<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-13516
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3973627
---------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3350 North Kedzie
Chicago, Illinois 60618-5722
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(312) 478-2323
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of issuer's Common Stock, par value $.01 per share,
outstanding as of May 13, 1996 was 6,551,325 shares.
<PAGE> 2
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page (s)
- - ---------------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statement of Operations
(Unaudited) - for the three months ended
March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows
(Unaudited) - for the three months ended
March 31, 1996 and 1995 5
Notes to Condensed Financial Statements (Unaudited) 6 -7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8 - 10
PART II. OTHER INFORMATION
- - ----------------------------
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE> 3
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Assets (Unaudited)
Current Assets:
Cash & cash equivalents $ 275,788 $ 401,117
Accounts receivable, trade 10,666,299 8,446,630
Inventories 10,232,832 10,362,510
Income taxes refundable 305,599 302,313
Deferred income tax benefit 210,611 220,400
Prepaid expenses and other current assets 340,776 365,416
----------- -----------
22,031,905 20,098,386
----------- -----------
Property and Equipment, net 6,686,616 5,254,644
----------- -----------
Other Assets:
Investments 0 60,316
Goodwill, net 255,422 284,305
Other assets 925,771 718,184
----------- -----------
1,181,193 1,062,805
----------- -----------
$29,899,714 $26,415,835
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade 7,655,029 4,850,584
Long-term indebtedness, current portion 652,386 407,079
Accrued expenses and other current liabilities 475,747 491,488
Income taxes payable 240 22,441
----------- -----------
8,783,402 5,771,592
----------- -----------
Long-term Liabilities:
Revolving loan indebtedness 9,589,309 9,332,584
Long-term indebtedness, non-current portion 2,782,148 2,036,866
Deferred income taxes 182,474 181,818
Due to stockholders & affiliates 277,042 533,988
----------- -----------
12,830,973 12,085,256
----------- -----------
Stockholders' Equity:
Preferred stock (authorized 1,000,000 shares,
$.01 par value, none issued or outstanding) 0 0
Common stock (authorized 15,000,000 shares,
$.01 par value, 6,551,325 and 6,500,000
shares issued and outstanding, respectively) 65,130 65,000
Additional paid-in-capital 7,945,610 6,976,204
Retained earnings 1,226,718 1,531,885
Foreign currency translation adjustments (9,620) (14,102)
Treasury stock (78,675 shares) (942,500) 0
----------- -----------
8,285,339 8,558,987
----------- -----------
$29,899,714 $26,415,835
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net Sales $13,010,368 $8,490,973
Cost of Sales 11,098,068 7,173,319
----------- ----------
Gross Profit 1,912,300 1,317,654
Selling, General and Administrative Expenses 2,093,275 1,365,692
----------- ----------
Loss from Operations (180,975) (48,038)
----------- ----------
Other Expense (Income):
Equity in income of subsidiary 0 (22,156)
Interest expense 268,235 164,151
----------- ----------
268,235 141,995
----------- ----------
Loss before Provision for Income Taxes (449,210) (190,033)
----------- ----------
Income Tax Provision (Benefit):
Current (153,832) (40,246)
Deferred 9,789 0
----------- ----------
(144,043) (40,246)
----------- ----------
Net Loss (305,167) ($149,787)
=========== ==========
Net Loss Per Share ($0.05) ($0.02)
=========== ==========
Weighted average number of common
shares outstanding 6,538,353 6,500,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($305,167) ($149,787)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 177,208 104,297
Equity in income of subsidiary 0 (22,182)
Effect of exchange rate changes 4,482 701
Compensation expense for stock options 26,906 0
Deferred income taxes 10,445 0
Changes in operating assets and liabilities
Accounts receivable, trade (2,219,669) 1,085,452
Inventories 129,678 (766,374)
Prepaid expenses and other current assets 21,354 (38,660)
Accounts payable, trade 2,804,447 (1,132,664)
Accrued expenses and other current liabilities (37,942) (423,540)
----------- -----------
Net cash from (used) in operating activities 611,742 (1,342,757)
----------- -----------
Cash Flows from Investing Activities:
Decrease in advances and loans to partially owned entity (141,301) 0
Purchase of property and equipment (1,567,994) (382,359)
Purchase of other assets and goodwill (219,890) (39,201)
----------- -----------
Net cash used in investing activities (1,929,185) (421,560)
----------- -----------
Cash Flows from Financing Activities:
Issuance of common stock 130 0
Revolving loan indebtedness 256,724 1,056,077
Net principal borrowings (payments) on notes payable 990,589 (318,401)
Payment on stockholders loans (55,329) 0
----------- -----------
Net cash provided by financing activities 1,192,114 737,676
----------- -----------
Net Decrease in Cash and Cash Equivalents (125,329) (1,026,641)
Cash and Cash Equivalents, Beginning of Period 401,117 2,966,396
----------- -----------
Cash and Cash Equivalents, End of Period $ 275,788 $ 1,939,755
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim condensed financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. Accordingly, certain disclosures
accompanying annual financial statements prepared in accordance with generally
accepted accounting principles are omitted.
In the opinion of management of Universal Automotive Industries, Inc. (the
"Company"), all adjustments, consisting solely of normal recurring adjustments,
necessary for the fair presentation of the financial statements for these
interim periods have been included. The current periods' results of operations
are not necessarily indicative of results which ultimately may be achieved for
the year.
2. INVENTORIES
<TABLE>
<CAPTION>
March 31, 1996
--------------
<S> <C>
Finished goods $ 9,206,098
Work in process 345,298
Raw materials 681,436
-----------
$10,232,832
-----------
</TABLE>
3. ACQUISITION
In May, 1996 the Company entered into a letter of intent to acquire
substantially all of the assets of a Canadian manufacturer of brake friction
parts, for approximately $1,130,000. A substantial portion of the acquisition
price will be paid for by the Company through the assumption of liabilities.
In connection with this acquisition, the seller will be subscribing for 130,000
common shares of the Company. This transaction is expected to close by the end
of May, 1996.
4. SALE OF DIVISION
In January, 1996 the Company entered into a definitive agreement to sell its
Chicago warehouse distribution business to a Chicago warehouse distributor.
The asset purchase and related agreements provide for an aggregate
consideration of approximately $2.6 million (as adjusted). The transaction,
which was scheduled to close by the end of April, 1996, was contingent upon the
purchaser's attainment of the necessary financing. As of May 13, 1996 the
purchaser has not attained the necessary financing. Accordingly, the Company
is negotiating with other potential buyers.
5. EXERCISE OF UNDERWRITERS' WARRANTS
In connection with the Company's public offering in December 1994, the Company
agreed to sell to the underwriter, warrants to purchase 130,000 units (one
share of common stock and one warrant) at a price of $.001 per unit,
exercisable until December 31, 1999, at an initial per unit exercise price
equal to 145% of the public offering price of $5.00 per unit (or an exercise
price of $7.25). On January 24, 1996, such underwriter warrants for the
purchase of 130,000 units were exercised. Based on the Underwriting Agreement,
the holders of such underwriter warrants elected to exchange shares of the
Company stock (78,675 shares) whose then current market value was equal to the
total required exercise price of $942,500 (130,000 unit at $7.25). Thus, an
additional 51,325 shares of Company stock were issued to the underwriter,
without any cash consideration to the Company.
6
<PAGE> 7
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. BASIS OF PRESENTATION
Income Taxes
The Company's effective income tax rate in 1995 of 21% varies from the federal
statutory tax rate principally due to the utilization of loss carry forwards
offsetting the income net of state taxes of one of the Canadian subsidiaries
and a higher income tax rate on the other Canadian subsidiary.
The Company's effective tax rate in 1996 of 32% varies from the federal
statutory tax rate principally due to losses in the Company's Hungarian
subsidiary for which no tax benefits are available.
Net Income Per Share
Warrants and options issued by the Company were not included in the computation
of weighted average number of shares, since their inclusion is anti-dilutive.
Foreign Currency Translation
During 1996, the company determined that Hungary qualified as a highly
inflationary economy and therefore changed its method of translating foreign
currency for its Hungarian subsidiary. The financial statements are remeasured
as if the functional currency is the U.S. dollar. The remeasurement of the
local currency into U.S. dollars creates translation adjustments which are
included in net income.
7. LEGAL PROCEEDINGS
During 1995, a lawsuit was filed against the Company in the United States
Bankruptcy Court by the Trustee of a bankrupt entity ("the Debtor") with which
the Company had transacted both purchases and sales of certain automotive parts
in 1992 and 1993. The Trustee is seeking a total of $4,100,000 in damages under
two claims. The largest claim, for approximately $3,700,000 is the result of
alleged "violable transactions" concerning transfers of product by the Debtor
to the Company without receiving "reasonably equivalent values" (as defined).
The Company believes that all transactions with the Debtor were conducted in
the ordinary course of business and at "reasonably equivalent values", and thus
disclaims any liability under these claims. The Company, which is in the midst
of defending such action, (currently in the discovery stage) believes that no
significant liability will result and has made no provisions therefor.
Further, the Company has filed a claim of some $322,000 against the Debtor for
the amounts owed to it for auto parts sold to the Debtor. Because of the
Debtor's bankruptcy, no receivable is reflected for such amount.
7. BANK FINANCING
At March 31, 1996 the Company was in violation of some of the covenants under
its credit agreement with NBD Bank. The Bank has agreed to waive these
violations, subject to certain modifications to the credit agreement.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared To Three Months Ended March 31, 1995
Net sales for the three months ended March 31, 1996 increased by
$4,519,395 or 53% to $13,010,368. Such increase was due primarily to a 60%
increase in sales in the Company's UBP brake parts business. The overall
increase was achieved despite a 30% sales decrease in the Company's Chicago
warehouse distribution business, which the company is negotiating to sell. Also
contributing to this increase were $1,723,562 in sales from the Company's
Hungarian foundry operations. The foundry was acquired in October, 1995.
Gross profits for the three months ended March 31, 1996 were 14.7% of net
sales compared to 15.5% in the same period of 1995. Such decrease in gross
profit as a percentage of net sales was due primarily to: (i) approximately
$150,000 of start up and down-time costs at the Company's brake rotor
manufacturing facility which was moved during the period from Canada to Laredo,
Texas, (ii) the 30% sales decrease in the Chicago warehouse distribution
business which was not offset by an equal reduction in cost of sales and (iii)
a low gross profit at the Company's Hungarian foundry due primarily to
disruptions caused by the implementation of the improvements and renovation
projects, which are expected to be completed by June, 1996.
Selling, general and administrative expenses for the three months ended
March 31, 1996 increased by approximately $727,000 or 53% from $1,365,692 for
the same period in 1995. Such increase was due primarily to: (i) an
approximately $350,000 increase in selling and distribution expenses of a
mostly variable nature related to the 60% increase in sales in the Company's
UBP brake parts business, (ii) an approximately $178,000 increase in expenses
incurred by UBP Hungary, which was acquired in October, 1995, (iii) an
approximately $85,000 increase in legal fees incurred by the Company in
connection with defending the lawsuit filed against the Company in the US
Bankruptcy Court (see Note 7 to Condensed Financial Statements), (iv)
approximately $50,000 in costs to move the rotor manufacturing operation from
Canada to Laredo, Texas and (v) approximately $27,000 in stock option
compensation costs.
Net loss for the three months ended March 31, 1996 was $305,167 compared
to a net loss of $149,787 for the same period in 1995. This increase in net
loss is attributed to the following:
In January 1996, the company entered into an agreement for the sale of the
assets and goodwill relative to its Chicago-area warehouse distribution
business. At the same time, the Company announced its intention to sell the
warehouse distribution business to the public. Sales from the Company's
warehouse distribution business have declined since the information was made
public. In January 1996, the Company relocated its brake rotor manufacturing
operations from Canada to Laredo, Texas. As a result of such relocation, the
Company incurred expenses related to the move for Canada to Laredo, a shut-down
of its manufacturing operations and the start-up of operations in Texas. The
Company incurred certain expenses during the three months ended March 31, 1996
in connection with the upgrade of the Hungarian foundry facility acquired in
October 1995. As discussed in Note 7 to the Condensed Financial statements, the
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION (CONTINUED)
Company is defending a lawsuit filed against the Company in the United States
Bankruptcy Court. The Company incurred additional legal fees during the three
months ended March 31, 1996 as a result of such lawsuit. Set forth below is a
breakdown of the non-recurring costs that contributed to the increase in the
Company's net loss for the three months ended March 31, 1996 as compared to the
same period in 1995.
NON-RECURRING COSTS (AFTER-TAX)
FOR THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Loss attributable to a decrease in sales of the Company Chicago
warehouse distribution division which the Company is negotiating to sell $110,000
Start up, down-time and moving costs of brake rotor manufacturing operation 136,000
Loss attributable to UBP Hungary - primarily as a result of disruptions
caused by the renovations and improvement projects which are expected
to be completed by June, 1996. 60,000
Legal fees related to the lawsuit 62,000
--------
$368,000
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities for the three months ended March 31,
1996 was $611,742. This was due primarily to; an approximately $3,000,000
increase in accounts payable resulting from extended vendor payment terms ,
which was offset by an approximately $2,200,000 increase in accounts receivable
which was a result of a substantial increase in sales over the fourth quarter
of 1995.
Net cash used in investing activities was $1,929,185, which is
attributable primarily to; the acquisition in January, 1996 of the remaining
50% of UBP Friction, Inc. and other brake friction equipment (approximately
$600,000), renovation and improvements at the Hungarian foundry (approximately
$371,000) and the acquisition of additional rotor manufacturing equipment
($515,000).
Net cash provided from financing activities was $1,192,114, consisting
primarily of long-term bank financing provided for the Hungarian foundry and
the rotor manufacturing operation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company expects to continue to finance its operations through cash
flow from the increases in sales and funds which may be made available by the
anticipated disposition of its Chicago warehouse distribution division.
However, the Company can not offer any assurances that it will be able to find
a suitable buyer for the Chicago warehouse distribution business or that its
sales of brake parts in its UBP business will continue to grow at current
rates. At March 31, 1996 the Company was in violation of various covenants
under its NBD Bank credit agreement. The Bank has agreed to waive any remedies
it may have under the credit agreement as a result of such violations, subject
to certain modifications to the credit agreement.
10
<PAGE> 11
PART II OTHER INFORMATION
- - --------------------------
Item 6 - Exhibits and Reports on Form 8-K
a) One report on Form 8-K was filed on January 18, 1996.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
/s/ ARVIN SCOTT
-----------------------------------------------
Arvin Scott, Chief Executive Officer, President
(Principal Executive Officer)
/s/ DAN MAEIR
-----------------------------------------------
Dan Maeir, Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
Date: May 13 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 275,788
<SECURITIES> 0
<RECEIVABLES> 10,666,299
<ALLOWANCES> 0
<INVENTORY> 10,232,832
<CURRENT-ASSETS> 22,031,905
<PP&E> 6,686,616
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,899,714
<CURRENT-LIABILITIES> 8,783,402
<BONDS> 2,782,148
<COMMON> 65,130
0
0
<OTHER-SE> 8,220,209
<TOTAL-LIABILITY-AND-EQUITY> 29,899,714
<SALES> 13,010,368
<TOTAL-REVENUES> 13,010,368
<CGS> 11,098,068
<TOTAL-COSTS> 13,191,343
<OTHER-EXPENSES> 268,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (449,210)
<INCOME-TAX> (144,043)
<INCOME-CONTINUING> (305,167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305,167)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
