UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
[ ] Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 1997
Commission file number 1-10869
UNIQUE MOBILITY, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0579156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Corporate Circle Golden, Colorado 80401
(Address of principal executive offices) (zip code)
(303) 278-2002
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 .
The number of shares outstanding (including shares held by affiliates) of the
registrant's common stock, par value $0.01 per share at February 9, 1998, was
14,618,546.
<PAGE>
PART I - FINANCIAL INFORMATION
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, March 31,
Assets 1997 1997
(unaudited)
Current assets:
Cash and cash equivalents $ 3,474,700 5,713,557
Accounts receivable (note 9) 341,306 389,314
Costs and estimated earnings in excess of
billings on uncompleted contracts (note 3) 758,431 191,885
Inventories (note 4) 409,879 425,391
Prepaid expenses 61,286 115,260
Other current assets 301,766 17,675
Total current assets 5,347,368 6,853,082
Property and equipment, at cost:
Land 335,500 335,500
Building 1,438,090 1,438,090
Molds 102,113 102,113
Transportation equipment 301,719 258,675
Machinery and equipment 2,377,760 1,963,146
4,555,182 4,097,524
Less accumulated depreciation (2,025,355) (1,764,288)
Net property and equipment 2,529,827 2,333,236
Investment in Taiwan joint venture (note 5) 2,499,787 2,677,730
Other investments (note 5) 1,000,000 -
Patent and trademark costs, net of accumulated
amortization of $57,048 and $45,551 616,407 502,297
Other assets 850 4,354
$ 11,994,239 12,370,699
(Continued)
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, March 31,
Liabilities and Stockholders' Equity 1997 1997
(unaudited)
Current liabilities:
Accounts payable $ 143,654 169,403
Note payable to Taiwan joint venture - 1,345,285
Other current liabilities (note 6) 657,151 459,223
Current portion of long-term debt 48,419 45,180
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 3) 4,590 659,807
Total current liabilities 853,814 2,678,898
Long-term debt, less current portion 689,703 726,218
Total liabilities 1,543,517 3,405,116
Minority interest in consolidated subsidiary 393,254 390,784
Stockholders' equity (note 7):
Common stock, $.01 par value, 50,000,000 shares
authorized; 14,222,970 and 13,042,964 shares
issued 142,230 130,430
Additional paid-in capital 30,168,853 27,094,170
Accumulated deficit (20,067,345) (18,532,364)
Notes receivable from officers (56,832) (83,646)
Cumulative translation adjustment (129,438) (33,791)
Total stockholders' equity 10,057,468 8,574,799
Commitments (note 10)
$ 11,994,239 12,370,699
See accompanying notes to consolidated financial statements.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
Quarter Ended December 31, Nine Months Ended December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue:
Contract services (note 9) $ 630,348 256,038 2,333,718 1,239,512
Product sales 148,173 45,136 494,594 420,523
778,521 301,174 2,828,312 1,660,035
Operating costs and expenses:
Cost of contract services 619,608 243,211 2,197,878 915,799
Cost of product sales 99,888 55,855 356,625 369,236
Research and development 220,505 453,094 486,643 1,333,582
General and administrative 405,373 268,498 1,093,684 800,152
Depreciation and amortization 66,643 56,098 171,236 164,146
Royalty 9,767 499 13,572 9,527
1,421,784 1,077,255 4,319,638 3,592,442
Operating loss (643,263) (776,081) (1,491,326) (1,932,407)
Other income (expense):
Interest income 50,525 36,620 148,487 89,446
Interest expense (17,071) (42,762) (58,885) (152,863)
Equity in loss of Taiwan joint venture (note 5) (50,863) (18,607) (82,296) (41,889)
Minority interest share of earnings of (19,861) (17,368) (52,980) (52,447)
consolidated subsidiary
Other - 2,004 2,019 6,367
(37,270) (40,113) (43,655) (151,386)
Net loss $ (680,533) (816,194) (1,534,981) (2,083,793)
Net loss per common share $ (.05) (.07) (.11) (.18)
Weighted average number of shares of common
stock outstanding (note 8) 13,829,939 11,751,102 13,667,499 11,354,549
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended December 31,
1997 1996
Cash flows used by operating activities:
Net loss $ (1,534,981) (2,083,793)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 276,068 288,485
Minority interest share of earnings of
consolidated subsidiary 52,980 52,447
Noncash compensation expense for common
stock issued for services 38,020 30,925
Equity in loss of Taiwan joint venture 82,296 41,889
Loss (gain) on sale of property and equipment 23,100 (350)
Change in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts (518,538) (192,416)
Inventories 15,512 (36,001)
Prepaid expenses and other current assets (230,117) 87,045
Accounts payable and other current
liabilities 172,179 (298,988)
Billings in excess of costs and estimated
earnings on uncompleted contracts (655,217) 26,239
Net cash used by operating activities (2,278,698) (2,084,518)
Cash provided by (used by) investing activities:
Acquisition of property and equipment (480,758) (176,963)
Increase in patent and trademark costs (125,607) (43,348)
Investment in Taiwan joint venture (1,345,285) -
Proceeds from sale of assets - 350
Proceeds from sale of certificates of deposit
and other investments - 319,107
Net cash provided by (used by)
investing activities $ (1,951,650) 99,146
(Continued)
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(unaudited)
Nine Months Ended December 31,
1997 1996
Cash provided by financing activities:
Repayment of debt $ (33,276) (68,693)
Repayment of note payable to Taiwan joint
venture participant - (1,403,493)
Repayment of notes receivable from officers 7,407 -
Proceeds from sale of common stock, net - 2,601,759
Issuance of common stock upon exercise of
employee and non-employee options 788,868 106,976
Issuance of common stock under employee stock
purchase plan 23,877 17,574
Issuance of common stock upon exercise of
underwriter warrants 1,255,125 -
Distributions paid to holders of minority
interest (50,510) (50,510)
Net cash provided by financing
activities 1,991,491 1,203,613
Decrease in cash and cash equivalents (2,238,857) (781,759)
Cash and cash equivalents at beginning of period 5,713,557 2,001,028
Cash and cash equivalents at end of period $ 3,474,700 1,219,269
Interest paid in cash during the period $ 92,097 286,260
Non-cash investing and financing transactions:
During the nine months ended December 31, 1997 and 1996 the Company recorded
unrealized foreign currency losses related to its investment in Taiwan UQM
in the amount of $95,647 and $21,030, respectively.
In June, July and August, 1997, warrant holders exercised warrants to acquire
790,000 shares of common stock on a cashless exchange basis resulting in the
issuance of 556,276 shares of common stock based upon a fair market value of
the common stock on the dates of exchange of $6.50, $6.75, $7.13 and $7.25 per
share. See also note 7 to the Consolidated Financial Statements.
In June, 1997 the Company exchanged 200,000 shares of its common stock for
400,000 shares of EV Global Motors Company. The aggregate value of the shares on
the date of exchange was $1,000,000.
(Continued)
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(unaudited)
In accordance with the provisions of the Company's stock option plans, the
Company accepts as payment of the exercise price mature shares of the Company's
common stock held by the option holder for a period of six months prior to the
date of the option exercise. The Company has accepted promissory notes
from officers of the Company in satisfaction of the exercise price of options
exercised. These notes receivable are recorded as a reduction of stockholder's
equity in the Consolidated Financial Statements. In addition, the Company has
accepted mature shares from officers. During the nine months ended December 31,
1997, the Company accepted 2,654 shares of common stock with an aggregate value
of $19,407 as payment against amounts due under promissory notes from officers.
The shares received thereunder were canceled pursuant to Colorado law.
In December 1996, the Company financed an additional investment in the Taiwan
joint venture through the issuance of a note payable in the amount of $1,345,285
(see note 5).
See accompanying notes to consolidated financial statements.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) The accompanying financial statements are unaudited; however, in the
opinion of management, all adjustments which were solely of a normal
recurring nature, necessary to a fair statement of the results for the
interim period, have been made. The results for the interim period are
not necessarily indicative of results to be expected for the fiscal year.
(2) Certain prior year amounts have been reclassified to conform to the current
period financial statement presentation.
(3) The estimated period to complete contracts in process ranged from one to
thirteen months at December 31, 1997, and from one to fifteen months at
March 31, 1997. The Company expects to collect substantially all related
accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts within fourteen months. Contracts in process
consist of the following:
December 31, 1997 March 31, 1997
(unaudited)
Costs incurred on uncompleted
contracts $ 2,250,600 3,158,704
Estimated earnings 389,555 490,407
2,640,155 3,649,111
Less billings to date (1,886,314) (4,117,033)
$ 753,841 (467,922)
Included in the accompanying
balance sheets as follows:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 758,431 191,885
Billings in excess of costs
and estimated earnings on
uncompleted contracts (4,590) (659,807)
$ 753,841 (467,922)
(4) Inventories consist of:
December 31, 1997 March 31, 1997
(unaudited)
Raw materials $ 282,121 283,155
Work in process 33,231 69,460
Finished products 94,527 72,776
$ 409,879 425,391
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(5) In January 1994, the Company, Kwang Yang Motor Co. Ltd. ("KYMCO"), and
Turn Luckily Technology Co. Ltd. ("TLT"), entered into a joint venture
agreement (the "Joint Venture Agreement") providing for the formation,
funding, and operation of Taiwan UQM Electric Co. Ltd., a company organized
under the laws of the Republic of China ("Taiwan UQM"). Taiwan UQM was
incorporated in April 1995.
In 1994, the Company purchased 39 percent of the initial equity capital of
Taiwan UQM and agreed to invest 39 percent of any additional capital calls.
Pursuant to the Joint Venture Agreement, the venturers are required to
invest additional funds in Taiwan UQM, as the board of directors of Taiwan
UQM by unanimous vote determines to be required.
In December 1996, Taiwan UQM made an additional capital call which was
payable in two equal installments due March 1, 1997, and June 1, 1997, with
interest accruing at 10% per annum. The Company's 39% share of the
December 1996 capital call was $1,345,285. Although 50% of the Company's
obligation was payable March 1, 1997, it was not paid until April 17, 1997,
at which time the entire obligation plus accrued interest was paid.
Under the laws of the Republic of China, Taiwanese corporations must offer
employees of the corporation the right to acquire up to 10 percent
ownership in the corporation. In September 1997, pursuant to law, Taiwan
UQM offered to its employees the right to purchase stock in the
corporation. Pursuant to this offer, employees purchased 380,000 shares
of stock for an aggregate purchase price of $NT 3,800,000 ($132,886 U.S.
dollars at September 30, 1997). Subsequent to this transaction, the
ownership of Taiwan UQM is KYMCO 38.25 percent, Unique 38.25 percent, TLT
21.58 percent and Taiwan UQM employees (as a group) 1.92 percent.
The Company's investment in Taiwan UQM is accounted for under the equity
method of accounting. Under this method, the investment originally recorded
at cost, is adjusted to recognize the Company's share of the net earnings
or losses of the joint venture. Income or loss recognition is limited to
the extent of the Company's investment in, advances to and guarantees of
the joint venture. Due to timing considerations, the Financial Position
and Results of Operations for the joint venture are included in the
Company's Consolidated Financial Statements on a three month time lag.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
Summarized financial information for Taiwan UQM is as follows:
Financial Position September 30, 1997 December 31, 1996
(unaudited) (unaudited)
Current assets $ 2,427,114 889,881
Noncurrent assets-
property and equipment 6,735,249 4,542,142
Total assets 9,162,363 5,432,023
Current liabilities 79,169 607,453
Noncurrent liabilities 2,547,804 -
Stockholders' equity 6,535,390 4,824,570
Total liabilities
and equity $ 9,162,363 5,432,023
Nine Months Ended Nine Months Ended
Results of Operations September 30, 1997 September 30, 1996
(unaudited)
Revenue $ 74,664 5,930
Expenses (286,883) (113,338)
Net loss $ (212,219) (107,408)
In June, 1997, the Company entered into a strategic relationship with EV
Global Motors Company (EVG) to develop and market light electric
transportation products. EVG purchased 1,151,925 shares of the Company's
common stock and warrants to acquire, on a cashless exercise basis, an
additional 350,000 shares of common stock. Separately, the Company and EVG
completed a stock purchase transaction pursuant to which the Company
purchased 400,000 shares of EVG common stock in exchange for 200,000 shares
of the Company's common stock. The aggregate value of the shares on the
date of exchange was $1,000,000. The investment in EVG is accounted for
under the cost method of accounting. Under this method, the investment is
carried at acquisition cost and dividends received that are distributed
from net accumulated earnings of the investee are recognized as income.
Dividends received in excess of earnings of the investee are considered
a return of investment and are accounted for as a reduction of the carrying
value of the investment.
In July 1997, EVG exercised warrants to acquire 175,000 shares of common
stock on a cashless basis resulting in the issuance of 116,053 shares of
common stock based upon a fair market value of the common stock on the date
of exchange of $7.13 per share. In August 1997, EVG exercised warrants to
acquire an additional 175,000 shares of common stock on a cashless basis
resulting in the issuance of 117,069 shares of common stock based upon a
fair market value of the common stock on the date of exchange of $7.25 per
share.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(6) Other current liabilities consist of:
December 31, 1997 March 31, 1997
(unaudited)
Accrued interest $ 5,815 39,218
Accrued legal and accounting fees 22,545 37,171
Accrued payroll, consulting,
personal property and real
estate taxes 77,272 67,207
Equipment purchase commitments 353,038 -
Refund of overpayment - 250,005
Loss reserves 95,163 8,120
Other 103,318 57,502
$ 657,151 459,223
(7) The Company reserved 5,104,000 shares of common stock for key employees,
consultants and key suppliers under its Incentive and Non-Qualified Option
Plans of 1992 and 1982. Under these option plans the exercise price of
each option is set at the fair market value of the common stock on the date
of grant and the maximum term of the options is 10 years from the date of
grant. Options granted to employees vest ratably over a three year period.
The maximum number of shares that may be granted to any eligible employee
during the term of the 1982 and 1992 plans is 1,000,000 shares. Options
granted under the Company's plans to employees require the option holder
to abide by certain Company policies which restrict their ability to sell
the underlying common stock.
The following table summarizes activity under the plans during the nine
months ended December 31, 1997:
Shares Under Weighted Average
Option Exercise Price
Outstanding at March 31, 1997 2,451,456 $ 4.66
Granted 40,000 $ 7.38
Exercised (158,632) $ 4.54
Forfeited (9,983) $ 3.59
Outstanding at December 31, 1997 2,322,841 $ 4.72
Exercisable at December 31, 1997 1,661,328 $ 5.13
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
The following table presents summarized information about stock options
outstanding at December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
<C> <C> <C> <C> <C> <C>
$0.50 - 1.00 112,117 1.6 years $0.79 112,117 $0.79
$2.25 - 3.31 623,256 8.6 years $3.08 134,000 $2.25
$3.50 - 5.00 828,586 6.8 years $4.05 691,329 $4.04
$5.38 - 8.13 758,882 6.2 years $7.38 723,882 $7.38
$0.50 - 8.13 2,322,841 6.8 years $4.72 1,661,328 $5.13
</TABLE>
In February 1994, the Company's Board of Directors ratified a Stock Option
Plan for Non-Employee Directors pursuant to which Directors may elect to
receive stock options in lieu of cash compensation for their services as
directors. The Company has reserved 250,000 shares of common stock for
issuance pursuant to the exercise of options under the Plan. The options
vest ratably over a three-year period beginning one year from the date of
grant and are exercisable for 10 years from the date of grant. Option
prices are equal to the fair market value of common shares at the date of
grant.
The following table presents summarized activity under the plan during the
nine months ended December 31, 1997:
Shares Under Weighted Average
Option Exercise Price
Outstanding at March 31, 1997 141,333 $ 5.22
Granted 64,000 $ 7.13
Exercised (16,000) $ 5.38
Outstanding at December 31, 1997 189,333 $ 5.86
Exercisable at December 31, 1997 88,000 $ 5.43
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
The following table presents summarized information about stock options
outstanding for non-employee directors:
<TABLE>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
<C> <C> <C> <C> <C> <C>
$4.38 - 6.00 93,333 7.6 years $4.85 56,000 $4.96
$6.25 - 7.13 96,000 8.1 years $6.84 32,000 $6.25
189,333 7.9 years $5.86 88,000 $5.43
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") defines a fair value method of
accounting for employee stock options and similar equity instruments.
SFAS 123 permits an entity to choose to recognize compensation expense by
adopting the new fair value method of accounting or continue to measure
compensation costs using the intrinsic value methods prescribed by APB 25.
The Company accounts for stock options granted to employees and directors
of the company under the intrinsic value method. Stock options granted to
non-employees under the Company's 1992 Stock Option Plan are accounted for
under the fair value method. Had the Company reported compensation costs
as determined by the fair value method of accounting for option grants to
employees and directors, net loss and net loss per common share would have
been the pro forma amounts indicated in the following table:
Nine Months Five Months
Ended Ended
December 31, 1997 March 31, 1997
Net loss - as reported $ (1,534,981) (1,201,085)
Compensation expense - current
period option grants (40,000) (116,847)
Compensation expense - prior
period option grants (453,641) (145,042)
Net loss - pro forma $ (2,028,622) (1,462,974)
Net loss per common share -
as reported $ (.11) (.12)
Net loss per common share -
pro forma $ (.15) (.14)
The fair value of stock options granted was calculated using the Black
Scholes option pricing model based on the following weighted average
assumptions:
Nine Months Five Months
Ended Ended
December 31, 1997 March 31, 1997
Expected volatility 48.9% 47.6%
Expected dividend yield 0.0% 0.0%
Risk free interest rate 6.2% 6.4%
Expected life of option granted 6 years 6 years
Fair value of options granted
as computed under the Black
Scholes option pricing models $3.75 per share $1.79 per share
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
Pro forma net loss reflects only the fair value compensation expense of
options granted since November 1, 1995. Therefore, the full impact of
calculating compensation cost for stock options under SFAS 123 is not
reflected in the pro forma net loss amounts presented above because
compensation cost is reflected over the option vesting periods (ranging
from 1 to 3 years) and compensation cost for options granted prior to
November 1, 1995, is not considered. Pro forma compensation cost by
fiscal year, assuming no additional grants by the Company to employees and
directors, is as follows:
Fiscal Year Pro Forma
Ended Compensation
March 31 Expense
1999 $ 532,412
2000 $ 243,586
2001 $ 20,000
In connection with the original issuance of certain subordinated
convertible term notes to Advent and Techno, the Company granted Advent
and Techno warrants to acquire 790,000 shares of the Company's common
stock at the lower of $2.40 per share, being the market value of the
Company's stock at the time of issuance or the market price of the common
stock averaged over the 30 trading days immediately preceding the date
of exercise. The warrants allowed for a cashless exercise of the warrants
into common shares based on the spread between the market price of the
common stock on the date of exercise and the $2.40 exercise price and
expired in August 1997. On June 19, 1997, warrants to acquire 395,000
shares of common stock were exercised on a cashless basis resulting in the
issuance of 249,154 shares of common stock. On July 31, 1997, warrants to
acquire 45,000 shares of common stock were exercised on a cashless basis
resulting in the issuance of 29,000 shares of common stock. On August 5,
1997, warrants to acquire 175,000 shares of common stock were exercised on
a cashless basis resulting in the issuance of 116,053 shares of common
stock. The remaining warrants to acquire 175,000 shares of the Company's
common stock were exercised on a cashless basis on August 15, 1997,
resulting in the issuance of 117,069 shares of common stock.
The Company has reserved 300,000 shares of common stock for issuance
pursuant to a warrant agreement with an investment banking company. The
warrants are exercisable at a price of $6.00 per share and expire in
January, 1999. The warrants contain transfer restrictions and provisions
for the adjustment of the exercise price and the number and type of
securities issuable upon exercise based on the occurrence of certain
events. All of these warrants remain outstanding at December 31, 1997.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
In connection with the 1995 common stock issuance, the placement agent was
issued warrants expiring July, 1998, to acquire 150,000 shares of the
Company's common stock at $5.75 per share. During September and December
1997, warrants to acquire 100,000 shares of the Company's common stock were
exercised, resulting in cash proceeds to the Company of $575,000. Warrants
to acquire 50,000 shares of the Company's common stock remain outstanding
as of December 31, 1997.
In connection with the 1996 private placements, the placement agents were
issued warrants to acquire 50,000 shares of the Company's common stock at
$4.75 per share in February, 1996, 38,100 shares of the Company's common
stock at $5.00 per share in May, 1996, and 50,000 shares at $4.25 per share
in September, 1996. The warrants expire three years from the date of
issuance. During October 1997, warrants to acquire 5,000 shares of the
Company's common stock at $4.25 per share were exercised resulting in
cash proceeds to the Company of $21,250. Warrants to acquire 50,000 shares
at $4.75 per share, 38,100 shares at $5.00 per share and 45,000 shares at
$4.25 per share remain outstanding as of December 31, 1997.
In connection with the 1997 private placement, the placement agents were
issued warrants in February 1997, to acquire 225,625 shares of the
Company's stock at an exercise price of $3.50 per share and warrants to
acquire 50,000 shares at an exercise price of $4.20 per share. The warrants
expire three years from the date of issuance. During October and December
1997, warrants to acquire 128,250 shares of the Company's common stock at
$3.50 per share were exercised, resulting in cash proceeds to the Company
of $448,875. During December 1997, warrants to acquire 50,000 shares of
the Company's common stock at $4.20 per share were exercised, resulting in
cash proceeds to the Company of $210,000. Warrants to acquire 97,375
shares of the Company's common stock at $3.50 per share remain outstanding
as of December 31, 1997.
(8) Net loss per common share amounts are based on the weighted average number
of common shares outstanding during the quarter and nine months ended
December 31, 1997 and 1996. Outstanding common stock options and warrants
were not included in the computation because the effect of such inclusion
would be antidilutive.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(9) The Company has historically derived significant revenue from contract
services from a few key customers. The customers from which this revenue
has been derived and the percentage of this revenue as a percentage of
total contract services revenue is summarized as follows:
Quarter Ended Nine Months Ended
December 31, December 31,
Customers: 1997 1996 1997 1996
EV Global Motor Company $ 79,939 - $ 171,157 -
Defense Advance Research
Project Agency 19,551 76,255 169,606 76,255
Deere & Company 113,116 - 320,310 -
Houston Metropolitan
Transit Authority 73,027 - 319,905 -
Kia Motors Corporation 194,985 - 707,771 -
Koyo Seiko Company 2,930 - 173,130 -
Asia Pacific
Technology Co., Ltd. - - 182,651 -
Ford Motor Company - 27,402 - 224,960
Hyundai Motor Company - - - 135,950
Kwang Yang Motor Co., Ltd. - 17,598 - 168,045
Pentastar Electronics, Inc. - - - 194,600
Naval Sea Systems Command 89,512 - 89,512
$ 483,548 210,767 2,044,530 889,322
Percentage of contract
services revenue 77% 82% 88% 72%
These customers, in total, also represented 68% and 51% of total accounts
receivable at December 31, 1997, and 1996, respectively.
Contract services revenue derived from contracts with agencies of the U.S.
Government and from sub-contracts with U.S. Government prime contractors,
certain portions of which are included in revenue from other key customers
above, totaled $108,560 and $171,177 for the quarter ended December 31,
1997 and 1996, respectively, and $522,501 and $639,894 for the nine months
ended December 31, 1997, and 1996, respectively.
(10) The Company has entered into employment agreements with three of its
officers which expire December 31, 1999. The aggregate annual future
compensation under these agreements through the expiration date is
$855,666.
(11) In January 1998, the Company purchased all of the outstanding common stock
of Aerocom Industries, Inc., a privately held, Boulder, Colorado, based
precision gear manufacturer. The acquisition price was $3,377,020 plus the
assumption of $1,246,116 of existing Aerocom debt and included $1.2 million
of goodwill. The acquisition price consisted of a cash payment of $337,702
and the issuance of 371,555 shares of Unique's common stock. Subsequent to
the transaction, the Company invested an additional $500,000 of cash in
Aerocom for application to equipment and facility purchases and for general
working capital requirements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this report and
any documents incorporated herein by reference, as well as, in the Company's
Registration Statement on Form S-3 (file no. 44597). These forward-looking
statements represent the Company's judgment as of the date of this Report. The
Company disclaims, however, any intent or obligation to update these
forward-looking statements.
Financial Condition
The Company's financial condition remained satisfactory throughout the quarter
and nine months ended December 31, 1997, despite increased cash requirements for
operating and investing activities during the quarter and year-to-date period.
The Company's cash requirements were financed principally through the exercise
of stock options by employees and consultants and the exercise of underwriter
warrants. Cash and cash equivalents declined $30,515 during the quarter and
$2,238,857 since the beginning of the fiscal year to $3,474,700 at December 31,
1997 For the nine months ended December 31, 1997, cash applied to operating
activities was $2,278,698 and cash used by investing activities amounted to
$1,951,650, of which $1,345,285 represented the Company's additional investment
in Taiwan UQM. Working capital (the excess of current assets over current
liabilities) rose from $4,174,184 at the beginning of the fiscal year to
$4,493,554 at December 31, 1997.
Accounts receivable declined to $341,306 at December 31, 1997, from $389,314 at
March 31, 1997, reflecting improved collections. The accounts receivable
balance at December 31, 1997, represented approximately 40 days revenue compared
to 69 days revenue at March 31, 1997.
Costs and estimated earnings on uncompleted contracts rose $566,546 to $758,431
at December 31, 1998, due to milestone billing arrangements on certain
commercial and government projects. Estimated earnings on contracts in process
were $389,555 at December 31, 1997, on total contracts in process of $2,640,155,
representing estimated average margins on contracts in process of 14.8 percent
compared to estimated earnings on contracts in process of $490,407 at March 31,
1997, on total contracts in process of $3,649,111, representing estimated
average margins on contracts in process of 13.4 percent. The higher estimated
margins on contracts in process result from higher margins on a government
contract which represents approximately 31 percent of the contract work in
process.
Finished products inventories rose $21,751 and work in process inventories
declined $36,229 resulting in an overall decline in inventory levels from
$425,391 at the beginning of the fiscal year to $409,879 at December 31, 1997.
The changes in finished goods and work in process inventories are attributable
to the assembly of component parts into finished products.
Prepaid expenses declined $53,974 to $61,286 at December 31, 1997, primarily
reflecting the periodic expensing of prepaid insurance premium costs on the
Company's commercial insurance coverages.
<PAGE>
Other current assets rose $284,091 to $301,766 at December 31, 1997, due
primarily to deposits paid to equipment and tooling suppliers by Unique Power
Products, Inc. under purchase contracts.
During the third quarter and nine months ended December 31, 1997, the Company
invested $283,294 and $480,758, respectively for the acquisition of property and
equipment and $11,853 and $125,607, respectively, for the prosecution of its
trademark and patent applications throughout the world. Investments in property
and equipment and prosecution of trademark and patent applications were
$176,963 and $43,348, respectively, for the comparable nine-month period last
year. The increase in expenditures for property and equipment is attributable
to the construction of a new high power dynamometer test laboratory at the
Company's Golden, Colorado, facility and the acquisition of manufacturing
tooling by Unique Power Products. The increase in patent and trademark
expenditures is primarily attributable to the prosecution of the mark
"PowerPhase" and the Company's patent applications on its proprietary "phase
advance" technology in the United States and numerous other countries throughout
the world.
Investment in Taiwan joint venture declined to $2,499,787 at December 31, 1997,
reflecting the Company's recording of its proportionate share of the operating
losses of Taiwan UQM and translation adjustments associated with the devaluation
of the NT dollar against the U.S. dollar. In September 1997, Taiwan UQM issued
380,000 shares of its stock to employees for $132,886 in cash, representing 1.92
percent of the outstanding shares. The effect of this transaction was to reduce
Unique's ownership percentage from 39 percent to 38.25 percent. See also Note
5 to the Consolidated Financial Statements above.
Other investments rose to $1,000,000 at December 31, 1997, due to the Company's
acquisition of 400,000 shares of the common stock of EV Global Motors Company
(EVG) during the second quarter. EVG is controlled by Mr. Lee Iacocca, who
serves as Chairman and Chief Executive Officer of EVG and is a director of
Unique. Mr. Ray Geddes, Unique's Chairman and Chief Executive Officer, is a
director of EVG. At December 31, 1997, EVG owned 1,585,047 shares of Unique
common stock. For the quarter and nine months ended December 31, 1997, contract
services revenue on work performed by the Company for EVG amounted to $79,939
and $171,157, respectively. Contract services performed by the Company for EVG
are on comparable terms and conditions to those offered by the Company to its
other customers.
Accounts payable declined to $143,654 at December 31, 1997, compared to $169,403
at March 31, 1997. The decrease is attributable to accelerated payments to
trade suppliers during the third quarter.
Note payable to Taiwan Joint Venture declined $1,345,285 reflecting the
Company's funding of its capital call obligation to Taiwan UQM during the first
quarter of fiscal 1998. See also Note 5 to the Consolidated Financial
Statements above.
Other current liabilities rose $197,928 to $657,151 at December 31, 1997. The
increase is primarily attributable to equipment purchase commitments and
increased levels of loss reserves on certain commercial contracts.
Billings in excess of costs and estimated earnings on uncompleted contracts
declined $655,217 to $4,590 reflecting substantial completion of work on certain
sponsored development contracts against advance payment deposited by the
customer with the Company.
Long-term debt declined $36,515 since the beginning of the fiscal year due to
scheduled principal payments on the mortgage debt associated with the Company's
facility.
<PAGE>
Common stock and additional paid-in capital increased to $142,230 and
$30,168,853 at December 31, 1997, respectively, compared to $130,430 and
$27,094,170 at March 31, 1997. The increases were primarily due to the issuance
of common stock upon the exercise of options by employees and consultants of the
Company ($788,868), the issuance of common stock associated with the Company's
investment in EVG ($1,000,000) and the issuance of common stock upon the
exercise of underwriter warrants ($1,255,125).
Cumulative translation adjustments rose from $33,791 at the beginning of the
fiscal year to $129,438 at December 31, 1997, reflecting unrealized foreign
currency losses on the Company's investment in Taiwan UQM.
Results of Operations
Operations for the quarter ended December 31, 1997, resulted in a net loss of
$680,533 or $0.05 per share compared to a net loss of $816,194 or $0.07 per
share for the comparable quarter last year. Operations for the nine months
ended December 31, 1997, resulted in a net loss of $1,534,981 or $0.11 per
share compared to a net loss of $2,083,793 or $0.18 per share for the comparable
period last year.
Revenue derived from contract services was $630,348 for the fiscal 1998 third
quarter versus $256,038 for the comparable prior year quarter. Revenue derived
from contract services for the nine months ended December 31, 1997, was
$2,333,718 compared to $1,239,512 for the comparable period last year. The
increases in contract services revenue are attributable to increased demand for
automotive systems projects.
Product sales rose to $148,173 during the third quarter of fiscal 1998 from
$45,136 for the comparable prior year quarter. The increase is primarily
attributable to increased sales of the Company's PowerPhase and 75 kW systems.
Gross profit margins for the third quarter of fiscal 1998 improved to 7.6
percent compared to .7 percent for the comparable quarter last year. The
increase in margins is attributable to improved product sales margin. Gross
profit margins from contract services declined to 1.7 and 5.8 percent for the
third quarter and nine months ended December 31, 1997, compared to 5.0 percent
and 26.1 percent, respectively. The decrease in contract services margins is
generally attributable to cost overruns on several automotive systems programs.
Gross profit margins on product sales increased to 32.6 and 27.9 percent during
the third quarter and nine months ended December 31, 1997, compared to negative
23.7 percent and 12.2 percent, respectively. The increase in product sales
margins is attributable to improved margins on the Company's "PowerPhase" system
and 75 kW products.
Research and development expenditures during the third quarter of fiscal 1998
declined $232,589 to $220,505 compared to $453,094 for the comparable quarter
last year. The decrease is attributable to the deployment of technical
personnel on sponsored development activities and reduced levels of internally
funded production engineering activities on the Invacare wheelchair drive
system. For the nine months ended December 31, 1997 research and development
expenditures declined $846,939 to $486,643. The decrease is attributable
to reduced levels of production engineering activities on the Invacare
wheelchair drive system and lower levels of work performed on "cost share" type
sponsored development programs.
General and administrative expenses for the quarter ended December 31, 1997 rose
to $405,373 from the prior year level of $268,498 due to higher levels of
business development, manufacturing consulting and accounting expenditures.
General and administrative expenses for the nine months ended December 31, 1997
increased to $1,093,684 from $800,152 for the comparable period last year. The
increase is primarily due to higher liability insurance, business development
and accounting expenses.
<PAGE>
Interest income rose to $50,525 for the third quarter and $148,487 for the nine
months ended December 31, 1997, compared to $36,620 and $89,446 for the
comparable prior year periods, respectively. The increases are attributable to
higher levels of invested cash.
Interest expense declined to $17,071 for the third quarter and $58,885 for the
year-to-date period compared to $42,762 and $152,863 for the comparable periods
last year. The decreases are due to elimination of interest costs on the
Company's capital call obligations to Taiwan UQM.
Equity in loss of Taiwan joint venture rose to $50,863 and $82,296 for the
quarter and nine months ended December 31, 1997, respectively, compared to
$18,607 and $41,889 during the comparable periods last year. The increase is
attributable to expanded staffing and operations at Taiwan UQM preparatory to
the launch of manufacturing operations.
Liquidity and Capital Resources
The Company's cash balances and liquidity during the quarter and nine months
ended December 31,, 1997, were adequate to meet its operating needs. Net cash
used by operating activities was $2,278,698 for the nine months ended December
31, 1997 compared to net cash used by operations for the comparable period last
year of $2,084,518. The increase is primarily attributable to operating losses,
the performance of sponsored development activities against cash prepayments
from customers on deposit with the company and increased levels of accounts
receivable and costs and estimated earnings in excess of billings on
uncompleted contracts. Cash requirements during the period were funded
primarily from cash on hand and cash proceeds from the issuance of common stock
upon the exercise of stock options and warrants.
In January 1996, Invacare purchased 129,032 shares of common stock at a price of
$3.88 per share. Net proceeds to the Company were $500,000, all of which were
applied to fund the development of a wheelchair motor for Invacare. Contingent
upon achieving development milestones, Invacare further agreed to purchase
additional shares at the then market price, the proceeds of which would be used,
in part, to fund the Company's anticipated capital investment in motor
manufacturing tools and equipment. In August 1997, the Company completed
agreements with Invacare Corporation to manufacture motors for its wheelchairs.
Coincident to these agreements Invacare will purchase directly certain assets
required to launch production, such as tooling and dedicated manufacturing
equipment in lieu of completing the second investment originally envisioned in
the stock purchase agreement. Accordingly, the Company does not anticipate any
further sales of its equity securities to Invacare.
In fiscal 1994, the Company, KYMCO and TLT entered into a joint venture
agreement which provided for the formation, capitalization and operation of
Taiwan UQM, a company organized under the laws of the Republic of China. The
Company purchased 39 percent of the initial stock of Taiwan UQM for NT$1,170,000
(US $45,082 on the transaction date). Pursuant to the joint venture agreement,
the venture partners are obligated to meet future capital calls as the Board of
Directors of Taiwan UQM, by unanimous vote, determines. During fiscal 1995,
the Company was unable to fund its capital call obligations. In June 1995, the
Company, KYMCO and TLT entered into a waiver and option agreement pursuant to
which KYMCO agreed to purchase those shares of Taiwan UQM underlying the
Company's capital call obligations. The purchase price of such shares was
NT$37,830,000 (U.S.$1,403,493 at October 31, 1995). The Company was granted
the option to repurchase the shares for the original capital call amount plus
10 percent interest and associated transfer taxes. In November 1996, the
Company exercised its option and subsequently repurchased the shares from KYMCO,
thus maintaining the Company's ownership position at 39 percent of the then
outstanding shares of Taiwan UQM. The repurchase price plus interest and taxes
totaled NT$44,175,505 (US$1,612,539 on the transaction date).
<PAGE>
In November 1996, the Board of Directors of Taiwan UQM announced an additional
capital call to provide cash to fund facility construction and the launch of
electric component production. The Company's capital call obligation pursuant
thereto was NT$37,050,000 (US$1,348,300 as of December 1, 1996), plus interest
at the rate of 10 percent per annum on the outstanding amount from December 1,
1996, through the due date. The obligation was due and payable in two equal
installments on March 1, 1997 and June 1, 1997. During the first quarter of
fiscal 1998, the Company elected to fund the entire capital call obligation in
one payment and remitted approximately $1,384,000 including accrued interest
of approximately $40,000 in complete satisfaction of its capital call
obligation. In September 1997, the employees of Taiwan UQM purchased directly
from Taiwan UQM 380,000 shares of stock for $132,886 in cash. As a result of
this transaction, the ownership percentages of KYMCO, the Company and TLT were
reduced to 38.25, 38.25, and 21.58, respectively.
Over the next several months, the Company expects to invest substantially
greater amounts of capital to launch manufacturing operations for Invacare.
Anticipated capital expenditures for working capital, production machinery,
equipment, computer hardware and software are expected to exceed $1.0 million.
In January 1998, the Company purchased all of the outstanding common stock of
Aerocom Industries, Inc., a privately held Boulder, Colorado-based precision
gear manufacturer. The acquisition price was $3,377,020 plus the assumption of
$1,246,116 of existing Aerocom debt. The acquisition price consisted of a cash
payment of $337,702 from the Company's existing cash balances and the issuance
of 371,555 shares of Unique's common stock. Subsequent to the transaction, the
Company invested an additional $500,000 in Aerocom, also from existing cash
balances, for application to equipment and facility purchases and for general
working capital requirements. Also in January, Aerocom acquired two acres of
industrial real estate for $108,900 in cash and completed an option agreement
for the purchase of an adjacent two-acre parcel. The option agreement provides
that Aerocom may purchase the adjacent two-acre parcel at any time from July
1998 through November 1999 for a purchase price of $72,600. Aerocom expects to
begin construction of a 25,000 square foot manufacturing plant on the site
during the fourth quarter at an estimated construction cost of $850,000.
Aerocom is currently negotiating with commercial banks for construction
financing, equipment financing and mortgage financing of the facility. Aerocom
further expects to invest approximately $1.5 million in manufacturing equipment
during fiscal 1999. These capital expenditures are expected to be financed from
the existing cash resources of Aerocom, term borrowings and lines of credit from
a commercial bank. Aerocom does not currently have a lending commitment from
a commercial bank and there can be no assurance that such a lending commitment
will be completed.
The Company believes it has cash resources, in addition to those required to
launch volume manufacturing operations, sufficient to fund non-manufacturing
operations through at least June 30, 1998.
In addition, the Company hopes to expand its manufacturing capability and
product distribution channels through the acquisition of other companies with
synergistic operations. The Company does not currently possess the cash
necessary to execute its acquisition strategy. The Company hopes to secure the
cash and financing required to fund potential acquisitions through the issuance
of debt or equity instruments or a combination thereof, through term borrowings
or lines-of-credit from banks, or a combination thereof, or through the issuance
of equity securities in public or private offerings for cash, should such
financing transactions become available on terms acceptable to the Company.
There can, however, be no assurance that the Company can arrange financing
sufficient to execute its acquisition strategy.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Report regarding the signing of a Letter of Intent to acquire
Aerocom Industries, Inc. dated December 2, 1997.
Report regarding the completion of the acquisition of Aerocom
Industries, Inc. dated January 16, 1998.
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 thereunto duly authorized.
Unique Mobility, Inc.
Registrant
Date: February 13, 1998 By:/s/ Donald A. French
Donald A. French
Treasurer and Controller
(Principal Financial and
Accounting Officer)
