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, 2000
[ ] 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)
McLaren Automotive Group, Inc.
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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 9,488,517 shares of the Registrant's common stock outstanding as of
March 31, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
McLAREN PERFORMANCE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
Part I. Financial Information 1-6
Item 1. Financial Statements
Consolidated Condensed Unaudited Balance Sheet as of
March 31, 2000 1
Consolidated Condensed Unaudited Statements of Operations
for the three and six month periods ended March 31, 2000
and 1999 2
Consolidated Condensed Unaudited Statements of Cash Flows
for the six month periods ended March 31, 2000 and 1999 3
Notes to Consolidated Condensed Unaudited Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. Other Information 6
Signatures 7
PART I.
ITEM 1. FINANCIAL STATEMENTS.
MCLAREN PERFOMANCE TECHOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET AS OF MARCH 31, 2000
MARCH 31,
2000
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 994,100
MARKETABLE SECURITIES 35,800
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF $15,000 2,204,300
INVENTORIES 60,400
PREPAID EXPENSES AND OTHER 151,500
------------
TOTAL CURRENT ASSETS 3,446,100
PROPERTY AND EQUIPMENT AT COST
NET OF ACCUMULATED DEPRECIATION 4,593,900
OTHER ASSET:
GOODWILL AND OTHER INTANGIBLES,
AT COST, NET OF ACCUMULATED
AMORTIZATION 738,300
------------
TOTAL ASSETS $ 8,778,300
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT PAYABLE $ 1,180,000
ACCOUNTS PAYABLE 1,302,200
CUSTOMER DEPOSITS 252,600
PAYROLL AND RELATED 174,800
ACCRUED LIABILITIES 164,400
CURRENT PORTION OF NOTES PAYABLE 440,700
------------
TOTAL CURRENT LIABILITIES 3,514,700
NOTES PAYABLE--NET OF CURRENT PORTION 2,731,700
------------
TOTAL LIABILITIES 6,246,400
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 - 9,488,517 SHARES
ON MARCH 31, 2000 100
ADDITIONAL PAID IN CAPITAL 13,977,600
ACCUMULATED DEFICIT (11,345,100)
LESS: TREASURY STOCK AT COST (81,900)
ACCUMULATED COMPREHENSIVE LOSS (18,800)
------------
TOTAL STOCKHOLDERS EQUITY 2,531,900
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,778,300
============
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 MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
2000 1999 2000 1999
REVENUES:
LICENSE AND ROYALTIES $ 200,700 $ -- $ 363,900 $ --
CONTRACT AND OTHER SERVICES 2,977,600 1,025,100 5,638,200 1,128,100
----------- ----------- ----------- -----------
TOTAL REVENUES 3,178,300 1,025,100 6,002,100 1,128,100
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 306,400 596,100 641,700 1,129,200
COST OF REVENUES 2,251,600 463,400 3,976,600 463,400
SELLING, GENERAL AND ADMINISTRATIVE 1,325,500 1,154,300 2,403,700 1,776,700
----------- ----------- ----------- -----------
3,883,500 2,213,800 7,022,000 3,369,300
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (705,200) (1,188,700) (1,019,900) (2,241,200)
OTHER (EXPENSE) (83,800) (237,300) (147,600) (210,400)
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (789,000) (1,426,000) (1,167,500) (2,451,600)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (789,000) $(1,426,000) $(1,167,500) $(2,451,600)
=========== =========== =========== ===========
BASIC AND FULLY DILUTED
LOSS PER SHARE $ (0.09) $ (0.16) $ (0.13) $ (0.27)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,163,242 8,955,557 9,125,675 8,952,577
=========== =========== =========== ===========
COMPREHENSIVE LOSS:
NET LOSS $ (789,000) $(1,426,000) $(1,167,500) $(2,451,600)
UNREALIZED LOSS ON MARKETABLE
SECURITIES (2,500) (10,700) (4,900) (10,700)
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (791,500) $(1,436,700) $(1,172,400) $(2,462,300)
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
2
MCLAREN PERFORMANCE TECHNOLGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDING MARCH 31, 2000 AND 1999
MARCH 31 MARCH 31
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,167,500) $(2,451,600)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 321,500 141,100
COMPENSATION AND OTHER EXPENSES
RELATED TO ISSUANCE OF STOCK AND OPTIONS 19,000 --
LOSS ON INVESTMENT IN AFFILIATE -- 200,000
LOSS ON DISPOSAL OF EQUIPMENT -- 1,400
CHANGES IN OPERATING ASSETS AND LIABLITIES:
ACCOUNTS RECEIVABLE (429,200) 3,444,700
INVENTORIES (44,900) 3,700
PREPAID EXPENSES AND OTHER (55,800) 44,900
ACCOUNTS PAYABLE 728,700 166,600
PAYROLL AND RELATED 73,200 (48,600)
ACCRUED EXPENSES 9,900 49,900
CUSTOMER DEPOSITS 13,300 18,500
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (531,800) 1,570,600
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF MARKETABLE SECURITIES (400) (353,500)
PROCEEDS FROM SALE OF PROPERTY, PLANT
AND EQUIPMENT -- 10,000
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (547,600) (332,600)
INVESTMENT IN AFFILIATE, NET OF CASH ACQUIRED -- (1,291,400)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (548,000) (1,967,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINE OF CREDIT 1,164,000 104,100
PAYMENTS UNDER LINE OF CREDIT (750,000) --
BORROWINGS UNDER NOTES PAYABLE 419,900 --
REPAYMENTS OF NOTES PAYABLE (265,300) (28,100)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 765,900 --
PROCEEDS FROM EXERCISE OF STOCK OPTIONS -- 378,700
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 1,334,500 454,700
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 254,700 57,800
CASH AND CASH EQUIVALENTS, BEGINNING 739,400 2,348,500
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 994,100 $ 2,406,300
=========== ===========
NON CASH TRANSACTIONS:
UNREALIZED LOSS ON MARKETABLE SECURITIES $ (4,900) $ (10,700)
=========== ===========
STOCK ISSUED IN CONNECTION WITH ACQUISITION $ -- $ 675,000
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
3
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 generally accepted accounting
principles 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 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, 1999. 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 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, 2000, and the results of the Company's operations and its cash
flow for the three months and six months then ended.
REVENUE RECOGNITION
During the three months and six months ended March 31, 2000, the Company
recorded royalty revenues totaling $200,700 and $363,900, respectively from New
Venture Gear, Inc. Royalty revenues are recorded as earned per the terms of the
licensing agreement.
CONCENTRATION OF CREDIT RISK
For the six months ended March 31, 2000, revenue derived from two customers
represented 70% and 12% respectively of the Company's Total Revenues. These
customers accounted for 68% and 19%, respectively of accounts receivable at
March 31, 2000.
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 the calculation, as their effect would be antidilutive.
INCOME TAX
The Company did not provide for federal income taxes due to net operating
loss carry forwards.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to the
present period's presentation.
EQUITY TRANSACTIONS
On March 15, 2000 the Company sold 400,000 shares of its common stock in a
private placement. In connection with this sale the Company also issued to the
purchaser a warrant to purchase an additional 200,000 shares of common stock of
the Company for $400,000 on or before May 15, 2000. The shares of common stock
and warrant were purchased for a total offering price of $800,000.
4
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
in the future direction of the business, such risks and uncertainties could
cause actual results performance and achievements, 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.
SIX MONTHS ENDED MARCH 31, 2000 VERSUS SIX MONTHS ENDED MARCH 31, 1999
The Company experienced a net loss of $1,166,000 for the six months ended
March 31, 2000 as compared to a net loss of $2,443,000 for the six months ended
March 31, 1999.
This represented a significant improvement over the previous year and was
the result of activities at both divisions. The Company's McLaren Traction
Division implemented a comprehensive cost cutting initiative which reduced the
operating loss from $2,460,467 in the same period last year to $695,589 in the
current period. In addition, the Company's McLaren Engines Division sales in the
period increased 43 percent due to increased business with customers.
Despite these improvements, the Company is still in the process of
addressing the cost structure. For the six months ended March 31, 2000 the
Company expended approximately $580,000 for the following: legal expenses in
connection with the Dana Corporation and Murat Okcuoglu litigation matters,
general patents expenses, transaction costs associated with acquisitions and
other normal corporate matters; professional fees expended for specific due
diligence activities surrounding a potential acquisition target; and consulting
payments to the Company's former Chief Executive Officer and former Chief
Financial Officer. Management anticipates some reduction during the third
quarter as certain of these costs are non-recurring.
A change in business mix at the McLaren Engines Division during the six
month period resulted in a greater proportion of parts sales, which carry a
lower profit margin. This resulted in a reduction in operating margin of
approximately 14 percent for the Division compared to the same period last year.
It is anticipated that this situation will begin to reverse in the third quarter
as other programs commence.
On January 31, 2000 the McLaren Engines Division concluded the renewal of
its line of credit arrangement with Bank One of Michigan. The new loan limit was
increased substantially to the lesser of $1,400,000, or 80 percent of
5
accounts receivable less than 90 days. The interest rate is at prime. This line
is subject to renewal on January 31, 2001. In addition, the Company had a line
of credit with Montecito Bank and Trust that expired March 6, 2000. The $750,000
Line of Credit was converted to a term note for $500,000 after a paydown of
$250,000. Principal payments of $250,000 are required on March 5, 2001 and
October 31, 2001. Interest is to be paid monthly at a rate of prime plus 1.5%.
Management has developed a proposed public relations and marketing plan
that will begin in the third quarter. Management anticipates that this will
further improve recognition and will further enhance the positive image of the
Company. In addition, the restructuring of the business infrastructure has begun
to provide for improvements in planning and operations.
Management's strategy for the remainder of the year remains consistent
- -- working to improve the Gerodisc business model and sales activity. This
activity has begun to show results in increased requests for proposals for
Gerodisc technology.
The McLaren Engines Division will continue to maximize its potential
with current customers and is evaluating the potential impact to meet those
customer needs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company entered into a License Agreement in 1994 with Dana Corporation.
On July 21, 1998, Dana terminated the License Agreement. On September 9, 1998,
the Company filed an action alleging that Dana breached the License Agreement.
On April 6, 1999, the Company filed a patent infringement action against Dana.
In its complaint, the Company alleged that Dana infringed upon the Company's
patented Gerodisc system, United States Patent No. 5,888,163 (the "`163
patent"), and the Company is seeking damages and declaratory and injunctive
relief. In response to the patent infringement action, Dana filed a counterclaim
in which it alleged that the `163 patent is invalid, unenforceable, and not
infringed upon by Dana. Dana's counterclaim is a declaratory judgment action in
which no money damages are sought. The patent infringement action and the breach
of contract action have been consolidated for purposes of discovery and trial.
Discovery is now being undertaken in the consolidated action. The case is
pending in the District Court for the Eastern District of Michigan.
On December 30, 1999, Murat Okcuoglu, a former employee of the Company,
filed an action against the Company. In his complaint, Mr. Okcuoglu alleges that
pursuant to his March 1, 1991 employment agreement with the Company, he is
entitled to damages in excess of $5,000,000 based on the Company's improper
commercialization of ideas he allegedly originated. Discovery is now being
undertaken. The case is pending in the Superior Court of Santa Barbara,
California.
ITEM 2. CHANGES IN SECURITIES.
On March 15, the Company sold 400,000 shares of common stock (the
"Purchased Shares") to George Karfunkel (the "Purchaser"). In connection with
this sale, the Company also issued to the Purchaser a warrant to purchase an
additional 200,000 shares of common stock of the Company for $400,000 on or
before May 15, 2000 (the "Warrant"). The Purchased Shares and the Warrant were
purchased for a total offering price of $800,000. The Purchased Shares and the
Warrant have not been registered under the Securities Act. The Company claims
exemption from registration under Section 4(2) of the Securities Act and
Regulation D promulgated thereunder based upon the Purchaser's knowledge,
sophistication, investment intent and status as an "accredited investor", as
well as the private nature of the transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibits are filed herewith electronically:
EXHIBIT 10.1 Stock Purchase Agreement dated as of March 15, 2000,
between the Company and George Karfunkel
EXHIBIT 10.2 Warrant to Purchase Shares of Common Stock dated as of
March 15, 2000, between the Company and George Karfunkel
EXHIBIT 10.3 Registration Rights Agreement dated as of March 15, 2000
between the Company and George Karfunkel
EXHIBIT 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Company filed a report on Form 8-K on March
28, 2000, reporting the dismissal of Arthur Andersen LLP as the Company's
independent auditors on March 22, 2000, and the engagement of Ernst & Young
LLP on the same date as the Company's independent auditors for the fiscal
year ending September 30, 2000.
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, 2000 By: /s/ Wiley R. McCoy
-----------------------------
Wiley R. McCoy, President
Date: May 15, 2000 By: /s/ Jacqueline K. Kurtz
-----------------------------
Jacqueline K. Kurtz,
Chief Financial Officer
7