UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 31, 1998
FIRSTAMERICA AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2-297254-NY 88-0206732
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
601 BRANNAN STREET
SAN FRANCISCO, CA 94107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 284-0444
(Former name, former address and former fiscal year,
if changed since last report)
FIRSTAMERICA AUTOMOTIVE, INC.
FORM 8-K/A
INDEX
Item Description Page
- ---- ----------- ----
Item 7 Financial Statements and Exhibits 2
Signatures 3
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
This amendment to the Company's Form 8-K that was filed on January 14, 1999
contains the financial statements of DSW & Associates, Inc. (d/b/a Auto Town) at
page F-1.
(b) PRO FORMA FINANCIAL INFORMATION.
This amendment to the Company's Form 8-K that was filed on January 14, 1999
contains the unaudited pro forma financial statements required pursuant to
Article 11 of Regulation S-X at page PF-1.
(c) EXHIBITS
Exhibit No. Description
- ----------- -------------
2.1* Agreement and Plan of Reorganization, dated as of December 8,
1998, among FirstAmerica Automotive, Inc., DSW Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary
of FirstAmerica Automotive, Inc. and DSW & Associates, Inc.
- ------------------------
* Filed previously as an exhibit to the Company's Form 8-K filed
with the Securities and Exchange Commission on January 14, 1999.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: March 16, 1999 FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Debra Smithart
-------------------------------------
Debra Smithart
Chief Financial Officer
Principal Financial and
Accounting Officer
3
DSW & Associates, Inc.
d/b/a Auto Town
Independent Auditor's Report
and
Consolidated Financial Statements
Contents
Page
Independent Auditor's Report F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
FirstAmerica Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of DSW &
Associates, Inc. d/b/a Auto Town as of December 31, 1998 and 1997 and the
related consolidated statements of operations, shareholders' deficit and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of FirstAmerica Automotive, Inc. management. Our responsibility
is to express an opinion on these consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DSW & Associates,
Inc. as of December 31, 1998 and 1997, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
March 15, 1999
F-2
DSW & Associates, Inc.
d.b.a. Auto Town
Consolidated Balance Sheets
December 31,
Assets: 1998 1997
- ------- -------------------------------------
Cash $ 61,994 $ 168,027
Accounts receivable, net (note 2) 23,680 18,284
Prepaid expenses and other assets 72,237 49,428
----------- ----------
Total current assets 157,911 235,739
Fixed assets, net (note 3) 36,148 50,854
Software and intellectual property, net (note 4) 192,456 19,978
Other noncurrent assets 10,985 18,058
----------- ----------
Total assets $ 397,500 $ 324,629
=========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Accounts payable and accrued liabilities $ 322,213 $ 250,430
Notes payable to related parties (note 12) 307,516 335,173
Demand notes payable 234,236 216,503
Convertible notes payable (note 8) 1,119,703 857,588
Advances from FAA (note 7) 1,080,003 -
Deferred revenue (note 6) 20,960 189,026
Current portion of capital lease obligation 7,513 6,616
----------- ----------
Total current liabilities 3,092,144 1,855,336
Deferred revenue (note 6) 275,000 -
Noncurrent portion of capital lease obligation 11,479 14,497
----------- ----------
Total liabilities 3,378,623 1,869,833
Commitments (note 9)
Shareholders' deficit:
Preferred stock, $0.001 par value:
Series A, 10,000,000 shares authorized; none - -
issued
Series B, 1,000,000 shares authorized; 938,220
issued and outstanding 938 -
Common stock, $0.001 par value; 30,000,000 shares
authorized; 9,427,047 and 4,875,550 issued 9,427 4,876
and outstanding
Additional paid-in capital 270,167 50,829
Accumulated deficit (3,261,655) (1,600,909)
----------- ----------
Total shareholders' deficit (2,981,123) (1,545,204)
----------- ----------
$ 397,500 $ 324,629
=========== ==========
See accompanying notes to financial statements.
F-3
DSW & Associates, Inc.
d.b.a. Auto Town
Consolidated Statements of Operations
Years ended
December 31,
1998 1997
----- ----
Revenues:
Product revenues $ 639,014 $ 532,439
Cost of revenues 472,343 261,082
----------- ----------
Gross profit 166,671 271,357
Operating expenses:
General and administrative (259,465) (327,201)
Sales and marketing (403,683) (676,949)
Research and development (960,594) (437,908)
----------- ----------
Total costs and expenses (1,623,742) (1,442,058)
Operating loss (1,457,071) (1,170,701)
Interest expense (202,875) (50,496)
----------- ----------
Loss before income taxes (1,659,946) (1,221,197)
Income tax expense (800) (800)
=========== ==========
Net loss $(1,660,746) $(1,221,997)
=========== ===========
See accompanying notes to financial statements.
F-4
DSW & Associates, Inc.
d.b.a.
Auto Town
Consolidated Statements of Shareholders' Deficit
Common stock Series B Preferred
------------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------ ------- ------ -------- ----------- ----------
Balance, January 1, 1997 4,410,000 $4,410 - $ - $ - $ (378,912) $ (374,502)
Stock issuance 460,550 461 - - 804 - 1,265
Stock issuance for acquisition 5,000 5 - - 25 - 30
Debt to equity conversion - - - - 50,000 - 50,000
Net loss - - - - - (1,221,997) (1,221,997)
--------- ------ ------- ------ -------- ----------- ----------
Balance, December 31, 1997 4,875,550 4,876 - - 50,829 (1,600,909) (1,545,204)
Stock issuance as compensation 3,202,819 3,203 - - 141,443 - 144,646
Stock issuance for acquisition 767,634 768 938,220 938 66,342 - 68,048
Exercise of stock options 581,044 580 - - 11,553 - 12,133
Net loss - - - - - (1,660,746) (1,660,746)
--------- ------ ------- ------ -------- ----------- ----------
Balance, December 31, 1998 9,427,047 $9,427 938,220 $ 938 $270,167 $(3,261,655) $(2,981,123)
========= ====== ======= ====== ======== =========== ===========
See accompanying notes to financial statements.
F-5
DSW & Associates, Inc.
d.b.a. Auto Town
Consolidated Statements of Cash Flows
December 31,
1998 1997
---- ----
Net loss $ (1,660,746) $ (1,221,997)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 34,533 23,301
Deferred revenue amortization, net 106,934 189,026
Non-cash stock compensation 144,646 461
Changes in operating assets and liabilities:
Accounts receivable (259) 56,954
Prepaid expenses and other assets (15,736) (48,808)
Accounts payable and accrued liabilities 71,783 185,995
Capitalized software (15,556) (56)
-------------- -------------
Net cash used in operating activities (1,334,401) (815,124)
Cash flows used in investing activities:
Capital expenditures (15,134) (3,379)
Cash paid for acquisitions (98,704) (20,004)
-------------- -------------
Net cash used in investing activities (113,838) (23,383)
Cash flows from financing activities:
Borrowings on demand notes payable 17,733 225,712
Payments on notes to related parties (27,657) (77,747)
Borrowings on convertible notes payable 262,115 857,588
Advances from FAA 1,080,003 -
Exercise of stock options 12,133 -
Payments on capital lease (2,121) (1,040)
--------------- -------------
Net cash provided by financing activities 1,342,206 1,004,513
Net increase (decrease) in cash (106,033) 166,006
Cash at the beginning of the period $ 168,027 $ 2,021
-------------- -------------
Cash at the end of the period $ 61,994 $ 168,027
============== =============
Non-cash activity:
Debt conversion $ - $ 50,000
Stock issued for acquisitions $ 68,048 $ 30
Common stock issued as compensation $ 144,646 $ 461
See accompanying notes to financial statements.
F-6
DSW & Associates, Inc.
d/b/a
Auto Town
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Business
DSW & Associates, Inc., d/b/a Auto Town, is a privately held California
corporation that provides application software products and Web page design
services to automobile dealerships throughout the United States. Auto Town
application software products include Clock Tower Manager, InventoryTrak,
CustomerTrak and Trip It.
Auto Town was incorporated in California in July 1995. Auto Town's
principal executive office is located at 1120 Capitol Expressway Auto Mall,
San Jose, California, 95136. Except as noted herein, all references to
"Auto Town" or the "Company" shall mean DSW & Associates, Inc.
As discussed in note 13, on December 31, 1998, FirstAmerica Automotive,
Inc. ("FAA") acquired Auto Town.
Basis of Presentation
The accompanying financial statements include the accounts of DSW &
Associates, Inc. and it's wholly owned subsidiary, DealerSoft Technologies,
Inc. All significant intercompany transactions and balances have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues earned under software license agreements with automobile
dealerships are generally recognized when the license agreement has been
signed and the software has been installed. Revenue from post-contract
customer support is recognized ratably over the period the customer support
services are provided, and software services revenue is recognized as
services are performed. Royalty revenue is recognized when the conditions
of the royalty agreement are met.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, generally three to
five years, on a straight-line basis.
F-7
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to December 1, 1997, the Company was an S Corporation for federal and
state income tax reporting purposes. Federal income taxes on the income of
an S Corporation are payable by the individual shareholders rather than the
corporation. The State of California taxes the income of S Corporations at
the rate of 1.5%. The Company terminated its S Corporation status effective
November 30, 1997 and deferred tax assets and liabilities were immaterial
prior to the termination.
Stock-Based Compensation
As permitted under the Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," Auto Town has
elected to follow Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" in accounting for stock-based
awards and compensation to employees. See note 10.
Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards No. 86
("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," development costs are expensed as incurred
until establishment of technological feasibility, after which additional
direct costs are capitalized. The Company establishes technological
feasibility upon completion of a working model.
Advertising Expenses
Auto Town accounts for advertising costs as expense in the period in which
they are incurred. Advertising expenses for 1998 and 1997 were $8,787 and
$321,053, respectively.
(2) Accounts Receivable
Accounts receivable consists of license fees due from automobile
dealerships and software services revenue, and is net of allowances for
doubtful accounts as follows:
December 31,
1998 1997
---------------------------------
Accounts receivable $115,407 $21,759
Allowance for doubtful accounts (91,727) (3,475)
-------- -------
$ 23,680 $18,284
======== =======
(3) Property and Equipment
A summary of property and equipment follows:
December 31,
1998 1997
---------------------------------
Computer equipment $ 95,812 $ 88,303
Furniture and fixtures 17,457 7,807
-------- --------
113,269 96,110
Less accumulated depreciation (77,121) (45,256)
-------- --------
$ 36,148 $ 50,854
======== ========
F-8
(4) Capitalized Software Costs
Capitalized software costs are amortized over a five year useful life.
Information related to capitalized software costs is as follows:
December 31,
1998 1997
---------------------------------
Acquired from The RAMAC Corporation $159,590 $ -
Capitalized developed software 15,556 -
Acquired from DealerSoft, Inc. 20,034 20,034
-------- -------
195,180 20,034
Amortization (2,724) ( 56)
-------- -------
Ending balance $192,456 $19,978
======== =======
(5) Acquisitions
On December 9, 1998, Auto Town acquired the proprietary software
"LeaseTrak" and "Trip It" along with certain other assets from The RAMAC
Corporation ("RAMAC"), a software company. The acquisition was accounted
for using the purchase method of accounting. The purchase price of
$166,752 consisted of $98,704 in cash, 938,220 shares of Series B Preferred
Stock (see note 10) and 767,634 shares of Common Stock, both issued at a
fair market value estimated at $0.04 per share. The purchase price was
allocated to the fair market value of the assets acquired as follows:
Accounts receivable $ 5,137
Equipment 2,025
Software 159,590
--------
Total $166,752
========
On November 21, 1997, Auto Town purchased all of the outstanding shares of
DealerSoft Technologies, Inc. for $20,004 in cash and 5,000 shares of Auto
Town's Common Stock issued at a fair market value of $0.006 per share plus
royalty payments to the seller equal to 1.5% of Auto Town's sales of the
CustomerTrak. The acquisition was accounted for using the purchase method
of accounting. DealerSoft's sole asset was the CustomerTrak software
license and the purchase price of $20,034 was allocated to software.
(6) Deferred Revenue
Deferred revenue consists of the following:
December 31,
1998 1997
-------------------------------
Deferred service revenue - current $ 20,960 $189,026
Deferred royalty revenue - noncurrent 275,000 -
-------- --------
$295,960 $189,026
======== ========
Deferred royalty revenue represents cash received under a development
contract, license agreement and future royalty contract executed in July,
1998 with an automobile insurance information services company to develop
an automobile database software application. The agreement provides for the
information services company to fund the development process, up to a
maximum of $500,000. The funding advances are non-refundable, and Auto Town
received and deferred $275,000 during 1998. Auto Town is entitled to a
royalty fee of 20% of the revenues earned by the automobile insurance
information services company related to the use of Auto Town's software
product. The royalty fees due to Auto Town are first offset against the
non-refundable funding advances.
Deferred service revenue represents Standard Dealer Master Agreements with
automobile dealerships that constitute the bulk of Auto Town's revenues and
require Auto Town to provide maintenance and support. License fees are
renewed annually and expire through 1999.
F-9
(7) Advances from FAA
In June 1998, Auto Town's shareholders executed an agreement with FAA
relating to a 60 day evaluation of Auto Town products as part of a possible
acquisition of Auto Town by FAA.
In September 1998, Auto Town executed another agreement with FAA whereby
FAA agreed to advance funds to Auto Town for operations. The agreements
further provided that in the event that the purchase of Auto Town by FAA
not be completed, FAA would be entitled to site licenses to use Auto Town
technology and intellectual property.
As of December 31, 1998, $1,080,003 in funds had been advanced by FAA to
Auto Town. On December 31, 1998, FAA acquired Auto Town. See note 13.
(8) Subordinated Secured Convertible Notes Payable
On December 31, 1997 Auto Town agreed to sell up to $1,750,000 in
Subordinated Secured Convertible Notes Payable ("Notes") to certain
investors. The Notes bore interest at 10%, matured on December 30, 1998 and
principal and interest were payable on that date. The Notes were secured by
all of Auto Town's intellectual property. As of December 31, 1998,
$1,085,000 in Notes were outstanding, plus $34,703 in accrued interest, as
follows:
December 31,
1998 1997
----------------------------------
Related parties $ 407,103 $235,086
Other 712,600 622,502
---------- --------
$1,119,703 $857,588
========== ========
On December 31, 1998 the Notes were converted into shares of FAA Class A
Common Stock simultaneous with the acquisition of Auto Town by FAA. See
note 13.
(9) Commitments
Auto Town entered into a five-year equipment capital lease agreement in
April 1996 with a leasing company to purchase computer equipment. The
future minimum lease obligation, including interest, follows:
1999 $ 9,515
2000 9,515
2001 3,172
Thereafter -
------
$ 22,202
Interest (3,210)
------
$ 18,992
========
F-10
(10) Shareholders' Equity
Due to Auto Town's continued operating losses and inability to secure
financing for current operations, for approximately three months in early
1998 certain Auto Town employees were offered the option to receive shares
of Common Stock in lieu of their salaries. As part of this agreement,
2,998,797 shares of Common Stock valued at $114,043 were issued. In
December 1998, 204,022 shares of Auto Town Common Stock valued at $30,603
were also issued to an employee as compensation.
In August 1997, an Auto Town officer and shareholder converted $50,000 of
notes payable to additional paid-in capital.
Class A Common Stock
Auto Town has authorized Common Stock of 30,000,000 shares with a par value
of $0.001 per share. Common Stock shareholders have voting rights equal to
Preferred Stock Series B shareholders on an as-converted basis.
Preferred Stock - Series B
Auto Town has 1,000,000 shares of authorized Series B Preferred Stock
("SBPS") with par value of $0.001 per share. In connection with the
acquisition of certain assets from RAMAC in December, 1998, Auto Town
issued 938,220 shares of SBPS to RAMAC (see note 5). The SBPS converted to
938,220 shares of Auto Town Common Stock on December 31, 1998 when Auto
Town was acquired by FAA (see note 13) which was then converted to
shares of FAA Common Stock on the acquisition date.
Stock Option Plan
During 1997, the Company had reserved 1,500,000 shares of Common Stock for
issuance under its 1997 Stock Option Plan (the "Plan"). Options are
granted to employees, consultants, contractors or other service
providers already owning more than 10% of the voting power of all classes
of stock at 110% of the fair market value on the date of grant.
Consultants, contractors or other service providers owning less than 10% of
the voting power of all classes of stock could be granted nonstatutory
stock options to purchase Common Stock at exercise prices no less than 85%
of the fair market value per share on the date of the grant.
Generally, options granted were exercisable to the extent of 20% on the
anniversary date of each grant and expired 5 years from the grant date.
Information with respect to stock option and stock purchase rights activity
is as follows:
Shares Options Weighted Average
Available for Grant Outstanding Price per Share Exercise Price
----------------------------------------------------------------------------------
Balances, January 1, 1997 - - - -
Authorized 1,500,000 - - -
Grants (505,000) 505,000 $ 0.0067 $0.0067
--------- -------- --------------- -------
Balances, December 31, 1997 995,000 505,000 $ 0.0067 $0.0067
Grants (610,000) 610,000 $ 0.0460 $0.0460
Cancellations 105,520 (105,520) $ 0.0460 $0.0460
Exercises - (581,044) $0.0460-$0.0067 $0.0204
--------- -------- --------------- -------
Balances, December 30, 1998 490,520 428,436 $0.0460-$0.0067 $0.0204
========= ========
- ---------------------------------------------------------------------------------------------------------------------------
F-11
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined consistent with
Financial Accounting Standards Board's SFAS No. 123, the Company's net
loss would not have been materially affected. The fair value of each
option grant under SFAS No. 123 is estimated on the date of grant using
the minimum-value method assuming no dividend yield, a risk-free interest
rate of 4.75% and a weighted average life of one year.
(11) Income Taxes
Prior to December 1, 1997, Auto Town was an S corporation for federal and
state income tax reporting purposes. Federal and state income taxes on the
income of an S corporation are payable by the individual stockholders
rather than the corporation. California state income taxes for S
corporations are 1.5% of pretax income. Auto Town terminated its S
corporation status effective November 30, 1997. Deferred tax assets and
liabilities were immaterial prior to the change in tax status. The
following provision for income taxes reflects the deferred tax assets and
liabilities for the one month period ended December 31, 1997 and year
ended December 31, 1998, the periods for which Auto Town was a C
Corporation. Management does not believe that it is more likely than not
that the deferred tax asset will be realized due to uncertainties arising
from Auto Town's ability to become profitable. Accordingly, a valuation
allowance equal to the net asset amount has been established.
The provision for income taxes consist of the following:
Years ended
December 31,
1998 1997
-------------------- --------------------
Current:
Federal $ - $ -
State 800 800
----- -----
800 800
Deferred:
Federal - -
State - -
----- -----
- -
Total income tax expense $ 800 $ 800
===== =====
Significant components of the deferred tax assets and liabilities are as
follows:
December 31,
1998 1997
--------------------------------
Deferred tax assets:
Net operating loss $ 683,297 $ 69,116
Less: valuation allowance (619,461) (69,116)
--------- --------
63,836 -
Deferred tax liabilities:
Software 63,836 -
--------- --------
Net deferred tax assets $ - $ -
========= ========
F-12
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The
sources and tax effects of the difference are as follows:
1998 1997
--------- ---------
Income tax benefit at statutory rate of 34% $(564,382) $(415,207)
Plus: State tax expense 800 800
Losses prior to change in tax
status to C Corporation - 346,091
Change in valuation allowance 550,345 69,116
Other 14,037 -
--------- ---------
Provision for income taxes $ 800 $ 800
========= =========
Proforma Income Taxes
Prior to December 1, 1997, Auto Town was an S Corporation. For the year
ended December 31, 1997, the pro forma provision for income taxes is equal
to the actual provision for income taxes due to operating losses for the
year.
(12) Related Party Transactions
Since inception, Auto Town's president and chief executive officer has
funded portions of Auto Town's working capital requirements by securing
personal loans which were not guaranteed by Auto Town. Amounts due the
officer totaled $307,516 and $335,173 at December 31, 1998 and 1997,
respectively. The loans to Auto Town were unsecured and bore interest at
15% to 20%, the same rate that was due by the officer to the third
parties.
Auto Town rents its main corporate facility and another location under a
month to month lease from an Auto Town director during 1998 and 1997 for
$25,000 and $23,400, respectively. Rental expense is included in general
and administrative expense in the financial statements.
(13) Subsequent Events
On December 31, 1998, Auto Town was acquired by FAA. No adjustments
related to the acquisition are reflected in the accompanying historical
financial statements.
F-13
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The accompanying unaudited pro forma consolidated financial data of FirstAmerica
Automotive, Inc. (the Company) and DSW & Associates, Inc. present the effect of
the Company's acquisition of DSW & Associates, Inc. as if such acquisition had
occurred at the beginning of the respective periods presented.
The following unaudited pro forma consolidated balance sheet as of September 30,
1998 reflects the historical accounts of the Company as of that date as adjusted
to give effect to the acquisition of DSW & Associates, Inc. as if such
acquisition had occurred on September 30, 1998.
The unaudited pro forma consolidated statement of operations for the nine months
ended September 30, 1998 consists of the Company's unaudited consolidated
statement of operations and the unaudited DSW & Associates, Inc. statement of
operations each for the nine months ended September 30, 1998, together with
unaudited pro forma adjustments that are considered necessary to present fairly
the unaudited pro forma results of operations of both entities as if such
acquisition had occurred on January 1, 1998.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1997 consists of the Company's audited consolidated statement of
operations and the DSW & Associates Inc. audited statement of operations, each
for the year ended December 31, 1997 together with unaudited pro forma
adjustments that are necessary to present fairly the unaudited pro forma
consolidated results of operations of both entities as if the acquisition had
occurred on January 1, 1997.
Such unaudited pro forma adjustments are based on the terms and structure of
the transaction, and include operating adjustments such as software
amortization, interest expense and income taxes.
The following unaudited pro forma financial data may not be indicative of the
results of operations that would have actually occurred had the transaction been
in effect as of the beginning of the respective periods, nor do they purport to
indicate the Company's future results of operations. This information and
accompanying notes should be read in conjunction with the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission on May 14,
1998, its Quarterly Report on Form 10-Q filed on November 16, 1998 and the DSW &
Associates, Inc. audited financial statements included elsewhere in this report
on Form 8-K/A.
PF-1
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
FirstAmerica DSW & Pro Forma
Assets Automotive, Inc. Associates, Inc. Adjustments Pro Forma
- ------ ---------------- ---------------- ----------- ---------
Cash $ 598 $ 99 $ - $ 697
Accounts receivable, net 29,664 29 - 29,693
Inventories, net 76,475 - - 76,475
Prepaid costs-extended warranty service contracts 862 98 (98)(f) 862
Deferred income taxes 676 - - 676
Deposits, prepaid expenses and other 3,521 19 (442)(b) 3,098
-------- ---- ------ --------
Total current assets 111,796 245 (540) 111,501
Property and equipment, net 10,531 45 - 10,576
Other assets:
Prepaid costs-extended warranty service contracts 1,005 - - 1,005
Loan origination and other costs, net 3,152 - - 3,152
Other noncurrent assets 3,001 11 - 3,012
Software and intellectual property, net - 22 2,923 (c) 2,945
Goodwill, net 20,182 - - 20,182
-------- ---- ------ --------
Total assets $149,667 $323 $2,383 $152,373
======== ==== ====== ========
See accompanying notes to unaudited pro forma consolidated financial data.
PF-2
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CON'T)
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS EXCEPT SHARE DATA)
FirstAmerica DSW & Pro Forma
Liabilities and Stockholders' Equity Automotive, Inc. Associates, Inc. Adjustments Pro Forma
- ------------------------------------ ---------------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 20,007 $ 471 $ - $ 20,478
Notes payable and secured lines of credit 89,499 1,741 (1,176) (e) 90,064
Deferred revenues 2,080 36 2,116
Current portion of capital lease obligation - 8 8
-------------------------------------------------------------
Total current liabilities 111,586 2,256 (1,176) 112,666
Long-term liabilities:
Senior notes, net 22,090 22,090
Advance from FAA - 442 196 (b)(d) 638
Deferred income taxes 327 327
Deferred revenues 2,451 200 2,651
Noncurrent portion of capital lease obligation - 11 11
-------------------------------------------------------------
Total liabilities 136,454 2,909 (980) 138,383
8% cumulative redeemable preferred stock, $0.00001
par value; 3,500 shares issued and outstanding 3,026 - - 3,026
Redeemable preferred stock, $0.00001 par value;
500 shares issued and outstanding 522 - - 522
Stockholders' Equity
Common stock - 8 (8) (a) -
Common stock, $0.00001 par value:
Class A, 30,000,000 shares authorized,
11,179,029 shares issued and outstanding - - -
Class B, 5,000,000 shares authorized,
3,032,000 shares issued and outstanding - - -
Class C, 30,000,000 shares authorized,
0 issued and outstanding - - -
Additional paid-in capital 6,544 162 615 (a) 7,321
Retained earnings (accumulated deficit) 3,121 (2,756) 2,756 (a) 3,121
--------------------------------------------------------------
Total shareholders' equity (deficit) 9,665 (2,586) 3,363 10,442
--------------------------------------------------------------
$ 149,667 $ 323 $ 2,383 $ 152,373
==============================================================
See accompanying notes to unaudited pro forma consolidated financial data.
PF-3
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
FirstAmerica DSW & Pro Forma
Automotive, Inc. Associates, Inc. Adjustments Pro Forma
---------------- ---------------- ----------- ---------
Sales:
Vehicle $483,586 $ - $ - $483,586
Service, parts and other 83,568 561 - 84,129
-------- ------- ----- --------
Total sales 567,154 561 - 567,715
Cost of sales 480,086 222 - 480,308
-------- ------- ----- --------
Gross profit 87,068 339 - 87,407
Operating expenses
Selling, general and administrative 71,926 824 - 72,750
Research and development 500 - 500
Depreciation and amortization 1,666 35 435 (g) 2,136
-------- ------- ----- --------
Operating income (loss) 13,476 (1,020) (435) 12,021
Other income (expense):
Interest expense, floor plan (4,172) - - (4,172)
Interest (expense) income, other (3,300) (218) 70 (h) (3,448)
Other income, net - 82 - 82
-------- ------- ----- --------
Income (loss) before income taxes 6,004 (1,156) (365) 4,483
Income tax expense (benefit) 2,582 - (654)(i) 1,928
-------- ------- ----- --------
Net income (loss) $ 3,422 $(1,156) $ 289 $ 2,555
======== ======= ===== ========
Basic earnings per share(k) $ 0.22 $ 0.15
Weighted average shares outstanding(k) 14,215 14,550
Diluted earnings per share(k) $ 0.21 $ 0.15
Weighted average shares outstanding(k) 14,683 15,018
See accompanying notes to unaudited pro forma consolidated financial data.
PF-4
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
FirstAmerica DSW & Pro Forma
Automotive, Inc. Associates, Inc. Adjustments Pro Forma
---------------- ---------------- ----------- ---------
Sales:
Vehicle $401,896 $ - $ - $401,896
Service, parts and other 72,152 532 72,684
-------- ------- --- --------
Total sales 474,048 532 - 474,580
-
Cost of sales 407,074 261 407,335
-------- ------- --- --------
Gross profit 66,974 271 - 67,245
Operating expenses
Selling, general and administrative 61,029 970 61,999
Research and development - 438 438
Depreciation and amortization 873 34 580 (e) 1,487
-------- ------- --- --------
Operating income (loss) 5,072 (1,171) (580) 3,321
-
Other income (expenses): -
Interest expense, floor plan (3,669) - (3,669)
Interest (expense) income, other (1,671) (50) 93 (f) (1,628)
Interest income, net 778 - 778
-------- ------- --- --------
Income (loss) before income taxes 510 (1,221) (487) (1,198)
Income tax expense (benefit) 446 1 (926)(h) (479)
-------- ------- ----- --------
Net income (loss) $ 64 $(1,222) $ 439 $ (719)
======== ======= ===== ========
Basic and diluted loss per share(k) $ (0.01) $ (0.08)
Weighted average shares outstanding(k) 10,915 11,250
See accompanying notes to unaudited pro forma consolidated financial data.
PF-5
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) FAA completed the acquisition of Auto Town on December 31, 1998. The
purchase price of approximately $3.0 million was allocated to net assets
acquired based on their relative fair values, which resulted in an
allocation to software and intellectual property of $2.9 million (see note
c below). The purchase price consisted of 335,015 FAA Class A Common Stock
valued at approximately $0.8 million as well as FAA's assumption of
approximately $2.2 million of liabilities in excess of assets. The paid-in
capital adjustment of $615,000 reflects the $777,000 issuance of Class A
Common Stock at $2.32 per share issued by FAA, net of the elimination of
$162,000 in Auto Town paid-in capital.
(b) Reflects the elimination of $442,500 owed FAA by Auto Town as of September
30, 1998, which is also eliminated from FAA prepaid expenses and other
assets.
(c) The adjustment to capitalized software totalling $2.9 million includes the
fair market value of FAA Class A Common stock of approximately $0.8 million
and liabilities assumed in excess of assets (including the reclassification
of RAMAC software acquired of $98,000, see note f below) of $2.2 million.
(d) Reflects additional liabilities assumed by Auto Town of $638,000 between
September 30, 1998 and December 31, 1998, which were included in the
purchase price.
(e) Simultaneous with the acquisition, Auto Town Series B Convertible Preferred
Note Holders received shares of FAA Class A Common Stock in exchange for
all outstanding convertible notes payable of approximately $1,176,000
including interest.
(f) As of September 30, 1998, Auto Town had paid RAMAC approximately $98,000 in
contemplation of the acquisition of certain RAMAC assets. The acquisition
was completed in December, 1998. This adjustment reflects the
reclassification of the payment to capitalized software.
(g) Amortization of acquired software and intellectual property of
approximately $2.9 million using a five year estimated useful life is
approximately $435,000 and $580,000 for the nine month period ended
September 30, 1998 and year ended December 31, 1997, respectively.
(h) Incremental interest expense reduction is based on FAA's interest rate on
relevant debt facilities used to finance the acquisition, compared to an
average Auto Town interest rate on debt of approximately 15%, which
totalled $70,000 and $93,000 for the nine months ended September 30, 1998
and year ended December 31, 1997, respectively.
(i) This adjustment reflects the decrease in the combined income tax provision
as if Auto Town had been taxable at the FAA combined effective income tax
rate of approximately 43% in 1998 for the nine months ended September 30,
1998.
(j) This adjustment reflects the decrease in the combined income tax provision
to a combined effective income tax benefit rate of 40% for the year ended
December 31, 1997.
(k) Pro forma basic and diluted net income per share and the related weighted
average shares outstanding for the nine months ended September 30, 1998 and
year ended December 31, 1997 have been adjusted to reflect the effect of
the issuance of 335,015 shares of Class A Common Stock in connection with
the acquisition of DSW & Associates, Inc. For purposes of calculating basic
earnings per share for the nine months ended September 30, 1998 and the
year ended December 31, 1997, pro forma net income of $2.6 million and the
pro forma net loss of $0.7 million, respectively, is reduced by cumulative
redeemable preference dividends of $210,000 and $128,000, redeemable
preferred stock liquidation preference accretion of $50,000 and $40,000,
and cumulative redeemable preferred stock and redeemable preferred stock
discount amortization of $60,000 and $45,000, respectively. This net income
available to common stockholders of $2.2 million and $(0.9) million is then
divided by the weighted average shares outstanding. The diluted earnings
per share for the year ended December 31, 1997 does not include dilutive
securities, such as options and warrants, as their inclusion would be anti-
dilutive.
PF-6