U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File No. 0-16176
McLAREN PERFORMANCE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
| Delaware | 84-1016459 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 32233 West Eight Mile Road Livonia, Michigan | 48152 | |
| (Address of principal executive offices) | (Zip Code) |
(248) 477-6240
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
There were 11,987,232 shares of the Registrant’s common stock outstanding as of July 30, 2003 (includes 8,700 shares held in treasury).
Transitional Small Business Disclosure Format (Check one): Yes ¨No x
McLAREN PERFORMANCE TECHNOLOGIES, INC.
FORM 10-QSB
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| ITEM 1. | FINANCIAL STATEMENTS |
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET
As of June 30, 2003 - Restated
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ | 255,154 | |
Accounts receivable, net of allowance for doubtful accounts of $35,000 | 2,917,980 | ||
Inventories | 447,888 | ||
Prepaid expenses and other | 330,096 | ||
Total current assets | 3,951,118 | ||
Property and equipment, net of accumulated depreciation and amortization | 8,276,531 | ||
Intangible assets, net of accumulated amortization | 2,110,766 | ||
Total assets | $ | 14,338,415 | |
Liabilities and stockholders’ equity | |||
Current liabilities: | |||
Line of credit payable | $ | 2,120,387 | |
Accounts payable | 2,495,656 | ||
Customer deposits | 115,661 | ||
Accrued payroll and related costs | 198,084 | ||
Other accrued liabilities | 401,340 | ||
Current portion of capital lease obligations | 326,685 | ||
Current portion of long term debt | 5,326,839 | ||
Total current liabilities | 10,984,652 | ||
Capital lease obligations, net of current portion | 433,711 | ||
Long-term debt, net of current portion | 119,128 | ||
Deferred taxes | 554,453 | ||
Total liabilities | 12,091,944 | ||
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Stockholders’ equity: | ||||
Preferred stock, $.001 par value | ||||
Authorized—10,000,000 shares No shares issued or outstanding | — | |||
Common stock, $.00001 par value | ||||
Authorized—20,000,000 shares Issued and outstanding 11,987,232 shares | 120 | |||
Additional paid in capital | 16,946,806 | |||
Accumulated deficit | (14,677,907 | ) | ||
Less: Treasury stock, 8,700 shares | (81,907 | ) | ||
Accumulated comprehensive gain | 59,359 | |||
Total stockholders’ equity | 2,246,471 | |||
Total liabilities and stockholders’ equity | $ | 14,338,415 | ||
See accompanying notes to consolidated condensed unaudited financial statements.
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
For the three and nine month periods ended June 30, 2003 and 2002
For the three months ended June 30 | For the nine months ended June 30 | |||||||||||||||
| 2003 (Restated) | 2002 | 2003 (Restated) | 2002 | |||||||||||||
Revenues: | ||||||||||||||||
License and royalties | $ | 108,060 | $ | 165,523 | $ | 300,000 | $ | 508,588 | ||||||||
Service and product revenues | 4,143,473 | 4,067,227 | 11,757,309 | 11,365,229 | ||||||||||||
Total Revenues | 4,251,533 | 4,232,750 | 12,057,309 | 11,873,817 | ||||||||||||
Cost of revenues | 3,536,331 | 3,204,051 | 9,580,449 | 9,141,151 | ||||||||||||
Gross profit | 715,202 | 1,028,699 | 2,476,860 | 2,732,666 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | — | 136,538 | — | 275,190 | ||||||||||||
Selling, general and administrative | 1,291,395 | 1,031,645 | 3,224,989 | 3,043,459 | ||||||||||||
| 1,291,395 | 1,168,183 | 3,224,989 | 3,318,649 | |||||||||||||
Loss from operations | (576,193 | ) | (139,484 | ) | (748,129 | ) | (585,983 | ) | ||||||||
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Other income(expense) | ||||||||||||||||
Interest income | 29 | 233 | 830 | 1,079 | ||||||||||||
Interest expense | (145,997 | ) | (139,383 | ) | (410,443 | ) | (407,048 | ) | ||||||||
Foreign exchange gain | 99,614 | 47,939 | 209,079 | 66,057 | ||||||||||||
Other | 27,221 | (7,816 | ) | 59,403 | 13,059 | |||||||||||
| (19,133 | ) | (99,027 | ) | (141,131 | ) | (326,853 | ) | |||||||||
Loss before income taxes | (595,326 | ) | (238,511 | ) | (889,260 | ) | (912,836 | ) | ||||||||
Provision for income taxes | (65,280 | ) | (330 | ) | (185,286 | ) | (46,569 | ) | ||||||||
Net loss | $ | (530,046 | ) | $ | (238,181 | ) | $ | (703,974 | ) | $ | (866,267 | ) | ||||
Basic and diluted net loss per share | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.07 | ) | ||||
Weighted average number of basic and diluted common shares outstanding | 11,971,147 | 11,946,103 | 11,969,594 | 11,919,508 | ||||||||||||
Comprehensive loss: | ||||||||||||||||
Net loss | $ | (530,046 | ) | $ | (238,181 | ) | $ | (703,974 | ) | $ | (866,267 | ) | ||||
Foreign currency translation adjustment | 48,428 | 35,815 | 89,711 | 27,782 | ||||||||||||
Comprehensive loss | $ | (481,618 | ) | $ | (202,366 | ) | $ | (614,263 | ) | $ | (838,485 | ) | ||||
See accompanying notes to consolidated condensed unaudited financial statements.
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MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
For the nine month periods ended June 30, 2003 and 2002
| 2003 (Restated) | 2002 | |||||||
Cashflows from operating activities | ||||||||
Net loss | $ | (703,974 | ) | $ | (866,267 | ) | ||
Adjustments to reconcile net loss to | ||||||||
net cash provided by operating activities | ||||||||
Depreciation and amortization | 824,878 | 658,303 | ||||||
Deferred compensation | 98,171 | — | ||||||
Loss on disposal of equipment | 5,035 | — | ||||||
(Loss) Gain on foreign currency translation | (214,841 | ) | 27,782 | |||||
Change in deferred taxes | (169,376 | ) | 31,655 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (68,452 | ) | 188,254 | |||||
Inventories | 182,834 | 189,455 | ||||||
Prepaid expenses and other | (71,899 | ) | (21,222 | ) | ||||
Accounts payable | 107,456 | 23,402 | ||||||
Customer deposits | 73,661 | (6,000 | ) | |||||
Accrued payroll and related costs | (84,276 | ) | (73,852 | ) | ||||
Other accrued liabilities | 86,601 | (70,388 | ) | |||||
Net cash provided by operating activities | 65,818 | 81,122 | ||||||
Cash flows from investing activities | ||||||||
Additions to property and equipment | (486,773 | ) | (483,180 | ) | ||||
Additions to intangible assets | — | (10,281 | ) | |||||
Net cash used in investing activities | (486,773 | ) | (493,461 | ) | ||||
Net cash from financing activities | ||||||||
Net change in line of credit | 1,088,780 | 305,202 | ||||||
Proceeds from issuance of common stock | — | 218,388 | ||||||
Borrowings under notes payable | 243,500 | 1,403,000 | ||||||
Repayments of notes payable | (826,880 | ) | (1,346,537 | ) | ||||
Repayments of capital leases obligations | (260,573 | ) | (236,520 | ) | ||||
Net cash provided by financing activities | 244,827 | 343,533 | ||||||
Effect of exchange rate differences on cash and cash equivalents | 18,587 | — | ||||||
Net decrease in cash and cash equivalents | (157,541 | ) | (68,806 | ) | ||||
Cash and cash equivalents at beginning of period | 412,695 | 273,796 | ||||||
Cash and cash equivalents at end of period | $ | 255,154 | $ | 204,990 | ||||
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Redemption of common stock offset against other receivables | $ | 2,500 | $ | — | ||
Issuance of common stock offset against liabilities | $ | 11,060 | $ | — | ||
See accompanying notes to consolidated condensed unaudited financial statements.
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
PRESENTATION
The financial statements included herein have been prepared by McLaren Performance Technologies, Inc. (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make these financial statements not misleading; however, it is suggested that these financial statements and the accompanying notes to the financial statements be read in conjunction with the financial statements and notes thereto in the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002. The financial data for the interim period may not necessarily be indicative of results to be expected for the year.
In the opinion of the Company, these unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of McLaren Performance Technologies, Inc. as of June 30, 2003, and the results of the Company’s operations and its cash flow for the three and nine months then ended.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents were not considered in this calculation for the three and nine month periods ended June 30, 2003 and 2002, as their effect would be antidilutive.
EQUITY TRANSACTIONS
During December 2002, the Company purchased and cancelled 10,000 shares of its common stock. Total cost was $2,500.
During May 2003, the Company issued 14,000 shares of its common stock. Total value was $11,060.
RETENTION STOCK OPTION AGREEMENTS AND RESTATEMENT
On March 18, 2003, the Company entered into retention stock option agreements with five members of its management team. These agreements provide an incentive for the management team to remain employees of the Company for a period of eight months.
The accompanying financial statements have been restated to recognize $85,081 and $98,171 in the three and nine month periods, respectively, of compensation expense and additional paid in capital resulting from the excess of the consideration offered by Linamar Corporation over the exercise price of the options which excess is being recognized over the eight month vesting period of the options. The effect of the restatement was to increase selling, general and administrative expenses and the net loss by $85,081 and $98,171 for the three and nine months ended June 30, 2003, respectively.
The total number of shares represented by the grants under the retention stock option agreements is 500,000 at an exercise price of $.43 per share. The total compensation expense to be recognized is $230,000, of which $85,081 is recognized in the period ended June 30, 2003. The $230,000 represents the 500,000 option shares at $.46 (which represents the approximately $.89 cash consideration to be paid by Linamar Corporation less the exercise price of $.43). The $.8875 cash consideration to be paid by Linamar Corporation was determined based on arm’s-length negotiations between the Company and Linamar Corporation.
DEBT TRANSACTIONS
During March 2003, the Company borrowed $243,500 from Linamar Corporation. This note is due upon demand and has an interest rate of 10%.
During March 2003, the Company paid the balance of $243,500 on the Subordinated Convertible Promissory Note issued to Amherst H. Turner, a Director of the Company.
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REPORTABLE SEGMENTS
McLaren Performance Technologies, Inc. has three reportable segments. McLaren Engines derives its revenues from designing, developing, fabricating, testing and validating engines and related components for the automotive OEM’s. McLaren Traction Technologies derives revenues from license fees and royalties relating to its GERODISC technology, as well as from performing research and development on a fee for service basis. McLaren Traction Technologies sold its GERODISC technology to Eaton Corporation in 2002, but continues to receive income from that agreement. McLaren Performance Products is a specialty manufacturer of automotive powertrain products.
The accounting policies of the reportable segments are the same as that of the Company. The Company evaluates performance based on income or loss from operations before income taxes, and accounts for inter-segment sales as if they were to third parties.
Financial information by reportable segment for the three and nine month periods ended June 30, 2003 and 2002 is as follows:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Revenues: | ||||||||||||||||
McLaren Traction | $ | 108,060 | $ | 180,523 | $ | 300,000 | $ | 613,588 | ||||||||
McLaren Engines | 1,858,580 | 3,095,334 | 6,102,204 | 8,861,296 | ||||||||||||
McLaren Performance Products | 2,337,465 | 982,711 | 5,744,743 | 2,500,070 | ||||||||||||
Intercompany Eliminations | (52,572 | ) | (25,818 | ) | (89,638 | ) | (101,137 | ) | ||||||||
| $ | 4,251,533 | $ | 4,232,750 | $ | 12,057,309 | $ | 11,873,817 | |||||||||
Income (Loss) Before Taxes | ||||||||||||||||
McLaren Traction | $ | 108,060 | $ | 43,605 | $ | 300,000 | $ | 158,950 | ||||||||
McLaren Engines | (144,773 | ) | 140,127 | 67,871 | (76,455 | ) | ||||||||||
McLaren Performance Products | (113,151 | ) | (61,256 | ) | (318,594 | ) | (223,591 | ) | ||||||||
McLaren Corporate | (445,462 | ) | (360,987 | ) | (938,537 | ) | (771,740 | ) | ||||||||
| $ | (595,326 | ) | $ | (238,511 | ) | $ | (889,260 | ) | $ | (912,836 | ) | |||||
NOTES PAYABLE
The Company has reclassified approximately $1,885,000 of its Bank notes for long term liabilities to short term liabilities because the Company is not in compliance with covenants on these bank loans.
RELATED PARTY TRANSACTIONS
During the quarter ending March 31, 2003, the Company recorded sales of $8,383 and $8,505 to a Director of the Company and to the former President of the Company, respectively. The services provided were priced at arms length rates.
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STOCK BASED COMPENSATION
We apply the intrinsic value method under APB Opinion No 25, “Accounting for Stock Issued to Employees” and its related interpretations, for options granted to employees and Board members. No compensation expense is recognized because we award options at the fair market value of the underlying common stock at the date of the grant. For options and warrants to non-employees, we apply SFAS 123, “Accounting for Stock-Based Compensation”, and accordingly, recognize expense using a fair market value method.
The following table illustrates the effect on net loss and net loss per share if we had applied the fair value recognition provisions of SFAS 123, as amended by SFAS 148, “Accounting for Stock-Based Compensation—an Amendment of FASB Statement No. 123” to options issued to employees and Board members:
Three Months Ended June 30 | Nine Months Ended June 30 | |||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||
Net loss, as reported | (530,046 | ) | (238,181 | ) | (703,974 | ) | (866,267 | ) | ||||
Deduct: Additional compensation expense | (85,204 | ) | (98,739 | ) | (179,285 | ) | (245,665 | ) | ||||
Proforma net loss | (615,250 | ) | (336,920 | ) | (883,259 | ) | (1,111,932 | ) | ||||
Net loss per share | ||||||||||||
Basic and diluted as reported | (0.04 | ) | (0.02 | ) | (0.06 | ) | (0.07 | ) | ||||
Basic and diluted pro forma | (0.04 | ) | (0.03 | ) | (0.08 | ) | (0.09 | ) | ||||
These pro forma amounts were determined by estimating the fair value of each option on its grant date using the Black-Scholes option pricing model. The following assumptions were applied: (i) risk free interest rates ranging from 2.3 percent to 6.0 percent for all options, (ii) expected lives of 3 to 10 years for all options, (iii) expected volatility of 97% for 2003 and 84% for 2002 and (iv) no expected dividends.
GOODWILL
Effective October 1, 2002, the Company adopted the provisions of SFAS 142, “Goodwill and Other Intangible Assets” SFAS 142, which is effective for years beginning after December 15, 2001, addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. SFAS 142 also specifies that intangible assets must be amortized over their useful lives unless such lives are indefinite, in which case the assets are not subject to amortization. SFAS 142 also specifies that goodwill and other indefinite lived intangible assets are not subject is not subject to amortization but are subject to impairment tests at least annually. Under SFAS 142, the Company was required to test all existing goodwill and other indefinite lived intangible assets for impairment on a “reporting unit” basis. A reporting unit is the operating segment unless, at the business level one below that operating segment (the “component” level), discrete financial information is prepared and regularly reviewed by management, in which case such component is the reporting unit. A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, that the carrying amount for goodwill exceeded its fair value. The result of testing goodwill and other indefinite lived intangible assets for impairment in accordance with SFAS 142, as of October 1, 2002, resulted in no impairment. A reconciliation of the loss reported in the consolidated statement of operations to the loss adjusted for the effect of goodwill and other indefinite lived intangible assets amortization for all periods presented is below:
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Three Months Ended June 30 | Nine Months Ended June 30 | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net loss: | ||||||||||||||||
Reported net loss | $ | (530,046 | ) | $ | (238,181 | ) | $ | (703,974 | ) | $ | (866,267 | ) | ||||
Amortization of goodwill and other indefinite lived intangible assets | — | 34,258 | — | 87,518 | ||||||||||||
Adjusted net loss | $ | (530,046 | ) | $ | (203,923 | ) | $ | (703,974 | ) | $ | (778,749 | ) | ||||
Basic and diluted net loss per share | ||||||||||||||||
Reported net loss | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.07 | ) | ||||
Amortization of goodwill and other indefinite lived intangible assets | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.01 | ||||||||
Adjusted net loss | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.07 | ) | ||||
NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123”, which is effective for years ending after December 15, 2002. This Statement amends FASB SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based
8
employee compensation and the effect of the method used on reported results. The adoption of this pronouncement did not have an impact on the Company’s financial position or results of operations.
In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 clarifies various derivative implementation issues, and is generally effective for new contracts entered into or modified after June 30, 2003. We currently do not enter into derivative transactions and believe the adoption of SFAS 149 will have no impact on our consolidated financial statements.
In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). Under SFAS 150, a mandatorily redeemable financial instrument is classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the entity, and is measured at fair market value. Changes in the fair value or redemption amount are recognized in earnings. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. For financial instruments issued on or before May 31, 2003, SFAS 150 is effective July 1, 2003. We do not believe the adoption of SFAS 150 will have an impact on our consolidated financial statements.
SUBSEQUENT EVENTS
On August 1, 2003, the Company announced that it signed the Agreement and Plan of Merger dated July 30, 2003, with Linamar Corporation (Linamar) under which Linamar will acquire by merger all of the issued and outstanding shares of the Company at $.8875 per share in cash.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. |
The following should be read in conjunction with the Company’s Annual Report on Form 10-KSB and the attached consolidated condensed financial statements and notes of the Company.
FORWARD-LOOKING STATEMENTS
Statements included in this Report that do not relate to present or historical conditions are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Such forward-looking statements involve a number of known and unknown risks and uncertainties. While these statements represent the Company’s current judgment on the future direction of the business, such risks and uncertainties could cause actual results, performance, achievements and/or industry results, to differ materially from those suggested herein. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements in this Report may include, without limitation, statements relating to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources. All forward-looking statements in this Report are intended to be made pursuant to the Safe Harbor provisions of the 1995 Reform Act. Factors that could cause results to differ materially from those projected in the forward-looking statements include: market conditions, variability of quarterly operations, dependence on management, competition, and the bureaucratic nature of the automobile industry.
THE THREE MONTHS ENDED JUNE 30, 2003 VERSUS THREE MONTHS ENDED JUNE 30, 2002 AND THE NINE MONTHS ENDED JUNE 30, 2003 VERSUS THE NINE MONTHS ENDED JUNE 30, 2002
The Company showed a net loss of $530,046 for the three months ended June 30, 2003, compared to a net loss of $238,181 for the three months ended June 30, 2002. Revenues were $4,251,533 compared to $4,232,750 for the same period last year. The increased net loss of some 82% this is due in part to increases in our legal expenses resulting from the pending merger of the company, accompanied by the fact we had no high margin engine audit testing work and various start up expenses associated with new projects. Cash flow from operations was $65,818 for the period ended June 30, 2003, compared to $81,122 for the same period last year.
For the nine months ended June 30, 2003, the Company showed a loss of $703,974 compared to a loss of $866,267 for the nine months ended June 30, 2002. Revenues for the nine months ended June 30, 2003 were $12,057,309 compared to $11,873,817, an increase of 2%.
Revenues increased slightly from the prior year’s third quarter despite the loss of the Cadillac racing program, which revenue accounts for approximately $3,000,000 in fiscal 2002. New project tooling sales approximated $800,000 for the quarter ending June 30, 2003, and accounted for the majority of the increase. Gross profit decrease by some 30% compared to the prior year’s quarter ending June 30, 2002. A major element in the decrease is due to tooling sales with no applicable margin, the loss of the Cadillac racing program revenue and no engine audit testing for the quarter ending June 30, 2003.
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Increases in foreign exchange gains in fiscal year 2003 were due to the gain of the Canadian dollar against the U.S. dollar. The majority of the gain was derived from the U.S. dollar denominated debt in our Canadian subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires working capital principally to fund its current operations. The Company maintains a revolving line of credit with financial institutions, which allows for borrowings to help with working capital needs. These facilities expired in January 2003, but have been renewed through the end of September 2003. The Company is currently in default under these facilities as a result of the Company’s failure to comply with certain loan covenants regarding tangible net worth, debt to equity ratio and debt service coverage. Management continues to work with the financial institution to revise these covenants and extend these facilities on a longer-term basis. There can be no guarantees that the Company will be able to renegotiate or extend these facilities with the financial institutions. Accordingly, the Company may be required to supplement its available cash and other liquid assets with proceeds from borrowings, the sales of additional securities or other sources. There can be no assurance that any such required additional funding would be available or, if available, that it can obtained on terms favorable to the Company. In the event the Company is unsuccessful in its efforts to maintain its existing credit facilities or otherwise generate working capital, the Company would be unable to continue operations.
| ITEM 3. | CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-14 and 15d-14 under the Exchange Act, as of a date within ninety days before the filing of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission rules and forms.
(b) Changes in internal controls. There have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses in the internal controls, and therefore no corrective actions were taken.
| ITEM 1. | LEGAL PROCEEDINGS. |
No legal proceedings are required to be disclosed.
| ITEM 2. | CHANGES IN SECURITIES. None. |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
The Company is currently out of compliance with covenants on several of its senior bank notes, including bank notes executed in favor of Bank One in the amount of $3,950,000 and a line of credit agreement with Bank One for the amount of $2,920,000. Because the Company is not in compliance with these bank covenants, generally accepted accounting principles call for the Company to reclassify all of this debt to a current maturity status. The amount reclassified as current debt is approximately $1,885,000. The Company is currently working with its lending institution to resolve the non-compliance issues. The total amount reclassified was approximately 13% of the total assets of the Company.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. |
| ITEM 5. | OTHER INFORMATION. |
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Material Agreements:
On June 23, 2003, the Company and Linamar entered into a revised non-binding letter of intent, which contemplated that each share of McLaren Performance common stock outstanding as of the closing date of the merger would be converted into the right to receive $.8875 in cash.
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K. |
(a) EXHIBITS. The following exhibits are filed herewith electronically:
31.1 | Certification of the Chief Executive Officer Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | Non-binding Letter of Intent dated June 23, 2003, by and between the Company and Linamar. | |
(b) REPORTS ON FORM 8-K.
None.
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MCLAREN PERFORMANCE TECHNOLOGIES, INC. | ||
By: | /s/ Chris J. Panzl | |
| Chris J. Panzl, Chief Financial Officer | ||
Date: August 22, 2003
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