<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 June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-24690
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CLARION TECHNOLOGIES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 91-1407411
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1901 North Roselle Road, Suite 340, Schaumburg, Illinois 60195
--------------------------------------------------------------
(Address of principal executive offices)
(847) 490-9900
------------------------------------------------
(Issuer's telephone number, including area code)
----------------------------------------------------
(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 August 17, 1999, the
Company had 17,286,830 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one); Yes No X
--- ---
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, 1998 and
other filings with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Earnings (unaudited) for the
Three and Six Month Periods Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) for the
Six Month Periods Ended June 30, 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 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,880,347 $ 1,765,565
Accounts receivable - trade 1,785,092 2,709,739
Inventories 970,013 1,651,478
Prepaid tooling 0 257,262
Prepaid expenses 254,091 97,346
Refundable federal tax 70,251 24,520
-------------------- --------------------
Total Current Assets 6,959,794 6,505,910
PROPERTY, PLANT AND EQUIPMENT
Land 187,565 187,565
Machinery and equipment 4,885,885 4,757,117
Vehicles 36,447 36,447
Furniture and fixtures 553,646 339,194
Office equipment 793,805 1,061,082
Leasehold improvements 46,746 43,885
Construction in progress 6,378,609 16,295,354
-------------------- --------------------
Less accumulated depreciation 2,573,942 2,926,081
-------------------- --------------------
10,308,761 19,794,563
OTHER ASSETS
Deferred tax credit 50,000 66,000
Deposits 20,435 74,503
Goodwill 1,102,126 1,045,433
-------------------- --------------------
TOTAL ASSETS 18,441,116 27,486,409
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit 600,000 1,733,198
Current portion of long-term debt 377,547 377,547
Current portion of obligations under capital leases 19,016 19,016
Accounts payable
Trade 4,575,174 4,948,116
Construction costs 4,430,060 925,959
-------------------- --------------------
Accrued expenses 171,287 243,824
Total Current Liabilities 10,173,084 8,247,660
DEFERRED TAX LIABILITY 0 1,300
LONG-TERM DEBT 591,057 9,204,135
CAPITAL LEASE OBLIGATIONS 30,761 22,218
-------------------- --------------------
TOTAL LIABILITIES 10,794,902 17,475,313
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
20,000,000 shares, 13,468,893 shares issued
and outstanding at December 31, 1998 and
17,286,830 shares issued and outstanding at
June 30, 1999 13,469 17,287
Additional paid in capital 13,488,471 19,746,588
Accumulated deficit (5,855,726) (9,752,579)
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,441,116 $ 27,486,409
==================== ====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-3-
<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ------------------------------
1998 1999 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 2,101,262 $ 3,615,306 $ 4,342,368 $ 6,462,602
Cost of goods sold 1,801,312 3,919,754 3,516,133 6,758,307
--------------- --------------- --------------- ---------------
Gross profit (loss) $ 299,950 $ (304,448) $ 826,235 $ (295,705)
Selling, general and
administrative expenses 1,091,983 1,641,302 1,842,579 3,133,399
--------------- --------------- --------------- ---------------
Operating profit (loss) $ (792,033) $ (1,945,750) $ (1,016,344) $ (3,429,104)
Other income (expense)
Interest expense (income) 58,224 245,287 112,415 292,074
Loss (gain) on mold sales 1,922 (14,444) (1,922) (22,104)
Loss (gain) on sale of assets 0 229,866 0 229,866
--------------- --------------- --------------- ---------------
Earnings (loss) before
income taxes (852,179) (2,406,459) (1,130,681) (3,928,940)
--------------- --------------- --------------- ---------------
Income tax expense (refund) (13,966) (22,109) 3,502 (31,887)
--------------- --------------- --------------- ---------------
Net earnings (loss) $ (838,213) (2,384,350) (1,134,183) (3,897,053)
=============== =============== =============== ===============
Earnings per share from
continuing operations (basic) $ (0.13) $ (0.14) $ (0.19) $ (0.24)
=============== =============== =============== ===============
Shares used in computation 6,355,983 17,233,718 5,875,006 16,168,257
=============== =============== =============== ===============
Earnings per share from
continuing operations (diluted) $ (0.13) $ (0.13) $ (0.18) $ (0.24)
=============== =============== =============== ===============
Shares used in computation 6,679,776 17,558,718 6,185,450 16,518,855
=============== =============== =============== ===============
</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>
SIX MONTHS ENDED JUNE 30,
---------------------------------------
1998 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (1,134,183) $ (3,897,053)
Adjustments to reconcile net earnings to net
cash provided by (used in) operations
Depreciation and amortization 275,070 446,104
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 76,604 (924,647)
Decrease (increase) in inventories (33,759) (681,465)
Decrease (increase) in prepaid tooling (83,742) (257,262)
Decrease (increase) in prepaid expense (23,632) 156,745
Decrease (increase) in refundable income tax 65,501 45,731
Decrease (increase) in deposits (1,600) (54,068)
Decrease (increase) in deferred tax credits (28,749) (16,000)
Increase (decrease) in accounts payable (276,172) (3,131,159)
Increase (decrease) in accrued liabilities 46,181 72,537
Increase (decrease) in officer's loan payable (3,338) 0
Increase (decrease) in deferred tax liability 0 1,300
------------------ ------------------
Net cash provided by (used in)
operating activities (1,122,119) (8,240,537)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (614,774) (9,998,913)
Sale of Assets 0 125,000
Investment in subsidiary (1,464,007) 0
------------------ ------------------
Net cash provided by (used) in
investing activities (2,078,781) (9,873,913)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit (16,129) 1,133,198
Issuance of convertible notes 1,205,000 0
Payments on long-term debt (228,574) (1,096,922)
Capital lease payments (7,811) (8,543)
Sale of company stock 3,454,188 6,261,935
Borrowings from long-term debt 777,887 9,710,000
------------------ ------------------
Net cash provided by (used in)
financing activities 5,184,561 15,999,668
------------------ ------------------
Net increase (decrease) in cash 1,983,661 (2,114,782)
------------------ ------------------
Cash at beginning of period (135,953) 3,880,347
------------------ ------------------
Cash at end of period 1,847,708 1,765,565
================== ==================
</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 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 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.
NOTE C - POOLING OF INTERESTS
The balance sheet as of December 31, 1998 has been restated to reflect
the Company's April 29, 1998 acquisition of MITO Plastics, Inc. ("Mito")
reported on the Company's Current Report on Form 8-K filed on May 13, 1999. The
Company's acquisition of Mito has been accounted for as a pooling of interests.
The interim financial information included herein for the three and six month
periods ended June 30, 1999 and 1998 includes the results of operation of Mito.
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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.
GENERAL
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The Company, through Clarion Plastics, is engaged in the injection
molding of plastic products for a variety of industries, including medium and
heavy truck, heating and air conditioning, railroad, recreational, office
furniture, water conditioning and Tier II and Tier III automotive. Clarion
Plastics is a full-service supplier providing complete design and manufacturing
services.
In July 1999, the Company completed construction of a new manufacturing
facility located in Montpelier, Ohio. The new facility includes manufacturing,
warehouse and office space totaling approximately 164,000 square feet and is
equipped with large tonnage injection molding machines ranging from 1,000 to
5,000 tons. The Company currently has four facilities with an aggregate of
approximately 190,000 square feet of manufacturing, design, warehouse and office
space.
RESULTS OF OPERATIONS
REVENUE
Revenue of $3.61 million in the three month period ended June 30, 1999
increased 72.05% over the second quarter of 1998. On a year to date basis,
revenue in the six month period ended June 30, 1999 totaled $6.46 million, an
increase of 48.83% over the first two quarters of fiscal 1998. The increase in
sales at Clarion Plastics resulted from efforts of the Company's new management
team and new customer orders placed in anticipation of the Company's increased
manufacturing capacity.
OPERATING EXPENSES
Cost of revenue was $3.92 million in the second quarter, or 108.42% as
a percent of revenue, as compared to $1.80 million and 85.73% as a percent of
revenue in the second quarter of the prior year. On a year to date basis, cost
of revenue was $6.76 million, or 104.58% as a percent of revenue, as compared to
$3.51 million, or 80.97% as a percent of revenue, in the second quarter of the
prior year. The increase in cost of goods sold as a percentage of net sales is
primarily due to start-up staffing and operations expenses at the new facility
in Montpelier, Ohio, incurred in preparation for increased sales levels expected
as a result of the Company's current backlog.
The Company's gross loss in the three month period ended June 30, 1999
was $0.30 million, compared to a gross profit of $0.29 million for the
comparable quarter for 1998. On a year to date basis, gross loss in the six
month period ended June 30, 1999 was $0.29 million, compared to a gross profit
of $0.82 for the first two quarters of fiscal 1998. The gross loss in the
current year is a result of insufficient sales levels to support the increased
manufacturing overhead costs associated with the start-up of the Company's new
production facility in Montpelier, Ohio.
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<PAGE>
Selling, general and administrative costs were $1.64 million in the
second quarter, compared to $1.09 million in the second quarter of the prior
year. First half selling, general and administrative costs were $3.13 million,
up 70.06% from $1.84 million the prior year. The increases were due, in part, to
the addition of personnel to support the Company's expanded operations and
increased expenditures for outside services.
Operating loss increased to $1.94 million for the three months ended
June 30, 1999 from $0.79 million for the three months ended June 30, 1998. On a
year to date basis, the Company's operating loss in the six month period ended
June 30, 1999 increased to $3.43 million from $1.01 million in the first half of
1998.
Interest expense increased by 321.87% to $0.24 million for the three
months ended June 30, 1999 from an interest expense of $0.06 million for the
three months ended June 30, 1998. First half interest expense was $0.29 million
from an interest expense of $0.11 million the prior year. The interest expense
was primarily due to the financing obtained to acquire property, plant and
equipment.
Net loss increased by $1.55 million to $2.38 million for the three
months ended June 30, 1999 from a loss of $0.83 million for the three months
ended June 30, 1998. On a year to date basis, the Company's net loss in the six
month period ended June 30, 1999 increased to $3.89 million from $1.13 million
in the first half of 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 June 30, 1999, the Company
had a deficiency in working capital of approximately $1.75 million.
The Company's operations used cash flow of $8.24 million for the six
months ended June 30, 1999. Cash used by operating activities was primarily the
result of a net loss, depreciation and amortization, and changes in working
capital due to increases in accounts receivable, inventories and prepaid
tooling, and a decrease in accounts payable.
The Company used cash in investing activities of $9.87 million for the
year to date. Cash used in investing activities was for the purchase of
property, plant and equipment.
The Company generated $15.99 million in cash flow from financing
activities in the first half of 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 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.
-8-
<PAGE>
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
customers and suppliers to operate without disruption due to Year 2000 issues.
The Company's remedial actions are scheduled to be completed no later than third
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.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, the Company issued shares of
Common Stock as follows:
On April 29, 1999, the Company completed the acquisition of MITO Plastics, Inc.
in exchange for 310,000 shares of Common Stock.
On April 30, 1999, the Company sold 100,000 shares of Common Stock for $3.50 per
share. The offering was conducted pursuant to Section 4(2) promulgated under the
Act. There were no underwriters involved in the transaction.
On May 6, 1999, the Company issued 21,428 shares of Common Stock for $3.50 per
share. The offering was conducted pursuant to Section 4(2) promulgated under the
Act. There were no underwriters involved in the transaction.
On June 2, 1999, the Company issued 30,000 shares of Common Stock at $1.00 per
share, pursuant to the exercise of an option granted under an employment
agreement. The offering was conducted pursuant to Section 4(2) promulgated under
the Act. There were no underwriters involved in the transaction.
On June 10, 1999, the Company sold 100,000 shares of Common Stock for $3.50 per
share. The offering was conducted pursuant to Section 4(2) 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
On May 24, 1999, the Company's shareholders, acting by majority written
consent, did the following: (i) elected a slate of eight directors; (ii)
approved an increase in the Company's authorized capital stock from 20,000,000
shares of common stock, $.001 par value, to 40,000,000 shares of common stock,
$.001 par value and 1,000,000 shares of preferred stock, $.001 par value; and
(iiii) approved the 1999 Stock Incentive Plan.
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 May 13, 1999.
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<PAGE>
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: August 20, 1999 By: /s/ ROBERT W. MARTIN
---------------------------------
Robert W. Martin,
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,765,565
<SECURITIES> 0
<RECEIVABLES> 2,709,739
<ALLOWANCES> 0
<INVENTORY> 1,651,478
<CURRENT-ASSETS> 6,505,910
<PP&E> 22,720,644
<DEPRECIATION> 2,926,081
<TOTAL-ASSETS> 27,486,409
<CURRENT-LIABILITIES> 8,247,660
<BONDS> 0
0
0
<COMMON> 17,287
<OTHER-SE> 9,994,009
<TOTAL-LIABILITY-AND-EQUITY> 27,486,409
<SALES> 6,462,602
<TOTAL-REVENUES> 6,462,602
<CGS> 6,758,307
<TOTAL-COSTS> 9,891,706
<OTHER-EXPENSES> 207,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292,074
<INCOME-PRETAX> (3,928,940)
<INCOME-TAX> (31,887)
<INCOME-CONTINUING> (3,897,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,897,053)
<EPS-BASIC> (.024)
<EPS-DILUTED> (.024)
</TABLE>
