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 June 30, 1998
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 August 12, 1998, was
15,913,044.
<PAGE>
PART I - FINANCIAL INFORMATION
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, March 31,
Assets 1998 1998
(unaudited)
Current assets:
Cash and cash equivalents $ 2,659,991 7,005,533
Accounts receivable (note 10) 2,551,115 1,105,466
Costs and estimated earnings in excess
of billings on uncompleted contracts
(note 3) 407,296 454,738
Inventories (note 4) 1,604,756 253,917
Prepaid expenses 174,718 158,764
Other 117,492 18,361
Total current assets 7,515,368 8,996,779
Property and equipment, at cost (notes 7 and 13):
Land 444,480 444,480
Building 2,558,619 1,511,635
Molds 102,113 102,113
Transportation equipment 231,920 209,920
Machinery and equipment 7,503,007 5,605,326
10,840,139 7,873,474
Less accumulated depreciation (2,477,968) (2,186,805)
Net property and equipment 8,362,171 5,686,669
Investment in Taiwan joint venture (note 5) 1,851,252 2,044,393
Investment in EV Global 1,000,000 1,000,000
Patent and trademark costs, net of
accumulated amortization of $68,589
and $63,542 583,768 575,985
Goodwill, net of accumulated amortization
of $76,570 and $16,215 (note 13) 6,517,433 1,280,872
Other assets 25,402 853
$ 25,855,394 19,585,551
(Continued)
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
June 30, March 31,
Liabilities and Stockholders' Equity 1998 1998
(unaudited)
Current liabilities:
Accounts payable $ 1,219,837 389,791
Other current liabilities (note 6) 1,074,118 876,357
Current income taxes payable 155,207 -
Revolving line-of-credit 1,213,861 -
Current portion of long-term
debt (note 7) 482,976 163,554
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 3) 16,690 450
Total current liabilities 4,162,689 1,430,152
Long-term debt, less current portion
(note 7) 2,067,211 1,029,924
Total liabilities 6,229,900 2,460,076
Minority interest in consolidated
subsidiary 396,118 394,343
Stockholders' equity (notes 9 and 13):
Common stock, $.01 par value, 50,000,000
shares authorized; 15,880,709 and
15,394,621 shares issued 158,807 153,946
Additional paid-in capital 42,383,351 38,852,446
Accumulated deficit (22,740,976) (21,798,724)
Notes receivable from officers (52,604) (56,056)
Accumulated comprehensive loss (note 14) (519,202) (420,480)
Total stockholders' equity 19,229,376 16,731,132
Commitments (notes 5, 9, 11 and 13)
$ 25,855,394 19,585,551
See accompanying notes to consolidated financial statements.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Quarter Ended June 30,
1998 1997
Revenue (notes 10 and 12):
Contract services $ 299,334 1,029,611
Product sales 2,553,447 227,551
2,852,781 1,257,162
Operating costs and expenses:
Cost of contract services 260,791 869,991
Cost of product sales 2,176,758 158,381
Research and development 277,448 98,239
General and administrative 805,287 322,797
Depreciation and amortization 161,397 51,724
3,681,681 1,501,132
Operating loss (828,900) (243,970)
Other income (expense):
Interest income 53,303 51,673
Interest expense (53,622) (24,079)
Equity in loss of Taiwan joint venture (note 5) (94,420) (14,527)
Minority interest share of earnings of
consolidated subsidiary (18,613) (16,447)
Other - 2,002
(113,352) (1,378)
Net loss $ (942,252) (245,348)
Net loss per common share basic and diluted $ (.06) (.02)
Weighted average number of shares of common
stock outstanding (note 8) 15,743,062 13,084,151
See accompanying notes to consolidated financial statements.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Quarter Ended June 30,
1998 1997
Cash flows used by operating activities:
Net loss $ (942,252) (245,348)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 375,892 90,902
Minority interest share of earnings of
consolidated subsidiary 18,613 16,447
Noncash compensation expense for common stock
issued for services 9,500 -
Equity in loss of Taiwan joint venture 94,420 14,527
Change in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts (1,931) (272,574)
Inventories (261,300) 32,504
Prepaid expenses and other current assets 22,289 30,143
Accounts payable and other current liabilities (240,675) (149,888)
Billings in excess of costs and estimated
earnings on uncompleted contracts 16,240 (557,583)
Net cash used by operating activities (909,206) (1,040,870)
Cash used by investing activities:
Cash paid for acquisition of subsidiary, net
of cash acquired (3,848,640) -
Acquisition of property and equipment
(1,686,542) (51,092)
Increase in patent and trademark costs (12,830) (59,653)
Investment in Taiwan joint venture - (1,345,285)
Net cash used by investing activities $(5,548,012) (1,456,030)
(Continued)
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(unaudited)
Quarter Ended June 30,
1998 1997
Cash flows provided by financing activities:
Proceeds from borrowings $ 1,449,677 -
Repayment of debt (528,565) (10,773)
Net repayment of revolving line-of-credit (75,000) -
Proceeds from sale of common stock, net 956,329 -
Issuance of common stock upon exercise of
employee options 132,891 30,259
Issuance of common stock under employee stock
purchase plan 2,682 11,212
Issuance of common stock upon exercise of warrants 190,500 -
Distributions paid to holders of minority interest (16,838) (16,837)
Net cash provided by financing
activities 2,111,676 13,861
Decrease in cash and cash equivalents (4,345,542)(2,483,039)
Cash and cash equivalents at beginning of period 7,005,533 5,713,557
Cash and cash equivalents at end of period $ 2,659,991 3,230,518
Interest paid in cash during the period $ 43,885 57,336
Non-cash investing and financing transactions:
Cumulative translation adjustments of $98,722 and $25,661 were recorded for the
quarters ended June 30, 1998 and 1997, respectively.
In April 1998, the Company purchased all of the outstanding stock of Franklin
Manufacturing Company for $4,000,000 cash and 286,282 shares of the Company's
common stock (see note 13).
In June 1997, the Company entered into a stock purchase agreement with EV Global
Motors Company (EVG) whereby the Company exchanged 200,000 shares of its common
stock for 400,000 shares of EVG.
In June 1997, warrant holders exercised warrants to acquire 395,000 shares of
common stock on a cashless exchange basis resulting in the issuance of 249,154
shares of common stock based upon a fair market value of the common stock on the
date of exchange of $6.50 per share.
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 financial statement amounts have been reclassified for comparative
purposes.
(3) The estimated period to complete contracts in process ranged from one to
eight months at June 30, 1998, and from one to twelve months at June 30,
1997. The Company expects to collect substantially all related accounts
receivable and costs and estimated earnings in excess of billings on
uncompleted contracts within one year. Contracts in process consist of the
following:
June 30, 1998 March 31, 1998
(unaudited)
Costs incurred on uncompleted
contracts $ 1,398,452 1,724,552
Estimated earnings 594,136 515,782
1,992,588 2,240,334
Less billings to date (1,601,982) (1,786,046)
$ 390,606 454,288
Included in the accompanying
balance sheets as follows:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 407,296 454,738
Billings in excess of costs
and estimated earnings on
uncompleted contracts (16,690) (450)
$ 390,606 454,288
(4) Inventories consist of:
June 30, 1998 March 31, 1998
(unaudited)
Raw materials $ 1,189,926 76,377
Work in process 368,462 159,825
Finished products 46,368 17,715
$ 1,604,756 253,917
(5) Investment in Taiwan Joint Venture
On January 29, 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 Company, Ltd., a company
organized under the laws of the Republic of China ("Taiwan UQM"). Taiwan
UQM was incorporated in April 1995.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The Company owns a 38 1/4% interest in Taiwan UQM and its investment is
accounted for under the equity method.
Summarized unaudited financial information for Taiwan UQM is as follows:
June 30, December 31,
Financial Position 1998 1997
Current assets $ 380,862 341,178
Noncurrent assets-land, property
and equipment 6,248,840 6,474,301
Total assets 6,629,702 6,815,479
Current liabilities 1,789,828 1,470,684
Noncurrent liabilities - -
Stockholders' equity 4,839,874 5,344,795
Total liabilities and equity $ 6,629,702 6,815,479
Quarter Quarter
Ended Ended
June 30, June 30,
Results of Operations 1998 1997
Revenue $ - -
Expenses (246,847) (37,249)
Net loss $(246,847) (37,249)
(6) Other Current Liabilities
Other current liabilities consists of:
June 30, March 31,
1998 1998
(unaudited)
Accrued interest $ 13,763 5,692
Accrued loss reserves - 22,678
Accrued legal and accounting fees 35,837 55,376
Accrued payroll, consulting, personal
property taxes and real estate taxes 202,100 158,604
Accrued material purchases 62,770 82,357
Accrued machinery and equipment purchases 575,903 402,834
Unearned revenue - 65,037
Other 183,745 83,779
$ 1,074,118 876,357
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(7) Long-term Debt
Long-term debt consists of:
June 30, March 31,
1998 1998
Note payable to bank, payable in monthly
installments with interest at 9.1%; matures
October 2007; secured by land and building $ 714,369 726,202
Note payable to bank, payable in monthly
installments with interest at 10.05%;
matures November 2001; secured with equipment 450,252 467,276
Note payable to bank, payable in monthly
installments with interest at 8.5%; matures
April 2005; secured by equipment 445,007 -
Note payable to bank, payable in monthly
installments with interest at 8.5%; matures
May 2005; secured by equipment 134,778 -
Note payable to bank, payable in monthly
installments with interest at 8.5%; matures
June 2000; secured by accounts receivable,
inventory and equipment 777,998 -
Capital lease obligation 27,783 -
Total long-term debt 2,550,187 1,193,478
Less current installments 482,976 163,554
Long-term debt, less current portion $2,067,211 1,029,924
(8) Net loss per common share amounts are based on the weighted average number
of common shares outstanding during the first quarter of each fiscal year
presented. Outstanding common stock options and warrants were not included
in the computation because the effect of such inclusion would be
antidilutive.
(9) Common Stock Options and Warrants
Incentive and Non-Qualified Option Plans
The Company has 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 options that may be granted to any
eligible employee during the term of the 1982 and 1992 plans is 1,000,000
options. 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.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The following table summarizes activity under the plans:
Shares Under Weighted-Average
Option Exercise Price
Outstanding at October 31, 1995 1,852,232 $ 5.12
Granted 590,000 4.15
Exercised (100,542) 1.53
Forfeited (315,978) 5.63
Outstanding at October 31, 1996 2,025,712 4.94
Granted 500,000 3.31
Exercised (40,105) 1.57
Expired (30,000) 5.00
Forfeited (4,151) 3.31
Outstanding at March 31,1997 2,451,456 4.66
Granted 601,000 7.88
Exercised (210,332) 4.75
Forfeited (13,772) 4.80
Outstanding at March 31, 1998 2,828,352 5.34
Granted 150,000 7.94
Exercised (38,174) 3.39
Forfeited (26,983) 7.91
Outstanding at June 30, 1998 2,913,195 $ 5.48
Exercisable at June 30, 1998 1,748,212 $ 5.00
The following table presents summarized information about stock options
outstanding at June 30, 1998:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 6/30/98 Contractual Life Price at 6/30/98 Price
$0.50 - 1.00 105,117 1.6 years $0.78 105,117 $0.78
$2.25 - 3.31 616,911 7.8 years $3.08 294,970 $2.83
$3.50 - 5.00 780,257 6.4 years $4.05 642,443 $4.03
$5.38 - 8.31 1,410,910 7.6 years $7.66 705,682 $7.41
$0.50 - 8.31 2,913,195 7.4 years $5.48 1,748,212 $5.00
Non-Employee Director Stock Option Plan
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.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The following table presents summarized activity under the plan:
Weighted
Shares Under Average
Option Exercise Price
Outstanding at October 31, 1995 109,333 $ 5.48
Granted 32,000 4.38
Outstanding at October 31, 1996,
March 31, 1997, and March 31, 1998 141,333 5.23
Granted 64,000 7.13
Exercised (16,000) 5.38
Outstanding at June 30, 1998 189,333 $ 5.86
Exercisable at June 30, 1998 98,666 $ 5.31
The following table presents summarized information about stock options
outstanding for non-employee directors:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
$4.38 - 6.00 93,333 7.2 years $4.85 66,666 $4.86
$6.25 - 7.13 96,000 8.2 years $6.84 32,000 $6.25
189,333 7.8 years $5.86 98,666 $5.31
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 APB25. 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:
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
Quarter Quarter
Ended Ended
June 31, 1998 June 30, 1997
Net loss - as reported $ (942,252) (245,348)
Compensation expense - current
period option grants (384,847) (376,563)
Compensation expense - prior
period option grants (526,841) (150,278)
Net loss - pro forma $ (1,853,939) (772,189)
Net loss per common share -
as reported $ (.06) (.02)
Net loss per common share -
pro forma $ (.12) (.06)
The fair value of stock options granted was calculated using the Black Scholes
option pricing model based on the following weighted average assumptions:
Quarter Quarter
Ended Ended
June 30, 1998 June 30, 1997
Expected volatility 48.5% 48.2%
Expected dividend yield 0.0% 0.0%
Risk free interest rate 5.8% 6.6%
Expected life of option granted 6 years 6 years
Fair value of options granted
as computed under the Black
Scholes option pricing models $4.26 per share $2.60 per share
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. Future
pro forma compensation cost by fiscal year, assuming no additional grants by the
Company to employees and directors, is as follows:
Quarter Pro Forma
Ended Compensation
June 30, Expense
1999 $1,539,386
2000 $1,250,560
2001 $ 200,377
Warrants
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
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
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. No warrants were outstanding at June
30, 1998.
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. Warrants to acquire 220,000 shares of
the Company's common stock remain outstanding at June 30, 1998.
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. Warrants to acquire 30,000 shares of the
Company's common stock remain outstanding as of June 30, 1998.
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,
being the market price of the common stock of the Company at the date of each
respective grant. The warrants expire three years from the date of issuance.
During June 1998, warrants to acquire 38,100 shares of the Company's common
stock at $5.00 per share were exercised resulting in cash proceeds to the
Company of $190,500. Warrants to acquire 50,000 shares at $4.75 per share, and
45,000 shares at $4.25 per share remain outstanding as of June 30, 1998.
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. Warrants to acquire 73,875 shares of the Company's common stock at
$3.50 per share remain outstanding as of June 30, 1998.
The Company completed a private placement in 1998 of 750,000 units consisting of
one common share and one warrant. Of the 750,000 units privately placed, 626,875
were issued in March 1998 and the remaining 123,125 were issued in April 1998.
Also in connection with the 1998 private placement, the placement agents were
issued warrants in March 1998, to acquire 176,588 shares of the Company's common
stock at an exercise price of $8.00 per share. The warrants expire two years
from the date of issuance. All of the warrants issued remain outstanding as of
June 30, 1998.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(10) The Company has historically derived significant revenue 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 revenue is
summarized as follows:
Quarter Ended June 30,
1998 1997
Customer: Kia Motors Corporation $ - 424,881
Koyo Seiko Company - 122,874
Asia Pacific Technology Co., Ltd. - 147,575
Siemens Electronics Company, Inc. 543,759 -
Flight Safety International 220,602 -
State Farm Mutual Aut. Ins. Co. 214,421 -
$ 978,782 695,330
Percentage of revenue 34% 55%
These customers, in total, also represented 23% and 36% of total accounts
receivable at June 30, 1998, and June 30, 1997, 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 $95,987 and $133,621 for the quarter ended June 30, 1998 and
June 30, 1997, respectively.
(11) 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
$681,983.
(12) Segments
The Company has three reportable segments: technology, mechanical products
and electronic products. The technology segment encompasses the Company's
technology-based operations including core research to advance its
technology, application engineering and product development and job shop
production of prototype components. The mechanical products segment
encompasses the manufacture and sale of permanent magnet motors, precision
gears, gear assemblies and related mechanical products. The electronic
products segment encompasses the manufacture and sale of wire harness
assemblies, electronic circuit board assemblies and electronic products.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies at note 1. During the
quarter ended June 30, 1998, there were no intersegment sales or transfers.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different business strategies.
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The following table summarizes significant financial statement information
for each of the reportable segments for the quarter ended June 30, 1998:
Mechanical Electronic
Technology Products Products Totals
Revenue $ 645,890 665,397 1,541,494 2,852,781
Interest income 39,606 13,697 - 53,303
Interest expense (15,378) (22,537) (15,707) (53,622)
Depreciation and
amortization (99,695) (171,963) (43,879) (315,537)
Goodwill amortization - (16,215) (44,140) (60,355)
Equity in loss of
Taiwan joint venture (94,420) - - (94,420)
Segment loss (629,580) (250,592) (62,080) (942,252)
Segment assets 8,523,660 7,866,236 9,465,498 25,855,394
Expenditures for
segment assets $ (165,420) (1,521,122) - (1,686,542)
In determining the foregoing segments, the Company has allocated corporate
overhead and expenses and intangible assets, including goodwill, to the
appropriate segment.
(13) Acquisition of Franklin Manufacturing Company
On April 30, 1998, the Company acquired all of the outstanding common stock
of Franklin Manufacturing Company (Franklin) for cash and shares of the
Company's common stock totaling $6,247,316. The allocation of the purchase
price based on estimates of fair value which may be subject to adjustment,
is as follows:
Assets purchased:
Cash $ 151,360
Accounts receivable 1,426,995
Inventories 1,089,539
Property, plant and equipment 877,199
Goodwill 5,296,916
Related asset acquisition 422,250
Other 131,203
9,395,462
Debt and other liabilities assumed (3,148,146)
Purchase price $ 6,247,316
The acquisition has been accounted for using the purchase method of
accounting. The unaudited pro forma revenue, net loss and loss per common
share for quarter ended June 30, 1998 and 1997 respectively, assuming the
acquisition occurred on April 1, 1997 is as follows:
<PAGE>
UNIQUE MOBILITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
Quarter Ended Quarter Ended
June 30, 1998 June 30, 1997
Revenue $ 3,812,494 $ 4,502,353
Net loss (908,684) (99,772)
Basic and diluted loss
per common share $ (.06) $ (.01)
The pro forma information does not necessarily represent the results that
would have occurred if the acquisition had been consummated on April 1,
1997, nor are they necessarily indicative of the results of future
operations.
(14) Reporting Comprehensive Income (Loss)
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," for the quarter ended June 1998. SFAS No. 130 requires all items
that are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
cumulative translation adjustment is the Company's only component of
comprehensive income.
The following table summarizes the Company's comprehensive loss for the
quarters ended June 30, 1998 and 1997:
Quarter Ended Quarter Ended
June 30, 1998 June 30, 1997
Net loss (942,252) (245,348)
Other comprehensive loss (98,722) (25,661)
Income tax effect - -
Comprehensive loss $ (1,040,972) (271,009)
<PAGE>
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report contains forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the Risk Factor section of the Registration
Statement on Form S-3 (File No. 333-52861) filed by the Company with the SEC,
which identified important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including the
Company's history of operating losses, its ability to obtain additional
financing, competition, the Company's ability to integrate acquired businesses
into existing operation, the Company's ability to protect its proprietary
information, and the Company's limited experience in manufacturing processes and
procedures and marketing and distribution. 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 strengthened during the quarter ended June 30,
1998 due to the sale of 123,125 shares of common stock pursuant to an offering
under Regulation D of the Securities Act of 1933, the issuance of common stock
upon the exercise of outstanding common stock warrants and options, and the
acquisition of Franklin Manufacturing Company. Cash proceeds to the Company from
the Regulation D offering, net of offering costs, amounted to $956,329 and cash
proceeds received upon the exercise of outstanding common stock warrants and
options amounted to $323,391. Primarily as a result, shareholders' equity rose
to $19,229,376 at June 30, 1998 from $16,731,132 at March 31, 1998. Working
capital (the excess of current assets over current liabilities) declined to
$3,352,679 at June 30, 1998 from $7,566,627 at March 31, 1998.
Accounts receivable rose $1,445,649 to $2,551,115 at June 30, 1998 from
$1,105,466 at March 31, 1998. The increase is primarily attributable to the
consolidation of the trade accounts receivable of the Company's new
manufacturing subsidiary, Franklin Manufacturing Company ("Franklin"), which
accounted for $1,214,071 of the increase.
Costs and estimated earnings on uncompleted contracts decreased $47,442 to
$407,296 at June 30, 1998 from the fiscal 1998 year end level of $454,738. The
decrease was due to increased levels of milestone billing during the quarter.
Estimated earnings on contracts in process rose to $594,136 at June 30, 1998 on
costs incurred on contracts in process of $1,398,452 compared to estimated
earnings on contracts in process of $515,782 on costs incurred on contracts in
process of $1,724,552 at March 31, 1998. The increase reflects improved margins
on contracts in process and is attributable to greater labor content in
contracts in process and a reduction in anticipated cost overruns.
Raw materials, work in process and finished products inventories increased by
$1,113,549, $208,637 and $28,653, respectively, to $1,189,926, $368,462 and
$46,368, respectively, at June 30, 1998. Raw materials inventory rose primarily
as a result of the consolidation of raw material inventories of Franklin. Work
in process inventories rose due to production of SR286 motors and associated
controls pursuant to existing customer orders.
In April, 1998 the Company acquired all of the outstanding common stock of
Franklin Manufacturing Company for $6,247,316 plus the assumption then existing
debt of $3,148,146. The purchase price consisted of a cash payment of $4,000,000
and the issuance of 286,282 shares of the Company's common stock. The
acquisition was accounted for under the purchase method of accounting. Under
this method, the excess of the purchase price over the net assets acquired is
first allocated to increase the recorded value of the tangible and identified
intangible assets acquired to their fair market value, with any excess then
recorded as goodwill. The excess of the purchase price over the net assets
acquired of Franklin resulted in an increase in the recorded value of property
and equipment in the amount of $950,400 with the excess of $5,296,916 being
recorded as goodwill. See also note 13 to the consolidated financial statements.
The Company invested $1,686,542 for the acquisition of property and equipment
during first quarter of fiscal 1999 compared to $51,092 for the quarter ended
June 30, 1997. The increase in capital expenditures is primarily attributable to
the purchase of manufacturing equipment by Aerocom coincident with the expansion
of their manufacturing capabilities of $290,159 and the construction of a new
manufacturing plant in Frederick, Colorado of $1,046,984.
Investment in Taiwan joint venture declined to $1,851,252 at June 30, 1998 from
$2,044,393 at the beginning of the fiscal year. The decrease is attributable to
the Company's proportionate share of operating losses which amounted to $94,420
during the first quarter and foreign currency translation adjustments which
amounted to $98,722.
Goodwill, net of accumulated amortization, rose to $6,517,433 at June 30, 1998
from $1,280,872 at March 31, 1998 due to the acquisition of Franklin during the
first quarter.
Accounts payable rose to $1,219,837 at June 30, 1998 from $389,791 at the end of
Fiscal 1998. The increase is primarily attributable to the consolidation of the
trade accounts payable of Franklin which accounted for $895,844 of the increase.
Other current liabilities increased to $1,074,118 at the end of the first
quarter from $876,357 at March 31, 1998. The increase is primarily attributable
to the consolidation of the other current liabilities of Franklin which
accounted for $159,199 of the increase.
Revolving line-of-credit of $1,213,861 at June 30, 1998 is due to the
consolidation of the revolving line-of-credit of Franklin.
Current portion of long-term debt rose $319,422 to $482,976 at June 30, 1998.
The increase is due to current principal maturities on manufacturing equipment
loans by Aerocom and the consolidation of the current principal maturities of
the debt of Franklin.
Long-term debt rose to $2,067,211 during the first quarter due to term equipment
borrowings of Aerocom for equipment which amounted to $492,583, and the
consolidation of Franklin's long-term debt which amounted to $556,897.
Common stock and additional paid-in capital increased to $158,807 and
$42,383,351 at June 30, 1998, respectively, compared to $153,946 and $38,852,446
at March 31, 1998. The increases were due to the sale of common stock to
investors in the amount of $956,329; proceeds received upon the exercise of
warrants of $190,500; sales of common stock to employees and consultants through
the Company's benefit plans and the exercise of options of $135,573; the
issuance of common stock for the acquisition of Franklin of $2,247,314.
Results of Operations
Operations for the quarter ended June 30, 1998, resulted in a net loss of
$942,252 or $.06 per share compared to a net loss of $245,348 or $0.02 per share
for the quarter ended June 30, 1997.
<PAGE>
Total revenue for the Fiscal 1999 first quarter rose over two-fold to $2,852,781
compared to $1,257,162 for the comparable quarter last year. The increase in
total revenue was driven by an eleven-fold increase in product sales which rose
to $2,553,447 for the quarter compared to $227,551 for the comparable quarter
last year.
Revenue derived from contract services declined 71 percent to $299,334 during
first quarter compared to $1,029,611 for the comparable quarter last year
reflecting the Company's shift in focus to deploying technical resources on
product development activities rather than customer sponsored research programs.
The increase in product sales versus the prior year comparable amount is
primarily due to two months of product sales by Franklin, subsequent to its
acquisition, which amounted to $1,541,494, product sales by Aerocom during the
quarter of $578,680 and a 53 percent increase in product sales by the technology
segment to $346,557.
Despite large percentage gains in product sales revenue in the first quarter
over the first quarter last year, revenue growth and gross profit margins was
nevertheless negatively impacted during the quarter by the relocation of
Aerocom's manufacturing operations from Boulder, Colorado to Frederick, Colorado
and the effects of a labor dispute between General Motors and the United Auto
Workers on Franklin's shipments of selected electronic assemblies to a tier 1
supplier to General Motors.
Gross profit margins for the first quarter declined to 14.6 percent compared to
a margin of 18.2 percent for the comparable quarter last year. Gross profit on
contract services was 12.9 percent for the quarter ended June 30, 1998 compared
to 15.5 percent for the first quarter last year. The decline in gross profit
margins on contract services during the first quarter is attributable to cost
overruns on various development programs which negatively impacted margins.
Gross profit on product sales during the first quarter was 14.8 percent compared
to a margin of 30.4 percent for the comparable quarter last year. The decrease
in margins on product sales is primarily attributable to the consolidation of
Aerocom and Franklin in the quarter ended June 30, 1998. In addition to the
Aerocom relocation and the labor dispute discussed above, margins are negatively
impacted by high levels of depreciation on manufacturing equipment at these
recently-acquired subsidiaries.
Research and development expenditures during the first quarter rose to $277,448
compared to $98,239 for the quarter ended June 30, 1997. The increase is
generally attributable to increased levels of internally-funded development
activities and increased levels of development expenditures on the product
launch for Invacare Corporation.
General and administrative expense for the Fiscal 1999 first quarter rose to
$805,287 compared to $322,797 for the comparable quarter last year. The increase
is attributable to the consolidation of the general and administrative expenses
of Aerocom and Franklin which amounted to $372,810 during the quarter, legal and
accounting expenditures related to the negotiation and due diligence for the
Franklin acquisition which totaled $158,802.
Interest income increased to $53,303 for the quarter ended June 30, 1998
compared to $51,673 for the quarter ended June 30, 1997. The increase is
attributable to higher levels of invested cash during the first quarter of
Fiscal 1999.
Interest expense was $53,622 for the first quarter, an increase of $29,543 over
the comparable amount during the first quarter last year of $24,079. The
increase is attributable to increased levels of borrowing on the Company's
revolving line-of-credit and increased levels of long-term debt.
<PAGE>
Equity in loss of Taiwan joint venture rose to $94,420 for the quarter ended
June 30, 1998 compared to $16,447 for the quarter ended June 30, 1997. The
increase is due to expanded staffing and operations at Taiwan UQM coincident
with the launch of manufacturing operations.
Liquidity and Capital Resources
The Company's cash balances and liquidity throughout the first quarter of Fiscal
1999 were adequate to meet operating needs. Net cash used by operating
activities was $909,206 for the quarter ended June 30, 1998 versus $1,040,870
for the comparable prior year quarter. Cash requirements throughout the period
were funded primarily through the sale of common stock to investors, cash
received upon the exercise of outstanding common stock warrants and options and
borrowings on the Company's bank facilities.
During the first quarter of Fiscal 1998, the Company completed the construction
of a 25,000 square foot manufacturing plant in Frederick, Colorado. The plant is
situated on 2 acres of land and the Company holds an option to acquire an
adjacent 2 acre parcel to accommodate future expansion of the facility.
Construction cost of the plant, including land acquisition costs, was $1.2
million. Construction financing was provided from existing cash balances. The
Company secured mortgage financing on the facility in July 1998 in the amount of
$.9 million. Coincident with this expansion, the Company expended $405,054
during the first quarter for manufacturing equipment raising total equipment
purchases since the acquisition of Aerocom in January, 1998 for such equipment
to $653,581. Subsequently, all of these capital expenditures were financed
through borrowings on the Company's term equipment loan facility. These
expenditures are expected to increase its manufacturing capability, both in
manufacturing processes and throughput capacity. In order to expand its
operations and fund its capital expenditure needs, the Company secured a loan
facility from a commercial bank which consists of a $.75 million revolving
line-of-credit and a term equipment loan financing for up to $2 million of
manufacturing equipment purchases, including the refinancing of previously
existing term equipment loans. In addition to borrowings for capital
expenditures during the quarter the Company refinanced approximately $.5 million
of then existing equipment loans. As of June 30, 1998, the Company has not drawn
against the revolving line-of-credit and has borrowed $1,030,037 against the
term equipment loan. All financing of the subsidiary has been unconditionally
guaranteed by the Company.
During the first quarter of Fiscal 1999, the Company acquired Franklin
Manufacturing Company, a privately-held St. Charles, Missouri manufacturer and
distributor of electronic assemblies and components. The Company completed the
acquisition of the outstanding common stock of Franklin for $4 million in cash,
the assumption of approximately $3.1 million in liabilities and debt and the
issuance of 286,282 shares of the Company's common stock. Subsequent to the end
of the first quarter, the Company completed a loan facility with a commercial
bank to accommodate future Franklin growth. The loan facility consists of a
revolving line-of-credit of $2.5 million, a term loan of $.78 million and a term
equipment facility for future purchases of manufacturing equipment in the amount
of $1.25 million. As of June 30, 1998, the Company has drawn $1,213,861 against
the revolving line-of-credit, has borrowed $777,998 against the term loan and
has not borrowed against the term equipment facility. All financing of Franklin
has been unconditionally guaranteed by the Company.
The Company met capital calls from Taiwan UQM of $1.4 million in both fiscal
1996 and 1997. Taiwan UQM reported a net loss of approximately $.6 million in
fiscal 1998 and $.3 million during the first quarter of Fiscal 1999. Further
losses or capital investment by Taiwan UQM could result in additional capital
calls by Taiwan
<PAGE>
UQM which the Company would be required to fund or suffer a dilution of its
ownership interest.
During the second and third quarters of Fiscal 1999, the Company expects to
invest substantially greater amounts of capital to launch manufacturing
operations and supply motors to Invacare Corporation pursuant to a supply
agreement executed during Fiscal 1998. Anticipated capital expenditures for
working capital, production machinery, equipment, computer hardware and software
are expected to be approximately $1.0 million. The Company expects to fund this
investment requirement through a combination of existing cash resources and
short-term bank lines-of-credit. Although the Company has, to-date, not entered
into formal arrangements for such bank lines-of-credit, Management believes bank
lines-of-credit are readily available to the Company on terms acceptable to the
Company. However, there can be no assurance that such bank financing can be
obtained. The Company believes it has cash resources sufficient to fund
non-manufacturing operations over the next year.
For the longer-term, the Company expects to continue its strategy of growing its
business through expanding its product line of permanent magnet motors and
controllers, securing production orders from new and existing customers for gear
and component assemblies manufacture design and introduce new products for
manufacture, seek strategic alliances to accelerate the commercialization of its
technology and pursue synergistic and accretive acquisitions. The Company
expects to finance its future growth from existing cash resources, cash flow
from operations, if any, and through the issuance of equity or debt securities
or a combination thereof. There can, however, be no assurance that such
financing or capital will be available on terms acceptable to the Company. In
the event financing or capital for future growth as envisioned under the
Company's strategy is not available, the Company believes it can configure its
operations such that existing cash balances and cash flow from operations will
be sufficient to meet its operating requirements.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
Current Report dated April 2, 1998 regarding the signing of a letter
of intent to acquire Franklin Manufacturing Company.
Current Report dated May 6, 1998 regarding the completion of the
acquisition of Franklin Manufacturing Company.
Current report dated June 29, 1998 amending the Company's current
report filed May 6, 1998 to include audited financial statements and
pro forma financial statements of Franklin Manufacturing Company.
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: August 13, 1998 By:/s/ Donald A. French
Donald A. French
Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF UNIQUE MOBILITY, INC. AND CONSOLIDATED
SUBSIDIARIES AS OF JUNE 30, 1998, AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 2,659,991
<SECURITIES> 0
<RECEIVABLES> 2,551,115
<ALLOWANCES> 0
<INVENTORY> 2,012,052
<CURRENT-ASSETS> 7,515,368
<PP&E> 10,840,139
<DEPRECIATION> 2,477,968
<TOTAL-ASSETS> 25,855,394
<CURRENT-LIABILITIES> 4,162,689
<BONDS> 2,067,211
0
0
<COMMON> 42,542,158
<OTHER-SE> (23,312,782)
<TOTAL-LIABILITY-AND-EQUITY> 25,855,394
<SALES> 2,553,447
<TOTAL-REVENUES> 2,852,781
<CGS> 2,437,549
<TOTAL-COSTS> 3,681,681
<OTHER-EXPENSES> 113,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,622
<INCOME-PRETAX> (942,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> (942,252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (942,252)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
