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 JUNE 30, 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.
-----------------------------------------------------------------
(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
---------------------------
(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 11,949,532 shares of the Registrant's common stock outstanding as of
June 30, 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
June 30, 2002 1
Consolidated Condensed Unaudited Statements of Operations
for the nine month periods ended June 30, 2002 and 2001 2
Consolidated Condensed Unaudited Statements of Cash Flows
for the nine month periods ended June 30, 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 8
Signatures
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET
As of June 30, 2002
Assets
Current assets:
Cash and cash equivalents $ 204,990
Accounts receivable, net of allowance for doubtful accounts
of $16,500 2,992,395
Inventories 658,713
Prepaid expenses and other 305,664
-----------------
Total current assets 4,161,762
Property and equipment, net of accumulated depreciation
and amortization 8,255,190
Intangible assets, net of accumulated amortization 1,975,918
-----------------
Total assets $ 14,392,870
=================
Liabilities and stockholders' equity
Current liabilities:
Line of credit payable $ 905,202
Accounts payable 2,498,693
Customer deposits 54,000
Accrued payroll and related costs 224,032
Other accrued liabilities 185,628
Current portion of capital lease obligations 341,152
Current portion of long term debt 5,466,383
-----------------
Total current liablities 9,675,090
Capital lease obligations, net of current portion 758,013
Long-term debt, net of current portion 805,582
Deferred taxes 799,624
-----------------
Total liablities 12,038,309
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 11,949,532 shares 119
Additional paid in capital 16,833,576
Accumulated deficit (14,401,083)
Less: Treasury stock, 8,500 shares (81,907)
Accumulated comprehensive gain 3,856
-----------------
Total stockholders' equity 2,354,561
-----------------
Total liabilities and stockholders' equity $ 14,392,870
=================
See accompanying notes to consolidated condensed unaudited financial statements.
1
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 2002 and 2001
For the three months ended For the nine months ended
June 30 June 30
--------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
License and royalties $ 165,523 $ 126,091 $ 508,588 $ 402,576
Service and product revenues 4,067,227 4,026,505 11,365,229 9,994,864
----------- ----------- ----------- -----------
Total Revenues 4,232,750 4,152,596 11,873,817 10,397,440
Cost of revenues 3,204,051 2,934,147 9,141,151 7,129,211
----------- ----------- ----------- -----------
Gross profit 1,028,699 1,218,449 2,732,666 3,268,229
Operating expenses:
Research and development 136,538 49,298 275,190 170,144
Litigation and related costs -- 19,776 14,635 276,592
Selling, general and administrative 1,031,645 1,058,927 3,028,824 2,835,284
----------- ----------- ----------- -----------
1,168,183 1,128,001 3,318,649 3,282,020
----------- ----------- ----------- -----------
(Loss) earnings from operations (139,484) 90,448 (585,983) (13,791)
Other income(expense)
Interest income 233 1,910 1,079 3,620
Interest expense (139,383) (167,163) (407,048) (350,912)
Other 40,123 13,179 79,116 44,743
----------- ----------- ----------- -----------
(99,027) (152,074) (326,853) (302,549)
----------- ----------- ----------- -----------
Loss before income taxes (238,511) (61,626) (912,836) (316,340)
Provision for income taxes (330) -- (46,569) --
----------- ----------- ----------- -----------
Net loss $ (238,181) $ (61,626) $ (866,267) $ (316,340)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.02) $ (0.01) $ (0.07) $ (0.03)
=========== =========== =========== ===========
Weighted average number of basic and diluted common
shares outstanding 11,946,103 10,921,400 11,919,508 10,432,900
=========== =========== =========== ===========
Comprehensive loss:
Net loss $ (238,181) $ (61,626) $ (866,267) $ (316,340)
Foreign currency translation adjustment 35,815 15,352 27,782 15,352
Unrealized gain on available for sale securities -- 12,441 -- 25,017
----------- ----------- ----------- -----------
Comprehensive loss $ (202,366) $ (33,833) $ (838,485) $ (275,971)
=========== =========== =========== ===========
See accompanying notes to consolidated condensed unaudited financial statements.
2
MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2002 and 2001
2002 2001
----------- -----------
Cashflows from operating activities
Net loss $ (866,267) $ (316,340)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 658,303 586,025
Loss on sale of securities 15,992
Gain on disposal of equipment -- (17,677)
Gain on foreign currency translation 27,782 --
Increase (decrease) in deferred taxes 31,655 (56,606)
Changes in operating assets and liabilities:
Accounts receivable 188,254 384,891
Inventories 189,455 276,988
Prepaid expenses and other (21,222) 73,918
Accounts payable 23,402 547,477
Customer deposits (6,000) (365,940)
Accrued payroll and related costs (73,852) (127,798)
Other accrued liablities (70,388) (40,673)
----------- -----------
Net cash provided by operating activities 81,122 960,257
Cash flows from investing activities
Purchases of available for sale securities -- (880)
Sales of available for sale securities 40,795
Additions to property and equipment (483,180) (487,463)
Proceeds from disposal of equipment -- 204,030
Cash paid for acquisition, net of cash acquired (1,989,049)
Additions to intangible assets (10,281) (221,861)
----------- -----------
Net cash used in investing activities (493,461) (2,454,428)
Net cash from financing activities
Net change in line of credit 305,202 543,276
Proceeds from issuance of common stock 218,388 691,400
Borrowings under notes payable 1,403,000 2,080,117
Repayments of long term obligations (1,583,057) (1,469,837)
----------- -----------
Net cash provided by financing activities 343,533 1,844,956
----------- -----------
Net increase (decrease) in cash and cash equivalents (68,806) 350,785
Cash and cash equivalents at beginning of period 273,796 455,369
----------- -----------
Cash and cash equivalents at end of period $ 204,990 $ 806,154
=========== ===========
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 June 30, 2002 and the results of the Company's
operations and its cash flow for the three and nine months then ended.
NET INCOME (LOSS) PER SHARE
Net income (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 $3,757,000 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. The Company is currently
working to resolve these non-compliance issues.
REPORTABLE SEGMENTS
Thorough June 30, 2002, McLaren Performance Technologies, Inc. had
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
4
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 (see
subsequent event note). 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
months ended June 30, 2002 and 2001 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ ------------------------------
2002 2001 2002 2001
------------------------------ ------------------------------
REVENUES:
MCLAREN TRACTION $ 180,523 $ 141,091 $ 613,588 $ 421,858
MCLAREN ENGINES 3,095,334 2,994,228 8,861,296 9,024,251
MCLAREN PERFORMANCE PRODUCTS 982,711 1,042,262 2,500,070 1,042,262
INTERCOMPANY ELIMINATIONS (25,818) (24,985) (101,137) (90,931)
------------------------------ ------------------------------
$4,232,750 $4,152,596 $11,873,817 $10,397,440
============================== ==============================
INCOME (LOSS) BEFORE TAXES
MCLAREN TRACTION $ 43,605 $ (72,461) $ 158,950 $ (309,766)
MCLAREN ENGINES 140,127 143,787 (76,455) 719,964
MCLAREN PERFORMANCE PRODUCTS (61,256) 14,106 (223,591) 14,106
MCLAREN CORPORATE (360,987) (147,058) (771,740) (740,644)
------------------------------ ------------------------------
$ (238,511) $ (61,126) $ (912,836) $ (316,340)
============================== ==============================
RELATED PARTY TRANSACTIONS
Through June 15, 2002, the Company began supplied 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 these engines for the three and nine months
ended June 30, 2002 was approximately $109,000 and $244,000 respectively.
During March 2002, the Company issued $250,000 of Convertible Debt
Securities to a Director. 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 note is convertible to common stock of the Company at the
current market price. Either the company or the holder may elect the conversion.
SUBSEQUENT EVENTS
On July 23, 2002 the Company sold to Eaton Corporation ("Eaton"), all
patents trademarks and intangible assets owned by the Company which are related
to the Company's proprietary Gerodisc(TM) technology. In addition, the Company,
as licensor, assigned or otherwise transferred the benefit of the Company's
Gerodisc(TM) licensing agreements with Steyr-Powertrain AG & CO KG and New
Venture Gear to Eaton. As consideration for the foregoing, the Company received
one million dollars ($1,000,000). The Company also will receive two
dollars ($2.00) per unit for all sales by Eaton of certain Gerodisc(TM) unit
sales for of such units during the calendar years 2005 through 2009, which
payment shall not exceed one million dollars ($1,000,000) in the aggregate over
such time period. In addition, the Company may receive up to five hundred
thousand dollars ($500,000) in the event that certain contingencies are met.
In July 2002, the Company paid off a bank note related to the former
Santa Barbara, CA Traction Operations. Total amount paid including interest was
three hundred forty thousand dollars ($340,000).
5
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.
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.
6
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 AND NINE MONTHS ENDED JUNE 30, 2002 VERSUS THREE AND NINE MONTHS ENDED
JUNE 30, 2001
The Company showed a loss of $238,181 for the three months ended June 30,
2002 compared to a loss of $61,626 for the three months ended June 30, 2001.
Revenues were $4,232,750 compared to $4,152,596 for the same period last year,
which represents an increase of 1.9%. The increase was due to the increase in
McLaren Engines services.
For the nine months ended June 30, 2002, the Company showed a loss of
$866,267 compared to a loss of $316,340 for the nine months ended June 30, 2001.
Revenues of the nine months ended June 30, 2002 were $11,873,817 compared to
$10,397,440 for the same period last year. For the nine months ended June 30,
2002, the Company showed a decrease of $68,806 compared to an increase of
$350,785 of cash and cash equivalents for the nine months ended June 30, 2001.
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. These
include our new Lincoln LS program, and our Indy Racing Engine program. The
expenses associated with these programs are a significant percentage of the
overall loss in the period. Costs associated with the Indy Racing program were
suspended during 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 personnel and restructuring operational
units. Management believes that the cost savings changes and the realization of
new product development revenue will bring additional profit to the bottom line.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES.
In May 2002, the Company issued 8,000 shares of its common stock to Trilogy
Services LLC in exchange for CAD-CAM engineering services rendered.
The shares issued to Trilogy Services LLC 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
based upon Trilogy Services LLC's knowledge, sophistication, and investment
intent as well as the private nature of the transaction. No underwriters or
underwriting discounts or commissions were involved.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the quarter for which this report is filed, the Company was in
default of a bank note related to the former Santa Barbara, CA Traction
Operations. The Company negotiated with the bank for a payoff amount of
$340,000. In July 2002, the Company paid the $340,000 to the bank.
The Company is currently out of compliance with covenants on several of its
7
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 is approximately $3,757,000. The Company is
currently working with its lending institution to resolve the non-compliance
issues. The total amount reclassified was approximately 26% 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:
99 Certification of the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K. A report on Form 8-K was filed on April 24, 2002
announcing the dismissal of Ernst & Young, LLP as the Company's independent
public accountants, and the engagement of Grant Thornton LLP as the Company's
independent public accountants.
8
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: August 14, 2002
/s/ Chris J. Panzl
-----------------------------
Chris J. Panzl, Chief Financial Officer