U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 29, 2000
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CLARION TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-24690 91-1407411
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(State or other jurisdiction (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
235 Central Avenue, Holland, Michigan 49423
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 494-8885
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-1-
This Amendment No. 1 on Form 8-K/A is hereby filed with respect to certain
financial statements and exhibits omitted from the Current Report on Form 8-
K dated as of February 29, 2000 and filed with the Securities and Exchange
Commission by Clarion Technologies, Inc. (collectively referred to as
"Clarion" or the "Company") on March 15, 2000. Items 7 (a) and (b)
"Financial Statements and Exhibits" is hereby amended and restated in its
entirety to read as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TABLE OF CONTENTS
Independent Auditor's Report
Financial Statements
Balance Sheets
Statements of Income
Statements of Changes in Shareholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
-2-
INDEPENDENT AUDITOR'S REPORT
February 4, 2000
To the Officers
Drake Products Corporation
Greenville, Michigan
We have audited the accompanying balance sheets of Drake Products
Corporation as of December 31, 1999 and 1998, and the related statements of
income, changes in shareholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Drake Products Corporation as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Hungerford, Aldrin, Nichols & Carter PC
Certified Public Accountants
-3-
BALANCE SHEETS
DRAKE PRODUCTS CORPORATION
December 31, 1999 and 1998
<TABLE>
ASSETS
1999
1998
-----------------
- ---------------
<S> <C>
<C>
Current Assets
Cash $63,711
$180,190
Accounts receivable:
Trade 2,367,417
2,134,044
Tooling 728,281
221,840
Current portion of note receivable - related party 140,604
66,364
Inventory 2,478,677
2,670,069
Prepaid expenses 26,277
35,718
-----------------
- ---------------
Total Current Assets 5,804,967
5,308,225
-----------------
- ---------------
Property, Plant and Equipment
Land 639,554
639,554
Buildings 6,079,877
6,079,877
Building improvements 1,206,877
1,186,937
Leasehold improvements 843,830
702,463
Machinery and plant equipment 10,656,484
10,020,669
Office equipment and furniture 1,125,716
1,422,686
Delivery equipment 98,686
108,279
-----------------
- ---------------
20,651,024
20,160,465
Less accumulated depreciation 6,422,920
6,954,661
-----------------
- ---------------
Net Property, Plant and Equipment 14,228,104
13,205,804
-----------------
- ---------------
Other Assets
Note receivable-related party, less current portion 442,700
321,445
Intangible assets, net of amortization 352,439
377,634
Lease deposits 12,525
175,627
Equipment deposits
20,600
-----------------
- ---------------
Total Other Assets 807,664
895,306
-----------------
- ---------------
$20,840,735
$19,409,335
================================
</TABLE>
See notes to financial statements.
-4-
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
1999
1998
-----------------
- ---------------
<S> <C>
<C>
Current Liabilities
Notes payable $2,086,500
$1,376,923
Current maturities of long-term debt 1,439,980
1,114,947
Accounts payable:
Trade 3,761,766
4,698,051
Tooling 704,197
392,648
Related party 135,290
509,956
Accrued expenses 991,822
856,458
Advances for tooling
111,633
------------------
- ---------------
Total Current Liabilities 9,119,555
9,060,616
Long-Term Debt, less current maturities 10,199,076
10,386,275
------------------
- ---------------
Total Liabilities 19,318,631
19,446,891
------------------
- ---------------
Deferred Gain 190,823
206,089
------------------
- ---------------
Shareholders' Equity (Deficit)
Common stock, Class A, no par value
Authorized - 30,000 shares
Issued and outstanding - 1,867 shares 1,867
1,867
Common stock, Class B, no par value:
Authorized - 30,000 shares
Issued and outstanding - 5,600 shares 5,600
5,600
Paid-in capital 27,972
27,972
Retained earnings (accumulated deficit) 1,295,842
(279,084)
------------------
- ---------------
Total Shareholders' Equity (Deficit) 1,331,281
(243,645)
------------------
- ---------------
$20,840,735
$19,409,335
=================================
</TABLE>
See notes to financial statements.
-5-
STATEMENTS OF INCOME
DRAKE PRODUCTS CORPORATION
For the years ended December 31, 1999 and 1998
<TABLE>
1999
1998
-------------------------------------------
- ---------------
Amount Percent of Net Sales
Amount
-------------------------------------------
- ---------------
<S> <C> <C> <C>
<C>
Sales $50,900,907 100.0% 100.0%
$46,682,288
-------------------------------------------
- ---------------
Cost of Sales
Outside purchases 25,965,007 51.0 51.0
23,810,431
Labor costs 9,804,599 19.3 20.3
9,445,896
Other manufacturing costs 6,843,714 13.4 16.0
7,480,867
-------------------------------------------
- ---------------
Total Cost of Goods Sold 42,613,320 83.7 87.3
40,737,194
-------------------------------------------
- ---------------
Gross Profit 8,287,587 16.3 12.7
5,945,094
Selling, General and
Administrative Expenses 5,055,189 9.9 9.2
4,301,875
-------------------------------------------
- ---------------
Operating Income 3,232,398 6.4 3.5
1,643,219
Other Income (Expense) (1,657,472) (3.3) 1.8
840,678
-------------------------------------------
- ---------------
Net Income $1,574,926 3.1% 5.3%
$2,483,897
==========================================================
</TABLE>
See notes to financial statements.
-6-
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DRAKE PRODUCTS CORPORATION
For the years ended December 31, 1999 and 1998
<TABLE>
Retained
Common Common Earnings
Stock Stock Paid-in
(Accumulated
Class A Class B Capital Deficit)
Total
-----------------------------------------------
- ---------------
<S> <C> <C> <C> <C>
<C>
Balance - January 1, 1998 $2,500 $7,500 $37,462
($2,075,004) ($2,027,542)
Deduct - Stock Redemption (633) (1,900) (9,490)
(687,977) (700,000)
Add - Net income for 1998 2,483,897
2,483,897
-----------------------------------------------
- ---------------
Balance - December 31, 1998 1,867 5,600 27,972
(279,084) (243,645)
Add - Net income for 1999 1,574,926
1,574,926
-----------------------------------------------
- ---------------
Balance - December 31, 1999 $1,867 $5,600 $27,972 $1,295,842
$1,331,281
==============================================================
</TABLE>
See notes to financial statements.
-7-
STATEMENTS OF CASH FLOWS
DRAKE PRODUCTS CORPORATION
For the years ended December 31, 1999 and 1998
<TABLE>
1999
1998
-----------------
- ---------------
<S> <C>
<C>
Cash Flows From Operating Activities
Cash received from customers $50,161,093
$48,685,031
Interest received 3,957
11,178
Other operating cash receipts 94,299
2,304,415
Cash paid to suppliers and for operating expenses (46,925,462)
(45,949,509)
Interest paid (1,171,073)
(1,452,186)
Other operating cash payments (626,920)
(108,615)
-----------------
- ---------------
Net Cash Provided By Operating Activities 1,535,894
3,490,314
-----------------
- ---------------
Cash Flows From Investing Activities
Proceeds from related party notes receivable
4,391
Loans made to related parties (195,495)
Capital expenditures (2,620,184)
(2,792,058)
Proceeds from sale of property and equipment 167,873
6,512
Refund of deposits made 163,102
Net increase (decrease) in other assets (15,080)
(12,912)
-----------------
- ---------------
Net Cash Used For Investing Activities (2,499,784)
(2,794,067)
-----------------
- ---------------
Cash Flows From Financing Activities
Net proceeds from (payments on) short-term borrowing 709,577
(2,097,563)
Proceeds from long-term borrowing 1,162,875
3,830,354
Repayment of long-term obligations (1,025,041)
(1,615,792)
Stock redemption
(700,000)
-----------------
- ---------------
Net Cash Provided By (Used For) Financing
Activities 847,411
(583,001)
-----------------
- ---------------
Net Increase (Decrease) In Cash (116,479)
113,246
Beginning Cash Balance 180,190
66,944
-----------------
- ---------------
Ending Cash Balance $63,711
$180,190
================================
Non-Cash Investing Activity
Conversion of account receivable to note receivable
$392,200
=============
</TABLE>
(Continued)
-8-
STATEMENTS OF CASH FLOWS (Continued)
DRAKE PRODUCTS CORPORATION
For the years ended December 31, 1999 and 1998
<TABLE>
1999
1998
-----------------
- ---------------
<S> <C>
<C>
Reconciliation Of Net Income To Net Cash
Provided By Operating Activities
Net income $1,574,926
$2,483,897
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,462,036
1,357,879
Amortization 40,275
39,984
Gain on sale of property and equipment (26,691)
(22,766)
Decrease in cash value of life insurance
323,727
(Increase) decrease in current assets:
Accounts receivable (739,814)
1,679,016
Inventory 191,392
(216,029)
Prepaid expenses 9,441
93,360
Increase (decrease) in current liabilities:
Accounts payable (999,402)
(2,436,697)
Accrued expenses 135,364
76,310
Advances for tooling (111,633)
111,633
-----------------
- ---------------
Net Cash Provided By Operating Activities $1,535,894
$3,490,314
================================
</TABLE>
See notes to financial statements.
-9-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note A - Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The Company manufactures injection molded plastic products for companies
located in the United States that manufacture consumer durable goods and
components for the appliance and automotive industry.
Accounts Receivable
Accounts receivable - trade is presented net of an allowance for doubtful
accounts of $51,676 and $18,938 at December 31, 1999 and 1998,
respectively.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined by
using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets using the straight-line method for
financial reporting purposes. Upon retirement or disposal of property,
plant and equipment, the asset cost and related accumulated depreciation
are eliminated from the respective accounts and the resulting gain or loss
is recorded in operations. Maintenance and repair costs are charged to
expense as incurred.
Depreciation on property, plant and equipment is computed over the
following lives:
Buildings 10 - 40 years
Building improvements 5 - 40 years
Leasehold improvements 5 - 40 years
Machinery and plant equipment 5 - 15 years
Office equipment and furniture 3 - 10 years
Delivery equipment 3 - 5 years
Intangible Assets
A supply contract with a major customer is being amortized over the
expected life of the contract on a straight-line basis. The contract is
through December 31, 2003 and is automatically extended for an additional
two year term unless written notice is given by either party on or before
July 31, 2003. Bond issue costs related to the South Carolina Industrial
Economic Development bond are being amortized over the stated term of the
loan.
-10-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note A - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Deferred Gain
The Company sold land and a building to a related party in 1997. The
Company then leased the property. The gain on the sale of $228,988 is
being amortized into income over a 15-year period.
Concentration of Credit Risk
The Company maintains ongoing credit evaluation of its customers and
generally does not require collateral. One customer represents
approximately 70% and 65% of revenues for the years ended December 31, 1999
and 1998, respectively. Accounts receivable from that customer totaled
$2,098,091 and $342,969 at December 31, 1999 and 1998, respectively.
From time to time, the Company has cash in one bank in excess of the
$100,000 FDIC insured limit.
Advertising
The Company expenses advertising costs as they are incurred. The Company
incurred minimal advertising expenses for 1999 and 1998.
Leases
Leases which meet certain criteria are classified as capital leases. The
assets and liabilities are recorded at amounts equal to the fair value of
the leased properties at the beginning of the respective lease terms. The
assets are depreciated over the term of the related leases. The net book
value of assets acquired under capital lease is classified as office
equipment and furniture. Interest expense relating to the lease
liabilities is recorded to effect constant rates of interest over the terms
of the leases. Leases which do not meet such criteria are classified as
operating leases. Their related rentals are charged to expense as
incurred.
Federal Income Tax
The Company has elected to be taxed under the provisions of Sub-chapter S
of the Internal Revenue Code. Under these provisions, the shareholders
report their share of the Company's taxable income or loss on their
personal tax returns. Therefore, no provision for federal income tax has
been included in the financial statements.
-11-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note A - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Use of Estimates
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
Note B - Notes Receivable - Related Party
The Company has a note receivable from North American Plastics, Inc., a
related party, of $442,700 and $387,809 at December 31, 1999 and 1998,
respectively. The note matures on January 1, 2005 and bears interest of 5%.
The note requires monthly payments of interest only until January 1, 2001,
at which time the monthly payments of $8,354, including interest are
required until maturity.
The company also has notes receivable from shareholders of $140,604 at
December 31, 1999. The notes are due on demand.
Note C - Inventory
Inventory consisted of the following at December 31, 1999 and 1998:
1999 1998
---------------------------------
Finished goods $1,557,059 $728,185
Raw materials 798,478 1,499,758
Tooling 3,861 256,471
Packaging material 119,279 185,655
---------------------------------
$2,478,677 $2,670,069
=================================
-12-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note D - Intangible Assets
Intangible assets are comprised of the following at December 31, 1999 and
1998:
1999 1998
-----------------------------------
Frigidaire supply contract $1,050,000 $1,050,000
Organizational and start up costs 241,659
Bond issue costs 330,441 330,441
-----------------------------------
1,380,441 1,622,100
Less accumulated amortization 1,028,002 1,244,466
-----------------------------------
$352,439 $377,634
===================================
Note E - Accrued Expenses
Accrued expenses consist of the following at December 31, 1999 and 1998:
1999 1998
-------------------------------------
Payroll and payroll taxes $116,500 $94,315
Property taxes 174,023 151,300
Commissions 48,132 66,113
Single Business Tax 36,000 63,462
Workers' compensation 61,677 55,984
Interest 29,465 45,040
Other 526,025 380,244
-------------------------------------
$991,822 $856,458
=====================================
-13-
This Page Intentionally Left Blank
-14-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note F - Notes Payable
The Company has a $5,000,000 line of credit with Bank One which requires
monthly interest payments on the outstanding balance at the bank's prime
rate (8.5% at December 31, 1999). Advances on the line of credit are
limited to the sum of 80% of net eligible accounts receivable as defined in
the agreement, 50% of raw material and finished goods inventory and 50% of
tooling receivables limited to $250,000. The Company is also allowed a
$500,000 over-advance provision. The note matures April 30, 2000. The
outstanding balance at December 31, 1999 and 1998 was $1,806,500 and
$1,096,923, respectively.
The Company is required to adhere to several covenants which include:
1. The Company is to maintain working capital of ($2,250,000).
2. The ratio of total liabilities to tangible net worth plus
subordinated debt may not exceed 6.25 to 1.00.
3. The Company is to maintain tangible net worth plus
subordinated debt of not less than $1,650,000.
4. The ratio of EBITDA to debt service may not exceed 1.25 to
1.00.
The Company was not in compliance with the first two of these covenants at
December 31, 1999. The bank has subsequently waived these loan covenants
as of December 31, 1999, and until February 29, 2000.
The Company has a $280,000 note payable to Millearn General Partnership.
The note required monthly payments of interest only at 12% and came due
June 3, 1998. The Company continues to pay interest on the note as it was
still outstanding at December 31, 1999.
-15-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note G - Notes Payable and Long-Term Debt
<TABLE>
Holder Due Date Monthly
Payment Terms
- ---------------------------------------------------------------------------
- ---------------
<S> <C> <C>
Senior Debt:
Bank One December 18, 2003 $72,565,
including interest
Bank One (C) April 30, 2005
(D)
Adjustable Rate Industrial
Development Bonds (B)
(B)
Less amount in escrow
Other Debt:
Accent Leasing, Inc. February 15, 2002 $1,946,
including interest
Bank One May 22, 2004 $408,
including interest
CC Finance, LLC June 02, 2002 $1,985,
including interest
Chemical Bank Montcalm March 31, 2000 $558,
including interest
Resource Capital Corp January 03, 1999 $6,625,
including interest
Resource Capital Corp September 30, 1999 $2,785,
including interest
Subordinated Debt:
James R. Workman January 1, 2006 $35,305,
including interest
Louise W. Vanden Bosch January 1, 2001 $4,982,
including interest
</TABLE>
Interest expense was $1,155,499 and $1,389,066 for the years ended December
31, 1999 and 1998, respectively.
(A) The prime rate at December 31, 1999 and 1998 was 8.5% and 7.75%,
respectively.
(B) Annual principal payments increasing from $175,000 in March 1998 to a
final payment of $600,000 due March 2015 plus interest at a variable
rate as defined in the agreement.
(C) Bank One note is capital access line of credit with a borrowing limit
of $1,500,000. The note matures on April 30, 2000, at which time the
company intends to exercise the conversion to a five year term note
option.
(D) Payments of interest only are due monthly until April 30, 2000, after
which the monthly payments of principal and interest will be based
upon the outstanding borrowings at that time. Projected monthly
payments will be $21,476.
-16-
<TABLE>
Security Interest Rate 1999
1998
- ---------------------------------------------------------------------------
- ---------------
<S> <C> <C>
<C>
All assets 7.75% $2,992,016
$3,600,000
All assets, life insurance, guarantee Prime + .25% (A) 1,014,303
Letter of credit (B) 5,595,000
5,780,000
(138,753)
Equipment 12.12% 44,298
Vehicle 8.5% 31,435
Equipment 15.4% 49,176
Vehicle 10.25% 1,102
7,337
Equipment, guarantee 12.74%
74,276
Equipment, guarantee 15.69%
28,362
Personal guarantee 12.0% 1,805,888
2,000,000
Personal guarantee 12.0% 105,838
150,000
-------------------------
- ---------------
11,639,056
11,501,222
Less current portion 1,439,980
1,114,947
-------------------------
- ---------------
$10,199,076
$10,386,275
========================================
</TABLE>
-17-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note G - Notes Payable and Long-Term Debt (Continued)
Substantially all assets of the Company secure the notes payable and long-
term debt.
Future Maturities
The maturities of long-term debt for each of the next five years and in the
aggregate are as follows:
Year ending December 31, 2000 $1,439,980
2001 1,464,642
2002 1,504,107
2003 1,628,631
2004 881,429
Thereafter 4,720,267
-----------
$11,639,056
===========
Adjustable Rate Industrial Development Revenue Bonds
The bonds bear interest at an adjustable weekly, one- or five-year or fixed
rate as defined in the agreement which may be tax-exempt or taxable and is
payable monthly (weekly rate) or semi-annually (one, five-year or fixed
rate). The Company may select the method by which interest will be
calculated. The interest on the bonds is calculated using the weekly rate
method. The rate at December 31, 1999, was equal to an annualized rate of
5.6%.
The bonds mature March of 2015, subject to prior redemptions as discussed
below. While the bonds currently bear interest at the weekly rate, each
bond holder has the option to tender all bonds owned for repurchase. Bonds
that bear interest at the one- or five-year rate or that are converted to a
new interest rate method are subject to mandatory tender on the interest
rate adjustment date as defined in the agreement. In the event of
mandatory tender, each holder may elect to retain its bonds upon delivery
of written notice to the trustee. Further, the bonds are subject to
mandatory redemption upon the termination of the letter of credit (see
below).
In the event the bond holders elect to exercise the tender options
described above, the remarketing agent shall use its best efforts to
remarket and sell the bonds.
-18-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note G - Notes Payable and Long-Term Debt (Continued)
Adjustable Rate Industrial Development Revenue Bonds (Continued)
The bonds are secured by a $5,817,268 irrevocable direct-pay letter of
credit.
Note H - Profit Sharing Plan
The Company has a 401(k) profit sharing plan that covers employees who are
at least 21 years of age and have completed one year of service. Employees
may contribute up to the maximum amount allowed by the Internal Revenue
Code. The Company, at its discretion, may make matching contributions
equal to a specified percentage of the employees' contributions. Such
Company match was 50% of the first 6% of employee wages in 1999 and 1998.
Additionally, the Company may make an annual profit sharing contribution to
the plan. The Company contributed $104,126 and $96,521 to the plan for the
years ended December 31, 1999 and 1998, respectively.
Note I - Lease Agreements
The Company leases equipment under various operating and capital leases and
real estate under various operating leases. See Note J for related party
information.
Rental expense under operating leases totaled approximately $2,893,532 and
$3,481,420 for the years ended December 31, 1999 and 1998, respectively.
As of December 31, 1999, future minimum operating lease payments, including
related party leases, are as follows:
Year ending December 31, 2000 $1,508,407
2001 833,254
2002 468,761
2003 417,091
2004 291,973
Thereafter 67,896
------------
$3,587,382
============
-19-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note J - Related Party Transactions
The Company leases facilities in Greenville, Michigan under two separate
leases which expire in June of 2003 and June of 2012 from Drake Properties
L.L.C., an affiliated company. Rent expense for these facilities totaled
$860,700 and $701,001 in 1999 and 1998, respectively. The Company also
leases equipment from Drake Properties L.L.C. Lease payments for equipment
totaled $686,130 and $691,840 for the years ended December 31, 1999 and
1998, respectively.
Sales and expenses received from related parties approximated $1,500 and
$3,000 from Master Precision Products, Inc., a related party, and $105,093
and $344,000 from North American Plastics Corporation, a related party, for
the years ended December 31, 1999 and 1998, respectively. Purchases and
expenses paid to related parties approximated $523,000 and $1,561,000 to
Master Precision Products, Inc. and $48,272 and $533,000 to North American
Plastics Corporation for the years ended December 31, 1999 and 1998,
respectively.
Note K - Laser Etch Division
The Company's Laser Etch Division is being phased out. Operating results
of the Laser Etch Division in 1999 and 1998 approximately were as follows:
1999 1998
-----------------------------
Sales $319,409 $2,013,536
Cost of good sold 934,405 2,571,736
-----------------------------
Gross profit (loss) (614,996) (558,200)
Selling, general and administrative expenses 13,620 202,441
-----------------------------
Divisional contribution (loss) ($628,616) ($760,641)
=============================
The above operating results are included in the accompanying financial
statements.
-20-
NOTES TO FINANCIAL STATEMENTS
DRAKE PRODUCTS CORPORATION
December 31, 1999
Note L - Contingencies
The Company is subject to certain claims and litigation. In the opinion of
management, the outcome of such matters will not have a material effect on
the financial position of the Company.
Note M - Subsequent Event
On February 29, 2000, all the Company's assets were acquired by an
unrelated entity. The Company's operations are now part of the acquiring
entity's operations.
-21-
(B) PRO FORMA FINANCIAL INFORMATION
The accompanying Pro Forma Financial Statements have been prepared to
illustrate the estimated effect of the acquisition of the assets of Drake,
which was accounted for using the purchase method of accounting for
business combinations. The Unaudited Pro Forma Condensed Combined Balance
Sheet at December 31, 1999 gives pro forma effect to the Drake transaction
as if it occurred on December 31, 1999. The Unaudited Pro Forma Condensed
Combined Statement of Income for the year ended December 31, 1999 gives pro
forma effect to the Drake transaction as if it had occurred on January 1,
1999.
The accompanying pro forma financial information is presented for
illustrative purposes only and do not purport to be indicative of the
financial position or results of operations which would actually have been
reported had the acquisition been completed as of the assumed date or been
in effect during the period presented, or which may be reported in the
future. The pro forma adjustments are described in the accompanying notes
and are based upon available information and certain assumptions that the
Company believes are reasonable.
The accompanying Pro Forma Financial Statements should be read in
conjunction with the historical financial statements and related notes
thereto for Clarion, contained in the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1999, and for Drake, included elsewhere
in this report.
-22-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
HISTORICAL
------------------------ PRO FORMA
PRO FORMA
CLARION DRAKE ADJUSTMENTS
COMBINED
----------- ----------- -----------
- -----------
<S> <C> <C> <C>
<C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,560 $ 64 $ 26,000
B $ 5,345
(25,054)
C
(2,225)
D
Accounts receivable, net 9,543 3,096 -
12,639
Inventories 3,752 2,479 -
6,231
Other current assets 706 166 (141)
A 748
17
E
----------- ----------- -----------
- -----------
Total current assets 20,561 5,805 (1,403)
24,963
Property, plant and equipment, net 33,594 14,228 (300)
A 48,839
3,225
D
(1,908)
F
Other assets 6,159 808 (795)
A 32,198
26,026
G
----------- ----------- -----------
- -----------
$ 60,314 $ 20,841 $ 24,845
$ 106,000
=========== =========== ===========
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 87 2,087 (2,087)
A $ 87
Current portion of long-term debt 463 1,440 (1,404)
A 3,567
3,000
B
68
C
Accounts payable 8,395 4,601 (135)
A 12,861
Other current liabilities 5,885 992 -
6,877
----------- ----------- -----------
- -----------
Total current liabilities 14,830 9,120 (558)
23,392
Long-term debt, net 23,204 10,199 (10,142)
A 52,328
23,000
B
5,067
C
1,000
D
Other liabilities 737 - -
737
----------- ----------- -----------
- -----------
Total liabilities 38,771 19,319 18,367
76,457
Temporary shareholders' equity 2,550 - -
2,550
Deferred gain - 191 (191)
A -
Shareholders' equity:
Preferred stock 15,670 - -
15,670
Common stock 19 7 (7)
A 21
2
C
Additional paid-in capital 23,820 28 (28)
A 31,818
7,998
C
Retained earnings (deficit) (20,516) 1,296 (1,296)
A (20,516)
----------- ----------- -----------
- -----------
Total shareholders' equity 18,993 1,331 6,669
26,993
----------- ----------- -----------
- -----------
$ 60,314 $ 20,841 $ 24,845
$ 106,000
=========== =========== ===========
===========
</TABLE>
-23-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(dollars in thousands, except per share data)
<TABLE>
HISTORICAL
------------------------ PRO FORMA
PRO FORMA
CLARION DRAKE ADJUSTMENTS
COMBINED
----------- ----------- -----------
- -----------
<S> <C> <C> <C>
<C> <C>
Net sales $ 28,059 $ 50,901 $ 1,576
J $ 80,536
Cost of sales 27,139 42,613 (1,596)
H 69,683
1,527
J
----------- ----------- -----------
- -----------
Gross profit 920 8,288 1,645
10,853
Selling, general and
administrative expenses 13,685 5,056 651
I 19,304
(113)
J
25
L
----------- ----------- -----------
- -----------
Operating income/(loss) (12,765) 3,232 1,082
(8,451)
Interest expense (1,010) (1,155) (2,106)
K (4,271)
Other expense - net (471) (502) (49)
J (1,022)
----------- ----------- -----------
- -----------
Income/(loss) before income taxes (14,246) 1,575 (1,073)
(13,744)
Provision for income taxes 126 - 113
J 239
----------- ----------- -----------
- -----------
Net income/(loss) $ (14,372) $ 1,575 $ (1,186)
$ (13,983)
=========== =========== ===========
===========
Loss designated to common
shareholders $ (14,943)
$ (14,554)
===========
===========
Loss per share:
Basic and diluted $ (.88)
$ (.77)
===========
===========
Weighted average shares outstanding,
Basic and diluted 16,930,770 2,000,000
18,930,770
=========== ===========
===========
</TABLE>
-24-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. PRO FORMA ADJUSTMENTS
The following is a description of each of the pro forma adjustments:
(A) Eliminate Drake's assets, liabilities and stockholders' equity not
acquired in the transaction.
(B) Record bank debt incurred to finance the Drake acquisition.
(C) Record cash paid along with common stock and promissory notes issued
to acquire the assets used by Drake.
(D) Record cash paid and promissory note issued in a related transaction
to acquire the real property used by Drake.
(E) Record imputed interest on non-interest-bearing promissory note.
(F) Record preliminary adjustment of property, plant and equipment to
estimated fair value.
(G) Record the purchase price in excess of the fair value of the net
assets acquired.
(H) Eliminate rent expense for real property that was previously leased
from a related party along with other contractual obligations with
related parties that were excluded from the net assets acquired.
(I) Record amortization expense for the costs in excess of net assets
acquired.
(J) Reclass amounts in Drake's historical financial statements to conform
to Clarion's historical financial statements.
(K) Record interest expense on debt incurred to finance acquisition.
(L) Record depreciation expense on the increase in plant and equipment to
estimated fair value.
-25-
(C) EXHIBITS
Exhibit Page
Number Description Number
------- -------------------------------------------- ------
23 Consent of Hungerford, Aldrin, Nichols & 27
Carter, P.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CLARION TECHNOLOGIES, INC.
Date: April 30, 2000 /s/ David W. Selvius
-----------------------------------------
David W. Selvius, Chief Financial Officer
-26-
<EX-23>
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Clarion Technologies,
Inc. registration statements on Form S-8 (File No. 333-36356 and File No.
333-36358) of our report dated February 4, 2000, on our audit of the
balance sheets of Drake Products Corporation as of December 31, 1999 and
1998, and the related statements of income, changes in shareholders' equity
(deficit), and cash flows for the years then ended, which report is
included in this Current Report on Form 8-K.
Grand Rapids, Michigan /s/ Hungerford, Aldrin, Nichols & Carter, P.C.
May 10, 2000 -----------------------------------------------
Hungerford, Aldrin, Nichols & Carter, P.C.
-27-
