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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number
1-13516
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3973627
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3350 North Kedzie, Chicago, Illinois 60618-5722
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 478-2323
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Units (One share Common Stock
and one Warrant) Not listed for trading
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The Chicago Stock Exchange,
Common Stock, $0.01 Par Value Nasdaq SmallCap Market
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The Chicago Stock Exchange,
Redeemable Common Stock Purchase Warrants Nasdaq SmallCap Market
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the Registrant as of April 4, 1997, was approximately
$4,125,528.
The number of shares of registrant's Common Stock, par value of $0.01 per
share, outstanding as of April 4, 1997 was 6,729,425 shares.
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TABLE OF CONTENTS
PART I....................................................................... 1
Item 1. Business............................................... 1
Item 2. Properties.............................................12
Item 3. Legal Proceedings......................................13
Item 4. Submission of Matters to Vote of Security Holders......14
PART II......................................................................14
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..............................14
Item 6. Selected Financial Data (in thousands, except for
per share data)..................................15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............18
Item 8. Financial Statements and Supplementary Data............24
Item 9. Changes in and Disagreements With Accounting
and Financial Disclosure.........................24
PART III.....................................................................25
Item 10. Directors and Executive Officers of the Registrant.....25
PART IV......................................................................25
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................25
(ii)
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PART 1
ITEM 1. BUSINESS(1)
GENERAL
The Company is a manufacturer and distributor of brake rotors, drums, disc
brake pads, relined brake shoes, wheel cylinders and brake hoses for the
automotive aftermarket. The Company markets approximately 50% of its product
under its UBP trademark (Universal Brake Parts) and the balance under its
customers' private labels. The Company commenced operations in 1981 as a
warehouse distributor of a wide variety of automotive aftermarket replacement
parts servicing the Chicagoland area. In the early 1990's, the Company started
shifting its focus to the brake parts segment of the business, and in the
second half of 1996 liquidated the non-brake parts warehouse distributor
business due to the lower margin and declining growth prospects of this segment
of the business. The Company manufactures disc brake rotors in its Laredo,
Texas facility, and formulates and manufactures conventional as well as
integrally molded disc brake pads at its North American Friction plant, located
in Toronto, Canada. In October 1995, it acquired a foundry in Budapest,
Hungary which presently makes iron castings for numerous industries, but which
could be capable of supplying brake rotors for the Company's internal
requirements should certain significant additional equipment investment be
made.
The Company believes it is the leading supplier of "value line" brake
parts (brake parts sold at prices significantly below those of certain leading
national brand name brake parts) to mass-market retailers, traditional
warehouse distributors and specialty undercar distributors in North America.
Many of the Company's "value line" competitors specialize in only one category
of brake parts. By offering a full line of "value line" products in each of
such categories, the Company believes it has an advantage over those
competitors offering "value line" products in fewer brake part categories in
light of the industry trend to consolidate the number of suppliers of products.
The Company also conducts a wholesale "commodities" operation from its
headquarters in Chicago, Illinois, purchasing certain automotive replacement
parts and maintenance items in large volume, at favorable prices, and reselling
such products at slightly higher prices.
In each of the past four years, the Company has experienced a greater than
30% increase in net sales of brake rotors and other brake parts. Due to
several acquisitions and overall improvement of its brake parts business, sales
in this category increased by 60% during 1996 compared to in 1995. No
assurance can be
_____________________________
(1) Some of the statements included in Item 1, Business, may be
considered to be "forward looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "the Company
anticipates," "believes" or "expects" indicate that it is possiblle that the
event anticipated, believed or expected may not occur. Should such event not
occur, then the result which the Company expected also may not occur occur in a
ddiferent manner, which may be more or less favorable to the Company. The
Company does not undertake any obligation to publicly release the result of any
revisions to these forward looking statements that may be made to reflect any
future events or circumstances.
Readers should carefully review the items included under the
subsection Risks Affecting Forward Looking Statements and Stock Prices, as they
relate to forward looking statements as actual results could differ materially
from those projected in the forward looking statement.
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given that this percentage increase in sales will continue at such level in
the future. The Company currently markets its UBP Universal Brake Parts line
to warehouse distributors, mass market retailers (e.g. Hi-Lo Auto Supply,
Discount Autoparts, AutoWorks, APS, ISW), specialty, "under-the-car"
distributors, national franchise and chain installers (e.g. Meineke, Midas,
Monroe Muffler, Speedy Muffler and Car-X) located throughout the United States
and Canada, principally through the Company's salespeople, independent sales
representatives and telemarketing. The Company has recently been named a
primary private label brake rotor and drum supplier to the national buying
groups Pronto, AAAD and the Independent Auto Parts Association.
Net sales of brake rotors and other brake parts account for an
increasingly significant portion of the Company's total net sales and gross
profits. The following table sets forth, for the three years ended December
31, 1994, 1995 and 1996, net sales attributable to brake parts and all other
Company operations as a percentage of total net sales, and gross profits
attributable to sales of brake parts and sales from all other Company
operations as a percentage of total gross profits.
<TABLE>
<CAPTION>
Year Ended December 31,
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1994 1995 1996
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% OF TOTAL % OF TOTAL % OF TOTAL % of TOTAL % OF TOTAL % OF TOTAL
PRODUCTS NET SALES GROSS PROFITS NET SALES GROSS PROFITS NET SALES GROSS PROFITS
- -------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brake Parts(1).......... 58% 70% 64% 79% 66% 81%
All other operations(2). 42% 30% 36% 21% 34% 19%
---- ---- ---- ---- ---- ----
Total................... 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
</TABLE>
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(1) Includes sales of brake rotors and drums, wheel cylinders and brake
friction products.
(2) Includes sales of automotive hard parts, maintenance products and
accessories on a warehouse distribution and wholesale basis, and for the
period from October 2, 1995 through December 31, 1996 revenues from the
Company's Hungarian foundry operations
In October 1995, the Company acquired the assets of Csepel Iron Foundry
Works, a producer of high quality gray iron and ductile iron casting products,
located in Budapest, Hungary. The Company manufactures iron casting products
at its Hungarian foundry primarily for the European automotive and machine tool
industries. The foundry is not presently equipped to manufacture high volume,
smaller-sized items such as brake rotors. The Company may at some time in the
future upgrade the foundry (including additional equipment purchases) to
produce iron castings for brake rotors, although the Company has no present
plans to make such upgrades. All of the foundry's sales are in Europe.
The Company's strategy is to capitalize on the increasing demand for brake
rotors and other brake parts and the higher gross margins on sales of such
brake parts by expanding its brake parts manufacturing operations and its
specialty brake parts distribution business. The Company intends to seek a
combination of additional senior and subordinated debt and possible equity
financing to finance this expansion. The Company believes that it can
implement its expansion strategy by: (i) gaining additional market share of
friction brake products; (ii) purchasing additional brake rotor patterns to
increase the number of brake rotor SKUs the Company manufactures; (iii)
possibly acquiring other specialty brake parts distributors;
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(iv) increasing its marketing activities relative to new brake parts product
lines; and (v) increasing its inventories of brake parts.
As part of the Company's strategy to expand its specialty brake parts
distribution business and increase its focus on this segment, the Company has
taken the following actions:
(i) April 1995 - the Company purchased the brake rotor and drum
inventory and customer list of the passenger car division of MHD
Automotive, an Illinois-based distributor of brake parts;
(ii) June 1995 - the Company acquired the inventory and customer
list of North American Rotor, Inc., a distributor of brake drums and
rotors;
(iii) October 1995 - the Company acquired the assets of Csepel Iron
Foundry Works, with a view toward potential future upgrading in
order to eventually produce brake rotors for internal requirements
(See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Hungarian Foundry);
(iv) January 1996 - the Company, which owned 50% of the outstanding
stock of UBP Friction, Inc., a Canadian-based specialty manufacturer
of brake friction parts, acquired the remaining 50% of the
outstanding capital stock;
(v) March 1996 - the Company acquired the brake parts inventory and
customer list of MPW Brake Supply of Cambridge, Massachusetts, an
aftermarket brake parts distributor on the east coast;
(vi) June 1996 - the Company acquired the assets and goodwill of
North American Friction Inc., a Canadian manufacturer of a brake
friction component used in the Company's brake friction manufacturing
process;
(vii) September 1996 - the Company substantially liquidated its
non-brake parts warehouse/distribution division which enabled the
Company to utilize the financial, warehouse and personnel resources
previously used by such division in the Company's higher margin
brake parts business. Liquidation was substantially completed by
December 31, 1996; and
(viii) November 1996 - the Company acquired all of the assets of the
MCI Automotive Division of Excel Industries which was in bankruptcy.
Inventory was acquired at values substantially less than current
market values which the Company believes will enable it to obtain
higher margins as the product is sold. The Company also acquired a
substantial number of additional brake rotor patterns and additional
equipment to increase its manufacturing capacity.
The Company was incorporated in Delaware in January 1994 to act as a
holding company for its direct and indirect subsidiaries including: (i)
Universal Automotive, Inc., an Illinois corporation and the predecessor of the
Company ("Universal"); (ii) UBP Canholdings, Inc., an Ontario, Canada
corporation (which changed its name from 547647 Ontario Limited) which is the
parent of Universal Brake Parts, Inc., an Ontario, Canada corporation (which
changed its name from Aaron Automotive Industries, Inc.) (together
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"UBP Canholdings") and International Discus Corporation, an Ontario, Canada
corporation ("IDC"); and (iii) UBP Hungary Inc., a Delaware corporation, which
is the parent company of UBP-Csepel Iron Foundry Kft., a Hungarian limited
liability company ("UBP Hungary"). The Company conducts all of its operations
through its subsidiaries. The Company's principal executive offices are
located at 3350 North Kedzie, Chicago, Illinois 60618-5722, and its telephone
number is (773) 478-2323. Unless the context otherwise requires, the term the
"Company" includes Universal Automotive Industries, Inc. and its direct and
indirect subsidiaries, including its predecessor, Universal Automotive, Inc.
INDUSTRY OVERVIEW
General
According to the APAA After Market Fact Book 1994, the car and light truck
portion of the North American automotive parts aftermarket, which consists of
the market for replacement parts, maintenance items and accessories for new and
used cars and light trucks, totaled $170 billion in retail sales in 1994. The
replacement parts market grew 12% in 1994, the second consecutive year of
double-digit growth. According to the Automotive Industries Association of
Canada, several factors influence the demand for automotive aftermarket
products, including (i) the size of national vehicle fleets, (ii) the age of
national vehicle fleets, (iii) the number of miles driven each year, (iv) the
length and coverage of manufacturers' warranties, (v) the quality and technical
designs of vehicles, and (vi) the proliferation of auto parts.
Other factors influencing the demand for aftermarket auto parts are the
increase in the age of the automobile fleet and the number of miles driven.
According to "Lang Marketing Resources," the average age of a car in the United
States in 1996 was 8.9 years, up from 7.4 years in 1986. As cars age, and as
they are used more extensively, they require more repairs and replacement
parts.
The ultimate consumers for automotive aftermarket products can be broadly
divided into the following two categories: (i) the customer who chooses to have
his car repaired at a commercial service establishment, such as a service
station, repair shop or car dealer (the "Installer Segment"); and (ii) the
customer who chooses to make the repairs himself (the "DIY Segment").
The Company believes that in recent years there has been an industry shift
away from the traditional channels of distribution toward alternative
distribution channels, including the following: (i) manufacturers who sell
parts to mass market retailers who sell parts to the DIY customer; and (ii)
manufacturers who sell parts to warehouse distributors who sell directly to
installers that provide repair and installation services. The Company believes
the traditional warehouse jobber distribution system has suffered, and may
continue to suffer, some erosion of total market share as a result of the
expansion of such alternative distribution channels, particularly as a result
of the increased presence in the market place of the mass-market retailer.
However, the Company believes that these shifts in distribution channels will
benefit the Company, as its principal brake parts customers are beneficiaries
of this shift in distribution. This has also resulted in the Company's
decision to liquidate its warehouse/distribution business, which was adversely
impacted by such trends.
Brake System Replacement Parts
Retail sales of brake system replacement parts in the United States have
been growing faster than overall sales of automotive replacement parts.
According to Bernstein Research's Genuine Parts Company and the Market for
Automotive Replacement Parts, published in December 1991, over approximately
the last
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decade, overall sales of automotive replacement parts have grown at
about only 1% per year. According to APAA After Market Fact Book 1996, between
1993 and 1994 sales of brake system parts in the United States grew by 3%, and
between 1992 and 1993 sales grew by more than 7%. The Company believes that
brake parts sales are also rapidly growing in Canada. According to the
Automotive Industries Association of Canada, in 1991, brake parts sales in
Canada accounted for almost 25% of total automotive aftermarket replacement
parts sales as compared to the United States where brake parts sales in 1992
accounted for less than 5% of total automotive aftermarket replacement parts
sales. According to Aftermarket Business, not only are overall sales of brake
parts higher, but gross margins from the sale of such parts are also
significantly higher.
Management believes that the growth in sales of brake system replacement
parts, in particular, is attributable, in part, to modern design innovations,
including the automotive industry's shift to the production of an increased
number of front wheel drive vehicles, lighter-weight rotors and metallic brake
pads. Front wheel drive vehicles create more wear on brake rotors than rear
wheel drive vehicles. The newer metallic brake pads, which are now being
produced in the place of non-metallic brake pads (i.e.., generally asbestos
based), are abrasive and wear rotor surfaces much faster than the non-metallic
pads. Lighter weight rotors are less costly than heavier rotors, and upon
wearing down it is generally more cost effective to discard, rather than
refurbish the rotors.
PRODUCTS
In the early 1990's, the Company started shifting its focus to the brake
parts segment of the business, and in 1996 elected to discontinue the non-brake
parts warehouse distributor business due to the lower margins and declining
growth prospects of this segment of the business. The Company manufactures
disc brake rotors in its Laredo, Texas facility, and formulates and
manufactures conventional as well as integrally molded disc brake pads at its
North American Friction plant, located in Toronto, Canada. In October 1995 it
acquired a foundry in Budapest, Hungary which presently makes iron castings for
numerous industries. While this foundry could in the future produce and supply
brake rotors to the Company, it would cost approximately $4,000,000 to put the
necessary equipment into this facility. The Company lacks the funds to make
such investment and no assurances can be given that the Company will make such
additional investment.
The Company historically offered to its jobber customers a wide selection
of automotive products that cover a broad range of domestic and imported
vehicle makes and models, stocking over 40,000 SKUs consisting of automotive
hard parts, maintenance products and accessories. The Company has reduced the
scope of its jobber business to approximately 2500 SKU's, comprised of brake
parts products, with the remaining SKU's substantially sold off pursuant to an
orderly liquidation.
MARKETING AND DISTRIBUTION
Marketing
The Company organizes its marketing operations around three principal
customer groups: (i) volume purchasers of private label brake parts;(ii)
national franchise and chain installers; and (iii) Chicago area jobbers
purchasing brake parts.
Private Label Brake Parts Customers. The Company currently markets its
UBP Universal Brake Parts label line to other warehouse distributors, mass
market retailers (e.g., Hi-Lo Auto Supply, Discount
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Autoparts, AutoWorks, APS, ISW), specialty "under-the-car" distributors, and
jobbers located throughout the United States and Canada, principally through
independent sales representatives retained by the Company on a commission
basis. The Company employs two national sales managers who direct the
Company's independent sales representative network and other brake parts
marketing activities. Arrangements with the Company's independent sales
representatives may be terminated at any time by either party.
National Franchise and Chain Installers. The Company markets
predominantly private label brake parts to national franchise and chain
installers, including Meineke, Midas, Monroe Muffler, Speedy Muffler and Car-X,
through telemarketing operations conducted from the Company's headquarters
facility located in Chicago, Illinois. In certain instances, national
franchise and chain installers, or dealer associations of which they are
members, negotiate supply contracts with preferred suppliers, either
encouraging or requiring purchases from the preferred suppliers. The Company
is named as a preferred supplier to Meineke Shops which has agreed to encourage
its over 400 Meineke Shops members to purchase brake parts from the Company and
the Company has agreed to pay commissions to Meineke Shops once sales to
participating Meineke Shop members exceed a certain dollar amount. The Company
intends to increase its telemarketing operations, and anticipates that the
Company's sales to national franchise installers will continue to grow.
Jobber Customers. The Company has reduced the scope of its traditional
warehouse-distribution business to approximately 2500 SKU's, comprised of brake
parts. The Company's salespersons will continue to call on the Company's
jobber customers to market its brake parts. The Company has liquidated a
substantial portion of this inventory and has written down the balance to an
anticipated net realizable value in 1996.
Distribution
The Company provides rapid delivery of a broad variety of brake parts to
its customers. The Company operates one central warehouse at its 126,000
square foot headquarters facility located in Chicago, Illinois, and three
regional warehouses ranging in size from 4,000 to 40,000 square feet located
across North America, with one warehouse located in the western United States
in Compton, California, one warehouse located in western Canada in Vancouver,
British Columbia, and one warehouse located in eastern Canada, in North York,
Ontario. The Company has recently closed its Dallas, Texas regional warehouse
by consolidating operations at its Compton, California facility. The Company
believes that it has geographically positioned its warehouses to provide rapid
delivery of brake parts to its customers. The Company generally delivers
orders to its brake parts customers within four to five days from the time the
order is placed. The delivery time is approximately 24 hours for brake parts
ordered by customers located in the same geographical area as the specialty
warehouse. All of the Company's warehouses employ a general manager and
stock-handling employees. Customers may place their stock orders by telephone,
electronic data interchange or by facsimile. Deliveries are made from all
warehouses by common carrier.
The Company conducts a wholesale commodities operation from its
headquarters facility in Chicago, Illinois, purchasing certain automotive
replacement parts and maintenance items in large volume, at favorable prices,
and reselling such products at slightly higher prices. The Company makes large
volume purchases of products on the open market, generally buying from domestic
and foreign manufacturers and other warehouse distributors, and resells such
products to other warehouse distributors, mass market retailers and jobbers.
Such operations result in gross margins that are significantly lower than gross
margins from the Company's other operations. There can be no assurance that
future market conditions will be favorable to the Company's wholesale
commodities operations or that the Company will continue to generate sufficient
revenues or acceptable profit margins from such wholesale operations. For the
years ended December 31,
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1994, 1995, and 1996, net sales from the Company's wholesale commodities
operations accounted for approximately 15%, 16% and 15% of the Company's total
net sales, respectively, and 4%, 5% and 4% of the Company's total gross
profits, respectively.
The Company currently has no backlog for orders of its products, as the
automotive replacement parts industry requires rapid product delivery and
orders from customers for merchandise generally are filled by the Company
within 24 hours to one week of receipt.
MANUFACTURING
The Company relocated its brake rotor manufacturing operations from Canada
to Laredo, Texas during the first two quarters of 1996. The Laredo, Texas
manufacturing facility has the capacity to machine from raw castings to
finished product approximately 720,000 rotors which represents 20% of the brake
rotor SKUs marketed under the Company's private label. Such facility became
fully operational in July 1996.
The manufacture of brake rotors involves: (i) the engineering and design
of a pattern for each brake rotor SKU produced by the Company; (ii) the
formation of a raw iron casting by a foundry from the brake rotor pattern; and
(iii) the machining of the raw iron casting to the specifications for the
particular brake rotor SKU in production. The Company owns approximately 216
patterns for the brake rotors it manufactures which are used to pour the raw
iron castings. The Company provides its brake rotor patterns to several
unaffiliated foundries which pour the raw iron castings into molds made from
such patterns and deliver them to the Company for machining at its Laredo
facility. See "Suppliers and Raw Materials."
In January 1996, the Company, which owned 50% of the outstanding stock of
UBP Friction, Inc., a Canadian-based specialty manufacturer of brake friction
parts, acquired the remaining outstanding stock. The brake friction parts
manufactured by the Company consist of brake pads and shoes. These
manufacturing operations are conducted at the Company's UBP Canholdings
headquarters in North York, Ontario. In June 1996, the Company acquired the
assets and goodwill of North American Friction, Inc., a Canadian manufacturer
of a brake friction component (conventional pucks and integrally molded pads)
used in the Company's brake friction manufacturing process.
The Hungarian foundry acquired by the Company in October 1995 is not
presently equipped to produce raw iron castings for use in the manufacture of
brake rotors. The Company may in the future upgrade the foundry to enable it
to produce internally certain of the raw iron castings used by the Company in
the manufacture of brake rotors. The Company will need additional financing to
upgrade the foundry, which the Company estimates would cost approximately
$4,000,000, but can offer no assurance that it will be able to obtain such
financing on favorable terms. At present, the Company has no plans to upgrade
the foundry for this purpose. A variety of factors, including demand for
non-rotor products in Europe and the desire to continue supplying existing
foundry customers and the availability of funding for upgrading, could limit
the desirability or ability of the foundry to supply castings to the Company.
SUPPLIERS AND RAW MATERIALS
Suppliers
Product selection and purchasing functions for the Company's U.S. brake
parts business are centralized at the Company's headquarters located in
Chicago, Illinois. The Company purchases the brake part SKUs that it does not
manufacture from over a dozen suppliers located throughout the world.
Currently,
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the Company imports approximately 50% of its brake part inventories
(with the exception of friction products) from suppliers located in the
People's Republic of China with the balance from various suppliers in Mexico,
Taiwan, Italy, the United States and Canada.
Although certain suppliers may provide a majority or all of the Company's
requirements for a particular product or product subcategory, no supplier
accounted for more than 40% of the Company's U.S. total product purchases
during 1996. The Company believes that the loss of any one or more of its
suppliers would not have a material adverse effect on the Company and that
alternative sources of supply are readily available at comparable prices in all
product categories. The Company believes that its relationships with its
suppliers are good.
Tariff
The International Trade Commission ruled rotors from China materially
injured U.S. rotor manufacturers. As a result of this affirmative
determination, the U.S. Department of Commerce will direct the U.S. Customs
Service to impose anti-dumping duties on these products. As a result of the
dumping duties, prices for brake rotors manufactured in China have risen
approximately 6% to 8% since August 1996. The dumping duties can be reviewed
yearly if requested by a Chinese manufacturer or by a U.S. brake rotor
manufacturer. Depending on the results of the investigation, the tariff may be
decreased or increased. The dumping margins are plant specific and are
retroactive to the importer of record; however, the Company is not the importer
of record for this purpose.
The manufacturers of automotive aftermarket products typically provide
replacement warranties, which the Company extends to its customers. In
general, the Company is able to return to its suppliers slower moving or
overstocked items for full credit, and the Company typically exercises its
discretion to extend this same policy to its customers.
Raw Materials
The primary components used in the Company's brake rotor manufacturing
operations are raw iron castings. The Company primarily purchases raw castings
from Waupaca Foundry Inc. ("Waupaca"). Waupaca is the largest producer of
automotive rotor castings in North America. In addition to Waupaca, the
Company purchases castings from several foundries in Canada and one in Mexico.
The Company duplicates certain raw iron casting patterns used for the
production of its better selling brake rotors and places such patterns at
different foundries to assure a supply of the raw iron castings produced from
such patterns. Although the Company believes that it has developed good
relationships with the foundries that supply the Company's raw iron castings,
any of such foundries could discontinue producing such castings for the Company
at any time. The Company believes that the number of foundries equipped to
produce raw iron castings such as the ones used by the Company in its
manufacturing operations is limited. The loss of any major foundry as a
supplier of raw iron castings and an inability of the Company to identify new
foundries for the production of raw iron castings in a timely manner could have
a material adverse effect on the Company's business. In addition, there can be
no assurance that the foundries currently producing the Company's raw iron
castings will be able to accommodate the anticipated expansion of the Company's
manufacturing capabilities. The Company is continuously seeking to locate
additional foundries that would be suitable for the production of its raw iron
castings. The Hungarian foundry acquired by the Company in October 1995 is not
presently equipped to produce raw iron castings for use in the manufacture of
brake rotors and the Company has no present intention to upgrade the foundry
for this purpose.
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COMPETITION
The Company's markets are highly competitive. As a brake parts
manufacturer and distributor, the Company competes directly with other brake
part manufacturers and brake parts distributors, including Aimco (a division of
ITT Automotive, Inc.), Raybestos/Brake Products (a division of Echlin, Inc.),
Wagner Brake Products (a division of Cooper Industries, Inc.), Bendix (a
division of AlliedSignal Co.) and EIS (a division of Standard Motor Products),
as well as numerous value line manufacturers and distributors specializing in
one specific brake category.
The Company competes primarily on the basis of price, inventory
availability, delivery time and service. Many of the Company's competitors in
both the jobber and the specialty brake parts distribution markets are larger
and have greater capital, management and other resources than the Company. No
assurance can be given that the Company will continue to compete successfully
with such other competitors.
The Company encountered certain competition in its foundry operations
conducted in Budapest, Hungary; however, to date, the Company's manufacturing
capacity is at or near full capacity in the manufacture of iron casting
products for the European automotive and machine tool market. The Company
believes that there are fewer foundries competing in the European machine tool
die casting business than in other areas of production.
TRADEMARK
The Company believes that the UBP Universal Brake Parts label is important
to its marketing efforts and a significant portion of the Company's net sales
are derived from sales of brake parts which it markets under its UBP Universal
Brake Parts label. The UBP Universal Brake Parts trademark has been registered
with the United States Patent and Trademark Office and Canadian Trademarks
Office. There can be no assurance that prior registrations and/or uses of the
trademark (or a confusingly similar mark) do not exist in the United States, in
which case the Company might thereby be precluded from using such trademark in
the United States. The Company can offer no assurance that the Company's
trademark would be upheld if challenged or that the Company would not be
prevented from using its trademark, both of which could have an adverse effect
on the Company.
EMPLOYEES
As of December 31, 1996, the Company's 400 full-time employees (153 in the
United States, 93 in Canada and 154 in Hungary) were employed at the Company's
places of business in the United States, Canada and Hungary. Effective
December 31, 1995 the Company terminated its employee leasing agreement
pursuant to which the Company's United States employees were actually employed
by the employee leasing company and "leased" to the Company. Under this
agreement, the employee leasing company provided the Company's employees their
medical, unemployment, workmen's compensation and disability insurance through
group insurance plans maintained by the employee leasing company. The Company
now provides these benefits directly to its employees.
RISKS AFFECTING FORWARD LOOKING STATEMENTS AND STOCK PRICES
In addition to those matters already set forth in Item 1, Business, the
following may result in the Company not achieving certain results included in
any statement that may be considered a forward looking statement. The Company
cautions the reader that the following risk factors may not be exhaustive.
9
<PAGE> 12
EXPANSION; POSSIBLE NEED FOR ADDITIONAL FINANCING
The continued growth and financial performance of the Company will depend
in part on the Company's ability to continue to expand its business through:
(i) gaining additional market share for friction brake products; (ii) the
purchase of additional manufacturing machinery and brake rotor patterns to
increase the number of brake rotor SKUs the Company manufactures; (iii) the
possible acquisition of other brake parts manufacturers or distributors on
favorable terms; and (iv) the successful operation of the Company's Hungarian
foundry facility. While the Company regularly evaluates and discusses possible
acquisitions, it has not entered into any commitment, agreement or
understanding with any potential acquisition candidates, and there can be no
assurance that it will be successful in locating suitable acquisition
candidates or that any additional acquisitions will be consummated in the
future. In addition, there can be no assurance that any operations that may be
acquired can be effectively and profitably integrated into the Company. The
Company's future results will be affected by its ability to manage its
operations and growth effectively and to continue to obtain an adequate supply
of quality brake parts on a timely and cost-effective basis to meet the growing
demand for the Company's UBP Universal Brake Parts products. The Company can
offer no assurance that any future expansion of its operations or acquisitions
will not have an adverse effect on the Company's operating results,
particularly during the periods immediately following any such expansion or
acquisition. The Company will be required to seek additional financing to fund
its expansion through acquisitions or the upgrade of existing facilities. The
Company has no current commitments or arrangements for additional financing
there can be no assurance that additional financing will be available on
acceptable terms, or at all. The Company may also issue Common Stock or other
securities in connection with future acquisitions, resulting in additional
dilution to existing stockholders.
INDEBTEDNESS
The Company has incurred significant indebtedness, to date, in connection
with its operations. As of February 28, 1997 the Company's total consolidated
indebtedness was approximately $18.8 million. A substantial portion of this
indebtedness is secured by substantially all of the Company's assets and by a
pledge of all of the outstanding capital stock of the Company's subsidiaries.
As a result of such indebtedness, the Company (i) is prohibited from paying
cash dividends pursuant to certain covenants and restrictions contained in the
loan agreements governing such indebtedness, (ii) could be hindered in its
efforts to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate or other purposes, and
(iii) would be vulnerable to increases in interest rates since substantially
all of the Company's borrowings are at floating rates of interest.
The Company, pursuant to its credit agreement with American National Bank
& Trust Company of Chicago (which administers the Company's domestic
borrowings, and together with its affiliates, First Chicago NBD Bank, Canada,
and First National Bank of Chicago (European Branch) are hereinafter
collectively referred to as the "Bank"), agreed to satisfy certain financial
covenants, including, without limitation, ratio of liabilities to tangible net
worth, cash flow to fixed charges ratios and minimum tangible net worth. As of
December 31, 1996, the Company was in violation of its liabilities to tangible
net worth and cash flow to fixed charges ratio covenants and a covenant which
required the Company to obtain a minimum of $3,000,000 in the form of a
contribution of equity capital or the issuance of subordinated debt on or
before December 31, 1996. The Bank has entered into a waiver agreement with
the Company whereby it has waived the event of default with respect to these
covenants as of and for the quarter ended December 31, 1996. The Company
remains out of compliance with such covenants; however, the Bank has agreed to
consider extension of its waiver based upon its review of the Company's
financial statements for the first quarter of 1997. There can be no assurances
that subsequent events will not cause the Company to be in
10
<PAGE> 13
violation of any of its other covenants with the Bank. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources. The Company has obtained
unsecured loans aggregating $1,050,000 from one affiliate and certain
individuals, maturing at various times during 1997 and subordinated to the
Bank Loan. Should the Company be unable to pay off such loans when due or
extend the maturity thereof, the Company may default on such loans.
DEPENDENCE UPON KEY PERSONNEL
The Company's continued success will depend to a significant degree upon
the efforts and abilities of its senior management, in particular, Yehuda Tzur,
Arvin Scott and Eric Goodman, its Chairman of the Board, President and Chief
Executive Officer, and Executive Vice President-Canadian Operations,
respectively. The loss of the services of Mr. Tzur, Mr. Scott or Mr. Goodman
could have a material adverse effect on the Company. The Company has
employment agreements with each of these individuals. The Company maintains,
and intends to continue to maintain, key man term life insurance policies
covering the life of each of Mr. Tzur, Mr. Scott and Mr. Goodman in the amount
of $1,000,000, $1,000,000, and $1,300,000-CDN, respectively, the proceeds of
which would be payable to the Company.
ACQUISITION OF HUNGARIAN FOUNDRY
In October 1995 the Company acquired the assets of Csepel Iron Foundry
Works, a producer of high quality gray iron and ductile iron casting products,
located in Budapest Hungary. Csepel Iron Foundry Works has been a supplier of
gray iron and ductile castings to the machine tool, transport and automotive
industries in Europe for over 50 years. The Company is operating the foundry
facility in its existing location and retained the existing management and
manufacturing staff. The Company has renovated the foundry to improve its
existing manufacturing facilities. The Company can offer no assurance that its
foundry operations will be successful.
The Company's investment in the Hungarian foundry facility involves
certain special risks not usually associated with an investment in a U.S.
company, including risks related to: (i) greater social, economic and political
uncertainty; (ii) certain restrictions on foreign investment and repatriation
of capital; (iii) exchange control regulations; (iv) currency exchange rate
fluctuations, which may increase the costs associated with conversion of the
investment principal and income from one currency to another; (v) higher rates
of inflation; (vi) greater governmental involvement in the economy; and (vii)
the application of certain environmental regulations to the foundry property.
The Company has been approved for insurance from the Multilateral Investment
Guarantee Agency, an affiliate of the World Bank, to protect the Company
against risks associated with currency transfer, expropriation and war and
civil disturbances.
INSURANCE
Although the Company currently has general liability insurance for all its
operations, prior to September 1994 the Company did not have general or
products liability insurance for its brake rotor manufacturing operations. The
Company would be adversely affected if it should incur liability for a general
or products liability claim relating to an incident which occurred prior to the
time the Company obtained general and products liability coverage for its
manufacturing operations. To date, no such claim has been asserted against the
Company. In addition, the Company would be adversely affected by the
incurrance of liability which is not covered by insurance or is in excess of
policy limits.
11
<PAGE> 14
NO DIVIDENDS
The Company does not currently intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future and anticipates that earnings, if
any, will be used to finance the development and expansion of its business.
Moreover, the Company's bank lines of credit prohibit the declaration and
payment of cash dividends. Prospective investors should not expect the Company
to pay dividends on its Common Stock until such time, if any, that the Company
is able, if at all, to obtain a release of the prohibition on the payments of
dividends imposed by the terms of its credit facilities. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's
earnings, financial requirements, and other factors deemed relevant by the
Company's Board of Directors, including the Company's contractual obligations.
EXERCISE OF WARRANTS
The 1,495,000 Units sold by the Company in connection with its initial
public offering ("IPO") in December 1994 were comprised of one share of Common
Stock and one Redeemable Common Stock Purchase Warrant (the "Warrants")
entitling the holder thereof to purchase one share of Common Stock at an
exercise price of $7.00 per Share, subject to certain adjustments, at any time
until December 15, 1999, unless previously redeemed. In connection with the
IPO, the Company issued warrants (the "Underwriter's Warrants") entitling the
Underwriter to purchase from the Company, at an exercise price per
Underwriter's Warrant of $7.25, up to 130,000 Units comprised of one share of
Common Stock and one Warrant. On January 24, 1996, the Underwriter and its
assignees exercised the Underwriter's Warrants then held (an aggregate of
130,000 Warrants). Based on the Underwriting Agreement, the holders of such
Underwriter's Warrants elected to exchange shares of Common Stock (78,675
shares) whose then current market value was equal to the total required
exercise price of $942,500 (130,000 units at $7.25). Thus, an additional
51,325 shares of Common Stock were issued to the Underwriter, (or certain
employees thereof, who had been assigned certain of such Underwriter's
Warrants) without any cash consideration to the Company. The exercise price of
the Underwriter's Warrants included in such units is 160% of the exercise price
($7.00) of the aforementioned warrants issued to the public (or $11.20). Such
Warrants have not yet been exercised.
For the life of the Warrants, the holders thereof are given the
opportunity to profit from a rise in the market price for the Company's
securities without assuming the risk of ownership, with a resulting dilution in
the interest of other security holders. As long as such Warrants remain
unexercised, the terms under which the Company could obtain additional capital
may be adversely affected. Moreover, the holders of such Warrants may be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new offering of its securities on
terms more favorable than those provided by such Warrants.
12
<PAGE> 15
ITEM 2. PROPERTIES
The following table sets forth the general location, principal uses and
approximate size of the Company's principal properties and whether such
properties are leased or owned:
<TABLE>
<CAPTION>
Approximate Leased
Area or
Location Use in Square Feet Owned
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chicago, Illinois Company headquarters, 126,000 Owned
executive and sales offices
and full-service warehouse
- ------------------------------------------------------------------------------------
Budapest, Hungary Foundry 270,000 Owned
- ------------------------------------------------------------------------------------
North York, Ontario, Canada Executive and sales offices, 40,000 Leased
brake friction parts
manufacturing and specialty
brake parts warehouse
- ------------------------------------------------------------------------------------
Compton, California Specialty brake parts warehouse 25,000 Leased
- ------------------------------------------------------------------------------------
Vancouver, British
Columbia, Canada Specialty brake parts warehouse 4,000 Leased
- ------------------------------------------------------------------------------------
North York, Ontario, Canada Conventional and integrally 17,500 Leased
molded brake pad manufacturing
- ------------------------------------------------------------------------------------
Laredo, Texas Brake parts manufacturing 50,000 Leased
====================================================================================
</TABLE>
The Company's headquarters facility located in Chicago, Illinois, which is
owned by the Company, is mortgaged to secure borrowing under the Company's
revolving credit facility and certain other indebtedness. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources. The warehouse portion of the
Company's headquarters facility (approximately 110,000 square feet) is
currently fully utilized. The Company believes that its headquarters facility
provides and will continue to provide adequate capacity for its current level
of executive operations; however, if sales continue to expand, additional
warehouse space will be needed.
The Company's approximately 240,000 square foot foundry facility located
in Budapest, Hungary, which is owned by the Company, is mortgaged to secure
borrowings under the Company's NBD Bank (Frankfurt) credit facility and term
loan. See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources.
The Company leases the North York, Ontario executive office and warehouse
facility from an unaffiliated party for approximately $137,000 per year, which
lease expires in February 1999. The Company believes that the North York
facility will provide adequate capacity for the Company's currently anticipated
brake friction manufacturing operations.
The Company leases its specialty brake parts warehouse facilities located
in Compton, California, and Vancouver, British Columbia, from unaffiliated
parties. The Company leases the North York, Ontario
13
<PAGE> 16
brake pad manufacturing facility from an unaffiliated party for approximately
$72,000 per year which lease expires in June 2000.
The Compton, California facility's annual rental is approximately $88,000
and is on a month to month basis. The Vancouver, British Columbia facility's
annual rent is approximately $21,000 and expires August 31, 1997.
The Company leases its Laredo, Texas manufacturing facility from an
unaffiliated party for approximately $60,000 per year, which lease expires in
December 1997. The Company believes that this facility will provide adequate
capacity for the Company's currently anticipated brake rotor manufacturing
operations.
The Company believes, that the above-described facilities are adequate for
the Company's current level of operations. Until June 1995, the Company leased
its former Chicago headquarters (which subsequent to May 1994 had been used
only to store obsolete inventory prior to its disposal) from a land trust
operating as a partnership comprised of three of the Company's executive
officers and directors.
ITEM 3. 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") from and to
which the Company had purchased and sold certain automotive parts in 1992 and
1993. The Trustee is seeking a total of $5.1 million in damages under two
claims. The largest claim, for approximately $4.6 million, is the result of
allegedly "voidable transactions" concerning transfers of automotive parts by
the Debtor to the Company without receiving "reasonably equivalent values."
Although the Company, which is presently defending such action, believes that
no significant liability will result, it can offer no assurance thereof. These
legal proceedings would have a material adverse effect on the Company's
business, financial condition and results of operations if judgment was entered
against the Company and it was ordered to pay a significant portion of the
damages sought. The Company has not reserved any amount for payment in
connection with the litigation.
All other legal proceedings and actions to which the Company is a party
are of an ordinary and routine nature incidental to the operations of the
Company. The Company believes that such proceedings will not, individually or
in the aggregate, have a material adverse effect on the Company's business or
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the Nasdaq SmallCap Market under the symbol
"UVSL" and on The Chicago Stock Exchange under the symbol "UVS." The
Redeemable Common Stock Purchase Warrants are listed on the Nasdaq SmallCap
Market under the symbol "UVSLW" and on The Chicago Stock Market under the
symbol "UVSWS." The following table sets forth, for the periods indicated, the
high and low sale
14
<PAGE> 17
prices per share for the Common Stock and for the Redeemable
Common Stock Purchase Warrants as reported by the Nasdaq SmallCap Market on a
quarterly basis, for the years 1995 and 1996. The Common Stock and the
Redeemable Common Stock Purchase Warrants were initially listed on the Nasdaq
SmallCap Market and on The Chicago Stock Exchange on December 15, 1994.
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
------ -----
<S> <C> <C>
1995
First Quarter ......................... $10.62 $9.50
Second Quarter ........................ 11.37 9.62
Third Quarter ......................... 11.75 10.50
Fourth Quarter ........................ 12.87 11.12
1996
First Quarter ......................... $12.00 $6.75
Second Quarter ........................ 10.75 9.50
Third Quarter ......................... 10.25 7.62
Fourth Quarter ........................ 8.00 1.25
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
HIGH LOW
------- -----
1995
First Quarter ......................... $4.87 $4.12
Second Quarter ........................ 6.37 4.37
Third Quarter ......................... 6.87 5.68
Fourth Quarter ........................ 7.00 6.00
1996
First Quarter ......................... $6.63 $4.25
Second Quarter ........................ 6.50 4.50
Third Quarter ......................... 5.25 3.88
Fourth Quarter ........................ 4.00 .50
</TABLE>
As of April 4, 1997, there were approximately 850 beneficial holders of
the Common Stock.
The Company has not paid any cash dividends on its Common Stock. The
Company does not intend to declare or pay any cash dividends on the Common
Stock in the foreseeable future and anticipates that earnings, if any, will be
used to finance the development of and expansion of its business. Moreover,
the Company's bank lines of credit prohibit the declaration and payment of cash
dividends. Any payment of future dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements, and other
factors deemed relevant by the Company's Board of Directors, including the
Company's contractual obligations. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
15
<PAGE> 18
For the period beginning on and after January 1, 1992 and terminating on
April 30, 1994, the Company elected to be treated as an "S Corporation" for
federal income tax purposes under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the Company's earnings for such
period were taxed, for federal and certain state income tax purposes, directly
to the Company's stockholders rather than to the Company. Since the
termination of its S Corporation status in April 1994, the Company has been
subject to corporate income taxation as a "C Corporation." For the period
during which the Company was an S Corporation, the Company made periodic
distributions of S Corporation income to each of its then existing stockholders
the majority of which distributions were to correspond with such stockholder's
tax liabilities associated with the Company's earnings. In 1994, the Company
made distributions of S Corporation income to stockholders in the aggregate of
$237,371, including approximately $140,000 in connection with their remaining
1993 income tax liabilities. The Company did not make distributions of S
Corporation income to stockholders for their potential tax liability, if any,
associated with the Company's earnings for the four months ended April 30,
1994, the date on which the Company terminated its S Corporation status.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following selected financial data should be read in conjunction with
the financial statements and notes thereto and Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations included
elsewhere in this Form 10-K. The statement of operations data for the years
ended December 31, 1996, 1995 and 1994 and the balance sheet data at December
31, 1996 and 1995 are derived from the audited financial statements of the
Company included elsewhere in this Form 10-K. The statement of operations data
for the years ended December 31, 1993 and 1992 and the balance sheet data at
December 31, 1994, 1993 and 1992 are derived from audited financial statements
not included herein. The pro forma data are based on the circumstances
described in the accompanying footnotes and the information discussed in Note 1
of the Notes to the Company's Consolidated Financial Statements.
16
<PAGE> 19
<TABLE>
<CAPTION>
(in thousands except for per share data)
Years Ended December 31, (1)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- ---------- --------- --------- ---------
Statement of Operations Data:
Net sales................................ $ 63,060 $ 46,815 $ 39,712 $ 33,170 $ 33,510
Cost of Sales............................ 51,785 38,748 33,405 28,248 29,335
--------- --------- ---------- --------- ---------
Gross profit............................ 11,275 8,067 6,307 4,922 4,175
Selling, general and administrative
expenses................................ 10,599 7,219 4,998 4,353 2,653
--------- --------- ---------- --------- ---------
Income from operations.................. 676 848 1,309 569 1,522
--------- --------- ---------- --------- ---------
Other expense (income):
Equity in income of affiliate........... (1) 6 (60) (181) 0
Interest expense........................ 1,184 843 689 366 296
Loss (Gain) on disposition of assets.... (44) (4) 70 0 43
Other................................... (69) (29) 7 (54) (25)
---------- --------- ---------- --------- ---------
1,070 816 706 131 314
---------- --------- ---------- --------- ---------
Income (loss) before provision for income
taxes and cumulative effect of accounting
change.................................. (394) 32 603 438 1,208
Income tax provision (2)................. 99 32 129 17 22
---------- --------- ---------- --------- ---------
Income (loss) before cumulative effect of (493) 64 474 421 1,186
accounting change........................ 0 0 47 0 0
Cumulative effect of accounting change (4) ---------- --------- ---------- --------- ---------
Net income (Loss) for period............. $ (493) $ 64 $ 521 $ 421 $ 1,186
========== ========= ========== ========= =========
Pro forma income per share (2):
Income before provision for income taxes
and cumulative effect of accounting change $ 603 $ 438
Income tax provision.................... 128 170
Income before cumulative effect ---------- ----------
of accounting change.................... 475 268
Cumulative effect of accounting change 46 0
---------- ----------
Net income $ 521 $ 268
========== ==========
Net income (loss) per common share: $ ( .07) $ .01 $ .10 $ .07
before cumulative effect adjustment..... 0 0 .01 0
Cumulative effect adjustment............ ---------- ---------- ---------- ----------
Net income (loss) per share............. $ ( .07) $ .01 $ .11 $ .07
Weighted average number of common shares ========== ========== ========== ==========
outstanding (3)......................... 6,647,796 7,129,966 4,918,630 4,078,000
========== ========== ========== ==========
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
December 31, (1)
-----------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....................... $14,268 $14,327 $11,630 $1,973 $1,909
Total assets.......................... 38,027 26,416 23,464 11,726 8,403
Long-term debt, less current portion.. 15,394 12,085 7,711 852 365
Total stockholders' equity............ 8,856 8,559 8,012 2,156 1,656
</TABLE>
- ----------------
(1) The financial data as of and for the year ended December 31, 1992
include only the operations of Universal Automotive, Inc., the
predecessor of the Company. The financial data as of and for the
year ended December 31, 1993 include the operations of the Company
and IDC. For the period from January 1, 1993 through September 30,
1993, certain Stockholders/Executive Officers owned all of the issued
and outstanding capital stock of IDC Holdings Corporation, which
owned 50% of International Discus Corporation, and the investment in
and the results of operations of International Discus Corporation are
recorded on the equity method for such period. For the period from
October 1, 1993 through December 31, 1993, IDC Holdings Corporation
owned 100% of IDC and the Company's Consolidated Financial Statements
for such period include, on a consolidated basis, the operations of
Universal and IDC. The financial data as of and for the year ended
December 31, 1994 include, on a consolidated basis, the operations of
Universal and IDC and for the period from May 1, 1994 through
December 31, 1994, also include the operations of UBP Canholdings,
which was acquired by the Company effective April 30, 1994. The
financial data as of and for the year ended December 31, 1995
include, on a consolidated basis, the operations of Universal IDC and
UBP Canholdings and, for the period from October 2, 1995 through
December 31, 1995, also include the operations of UBP Hungary which
was acquired by the Company effective October 2, 1995. Pro forma
information for UBP Hungary is not included because no financial
statements for periods prior to acquisition of the predecessor entity
are available. See Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Note 1 of the
Notes to the Company's Consolidated Financial Statements.
(2) For the period beginning on and after January 1, 1992 and
terminating on April 30, 1994, Universal elected to be treated as an
"S Corporation" under the Internal Revenue Code of 1986, as amended,
whereby income or loss of the Company is allocated to its
stockholders, by inclusion in their respective individual income tax
returns. Accordingly, no liability or provision for federal income
taxes is reflected for Universal for the years ended December 31,
1993 and 1992, and for the period from January 1, 1994 through April
30, 1994. The pro forma income per share adjustment for the years
ended December 31, 1994 and 1993 reflect a provision for federal
income taxes as if the Company were a "C Corporation" rather than an
S Corporation for such periods. See Item 5, Market for Registrant's
Common Equity and Related Stockholder Matters, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Note 2 and Note 7 of the Notes to the Company's
Consolidated Financial Statements.
(3) For the year ended December 31, 1993 common shares outstanding have
been computed using the modified treasury stock method. Shares of
common stock sold within 12 months prior to the date of the Company's
initial public offering for a per share price less than the initial
public offering price are included in the calculation of net income
per share as if they had been outstanding for the entire period. For
the year ended December 31, 1994, common shares outstanding are based
on the weighted average number of shares outstanding during the year.
For the year ended December 31, 1995, primary net income per share
is computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding
during the period using the treasury stock method based on the
average price of the stock during the period. Common stock
equivalents include shares issuable upon conversion of the Company's
warrants and options. Fully diluted net income per share is computed
by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period using
18
<PAGE> 21
the treasury stock method based on the end of the period
stock price. Because of the net loss incurred during 1996, common
stock equivalents are not included for such year in the weighted
average number of shares outstanding in determining loss per share.
See Note 2 of the Notes to the Company's Consolidated Financial
Statements.
(4) As discussed in Note 2 to the Notes to the Company's Consolidated
Financial Statements, in 1994 the Company changed its method of
determining inventory costs for financial reporting purposes to
include capitalization of inbound customs and transportation costs.
The cumulative effect on prior years of this change was $47 (net of
income taxes of $29).
(5) Certain 1995 and 1994 selling, general and administrative expenses
have been reclassified to cost of sales to conform to 1996
classifications, without affecting income from operations. Other
reclassifications of certain 1995 items have been made to conform to
1996 classifications.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(2)
GENERAL
The Company is a manufacturer and distributor of brake rotors, drums, disc
brake pads, relined brake shoes, and wheel cylinders. The Company believes it
is the leading supplier of "value line" brake parts (brake parts sold at prices
significantly below those of certain leading national brand name brake parts)
to mass-market retailers, traditional warehouse distributors and specialty
undercar distributors in North America.
Change in Tax Status. For the period beginning on and after January 1, 1992
and terminating on April 30, 1994, the Company elected to be treated as an "S
Corporation" for federal income tax purposes under Subchapter S of the Code.
As a result, the Company's earnings for such period were taxed, for federal and
certain state income tax purposes, directly to the Company's stockholders
rather than to the Company. Since the termination of its S Corporation status
in April 1994, the Company has been subject to corporate income taxation as a
"C Corporation."
___________________________________
2 Some of the statements included in Item 7, Management's Discussion and
Analysis of Financial Condition and results of Operations, may be considered to
be "forward looking statements" since such statements relate to matters which
have not yet occured. For example, phrases such as "the Company anticipate,"
"believes" or "expects" indicate that it is possible that the event
anticipated, belived or expected may not occur. Should such event not occur,
then the result which the Company expected also may not occur or occur in a
different manner, which may be more or less favorable to the Company. The
Company doe4s not undertake any obligation to publicly releasethe result of any
revisions to these forward looking statements that may be made to reflect any
future event of circumstances.
Readers should carefully review the items included in Item 1,
Description of Business - Risk Affecting Forward Looking Statements and Stock
Prices, as they relate to any forward looking statements, as actual results
could differ materially from those projected in the forward looking statement.
19
<PAGE> 22
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Net sales for the year ended December 31, 1996 increased by $16,244,688
or 35% to $63,059,515 from $46,814,827 in 1995. Such increase was due to a 60%
increase in sales in the Company's brake parts business and a full year's
revenue of the Company's Hungarian foundry which was acquired in October 1995.
This increase was achieved despite a 49% sales decrease in the Company's
non-brake parts warehouse distribution business which was liquidated in 1996.
Gross profit for the year ended December 31, 1996 increased by $3,208,112
or 40% to $11,274,779 from $8,066,667 in 1995. Gross profit margin increased
from 17.2% in 1995 to 17.9% in 1996. The increase in gross profit was attained
as sales of higher margin brake related product continued to replace sales of
discontinued non-brake warehouse distribution business and inclusion of a full
year of operations of the Company's Hungarian foundry. The increase in gross
profit margin was attained due to the fact that sales of brake related product
is at a higher margin than the sales of non brake parts which it replaced and
despite significantly lower margins reported by the Hungarian foundry.
Selling, general and administrative expenses for the year ended December
31, 1996 were $10,599,238 or a 47% increase over the 1995 year of $7,219,126.
Such increase was due primarily to: (i) an approximately $2,100,000 increase in
selling and distribution expenses of a mostly variable nature related to the
sales increase in the UBP Brake Parts business; (ii) an approximately $955,000
increase due to the inclusion of a full year's results for the Company's
Hungarian foundry; (iii) an approximately $221,000 increase due to the
acquisition in June 1996 of the North American Friction brake pad manufacturing
business; and (iv) a charge of $195,000 to increase the reserve for bad debts
to reflect collection risks associated with a certain customer.
Income from operations for the year ended December 31, 1996 decreased by
$172,000 or 20% to $675,541 from $847,541 in 1995. This decrease resulted from
an increased loss from operations for the Hungarian foundry of approximately
$572,000, which was not offset by increased income from operations in the
Company's UBP Brake Parts business.
Interest expense for the year ended December 31, 1996 increased by
$340,785 or 40% to $1,184,018 from $843,233 in 1995. Such an increase resulted
in an overall increase in the Company's borrowing under its bank line of credit
and other subordinated borrowings which were used to finance: (i) the overall
increase in sales and related increases in working capital requirements; and
(ii) purchase of equipment and improvements for the manufacturing facilities
and the Hungarian foundry. Also, subordinated borrowings bear interest at
higher rates than bank borrowings.
Income (loss) before provision for income taxes and cumulative effect of
accounting change for the year ended December 31, 1996 decreased by $426,299 to
a loss of $394,712 in 1996 from income of $31,587 in 1995. Net income (loss)
for the year ended December 31, 1996 decreased by $557,670 to a net loss of
$493,420 from net income of $64,250 in 1995. These decreases resulted from the
factors discussed above.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
20
<PAGE> 23
Net sales for the year ended December 31, 1995 increased by $7,102,698 or
18% to $46,814,827 from $39,712,129 in 1994. Such increase was due primarily to
increased sales in the Company's UBP Brake Parts distribution business. The
18% overall increase was achieved despite a 20% sales decrease in the Company's
Chicago warehouse distribution business.
Gross profit for the year ended December 31, 1995 increased by $1,759,496
or 28% to $8,066,667 from $6,307,171 in 1994. The gross profit margin increased
from 15.9% in 1994 to 17.2% in 1995. This increase is attributable primarily
to an increase in 1995 of brake part sales which generate higher gross margins
than sales of other automotive replacement parts.
Selling, general and administrative expenses for the year ended December
31, 1995 increased by $2,220,875 or 44% to $7,219,126 from $4,998,251 in 1994.
Such increase was due primarily to: (i) an approximately $1,100,000 increase
in selling and distribution expenses of a mostly variable nature related to the
sales increase in the UBP Brake Parts business; (ii) an approximately $500,000
increase due to the inclusion of UBP Canholdings' results for all of 1995,
compared to the inclusion of only eight months in 1994; (iii) an approximately
$250,000 increase in professional fees related primarily to the Company's stock
being publicly traded; (vi) an approximately $165,000 increase related to
expenses incurred by UBP Hungary, which was acquired in October, 1995; and (v)
approximately $169,000 in stock option compensation cost.
Income from operations for the year ended December 31, 1995 decreased by
$461,379 or 35% to $847,541 from $1,308,920 in 1994. This decrease resulted
from the increase in selling, general and administrative expenses.
Interest expense for the year ended December 31, 1995 increased by
$153,807 or 22% to $843,233 from $689,426 in 1994. Such increase resulted from
an increase in the Company's borrowing under its bank line of credit which was
used to finance: (i) the overall increase in sales and the related increases in
working capital requirements; and (ii) the acquisition of and improvements at
the Hungarian foundry.
Income before provision for income taxes and cumulative effect of
accounting change for the year ended December 31, 1995 decreased by $571,398 or
95% to $31,587 from $602,985 in 1994. This decrease is attributable to the
overall increase in selling, general and administrative expenses discussed
above.
Net income for the year ended December 31, 1995 decreased by $457,125 or
88% to $64,250 from $521,375 in 1994. This decrease resulted from the factors
discussed above.
Year Ended December 31, 1994 Compared To Year Ended December 31, 1993
Net sales for the year ended December 31, 1994 increased by approximately
$6,542,000 or 20%, to $39,712,129 from $33,170,049 in 1993. Such increase was
due primarily to the Company's acquisition of UBP Canholdings in April 1994,
and the inclusion of approximately $6,000,000 for UBP Canholdings' net sales
from May 1994 through December 31, 1994.
Gross profit for the year ended December 31, 1994 increased by
approximately $1,368,785 or 28%, to $6,307,171 from $4,938,386 in 1993. Such
increase in gross profit was attributable, in part, to the inclusion of IDC's
operating results on a consolidated basis for the period. For the first nine
months of 1993 the Company's investment in IDC was accounted for by the equity
method. The increase in gross profit was
21
<PAGE> 24
also attributable to the inclusion of UBP Canholdings' operating results for
the period from May 1 to December 31, 1994, which led to a higher mix of brake
parts sales on a consolidated basis and an increase in brake part sales which
generated higher gross margins.
Selling, general and administrative expenses for the year ended December
31, 1994 increased by approximately $644,872 or 15% to $4,998,251 from
$4,353,379 in 1993. Selling, general and administrative expenses for 1993
included an $866,000 bonus to an executive officer of the Company. Excluding
this 1993 bonus, the increase in selling, general and administrative expenses
for 1994 would have been $1,510,872. Such increase was due primarily to: (i)
the addition of approximately $1,300,000 of expenses as a result of the
acquisition of UBP Canholdings and the treatment of IDC's and UBP Canholdings'
(for the period from May 1, 1994 to December 31, 1994) operating results on a
consolidated basis; and (ii) approximately $200,000 in expenses incurred in
connection with the Company's relocation to its new headquarters and central
warehouse facility in June 1994.
Income from operations for the year ended December 31, 1994 increased by
approximately $723,000 or 123%, to $1,308,920, from $585,007 in 1993. This
increase resulted from the increase in gross profit of $689,426 exceeding the
increase in selling, general and administrative expenses.
Interest expense for the year ended December 31, 1994 increased by
approximately $323,000 or 88% to $689,426, from $365,651 in 1993. Such
increase resulted from: (i) an increase in the Company's borrowing under its
bank lines of credit; (ii) the purchase by the Company in January 1994 of its
new headquarters and central warehousing facility for a purchase price of
$1,750,000, all of which was financed by bank debt; (iii) the inclusion of
IDC's interest expense on a consolidated basis; (iv) increased borrowing to
finance the Company's recent acquisition of new manufacturing machinery; and
(v) an increase in the Company's lenders' reference rates of interest on which
the interest rates on a substantial portion of the Company's indebtedness were
based.
Income before provision for income taxes and cumulative effect of
accounting change for the year ended December 31, 1994 increased by
approximately $165,000 or 38%, to $602,985, from $438,132 in 1993.
Net income for the year ended December 31, 1994 increased by
approximately $100,000 or 24%, to $521,375, from $420,783 in 1993. This
increase resulted from the factors discussed above.
CAPITAL EXPENDITURES
For the year ended December 31, 1994, capital expenditures totaled
approximately $3,180,000 consisting primarily of (i) the purchase and
improvement of the Company's headquarters facility in Chicago, Illinois for
approximately $1,825,000, (ii) the purchase of new manufacturing machinery and
brake rotor patterns for approximately $885,000, and (iii) the purchase of new
warehousing and computer equipment and fixtures for approximately $340,000.
For the year ended December 31, 1995, capital expenditures totaled
approximately $1,983,000 consisting primarily of: (i) the acquisition of the
Hungarian foundry for approximately $960,000; (ii) the expenditure of
approximately $200,000 for improvements and renovations to the Hungarian
foundry; and (iii) approximately $700,000 for the acquisition of machinery and
new brake rotor SKU patterns for the raw iron castings used in the Company's
brake rotor manufacturing operations.
22
<PAGE> 25
For the years ended December 31, 1996, capital expenditures totaled
approximately $3,973,000, consisting primarily of: (i) the acquisition of
brake friction manufacturing machinery and equipment for approximately
$2,300,000; (ii) the acquisition of machinery, equipment and additional brake
rotor patterns to expand the brake rotor manufacturing capacity for
approximately $600,000; and (iii) upgrade and renovation of the Hungarian
foundry for approximately $1,000,000.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary liquidity needs have been associated
with carrying accounts receivable and maintaining inventories. Prior to the
Company's initial public offering, which was completed in December 1994, the
Company relied on internally generated funds, credit made available from
suppliers and bank lines of credit. The Company's working capital needs are
generally not seasonal in nature, although business slows down slightly during
the winter months. Certain capital expenditures have been funded through bank
loans and capital lease arrangements.
In May 1995 the Company entered into a credit agreement (the "Credit
Agreement") with NBD Bank ("NBD"), pursuant to which NBD (i) replaced all
previously existing American National Bank facilities and loans, and (ii)
consolidated existing credit facilities and loans for both the United States
and Canadian entities. The Credit Agreement, as amended from time to time,
permits revolving line of credit borrowings in amounts up to $12,000,000 due
May 18, 2000 and additional borrowings of up to $500,000 to finance equipment
purchases, to be paid off over a five-year term. Under the Agreement, the Bank
also (i) refinanced the first mortgage on the Company's headquarters for a
total of $1,300,000 due in April, 2000, and (ii) extended to the Company an
authorization to finance the acquisition of machinery and equipment. It should
be noted that NBD subsequently merged with First National Bank of Chicago, and
as a result of such merger, the Credit Agreement, as amended, has been
transferred back to its American National Bank subsidiary (collectively, the
"Bank"). In addition, as noted below, the Company also obtained an additional
$2,000,000 line of credit for equipment acquisitions and a $2,250,000 credit
facility from NBD (Frankfurt) to fund its Hungarian foundry operations.
The Agreement, as amended, contains certain limitations on dividends and
capital expenditures and requires the Company to satisfy certain financial
covenants, including, without limitation, ratios of current assets to current
liabilities, cash flow to fixed charges ratios and minimum tangible net worth.
As of December 31, 1996, the Company was in violation of three of these
financial covenants. The Bank entered into a waiver agreement whereby the Bank
waived the event of default with respect to such covenants as of and for the
quarter ended December 31, 1996. The Company anticipates, although it cannot
guarantee, that improved operations and additional financing will bring the
Company back into compliance with the loan covenants in question.
All borrowings under the Credit Agreement are at the bank's prime rate
(8.25% at December 31, 1996) and/or various LIBOR options, except for the term
loans described below, for which the Company has chosen a fixed rate. The
facilities are secured by a first lien on substantially all of the Company's
North American assets and by a pledge of all of the outstanding capital stock
of the Company's subsidiaries. At December 31, 1996, approximately $496,000 was
available for borrowing under the revolving line of credit.
The first mortgage note on the Company's headquarters facility is
payable to the Bank in quarterly installments of $16,250 plus interest. The
Company has entered into a fixed interest rate swap agreement with the Bank
which fixes the rate of interest the Company pays at a rate of 8.58%. The swap
contract is
23
<PAGE> 26
settled on a quarterly basis with the Company either paying or receiving the
difference between the fixed rate specified in the contract and the current
floating rate. For the years ended December 31, 1996 and 1995, the Company
paid a net amount of $6,495 and $657 under this agreement. The Company is
exposed to off-balance sheet risk in the event of nonperformance by the Bank;
however, the Company believes the Bank will be able to satisfy its obligation
under the contract.
The Company has outstanding notes payable to the Bank (pursuant to its
authorization to borrow up to $2,500,000 for the acquisition of machinery and
equipment) in the aggregate amount at December 31, 1996 of approximately
$1,970,000. These notes are payable in monthly installments of approximately
$62,700 including interest at rates ranging from 9.1% to 11% per annum. All of
the notes mature between 1999 and 2001 and are collateralized by first liens
on all of the Company's assets, pursuant to the Credit Agreement.
On January 2, 1996, the Bank's European branch located in Frankfurt,
Germany extended: (a) a line of credit facility of $750,000 (maturing December
31, 1997); and (b) a $1,500,000 term loan (maturing 5 years from the dates of
specific borrowings) to the Hungarian subsidiary to be used in connection with
its foundry operations in Hungary, both of which loans are secured by all the
assets of that entity. Such borrowings (denominated in Deutsche Marks) bear
interest at the bank's prime rate or various LIBOR options. As of December 31,
1996, total borrowings on the line of credit and term loan were approximately
$1,371,000.
As of December 31, 1996, the Company was obligated under notes payable
to one of its directors and a general partnership managed by another of its
directors in the aggregate principal amount of $350,000. Both notes bear
interest at the rate of 11% per annum and contain options to purchase 14,000
shares of the Company's Common Stock at $5.00 per share. Such notes mature
during 1997 and are subordinated to the Company's bank indebtedness. As of
such dates, the Company also was obligated under notes payable to four
unaffiliated persons in the aggregate principal amount of $700,000. Such notes
bear interest at rates ranging from 9% to 11% per annum and contain options to
purchase 28,000 shares of the Company's Common Stock at $5.00 per share. Such
notes mature during 1997 and are subordinated to the Company's bank
indebtedness.
As of December 31, 1996, the Company's Canadian subsidiary was
indebted to an employee in the amount of approximately $204,000 due on demand
at an annual interest rate of 11%. The Company also has due a swingline note
to one Bank in the amount of $500,000 due May 31, 1997 plus interest at rates
in effect for the Credit Agreement.
The Company believes that cash generated from operations, borrowings
under the Company's Bank lines of credit, credit from its suppliers and the net
proceeds additional financing in the form of senior or subordinated debt or
additional equity financing will be sufficient to fund its working capital
requirements and capital expenditures through 1997.
SEASONALITY
The Company's business is slightly seasonal in nature, primarily as a
result of the impact of weather conditions on the demand for automotive
replacement parts. Historically, the Company's sales and profits have been
slightly higher in the second and third calendar quarters of each year than in
the first or fourth quarters.
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<PAGE> 27
EFFECTS OF INFLATION
The Company historically has been able to diminish the effects of
inflationary cost expenses through increased prices to customers and
productivity improvements. Non-inventory cost increases, such as payroll,
supplies and services, have generally been offset through price increases.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of," requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The new standard, which was adopted in 1996,
did not have a significant effect on the Company's results of operations, cash
flows or financial position.
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting
for Stock-Based Compensation" allows companies to measure compensation cost in
connection with employee stock compensation plans using a fair market value
method or to continue to use an intrinsic value based method. The Company has
adopted only the disclosure provision of SFAS No. 123 and continues to account
for stock options in accordance with APB Opinion No. 25. The Company currently
plans to continue using the intrinsic value based method.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by
this Item 8 are included as Part IV, Item 14 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item 10 is set forth in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on June 19, 1997
(the "1997 Proxy Statement") under the sections captioned "Election of
Directors," "Executive Officers," "Certain Information Regarding the Board of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item 11 is set forth in the Company's 1997 Proxy
Statement under the section captioned "Executive Compensation and Related
Information," which section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item 12 is set forth in the Company's 1997 Proxy
Statement under the section captioned "Share Ownership of Certain Beneficial
Owners and Management," which section is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item 13 is set forth in the Company's 1997 Proxy
Statement under the section captioned "Certain Transactions," which section is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed:
(1) Financial Statements:
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.:
Independent Auditors' Reports ................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 .. F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 ............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 ......... F-5
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<PAGE> 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 ........................ F-6
Notes to Consolidated Financial Statements ............... F-8
(2) Financial Statement Schedules:
Independent Auditors' Report ............................. S-2
Schedule I -- Condensed Financial Information of
Registrant .............................................. S-3
Schedule II -- Valuation and Qualifying Accounts ......... S-5
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
3.1 Restated Certificate of Incorporation of Universal Automotive
Industries, Inc. ("UAI") (Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
3.2 Restated Bylaws of UAI (Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
4.1 Specimen Certificate for Common Stock (Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
4.2 Specimen Certificate for Warrant (Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
4.3 Form of Warrant Agreement (including form of Warrant)
(Exhibit 4.3 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
4.4 Form of Underwriter's Warrant (Exhibit 4.4 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
4.5 Restated Certificate of Incorporation of the Company
(Included as Exhibit 3.1) (Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
4.6 Restated Bylaws of UAI (Included as Exhibit 3.2) (Exhibit 4.6
to the Company's Registration Statement on Form S-1 (No. 33-85162)
as filed with the SEC on October 14, 1994)*
10.1 Form of UAI Share Option Plan (Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
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<PAGE> 30
10.2 Amended and Restated Loan and Security Agreement, dated May
12, 1994, between American National Bank and Trust Company of
Chicago and Universal Automotive, Inc. ("UA") (Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
10.3 Consent Agreement, dated October 12, 1994 by and between
American National Bank and Trust Company of Chicago and UAI and UA
(Exhibit 10.3 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.4 Letter Agreement, dated October 19, 1993 between Neelon
Casting Ltd. and IDC (Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.5 Collective Bargaining Agreement, effective March 12, 1994 by
and between International Discus Corporation ("IDC") and United
Steel Workers of America (Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.6 Shareholder's Agreement, dated May 5, 1994, by and between
UAI, Yehuda Tzur, Reuben Gabay, Sami Israel, Arvin Scott and Eric
Goodman (Exhibit 10.7 to the Company's Registration Statement on
Form S-1 (No. 33-85162) as filed with the SEC on October 14, 1994)*
10.7 Asset Purchase Agreement, dated April 30, 1994, by and
between UBP Canholdings Industries, Inc. and UA (without exhibits)
(Exhibit 10.8 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.8 Stock Exchange Agreement, dated May 5, 1994, by and between
UAI, and Yehuda Tzur, Reuben Gabay, Sami Israel and Arvin Scott
(Exhibit 10.9 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.9 Stock Exchange Agreement, dated April 30, 1994, by and
between UAI and Yehuda Tzur, Reuben Gabay, Sami Israel, Arvin Scott
and Eric Goodman (Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.10 Replacement Demand Note, dated May 12, 1994, in the amount
of $8,500,000 from UA to American National Bank and Trust Company of
Chicago (Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (No. 33-85162) as filed with the SEC on October 14, 1994)*
10.11 Commercial Mortgage, dated February 6, 1992, by LaSalle
National Bank as Trustee under Trust No. 10-06203-09 to American
National Bank and Trust Company of Chicago (Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
28
<PAGE> 31
10.12 Letter Loan Agreement, dated June 4, 1993, by and between
UBP Canholdings Industries Inc. and Howard Winick (Exhibit 10.13 to
the Company's Registration Statement on Form S-1 (No. 33-85162) as
filed with the SEC on October 14, 1994)*
10.13 Lease Agreement, dated September 12, 1989, by and between
Lion's Roar Builders Inc. and UBP Canholdings Industries Inc.
(Exhibit 10.14 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.14 Lease Agreement, dated July 29, 1993, by and between Joel
Marfield and UA (Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.15 Lease Agreement, dated February 5, 1991, by and between Sun
Life Assurance Company of Canada and IDC (Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
10.16 Lease Agreement, dated July 16, 1992 by and between Manabal
Rochester Road and UBP Canholdings Industries Inc. (Exhibit 10.17 to
the Company's Registration Statement on Form S-1 (No. 33-85162) as
filed with the SEC on October 14, 1994)*
10.17 Lease Agreement, dated July 1, 1994, by and between Clayson
Road Industrial Park and UBP Canholdings Industries Inc. (Exhibit
10.18 to the Company's Registration Statement on Form S-1 (No.
33-85162) as filed with the SEC on October 14, 1994)*
10.18 Lease Agreement, dated September 1, 1994 between Newcorp
Properties Ltd. and UBP Canholdings Industries Inc. (Exhibit 10.19
to the Company's Registration Statement on Form S-1 (No. 33-85162)
as filed with the SEC on October 14, 1994)*
10.19 Lease Agreement, dated June 1994, between 2800 Talman and
UA. (Exhibit 10.22 to the Company's Registration Statement on Form
S-1 (No. 33-85162) as filed with the SEC on October 14, 1994)*
10.20 Staff Leasing Agreement, dated February 1, 1994 by and
between UA and Alternative Employment Strategies, Inc. (Exhibit
10.24 to the Company's Registration Statement on Form S-1 (No.
33-85162) as filed with the SEC on October 14, 1994)*
10.21 Amendment to Staff Leasing Agreement, dated September 1,
1994, by and between UA. and Alternative Employment Strategies, Inc.
(Exhibit 10.25 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.22 Merchandizing and Service Agreement, dated March 1992, by
and between UA and the Association of Muffler Dealers, Inc. (Exhibit
10.26 to the Company's Registration Statement on Form S-1 (No.
33-85162) as filed with the SEC on October 14, 1994)*
10.23 Employment Agreement, dated May 5, 1994, by and between UA
and Yehuda Tzur (Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
29
<PAGE> 32
10.24 First Amendment to Employment Agreement, dated December 14,
1994, between UA and Yehuda Tzur (Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
10.25 Employment Agreement, dated May 5, 1994, by and between UA
and Arvin Scott (Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.26 First Amendment to Employment Agreement, dated December 14,
1994, between UA and Arvin Scott (Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
10.27 Employment Agreement, dated May 5, 1994, by and between UBP
Canholdings Industries Inc. and Eric Goodman (Exhibit 10.31 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
10.28 First Amendment to Employment Agreement, dated December 14,
1994, by and between UBP Canholdings Industries Inc. and Eric
Goodman (Exhibit 10.32 to the Company's Registration Statement on
Form S-1 (No. 33-85162) as filed with the SEC on October 14, 1994)*
10.29 Employment Agreement, dated May 5, 1994 by and between UA
and Reuben Gabay (Exhibit 10.33 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.30 First Amendment to Employment Agreement, dated December 14,
1994 by and between UA and Reuben Gabay (Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
10.31 Employment Agreement, dated May 5, 1994 by and between UA
and Sami Israel (Exhibit 10.35 to the Company's Registration
Statement on Form S-1 (No. 33-85162) as filed with the SEC on
October 14, 1994)*
10.32 First Amendment to Employment Agreement, dated December 14,
1994 by and between UA and Sami Israel (Exhibit 10.36 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
10.33 Letter Loan Agreement, dated August 31, 1994, by and between
NBD Bank, Canada and IDC, IDC Holdings Corporation, and UA (Exhibit
10.37 to the Company's Registration Statement on Form S-1 (No.
33-85162) as filed with the SEC on October 14, 1994)*
10.34 Demand Promissory Note, dated as of September 1, 1994 given
by UBP Canholdings Industries Inc. in favor of NBD Bank, Canada in
the principal amount of $1,250,000-CDN (Exhibit 10.40 to the
Company's Registration Statement on Form S-1 (No. 33-85162) as filed
with the SEC on October 14, 1994)*
30
<PAGE> 33
10.35 Agreement of Purchase and Sale, dated September 30, 1993 by
and between John Corrigan, Jr. and IDC Holdings Corporation with
respect to shares in the capital stock of IDC (without schedules and
exhibits). (Exhibit 10.41 to the Company's Registration Statement on
Form S-1 (No. 33-85162) as filed with the SEC on October 14, 1994)*
10.36 IDC Share Purchase Agreement, dated September 9, 1992 by and
between Seyho Investment Inc. and Douglas A. Dempsey and IDC and IDC
Holdings Corporation (without schedules and exhibits). (Exhibit
10.42 to the Company's Registration Statement on Form S-1 (No.
33-85162) as filed with the SEC on October 14, 1994)*
10.37 Amendment to IDC Share Purchase Agreement, dated January 6,
1993 by and between Seyho Investments Inc. and IDC and IDC Holdings
Corporation. (Exhibit 10.43 to the Company's Registration Statement
on Form S-1 (No. 33-85162) as filed with the SEC on October 14,
1994)*
10.38 IDC Share Purchase Agreement, dated September 31, 1992 by
and between John Corrigan, Jr. and IDC and IDC Holdings Corporation
(without schedules and exhibits) (Exhibit 10.44 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
10.39 Commercial Mortgage, dated December 29, 1993 by UA to
American National Bank and Trust Company of Chicago (Exhibit 10.45
to the Company's Registration Statement on Form S-1 (No. 33-85162)
as filed with the SEC on October 14, 1994)*
10.40 Agreement, dated January 6, 1994, by and between
Kelsey-Hayes Canada Limited and UBP Canholdings Industries Inc.
(Exhibit 10.46 to the Company's Registration Statement on Form S-1
(No. 33-85162) as filed with the SEC on October 14, 1994)*
10.41 Form of Letter Consulting Agreement between UAI and
Kensington Wells Incorporated (Exhibit 10.48 to the Company's
Registration Statement on Form S-1 (No. 33-85162) as filed with the
SEC on October 14, 1994)*
21 Subsidiaries of the Registrant
23 Consent of Altschuler Melvoin & Glasser LLP
_______________
* These exhibits are incorporated herein by reference to the registration
statement referenced after each exhibit next to which an asterisk appears.
+ Indicates executive compensation plans and arrangements.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated October 11, 1996
wherein it provided information in Item 5, Other Events.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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.
By: /s/ Arvin Scott
----------------------------------
Arvin Scott, Chief Executive Officer
Date: April 14, 1997
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated and on the dates indicated.
<TABLE>
Signatures Title Date
---------- ----- -----
<S> <C> <C>
/s/ Arvin Scott Chief Executive Officer, President and
- ---------------------------- Director (Principal Executive Officer) April 14, 1997
Arvin Scott
/s/ Jerome J. Hiss Chief Financial Officer (Principal Financial
- ---------------------------- Officer and Principal Accounting Officer) April 14, 1997
Jerome J. Hiss
/s/ Yehunda Tzur Director April 14, 1997
- ----------------------------
Yehuda Tzur
/s/ Eric Goodman Director April 14, 1997
- ----------------------------
Eric Goodman
/s/ Sami Israel Director April 14, 1997
- ----------------------------
Sami Israel
/s/ Sheldon Robinson Director April 14, 1997
- ----------------------------
Sheldon Robinson
/s/ Sol Weiner Director April 14, 1997
- ----------------------------
Sol Weiner
</TABLE>
32
<PAGE> 35
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FINANCIAL STATEMENTS AND SCHEDULES
December 31, 1996
FORMING A PART OF
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
OF
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
<PAGE> 36
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-5
Consolidated Statements of Operations, for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994 F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-8
Notes to Consolidated Financial Statements F-10
FINANCIAL STATEMENT SCHEDULES:
Independent Auditors' Report S-1
Schedule I - Condensed Financial Information of Registrant S-2
Schedule II - Valuation and Qualifying Accounts S-5
</TABLE>
F-1
<PAGE> 37
[ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Universal Automotive Industries, Inc.
We have audited the accompanying consolidated balance sheets of UNIVERSAL
AUTOMOTIVE INDUSTRIES, INC. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of wholly owned foreign
subsidiaries (Note 1) which statements reflect aggregate total assets of
$14,090,590 and $8,960,023 as of December 31, 1996 and 1995 and aggregate total
revenue of $16,250,090, $11,547,447 and $6,774,331 for the respective three
years then ended. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
the amounts included for such subsidiaries is based solely on the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Universal Automotive
Industries, Inc. as of December 31, 1996 and 1995, and the consolidated results
of their operations and cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, in 1994 the Company changed
its method of accounting for inbound customs and transportation costs.
[Signature]
Chicago, Illinois
March 19, 1997
F-2
<PAGE> 38
[BDO DUNWOODY LETTERHEAD]
================================================================================
AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE DIRECTORS OF
UBP CANHOLDINGS INC.
We have audited the consolidated balance sheets of UBP Canholdings Inc. as at
December 31, 1996 and 1995 and the consolidated statements of operations and
retained earnings and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards applicable in Canada, which do not differ significantly from those in
the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31,
1996 and 1995 and the results of its operations and its cash flows for the
years then ended in accordance with generally accepted accounting principles.
/s/ BDO Dunwoody
Chartered Accountants
Hamilton, Ontario, Canada
February 28, 1997
F-3
<PAGE> 39
ARTHUR
ANDERSEN
-------------------------------------
UBP-Csepel Iron Foundry Kft. Arthur Andersen Audit Kft
Budapest
Cyepsor u.1.
1211 -------------------------------------
East-West Business Center
H-1088 Budapest
Rakoezi ut 1-3
Postacim: 1443 Budapest 70 Pf 300/31
Telefon: (36-1) 327-7100
Telefax: (36-1) 327-7199
This is the English translation of the Hungarian original (Note 0)
Independent Auditors' Report
The English translation of the Annual Report is incomplete since the
Business Report is only available in Hungarian. Although this report is
signed, in the event of any discrepancy between the Hungarian language
original and this English language translation, the Hungarian language
version shall prevail. The following is a translation to English of the
Hungarian language original audit opinion on the complete Annual Report:
"To the quotaholder of UBP-Csepel Iron Foundry Kft:
We have audited the accompanying balance sheet of UBP-Csepel Iron
Foundry Kft. ("the Company") as at 31 December 1996, which shows total
assets of HUF'000 580,198 and a retained loss for the year of HUF'000
128,943, the related profit and loss account for the year then ended,
and the supplement (collectively "the financial statements") included in
the Company's 1996 Annual Report. The Annual Report, comprising the
financial statements and a Business Report, is the responsibility of the
Company's management. Our responsibility is to express an opinion on
the financial statements based on our audit. In addition, it is our
responsibility to assess whether the accounting information in the
Business Report is consistent with that contained in the financial
statements.
We had also audited the Company's Annual Report for the year ended
December 31, 1995 and issued an unqualified opinion. Reference is made
to our Auditors' Report dated 16 February 1996.
F-4
<PAGE> 40
ARTHUR
ANDERSEN
-2-
We conducted our audit in accordance with the International Standards on
Auditing and applicable laws and regulations in Hungary. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. Our work with respect to
the Business Report was limited to checking it within the aforementioned
scope, and did not include a review of any information other than that
drawn from the audited accounting records of the Company. We believe
that our audit provides a reasonable basis for our opinion.
This Annual Report has been prepared for the consideration of the owner
at the forthcoming General Meeting and does not reflect the effects, if
any, of resolutions that might be adopted at that meeting.
In our opinion, except for the effects, if any, of resolutions that
might be adopted at the forthcoming General Meeting, the Annual Report
has been prepared in accordance with the provisions of the Act on
Accounting and accounting principles generally accepted in Hungary and
gives a true and fair view of the financial position of the UBP-Csepel
Iron Foundry Kft. as at 31 December 1996 and of the results of its
operations for the year then ended.
Budapest, 19 February 1997
/s/Emery Jakab /s/ Laszlo Bary
Emery Jakab Laszlo Bary
Arthur Andersen Audit Kft. Registered Auditor
[KF-0660/96./V..] [K1-0363/92./XII.]
F-4(a)
<PAGE> 41
Exhibit A
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash $63,706 $401,117
Accounts receivable, trade (net of allowance
for doubtful accounts of $463,968 and
$92,461 in 1996 and 1995) 11,919,002 8,446,630
Inventories (Notes 2 and 3) 14,441,523 10,362,510
Income taxes refundable (Note 7) 183,049 302,313
Deferred income taxes (Note 7) 488,700 220,400
Prepaid expenses and other current assets 949,114 365,416
------------- -------------
28,045,094 20,098,386
------------- -------------
Property and Equipment (net of accumulated
depreciation--Notes 2 and 3) 8,836,272 5,254,644
------------- -------------
Other Assets:
Investments 0 60,316
Goodwill, net of accumulated amortization of
$77,378 and $64,112 in 1996 and 1995 (Note 2) 260,581 239,305
Other assets 884,824 763,184
------------- -------------
1,145,405 1,062,805
------------- -------------
$38,026,771 $26,415,835
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $8,583,217 $4,850,584
Long-term indebtedness, current portion (Note 6) 2,710,583 407,079
Subordinated notes (Note 4) 1,050,000 0
Accrued expenses and other current liabilities 1,432,963 513,930
------------- -------------
13,776,763 5,771,593
------------- -------------
Long-term Liabilities:
Revolving loan indebtedness (Note 5) 11,432,525 9,332,583
Long-term indebtedness, noncurrent portion (Note 6) 2,710,145 2,036,866
Deferred income taxes (Note 7) 323,213 181,818
Due to affiliates 0 201,617
Due to stockholders (Note 9) 927,724 332,371
------------- -------------
15,393,607 12,085,255
------------- -------------
Commitments and Contingencies (Notes 5, 8 and 11)
Stockholders' Equity (Note 1):
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, 6,729,425 and 6,500,000 shares
issued and outstanding) 67,294 65,000
Additional paid-in-capital 7,777,788 6,976,204
Retained earnings 1,038,465 1,531,885
Foreign currency translation adjustments ( 27,146) ( 14,102)
------------- -------------
8,856,401 8,558,987
------------- -------------
$38,026,771 $26,415,835
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 42
Exhibit B
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Consolidated Statement of Operations
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales $ 63,059,515 $ 46,814,827 $ 39,712,129
Cost of Sales 51,784,736 38,748,160 33,404,958
------------- ------------- -------------
Gross Profit 11,274,779 8,066,667 6,307,171
Selling, General and Administrative Expenses 10,599,238 7,219,126 4,998,251
------------- ------------- -------------
Income from Operations 675,541 847,541 1,308,920
------------- ------------- -------------
Other Expense (Income):
Equity in income (loss) of affiliate ( 827) 6,254 ( 60,151)
Interest expense 1,184,018 843,233 689,426
(Gain) Loss on disposition of assets ( 44,182) ( 4,093) 69,860
Other ( 68,756) ( 29,440) 6,800
------------- ------------- -------------
1,070,253 815,954 705,935
------------- ------------- -------------
Income (Loss) before Provision for Income
Taxes and Cumulative Effect of Accounting
Change ( 394,712) 31,587 602,985
------------- ------------- -------------
Income Tax Provision (Benefit) (Note 7):
Current 225,613 ( 111,081) 245,387
Deferred ( 126,905) 78,418 ( 117,000)
------------- ------------- -------------
98,708 ( 32,663) 128,387
------------- ------------- -------------
Income (Loss) before Cumulative Effect of
Accounting Change ( 493,420) 64,250 474,598
Cumulative Effect of Accounting Change -
Net of Income Taxes of $28,600 (Note 2) 0 0 46,777
------------- ------------- -------------
Net Income (Loss) ($ 493,420) $ 64,250 $ 521,375
============= ============= =============
Earnings (Loss) per Share (Note 2):
Primary:
Net income (loss) per common share ($ .07) $ .01
============= =============
Weighted average number of
common shares outstanding 6,647,796 7,129,966
============= =============
Fully diluted:
Net income per common share $ .01
=============
Weighted average number of
common shares outstanding 7,293,056
=============
Pro Forma:
Net income before cumulative effect adjustment $ .10
Cumulative effect adjustment .01
-------------
Net income per common share $ .11
=============
Weighted average number of common shares
outstanding 4,918,630
=============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 43
Exhibit C
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
Shares Paid-in Retained Translation
Outstanding Amount Capital Earnings Adjustments Total
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 4,160,000 $ 1,780 $ 409,003 $ 1,745,268 $ 2,156,051
Net Income for 1994 521,375 521,375
Distributions to S-Corporation
Stockholders for 1994 ( 237,371) ( 237,371)
Acquisition of 547647 Ontario Limited 1,040,000 10,400 412,763 423,163
Transfer to Conform to Exchange
of Shares--(Note 1) 39,820 ( 39,820) 0
Undistributed S-Corporation Earnings
Reclassified to Paid-in Capital 561,637 ( 561,637) 0
Proceeds (net) from Common stock
Offering (Note 1) 1,300,000 13,000 5,153,729 5,166,729
Foreign Currency Translation
Adjustment ($ 17,568) ( 17,568)
----------- ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1994 6,500,000 65,000 6,497,312 1,467,635 ( 17,568) 8,012,379
Net Income for 1995 64,250 64,250
Elimination of Minority Interest 309,517 309,517
Stock Options Recorded as Compensation (Note 12) 169,375 169,375
Foreign Currency Translation Adjustment 3,466 3,466
----------- ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1995 6,500,000 65,000 6,976,204 1,531,885 ( 14,102) 8,558,987
Net Loss for 1996 ( 493,420) ( 493,420)
Exercise of Warrants and Exchange of
Shares by Underwriters (Note 12) 51,325 513 ( 383) 130
Shares Issued as Partial Consideration
for Acquisitions of Assets 137,200 1,372 305,229 306,601
Shares Issued in Lieu of Cash for
Consulting/Noncompete Agreement (Note 8) 39,500 395 341,805 342,200
Exercise of Stock Options 1,400 14 6,986 7,000
Stock Options Recorded as Compensation (Note 12) 147,947 147,947
Foreign Currency Translation Adjustment ( 13,044) ( 13,044)
----------- ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1996 6,729,425 $ 67,294 $ 7,777,788 $ 1,038,465 ($ 27,146) $ 8,856,401
=========== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 44
Exhibit D
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Consolidated Statement of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ($ 493,420) $ 64,250 $ 521,375
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 1,006,808 515,870 353,139
Provision for bad debts 472,732 188,015 206,556
Write down of investment 0 0 59,485
(Gain)/loss on disposition of
assets ( 44,182) ( 4,093) 69,860
Equity in income of subsidiary ( 827) 6,254 ( 60,151)
Effect of exchange rate changes ( 13,044) 3,466 ( 17,568)
Deferred income taxes ( 126,905) 78,418 ( 117,000)
Compensation expense for stock
options 147,947 169,375 0
Increase (Decrease) in cash from
changes in:
Accounts receivable, trade ( 3,945,104) ( 1,687,887) ( 1,206,298)
Inventories ( 4,079,013) ( 1,486,530) ( 1,696,966)
Prepaid expenses and other
current assets ( 464,432) ( 337,623) ( 180,047)
Increase in other assets ( 56,332) ( 507,609) ( 190,375)
Accounts payable, trade 3,732,633 ( 706,596) 1,935,286
Accrued expenses and other
liabilities 919,860 ( 195,367) ( 194,310)
------------ ------------ ------------
Net cash used in operating activities,
forward ( 2,943,279) ( 3,900,057) ( 517,014)
------------ ------------ ------------
Cash Flows from Investing Activities:
Acquisition of subsidiary 0 ( 1,163,290) 0
(Increase) Decrease in advances to
partially owned entity ( 141,301) 330,091 ( 29,250)
Purchase of property and equipment ( 3,973,180) ( 1,028,349) ( 3,180,137)
Proceeds from disposition of assets 56,988 4,248 75,225
(Increase) Decrease in cash value
of life insurance policies ( 65,846) ( 41,135) 3,293
------------ ------------ ------------
Net cash used in investing activities,
forward ($4,123,339) ($1,898,435) ($3,130,869)
============= ============ ============
</TABLE>
F-8
<PAGE> 45
Exhibit D, Continued
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Consolidated Statement of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities,
forwarded ($ 2,943,279) ($ 3,900,057) ($ 517,014)
------------ ------------ ------------
Net cash used in investing activities,
forwarded ( 4,123,339) ( 1,898,435) ( 3,130,869)
------------ ------------ ------------
Cash Flows from Financing Activities:
Issuance of common stock 7,130 0 5,166,729
Net increase (decrease) in revolving
loan indebtedness 2,099,941 4,146,961 ( 260,049)
Proceeds on notes payable 3,535,280 1,590,780 3,744,576
Principal payments on notes payable ( 558,497) ( 2,386,899) ( 1,852,960)
Proceeds from (Payments on)
stockholder loans, net 595,353 ( 117,629) 0
Distributions to stockholders 0 0 ( 237,371)
Net proceeds from subordinated notes 1,050,000 0 0
------------ ------------ ------------
Net cash provided by financing
activities 6,729,207 3,233,213 6,560,925
------------ ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents ( 337,411) ( 2,565,279) 2,913,042
Cash and Cash Equivalents, Beginning
of Period 401,117 2,966,396 53,354
------------ ------------ ------------
Cash and Cash Equivalents, End of
Period $ 63,706 $ 401,117 $ 2,966,396
============ =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 1,151,986 $ 875,864 $ 617,057
=========== =========== ============
Income taxes $ 383,140 $ 132,903 $ 292,782
=========== =========== ============
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Assets acquired by issuance of stock $ 648,801 $ 0 $ 732,441
========== =========== ============
Equipment acquired by capital lease $ 0 $ 0 $ 240,000
========== =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 46
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 1--Structure and Common Stock Offering:
Universal Automotive Industries, Inc. (the Company) was incorporated in
January 1994 to act as a holding company for its direct and indirect
subsidiaries which as of December 31, 1996 are as follows:
Universal Automotive, Inc. (Universal), a United States Corporation.
Canadian Corporations:
UBP Canholdings, Inc. (Canholdings) and its wholly owned subsidiaries:
Universal Brake Parts, Inc.
International Discus Corporation (Inactive) (IDC)
UBP Hungary, Inc. (Hungary), a United States Corporation and its
wholly-owned subsidiary, UBP Csepel Iron Foundry, KFT, a Hungarian
limited liability company, (both formed in September, 1995).
In January 1996, the Company acquired the remaining 50% interest in UBP
Friction, Inc., which was thereupon merged into Canholdings.
On April 30, 1994, the shareholders of Universal and IDC (entities under
common control) exchanged their shares in Universal and IDC for 80%
(4,160,000 shares) of the outstanding shares of the Company. In addition,
the shareholder of Canholdings exchanged the outstanding shares of
Canholdings for 20% (1,040,000 shares) of the outstanding shares of the
Company. Immediately preceding the transaction, Universal purchased the net
assets of Aaron Automotive Industries, Inc., a United States subsidiary of
Canholdings, for book value of $27,410. The subsidiary was liquidated in
1995.
On December 15, 1994, the Company issued 1,300,000 shares of its common
stock, at $5.00 per share, in a public common stock offering. Proceeds from
the offering, net of commissions and other related expenses totalling
$1,333,271 were $5,166,729. In connection with the public offering, the
Company effected a 5,200 to 1 stock split to increase the 1,000 previously
outstanding shares of common stock to 5,200,000 shares of common stock,
therefore requiring a transfer of $39,820 from additional paid-in capital to
common stock. All references to number of shares and to per share
information in the consolidated financial statements reflect the stock split
and share authorization amount for all periods presented.
F-10
<PAGE> 47
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 1--Structure and Common Stock Offering, Continued:
The April 30, 1994 transfer of shares of Canholdings for 20% of the
outstanding shares of the Company has been recorded at the transferor's
historical cost rather than fair value as required by generally accepted
accounting principles. Management indicates there was no material
difference between the transferor's historical cost and the fair value of
the assets acquired and liabilities assumed at April 30, 1994. Assets
acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Current assets $ 2,463,610
Property and equipment 254,820
Other assets 210,303
Liabilities assumed ( 2,196,292)
------------
Purchase price 732,441
Less--minority interest (Note 3) 309,278
------------
Amount credited to stockholders' equity
on issuance of shares $ 423,163
============
</TABLE>
On September 29, 1995, Hungary acquired assets of the Csepel Iron Foundry of
Budapest, Hungary. The acquisition was accounted for as a purchase and the
cost of the acquisition was allocated to reflect the fair value of the
assets purchased:
<TABLE>
<S> <C>
Inventory $ 174,226
Property and equipment 989,064
----------
Purchase price $1,163,290
==========
</TABLE>
Supplemental unaudited pro forma information for Hungary is not included
because no financial statements for periods prior to acquisition for the
predecessor entity are available.
Note 2--Nature of Activities and Summary of Significant Accounting Policies:
Universal Automotive Industries, Inc. is engaged principally in the
manufacture and distribution of automotive brake parts and supplies
operating from facilities in Chicago, Illinois, Compton, California, Dallas
and Laredo, Texas, Vancouver, Canada and Ontario, Canada. Sales are made
throughout the United States and Canada. The Company's Hungarian subsidiary
is engaged in the manufacture of iron casting products, primarily for the
automotive and machine tool industries. All of its sales are in Europe.
F-11
<PAGE> 48
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 2--Nature of Activities and Summary of Significant Accounting Policies,
Continued:
A summary of significant accounting policies is as follows:
Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
Foreign Currency Translation--For Canholdings, the local currency is the
functional currency and translation adjustments are accumulated in a
separate component of stockholders' equity. In 1995, the local currency
was also the functional currency for Hungary. In 1996, the Company
determined that the country of Hungary's economy qualifies as a "highly
inflationary economy" and thus Hungary's financial statements have been
remeasured as if the functional currency is the U.S. dollar. Such
remeasurement creates adjustments which are included in the
determination of net income (loss).
Inventories--Inventories are stated at the lower of cost or market
value with cost generally determined using the weighted average method,
which approximates the first-in, first-out (FIFO) method.
Depreciation--Depreciation of property and equipment has been computed
under accelerated and straight line methods for financial reporting
purposes, and accelerated methods for income tax reporting purposes,
over the estimated useful lives of the assets.
Cost of Sales--The Company considers warehousing (including certain
salaries, occupancy costs, supplies) and buying expenses as an integral
component of cost of sales.
Goodwill--Goodwill represents the excess of the cost of various
companies acquired, over the fair value of the net assets at their
respective dates of acquisition. Such goodwill is being amortized over
20 to 40 years using the straight-line method.
F-12
<PAGE> 49
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 2--Nature of Activities and Summary of Significant Accounting Policies,
Continued:
Derivatives--The Company has only limited derivative financial
instruments and does not use them for trading purposes. Amounts
receivable or payable under the interest rate swap agreement are
recognized as additions to or deductions from interest expense.
Income Taxes--Until April 30, 1994, Universal had elected to be treated
as an S corporation under the Internal Revenue Code, whereby income or
loss of Universal was allocated to its stockholders, by inclusion in
their respective individual income tax returns. Accordingly, no
liability or provision for federal income taxes was reflected in the
accompanying financial statements, nor were any deferred taxes provided
for temporary differences between tax and financial reporting. However,
Universal continued to be subject to various state and local income
taxes.
Effective April 30, 1994, the S corporation election for Universal was
terminated as a result of the business combination referred to in Note
1. As a result of such termination, deferred income taxes were provided
subsequently for temporary differences between financial statement and
tax bases of certain assets and liabilities. Deferred income tax assets
and liabilities are recognized for the expected future tax consequences
of events that have been included in the financial statements or tax
returns. Under this method, deferred income tax assets and liabilities
are determined based on the financial statement and tax bases of assets
and liabilities (Note 7).
Accounting Change--During the fourth quarter of 1994, the Company
refined the method of determining inventory costs for financial
reporting purposes to include capitalization of inbound customs and
transportation costs. Previously, all inbound customs and
transportation costs had been charged to expense when incurred because
the amount of such costs that would have been capitalized as an
inventory cost were not considered material. The Company believes that
this refinement provides a better measurement of operations by more
closely matching revenue with expenses particularly since such costs
have been increasing as related to purchases of inventory. The
cumulative effect on prior years of this change was $46,777 (net of
income taxes of $28,600) or $.01 per share. The effect of this change
was to increase 1994 net income by $40,919 (net of income taxes of
$25,100) or $.01 per share.
Pro Forma Net Income per Share--Common shares outstanding for 1994 are
based on the weighted average number of common shares outstanding. For
the year ended December 31, 1994, the warrants issued in connection with
the initial public offering (Note 1) were not considered common stock
equivalents because they were not outstanding for a sufficient period of
time to qualify as a common stock equivalent.
F-13
<PAGE> 50
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 2--Nature of Activities and Summary of Significant Accounting Policies,
Continued:
Net Income Per Share--Primary net income per share is computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period using
the treasury stock method based on the average price of the stock during
the period. Common stock equivalents include shares issuable upon
conversion of the Company's warrants and options. Fully diluted net
income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period using the treasury stock method based on
the end of the period stock price.
Because of the net loss incurred during 1996, common stock equivalents
are not included for such year in the weighted average number of shares
outstanding in determining loss per share. Also, there is no
presentation of fully diluted loss per share required for 1996.
Reclassification--Certain 1995 and 1994 selling, general and
administrative expenses have been reclassified to cost of sales to
conform to 1996 classifications, without affecting income from
operations. Other reclassifications of certain 1995 items have been
made to conform to 1996 classifications.
Note 3--Selected Financial Statement Data:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Inventories:
Finished goods $13,027,987 $ 9,602,755
Work-in-process 229,588 306,625
Raw materials 1,183,948 453,130
----------- -----------
$14,441,523 $10,362,510
=========== ===========
Estimated
Lives
---------
Property, plant and equipment:
Machinery and equipment 5 to 11 years $ 4,929,024 $ 2,671,836
Building and improvements 25 to 39 years 2,734,526 1,999,040
Land 498,835 419,569
Tools and dies 5 to 11 years 539,623 53,462
Patterns 5 to 10 years 761,717 409,504
Computer equipment 3 to 5 years 457,792 315,726
Autos and trucks 3 to 5 years 351,643 366,766
Furniture and fixtures 5 to 11 years 278,346 248,771
Leasehold improvements 5 years 219,511 98,356
------------ ------------
10,771,017 6,583,030
Less accumulated depreciation ( 1,934,745) ( 1,328,386)
------------ ------------
$ 8,836,272 $ 5,254,644
============ ============
</TABLE>
F-14
<PAGE> 51
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 3--Selected Financial Statement Data, Continued:
Depreciation expense amounted to $663,746, $452,885 and $308,969, for 1996,
1995 and 1994, respectively.
Total bad debt expense included in selling, general and administrative
expenses was $472,732, $188,015 and $206,556 for the years ending 1996,
1995, and 1994, respectively.
Note 4--Subordinated Notes:
At December 31, 1996, the following notes were owing, maturing in 1997.
Such notes are subordinated to bank indebtedness (Note 5).
To a company director and a general partnership
managed by another company director (both bearing
interest at 11% per annum and containing options
to purchase 14,000 shares of company stock at
$5.00 per share) $350,000
To four nonaffiliated individuals (bearing interest at
9% to 11% and containing options to purchase 28,000
shares of company stock at $5.00 per share) 700,000
----------
$1,050,000
==========
Note 5--Revolving Loan Indebtedness:
Revolving loans payable to NBD Bank (see below) or its affiliate American
National Bank amounted to $11,432,525 and $9,332,583 at December 31, 1996
and 1995.
The Company entered into a credit agreement (the "Agreement") with NBD Bank
in May 1995. Subsequently, NBD merged with First National Bank of Chicago
which in 1996 transferred the Agreement as amended from time-to-time to
American National Bank, (collectively, the Bank). The amended Agreement
permits revolving line of credit borrowings in amounts up to $12,000,000 due
in May 2000, and additional borrowings of up to $500,000 to finance
equipment acquisitions to be paid off over a five-year term (included in
Item D in Note 6). Under the Agreement, the Bank also (i) refinanced the
first mortgage on the Company's headquarters for a total of $1,300,000 due
in April 2000 (Note 6) and (ii) extended to the Company an authorization to
finance the acquisition of machinery and equipment (Note 6(B)). The
Agreement contains certain limitations on dividends and capital expenditures
and requires the Company to satisfy certain financial tests, including,
without limitation, ratios of liabilities to tangible net worth, cash flow
to fixed charges ratios and minimum tangible net worth. At December 31,
1996, the Company had violated certain of such covenants and has received a
bank waiver therefor. All borrowings are at the bank's prime rate and/or
various LIBOR options, except for the term loans for which the Company can
choose a fixed rate. The facilities are secured by a first lien on
substantially all of the Company's North American assets. At December 31,
1996, approximately $496,000 was available for borrowing under this
Agreement.
F-15
<PAGE> 52
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 5--Revolving Loan Indebtedness, Continued:
At December 31, 1996 the Company was contingently liable under the revolving
credit agreement on outstanding letters of credit totaling approximately
$71,400.
The weighted average interest rates on the aforementioned borrowings were
7.54%, 8.26% and 7.96% for the years ended December 31, 1996, 1995, and
1994, respectively.
Because the revolving loan interest rate adjusts with changes in the market
rate of interest, management believes the fair value of the revolving loan
is equal to its carrying value.
Note 6--Long-term Indebtedness:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Long-term indebtedness consisted of the
following:
First mortgage loan on
Chicago headquarters (see A below) $1,186,250 $1,251,250
Notes payable to NBD, Canada
(see B below) 1,635,723 920,277
Note payable by Canholdings in
connection with loans made by
individuals (see C below) 203,749 91,682
Other installment notes, partially
collateralized by certain equipment
(see D below) 893,780 0
Notes payable to NBD, Frankfurt
(see E below) 1,371,207 0
Capital lease obligation (see Note 8) 130,019 180,736
---------- ----------
Total long-term indebtedness 5,420,728 2,443,945
Less current portion 2,710,583 407,079
---------- ----------
Noncurrent portion $2,710,145 $2,036,866
========== ==========
</TABLE>
(A) The first mortgage note is payable to the Bank under a $1,300,000
loan, in quarterly installments of $16,250 plus (a) interest at the
bank's prime rate (8.25% at December 31, 1996). The note matures in
April 2000 and is collateralized by a first mortgage on the Company's
headquarters in Chicago, Illinois. This note is pursuant to the May
1995 Agreement (Note 5). The Company has entered into a fixed interest
rate swap agreement with the bank, which fixes the rate of interest the
Company pays at 8.58%.
F-16
<PAGE> 53
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 6--Long-term Indebtedness, Continued:
The term of the agreement and the notional dollar amount coincides with
the terms of the first mortgage loan. The swap contract is settled on
a quarterly basis with the Company either paying or receiving the
difference between the fixed rate specified in the contract or the
current floating rate. For the years ended December 31, 1996 and 1995,
the Company paid net amounts of $6,495 and $657 under this Agreement.
The Company is exposed to off balance sheet risk in the event of
nonperformance by the bank, however, management anticipates the bank
will be able to satisfy its obligation under the contract.
(B) The notes payable to NBD, Canada are pursuant to a $2,000,000
authorization to finance equipment purchases. These notes are payable
in monthly installments of $45,086 including interest at rates ranging
from 9.1% to 11%. The notes mature from 1999 to 2001 and are
collateralized by a first lien on all of the company's assets, pursuant
to the Agreement (Note 5). At December 31, 1996, a total of $364,277
remains to be drawn on the $2,000,000 authorization.
(C) The loan payable to an individual at December 31, 1995 was paid in
full in 1996. At December 31, 1996, a loan of $203,749 was owing to an
employee. The related note is payable on demand, with interest at 11%
per annum.
(D) Other installment notes include (a) $500,000 note to the Bank, due
May 31, 1997 plus interest payable at rates in effect for the revolving
credit indebtedness (Note 5), (b) $334,400 equipment term note under
the Agreement (Note 5) due in quarterly installments of $17,600, and
(c) certain other notes aggregating $59,380.
(E) On January 2, 1996, NBD Bank (Frankfurt) extended (a) a line of
credit facility of $750,000 and (b) a $1,500,000 term loan (maturing in
5 years from the dates of specific borrowings) to the Hungarian
subsidiary both secured by all the assets of that entity. Such
borrowings (denominated in Deutsche Marks) bear interest at the bank's
prime rate or various LIBOR options. Draws under this facility mature
December 31, 1997 unless converted to term loans, which has not been
done by the Company.
Management believes that the fair value of its long-term indebtedness is
not materially different from its carrying value. Management has
estimated the fair value by discounting expected cash flows using interest
rates that management believes are approximately equal to the interest
rates currently available for similar debt issues.
F-17
<PAGE> 54
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 6--Long-term Indebtedness, Continued:
The approximate aggregate maturities of long-term indebtedness (excluding
capital leases) are:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ----------
<S> <C>
1997 $2,660,893
1998 574,697
1999 576,690
2000 1,303,828
2001 174,601
----------
$5,290,709
==========
</TABLE>
Note 7--Income Taxes:
For the four months ended April 30, 1994, Universal elected to be treated as
an S corporation under the Internal Revenue Code and therefore no provisions
for federal income taxes were reflected for Universal in the financial
statements for that period (Note 2).
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 263,000 ($105,000) $ 139,200
Foreign ( 75,387) 20,919 67,987
State 38,000 ( 27,000) 38,200
Deferred ( 126,905) 78,418 ( 117,000)
----------- ---------- ----------
$ 98,708 ($32,663) $ 128,387
=========== ========== ==========
</TABLE>
The components of the domestic net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Bad debt allowance $152,000 $28,200
Variation of inventories between
tax and financial reporting
purposes 185,300 69,800
Compensation expense for stock options 120,600 64,400
Other accruals 30,800 58,000
-------- -------
Net deferred tax assets $488,700 $220,400
======== ========
</TABLE>
F-18
<PAGE> 55
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 7--Income Taxes, Continued:
The components of the Canadian net deferred tax liabilities at
December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation differences resulting
from different bases of certain
assets for tax and financial
reporting purposes $373,213 $237,100
-------- --------
Deferred tax assets:
Tax carryforwards 40,500 48,500
Other 9,500 6,782
-------- --------
50,000 55,282
-------- --------
Net deferred tax liabilities $323,213 $181,818
======== ========
</TABLE>
A reconciliation of the provision for income taxes and the amount computed
by applying the federal statutory rate to income (loss) before income tax
expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Income (loss) before income
tax expenses and cumulative
effect of accounting change:
Domestic $ 76,168 ($598,062) $324,247
Foreign ( 470,880) 629,649 278,738
------------ ---------- --------
($394,712) $31,587 $602,985
============ ========== ========
Computed income tax expense
(benefit) at federal
statutory rate ($134,200) $10,700 $205,000
Increase (reduction)
resulting from:
Hungary loss (tax benefit
not recorded) 215,000 0 0
Deferred tax assets
recorded under SFAS 109 0 0 ( 82,800)
Other (including effect of
different foreign and
U.S. State rates) 17,908 ( 43,363) 6,187
------------ ------------ ---------
Total $98,708 ( $32,663) $128,387
============ ============ =========
</TABLE>
F-19
<PAGE> 56
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 7--Income Taxes, Continued:
At December 31, 1996 and 1995, income taxes refundable consist of:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Tax deposits in excess of taxes due $107,137 $170,313
Carryback of 1996 Canadian operating
losses 75,912 0
------------ ------------
Carryback of 1995 United States
operating losses 0 132,000
------------ ------------
$183,049 $302,313
============ ============
</TABLE>
Note 8--Leases and Other Commitments:
The Company leases from unaffiliated parties all its facilities except for
the Chicago headquarters and Hungarian foundry both of which are owned. The
lease terms range from month-to-month to long-term leases the latest of
which expires in 2000. Annual rents for the facilities range from $60,000
to $137,000.
Until June 1995, the Company leased its former Chicago headquarters from a
land trust operating as a partnership comprised of three of the Company's
stockholders. Rent paid for such facility amounted to $58,000 and $115,233
for 1995 and 1994, respectively.
Aggregate rent expense for all facilities was $526,697, $335,058 and
$543,801 for 1996, 1995 and 1994, respectively.
The Company leases certain equipment under capital leases payable in
aggregate monthly installments of $5,300 with the latest expiring in 1999.
The net book value of such equipment under capital lease is $71,000.
Certain vehicles and equipment are also leased under operating leases.
Minimum lease payments due over the remaining terms of the leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31 Leases Leases
----------------------- -------- ---------
<S> <C> <C>
1997 $ 63,641 $369,652
1998 63,641 289,261
1999 30,623 148,075
2000 105,872
2001 46,618
-------- ---------
157,905 959,478
Less interest portion 27,886
-------- ---------
$130,019 $959,478
======== =========
</TABLE>
F-20
<PAGE> 57
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 8--Leases and Other Commitments, Continued:
In 1995, the Company had entered into a consulting agreement and covenant
not to compete (both expiring in 1998) with the principals of a company
located in Dallas, Texas from which the Company acquired inventory and a
customer list. Monthly payments required under the agreements were $11,800.
In 1996, the Company satisfied the remaining unpaid balance of $342,200 by
issuing 39,500 shares of its common stock to the aforementioned individuals.
Note 9--Due to Stockholders:
Due to stockholders consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Unsecured notes payable without
interest to five original
stockholders (who are also officers
and directors) due in varying
monthly installments $157,724 $332,371
Loans made in 1996 by two of the
above parties, due in 1998, with
interest varying up to 11% per annum 770,000 0
-------- --------
$927,724 $332,371
======== ========
</TABLE>
Note 10--Geographical Segment/Major Customer Data:
The Company's operations primarily involve a single industry segment which
is the design, manufacture, sale and support of automotive brake parts.
Beginning in September 1995, the new Hungarian operation involves the
manufacture of iron casting products, primarily for the automotive and
machine tool industries. Financial information, summarized by geographical
area follows:
<TABLE>
<CAPTION>
Consolidated
Domestic Canada Europe Eliminations Total
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Period ended December 31,
1996:
Total revenue:
Unaffiliated
customers $51,035,259 $5,973,613 $6,050,643 $63,059,515
Interarea
transfers 1,771,569 4,225,834 ($5,997,403) 0
----------- ----------- ---------- ----------- -----------
Total $52,806,828 $10,199,447 $6,050,643 ($5,997,403) $63,059,515
=========== =========== ========== =========== ===========
Income (Loss)
from operations $1,197,426 $129,130 ($651,015) $675,541
=========== =========== ========== ===========
Total assets $31,946,883 $8,331,846 $4,230,008 ($6,481,966) $38,026,771
=========== =========== ========== =========== ===========
Total export
sales $ 504,692
===========
</TABLE>
F-21
<PAGE> 58
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statements
Note 10--Geographical Segment/Major Customer Data, Continued:
<TABLE>
<CAPTION>
Consolidated
Domestic Canada Europe Eliminations Total
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Period ended December 31,
1995:
Total revenue:
Unaffiliated
customers $39,864,658 $5,600,300 $1,349,869 $46,814,827
Interarea
transfers 1,694,629 7,477,203 0 ($9,171,832) 0
----------- ----------- ------------- ------------ -----------
Total $41,559,287 $13,077,503 $1,349,869 ($9,171,832) $46,814,827
=========== =========== ============= ============ ===========
Income (loss)
from operations ($54,144) $910,753 ($78,792) $69,724 $847,541
=========== =========== ============= ============ ===========
Total assets $32,757,868 $6,524,311 $2,683,367 ($15,549,711) $26,415,835
=========== =========== ============= ============ ===========
Total export
sales $ 1,098,489
===========
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Domestic Canada Eliminations Total
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Period ended December 31, 1994:
Total revenue:
Unaffiliated customers $35,952,824 $3,759,305 $39,712,129
Interarea transfers 1,492,509 3,015,026 ($4,507,535) 0
----------- ------------ ------------ -----------
Total $37,445,333 $6,774,331 ($4,507,535) $39,712,129
=========== ============ ============ ===========
Income from operations $ 610,685 $ 547,815 $ 150,420 $ 1,308,920
=========== ============ ============ ===========
Total assets $23,976,162 $6,588,635 ($7,100,738) $23,464,059
=========== ============ ============ ===========
Total export sales $ 1,706,209
===========
</TABLE>
In 1996, one customer accounted for 11% of total consolidated sales and one
vendor accounted for approximately 24% of consolidated cost of sales.
F-22
<PAGE> 59
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 11--Contingencies:
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
$5,100,000 in damages under two claims. The largest claim, for
approximately $4,600,000 is the result of alleged "voidable 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 pretrial stage) believes that no
significant liability will result and has made no provision therefor.
Further, the Company has filed a claim of some $322,000 against the Debtor
for amounts owed to it for auto parts sold to the Debtor. Because of the
Debtor's bankruptcy, no receivable is reflected for such amount.
Note 12--Stock Warrants and Options:
In connection with the public offering of common stock consummated on
December 15, 1994 (see Note 1), the Company issued 1,495,000 redeemable
common stock purchase warrants. Of this amount, 1,300,000 warrants were
part of units containing shares of common stock that were offered to the
public and 195,000 warrants were contributed by the Company in connection
with 195,000 shares of common stock that were purchased by the underwriters
from certain stockholders of the Company in exercise of an underwriter's
overallotment option. Each warrant entitles the holder to purchase one
share of the Company's common stock at an exercise price of $7.00 per share,
subject to certain adjustments, at any time until December 15, 1999. The
warrants may be redeemed, in whole or in part, at the Company's option, if
the closing bid price of the Company's common stock exceeds 175% of the
exercise price (or $12.25 per share) for 20 consecutive trading days, as
defined. Such warrants have not been exercised or redeemed.
The Company also agreed to sell to the underwriter, warrants to purchase
130,000 units (one share of common stock and one warrant, as noted above) at
a price of $.001 per unit, exercisable until December 15, 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 Company stock (78,675 shares) whose
then current market value was equal to the total required exercise price of
$942,500 (130,000 units at $7.25). Thus, an additional 51,325 shares of
Company stock were issued to the underwriter, (or certain employees thereof,
who had been assigned certain of such underwriter warrants) without any cash
consideration to the Company. The exercise price of the warrants included
in such units is 160% of the exercise price ($7.00) of the aforementioned
warrants issued to the public (or $11.20). Such warrants have not yet been
exercised.
F-23
<PAGE> 60
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidated Financial Statement
Note 12--Stock Warrants and Options, Continued:
In connection with the acquisition of Ontario on April 30, 1994 (see Note
1), the previous stockholder of Canholdings granted to each of the other
Company stockholders a nontransferable option to acquire from him for $1
that number of shares of Company common stock that have a market value of
$62,500 (Canadian), determined as of July 1, 1998, and exercisable from and
after July 1, 1998, provided that the Company consummated an initial public
offering under defined terms. Such options expire on January 1, 1999.
In October 1994, the Company adopted a Stock Option Plan for defined key
employees and others. Options granted may be either incentive stock options
as specified by the Internal Revenue Code or nonstatutory options. The
Company has reserved 300,000 shares of common stock for issuance under the
Stock Option Plan. Following is a table indicating the activity during 1995
and 1996 for such Stock Option Plan (no options were issued during 1994):
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
--------- ---------
<S> <C> <C> <C>
1996:
-----
Shares under option:
Outstanding at beginning of year 57,000 $ 1.07
Granted during year 84,526 5.00
Exercised during year ( 1,400) ( 5.00)
Forfeited ( 2,100) ( 5.00)
--------- -------
Outstanding at end of year 138,026 $ 3.38
========= =======
Options exercisable at end of year 43,805 $ 2.90
========= =======
Weighted average fair value per share
of options granted during the year $ 7.69
=======
1995:
-----
Options granted and outstanding at
end of year 57,000 $ 1.07
========= =======
Options exercisable at end of year 13,000 $ 1.31
========= =======
Weighted average fair value per share
of options granted during the year $10.75
=======
</TABLE>
F-24
<PAGE> 61
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidate Financial Statements
Note 12--Stock Warrants and Options, Continued:
The following table summarizes information about outstanding and exercisable
stock options as of December 31, 1996:
Options Outstanding
-------------------
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
-------- ----------- ----------- ---------
<S> <C> <C> <C>
$1.00 55,000 115 mo. $1.00
3.00 2,000 115 mo. 3.00
5.00 81,026 128 mo. 5.00
-------
138,026
=======
</TABLE>
Options Exercisable
-------------------
<TABLE>
<CAPTION>
Weighted-
Range of Average
Exercise Number Exercise
Prices Exercisable Price
------- ----------- --------
<S> <C> <C>
$1.00 22,000 $1.00
3.00 2,000 3.00
5.00 19,805 5.00
------
43,805
======
</TABLE>
Compensation expense is being recorded over the respective service periods
required of the optionees, based on the difference between the grant price
and the market price of the stock on the dates of such grants, as required
by APB Opinion 25, Accounting for Stock Issued to Employees. In 1996 and
1995, amounts of $147,947 and $169,375, respectively, have been provided for
such compensation expense (with offsetting credits to additional paid-in
capital).
The Company has adopted only the disclosure provisions of SFAS 123,
Accounting for Stock-Based Compensation and continues to account for stock
options in accordance with APB Opinion 25. The foregoing amount of
compensation expense for 1996 of $147,947 does not materially differ from
that which would have been recorded using the Black-Scholes option valuation
method. Accordingly, the pro forma disclosures required by SFAS 123 have
been omitted.
F-25
<PAGE> 62
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidate Financial Statements
Note 13--Quarterly Results (Unaudited):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Year
------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
1996:
Net sales $13,010,368 $19,451,798 $17,625,102 $12,972,247 $63,059,515
Net income
(loss) ( 305,167) 700,984 208,278 ( 1,097,515) ( 493,420)
Net income
(loss) per
share (.05) .10 .03 (.16) (.07)
1995:
Net sales $8,490,973 $13,028,477 $12,748,483 $12,546,894 $46,814,827
Net income
(loss) ( 149,787) 276,108 326,040 ( 388,111) 64,250
Net income
(loss) per
share (.02) .04 .05 (.06) .01
1994:
Net sales $6,925,820 $11,205,965 $10,509,272 $11,071,072 $39,712,129
Net income 134,362 255,973 96,595 34,445 521,375
Net income
per share .02 .05 .02 .01 .11
</TABLE>
1996 fourth quarter results were adversely affected by lower sales volumes
due to the phase out of the Company's traditional warehouse distribution
business, to make room for growth in the Company's higher margined brake
business. The Company also experienced higher expenses in the fourth
quarter primarily due to the charges related to the acquisitions of assets
of two entities in the latter part of 1996. A one-time pre-tax bad debt
reserve charge of $195,000 was also taken in the fourth quarter to reflect
collection risks associated with a certain customer.
The fourth quarter 1995 net loss was primarily due to the significant
unusual expenses recorded in the fourth quarter. Such expenses included (a)
a reduction in operating income of approximately $200,000 resulting from the
discovery in the fourth quarter of a computer accounting problem relating to
the recording of returned merchandise involved in sales returns (this
problem has been subsequently corrected) and (b) unusually high expenses
related to nonrecurring maintenance costs, which had been postponed by the
previous owners, required at the newly acquired Hungarian foundry (Note 1)
and other costs and interest expenses related to the acquisition of this
facility.
F-26
<PAGE> 63
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Notes to the Consolidate Financial Statements
Note 13--Quarterly Results (Unaudited), Continued:
Significant adjustments recorded in the fourth quarter of 1994 include (a) a
reduction in operating income of approximately $120,000 resulting from a
year-end book to physical inventory adjustment partially offset by a $31,000
increase in operating income resulting from the accounting change described
in Note 2, and (b) the writedown of an investment in the amount of $59,485,
both net of a reduction in the provision for certain Canadian income taxes
of approximately $25,000.
F-27
<PAGE> 64
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors
Universal Automotive Industries, Inc.
In connection with our audit of the consolidated financial statements of
Universal Automotive Industries, Inc. referred to in our report dated March 19,
1997, which is included in this Form 10-K, we have also audited Schedules I and
II as of and for the years ended December 31, 1996, 1995 and 1994. In our
opinion, these schedules present fairly, in all material respects, the
information required to be set forth therein.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
March 19, 1997
S-1
<PAGE> 65
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Balance Sheets (Not Consolidated)
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------------ ------------
<S> <C> <C>
Cash and Cash Equivalents $ 101 $ 335,986
Prepaid Expenses 38,678 0
Investment in and Advances to Wholly Owned
Subsidiaries 8,817,622 8,558,001
---------- ----------
$8,856,401 $8,893,987
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and other current liabilities $ 0 $ 10,000
Due to wholly owned subsidiary 0 325,000
------------ ------------
0 335,000
------------ ------------
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, 6,729,425 and $6,500,000 shares
issued and outstanding) 67,294 65,000
Additional paid-in capital 8,740,415 7,938,831
Retained earnings 75,838 569,258
Foreign currency translation adjustments ( 27,146) ( 14,102)
------------ ------------
8,856,401 8,558,987
------------ ------------
$8,856,401 $8,893,987
============ ============
</TABLE>
S-2
<PAGE> 66
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Statement of Operations and Retained Earnings (Not Consolidated)
For the Years Ended December 31, 1996 and 1995 and the
Initial Fiscal Period From April 30, 1994
to December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Income:
Interest income $ 0 $ 36,921 $ 2,923
Equity in net income (loss) of
subsidiaries ( 309,217) 197,390 502,085
------------ -------- --------
( 309,217) 234,311 505,008
------------ -------- --------
Expenses:
Compensation expense for stock options 147,947 169,375 0
Miscellaneous (primarily amortization) 36,256 686
------------ -------- --------
184,203 170,061 0
------------ -------- --------
Net Income (Loss) for Period ( 493,420) 64,250 505,008
Retained Earnings, Beginning of Period 569,258 505,008 0
------------ -------- --------
Retained Earnings, End of Period $ 75,838 $569,258 $505,008
============ ======== ========
</TABLE>
S-3
<PAGE> 67
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Statement of Cash Flows (Not Consolidated)
For the Years Ended December 31, 1996 and 1995 and the
Initial Fiscal Period from April 30, 1994
to December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash from Operating Activities:
Net income (loss) ($ 493,420) $ 64,250 $ 505,008
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Compensation expense for stock
options 147,947 169,375 0
Equity in net (income) loss of
subsidiaries 309,217 ( 197,390) ( 502,085)
Amortization 34,561 0 0
Decrease in accounts payable
and other current liabilities 0 ( 51,787) 0
------------ ------------ ------------
Cash provided by (used in) operating
activities ( 1,695) ( 15,552) 2,923
------------ ------------ ------------
Cash from Investing Activities:
Advances to subsidiaries (net) ( 334,190) ( 2,431,592) ( 2,447,309)
------------ ------------ ------------
Cash from Financing Activities:
Net cash proceeds from public offering 0 0 5,227,516
------------ ------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents ( 335,885) ( 2,447,144) 2,783,130
Cash and Cash Equivalents, Beginning
of Period 335,986 2,783,130 0
------------ ------------ ----------
Cash and Cash Equivalents, End of Period $ 101 $ 335,986 $ 2,783,130
============ ============ ============
</TABLE>
S-4
<PAGE> 68
SCHEDULE II
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column B Column C Column E
Balance at Charged to Balance at
Column A Beginning Costs and Column D at End of
Description of Period Expense Writeoffs Period
----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for doubtful
accounts $ 92,461 $ 472,732 $ 101,225 $ 463,968
========== ========== ========= ==========
1995:
Allowance for doubtful
accounts $ 151,851 $ 188,015 $ 247,405 $ 92,461
========== ========== ========= ==========
1994:
Allowance for doubtful
accounts $ 98,447 $ 206,556 $ 153,152 $ 151,851
========== ========== ========= ==========
Balance includes UBP Canholdings, Inc. beginning balance as of May 1, 1994, the
date of acquisition of UBP Canholdings, Inc.
1996:
Reserve for inventory
obsolescence $ 0 $ 219,836 $ 0 $ 219,836
========== ========== ========= ==========
</TABLE>
S-5
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
State of Name Under Which
Name Incorporation Subsidiary Does Business
- ---- ------------- ------------------------
Universal Automotive, Inc. Illinois UBP Universal Brake parts
UBP Canholdings, Inc. Canada N/A
UBP Brake Parts, Inc. Canada N/A
International Discus Corporation Canada N/A
UBP Hungary, Inc. Delaware N/A
UBP Csepel Iron Foundry Hungary UBP Csepel Iron Foundry, KFT
<PAGE> 1
Exhibit 23
[ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]
CONSENT OF ALTSCHULER, MELVOIN AND GLASSER LLP
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference of our report dated March 19, 1997 relating to the
consolidated financial statements and financial statement schedules of
Universal Automotive Industries, Inc. as of December 31, 1996, and for the year
then ended in the Registration Statement on Form S-8 (File No. 33-97360) as
filed with the Securities and Exchange Commission September 26, 1995.
ALTSCHULER, MELVOIN AND GLASSER LLP
Certified Public Accountants
/s/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 63,706
<SECURITIES> 0
<RECEIVABLES> 12,382,970
<ALLOWANCES> 463,968
<INVENTORY> 14,441,523
<CURRENT-ASSETS> 28,045,094
<PP&E> 10,771,017
<DEPRECIATION> 1,934,745
<TOTAL-ASSETS> 38,026,771
<CURRENT-LIABILITIES> 13,776,763
<BONDS> 14,142,670
0
0
<COMMON> 67,294
<OTHER-SE> 8,789,107
<TOTAL-LIABILITY-AND-EQUITY> 38,026,771
<SALES> 63,059,515
<TOTAL-REVENUES> 63,059,515
<CGS> 51,784,736
<TOTAL-COSTS> 51,784,736
<OTHER-EXPENSES> 10,599,238
<LOSS-PROVISION> 472,732
<INTEREST-EXPENSE> 1,184,018
<INCOME-PRETAX> (394,712)
<INCOME-TAX> 98,708
<INCOME-CONTINUING> (493,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (493,420)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
