PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V.
AND SELECTED SUBSIDIARIES
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY SCHEDULES
FOR THE YEAR DECEMBER 31, 1997
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V.
AND SELECTED SUBSIDIARIES
Table of Contents
December 31, 1997
- --------------------------------------------------------------------------------
Independent Auditors' Report............................................................... 1
Consolidating Balance Sheet - Assets, Liabilities and Stockholders' Equity................. 2-3
Consolidating Statement of Income (Loss)................................................... 4
Consolidating Statement of Changes in Stockholders' Equity................................. 5
Consolidating Statement of Cash Flows...................................................... 6-7
Notes to Consolidating Financial Statements................................................ 8-18
Supplementary Schedules:
Combining Balance Sheet - Assets, Liabilities and Stockholders' Equity.................. 19-20
Combining Statement of Income (Loss) and Retained Earnings (Deficit).................... 21
Combining Statement of Cash Flows....................................................... 22-23
Board of Directors
Promotora de Franquicias Praxis, S.A. de C.V.
Monterrey, N.L. Mexico
INDEPENDENT AUDITORS' REPORT
We have audited the consolidating balance sheet of Promotora de Franquicias
Praxis, S.A. de C.V. and selected subsidiaries as of December 31, 1997 and the
related consolidating statements of income (loss), changes in stockholders'
equity, and cash flows for the year then ended. 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 did not audit
the financial statement of Praxis Afinaciones en Puerto Rico Inc. and its
respective subsidiaries, which statements reflect total assets of $320,587 as of
December 31, 1997 and total revenues of $49,510 for the year then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Praxis
Afinaciones en Puerto Rico, Inc. and its respective subsidiaries, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Promotora de Franquicias
Praxis, S.A. de C.V. and selected subsidiaries as of December 31, 1997 and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the
consolidating basic financial statements taken as a whole. The accompanying
supplementary information is presented for purposes of additional analysis and
is not a required part of the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audit of the basic
financial statements.
BORLAND, BENEFIELD, CRAWFORD & WEBSTER, P.C.
March 30, 1998
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING BALANCE SHEET -
ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
AT DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Parent Selected Unadjusted Eliminating Entries Consolidated
Company Subsidiaries Balance Debit Credit Balances
------- ------------ ---------- ----- ------ ------------
ASSETS
Current assets:
Cash.............................. $ 24,335 $ 103,720 $ 128,055 $ 0 $ 0 $ 128,055
Receivables:
Trade........................... 0 917,369 917,369 0 0 917,369
Intercompany.................... 23,654 10,734 34,388 0 26,678 7,710
Income taxes.................... 9,934 14,611 24,545 0 0 24,545
Other........................... 0 13,436 13,436 0 0 13,436
Inventories....................... 0 235,107 235,107 0 0 235,107
Prepaid expenses.................. 0 7,207 7,207 0 0 7,207
Deferred tax benefit, net of
reserve of $246,639.............. 253,200 259,994 513,194 0 0 513,194
----------- ------------- ----------- ----------- ----------- -----------
Total current assets............ 311,123 1,562,178 1,873,301 0 26,678 1,846,623
----------- ------------- ----------- ----------- ----------- -----------
Investment in subsidiaries............ 3,291,350 0 3,291,350 0 2,145,340 1,146,010
----------- ------------- ----------- ----------- ----------- -----------
Property:
Machinery and equipment........... 0 226,958 226,958 0 0 226,958
Office equipment.................. 34,179 62,206 96,385 0 0 96,385
Computer equipment................ 28,657 82,224 110,881 0 0 110,881
Vehicles.......................... 0 23,597 23,597 0 0 23,597
Leasehold improvements............ 0 168,209 168,209 0 0 168,209
Tools............................. 0 49,380 49,380 0 0 49,380
Signs............................. 0 19,685 19,685 0 0 19,685
Equipment under capital
lease............................ 0 90,730 90,730 0 0 90,730
----------- ------------- ----------- ----------- ----------- -----------
Total property.................. 62,836 722,989 785,825 0 0 785,825
Less - accumulated
depreciation................... (46,715) (173,729) (220,444) 0 0 (220,444)
----------- ------------- ----------- ----------- ----------- -----------
Property, net................... 16,121 549,260 565,381 0 0 565,381
----------- ------------- ----------- ----------- ----------- -----------
Other assets:
Franchises, net of
amortization of $147,578......... 0 112,417 112,417 0 0 112,417
Deferred startup expenses......... 4,196 6,550 10,746 0 0 10,746
Other assets...................... 0 12,000 12,000 0 0 12,000
----------- ------------- ----------- ----------- ----------- -----------
Total other assets.............. 4,196 130,967 135,163 0 0 135,163
----------- ------------- ----------- ----------- ----------- -----------
Total Assets.................... $ 3,622,790 $ 2,242,405 $ 5,865,195 $ 0 $ 2,172,018 $ 3,693,177
=========== ============= =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
2
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING BALANCE SHEET -
ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
AT DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Parent Selected Unadjusted Eliminating Entries Consolidated
Company Subsidiaries Balance Debit Credit Balances
------- ------------ ---------- ----- ------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank.............. $ 0 $ 1,987 $ 1,987 $ 0 $ 0 $ 1,987
Note payable to affiliate......... 2,782,538 0 2,782,538 0 0 2,782,538
Accrued interest payable.......... 839,445 0 839,445 0 0 839,445
Current portion of capital
lease obligations................ 0 15,979 15,979 0 0 15,979
Accounts payable.................. 2,600 183,612 186,212 0 0 186,212
Intercompany payables............. 0 38,067 38,067 26,678 0 11,389
Taxes payable..................... 0 80,812 80,812 0 0 80,812
Other payables.................... 0 37,497 37,497 0 0 37,497
Other accrued liabilities......... 0 106,938 106,938 0 0 106,938
----------- ------------- ----------- ----------- ----------- -----------
Total current liabilities..... 3,624,583 464,892 4,089,475 26,678 0 4,062,797
----------- ------------- ----------- ----------- ----------- -----------
Long-term liabilities:
Obligations under capital
lease............................ 0 69,567 69,567 0 0 69,567
Franchise payables................ 0 61,048 61,048 0 0 61,048
Intercompany accounts
payable.......................... 0 1,563 1,563 0 0 1,563
Deferred franchise income......... 0 199,981 199,981 0 0 199,981
----------- ------------- ----------- ----------- ----------- -----------
Total long-term liabilities... 0 332,159 332,159 0 0 332,159
----------- ------------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock - Class A -
Fixed............................ 2,929 139,550 142,479 139,550 0 2,929
Common stock - Class B -
Variable......................... 1,253,165 2,005,790 3,258,955 2,005,790 0 1,253,165
Retained earnings (deficit)....... (1,254,212) (121,092) (1,375,304) 0 0 (1,375,304)
Translation adjustments........... (3,675) (578,894) (582,569) 0 0 (582,569)
----------- ------------- ----------- ----------- ----------- -----------
Total stockholders'
equity (deficit)............. (1,793) 1,445,354 1,443,561 2,145,340 0 (701,779)
----------- ------------- ----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity........ $ 3,622,790 $ 2,242,405 $ 5,865,195 $ 2,172,018 $ 0 $ 3,693,177
=========== ============= =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------
Parent Selected Unadjusted Eliminating Entries Consolidated
Company Subsidiaries Balance Debit Credit Balances
------- ------------ ---------- ----- ------ --------
NET SALES............................. $ 447,763 $ 5,150,168 $ 5,597,931 $ 407,655 $ 0 $ 5,190,276
COST OF SALES......................... 47,350 3,592,350 3,639,700 0 407,655 3,232,045
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT.......................... 400,413 1,557,818 1,958,231 407,655 407,655 1,958,231
OPERATING EXPENSES.................... 62,108 1,517,557 1,579,665 0 0 1,579,665
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM
OPERATIONS........................... 338,305 40,261 378,566 407,655 407,655 378,566
----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Loss in currency exchange......... (93,055) (16,001) (109,056) 0 0 (109,056)
Gain on sale of assets............ 1,047 26,415 27,462 0 0 27,462
Interest income................... 0 3,531 3,531 0 0 3,531
Loss from unconsolidated
subsidiaries..................... (18,233) 0 (18,233) 0 0 (18,233)
Other expense..................... 0 (132,248) (132,248) 0 0 (132,248)
Interest expense.................. (325,115) 0 (325,115) 0 0 (325,115)
----------- ----------- ----------- ----------- ----------- -----------
Other expense, net............ (435,356) (118,303) (553,659) 0 0 (553,659)
----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME
TAX BENEFIT.......................... (97,051) (78,042) (175,093) 0 0 (175,093)
INCOME TAX BENEFIT.................... 0 85,727 85,727 0 0 85,727
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)..................... $ (97,051) $ 7,685 $ (89,366) $ 407,655 $ 407,655 $ (89,366)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Retained Total
Class A Class B Earnings Translation Stockholders'
Fixed Variable (Deficit) Adjustments Equity
----- -------- --------- ----------- -------------
Parent Company:
Balance, December 31, 1996,
as originally reported.................... $ 2,929 $ 1,253,165 $ (1,410,361) $ (409,925) $ (564,192)
Prior period adjustment.................... 0 0 253,200 0 253,200
----------- ------------- ------------- ----------- --------------
Balance, December 31, 1996,
as restated............................... 2,929 1,253,165 (1,157,161) (409,925) (310,992)
Net income................................. 0 0 (97,051) 0 (97,051)
Translation adjustment..................... 0 0 0 406,250 406,250
----------- ------------- ------------- ----------- --------------
Balance, December 31, 1997................. 2,929 1,253,165 (1,254,212) (3,675) (1,793)
----------- ------------- ------------- ----------- --------------
Selected Subsidiaries:
Balance, December 31, 1996,
as originally reported.................... 129,550 847,586 (193,574) (363,130) 420,432
Prior period adjustment.................... 0 0 64,797 0 64,797
----------- ------------- ------------- ----------- --------------
Balance, December 31, 1996,
as restated............................... 129,550 847,586 (128,777) (363,130) 485,229
Stock issued............................... 10,000 1,158,204 0 0 1,168,204
Net income................................. 0 0 7,685 0 7,685
Translation adjustments.................... 0 0 0 (215,764) (215,764)
----------- ------------- ------------- ----------- --------------
Balance, December 31, 1997................. 139,550 2,005,790 (121,092) (578,894) 1,445,354
----------- ------------- ------------- ----------- --------------
Total............................. 142,479 3,258,955 (1,375,304) (582,569) 1,443,561
Eliminations............................... (139,550) (2,005,790) 0 0 (2,145,340)
----------- ------------- ------------- ----------- --------------
Balance, December 31, 1997................. $ 2,929 $ 1,253,165 $ (1,375,304) $ (582,569) $ (701,779)
=========== ============= ============= =========== ==============
The accompanying notes are an integral part of these financial statements.
5
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
Parent Selected Unadjusted Eliminating Entries Consolidated
Company Subsidiaries Balance Debit Credit Balances
------- ------------ ---------- ----- ------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income...................... $ (97,051) $ 7,685 $ (89,366) $ 0 $ 0 $ (89,366)
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation and
amortization.................... 3,094 110,945 114,039 0 0 114,039
Gain on sale of assets........... (1,047) (26,415) (27,462) 0 0 (27,462)
Loss on unconsolidated
subsidiary ..................... 18,233 0 18,233 0 0 18,233
(Increase) decrease in:
Accounts receivable:
Trade..................... 0 (491,318) (491,318) 0 0 (491,318)
Intercompany.............. (19,250) (255,502) (274,752) 0 0 (274,752)
Income taxes.............. (8,033) 21,914 13,881 0 0 13,881
Other..................... 0 39,256 39,256 0 0 39,256
Inventories.................. 0 (107,680) (107,680) 0 0 (107,680)
Prepaid expenses............. 0 880 880 0 0 880
Deferred taxes............... 101,225 (94,964) 6,261 0 0 6,261
Other assets................. 109 14,246 14,355 0 0 14,355
Increase (decrease) in:
Accounts payable............. 2,228 107,707 109,935 0 0 109,935
Intercompany payables........ 0 (771,481) (771,481) 0 0 (771,481)
Taxes payable................ (13,566) 36,271 22,705 0 0 22,705
Other payables............... (5,170) 5,128 (42) 0 0 (42)
Increase in deferred
franchise revenue............... 0 96,544 96,544 0 0 96,544
Increase in franchise
payables ...................... 0 16,112 16,112 0 0 16,112
Accrued liabilities............. 324,803 41,755 366,558 0 0 366,558
----------- ----------- ----------- ----------- ----------- -----------
Net cash from operating
activities..................... 305,575 (1,248,917) (943,342) 0 0 (943,342)
----------- ----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investments in subsidiaries......... (1,090,909) 0 (1,090,909) 0 0 (1,090,909)
Proceeds from sale of
property.......................... 1,047 45,280 46,327 0 0 46,327
Purchases of property............... 0 (82,922) (82,922) 0 0 (82,922)
Leasehold improvements.............. 0 (94,002) (94,002) 0 0 (94,002)
Deposit on lease contract........... 0 (12,000) (12,000) 0 0 (12,000)
----------- ----------- ----------- ----------- ----------- -----------
Net cash from investing
activities..................... (1,089,862) (143,644) (1,233,506) 0 0 (1,233,506)
----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
6
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
Parent Selected Unadjusted Eliminating Entries Consolidated
Company Subsidiaries Balance Debit Credit Balances
------- ------------ ---------- ----- ------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances received from
parent company................... $ 0 $ 342,788 $ 342,788 $ 0 $ 0 $ 342,788
Borrowing of long-term debt....... 317,097 1,987 319,084 0 0 319,084
Payments on obligation under
capital lease.................... 0 (5,184) (5,184) 0 0 (5,184)
Proceeds from sale of
common stock..................... 0 1,074,770 1,074,770 0 0 1,074,770
----------- ----------- ----------- ----------- ----------- -----------
Net cash from financing
activities................... 317,097 1,414,361 1,731,458 0 0 1,731,458
----------- ----------- ----------- ----------- ----------- -----------
Effect of exchange rate change
on cash and cash equivalents......... (16,467) (15,987) (32,454) 0 0 (32,454)
Remeasurement of 1996
ending balances...................... 312,699 0 312,699 0 0 312,699
Loss on currency exchange............. 93,055 0 93,055 0 0 93,055
----------- ----------- ----------- ----------- ----------- -----------
Net effect of exchange
rate change.................... 389,287 (15,987) 373,300 0 0 373,300
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash....... (77,903) 5,813 (72,090) 0 0 (72,090)
Cash - Beginning of year.............. 102,238 97,907 200,145 0 0 200,145
----------- ----------- ----------- ----------- ----------- -----------
Cash - End of year.................... $ 24,335 $ 103,720 $ 128,055 $ 0 $ 0 $ 128,055
=========== =========== =========== =========== =========== ===========
OTHER NON-CASH AND
INVESTMENT ACTIVITY:
Property and equipment
acquired through capital lease..... $ 0 $ 90,730 $ 90,730 $ 0 $ 0 $ 90,730
=========== =========== =========== =========== =========== ===========
Interest paid....................... $ 0 $ 3,529 $ 3,529 $ 0 $ 0 $ 3,529
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
7
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING GROUP
The group of companies being reported on in the accompanying
consolidating financial statements include the following:
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. (PROMOTORA) - This
company is located in the City of Monterrey, Mexico and was
established on November 11, 1991 under the laws of the Mexican
Republic, and is in the business of providing management services
to its subsidiaries. Promotora is the parent company of six
Mexican and one Puerto Rican subsidiaries. All of these
subsidiaries are wholly-owned except for one Mexican subsidiary
(Praxis Autopartes, S.A. de C.V.) in which Promotora owns an 85%
interest.
These subsidiary companies are divided into two groups:
(1) Selected subsidiaries - Those which are included in the
accompanying consolidating financial statements.
(2) Other subsidiaries - Those not included in the accompanying
consolidating financial statements.
Selected subsidiaries consist of the following entities:
PRAXIS AFINACIONES, S.A. DE C.V. - This company is located in the
City of Monterrey, Mexico and was established on May 11, 1992 under
the laws of the Mexican Republic. The company is in the business of
the promotion and sale of franchises for automobile tuning and
brake repairs and related assistance to its franchisees in the
operation of their businesses.
The four wholly owned subsidiaries of Praxis Afinaciones, S.A. de
C.V., all of which are involved in auto tuning and brake repairs as
their main business activities under franchise agreements with
their parent company, are as follows:
a. Sixar Afinaciones, S.A. de C.V., in the City of Monterrey,
Mexico
b. Premier Accesorios, S.A. de C.V., in the City of Mexico City,
Mexico
c. Sixar Guadalajara, S.A. de C.V., in the City of Guadalajara,
Mexico
d. Sixar Occidente, S.A. de C.V., in the City of Guadalajara,
Mexico
PRAXIS AUTOPARTES, S.A. DE C.V. - This company was established on
June 24, 1996 under the laws of the Mexican Republic. This company
is located in the City of Monterrey, Mexico, and its main business
activity is the sale of auto parts and supplies to the subsidiaries
and other franchisees of Praxis Afinaciones, S.A. de C.V.
8
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING GROUP (Continued)
PRAXIS AFINACIONES PUERTO RICO, INC. - This company was established
on December 10, 1996 under the laws of Puerto Rico. The company's
main business activity is the promotion and sale of franchises in
Puerto Rico for auto tuning and brake repairs and related
assistance to its franchisees in the operation of their businesses.
SIXAR AFINACIONES, PUERTO RICO, INC. - This company is a wholly
owned subsidiary of Praxis Afinaciones Puerto Rico, Inc. and is
located in Puerto Rico. Its main business activity is auto tuning
and brake repairs under its franchise agreement with its parent
company.
Other subsidiaries consist of the following entities:
Praxis Accesorios, S.A. de C.V. and Subsidiary
Praxis Pintoras, S.A. de C.V. and Subsidiary
Praxis Bienes Raices, S.A. de C.V. and Subsidiary
Inversora Automotriz, S.A. de C.V. and Subsidiary
See Note 4 for details of Promotora's investment in these other
subsidiaries and Note 14 for information about the sale of these
entities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy - The accompanying consolidating financial
statements of Promotora de Franquicias Praxis, S.A. de C.V. and
selected subsidiaries include the accounts of these companies and
all their wholly owned subsidiaries. The statements are prepared
for the proposed subscription and stock purchase agreement by a
to-be- formed subsidiary of Precision Auto Care, Inc. of the United
States. All material intercompany transactions and balances have
been eliminated in consolidation.
Depreciation - The cost of property and equipment is depreciated
over the useful lives of the related assets. The cost of leasehold
improvements is amortized over the lesser of the length of the
related leases or the estimated useful lives of the assets.
Depreciation and amortization are computed using the straight-line
method.
9
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory Method - Inventories of the Mexican companies are stated
at replacement cost which approximates the lower of first-in
first-out basis cost or market. The inventory of the Puerto Rico
company and its subsidiary is stated at the lower of cost,
determined by the first-in first-out basis, or market.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Franchise Revenue Recognition - Revenue from sales of individual
franchises is generally recognized in four stages when
substantially all significant services to be provided by the
company at each of these four stages have been performed.
NOTE 3 - FRANCHISE AGREEMENTS
In July 1992, Praxis Afinaciones, S.A. de C.V. acquired the
exclusive franchise agreements to establish and operate "Precision
Tune Centers" Automobile Service Centers for a period of 20 years
in the Mexican Republic. In November 1997, the company acquired the
same franchise rights for Puerto Rico, operated by Praxis
Afinaciones, Puerto Rico, Inc.
In Mexico, revenue from the sales of individual franchises is
generally recognized in four stages when substantially all
significant service to be provided by the company has been
performed. The company pays the franchisor an opening fee of $500
to $5,000, on a sliding scale, on the first eighty franchises sold
until a total of $205,000 of such fees have been paid. Opening fees
were expensed in the amount of $52,500 during the year ended
December 31, 1997. In addition, the company must pay the franchisor
a royalty fee of 1% to 2%, on a sliding scale, of gross revenues
earned by the company's franchisees in Mexico.
In Puerto Rico, the company pays the franchisor a royalty fee of 2%
of the first $10,000,000 and 1.5% of the excess thereof of gross
revenues of the company's franchisees in Puerto Rico.
10
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 4 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
At December 31, 1997, Promotora's investment in unconsolidated
subsidiaries consisted of the following:
Praxis Accesorios, S.A. de C.V.
-------------------------------
Series A Capital stock - Fixed.................................................. $ 5,302
Series B Capital stock - Variable............................................... 292,273
Net accumulated loss............................................................ (45,851)
-------------
Total investment in subsidiary.......................................... 251,724
-------------
Praxis Pintoras, S.A. de C.V.
-----------------------------
Series A Capital stock - Fixed.................................................. 15,873
Series B Capital stock - Variable............................................... 136,509
Net accumulated loss............................................................ (8,843)
-------------
Total investment in subsidiary............................................ 143,539
-------------
Praxis Bienes Raices, S.A. de C.V.
----------------------------------
Series A Capital stock - Fixed.................................................. 21,426
Series B Capital stock - Variable............................................... 642,808
Net accumulated loss............................................................ (12,601)
-------------
Total investment in subsidiary............................................ 651,633
-------------
Inversora Automotriz, S.A. de C.V.
----------------------------------
Series A Capital stock.......................................................... 99,114
-------------
Total investment in unconsolidated subsidiaries........................... $ 1,146,010
=============
NOTE 5 - DEPRECIATION
Depreciation expense charged to operations was $114,039 for the
year ended December 31, 1997.
11
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE
Notes payable at December 31, 1997 consisted of nine notes payable
to Desarollo Integrado, S.A. de C.V., one of the stockholders of
Promotora. All of the notes are due on demand, bear interest at 10%
per annum and are uncollateralized. These notes, which at December
31, 1997 totaled $2,782,538, were funded in and both the principal
and interest thereon are payable in U.S. dollars. Accrued interest
on these notes at December 31, 1997 totaled $839,445. These notes,
together with the interest thereon, are to be paid in full on or
about March 31, 1998. The accrued interest will be paid at a
substantial discount as follows:
Total interest due at March 31, 1998.................................................. $ 938,845
Less - Interest to be paid............................................................ 552,432
------------
Discount on accrued interest.......................................................... $ 386,413
============
NOTE 7 - CAPITAL STOCK
The capital stock of the consolidated companies Promotora de
Franquicias Praxis, S.A. de C.V. and selected subsidiaries, except
for Praxis Afinaciones Puerto Rico, Inc., was issued under Mexican
law, which establishes Series A fixed common stock and Series B
variable common stock. Increases in the number of shares of Series
A stock outstanding require the approval of the majority of the
stockholders, while decreases require the approval of both the
creditors and the stockholders.
Series B variable stock can be increased or decreased at the
election of the stockholders. Both series of stocks carry the same
rights and obligations for the stockholders as common shares.
Praxis Afinaciones Puerto Rico, Inc. and its consolidated
subsidiary are incorporated under the laws of Puerto Rico, a
territory of the United States.
The par value of the companies' shares is as follows:
Promotora de Franquicias Praxis, S.A. de C.V. $ 1.00 (One Peso)
Praxis Afinaciones, S.A. de C.V. $ 1.00 (One Peso)
Praxis Autopartes, S.A. de C.V. $ 1,000.00 (One Thousand Pesos)
Praxis Afinaciones Puerto Rico, Inc. $ 100.00 (One Hundred Dollars)
12
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 7 - CAPITAL STOCK (Continued)
The capital stock of Promotora de Franquicias S.A. de C.V.
consisted of the following at December 31, 1997:
Class Account Balance 12/31/97
--------------- -----------------------------
Class A - Fixed Pesos Dollars
--------------- ------- ---------
Authorized - 9,000 shares
Issued and outstanding - 9,000 shares $ 9,000 $ 2,929
Class B - Variable
------------------
Authorized - 3,861,000 shares
Issued and outstanding - 3,861,000 shares 3,861,000 1,253,165
NOTE 8 - CORRECTION OF REVENUE FROM SALE OF FRANCHISES
During 1997, Praxis Afinaciones, S.A. de C.V. corrected the
recording of revenue from the sale of franchises. Previously,
franchise fees had been recognized as revenue at the time payment
was received. As a result of the correction, revenue from the sale
of franchises is recognized in four phases over the period from the
signing of the franchise agreement to the opening of the franchise,
thereby resulting in a better matching of cost and revenue by
period.
The resulting correction for 1996 had the effect of reducing 1996
revenues by $103,437 (a prior period adjustment was made for this
item) and increasing 1997 revenues by a corresponding amount. The
resulting adjustment for 1997 had the effect of reducing 1997
revenues by $199,881 and increasing future revenues by a
corresponding amount. The net effect on 1997 was a revenue decrease
of $96,444. Periods prior to 1996 were not materially affected by
this change.
NOTE 9 - OBLIGATIONS UNDER CAPITALIZED LEASES
Praxis Afinaciones Puerto Rico, Inc. and subsidiary lease vehicles,
machinery and shop equipment under capitalized lease agreements
that expire in 2001 and 2002. The corresponding assets and
liabilities under the capitalized lease agreements were recorded at
a reasonable value for the leased property or, if it went lower, at
the present value of the minimum payments stipulated in the lease
agreements. Capitalized lease property totaling $90,730 is included
in machinery and equipment in the accompanying consolidating
balance sheet.
13
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 9 - OBLIGATIONS UNDER CAPITALIZED LEASES (Continued)
Future minimum payments under the capitalized lease agreements are
as follows:
Years Ended December 31:
1998.............................................................................. $ 24,664
1999.............................................................................. 24,221
2000.............................................................................. 24,221
2001.............................................................................. 24,563
2002.............................................................................. 14,178
-------------
Total of Minimum Lease Payments............................................. 111,847
Less - Amount Representing Interest......................................... 26,301
-------------
Net Value of the Capital Lease Obligations.................................. 85,546
Less - Current portion...................................................... 15,979
-------------
Obligation under capital lease.............................................. $ 69,567
=============
NOTE 10 - OPERATING LEASES
The companies that are part of this reporting group have entered
into operating leases as follows:
Praxis Afinaciones, S.A. de C.V. and subsidiaries are parties, as
subleases from an affiliated Mexican corporation, Praxis Bienes
Raices, S.A., de C.V., to four leases of real property, all for a
period of ten years, and that expire on various dates through July
31, 2007. Total lease payments for the year ended December 31,
1997 were $231,674. The lease agreements can be canceled by either
party with a notice period ranging from three to six months.
Future minimum lease payments for this company and its
subsidiaries are as follows:
Years ended December 31:
1998 .......................................................................... $ 199,200
1999 .......................................................................... 199,200
2000 .......................................................................... 199,200
2001 .......................................................................... 199,200
2002 .......................................................................... 175,035
Thereafter...................................................................... 476,293
----------
Total minimum lease payments.............................................. $1,448,128
==========
14
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 10 - OPERATING LEASES
Praxis Autopartes, S.A. de C.V. leases its location, as a sublease
from an affiliated Mexican corporation, Praxis Bienes Raices, S.A.
de C.V., under a fifteen year agreement that expires on August 20,
2012. Total lease payments under this lease for the year ended
December 31, 1997 were $10,152. This lease agreement can be
canceled by either party with six months prior notice.
Future minimum lease payments for this company and its
subsidiaries are as follows:
Years ended December 31:
1998 .......................................................................... $ 11,904
1999 .......................................................................... 11,904
2000 .......................................................................... 11,904
2001 .......................................................................... 11,904
2002 .......................................................................... 11,904
Thereafter...................................................................... 114,080
----------
Total minimum lease payments.............................................. $ 173,600
==========
Praxis Afinaciones Puerto Rico, Inc. and subsidiary lease their
facilities under a lease agreement that expires on March 10, 2007,
renewable for an additional period of ten years. Lease payments for
the year ended on December 31, 1997 were $33,978. The lease
agreement can be canceled by either party with six months prior
notice.
Future minimum lease payments for this company and its subsidiaries
are as follows:
Amount
------
Years ended December 31:
1998 .......................................................................... $ 75,060
1999 .......................................................................... 75,060
2000 .......................................................................... 75,060
2001 .......................................................................... 75,060
2002 .......................................................................... 75,060
Thereafter...................................................................... 319,005
----------
Total minimum lease payments.............................................. $ 694,305
==========
15
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS
Praxis Autopartes, S.A. de C.V. had sales to the subsidiaries of
Praxis Afinaciones, S.A. de C.V. which were eliminated in the
previously combined statements of selected subsidiaries in the
amount of $202,104 at December 31, 1997. Management and other
fees charged by Promotora to the selected subsidiaries have been
eliminated in the accompanying consolidating income statement.
NOTE 12 - ADVERTISING EXPENSE
For the year ended December 31, 1997, the advertising expense for
Praxis Afinaciones, S.A. de C.V. and subsidiaries were $185,279.
Advertising expenses for Praxis Afinaciones Puerto Rico, Inc. for
the year ended December 31, 1997 was $16,567.
NOTE 13 - INCOME TAXES
Income taxes are recorded for tax effects of transactions reported
in the financial statements and consist of taxes currently due or
receivable plus deferred taxes due or receivable. The deferred tax
assets shown on the accompanying combined balance sheets reflect
the future benefit from unused operating loss carryforwards
available at December 31, 1997, which expire through 2007 for the
Mexican companies and through 2012 for the Puerto Rican companies.
For the Mexican companies, these tax benefits arise from the fact
that tax basis income or loss is arrived at using actual
purchases, rather than cost of sales. Because of the potential
significance of this timing difference in decreasing tax basis
income, it is not unusual for Mexican companies to show benefits
from income taxes (computed at 34% of the tax basis loss) that
appear unusually high in relation to financial statement income or
loss before taxes.
The deferred tax benefit for the year ended December 31, 1997 was
$513,194. Because the deferred tax asset relating to the future
tax benefit of operating loss carryforwards had not been
previously reflected on the company's financial statements, it was
necessary to make a prior period adjustment at December 31, 1997
of $427,466 ($253,200 for Promotora and $174,266 for the
consolidated subsidiaries).
16
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 13 - INCOME TAXES (Continued)
A reserve of $246,639 has been established against the Promotora
deferred tax benefit of $499,839 for a net deferred tax benefit of
$253,200. This net deferred tax asset represents the tax effect of
the sale of the unconsolidated subsidiaries (see Note 14) and of
the discount to be realized on the payment of accrued interest
payable (see Note 5).
NOTE 14 - FOREIGN CURRENCY TRANSLATION
Because Mexico meets the definition of a hyper-inflationary
economy, the balance sheets and income statements of all Mexican
entities included in the accompanying combined financial
statements have been translated into dollars using both current
and historical rates of exchange.
The net adjustment for foreign currency translation reflected in
the stockholders' equity section of the accompanying consolidating
balance sheet was $(582,569) at December 31, 1997.
Although the exchange rate change subsequent to the financial
statement date has been significant (from 8.064 to 1 at December
31, 1997 to 8.564 to 1 as of March 20, 1998), no attempt has been
made to reflect the effect of this change on the accompanying
financial statements.
NOTE 15 - SUBSEQUENT EVENT
In March 1998, Promotora entered into contracts to sell all of its
stock in the "Other Subsidiaries" indicated in Note 1 on the
following basis:
Sale Price
----------------------------
Subsidiary: Pesos Dollars(1)
----------- ------- ------------
Praxis Accesorios, S.A. de C.V. and Subsidiary................... $ 2,626,878 $ 325,754
Praxis Pintoras, S.A. de C.V. and Subsidiary..................... 3,724,001 461,806
Praxis Bienes Raices, S.A. de C.V. and
Subsidiary..................................................... 9,253,820 1,147,547
Inversora Automotriz, S.A. de C.V. and
Subsidiary..................................................... 1,576,575 195,508
--------------- --------------
Total sale price......................................... $ 17,181,274 $ 2,130,615
=============== ==============
(1) Based on the December 31, 1997 exchange rate of $8.064 pesos per dollar.
17
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND
SELECTED SUBSIDIARIES
Notes to Consolidating Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 15 - SUBSEQUENT EVENT (Continued)
Although these sales, all of which were to related parties, were
consummated on March 18, 1998, the effective date of all of the
transactions, per the sales agreements, was December 31, 1997. The
gain to be realized on the sales of the subsidiaries will be as
follows:
Total sale price.................................................................... $ 2,130,615
Investment in the subsidiaries...................................................... 1,146,010
--------------
Gain on sale................................................................ $ 984,605
==============
The tax effect of the sale, at the effective 34% rate, will be
$121,820.
NOTE 16 - RISK AND UNCERTAINTIES
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
18
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
COMBINING BALANCE SHEET -
ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Praxis Praxis
Afinaciones, Afinaciones
S.A. de C.V. Praxis Puerto Rico, Combining Entries Combined
and Autopartes Inc. and Unadjusted ----------------- Balance
Subsidiaries S.A. de C.V. Subsidiary Balance DR CR 12/31/97
------------ ------------ ------------ ---------- ---- ---- --------
ASSETS
Current assets:
Cash......................... $ 96,550 $ 310 $ 6,860 $ 103,720 $ 0 $ 0 $ 103,720
Receivables:
Trade...................... 699,109 216,591 1,669 917,369 0 0 917,369
Intercompany............... 340,751 11,208 0 351,959 0 341,225 10,734
Income taxes............... 11,529 3,082 0 14,611 0 0 14,611
Other...................... 13,364 72 0 13,436 0 0 13,436
Inventories.................. 73,575 136,207 25,325 235,107 0 0 235,107
Deferred taxes............... 201,071 5,824 53,099 259,994 0 0 259,994
Prepaid expenses............. 3,347 258 3,602 7,207 0 0 7,207
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total current assets....... 1,439,296 373,552 90,555 1,903,403 0 341,225 1,562,178
----------- ---------- ----------- ---------- ---------- ---------- ----------
Property:
Machinery and equipment...... 226,958 0 0 226,958 0 0 226,958
Office equipment............. 44,428 3,474 14,304 62,206 0 0 62,206
Computer equipment........... 76,194 6,030 0 82,224 0 0 82,224
Vehicles..................... 20,881 2,716 0 23,597 0 0 23,597
Leasehold improvements....... 74,207 0 94,002 168,209 0 0 168,209
Tools........................ 42,645 0 6,735 49,380 0 0 49,380
Signs........................ 0 0 19,685 19,685 0 0 19,685
Machinery and equipment
under capital leases........ 0 0 90,730 90,730 0 0 90,730
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total property............. 485,313 12,220 225,456 722,989 0 0 722,989
Less - accumulated
depreciation.............. (163,296) (3,009) (7,424) (173,729) 0 0 (173,729)
----------- ---------- ----------- ----------- ---------- ---------- ----------
Property, net.............. 322,017 9,211 218,032 549,260 0 0 549,260
----------- ---------- ----------- ----------- ---------- ---------- ----------
Other assets:
Franchises, net of
amortization of $147,578... 112,417 0 0 112,417 0 0 112,417
Deferred startup expenses.... 6,550 0 0 6,550 0 0 6,550
Other assets................. 0 0 12,000 12,000 0 0 12,000
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total other assets......... 118,967 0 12,000 130,967 0 0 130,967
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total Assets............... $ 1,880,280 $ 382,763 $ 320,587 $ 2,583,630 $ 0 $ 341,225 $2,242,405
=========== ========== =========== =========== ========== ========== ==========
19
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
COMBINING BALANCE SHEET -
ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY (Continued)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Praxis Praxis
Afinaciones, Afinaciones
S.A. de C.V. Praxis Puerto Rico, Combining Entries Combined
and Autopartes Inc. and Unadjusted ------------------ Balance
Subsidiaries S.A. de C.V. Subsidiary Balance DR CR 12/31/97
------------ ------------ ------------ ----------- ---- ---- --------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to bank........ $ 0 $ 1,987 $ 0 $ 1,987 $ 0 $ 0 $ 1,987
Capital lease obligations.... 0 0 15,979 15,979 0 0 15,979
Accounts payable............. 28,063 105,381 50,168 183,612 0 0 183,612
Intercompany payables........ 11,170 26,897 0 38,067 0 0 38,067
Taxes payable................ 80,399 413 0 80,812 0 0 80,812
Other payables............... 37,174 324 0 37,498 0 0 37,498
Accrued liabilities.......... 89,391 10,069 7,478 106,937 0 0 106,938
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total current liabilities.. 246,197 145,071 73,625 464,892 0 0 464,892
----------- ---------- ----------- ----------- ---------- ---------- ----------
Long-term debt:
Obligations under capital
leases..................... 0 0 69,567 69,567 0 0 69,567
Franchise payables........... 61,048 0 0 61,048 0 0 61,048
Intercompany accounts
payable.................... 0 0 342,788 342,788 341,225 0 1,563
Deferred franchise income.... 199,981 0 0 199,981 0 0 199,981
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total long-term debt....... 261,029 0 412,355 673,384 341,225 0 332,159
----------- ---------- ----------- ----------- ---------- ---------- ----------
Stockholder's equity:
Common stock Class A -
Fixed, Authorized -
700,060 shares, Issued
and outstanding............ 121,628 7,922 10,000 139,550 0 0 139,550
Common stock Class B -
Variable, Authorized -
11,021,480 shares, Issued
and outstanding............ 1,895,108 110,682 0 2,005,790 0 0 2,005,790
Retained earnings (deficit).. (89,292) 143,593 (175,393) (121,092) 0 0 (121,092)
Translation adjustments...... (554,389) (24,505) 0 (578,894) 0 0 (578,894)
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total stockholder's equity. 1,373,055 237,692 (165,393) 1,445,354 0 0 1,445,354
----------- ---------- ----------- ----------- ---------- ---------- ----------
Total Liabilities and
Stockholder's Equity..... $ 1,880,280 $ 382,763 $ 320,587 $ 2,583,630 $ 341,225 $ 0 $2,242,405
=========== ========== =========== =========== ========== ========== ==========
20
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
COMBINING STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Praxis Praxis
Afinaciones, Afinaciones
S.A. de C.V. Praxis Puerto Rico, Combined
and Autopartes Inc. and Balance
Subsidiaries S.A. de C.V. Subsidiary 12/31/97
------------ ------------ ------------ --------
NET SALES............................................. $ 3,664,985 $ 1,435,273 $ 49,910 $ 5,150,168
COST OF SALES......................................... 2,305,092 1,270,073 17,185 3,592,350
------------ ----------- ---------- ------------
GROSS PROFIT.......................................... 1,359,893 165,200 32,725 1,557,818
OPERATING EXPENSES.................................... 1,173,619 79,190 264,748 1,517,557
------------ ----------- ---------- ------------
INCOME FROM OPERATIONS................................ 186,274 86,010 (232,023) 40,261
------------ ----------- ---------- ------------
OTHER INCOME (EXPENSE):
Loss in currency exchange........................... (15,744) (257) 0 (16,001)
Gain on sale of assets.............................. 23,407 3,008 0 26,415
Other income........................................ 0 0 3,531 3,531
Other expense....................................... (120,766) (11,482) 0 (132,248)
------------ ----------- ---------- ------------
Other income (expense), net....................... (113,103) (8,731) 3,531 (118,303)
------------ ----------- ---------- ------------
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT.......................................... 73,171 77,279 (228,492) (78,042)
INCOME TAX BENEFIT.................................... 32,628 0 53,099 85,727
------------ ----------- ---------- ------------
NET INCOME (LOSS)..................................... 105,799 77,279 (175,393) 7,685
------------ ----------- ---------- ------------
RETAINED EARNINGS (DEFICIT) -
BEGINNING OF PERIOD, AS
ORIGINALLY STATED.................................... (254,064) 60,491 0 (193,573)
PRIOR PERIOD ADJUSTMENT............................... 58,973 5,824 0 64,797
------------ ----------- ---------- ------------
RETAINED EARNINGS (DEFICIT) -
END OF PERIOD, AS RESTATED........................... (195,091) 66,315 0 (128,777)
------------ ----------- ---------- ------------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD........................................ $ (89,292) $ 143,594 $ (175,393) $ (121,092)
============ =========== ========== ============
21
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Praxis Praxis
Afinaciones, Afinaciones
S.A. de C.V. Praxis Puerto Rico, Eliminating Entries
and Autopartes Inc. and Unadjusted ------------------- Adjusted
Subsidiaries S.A. de C.V. Subsidiary Balance DR CR Combined
------------ ------------ ------------ ---------- ---- ---- --------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income (loss)............. $ 105,799 $ 77,279 $ (175,393) $ 7,685 $ 0 $ 0 $ 7,685
Adjustments to reconcile
net income (loss) to net
cash from operating
activities:
Depreciation and
amortization............... 93,451 10,070 7,424 110,945 0 0 110,945
Gain on sale of assets...... (23,407) (3,008) 0 (26,415) 0 0 (26,415)
(Increase) decrease in:
Accounts receivable:
Trade.................. (352,584) (137,065) (1,669) (491,318) 0 0 (491,318)
Intercompany........... (264,645) 9,143 0 (255,502) 0 0 (255,502)
Income taxes........... 17,068 4,846 0 21,914 0 0 21,914
Other.................. 38,226 1,030 0 39,256 0 0 39,256
Inventories.............. (26,051) (56,304) (25,325) (107,680) 0 0 (107,680)
Prepaid expenses......... 4,730 (248) (3,602) 880 0 0 880
Deferred taxes........... (36,042) (5,823) (53,099) (94,964) 0 0 (94,964)
Other assets............. 0 14,246 0 14,246 0 0 14,246
Increase (decrease) in:
Accounts payable......... 17,772 32,289 57,646 107,707 0 0 107,707
Intercompany
payables............... (798,302) 26,821 0 (771,481) 0 0 (771,481)
Taxes payable............ 36,206 65 0 36,271 0 0 36,271
Other payables........... 4,804 324 0 5,128 0 0 5,128
Increase in deferred
franchise revenue....... 96,544 0 0 96,544 0 0 96,544
Increase in franchise
payables................ 16,112 0 0 16,112 0 0 16,112
Accrued liabilities......... 32,576 9,179 0 41,755 0 0 41,755
------------ ------------ ------------ ------------ ----- ----- ------------
Net cash from
operating activities.. (1,037,743) (17,156) (194,018) (1,248,917) 0 0 (1,248,917)
------------ ------------ ------------ ------------ ----- ----- ------------
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Proceeds from sale of
property..................... 39,442 5,838 0 45,280 0 0 45,280
Purchases of property......... (46,210) 4,012 (40,724) (82,922) 0 0 (82,922)
Leasehold improvements........ 0 0 (94,002) (94,002) 0 0 (94,002)
Deposit on lease contract..... 0 0 (12,000) (12,000) 0 0 (12,000)
------------ ------------ ------------ ------------ ----- ----- ------------
Net cash from investing
activities................. (6,768) 9,850 (146,726) (143,644) 0 0 (143,644)
------------ ------------ ------------ ------------ ----- ----- ------------
22
PROMOTORA DE FRANQUICIAS PRAXIS, S.A. DE C.V. AND SELECTED SUBSIDIARIES
COMBINING STATEMENT OF CASH FLOWS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Praxis Praxis
Afinaciones, Afinaciones
S.A. de C.V. Praxis Puerto Rico, Eliminating Entries
and Autopartes Inc. and Unadjusted ------------------- Adjusted
Subsidiaries S.A. de C.V. Subsidiary Balance DR CR Combined
------------ ------------ ------------ ---------- ---- ---- --------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Advances received from
parent company............... $ 0 $ 0 $ 342,788 $ 342,788 $ 0 $ 0 $ 342,788
Borrowing of long-term
debt......................... 0 1,987 0 1,987 0 0 1,987
Payments on obligation
under capital lease.......... 0 0 (5,184) (5,184) 0 0 (5,184)
Proceeds from sale of
common stock................. 1,064,770 0 10,000 1,074,770 0 0 1,074,770
------------ ------------ ------------ ------------ ----- ----- ------------
Net cash from
financing activities....... 1,064,770 1,987 347,604 1,414,361 0 0 1,414,361
------------ ------------ ------------ ------------ ----- ----- ------------
Effect of exchange rate
changes on cash and
cash equivalents............... 8,058 (24,045) 0 (15,987) 0 0 (15,987)
------------ ------------ ------------ ------------ ----- ----- ------------
Net increase (decrease) in
cash........................... 28,317 (29,364) 6,860 5,813 0 0 5,813
Cash - Beginning of year........ 68,233 29,674 0 97,907 0 0 97,907
------------ ------------ ------------ ------------ ----- ----- ------------
Cash - End of year.............. $ 96,550 $ 310 $ 6,860 $ 103,720 $ 0 $ 0 $ 103,720
============ ============ ============ ============ ===== ===== ============
OTHER NON-CASH
AND INVESTMENT
ACTIVITY:
Property and equipment
acquired through capital
lease...................... $ 0 $ 0 $ 90,730 $ 90,730 $ 0 $ 0 $ 90,730
============ ============ ============ ============ ===== ===== ============
Interest paid................. $ 0 $ 0 $ 3,529 $ 3,529 $ 0 $ 0 $ 3,529
============ ============ ============ ============ ===== ===== ============
23