U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period Ended June 30, 1999
Commission File No. 0-16176
McLAREN AUTOMOTIVE GROUP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 84-1016459
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
600 C Ward Drive, Santa Barbara, California 93111
-----------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(805) 683-2331
------------------------------
(Issuer's telephone number)
Indicate by check mark whether the Issuer (1) has 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 [ ]
There were 9,085,115 shares of the Registrant's Common Stock outstanding as of
June 30, 1999.
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
FORM 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
Consolidated Balance Sheets - June 30, 1999 and
September 30, 1998 3-4
Consolidated Statement of Operations for the three
and nine month periods ended June 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the nine
month periods ended June 30, 1999 and 1998 6-7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II. Other Information and Signatures 15
Signatures 16
2
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, September 30,
1999 1998
(Unaudited)
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $1,254,000 $2,349,000
Marketable Securities 399,000 --
Accounts receivable 1,483,000 3,653,200
Inventory 25,000 --
Prepaid expenses and other 109,000 64,000
---------- ----------
TOTAL CURRENT ASSETS 3,270,000 6,066,000
---------- ----------
Property and equipment, at cost,
net of accumulated depreciation
and amortization 4,336,000 570,000
---------- ----------
Other Assets:
Investment in affiliate 209,000 610,000
Goodwill and other intangibles,
at cost, net of accumulated
amortization 725,000 --
Other assets 48,000 --
---------- ----------
TOTAL OTHER ASSETS 982,000 610,000
---------- ----------
TOTAL ASSETS $8,588,000 $7,246,000
========== ==========
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, September 30,
1999 1998
(Unaudited)
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 512,000 $ 78,000
Line of credit 175,000 --
Customer deposits 177,000 --
Accrued liabilities 493,000 259,000
Current portion of notes payable 292,000 64,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,649,000 401,000
----------- -----------
NOTES PAYABLE - net of current portion 2,620,000 273,000
----------- -----------
TOTAL LIABILITIES 4,269,000 674,000
----------- -----------
Stockholders' Equity:
Preferred stock, $.0001 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 - 9,085,115
shares at June 30, 1999 and
8,798,223 at September 30, 1998 -- --
Additional paid-in capital 13,158,000 11,884,000
Accumulated deficit (8,750,000) (5,230,000)
Less: Treasury Stock at cost (82,000) (82,000)
Less: Unrealized loss on marketable
securities (7,000) --
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,319,000 6,572,000
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,588,000 $7,246,000
========== ==========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
For the three months For the nine months
Ended June 30 Ended June 30
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
REVENUES:
License $ -- $ -- $ -- $ 5,652,000
Contract and other
services 1,645,000 -- 2,773,000 3,000
----------- ----------- ----------- -----------
TOTAL REVENUE 1,645,000 -- 2,773,000 5,655,000
OPERATING EXPENSES:
Research and development 560,000 389,000 1,689,000 1,140,000
Cost of sales 575,000 -- 1,038,000 --
Selling, general
and administrative 1,276,000 403,000 3,044,000 1,347,000
----------- ----------- ----------- -----------
2,411,000 792,000 5,771,000 2,487,000
----------- ----------- ----------- -----------
Income (Loss) from
operations (766,000) (792,000) (2,998,000) 3,168,000
OTHER EXPENSE, net 281,000 57,000 491,000 274,000
----------- ----------- ----------- -----------
Income (Loss) before
provision for income
taxes (1,047,000) (849,000) (3,489,000) 2,894,000
PROVISION FOR INCOME TAX 22,000 43,000 31,000 46,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,069,000) $ (892,000) $(3,520,000) $ 2,848,000
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 9,066,000 8,752,000 8,940,000 8,690,000
=========== =========== =========== ===========
NET INCOME (LOSS) PER
SHARE BASIC AND
DILUTED $ (.12) $ (.10) $ (.39) $ .33
=========== =========== =========== ===========
COMPREHENSIVE INCOME (LOSS):
Net Income (Loss) $(1,069,000) $ (892,000) $(3,520,000) $ 2,848,000
Unrealized gain (loss)
on marketable
securities 4,000 -- (7,000) --
----------- ----------- ----------- -----------
Comprehensive income
(loss) $(1,065,000) $ (892,000) $(3,527,000) $ 2,848,000
=========== =========== =========== ===========
See accompanying notes to the consolidated condensed financial statements.
5
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
(unaudited) (unaudited)
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,520,000) $2,848,000
Adjustments to reconcile
net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 253,000 79,000
Accrued interest on long-term
receivable -- (102,000)
Loss on investment in affiliate 401,000 474,000
Changes in operating assets and
liabilities:
Accounts receivable 2,170,000 (2,478,000)
Inventory (25,000) --
Prepaid expenses and other (45,000) (70,000)
Other assets (48,000) --
Accounts payable 434,000 (89,000)
Customer deposits 177,000 --
Accrued liabilities 234,000 88,000
---------- ----------
Net cash provided by
operating activities 31,000 750,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (406,000) --
Acquisition of McLaren Engines, Inc. (3,936,000) --
Additions to property and equipment (824,000) (502,000)
Disposal of equipment 16,000 31,000
Investment in affiliate -- (474,000)
---------- ----------
Net cash used in investing
activities (5,150,000) (945,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under line of credit (600,000) --
Borrowing under line of credit 775,000 --
Borrowing under notes payable 2,737,000 370,000
Repayments under notes payable (162,000) (13,000)
Proceeds from exercise of stock options 599,000 550,000
Proceeds from issuance of common stock 675,000 --
---------- ----------
Net cash provided by financing
activities 4,024,000 907,000
---------- ----------
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
(unaudited) (unaudited)
------------- -----------
Net increase (decrease) in cash and
cash equivalents (1,095,000) 712,000
Cash and cash equivalents at
beginning of period 2,349,000 2,617,000
---------- ----------
Cash and cash equivalents at end
of period $1,254,000 $3,329,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 134,000 $ 21,000
========== ==========
Cash paid for income tax $ 31,000 $ 46,000
========== ==========
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
McLAREN AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PRESENTATION
The financial statements included herein have been prepared by McLaren
Automotive Group, Inc. (formerly ASHA Corporation, 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, 1998. The financial data for the interim periods 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 Automotive Group, Inc. and
subsidiary as of June 30, 1999, and the results of their operations and their
cash flows for the three months and six months then ended.
BUSINESS ACQUISITION
On January 8, 1999, McLaren Automotive Group, Inc. (formerly ASHA Corporation,
the "Company") acquired all of the outstanding stock of McLaren Engines, Inc.
("McLaren") in exchange for 150,000 shares of the Company's authorized but
unissued Common Stock. The acquisition was made pursuant to the terms of a
Stock Purchase Agreement among the Company, McLaren and the shareholders of
McLaren. Immediately prior to the acquisition, the Company assisted McLaren to
complete a reorganization in which McLaren redeemed the stock of its two
shareholders and issued new shares to McLaren's employees. The Company loaned
McLaren $1,355,000 from its operating funds for the reorganization. McLaren
also borrowed $2,454,000 from an unaffiliated bank to complete this
reorganization. The reason for the acquisition of McLaren Engines is that
McLaren and ASHA have many of the same car product development and drivetrain
clients. Through integrating sales, marketing, and R&D engineering staff, the
Company looks to better serve the worldwide licensee base, adding new
capabilities and core services, while improving net earnings.
The consolidated financial statements include the amounts of the Company and
McLaren since the date of acquisition. All intercompany balances and
transactions have been eliminated in consolidation.
CONCENTRATION OF CREDIT RISK
For the nine months ended June 30, 1999, one customer represented 54% and 52%
of accounts receivable and sales, respectively.
8
<PAGE>
STATEMENT OF CASH FLOWS
The Company recorded a $7,000 decrease in fair value of marketable securities
as of June 30, 1999.
MARKETABLE SECURITIES
As of June 30, 1999, marketable securities consist of US Treasury Stripped
Zero Coupon Bond and NBT Bank Stock.
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
Provisions for income taxes consist of $1,000 minimum state income tax for
California and $30,000 for Michigan single business tax. The Company did not
provide for federal income taxes due to net operating loss carryforwards.
CONTINGENT LIABILITIES
The Company co-signed a $40,000 note with Montecito Bank and Trust for the
former Managing Director of Automotive Components in Research and Development.
The note is secured by the former employee's residence.
NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement, which is effective for all
reporting periods beginning in 1998, requires the prominent disclosure of all
components of Comprehensive Income, as defined. All components of
comprehensive income have been reflected in the accompanying consolidated
condensed financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, which is effective for all reporting periods beginning in 1998,
redefines the way publicly held companies report information about segments.
Based upon the Company's assessment of this pronouncement, it has determined
that it will continue to report on an integrated one segment basis.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to the
current period's presentation.
9
<PAGE>
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.
The following discussion contains forward-looking statements that involve a
number of risks and uncertainties. While this outlook represents the Company's
current judgment in the future direction of the business, such risks and
uncertainties could cause actual results to differ materially from any future
performance 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. 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 MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED JUNE 30, 1998
There was a net loss of $1,065,000 for the three months ended June 30, 1999 as
compared to a net profit of $892,000 for the three months ended June 30, 1998.
During the three months ended June 30, 1999, the Company had $1,645,000 in
contracting services. There was no licensing or contracting revenue during
the corresponding period last year. The increased contracting services is a
direct result of the acquisition of McLaren Engines. Interest income for the
period ended June 30, 1999, was $17,000 as compared to $93,000 for three
months ended June 30, 1998. The reduction in interest income was due to the
interest income that accrued on the advance against royalties note from New
Venture Gear that originated in 1997 and matured in August, 1998. This note
was paid in October 1998. McLaren leases office space to small vendors on a
month to month basis. The rental income for the three months ending June 30,
1999 was $14,000.
Operating expenses for the three months ending June 30, 1999 was $2,411,000 as
compared to $792,000 for the corresponding period ending June 30, 1998. Cost
of sales for the three months ended were $575,000. Additional selling,
general and administrative expenses incurred with the acquisition of McLaren
Engines was $625,000. The increase of $419,000 for Asha Technologies is a
result of research and development costs increasing by $171,000, and $248,000
for selling, general and administrative expenses.
As previously noted, research and development costs increased by $171,000.
Engineering salaries increased by $83,000 over the previous year because
additional engineers were employed within the past year to expedite the
development of prototypes for the GERODISC technology. Recruiting expenses
related to the development and testing of prototypes increased by $25,000 over
the prior year. Materials associated with developing and testing the
prototype increased by $63,000.
10
<PAGE>
Selling, general and administrative costs increased by $460,000 as previously
noted, with $625,000 being attributed to the addition of McLaren Engines.
Wages and expenses related to commercial development were approximately
$41,000 for the three months ended June 30, 1999. The Company retained an
organizational development specialist to develop marketing and corporate
strategies. The added expense for this program was approximately $10,000 for
the current quarter. The Company also entered into a consulting agreement
with the former CEO to assist with the transition of management for a period
of one year. The fees associated with the agreement resulted in an increase
of $28,000 for the current quarter.
The Company elected to decrease the carrying value of its 18% investment in
the ASHA-TAISUN Joint Venture by $201,000 during the three months ended June
30, 1999. The Asian economic crisis has prompted the Company to re-evaluate
its investment in the automotive plant in Jiaxin. Orders from the Chinese
automobile facility have not materialized to date as anticipated due to the
current economic condition in that region. The Company is currently
maintaining approximately $200,000 of its investment which approximates its
net realizable value at June 30, 1999.
NINE MONTHS ENDED JUNE 30, 1999 VERSUS NINE MONTHS ENDED JUNE 30, 1998
During the nine months ended June 30, 1999, the Company had approximately
$2,773,000 in revenue compared to $5,655,000 in revenue during the
corresponding prior year period. The decrease in revenue was the result of no
license agreements being finalized during the current nine months. A
$5,100,000 license agreement with New Venture Gear, a major tier one supplier,
was signed and earned during the nine months ended June 30, 1998. Additional
sales of $2,619,000 earned by McLaren Engines also contributed to income for
the nine months ended June 30, 1999. The corresponding cost of labor and parts
incurred was approximately $1,038,000.
Operating expenses for the nine months ended June 30, 1999, increased
$3,284,000 over the corresponding prior year period. Of these expenses,
approximately $2,188,000 was attributable to the operations of McLaren Engines
which includes $1,038,000 for cost of goods sold. Research and development
expenses increased by $549,000 for the nine months ended June 30, 1999 as
compared to the corresponding nine months ended June 30, 1998. The reasons for
the increases are related to several factors.
Selling, general and administrative expenses increased by approximately
$1,697,000 for the nine months ended June 30, 1999 as compared to the nine
months ended June 30, 1998. Of these expenses, approximately $1,150,000 was
attributable to the operations of McLaren Engines. The Company retained an
organizational development specialist to develop marketing and corporate
strategies. Consulting fees were incurred to assist the Company in the
transition of new management and corporate structures.
The Company recorded a loss of $401,000 from investment in affiliate during
the nine months ended June 30, 1999 as compared to a loss of $474,000 for the
nine months ended June 30, 1998. No additional funding for operations
occurred for the joint venture as the operational and production
responsibility has been transferred to the Chinese operation. The Company is
currently maintaining approximately $201,000 of its investment which
approximates it net realizable value at June 30, 1999.
11
<PAGE>
The net loss of $3,520,000 for the nine months ended June 30, 1999 was a
significant variance from the net profit of $2,848,000 for the nine months
ended June 30, 1998. The $5,100,000 revenue from the license agreement signed
in the second quarter of the prior fiscal year was the primary contributor to
prior year profits. The Company anticipates that the cash on hand from the
second installment of the New Venture Gear licensing agreement, from the
$750,000 line of credit with Montecito Bank and Trust, and from the $700,000
line of credit with Bank One will be sufficient to maintain an adequate cash
position for the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had working capital of approximately
$1,621,000 as compared to working capital of approximately $5,665,000 at
September 30, 1998. The decrease was primarily due to the net operating loss
the Company recorded in the nine months ended June 30, 1999. The Company's
working capital is primarily attributed to the $5,100,000 revenue recorded for
the New Venture Gear license agreement in January 1998 and the $1,000,000 note
receivable payment from New Venture Gear in October 1998.
Operating activities for the nine months ended June 30, 1999 provided $31,000
of net cash as compared to $750,000 cash provided in the nine months ended
June 30, 1998. Cash provided by operating activities was primarily due to the
first royalty installment of $1,000,000 from the New Venture Gear license
agreement and the second license agreement installment of $2,500,000. Net
losses for the nine months ending June 30, 1999 have utilized approximately
$3,520,000 of cash.
Investing activities for nine months ended June 30, 1999 used $5,150,000 of
cash as compared to $945,000 used for the comparable period in 1998. The
Company invested $406,000 in securities during the current period. The Company
has invested approximately $4,760,000 with the purchase of McLaren Engines,
Inc. real estate and equipment. No investment was made in the ASHA-TAISUN
joint venture during the current year as compared to $474,000 invested during
the nine months ended June 30, 1998. The carrying value of the investment in
ASHA-TAISUN was reduced by $401,000 in the current year to approximate its net
realizable value at June 30, 1999.
On January 8, 1999, the Company acquired all of the outstanding stock of
McLaren Engines, Inc. in exchange for 150,000 shares of the Company's
authorized but unissued Common Stock. The shares were valued at $675,000.
Immediately prior to the acquisition, the Company assisted McLaren to complete
a reorganization in which McLaren redeemed the stock of its two shareholders
and issued new shares to McLaren's employees. The Company loaned McLaren
$1,355,000 from its operating funds for the reorganization. McLaren also
borrowed $2,454,000 from an unaffiliated bank to complete this reorganization.
The reason for the acquisition of McLaren Engines is that McLaren and ASHA
have many of the same car product development and drivetrain clients. Though
integrating sales, marketing, and R&D engineering staff, ASHA looks to better
serve the worldwide licensee base, adding new capabilities and core services,
while improving net earnings.
COMMITMENTS AND CONTINGENCIES
In June 1998, Dana Corporation ("Dana") terminated a license agreement with
the Company to manufacture and market the Company's GERODISC System Technology
for front and rear axles, just prior to the start of volume production for the
1999 Jeep Grand Cherokee vehicle program. On September 9, 1998, the Company
12
<PAGE>
filed a lawsuit against Dana in the United States District Court for the
Eastern District of Michigan, Southern Division. The Company's complaint, as
amended, alleges that Dana breached its obligations under the license
agreement and that Dana has been unjustly enriched by the information it
obtained concerning the GERODISC System. The Company is seeking compensatory
and punitive damages and attorneys' fees from Dana and preliminary and
permanent injunctions against Dana from using the GERODISC technology.
Dana filed a motion to dismiss certain claims included in the original
complaint to which the Company responded and amended its complaint. The Court
has not yet ruled on the motion, and Dana has not yet filed its answer in this
lawsuit.
On April 6, 1999, the Company filed a complaint in the United States District
Court for the Central District of California against Dana Corporation ("Dana")
alleging that Dana had infringed upon a certain patent held by the Company
related to its GERODISC technology. Dana filed an answer denying that it is
infringing on the patent and filed a counterclaim seeking a declaration that
the patent in question is invalid, unenforceable and/or nor infringed. Dana
is also seeking to transfer the action to the United States District Court for
the Eastern District of Michigan where the other lawsuit is pending.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-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 disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Systems at risk include
information technology (IT) and non-IT systems. The Company is addressing
potential Year 2000 Issues, and believes that significant additional costs
will not be incurred because of this circumstance.
THE COMPANY'S STATE OF READINESS
Based on a recent assessment, the Company has determined that it will be
required to modify or replace minor portions of its hardware and software so
that its computer systems will properly utilize dates beyond December 31,
1999. The Company is in the process of assessing the impact on McLaren as of
this filing and is prepared to modify or replace hardware and software as
necessary.
The Company is initiating formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have material adverse effect on the
Company.
The Company will utilize both internal and external resources to reprogram, or
replace, and test systems for Year 2000 modifications. The Company plans to
complete the Year 2000 project not later than October 31, 1999.
13
<PAGE>
THE COSTS OF ADDRESSING OF COMPANY'S Y2K ISSUES
The Company expects the Year 2000 project to be approximately $20,000, which
will be expensed as incurred over the current year. The Company does not
expect such costs to have a material effect on the results of operations. To
date, the Company has incurred insignificant expenses related to the
assessment of and preliminary efforts in connection with, its Year 2000
project and the development of a remediation plan.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
THE RISKS OF THE COMPANY'S Y2K ISSUES
The Company is in the process of determining the impact of the Y2K issue.
Worst case scenarios have not yet been explored. The Company is uncertain
what, if any, material effects the Y2K issue will have on its financial
condition. A formal assessment of the Company's Y2K risks is expected to be
completed by mid-1999.
THE COMPANY'S CONTINGENCY PLANS
The Company will develop contingency plans as needed based on the examination
if Y2K issues and worst case scenarios.
OTHER INFORMATION
The Company has not invested any money in its ABC Technology for the nine
months ending June 30, 1999. The expenditures for the prior year were for the
development of the ABC Technology and to technically support the Chinese
factory in its testing of the pre-production vehicles. At the end of June
1998, the Company had finished transferring the technology for the ABC Taxi to
the Chinese factory. Upon the technology transfer, the Company agreed to
reduce its ownership interest to 18% in exchange for future royalties based on
the number of units sold. Furthermore, no additional funding is required from
the Company related to this investment.
NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement, which is effective for all
reporting periods beginning in 1998, requires the prominent disclosure of all
components of Comprehensive Income, as defined. All components of
Comprehensive Income have been reflected in the accompanying consolidated
condensed financial statements.
14
<PAGE>
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, which is effective for all reporting periods beginning in 1998,
redefines the way publicly held companies report information about segments.
Based upon the Company's assessment of this pronouncement, it has determined
that it will continue to report on an integrated one segment basis.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 6, 1999, the Company filed a complaint in the United States District
Court for the Central District of California against Dana Corporation ("Dana")
alleging that Dana had infringed upon a certain patent held by the Company
related to its GERODISC technology. This is the second lawsuit the Company
has filed against Dana. Dana filed an answer denying that it is infringing on
the patent and filed a counterclaim seeking a declaration that the patent in
question is invalid, unenforceable and/or nor infringed. Dana is also seeking
to transfer the action to the United States District Court for the Eastern
District of Michigan where the other lawsuit is pending.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 20, 1999, the Company held an Annual Meeting of Shareholders at which
John C. McCormack, Robert J. Sinclair, Lawrence Cohen, Nick P. Bartolini,
Erick A. Reickert, David D. Jones and Wiley R. McCoy were each reelected to
the Board of Directors. In addition, the Company's shareholders ratified the
appointment of Arthur Andersen LLP as the Company's auditors; approved an
amendment to the Company's 1994 Stock Option Plan to increase the number of
shares included in the plan from 1,400,000 to 2,000,000; and approved an
amendment to the Company's Articles of Incorporation to change the name of the
Company to "McLaren Automotive Group, Inc." The following sets forth the
votes cast for, against or withheld, as well as the number of abstentions and
broker non-votes, as to each of the matters presented at the meeting:
1. ELECTION OF DIRECTORS:
NOMINEES FOR WITHHELD
John C. McCormack 7,056,242 Shares 9,324 Shares
Robert J. Sinclair 7,060,189 Shares 5,377 Shares
Lawrence Cohen 7,054,595 Shares 10,971 Shares
Nick P. Bartolini 7,058,424 Shares 7,142 Shares
Erick A. Reickert 7,057,918 Shares 7,648 Shares
David D. Jones 7,056,918 Shares 8,648 Shares
Wiley R. McCoy 7,060,260 Shares 5,306 Shares
2. APPOINTMENT OF ARTHUR ANDERSEN LLP:
FOR AGAINST ABSTENTIONS
7,035,085 Shares 12,049 Shares 18,432 Shares
15
<PAGE>
3. AMENDMENT TO THE 1994 STOCK OPTION PLAN:
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
4,282,157 Shares 342,615 Shares 71,730 Shares 2,369,064 Shares
4. AMENDMENT TO ARTICLES TO CHANGE NAME:
FOR AGAINST ABSTENTIONS
6,937,551 Shares 83,869 Shares 44,146 Shares
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibit is filed herewith electronically:
EXHIBIT 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Company filed one report on Form 8-K dated
January 8, 1999, reporting information under Items 2 and 7 of that form
concerning the acquisition of McLaren Engines, Inc.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
McLAREN AUTOMOTIVE GROUP, INC.
Date: August 12, 1999 By:/s/ Wiley R. McCoy
Wiley R. McCoy, President
By:/s/ Steve Sanderson
Steve Sanderson, Chief Financial
Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statement of operations found on pages 3-5 of the Company's
Form 10-QSB for the quarter year ended June 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,254,000
<SECURITIES> 399,000
<RECEIVABLES> 1,483,000
<ALLOWANCES> 0
<INVENTORY> 25,000
<CURRENT-ASSETS> 3,270,000
<PP&E> 4,336,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,588,000
<CURRENT-LIABILITIES> 1,649,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,319,000
<TOTAL-LIABILITY-AND-EQUITY> 8,588,000
<SALES> 0
<TOTAL-REVENUES> 2,773,000
<CGS> 1,038,000
<TOTAL-COSTS> 1,038,000
<OTHER-EXPENSES> 4,733,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,489,000)
<INCOME-TAX> 31,000
<INCOME-CONTINUING> (3,520,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,520,000)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
