OFFERING

MEMORANDUM
Treadstone Performance
Engineering Inc.
Miami, Florida

Westmount Capital
P A R T N E R S

14 Wall Street, 20th

Floor
New York, New York,
USA 100005
www.westmountcapitalpartners.com
(786) 835-7342
Treadstone Performance
Engineering Inc.

For Further Information,

Contact:
Alex Camus - Managing Partner
alex@westmount.ventures

14 Wall Street, 20th

Floor
New York, New York,
USA 100005
www.westmountcapitalpartners.com
(786) 835-7342
 Table of Contents

i
INTRODUCTION .............................................................................................................
Confidentiality and Disclaimer ....................................................................................... i
About Generational Equity ............................................................................................ ii
Inquiries and Next Steps ............................................................................................... iii
EXECUTIVE SUMMARY.......................................................................................................... 1
Business Summary ......................................................................................................... 1
Financial Highlights ...................................................................................................... 3
INVESTMENT CONSIDERATIONS ........................................................................................ 5
Strategic Growth Opportunities ..................................................................................... 7
PRODUCTS AND SERVICES ................................................................................................... 8
Overview ....................................................................................................................... 8
Revenue Mix .................................................................................................................. 9
Pricing .......................................................................................................................... 9
CUSTOMERS AND MARKETS .............................................................................................. 10

Customer Markets ....................................................................................................... 10

Key Customers............................................................................................................. 10
Competitive Landscape ................................................................................................ 10
Geographic Markets .................................................................................................... 11
Sales Strategy .............................................................................................................. 11
Marketing and Business Development.......................................................................... 11
ORGANIZATION ..................................................................................................................... 12
Corporate Structure and Ownership ............................................................................ 12
Staff Overview ............................................................................................................. 12
Litigation ..................................................................................................................... 13
FACILITY AND EQUIPMENT ............................................................................................... 14
Location ...................................................................................................................... 14
INDUSTRY OVERVIEW ......................................................................................................... 15
Summary ..................................................................................................................... 15
FINANCIAL ANALYSIS .......................................................................................................... 19
ACRONYMS ............................................................................................................................. 37
 Introduction

Purpose

This Offering Memorandum is being furnished by Generational Equity only to those

prospective parties that have made a specific request for information regarding
Treadstone Performance Engineering Inc. (Treadstone Performance or the Company)
with the intention of determining any interest in submitting an offer to acquire the
Company and have subsequently executed a valid Confidentiality Agreement. The
Offering Memorandum is intended to provide a prospective purchaser with pertinent
preliminary information regarding Treadstone Performance and discuss the factors
that create value within the Company.

Confidentiality and Disclaimer

Pursuant to Generational Equity’s exclusive engagement by Treadstone Performance, the

Offering Memorandum has been prepared by Generational Equity from materials and
information supplied by management. This Offering Memorandum is being provided
pursuant to a separate Confidentiality Agreement executed by a limited number of parties
who may be interested in acquiring the Company.
By accepting the Offering Memorandum, the recipient(s) agrees that neither it nor its
agents, representatives, directors or employees will reproduce or distribute to others said
document, in whole or in part, at any time without the prior written consent of Treadstone
Performance or Generational Equity and that it will keep permanently confidential all
information contained herein. This Offering Memorandum shall remain the property of
Treadstone Performance. The Company and Generational Equity reserve the right to call
for the return of this document at any time.

While the information contained herein is believed to be materially accurate, Generational

Equity has not conducted any audit or investigation with respect to such information. The
recipient(s) acknowledges the sole responsibility to perform a due diligence review at its
own cost prior to any acquisition of or merger with Treadstone Performance. Generational
Equity disclaims any and all liability for representations, expressed or implied, contained
in, or for omissions from, this Offering Memorandum.

Page i
Specific financial information presented in the Offering Memorandum may have been
adjusted to eliminate owner-related compensation, non-operating assets and associated
debt and other items with the intention of understanding Treadstone Performance’s true
earning capacity. These adjustments are described in the footnotes to the information, or
are available on request. The Offering Memorandum also presents certain statements and
projections provided by Treadstone Performance and its management concerning its
estimated future performance. Such information reflects considerable assumptions and
subjective judgments by the Company’s management, which may or may not prove to be
correct. Therefore, there can be no guarantee that the projected financial results are
achievable or will come to fruition. Moreover, Generational Equity and its representative
does not accept responsibility for verifying any information contained herein, and makes
no representations or warranties as to their accuracy, truthfulness or completeness.
Neither the delivery of this Offering Memorandum nor the purchase of the Company shall,
under any circumstances, create any implication that there has been no change in the
affairs of Treadstone Performance since the date hereof. Neither the Company nor
Generational Equity and its representatives undertake any compulsion to update any of the
information discussed herein.

About Generational Equity

Generational Equity is a mergers and acquisitions firm in the middle market assisting clients
in mergers, acquisitions, and strategic growth with professional advisors located in offices
throughout the United States and Canada. Generational Equity is headquartered in Dallas,
Texas.
As a leading firm specializing in middle-market mergers and acquisitions Generational
Equity provides a valuable resource for buyers seeking to acquire private companies in this
market segment. Generational Equity’s client companies represent a diverse selection of
acquisition opportunities from a broad range of industry sectors throughout the US and
Canada. Generational Equity's experience in valuing and selling private middle-market
companies brings buyers and sellers together and assists buyers in achieving their
acquisition goals.

Page ii
Inquiries and Next Steps

Generational Equity is acting as Treadstone Performance’s exclusive advisor in the proposed

transaction and its fees are paid entirely by the seller. Accordingly, please note that all inquiries
and follow-up must be coordinated through Generational Equity and its representatives.
Whereas neither Treadstone Performance’s employees nor its customers or competitors are
aware of this transaction, no contact with the industry or the Company is permitted without the
express written consent of Generational Equity and Treadstone Performance’s shareholders.
All buyer visits will be arranged and hosted by a Generational Equity representative.
Those interested in pursuing this transaction should contact Generational Equity at the
contact information listed below. All interested parties may be required to submit a short,
non-binding term sheet detailing preliminary valuation for Treadstone Performance and a
suggested deal structure. As appropriate, more detailed discussions involving the seller and
a visit will be scheduled at a later date. This process is designed to minimize wasted time
for all parties.
For those not interested in this transaction, please immediately return or destroy this and
any other copies of the Offering Memorandum. However, Generational Equity would
nonetheless appreciate your honest feedback and assessment so that Generational Equity
may share your insights with the seller.

For Further Information,

Contact:
Alex Camus - Managing Partner
alex@westmount.ventures

14 Wall Street, 20th

Floor
New York, New York,
USA 100005
www.westmountcapitalpartners.com
(786) 835-7342

Page iii
 Executive Summary

Business Summary

Treadstone Performance manufactures and distributes high performance engine

components, focusing on turbochargers and related products.

Products and Services The Company is a leading manufacturer and distributor for
high performance turbocharging products and components. Treadstone
Performance manufactures parts for private label companies looking to mass-
produce turbo kit components, including cast turbo manifolds, intercoolers,
aluminum charge piping, stainless downpipes, cast MAF adapters, cast intake
manifolds, and other related products. Specializing in the automotive industry,
the Company engineers, develops and manufactures turbo charging components
for many different applications. Treadstone Performance Intercoolers are crafted
from superb 6061 T6 Aircraft Grade Aluminum and are produced using a bar and
plate construction method and are pressured checked to 150 psi--forging a world
renown product that stands by its' performance and matchless quality. The
Company’s end-tanks are TIG welded in- house by hand, making each product
unique and guaranteeing the quality assurance of each of the products. In
addition, the end-tanks are CAD engineered to distribute even airflow with low-
turbulence and low-pressure-drop. Customers and Markets

Treadstone Performance’s primary market is vehicle enthusiasts who are

interested in high-quality engineered products who appreciate hands-on
engineering development, and may be interested in having skilled craftsmen
execute the configuration and build of their cars and trucks. Approximately
80% of the Company’s 2017 sales were generated through Treadstone
Performance’s website, with the remain sales generated through calls and
walk-ins. Sales and Marketing The Company employs three sales professionals
who work closely with the current customers and prospective customers to
identify the customers’ needs and determine how Treadstone Performance can
meet those needs.

Page 1
Organization

Treadstone Performance is a Sub-S Corporation registered in Florida which

continues to be wholly owned by its founder, Jason Stone.
Employee Base

The Company has seven employees, including three salespeople, two

stockroom people and a freelance engineer, who work with Treadstone
Performance’s customer base and aid in the research and development for
new products and applications. Facilities and Equipment The Company is
located in Miami, Florida. It is headquartered in a five-unit facility where Jason
Stone personally owns two of the five units and leases those two units to the
Company. Jason Stone’s personally owned units (currently leased by the
Company) are available for sale along with the business. Competition

The Company competes against certain other aftermarket product

performance companies, including Vibrant Performance and Turbonetics, but
Treadstone Performance has developed a specialization in turbocharge
intercoolers. Success Drivers Treadstone Performance’s success has been built
upon its in-house engineering expertise, manufacturing capabilities, vehicle
engine integration know-how, and fabrication skills. These and other factors
contribute to its high rate of repeat business, estimated by management to be
in excess of 60%, which positions the Company very well for continued growth
and success.

Page 2
Financial Highlights

Treadstone Performance’s financial summary follows. Limited financial data is

highlighted in the following tables with more detailed information discussed in
further sections.

INCOME STATEMENTS

Recast Historical and Current Statement of Income(a)

For the Fiscal Years Ended December 31 ($000)
Historical
2015 2016 2017 2018 2019 2020 2021 2022 2023
Sales 1,811 1,883 1,646 1,800 1,870 1,940 2,020 2,100 2,180
% Growth -- 4.0% -12.6% 9.4% 3.9% 3.7% 4.1% 4.0% 3.8%
Gross Profit 833 850 933 887 927 968 1,014 1,060 1,107
% of Sales 46.0% 45.1% 56.7% 49.3% 49.6% 49.9% 50.2% 50.5% 50.8%
EBIT 336 244 141 210 240 272 306 340 379
% of Sales 18.5% 12.9% 8.6% 11.7% 12.8% 14.0% 15.1% 16.2% 17.4%
EBITDA 342 244 141 242 272 305 341 378 417
% of Sales 18.9% 12.9% 8.6% 13.4% 14.5% 15.7% 16.9% 18.0% 19.1%

(a) See Schedule 2 in the Financial Analysis section

BALANCE SHEET

Adjusted Balance Sheet (b)

As of December 31, 2017
($000)
Current Assets 1,893 Current Liabilities 41
Net Fixed Assets 182 Non-Current Liabilities --
Other Assets -- Equity 2,033
Total Assets 2,075 Total Liability & Equity 2,075

(b) See Schedule 3 in the Financial Analysis section

Page 3
 Treadstone Performance Engineering Inc. Business Overview
Officer Title Age Ownership
Jason Stone President 37 100%

Facilities City, State Sq. Ft.

Office/Manufacturing Miami, Florida 800

Company Type: S-Corporation (2008) / Florida

Founded: 2000

Line of Business: Manufactures and distributes high performance turbo-charging components

Number of Employees: 6 full-time, 1 part-time

2018 Sales Estimate: $1.8 million

2015 2016 201

Revenue Sources: Sales of Treadstone Products 85 % 85 % 7
Sales of other Manufacturers’ Products 15 15 85
(percentage of revenue)
%
15
Customer Markets: Aftermarket 10% 100 % 100 %
(percentage of revenue) 0

Key Customers: MAPerformance (6+years) 3% 4% 4

(percentage of revenue) Automods (4+years) 3 3 %
Edge Autosport (4 years) 3 3 3 3
Turbozentrum (4 years) 2 2 2

Geographic Markets: US 83 % 80 % 80
(percentage of revenue) Europe 9 10 %
Australia 5 5 10 5
Dubai 3 5 5

Number of Customers in 17,000+

Company Database:

Number of Active Accounts: 1,000

Rate of Repeat Business: Approximately 60%

Website: www.treadstoneperformance.com

Page 4
 Investment Considerations

OPERATIONAL

• Superior Name and Reputation: By delivering high quality engineered products

that fit the customer’s individual needs, Treadstone Performance has developed a
reputation as one of the top product development/manufacturers in the
turbocharging aftermarket product industry.

• Proprietary Expertise: Treadstone Performance is not only a manufacturer, but

also retains in house design expertise as well. The Company has operated in the
industry since 2000 and employs staff members that are experts within the high
performance market.
• Strong Supplier Relationships: The Company has been working with most of its
primary suppliers for over eight years.
• High Barriers-to-Entry: The level of expertise required prevents new competitors
from easily entering the market to compete against Treadstone Performance. A
potential new business would need to hire employees with significant industry
experience to be able to continue new product development and efficient
production.

• National Reach: The Company sells nationally and during the historical period,
California and Florida have been the two largest customer markets.
• Management Will Remain through Transition: The sole shareholder is willing to
stay with the Company during a transition period in order to ensure a seamless
transfer of ownership.

• Diversified Customer Base: No single customer accounted for more than 4% of

revenue during the historical period. The diversified customer base helps ensure
that the Company will not be significantly impacted by the loss of a single account.

• Brand-Name Products: Treadstone Performance’s products have developed a high

degree of brand name familiarity in the turbocharging product marketplace.
• International Reach: During 2017, approximately 20% of the Company’s annual
sales were to non-US customers, including 5% of sales to customers in Dubai.

Page 5
FINANCIAL

• Modest Ongoing Capital Investment Requirements: The Company’s products do

not require a substantial investment in capital equipment, so management expects
annual capital expenditures needs will be very modest during the pro forma period.

• Rising Gross Profit Trend: Gross profit during the historical period has increased
from 46.0% of sales in 2015 to 56.7% of sales by the end of 2017. The Company
has been able to efficiently control its costs after historical sales fluctuations.

• Strong Net Working Capital: In 2017, Treadstone’s unadjusted current assets were
approximately $2,082,000 and current liabilities were $213,000, resulting in a Net
Working Capital (NWC) of $1,869,000. A strong NWC provides a pool of
resources from which the Company can draw for continued growth and a strong
buffer to maintain operations in the event of various systematic and unsystematic
risks.

EXTERNAL

• Growing Market for the Company’s Services: Domestic demand for motor
vehicle parts is forecast to grow at an annual compounded rate of 3% between
2018 and 2022.1 More specifically, Global Market Insights, Inc., estimates
automotive turbocharger market size to exhibit a CAGR of 9% over 2017-
2024, reportedly driven by the escalating demand for turbocharging
technologies to deliver fuel- efficient vehicles. A strict regulatory landscape
regarding carbon emission control will also contribute toward the expansion of
this business.2

1
First Research Corporation - Automotive Parts & Accessories (July, 2018)
2
https://www.equities.com/news/5-automotive-turbocharger-market-trends-characterizing-the-industry

Page 6
Strategic Growth Opportunities

The established business methodologies refined by Treadstone Performance are

expected to yield growth going forward. However, management cites several
opportunities to accelerate growth trends over the next few years.
The resultant revenue and profitability derived from these ventures has not been
included in the projections contained herein.

Develop additional complimentary products

Management can focus on developing more complimentary products, but believes

an additional engineer would need to be hired.
Open another retail location

The Company has developed an excellent reputation over the past 18 years,
selling approximately 20% of 2017 sales to non-US customers. Management
believes another retail location, in California as an example of a logical
geographic location, may significantly boost Treadstone Performance’s future
sales.

Page 7
 Products and Services

Overview

Treadstone Performance Engineering Inc. is a leading manufacturer and

distributor of high performance turbocharging parts. Specializing in the
automotive industry we engineer, develop and manufacture turbo charging
components for many different applications. We have engineers, CAD/CAM
and Solid Works professionals on hand to aid in the research and
development for any of your projects. Our claim to fame has stemmed from
our line of intercoolers. Treadstone Performance Engineering Intercoolers are
crafted from superb 6061 T6 Aircraft Grade Aluminum. They are made from a
bar and plate construction and are pressured checked to 150 psi--forging a
world renown product that stands by its' performance and matchless quality.
Our end-tanks are TIG welded in-house, by hand; making each product
unique and guaranteeing the quality assurance of each of our products. Our
end-tanks are CAD engineered to distribute even airflow with low-turbulence
and low-pressure-drop. All of our products complement the best in
performance turbocharging today, Turbonetics, Precision, Garrett, and Borg
Warner Turbochargers, the pioneers in performance turbocharging! With the
knowledge and experience of some of the best names in turbocharging,
Treadstone products parallels with quality and reliability, giving you the best
product combination's in performance turbocharging.

Turbo Manifolds Injector Hats Fuel Filters

Turbine Housings Swivel Fittings Thermal Heat Shields

Page 8
Revenue Mix

The following chart depicts Treadstone Performance’s product and service mix by
percentage of revenue:

2017 Revenue Mix

(percentage of sales)

Other Products
15%

Treadstone
Performance
85%

Pricing

The Company charges the following labor rates:

• Engineering for special projects or applications: $150 per hour

• Welding: $120 per hour

• Installation: $80 per hour

Page 9
 Customers and Markets

Customer Markets

The Company sells approximately 80% of its in-house developed parts and
components and other manufacturers’ products through its website,
www.treadstoneperformance.com to both retail and wholesale customers.
Approximately 18% of annual sales are telephone call-in orders and the other 2%
of annual sales were walk-in customers.

Key Customers

The following table highlights the Company’s key client relationships in 2016.
Customer Industry Percentage of Revenue Relationship Length
MAPerformance Aftermarket 4% 6 years
Automods Aftermarket 3% 4 years
Edge Autosport Aftermarket 3% 4 years
Turbozentrum Aftermarket 2% 4 years

Competitive Landscape

Treadstone Performance competes against certain other aftermarket product

performance companies, including Vibrant Performance, ETS Racing, and
Turbonetics, but the Company has developed a specialization in turbocharge
intercoolers.

Page 10
Geographic Markets

The following chart depicts Treadstone Performance’s primary geographic markets

as a percentage of revenue.

2017 Geographic Markets

(percentage of sales)

Dubai
5%
Australia
5%

Europe
10%

US
80%

Sales Strategy

Treadstone Performance employs three sales professionals who work

closely with the current customers and prospective customers to identify the
customers’ needs and determine how the Company can meet those needs.

Marketing and Business Development

The Company’s website is www.treadstoneperformance.com

Page 11
 Organization

Corporate Structure and Ownership

Founded in 2000, Treadstone Performance Engineering Inc. is registered as

an S- Corporation in Florida. The Company is owned by active principal
Jason Stone (100%), President. There are no other direct stockholders, nor
do any individuals own or otherwise possess any rights, options, or other
ownership rights in the Company.

MOTIVATION FOR SALE

Treadstone Performance has gained a highly respected reputation since it

began operations 18 years ago. However, the Company shareholder would like
to become more involved in other activities, and believes that operating under
a more growth- oriented management strategy and additional capital
resources, Treadstone Performance could significantly increase its revenue
and customer base.
Staff Overview

The following table depicts Treadstone Performance’s employee breakdown (other

than the shareholder) by department at the time of this report.
Department Employees Union Compensation Range
Sales 3 full-time No $50,000 - $60,000

Stockroom 2 full-time No $35,000 - $50,000

Free lance Engineering 1 part-time No $50,000 - $55,000

Manager 1 full-time No $50,000 - $55,000

KEY EMPLOYEES

The following table highlights the Company’s key employees.

Title Years with Treadstone Performance Compensation
9 $50,000+
Location Manager
8 $50,000+
Engineer

Page 12
Litigation

According to management, Treadstone Performance Engineering Inc. is not a

defendant in any material litigation, nor is management aware of any material
claims pending or which may be asserted against the Company.

Page 13
 Facility and Equipment

Location

Treadstone Performance Engineering Inc. is headquartered in Miami, Florida,

at 10340 SW 187th Street. It is headquartered in a five-unit facility where
Jason Stone personally owns two of the five units and leases those two units
to the Company. Jason Stone’s personally owned units (currently leased by the
Company) are available for sale along with the business. The fair market lease
for the space is $10,000 per month ($120,000 per year). The current value of
the facility is approximately $1.8m.
The following map highlights the Company’s headquarters relative to the
geographic region.

Page 14
 Industry Overview

The following section presents the most recent available data on Treadstone
Performance’s industry.

Summary

Companies in this industry operate physical retail establishments that sell automobile
parts, supplies, batteries, and lubricants. Major companies include Advance Auto
Parts, AutoZone, O'Reilly Automotive, and The Pep Boys (all based in the US), as well
as ATU Auto-Teile-Unger (Germany); AUTOBACS SEVEN and Yellow Hat (Japan);
Halfords Group (UK); and Supercheap Auto (Australia).
The global automotive industry is expected to experience healthy growth over the
next several years, due largely to economic expansion in emerging markets. The
global vehicle population of cars and light trucks is expected to grow 27% between
2015 and 2022, according to IHS Automotive, with the number of vehicles in
operation in China rising 64% by 2018. China is the world's largest consumer of
auto parts, followed by the US, Japan, and Germany, according to Global Market
Insights. Mature economies in North America and Europe will likely grow but at a
much slower pace than emerging markets.
The US automobile parts retail industry includes about 37,000 establishments
(single-location companies and units of multi-location companies) with combined
annual revenue of about $53 billion. The US automotive aftermarket is expected to
grow at a compound annual growth rate of 3.4% through 2017, to an estimated
$273.4 billion, according to the Automotive Aftermarket Suppliers Association
(AASA).

3
First Research CorporationAutomotive
- Parts & Accessories (July, 2018)

Page 15
Competitive Landscape

Demand for automobile parts is driven by the age and mileage of vehicles in use
and generally increases when fewer new cars are sold and older cars are kept on
the road longer. The profitability of individual companies depends largely on
inventory management and marketing. Large companies have economies of scale
in purchasing and distribution. Small companies can compete effectively by
carrying specialized parts or providing extra services such as fast delivery. The US
industry is concentrated: the 50 largest companies generate about 60% of industry
revenue. The four largest companies account for about 45% of industry revenue.
Competitors include national, regional, and local auto parts chains, independently
owned parts stores, online parts stores, wholesale distributors, jobbers, repair shops,
car washes, and auto dealers, as well as mass merchandise stores, hardware stores,
supermarkets, and convenience stores.
Autonomous vehicles (aka driverless cars) pose a potential long-term threat to auto
parts retailers because they may drastically reduce the number of auto accidents:
Consulting firm McKinsey predicts that driverless cars could reduce US auto
accidents by 90%, thereby requiring far fewer repairs. Commercial customers,
including auto repair shops, have become a significant source of sales for some
auto parts stores. Amazon is a looming long-term threat to auto parts retail stores
and to the industry's above-average margins. The online giant in 2017 entered the
auto parts market making deals with the same parts suppliers that serve chains such
as Advance Auto Parts, AutoZone, and O'Reilly Automotive.

Products & Operations

New and rebuilt auto parts account for about 50% of retail sales; auto
supplies, 15%; auto batteries, 8%, and auto lubricants, 5%. Because
products are used on vehicles after their original sale, the industry is
considered part of the motor vehicle aftermarket. Products are sold to two
main groups of customers. Do-it-yourself (DIY) customers are consumers
who work on their own cars; do-it-for-me (DIFM) customers include
commercial installers such as auto repair shops, gas stations, fleet
operators, and car dealer service departments. Parts sellers who provide
installation and repair services may also categorize customers of those
services as DIFM.

Page 16
Revenue by Product - US Census Bureau

Products include "hard parts" like brakes, mufflers, batteries, starters, alternator,
and pumps; maintenance items like oil, oil filters, lubricants, additives, spark plugs,
fuel injectors, lights, wipers, paints, waxes, and hoses; tools like wrenches and
diagnostic equipment; and accessories like trim, wheel covers, and audio systems.
While each store carries the same basic products, stores actively manage their hard
parts inventory to match the makes and models of vehicles in their trade area.
Big retailers tend to operate their own distribution networks. Some retailers sell
both to consumers and local repair shops; some retailers operate their own repair
departments. Many retailers operate their own delivery trucks.

Supply and inventory management are crucial to retail operations. A retailer may
carry 25,000 SKUs onsite in a 7,500 square foot store. Parts are bought from the
large auto parts manufacturers, from thousands of smaller manufacturers that make
parts for the auto companies under new vehicle programs, and from manufacturers
that make replacement parts specifically for the aftermarket. Long-term supply
contracts are rare, and in most cases, several suppliers are available for any
particular product. Large repair assemblies like entire doors or fenders are usually
available only from a single source or used parts suppliers.

Page 17
Technology

Computer technology is essential to auto parts retailers because they deal with
large inventories of many items, bought from many suppliers, and with numerous
small orders from customers, many of whom buy on account. Because carrying large
inventories entails risk, retailers are investing in advanced forecasting tools, as well
as new ways to improve the visibility and management of inventory along the supply
chain. Point-of-sale (POS), bar code scanning systems, and mobile workstations and
tablets are used to manage parts for different makes, models, and years; manage
inventory levels, and gather information about buying patterns.
By integrating a POS system with an electronic parts catalog (EPC) store
employees can help customers select parts and place orders based on the year,
make, model and engine type of their vehicles. The greatly increased productivity
of the industry in the last decade is due to the automation of inventory systems.
Such systems are expensive, and must be maintained and periodically updated.
Sales & Marketing

Sales and marketing initiatives center on the type of customer a company is

trying to serve. Retailers use typical advertising outlets such as newspapers,
direct mail, and websites. Large retailers also advertise on TV and radio, as
well as billboards. Some retailers focus on sponsoring sporting events and
festivals to raise their profiles with target markets. Social media is also
playing a growing role in auto parts retail marketing. Platforms such as
Facebook and Twitter can be used to connect with technicians and do-it-
yourselfers, and some parts makers use YouTube to share videos with
product promotions and installation guides.

Page 18
 Financial Analysis

The Financial Analysis section presents and evaluates the Company’s historical and pro
forma financial performance. The historical financial statements were normalized to
depict the financial performance of the Company as if it were operated to depict
maximum profitability. In addition, Treadstone Performance’s Balance Sheet was
adjusted to eliminate assets and liabilities not normally included in an M&A transaction.
The unadjusted financial information contained herein is presented as is; Generational
Equity has not audited or reviewed accompanying financial statements and supplementary
information and, accordingly, does not express an opinion or any other form of assurance
on them.

Page 19
Schedule 1 - Historical (Adjusted) Income Statements

In Schedule 1, Generational Equity adjusted Treadstone Performance’s historical Income

Statements to reflect the Company’s true profitability by normalizing discretionary, non-
recurring, or non-operational revenues and expenditures.

Page 20
 Treadstone Performance Engineering Inc.
Historical Income Statements with Adjustment Details for the Fiscal Years Ended December 31 ($000)

Schedule 1
Interim Thru
2015 2016 2017 March 31, 2018
Foot-
Notes Books Recast Adjusted Books Recast Adjusted Books Recast Adjusted Books Recast Adjusted
Total Sales 1 ,811 - 1,811 1 ,883 - 1 ,883 1 ,646 - 1,646 392 - 392
Cost of Sales
Cost of Goods Sold (1) 1 ,354 ( 376) 97 1 ,033 - 1 ,033 71 - 71 14 - 14
Gross Profit 457 376 8 850 - 850 3 - 3 4 - 4
83 93 93 24 24
Operating Expenses 3 3 3 8 8
Shareholder's Compensation (2) 60 10 70 60 10 70 60 10 70 15 3 18
Rent (3) - 72 72 8 64 72 72 - 72 18 - 18
Payroll & Payroll Taxes 139 - 139 138 - 138 202 - 202 60 - 60
Postage & Shipping (4)
120 - 120 198 (56) 142 148 - 148 28 - 28
Merchant Fees Expense 34 - 34 54 - 54 45 - 45 9 - 9
Independent Contractors - - - 52 - 52 132 - 132 9 - 9
Travel, Meals, & Entertainment 3 - 3 35 2 29 4 1 - 1
Website
(5)
24 - 34 (33) - 51 (25) 21 3 - 3
Marketing & Advertising
(6)
6 (24) 6 29 (34) 5 16 (30) 16 4 - 4
Facility & Utilities
(7)
32 - 32 26 (24) 26 27 - 27 6 - 6
Life Insurance 3 - - 25 - - 4 - - - - -
Professional Services (8) 1 (3) 1 12 (25) 2 41 (4) 3 1 - 1
Company Events (9) - - - 12 (10) - 1 (38) 1 - - -
Phone & Internet Expense (10) 5 - 5 9 (12) 9 7 - 7 1 - 1
Furniture & Utilities - - - 8 - 8 (0) - - - - -
Office Supply Expense 5 - 5 7 - 7 0 30 1 - 1
(11)
Gas & Auto Expense 4 - 2 6 - 2 - 2 3 - 3
Computer Equipment Expense - - 6 - 30 2 - - -
Business Insurance (12)
- (2) - 6 (4) 6 11 (9) 4 5 - 5
Uniforms (13)
- - - 3 (6) 3 2 - 3 2 - 2
Equipment - - - 3 - 3 4 - 1 - - -
Bank Fees - - - 2 - 2 3 - 2 1 - 1
Miscellaneous 3 - 3 4 - 4 1 - 1 1 - 1
Depreciation 6 - 6 - - - 2 - - - - -
445 - 497 735 - 607 1 - 792 167 3 170
- - - -
5 3 886
Total Operating Expense ( 128) (95)

Operating (Gain/Loss) Assets (14) 14 (14) - - - - - - - - - -

EBIT 26 309 336 115 128 244 47 95 141 81 (3) 78

In ter est (15) 8 (8) - 0 (0) - - - - - - -

Pretax Income 19 317 336 115 128 244 47 95 141 81 (3) 78

EB ITDA 32 309 342 115 128 244 47 95 141 81 (2) 78

Page 21
 Notes and Adjustment Details to Schedule 1

Treadstone Performance Engineering Inc.

2015 2016 2017

Cost of Sales
(1) Cost of Goods Sold
Adjustment of cost of sales post close of books in 2015 (376) - -

Operating Expenses
(2) Shareholder's Compensation
Adjust shareholder's compensation 10 10 10
One replacement manager would be paid $70,000 in 2018
(3) Rent
Adjust rent to fair market 72 64 -

(4) Postage & Shipping

Remove non-recurring costs - (56) -

(5) Travel, Meals, & Entertainment

Remove shareholder's expenses - (33) (25)

(6) Website
Remove shareholder's expenses (24) (34) (30)

(7) Marketing & Advertising

Remove non-recurring costs - (24) -

(8) Life Insurance

Remove shareholder's life insurance (3) (25) (4)

Page 22
(9) Professional Services
Remove non-recurring expenses, GE fee - (10) (38)

(10) Company Events

Remove non-recurring events costs - (12) -

(11) Furniture & Utilities

Normalize expense - - 0
(12) Gas & Auto Expense
Remove shareholder's expenses (2) (4) (9)

(13) Computer Equipment Expense

Remove non-recurring expense - (6) -

(14) Gain/(Loss) on Sale of Assets

Remove gain on sale of assets (14) - -

(15) Interest Expenses

Remove interest - predebt analysis (8) (0) -

Additional Footnotes
Adjustments to Historical Shareholder's Compensation
Estimated annual fair market compensation 70 70 70
Less: historical compensation (60) (60) (60)
Net adjustment 10 10 10

Adjustments to Facilities
Estimated annual fair market rent 72 72 72
Less: historical rent 0 (8) (72)
Net adjustment 72 64 -

Page 23
Schedule 2 - Pro Forma Income Statements

Schedule 2 presents Treadstone Performance’s pro forma Income Statements, which

depict the Company’s revenue and profit over the ensuing five-year period (the pro
forma period).

Page 24
 Treadstone Performance Engineering Inc.
Revised and Pro Forma Income Statements for the Fiscal Years Ended December 31 ($000)

Schedule 2

Adjusted Interim Base Year Pro Forma

2015 2016 2017 Mar-18 2018 2019 2020 2021 2022 2023 2024
Total Sales 1,811 1,883 1,646 392 1,800 1,870 1,940 2,020 2,100 2,180
% Growth 4.0% -12.6% 9.4% 3.9% 3.7% 4.1% 4.0% 3.8%
Cost of Sales 978 1,033 713 144 913 943 972 1,006 1,040 1,073
% of Sales 54.0% 54.9% 43.3% 36.7% 50.7% 50.4% 50.1% 49.8% 49.5% 49.2%
Gross Profit 833 850 933 248 887 927 968 1,014 1,060 1,107
% of Sales 46.0% 45.1% 56.7% 63.3% 49.3% 49.6% 49.9% 50.2% 50.5% 50.8%
Operating Expenses 491 607 792 170 645 655 663 6 73 682 690
% of Sales 27.1% 32.2% 48.1% 43.3% 35.8% 35.0% 34.2% 33.3% 32.5% 31.7%
Depreciation 6 3 3 6 -- - 32 32 33 35 38 38
EBIT 2 4 41 4 1 7 8 210 240 272 3 06 340 379
% of Sales 18.5% 12.9% 8.6% 20.0% 11.7% 12.8% 14.0% 15.1% 16.2% 17.4%
Taxes* 125 86 43 18 72 85 98 1 13 127 143
Net Income 211 158 98 60 138 155 174 1 93 213 236
8.4% 7.7% 8.3% 9.0% 9.6%
% of Sales 11.6% 6.0% 15.4% 10.1% 10.8%

EB ITDA 342 244 141 78 242 272 305 3 41 378 417

% of Sales 18.9% 12.9% 8.6% 20.0% 13.4% 14.5% 15.7% 16.9% 18.0% 19.1%

* Estimated tax rate consists of both federal taxes and state taxes for Florida.

Page 25
Income Statement Analysis

SALES

The following graph depicts Treadstone Performance’s historical and estimated pro
forma sales:

Revenue
($000)

Historical Sales

Sales grew steadily in 2015 and 2016, with approximately 85% of Company
sales from Treadstone Performance products, which are primarily high
performance turbocharging parts and components. The other 15% of
Company sales are from reselling performance components from a variety of
manufacturers, including Borg Warner, Omni Power, and Bosch. In 2017, the
Company’s sales declined due to unforeseen circumstances. The Company’s
website, Treadstone’s primary means of generating sales, crashed in the
second half of the year. Management indicated that it took several months to
resume normal operations after a complete refit and redesign of the
Company’s online presence. Furthermore, sales were crippled by Hurricane
Irma’s impact on south Florida. The Company, just like many other
businesses in the area, was forced to recover after the storm’s devastating
effect.

Page 26
 Pro Forma Sales

Based on management expectations, 2018 sales are expected to be

approximately $1,800,000, representing a 9% increase over the last
historical year. Between 2018 and 2023, Treadstone Performance’s sales
are projected to grow by 4.0% yearly, reaching $2,180,000 by period end.
Sales projections are supported by a number of factors, including:

• Projected Industry Performance: Domestic demand for motor vehicle

parts is forecast to grow at an annual compounded rate of 3% between 2018
and 2022. Treadstone Performance is projected to grow at a higher rate due
to historical performance, and the industry differences between OEM and
aftermarket manufacturers.4

• Increasing Demand for Performance Parts: Global Market Insights, Inc.

estimates automotive turbocharger market size to exhibit a CAGR of 9%
over 2017-2024, reportedly driven by the escalating demand for
turbocharging technologies to deliver fuel-efficient vehicles. A strict
regulatory landscape regarding carbon emission control will also contribute
toward the expansion of this business.5

4
First Research Corporation - Automotive Parts & Accessories (July, 2018)
5
https://www.equities.com/news/5-automotive-turbocharger-market-trends-characterizing-the-industry

Page 27
COST OF SALES
2015 2016 2017 Est. 2018 Proj. 2019
Cost of Sales ($000) 978 1,033 713 913 943
% of Sales 54.0% 54.9% 43.3% 50.7% 50.4%

Gross Profit Margin Analysis

The Company’s gross profit margin improved during the historical period, with
2017 operations generating a gross profit margin of 56.7%. Management
expects the Company’s gross profit margin to be consistent with its historical
average of 49.3% and then increase by 0.3% annually during the pro forma
period.

Page 28
OPERATING EXPENSES
2015 2016 2017 Est. 2018 Proj. 2019
Total Operating Expenses ($000) 491 607 792 645 655

% of Sales 27.1% 32.2% 48.1% 35.8% 35.0%

142 142 142 145 148
Fixed Expenses
% Growth -- 0.0% 0.0% 2.0% 2.0%

Variable Expenses 349 465 650 501 507

% of Sales 19.3% 24.7% 39.5% 27.8% 27.1%

Key Line Items

Key line items and respective adjustments depicted on the historical income
statements (Schedule 1) are discussed in the following section. Shareholder's
Compensation The sole shareholders has been paid $60,000 in annual
consideration during the historical period, but he believes the fair market
compensation for a replacement manager would be $70,000 during 2018.
Rent The Company paid approximately $6,000 in 2017 rent for the 800 square
foot production and storage facility. The Company’s headquarter facility is a
five-unit building; Jason Stone personally owns two of the five units. The fair
market lease for the space is $6,000 per month ($72,000 per year). The owner
is also open to selling the Company’s headquarters facility. Fixed-Variable
Analysis Treadstone Performance’s operating expenses include both fixed and
variable components. The following section details historical trends and
projected performance independently. Combined operating expense analysis
is included thereafter. Fixed Expenses Fixed expenses are comprised of rent
expenses and replacement management compensation. Going forward, fixed
expenses are expected to increase 2% annually during the base years and
during the pro forma period.

Page 29
 Variable Expenses

Treadstone Performance’s variable expenses include sales salaries, employee

benefits, office expenses, payroll taxes, merchant fees, independent
contractors, professional fees, computer costs, postage, dues, telephone,
utilities, uniforms, and other general and administrative expenses. Total
Operating Expenses Fixed expenses are expected to grow by 2% annually, and
management expects to continue its close monitoring of variable expenses as
the Company continues to grow. During 2018, variable expenses are expected
to be approximately $501,000, which equates to 27.8% of sales, and then
decrease by 0.7% annually level during the pro forma period. Management
believes the Company’s current administrative infrastructure could handle
significantly more volume. The Company’s total operating expenses should
increase from $645,000 in 2018 to $690,000 in 2023. This is representative of
decreasing total operating expenses from 27.8% of sales in 2018 to 24.3% in
2023.

DEPRECIATION

Depreciation on net fixed assets for the base years and pro forma period was
calculated using the straight-line method over the estimated remaining useful
lives of the assets.

PROFITABILITY

The following table highlights the Company’s EBIT.

2015 2016 2017 Est. 2018 Proj. 2019

EBIT ($000) 336 244 141 210 240
% of Sales 18.5% 12.9% 8.6% 11.7% 12.8%

Page 30
Schedule 3 - Balance Sheets

In Schedule 3, Generational Equity adjusted Treadstone Performance’s LHY Balance

Sheet to reflect the assets and liabilities of the Company that would remain in a sale.
Generational Equity developed the resulting pro forma Balance Sheets based on
historical trends and Treadstone Performance’s normal working capital requirements.

Page 31
 Treadstone Performance Engineering Inc.
Balance Sheets as of December 31 ($000)

Schedule 3

Per Books Adjusted Base Year Pro Forma Period

2017 Recast 2017 2018 2019 2020 2021 2022 2023
Assets
Current Assets
Cash (and cash equivalents) 84 - 84 88 89 91 93 95 96
Accounts Receivable - - - 15 15 16 17 17 18
Inventory 1,800 - 1,800 1 ,286 1,257 1,263 1,258 1,253 1,233
Notes Receivable - Related Companies 188 ( 1 8
(1) 8 ) - - - - - - - -
Other Current Assets 10 - 10 - - - - - 1 , 3 4
Total Current Assets 2,082 ( 1 8 8 1,893
) 1 ,389 1 , 3 6 1 1 , 3 17 , 03 6 1 8 , 3 6 5 7
Non-Current Assets
Fixed Assets - Net 182 - 182 157 132 106 79 49 19
Total Non-Current Assets 182 - 182 157 132 106 79 49 19
Total Assets 2,263 (188) 2,075 1 ,546 1,493 1,476 1,447 1,414 1,366

Liabilities & Equity

Current Liabilities
Accounts Payable 41 - 41 53 55 56 58 60 62
Advances, Accrued Expenses 0 - 0 - - - - - -
Loans Due to Related Parties 172 (2) - - - - - - -
Total Current Liabilities 213 ( 1 41 53 55 56 58 60 62
7 2
Total Liabilities 213 )(172) 41 53 55 56 58 60 62
( 1
Shareholder's Equity 2,050 7 (17)
2 2,033 1 ,493 1,438 1,420 1,389 1,354 1,304
Total Liabilities & Equity 2,263 ) 2,075 1 ,546 1,493 1,476 1,447 1,414 1,366
(188)

Notes and Adjustment Details to Schedule 3

2017
( 1) Notes Receivable - Related Companies
Remove notes receivable from related companies (188)
( 2) Loans Due to Related Parties
Remove shareholder loans (172)

Page 32
Balance Sheet Analysis

WORKING CAPITAL

The following table presents the (adjusted) historical trends in prominent working
capital components.
Base &
2015 2016 2017 Avg. Future
Years
3
Accounts Receivable (days) 6 5 0 3
0.7
Inventory (turns) 4.9 0.7 0.4 2.0
21
Accounts Payable (days) 12 7 21 14

Receivables and Payables

The Company collects cash or similar payment at the time of the sale. Given the
nature of running an auto performance shop, accounts receivable balances are
typically very low. Management expects to maintain its average cash collection
period going forward. Throughout the pro forma period AR days is expected to
remain 3 days.
Accounts payable balances, expressed as days outstanding, measures how quickly a
company pays its vendors. Over the historical period, accounts payable days have
averaged 14 days. Management expects to maintain its most recent payment terms
throughout the pro forma period.
Inventory The Company invested in building inventory during 2017 and 2018, which
resulted in the year-end balance of $1.8 million. Management decided to expand the
inventory on-hand to better serve its customer base and reduce backorder delays.

Page 33
FIXED ASSETS

As of December 31, 2017, the book value of Treadstone Performance’s fixed

assets was approximately $180,000, which consists of equipment, tools,
storage shelves, computers, and furniture. Pro Forma Capital Expenditures

To provide for future growth, Generational Equity included capital

expenditures over the pro forma period. Depreciation on fixed assets acquired
during the period is included in Schedule 2 using the half-year convention.

Year Description Capital Expenditure ($000)

2018 Tools, Equipment, and Leasehold Improvements 7
2019 Tools, Equipment, and Leasehold Improvements 7
2020 Tools, Equipment, and Leasehold Improvements 7
2021 Tools, Equipment, and Leasehold Improvements 8
2022 Tools, Equipment, and Leasehold Improvements 8
2023 Tools, Equipment, and Leasehold Improvements 8

STOCKHOLDER EQUITY

Stockholder equity is calculated as follows: the current year’s net income is

added to the previous year’s stockholder equity. The current year’s net cash
flow is then deducted, resulting in the current year’s stockholder equity. Note
that net cash flow is not reflected in equity, as it is assumed to be paid out to
owners of the Company as dividends.

Page 34
Schedule 4 - Statement of Cash Flows

Schedule 4 presents Treadstone Performance’s Statement of Cash Flows.

Generational Equity assumes certain tax rates based on the registered location of
Treadstone Performance; deductions or tax liabilities unique to the Company are not
presented in the following schedule.

Page 35
 Treadstone Performance Engineering Inc.
Statement of Cash Flows for the Fiscal Years Ending December 31 ($000)

Schedule 4

Base Year Pro Forma Period

2018 2019 2020 2021 2022 2023
Cash Flow from Operations (pre-tax)
Pretax Income 210 2 40 2 72 3 06 3 40 3 79
Add back Depreciation as non-cash 32 32 33 35 38 38
Change in Accounts Receivable (15) - (1) (1) - (1)
Change in Inventory 514 29 (6) 5 5 20
Change in Other Current Assets 10 - - - - -
Change in Accounts Payable 12 2 1 2 2 2
Change in Accrued Expenses (0) - - - - -
Total Cash Flow from Operations (pre-tax) 762 3 02 2 97 3 45 3 83 4 37

Cash Flow from Investing

Capital Expenditures (7 (7 (7 (8 (8 (8
Total Cash Flow from Investing ) ) ) ) ) )
(7 (7 (7 (8 (8 (8
Predebt, Pretax Cash Flow 755 2 95 2 90 3 37 3 75 4 29
) ) ) ) ) )
Less Income Tax 72 85 98 1 13 1 27 1 43
Predebt, After-tax (Free) Cash Flow 679 2 10 1 92 2 24 2 48 2 86

Page 36
 Acronyms

A/P - Accounts Payable

A/R - Accounts Receivable
CAGR - Compound Annual Growth Rate
COLA - Cost of Living Adjustment
D/E - Debt-to-Equity
DCF - Discounted Cash Flow
EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest Taxes Depreciation and Amortization
FCF - Free Cash Flow
FYE - Fiscal Year Ending (Ended)
GDP – Gross Domestic Product
GPM - Gross Profit Margin
ISO - International Organization for Standardization
LHY - Last Historical Year
NAICS - North American Industry Classification System
P/E - Price-to-Earnings
RMA - Risk Management Association
ROA - Return on Assets
ROE - Return on Equity
ROI - Return on Investment
SDE – Seller’s Discretionary Earnings
SIC - Standard Industry Classification
USD - US Dollars

Page 37