<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
32233 West Eight Mile Road,
Livonia, Michigan 48152
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(Address of principal executive offices) (Zip Code)
(248) 477-6240
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(Issuer's telephone number)
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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 9,888,517 shares of the Registrant's common stock outstanding as of
June 30, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
<PAGE>
McLAREN PERFORMANCE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Condensed Unaudited Balance Sheet as of
June 30, 2000 1
Consolidated Condensed Unaudited Statements of
Operations for the three and nine month periods ended
June 30, 2000 and 1999 2
Consolidated Condensed Unaudited Statements of Cash
Flows for the nine month periods ended June 30, 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 8
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
MCLAREN PERFOMANCE TECHOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
JUNE 30,
2000
ASSETS
<S> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 630,900
MARKETABLE SECURITIES 27,100
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF $15,000 2,184,300
INVENTORIES 87,900
PREPAID EXPENSES AND OTHER 800,900
------------
TOTAL CURRENT ASSETS 3,731,100
PROPERTY AND EQUIPMENT AT COST
NET OF ACCUMULATED DEPRECIATION 4,429,200
OTHER ASSET:
GOODWILL AND OTHER INTANGIBLES,
AT COST, NET OF ACCUMULATED
AMORTIZATION 728,400
------------
TOTAL ASSETS $ 8,888,700
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
LINE OF CREDIT PAYABLE $ 530,000
ACCOUNTS PAYABLE 826,900
CUSTOMER DEPOSITS 511,600
PAYROLL AND RELATED 233,700
ACCRUED LIABILITIES 458,800
CURRENT PORTION OF NOTES PAYABLE 683,400
------------
TOTAL CURRENT LIABILITIES 3,244,400
NOTES PAYABLE--NET OF CURRENT PORTION 2,861,200
STOCKHOLDERS EQUITY:
PREFERRED STOCK, $.001 PAR VALUE
AUTHORIZED - 10,000,000 SHARES
NO SHARES ISSUED OUR OUTSTANDING -
COMMON STOCK, .00001 PAR VALUE
AUTHORIZED - 20,000,000 SHARES
ISSUED AND OUT STANDING - 9,888,517 SHARES
AT MARCH 31, 2000 100
ADDITIONAL PAID IN CAPITAL 14,777,600
ACCUMULATED DEFICIT (11,884,400)
LESS: TREASURY STOCK AT COST (81,900)
ACCUMULATED COMPREHENSIVE LOSS (28,300)
------------
TOTAL STOCKHOLDERS EQUITY 2,783,100
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,888,700
============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
1
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MCLAREN PERFORMANCE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30 ENDED JUNE 30
2000 1999 2000 1999
REVENUES:
<S> <C> <C> <C> <C>
LICENSE AND ROYALTIES $ 188,100 $ - $ 552,000 $ -
CONTRACT AND OTHER SERVICES 2,421,600 1,629,500 8,059,800 2,727,000
------------ ----------- ------------ ------------
TOTAL REVENUES 2,609,700 1,629,500 8,611,800 2,727,000
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT 277,500 662,800 919,200 1,893,200
COST OF REVENUES 1,686,600 806,600 5,663,200 1,444,700
SELLING, GENERAL AND ADMINISTRATIVE 1,092,600 993,800 3,496,300 2,464,000
------------ ----------- ------------ ------------
3,056,700 2,463,200 10,078,700 5,801,900
------------ ----------- ------------ ------------
LOSS FROM OPERATIONS (447,000) (833,700) (1,466,900) (3,074,900)
OTHER (EXPENSE) (92,300) (234,200) (239,900) (444,600)
------------ ----------- ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (539,300) (1,067,900) (1,706,800) (3,519,500)
PROVISION FOR INCOME TAXES - - - -
------------ ----------- ------------ ------------
NET LOSS $ (539,300) $(1,067,900) $ (1,706,800) $ (3,519,500)
============ =========== ============ ============
BASIC AND FULLY DILUTED
LOSS PER SHARE $ (0.05) $ (0.12) $ (0.18) $ (0.39)
============ =========== ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,818,200 9,066,000 9,355,700 8,940,000
============ =========== ============ ============
COMPREHENSIVE LOSS:
NET LOSS $ (539,300) $(1,067,900) $ (1,706,800) $ (3,519,500)
UNREALIZED LOSS ON MARKETABLE
SECURITIES (9,500) 3,300 (14,400) (7,400)
------------ ----------- ------------ ------------
COMPREHENSIVE LOSS $ (548,800) $(1,064,600) $ (1,721,200) $ (3,526,900)
============ =========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
2
<PAGE>
MCLAREN PERFORMANCE TECHNOLGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,706,800) $(3,519,500)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION & AMORTIZATION 486,500 253,100
COMPENSATION AND OTHER EXPENSES
RELATED TO ISSUANCE OF STOCK & OPTIONS 19,000
LOSS ON INVESTMENT IN AFFILIATE 400,000
LOSS ON SALES OF MARKETABLE SECURITIES 3,000
LOSS ON DISPOSAL OF EQUIPMENT 17,700 8,000
CHANGES IN OPERATING ASSETS AND LIABLITIES:
ACCOUNTS RECEIVABLE (407,800) 2,764,900
INVENTORIES (72,400) (7,500)
PREPAID EXPENSES & OTHER (706,600) 14,800
ACCOUNTS PAYABLE 253,500 312,400
PAYROLL & RELATED 54,100 (28,800)
ACCRUED EXPENSES 292,100 113,200
CUSTOMER DEPOSITS 360,600 57,700
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,410,100) 371,300
CASH FLOWS FROM INVESTING ACTIVITIES:
SALES OF MARKETABLE SECURITIES 43,800
PURCHASES OF MARKETABLE SECURITIES (1,300) (353,900)
PROCEEDS FROM SALE OF PROPERTY, PLANT
& EQUIPMENT 10,500 3,500
PURCHASES OF PROPERTY, PLANT & EQUIPMENT (566,200) (758,100)
INVESTMENT IN AFFILIATE, NET OF CASH ACQUIRED (1,169,100)
ADDITIONS TO GOODWILL (126,900)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (557,000) (2,360,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINE OF CREDIT 1,264,000 775,000
PAYMENTS UNDER LINE OF CREDIT (1,500,000) (600,000)
BORROWINGS UNDER NOTES PAYABLE 920,000 241,200
REPAYMENTS OF NOTES PAYABLE (391,500) (120,200)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 1,566,100 -
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 599,000
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 1,858,600 895,000
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NET INCREASE IN CASH & CASH EQUIVALENTS (108,500) (1,094,400)
CASH & CASH EQUIVALENTS, BEGINNING 739,400 2,348,500
----------- -----------
CASH & CASH EQUIVALENTS, ENDING $ 630,900 $ 1,254,100
=========== ===========
NON CASH TRANSACTIONS:
UNREALIZED LOSS ON MARKETABLE SECURITIES $ (14,400) $ (7,400)
=========== ===========
STOCK ISSUED IN CONNECTION WITH ACQUISITION $ - $ 675,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
3
<PAGE>
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 June 30, 2000, and the results of the Company's operations and its cash
flow for the three months and nine months then ended.
REVENUE RECOGNITION
During the three months and nine months ended June 30, 2000, the Company
recorded royalty revenues totaling $188,100 and $552,000, 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 nine months ended June 30, 2000, revenue derived from two
customers represented 64% and 16% respectively of the Company's Total Revenues.
Three customers accounted for 42%, 23% and 20%, of accounts receivable at June
30, 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 April 17, 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 warrants to purchase an additional 200,000 shares of common stock of
the Company for $400,000. A warrant to purchase 50,000 shares expires on July
17, 2000. The remaining warrant for 150,000 shares expires on April 16, 2003.
The shares of common stock and warrants were purchased for a total offering
price of $800,000.
During the private offering on March 15, 2000, a warrant was issued to
allow purchase of 200,000 shares of common stock of the Company for $400,000.
This warrant, which was due to expire on May 15, 2000, was extended until
February 15, 2001.
4
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DEBT TRANSACTIONS
A line of credit with a bank that had a balance of $750,000 was
restructured by paying $250,000 cash and signing a new note for $500,000. The
new note has a rate of 1.5% over prime and requires $250,000 principal payments
on March 5, 2001, and October 31, 2001.
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.
NINE MONTHS ENDED JUNE 30, 2000, VERSUS NINE MONTHS ENDED JUNE 30, 1999
The Company experienced a net loss of $1,721,200 for the six months ended
June 30, 2000, as compared to a net loss of $3,526,900 for the nine months ended
June 30, 1999.
While the results continue to represent a significant improvement over the
same period for the previous year, the Company continued to experience
litigation cost which has had a serious impact on profitability. In addition,
the Company's annual proxy and shareholder meeting occurred during this period
and represented unusual cost for the quarter. Operating income at McLaren
engines, while still 46% higher overall for the same nine-month period this
year, declined in the third fiscal quarter due to a temporary cutback in the GM
engine audit business. This is consistent with the cyclic nature of this program
and Management anticipates a return to a higher revenue level in the fourth
fiscal quarter.
McLaren Traction continues to pursue new business opportunities both
through current licensees and with additional customers both in the original
equipment and specialty markets. Proposals have been submitted in both areas and
are pending results. However, recently a vehicle application has been awarded to
a current licensee. Due to confidentiality restrictions, McLaren may not at this
time disclose the application and volume projections are unavailable. Since this
program is not due for production until 2004, the Company anticipates no
immediate financial effects. Management continues to pursue opportunities,
particularly those in the non-OE sector, aggressively since those applications
are more likely to produce more immediate financial returns.
With regard to the Company's ongoing litigation with Dana Corporation, a
trial date of January 2, 2001, has been set and discovery for this litigation
concluded August 4, 2000. Management continues to believe that we have a case
that it will be difficult for Dana to counter.
Within the McLaren Engines business, the fourth quarter is aimed at
further stabilizing and augmenting our core businesses in order to return to
overall corporate profitability. To this end Management has leased a new 15,000
square foot facility in Livonia for an expansion of Vehicle Development work
with Ford Motor Company. Management believes that this expansion can have the
5
<PAGE>
effect of increasing McLaren Engines revenues by approximately 15% in the first
year and 20% in the second year over current levels. The Vehicle Development
Center is scheduled for opening in September 2000. Discussions are also underway
regarding several strategic partnerships, which could, if achieved, provide
additional revenue streams.
A priority of the Company since the McLaren acquisition has been to further
capitalize on the McLaren brand name. Alternatives, which involve the
acquisition and/or development of manufacturing capability leading to an
aftermarket presence, are being pursued. A detailed examination of requirements
of this market, including distribution channels, product line development, and
potential warranty and liability issues, is under way.
Implementation has begun on the public relations and marketing plan that
was approved earlier in the year. Currently, materials designed to solidify the
Company's new identity are in development and production. Design concepts for
the Company's new website have been received and approved and are in the process
of final development. In the interest of gaining wider industry exposure, the
Company has engaged a new public relations firm that has wider resources than
were available previously. This group will begin to work with Management in
August to develop the promotional strategy for the balance of 2000 and early
2001.
While Management does not anticipate a total recovery this fiscal year due
to the unusual financial requirements the Company has experienced, steady
progress is occurring toward greater stability. Management anticipates that
total fiscal 2000 will represent an improvement over fiscal 1999 and find the
Company much better positioned for 2001.
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 has recently been completed 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.
6
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ITEM 2. CHANGES IN SECURITIES.
On April 17, 2000, the Company sold 400,000 shares of common stock (the
"Purchased Shares") to Hayden H. Harris (the "Purchaser"). In connection with
this sale, the Company also issued to the Purchaser two warrants to purchase
additional shares. The first warrant, which permited the Purchaser to purchase
an additional 50,000 shares of common stock of the Company for $100,000, expired
on July 17, 2000. The second warrant permits the Purchaser to purchase an
additional 150,000 shares of common stock of the Company for $300,000 on or
before April 16, 2003 (collectively, the "Warrants"). The Purchased Shares and
the Warrants were purchased for a total offering price of $800,000. The
Purchased Shares and the Warrants 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.
On April 18, 2000, the Company held an Annual Meeting of Shareholders at
which Nicholas P. Bartolini, Lawrence Cohen, David D. Jones, Wiley R. McCoy, and
Robert J. Sinclair were each reelected to the Board of Directors. In addition,
the Company's shareholders ratified the appointment of Ernst & Young LLP as the
Company's auditors; approved a new stock option plan; and approved an amendment
to the Company's Certificate of Incorporation to change the name of the Company
to "McLaren Performance Technologies, 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
Nick P. Bartolini 6,462,688 Shares 69,289 Shares
Lawrence Cohen 6,487,230 Shares 71,747 Shares
David D. Jones 6,462,688 Shares 96,289 Shares
Wiley R. McCoy 6,495,730 Shares 68,247 Shares
Robert J. Sinclair 6,462,511 Shares 95,936 Shares
2. APPOINTMENT OF ERNST & YOUNG LLP:
FOR AGAINST ABSTENTIONS
6,488,893 Shares 48,573 Shares 23,011 Shares
3. ADOPTION OF McLAREN 2000 STOCK OPTION PLAN:
FOR AGAINST ABSTENTIONS
2,347,836 Shares 305,508 Shares 190,644 Shares
4. AMENDMENT TO ARTICLES TO CHANGE NAME:
FOR AGAINST ABSTENTIONS
6,384,893 Shares 104,004 Shares 69,080 Shares
ITEM 5. OTHER INFORMATION.
Effective June 16, 2000, the Board of Directors appointed Hayden H. Harris
to serve on the Company's Board of Directors in accordance with the Company's
By-Laws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
7
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(a) EXHIBITS. The following exhibits are filed herewith electronically:
EXHIBIT 3.1 Certificate of Amendment of Certificate of Incorporation
effective as of April 18, 2000
EXHIBIT 10.1 Subscription Agreement dated as of April 17, 2000,
between the Company and Hayden H. Harris
EXHIBIT 10.2 Warrant to Purchase Shares of Common Stock dated as of
April 17, 2000, between the Company and Hayden H. Harris
EXHIBIT 10.3 Warrant to Purchase Shares of Common Stock dated as of
April 17, 2000, between the Company and Hayden H. Harris
EXHIBIT 10.4 Registration Rights Agreement dated as of April 17, 2000,
between the Company and Hayden H. Harris
EXHIBIT 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
McLAREN PERFORMANCE TECHNOLOGIES, INC.
Date: August 11, 2000 By: /s/ Wiley R. McCoy
-----------------------------
Wiley R. McCoy, President
Date: August 11, 2000 By: /s/ Jacqueline K. Kurtz
-----------------------------
Jacqueline K. Kurtz,
Chief Financial Officer
8
