		9,590		9,626
Fulfillment		5,819		5,394		11,395		11,242
Technology		1,157		998		2,519		2,086
Amortization of intangible assets		25		47		50		94
Total operating expenses		22,968		20,998		46,543		42,848
(Loss) income from operations		(1,205)		(476)		(4,651)		893
Other income (expense):
Other, net		46		(7)		43		(6)
Interest expense		(484)		(421)		(895)		(854)
Total other expense, net		(438)		(428)		(852)		(860)
(Loss) income before income taxes		(1,643)		(904)		(5,503)		33
Income tax (benefit) provision		(186)		(107)		(465)		262
Net loss		(1,457)		(797)		(5,038)		(229)
Other comprehensive income:
Foreign currency translation adjustments		(28)		23		(33)		42
Total other comprehensive income		(28)		23		(33)		42
Comprehensive loss	$	(1,485)	$	(774)	$	(5,071)	$	(187)
Loss from continuing operations per share:
Basic and diluted net loss per share	$	(0.04)	$	(0.02)	$	(0.14)	$	(0.01)
Weighted average common shares outstanding:
Shares used in computation of basic and diluted net loss per share		35,632		34,972		35,506		34,896

(1) Excludes depreciation and amortization expense which is included in marketing, general and administrative and fulfillment expense.

See accompanying notes to consolidated financial statements (unaudited).

5

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, In Thousands)

											Common		Accumulated
							Additional				Stock		Other				Total
	Preferred Stock			Common Stock			Paid-in-		Treasury		Dividend		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Stock		Distributable		Income (Loss)		Deficit		Equity
Balance as originally stated at December 30, 2017	2,771	$	3	34,666	$	37	$	179,906	$	(7,146)		—	$	557	$	(132,996)	$	40,361
Effect of new accounting adoption	—		—	—		—		—		—		—		—		255		255
Balance as currently stated at December 30, 2017	2,771		3	34,666		37		179,906		(7,146)		—		557		(132,741)		40,616
Net Income	—		—	—		—		—		—		—		—		568		568
Issuance of shares in connection with restricted stock units vesting	—		—	438		—		—		—		—		—		—		—
Minimum tax withholding on RSU's	—		—	(166)		—		—		—		—		—		—		—
Minimum tax withholdings on options exercised	—		—	—		—		(395)		—		—		—		—		(395)
Issuance of shares in connection with BOD fees	—		—	1		—		4		—		—		—		—		4
Share-based compensation	—		—	—		—		1,002		—		—		—		—		1,002
Common stock dividend on preferred stock	—		—	—		—		—		—		—		—		(39)		(39)
Effect of changes in foreign currencies	—		—	—		—		—		—		—		22		—		22
Balance, March 31, 2018	2,771		3	34,939		37		180,517		(7,146)		—		579		(132,212)		41,778
Net loss	—		—	—		—		—		—		—		—		(797)		(797)
Issuance of shares in connection with restricted stock units vesting	—		—	33		—		—		—		—		—		—		—
Minimum tax withholding on RSU’s	—		—	—		—		(35)		—		—		—		—		(35)
Minimum tax withholdings on options exercised	—		—	—		—		—		—		—		—		—		—
Issuance of shares in connection with BOD fees	—		—	2		—		4		—		—		—		—		4
Share-based compensation	—		—	—		—		156		—		—		—		—		156
Common Stock Dividend on preferred stock	—		—	—		—		—		—		—		—		(41)		(41)
Effect of changes in foreign currencies	—		—	—		—		—		—		—		24		—		24
Balance, June 30, 2018	2,771	$	3	34,974	$	37	$	180,642	$	(7,146)	$	—	$	603	$	(133,050)	$	41,089
Balance as originally reported at, December 29, 2018	2,771	$	3	34,992	$	38	$	183,139	$	(7,146)	$	—	$	579	$	(137,791)	$	38,822
Effect of new accounting adoption	—		—	—		—		—		—		—		—		1,623		1,623
Balance as currently stated at, December 29, 2018	2,771		3	34,992		38		183,139		(7,146)		—		579		(136,168)		40,445
Net Loss	—		—	—		—		—		—		—		—		(3,581)		(3,581)
Issuance of shares in connection with restricted stock units vesting	—		—	437		—		(288)		—		—		—		—		(288)
Issuance of shares in connection with BOD fees	—		—	4		—		4		—		—		—		—		4
Share-based compensation	—		—	—		—		554		—		—		—		—		554
Common stock dividend on preferred stock	—		—	—		—		—		—		—		—		(39)		(39)
Effect of changes in foreign currencies	—		—	—		—		—		—		—		(5)		—		(5)
Balance, March 30, 2019	2,771		3	35,433		38		183,409		(7,146)		—		574		(139,788)		37,090
Net loss	—		—	—		—		—		—		—		—		(1,457)		(1,457)
Issuance of shares in connection with restricted stock units vesting	—		—	348		—		(2)		—		—		—		—		(2)
Issuance of shares in connection with BOD fees	—		—	3		—		5		—		—		—		—		5
Share-based compensation	—		—	—		—		625		—		—		—		—		625
Issuance of shares related to dividends on preferred stock	—		—	—		—		—		—		—		—		(41)		(41)
Common Stock Dividend on preferred stock	—		—	—		—		—		—		40		—				40
Effect of changes in foreign currencies	—		—	—		—		—		—		—		(33)		—		(33)
Balance, June 29, 2019	2,771	$	3	35,784	$	38	$	184,037	$	(7,146)	$	40	$	541	$	(141,286)	$	36,227

6

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, In Thousands)

	Twenty-Six Weeks Ended
	June 29,		June 30,
	2019		2018
			(As Restated)
Operating activities
Net loss	$	(5,038)	$	(229)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		3,040		2,993
Amortization of intangible assets		50		94
Deferred income taxes		(559)		197
Share-based compensation expense		1,163		1,137
Stock awards issued for non-employee director service		7		7
Amortization of deferred financing costs		2		2
Changes in operating assets and liabilities:
Accounts receivable		(313)		(163)
Inventory		(2,926)		1,247
Other current assets		(1,517)		(1,270)
Other non-current assets		24		1
Accounts payable and accrued expenses		8,473		4,560
Other current liabilities		345		(929)
Right-of-Use Obligation - Operating Leases - Current		1,595		—
Right-of-Use Obligation - Operating Leases - Long-term		(1,530)		—
Other non-current liabilities		134		194
Net cash provided by operating activities		2,950		7,841
Investing activities
Additions to property and equipment		(3,431)		(2,940)
Net cash used in investing activities		(3,431)		(2,940)
Financing activities
Borrowings from revolving loan payable		7,641		3,189
Payments made on revolving loan payable		(7,641)		(3,189)
Payments on capital leases		(299)		(293)
Statutory tax withholding payment for share-based compensation		(289)		(430)
Payment of liabilities related to financing activities		—		(100)
Preferred stock dividends paid		(80)		(80)
Net cash used in financing activities		(668)		(903)
Effect of exchange rate changes on cash		1		(24)
Net change in cash and cash equivalents		(1,148)		3,974
Cash and cash equivalents, beginning of period		2,031		2,850
Cash and cash equivalents, end of period	$	883	$	6,824
Supplemental disclosure of non-cash investing and financing activities:
Accrued asset purchases	$	825	$	680
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$