<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-24690
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CLARION TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 91-1407411
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1901 North Roselle Road, Suite 1030, Schaumburg, Illinois 60195
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(Address of principal executive offices)
(847) 490-5977
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(Issuer's telephone number, including area code)
CLARION HOUSE, INC.
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 2, 1998, the
Company had 10,842,157 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one);
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
CLARION TECHNOLOGIES, INC.
FORM 10-QSB INDEX
This report contains "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended and is subject to the safe harbor
created by that section. Statements regarding future operating performance, new
programs expected to be launched and other future prospects and developments are
based upon current expectations and involve certain risks and uncertainties that
could cause actual results and developments to differ materially. Potential
risks and uncertainties include such factors as demand for the company's
products, pricing, the company's growth strategy, including its ability to
consummate and successfully integrate future acquisitions, industry cyclicality
and seasonality, the company's ability to continuously improve production
technologies, activities of competitors and other risks detailed in the
company's Annual Report on Form 10-KSB for the year ended December 31, 1997 and
other filings with the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Earnings (unaudited) for the
Three and Nine Month Periods Ended September 30, 1998
and 1997 4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Month Periods Ended September 30, 1998 and 1997 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, September 30,
1997 1998
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,265 $ 1,200,767
Accounts receivable, net 327,768 667,575
Construction advance receivable 0 787,565
Inventories 259,663 574,243
Prepaid tooling 0 39,383
Prepaid expense 0 23,445
Refundable tax credit 1,048 (21,772)
---------------- ----------------
Total Current Assets 598,744 3,271,206
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 1,253,121 1,646,755
Vehicles 25,955 25,955
Furniture and fixtures 47,359 61,582
Office equipment 0 207,684
Leasehold improvements 17,021 29,509
Construction in progress 0 92,604
---------------- ----------------
1,343,456 2,064,089
Less accumulated depreciation 919,267 1,035,517
---------------- ----------------
424,189 1,028,572
OTHER ASSETS
Deposits 1,000 2,600
Deferred tax credit 35,200 35,200
Goodwill, net of amortization 230,849 1,650,782
---------------- ----------------
TOTAL ASSETS $ 1,289,982 $ 5,988,359
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 213,728 $ 997
Current portion of long term debt 90,443 111,645
Current portion of obligations under capital leases 17,379 17,379
Accounts payable - trade 398,423 891,260
Accrued expenses 41,825 105,921
Officers' loan 3,338 0
---------------- ----------------
Total Current Liabilities 765,136 1,127,202
DEFERRED TAX LIABILITY 1,300 1,300
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 419,391 846,217
CAPITAL LEASE OBLIGATIONS 51,211 38,335
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
20,000,000 shares, 5,465,000 shares issued and
outstanding at December 31, 1997 and 10,718,415 shares
issued and outstanding at September 30, 1998 51,650 104,180
Additional paid in capital 1,512,661 7,506,319
Accumulated deficit (1,511,367) (3,635,194)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,289,982 $ 5,988,359
================ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -------------------------------------
1997 1998 1997 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 0 $ 957,355 $ 0 $ 2,079,135
Cost of goods sold 0 1,127,725 0 2,452,311
---------------- ---------------- ---------------- ----------------
Gross profit (loss) 0 (170,371) 0 (373,176)
Selling, general and
administrative expenses 2,719 820,616 229,357 1,710,022
---------------- ---------------- ---------------- ----------------
Operating profit (loss) (2,719) (990,987) (229,357) (2,083,197)
Other income (expense)
Interest expense (income) 0 (8,348) 0 40,630
---------------- ---------------- ---------------- ----------------
Earnings (loss) before
income taxes (2,719) (982,639) (229,357) (2,123,827)
Income tax expense 0 0 0 0
---------------- ---------------- ---------------- ----------------
Net earnings (loss) $ (2,719) $ (982,639) $ (229,357) $ (2,123,827)
================ ================ ================ ================
Earnings per share
from continuing operations $ (0.10) $ (0.29)
================ ================
Shares used in computation 9,983,094 7,443,523
================ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (229,357) $ (2,123,827)
Adjustments to reconcile net earnings to net cash
provided by (used in) operations
Depreciation and amortization 990 160,324
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 0 (339,807)
Decrease (increase) in construction advance
receivable 0 (787,565)
Decrease (increase) in inventories 0 (314,580)
Decrease (increase) in prepaid tooling 0 (39,383)
Decrease (increase) in prepaid expenses 0 (23,445)
Refundable federal tax 0 22,820
Increase (decrease) in accounts payable (42,559) 492,837
Increase (decrease) in accrued expenses 0 64,096
Deposits 0 (1,600)
Officers' loan payable 0 (3,338)
---------------- ----------------
Net cash provided by (used in) operating activities (270,926) (2,893,468)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 0 (720,633)
Investment in subsidiary 0 (1,464,007)
---------------- ----------------
Net cash provided by (used) in investing activities 0 (2,184,640)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit 0 (212,731)
Payments on long-term debt 0 (65,979)
Capital lease payments 0 (12,876)
Sale of company stock 270,926 6,046,188
Borrowings from long term debt 0 514,007
---------------- ----------------
Net cash provided by (used in) financing activities 270,926 6,268,610
---------------- ----------------
Net increase (decrease) in cash 0 1,190,502
---------------- ----------------
Cash at beginning of period 19 10,265
---------------- ----------------
Cash at end of period $ 19 $ 1,200,767
================ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE>
CLARION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, the financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments have been included and all adjustments considered necessary for a
fair presentation have been included and such adjustments are of a normal
recurring nature.
Results for interim periods should not be considered indicative of results for a
full year. The year-end consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1997.
NOTE B - STOCKHOLDERS' EQUITY
Stockholders' equity at September 30, 1998 included $1,427,000 of convertible
notes that are required to be converted into stock.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION" SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S UNAUDITED
FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED
ELSEWHERE HEREIN AND INCLUDES FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES WHICH ARE BASED UPON THE COMPANY'S BELIEFS, AS WELL AS ASSUMPTIONS
MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS PREDICTED BY SUCH FORWARD-LOOKING
STATEMENTS DUE TO VARIOUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE RISKS
AND UNCERTAINTIES WHICH ARE DISCUSSED BELOW.
RESULTS OF OPERATIONS
The Company's results of operations for the three and nine month
periods ended September 30, 1998 included revenues of $0.96 million and $2.08
million, respectively, and cost of goods sold of $1.13 million and $2.45
million, respectively. The Company's gross loss for the three months ended
September 30, 1998 was $0.17 million. For the nine months ended September 30,
1998, the Company's gross loss was $0.37 million. The gross loss is a result of
insufficient sales levels to support fixed manufacturing costs. Management
believes that sales levels will continue to be insufficient to cover fixed
overhead expenses through the remainder of the fiscal year.
Selling, general and administrative expenses for the three and nine
month periods ended September 30, 1998 were $0.82 million and $1.71 million,
respectively. The Company had an operating loss of $0.99 million for the three
months ended September 30, 1998 and an operating loss of $2.08 million for the
nine months ended September 30, 1998.
The Company's interest income for the three months ended September 30,
1998 was $8,348 and its interest expense for the nine months ended September 30,
1998 was $0.04 million. The interest expense is primarily due to the financing
of property and equipment. The Company's net loss for the three and nine months
ended September 30, 1998 was $0.98 million and $2.12 million, respectively.
No meaningful comparison can be made to the three and nine month
periods ended September 30, 1997 in that during those periods the Company did
not have any active operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs and capital equipment requirements
have increased as a result of the growth of the Company and are expected to
continue to increase as a result of anticipated growth. Increases in required
working capital and capital equipment requirements are expected to be met from
cash flow from operations, equipment financing, revolving credit borrowings and
the sale of the Company's equity securities. The Company is currently
negotiating terms for a revolving line of credit facility as well as a term loan
to finance pending acquisitions of capital equipment. As of September 30, 1998,
the Company had working capital of approximately $2.14 million.
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<PAGE>
The Company used cash in operating activities of $2.89 million for the
nine months ended September 30, 1998. Cash used for operating activities in the
period was primarily the result of a net loss, depreciation and amortization,
and changes in working capital due to increases in accounts receivable,
inventories and construction advance receivable. The Company used cash in
investing activities of $2.18 million for the nine months ended September 30,
1998. Cash used in investing activities was for the purchase of property, plant
and equipment. The Company generated $6.27 million in cash flow from financing
activities for the nine months ended September 30, 1998. The financing
activities in the period were primarily a result of the issuance of convertible
notes and the sale of Company stock.
On July 1, 1998, the Company commenced a private offering of its common
stock, $.001 par value (the "Offering"). The minimum offering was 500,000 shares
and the maximum offering was 1,000,000 shares. The offering price per share was
$2.00. As of September 30, 1998, the Company had sold 791,000 shares in the
Offering.
The Company received gross proceeds of $6.05 million from the sale of
its equity securities during the nine month period ended September 30, 1998. The
liquidity provided by the Company's credit facilities, combined with cash flow
from operations and financing activities, is expected to be sufficient to meet
the Company's anticipated working capital and capital expenditure needs for
existing operations for at least twelve months. There can be no assurance,
however, that such funds will not be expended prior thereto due to changes in
economic conditions or other unforeseen circumstances, requiring the Company to
obtain additional financing prior to the end of such twelve month period. There
can be no assurance, however, that additional financing will be available to the
Company, when and if needed, on acceptable terms or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than two years, computer systems
and software used by many companies will need to be upgraded to comply with such
"Year 2000" requirements. The Company believes that its internal systems are
either already Year 2000 compliant or can be upgraded without significant
expenditures.
-8-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 18, 1998, Plastech Exterior Systems, Inc. filed a suit in the
Court of Common Pleas of Williams County, Ohio against Triangle Plastics, Inc.
(the former name of Clarion Plastics Technologies, Inc.) and Clarion Specialty
Products, Inc., both wholly-owned subsidiaries of the Company. The complaint
also names Rose Industries, Inc. as a defendant. The complaint asserts causes of
action for misappropriation of trade secrets, unjust enrichment and tortious
interference, and seeks unspecified damages in excess of $25,000. Plastech
Exterior Systems, Inc. previously employed certain personnel of Clarion Plastics
Technologies, Inc. The complaint alleges that the defendants misappropriated
trade secrets, apparently by hiring these former employees of Plastech, as well
as by inducing customers and employees to leave Plastech. This litigation is in
a preliminary stage. Management believes that the claims against the Company's
subsidiaries are meritless.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 1998, the Company sold One
Million (1,000,000) shares of common stock for cash at a price of one dollar
($1.00) per share pursuant to the exercise of options granted by the Company to
a director nominee. The sale was conducted pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Act").
During the three months ended September 30, 1998, the Company also sold
Seven Hundred and Ninety-One Thousand (791,000) shares of common stock for cash
at a price of two dollars ($2.00) per share pursuant to the Company's private
offering of its common stock. The private offering was conducted pursuant to
Rule 506 promulgated under Regulation D of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 5, 1998 a proposal was submitted to the majority shareholders
of the Company regarding the approval of the merger of Clarion House, Inc., a
Nevada corporation, with and into Clarion Technologies, Inc., a Delaware
corporation, for purposes of reincorporating the Company in the State of
Delaware. Of the 5,999,500 shares of common stock then outstanding, 4,310,195
shares (or 71.8%) delivered written consents to the Company adopting the
proposal.
ITEM 5. OTHER INFORMATION
Inapplicable.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Index of Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on October 27,
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CLARION TECHNOLOGIES, INC.
Dated: November 13, 1998 By: /s/ Robert W. Martin
-----------------------
Robert W. Martin,
Chief Financial Officer
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1200767
<SECURITIES> 0
<RECEIVABLES> 667575
<ALLOWANCES> 0
<INVENTORY> 574243
<CURRENT-ASSETS> 3271206
<PP&E> 2064089
<DEPRECIATION> 1035517
<TOTAL-ASSETS> 5988359
<CURRENT-LIABILITIES> 1127202
<BONDS> 0
0
0
<COMMON> 104180
<OTHER-SE> 3871125
<TOTAL-LIABILITY-AND-EQUITY> 5988359
<SALES> 2079135
<TOTAL-REVENUES> 2079135
<CGS> 2452311
<TOTAL-COSTS> 2452311
<OTHER-EXPENSES> 1710022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40630
<INCOME-PRETAX> (2123827)
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<EPS-PRIMARY> (.29)
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