Exhibit 99.2

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The accompanying unaudited pro forma financial statements have been prepared in accordance with guidelines specified by Article 11 of Regulation S-X. Specifically, the accompanying unaudited pro forma balance sheet as of March 31, 2015, has been prepared as if the initial public offering, new credit facility borrowings, the contemplated use of the net proceeds therefrom and the combination of Fenix and eleven other corporate entities that conduct eight businesses (collectively, the “Transactions”) occurred on March 31, 2015, and include all adjustments that (i) are deemed to be directly attributable to the Transactions and (ii) are factually supportable. The accompanying unaudited pro forma statements of operations for the three months ended March 31, 2015 and the year ended December 31, 2014 have been prepared as if the Transactions occurred as of January 1, 2014, and include all adjustments that (i) are deemed to be directly attributable to the Transactions, (ii) have a continuing impact on our financial statements, and (iii) are factually supportable. Nonrecurring charges or credits and related income tax effects which may result directly from the Transactions and which may be included in the statement of operations within twelve months following the Transactions are not included in the pro forma financial statements.

The Transactions are more fully described in Note 2 hereto. The pro forma adjustments are based upon various estimates and assumptions that our management believes are reasonable and appropriate given the currently available information. Use of different estimates and judgments could yield different results.

The pro forma financial statements reflect business combinations under the acquisition method of accounting in accordance with applicable United States generally accepted accounting principles contained in ASC 805-10, Business Combinations. Pursuant to ASC 805-10, the total estimated purchase price for each combination as described in Note 3 is measured at the combination date and allocated to the fair value of net assets acquired. For purposes of these pro forma financial statements, those fair values have been estimated based on preliminary estimates and assumptions that can change materially as we complete the allocation process. Estimating of the fair values of certain tangible and identifiable intangible assets requires the use of significant estimates and assumptions, including future cash flows and appropriate discount rates. See Note 3 hereto for further description of the significant estimates and assumptions we used to determine the preliminary fair values of certain material assets acquired. Certain valuations are pending completion of analyses performed by independent valuation specialists. We expect to receive completed analyses from our independent valuation specialists and finalize our fair value determinations within three months of completing the Transactions. The unaudited pro forma financial statements do not reflect any future operating efficiencies, associated cost savings or possible integration costs that may occur related to the combinations, nor do they reflect incremental costs likely to result from being a public company.

The unaudited pro forma financial statements are included for informational purposes only and do not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company or as a group of companies during the periods presented. The unaudited pro forma financial statements should not be relied upon as being indicative of our financial condition or results of operations had the Transactions occurred on the date assumed nor as a projection of our results of operations or financial position for any future period or date.

The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and related notes of Fenix and of the Founding Companies.

 

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Fenix Parts, Inc.

UNAUDITED PRO FORMA BALANCE SHEET

As of March 31, 2015

(In thousands)

 

														Other
														Founding				Acquisition										Offering
		Fenix				Beagell								Companies				Adjustments										Adjustments
		Parts				Group				Standard				(Note 1)				(Note 4)						Subtotal				(Note 4)						Pro forma
ASSETS
Current assets:
Cash and cash equivalents		$	149			$	2,925			$	1,333			$	3,827			$	(1,255	)		(b)		$	10,854			$	13,822			(h)		$	24,676
																			(6,125	)		(a)
																			10,000			(k)
Restricted cash			—				—				—				—				6,125			(a)			6,125				—						6,125
Accounts receivable, net			—				1,226				1,164				2,696				(4,227	)		(b)			859				—						859
Inventories			—				6,567				10,847				13,935				10,656			(d)			42,005				—						42,005
Prepaid expenses and other current assets			781				132				449				431				—						1,793				(720	)		(h)			1,073
Related party receivables			—				333				242				—				(575	)		(b)			—				—						—
Total current assets			930				11,183				14,035				20,889				14,599						61,636				13,102						74,738
Property and equipment			—				3,962				6,946				8,948				(11,357	)		(b)			11,993				—						11,993
																			3,494			(d)
Cash surrender value of life insurance policies			—				621				—				—				—						621				—						621
Intangible assets			—				—				—				—				32,400			(d)			32,400				—						32,400
Goodwill			—				180				334				—				57,309			(d)			57,309				—						57,309
																			(514	)		(b)
Indemnification asset			—				—				—				—				4,676			(d)			4,676				—						4,676
Refundable purchase price consideration			—				—				—				—				1,470			(f)			1,470				—						1,470
Deferred income taxes			—				—				236				—				—						236				—						236
Other noncurrent assets			—				—				31				218				397			(d)			646				—						646
Total assets		$	930			$	15,946			$	21,582			$	30,055			$	102,474					$	170,987			$	13,102					$	184,089
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,214			$	569			$	382			$	1,364			$	(770	)		(b)		$	2,759			$	—					$	2,759
Accrued expenses and other current liabilities			1,652				732				1,641				1,339				(97	)		(b)			5,317				—						5,317
																			50			(e)
Current portion of long-term debt			—				68				—				291				(169	)		(b)			190				—						190
Current portion of deferred warranty revenue			—				263				138				483				(884	)		(d)			—				—						—
Deferred income tax liabilities			—				—				746				1,780				—						2,526				—						2,526
Related party payables			—				—				2,258				120				(2,258	)		(b)			120				—						120
Total current liabilities			2,866				1,632				5,165				5,377				(4,128	)					10,912				—						10,912
Deferred warranty revenue, net of current portion			—				11				213				468				(692	)		(d)			—				—						—
Long-term debt, less current portion			—				45				—				3,048				(1,480	)		(b)			11,613				—						11,613
																			10,000			(k)
Acquisition funding			—				—				—				—				88,135			(f)			88,135				(88,135	)		(i)			—
Contingent consideration liability			—				—				—				—				10,436			(f)			10,436				—						10,436
Reserve for uncertain tax positions			—				2,017				499				2,160				—						4,676				—						4,676
Deferred income tax liabilities			—				—				130				40				13,644			(d)			10,316				—						10,316
																			(3,498	)		(e)
Other noncurrent liabilities			—				—				—				—				1,987			(f)			1,987				—						1,987
Total liabilities			2,866				3,705				6,007				11,093				114,404						138,075				(88,135	)					49,940
Shareholders’ equity (deficit):
Fenix common stock			—				—				—				—				3			(f)			3				12			(j)			15
Founding Companies’ capital			—				749				5,058				1,116				(6,923	)		(g)			—				—						—
Additional paid-in capital			5,440				—				—				—				22,997			(f)			30,265				101,225			(j)			131,490
																			1,828			(c)
Retained earnings (accumulated deficit)			(7,376	)			9,046				10,870				16,015				(35,931	)		(g)			(5,756	)			—						(5,756	)
																			2,753			(e)
																			(1,133	)		(c)
Accumulated other comprehensive income			—				—				(1,003	)			—				1,003			(g)			—				—						—
Controlling interests equity (deficit)			(1,936	)			9,795				14,925				17,131				(15,403	)					24,512				101,237						125,749
Noncontrolling interests equity			—				2,446				650				1,831				(4,927	)		(g)			8,400				—						8,400
																			8,400			(f)
Total shareholders’ equity (deficit)			(1,936	)			12,241				15,575				18,962				(11,930	)					32,912				101,237						134,149
Total liabilities and shareholders’ equity		$	930			$	15,946			$	21,582			$	30,055			$	102,474					$	170,987			$	13,102					$	184,089

See accompanying notes to unaudited pro forma financial statements.

 

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Fenix Parts, Inc.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the three months ended March 31, 2015

(Dollars in thousands, except per share data)

 

														Other
														Founding				Acquisition										Offering
		Fenix				Beagell								Companies				Adjustments										Adjustments
		Parts				Group				Standard				(Note 1)				(Note 5)						Subtotal				(Note 5)						Pro forma
Net revenues		$	—			$	7,057			$	5,597			$	14,259			$	(1,988	)		(l)		$	24,678			$	—					$	24,678
																			(247	)		(m)
Cost of goods sold			—				4,863				3,581				10,229				(1,988	)		(l)			16,685				—						16,685
Gross profit			—				2,194				2,016				4,030				(247	)					7,993				—						7,993
Operating expenses			2,629				1,767				1,978				3,857				1,702			(n)			11,933				—			(t)			11,933
Operating income (loss)			(2,629	)			427				38				173				(1,949	)					(3,948	)			—						(3,940	)
Interest income (expense)			—				—				—				(36	)			47			(o)			(95	)			—						(95	)
																			(106	)		(p)
Other income (expense)			—				—				244				(3	)			—						241				—						241
Income (loss) before income taxes			(2,629	)			427				282				134				(2,008	)					(3,794	)			—						(3,794	)
Provision (benefit) for income taxes			—				57				79				17				(1,595	)		(q)			(1,442	)			—			(t)			(1,442	)
Net income (loss)			(2,629	)			370				203				117				(413	)					(2,352	)			—						(2,352	)
Income attributable to noncontrolling interests							176				(26	)			22				(172	)		(r)			—				—						—
Net income (loss) attributable to controlling interests		$	(2,629	)		$	194			$	229			$	95			$	(241	)				$	(2,352	)		$	—					$	(2,352	)
Basic and diluted loss per share		$	(2,048.53	)																				$	(690.30	)								$	(0.12	)		(v)
Basic and diluted weighted average shares outstanding			1,283																1,573			(s)			2,856				19,509,941			(u)			19,512,797			(v)

See accompanying notes to unaudited pro forma financial statements.

 

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Fenix Parts, Inc.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the year ended December 31, 2014

(Dollars in thousands, except per share data)

 

														Other
														Founding				Acquisition										Offering
		Fenix				Beagell								Companies				Adjustments										Adjustments
		Parts				Group				Standard				(Note 1)				(Note 5)						Subtotal				(Note 5)						Pro forma
Net revenues		$	—			$	30,598			$	31,126			$	51,863			$	(4,580	)		(l)		$	108,216			$	—					$	108,216
																			(791	)		(m)
Cost of goods sold			—				19,897				19,717				36,152				(4,580	)		(l)			71,186				—						71,186
Gross profit			—				10,701				11,409				15,711				(791	)					37,030				—						37,030
Operating expenses			4,748				8,308				9,524				13,174				9,462			(n)			45,216				—			(t)			45,216
Operating income (loss)			(4,748	)			2,393				1,885				2,537				(10,253	)					(8,186	)			—						(8,186	)
Interest income (expense)			1				—				—				(151	)			212			(o)			(363	)			—						(363	)
																			(425	)		(p)
Other income (expense)			—				297				842				(12	)			—						1,127				—						1,127
Income (loss) before income taxes			(4,747	)			2,690				2,727				2,374				(10,466	)					(7,422	)			—						(7,422	)
Provision (benefit) for income taxes			—				448				684				500				(4,452	)		(q)			(2,820	)			—			(t)			(2,820	)
Net income (loss)			(4,747	)			2,242				2,043				1,874				(6,014	)					(4,602	)			—						(4,561	)
Income attributable to noncontrolling interests			—				625				107				233				(965	)		(r)			—				—						—
Net income (loss) attributable to controlling interests		$	(4,747	)		$	1,617			$	1,936			$	1,641			$	(5,049	)				$	(4,602	)		$	—					$	(4,602	)
Basic and diluted loss per share		$	(4,427.77	)																				$	(1,476.64	)								$	(0.24	)		(v)
Basic and diluted weighted average shares outstanding			1,072																1,505			(s)			2,577				18,951,949			(u)			18,954,526			(v)

See accompanying notes to unaudited pro forma financial statements.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

(1) Basis of Presentation

The unaudited pro forma financial statements present our financial position and results of operations as if the Transactions described in Note 2 occurred on March 31, 2015, for purposes of the pro forma balance sheet and on January 1, 2014, for purposes of the pro forma statements of operations. The unaudited pro forma balance sheet includes the actual financial position of Fenix Parts, Inc. (“Fenix” or “we”) and each of the Founding Companies (as defined below) as of March 31, 2015. Fenix was founded on January 2, 2014. As such, its actual operating results are included in the pro forma statements of operations only since its founding. The actual operating results of each Founding Company are included in the pro forma statements of operations for the full periods presented. The pro forma financial statements also reflect the assumptions and adjustments described in Notes 3, 4 and 5.

The Founding Companies include Don Automotive Mall, Inc., Gary’s U-Pull It, Inc., Horseheads Automotive Recycling, Inc. (collectively, the “Beagell Group”); Standard Auto Wreckers Inc., End of Life Vehicles Inc., Goldy Metals Incorporated, Goldy Metals (Ottawa) Incorporated (collectively, “Standard”); and Eiss Brothers, Inc. (“Eiss Brothers”), Green Oak Investments LLC dba GO Auto Recycling (“GO Auto”), Jerry Brown, Ltd (“Jerry Brown”) and Leesville Auto Wreckers, Inc. (“Leesville” and together with Eiss Brothers, GO Auto and Jerry Brown, the “Other Founding Companies”). For accounting and reporting purposes, Fenix has been identified as the accounting acquirer and Beagell Group and Standard have been identified as accounting co-predecessors to Fenix.

Our significant accounting policies used in the preparation of our unaudited pro forma financial statements in accordance with United States generally accepted accounting principles are substantially the same as those of the Founding Companies.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

The following tables reflect the financial position and results of operations of the Other Founding Companies as of March 31, 2015 and for the periods indicated below:

 

		As of March 31, 2015
																		Total
																		Other
		Eiss								Jerry								Founding
		Brothers				GO Auto				Brown				Leesville				Companies
ASSETS
Current assets:
Cash and cash equivalents		$	1,095			$	297			$	725			$	1,710			$	3,827
Accounts receivable, net			758				497				788				653				2,696
Inventories			4,904				1,380				3,908				3,743				13,935
Prepaid expenses and other current assets			39				21				46				325				431
Total current assets			6,796				2,195				5,467				6,431				20,889
Property and equipment, net			1,388				2,059				4,198				1,303				8,948
Other noncurrent assets			132				—				—				86				218
Total assets		$	8,316			$	4,254			$	9,665			$	7,820			$	30,055
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	185			$	521			$	431			$	227				1,364
Accrued expenses and other current liabilities			172				311				292				564				1,339
Current portion of long-term debt			72				48				171				—				291
Current portion of deferred warranty revenue			157				231				95				—				483
Deferred income tax liabilities			—				—				—				1,780				1,780
Related party payables			—				120				—				—				120
Total current liabilities			586				1,231				989				2,571				5,377
Deferred warranty revenue, net of current portion			167				253				48				—				468
Long-term debt, net of current portion			522				889				1,437				200				3,048
Reserve for uncertain tax positions			—				—				1,837				323				2,160
Deferred income tax liabilities			—				—				—				40				40
Total liabilities			1,275				2,373				4,311				3,134				11,093
Shareholders’ equity:
Capital stock																			—
Additional paid-in capital			39				790				94				193				1,116
Retained earnings			6,484				1,091				4,947				3,493				16,015
Controlling interests equity			6,523				1,881				5,041				3,686				17,131
Noncontrolling interests equity			518				—				313				1,000				1,831
Total shareholders’ equity			7,041				1,881				5,354				4,686				18,962
Total liabilities and shareholders’ equity		$	8,316			$	4,254			$	9,665			$	7,820			$	30,055

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

		For the Three Months Ended March 31, 2015
																		Total
																		Other
		Eiss								Jerry								Founding
		Brothers				GO Auto				Brown				Leesville				Companies
Total revenues		$	3,109			$	2,560			$	4,225			$	4,365			$	14,259
Cost of goods sold			2,252				1,735				2,928				3,314				10,229
Gross profit			857				825				1,297				1,051				4,030
Operating expenses			819				783				1,149				1,106				3,857
Operating income (loss)			38				42				148				(55	)			173
Interest expense			(6	)			(13	)			(17	)			—				(36	)
Other expense			3				—				—				(6	)			(3	)
Income (loss) before income taxes			35				29				131				(61	)			134
Provision for income taxes			—				—				26				(9	)			17
Net income (loss)			35				29				105				(52	)			117
Income (loss) attributable to noncontrolling interests			(3	)			—				35				(10	)			22
Net income (loss) attributable to controlling interests		$	38			$	29			$	70			$	(42	)		$	95

 

		For the Year Ended December 31, 2014
																		Total
																		Other
		Eiss								Jerry								Founding
		Brothers				GO Auto				Brown				Leesville				Companies
Total revenues		$	11,975			$	9,984			$	13,039			$	16,865			$	51,863
Cost of goods sold			8,838				6,603				8,119				12,592				36,152
Gross profit			3,137				3,381				4,920				4,273				15,711
Operating expenses			2,294				3,043				4,331				3,506				13,174
Operating income			843				338				589				767				2,537
Interest expense			(24	)			(55	)			(72	)			—				(151	)
Other income (expense)			(21	)			6				9				(6	)			(12	)
Income before income taxes			798				289				526				761				2,374
Provision for income taxes			—				—				108				392				500
Net income			798				289				418				369				1,874
Income attributable to noncontrolling interests			15				—				144				74				233
Net income attributable to controlling interests		$	783			$	289			$	274			$	295			$	1,641

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

(2) Description of Transactions

Combinations

On May 19, 2015, we acquired the Founding Companies (the “Combinations”) pursuant to purchase agreements signed through November 2014. The aggregate consideration paid by Fenix in the Combinations ( the “Combination Consideration”) as detailed in Note 3 below, is subject to adjustment. The cash portion of the Combination Consideration is generally subject to adjustment based upon finalizing the Founding Companies’ working capital on the closing date, capital expenditures during the six months preceding the closing of the Combinations and certain other factors. The Combination Consideration was determined by arms-length negotiations between Fenix and representatives of each Founding Company.

Initial Public Offering:

In May 2015, we sold 13,800,000 shares of our common stock at a public offering per share price of $8.00 (the “IPO”). After deducting underwriting discounts and commissions and other offering costs payable by us, we received net proceeds of approximately $102,000 in the offering. A portion these proceeds were used to pay the cash portion of the Combination Consideration due at or near closing.

Common Stock Split:

Immediately prior to the closing of the IPO, we effected a 2,000-for-1 split of our common stock. The pro forma shares reflected in the following tables give effect to the stock split.

Credit Facility

Concurrent with the IPO, we entered into a $35,000 senior secured credit facility with BMO Harris Bank N.A. under which we borrowed $10,000 and utilized approximately $5,900 of letters of credit on the closing date of the Combinations, May 19, 2015. The credit facility consists of $25,000 that is available as a revolving credit facility, allocated $20,000 in U.S. dollars, with a $7,500 sublimit for letters of credit, and $5,000 in either Canadian dollars or U.S. dollars, with a $2,500 sublimit for letters of credit. The remaining $10,000 is available as a term loan. We have the right from time to time, as long as no default is occurring, to request an increase in the amount of the revolving credit facility by up to an aggregate of $20,000. Proceeds of the credit facility are expected to be used for capital expenditures, working capital, permitted acquisitions, and general corporate purposes. The term of the revolving credit facility and the term loan facility is five years.

(3) Combination Consideration and Allocation

The aggregate Combination Consideration to be paid by us to equity holders of the Founding Companies in the Combinations consists of the following:

 

						Beagell								Eiss								Jerry
						Group				Standard				Brothers				Go Auto				Brown				Leesville				Total
Base Fenix share consideration			(a	)		$	10,822			$	—			$	2,338			$	2,667			$	5,333			$	1,840			$	23,000
Base Fenix Canada share consideration			(b	)			—				8,400				—				—				—				—				8,400
Base cash consideration			(c	)			19,663				30,450				6,137				4,000				6,511				11,727				78,488
Working capital and other adjustments			(c	)			1,161				1,762				810				(81	)			(1,377	)			1,132				3,407
Incremental inventory payments			(d	)			—				450				—				—				550				—				1,000
Incremental capital expenditure payments			(e	)			—				—				—				—				2,415				—				2,415
Nonsubstantive consulting fee payments			(f	)			890				50				—				—				847				—				1,787
Key employee cash bonuses			(g	)			—				—				—				—				—				2,575				2,575
Incremental off market lease payments			(h	)			1,980				(2,230	)			(700	)			(140	)			(170	)			(210	)			(1,470	)
Investment in Founding Company affiliate			(i	)			—				—				—				450				—				—				450
Contingent consideration			(j	)			—				7,683				320				—				2,433				—				10,436
Total Combination Consideration						$	34,516			$	46,565			$	8,905			$	6,896			$	16,542			$	17,064			$	130,488

 

8

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

Of this aggregate Combination Consideration, $88,135 was paid in cash on or near the closing date, $33,607 represents stock consideration and $8,746 represents discounted cash payments to be made up to 15 years after the Combinations.

 

(a)	We issued 2,874,970 shares of Fenix common stock as Combination Consideration valued at the public offering price of $8.00 per share.

 

(b)	We issued 1,050,000 exchangeable preferred shares of Fenix’s subsidiary, Fenix Parts Canada, Inc. (“Exchangeable Preferred Shares”) as Combination Consideration valued at the public offering price of common stock of $8.00 per share.

 

(c)

The base cash component of the Combination Consideration for each Combination is subject to certain adjustments. For each Founding Company (in some cases, other than Standard Auto Wreckers, Inc.), the cash component of the Combination Consideration was (i) reduced by the Founding Company’s indebtedness as of closing (ii) increased by the Founding Company’s cash and qualifying inventory as of closing and (iii) increased by the Founding Company’s capital expenditures during the six months prior to closing. All of these estimated adjustments are based on information provided by the Founding Companies at closing and are subject to further adjustment through August 2015 as additional information is obtained. Any differences in actual cash, qualifying inventory, debt or capital expenditures as of and for the six months prior to the actual closing date will have a corresponding change to pro forma cash, inventory, debt and property and equipment and an aggregate equal offsetting impact on goodwill in the pro forma balance sheet and certain immaterial impacts on pro forma operating results (via, for example, differing pro forma depreciation expense).

 

(d)	Represents additional consideration for certain excess or specific inventories. based on the applicable Founding Company inventory listings as of closing and subject to adjustment through August 2015 as additional information is obtained.

 

(e)	Represents a construction reimbursement for capital expenditures in connection with a new building located on land that we lease subject to further adjustment through August 2015 as additional information is obtained.

 

(f)	Represents contractual payments to certain equity holders of the Founding Companies and their related parties over the next 1 to 15 years. These equity holders and their related parties are not employed by us and do not provide any substantive services to us.

 

(g)	Represents cash bonuses paid at closing to key employees for past service.

 

(h)

In conjunction with the Combinations, we entered into operating facility lease agreements with affiliates of the equity holders, generally variable interest entities that were consolidated into the Founding Companies prior to the Combinations but are not consolidated by us after the Combinations. Based on independent valuations of the market rental rates compared to the actual rental rates for these properties, the excess or deficiency is reflected as additional Combination Consideration payable/refundable over the term of the related lease. The effect of discounting these payments at 10% is reflected in the amounts presented.

 

(i)	Represents the payment of $250 in cash at closing and a $200 promissory note payable over two years for a 5% membership interest in an affiliate of Go Auto. We also received an option to purchase the remaining 95% membership interest.

 

(j)

Represents the estimated fair value of contingent consideration arrangements with certain Founding Company equity holders. Under these arrangements, the equity holders can earn up to an aggregate of $7,875 in cash, 11,667 shares of Fenix common stock and 280,000 Exchangeable Preferred Shares plus an uncapped amount of additional cash if certain EBITDA and revenue targets are met over the first or second year period after closing. The fair value is based on independent valuations considering our projections for the relevant Founding Companies, the respective target levels, the relative weighting of various future scenarios and a discount rate of approximately 5.0%.

 

9

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

The following table shows the number of shares of common stock and exchangeable preferred shares issued by us relating to the Combinations:

 

		Common stock				Exchangeable preferred shares
Issued as base consideration at closing			2,874,970				1,050,000
Leesville bonus (i)			271,112				—
Escrow (ii)			11,667				280,000
			3,157,749				1,330,000

 

(i)

As part of the combination with Leesville, we issued 271,112 restricted shares of our common stock to key Leesville employees at the closing as retention bonuses that vest twelve months after grant date. These shares are not part of the Combination Consideration as they vest based on service to the Company after the closing.

(ii)

Shareholders of Standard and Eiss Brothers may earn additional shares only if certain revenue and EBITDA targets, respectively, are satisfied during the twelve-month period beginning with the month following the month of closing. Such shares have been deposited in an escrow account until settlement.

Under the acquisition method of accounting, the total Combination Consideration was allocated to net tangible and intangible assets of the Founding Companies based on their estimated fair values. The allocations are preliminary and subject to change based upon finalization of management’s valuation analysis. Pursuant to the Combination agreements, the equity owners of the Founding Companies or their affiliates have indemnified us for certain matters, including reimbursement of certain payments by us related to any of the Founding Companies’ uncertain income tax positions existing at or prior to the Combination date. The table below summarizes the purchase price allocation of the assets acquired and liabilities assumed as if the Combinations occurred on March 31, 2015:

 

		Beagell Group				Standard				Eiss Brothers				Go Auto				Jerry Brown				Leesville				Total
Combination Consideration		$	34,516			$	46,565			$	8,905			$	6,896			$	16,542			$	17,064			$	130,488
Historical net assets			12,241				15,575				7,041				1,881				5,354				4,686				46,778
Net assets not acquired/assumed			(3,679	)			(1,846	)			(1,214	)			(1,217	)			(3,660	)			(1,538	)			(13,154	)
Revaluation adjustments:
Inventories (i)			2,293				4,504				1,051				430				1,603				775				10,656
Property and equipment (ii)			1,929				852				—				—				458				255				3,494
Intangible assets (iii)			7,640				9,930				2,680				3,430				2,430				6,290				32,400
Indemnification asset (iv)			2,017				499				—				—				1,837				323				4,676
Equity interest in and option to acquire Go Auto affiliate (v)			—				—				—				397				—				—				397
Deferred extended warranty revenue (vi)			274				351				324				484				143				—				1,576
Deferred income taxes (vii)			(4,612	)			(1,485	)			(1,579	)			(1,651	)			(1,575	)			(2,782	)			(13,644	)
Net identifiable assets acquired			18,103				28,380				8,343				3,754				6,590				8,009				73,179
Resulting goodwill		$	16,413			$	18,185			$	562			$	3,142			$	9,952			$	9,055			$	57,309

 

(i)

Inventory was marked up to 90% of its estimated selling price representing the inventory’s cost and estimated related profit margin. Selling costs and related profit margin were estimated at all Founding Companies to be 10%. The acquired inventory is expected to be sold within 18 months. We do not expect our estimates of 90% and 10% to materially change based on the inventories that we acquired on the Combination date.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

(ii)

Assumptions for property and equipment valuation, which are based on cost and market approaches, are primarily data from industry databases and dealers on current costs of new equipment and information about the useful lives and age of the equipment. The remaining useful life of property and equipment was determined based on historical experience using such assets, and varies from 2-8 years depending on the Founding Company and nature of the assets. Our independent valuation specialist is assisting us in determining the final valuation of the property and equipment we acquired on the Combination date. Any change in the valuation resulting from our independent valuation specialist’s finalization of its analysis cannot be determined at this point. All property and equipment will be depreciated using the straight-line method.

(iii)

The table below summarizes the aggregate intangible assets acquired:

 

						Weighted						Three months ended				Year ended
						average				Amortization		March 31, 2015				December 31, 2014
		Amount				life (years)				method		Amortization				Amortization
Trade names		$	5,670				5			Straight line		$	284			$	1,134
Customer relationships			25,020				15			Accelerated			543				2,293
Covenants not to compete			1,710				5			Straight line			86				342
		$	32,400									$	913			$	3,769

The fair value of trade names and customer relationships are based on a number of significant assumptions. Trade names are valued using a “relief from royalty” method, which models cash savings from owning intangible assets as compared to paying a third party for their use. Descriptions of the inputs into this method, and the estimates or ranges of these inputs used for all of the Combinations are as follows:

 

Compound annual revenue growth rate over term of use		3%-6.2%
Percentage of revenue attributable to trade name in forecast year		20%-100%
Royalty rate		2%
Discount rate		11.5%-14%
Tax rate		38.6%-40.9%

The expected useful life of trade names is based on our planned timeframe for using the existing trade names we purchased in the Combinations. We expect to amortize such trade names using the straight-line method as no other method of amortization is more representative of our usage of these assets.

Customer relationships are valued using an income approach called the multi-period excess earnings method, a form of discounted cash flow that estimates revenues and cash flows derived from the use of the intangible asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as other intangible assets or property and equipment, that contributed to the generation of the cash flows to arrive at cash flows attributable solely to the intangible asset being valued. Descriptions of the inputs into this method, and the estimates or ranges of these inputs used for all of the Combinations are as follows:

 

Compound annual revenue growth rate in forecast period		2.1%-3.1%
Annual customer attrition rate		10%
Gross margin in forecast period		29.9%-48.1%
Contributory asset charges as a percentage of revenue		0.0%-2.6%
Discount rate		12.5%-16.0%
Tax rate		38.6%-40.9%

The expected useful life of customer relationships is established as 15 years, which is the period over which these assets are expected to reasonably contribute to future cash flows. We expect to amortize such customer relationships using an accelerated method that reflects a greater relative contribution to future cash flows in the earlier years of the assets’ useful lives.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

(iv)

We may recover amounts from the shareholders of the Founding Companies if we are required to make certain income tax or other payments as defined in the relevant Combination agreements after the Combinations. The indemnification asset above represents the same amount reflected as liabilities for such matters in the pro forma balance sheet and will be adjusted going forward as new information becomes available in regard to such liabilities.

(v)

The Combination agreement between us and GO Auto contains a provision pursuant to which we purchased a 5% ownership of Go Pull-It LLC, an entity under common control with Go Auto, and the right to purchase the remaining 95% of Go Pull-It LLC for either a fixed price through the end of 2016 or, after that, a price based on a formula that is primarily dependent on the EBITDA of Go Pull-It LLC. The amount reflected above for the purchase right is based on a business valuation of Go Pull-It LLC, which inputs include but are not limited to, revenue growth, gross margin, operating expenses, income tax rate, working capital and property and equipment requirements, and an appropriate discount rate.

(vi)

The Founding Companies have amounts recorded in their historical balance sheets that relate to extended warranties sold by the companies. Amounts received from customers related to these warranties were deferred and amortized into revenues on a straight-line basis over the contractual term of the warranty or five years for lifetime warranties. However, based on historical experience of the Founding Companies, we do not expect to pay any appreciable costs to fulfill these warranty obligations and, as such, have eliminated the historical deferred extended warranty revenue balance.

(vii)

We expect to record deferred income taxes relating to the difference between financial reporting and tax bases of assets and liabilities acquired in the Combinations in nontaxable transactions. This adjustment also includes the elimination of historical deferred income taxes of Founding Companies acquired in taxable transactions.

The revaluation adjustments described above could change materially as we finalize our assessment of the allocation and the fair value of the net tangible and intangible assets we acquired, some of which are dependent on the completion of valuations being performed by independent valuation specialists.

(4) Unaudited Pro forma Balance Sheet Adjustments

Acquisition Adjustments:

(a) Represents a reclassification of available cash to cash held in escrow as security for potential cash contingent consideration payments.

(b) Represents the following aggregate elimination of net assets not acquired or assumed in the Combinations, including net assets of variable interest entities (“VIEs”) that were not included in the Combinations:

 

Cash		$	1,255
Accounts receivable and other current assets			4,227
Related party receivables			575
Property and equipment			11,357
Goodwill			514
Accounts payable to other Founding Companies			(770	)
Accrued expenses			(97	)
Current portion of long-term debt			(169	)
Related party payables			(2,258	)
Long-term debt, less current portion			(1,480	)
Total		$	13,154

(c) Represents expenses for shares transferred from the founders to investors in the First and Second Bridge offerings as of March 31, 2015 and the related income tax effect.

 

12

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

(d) Represents the aggregate adjustments to reflect acquired net assets at their estimated fair values (see Note (3) above).

(e) Represents Combination-related transaction costs to be incurred after March 31, 2015 ($50) and the income tax benefit realized upon the reversal of Fenix’s valuation allowance ($2,803) due to the deferred income tax liabilities resulting from the Combination, and the income tax effect of the expense described in note (c) above ($695).

(f) Represents the Combination Consideration as more fully described in Note 3 above and summarized below:

 

Fenix common stock		$	23,000
Exchangeable Preferred Shares			8,400
Cash paid at closing			88,135
Accrued nonsubstantive consulting fees			1,787
Net refundable consideration related to off market leases			(1,470	)
Note payable related to GO Auto affiliate			200
Fair value of contingent consideration			10,436
Total		$	130,488

(g) Represents the elimination of the Founding Companies’ historical shareholders’ equity.

(k) Represents $10,000 of term loan borrowings under the new senior secured credit facility.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

Offering Adjustments:

(h) Represents $101,957 of net cash proceeds from the initial public offering (including shares sold pursuant to the underwriters’ overallotment) at the offering price of $8.00 per share after deducting underwriting discounts and commissions and related offering expenses, of which $720 were incurred as of March 31, 2015, less $88,135 of cash used to fund the cash portion of the Combination Consideration to be paid at closing.

(i) Represents cash used to fund the portion of the Combination Consideration to be paid at closing.

(j) Represents net cash proceeds from the initial public offering at a public offering price of $8.00 per share after deducting underwriting discounts and commissions and estimated related offering costs.

(5) Unaudited Pro forma Statement of Operations Adjustments

Acquisition Adjustments:

(l) Represents the aggregate elimination of sales and costs of sales between Founding Companies.

(m) Represents adjustment to extended warranty contracts revenues due to the fair value adjustment to deferred extended warranty revenues upon the Combinations described in Note (3). The amounts represent the reversal of all extended warranty revenue recognized in the historical statement of operations as such revenues were earned by the Founding Companies.

(n) Represents the following aggregate adjustments:

 

		Three Months Ended March 31, 2015				Year Ended December 31, 2014
Incremental intangible asset amortization		$	912			$	3,769
Incremental depreciation on acquired property and equipment			211				846
For property not acquired:
Elimination of historical depreciation			(40	)			(121	)
Rent expense on property under new operating leases			550				2,060
Change in fair value of contingent consideration			119				474
Elimination of historical Combination transaction costs			(50	)			(260	)
Compensation related to Leesville share bonuses (i)			—				2,169
Executive compensation (ii)			—				525
		$	1,702			$	9,462

 

(i)

Certain employees will receive 271,112 shares of our restricted common shares at closing as a bonus; however, these shares are subject to forfeiture to Leesville’s equity holder if the key employee are not employed by Leesville for one year following the Combination. As such, the estimated fair value of these shares will be reflected as additional compensation expense in 2014 after the Combinations.

(ii)	Represents compensation expense related to the October 2014 employment agreements for our Chief Executive Officer and Chief Financial Officer, assuming that base salaries in the agreements were in effect for the full year ended December 31, 2014.

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

(o) Represents the following aggregate adjustments:

 

		Three months ended March 31, 2015				Year ended December 31, 2014
Elimination of historical interest expense on indebtedness not assumed in the Combinations		$	16			$	65
Net interest income related to deferred Combination Consideration payments embedded in off market leases with Founding Company affiliates (10%)			31				147
		$	47			$	212

(p) Represents interest expense at 4.25% on assumed borrowings of $10,000 under the new senior secured credit facility.

(q) Represents an adjustment to historical income tax expense to result in an estimated pro forma effective tax rate of 38.0%.

(r) Represents the elimination of noncontrolling interests in VIEs no longer consolidated. Certain of the Founding Companies’ consolidated VIEs that leased property to them. The Founding Companies had no ownership in these VIEs and when they were consolidated all of the income of the VIEs was classified as being attributable to noncontrolling interests. After the Combinations, we will not be the primary beneficiary of these leasing entities and therefore will not consolidate them. This adjustment eliminates the noncontrolling interests from the pro forma statement of operations relating to all of the consolidated VIEs of the Founding Companies before the Combinations.

(s) Represents the shares of Fenix common stock to be issued as part of the Combination Consideration.

The unaudited pro forma statement of operations does not include the cost of goods sold impact of the adjustment of Combination date inventories to fair value nor any Combination-related transaction costs, as neither are considered to have a continuing impact on the company.

Offering Adjustments:

(t) Represents investor expense related to make whole provisions whereby certain of our shareholders were contractually required to deliver Fenix common shares to other of our shareholders if the offering price per share in the initial public offering was below $10.00. The amount equals the number of shares required to be transferred times the public offering price of $8.00 per share for Fenix common shares issued through December 31, 2014 and March 31, 2015. As this adjustment does not have a continuing impact on our financial statements, no expense is reflected on a pro forma basis.

(u) Represents the common shares issued by us in the initial public offering (13,800,000 shares for both the three months ended March 31, 2015 and the year ended December 31, 2014) and the aggregate impact of a 2,000-for-1 common stock split (5,709,941 shares for the three months ended March 31, 2015 and 5,151,949 shares for the year ended December 31, 2014).

 

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Fenix Parts, Inc.

Notes to Unaudited Pro Forma Financial Statements

(Dollars in thousands, except share and per share data)

 

Earnings per share

(v) The following table shows the calculation of pro forma earnings per share for the three months ended March 31, 2015 and the year ended December 31, 2014:

 

		Three Months Ended March 31, 2015
		Fenix Parts				Post Combinations				Post IPO
Net loss		$	(2,629	)		$	(2,352	)		$	(2,352	)
Net loss allocable to Fenix Canada preferred stock (i)			—				(380	)			(53	)
Net loss allocable to common stock		$	(2,629	)		$	(1,972	)		$	(2,299	)
Weighted average common shares outstanding			2,144,000				5,712,797				19,512,797
Basic and Diluted loss per share, post split basis		$	(1.23	)		$	(0.35	)		$	(0.12	)
		Three Months Ended March 31, 2015
		Pre-split basis				Split 2,000-for-1				Post-split basis
Weighted average common shares outstanding:
Historical basis			1,283				2,000				2,566,715
Issued in Combinations			1,437				2,000				2,874,970
Leesville employee shares			136				2,000				271,112
Subtotal			2,856								5,712,797
Issued in Initial Public Offering			N/A				13,800,000				13,800,000
Pro forma			N/A								19,512,797

 

		Year ended December 31, 2014
		Fenix Parts				Post Combinations				Post IPO
Net loss		$	(4,747	)		$	(4,602	)		$	(4,602	)
Net loss allocable to Fenix Canada preferred stock (i)			—				(796	)			(106	)
Net loss allocable to common stock		$	(4,747	)		$	(3,806	)		$	(4,496	)
Weighted average common shares outstanding			2,144,000				5,154,526				18,954,526
Basic and Diluted loss per share, post split basis		$	(2.21	)		$	(0.74	)		$	(0.24	)
		Year ended December 31, 2014
		Pre-split basis				Split 2,000-for-1				Post-split basis
Weighted average common shares outstanding:
Historical basis			1,072				2,000				2,144,000
Issued in Combinations			1,437				2,000				2,874,970
Leesville employee shares			68				2,000				135,556
Subtotal			2,577								5,154,526
Issued in Initial Public Offering			N/A				13,800,000				13,800,000
Pro forma			N/A								18,954,526

 

(i)	Represents the loss allocable to holders of Fenix Canada’s Exchangeable Preferred Stock as if such shares participated in Fenix’s loss since the beginning of the year.

 

16