U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
[_] 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 84-1016459
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
32233 West Eight Mile Road
Livonia, Michigan 48152
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(248) 477-6240
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(Issuer's telephone number)
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(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 11,941,532 shares of the Registrant's common stock outstanding as of
May 1, 2002.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
McLAREN PERFORMANCE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
Part I. Financial Information 1
Item 1. Financial Statements 1
Consolidated Condensed Unaudited Balance Sheet as of
March 31, 2002 1
Consolidated Condensed Unaudited Statements of Operations
for the three and sixth months ended March 31, 2002 and 2001 2
Consolidated Condensed Unaudited Statements of Cash Flows for
the sixth months ended March 31, 2002 and 2001 3
Notes to Consolidated Condensed Unaudited Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 6
Signatures 8
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET
As of March 31, 2002
Assets
Current assets:
Cash and cash equivalents $ 305,822
Accounts receivable, net of allowance for doubtful
accounts of $5,000 2,582,657
Inventories 344,853
Prepaid expenses and other 348,963
-------------
Total current assets 3,582,295
Property and equipment, net of accumulated depreciation
and amortization 8,266,362
Intangible assets, net of accumulated amortization 1,935,282
-------------
Total assets $ 13,783,939
=============
Liabilities and stockholders' equity
Current liabilities:
Line of credit payable $ 657,012
Accounts payable 1,872,799
Customer deposits 54,000
Accrued payroll and related costs 282,157
Other accrued liabilities 216,263
Current portion of capital lease obligations 320,783
Current portion of long term debt 5,311,834
-------------
Total current liablities 8,714,848
Capital lease obligations, net of current portion 847,988
Long-term debt, net of current portion 899,479
Deferred taxes 760,085
-------------
Total liablities 11,222,400
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 11,941,532 shares 119
Additional paid in capital 16,838,188
Accumulated deficit (14,162,902)
Less: Treasury stock, 8,500 shares (81,907)
Accumulated comprehensive loss (31,959)
-------------
Total stockholders' equity 2,561,539
-------------
Total liabilities and stockholders' equity $ 13,783,939
=============
See accompanying notes to consolidated condensed unaudited financial statements.
1
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 2002 and 2001
For the three months ended For the six months ended
March 31 March 31
----------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
Revenues:
License and royalties $ 153,380 $ 136,210 $ 343,065 $ 276,485
Service and product revenues 3,443,730 3,118,557 7,298,002 5,968,359
------------ ------------ ------------ ------------
Total Revenues 3,597,110 3,254,767 7,641,067 6,244,844
Cost of revenues 2,824,569 2,333,209 5,937,100 4,195,064
------------ ------------ ------------ ------------
Gross profit 772,541 921,558 1,703,967 2,049,780
Operating expenses:
Research and development 86,294 64,503 138,652 120,846
Litigation and related costs 13,192 76,820 14,635 256,816
Selling, general and administrative 956,488 895,918 1,997,179 1,776,357
------------ ------------ ------------ ------------
1,055,974 1,037,241 2,150,466 2,154,019
------------ ------------ ------------ ------------
Loss from operations (283,433) (115,683) (446,499) (104,239)
Other income(expense)
Interest income 142 7 846 1,710
Interest expense (132,569) (94,480) (267,665) (183,749)
Other 47,764 14,648 38,993 31,564
------------ ------------ ------------ ------------
(84,663) (79,825) (227,826) (150,475)
------------ ------------ ------------ ------------
Loss before income taxes (368,096) (195,508) (674,325) (254,714)
Credit for income taxes (14,256) - (46,239) -
------------ ------------ ------------ ------------
Net loss $ (353,840) $ (195,508) $ (628,086) $ (254,714)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.03) $ (0.02) $ (0.05) $ (0.02)
============ ============ ============ ============
Weighted average number of basic and diluted common
shares outstanding 11,941,532 10,296,343 11,906,210 10,188,612
============ ============ ============ ============
Comprehensive loss:
Net loss $ (353,840) $ (195,508) $ (628,086) $ (254,714)
Foreign currency translation adjustment (1,837) - (8,033) -
Unrealized gain on available for sale securities - 12,576 - 5,832
------------ ------------ ------------ ------------
Comprehensive loss $ (355,677) $ (182,932) $ (636,119) $ (248,882)
============ ============ ============ ============
See accompanying notes to consolidated condensed unaudited financial statements.
2
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2002 and 2001
2002 2001
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Cashflows from operating activities
Net loss $ (628,086) $ (254,714)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 587,289 334,794
Provision for uncollectible accounts receivable (60,000) -
(Gain) loss on disposal of equipment - (2,336)
Gain on foreign currency translation (8,033) -
Decrease in deferred taxes (7,884) -
Changes in operating assets and liabilities:
Accounts receivable 657,992 23,250
Inventories 503,315 (119,277)
Prepaid expenses and other (64,521) 171,779
Accounts payable (602,492) 1,083,570
Customer deposits (6,000) (365,940)
Accrued payroll and related costs (15,727) (35,332)
Other accrued liablities (39,753) (125,806)
----------- -----------
Net cash provided by operating activities 316,100 709,988
Cash flows from investing activities
Purchases of available for sale securities - (880)
Additions to property and equipment (392,983) (467,174)
Proceeds from disposal of equipment - 97,730
Additions to intangible assets - (130,777)
----------- -----------
Net cash used in investing activities (392,983) (501,101)
Net cash from financing activities
Net change in line of credit 57,012 (63,000)
Proceeds from issuance of common stock 223,000 691,400
Borrowings under notes payable 1,305,000 52,500
Repayments of notes payable (1,309,189) (661,387)
Repayments under capital lease obligations (166,914) (3,417)
----------- -----------
Net cash provided by financing activities 108,909 16,096
----------- -----------
Net decrease in cash and cash equvalents 32,026 224,983
Cash and cash equivalents at beginning of period 273,796 455,369
----------- -----------
Cash and cash equivalents at end of period $ 305,822 $ 680,352
=========== ===========
Unrealized gain on available for sale securities $ - $ 12,576
=========== ===========
See accompanying notes to consolidated condensed unaudited financial statements.
3
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, 2001. 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 March 31, 2002 and the results of the Company's operations and its cash
flow for the three 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, as their effect would be antidilutive.
EQUITY TRANSACTIONS
During October 2001, the Company sold 229,592 shares of its common stock to
EMM McLaren, an existing shareholder, in a private placement offering. Proceeds
totaled $225,000.
NOTES PAYABLE
The Company has reclassified approximately $3,754,000 of its Bank notes
from long term liabilities to short term liabilities because the Company is in
non-compliance with covenants on these bank loans. The Company is currently
working with the Bank to resolve these non-compliance issues.
DEBT TRANSACTIONS
During March 2002, the Company issued a $250,000 Subordinated Convertible
Promissory Note to Amherst H. Turner, a Director of the Company. This Promissory
Note has an interest rate of 2% over prime with monthly payments of interest
commencing on May 1, 2002. Monthly payments of principal of $5,208, in addition
to the interest payments, commence in March 2003. This Promissory Note is
convertible to common stock of the Company at the applicable per share market
price at the time of conversion. The Company may convert this Promissory Note at
any time any principal is outstanding and notice is given. Mr. Turner may
convert this Promissory Note at any time after the first anniversary of its
issuance while any principal is outstanding and notice is given.
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 Performance Products is a
specialty manufacturer of automotive powertrain products.
4
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS CONTINUED
REPORTABLE SEGMENTS - CONTINUED
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 six months
ended March 31, 2002 and 2001 is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2002 2001 2002 2001
---------- ---------- ----------- ----------
Revenues:
McLaren Traction $ 198,380 $ 139,554 $ 433,065 $ 280,767
McLaren Engines 2,645,270 3,156,509 5,765,962 6,030,023
McLaren Performance
Technologies 790,851 - 1,517,359 -
Intercompany Eliminations (37,391) (41,296) (75,319) (65,946)
---------- ---------- ----------- ----------
$3,597,110 $3,254,767 $7,641,067 $6,244,844
========== ========== =========== ==========
Income (Loss) Before Taxes:
McLaren Traction $ 45,281 $ (15,160) $ 115,345 $ (237,305)
McLaren Engines (116,179) 153,354 (216,582) 576,177
McLaren Performance
Technologies (68,309) - (162,335) -
McLaren Corporate (228,889) (333,702) (410,753) (593,586)
---------- ----------- ----------- -----------
$ (368,096) $ (195,508) $ (674,325) $ (254,714)
========== ========== =========== ==========
RELATED PARTY TRANSACTIONS
During the year, the Company began supplying engines to an Indy Racing
League team which is 30% owned by a member of the Company's Board of Directors.
The cost of supplying the engines for the three and six months ended March 31,
2002 was approximately $117,000 and $135,000 respectively.
NEW ACCOUNTING PRONOUNCEMENT
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets." Under Statement 142, goodwill and indefinite lived intangible assets
are no longer amortized but are reviewed annually for impairment, or more
frequently if impairment indicators arise. Separable intangible assets that have
finite lives will continue to be amortized over their useful lives. The Company
intends to conform to the requirements of the new SFAS upon its required
adoption date of October 1, 2002. The Company has not yet determined the impact
the SFAS will have on the recorded value of its goodwill.
5
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.
THREE AND SIX MONTHS ENDED MARCH 31, 2002 VERSUS THREE AND SIX MONTHS ENDED
MARCH 31, 2001
The Company showed a loss of $353,840 for the three months ended March 31,
2002 compared to a loss of $195,508 for the three months ended March 31, 2001.
Revenues were $3,597,110 compared to $3,254,767 for the same period last year.
The increase of approximately 11% was due in part to the Performance Products
division and the increase in McLaren Engines services. However, the increase at
McLaren Engines is largely attributable to sales of vendor-supplied component
parts to support engine development services, which although constituting an
increase in revenue, such revenue has minimal profit margin.
For the six months ended March 31, 2002, the Company showed a loss of
$628,086 compared to a loss of $254,714 for the six months ended March 31, 2001.
Revenues for the six months ended March 31, 2002 were $7,641,067 compared to
$6,244,844 for the same period last year. The increase is due to the reason
explained above.
Cash flow from operations was $316,100 for the six months ended March 31,
2002 compared to $709,988 for the same period last year. The Company's
operational performance was hindered by several factors, first of which is the
general down turn in the automotive segment. Also included in this period were
expenses related to enterering new market segments, such as our new Lincoln LS
program and Indy Racing Engine program. The expenses associated with these
programs are a significant percentage of the overall loss in the period.
Management believes that there were indications at the end of the quarter
of improved performance. The Company made operational changes during the
quarter, which include a reduction in personal and restructuring operational
units. Management believes that the cost savings changes and the realization of
new product development revenue will ease burden costs and bring additional
profit to the bottom line.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
ITEM 2. CHANGES IN SECURITIES.
On March 24, 2002, Amherst H. Turner, a Director of the Company, purchased
a $250,000 Subordinated Convertible Promissory Note (the "Note") from the
Company. The Note may be converted, at the Company's option, into shares of the
Company's common stock at any time any principal is outstanding and notice is
given. The Note may be converted, at Mr. Turner's option, into shares of the
Company's common stock at any time after the first anniversary of the Note while
any principal is outstanding and notice is given. The number of shares that the
Note is convertible into is based on the per share market price. The per share
market price, as used in the Note, means one of the following, as applicable:
(1) the closing bid price per share of the common stock on the business day
preceding the notice date on NASDAQ or other registered national stock exchange
on which the common stock is then listed, (2) if the common stock is not listed
then on NASDAQ or any registered national stock exchange, the closing bid price
for a share of common stock in the over-the-counter market, as reported by the
OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on the business day preceding the notice date, (3) if the
common stock is not then reported by the OTC Bulletin Board or the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Company's
President, or (4) if the common stock is not then publicly traded, the fair
market value of a share of common stock as determined in good faith by the
Company's Board of Directors.
6
Also on March 24, 2002 and as an inducement to Mr. Turner to purchase the
Note, the Company issued a warrant to Mr. Turner to purchase 37,500 warrant
shares exercisable, at $1.00 per share, on or before December 31, 2003.
The Note and the warrant issued to Mr. Turner have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
claims exemption from registration under Section 4(2) of the Securities Act and
Regulation D promulgated thereunder based upon Mr. Turner's knowledge,
sophistication, investment intent and status as an "accredited investor," as
well as the private nature of the transaction. No underwriters or underwriting
discounts or commissions were involved.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default of a bank note related to the former
Santa Barbara, CA Traction Operations. The total arrearage to date is
approximately $357,000. The bank note represents approximately 2.7% of total
assets of the Company. The financial institution is unrelated to the existing
banking relationship comprising the balance of outstanding debt. The Company is
continuing to make monthly interest payments while negotiating the terms and
conditions to extend the obligation. The Company is also seeking to obtain new
financing agreements with unrelated institutions.
In addition to the default described above, the Company is currently out of
compliance with covenants on several of its senior bank notes. 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 approximated
$3,754,000. The Company is working currently with its lending institution to
resolve the non-compliance issues. The total amount reclassified was
approximately 31% of the total assets of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibits are filed herewith electronically:
10.1 Subordinated Convertible Promissory Note issued to Amherst H.
Turner on March 24, 2002
10.2 Warrant to Purchase Shares of Common Stock dated March 24,
2002 by and between the Company and Amherst H. Turner
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter
for which this report is filed.
7
SIGNATURES
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.
Date: May 15, 2002
/s/ Chris J.Panzl
---------------------------------------
Chris J. Panzl, Chief Financial Officer
8