<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For Quarter ended March 31, 1998
Commission File Number 0-23693
COMPOSITE AUTOMOBILE RESEARCH, LTD.
---------------------------------
(Exact name of registrant as specified in its charter)
Alberta, BC 93-1202663
----------------- --------------
(State of Incorporation) (I.R.S. Employer Identification No.)
635 Front Street, El Cajon, California 92020
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(619) 444-7254 FAX (619) 444-9026
------------------ --------------------------
(Registrant's telephone and fax number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of March 31, 1998, the registrant had 4,338,050 shares of common stock, no
stated par value, issued and outstanding.
<PAGE> 2
PART 1 FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMPOSITE AUTOMOBILE RESEARCH, LTD.
BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH 457,890 51,963
PREPAID RENT 675 675
NOTE RECEIVABLE - SHAREHOLDER 0 200,000
------------------------------
TOTAL CURRENT ASSETS 458,565 252,638
FIXED ASSETS
PROPERTY & EQUIPMENT 987,351 247,853
LESS DEPRECIATION (142,567) (55,003)
------------------------------
NET FIXED ASSETS 844,784 192,850
OTHER ASSETS
DEPOSITS 30,518 28,485
CONSULTING CONTRACT 0 100,000
ORGANIZATION COSTS 712 712
LESS AMORTIZATION (712) (107)
------------------------------
TOTAL OTHER ASSETS 30,518 129,090
------------------------------
TOTAL ASSETS 1,333,867 574,578
==============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 3
FINANCIAL STATEMENTS (continued)
COMPOSITE AUTOMOBILE RESEARCH, LTD.
BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
DEPOSITS 403,100 0
ACCOUNTS PAYABLE 81,049 107,620
ACCRUED LIABILITIES 6,647 12,242
NOTES PAYABLE - SHAREHOLDERS 70,852 41,650
-----------------------------
TOTAL CURRENT LIABILITIES 561,648 161,512
LONG TERM LIABILITIES
DEFERRED LICENSE FEES 31,250 0
-----------------------------
TOTAL LONG TERM LIABILITIES 31,250 0
-----------------------------
TOTAL LIABILITIES 592,898 161,512
STOCKHOLDERS' EQUITY
COMMON STOCK 3,123,704 137,519
CONVERTIBLE STOCK WARRANTS 0 1,444,742
ADDITIONAL PAID IN CAPITAL 0 0
CONTRIBUTED CAPITAL FOR SERVICES 198,000 99,000
BEGINNING RETAINED EARNINGS (1,478,454) (319,636)
NET INCOME (LOSS) (1,102,281) (948,559)
ENDING RETAINED EARNINGS (2,580,735) (1,268,195)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 740,969 413,066
-----------------------------
TOTAL LIAB & STOCKHOLDERS' EQUITY 1,333,867 574,578
=============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
FINANCIAL STATEMENTS (continued)
COMPOSITE AUTOMOBILE RESEARCH, LTD.
INCOME STATEMENT
UNAUDITED
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
<S> <C> <C>
REVENUE
SALES 0 67,446
-----------------------------
TOTAL REVENUE 0 67,446
COST OF SALES 0 17,800
-----------------------------
GROSS PROFIT (LOSS) 0 49,646
OPERATING EXPENSES
SALARIES & WAGES 63,630 94,579
SALES & MARKETING 269,934 26,073
COMPENSATION - FAIR VALUE 99,000 99,000
CONSULTING & OUTSIDE SERVICES 11,385 151,103
TRAVEL 6,088 46,871
LEGAL & ACCOUNTING 89,043 68,477
GENERAL & ADMINISTRATIVE 176,560 236,048
AMORTIZATION 533 107
DEPRECIATION 86,104 55,058
LOSS ON SALE OF EQUIP 0 198,646
LOSS ON WRITE-OFF OF ASSETS 300,000 0
LOSS ON WRITE-OFF OF GOODWILL 0 21,443
-----------------------------
TOTAL OPERATING EXPENSES 1,102,277 997,405
-----------------------------
INCOME (LOSS) FROM OPERATIONS (1,102,277) (947,759)
OTHER INCOME & EXPENSE
INTEREST EARNED 102 0
RENTAL INCOME 3,200 0
INTEREST EXPENSE (2,506) 0
-----------------------------
TOTAL OTHER INCOME & EXPENSE 796 0
INCOME (LOSS) BEFORE TAXES (1,101,481) (947,759)
PROVISION FOR TAXES 800 800
-----------------------------
NET LOSS (1,102,281) (948,559)
=============================
NET LOSS PER AVERAGE COMMON SHARE (0.31) (0.41)
WEIGHTED AVER. COMMON SHARES OUTSTANDING 3,513,821 2,217,494
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
FINANCIAL STATEMENTS (continued)
COMPOSITE AUTOMOBILE RESEARCH, LTD.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) (1,102,281) (948,559)
ADJ TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 86,637 55,165
LOSS ON DISPOSAL OF EQUIPMENT 0 198,646
(INCREASE) DECREASE IN ACCTS. RECEIVABLE 0 3,149
(INCREASE) DECREASE IN INVENTORY 0 132,953
(INCREASE) DECREASE IN NOTES RECEIVABLE 200,000 (200,000)
(INCREASE) DECREASE IN GOODWILL 0 38,999
(INCREASE) DECREASE IN DEPOSITS ASSET (2,033) (24,850)
(INCREASE) DECREASE IN LICENSE (OTHER ASSET) 0 10,000
(INCREASE) DECREASE IN CONSULTING CONTRACT 100,000 (100,000)
INCREASE (DECREASE) IN DEPOSITS LIABILITY 403,100 (131,460)
INCREASE (DECREASE) IN ACCTS PAYABLE 25,968 57,766
INCREASE (DECREASE) IN ACCRUED LIAB (477) (65,649)
INCREASE (DECREASE) IN DEFERRED LIC. FEES 31,250 0
-----------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (257,836) (973,840)
CASH FLOWS FROM INVESTING ACTIVITIES
(INCREASE) DECREASE IN FIXED ASSETS (629,673) (70,077)
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (629,673) (70,077)
CASH FLOWS FROM FINANCING ACTIVITIES
STOCK ISSUED 1,190,703 947,693
STOCK CANCELLED (109,657)
INCREASE (DECREASE) IN NOTES PAYABLE-SH 30,416 41,650
CONTRIBUTED CAPITAL-FAIR VALUE SVCS. PROVIDED 99,000 99,000
-----------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,320,119 978,686
NET INCREASE (DECREASE) IN CASH 432,610 (65,231)
CASH AT BEGINNING OF PERIOD 25,280 117,194
CASH AT END OF PERIOD 457,890 51,963
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
FINANCIAL STATEMENTS (continued)
NOTES TO FINANCIAL STATEMENTS
1. MANAGEMENT'S OPINION
In the opinion of management, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position of the company as
of March 31, 1998 and March 31, 1997, and the results of operations for the
three months ended March 31, 1998 and 1997 and changes in cash for the three
months ended March 31, 1998 and 1997.
2. INTERIM REPORTING
The results of operations for the three months ended March 31, 1998 and 1997 are
not necessarily indicative of the results to be expected for the remainder of
the year.
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
In January 1996, Composite Automobile Research, Inc. ("the Company")
was incorporated pursuant to the Alberta Business Corporations Act. The
Company was incorporated to facilitate an initial public offering.
Subsequent to incorporation, the Company acquired Thunder Ranch, Inc.,
("Thunder") and World Transport Authority, Inc. ("WTA"). These
acquisitions have been accounted for under the purchase method with any
difference between fair market value of assets purchased and
liabilities assumed being reflected as goodwill.
In September 1996, the Company sold certain assets and liabilities to a
former stockholder in exchange for common stock of the Company and
promises to pay. The transaction has been accounted for by the purchase
method (Note 3). During 1997, common stock issued in accordance with
this agreement was canceled (Note 7).
The Company, through its wholly owned subsidiary, is in the business of
designing vehicles, and selling licenses to others to produce these
vehicles in markets around the world.
Basis of Consolidation
For purposes of consolidation and presentation, all significant
inter-company transactions and account balances have been eliminated.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and
<PAGE> 7
present financial statements which conform to generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Cash and Equivalents
For purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered to
be cash equivalents. There were no cash equivalents as of March 31,
1998 and March 31, 1997.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization of property and equipment is provided using the straight
line method over estimated useful lives ranging from five to seven
years. Upon retirement or disposal of depreciated assets, the cost and
related depreciation are removed and the resulting gain or loss is
reflected in income. Major renewals and betterments are capitalized
while maintenance costs and repairs are expensed in the year incurred.
Any assets acquired from shareholders are recorded at historical cost
at the time of transfer.
Revenue Recognition
Revenues from the sale of a Master License are recognized when the
Master License holder has made payment to the Company and performed
marketing services sufficient to sell at least one Manufacturing &
Distribution License. Revenues from the sale of a Manufacturing &
Distribution License are recognized when the Licensee has made payment
to the Company, and the Company has provided substantially all factory
components and training sufficient for the Licensee to begin vehicle
production.
Net Loss Per Share
The Company has adopted the Financial Accounting Standards Board issued
SFAS No. 128 "Earnings Per Share" standards for computing and
presenting its loss per share for financial statement presentation. The
net loss per share is computed by dividing the net loss by the weighted
average number of shares outstanding during the period.
Income Taxes
Income taxes are provided for using the liability method of accounting
in accordance with Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." A deferred tax asset or
liability is recorded for all temporary differences between financial
and tax reporting. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
<PAGE> 8
4. INCOME TAXES:
The provision for income taxes for the interim periods ended March 31,
1998 and March 31, 1997 represents $800 for the minimum California
franchise tax.
5. RELATED PARTY TRANSACTIONS:
The Company had agreed to accept consulting services from a former
stockholder as part of the sale of certain assets and liabilities (Note
1), the value of which was determined by actual consulting services the
former stockholder performed in the past. Additionally, the Company was
owed $200,000 as of March 31, 1997 from the former stockholder for the
purchase of certain assets (Note 1). In 1997, the Company was named in
a complaint by this former stockholder. The complaint was dismissed by
the Superior Court in San Diego on April 10, 1998, and as a result,
obligations between the parties were deemed unenforceable, and written
off as a loss in the period ended March 31, 1998.
Related party debt at March 31, 1998 and March 31, 1997 consists of
amounts loaned to the Company by Stockholders. There are no formal
repayment terms.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases its office and design facilities under an operating
lease that expires in March 2001. This lease was entered into on March
1, 1996. This operating lease provides that the Company pay, in
addition to the base rent, 83% of common area operating expenses as
determined by a prorated share of total square footage of the building.
Future minimum lease payments due under the operating lease for office
and design facilities are as follows:
Year ending June 30
1998 $107,856
1999 107,856
2000 107,856
2001 26,964
--------
Total 350,532
========
7. LICENSE AGREEMENTS:
As of March 31, 1998, the Company had entered into two agreements with
unrelated third party representatives in Mexico and the Philippines
whereby the Company issued a Master License in Mexico and a Master
License in the Philippines to allow those representatives to sell
individual Manufacturing & Distribution Licenses and provide support to
Licensees to build and sell vehicles on behalf of the Company. The
Company had also entered into one Manufacturing & Distribution License
agreement with a representative in Honduras. For the period ended March
31, 1998, performance on these agreements was pending.
<PAGE> 9
8. SUBSEQUENT EVENTS:
The Company entered into binding arbitration with a former business
partner, Thomas McBurnie regarding the consideration to be paid for the
sale of Thunder Ranch, Inc. to Mr. McBurnie in an Agreement dated
September 27, 1996. The arbitration was summarily dismissed in favor of
the Company on November 24, 1997. Mr. McBurnie filed a complaint in
Superior Court of San Diego, California against the Company on December
10, 1997 concerning the same Agreement dated September 27, 1996. On
April 10, 1998, the Superior Court dismissed the entire complaint. The
Company previously had agreed to issue 1,793,000 shares of common stock
to this individual. However, as of June 30, 1997, the stock had been
canceled as recorded by the stock transfer agent, Pacific Corporate
Trust. These shares will remain canceled per the Superior Court
decision of April 10, 1998.
9. DISCLOSURES REQUIRED BY FAS-128
Reconciliation of computations used for basic and diluted EPS:
3/31/97 Basic EPS
Loss (948,559)
Weighted 2,217,494
Shares
Calculation (948,559)
----------
2,217,494
3/31/98 Basic EPS
Loss (1,102,281)
Weighted 3,513,821
Shares
Calculation (1,102,281)
----------
3,513,821
The disclosure for diluted earnings per share is not presented as the results of
calculations were antidilutive.
<PAGE> 10
PART 1 FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of financial condition and results
of operations.
General:
The Company anticipates that stock sales, license sales, and negotiations for
near-term license sales should provide sufficient cash flows for the foreseeable
future.
Results of Operations:
Deposits of $31,250 from license sales were recorded as deferred license sales
for the period ended March 31, 1998. Sales recorded for the period ended March
31, 1997 consisted of sales from discontinued operations of Thunder Ranch of
$67,446. The Company sustained a net loss of $ 1,102,281 for the period ended
March 31, 1998 and a net loss of $948,559 for the period ended March 31, 1997.
Losses were primarily attributable to expenditures for research and development
of the WorldStar(R) vehicle.
The Company had sold two Master Licenses and one Manufacturing & Distribution
License for WorldStar(R) factories, with nine additional Manufacturing &
Distribution licenses in Mexico pending financing.
Subsequently, in May 1998, the Company produced and delivered the first set of
production molds for a Tijuana, Mexico factory owned by the Mexico Master
License holder. The Tijuana factory began vehicle production in June 1998. As of
the date of this filing, the Tijuana factory has increased vehicle production to
four vehicles per week. All vehicles produced by that facility have been sold to
commercial businesses.
Liquidity and Capital Resources:
As of March 1997, the Company had $51,963 cash on hand and in the bank. The
primary costs and operating expenses for the period ended March 1997 were:
salaries & wages $112,379, marketing $26,073, outside services $151,103, other
operating expenses $505,561. Additional non-cash expenses of $220,089 were
related to the sale of a subsidiary of the Company.
As of March 31, 1998, the Company had $457,890 cash on hand and in the bank. The
primary costs and operating expenses for the period ended March 31, 1998 were:
salaries & wages $63,660, marketing $269,934, outside services $11,385, other
operating expenses $457,298. Additional non-cash expenses of $300,000 were
related to the write-off of a consulting contract and a note receivable from a
former shareholder, Thomas McBurnie.
Currently, the Company maintains a sufficient positive cash balance for
production and working capital. The substantial losses through March 1998 were
due to product development expenses. Subsequent Licensee payments and additional
sales of the Company's equity securities have allowed the Company to complete
production and increase marketing efforts.
<PAGE> 11
PART II OTHER INFORMATION
ITEM 1 Not applicable.
ITEMS 2-4: Not applicable
ITEM 5: Information required in lieu of Form 8-K: None
ITEM 6: Exhibits and Reports on 8-K:
a) Exhibit # 27.1, "Financial Data Schedule"
b) No reports on Form 8-K were filed during the fiscal
quarter ended March 31, 1998
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: September 17, 1998 /s/ STEVEN R. WRIGHT
-----------------------------------
Steven R. Wright,
Treasurer and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
FINANCIAL STATEMENTS FOR THIRD QUARTER 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH COMPOSITE AUTOMOBILE RESEARCH, LTD. 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 457,890
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 458,565
<PP&E> 987,351
<DEPRECIATION> 142,567
<TOTAL-ASSETS> 1,333,867
<CURRENT-LIABILITIES> 561,648
<BONDS> 0
0
0
<COMMON> 3,123,704
<OTHER-SE> 198,000
<TOTAL-LIABILITY-AND-EQUITY> 1,333,867
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,102,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,506
<INCOME-PRETAX> (1,101,481)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,102,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,102,281)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
