SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-QSB/A
(Amendment No. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
0-20436
Commission file number
U.S. AUTOMOTIVE MANUFACTURING, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 65-0309477
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Route 627, Airport Drive, Tappahannock, VA 22560
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (804) 443-5356
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
As of May 12, 1999, the Registrant had 1,082,766 shares outstanding of its
common stock, $.001 par value.
<PAGE>
U.S. AUTOMOTIVE MANUFACTURING, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION ............................................ 3
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1999
(unaudited) and December 31, 1998 .......................... 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and March 31, 1998 ........ 4
Consolidated Statements of Cash Flows (unaudited) for
the three months ended March 31, 1999 and March 31, 1998 .... 5
Notes to Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 8
PART II. OTHER INFORMATION................................................ 12
Item 1. Legal Proceedings................................................ 12
Item 2. Changes in Securities and Use of Proceeds........................ 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
Item 6. Exhibits and Reports on Form 8-K................................. 13
SIGNATURES................................................................ 14
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. AUTOMOTIVE MANUFACTURING, INC.
Consolidated Balance Sheets
March 31, 1999
<TABLE>
<CAPTION>
ASSETS
March 31, 1999 December 31, 1998
-------------- -----------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 444,248 $ 338,641
Accounts receivable (net of allowance for doubtful
accounts of approximately $127,319) 5,243,373 5,043,316
Inventories 8,912,128 9,420,570
Prepaid expenses, and other 153,670 16,078
------------ ------------
Total Current Assets 14,753,419 14,818,605
Property, plant and equipment (net of accumulated
depreciation of $1,863,638 and $1,599,818,
respectively) 10,863,575 11,062,084
Deferred financing costs 189,000 216,000
Goodwill, net 5,874,920 5,954,669
------------ ------------
TOTAL ASSETS $ 31,680,914 $ 32,051,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit 8,824,122 7,691,370
Current Portion of long-term debt 107,627 693,163
Accounts payable 4,372,617 3,965,184
Accrued liabilities 994,556 756,703
------------ ------------
Total Current Liabilities 14,298,922 13,106,420
Long-term debt, less current portion 147,262 552,408
Redeemable convertible debentures 2,250,000 2,250,000
Line of Credit -- 1,050,000
Notes payable to shareholders 5,070,000 4,980,000
------------ ------------
Total Liabilities 21,766,184 21,938,828
------------ ------------
Stockholders' Equity:
Issued & outstanding capital stock $.001 par value 1,082 1,048
Additional paid-in capital 38,936,854 38,900,222
Accumulated deficit (29,023,206) (28,788,740)
------------ ------------
Total stockholders' equity 9,914,730 10,112,530
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 31,680,914 $ 32,051,358
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
3
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U.S. AUTOMOTIVE MANUFACTURING, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
---------------------------
1999 1998
----------- -----------
Net Sales $ 7,320,955 $ 3,419,873
Cost of Goods Sold 5,305,134 2,653,327
----------- -----------
Gross Profit 2,015,821 766,546
----------- -----------
Operating Expenses:
Selling and delivery 782,815 532,004
General and administrative 969,351 960,825
----------- -----------
Total Operating Expenses 1,752,166 1,492,829
----------- -----------
Operating income (loss) 263,655 (726,283)
Interest expense (498,121) (247,957)
----------- -----------
Net Loss $ (234,466) $ (974,240)
=========== ===========
Net Loss per share, basic and diluted $ (0.22) $ (0.93)
=========== ===========
Weighted average shares outstanding 1,048,656 1,048,273
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements
4
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U.S. AUTOMOTIVE MANUFACTURING, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1999 1998
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (234,466) $ (974,240)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation 263,820 243,881
Amortization 106,749 79,749
Provision for doubtful accounts -- (11,603)
Rollover of accrued interest into shareholder note 90,000 --
Issuance of common stock in satisfaction of
related party accounts payable 36,666 --
Increase (decrease) in:
Accounts receivable (200,057) (70,817)
Inventory 508,442 162,168
Prepaid expenses and other (137,592) (64,902)
(Increase) decrease In:
Accounts payable and accrued liabilities 645,286 (498,550)
----------- -----------
Total adjustments 1,313,314 (160,074)
----------- -----------
Net Cash provided by (used in) operating activities 1,078,848 (1,134,314)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (65,311) (433,011)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net (repayments) borrowings on lines of credit and notes payable (907,930) 902,820
----------- -----------
NET INCREASE (DECREASE) IN CASH 105,607 (664,505)
CASH-beginning of period 338,641 1,001,843
----------- -----------
CASH-end of period $ 444,248 $ 337,338
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
U.S AUTOMOTIVE MANUFACTURING, INC.
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
NOTE 1: BUSINESS OPERATIONS AND ORGANIZATION
U.S. Automotive Manufacturing, Inc., a Delaware corporation incorporated on
January 16, 1992, together with its wholly-owned subsidiaries Quality Automotive
Company and U.S. Automotive Friction, Inc. (collectively, the "Company") is
engaged in the manufacture, assembly and distribution of new and rebuilt
automotive friction products. The Company maintains manufacturing and
warehouse/distribution facilities in Tappahannock, Virginia and Sanford, Florida
(the "Facilities"), which Facilities are either owned or leased by the Company
or inactive subsidiaries.
The Company manufactures a full line of automotive friction products,
including brake lining, integrally molded and riveted brake pads and
remanufactured brake shoes. The Company markets various grades of friction brake
lining, using asbestos, non asbestos organic and semi-metallic formulas,
suitable for use by the automotive and light truck after-markets. The Company's
products are marketed under the Brakes Worth Stopping For,(R) Silent
Solution,(R) Max Life,(R) Dual Friction,(TM) Ultra Brake,(TM) Gold Max,(TM) and
Quality Automotive(TM) tradenames and various private label packaging. In 1998,
the Company's products were also sold under the Roinco,(TM) tradename.
Brake pads, brake shoes or a combination of both are incorporated in all
makes and models of American and imported automobiles. All imported and the
majority of late model domestic automobiles are equipped with integrally molded
brake pads. The Company generally produces the replacement brake under the same
process used to manufacture the vehicle's original equipment.
The Company sells its friction products to other automotive manufacturers
and the automotive after-market. The automotive after-market encompasses the
parts and service sold to the vehicle owners for repair or replacement of
original equipment parts. The Company believes that the market for replacement
parts generally consists of vehicles which are three to twelve years old. Sales
of the Company's products are made to mass merchandisers, automotive
distributors, chain stores and other brake manufacturers. The Company does not
market its products directly to retail customers.
NOTE 2: UNAUDITED INTERIM STATEMENTS
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with the instructions to Form 10 - QSB and do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation have been included. All significant
intercompany transactions and balances have been eliminated. Operating results
for the three months ended March 31, 1999, are not necessarily indicative of the
results to be expected for the year ending December 31, 1999. These financial
statements and notes should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998.
NOTE 3: REVERSE SPLIT
On February 5, 1999, the Company's Board of Directors approved a 1-for-15
reverse stock split with respect to the Company's common stock. All share and
per share information contained in
6
<PAGE>
these financial statements have been retroactively adjusted to give effect to
the reverse stock split.
NOTE 4: INVENTORY
Major inventory components were as follows:
March 31, 1999 December 31, 1998
-------------- -----------------
Raw materials $3,278,101 $4,131,240
Work in Progress 70,670 107,133
Finished goods 5,563,357 5,182,197
--------- ---------
$8,912,128 $9,420,570
========= =========
NOTE 5: DEBT
Private Placement
The Company obtained additional financing during the first quarter of 1998
through the private placement of debt and equity instruments on February 27,
1998 to a director and an affiliate of another director of the Company,
respectively (the "February 1998 Offering"). The sale was made pursuant to a
private placement consisting of (i) two (2) unsecured non-negotiable promissory
notes in the aggregate principal amount of $400,000, bearing interest at the
rate of 10.5% per annum and a maturity date of February 28, 1999 (the "Notes"),
and (ii) warrants to purchase up to an aggregate of 6,666 shares of the Common
Stock, maturing in February 2003, at a conversion price equal to $30.00 per
share subject to adjustment in certain conditions. The net proceeds to the
Company were approximately $370,000. The warrants are redeemable by the Company,
upon notice of not less than 30 days at a price of $0.75 per warrant, provided
that the closing bid quotation of the Common Stock on all 20 trading days ending
on the third day prior to the day of which the Company gives notice of
redemption has been at least 150% of the then effective exercise price of the
warrants. The holders of the Warrants shall have the right to exercise them
until the close of business on the date fixed for redemption. The exercise price
and number of shares of Common Stock or other securities issuable on exercise of
the warrants are subject to adjustment in certain circumstances, including in
the event of a stock dividend, recapitalization, reorganization, merger or
consolidation of the Company. The outstanding principal balance, together with
accrued interest, under the Notes was fully repaid by the Company on or prior to
the February 28, 1999 maturity date.
Convertible Debentures
In June 1998, the Company obtained additional financing through the sale of
8% redeemable convertible debentures (each a "Reg S Debenture"), in the
aggregate principal amount of $2,250,000, pursuant to Regulation S under the
Securities Act of 1933, as amended (the "Act") (the "Reg S Offering"). The Reg S
Debentures represent unsecured obligations of the Company and must be converted
into shares (the "Conversion Shares") of the Company's Common Stock at maturity
date (December 31, 2000) unless they have been converted earlier, at the option
of the holder. The conversion price of the Reg S Debentures will be equal to 80%
of the average closing bid price of the shares of Common Stock as quoted on the
Nasdaq SmallCap Market for the five (5) trading days immediately preceding the
date of conversion. Notwithstanding the foregoing, the Company is not obligated
to issue more than 209,660 Conversion Shares (the "Maximum Conversion Share
Allotment"). The Company also agreed, at its expense, to (x) file with the
Securities and Exchange Commission ("SEC") on or before August 29, 1998, a
registration statement covering the issuance by the Company of the Conversion
Shares and (y) use its reasonable best efforts to cause such registration
statement to be declared effective under the Act as soon as possible thereafter.
As at March 31, 1999, the Company has yet to file a registration statement; it
is anticipated that the Company will file such registration statement during the
second quarter of 1999.
7
<PAGE>
The Reg S Debentures provided for initial interest rate of 8% per annum
(subject to increase under certain circumstances), payable upon conversion or
redemption of the Reg S Debentures, in cash or shares of Common Stock, at the
option of the Company. The interest rate increased to 20% per annum for the
period commencing January 1, 1999 as a result of the underlying Conversion
Shares having not been covered by such date by an effective registration
statement filed with the SEC. It is not expected that the Conversion Shares will
be able to be registered with the SEC before June 30, 1999. At such time as the
underlying shares are registered or tradable, without regard to registration,
the interest rate shall revert to the 8% per annum. Further, if upon conversion
of the Reg S Debentures the Company would otherwise issue shares of Common Stock
in excess of the Maximum Conversion Share Allotment, the interest rate on the
Reg S Debentures will, effective as of the issuance of the Maximum Conversion
Share Allotment, increase to 25% per annum with respect to the unconverted Reg S
Debentures. The Company has agreed that if it has not either retired the
remaining Reg S Debentures with accrued but unpaid interest within ten (10) days
of the issuance of the Maximum Conversion Share Allotment or issued a proxy
statement soliciting stockholder authorization to issue additional shares in
lieu of such cash redemption of the remaining Reg S Debentures, the Company
would pay a penalty equal to the difference between the interest rate paid since
inception of the Reg S Debentures and 25% on those Reg S Debentures which remain
outstanding after the issuance of the Maximum Share Allotment. Such penalty
shall not be applicable if the Company issues the proxy statement referred to
above.
NOTE 6: STOCKHOLDERS' EQUITY
On March 31, 1999, the Company issued to two directors of the Company
11,759 and 22,734 shares of the Company's Common Stock, in exchange for accrued
but unpaid obligations owing by the Company to such individuals and/or their
affiliates.
On March 31, 1999, the Company granted to executive officers and key
employees of the Company options pursuant to the Company's 1992 and 1998 Stock
Option Plan, as follows:
(i) The Company granted to two executive officers of the Company ten-year
options pursuant to the 1992 Stock Option Plan to purchase up to 1,800
shares each of the Company's Common Stock, at an exercise price of
$1.063 (the closing sales price for the Common Stock on March 31,
1999). Such options vested immediately;
(ii) The Company granted to a key employee of the Company ten-year options
pursuant to the 1992 Stock Option Plan to purchase up to 307 shares of
the Company's Common Stock, at an exercise price of $1.063 (the
closing sales price for the Common Stock on March 31, 1999). Such
options shall vest in equal quarterly installments over the course of
four (4) years from the date of granting; and
(iii)The Company granted to certain key employees of the Company options
pursuant to the Company's 1998 Stock Option Plan to purchase up to an
aggregate of 29,000 shares of the Company's Common Stock, at an
exercise price (the closing sales price for the Common Stock at March
31, 1999) of $1.063. Such options shall vest in equal quarterly
installments over the course of four (4) years from the date of
granting.
In addition, on March 31, 1999, the Company re-priced all outstanding
options under the 1992 Stock Option Plan, exercisable to purchase up to an
aggregate of 93 shares of the Company's Common Stock, to $1.063 per share (the
closing sales price of the Company's Common Stock reported by the Nasdaq
SmallCap Market as of the close of business on March 31, 1999).
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward- looking statements. Such factors include, among others, the
following: the Company's recent losses, the Company's need to obtain additional
financing and the ability to obtain such financing, outstanding indebtedness,
the ability to hire and retain key personnel; successful completion and
integration of prior and any future acquisitions; relationships with and
dependence on third-party equipment manufacturers and suppliers; uncertainties
relating to business and economic conditions in markets in which the Company
operates; uncertainties relating to government and regulatory policies and other
political risks; uncertainties relating to customer plans and commitments; cost
of and availability of component materials and inventories; effect of
governmental export and import policies; the highly competitive environment in
which the Company operates; potential entry of new, well-capitalized competitors
into the Company's markets; uncertainty with respect to the Year 2000 effect on
the Company and its many suppliers and customers; and the uncertainty regarding
the Company's continued ability, through sales growth, to absorb the increasing
costs incurred and expected to be incurred in connection with its business
activities. The words "believe",
8
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"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
General
During the three months ended March 31, 1999, the Company doubled its
revenues while reducing its loss by approximately seventy-five percent (75%)
when compared to the year ended December 31, 1998. Management currently expects
the trend of improvement to continue and anticipates that the Company will be
profitable in the second quarter of 1999 and for the fiscal year, as a whole.
Based on new and expanded business relationships, the Company expects revenues
for fiscal year 1999 to exceed $35,000,000. The Company's ability to achieve
profitability; however, is dependent upon many factors including, but not
limited to, the realization of anticipated sales, the absence of any material
increases in costs of goods sold from current levels and the ability to obtain
sufficient financing upon expiration of the Company's current credit facility
with LaSalle Business Credit, Inc. There can be no assurance that the foregoing
or other factors will not prevent the Company from achieving these expectations.
Results of Operations
Comparison of Three Months Ended March 31, 1999 to Three Months Ended March 31,
1998
Net Sales. Net sales for the three months ended March 31, 1999 were
$7,320,955 as compared to net sales of $3,419,873 for the three months ended
March 31, 1998. The increase of $3,901,082 or 114% resulted from sales to new
customers.
Gross Profit. For the three months ended March 31, 1999, the Company had a
gross profit of $2,015,821 compared to a gross profit of $766,546 for the three
months ended March 31, 1998. The increase in gross profit was attributed to a
114% increase in sales offset in part, by an increase in the overall cost of
sales of only 100% as a result of economies of scale realized in connection with
such increased sales. Cost of sales for the three months ended March 31, 1999
was $5,305,134 as compared to $2,653,327 for the three months ended March 31,
1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1999 were
$1,752,166 as compared to $1,492,829 for the three months ended March 31, 1998,
representing an increase of 17.4%. The increase was the result of an increase of
$250,811 (47%) in selling and distribution costs and an increase of $8,526 in
general and administrative expenses.
Interest Expense. Interest expense increased by $250,164 from $247,957 in
the first quarter of 1998 to $498,121 in the first quarter of 1999. This
increase was attributable to increased borrowing necessitated by the doubling of
sales and the increased rate of interest under existing borrowing.
Net Income (Loss). The net loss in the first quarter of 1999 was ($234,466)
or ($.22) per share based on 1,048,656 weighted average common and common
equivalent shares outstanding compared to a net loss of ($974,240) or ($.93) per
share in the first quarter of 1998 based on 1,048,273 weighted average common
and common equivalent shares outstanding. The decrease in net loss of $739,774
was primarily the result of the economies of scale realized through the material
increase in sales offset by increased interest expense resulting from increased
borrowing.
Liquidity and Capital Resources
During the three months ended March 31, 1999, the Company financed its
operations primarily through borrowings under its lending facilities and cash
generated by operations.
9
<PAGE>
At March 31, 1999, the Company had consolidated cash totaling $444,248 and
working capital of $454,497. At December 31, 1998, the Company had consolidated
cash totaling $338,641 and working capital of $1,712,185. This decrease in
working capital was due primarily to the Company's revolving lines of credit
maturing in less than one year from the quarter ended March 31, 1999.
In February 1999, the Company paid in full the outstanding principal
balance under the promissory notes, together with accrued interest thereon,
previously executed by the Company pursuant to the February 1998 Offering,
The principal source of capital for the Company's operations is the line of
credit (the "Credit Facility") between Quality and LaSalle Business Credit, Inc.
("LaSalle"), which Credit Facility matures on July 31, 1999. The Credit Facility
consists of the following:
(i) a secured revolving credit facility of up to $10 million. Advances are
made by formula based on the Company's accounts receivable and
inventory. At March 31, 1999, the revolving credit had approximately
$5.9 million of a possible $7.5 million outstanding. Interest is
calculated at the prime rate plus 2% (9.75% at March 31, 1999)
(ii) a secured loan covering machinery equipment, property and plant having
an original loan amount of approximately $3,500,000 of which
$1,232,000 was outstanding at March 31, 1999. Monthly installments of
$20,800 are due until maturity, at which time any balance owing is
due. Interest is calculated at the prime rate plus 2% (9.75% at March
31, 1999)
(iii)a secured loan covering machinery and equipment put into service
under a capital expenditure facility of 1995. The original amount
outstanding was approximately $1,000,000. At March 31, 1999, the
balance outstanding was approximately $225,000. The loan calls for
monthly payments of $25,000 with any balance being due at the maturity
date. Interest is calculated at the prime rate plus 2% (9.75% at March
31, 1999).
Quality's obligation to pay the principal of, interest on, premium, if any,
and all other amounts payable on account of the Credit Facility is secured by
substantially all of the assets of Quality as well as the pledge of all of the
Company's ownership interest in Quality. Upon the occurrence of an event of
default specified in the Credit Facility (including failure to satisfy certain
financial covenants), the maturity of the outstanding principal amounts of the
revolving credit loans and the equipment loans may be accelerated by LaSalle who
may also foreclose on the secured assets of Quality. The Company was and
continues to be in noncompliance with certain financial covenants under the
Credit Facility. Such noncompliance has been continuing since the Merger. Until
such time that Quality is no longer in non-compliance with the financial
covenants contained in the Credit Facility or the Credit Facility is amended in
a manner to cure such non-compliance, LaSalle may be able to accelerate the
maturity date of the Credit Facility. Management believes that should it become
necessary or advisable to change its borrowing relationship, there are a number
of financial institutions willing to provide necessary financing to the Company.
The Credit Facility had an initial maturity date of March 31, 1999. In the
fourth quarter of 1998, Quality and LaSalle agreed not to automatically extend
the maturity of the Credit Facility. The Company's business has approximately
doubled over the past twelve months and a continuation of the Credit Facility in
its existing form was not deemed prudent by the Company's management. In the
interim, by the Fifth Amendment to the Credit Facility dated February 26, 1999,
LaSalle (i) increased the amount of the revolving credit under the Credit
Facility from $7,500,000 to $10,000,000, (ii) increased the sub-limit of
advances on inventory from $4 million to $4.5 million, (iii) re-advanced up to
$1,000,000 based on its existing security interests in the fixed assets of
Quality, and (iv) granted an interim extension of the maturity date to July
31,1999, to allow the Company to negotiate expanded new facilities.
The Company has discussed with LaSalle (and several other financial
institutions) its forecasted need for new financing arrangements. Although there
can be no assurance that new financing arrangements will be procured or that any
such arrangements will be adequate to finance the Company's forecasted needs,
management believes that such new financing will be sufficient to meet the
Company's on-going financing needs and will be obtained prior
10
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to the expiration of its current financing facilities. An inability to refinance
the Company beyond the scheduled maturity date of July 31, 1999, however, would
have a material adverse impact on the Company's ability to continue its business
operations.
In addition to the Credit Facility, up to $2.0 million was made available
to the Company under a revolving credit agreement (the "USAM Revolving Loan")
entered into on March 31, 1998. At May 14, 1999, an aggregate of $1.4 million
had been advanced to the Company under such USAM Revolving Loan. Under the terms
of the USAM Revolving Loan, the Lender is not obligated to advance the Company
more than $1 million at any time during the term of the loan. Advances pursuant
to the USAM Revolving Loan bear interest at the rate of 11% per annum and are to
be repaid by the Company, together with accrued interest thereon, at the
expiration of 2 years from the date of the initial advance, unless earlier
prepaid, at the option of the Company. The USAM Revolving Loan is secured by a
general security interest in the assets of the Company as well as a first
security interest in and to the Company's Florida production facility. Under the
terms of the USAM Revolving Loan, the Company agreed to grant to the lender five
year warrants to purchase up to an aggregate of 28,000 shares of the Company's
Common Stock, as follows: (i) five year warrants to purchase up to 7,000 shares
of the Company's Common Stock, exercisable after March 31, 1999, granted in
March 1998; (ii) five year warrants to purchase an additional 7,000 shares of
the Company's Common Stock, exercisable after March 31, 1999, granted in
September 1998, so long as that funds having been advanced under the USAM
Revolving Loan remained outstanding; and (iii) additional warrants to purchase
up to an aggregate of 14,000 additional shares of the Company's Common Stock in
the event that funds advanced under the USAM Revolving Loan remain outstanding,
commencing March 31, 1999 and continuing at each three (3) month anniversary
thereafter until December 31, 1999, to grant to the lender at each such three
month anniversary five year warrants for the purchase of 3,500 additional shares
of the Company's Common Stock, exercisable at the time of such granting.
Prepayment by the Company results in a reduction of the total aggregate warrants
to be granted by the Company. Such warrants shall generally be exercisable any
time after March 31, 1999 at an exercise price equal to eighty percent (80%) of
the average closing sales price for the Common Stock for the twenty (20) trading
days preceding March 31, 1999 or the granting date whichever is later. The
Company has agreed to grant the lender or its assigns "piggyback" registration
rights with respect to the shares underlying such warrants.
Impact of the Year 2000
In 1997, as part of a general improvement to Company reporting, a new
manufacturing and financial software package was purchased. As part of that
general upgrade, the Company moved from an IBM36 to an IBM AS400. The new
system, which fully contemplates the computer related problems with the new
millennium, continues to be in the final stages of testing in the Tappahannock,
Virginia facility. The Company's new system accommodates remote locations and
the Sanford, Florida facility is expected to be operational during the third
quarter of 1999.
The Company, in assessing the readiness of third party suppliers and
customers, has concentrated on alternative back-up procedures to minimize or
eliminate any adverse effect on the Company's business in the event customers or
suppliers systems have a Year 2000 problem. As at March 31, 1999, the Company
believes it has set sufficient back-up systems in place to insulate its business
from a Year 2000 problem. Nevertheless, although the Company does not expect
significant costs or disruptions in operations from its customers' and
suppliers' inability to achieve Year 2000 compliance, the Company can not
guaranty customer or supplier performance. Accordingly, it cannot predict what
effect noncompliance might have. While the Company has a substantial investment
in the new computer and software, such costs were incurred as part of a general
system upgrade and not in response to a potential Year 2000 problem. The Company
estimates that costs incurred in investigating and correcting any potential Year
2000 problem have been and will continue to be immaterial.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On August 21, 1998, an eight count complaint, entitled Al Dulisse, Bernard
Bard, Michael Scicchitano and Barry Schwartz vs. U.S. Automotive Manufacturing,
Inc., f/k/a R.T. Industries, Inc., a Delaware corporation (Case No. 98-007490
AN), was filed in the Circuit Court of the Fifteenth Judicial Circuit of
Florida, in and for Palm Beach County (the "Complaint"). The Complaint alleges
that the Company failed to recognize stock options purportedly exercised by each
plaintiff under alleged stock option agreements with the Company's predecessor,
R.T. Industries, Inc. The Complaint contained a breach of contract claim and
unpaid-wages claim for each of the four plaintiffs; however on November 23,
1998, the Court entered an Order dismissing with prejudice all of the
unpaid-wages claim. Accordingly, the action is proceeding solely on the breach
of contract claims.
Various other legal proceedings and claims have been or may be from time to
time asserted against the Company in the ordinary course of its business.
Management believes that it has meritorious defenses and will vigorously defend
itself with respect to all existing proceedings or claims. Any costs or damages
that management estimates may be paid as a result of these proceedings or claims
are accrued when the liability, if any, is considered probable and the amount
can be reasonably estimated. Although the ultimate disposition of proceedings
and claims currently pending is not presently determinable, management believes
that, after consultation with counsel, the likelihood that material costs or
damages will be incurred by the Company as a result of any pending proceedings
is remote.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 31, 1999, the Company granted five year warrants exercisable to
purchase up to 3,500 shares of its Common Stock pursuant to the terms of the
USAM Revolving Loan. Such warrants are exercisable immediately at an exercise
price of $1.43 (eighty percent (80%) of the average closing sales price for the
Common Stock for the twenty (20) trading days preceding March 31, 1999). Under
the terms of the USAM Revolving Loan, the Company could, under certain
circumstances, be required to grant additional warrants, exercisable to purchase
up to an aggregate of 10,500 additional shares of the Company's Common Stock,
provided monies advanced pursuant to such USAM Revolving Loan are outstanding at
the time of such grants. At May 12, 1999, warrants exercisable to purchase up to
an aggregate of 17,500 shares of the Company's Common Stock had been granted
pursuant to the USAM Revolving Loan.
On March 31, 1999, the Company granted to executive officers and key
employees of the Company options pursuant to the Company's 1992 and 1998 Stock
Option Plan, as follows:
(i) The Company granted to two executive officers of the Company ten-year
options pursuant to the 1992 Stock Option Plan to purchase up to 1,800
shares each of the Company's Common Stock, at an exercise price of
$1.063 (the closing sales price for the Common Stock on March 31,
1999). Such options vested immediately;
(ii) The Company granted to a key employee of the Company ten-year options
pursuant to the 1992 Stock Option Plan to purchase up to 307 shares of
the Company's Common Stock, at an exercise price of $1.063 (the
closing sales price for the Common Stock on March 31, 1999). Such
options shall vest in equal quarterly installments over the course of
four (4) years from the date of granting; and
(iii) The Company granted to certain key employees of the Company options
pursuant to the Company's 1998 Stock Option Plan to purchase up to an
aggregate of 29,000 shares of the Company's Common Stock, at an
exercise price (the closing sales price for the Common Stock at March
31, 1999) of $1.063. Such options shall vest in equal quarterly
installments over the course of four (4) years from the date of
granting.
In connection with the above referenced issuances, the Company relied on
Section 4(2) under the Securities Act of 1933 as transactions by an issuer not
involving any public offering.
In addition, on March 31, 1999, the Company re-priced all outstanding
options under the 1992 Stock Option Plan, exercisable to purchase up to an
aggregate of 93 shares of the Company's Common Stock, to $1.063 per share (the
closing sales price of the Company's Common Stock reported by the Nasdaq
SmallCap Market as of the close of business on March 31, 1999).
12
<PAGE>
At January 1, 1999, the interest rate of the Reg S Debentures was increased
to 20% per annum (from 8% per annum) until such time as the underlying
Conversion Shares are covered by an effective registration statement filed with
the SEC or the Company redeems the same. It is not expected that the Conversion
Shares will be able to be registered with the SEC before June 30, 1999. At such
time as the underlying Conversion Shares are tradable, without regard to
registration, the interest rate shall revert to the 8% per annum.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the stockholders held February 5, 1999, the
Company's stockholders authorized a 1 for 15 reverse split of the Company's
issued and outstanding common stock, which was effected on February 11, 1999.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).1 Certificate of Amendment of the Company's Certificate of
Incorporation, dated February 11, 1999*
27 Financial Data Schedule
(b) Form 8-K
None.
- ----------
* Previously filed.
13
<PAGE>
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.
Dated: May 17, 1999
U.S. AUTOMOTIVE MANUFACTURING, INC.
By: /s/ John W. Kohut
-------------------------------
John W. Kohut,
Chairman of the Board
and principal financial officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 444,248
<SECURITIES> 0
<RECEIVABLES> 5,370,692
<ALLOWANCES> 127,319
<INVENTORY> 8,912,128
<CURRENT-ASSETS> 14,753,419
<PP&E> 12,727,213
<DEPRECIATION> 1,863,638
<TOTAL-ASSETS> 31,680,914
<CURRENT-LIABILITIES> 14,298,922
<BONDS> 0
0
0
<COMMON> 1,082
<OTHER-SE> 9,914,730
<TOTAL-LIABILITY-AND-EQUITY> 31,680,914
<SALES> 7,320,955
<TOTAL-REVENUES> 7,320,955
<CGS> 5,305,134
<TOTAL-COSTS> 5,305,134
<OTHER-EXPENSES> 1,752,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498,121
<INCOME-PRETAX> (234,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (234,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (234,466)
<EPS-PRIMARY> (0.22)<F1>
<EPS-DILUTED> (0.22)
<FN>
<F1> On February 11, 1999, the Company effected a 1-for-15 reverse stock split
of its issued and outstanding common stock. Prior Financial Data Schedules
have not been restated for the reverse stock split.
</FN>
</TABLE>
