1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996 REGISTRATION NO. 333-4029 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BOYDS WHEELS, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) CALIFORNIA 3714 93-1000272 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NO.) 8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680 (714) 952-4038 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) 8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680 (714) 952-4038 (ADDRESS OF PRINCIPAL PLACE OF BUSINESS) BOYD CODDINGTON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER 8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680 (714) 952-4038 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ COPIES TO: EVRIDIKI (VICKI) DALLAS, ESQ. NICK E. YOCCA, ESQ. THOMAS G. BROCKINGTON, ESQ. MICHAEL E. FLYNN, ESQ. RUTAN & TUCKER MATTHEW P. THULLEN, ESQ. 611 ANTON BOULEVARD, SUITE 1400 STRADLING, YOCCA, CARLSON & RAUTH COSTA MESA, CALIFORNIA 92626 660 NEWPORT CENTER DRIVE, SUITE 1600 (714) 641-5100 NEWPORT BEACH, CALIFORNIA 92660 (714) 725-4000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement under the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / ------------------------ CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLES OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- Common Stock, no par value(2)...... 1,129,000 $11.00 $12,419,000 (3) - ---------------------------------------------------------------------------------------------------------- Representative's Warrants(4)....... 52,500 $ .001 $ 52.50 (4) - ---------------------------------------------------------------------------------------------------------- Common Stock, no par value(5)...... 52,500 $13.20 $ 693,000 (3) - ---------------------------------------------------------------------------------------------------------- TOTAL.............................. (3) - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- (1) Estimated pursuant to Rule 457(a) solely for calculating the registration fee. (2) Includes 129,000 shares of Common Stock which may be purchased by the Underwriters to cover over-allotments, if any. (3) Previously paid. (4) To be issued to the Representative of the several Underwriters. No fee pursuant to Rule 457(g). (5) Issuable upon exercise of the Representative's Warrants. Pursuant to Rule 416, there are also being registered such additional shares as may be issuable pursuant to anti-dilution provisions of the Representative's Warrants. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 23, 1996 PROSPECTUS 1,000,000 SHARES BOYDS WHEELS, INC. COMMON STOCK Of the 1,000,000 shares of Common Stock offered, 771,000 shares are being offered by Boyds Wheels, Inc. (the "Company") and 229,000 shares are being offered by certain shareholders of the Company (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any of the proceeds from the shares sold by the Selling Shareholders. The Common Stock of the Company is quoted on the Nasdaq National Market under the symbol "BYDS". On May 21, 1996, the last sale price per share of the Common Stock as reported by the Nasdaq National Market was $10.50. See "Price Range for Common Stock and Dividend Policy." ------------------------ THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 5 OF THIS PROSPECTUS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNDERWRITING PROCEEDS TO DISCOUNTS PROCEEDS TO SELLING PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2) - -------------------------------------------------------------------------------------------------- Per Share.................. $ $ $ $ - -------------------------------------------------------------------------------------------------- Total(3)................... $ $ $ $ - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- (1) Does not include (i) a non-accountable expense allowance payable by the Company to the Representative and (ii) the sale by the Company to the Representative of the Underwriters of five-year warrants to purchase up to 52,500 shares of Common Stock at an exercise price of $ per share (120% of the per share price to the public). The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $375,000, including the Representative's nonaccountable expense allowance. (3) The Company has granted the Underwriters a 45-day option to purchase up to 129,000 additional shares on the same terms and conditions as set forth above solely to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being offered severally by the Underwriters named herein, subject to receipt and acceptance by them, and subject to other conditions. The Underwriters reserve the right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the certificates representing the shares of Common Stock will be made against payment therefor at the offices of Cruttenden Roth Incorporated, Irvine, California, on or about , 1996. CRUTTENDEN ROTH I N C O R P O R A T E D THE DATE OF THIS PROSPECTUS IS , 1996 LOGO 3 [PHOTOS] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Except as otherwise indicated, the information in this Prospectus assumes no exercise of: (i) the Underwriters' over-allotment option, (ii) outstanding options and warrants to purchase up to 182,661 shares of Common Stock and (iii) options which have been granted under the Company's 1995 Stock Option Plan; and assumes no conversion of outstanding notes which are convertible into 7,143 shares of Common Stock. See "Risk Factors" for a discussion of important factors that should be considered by prospective investors related to forward-looking statements included in this Summary. THE COMPANY Boyds Wheels, Inc. (the "Company") designs, manufactures and markets high quality aluminum wheels for the specialty automotive aftermarket. In addition to its premium aluminum wheels, the Company designs, manufactures and markets motorcycle wheels, steering wheels for automobiles, automotive and motorcycle billet aluminum accessories and also sells car care products under its own label. The Company's products utilize machined aluminum materials and unique designs which the Company believes enhance individuality of vehicle styling. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets, and internationally through foreign distribution channels. The Company was founded in 1988 by Boyd Coddington in response to consumer demand for billet aluminum wheels similar to those featured on custom hot rod vehicles designed and manufactured by Hot Rods by Boyd, a company which has been recognized as a leading designer, manufacturer and marketer of custom vehicles and hot rods. Since 1978, Mr. Coddington has owned and operated Hot Rods by Boyd, which has built vehicles that have been featured in many automotive and general interest publications, including Car and Driver, Autoweek, Hot Rod, Smithsonian and Forbes. The Company believes that its relationship with Hot Rods by Boyd is a key factor in maintaining and enhancing the image and brand name recognition of the Company's products. The Company has entered into a marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods by Boyd is required to endorse, promote and market the Company's products as the "official wheel" of Hot Rods by Boyd, use the Company's wheels on vehicles produced by Hot Rods by Boyd and permit the Company to use these vehicles for promotional displays and photographs. In addition, the Company has an option to purchase Hot Rods by Boyd. The custom wheel market is the second largest segment of the specialty automotive aftermarket. The custom wheel market is generally divided into five product categories: aluminum wheels, composite wheels, modular wheels, steel wheels and custom wheel accessories. According to Specialty Equipment Market Association ("SEMA"), aluminum wheels are the largest segment of this market, accounting for more than 75% of total sales. SEMA reports that the custom wheel industry has grown from sales of approximately $525 million in 1992 to $650 million in 1994. The Company believes that this industry grew at approximately 10% in 1995 and will continue to grow at that rate for 1996. The Company further believes that consumer desire for individuality in vehicle appearance will contribute to the Company's growth since custom wheels represent one of the easiest, least expensive and quickest ways to dramatically alter the appearance of a vehicle. The Company's strategy is to expand its position as a leading marketer of premium automotive/ motorcycle aftermarket products by capitalizing on consumer recognition of the "Boyds" brand name and the Company's growing distribution network. The Company intends to implement this strategy by (i) leveraging and strengthening its premium brand name recognition, (ii) creating selected new product lines in order to build its customer loyalty into a broader based business, (iii) differentiating its products from its competition by continually identifying and introducing trend setting designs, (iv) diversifying domestic product distribution by penetrating new geographic areas and targeting key distributors to service its customer and consumer markets and (v) expanding the Company's penetration into international markets by establishing relationships with selected distributors in Europe and the Pacific Rim. The Company was incorporated in California in April 1988. The principal executive offices of the Company are located at 8380 Cerritos Avenue, Stanton, California 90680. The Company's telephone number is (714) 952-4038. 3 5 THE OFFERING Common Stock offered by the Company....................... 771,000 shares. Common Stock offered by Selling Shareholders.............. 229,000 shares. Common Stock to be outstanding after the offering......... 3,319,128 shares. Use of proceeds........................................... To acquire capital equipment, repay outstanding indebtedness, for general corporate purposes and working capital requirements. See "Use of Proceeds." Nasdaq National Market symbol............................. BYDS SUMMARY FINANCIAL INFORMATION (in thousands, except per share data) THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, --------------------------- --------------- STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996 ------- ------- ------- ------ ------ Net sales........................................ $10,188 $12,127 $17,796 $3,660 $5,334 Cost of goods sold............................... 8,524 9,336 13,263 2,782 3,976 ------ ------ ------ ----- ----- Gross margin..................................... 1,664 2,791 4,533 878 1,358 Selling, general and administrative expenses..... 1,230 1,648 2,741 465 714 ------ ------ ------ ----- ----- Income from operations........................... 434 1,143 1,792 413 644 Interest and other expenses, net................. 423 695 383 142 48 ------ ------ ------ ----- ----- Income before income taxes....................... 11 448 1,409 271 596 Provision (benefit) for income taxes............. 1 (227) 462 111 236 ------ ------ ------ ----- ----- Net income....................................... $ 10 $ 675 $ 947 $ 160 $ 360 ====== ====== ====== ===== ===== Net income per common share and common equivalent share(1)...................................... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14 ====== ====== ====== ===== ===== Weighted average shares outstanding.............. 1,671 1,701 1,960 1,697 2,655 ====== ====== ====== ===== ===== DECEMBER 31, MARCH 31, 1996 ----------------- ------------------------- BALANCE SHEET DATA: 1994 1995 ACTUAL AS ADJUSTED(2) ------ ------- ------- --------------- Working capital (deficit)........................ $ (175) $ 2,113 $ 2,646 $ 8,418 Total assets..................................... 6,326 11,782 12,862 17,571 Long-term debt................................... 1,328 903 1,326 -- Shareholders' equity............................. 1,880 5,856 6,266 13,420 - --------------- (1) Does not reflect adjustment for accretion of the Company's Series A Redeemable Preferred Stock which was redeemed with the proceeds of the initial public offering of the Company's Common Stock in September 1995. See "Financial Statements." (2) Adjusted to give effect to the sale by the Company of 771,000 shares of Common Stock offered hereby at an assumed offering price of $10.50 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds." ------------------------ BOYDS(R), BOYDS WHEELS(TM), BOYDS ULTRA VIOLET(TM) and THE BOYD LOOK(TM )are trademarks of the Company. This Prospectus also contains trademarks of companies other than those of the Company. 4 6 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the Common Stock offered hereby. DEPENDENCE ON KEY CUSTOMERS Typically a limited number of customers have accounted for a substantial portion of the Company's revenues. In 1995, the Company's ten largest customers accounted for approximately 82.4% of net sales, with four accounting for greater than 10% each: Wheel City at 24.1%, Ousyu Hambi Co. Ltd. ("American Motoring Accessories") at 16.7%, Moon of Japan, Ltd. ("Mooneyes") at 15.6% and American Racing Equipment, Inc. ("American Racing") at 12.0%. In 1994, the Company's ten largest customers accounted for approximately 84.6% of net sales, with three accounting for greater than 10% each: American Racing at 25.2%, Mooneyes at 15.5% and Wheel City at 12.3%. The Company does not have any long-term contractual relationships with its major customers. The loss of or any material reduction in orders by any of such customers, including reductions due to market, economic or competitive pressures in the automotive aftermarket industry, could adversely affect the Company's business, financial condition and results of operations. The Company's ability to maintain or increase its sales levels in the future will depend in part upon its ability to obtain orders from new customers as well as the financial condition and success of its current customers and the general economy. There can be no assurance that the Company will be able to maintain or continue to increase the level of its sales in the future or that the Company will be able to retain existing customers or attract new customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business -- Distribution, Sales and Marketing." COMPETITION The market for the Company's products is highly competitive and is based primarily on price, product selection, product availability and service. Many of the Company's competitors have substantially greater financial and other resources than the Company and may offer lower prices on competing products. The Company also competes with dealers and distributors who may offer their own branded products at prices below those offered by the Company. A key competitive factor among suppliers of automotive aftermarket products is the ability to promptly deliver products to dealers and distributors and, accordingly, even smaller regional companies may be able to compete effectively against the Company. Increased competition could result in product price reductions, reduced margins and loss of market share, all of which could have a material adverse effect on the Company's results of operations and financial condition. While the Company believes its prices are competitive for the quality level of its products, the Company relies primarily on its reputation for selling quality products supported by strong customer service. There can be no assurance that the Company will be able to compete successfully in the future with its competitors. Furthermore, the custom aluminum wheel business has been characterized by widespread imitation of popular designs. The Company must, therefore, continually strive to develop new designs to differentiate its products from those of its competitors. There can be no assurance that the Company will continue to develop sufficient new designs and any failure to do so could have a material adverse effect on its results of operations and financial condition. See "Business -- Competition." CHANGING CONSUMER TRENDS The Company's success depends substantially on its ability to correctly and consistently anticipate, gauge and respond in a timely manner to rapidly changing consumer preferences. The Company attempts to minimize the risks relating to changing consumer trends by offering a wide variety of product styles, analyzing consumer purchases, maintaining an active product development effort and monitoring sales of its products. However, any misjudgment by the Company of the market for a particular product, or its failure to correctly anticipate consumer preferences, could have a material adverse impact on its results of operations and financial condition. See "Business -- Product Development." 5 7 DEPENDENCE ON KEY PERSONNEL The Company's success depends, in large part, on the efforts and abilities of Boyd Coddington, its founder, Chairman and Chief Executive Officer. Under the terms of his employment agreement with the Company, Mr. Coddington is not required to and does not expend his full time and attention on the Company's activities and Mr. Coddington has other business interests, including Hot Rods by Boyd, which require his time and attention. The Company does not maintain key man life insurance on Mr. Coddington. The loss of the services of Mr. Coddington would have a material adverse effect on the business of the Company. The success of the Company will depend on, among other factors, the successful recruitment and retention of quality management and personnel. See "Management." COST OF ALUMINUM AND DEPENDENCE ON THIRD PARTY SUPPLIERS The Company purchases several types of aluminum, including billet discs, billet bar stock, prime ingot and prefabricated outer rims from third party suppliers for use in the manufacture of its products. Consequently, an interruption in the supply or a significant increase in the price of aluminum could have a material adverse effect on the Company's results of operations and financial condition. There can be no assurance that such materials will be delivered on a timely basis or on terms favorable to the Company. Should the Company lose its present sources of supply for these materials, not be able to obtain such materials on favorable terms or experience delays in receiving them, a material adverse impact on the Company's results of operations and financial condition may result. The Company believes, however, that alternative sources of supply exist or can be developed. The Company experienced significant rises in aluminum prices in 1994 and early 1995. Although such prices have subsequently stabilized, there can be no assurance that the Company will not experience significant rises in aluminum prices in the future. See "Business -- Manufacturing." DEPENDENCE ON INTERNATIONAL SALES A significant element of the Company's business strategy is to expand into selected international markets, such as the recent introduction of its products in Japan. In 1994 and 1995 and the first quarter of 1996, the Company derived approximately 26.3%, 39.3% and 26.4%, respectively, of its net sales from international markets, substantially all of which were in Japan. The Company's international sales efforts are subject to the customary risks of doing business abroad, including exposure to regulatory requirements, political and economic instability, barriers to trade, trade restrictions (including import quotas), tariff regulations, foreign taxes, restrictions on transfer of funds, difficulty in obtaining distribution and support and export licensing requirements, any of which could have a material adverse effect on the Company's operations. In addition, a weakening in the value of foreign currencies relative to the U.S. dollar and potential fluctuations in foreign currency exchange rates could have an adverse impact on the effective price of the Company's products in its international markets. See "Business -- Distribution, Sales and Marketing." ADVERSE EFFECT OF REDUCED DISCRETIONARY CONSUMER SPENDING Purchases of specialty automotive aftermarket products are discretionary for consumers. The success of the Company is influenced by a number of economic factors affecting disposable income such as employment levels, business conditions, interest rates and tax rates. Adverse changes in these economic factors, among others, may cause consumers to reduce discretionary spending for the Company's products, thereby adversely affecting the Company's results of operations and growth. VARIABILITY IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company may experience significant fluctuations in future quarterly operating results due to a number of factors including, among other things, the size and timing of customer orders, delays in new product enhancements and new product introductions, quality control difficulties, market acceptance of new products, product returns, seasonality in product purchases by distributors and end users and pricing trends in the automotive aftermarket industry in general and in the specific markets in which the Company is active. Any of these factors could cause quarterly operating results to vary significantly from prior periods. Furthermore, the 6 8 Company's business is seasonal in most sections of the country, as the Company believes that it is affected by weather conditions. Historically, the Company's net sales have been highest in the second and third quarters of each year. However, the Company believes that unusually adverse or otherwise poor weather conditions in the spring and summer seasons may have a negative effect on the Company's sales in such quarters. Significant variability in orders during any period may have an adverse impact on the Company's cash flow or work flow, and any significant decrease in orders could have a material adverse impact on the Company's results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." PRODUCT CONCENTRATION Substantially all of the Company's revenues are derived from sales of aluminum automobile and motorcycle wheels. The Company anticipates that these products will continue to account for a substantial portion of its sales in the foreseeable future. A decline in the demand for these products, whether as a result of competition or other factors, could have a material adverse effect on the Company's results of operations and financial condition. RISK OF DECLINING AVERAGE SELLING PRICES The Company may face increasing pricing pressures from current and future competitors and, accordingly, there can be no assurance that competitive pressures will not require the Company to reduce its prices. In particular, over time, the average selling prices for the Company's wheel products (which currently represent a significant portion of the Company's revenues) may decline as the market for these products becomes more competitive. Any material reduction in the price of the Company's products would negatively affect the Company's gross margin and would require the Company to increase unit sales in order to maintain net sales. See "Business -- Distribution, Sales and Marketing" and "-- Competition." MANAGEMENT OF COMPANY GROWTH; FUTURE CAPITAL REQUIREMENTS The Company has experienced significant growth in recent years. This growth will continue to make significant demands on the Company's management, resources and operations. To manage its growth effectively, the Company intends to continue to improve its operational, financial, sales and marketing systems and to hire and train new employees and better manage its current employees. The Company's failure to manage its growth effectively could have a material adverse effect on the Company's results of operations and financial condition. To the extent that the proceeds from this offering and cash flow from operations are insufficient to fund the Company's activities, the Company will be required to raise additional funds through equity or debt financings. No assurance can be given that such financings will be available on terms acceptable to the Company, if at all and, if available, such financings may result in further dilution to the Company's shareholders and in higher interest expense. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." RISK OF PRODUCT LIABILITY The nature of the Company's business exposes it to risk from product liability claims. The Company currently maintains product liability insurance for its products worldwide, with limits of $5,000,000 per occurrence and $5,000,000 in the aggregate, per annum. However, such coverage is becoming increasingly expensive and there can be no assurance that the Company's insurance will be adequate to cover future product liability claims, or that the Company will be successful in maintaining adequate product liability insurance at commercially reasonable rates. Any losses that the Company may suffer from future liability claims, including the successful assertion against the Company of one or a series of large uninsured claims in excess of the Company's coverage, may have a material adverse effect on the Company's business, financial condition and results of operations. In addition, any product liability litigation may have a material adverse effect on the reputation and marketability of the Company's products. See "Business -- Product Warranties." 7 9 ENVIRONMENTAL COMPLIANCE In the ordinary course of its manufacturing process, the Company uses metals, oils and similar materials which are stored on-site. The waste created by use of these materials is transported off-site on a regular basis by a state-registered waste hauler. Although the Company is not aware of any claim involving violation of environmental or occupational safety and health laws and regulations, there can be no assurance that such a claim may not arise in the future, which may have a material adverse effect on the Company. SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of the Common Stock in the public market following this offering could adversely affect the market price of the Common Stock. Mr. and Mrs. Coddington have agreed pursuant to lock-up agreements that they will not, without the prior written consent of the Representative, sell or otherwise dispose of approximately 656,942 shares of Common Stock beneficially owned by them for a period of twelve months from the date of this Prospectus, but may sell or otherwise dispose of up to 15,000 shares of Common Stock per quarter commencing after this offering. Upon the completion of this offering, the Company will have 3,319,128 shares of Common Stock outstanding. Of this amount, the 1,000,000 shares sold in this offering (plus any additional shares sold upon the Underwriter's exercise of the over-allotment option) and approximately 1,545,000 other shares (subject in certain cases to the volume and other limitations of Rule 144 ("Rule 144") as promulgated under the Securities Act of 1933, as amended (the "Securities Act")), will be available for immediate sale in the public market as of the date of this Prospectus. As of December 1, 1996, approximately 106,000 shares will become available for immediate sale in the public market, subject to Rule 144. See "Principal and Selling Shareholders" and "Underwriting." CONTROL BY EXISTING SHAREHOLDERS Upon completion of this offering, the principal shareholders, directors and officers of the Company will beneficially own approximately 19.8% of the Company's outstanding voting securities, or 19.1% in the event the over-allotment option is exercised. Because of their stock ownership and positions with the Company, these persons will be in a position to continue to control the affairs and management of the Company. Such concentration of ownership and control may have the effect of delaying, deferring or preventing a change in control of the Company. See "Principal and Selling Shareholders" and "Description of Capital Stock." EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK The Board of Directors of the Company is authorized to issue, from time to time, without any action on the part of the Company's shareholders, up to 5,000,000 shares of Preferred Stock in one or more series, with such relative rights, powers, preferences, limitations and restrictions as are determined by the Board of Directors at the time of issuance. Accordingly, the Board of Directors is empowered to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In the event of such issuance, the Preferred Stock could be utilized, under either circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. See "Description of Capital Stock -- Preferred Stock." VOLATILITY OF STOCK PRICE; NO DIVIDENDS The trading price of the Common Stock has been and is likely to continue to be subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant contracts, changes in management, announcements of technological innovations or new products by the Company or its competitors, legislative or regulatory changes, general trends in the industry and other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations which have affected the market price for many companies for reasons frequently unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. The Company currently intends to retain any future earnings for use in its business and does not anticipate any cash dividends in the future. See "Price Range for Common Stock and Dividend Policy." 8 10 DILUTION Purchasers of the Common Stock offered hereby will incur immediate substantial dilution in net tangible book value of the Common Stock. The conversion of existing convertible notes or the exercise of warrants and options may also have an additional dilutive effect on the interest of the investors in this offering. See "Dilution." IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include the plans and objectives of management for future operations, including plans and objectives relating to the products and future economic performance of the Company. The forward-looking statements and associated risks set forth in this Prospectus may include or relate to (i) development of brand name recognition and loyalty to the Company's trade names and trademarks, (ii) increasing sales through the introduction and development of new products and product lines, (iii) success of marketing initiatives to be undertaken by the Company, (iv) increasing international sales through distribution arrangements in Japan and through the pursuit of additional distribution arrangements in other countries, (v) increasing distribution through expansion of the Company's network of distributors and its customer base, (vi) success of the Company in forecasting demand for particular designs and product styles and its success in establishing production and delivery schedules and forecasts which accurately anticipate and respond to market demand, (vii) success in expanding the Company's market through increasing sales to large regional and national distributor accounts, (viii) success of the Company in achieving increases in net sales such that cost of goods sold and selling, general and administrative expenses may decrease as a percentage of net sales and (ix) the size and growth rate of the custom wheel market. The forward-looking statements included herein are based upon current expectations that involve a number of risks and uncertainties. These forward-looking statements are based upon assumptions that the Company will continue to design, manufacture, market and ship new products on a timely basis, that competitive conditions within the automotive aftermarket industry will not change materially or adversely, that the custom wheel market will continue to experience steady growth, that demand for the Company's products will remain strong, that the Company will retain existing distributors and key management personnel, that inventory risks due to shifts in market demand will be minimized, that the Company's forecast will accurately anticipate market demand and that there will be no material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect, among other things, to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking information will be realized. In addition, as disclosed above, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in such forward-looking statements. Any of the other factors disclosed above could cause the Company's net sales or net income, or growth in net sales or net income, to differ materially from prior results. Growth in absolute amounts of costs of goods sold and selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated in the forward-looking statements. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience in business developments, the impact of which may cause the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company's results of operations. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. 9 11 USE OF PROCEEDS The net proceeds to the Company from the sale of 771,000 shares of Common Stock offered hereby by the Company, at an assumed offering price of $10.50 per share and after deducting the underwriting discount and estimated offering expenses, are estimated to be approximately $7.2 million ($8.4 million if the Underwriters' overallotment option is fully exercised). The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Shareholders. The Company intends to use approximately $3.5 million of the net proceeds to purchase capital equipment in order to develop additional manufacturing capacity. In addition, approximately $1.8 million of the net proceeds will be used to retire long-term debt and approximately $0.9 million will be used to repay the Company's indebtedness under its revolving line of credit. The interest rates on the long-term debt vary from 4.8% to 15.0% per annum with various maturity dates. The interest rate on the revolving line of credit is 1.0% over the Wall Street Journal's published prime rate. The Company intends to use the balance of the net proceeds for general corporate purposes, including the financing of product sales growth, development of new products and working capital requirements. A portion of the net proceeds may also be used by the Company to acquire or invest in businesses, assets, technologies or product lines that complement the Company's existing businesses. While from time to time the Company evaluates potential acquisitions of such businesses, assets, technologies or product lines, there is no present understanding or agreement with respect to any such acquisitions. The foregoing represents the Company's best estimate of the use of the net proceeds to be received in this offering based on current planning and business conditions. The Company reserves the right to change such use when and if market conditions or unexpected changes in operating conditions or results occur. The amounts actually expended for each use may vary significantly depending upon a number of factors, including future sales growth and the amount of cash generated by the Company's operations. Net proceeds not immediately required for the purposes described above will be invested principally in U.S. government securities, short-term certificates of deposit, money market funds or other short-term, interest-bearing securities. 10 12 PRICE RANGE FOR COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is traded on the Nasdaq National Market under the symbol "BYDS." The following table sets forth for the quarters indicated the reported high and low closing sale prices as reported by Nasdaq. HIGH LOW ---- --- Fiscal 1995: Third Quarter (commencing September 15, 1995).............. 7 5/8 6 7/8 Fourth Quarter............................................. 9 3/4 6 3/4 Fiscal 1996: First Quarter.............................................. 10 3/4 8 Second Quarter (through May 21, 1996)...................... 11 3/4 8 1/2 At May 21, 1996, there were approximately 1,200 holders of the Company's outstanding shares of Common Stock and the closing sale price of the Common Stock on the Nasdaq National Market was $10.50 per share. The Company anticipates that all future earnings, if any, will be retained for use in the Company's business and it does not anticipate paying any cash dividends. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion. The Company's ability to pay cash dividends is restricted under its revolving line of credit facility and future borrowings may contain similar restrictions. DILUTION As of March 31, 1996, the Company had a net tangible book value of approximately $6,094,000 or $2.45 per share. "Net tangible book value" per share represents the amount of total tangible assets less total liabilities divided by the number of shares of Common Stock issued and outstanding. After giving effect to the sale of the Common Stock offered by the Company hereby at an assumed offering price of $10.50 per share, and assuming no other changes in the net tangible book value after March 31, 1996, the Company's net tangible book value (after deduction of underwriting discounts and commissions and estimated offering expenses) at March 31, 1996 would have been approximately $13,248,000 or $4.06 per share. This represents an immediate increase in net tangible book value of $1.61 per share to existing shareholders and an immediate dilution to new investors of $6.44 per share. Dilution is determined by subtracting net tangible book value per share after the offering from the amount of cash paid by a new investor for a share of Common Stock. The following table illustrates the per share dilution: Assumed offering price per share................................... $ 10.50 Net tangible book value per share before the offering............ $ 2.45 Increase per share attributable to new investors................. 1.61 ------ Net tangible book value per share after the offering............... 4.06 ------ Dilution per share to new investors................................ $ 6.44 ====== 11 13 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1996 and as adjusted to give effect to the sale of the Common Stock offered hereby at an assumed offering price of $10.50 per share and the application of the net proceeds thereof to repay certain indebtedness. MARCH 31, 1996 ---------------------- ACTUAL AS ADJUSTED ------ ----------- (IN THOUSANDS) Long-term debt(1)....................................................... $1,326 $ -- ------ ------- Shareholders' equity: Preferred Stock, no par value: 5,000,000 shares authorized, none issued or outstanding............... -- -- Common Stock, no par value: 25,000,000 shares authorized; 2,489,856 shares issued and outstanding, 3,260,856 shares as adjusted(2)....................................... 6,007 13,161 Contributed capital..................................................... 827 827 Accumulated deficit..................................................... (568) (568) ------ ------- Total shareholders' equity............................................ 6,266 13,420 ------ ------- Total capitalization............................................... $7,592 $13,420 ====== ======= - --------------- (1) See Note 9 of Notes to Financial Statements for a description of the Company's long-term debt. (2) Excludes (i) 158,613 of Common Stock issuable upon exercise of currently outstanding warrants, (ii) 69,762 shares of Common Stock issuable upon exercise of currently outstanding options, (iii) 7,143 shares of Common Stock issuable upon conversion of the convertible notes and (iv) 247,500 shares of Common Stock issuable pursuant to options under the 1995 Stock Option Plan. 12 14 SELECTED FINANCIAL DATA The selected financial data set forth below with respect to the Company's statements of income data for the years ended December 31, 1993, 1994 and 1995 and balance sheet data at December 31, 1994 and 1995 are derived from the audited financial statements of the Company included elsewhere in this Prospectus that have been audited by Coopers & Lybrand L.L.P., independent accountants. The selected financial data as of March 31, 1996, and for the three month periods ended March 31, 1995 and 1996 have been derived from the Company's unaudited financial statements, which reflect all adjustments of a normal recurring nature which the Company considers necessary for a fair presentation of the results for such periods. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results of operations to be expected for any future quarter or the fiscal year ending December 31, 1996. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes related thereto included elsewhere in this Prospectus. THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, ----------------------------- ---------------- STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996 ------- ------- ------- ------ ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.................................... $10,188 $12,127 $17,796 $3,660 $5,334 Cost of goods sold........................... 8,524 9,336 13,263 2,782 3,976 ------- ------- ------- ------ ------ Gross margin................................. 1,664 2,791 4,533 878 1,358 Selling, general and administrative expenses.................................. 1,230 1,648 2,741 465 714 ------- ------- ------- ------ ------ Income from operations....................... 434 1,143 1,792 413 644 Interest and other expenses, net............. 423 695 383 142 48 ------- ------- ------- ------ ------ Income before income taxes................... 11 448 1,409 271 596 Provision (benefit) for income taxes......... 1 (227) 462 111 236 ------- ------- ------- ------ ------ Net income................................... $ 10 $ 675 $ 947 $ 160 $ 360 ======= ======= ======= ====== ====== Net income per common share and common equivalent share(1)....................... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14 ======= ======= ======= ====== ====== Weighted average shares outstanding.......... 1,671 1,701 1,960 1,697 2,655 ======= ======= ======= ====== ====== DECEMBER 31, MARCH 31, 1996 ------------------ ------------------------- BALANCE SHEET DATA: 1994 1995 ACTUAL AS ADJUSTED(2) ------ ------- ------- -------------- (IN THOUSANDS) Working capital (deficit)....................... $ (175) $ 2,113 $ 2,646 $ 8,418 Total assets.................................... 6,326 11,782 12,862 17,571 Long-term debt.................................. 1,328 903 1,326 -- Shareholders' equity............................ 1,880 5,856 6,266 13,420 - --------------- (1) Does not reflect adjustment for accretion of the Company's Series A Redeemable Preferred Stock which was redeemed with the proceeds of the initial public offering of the Company's Common Stock in September 1995. See "Financial Statements." (2) Adjusted to give effect to the sale by the Company of 771,000 shares of Common Stock offered hereby at an assumed offering price of $10.50 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information includes forward-looking statements, the realization of which may be impacted by certain important factors discussed under "Risk Factors -- Important Factors Related to Forward-Looking Statements and Associated Risks." OVERVIEW The Company designs, manufactures and markets high quality aluminum wheels for the specialty automotive aftermarket. In addition to its premium aluminum wheels, the Company designs, manufactures and markets motorcycle wheels, steering wheels for automobiles, automotive and motorcycle billet aluminum accessories, and also sells car care products under its own label. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets and internationally through foreign distribution channels. The Company derived approximately 26.3%, 39.3% and 26.4% of its sales in fiscal 1994 and 1995, and the first quarter of fiscal 1996, respectively, from international sales, primarily in Japan. Net sales consist of gross sales less the amount of discounts, returns and allowances. The Company generally provides its customers a standard term of 2%/10 net 30 days upon payment of the gross invoice price. Discounts, returns and allowances vary from year to year but were approximately 3% for 1994 and 5% for 1995, with most of the increase attributable to discounts taken by customers for early payment of invoices. Net sales for any of the Company's product lines can be influenced by a number of factors, including changes in customer preferences and pricing policies of the Company's competitors. In late 1994, the Company adopted a long term strategy to shift its domestic sales distribution to large, national and regional warehouse distributors from local and smaller regional chains and independent dealers. As a result of implementing this strategy, domestic sales increased 20.9% in fiscal 1995 over fiscal 1994 and 68.0% in the three months ended March 31, 1996 over the same period in 1995. Cost of goods sold consists primarily of the costs of labor, aluminum, raw materials and overhead used in the production of the Company's products. The Company's gross margin in late 1994 and early 1995 was adversely impacted by significant rises in aluminum costs. During 1995 and the first quarter of 1996 aluminum prices stabilized. The Company currently does not purchase forward contracts for aluminum and, therefore, any future increase in aluminum prices could adversely affect the Company's gross margin. The Company's gross margin was 25.5% for 1995 and remained at 25.5% for the first quarter of 1996. The Company anticipates that its gross margin will remain relatively constant or will slightly increase in the near future. Selling, general and administrative expenses consist primarily of commissions, marketing expenses, sales and administrative salaries, product development expenses, office expenses and general overhead. The Company expects that selling, general and administrative expenses will increase in absolute amounts in fiscal 1996 due, in part, to increased advertising and promotion activities, increased product development expenditures, the hiring of additional personnel and periodic reporting and compliance requirements associated with being a public company. However, the Company believes that such expenses should decrease as a percentage of net sales from the 1995 level. Traditionally, the Company's ten largest customers have accounted for a substantial portion of the Company's net sales. During the three months ended March 31, 1996, the Company's ten largest customers accounted for approximately 87.8% of the Company's net sales. During 1995 and for the three months ended March 31, 1996, the Company's significant customers were Wheel City (24.1% of net sales in 1995 and 27.5% of net sales for the three months ended March 31, 1996), American Motoring Accessories (16.7% and 13.0%), Mooneyes (15.6% and 10.2%) and American Racing (12.0% and 16.6%). 14 16 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items included in the Company's Statements of Income. THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, ------------------------- --------------- STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold................................. 83.7 77.0 74.5 76.0 74.5 ----- ----- ----- ----- ----- Gross margin....................................... 16.3 23.0 25.5 24.0 25.5 Selling, general and administrative expenses....... 12.1 13.6 15.4 12.7 13.4 ----- ----- ----- ----- ----- Income from operations............................. 4.2 9.4 10.1 11.3 12.1 Interest and other expenses, net................... 4.1 5.7 2.2 3.9 0.9 ----- ----- ----- ----- ----- Income before provision for income taxes........... 0.1 3.7 7.9 7.4 11.2 Provision (benefit) for income taxes............... -- (1.9) 2.6 3.0 4.4 ----- ----- ----- ----- ----- Net income......................................... 0.1% 5.6% 5.3% 4.4% 6.8% ===== ===== ===== ===== ===== COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1995 Net sales for the three months ended March 31, 1996, were $5,334,000 compared to $3,660,000 for the same period in 1995, an increase of $1,674,000 or 45.7%. The increase was primarily attributable to the continued demand for the Company's main product lines, two-piece cast wheels and billet wheels, sales of which increased approximately $600,000. The new motorcycle wheels and accessories, introduced in mid-1995, accounted for approximately $500,000 of the increase. The new one-piece cast wheels, introduced in the fourth quarter of 1995, contributed approximately $200,000 to the increase in net sales and private label sales contributed approximately $300,000 to the increase in net sales. Gross margin for the three months ended March 31, 1996 was $1,358,000 compared to $878,000 for the same period in 1995, an increase of $480,000 or 54.7%. As a percentage of net sales, gross margin increased to 25.5% in 1996 from 24.0% in 1995. The increase in gross margin was primarily attributable to volume discounts associated with larger quantity purchases of raw materials, an increase in average sales price and a change in sales mix which included new products at higher gross margins. The increase in gross margin was slightly offset by an increase in general factory overhead. Selling, general and administrative expenses for the three months ended March 31, 1996 were $714,000 compared to $465,000 for the same period in 1995, an increase of $249,000 or 53.5%. As a percentage of net sales, selling, general and administrative expenses increased to 13.4% in 1996 from 12.7% in 1995. This increase was primarily attributable to an increase in expenditures related to new product development, advertising and promotional costs associated with new product introductions and legal, accounting and other costs related to being a public company. Interest and other expenses, net, for the three months ended March 31, 1996 were $48,000 compared to $142,000 for the same period in 1995, a decrease of $94,000 or 66.2%. This decrease was attributable to the partial application of the proceeds from the Company's initial public offering which were used to reduce debt and were invested in short-term interest-bearing securities. Income taxes for the three months ended March 31, 1996 were $236,000 compared to $111,000 for the same period in 1995, an increase of $125,000 or 112.6%. The provision for income taxes in the first quarter of 1996 and 1995 represents the Company's expected annual effective tax rate and was 39.6% and 41.0% for 1996 and 1995, respectively. 15 17 As a result of the above, net income for the three months ended March 31, 1996 was $360,000 compared to $160,000 for the same period in 1995, an increase of $200,000 or 125.0%. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1994 Net sales for the year ended December 31, 1995, were $17,796,000 compared to $12,127,000 for the same period in 1994, an increase of $5,669,000 or 46.7%. This increase was attributable to increased sales as a result of additional product offerings, continued growth internationally and a general price increase in May 1995. Gross margin for the year ended December 31, 1995 was $4,533,000 compared to $2,791,000 for the same period in 1994, an increase of $1,742,000 or 62.4%. As a percent of sales gross margin increased to 25.5% in 1995 from 23.0% in 1994. The increase in gross margin was primarily attributable to a reconfiguration of the Company's plant layout which resulted in greater production efficiencies. These efficiencies were offset in part by an increase in the price of aluminum stock. In addition, the allocation of overhead charges over a greater sales base helped to improve gross margin. Selling, general and administrative expenses for the twelve months ended December 31, 1995, were $2,741,000 compared to $1,648,000 for the same period in 1994, an increase of $1,093,000 or 66.3%. As a percent of sales the costs increased in 1995 to 15.4%, from 13.6% in 1994. This increase was attributable to additional administrative and facility costs incurred to support the Company's growth and the addition of management, including a one-time payment to a former executive officer. Interest and other expenses, net for the year ended December 31, 1995, were $383,000 compared to $695,000 for the same period in 1994, a decrease of $312,000 or 44.9%. This decrease was attributable to favorable lease refinancing and a decrease in factoring costs, which were eliminated by year-end. During the fourth quarter, the Company earned interest income of $19,000 from the cash proceeds of the initial public offering. The benefit for income taxes in 1994 resulted from the elimination of the valuation allowance against deferred tax assets resulting from current taxable income and the expected utilization of the Company's net operating loss carryforwards. The provision for income taxes in 1995 of $462,000, reflects the continued application of the net operating loss carryforwards and the benefit of state tax credits. The effective tax rate for 1995 was 32.8%. As a result of the above, net income for the year ended December 31, 1995, was $947,000 compared to $675,000 for the same period in 1994, an increase of $272,000 or 40.3%. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1993 Net sales for 1994 were $12,127,000 compared to $10,188,000 for 1993, an increase of $1,939,000 or 19.0%. This increase was attributable to additional sales volume in the Japanese market as a result of additional product offerings and an increased number of distributors to such market. Gross margin for 1994 was $2,791,000 compared to $1,664,000 for 1993, an increase of $1,127,000 or 67.7%. As a percentage of sales, gross margin increased to 23.0% in 1994 from 16.3% in 1993. The improved margins were attributable to the allocation of overhead charges to a greater sales base, substituting costly outside processing with in-house services and the efficiencies obtained by the reconfiguration of the Company's plant layout. Selling, general and administrative expenses for 1994 were $1,648,000 compared to $1,230,000 for 1993, an increase of $418,000 or 34.0%. As a percentage of sales, these expenses increased from 12.1% to 13.6%. This increase was attributable to the expansion of sales and administrative personnel to support the Company's growth, larger administrative facilities and increased participation at industry trade shows throughout the United States. Interest and other expenses, net, for 1994 were $695,000 compared to $423,000 for 1993, an increase of $272,000 or 64.3%. The increase in interest expense was attributable to higher debt levels needed to finance the Company's growth and to higher factoring costs. 16 18 The benefit for income taxes in 1994 was attributable to the elimination of the valuation allowance on deferred tax assets resulting from current taxable income and the expected utilization of net operating loss carryforwards. See Note 13 to the Financial Statements. As a result of the above, net income for 1994 was $675,000 compared to $10,000 for 1993, an increase of $665,000. QUARTERLY RESULTS The following table sets forth unaudited selected quarterly financial information. This information has been derived from unaudited financial statements which, in the opinion of management, include all adjustments (consisting of normal recurring entries) necessary for a fair presentation of such information. Results of operations for any one or more quarters are not necessarily indicative of results for an entire year or of results to be expected for any future period. THREE MONTHS ENDED ------------------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1994 1994 1994 1994 1995 1995 1995 1995 1996 -------- -------- --------- -------- -------- -------- --------- -------- -------- (IN THOUSANDS) Net sales............ $2,728 $3,214 $ 3,141 $3,044 $3,660 $4,680 $ 4,594 $4,862 $5,334 Cost of goods sold... 2,100 2,474 2,418 2,344 2,782 3,516 3,455 3,510 3,976 ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross margin......... 628 740 723 700 878 1,164 1,139 1,352 1,358 Selling, general and administrative expenses........... 346 407 420 475 465 607 623 1,046 714 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from operations......... 282 333 303 225 413 557 516 306 644 Interest and other expenses, net...... 238 164 160 134 142 117 97 27 48 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income before provision for income taxes....... 44 169 143 91 271 440 419 279 596 Provision (benefit) for income taxes... (22) (86) (73) (47) 111 173 166 12 236 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income........... $ 66 $ 255 $ 216 $ 138 $ 160 $ 267 $ 253 $ 267 $ 360 ====== ====== ====== ====== ====== ====== ====== ====== ====== The Company may experience significant fluctuations in future quarterly operating results due to a number of factors including, among others things, the size and timing of customer orders, delays in new product enhancements and new product introductions, quality control difficulties, market acceptance of new products, product returns, seasonality in product purchases by distributors and end users and pricing trends in the automotive aftermarket industry in general and in the specific markets in which the Company is active. While the effect of these factors on the Company's operating results has been obscured to date by the Company's growth, any of these factors could cause quarterly operating results to vary from prior periods. 17 19 SEASONALITY The following table sets forth net sales information for each of the Company's last 17 quarters. This unaudited net sales information has been prepared on the same basis as the annual information presented elsewhere in this Prospectus and, in the opinion of management, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information presented. Net sales for any quarter are not necessarily indicative of sales for any future period. NET SALES --------------------------------------- FIRST SECOND THIRD FOURTH YEAR QUARTER QUARTER QUARTER QUARTER ---------------------------------------- ------ ------ ------ ------ (IN THOUSANDS) 1992.................................... $1,411 $2,115 $1,762 $1,440 1993.................................... 2,261 2,726 2,654 2,547 1994.................................... 2,728 3,214 3,141 3,044 1995.................................... 3,660 4,680 4,594 4,862 1996.................................... 5,334 -- -- -- In general, the Company's business is seasonal in most sections of the country, as the Company believes that it is affected by weather conditions. Historically, the Company's net sales have been the highest in the second and third quarters of each year. The Company believes that unusually adverse or otherwise poor weather conditions in the spring and summer seasons may have a negative effect on the Company's sales in such quarters. Significant variability in orders during any period may have an adverse impact on the Company's cash flow or work flow, and any significant decrease in orders could have a material adverse impact on the Company's results of operations and financial condition. The Company's strategy of expanding motorcycle sales and sales into international markets has ameliorated the impact of seasonality on the Company's business. LIQUIDITY AND CAPITAL RESOURCES The Company has experienced significant growth since 1992, with its net sales growing from $6,728,000 in 1992 to $17,796,000 in 1995 which represents a 38% compound annual growth rate. During this period, the Company has financed its cash requirements primarily through cash generated from operations, borrowings on bank credit lines, capitalized lease financing of fixed asset purchases, a factoring arrangement from September 1993 to March 1995, private placements of securities and an initial public offering of Common Stock in September 1995. At March 31, 1996, the Company's cash and cash equivalents balance was $555,000 and its current ratio was 1.53 to 1.00. In August 1995 and as amended in November 1995 and April 1996, the Company entered into a revolving line of credit agreement and an equipment line of credit agreement with a bank with maximum loan amounts of $2,500,000 and $1,000,000, respectively. The interest rate on the revolving line of credit agreement is 1.0% over the Wall Street Journal's published prime rate and the interest rate on the equipment line of credit agreement is 1.5% over the Wall Street Journal's published prime rate. The bank has a lien on the Company's assets as collateral for both agreements. At May 21, 1996, the outstanding balance of the revolving line of credit was $850,000, with $383,000 available on that date. The equipment line of credit of $1,000,000 had an available balance of $1,000,000 as of May 21, 1996. On April 19, 1996, the Company also refinanced the then outstanding balance on the equipment line of $599,874 into a 60-month term loan, payable in equal monthly installments and bearing interest at 1.75% over the Wall Street Journal's published prime rate (an effective rate of 10% at April 19, 1996). Net cash used by operating activities totalled approximately $862,000 for the three months ended March 31, 1996. This increase was directly attributable to working capital used for an increase in inventories from approximately $3,600,000 at December 31, 1995 to $4,700,000 at March 31, 1996. The increase in inventories reflects the general growth of the Company's business and the seasonal growth in anticipation of customer orders to be shipped in the second and third quarters of 1996. Net cash used by investing activities totalled approximately $419,000 for the three months ended March 31, 1996. The primary use of cash was for 18 20 the purchase of property and equipment of approximately $442,000 to expand the Company's plant capacity. Working capital was approximately $2,646,000 at March 31, 1996 compared to $2,113,000 at December 31, 1995. Working capital requirements are expected to grow as the Company expands its inventories, property and equipment and seeks to increase sales through additional marketing activities and extension of its new products and product lines. The Company intends to use the proceeds of this offering, its revolving line of credit, equipment line of credit and cash generated from operations, if any, to support the growth of the Company. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The accounting or disclosure requirements of this statement are effective at the Company's fiscal year-end 1996. It is currently anticipated that the Company will continue to account for stock-based compensation using Accounting Principles Board Opinion No. 25 and the impact of SFAS 123 has not yet been determined. 19 21 BUSINESS The following discussion contains certain forward-looking statements. Actual results could differ materially. See "Risk Factors -- Important Factors Related to Forward-Looking Statements and Associated Risks." INTRODUCTION Boyds Wheels, Inc. (the "Company") designs, manufactures and markets high quality aluminum wheels for the specialty automotive aftermarket. In addition to its premium aluminum wheels, the Company designs, manufactures and markets motorcycle wheels, steering wheels for automobiles and automotive and motorcycle billet aluminum accessories, and also sells car care products under its own label. The Company's products utilize machined aluminum materials and unique designs which the Company believes enhance individuality of vehicle styling. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets and internationally through foreign distribution channels. The Company was founded in 1988 by Boyd Coddington in response to consumer demand for billet aluminum wheels similar to those featured on custom hot rod vehicles designed and manufactured by Hot Rods by Boyd, a company which has been recognized as a leading designer, manufacturer and marketer of custom vehicles and hot rods. Since 1978, Mr. Coddington has owned and operated Hot Rods by Boyd, which has built vehicles that have been featured in many automotive and general interest publications, including Car and Driver, Autoweek, Hot Rod, Smithsonian and Forbes. The Company believes that its relationship with Hot Rods by Boyd is a key factor in maintaining and enhancing the image and brand name recognition of the Company's products. The Company has entered into a marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods by Boyd is required to endorse, promote and market the Company's wheels as the "official wheel" of Hot Rods by Boyd, use the Company's wheels on vehicles produced by Hot Rods by Boyd and permit the Company to use these vehicles for promotional displays and photographs. In addition, the Company has an option to purchase Hot Rods by Boyd. INDUSTRY BACKGROUND The custom wheel market is the second largest segment of the specialty automotive aftermarket. The custom wheel market is generally divided into five product categories: aluminum wheels, composite wheels, modular wheels, steel wheels and custom wheel accessories. According to Specialty Equipment Market Association ("SEMA"), aluminum wheels are the largest segment of this market, accounting for more than 75% of total sales. SEMA reports that the custom wheel industry has grown from sales of approximately $525 million in 1992 to $650 million in 1994. The Company believes that this industry grew at approximately 10% in 1995 and will continue to grow at that rate for 1996. The Company believes that several factors which have contributed to the growth in its segment of the market include: (i) increases in sales of domestic cars and light trucks which have resulted in increasing the aggregate number of vehicles in use and therefore potential consumers of automotive aftermarket products, (ii) increases in average vehicle life, which the Company believes contributes to demand for automotive aftermarket parts as vehicle owners seek to enhance the appearance of older vehicles, (iii) increases in sales through tire dealers and performance retailers, (iv) the continuing enthusiasm of Americans for vehicle styling and (v) the growing popularity in international markets for American-styled and "Made in the USA" products. The Company further believes that consumer desire for individuality in vehicle appearance will contribute to the Company's growth and custom wheels represent one of the easiest, least expensive, and quickest ways to dramatically alter the appearance of a vehicle. Additionally, increased government regulation of specialty performance automotive aftermarket parts has made it more difficult to modify engine and drive-train components, which the Company believes will also contribute to its growth. To address the growing Harley-Davidson motorcycle accessory market, the Company has developed a line of machined billet aluminum wheels, belt drives, stainless steel rotors and other accessories marketed under the brand name "Boyds Motorcycle Accessories." According to Harley-Davidson's 1995 annual report, Harley-Davidson dominates the heavy-weight portion of the market (751cc and above) with 55% of the North American market and 22% and 11% of the Asian/Pacific and European markets, respectively. Harley- 20 22 Davidson reports that annual shipments of its motorcycles have increased at a compound annual growth rate of 12.4% since 1986, with approximately 680,000 of its motorcycles shipped worldwide in that period. This large installed base combined with projected annual shipments represents a significant potential market for the Company's motorcycle aftermarket wheels and accessories. The Company believes that by leveraging its brand awareness in this cross-over market, the Company can capitalize on established consumer recognition and diversify the product line through this growing industry. Currently the Company's motorcycle product line addresses the entire Harley-Davidson line. Also, the Company is currently seeking distribution in Europe, the largest market in the world for heavy-weight motorcycles. The Company is also in the process of developing a one-piece cast aluminum motorcycle wheel, which it expects to introduce during the second half of 1996. BUSINESS STRATEGY The Company's strategy is to expand its position as a leading marketer of premium automotive and motorcycle aftermarket products by capitalizing on consumer recognition of the "Boyds" brand name and the Company's growing distribution network. Key elements of the Company's business strategy include: Leverage and Strengthen Premium Brand Name Recognition. The Company has developed the reputation for delivering premium products to the marketplace. The Company intends to leverage its premium brand name recognition in order to introduce new products and product lines to the markets it serves. Furthermore, the Company intends to strengthen its premium brand name recognition through the use of dynamic advertising and marketing programs, public relations efforts, licensing agreements and celebrity associations. Create New Product Lines. The Company continually assesses industry trends, the marketplace and product positioning. The Company is committed to adding selected new product lines in order to build its customer loyalty into a broader based business. For example, the Company has introduced Boyds Ultra Violet car care products and billet motorcycle wheels marketed under the name "Boyds Motorcycle Accessories" and in late 1995 introduced one-piece cast aluminum wheels. The Company also plans to introduce a one-piece cast aluminum motorcycle wheel during the second half of 1996. Continue Innovative Product Design and Development. The Company's strategy is to differentiate its products from its competition by continually identifying and introducing trend setting designs. Innovative designs for new products in existing product lines that appeal to the consumer's desire for individuality and superior product quality are critical to the Company's sales growth. The goal of the Company's product development team is to be a leader in design trends, develop fashions for the aftermarket and develop cost effective and creative manufacturing techniques for the production of its products. Diversify Domestic Product Distribution. The Company has successfully established distribution of its products in key regions of the United States. The Company believes that future growth of its distribution channels will come from penetration of new geographic areas. In addition, through the use of demographic and psychographic information, the Company intends to target key distributors to service its customer and consumer markets. Creative distribution methods and new distribution channels are key elements of continued sales expansion for the Company. Expand Penetration of International Markets. The Company's products are recognized in many international markets. In order to meet what the Company anticipates to be a growing international market, the Company intends to expand its foreign presence by establishing relationships with selected distributors in Europe and the Pacific Rim. The Company believes that its premium brand name recognition, promotion of its "Made in the USA" products and unique styling will facilitate penetration into these markets. PRODUCTS The Company currently offers three distinct lines of custom aluminum automotive wheels: two-piece machined billet wheels, two-piece machined cast wheels and one-piece machined cast wheels. The Company offers a line of custom aluminum steering wheels, machined billet motorcycle wheels and related billet aluminum accessories in addition to car-care products. Innovative designs and premium quality are key elements of each product line manufactured by the Company. 21 23 TWO-PIECE BILLET WHEELS. The Company currently markets 54 styles of two-piece machined billet aluminum wheels, with a suggested retail price range of $1,300 to $6,500 for a set of four wheels. The Company believes that the machined billet wheel is the most elite and high-quality custom aluminum wheel available. Billet wheel centers are manufactured from a solid piece of aluminum known as a billet, through the use of computerized numerically controlled ("CNC") machines which "carve" out the specialized custom designs from the billet aluminum. After polishing, the finished center is welded into an aluminum outer rim. Through the precision and flexibility of this billet manufacturing process, the Company is able to offer billet wheels with greater detail in design, higher quality finish and larger variety of styles, applications and vehicle fitments than other standard manufacturing processes. Billet wheels accounted for approximately 33.6%, 28.1% and 17.8% of the Company's sales for the years ended December 31, 1994 and 1995, and for the three months ended March 31, 1996, respectively. TWO-PIECE MACHINED CAST WHEELS. The Company currently markets 28 styles of custom two-piece machined cast wheels. Nine additional styles are sold to Japanese distributors for sale exclusively in Japan. The suggested retail price range for a set of four wheels is $700 to $1,000. The two-piece cast wheels are produced with integrated machine processes, whereby the wheel centers are molded from aluminum ingot in a low pressure foundry, machined to achieve a more distinctive look (similar to that of the billet wheel), polished and welded into an aluminum outer rim. This two-piece assembly process allows the Company to weld the center into a variety of positions creating a larger selection of appearances and fitments and, in some cases, to produce a variety of designs from a single mold. Included within this product line are cast aluminum wheel centers which are sold to American Racing which then assembles the centers with its own outer rims for resale as private label wheels. See "-- Product Distribution -- Warehouse Distributors." Two-piece cast wheels accounted for approximately 61.3%, 64.1% and 64.0% of the Company's sales for the years ended December 31, 1994 and 1995, and for the three months ended March 31, 1996, respectively. STEERING WHEELS. The Company currently markets ten styles of steering wheels, made with the same machining process as its billet wheels. The suggested retail price range for one steering wheel is $400 to $1,000. Each steering wheel begins as a 1/8 inch thick piece of billet aluminum which is stamped into a basic pattern and machined on a CNC machine. The steering wheel is then polished, a foam grip is injected around its perimeter and a hand-stitched leather wrap is sewn to the steering wheel. The Company also builds limited quantities of an extremely high end steering wheel which is hand machined and available in special finishes. Steering wheels accounted for approximately 4.7%, 3.6% and 2.3% of the Company's sales for the years ended December 31, 1994 and 1995, and for the three months ended March 31, 1996, respectively. MOTORCYCLE WHEELS AND ACCESSORIES. The Company currently markets 15 styles of motorcycle wheels as well as accessories under the trade name Boyds Motorcycle Accessories for application on Harley-Davidson motorcycles. The Company's motorcycle wheels were first manufactured in 1994 and are currently distributed by Sullivan Brothers, Drag Specialties and Nempco. Currently the motorcycle accessories include stainless steel brake rotors, billet aluminum belt drives, aluminum chain drive sprockets, billet aluminum rocker boxes, billet aluminum swing arms and billet aluminum cam covers. These accessory products are designed to complement the styling of wheels and further enhance the look of the motorcycle. The Company introduced five new accessory items in 1995. The Company's suggested retail price for one motorcycle wheel ranges from $650 to $980. Motorcycle wheels and accessories accounted for approximately 3.0% of the Company's sales for the year ended December 31, 1995 and 9.0% for the three months ended March 31, 1996. The Company also plans to introduce a one-piece cast aluminum motorcycle wheel during the second half of 1996. ONE-PIECE MACHINED CAST WHEELS. The Company introduced five styles of one-piece machined cast aluminum wheels in late 1995 for the sport utility vehicle and European vehicle markets. One-piece cast wheels are produced with integrated machine processes whereby the entire wheel is molded from aluminum ingot in a low pressure foundry. The wheel is then machined to achieve a more distinctive look. One-piece cast wheels have a greater load capacity than the Company's other wheel lines thereby making them suitable for applications on heavier vehicles. One-piece cast wheels are manufactured using a simpler, faster production process since the rim and the center is molded as one integral unit thereby eliminating the costs associated with an outside supplier of outer rims and reduced assembly and handling costs. The lower material costs and reduced machining time should enable the Company to reach a market in which it could not otherwise 22 24 effectively compete. The Company's suggested retail price range for a set of four wheels is $600 to $1,200. One-piece cast wheels accounted for approximately 4.0% of the Company's first quarter 1996 net sales. WHEEL ACCESSORIES AND CAR-CARE PRODUCTS. The Company currently sells Boyds Ultra Violet car care products and also sells a variety of billet aluminum accessory items under its "The Boyd Look" trademark, such as pedal kits, horn buttons, air cleaners and license plate frames. These products enhance the product line and provide ancillary sales at the dealer level. The Company is currently in negotiations with a national auto parts retail chain pursuant to which Boyds Ultra Violet car care products will be manufactured and sold by such retail chain. PRODUCT DEVELOPMENT The Company seeks to design innovative and trend-setting styles for existing and new product lines. The Company's design influence is derived primarily from Boyd Coddington and is often referred to in the industry as "The Boyd Look," which is based on simplicity in style, look and design. The Company's products are designed by a five-person product development team which includes Boyd Coddington. Boyd Coddington and one other member of the team design wheels as well as vehicles for Hot Rods by Boyd. The product development team uses CAD/CAM technology for the development of many new products. The CAD/CAM system enables the Company to transition new products rapidly from design, to prototype development, and then to full-scale production. The Company currently has several products within several product lines under development. DISTRIBUTION, SALES AND MARKETING PRODUCT DISTRIBUTION The Company's products are currently sold through a national and international distribution network consisting primarily of the categories described below. The following are brief descriptions of the Company's distribution channels: TIRE DEALERS AND PERFORMANCE RETAILERS. The Company sells its custom wheels and other products to tire dealers throughout the United States, including Discount Tire, Les Schwab and Super Shops, Inc. The Company's performance retailer customers currently include Tradertim, Inc., Hunter's and Super Shops, Inc. Tire dealers and performance retailers, two traditionally separate channels which are beginning to overlap in their product coverages, are currently the largest distribution channel for the Company's custom wheels and related accessories. The Company believes that tire dealers have experienced success with "combination" sales of tires with custom wheels and that performance retailers serve as an important link to automotive enthusiasts. WAREHOUSE DISTRIBUTORS. The Company sells its products to warehouse distributors, such as Wheel City and American Racing, who sell to tire dealers, performance retailers, service stations and specialty boutiques. Since 1993, the Company has sold both its billet wheels and private label cast wheel centers to American Racing which the Company believes is the nation's largest warehouse distributor of specialty automotive wheels with approximately 65 warehouses. In 1995, the Company agreed to sell wheels directly to Tredit Tire, one of the largest direct distributors of custom wheels and tires to the van/truck conversion industry. Automotive aftermarket warehouse distributors generally seek rapid inventory turnover by heavily stocking a limited selection of high quality merchandise offered at good values. The Company believes that warehouse distributors are, and will continue to be, an important factor in the Company's penetration of new geographic areas and that the van conversion industry will be a new market for distribution of its wheel lines. MAIL ORDER OUTLETS. The Company sells its products to mail order catalog houses which resell them to the public. The Company believes that inclusion of its products in large mail-order catalogs, including ASAP, Tradertim Inc. and Hunter's, has been, and will continue to be, a significant factor in promoting the brand name recognition of the Company's products and increasing direct sales to consumers. 23 25 INTERNATIONAL SALES. In 1992, the Company began selling to the Japanese market through a domestic distributor and currently sells to eight distributors that market the Company's products in Japan. In 1994 and 1995, and for the three months ended March 31, 1996 international sales accounted for approximately 26.3%, 39.3% and 26.4%, respectively, of the Company's net sales, substantially all of which were in Japan. The Company believes that continued success and growth in this market will be largely due to (i) significant demand that exists for wheels made and designed in the United States with distinctive styling and (ii) the offering of exclusive designs to individual distributors. SALES The Company's strategy is to increase sales by (i) identifying new niche markets such as sport utility vehicles, sports cars and European vehicles, (ii) reaching new domestic distribution channels in new geographic areas of the United States, (iii) using direct marketing to specialty groups through mail order outlet channels, (iv) expanding its international distribution to address selected foreign markets and (v) developing new products and product lines, including those to be aimed at new market segments, such as the one-piece cast wheels introduced in late 1995 for use on other types of vehicles and applications. As of May 21, 1996, the Company employed ten individuals in its sales and marketing department. The Company's sales and marketing employees are responsible for implementing marketing plans and sales programs, providing technical advice and customer service, handling customer inquiries, coordinating the Company's trade shows and staffing exhibits. Returns in excess of $5,000 are subject to preapproval and a 15% restocking fee. Typically a limited number of customers have accounted for a substantial portion of the Company's net sales. In 1995, the Company's ten largest customers accounted for approximately 82.4% of net sales, with four accounting for greater than 10% each: Wheel City at 24.1%, American Motoring Accessories at 16.7%, Mooneyes at 15.6% and American Racing at 12.0%. In 1994, the Company's ten largest customers accounted for approximately 84.6% of net sales, with three accounting for greater than 10% each: American Racing at 25.2%, Mooneyes at 15.5% and Wheel City at 12.3%. The Company does not have any long-term contractual relationships with its major customers. The loss of or any reduction in orders by any such customers could adversely affect the Company's business, financial condition and results of operations. MARKETING The Company's collaboration with Hot Rods by Boyd is one of its principal marketing tools. See "-- Collaboration with Hot Rods by Boyd." The Company uses a variety of other methods to promote its products, including participation in automotive events and international trade shows. In order to ensure that the Company stays in close touch with the constantly changing needs of its customers, including both consumers and distributors, the Company maintains a consumer data base derived from warranty card information and other sources. Sales personnel also attend distributor open houses and retail store openings, enabling direct one-on-one interaction with consumers and customers. Key management personnel attend many of these events in order to develop ideas for new products and programs. The Company believes that its trademarks, Boyds, Boyds Wheels, Boyds Ultra Violet, and The Boyd Look have become recognized brand names in the automotive/motorcycle markets and represent its commitment to well-designed, high-quality innovative wheels and accessories. To date, the Company has utilized limited print advertising. The Company has, instead, concentrated on high-profile public relations opportunities such as featuring its wheels on the award-winning vehicles of Hot Rods by Boyd and gaining coverage of its wheels in leading specialty automotive publications such as Hot Rod Magazine, Truckin', Street Rodder, Sport Truck and AutoWeek and targeted enthusiast television and radio programs. The Company recently received the 1995 "Wheel of the Year" award presented by Eagle One. The Petersen Automotive Museum in Los Angeles also recently devoted a wing of the museum to a retrospective 24 26 of the works of Boyd Coddington, including his hot rods and the Company's wheels. The Company also engages in cooperative advertising efforts with its major retailers and distributors. The Company currently publishes a periodic newsletter which is mailed directly to various newspapers and periodicals, retailers, distributors and customers and features new products, special events, technical innovations, employee profiles and interesting facts about the Company. The Company believes that its direct mail programs are effective in maintaining its reputation as a leading manufacturer of premium custom wheels and related accessories. The Company also believes that dealer support programs are key factors for marketing success and provides its wheel dealers with marketing kits that include ad slicks, product photos, logo sheets, press releases and other advertising information and a videotape presentation featuring the Company's latest products and information. The Company also supports its dealers and brand name image with special events and onsite presentations, featuring two 70 foot semi-tractor/trailer rigs. These act as mobile displays of the Company's products and award winning vehicles by Hot Rods by Boyd. The rolling displays travel the country attending shows and dealer events allowing for dealer hospitality in the on-board lounge. These vehicle costs have been partially underwritten by the corporate sponsorship of B.F. Goodrich and revenues derived from direct retail sales from the trucks. The Company also promotes its brand name through exclusive styling agreements and product licensing. In 1994 the Company began a program to license its various brand names to selected licensees. The Company has granted licenses to Franklin Mint and through Hot Rods by Boyds to Testors Corporation and Mattel Corporation allowing reproduction of the Boyds Wheels styles on scale models. The Company charges royalty fees for such licenses and exercises care in selecting the licensees to protect the association of its brand names with premium products. This program was recently initiated and to date has not yielded any significant revenues to the Company. The Company believes exclusive styling arrangements and private licensing will broaden the Company's visibility and brand name recognition. COLLABORATION WITH HOT RODS BY BOYD The Company has had a long-standing collaboration with Hot Rods by Boyd, a company wholly-owned by Mr. Coddington and his wife. In 1977, Mr. Coddington began building custom vehicles and hot rods in his garage which were quickly recognized by automotive publications as design leaders. Today, Hot Rods by Boyd designs and builds custom vehicles which range in price from $75,000 to $500,000 and are custom produced typically for wealthy individuals, including celebrities, as promotional vehicles for corporations and as prototypes or show cars for major automobile manufacturers. These cars, displaying the Company's custom wheels, are regularly featured at hot rod and automotive shows and have been featured in national automotive and general interest publications such as Car and Driver, Autoweek, Hot Rod, Smithsonian and Forbes and have also been displayed in the Petersen Automotive Museum in Los Angeles. In June 1995, the Company entered into a marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods by Boyd is required to (i) endorse, promote and market the Company's wheels as the "official wheel" of Hot Rods by Boyd, (ii) use the Company's wheels on vehicles produced by Hot Rods by Boyd and (iii) allow the Company to use vehicles produced by Hot Rods by Boyd for promotional displays and photographs, including the likeness of Boyd Coddington and the vehicles for printed and electronic media in connection with the design, manufacture and sale of automotive wheels, motorcycle wheels, steering wheels, car care products and related accessories. Unless terminated in accordance with the provisions thereof, this agreement expires upon the exercise of the Company's option to purchase Hot Rods by Boyd. The Company has entered into an option agreement with Mr. and Mrs. Coddington and Hot Rods by Boyd pursuant to which the Company currently has an option to purchase all of the outstanding Common Stock of Hot Rods by Boyd for up to $750,000, payable in shares of the Company's Common Stock, valued at its then fair market value. This option is exercisable by the Company commencing after delivery to it of the audited financial statements of Hot Rods by Boyd for the years ending December 31, 1995 and December 31, 1996, but in no event after September 30, 1997, unless extended pursuant to the terms thereof. If, at the time the option agreement becomes exercisable the Company believes that the acquisition of Hot Rods by Boyd is in the Company's best interests, the Company intends to exercise the option. 25 27 MANUFACTURING The Company's aluminum products are manufactured, finished and packaged at its Stanton, California facilities. The Company's corporate offices and manufacturing and distributing facilities occupy seven buildings covering approximately 75,900 square feet. The Company is committed to maintaining control over the entire design and manufacturing process which it believes enables it to (i) reduce design and production time, (ii) refine manufacturing techniques and existing products, (iii) design future products and (iv) maintain the Company's high quality standards. The machined billet aluminum wheel manufacturing process for commercial applications was developed by Mr. Coddington and continues to be refined by the Company. The Company believes that the machined billet manufacturing process results in a superior quality of product and that other types of billet manufacturing processes, such as stamped, are inferior due to structural and design limitations. The billet wheel centers for the two-piece machined billet aluminum wheels are manufactured from a solid piece of aluminum known as a billet, through the use of CNC machines which "carve" out the specialized custom designs from the billet aluminum. After polishing, the finished center is welded into an aluminum outer rim. Through the precision and flexibility of this billet manufacturing process, the Company is able to offer billet wheels with greater detail in design, higher quality finish and larger variety of styles, applications and vehicle fitments than other types of manufacturing processes such as cast or forged. An additional advantage of the billet manufacturing process is reduced development time, whereby a new wheel design can be typically produced in one to two weeks, compared to ten to twelve weeks required for the development and tooling of a new cast wheel design. The Company believes that the shorter design cycle enables the Company to maintain a competitive advantage. During 1995 the Company produced approximately 12,000 billet aluminum wheel centers. The two-piece cast wheels are also produced with integrated machine processes. The wheel centers are molded from aluminum ingot in a low pressure foundry, machined to achieve a more distinctive look (similar to that of the billet wheel) and, after polishing, welded into an aluminum outer rim. This two-piece assembly process allows the Company to store work-in-process in a smaller area, to weld the center into a variety of positions creating a larger selection of appearances and fitments and, in some cases, to produce a variety of designs from a single mold. The Company's cast wheel manufacturing facility is equipped with seven state-of-the-art low pressure casting machines. During 1995 the Company produced approximately 175,000 cast aluminum wheels. Steering wheels begin as a 1/8 inch thick piece of billet aluminum, which is stamped into a basic pattern and machined on a CNC machine. The wheel is then polished, a foam grip is injected around its perimeter and a hand-stitched leather wrap is sewn to the wheel. All of the machining processes (except stamping), and all of the polishing, leather wrapping, foam injection and packaging efforts for the manufacture of the Company's steering wheels, are completed on-site at the Company's facilities. During 1995 the Company produced approximately 4,800 steering wheels. The Company's various accessory products are manufactured in-house, while its line of Boyds Ultra Violet car care products are mixed and packaged by an outside contractor. Billet motorcycle wheels are produced in a similar process as the billet automotive wheels. The product begins as a solid piece of billet aluminum which is machined on the same type of CNC equipment as the automotive wheels. The wheels undergo a trueing process to ensure proper fit and are then polished and welded. Final assembly involves stringent controls that maintain proper fit of the hub assemblies. The exclusive "Invisible Weld(C)" technology employed by the Company in manufacturing its motorcycle wheels was developed by Boyd Coddington and the Company believes it provides a better looking and more structurally sound product. The Company uses a modern design and manufacturing system for the manufacture of its wheels and billet accessories, which through the use of CAD/CAM technologies, provides the Company with two dimensional CAD drawings. All of the CNC equipment in the Company's manufacturing facility is linked to a CAD/CAM manufacturing system in order to obtain efficiencies and maintain exacting tolerances in manufacture. The Company's design control department monitors the compliance of production processes in order to ensure that the designs have been correctly processed by the manufacturing computers and that 26 28 finished products are accurately produced. The CAD/CAM system allows the Company to transition new products rapidly from development to full-scale production. The Company's CNC machinery maintains precise controls over manufacturing processes. The CNC machinery greatly reduces the chance of error, scrap and injury commonly found in manually operated machines. CNC technology also allows for reduced machine times. The Company continually seeks to increase efficiency at its production facilities through further automation and increased use of technology. The Company relies on outside suppliers for its billet aluminum and ingot aluminum requirements. The Company currently purchases billet aluminum from Metalcenter, Inc. and Earle M. Jorgensen Co. The Company currently does not have any contractual relationships with any billet or ingot aluminum suppliers and purchases materials on an as-needed basis. In 1994 and 1995, the Company purchased 100% of its ingot requirements for its cast aluminum wheels from two suppliers, Noranda Aluminum, Inc. and Vista Sales Co. The Company believes that there are other suppliers of billet and ingot from which the Company could obtain such materials in the future should the need arise. Any significant interruption in the supply of these required raw materials could have a material adverse effect on the Company's business and results of operations. The rims for the Company's wheels are purchased from five different suppliers and the Company believes alternative sources of supply of rims are readily available. In the ordinary course of its manufacturing process, the Company uses metals, oils and similar materials which are stored on-site. The waste created by use of these materials is transported off-site on a regular basis by a state registered waste hauler. To date, the Company has not experienced any significant environmental compliance problems, although there can be no assurances such problems will not arise in the future. COMPETITION The custom aluminum wheel business is highly competitive and is based primarily on price, product selection, product availability and service and is characterized by widespread imitation of popular wheel designs. The preferences of custom aluminum wheel purchasers may also be subject to rapid and unanticipated changes. Competition in the billet segment of the custom wheel market is intense, but concentrated among a limited number of manufacturers, such as Budnik Wheels, Colorado Custom, Weld Racing, Inc. and Billet Specialties, Inc. In addition, the Company believes several wheel manufacturers such as Ultra Custom Wheel and American Racing who do not currently manufacture premium quality billet aluminum wheels could, because of their substantial resources, pose significant competition if they were to enter this market. Cast aluminum wheels comprise a much larger portion of the custom wheel market than billet wheels, due to their lower retail prices. There are numerous competitors in the cast wheel market, including American Racing, Ultra Custom Wheel and Prime Wheel, and competition is fierce and based primarily on cost, with most manufacturers seeking high volume to compensate for low margins. The one-piece cast wheels which the Company introduced in 1995 will be aimed at a broader range of customers than the Company's other wheel lines because of their moderate price range and more varied vehicle applications. Accordingly, the Company expects that these wheels may face more competition, including branded wheels and "look-alike" designs produced by low-cost offshore manufacturing sources. There are several competing manufacturers of steering wheel products and motorcycle wheels, including Grant Products and Weld Racing, Inc., some with substantially more resources than the Company. Increased competition could result in product price reductions, reduced margins and loss of market share, all of which could have a material adverse effect on the Company's results of operations and financial condition. The Company intends to meet its competition with innovative designs, quality workmanship and the strength of its brand names. The Company believes its relationship with its customers is strengthened by its exclusive styling of products for certain of its competitors who are also customers, such as American Racing. FACILITIES The Company's executive offices, product development, manufacturing and distribution facilities are currently housed in a cluster of leased industrial buildings. Building No. 1 contains the foundry and machining facilities and is approximately 20,700 square feet. Building No. 2 contains the warehouse and administrative 27 29 facilities and is approximately 20,400 square feet. Building No. 3 contains the assembly area and is approximately 9,800 square feet. Building No. 4 contains a motorcycle wheel design studio and custom motorcycle assembly area and is approximately 17,000 square feet, of which Hot Rods by Boyds currently subleases approximately 12,500 square feet. Building No. 5 contains the polishing department and is approximately 5,100 square feet. Building No. 6 contains the manufacturing facilities for motorcycle wheels and accessories and is approximately 8,550 square feet. Building No. 7 contains machining facilities and is approximately 6,850 square feet. The Company believes that its facilities are adequate for its immediate needs, however, it is currently in negotiations to lease additional property containing buildings with approximately 28,000 square feet. The Company has expanded its facilities in the last year in order to accommodate its growing motorcycle product operations and to take advantage of adjacent properties which became available for lease within the past nine months. INTELLECTUAL PROPERTY The Company markets its custom wheels and products under a variety of brand names designed to capitalize on the reputations of Boyd Coddington and Hot Rods by Boyd among automotive enthusiasts. The Company believes that its trademarks, Boyds, Boyds Wheels, Boyds Ultra Violet, and The Boyd Look, are critical to its marketing strategy. There are no infringing uses currently known to the Company. The Company does not believe its business is otherwise dependent upon any patent, license, trademark, service mark or copyright. PRODUCT WARRANTIES Historically, the Company's wheels have been sold with a limited one-year warranty from the date of purchase. Commencing in April 1995, the Company began honoring a limited three-year warranty from the date of purchase. The Company's warranties generally provide that, in the case of defects in material or workmanship, the Company will, at its option, replace or repair the defective product without charge. The Company currently maintains product liability insurance for its products worldwide with limits of $5,000,000 per occurrence and $5,000,000 in the aggregate, per annum. Such coverage is becoming increasingly expensive and there can be no assurance that the Company's insurance will be adequate to cover future product liability claims, or that the Company will be able to maintain adequate product liability insurance at commercially reasonable rates. EMPLOYEES As of May 21, 1996, the Company had approximately 313 employees, a majority of which were full-time employees, including ten employed in sales and marketing, three employed in development and 246 employed in production. The remaining full-time employees are administrative and support staff. The Company considers its employee relations to be good. None of the Company's employees are represented by unions. LEGAL PROCEEDINGS The Company is involved in routine litigation incidental to the conduct of its business. There are currently no material pending legal proceedings to which the Company is a party or to which any of its property is subject. 28 30 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The executive officers, directors and nominees for the office of director of the Company are as follows: NAME AGE POSITION - ----------------------------------------- --- ----------------------------------------- Boyd Coddington(1)....................... 52 Chairman of the Board and Chief Executive Officer Stanley Clark............................ 44 Chief Operating Officer and Nominee (Director) Rex A. Ours.............................. 35 Chief Financial Officer and Secretary Marcus Sorenson(1)(2).................... 48 Director Curt Barwick(1)(2)....................... 41 Director Melanie McCaffery........................ 42 Nominee (Director) - --------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Boyd Coddington founded the Company in 1988 and has served as a director and executive officer of the Company since its inception. Mr. Coddington also founded Hot Rods by Boyd in 1978 and has been featured in many automotive and general interest publications, including Car and Driver, Autoweek, Smithsonian and Forbes. Stanley Clark joined the Company in April 1996 as the Chief Operating Officer of the Company and is a nominee for the Board of Directors. From 1992 to March 1996, Mr. Clark was vice president and general manager for the automotive wheels division of Titan Wheel International, where he was in charge of production of wheels for original equipment manufacturers and the automotive aftermarket. Prior to 1992, Mr. Clark worked for fourteen years in the aerospace industry with American Welding and Manufacturing Inc., a division of Freedom Forge Corporation, a manufacturer of jet engine components for the aerospace industry. Rex A. Ours joined the Company in June 1994 as the Chief Financial Officer. From 1993 to June 1994, Mr. Ours was an accountant in private practice specializing in tax and general business matters. From 1991 to 1993, Mr. Ours was Chief Financial Officer of Russell Performance, Inc., a manufacturer of specialty aftermarket automotive products and high performance hoses for racing engines and from 1990 to 1991, he was Vice President of Finance of Simpson Race Products, Inc., a manufacturer of racing safety equipment. Mr. Ours was previously employed by B.D.O. Seidman and Ernst & Whinney. Marcus Sorenson joined the Board of Directors in June 1995. From 1976 to the present, Mr. Sorenson has been the President of Calwest Marketing, a manufacturer's representative specializing in consumer electronics and automotive electronics. Mr. Sorenson is a co-founder of Mackie Designs, a publicly traded company and since 1990 has served as its Vice President and director. Mackie Designs manufactures recording consoles used in professional and home recording studios. Curt Barwick joined the Board of Directors in April 1996. From May 1994 to the present, Mr. Barwick has been an attorney with the law firm of Day Campbell & McGill. From February 1992 to September 1993, Mr. Barwick was Vice President and General Counsel of DVI, Inc., a New York stock exchange listed company and a healthcare finance and service provider. From February 1985 until January 1992, Mr. Barwick was an attorney with the law firm of Buchalter, Nemer, Fields & Younger. Mr. Barwick is a member of the California and District of Columbia Bars. Melanie McCaffery is a nominee for the Board of Directors. Ms. McCaffery, a Certified Public Accountant, is the President of McCaffery & Associates, a financial and accounting firm which she founded in October 1995. From October 1988 through September 1995, Ms. McCaffery was a Partner with the international accounting firm of Coopers & Lybrand L.L.P. 29 31 The Company's Bylaws provide that the authorized number of directors of the Company must be no less than three nor more than five. The number of authorized directors, which is currently five, may be set from time to time within this range by either approval of the Board of Directors or the affirmative vote of the holders of a majority of the Company's capital stock. Directors are elected annually to serve until the next annual meeting of shareholders and until their successors are elected and qualified. Executive officers are elected annually by, and serve at the discretion of, the Board of Directors. BOARD COMMITTEES The Compensation Committee consists of Messrs. Barwick and Sorenson. The Compensation Committee establishes salaries, incentives and other forms of compensation for officers and other employees, administers incentive compensation and benefit plans, including the Company's 1995 Stock Option Plan and recommends policies relating to such plans. The Audit Committee consists of Messrs. Coddington, Sorenson and Barwick. The Audit Committee, which meets periodically with management and the Company's independent auditors, reviews the results and scope of the audit and other services provided by the Company's independent auditors and the need for internal auditing procedures and the adequacy of internal controls. DIRECTORS' COMPENSATION Standard Compensation Directors who are not employees of the Company or its subsidiaries ("Non-Employee Directors") receive $1,000 for attendance at the Company's annual meeting of shareholders plus $500 for each meeting of the Board or committee meeting that they attend, plus reimbursement of any expenses they may incur with respect to such meeting. Directors who are employees of the Company serve as directors without compensation. Stock Options Non-Employee Directors receive additional compensation in the form of stock options granted automatically under the Company's 1995 Stock Option Plan. Upon their initial election to the Board of Directors, Non-Employee Directors automatically receive options to purchase 3,000 shares of Common Stock. Such options vest on the Non-Employee Directors' first anniversary with the Company. In addition, such Non-Employee Directors will automatically be granted options to purchase 1,000 shares of Common Stock each year they serve as a Director. Such additional options will be fully vested and exercisable after each additional full year of service. All options granted to Non-Employee Directors have an exercise price equal to the fair market value of the shares on the date of grant of such option. 30 32 EXECUTIVE COMPENSATION The following table shows certain information concerning the compensation of the Chief Executive Officer and each other executive officer of the Company where aggregate compensation for services in all capacities rendered during the year ended December 31, 1995 exceeded $100,000 (collectively the "Named Executive Officers.") SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION ----------------------------------- LONG-TERM OTHER ANNUAL COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (OPTIONS/SARS) - ---------------------------------- ---- -------- ----- ------------ -------------- Boyd Coddington(1) 1995 $173,675 $ -0- $ 15,200 60,000 Chairman and Chief Executive 1994 79,075 -0- 14,000 -- Officer Brad Fanshaw 1995 124,146 -0- 12,300 30,000 President (former)(2) 1994 69,160 -0- 12,000 -- Stanley Clark(3) 1995 -- -- -- -- Chief Operating Officer 1994 -- -- -- -- - --------------- (1) Pursuant to a five-year employment agreement between the Company and Boyd Coddington, Mr. Coddington currently receives an annual salary of $160,000 and will receive an annual bonus in an amount to be determined by the Compensation Committee of the Board of Directors. Mr. Coddington is required to devote his entire productive time, with certain limited exceptions described in his employment agreement, to the business of the Company. In addition to salary and bonus, under the terms of his employment agreement the Company is required to provide Mr. Coddington with a nonaccountable automobile expense allowance of at least $1,100 per month, pay all health insurance premiums for him and his spouse and pay the premiums of a term life insurance policy. In the event of termination of the executive without cause, the Company is liable for the remaining unpaid annual salary under the full term of the agreement plus a severance payment equal to 10% of the annual salary each year. Other annual compensation for 1995 included the above-described annual automobile allowance of $13,200 for a vehicle used by Mr. Coddington and approximately $2,000 in repair and maintenance expenses for this automobile. Other annual compensation for 1994 included a separate annual automobile allowance of $12,000 for a vehicle used by Mr. Coddington and approximately $2,000 in repair and maintenance expenses for this automobile. (2) Mr. Fanshaw's employment with the Company terminated in February 1996. During fiscal 1995, Mr. Fanshaw received, in addition to salary and bonus, a nonaccountable automobile expense allowance of $1,100 per month and payment of health insurance premiums for him and his spouse. Other annual compensation for 1995 included an annual automobile allowance of $12,300 for a vehicle used by Mr. Fanshaw. Other annual compensation for 1994 included an annual automobile allowance of approximately $12,000 for a vehicle used by Mr. Fanshaw. In May 1993, Mr. Fanshaw was granted a stock option exercisable until December 31, 1999 to purchase 71,429 shares of Common Stock for a price of $1.00 per share. Mr. Fanshaw exercised 2,000 of these options in September 1995. (3) Mr. Clark's employment with the Company commenced in April 1996. Mr. Clark currently receives an annual salary of $110,000. OPTION GRANTS TABLE The following table sets forth information with respect to options to purchase shares of the Company's Common Stock granted in fiscal 1995 to the Named Executive Officers. 31 33 STOCK OPTION GRANTS IN 1995 NUMBER OF SECURITIES % OF TOTAL OPTIONS UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION NAME GRANTED (#) IN FISCAL YEAR (PER SHARE) DATE - ----------------------------- -------------------- -------------------- -------------- ---------- Boyd Coddington.............. 60,000 24% $ 6.25 9/15/05 Brad Fanshaw................. 30,000 12% 6.25 9/15/05 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information regarding option exercises during the year ended December 31, 1995 by the Named Executive Officers. The number of shares covered by both exercisable and unexercisable options as of December 31, 1995 and the value of unexercised in-the-money options held by the Named Executive Officers as of December 31, 1995. None of the Named Executive Officers held any stock appreciation rights at the end of that fiscal year. NUMBER OF UNDERLYING VALUE OF UNEXERCISED NUMBER OF UNEXERCISED SECURITIES IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END ACQUIRED ON VALUE ---------------------------- ---------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------- ----------- ------- ----------- ------------- ----------- ------------- Boyd Coddington.......... -0- $ -0- 60,000 -0- $ 210,000 $ -0- Brad Fanshaw............. 2,000 10,500 99,429 -0- 712,504 -0- COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the year ended December 31, 1995, the Company's Board of Directors established the levels of compensation for certain of the Company's executive officers prior to the formation of the Compensation Committee. The current members of the Company's Compensation Committee are Messrs. Barwick and Sorenson. None of these individuals were at any time during 1995 an officer or employee of the Company. 1995 STOCK OPTION PLAN The Company's 1995 Stock Option Plan (the "Plan") was adopted by the Board of Directors in June 1995 and was approved by the shareholders at the Company's annual meeting of shareholders in July 1995. The Plan is administered by the Compensation Committee (the "Committee") of the Board of Directors, except that grants to the Non-Employee Directors are automatically made pursuant to a predetermined formula. The Committee consists solely of Non-Employee Directors. The Committee has broad authority in administering and interpreting the Plan. The purpose of the Plan is to enable the Company to attract, retain and motivate employees by providing for or increasing their proprietary interests in the Company and, in the case of Non-Employee Directors, to attract such directors and further align their interests with those of the Company's shareholders by providing for or increasing their proprietary interests in the Company. Under the Plan, officers, directors, employees and independent consultants of the Company are eligible to receive options to purchase Common Stock. As of May 21, 1996, approximately 300 persons were eligible. The aggregate number of shares which may be issued pursuant to the grant of awards under the Plan is 250,000, subject to adjustment for certain circumstances such as a stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock dividend or other capital change or adjustment. At the Company's next annual meeting scheduled for June 12, 1996, the shareholders of the Company will be requested to consider and approve a proposed amendment to the Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 200,000 shares, bringing the total number of shares issuable under the Plan to 450,000 shares. The Board of Directors approved such amendment in May 1996. 32 34 Awards to Employees Options granted under the Plan may be options intended to qualify as incentive stock options (the "Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to so qualify (the "Non-Qualified Stock Options"). An award to an employee may permit the employee to pay all or part of the purchase price of the shares issuable pursuant thereto, and/or to pay all or part of such employee's tax withholding obligation with respect to such issuance, by (i) delivering previously owned shares of capital stock of Company or (ii) reducing the amount of shares otherwise issuable pursuant to the award. If an option granted to an employee permitted the employee to pay for the shares issuable pursuant thereto with previously owned shares, the employee would be able to exercise the option in successive transactions, known as pyramiding, to acquire a large number of shares with no more investment than the original share or shares delivered upon exercise of the option. Upon the grant of an option under the Plan, the person receiving the grant (the "Option Holder") must enter into a written option agreement with the Company that contains terms, provisions and conditions that are consistent with the Plan and have been determined from time to time by the Committee. Incentive Stock Options granted under the Plan may not expire later than ten years after the date of grant except that an Incentive Stock Option granted to an individual owning (after the application of the family and other attribution rules of Section 424(d) of the Code), at the time the option was granted, more than 10% of the total combined voting power of all classes of stock of the Company (a "10% Shareholder"), may not expire later than five years from the date the option is granted. The exercise price for any Incentive Stock Option may not be less than 100% of the fair market value of Common Stock of the Company at the date the Option is granted and the exercise price of an Incentive Stock Option granted to a 10% Shareholder may not be less than 110% of the fair market value of the Common Stock of the Company on the date such option is granted. The Plan provides that the maximum number of shares of Common Stock that may be issued pursuant to Incentive Stock Options, in the aggregate, is 250,000 shares. An award granted under the Plan to an employee may include a provision terminating the award upon termination of employment under certain circumstances or accelerating the receipt of benefits upon the occurrence of specified events, such as a change of control of the Company or a dissolution, liquidation, merger, reclassification, sale of substantially all of the property and assets of the Company or other significant corporate transaction. Options granted to Non-Employee directors must be exercised by the first anniversary of the date of grant if the grantee ceases to be a director of the Company as a result of death or disability, and the three months after such grantee ceases to be a director for any other reason other than cause, in which case the option terminates immediately. Awards to Non-Employee Directors Non-Qualified Stock Options to purchase 3,000 shares of Common Stock are automatically granted to Non-Employee Directors upon their initial election to the Board. Such options will vest on the first anniversary of the date of appointment or election. Non-Qualified Stock Options to purchase an additional 1,000 shares will be granted to each Non-Employee Director each year provided such individual continues to serve as a director. Such additional options will vest after each additional year of service. 33 35 CERTAIN TRANSACTIONS Boyd and Diane Coddington, the Company's principal shareholders, have personally guaranteed the Company's equipment leases and the leases on the real properties located at 8400, 8402 and 8380 Cerritos Avenue and 10541 Ashdale Street. In September 1994, Boyd and Diane Coddington assigned to the Company all of their rights and interests under the lease of the real properties located at 8380 Cerritos Avenue and 10541 Ashdale Street in consideration of the Company's assumption of all of the obligations of the Coddingtons' under such leases. The Company has been subleasing a portion of the premises located at 10541 Ashdale Street to Hot Rods by Boyd (a company which is wholly owned by Boyd Coddington) since the commencement of the lease term, and has been paying Hot Rods by Boyd's share of all rental and other payments due thereunder. The total current monthly rent under these leases is $14,991, with the Company's share being $10,000. The rent is subject to annual adjustment based on increases in the Consumer Price Index. From time to time the Company has loaned amounts to Hot Rods by Boyd on an interest free basis, for use as working capital and to cover certain expenses, including the build-out of the premises occupied by Hot Rods by Boyd. In 1993 and 1994, the Company also paid on behalf of Hot Rods by Boyd the entire salary for several employees that work for both Hot Rods by Boyd and the Company. As of March 31, 1996, the amount owed to the Company from Hot Rods by Boyd was approximately $158,000, representing amounts previously advanced by the Company and the portion of the salary payments made to such employees by the Company which are allocable to Hot Rods by Boyd. The Company has entered into an option agreement with Mr. and Mrs. Coddington pursuant to which the Company currently has the option to purchase all of the outstanding Common Stock of Hot Rods by Boyd for up to $750,000, payable in shares of the Company's Common Stock, valued at its then fair market value. This option is exercisable by the Company commencing after delivery to it of audited financial statements of Hot Rods by Boyd for the years ending December 31, 1995 and December 31, 1996, but in no event after September 30, 1997, unless extended pursuant to the terms of the option agreement. Until the option is exercised, any transactions between the Company and Hot Rods by Boyd will be reviewed and approved by the outside board members of the Company. In June 1995, the Company entered into a marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods by Boyd is required to (i) endorse, promote and market the Company's products, (ii) use the Company's wheels on vehicles produced by Hot Rods by Boyd and (iii) allow the Company to use vehicles produced by Hot Rods by Boyd for promotional displays and photographs, including the likeness of Boyd Coddington and the vehicles for printed and electronic media. Unless terminated in accordance with the provisions thereof, this agreement expires upon the exercise of the Company's option to purchase Hot Rods by Boyd. In November 1994, the Board of Directors of the Company authorized the issuance of 1,000,000 shares of Series A Redeemable Preferred Stock, 706,668 shares of which were issued to Karl Kantarjian, a former director of the Company, in exchange for 706,668 shares of Common Stock held by Mr. Kantarjian. The Series A Redeemable Preferred Stock was redeemed by the Company in September 1995. In consideration for exchanging his shares of Common Stock for shares of Series A Redeemable Preferred Stock, Mr. Kantarjian received a warrant to purchase 10,000 shares of Common Stock (the "Kantarjian Warrant") at a price of $6.25 per share. The Kantarjian Warrant expires on November 3, 1996. Codde, Inc., a company in which Mr. Coddington is an officer, director and principal shareholder, leases two 70 foot semi-tractor/trailer rigs to the Company for special event and onsite presentations for a monthly fee of approximately $10,000. The Company believes that its agreement with Codde, Inc. is on terms no less favorable than could be obtained from a nonaffiliated party. Boyd Coddington, Jr., the son of Boyd Coddington, is employed by the Company in the position of National Sales Manager at an annual salary of $78,000 plus bonus. In fiscal 1995, he received aggregate compensation of $61,035 from the Company. In February 1996, the Company entered into an agreement under which an employee of the Company was released from his duties under an employment contract. Under the agreement, the Company paid to this 34 36 employee total consideration of $275,000, consisting of $150,000 in consideration for a five-year covenant not to compete and $125,000 for other compensation. Of such consideration, $225,000 was paid in cash and the remaining $50,000 was paid in shares of the Company's Common Stock. All other amounts due to/from the Company and the employee pursuant to the employment contract were cancelled. In February 1996 the Company purchased substantially all of the assets of Velocity Distribution, Inc. (the "Velocity"), a company owned by Boyd Coddington and a former employee of the Company. Velocity was in 1995 a party to an agreement with the Company pursuant to which Velocity was granted a license to use certain trademarks owned by the Company in connection with the distribution of apparel and other accessories. As consideration for these assets, the Company assumed certain liabilities of Velocity totalling approximately $81,000 and also entered into a five-year covenant not to compete with an employee of Velocity for total consideration of approximately $25,000. 35 37 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of May 21, 1996 and as adjusted to reflect the sale of the Common Stock being offered hereby (assuming no exercise of the Underwriter's over-allotment option) by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) the executive officers named in the Summary Compensation Table, (iv) all Selling Shareholders, and (v) all directors and executive officers of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable: SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED PRIOR TO THE OWNED AFTER THE OFFERING (1) OFFERING ------------------ SHARES BEING ------------------ NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT - --------------------------------------------- ------- ------- ------------ ------- ------- Boyd Coddington(2)(3)........................ 413,334 15.8% 24,863 388,471 11.5% Diane Coddington(2).......................... 353,334 13.9% 24,863 328,471 10.0% Entities associated with Gruber & McBaine Capital Management, Inc. 50 Osgood Place San Francisco, CA 94133(4)............... 169,600 6.7% 0 169,600 5.1% Brad Fanshaw(5).............................. 87,250 3.4% 52,821 34,429 1.0% Frank W. Cutler++............................ 27,879 1.1% 17,879 10,000 * The Richard F. Foster Family Trust UAD 5/24/93++.................................. 19,362 * 13,362 6,000 * The Silagy Living Trust DTD 1/15/93(6)++..... 19,362 * 14,362 5,000 * George Nicholas++............................ 16,842 * 10,842 6,000 * Kendall W. Everson, Jr. Family Trust DTD 9/21/89(7)++............................... 12,102 * 7,730 4,372 * Larry E. Baumgardner, Jr++................... 10,839 * 10,839 0 * CJ & WM Reed Trust DTD 1986(8)++............. 10,839 * 5,839 5,000 * The Davis Living Trust(9)++.................. 9,681 * 6,681 3,000 * John E. Thompson and Linda Thompson++........ 6,619 * 6,619 0 * Gregory A. Brown and Susan R. Brown++........ 5,519 * 5,519 0 * Silverberg Trust DTD 12/21/88(10)++.......... 5,434 * 5,434 0 * Dale Mitchum++............................... 5,419 * 5,419 0 * Ajit Singh M.D. Profit Sharing Plan and Trust++.................................... 5,419 * 2,919 2,500 * Lawrence J. Larsen and Janice L. Larsen++.... 4,842 * 4,842 0 * Michael Murphy++............................. 4,119 * 3,000 1,119 * Newport Potomac Partners(11)................. 3,872 * 2,500 1,372 * Miller Revocable Intervivos Trust UDT 11/29/90(12)++............................. 2,717 * 2,717 0 * Kurt Mason++................................. 2,418 * 1,500 918 * Yie Fong Chiang and Kuang Chi Chiang++....... 2,170 * 500 1,670 * Gary Rorden and Sheryl S. Rorden++........... 1,450 * 450 1,000 * Rex A. Ours.................................. 500 * -- 500 * Stanley Clark................................ -- * -- -- * Marcus Sorenson.............................. -- * -- -- * Curt Barwick................................. -- * -- -- * All Executive Officers and Directors as a Group (5 persons)(13)............................ 413,834 15.9% 24,863 388,971 11.5% 36 38 - --------------- * Indicates ownership of less than one percent. ++ Indicates that the shareholder purchased Common Stock and warrants in a November 1994 private placement and converted the warrants into Common Stock in September 1995. (See "Description of Capital Stock"). (1) Includes Common Stock issued pursuant to a conversion of warrants into shares of Common Stock, in September 1995. See "Description of Capital Stock -- Warrants from Private Placement," and "Description of Capital Stock -- Other Warrants." Any correspondence to the shareholders should be addressed to such shareholder c/o the Company at the Company's address. The percent beneficially owned by each shareholder has been calculated pursuant to Rule 13d-3(d) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. (2) Boyd Coddington and Diane Coddington are married, and therefore, each has a beneficial interest in the other's shares of Common Stock. (3) Includes 60,000 shares purchasable within 60 days of the date hereof upon exercise of an option to purchase Common Stock. (4) Based on Schedule 13D filed by Jon D. Gruber ("Gruber"), J. Patterson McBaine ("McBaine"), Gruber & McBaine Capital Management ("GMCM"), Gruber & McBaine Capital Management International ("International"), GMJ Investments, L.P. ("GMJ") and Lagunitas Partners ("Lagunitas"). Gruber is deemed to be the beneficial owner of 156,600 shares and McBaine is deemed to be the beneficial owner of 142,000 shares. Each of Messrs. Gruber and McBaine has shared voting and dispositive power with respect to 132,000 shares. Gruber and McBaine are the sole directors and officers of GMCM and International. Gruber, McBaine and GMCM are the general partners of Lagunitas and GMJ. (5) Includes 34,429 shares purchasable within 60 days of the date hereof upon exercise of an option to purchase Common Stock. (6) John W. Silagy and Deana K. Silagy are deemed to be beneficial owners of all shares of Common Stock owned by the Silagy Living Trust dated January 15, 1993. (7) Includes shares owned by Newport Potomac Partners, of which Kendall W. Everson, Jr. is also a general partner and in such capacity has shared voting and investment power with respect to shares of Common Stock owned thereby. As a result, Mr. Everson is deemed to be a beneficial owner of such Common Stock. (8) Charles J. Reed and Winifred M. Reed are deemed to be beneficial owners of all shares of Common Stock owned by the CS & WM Reed Trust dated 1986. (9) James P. Davis and Virginia D. Davis are deemed to be beneficial owners of all shares of Common Stock owned by the Davis Living Trust. (10) Joseph G. Silverberg and Audrey G. Silverberg are deemed to be beneficial owners of all the shares of Common Stock owned by the Silverberg Trust dated December 21, 1988. (11) Kendall W. Everson, Jr. is a general partner of Newport Potomac Partners and in such capacity has shared voting and investment power with respect to shares of Common Stock owned by Newport Potomac Partners and is deemed to be a beneficial owner of such Common Stock. Steven Wilcox is also a general partner of Newport Potomac Partners and in such capacity has shared voting and investment power with respect to shares of Common Stock owned by Newport Potomac Partners and is deemed to be a beneficial owner of such Common Stock. (12) Richard A. Miller and Beverly L. Miller are deemed to be beneficial owners of all the shares of Common Stock owned by the Miller Revocable Intervivos Trust dated November 29, 1990. (13) Includes 60,000 shares of Common Stock purchasable within 60 days of the date hereof upon exercise of an option to purchase Common Stock. See Note (3). 37 39 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par value. The following description of the Company's capital stock is qualified in all respects by reference to the Company's Amended and Restated Articles of Incorporation ("Articles of Incorporation"), which have been filed as an exhibit to the Registration Statement incorporating this Prospectus. COMMON STOCK The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may, from time to time, determine, subject to any preferences which may be granted to the holders of Preferred Stock. Holders of Common Stock are entitled to one vote per share on all matters on which the holders of Common Stock are entitled to vote and the holders of Common Stock may cumulate their votes in the election of directors upon giving notice as required by law. Cumulative voting means that in any election of directors, each shareholder may give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by such shareholder, or such shareholder may distribute such number of votes among as many candidates as the shareholder sees fit. The Common Stock is not entitled to preemptive rights and is not subject to redemption or conversion. Upon liquidation, dissolution or winding-up of the Company, the assets (if any) legally available for distribution to shareholders are distributable ratably among the holders of the Common Stock after payment of all debt and liabilities of the Company and the liquidation preference of any outstanding class or series of Preferred Stock. All outstanding shares of Common Stock are, and the shares of Common Stock to be issued pursuant to this offering will be, when issued and delivered, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to any series of Preferred Stock that the Company may issue in the future. PREFERRED STOCK Preferred Stock may be issued from time to time in one or more series, and the Board of Directors, without action by the holders of the Common Stock, may fix or alter the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation preferences, conversion rights and any other rights, preferences, privileges and restrictions of any wholly unissued series of Preferred Stock. The Board of Directors, without shareholder approval, can issue shares of Preferred Stock with rights that could adversely affect the rights of the holders of Common Stock. No shares of Preferred Stock presently are outstanding, and the Company has no present plans to issue any such shares. The issuance of shares of Preferred Stock could adversely affect the voting power of holders of Common Stock and could have the effect of delaying, deferring or preventing a change in control of the Company or other corporate action. WARRANTS FROM PRIVATE PLACEMENT In connection with an offering of securities in a private placement in November 1994 (the "Private Placement"), the Company issued 609,998 warrants (the "Warrants"). Holders of 595,713 Warrants exercised their Warrants by electing to convert their Warrants into 248,213 shares of Common Stock in the Company, effective upon the closing of the Company's initial public offering in September 1995. Warrants to purchase 3,571 shares of Common Stock remain outstanding and each outstanding Warrant entitles the holder to purchase one share of Common Stock at a price equal to $3.50 per share until November 30, 1997. On May 10, 1996, the Warrants were called by the Company for a price of $.01 per Warrant. A holder must either exercise his or her Warrant within 30 days of the notice of redemption or accept the redemption price. The shares of Common Stock underlying the Warrants, when issued upon exercise of the Warrants, will be fully paid and nonassessable, and the Company will pay any transfer tax incurred as a result of the issuance of shares of Common Stock to the holder upon exercise. The Warrants contain provisions that protect the holders against dilution by adjustment of the exercise price and the number of shares of Common Stock subject to the Warrants in certain events, such as stock dividends and distributions, stock splits, recapitalization, mergers or consolidations and certain issuances below the fair market value of the Common Stock. The 38 40 Company is not required to issue fractional shares upon the exercise of a Warrant. The holder of a Warrant will not possess any rights as a shareholder of the Company until such holder exercises the Warrant. OPTIONS In May 1993, the Company granted to Mr. Fanshaw options to purchase 71,429 shares of Common Stock at an exercise price of $1.00 per share (the "Fanshaw Options"). Mr. Fanshaw exercised 2,000 of the Fanshaw Options in September 1995 and 35,000 in May 1996. Mr. Fanshaw was also granted certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Fanshaw Options. See "Description of Capital Stock -- Registration Rights." 9% CONVERTIBLE PROMISSORY NOTES In September 1993, the Company privately sold $660,000 principal amount of 9% Convertible Promissory Notes due June 30, 1996 (the "Notes"). In November 1994, in connection with an offering of securities in the Private Placement, the Company converted $622,500 in principal amount ($572,648, net of original debt issue costs) of Notes into 177,857 shares of the Company's Common Stock and redeemed $12,500 in principal amount of Notes. As of the date of this offering, $25,000 in principal amount of Notes is outstanding. The Company does not have the right to prepay all or any part of the principal of the Notes. The Notes are convertible, in whole or in part, into shares of Common Stock at the rate of $3.50 per share. However, no fractional shares will be issued, as all fractional shares will be rounded down to the nearest whole number of shares with fractional shares, if any, to be paid a cash adjustment based upon the conversion price. The Company granted to the holders of Notes, subject to certain limitations, certain registration rights covering the Common Stock issuable upon conversion of the Notes. See "Description of Capital Stock -- Registration Rights." OTHER WARRANTS In connection with the September 1993 private placement of Notes, the Company issued to officers of the placement agent warrants to purchase (the "Note Placement Agent Warrants") an aggregate of 9,328 shares of Common Stock at a price of $4.25 per share. The Note Placement Agent Warrants are currently exercisable and expire in September 1999. The holders of the Note Placement Agent Warrants may elect to exercise the Note Placement Agent Warrants by having withheld from the number of shares issuable upon exercise of the Note Placement Agent Warrants that number of shares of Common Stock with an aggregate fair market value at the time of exercise equal to the aggregate exercise price. The exercise price and the number of shares of Common Stock issuable upon the exercise of the Note Placement Agent Warrants is subject to adjustment in the event of any stock dividend, stock split, recapitalization or similar transaction and upon the issuance of shares of Common Stock, or rights to acquire shares of Common Stock, at a price which is less than the exercise price then in effect, with certain exceptions. Holders of the Note Placement Agent Warrants also have been granted certain registration rights with respect to the shares of Common Stock issuable upon exercise. See "Description of Capital Stock -- Registration Rights." In November 1994, the Board of Directors of the Company authorized the issuance of 1,000,000 shares of Series A Redeemable Preferred Stock, 706,668 shares of which were issued to Karl Kantarjian in exchange for 706,668 shares of Common Stock held by Mr. Kantarjian. These shares were redeemed in September 1995. In consideration for exchanging his shares of Common Stock for Series A Redeemable Preferred Stock, Mr. Kantarjian received a warrant to purchase 10,000 shares of Common Stock at $6.25 per share. In connection with the 1994 Private Placement, the Company issued to officers of the placement agent warrants to purchase (the "Unit Placement Agent Warrants") an aggregate of 85,714 shares of Common Stock, which effective as of the closing of the initial public offering were converted into 35,714 shares of Common Stock as a result of having withheld from the number of shares issuable upon exercise of the Unit Placement Agent Warrants that number of shares of Common Stock (at an agreed price of $6.00 per share) equal to the aggregate exercise price of $3.50 per share. Holders of the Unit Placement Agent Warrants have 39 41 been granted certain registration rights with respect to the shares of Common Stock which were issued upon exercise. See "Description of Capital Stock -- Registration Rights." IPO WARRANTS In connection with the Company's initial public offering, the Company agreed to sell to the Representative and its co-manager warrants to purchase up to 125,000 shares of Common Stock at an exercise price per share equal to $7.50 (the "IPO Warrants"). The IPO Warrants, which are not transferable (other than to officers or partners of the Representative or its co-manager), are exercisable beginning September 20, 1996 until September 20, 2000. See "Underwriting." REPRESENTATIVE'S WARRANTS The Company has agreed to sell to the Representative warrants to purchase up to 52,500 shares of Common Stock at an exercise price per share equal to 120% of the public offering price (the "Representative's Warrants"). The Representative's Warrants which are not transferable (other than to officers or partners of the Representative), are exercisable for a period of four years beginning one year from the date of this Prospectus. See "Underwriting." REGISTRATION RIGHTS The Company has granted to the holder of the Notes, subject to certain limitations, the right to require the Company to file one registration statement covering the Common Stock issuable upon conversion of the Notes at any time commencing December 15, 1995. The Company has granted to the holders of the Common Stock underlying the Warrants, subject to certain limitations, the right to require the Company to file a registration statement covering such Common Stock, commencing March 15, 1996. In addition, the Company has agreed to use its best efforts to register such shares of Common Stock on Form S-3 under the Securities Act, and in addition to register the shares if the Company proposes to register stock or securities in connection with certain underwritten public offerings of its securities, subject to certain limitations. In connection with the Private Placement, the Company granted to the holders of Common Stock certain rights to register the shares if the Company proposes to register stock or securities in connection with certain underwritten public offerings of its securities, subject to certain limitations. Any such shares of Common Stock not sold in this offering will continue to have registration rights, subject to certain limitations. The Company has agreed to use its best efforts to register the shares of Common Stock issuable to Mr. Fanshaw upon exercise of the Fanshaw Options. The Company has granted to the holders of the Note Placement Agent Warrants certain rights with respect to the registration under the Securities Act of the 9,328 shares of Common Stock issuable upon exercise of the Note Placement Agent Warrants (the "Note Placement Agent Shares"). The holders of the Note Placement Agent Warrants can require the Company, subject to certain limitations, to file a registration statement covering the Note Placement Agent Shares at any time commencing March 15, 1996 and can request, on up to three occasions, that the Note Placement Agent Shares be sold by means of an underwritten public offering. In addition, the Company has agreed to use its best efforts to register such shares on Form S-3 under the Securities Act and the holders of the Note Placement Agent Warrants can require the Company, subject to certain limitations, to include all or any portion of the 9,328 Note Placement Agent Shares in any registration statement. The Unit Placement Agent Warrants provide certain rights with respect to the registration under the Securities Act of the shares of Common Stock issuable upon exercise thereof. If the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of such shares are entitled to include their shares of Common Stock in the registration. Effective as of the closing of 40 42 the Company's initial public offering, the Unit Placement Agent Warrants were converted into 35,714 shares of Common Stock. The Company has agreed to register the shares of Common Stock issued to a former employee in February 1996 in the event that the Company undertakes a public offering of its Common Stock and has included such shares in this offering. The IPO Warrants provide certain rights with respect to the registration under the Securities Act of up to 125,000 shares of Common Stock issuable upon exercise thereof. The holders of the shares issuable upon exercise of the IPO Warrants may require the Company to file a registration statement under the Securities Act with respect to such shares. In addition, if the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of the shares issuable upon exercise of the IPO Warrants are entitled to include their shares of Common Stock in the registration. The Representative's Warrants provide certain rights with respect to the registration under the Securities Act of up to 52,500 shares of Common Stock issuable upon exercise thereof at 120% of the per share price to the public. The holders of the shares issuable upon exercise of the Representative's Warrants may require the Company to file a registration statement under the Securities Act with respect to such shares. In addition, if the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of the shares issuable upon exercise of the Representative's Warrants are entitled to include their shares of stock in the registration. The Company generally is required to bear all costs incurred in connection with any such registrations, other then underwriting discounts and commissions. The foregoing registration rights could result in substantial future expense to the Company and could adversely affect any future equity or debt offerings of the Company. CERTAIN CHARTER PROVISIONS The Company's Articles of Incorporation provide that, to the fullest extent permitted by California law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company or its shareholders. This provision in the Articles of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of nonmonetary relief would remain available under California law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company, for acts or omissions involving intentional misconduct or knowing and culpable violations of law, for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director, for any transaction from which the director derived an improper personal benefit, for acts or omissions involving a reckless disregard for the director's duty to the Company or its shareholders when the director was aware or should have been aware of a risk of serious injury to the Company or its shareholders, for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders, for improper transactions between the director and the Company, for improper distributions to shareholders and loans to directors and officers or for acts or omissions by the director acting in his or her capacity as an officer of the Company. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. TRANSFER AGENT, REGISTRAR AND WARRANT AGENT The stock transfer agent, registrar and warrant agent for the Common Stock and Warrants is U.S. Stock Transfer Corporation, Glendale, California. 41 43 UNDERWRITING The Underwriters named below, for whom Cruttenden Roth Incorporated is acting as representative (the "Representative"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the form of which has been filed as an exhibit to the Registration Statement), to purchase from the Company the respective number of shares of Common Stock set forth opposite their names in the table below. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters shall be obligated to purchase all of the Common Stock offered hereby (other than the Common Stock covered by the over-allotment option described below) if any are purchased. NUMBER OF NAME SHARES ------------------------------------------------------------------ --------- Cruttenden Roth Incorporated...................................... Total........................................................... ======== The Company has been advised by the Representative that the Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the public offering, the public offering price and such concessions may be changed. The Representative has informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The offering of the shares of Common Stock is made for delivery when, as if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The Underwriters reserve the right to reject any order for the purchase of the shares. The Company has granted an option to the Underwriters, exercisable during the 45-day period after the date of this Prospectus, to purchase up to an aggregate of 129,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriters may exercise such option only for the purpose of covering over-allotments made in connection with the sale of the Common Stock offered hereby. To the extent that the Underwriters exercise such option, each Underwriter may be committed, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such Underwriter's initial commitment pursuant to the Underwriting Agreement. The Company has agreed to indemnify the Underwriters against certain liabilities in connection with the Registration Statement, including liabilities under the Securities Act. The Company has agreed to pay the Representative a non-accountable expense allowance of 1.5% of the aggregate offering price of the Common Stock offered hereby (including any Common Stock purchased pursuant to the Underwriters' over-allotment option), of which $10,000 has been paid to date. The Representative's expenses in excess of the nonaccountable expense allowance, including their legal expenses, will be borne by the Representative. The Company has also agreed to sell to the Representative for nominal consideration the Representative's Warrants pursuant to which the Representative may purchase up to 52,500 shares of Common Stock at a price of 120% of the public offering price. The Representative's Warrants will be exercisable commencing one year after the date hereof for a period of four years thereafter. The Representative's Warrants cannot be transferred, assigned or hypothecated for one year from the date of their issuance, except that they may be assigned, in whole or in part, to any successor, officer or partner of the Representative or their partners or members of the underwriting group. The Representative's Warrants will contain certain registration rights and antidilution provisions providing for appropriate adjustment of the exercise price and number of shares which may be purchased upon exercise upon the occurrence of certain events. Pursuant to the Underwriting Agreement, Boyd and Diane Coddington, who will own after this offering an aggregate of 656,942 shares of the Company's Common Stock, are subject to lock-up arrangements for a 42 44 period of twelve months from the date of this Prospectus (but collectively may sell or otherwise dispose of up to 15,000 shares of Common Stock per quarter after the date of this Prospectus). In November 1994, the Company raised $1,512,500 and converted $622,500 in Notes in a private placement of units consisting of one share of Common Stock and a Warrant to purchase one share of Common Stock at a price of $3.50 per share. The Representative acted as placement agent for such private placement and was paid an aggregate commission of $185,800. In addition, in connection with such private placement, the Representative received Unit Placement Agent Warrants to purchase an aggregate of 85,714 shares of Common Stock at $3.50 per share which were converted into 35,714 shares of Common Stock effective upon the closing of the Company's initial public offering. The Company has also granted certain registration rights with respect to the shares of Common Stock. In September 1995, the Company agreed to sell to the Representative and its co-manager the IPO Warrants, pursuant to which the Representative and its co-manager may purchase up to 125,000 shares of Common Stock at an exercise price of $7.50 per share. The IPO Warrants, which are not transferrable (other than to officers or partners of the Representative or its co-manager) are exercisable commencing September 20, 1996 and for a period of four years thereafter. The rules of the Commission generally prohibit the Underwriters and other members of the selling group from making a market in the Company's Common Stock during the "cooling off" period immediately preceding the commencement of sales in the offering. The Commission has, however, adopted an exemption from these rules that permits passive market making under certain conditions. These rules permit an Underwriter or other member of the selling group to continue to make a market in the Company's Common Stock subject to the conditions, among others, that its bid not exceed the highest bid by a market maker not connected with the offering and that its net purchases on any one trading day not exceed prescribed limits. Pursuant to those exemptions, certain Underwriters and other members of the selling group intend to engage in passive market making in the Company's Common Stock during the cooling off period. The foregoing sets forth the material terms and conditions of the Underwriting Agreement, but does not purport to be a complete statement of the terms and conditions thereof, copies of which are on file at the offices of the Representative, the Company and the Securities and Exchange Commission, Washington, D.C. See "Additional Information." LEGAL MATTERS The validity of the issuance of the Common Stock offered hereby will be passed upon for the Company by Rutan & Tucker LLP, Costa Mesa, California. Certain legal matters will be passed upon for the Underwriters by Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California. EXPERTS The balance sheets as of December 31, 1994 and 1995 and the statements of income, shareholders' equity and cash flows for the years ended December 31, 1993, 1994 and 1995 included in this Prospectus have been so included in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act with respect to the securities being offered pursuant to this Prospectus. This Prospectus does not contain all information set forth in the Registration Statement and exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. The Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 25049 and at the regional office 43 45 of the Commission located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such material can be obtained at prescribed rates from the Public Reference Room of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549. Statements contained in this Prospectus concerning the provisions of any documents are not necessarily complete and in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company is subject to the reporting and other informational requirements of the Exchange Act and, in accordance therewith, files reports and other information with the Commission. Such reports, proxy statements and other information filed by the Company, including the Registration Statement and exhibits thereto, may be inspected and copied at the public reference facilities maintained by the Commission at the offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, 7 World Trade Center, New York, New York 10048 and 5670 Wilshire Boulevard, Los Angeles, California 90036-3648. Copies of such materials can also be obtained by written request to the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is quoted on the Nasdaq National Market (symbol: BYDS). Reports and other information concerning the Company may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. 44 46 INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Independent Accountants...................................................... F-2 Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996 (unaudited)......... F-3 Statements of Income For the Years Ended December 31, 1993, 1994 and 1995 and for the F-4 Three Months Ended March 31, 1995(unaudited) and for the Three Months Ended March 31, 1996 (unaudited)..................................................................... Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 F-5 and for the Three Months Ended March 31, 1996 (unaudited)............................ Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for F-6 the Three Months Ended March 31, 1995 (unaudited) and for the Three Months Ended March 31, 1996 (unaudited)........................................................... Notes to Financial Statements.......................................................... F-8 F-1 47 REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors Boyds Wheels, Inc. We have audited the accompanying balance sheets of Boyds Wheels, Inc. as of December 31, 1994 and 1995, and the related statements of income, shareholders' equity and cash flows for the years ended December 31, 1993, 1994 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boyds Wheels, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1993, 1994 and 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Newport Beach, California March 14, 1996 F-2 48 BOYDS WHEELS, INC. BALANCE SHEETS MARCH 31, 1996 DECEMBER 31, DECEMBER 31, ----------- 1994 1995 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................... $ 144,595 $ 1,039,552 $ 554,606 Accounts receivable, net............................ 437,616 1,287,275 1,375,453 Inventories, net.................................... 1,540,753 3,643,512 4,667,007 Due from affiliate.................................. 100,000 100,000 100,000 Prepaids and other current assets................... 264,536 593,642 753,566 Deferred income taxes............................... 49,304 156,946 156,946 ------------ ------------ ----------- Total current assets............................. 2,536,804 6,820,927 7,607,578 Due from affiliate.................................... 178,841 72,684 58,142 Property and equipment, net........................... 3,137,142 4,689,372 4,977,752 Covenants not to compete, net......................... -- 150,000 172,085 Other assets.......................................... 292,317 49,034 46,627 Deferred tax asset.................................... 180,779 -- -- ------------ ------------ ----------- Total assets................................ $6,325,883 $ 11,782,017 $12,862,184 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $1,200,137 $ 2,449,674 $ 2,695,326 Accrued liabilities................................. 588,458 1,458,980 988,749 Revolving credit agreements......................... -- 289,554 550,000 Current maturities of long-term debt................ 860,366 343,413 494,932 Due to affiliate.................................... 37,752 35,769 29,170 Due to majority shareholder......................... 25,545 -- -- Income taxes payable................................ -- 130,689 203,521 ------------ ------------ ----------- Total current liabilities........................ 2,712,258 4,708,079 4,961,698 Long-term debt........................................ 1,328,221 902,754 1,326,072 Other long-term liabilities........................... 223,534 79,757 72,979 Deferred income taxes................................. -- 235,179 235,179 ------------ ------------ ----------- Total liabilities........................... 4,264,013 5,925,769 6,595,928 ------------ ------------ ----------- Commitments and contingencies Preferred stock, no par value; 5,000,000 shares authorized: Series A redeemable preferred stock, noncumulative, $1.7688 per share liquidation value, 1,000,000 shares authorized, 706,668 shares issued and outstanding at December 31, 1994.................... 181,371 -- -- ------------ ------------ ----------- Shareholders' equity: Common stock, no par value; 25,000,000 shares authorized, 1,316,666, 2,484,593 and 2,489,856 shares issued and outstanding, respectively...... 1,860,457 5,957,207 6,007,207 Contributed capital................................... 826,511 826,511 826,511 Accumulated deficit................................... (806,469) (927,470) (567,462) ------------ ------------ ----------- Total shareholders' equity....................... 1,880,499 5,856,248 6,266,256 ------------ ------------ ----------- Total liabilities and shareholders' equity.................................... $6,325,883 $ 11,782,017 $12,862,184 ========== ========== ========== The accompanying notes are an integral part of these financial statements. F-3 49 BOYDS WHEELS, INC. STATEMENTS OF INCOME YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------- ------------------------ 1993 1994 1995 1995 1996 ------------- ----------- ----------- ---------- ---------- (UNAUDITED) Net sales......................... $ 10,187,984 $12,127,208 $17,796,110 $3,659,669 $5,334,074 Cost of goods sold................ 8,523,504 9,336,026 13,262,522 2,781,721 3,976,019 ----------- ----------- ----------- ---------- ---------- Gross margin................. 1,664,480 2,791,182 4,533,588 877,948 1,358,055 Selling, general and administrative expenses......... 1,230,059 1,647,793 2,741,332 464,932 714,142 ----------- ----------- ----------- ---------- ---------- Income from operations....... 434,421 1,143,389 1,792,256 413,016 643,913 Interest and other expenses, net............................. 422,798 694,931 382,859 142,392 47,873 ----------- ----------- ----------- ---------- ---------- Income before provision (benefit) for income taxes...................... 11,623 448,458 1,409,397 270,624 596,040 Provision (benefit) for income taxes........................... 1,600 (226,783) 461,769 111,074 236,032 ----------- ----------- ----------- ---------- ---------- Net income.............. $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008 =========== =========== =========== ========== ========== Net income per common share and common equivalent share before accretion of Series A redeemable preferred stock................. $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14 =========== =========== =========== ========== ========== Accretion of Series A redeemable preferred stock: Net income, as above............ $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008 Adjustment for accretion of Series A redeemable preferred stock........................ -- (180,371) (1,068,629) (313,840) -- ----------- ----------- ----------- ---------- ---------- Net income (loss) applicable to common shareholders.......... $ 10,023 $ 494,870 $ (121,001) $ (154,290) $ 360,008 =========== =========== =========== ========== ========== Net income per share, as above.... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14 Adjustment for accretion of Series A redeemable preferred stock.... -- (0.11) (0.55) (0.18) -- ----------- ----------- ----------- ---------- ---------- Net income (loss) per common share and common equivalent share..... $ -- $ 0.29 $ (0.07) $ (0.09) $ 0.14 =========== =========== =========== ========== ========== Weighted average common shares and common equivalent shares outstanding..................... 1,671,000 1,701,000 1,960,000 1,697,000 2,655,000 =========== =========== =========== ========== ========== The accompanying notes are an integral part of these financial statements. F-4 50 BOYDS WHEELS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY COMMON STOCK ---------------------- CONTRIBUTED ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ---------- ----------- ----------- ----------- Balances at December 31, 1992............ 1,413,336 $ 2,000 $ 798,225 $(1,311,362) $ (511,137) Cash contributions....................... -- -- 142,870 -- 142,870 Noncash contributions.................... -- -- 54,017 -- 54,017 Cash distributions....................... -- -- (157,420) -- (157,420) Noncash distributions.................... -- -- (11,181) -- (11,181) Net income............................... -- -- -- 10,023 10,023 --------- ---------- -------- ---------- --------- Balances at December 31, 1993............ 1,413,336 2,000 826,511 (1,301,339) (472,828) Conversion of common stock to Series A redeemable preferred stock.......... (706,668) (1,000) -- -- (1,000) Issuance of common stock for cash (net of costs of $225,695)............... 432,141 1,286,809 -- -- 1,286,809 Conversion of notes payable into common stock (net of debt issuance costs of $49,852)............................ 177,857 572,648 -- -- 572,648 Accretion of Series A redeemable preferred stock..................... -- -- -- (180,371) (180,371) Net income............................. -- -- -- 675,241 675,241 --------- ---------- -------- ---------- --------- Balances at December 31, 1994............ 1,316,666 1,860,457 826,511 (806,469) 1,880,499 Accretion of Series A redeemable preferred stock..................... -- -- -- (1,068,629) (1,068,629) Issuance of common stock for cash (net of costs of $1,417,875)............. 850,000 3,894,625 -- -- 3,894,625 Issuance of common stock upon conversion of warrants.............. 315,927 200,000 -- -- 200,000 Issuance of common stock warrants for cash................................ -- 125 -- -- 125 Common stock options exercised......... 2,000 2,000 -- -- 2,000 Net income............................. -- -- -- 947,628 947,628 --------- ---------- -------- ---------- --------- Balances at December 31, 1995............ 2,484,593 5,957,207 826,511 (927,470) 5,856,248 Issuance of common stock in connection with employment contract settlement (unaudited)......................... 5,263 50,000 -- -- 50,000 Net income (unaudited)................. -- -- -- 360,008 360,008 --------- ---------- -------- ---------- --------- Balances at March 31, 1996 (unaudited)... 2,489,856 $6,007,207 $ 826,511 $ (567,462) $ 6,266,256 ========= ========== ======== ========== ========= The accompanying notes are an integral part of these financial statements. F-5 51 BOYDS WHEELS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------- -------------------------- 1993 1994 1995 1995 1996 ------------- ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net income.................................... $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization............... 403,466 533,798 581,527 125,665 185,392 Loss (gain) on disposal of property and equipment................................. 48,982 2,413 (5,171) -- 8,160 Bad debt expense............................ 34,352 75,577 2,540 -- 20,000 Reserve for inventory obsolescence.......... -- -- -- -- 20,000 Deferred income taxes....................... -- (230,083) 308,316 111,074 -- Increase in accounts receivable............. (115,620) (94,807) (852,199) (578,522) (100,302) (Increase) decrease in inventories.......... 288,490 (801,984) (2,051,561) (841,157) (1,011,907) Increase in prepaids and other assets....... (226,206) (128,022) (147,468) (77,440) (157,217) Increase (decrease) in accounts payable..... (72,366) 385,095 726,637 906,223 242,935 Increase (decrease) in accrued liabilities............................... 190,807 67,082 568,383 (277,296) (494,671) Increase in income taxes payable............ -- -- 130,689 -- 72,832 Increase (decrease) in other long-term liabilities............................... 18,581 29,324 56,223 32,965 (6,778) --------- ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities........................... 580,509 513,634 265,544 (438,938) (861,548) --------- ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchase of property and equipment............ (481,458) (493,758) (1,275,564) (178,773) (442,049) Proceeds from the sale of property and equipment................................... 19,824 2,000 700 -- 2,400 Deposits on leased equipment.................. -- (10,000) (20,000) -- -- Decrease (increase) in due to (from) affiliates.................................. (261,537) 24,584 (41,024) 24,114 7,943 Payments on covenants not to compete.......... -- -- -- -- (24,585) Cash acquired in acquisition.................. -- -- -- -- 37,693 --------- ----------- ----------- ----------- ----------- Net cash used by investing activities........... (723,171) (477,174) (1,335,888) (154,659) (418,598) --------- ----------- ----------- ----------- ----------- Cash flows from financing activities: Decrease in book overdraft.................... (25,155) (125,398) -- -- -- Increase (decrease) in revolving purchasing agreement................................... 288,794 (5,024) -- -- -- Increase (decrease) in due to majority shareholder................................. (85,300) 37,168 (25,545) (20,641) -- Borrowings on revolving line of credit........ -- -- 862,105 550,000 550,000 Payments on revolving line of credit.......... -- -- (862,105) -- -- Proceeds from issuance of long-term debt...... 850,000 -- 1,192,686 1,111,782 332,407 Principal repayments of long-term debt........ (871,127) (1,085,420) (2,183,609) (1,187,347) (87,207) Proceeds from sale of common stock............ -- 1,512,504 5,312,500 -- -- Cost of equity issuances...................... -- (225,695) (1,083,156) -- -- Proceeds from issuance of common stock warrants.................................... -- -- 125 -- -- Proceeds from exercise of common stock options..................................... -- -- 2,000 -- -- Redemption of Series A redeemable preferred stock....................................... -- -- (1,250,000) -- -- Cash contributions............................ 142,870 -- -- -- -- Cash distributions............................ (157,420) -- -- -- -- --------- ----------- ----------- ----------- ----------- Net cash provided by financing activities... 142,662 108,135 1,965,301 453,794 795,200 --------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents................................. -- 144,595 894,957 (139,803) (484,946) Cash and cash equivalents at beginning of period........................................ -- -- 144,595 144,595 1,039,552 --------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period...... $ -- $ 144,595 $ 1,039,552 $ 4,792 $ 554,606 ========= =========== =========== =========== =========== F-6 52 BOYDS WHEELS, INC. STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------- -------------------------- 1993 1994 1995 1995 1996 ------------- ----------- ----------- ----------- ----------- (UNAUDITED) Cash paid during the year for: Income taxes.................................. $ 4,954 $ 800 $ 1,600 $ 800 $ 163,200 ============ ============ ============ ============ ============ Interest...................................... $ 341,307 $ 686,432 $ 372,492 $ 47,998 $ 142,956 ============ ============ ============ ============ ============ Supplemental schedule of noncash investing and financing activities: Equipment leases capitalized.................. $ 390,343 $ 169,471 $ 77,578 $ 53,875 $ 40,084 Equipment financed with a contract payable.... -- 88,463 372,900 -- -- Equipment financed with long-term debt........ -- 13,521 -- -- -- Equipment financed with equipment line of credit...................................... -- -- 289,554 -- -- Interest capitalized to construction in progress.................................... -- -- 15,000 -- -- Accounts payable paid by the majority shareholder on behalf of the Company........ 76,347 74,298 -- -- -- Revolving purchasing agreement converted to long-term debt.............................. -- 979,641 -- -- -- Collections on accounts receivable retained by the majority shareholder.................... 10,949 -- -- -- -- Cash proceeds from sale of fixed assets retained by the majority shareholder........ 10,176 40,000 -- -- -- Borrowings on revolving line of credit converted to long-term debt................. 250,000 -- -- -- -- Noncash reductions of due from affiliate...... -- 99,219 145,198 30,605 14,542 Exchange of common stock for Series A redeemable preferred stock.................. -- 1,000 -- -- -- Accretion of Series A redeemable preferred stock....................................... -- 180,371 1,068,629 313,840 -- Conversion of notes payable into common stock....................................... -- 622,500 -- -- -- Costs of 1995 equity issuances not paid in 1995........................................ -- -- 128,939 -- -- Debt issuance costs of notes payable converted into common stock........................... -- 49,852 -- -- -- Costs of 1995 equity issuances deferred in 1994........................................ -- 205,780 -- -- Deposits on leased equipment made by majority shareholder on behalf of the Company........ -- 71,929 -- -- -- Common stock warrants converted to common stock....................................... -- -- 200,000 -- -- Prior year deposits transferred to fixed assets...................................... -- -- 70,690 -- -- Covenant not to compete liability included in accounts payable (Note 18).................. -- -- 150,000 -- -- Cancellation of note payable to former employee (Note 18).......................... -- -- 29,375 -- -- Common stock issued in settlement of employment contract (Note 18)............... -- -- -- -- 50,000 The accompanying notes are an integral part of these financial statements. F-7 53 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS 1. THE COMPANY Boyds Wheels, Inc. (the "Company") was incorporated in California in May 1988. The Company designs, manufactures and markets high quality aluminum wheels for the specialty automotive aftermarket. In addition to its premium aluminum wheels, the Company designs, manufactures and markets motorcycle wheels, steering wheels for automobiles, automotive and motorcycle billet aluminum accessories and also sells car care products under its own label. The Company's products utilize machined aluminum materials and unique designs which the Company believes enhance individuality of vehicle styling. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets, and internationally through foreign distribution channels. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash And Cash Equivalents Cash and cash equivalents include cash and highly liquid investments with acquired maturities of three months or less. Cash and cash equivalents are carried at cost, which approximates market. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Property And Equipment Property and equipment is stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, ranging generally from 5 to 10 years. Capital leases are recorded at the lower of the fair market value of the leased assets or the present value of the future minimum lease payments. The leased assets are depreciated on a straight-line basis over their economic useful lives. Upon sale or disposition of assets, any gain or loss is included in the statement of income. Normal repairs and maintenance are expensed as incurred whereas significant improvements which materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets. Covenants Not To Compete The covenants not to compete are stated at cost and will be amortized using the straight-line basis over the five-year lives of the agreements (Note 18). Income Taxes The Company follows Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax bases of assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. Stock Options In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value based method of accounting for an employee F-8 54 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) stock option. Fair value of the stock option is determined considering factors such as the exercise price, the expected life of the option, the current price of the underlying stock and its volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the option. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. A company may elect to adopt SFAS No. 123 or elect to continue accounting for its stock option or similar equity awards using the intrinsic method, where compensation cost is measured at the date of grant based on the excess of the market value of the underlying stock over the exercise price. If a company elects not to adopt SFAS No. 123, then it must provide pro forma disclosure of net income and earnings per share, as if the fair value based method had been applied. SFAS No. 123 is effective for transactions entered into for fiscal years that begin after December 15, 1995. Pro forma disclosures for entities that elect to continue to measure compensation cost under the old method must include the effects of all awards granted in fiscal years that begin after December 15, 1994. It is currently anticipated that the Company will continue to account for stock-based compensation plans under the intrinsic method and the impact of SFAS No. 123 has not yet been determined. Revenue Recognition Sales and related costs of goods sold are recognized when goods are shipped to customers. Provisions are recorded for estimated sales returns and allowances. Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Data The interim financial data as of March 31, 1996 and for the three months ended March 31, 1995 and 1996 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results for the interim periods. 3. INITIAL PUBLIC OFFERING In September 1995, the Company completed an initial public offering (the "Offering") of 850,000 shares of its common stock at $6.25 per share (the "Offering Price") for proceeds, net of offering expenses of $1,417,875, of $3,894,625. Of such amount, $1,250,000 was used to redeem all of the outstanding shares of the Company's Series A redeemable preferred stock (Note 11), $580,000 was used to repay outstanding indebtedness (Note 7) and approximately $862,000 was used to repay amounts outstanding under the revolving line of credit (Note 8). In addition, the following events occurred concurrent with the closing of the Offering: (a) 681,427 warrants were converted into 283,927 shares of the Company's common stock (Note 10); (b) $200,000 of warrants were converted to 32,000 shares of the Company's common stock (Note 7); and (c) stock options were exercised for 2,000 shares of the Company's common stock (Note 10). In September 1995, the underwriters of the Offering exercised their option to purchase warrants to acquire 125,000 shares of common stock for cash proceeds of $125 (Note 10). F-9 55 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. ACCOUNTS RECEIVABLE In 1994, the Company had a factoring agreement on a full recourse basis. The Company's obligations to the factor were collateralized by all of the Company's assets and were personally guaranteed by the majority shareholder. As of December 31, 1994, the Company had assigned a total of $6,317,602 in gross accounts receivable to the factor and had received a total of $6,223,983 in cash against those receivables, which resulted in an amount due from the factor of $93,619. In March 1995, the Company terminated the factoring agreement and as a result all outstanding uncollected invoices were repurchased and all asset liens and personal guarantees were released. The allowance for doubtful accounts was $73,893, $3,630 and $23,630 as of December 31, 1994 and 1995, and March 31, 1996, respectively. 5. INVENTORIES Inventories consist of the following: DECEMBER 31, ------------------------ MARCH 31, 1994 1995 1996 ---------- ---------- ----------- (UNAUDITED) Raw materials.................................... $ 410,410 $ 921,819 $ 821,642 Work in process.................................. 624,460 1,805,882 3,043,871 Finished goods................................... 505,883 915,811 801,494 --------- $1,540,753 $3,643,512 $ 4,667,007 ========= 6. PROPERTY AND EQUIPMENT Property and equipment consist of the following: DECEMBER 31, ------------------------- MARCH 31, 1994 1995 1996 ----------- ----------- ----------- (UNAUDITED) Machinery and equipment......................... $ 4,390,410 $ 5,573,267 $ 5,792,407 Office equipment................................ 132,640 262,893 284,980 Leasehold improvements.......................... 96,341 550,432 636,847 Vehicles........................................ 138,957 133,198 133,198 Construction in progress........................ -- 313,872 447,266 ---------- 4,758,348 6,833,662 7,294,698 Less, accumulated depreciation and amortization............................... (1,621,206) (2,144,290) (2,316,946) ---------- $ 3,137,142 $ 4,689,372 $ 4,977,752 ========== Machinery and equipment under capital leases at December 31, 1994 and 1995 were $2,982,726 and $3,227,235, respectively, with accumulated amortization of $1,204,665 and $1,544,661, respectively. Construction in progress at December 31, 1995 includes approximately $15,000 of capitalized interest. F-10 56 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. REVOLVING PURCHASE AGREEMENT In prior years, the Company had a revolving purchase agreement with a major vendor. Under this agreement, the Company could purchase up to $1,000,000 of rims at the prevailing market price. Interest accrued on outstanding balances greater than 60 days at the rate of one percent per month and was payable monthly. On December 30, 1994, the Company restructured the then outstanding balance under this agreement into a note payable of $979,641 and made an immediate payment of $200,000. Interest accrued on the outstanding balance at a rate of one percent per month and was paid monthly. In August 1995, a principal payment of $200,000 was made. With the proceeds from the Offering, all remaining amounts outstanding under this agreement, approximately $580,000, were paid in full. In May 1992 and as amended in March 1993, the Company issued to the vendor a warrant to purchase, at a price of $.01 per share, shares of the Company's common stock with an aggregate fair market value of $200,000 to be determined at the time of exercise. Concurrent with the Offering, the warrant was converted into 32,000 shares of the Company's common stock. 8. REVOLVING CREDIT AGREEMENTS Revolving Line Of Credit At December 31, 1995, the Company had no outstanding balance due under a revolving line of credit agreement with a bank. During the year ended December 31, 1995, the Company drew advances of, and repaid amounts owed on, approximately $862,000 on the revolving line of credit. The revolving line of credit agreement provides for maximum borrowings of up to $2,000,000, or 80% of eligible accounts receivable plus 40% of eligible inventory, as defined, and bears interest at 1.0% over the Wall Street Journal's published prime rate (an effective rate of 9.75% at December 31, 1995), and expires on May 1, 1996, unless renewed. Unaudited: At March 31, 1996, the Company had $550,000 outstanding under the revolving line of credit. On April 19, 1996, the Company renewed its revolving line of credit on the same terms as described above, with maximum borrowings increased to $2,500,000. Equipment Line Of Credit At December 31, 1995, the Company had $289,554 outstanding under an equipment line of credit agreement with a bank. The equipment line of credit agreement provides for maximum borrowings of up to $750,000 and bears interest at 1.75% over the Wall Street Journal's published prime rate (an effective rate of 10.5% at December 31, 1995). The equipment line of credit expires on May 1, 1996 and it contains a provision to refinance all then outstanding amounts over a 60-month period, under certain conditions. The above credit agreements are collateralized by substantially all the assets of the Company and require the Company to maintain certain financial ratios. Unaudited: At March 31, 1996, the Company had $599,874 outstanding under the equipment line of credit. On April 19, 1996, the Company refinanced the then outstanding balance on the equipment line of credit of $599,874 into a 60-month term loan, payable in equal monthly installments bearing interest at 1.75% over the Wall Street Journal's published prime rate (an effective rate of 10.0% at April 19, 1996). Such terms have been reflected in the accompanying March 31, 1996 balance sheet. Also on April 19, 1996, the Company renewed its equipment line of credit and increased the maximum borrowings to $1,000,000. This renewed equipment line of credit bears interest at 1.5% over the Wall Street Journal's published prime rate (an effective rate of 9.75% at April 19, 1996). F-11 57 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, ----------------------- MARCH 31, 1994 1995 1996 ---------- ---------- ----------- (UNAUDITED) Convertible notes payable, unsecured, remaining balance due June 30, 1996, and otherwise convertible into the Company's common stock at the rate of one share per $3.50 of unpaid principal, interest payable semiannually at 9.0%............................................. $ 25,000 $ 25,000 $ 25,000 Note payable to the City of Stanton, unsecured, balance due April 25, 2000, interest at 9.5% per annum............................................ -- 43,539 33,482 Note payable to a former employee, unsecured, settled in 1995 (Note 18)........................ 29,375 -- -- Note payable to a vendor, all amounts were paid during 1995 (Note 7)............................. 779,641 -- -- Notes payable with a finance company with various maturity dates ranging from December 1997 to February 1999, collateralized by automobiles, principal and interest due in monthly installments ranging from $221 to $483 at interest rates ranging from 4.8% to 8.9% per annum............................................ 11,835 31,385 24,278 Term loan with a bank, collateralized by equipment, payable in equal monthly installments through April 19, 2001, bearing interest at 1.75% over the Wall Street Journal's published prime rate (an effective rate of 10.0% at April 19, 1996)... -- -- 599,874 Capital lease obligations for equipment, due in monthly installments ranging from $191 to $29,854 through January 1999 at interest rates ranging from 10.5% to 15.0% per annum.................... 1,342,736 1,146,243 1,138,370 ---------- ---------- ---------- 2,188,587 1,246,167 1,821,004 Less, current maturities........................... (860,366) (343,413) (494,932) ---------- ---------- ---------- $1,328,221 $ 902,754 $ 1,326,072 ========== ========== ========== The future principal payments at December 31, 1995 on long-term debt are scheduled as follows: YEARS ENDING DECEMBER 31, - --------------------------------------------------------------- 1996......................................................... $ 343,413 1997......................................................... 309,411 1998......................................................... 530,242 1999......................................................... 18,556 2000......................................................... 44,545 ---------- $1,246,167 ========== 10. COMMON STOCK AND COMMON STOCK WARRANTS In October 1994, the Company's Board of Directors declared a 1-for-1.4151 reverse stock split on the then outstanding common stock and preferred stock. All share and per share amounts have been adjusted to give retroactive effect to the common and preferred shares outstanding resulting from the reverse stock split. F-12 58 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) In November 1994, the Company issued 432,141 units for cash of $3.50 per unit in a private offering. Net proceeds from this private offering were $1,286,809. The Company also converted $622,500 ($572,648, net of original debt issue costs) of its convertible notes payable into 177,857 units. Each of the 609,998 units issued above included one share of common stock and one warrant to purchase one share of the Company's common stock at the lesser of $3.50 or 58 1/3% of the share price in the event of an initial public offering of the Company's common stock. Concurrent with the Offering, 595,713 of the above-mentioned warrants were converted into 248,213 shares of the Company's common stock. The remaining 14,285 warrants are exercisable at their original terms through November 1997. Unaudited: In May 1996, 10,714 warrants were exercised for cash proceeds of $37,499. In November 1994, the Company issued warrants to the underwriter of the private stock offering to purchase up to 85,714 shares of the Company's common stock at the lesser of $3.50 or 58 1/3% of the share price in the event of an initial public offering of the Company's common stock. Concurrent with the Offering, all 85,714 warrants were converted into 35,714 shares of the Company's common stock. In May 1993, the Company issued its then President an option to purchase up to 71,429 shares of the Company's common stock at an exercise price of $1.00 per share. The option expires in December 1999. Concurrent with the Offering, options to acquire 2,000 shares of common stock were exercised for cash proceeds of $2,000. Unaudited: In May 1996, options to acquire 35,000 shares of common stock were exercised for cash proceeds of $35,000. In 1993, the Company issued warrants to an unrelated party to purchase up to 9,328 shares of the Company's common stock at an exercise price of $4.25 per share. The warrants expire in September 1999. No warrants have been exercised through December 31, 1995. In September 1995, concurrent with the Offering, the Company granted warrants to the underwriters of the Offering to purchase up to 125,000 shares of the Company's common stock for $.001 per warrant. These warrants are exercisable at 120% of the Company's Offering Price for a period of four years beginning one year from the Offering. In September 1995, the underwriters purchased these warrants for cash proceeds of $125. 11. REDEEMABLE PREFERRED STOCK In October 1994, the Company authorized 1,000,000 shares of Series A redeemable preferred stock (the "Redeemable Preferred Stock") from its initial authorization of 5,000,000 shares of preferred stock. Holders of the Redeemable Preferred Stock were entitled to receive noncumulative dividends at the Company's discretion. No dividends were declared or paid through December 31, 1995. The holders of the Redeemable Preferred Stock had the right to cast one vote per share. In October 1994, the Company issued 706,668 shares of Redeemable Preferred Stock to a related party in exchange for 706,668 shares of common stock. The difference between the consideration paid and the redemption price was accreted by a charge to the accumulated deficit. With the proceeds from the Offering, the Company redeemed all of the Redeemable Preferred Stock for cash of $1,250,000. The Company also issued a warrant to purchase up to 10,000 shares of the Company's common stock at the Offering Price to the holder of the Redeemable Preferred Stock. This warrant expires on November 3, 1996 and has not been exercised through December 31, 1995. F-13 59 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. STOCK OPTION PLAN Under the Company's 1995 Stock Option Plan (the "Plan"), the Company may grant nonqualified and incentive stock options to officers, directors, employees, and consultants up to a maximum of 250,000 shares of the Company's common stock. The exercise price of incentive stock options must equal at least the fair market value of the common stock on the date of grant. The term of any option may not exceed ten years from the date of grant. A summary of the shares under option is as follows: EXERCISE PRICE NONQUALIFIED PER SHARE ------------ --------------- Year ended December 31, 1995: Granted................................................ 247,500 $6.25 to $7.25 Exercised.............................................. -- Canceled............................................... -- ------- Balance at December 31, 1995............................. 247,500 $6.25 to $7.25 Granted (unaudited).................................... -- Exercised (unaudited).................................. -- Canceled (unaudited)................................... -- ------- Balance at March 31, 1996 (unaudited).................... 247,500 $6.25 to $7.25 ======= Exercisable at March 31, 1996 (unaudited)................ 188,500 $6.25 to $7.25 ======= In addition to the above, the Company issued 1,000 options outside the Plan of which 333 options have vested and are exercisable at a price of $7.00 per share and 667 options have been canceled as of December 31, 1995. Unaudited: In May 1996, options to acquire 30,000 shares of common stock were exchanged for 12,558 shares of common stock. 13. INCOME TAXES The provision (benefit) for federal and state income taxes consists of the following: FOR THE YEARS ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------------------------- -------------------- 1993 1994 1995 1995 1996 ------ --------- -------- -------- -------- (UNAUDITED) Current: Federal........................ $ -- $ 2,500 $125,115 $ 30,101 $145,706 State.......................... 1,600 800 28,338 6,776 10,054 ------ --------- -------- -------- -------- 1,600 3,300 153,453 36,877 155,760 ------ --------- -------- -------- -------- Deferred: Federal........................ -- (236,623) 351,345 84,527 41,898 State.......................... -- 6,540 (43,029) (10,330) 38,374 ------ --------- -------- -------- -------- -- (230,083) 308,316 74,197 80,272 ------ --------- -------- -------- -------- Total.................. $1,600 $(226,783) $461,769 $111,074 $236,032 ====== ========= ======== ======== ======== F-14 60 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The tax effects of the temporary differences that give rise to the deferred tax provision (benefit) consist of the following: THREE FOR THE YEARS ENDED MONTHS DECEMBER 31, ENDED ---------------------------------- MARCH 1993 1994 1995 31, -------- --------- --------- -------- 1996 -------- (UNAUDITED) Accrued liabilities..................... $ (6,552) $ (4,648) $ (11,728) $ (1,663) Bad debts............................... 3,199 (26,892) 30,424 (9,272) Net operating loss carryforward......... (72,333) (43,095) 374,051 36,412 Property and equipment.................. 92,031 126,555 96,032 55,843 State income taxes...................... -- 272 3,041 (20,655) Income tax credits...................... -- 8,851 (164,938) 19,607 Change in valuation allowance........... (16,345) (291,126) -- -- Other................................... -- -- (18,566) -- -------- --------- --------- -------- $ -- $(230,083) $ 308,316 $ 80,272 ======== ========= ========= ======== The provision (benefit) for income taxes differs from the amount that would result from applying the federal statutory rate as follows: FOR THE YEARS ENDED THREE DECEMBER 31, MONTHS ------------------------- ENDED 1993 1994 1995 MARCH 31, ----- ----- ---- --------- 1996 --------- (UNAUDITED) Federal statutory income tax rate................ 34.0% 34.0% 34.0% 34.0% State income taxes, net of federal benefit....... 9.1 1.6 6.0 7.1 State manufacturer's investment tax credit, net of federal benefit............................. -- -- (6.7) (1.7) Change in valuation allowance.................... (51.1) (90.1) -- -- Other............................................ 21.8 3.9 (.5) .2 ----- ----- ---- ---- 13.8% (50.6)% 32.8% 39.6% ===== ===== ==== ==== The components of the deferred tax asset and (liability) are as follows: DECEMBER 31, ----------------------- 1994 1995 --------- --------- Accrued liabilities.......................................... $ 17,036 $ 28,764 Bad debts.................................................... 31,996 1,572 Net operating loss carryforward.............................. 476,030 101,979 Property and equipment....................................... (295,251) (391,283) State income taxes........................................... -- (2,769) Income tax credits........................................... -- 164,938 Other........................................................ 272 18,566 --------- --------- $ 230,083 $ (78,233) ========= ========= Unaudited: no material changes in the deferred tax balances occurred during the three months ended March 31, 1996. The Company did not record a valuation allowance against the deferred income tax assets at December 31, 1994 or 1995. At December 31, 1995, the Company had net operating loss carryforwards for federal income tax reporting purposes of approximately $300,000 which begin expiring in 2007. The utilization of net operating loss carryforwards may be limited under the provisions of Internal Revenue Code Section 382. F-15 61 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. COMMITMENTS AND CONTINGENCIES Leases The Company has many noncancellable capital leases with lease terms ranging from two to five years. The majority of the equipment leases have bargain purchase options at the end of the lease term. The Company leases its facilities under noncancellable operating leases. Under these lease agreements, the Company is required to pay for insurance, taxes, utilities and building maintenance and is subject to certain consumer price index adjustments. The facilities leases are personally guaranteed by the majority shareholder. Future minimum lease payments at December 31, 1995 under capital leases and noncancellable operating leases with remaining lease terms in excess of one year are as follows: YEARS ENDING CAPITAL OPERATING DECEMBER 31, LEASES LEASES ------------------------------------------------------------ ---------- ---------- 1996...................................................... $ 447,166 $ 709,483 1997...................................................... 398,913 591,307 1998...................................................... 574,113 501,030 1999...................................................... 19,219 436,129 2000...................................................... 1,655 392,715 Thereafter................................................ -- 313,105 ---------- ---------- 1,441,066 $2,943,769 ========== Less, amount representing interest........................ (294,823) ---------- $1,146,243 ========== Rent expense for the years ended December 31, 1994 and 1995 was $511,326 and $437,909, respectively. Employment Agreement The Company has entered into an employment agreement with its Chairman and Chief Executive Officer which provides for a minimum annual salary of $160,000 and benefits and expires on December 31, 1999. In the event of disability, as defined, the executive is entitled to twelve months base salary in addition to earned base salary and benefits through the date of disability. In the event of termination of the executive without cause, the Company is liable for the remaining unpaid annual salary under the full terms of the agreement plus a severance payment equal to 10% of the annual salary each year. Litigation The Company is involved in various legal matters resulting from the normal course of business. Such legal matters, when ultimately determined, will not, in the opinion of the management, have a material effect on the financial position or the results of operations of the Company. 15. RELATED PARTIES The majority shareholder of the Company is also the majority shareholder of two other entities. The balance due to affiliate included as a current liability in the December 31, 1995 balance sheet represents equipment lease payments due to the affiliate. F-16 62 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) On March 20, 1995, the Company entered into an agreement with one of the affiliates whereby the affiliate is required to make minimum net reductions of $25,000 each quarter until the outstanding balance has been paid in full. The outstanding balance due from this affiliate as of December 31, 1995 was $172,684 and the affiliate has complied with the quarterly reduction requirement. Accordingly, the outstanding amounts due from this affiliate have been classified as an asset on the accompanying balance sheet. The Company has entered into an option agreement with the majority shareholder pursuant to which the Company currently has the option to purchase all of the outstanding common stock of Hot Rods by Boyd, an affiliate of the Company, for up to $750,000, payable in shares of the Company's common stock, valued at its then fair market value. This option is exercisable by the Company commencing after delivery to it of audited financial statements of Hot Rods by Boyd for the years ending December 31, 1995 and 1996, but in no event after September 30, 1997, unless extended pursuant to the terms of the option agreement. Until the option is exercised, any transactions between the Company and Hot Rods by Boyd will be reviewed and approved by the outside board members of the Company. 16. NET INCOME PER COMMON SHARE Net income per share is based on the reported net income, with such reported net income reduced for the accretion of the Redeemable Preferred Stock. The resulting amount is presented below as income applicable to common shareholders. Such income applicable to common shareholders in each period is divided by the weighted average number of outstanding common shares and common equivalent shares in accordance with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 83. The SAB requires that common stock issued by the Company in the twelve months immediately preceding an initial public offering plus the number of common equivalent shares which became issuable during the same period pursuant to the issuance of common stock options and warrants (using the modified treasury stock method) at prices substantially less than the Offering Price be included in the calculation of common stock and common stock equivalents as if they were outstanding for all periods presented. YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------------------------------------- --------------------------------- 1993 1994 1995 1995 1996 --------------- --------------- ---------------- --------------- -------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income and net income per share, before accretion of Redeemable Preferred Stock...... $ 10 $ -- $ 675 $ 0.40 $ 948 $ 0.48 $ 160 $ 0.09 $ 360 $0.14 Adjustment for accretion of Redeemable Preferred Stock........................... -- -- (180) (0.11) (1,069) (0.55) (314) (0.18) -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net income (loss) applicable to common shareholders and net income per share................ $ 10 -- $ 495 $ 0.29 $ (121) $(0.07) $ (154) $(0.09) $ 360 $0.14 ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== Weighted average number of: Common shares..................... 1,317 1,317 1,886 1,634 2,490 Common equivalent shares.......... 354 384 74 63 165 ------ ------ ------ ------ ------ Weighted average common shares and common equivalent shares........ 1,671 1,701 1,960 1,697 2,655 ====== ====== ====== ====== ====== Primary and fully diluted per share amounts do not differ. F-17 63 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 17. CONCENTRATION OF CREDIT RISK The Company has cash and cash equivalent deposits of $1,013,187 at an investment firm at December 31, 1995 which are exposed to credit loss in the event of nonperformance; however, the Company does not anticipate nonperformance. The Company's customers are concentrated in the specialty automotive aftermarket industry. The Company's ten largest customers accounted for approximately 60.0%, 84.6%, and 82.4% of net sales during 1993, 1994 and 1995, respectively. The Company's five largest customers comprised 51.0% and 55.0% of gross accounts receivable at December 31, 1994 and 1995, respectively. In 1993, 1994 and 1995, the Company derived approximately 11.1%, 26.3% and 39.3%, respectively, of its net sales from international markets, substantially all of which were in Japan. The Company reviews a customer's credit history before extending unsecured credit. The Company establishes allowances for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. To reduce credit risk, the Company generally requires a down payment on large orders. The accounting loss, should a customer be unable to meet its obligation to the Company, would be equal to the recorded account receivable. 18. SUBSEQUENT EVENTS In February 1996, the Company entered into an agreement under which an employee of the Company was released from his duties under an employment contract. Under the agreement, the Company paid to this employee total consideration of $275,000 consisting of $150,000 in consideration for a five-year covenant not to compete and $125,000 for other compensation. Of such consideration, $225,000 was paid in cash and the remaining $50,000 was paid in shares of the Company's common stock. All other amounts due to/from the Company and the employee pursuant to the employment contract were canceled. The above transactions have been recognized in the December 31, 1995 financial statements. Unaudited: in February 1996, the Company also finalized an Agreement for the Purchase and Sale of Assets of Velocity Distribution Inc. (the "Velocity Agreement"). Under the Velocity Agreement, the Company assumed the assets and liabilities of Velocity Distribution Inc. and entered into a five-year covenant not to compete with a former employee of Velocity Distribution Inc. for a total amount of approximately $25,000. F-18 64 [PHOTOS] 65 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 5 Use of Proceeds....................... 10 Price Range for Common Stock and Dividend Policy..................... 11 Dilution.............................. 11 Capitalization........................ 12 Selected Financial Data............... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 14 Business.............................. 20 Management............................ 29 Certain Transactions.................. 34 Principal and Selling Shareholders.... 36 Description of Capital Stock.......... 38 Underwriting.......................... 42 Legal Matters......................... 43 Experts............................... 43 Additional Information................ 43 Index to Financial Statements......... F-1 ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ LOGO BOYDS WHEELS, INC. 1,000,000 SHARES COMMON STOCK -------------------- PROSPECTUS -------------------- , 1996 CRUTTENDEN ROTH INCORPORATED ------------------------------------------------------ ------------------------------------------------------ 66 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Underwriting Agreement (Exhibit 1 hereto) provides for indemnification by the Underwriters of the Registrant and its officers and directors and by the Registrant of the Underwriters for certain liabilities arising under the Securities Act or otherwise. The Registrant's Amended and Restated Articles of Incorporation ("Articles of Incorporation") provide that, to the fullest extent permitted by California law, the Registrant's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Registrant or its shareholders. This provision in the Articles of Incorporation does not eliminate the duty of care and in appropriate circumstances equitable remedies such as an injunction or other forms of nonmonetary relief would remain available under California law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions involving intentional misconduct or knowing and culpable violations of law, for acts or omissions that a director believes to be contrary to the best interests of the Registrant or its shareholders or that involve the absence of good faith on the part of the director, for any transaction from which the director derived an improper personal benefit, for acts or omissions involving a reckless disregard for the director's duty to the Registrant or its shareholders when the director was aware or should have been aware of a risk of serious injury to the Registrant or its shareholders, for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Registrant or its shareholders, for improper transactions between the director and the Registrant, for improper distributions to shareholders and loans to directors and officers or for acts or omissions by the director in his or her capacity as an officer of the Registrant. The inclusion of the above provision in the Articles of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter shareholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefitted the Registrant and its shareholders. At present, there is no litigation or proceeding pending involving a director of the Registrant as to which indemnification is being sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification by any director. The Registrant's Articles of Incorporation authorizes the Registrant to indemnify its directors and officers to the fullest extent permitted by California law, including circumstances in which indemnification is otherwise discretionary under California law. The Registrant entered into indemnification agreements with certain of its directors and officers that require the Registrant to indemnify such directors and officers to the fullest extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. II-1 67 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee....................... $ 4,601 NASD Filing Fee........................................................... 1,834 Nasdaq Filing Fee......................................................... 17,500* Underwriter's Nonaccountable Expense Allowance............................ 150,000* Printing Expenses......................................................... 60,000* Legal Fees and Expenses................................................... 50,000* Accounting Fees and Expenses.............................................. 30,000* Blue Sky Filing Fees and Expenses......................................... 10,000* Warrant Agent, Transfer Agent and Registrar Fees.......................... 10,000* Miscellaneous............................................................. 41,065* -------- TOTAL........................................................... $375,000* ======== - --------------- * Estimated. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Since May 17, 1993, the Registrant has sold and issued the following unregistered securities: 1. In May 1993, the Company granted to Brad Fanshaw, the former President and former director of the Company, options to purchase 71,429 shares of Common Stock at an exercise price of $1.00 per share, the fair market value of the Company's Common Stock as of the date of grant, as determined by the Board of Directors of the Company. The issuance of these options was deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. 2. In September 1993, the Registrant privately sold for cash $660,000 principal amount of 9% Convertible Promissory Notes due June 30, 1996 (the "Notes") to certain accredited or sophisticated investors. The sale of the Notes was deemed to be exempt from registration under the Securities Act by virtue of Rule 504 promulgated under Section 3(b) of the Securities Act. 3. In connection with the September 1993 private placement of Notes, the Registrant issued to officers of the placement agent, in consideration for their efforts in the private placement, warrants to purchase (the "Note Placement Agent Warrants") an aggregate of 9,328 shares of Common Stock, at a price of $4.25 per share. The Note Placement Agent Warrants are currently exercisable and expire in September 1999. The issuance of the Note Placement Agent Warrants was deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. 4. In November 1994, the Board of Directors of the Registrant issued 706,668 shares of Series A Redeemable Preferred Stock to Karl Kantarjian in exchange for 706,668 shares of Common Stock issued to Mr. Kantarjian in 1988. In consideration for exchanging his shares of Common Stock for Series A Redeemable Preferred Stock, Mr. Kantarjian received a warrant (the "Kantarjian Warrant") to purchase 10,000 shares of Common Stock at $6.25 per share. The Kantarjian Warrant is currently exercisable and expires on November 3, 1996. The issuance of Series A Redeemable Preferred Stock and the Kantarjian Warrant were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. 5. In November 1994, the Registrant sold to certain accredited or sophisticated investors 609,998 "Units," each Unit consisting of one share of the Registrant's Common Stock and one warrant to purchase one share of the Registrant's Common Stock. Of the total Units issued, 177,857 were issued upon conversion of $622,500 in principal amount of Notes. The Registrant received cash for the remainder of the Units issued. The issuance of the Units was deemed to be exempt from registration under the Securities Act by virtue of Rule 506 promulgated thereunder. II-2 68 6. In connection with the 1994 Private Placement, the Registrant issued to officers of the placement agent warrants to purchase an aggregate of 85,714 shares of Common Stock, which effective as of the closing of the Registrant's initial public offering, were converted into 35,714 shares of Common Stock at a price equal to $3.50 per share. The issuance of the Unit Placement Agent Warrants was deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. 7. In September 1995, the Registrant granted options to purchase 207,500 shares of Common Stock at an exercise price of $6.25 per share, in November 1995, the Registrant granted options to purchase 40,000 shares of Common Stock at an exercise price of $7.25 per share and in April 1996 the Registrant granted options to purchase 5,000 shares of Common Stock at an exercise price of $6.25 per share to certain key officers and employees. In addition, options to purchase 3,000 shares of the Registrant's Common Stock were granted to each of the Registrant's Non-Employee Directors under the provisions of the Registrant's 1995 Stock Option Plan. The grant of all such options was deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. 8. In connection with the departure of an employee of Registrant, in February 1996, the Registrant issued 5,263 shares of the Registrant's Common Stock. The issuance of this common stock was deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 1.1+ -- Form of Underwriting Agreement by and among the Registrant, certain Selling Shareholders of the Registrant and Cruttenden Roth Incorporated. 3.1** -- Articles of Incorporation as filed with the California Secretary of State on April 27, 1988. 3.2** -- Amended and Restated Articles of Incorporation filed with the California Secretary of State on December 12, 1991. 3.3** -- Amended and Restated Articles of Incorporation filed with the California Secretary of State on October 13, 1994. 3.4** -- Certificate of Determination of Preferences of Series A Redeemable Preferred Stock of Registrant filed with the California Secretary of State on November 2, 1994. 3.5** -- Agreement of Merger by and between Registrant and Boyds Ultra Violet, Inc. filed with the California Secretary of State on November 2, 1994. 3.6** -- Bylaws of the Registrant, as amended and restated. 4.1** -- Form of Warrant held by Robert E. Fitzgerald to purchase 10,560 shares of Common Stock and Ty Rogers to purchase 2,640 shares of Common Stock. 4.2** -- Warrant held by Karl Kantarjian to purchase 10,000 shares of Common Stock dated as of November 3, 1994. 4.3** -- Form of 9% Convertible Promissory Note due June 30, 1996. 4.4** -- Form of Warrant issued in 1994 Private Placement held as of the date hereof by Mr. Fitzgerald. 4.5** -- Option to Purchase Common Stock by and between the Registrant and Brad Fanshaw dated as of May 19, 1993. 4.6** -- 1995 Stock Option Plan. 4.7** -- Representatives' Warrant Agreement by and between the Registrant, Cruttenden Roth Incorporated and Black & Company, Inc. 4.8 -- Form of Representative's Warrant Agreement by and between the Registrant and Cruttenden Roth Incorporated. II-3 69 EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 5.1* -- Opinion of Rutan & Tucker, LLP. 10.1* -- Loan Agreement, Security Agreement and Promissory Notes each dated April 19, 1996 between the Registrant and Eldorado Bank. 10.2* -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank Leasing dated March 18, 1996. 10.3* -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank Leasing dated March 18, 1996. 10.4* -- Equipment Lease Agreement between the Registrant and Stunson Equipment Inc. dated January 30, 1996. 10.5** -- Letter dated March 20, 1995 memorializing agreement between Registrant and Hot Rods by Boyd concerning inter-company account balance. 10.6** -- Standard Industrial Lease between Registrant and A & P Leasing Registrant dated April 9, 1992 (8350 Cerritos Avenue). 10.7** -- Standard Industrial Lease between Registrant and Currie Family Trust dated July 17, 1994 (8402 Cerritos Avenue). 10.8** -- Standard Industrial Lease between Registrant and Currie Family Trust dated October 1, 1994 (8400 Cerritos Avenue). 10.9** -- Standard Industrial/Commercial Single-Tenant Lease between Boyd and Diane Coddington and Duane and Carole Logsdon dated June 15, 1992 (8380 Cerritos Avenue and 10541 Ashdale Street). 10.10** -- Assignment of Real Property Lease Rights of Boyd and Diane Coddington to Registrant dated September 29, 1994 (8380 Cerritos Avenue and 10541 Ashdale Street), and Assignment of Equipment Lease Rights. 10.11** -- Standard Industrial/Commercial Single-Tenant Lease between Registrant and Hopper Shop Equipment Sales dated January 11, 1995. (8250 Cerritos Avenue). 10.12** -- Letter Agreements between Registrant and Codde, Inc. to lease a tractor and trailer, dated January 1, 1995 and May 1, 1995. 10.13** -- Equipment Lease between Registrant and Financial Federal Credit, dated March 10, 1995. 10.14** -- Equipment Lease between Registrant and Financial Federal Credit, dated March 22, 1995. 10.15** -- Textron Financial Corp. Master Lease Schedule, Master Lease Agreement and Guaranty, dated August 14, 1992. 10.16** -- Master Lease Schedule by and between Citicorp Leasing Inc. and Registrant dated January 23, 1995. 10.17** -- Automobile purchase agreement between Boyd Coddington and Richard Hibbard Chevrolet, Inc., dated May 23, 1994. 10.18** -- Guaranty of Boyd and Diane Coddington and Hot Rods by Boyd to Financial Federal Credit, dated March 10, 1995. 10.19** -- Marketing/Promotion Agreement by and among the Registrant, Boyd Coddington and Hot Rods by Boyd, Inc. 10.20** -- Option Agreement by and among the Registrant, Boyd and Diane Coddington and Hot Rods by Boyd, Inc. 10.21** -- Employment Agreement by and between the Registrant and Boyd Coddington. II-4 70 EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 10.22*** -- Agreement for the Purchase and Sale of Assets among the Registrant, Velocity Distribution, Inc., Brad Fanshaw, Charlotte Fanshaw, Boyd Coddington and Diane Coddington (Portions omitted pursuant to an application for confidential treatment pursuant to Rule 406). 10.23*** -- Settlement Agreement and General Release dated February 15, 1996 (Portions omitted pursuant to an application for confidential treatment pursuant to Rule 406). 10.24** -- Equipment Lease between Registrant and Financial Federal Credit dated July 21, 1995. 10.25* -- Standard Industrial/Commercial Single-Tenant Lease between the Registrant and Flam Properties, Ltd. dated July 26, 1995. 10.26* -- Guaranty of Boyd Coddington to Flam Properties, Ltd. dated July 26, 1996. 10.27* -- Commercial Lease between the Registrant and Custom Pipe & Coupling Inc. dated . 10.28* -- Standard Industrial/Commercial Multi-Tenant Lease among the Registrant, Gary Hollander, Susan Henson, Kevin Henson Trust and Hollander Glass dated August 15, 1995. 11.1 -- Computation of Earnings Per Share (included in Note 16 to the Registrant's Financial Statements at page F-17). 23.1 -- Consent of Coopers & Lybrand L.L.P. 23.2* -- Consent of Rutan & Tucker, LLP (included in the opinion to be filed as Exhibit 5). 24.1 -- Power of Attorney (included on page II-7). 27.1+ -- Financial Data Schedule. - --------------- * To be filed by amendment. ** Incorporated by reference from the Registration Statement on Form SB-2 of Boyds Wheels, Inc. (Registration No. 33-94064-LA). *** Incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995 (Commission File No. 0-26738) + Previously filed. ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or preceding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 71 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-6 72 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form SB-2 and authorized this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stanton, State of California, on the 22nd day of May, 1996. BOYDS WHEELS, INC. By: /s/ Boyd Coddington ------------------------------------ Boyd Coddington Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of Boyds Wheels, Inc., a California corporation, which is filing a Registration Statement on Form SB-2 with the Securities and Exchange Commission, Washington D.C., under the provisions of the Securities Act of 1933, as amended, hereby constitute and appoint Boyd Coddington and Rex A. Ours, and each of them, their true and lawful attorneys-in-fact and agents; with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such Registration Statement and any or all amendments to the Registration Statement, including a Prospectus or an amended Prospectus therein, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all interests and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- -------------- /s/ BOYD CODDINGTON Chairman of the Board of May 22, 1996 - --------------------------------------------- Directors, and Chief Executive Boyd Coddington Officer (Principal Executive Officer) /s/ REX A. OURS Secretary, Chief Financial May 22, 1996 - --------------------------------------------- Officer Principal Financial and Rex A. Ours Accounting Officer) /s/ CURT BARWICK Director May 22, 1996 - --------------------------------------------- Curt Barwick /s/ MARCUS SORENSON Director May 22, 1996 - --------------------------------------------- Marcus Sorenson II-7 73 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 1.1+ -- Form of Underwriting Agreement by and among the Registrant, certain Selling Shareholders of the Registrant and Cruttenden Roth Incorporated. 3.1** -- Articles of Incorporation as filed with the California Secretary of State on April 27, 1988. 3.2** -- Amended and Restated Articles of Incorporation filed with the California Secretary of State on December 12, 1991. 3.3** -- Amended and Restated Articles of Incorporation filed with the California Secretary of State on October 13, 1994. 3.4** -- Certificate of Determination of Preferences of Series A Redeemable Preferred Stock of Registrant filed with the California Secretary of State on November 2, 1994. 3.5** -- Agreement of Merger by and between Registrant and Boyds Ultra Violet, Inc. filed with the California Secretary of State on November 2, 1994. 3.6** -- Bylaws of the Registrant, as amended and restated. 4.1** -- Form of Warrant held by Robert E. Fitzgerald to purchase 10,560 shares of Common Stock and Ty Rogers to purchase 2,640 shares of Common Stock. 4.2** -- Warrant held by Karl Kantarjian to purchase 10,000 shares of Common Stock dated as of November 3, 1994. 4.3** -- Form of 9% Convertible Promissory Note due June 30, 1996. 4.4** -- Form of Warrant issued in 1994 Private Placement held as of the date hereof by Mr. Fitzgerald. 4.5** -- Option to Purchase Common Stock by and between the Registrant and Brad Fanshaw dated as of May 19, 1993. 4.6** -- 1995 Stock Option Plan. 4.7** -- Representatives' Warrant Agreement by and between the Registrant, Cruttenden Roth Incorporated and Black & Company, Inc. 4.8 -- Form of Representative's Warrant Agreement by and between the Registrant and Cruttenden Roth Incorporated. 5.1* -- Opinion of Rutan & Tucker, LLP. 10.1* -- Loan Agreement, Security Agreement and Promissory Notes each dated April 19, 1996 between the Registrant and Eldorado Bank. 10.2* -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank Leasing dated March 18, 1996. 10.3* -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank Leasing dated March 18, 1996. 10.4* -- Equipment Lease Agreement between the Registrant and Stunson Equipment Inc. dated January 30, 1996. 10.5** -- Letter dated March 20, 1995 memorializing agreement between Registrant and Hot Rods by Boyd concerning inter-company account balance. 10.6** -- Standard Industrial Lease between Registrant and A & P Leasing Registrant dated April 9, 1992 (8350 Cerritos Avenue). 74 EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 10.7** -- Standard Industrial Lease between Registrant and Currie Family Trust dated July 17, 1994 (8402 Cerritos Avenue). 10.8** -- Standard Industrial Lease between Registrant and Currie Family Trust dated October 1, 1994 (8400 Cerritos Avenue). 10.9** -- Standard Industrial/Commercial Single-Tenant Lease between Boyd and Diane Coddington and Duane and Carole Logsdon dated June 15, 1992 (8380 Cerritos Avenue and 10541 Ashdale Street). 10.10** -- Assignment of Real Property Lease Rights of Boyd and Diane Coddington to Registrant dated September 29, 1994 (8380 Cerritos Avenue and 10541 Ashdale Street), and Assignment of Equipment Lease Rights. 10.11** -- Standard Industrial/Commercial Single-Tenant Lease between Registrant and Hopper Shop Equipment Sales dated January 11, 1995. (8250 Cerritos Avenue). 10.12** -- Letter Agreements between Registrant and Codde, Inc. to lease a tractor and trailer, dated January 1, 1995 and May 1, 1995. 10.13** -- Equipment Lease between Registrant and Financial Federal Credit, dated March 10, 1995. 10.14** -- Equipment Lease between Registrant and Financial Federal Credit, dated March 22, 1995. 10.15** -- Textron Financial Corp. Master Lease Schedule, Master Lease Agreement and Guaranty, dated August 14, 1992. 10.16** -- Master Lease Schedule by and between Citicorp Leasing Inc. and Registrant dated January 23, 1995. 10.17** -- Automobile purchase agreement between Boyd Coddington and Richard Hibbard Chevrolet, Inc., dated May 23, 1994. 10.18** -- Guaranty of Boyd and Diane Coddington and Hot Rods by Boyd to Financial Federal Credit, dated March 10, 1995. 10.19** -- Marketing/Promotion Agreement by and among the Registrant, Boyd Coddington and Hot Rods by Boyd, Inc. 10.20** -- Option Agreement by and among the Registrant, Boyd and Diane Coddington and Hot Rods by Boyd, Inc. 10.21** -- Employment Agreement by and between the Registrant and Boyd Coddington. 10.22*** -- Agreement for the Purchase and Sale of Assets among the Registrant, Velocity Distribution, Inc., Brad Fanshaw, Charlotte Fanshaw, Boyd Coddington and Diane Coddington (Portions omitted pursuant to an application for confidential treatment pursuant to Rule 406). 10.23*** -- Settlement Agreement and General Release dated February 15, 1996 (Portions omitted pursuant to an application for confidential treatment pursuant to Rule 406). 10.24** -- Equipment Lease between Registrant and Financial Federal Credit dated July 21, 1995. 10.25* -- Standard Industrial/Commercial Single-Tenant Lease between the Registrant and Flam Properties, Ltd. dated July 26, 1995. 10.26* -- Guaranty of Boyd Coddington to Flam Properties, Ltd. dated July 26, 1996. 10.27* -- Commercial Lease between the Registrant and Custom Pipe & Coupling Inc. dated . 75 EXHIBIT NUMBER DESCRIPTION -------- ----------------------------------------------------------------------------- 10.28* -- Standard Industrial/Commercial Multi-Tenant Lease among the Registrant, Gary Hollander, Susan Henson, Kevin Henson Trust and Hollander Glass dated August 15, 1995. 11.1 -- Computation of Earnings Per Share (included in Note 16 to the Registrant's Financial Statements at page F-17). 23.1 -- Consent of Coopers & Lybrand L.L.P. 23.2* -- Consent of Rutan & Tucker, LLP (included in the opinion to be filed as Exhibit 5). 24.1 -- Power of Attorney (included on page II-7). 27.1+ -- Financial Data Schedule. - --------------- * To be filed by amendment. ** Incorporated by reference from the Registration Statement on Form SB-2 of Boyds Wheels, Inc. (Registration No. 33-94064-LA). *** Incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995 (Commission File No. 0-26738) + Previously filed.