<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 March 31, 1999
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 340, Schaumburg, Illinois 60195
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(Address of principal executive offices)
(847) 490-9900
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(Issuer's telephone number, including area code)
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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
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of April 14, 1999, the
Company had 16,508,592 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
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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, 1998 and
other filings with the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Earnings (unaudited) for the
Three Month Periods Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Month Periods Ended March 31, 1999 and 1998 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 9
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,009,0 $ 3,713,271
Accounts receivable - trade 1,050,208 1,330,217
Closing costs 0 233,964
Inventories 780,699 1,113,981
Prepaid tooling 0 161,628
Prepaid expenses 206,882 31,651
----------------- -----------------
Total Current Assets 6,046,834 6,584,712
PROPERTY, PLANT AND EQUIPMENT
Land 187,565 187,565
Machinery and equipment 3,574,646 3,590,202
Vehicles 25,955 25,955
Furniture and fixtures 311,380 94,466
Office equipment 0 248,145
Leasehold improvements 38,579 38,578
Construction in progress 6,378,609 15,249,942
----------------- -----------------
10,516,734 19,434,853
Less accumulated depreciation 1,118,873 1,204,710
----------------- -----------------
9,397,861 18,230,143
OTHER ASSETS
Deposits 12,085 21,677
Goodwill 1,102,126 1,073,879
----------------- -----------------
TOTAL ASSETS 16,558,906 25,910,412
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt 104,063 104,063
Current portion of obligations under capital leases 19,016 19,016
Accounts payable
Trade 3,942,945 7,226,080
Construction Cost 4,430,060 0
----------------- -----------------
8,373,005 7,572,020
Accrued expenses 232,163 187,861
Officer's loan 0 35,000
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Total Current Liabilities 8,728,247 7,572,020
DEFERRED TAX LIABILITY 0 1,300
LONG-TERM DEBT 321,497 6,417,087
CAPITAL LEASE OBLIGATIONS 30,761 26,950
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TOTAL LIABILITIES 9,080,505 14,017,357
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, authorized
20,000,000 shares, 13,468,893 shares issued
and outstanding at December 31, 1998 and
16,725,402 shares issued and outstanding at
March 31, 1999 13,469 16,725
Additional paid in capital 13,372,911 19,168,053
Accumulated deficit (5,907,979) (7,291,723)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 16,558,906 25,910,412
================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1998 1999
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<S> <C> <C>
Sales $ 623,572 $ 1,320,986
Cost of goods sold 643,905 1,631,920
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Gross profit (loss) $ (20,332) $ (310,934)
Selling, general and
administrative expenses 288,641 1,170,881
----------------- -----------------
Operating profit (loss) $ (308,973) $ (1,481,816)
Other income (expense)
Interest expense (income) (22,886) 18,853
Loss (gain) on mold sales 0 (7,522)
----------------- -----------------
Earnings (loss) before
income taxes (331,859) (1,493,146)
----------------- -----------------
Net earnings (loss) $ (331,859) (1,493,146)
================= =================
Earnings per share from
continuing operations $ (.06)
================= =================
Shares used in computation 5,703,927
================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1998 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (331,859) $ (1,493,146)
Adjustments to reconcile net earnings to net
cash provided by (used in) operations
Depreciation and amortization 47,597 114,083
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable (57,250) (280,009)
Decrease (increase) in construction accounts
receivable 0 (233,964)
Decrease (increase) in inventories 23,198 (333,281)
Decrease (increase) in prepaid tooling (47,797) (38,572)
Decrease (increase) in prepaid expense 0 (3,782)
Decrease (increase) in deposits 0 (18,867)
Increase (decrease) in accounts payable 299,053 (1,145,722)
Increase (decrease) in accrued liabilities (35,629) 117,630
Increase (decrease) in officer's loan payable 0 35,000
----------------- -----------------
Net cash provided by (used in) operating activities (177,734) (3,280,631)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (25,164) (8,918,120)
----------------- -----------------
Net cash provided by (used) in investing activities (25,164) (8,918,120)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit 52,122 0
Payments on long-term debt (27,668) (342,981)
Capital lease payments (4,232) (3,809)
Sale of company stock 279,500 5,811,648
Borrowings from long-term debt 0 6,438,571
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Net cash provided by (used in) financing activities 299,721 11,903,429
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Net increase (decrease) in cash 96,823 (295,321)
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Cash at beginning of period 10,265 4,007,843
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Cash at end of period 107,088 3,712,521
================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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CLARION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 Rule 310 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, 1998.
NOTE B - STOCKHOLDERS' EQUITY
The historical stockholders' equity amount has been reclassified to conform with
the 1999 presentation of the stockholders' equity amount. This reclassification
reflects the change in the par value of the Company's common stock from $.01 to
$.001 following the reincorporation of the Company in the State of Delaware
which was effected on October 2, 1998.
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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 month ended March 31,
1999 increased 113% to $1.32 million from $0.62 million for the comparable
quarter of 1998. The increase in sales is due primarily to continued start-up of
the Company's operations. Cost of goods sold increased 155% to $1.63 million for
the three months ended March 31, 1999 from $0.64 million for the comparable
quarter of 1998. As a percent of net sales, cost of goods sold increased to 124%
from 104%. The increase in cost of goods sold as a percentage of net sales in
the current year is primarily due to start-up staffing and operations at the new
facility in Montpelier, Ohio.
The Company's gross loss increased by 1,424% to $0.31 million for the
three months ended March 31, 1999 from $20,332 for the comparable quarter of
1998. The gross loss is a result of insufficient sales levels to support
manufacturing costs, such as materials and labor.
Selling, general and administrative expenses increased by 304% to $1.17
million for the three month period ended March 31, 1999 as compared to $0.29
million for the three month period ended March 31, 1998. Selling, general and
administrative expenses increased as a percentage of net sales from 47% for the
first quarter of 1998 to 89% for the first quarter of 1999. The increase is
primarily the result of the addition of executive personnel to support the
Company's expanded operations and the costs involved with the Company satisfying
its SEC reporting obligations.
Operating loss increased to $1.48 million for the three months ended
March 31, 1999 from $0.31 million for the three months ended March 31, 1998.
Interest expense increased by $41,739 to $18,853 for the three months
ended March 31, 1999 from an interest income of $22,886 for the three months
ended March 31, 1998. The interest expense was primarily due to the financing
obtained to acquire property and equipment.
Net loss increased by $1.16 million to $1.49 million for the three
months ended March 31, 1999 from a loss of $0.33 million for the three months
ended March 31, 1998. The increase in net loss for the current year is primarily
due to staffing, training and start-up operating expenses at the Montpelier
facility.
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. As of March 31, 1999, the Company
had a deficiency in working capital of approximately $0.99 million.
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The Company's operations used cash flow of $3.28 million for the three
months ended March 31, 1999. Cash used by 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, and a decrease in accounts payable. The Company
used cash in investing activities of $8.92 million for the three months ended
March 31, 1999. Cash used in investing activities was for the purchase of
property, plant and equipment. The Company generated $11.90 million in cash flow
from financing activities for the three months ended March 31, 1999. The
financing activities in the period were primarily a result of the sale of
Company stock and borrowings from long-term debt.
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. In addition, the Company intends to pursue, as part of its business
strategy, future growth through opportunistic acquisitions which may involve the
expenditure of significant funds. Depending upon the nature, size and timing of
future acquisitions, the Company may be required to obtain additional debt or
equity financing in connection with such future acquisitions. 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 twelve months, computer
systems and software used by many companies will need to be upgraded to comply
with such "Year 2000" requirements. The Company has conducted an evaluation of
the actions necessary to ensure that its business critical computer systems will
be able to function without disruption with respect to the application of dating
systems in the year 2000. As a result of this evaluation, the Company is engaged
in the process of upgrading, replacing and testing certain of its information
and other computer systems so as to be able to operate without disruption due to
Year 2000 issues. The Company is also evaluating the ability of its key
suppliers to operate without disruption due to Year 2000 issues. The Company's
remedial actions are scheduled to be completed no later than second quarter of
1999 and based on information currently available, the Company does not
anticipate the costs of its remedial actions will be material to the Company's
results of operations and financial condition and are being expensed as
incurred.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 1999, the Company sold 2,882,490
shares of Common Stock at $2.00 per share. The offering was conducted pursuant
to Section 4(2) and Rule 506 of Regulation D promulgated under the Act.
There were no underwriters involved in the transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable.
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 May 13,
1999.
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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: May 17, 1999 By: /s/ ROBERT W. MARTIN
-----------------------------------------
Robert W. Martin, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,713,271
<SECURITIES> 0
<RECEIVABLES> 1,330,217
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,113,981
<PP&E> 19,434,853
<DEPRECIATION> 1,204,710
<TOTAL-ASSETS> 25,910,412
<CURRENT-LIABILITIES> 7,572,020
<BONDS> 0
0
0
<COMMON> 13,469
<OTHER-SE> 7,464,932
<TOTAL-LIABILITY-AND-EQUITY> 25,910,412
<SALES> 1,320,986
<TOTAL-REVENUES> 1,320,986
<CGS> 1,631,920
<TOTAL-COSTS> 1,631,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,853
<INCOME-PRETAX> (1,493,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,493,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,493,146)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
