Carroll Shelby International csbi

[Steve Cassani]

From Carroll Shelby International's most recent filing with the SEC:

Liquidity and Capital Resources

Management believes its existing cash and cash equivalent of $112,445 and anticipated cash flows generated from operations will not be sufficient to fully execute its business plan. The Company will be required to raise additional funding through the issuance of additional debt or equity. In addition, the Company will have to successfully negotiate extended terms on the note due to its shareholder Carroll Shelby. If the Company is unable to do so, it may be required to cease operations.

Currently, the Company is dependent upon its majority shareholder or sales of its common stock to provide liquidity from any shortfall in cash provided by operations. If this shareholder was unable to provide funding for the Company or it were unable to raise additional equity capital, a resulting lack of capital could have a substantial adverse material impact on the Company and its operations.

The Company has not achieved profitable operations through June 30, 2004. It is not presently able to determine when profitable operations will be obtained. For the six months ended June 30, 2004 its private placement financing generated in the fourth quarter of 2003 and through out 2004 and increases in customer deposits (approximately $1,094,000) have financed operations through June 30, 2004. The Company has a cash balance of $112,445 at June 30, 2004. The Company also has substantial current liabilities due including $1.75 million due to its shareholder, $2.359 million of customer deposits to be "offset" when cars are completed and delivered and $340,665 of current maturities of its long term debt. The Company's balance sheet and financial position are not comparable between years because of the addition of the Cobra™ production operations.

Cash flows used in operations of approximately $17,141 for the six months ended June 30, 2003 and used in operations of $1,367,642 for the six months ended June 30, 2004. While not directly comparable, the decrease in cash resources for the six month period ended June 30, 2004 and 2003 is substantially related to resources applied to the Cobra™ production operations and specifically to acquiring and producing the inventory to support these operations.

Net cash provided by investing activities for the six months ended June 30, 2003 was approximately $757 as compared to cash used in investing activities of $263,093 for the six months ended June 30, 2004. This increase was primarily a result of the purchase of property and equipment associated with the start up



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of the Cobra™ production activities and the purchase of a truck and trailer.

The Company's financing activities for the six months ended June 30, 2003 provided cash resources of approximately $23,137 primarily related to shareholder advances offset by the payments on its tractor trailer note. For the six months ended June 30, 2004, financing activities used funds of $312,818. For the six months ended June 30, 2004 cash provided from financing activities consisted of funds received from the private placement offering of unregistered shares net of fees of approximately $1.3 million, issuance of a note payable to purchase a truck for approximately $172,000 offset by the repayment of shareholder notes of $1,730,000.

In August 2003, the Company retained an investment banker to provide, among other services, assistance with the Company's financing efforts as it attempts to secure additional capital for product development, possible acquisitions and working capital and to assist the Company with general business strategy and advice regarding listing on a national exchange. As of June 30, 2004 the Company has finished its first capital raise through the sale of its common shares. For the six months ended June 30, 2004 the Company raised capital through a private placement of unregistered common stock. The Company received approximately $1,300,000 of cash, net of fees, from the sale of approximately 680,000 shares of common stock at $2.25 per share.

The note due from the Company to Venture Mold and Engineering Corporation in connection with certain inventory relating to the Shelby Series 1 program is four months in arrears, but not in default under the agreement with Venture. The Company and Venture are in agreement with respect to the status of the note and the Security Agreement related thereto

On October 31, 2003, the Company announced it has entered into a letter of intent to acquire automotive supercharger developer and manufacturer Allen Engine Development Inc. This acquisition will be a combination of cash and equity and if completed, would provide an extended reach for the Shelby brand into the growing automotive aftermarket and performance parts market. In addition, if the Allen Engine Development acquisition is completed, it will give us depth in engineering services, which include research and development, CAD support, prototyping as well as full CNC machining services. There can be no assurance that this acquisition will be completed.

The Company believes that inflation has not had a material impact on it operations