<PAGE> 1
UNITED STATES
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 September 30, 1999
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)
(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 September 30, 1999, the registrant had 7,868,112 shares of common
stock, no stated par value, issued and outstanding.
<PAGE> 2
COMPOSITE AUTOMOBILE RESEARCH, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
=========== ===========
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ........................................................ $ 21,831 $ 11,630
Accounts receivable ......................................... 223,790 36,459
Inventory ................................................... 224,176 306,958
Prepaid expenses and other .................................. 131,250 1,325
----------- -----------
TOTAL CURRENT ASSETS ........................................ 601,047 356,372
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$ 567,850 and $307,215, respectively ........................ 710,483 1,850,784
OTHER ASSETS
Note receivable - former stockholder ........................ - -
Prepaid consulting .......................................... - -
Due from affiliate .......................................... 3,000 7,435
Other ....................................................... 6,439 30,518
----------- -----------
TOTAL OTHER ASSETS .......................................... 9,439 37,953
----------- -----------
TOTAL ASSETS ................................................ $ 1,320,969 $ 2,245,109
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................ $ 134,041 $ 51,680
Accrued liabilities ......................................... 47,737 13,267
Accrued management fees-related party........................ 70,000
Advances from related parties ............................... 43,423 68,852
Stock subscriptions ......................................... 85,000 63,000
----------- -----------
TOTAL CURRENT LIABILITIES ................................... 310,201 266,799
DEFERRED LICENSE FEES ............................................ 40,000 10,000
----------- -----------
TOTAL LIABILITIES ........................................... 350,201 276,799
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value, unlimited shares authorized,
7,868,112 and 5,738,037 shares issued and outstanding,
respectively ............................................. 8,001,905 5,325,236
Accumulated deficit ......................................... (7,031,137) (3,356,926)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................................. 970,768 1,968,310
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 1,320,969 $ 2,245,109
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 3
COMPOSITE AUTOMOBILE RESEARCH, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Sales - products .................................. $ 242,078 $ 36,047
Sales - license fees .............................. 112,000 96,250
----------- -----------
Total revenue ..................................... 354,078 132,297
Cost of goods sold:
Production costs .................................. 160,358 44,618
Factory set up costs .............................. 15,524
----------- -----------
Total cost of goods sold .......................... 160,358 60,142
----------- -----------
Gross profit ........................................... 193,720 72,155
Operating expenses:
Selling, general and administrative expenses ...... 357,063 418,395
Depreciation & amortization ....................... 108,501 105,646
----------- -----------
Total operating expenses .......................... 465,564 524,041
----------- -----------
Loss from operations ................................... (271,844) (451,886)
Other income (expenses):
Interest expense .................................. (135)
Interest income ................................... 4 19
Other (expense) income ............................ (64)
----------- -----------
Total other (expenses) income ..................... 4 (180)
----------- -----------
Loss before income taxes ............................... (271,840) (452,066)
=========== ===========
Income taxes ...................................... - -
Net loss ............................................... (271,840) (452,066)
=========== ===========
Loss per share ......................................... $ (0.04) $ (0.09)
=========== ===========
Weighted average number of shares outstanding .......... 7,536,049 5,227,195
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
COMPOSITE AUTOMOBILE RESEARCH, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS END
SEPTEMBER 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................................... $(271,840) $(452,066)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation ...................................................... 108,501 105,646
Loss on sale of equipment ......................................... 27,504
Common stock issued for services .................................. 154,298 209,349
Changes in assets and liabilities:
Increase in accounts receivable ................................... (223,790) (36,459)
(Decrease) increase in inventory .................................. 144,519 (63,862)
Decrease in related party receivable .............................. 33,027
Increase in prepaid expenses & others ............................. (134,253) (7,435)
Increase in note receivable-former stockholder .................... (530)
Increase (decrease) in accounts payable ........................... 10,655 (38,059)
Increase (decrease) in accounts payable - related party ........... 43,423 (5,000)
Increase (decrease) in stock subscriptions ........................ 85,000 (276,483)
(Decrease) increase in accrued liabilities ........................ (41,516) 3,620
Decrease in deferred license fees ................................. (52,985) (21,250)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ............................................ (144,961) (555,025)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment .......................................... (1,820) (18,991)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................................ (1,820) (18,991)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ...................................... 150,000 276,483
Proceeds from stock subscriptions ........................................... 63,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................ 150,000 339,483
--------- ---------
NET DECREASE IN CASH ............................................................. 3,219 (234,533)
CASH AT BEGINNING OF PERIOD ...................................................... 18,612 246,163
--------- ---------
CASH AT END OF PERIOD ............................................................ $ 21,831 $ 11,630
========= =========
NON-CASH FINANCING ACTIVITIES
Common stock issued for equipment ................................................ $ 890,000
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
transactions) necessary to present fairly the Company's consolidated financial
position as of September 30, 1999 and 1998, the results of operations for the
three month periods ended September 30, 1999 and 1998 and of cash flows for the
three month periods ended September 30, 1999 and 1998.
While management believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes included in the Company's latest annual report on Form
10-KSB.
Organization and Nature of Operations
Composite Automobile Research, Ltd. ("the Company") was incorporated in
the Province of Alberta, Canada in January 1996 pursuant to the Alberta Business
Corporations Act. The Company was incorporated to facilitate an initial public
offering in order to provide funding for a new motor vehicle prototype.
The Company, through its wholly owned subsidiary, World Transport
Authority, Inc. ("WTA"), is in the business of designing vehicles, and selling
licenses to others to produce these vehicles in markets around the world.
The Company sells a Master License for each predetermined geographic
region or each country, depending on the estimated vehicle sales in each market.
The price for this Master License varies depending upon the population of the
geographic region or country served. The Master Licensee is responsible for
selling Manufacturing and Distribution Licenses for individual factories
throughout their country or region. The Master Licensee provides all support for
each factory, including training and marketing, utilizing local customs and
language.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of Composite Automobile Research, Ltd. and its wholly owned subsidiary, World
Transport Authority, Inc.
For purposes of these consolidated financial statements, Composite
Automobile Research, Ltd. and its subsidiary will be referred to collectively as
the "Company". All material intercompany transactions and account balances have
been eliminated.
Estimates
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,
disclosure of contingent assets and liabilities, and reported amounts of
revenues and expenses. 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 September 30, 1999 and
September 30, 1998.
Inventory
The inventory is valued at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method.
5
<PAGE> 6
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 the estimated useful lives of five years. The Company's policy is to
evaluate the remaining lives and recoverability in light of current conditions.
It is reasonably possible that the Company's estimate to recover the carrying
amount of property and equipment will change.
Stock Options
The Company adopted a method of accounting for stock-based compensation
as required by Statement of Financial Accounting Standards No. 123 (SFAS No.
123) which allows for two methods of valuing stock-based compensation. The first
method allows for the continuing application of Accounting Principles Board
Opinion No. 25 (APB No. 25) in measuring stock-based compensation, while
complying with the disclosure requirements to value stock compensation and
record as such within the financial statements. The Company will continue to
apply APB No. 25, while complying with SFAS No. 123 disclosure requirements.
Revenue Recognition
The Company offers two types of licenses to manufacture vehicles, a
Manufacturing and Distribution License and a Master License. The Manufacturing
and Distribution License requires the Company to supply manufacturing
facilities, including all components necessary to manufacture vehicles. Revenues
from the sale of a master license are recognized when the master license holder
has paid its license fee to the Company and performed marketing services
sufficient to sell at least one manufacturing and distribution license.
The Master License provides the licensee with the right to sell
Manufacturing and Distribution Licenses. Under this agreement, the licensee pays
all costs associated with any license sold in addition to payment for the Master
License. Revenues from the sale of a manufacturing and distribution license,
consisting of a percentage of the license fee, are recognized when the licensee
has made payment to the Company, and the Company has provided substantially all
of the factory components and training sufficient for the licensee to begin
vehicle production.
The Company also plans to generate revenue from the sales of
manufactured vehicle components. Such revenue will be recognized upon shipment
of the components. In addition, the Company may receive royalty payments on the
production and/or sale of vehicles. Such revenue will be recognized when earned.
Net Loss Per Share
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS No. 128) "Earnings Per Share". Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
loss per share reflects per share amounts that would have resulted if dilutive
common stock equivalents had been converted to common stock. As of September 30,
1999 and 1998, the Company had stock options outstanding, each convertible into
one share of common stock. The stock options were not included in the
computation of diluted earnings per share for any periods presented due to their
anti-dilutive effects based on net loss reported each period. Accordingly, basic
and fully diluted loss per share is the same for all periods presented.
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 net operating loss carryforwards and 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. The
components of the deferred tax asset and liability are individually classified
as current and non-current based on their characteristics.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
6
<PAGE> 7
NOTE 2. INVENTORY:
Inventory as of September 30, 1999 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
======== ========
<S> <C> <C>
Stocked inventory ....... $ 23,602 $ -
Work in process ......... 5,376 306,958
Finished goods .......... 195,198 -
-------- --------
$224,176 $306,958
======== ========
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment as of September 30, 1999 and 1998 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Molds ............................................ $ 897,419 $ 1,785,685
Demo equipment and vehicles ...................... 234,701 234,702
Machinery and equipment .......................... 118,434 109,834
Office furniture and equipment ................... 17,164 17,164
Leasehold improvements ........................... 10,615 10,614
----------- -----------
Total ................................... 1,278,333 2,157,999
Less accumulated depreciation and amortization ... (567,850) (307,215)
----------- -----------
Property and equipment, net ...................... $ 710,483 $ 1,850,784
=========== ===========
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS:
Accrued Management Fees
Accrued management fees, related party, represents a payable to the
Company's treasurer for management services. The accrual is non-interest
bearing, unsecured, and due on demand. On November 24, 1998, the Company's
treasurer resigned his position as a Director, Treasurer, and Secretary of the
Company and agreed to forgive all management fees. The management fees were
accrued in fiscal year-ended 1997 which was reversed in November 1998.
Advances
Advances from related parties at September 30, 1999 and 1998 consist of
amounts loaned to the Company by stockholders. Advances are non-interest
bearing, unsecured, and due on demand.
NOTE 5. DEFERRED LICENSE FEES:
Deferred license fees as of September 30, 1999 consists of deposits
received from a Manufacturing and Distribution License agreement with an
unrelated party Global Industries Incorporated in Nevada.
7
<PAGE> 8
NOTE 6. COMMITMENTS:
The Company leases its office facilities and office equipment under
operating leases that expires in July 2002. The office facilities 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. The agreement generally requires the payment of
utilities, real estate taxes, insurance and repairs. Rent expense amounted to
$34,265 and $34,250 for the three months ended September 30, 1999 and 1998,
respectively. Future minimum lease payments due under these operating leases are
as follows:
<TABLE>
<CAPTION>
Year ending September 30, 1999
<S> <C>
2000 $ 107,856
2001 107,856
2002 89,880
---------
Total $ 305,592
=========
</TABLE>
NOTE 7. COMMON STOCK TRANSACTIONS:
Stock for Services
For the three months ended September 30, 1999, the Company issued
145,500 shares of common stock ranging from $1.05 to $1.13 per share for the
total value of $154,298 to various consultants for their services. Of the total
value issued, $131,250 was recorded as prepaid expense since the project has not
been completed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations:
The Company's net sales were $354,078 during the quarter ended September
30, 1999, an increase of 167.6% from its net sales of $132,297 during the
quarter ended September 30, 1998. Revenue from both years were consisted of
manufacturing and license sales.
The Company sustained a net loss of $271,840 for the period ended
September 30, 1999 compared to net loss of $452,066 for the period ended
September 30, 1998. A decrease of 39.87% in net loss were due to the increase in
revenue and the decrease in selling and general expenses for the quarter ended
September 30, 1999.
Selling and general expenses for the quarter ended September 30, 1999
were $357,063 compared to selling and general expenses of $418,395 for the
quarter ended September 30, 1998. The decreased selling and general expense for
the quarter ended September 30, 1999 were primarily due to the decrease in
common stock issued for services.
Liquidity and Capital Resources:
The Company's working capital at September 30, 1999 was $290,846 as
compared to a working capital of $89,573 at September 30, 1998. During the
quarter ended September 30, 1999, the Company funded its operating losses with
advances from a related party, by selling shares of its common stock to various
investors and issuing common stock for services.
As of September 30, 1999, the Company does not have any available
credit, bank financing or other external sources of liquidity. Due to its
historical operating losses, the Company's operations have not been a source of
liquidity. In order to obtain capital, the Company may need to sell additional
shares of its common stock or borrow funds from private lenders and/or related
parties. During the next twelve months, the Company expects to suffer losses, in
which case the Company will need to obtain additional sources of capital in
order to continue operations. There can be no assurance, however, that the
Company will be successful in obtaining additional funding.
8
<PAGE> 9
Year 2000 Issues
The "year 2000" issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time- sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruption of normal business
activities.
As of September 30, 1999, the Company has upgraded its accounting system
to resolve the year 2000 issues. The Company has requested that its major
independent suppliers and support providers confirm that they will be Year 2000
compliant.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 1, 1999, the Company agreed to settle a dispute with B.A.T.
International, Inc. ("B.A.T."). Based on this settlement, the Company was to
issue $5,000 worth of the Company's Common Stock to B.A.T. upon completion of
the return of the Company's materials such as body molds and automobile bodies.
Given the nature of the issuance of the stock, it may contain certain trading
restrictions as required by the Securities and Exchange Commission.
Pursuant to the settlement, B.A.T. was required to return all vehicles
and/or vehicle components, body parts and associated pieces in its possession
which incorporate the World Star composite platform, either partially or
completely manufactured, to the Company's office in El Cajon, California by June
1, 1999. B.A.T. also acknowledged and recognized the rights to the World Star
Vehicle owned by WTA. B.A.T. also agreed to pay a royalty to the Company for all
vehicles B.A.T. produces in the future.
In July 1999, the Company filed suit against B.A.T in the Superior Court
of San Diego, California for not honoring the terms of the settlement agreement
dated April 1, 1999. The trial is set for December 1999.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
9
<PAGE> 10
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPOSITE AUTOMOBILE RESEARCH, LTD
Date: November 18, 1999 /s/ Lyle Wardrop
----------------- ---------------------------
Lyle Wardrop
President and Chief Executive Officer
10
<PAGE> 11
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,831
<SECURITIES> 0
<RECEIVABLES> 223,790
<ALLOWANCES> 0
<INVENTORY> 224,176
<CURRENT-ASSETS> 601,047
<PP&E> 1,278,333
<DEPRECIATION> (567,850)
<TOTAL-ASSETS> 1,320,969
<CURRENT-LIABILITIES> 350,201
<BONDS> 0
0
0
<COMMON> 8,001,905
<OTHER-SE> (7,031,137)
<TOTAL-LIABILITY-AND-EQUITY> 1,320,969
<SALES> 354,078
<TOTAL-REVENUES> 354,078
<CGS> 160,358
<TOTAL-COSTS> 625,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (271,840)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (271,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (271,840)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
