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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, 1999
Commission File Number
1-13516
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3973627
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(State of Incorporation) (IRS Employer Identification No.)
11859 South Central Avenue, Alsip, Illinois 60803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 293-4050
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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
(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 6, 2000, was approximately
$6,387,000.
The number of shares of registrant's Common Stock, par value of $0.01
per share, outstanding as of April 6, 2000 was 6,854,310 shares.
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TABLE OF CONTENTS
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PART I............................................................................................... 1
Item 1. Business......................................................................... 1
Item 2. Properties....................................................................... 9
Item 3. Legal Proceedings................................................................ 9
Item 4. Submission of Matters to Vote of Security Holders................................10
PART II..............................................................................................10
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............10
Item 6. Selected Financial Data (in thousands, except for per share data)................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................13
Item 7a. Quantitative and Qualitative Disclosure about Market Risk........................16
Item 8. Financial Statements and Supplementary Data......................................16
Item 9. Changes in and Disagreements With Accounting and Financial Disclosure............16
PART III.............................................................................................17
Item 10. Directors and Executive Officers of the Registrant...............................17
Item 11. Executive Compensation...........................................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management...................17
Item 13. Certain Relationships and Related Transactions...................................17
PART IV..............................................................................................17
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................17
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PART I
ITEM 1. BUSINESS(1)
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.
We manufacture and distribute brake rotors, drums, disc brake pads,
relined brake shoes, non-asbestos brake lining and a complete line of hydraulic
parts for the automotive aftermarket. We market approximately 50% of our product
under our UBP trademark (Universal Brake Parts) and the balance under our
customers' private labels. We believe we are the leading North American 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. Many of our "value line" competitors specialize in only one
category of brake parts. By offering a full line of "value line" brake products,
we believe that we have 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.
We also market a premium line of brake rotors and friction products
under our Ultimate trademark. We designed the Ultimate product line to compete
at the high end of the market by providing exceptional quality and features at
slightly lower prices than the established premium brands. The Ultimate product
line, since its launch in 1997, has experienced double digit growth. All the
friction products and the majority of the rotors in the Ultimate line are
manufactured at our manufacturing facilities.
We are one of four U.S. based aftermarket disc brake rotor and drum
manufacturers. We operate a facility in Laredo, Texas which finishes raw rotor
castings into finished products. In addition, we research, develop and produce
friction products at our Toronto, Canada and Walkerton, Virginia manufacturing
plants.
We also conduct a wholesale "commodities" operation from our
headquarters in Alsip, Illinois, purchasing certain automotive replacement parts
and maintenance items in large volume, at favorable prices, and reselling such
products at slightly higher prices.
We have experienced significant growth in sales of brake rotors and
other brake parts. Due to overall improvement of our brake parts business, sales
in this category increased by $19.2 million or 45.6% to $61.3 million in 1999
compared to $42.1 million in 1996, the year that we liquidated the non-brake
parts warehouse distributor business. However, we can give no assurance that
this percentage increase in sales will continue at such level in the future. We
currently market our UBP Universal Brake Parts line to warehouse distributors,
mass market retailers, specialty, "under-the-car" distributors and national
franchise and chain installers located throughout the United States and Canada,
principally through our salespeople, independent sales representatives and
telemarketing. We have been named a primary private label brake rotor and drum
supplier to several national buying groups.
Our brake part net sales and the related gross profit as a percentage
of total net sales and gross profit (excluding the Hungarian foundry) increased
to 90.5% and 94.7%, respectively, in 1999 compared to 73.9% and 76.4%,
respectively, in 1996, the year that we liquidated the non-brake parts warehouse
distribution business.
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(1) Some of the statements included in Item 1, Business, and Item 7,
Management's Discussion and Analysis of Financial Conditions and Results of
Operations may be considered to be "forward looking statements" since such
statements relate to matters which have not yet occurred. For example, phrases
such as "we anticipate," "believe" or "expect" indicate that it is possible that
the event anticipated, believed or expected may not occur. Should such event not
occur, then the result which we expected also may not occur or occur in a
different manner, which may be more or less favorable to us. We do 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.
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In October 1995, we acquired the assets of Csepel Iron Foundry Works, a
producer of high quality gray iron and ductile iron casting products, located in
Budapest, Hungary. In December 1999, we decided to exit the foundry business.
Our plan is to market the foundry for sale and, should that effort not be
successful, then discontinue all operations at the Hungarian foundry and
liquidate. In the 1999 financial statements, we have written down the carrying
value of the foundry property to its estimated net realizable value and have
provided a reserve for estimated costs to dispose and estimated losses of the
foundry until it is disposed or liquidated. We are marketing the foundry for
immediate sale. Our disposal plan anticipates a sale or closure of the facility
no later than December 31, 2000.
Our strategy is to capitalize on the increasing demand for brake parts
and the higher gross margins on sales of such brake parts by expanding our brake
parts manufacturing and distribution business. We believe that we can implement
our expansion strategy by: (i) gaining additional market share of friction brake
products with existing drum and rotor customers; (ii) being a complete "value
line" brake part supplier; (iii) possibly acquiring other specialty brake parts
distributors; (iv) being a low cost producer of brake parts; (v) increasing our
SKU coverage to existing customers; and (vi) building brand recognition through
our Ultimate brand brake parts (a premium product line). We may seek additional
debt or equity financing to finance this expansion.
We have under consideration the proposed funding of an e-commerce
business which would be operated as a new subsidiary. We are preparing a
business plan for this proposed "business-to-business" e-commerce enterprise and
we hope to finalize the business plan within the next several months.
As part of our strategy to expand our specialty brake parts
distribution business and increase our focus on this segment, we have taken the
following actions:
(i) April 1995 - we 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 - we acquired the inventory and customer list of
North American Rotor, Inc., a distributor of brake drums and
rotors;
(iii) October 1995 - we acquired the assets of Csepel Iron Foundry
Works in Budapest, Hungary with a view toward potential future
upgrading in order to eventually produce brake rotors for
internal requirements;
(iv) January 1996 - we acquired the remaining 50% of the
outstanding stock of UBP Friction, Inc., a Canadian-based
specialty manufacturer of brake friction parts, and now own
100% of the outstanding capital stock of that company;
(v) March 1996 - we 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 - we acquired the assets and goodwill of North
American Friction Inc., a Canadian manufacturer of a brake
friction component used in our brake friction manufacturing
process;
(vii) September 1996 - we substantially liquidated our non-brake
parts warehouse/distribution division which enabled us to
utilize the financial, warehouse and personnel resources
previously used by such division in our higher margin brake
parts business. We substantially completed the liquidation by
December 31, 1996;
(viii) November 1996 - we acquired all of the assets of the MCI
Automotive Division of Excel Industries which was in
bankruptcy. We acquired the inventory at values substantially
less than then current market values and we have sold
substantially all such inventory. We also acquired a
substantial number of additional brake rotor patterns and
additional equipment to increase our manufacturing capacity;
(ix) November 1997 - we launched our premium brake category,
Ultimate Brake Parts(TM);
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(x) November 1999 - we purchased substantially all the assets of
Total Brake Industries, Inc. of Walkerton, Virginia, which
will enable us to expand our production of brake pads and
brake shoes from both new and used brake cores; and
(xi) December 1999 - we decided to discontinue all operations at
our Csepel Iron Foundry Works in order to concentrate on our
North American based operations.
THE INDUSTRY
The brake parts segment of the automotive aftermarket is the segment of
that industry currently experiencing the most growth. United States brake
systems aftermarket manufacturers revenues totaled $2.23 billion in 1998. While
the overall market is growing at a rate of approximately 2% per year (following
the total growth in the number of vehicles), the brake portion of the industry
is currently enjoying growth of 4% to 5% per year. This larger growth rate is
supported by several factors, including increasing wear and tear on brakes,
changes in vehicle design, improved components (e.g., front wheel drive,
semi-metallic disc pads and ABS braking systems), increased speed limits and an
overall increase in the number of miles driven per year.
The introduction of front wheel drive vehicles in 1980 resulted in
changes in vehicle design. The mix of front to rear braking changed over the
years from 60% front - 40% rear to as high as 85% front - 15% rear. This equates
to much higher heat on the front rotors as they are forced to do much more of
the braking, resulting in increased wear on rotors.
The government has mandated targets for improving fuel economy and
imposed sizable taxes for not attaining such targets. Car manufacturers have
generally chosen reducing vehicle weight as the short-term method of improving
fuel economy. One of the prime targets has been the braking system which has
always been over designed and, therefore, overweight. Rotors and calipers were
reduced in size to help achieve these new weight targets, which reduces rotor
and disc pad life. 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.
Increased speed limits have increased braking system usage. Speed
limits in several states have been increased from the 55 mph of the mid 1970's
to as high as 75 mph in some states. This 36% increase in speed requires almost
300% more braking power to achieve the same stopping distance. In response to
these increased demands placed on braking systems, vehicle manufacturers created
anti-lock braking systems which electronically monitor the performance of each
wheel to assure that is does not lock and skid, thus reducing the braking power
of that wheel. This system rapidly activates and releases pressure on a wheel to
keep it from locking up and skidding. This rapid action on the brake system
tends to increase wear of the brake components.
Specifications for bringing a vehicle to a complete stop from 60 mph
have been reduced from 150 feet to 90 feet. To achieve this result, car
manufacturers specify metallic brake pads which have shorter life and which, in
turn, shorten the life of the brake rotor.
Demands on the braking systems associated with these factors have
increased dramatically (300% to 500%) while the basic design of the systems has
remained relatively constant. We believe that the brake category of the
automotive aftermarket will continue to grow at the 4% to 5% level well into the
next decade.
PRODUCTS
We supply a wide range of brake components to all levels of
distribution. Our manufacturing facilities in both the U.S. and Canada produce
brake drums and rotors as well as a full range of friction products, primarily
disc brake pads and brake shoes. We purchase from unaffiliated vendors those
products required to complete our product offering. We are one of four U.S.
based aftermarket disc brake rotor and drum manufacturers and the only "value
line" supplier with basic manufacturing capability. We believe that our "value
line" competitors do not have our breadth or scope of manufacturing capacity,
and are, therefore, subject to the competitive disadvantages inherent in
dependence upon third party suppliers.
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The development of this basic manufacturing capability has positioned
us to compete with the established brand names in the industry by marketing a
premium line of brake rotors and friction products under its Ultimate Brake
Parts(TM) label. Consolidation in the distribution and manufacturing segments of
the brake aftermarket has left customers with fewer and fewer alternatives. We
believe that this will offer us substantial opportunities for increasing market
penetration in the future. Although some new competitors have been formed
recently from executives leaving the consolidated companies, they tend to be
relatively small companies which lack the breadth of product offering and the
"value added" of manufacturing their products directly, rather than simply
purchasing their products from others.
MARKETING AND DISTRIBUTION
Marketing
We currently market products to all levels of distribution under the
name "UBP Universal Brake Parts" as well as under a number of private label
programs for large buying groups, national franchise programs and installer
chains. The long term strategy, while growing the private label program, is to
improve UBP brand recognition in the market place and position our product lines
to compete with established branded products. Branded products generally are
offered by our competitors at a premium price, thus, offering customers who
choose UBP products substantial opportunity for improved margin performance.
This group of competitors also currently commands approximately 70% of the total
brake market, making them a prime competitive target.
We employ a sales force that directs our independent sales
representative network and the other brake marketing activities. Arrangements
with our independent sales representatives may be terminated at any time by
either party. We also perform telemarketing operations directed at national
franchise and chain installers.
Distribution
Our 263,000 square foot Alsip, Illinois facility acts as the primary
facility for our United States distribution. We also maintain a redistribution
warehouse in Southern California. We upgraded our California facility in 1999 to
better service our growing West Coast distribution.
We conduct a wholesale commodities operation from our headquarters
facility in Alsip, Illinois, purchasing certain automotive replacement parts and
maintenance items in large volume, at favorable prices, and reselling such
products at slightly higher prices. We make large volume purchases of products
on the open market, generally buying from foreign and domestic manufacturers and
other warehouse distributors, and resell 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 our other
operations. However, they generally require minimal resources and contribute to
our overall gross profit. We can make no assurance that future market conditions
will be favorable to our wholesale commodities operations or that we will
continue to generate sufficient revenues or acceptable profit margins from such
wholesale operations. For the years ended December 31, 1997, 1998 and 1999, net
sales from our wholesale commodities operations accounted for approximately 8%,
9% and 10% of our total net sales (excluding the Hungarian foundry),
respectively, and 4%, 5% and 5% of our total gross profits (excluding the
Hungarian foundry), respectively.
MANUFACTURING
The Laredo, Texas rotor machining facility has a current capacity of
approximately 750,000 units on a two shift basis. Through the acquisition of
Excel Industries' MCI operation in 1996, we acquired approximately 200 foundry
tools, which provided the base to manufacture approximately 210 different part
numbers representing approximately 80% of our total volume in the drum and rotor
category. We established a relationship with Waupaca Foundry, Inc. ("Waupaca")
to supply raw castings as a result of its MCI acquisition. Waupaca is the
premier rotor casting vendor in North America.
We acquired North American Friction in 1996 to provide a basic friction
manufacturing capability from a 17,000 square foot facility located in suburban
Toronto, Ontario. Today, as a result of the double digit growth in the sales of
friction products since we entered that market segment, North American
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Friction now occupies an 80,000 square foot facility in suburban Toronto,
Ontario. We now offer a full line of a variety of friction grades in both
riveted and integrally molded disc brake pads. North American Friction was
awarded ISO 9001 certification in July 1999.
We acquired Total Brake Industries' assets in November 1999 and operate
from a leased facility in Walkerton, Virginia. This enables us to increase our
manufacturing of pucks for disc brake pads and produce strip lining for the
remanufacturing of brake shoes, as well as to move our brake shoe manufacturing
and remanufacturing operations from Ontario, Canada, thereby freeing up
additional capacity for brake pad manufacture in Canada.
Our wholly-owned foundry operation in Budapest, Hungary is capable of
producing complex, hand-formed castings primarily for the European market. We
are marketing the foundry for sale and will discontinue operations at the
foundry once a sale is completed or discontinue and liquidate the foundry if a
sale is not consummated.
Our principal executive offices are located at 11859 South Central
Avenue, Alsip, Illinois 60803, and our telephone number is (708) 293-4050.
Unless the context otherwise requires, the term "we" includes Universal
Automotive Industries, Inc. and our direct and indirect subsidiaries, including
our predecessor, Universal Automotive, Inc.
SUPPLIERS AND RAW MATERIALS
Suppliers
Product selection and purchasing functions for our U.S. brake parts
business are centralized at our headquarters in Alsip, Illinois. We purchase the
brake part SKUs that we do not manufacture from over a dozen suppliers located
throughout the world. Currently, we import approximately 70% of our brake part
inventories from suppliers located in the People's Republic of China, with the
balance from various suppliers in Taiwan, Italy, the United States and Canada.
Although certain suppliers may provide a majority or all of our
requirements for a particular product or product subcategory, no supplier
accounted for more than 60% of our U.S. total product purchases during 1999. We
believe that the loss of any one or more of its suppliers would not have a
material adverse effect on us and that alternative sources of supply are readily
available at comparable prices in all product categories. We believe that our
relationships with our suppliers are good.
Tariff
The International Trade Commission ruled rotors sales from China
materially injured U.S. rotor manufacturers. As a result of this affirmative
determination, the U.S. Customs Service has imposed anti-dumping duties on
certain Chinese suppliers. 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 duties are plant specific and are retroactive to the
importer of record. However, we are not the importer of record for this purpose
and, therefore have been unaffected by dumping duties.
Warranties
The manufacturers of automotive aftermarket products typically provide
replacement warranties or a discount in lieu of warranty. We provide replacement
warranties on products sold.
Raw Materials
The main components used in our brake rotor manufacturing operations
are raw iron castings. We primarily purchase raw castings from Waupaca. In
addition to Waupaca, we purchase castings from several foundries in Canada.
We duplicate certain raw iron casting patterns used for the production
of our better selling brake rotors and place such patterns at different
foundries to assure a supply of the raw iron castings produced from such
patterns. Although we believe that we have developed good relationships with the
foundries that supply our raw iron castings, any of such foundries could
discontinue producing such castings for us at any time. We believe that the
number of foundries equipped to produce raw iron castings such as the ones used
by us in our manufacturing operations is limited. The loss of any major foundry
as a supplier of raw iron
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castings and our inability to identify new foundries for the production of raw
iron castings in a timely manner could have a material adverse effect on our
business. In addition, there can be no assurance that the foundries currently
producing our raw iron castings will be able to accommodate the anticipated
expansion of our manufacturing capabilities. We are continuously seeking to
locate additional foundries that would be suitable for the production of our raw
iron castings.
COMPETITION
Our markets are highly competitive. As a brake parts manufacturer and
distributor, we compete directly with other brake part manufacturers and brake
parts distributors, including Aimco and Raybestos/Brake Products (divisions of
Dana Corporation), Wagner Brake Products (a division of Federal Mogul) and
Bendix (a division of AlliedSignal Co.), as well as numerous value line
distributors specializing in one specific brake category.
We compete primarily on the basis of price, inventory availability,
delivery time and service. Many of our competitors in both the jobber and the
specialty brake parts distribution markets are larger and have greater capital,
management and other resources than we have. No assurance can be given that we
will continue to compete successfully with such other competitors.
TRADEMARK
We believe that our labels, UBP (Universal Brake Parts) and Ultimate
are important to our marketing efforts and a significant portion of our net
sales are derived from sales of brake parts which we market under them. The UBP
Universal Brake Parts and Ultimate Braking Power trademarks have 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 we might thereby be precluded from using such trademark in the United
States. We can offer no assurance that our trademark would be upheld if
challenged or that we would not be prevented from using the trademark, both of
which could have an adverse effect on us.
EMPLOYEES
As of December 31, 1999, we had 352 full-time employees employed at our
continuing operations in North America.
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 our not achieving certain results included in any
statement that may be considered a forward looking statement. We caution the
reader that the following risk factors may not be exhaustive.
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EXPANSION; POSSIBLE NEED FOR ADDITIONAL FINANCING
Our continued growth and financial performance will depend in part on
our ability to continue to expand our 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 we manufacture; (iii) the possible acquisition of other brake parts
manufacturers or distributors on favorable terms; and (iv) additional sales
penetration of current customers. While we regularly evaluate and discuss
possible acquisitions, we have not entered into any binding agreement with any
potential acquisition candidates, we cannot assure you that we will be
successful in locating suitable acquisition candidates or that we will
consummate any additional acquisitions in the future. In addition, we can make
no assurances that any operations that we acquire will be effectively and
profitably integrated into our current operations. Our future results will be
affected by our ability to manage our 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 our UBP Universal Brake
Parts products. We can offer no assurance that any future expansion of our
operations or acquisitions will not have an adverse effect on our operating
results, particularly during the periods immediately following any such
expansion or acquisition. We will be required to seek additional financing to
fund our expansion through acquisitions or the upgrade of existing facilities.
We have no current commitments or arrangements for additional financing and we
can make no assurances that additional financing will be available to us on
acceptable terms, or at all. We may also issue common stock or other securities
in connection with future acquisitions, resulting in additional dilution to our
existing stockholders.
LEGAL PROCEEDINGS
We have reserved $301,000 as a loss reserve with respect to a lawsuit
with First National Parts Exchange (the "Estate"). We cannot assure you that
such reserve is adequate. In the event a judgment in excess of such sum is
entered in favor of the Estate pursuant to the appeal of the lower court's
decision in this case, we will be required to pay or bond over (on appeal)
against such judgment. We cannot assure you that we will have sufficient
resources to cover any judgment in excess of our resources.
In January 2000, a lawsuit was filed against us by the Plan
Administrator for a bankrupt former customer (APS Holding Corporation) seeking
recovery of alleged preferences in excess of $2.2 million. We believe that all
payments received by us were in the ordinary course of business and intend to
vigorously contest the allegations. Potential damages, if any, are not covered
by insurance. Management believes that the ultimate resolution of this matter
will not have a material adverse effect on our financial position or results of
operations. There can be no assurances that we will prevail.
BANK FINANCING
We have incurred significant indebtedness in connection with our
operations. As of December 31, 1999, our total consolidated indebtedness was
approximately $23 million. A substantial portion of this indebtedness is secured
by substantially all of our assets (except the Hungarian foundry assets) and by
a pledge of all of our subsidiaries' outstanding capital stock. As a result of
such indebtedness, we: (i) are prohibited from paying cash dividends pursuant to
certain covenants and restrictions contained in the loan agreements governing
such indebtedness; (ii) could be hindered in our 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 our borrowings are at
floating rates of interest.
On September 29, 1999, we completed a renewal and restructuring of our
credit agreement with LaSalle Bank National Association or its subsidiaries
("LaSalle") for a revolving line of credit of up to $22,000,000, based on
eligible accounts receivable and inventory, and a term loan in the amount of
$3,779,194 secured by the Company's equipment and real estate. In connection
with the sale of our Chicago facility in October 1999, we paid down the term
loan at that time by $2,842,873. Our revolving credit facility, which is for an
initial term ending May 1, 2002, bears interest at the Bank's announced prime
rate plus 0.5% per annum, subject to an ongoing option to convert to an interest
rate at LIBOR plus
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2.5% per annum. The term loan is payable in monthly principal installments of
$18,705, with a balloon payment of $3,183,292 due on May 1, 2002, and bears
interest at prime plus 0.75% per annum.
On July 14, 1997, we sold a $4,500,000 subordinated debenture to Finova
Mezzanine Capital, Inc. (formerly Tandem Capital, Inc.) calling for payments of
interest at 12.25% per annum through maturity on July 14, 2002. Through December
31, 1999, we issued Finova warrants to purchase 1,125,000 shares of our common
stock at an exercise prices ranging from $0.83 to $1.53, based on 80% of the
average closing bid price of our common stock for the 20 days preceding the
respective issuance dates. Finova will also receive warrants to purchase an
additional 225,000 shares of common stock on each of August 14, 2000 and August
14, 2001; except, however, if we prepay the debenture before a scheduled warrant
issue date, then we will not issue any subsequent warrants. In each instance,
the exercise price for the warrants is 80% of the average closing bid price of
our common stock for the 20 days preceding each such warrant issue date.
DEPENDENCE UPON KEY PERSONNEL
Our continued success will depend to a significant degree upon the
efforts and abilities of our senior management, in particular, Arvin Scott, our
President and Chief Executive Officer, and Yehuda Tzur, our Chairman of the
Board, respectively. The loss of the services of Mr. Scott or Mr. Tzur could
have a material adverse effect on us. We have employment agreements with each of
these individuals. We maintain, and intend to continue to maintain, key man term
life insurance policies covering the life of each of Mr. Scott or Mr. Tzur in
the amount of $6,000,000 and $1,000,000, respectively, the proceeds of which
would be payable to us.
INSURANCE
Although we currently have general liability insurance for all our
operations, prior to September 1994 we did not have general or products
liability insurance for our brake rotor manufacturing operations. We would be
adversely affected if we should incur liability for a general or products
liability claim relating to an incident which occurred prior to the time that we
obtained general and products liability coverage for our manufacturing
operations. To date, no such claim has been asserted against us. In addition, we
would be adversely affected by the incurrence of liability which is not covered
by insurance or is in excess of policy limits.
NO DIVIDENDS
We do not currently intend to declare or pay any cash dividends on our
common stock in the foreseeable future and anticipate that earnings, if any,
will be used to finance the development and expansion of our business. Moreover,
our bank lines of credit prohibit the declaration and payment of cash dividends.
Prospective investors should not expect us to pay dividends on our common stock
until such time, if any, that we are able, if at all, to obtain a release of the
prohibition on the payments of dividends imposed by the terms of our credit
facilities. Any payment of future dividends and the amounts thereof will be
dependent upon our earnings, financial requirements and other factors deemed
relevant by our Board of Directors, including our contractual obligations.
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ITEM 2. PROPERTIES
The following table sets forth the general location, principal uses and
approximate size of our 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>
Alsip, Illinois Company headquarters, executive and 263,000 Leased
sales offices and full-service
warehouse
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
Walkerton, Virginia Conventional brake pad manufacturing 77,000 Leased
and brake shoe manufacturing
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
Budapest, Hungary Foundry 270,000 Owned
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
North York, Ontario, Canada Conventional brake pad manufacturing 46,000 Leased
and brake shoe manufacturing
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
Compton, California Specialty brake parts warehouse 28,200 Leased
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
North York, Ontario, Canada Conventional and integrally molded 32,800 Leased
brake pad manufacturing
- -------------------------------------- ---------------------------------------- ---------------------- ---------------
Laredo, Texas Brake parts manufacturing 50,000 Leased
====================================== ======================================== ====================== ===============
</TABLE>
We lease our Alsip Distribution Center from an unaffiliated party for
approximately $594,000, expiring October 31, 2004. The warehouse portion of our
headquarters facility (approximately 252,000 square feet) is currently fully
utilized. We lease our specialty brake parts warehouse facility located in Los
Angeles, California, from an unaffiliated party for approximately $140,000 per
year, expiring in August 2002.
We lease the North York, Ontario brake pad and brake shoe manufacturing
facility from an unaffiliated third party for approximately $180,000 per year,
expiring in April 2000. We lease the North York, Ontario brake pad manufacturing
facility from an unaffiliated party for approximately $140,000 per year,
expiring in June 2000. In February 2000, we entered into a new lease for a
79,300 square foot manufacturing facility in Brampton, Ontario, Canada into
which we will combine all Canadian manufacturing facilities.
We lease our Laredo, Texas manufacturing facility from an unaffiliated
party for approximately $121,500 per year, expiring in December 2000. We believe
that this facility will provide adequate capacity for our currently anticipated
brake rotor manufacturing operations.
The Walkerton, Virginia manufacturing facility produces friction
material used in the brake shoe manufacturing and remanufacturing process as
well as conventionally molded brake pads. We lease the facility from the former
owner of the Total Brake Industries business acquired in November 1999 at a rate
of $72,000 per year.
ITEM 3. LEGAL PROCEEDINGS
During 1995, a lawsuit was filed against us in the United States
Bankruptcy Court by a Trustee of the bankrupt estate of First National Parts
Exchange, Inc. (the "Estate") with which we had transacted both purchases and
sales of certain automotive parts in 1992 and 1993. We recorded a provision of
$650,000 in the first quarter of 1997 to reflect a settlement agreement with the
Trustee. The settlement agreement lapsed as of July 31, 1997.
On July 10, 1998, after a trial held in the Bankruptcy Court, the
Bankruptcy Court ruled that the vast majority of the Trustee's claims were
invalid. Our liability for the claims held as valid was
9
<PAGE> 12
approximately $499,000, for which we paid approximately $198,000 in 1998. As a
result, we recorded benefit for lawsuit settlement of $151,000 (pre-tax) in the
second quarter of 1998. The Trustee has appealed certain portions of the
judgment and we have appealed certain portions of the $499,000 judgment against
us, seeking a reduction of our liabilities. While the Trustee's claim involves
substantial amounts, it is the opinion of management that the ultimate
resolution of this matter will not have a material adverse effect on our
financial position or results of operations. We can give no assurances as to the
outcome of the appeal.
In January 2000, a lawsuit was filed against us by the Plan
Administrator for a bankrupt former customer (APS Holding Corporation) seeking
recovery of alleged preferences in excess of $2.2 million. We believe that all
payments received by us were in the ordinary course of business and intends to
vigorously contest the allegations. Potential damages, if any, are not covered
by insurance. Management believes that the ultimate resolution of this matter
will not have a material adverse effect on our financial position or results of
operations. There can be no assurances that we will prevail.
All other legal proceedings and actions to which we are a party are of
an ordinary and routine nature incidental to the operations of us. We believe
that such proceedings will not, individually or in the aggregate, have a
material adverse effect on our 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 our stockholders during the
fourth quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our 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 (the "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 prices per share for our Common Stock and for
the Redeemable Common Stock Purchase Warrants as reported by the Nasdaq SmallCap
Market, on a quarterly basis, for the years 1998 and 1999. Our Common Stock and
the Warrants were initially listed on the Nasdaq SmallCap Market and on The
Chicago Stock Exchange on December 15, 1994.
COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
First Quarter ........ $ 2.50 $ 1.06
Second Quarter ....... 2.06 1.25
Third Quarter ........ 2.12 1.37
Fourth Quarter ....... 2.56 1.59
1998
First Quarter ........ $ 1.91 $ .91
Second Quarter ....... 1.50 1.00
Third Quarter ........ 2.00 .75
Fourth Quarter ....... 1.69 .50
</TABLE>
10
<PAGE> 13
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
First Quarter ........ $ .50 $ .25
Second Quarter ....... .53 .31
Third Quarter ........ .59 .31
Fourth Quarter ....... .78 .19
1998
First Quarter ........ $ .28 $ .25
Second Quarter ....... .25 .16
Third Quarter ........ .25 .09
Fourth Quarter ....... .19 .06
</TABLE>
As of April 6, 2000, there were approximately 950 beneficial holders of
our Common Stock.
We have not paid any cash dividends on our Common Stock. We do not
intend to declare or pay any cash dividends on our Common Stock in the
foreseeable future and anticipate that earnings, if any, will be used to finance
the development of and expansion of our business. Moreover, our 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 our earnings,
financial requirements, and other factors deemed relevant by our Board of
Directors, including our contractual obligations. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
In December 1999, we lowered the strike price of our Warrants from
$7.00 to $2.25 per share and extended the expiration of the exercise period to
December 31, 2000. We also registered all of the shares which we will issue in
connection with the exercise of the Warrants. In exchange for consulting
services, we issued (a) in 1999 warrants to purchase 200,000 shares of common
stock at exercise prices ranging from $1.4375 to $2.00 per share exercisable
until 2004 and (b) in 1998 warrants to purchase 50,000 shares of common stock at
an exercise price of $1.375 per share exercisable until 2003.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following selected financial data should be read in conjunction
with our 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, 1999, 1998 and 1997 and the balance sheet data at
December 31, 1999 and 1998 are derived from our audited financial statements
included elsewhere in this Form 10-K. The statement of operations data for the
year ended December 31, 1995 and the balance sheet data at December 31, 1996 and
1995 are derived from audited financial statements not included herein.
11
<PAGE> 14
<TABLE>
<CAPTION>
(in thousands except for per share data)
Years Ended December 31,(1)
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 67,759 $ 58,252 $ 55,821 $ 57,009 $ 45,465
Cost of sales 53,539 45,917 43,840 46,203 37,035
----------- ----------- ----------- ----------- -----------
Gross profit 14,220 12,335 11,981 10,806 8,430
Selling, general and administrative 11,909 10,101 12,773 9,478 7,503
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 2,311 2,234 (792) 1,328 927
----------- ----------- ----------- ----------- -----------
Other expense (income):
Provision (benefit) for lawsuit
settlement 0 (151) 650 0 0
Interest expense 2,025 1,916 1,422 916 822
Loss (Gain) on disposition of assets (1,153) 0 12 (44) 0
Other (10) 94 19 (58) (23)
----------- ----------- ----------- ----------- -----------
862 1,859 2,103 814 799
Income (Loss) before Provision ----------- ----------- ----------- ----------- -----------
(Benefit) for Income Taxes 1,449 375 (2,895) 514 128
Income Tax Provision (Benefit) 398 (86) (1,070) 99 (33)
----------- ----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations 1,051 461 (1,825) 415 161
----------- ----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations (1,254) (642) (261) (908) (97)
Loss on disposal of discontinued operations (3,083) 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total loss from discontinued operations (4,337) (642) (261) (908) (97)
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (3,286) $ (181) $ (2,086) $ (493) $ 64
=========== =========== =========== =========== ===========
Earnings per share(2):
Basic:
Continuing operations $ 0.15 $ 0.07 ($ 0.27) $ 0.06 $ 0.02
Discontinued operations (0.63) (0.10) (0.04) (0.13) (0.01)
----------- ----------- ----------- ----------- -----------
Net $ (0.48) $ (0.03) $ (0.31) $ (0.07) $ 0.01
=========== =========== =========== =========== ===========
Diluted:
Continuing operations $ 0.14 $ 0.07 ($ 0.27) $ 0.06 $ 0.02
Discontinued operations (0.59) (0.09) (0.04) (0.13) (0.01)
----------- ----------- ----------- ----------- -----------
Net $ (0.45) $ (0.02) $ (0.31) $ (0.07) $ 0.01
=========== =========== =========== =========== ===========
Weighted average number of common
Shares outstanding:
Basic 6,789,582 6,769,425 6,751,732 6,647,796 6,500,000
Common stock equivalents resulting from
warrants and options 511,129 152,708 0 189,428 629,966
----------- ----------- ----------- ----------- -----------
Diluted 7,300,711 6,922,133 6,751,732 6,837,224 7,129,966
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31,(1)
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
- --------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 18,488 $ 18,108 $ 17,980 $ 14,268 $ 14,327
Total assets 43,160 38,102 36,501 35,697 26,006
Long-term debt, less current portion 22,718 21,212 20,555 17,782 12,085
Total stockholders' equity 3,073 6,497 7,069 8,856 8,559
</TABLE>
(1) Certain amounts reported in the 1995, 1996, 1997, and 1998 financial
statements have been reclassified to conform with the 1999 presentation
without affecting previously reported income from operations.
(2) "Basic Earnings per Share" is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding
during the period. "Diluted Earnings per Share" reflects the potential
dilution that could occur if warrants and options or other contracts to
issue common stock were exercised and resulted in the issuance of
additional common shares. All options and warrants are omitted from the
computation of diluted earnings per share when net losses are reported
because the options and warrants
12
<PAGE> 15
are antidilutive. Income from operations is used as the "control
number" in determining whether those potential common shares are
dilutive or antidilutive. For the year ended December 31, 1997 diluted
earnings per share and basic earnings per share are identical because
the loss from continuing operations incurred during that year is
antidilutive. For the years ended December 31, 1999, 1998, 1996, and
1995, there is income from continuing operations and, accordingly, the
additional options and warrants are considered because their effect is
dilutive. See Note 2 of the Notes to our Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We are a manufacturer and distributor of brake rotors, drums, disc
brake pads, relined brake shoes, non-asbestos friction lining, and a complete
line of hydraulic parts. We believe that we are 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.
Management's discussion and analysis of financial condition and results
of operations that follow are based on restated financial condition and results
of operations for all years presented due to the treatment of the Company's
Hungarian foundry as a discontinued business as more fully described in Note 9
to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Year Ended December 1999 compared to the Year Ended December 31, 1998
Our net sales for the year ended December 31, 1999 increased to
$67,759,000 as compared to 1998 full year sales of $58,252,000, an increase of
$9,507,000 or 16%. The increase in sales is due to (i) a full year of sales to
customers added in 1998, especially buying groups, (ii) additional sales
penetration of established customers and (iii) growth of sales of friction
products and premium "Ultimate" products.
Gross profit for the year ended December 31, 1999 was $14,220,000 or
21.0% of net sales. This compares to gross profit for the same period of 1998 of
$12,335,000 or 21.2%. The 15% increase to 1999 from 1998 is due to increased
sales offset by one-time moving costs and higher facility costs associated with
our move to a larger Chicago area distribution facility.
Our selling, general and administrative expenses for the year ended
December 31, 1999 increased $1,808,000 or 18% to $11,909,000 from $10,101,000
for the same 1998 period. The increase is due mainly to expenses which increase
with increases in sales (such as freight and commissions) and additional
marketing and sales allowances associated with gaining additional customers.
Income from operations for the year ended December 31, 1999 increased
to $2,311,000 from $2,234,000 for the year ended December 31, 1998. This
increase is due to higher sales in 1999 offset by higher selling, general and
administrative expenses , especially those expenses which vary with sales.
Other expenses for the year ended December 31, 1999 decreased $997,000
to $862,000 as compared to $1,859,000 for the same period of 1998. The change
was due to (i) increased interest expense due to a higher average level of
borrowing and higher interest rates, (ii) lack of a favorable 1998 adjustment to
the lawsuit reserve, offset by (iii) recognizing in 1999 a $1,200,000 gain on
the sale of our former Chicago warehouse and headquarters building.
The loss from operating the Hungarian gray iron foundry increased to
$1,254,000 for the year ended December 31, 1999 from a loss of $642,000 for the
same 1998 period. The increase in such loss from discontinued operations was due
primarily to the full year impact of the loss of a major customer in the fourth
quarter of 1998. The Company recorded in 1999 a $3,083,000 loss on the disposal
of the discontinued operations which includes a writedown of the foundry
property and equipment, and a
13
<PAGE> 16
provision for estimated costs of disposition. Thus the total loss from the
discontinued Hungarian foundry operation was $4,337,000. See Note 9 of the Notes
to the Consolidated Financial Statements.
Net loss for the year ended December 31, 1999 increased to $3,286,000
from a loss of $181,000 for the year ended December 31, 1998. The increased loss
was due to the factors discussed above, especially the provision for loss on the
disposal of the discontinued Hungarian gray iron foundry.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Our net sales for the year ended December 31, 1998 increased by
$2,431,000 or 4% to $58,252,000 from $55,821,000 in 1997. Sales of our core
brake parts business increased by 3% compared to 1997, due to increased
penetration of the friction products segment of the automotive aftermarket,
rapid customer acceptance of our "Ultimate" brake products and aggressive
pricing which secured new customers.
Gross profit for the year ended December 31, 1998 was $12,335,000, an
increase of $354,000, or 3% greater when compared to 1997 gross profit of
$11,981,000. Gross profit margin for the year ended December 31, 1998 decreased
slightly to 21.2% from the 1997 level of 21.5%.
Selling, general and administrative expenses for year ended December
31, 1998 decreased to $10,101,000 from $12,774,000 in 1997 or 21%. The decrease
is due principally to lower bad debt provision in 1998 compared to 1997 which
included a bad debt provision for APS, Inc., once a major customer, which filed
for bankruptcy in February 1998.
Income (loss) from operations for the year ended December 31, 1998
increased $3,027,000 to income of $2,234,000 from a loss of $793,000 in 1997.
This increase is due to higher sales in 1998 and lower selling, general, and
administrative expenses due primarily to a lower provision for bad debts in
1998.
Other expenses for the year ended December 31, 1998 decreased $244,000
to $1,859,000 from $2,103,000 in 1997. Interest expense increased $494,000 or
35% to $1,916,000 from $1,422,000 in 1997. This increase is due to increased
borrowings in 1998 compared to 1997 used for working capital purposes to support
increased brake sales. Other expense includes a provision for settlement of a
lawsuit initially recorded in the first quarter of 1997 in the amount of
$650,000 (pretax) and a reduction of $151,000 (pretax) recorded in the second
quarter of 1998 reflecting the verdict rendered. The lawsuit is more fully
described in our Notes to Consolidated Financial Statements.
Loss from the discontinued Hungarian foundry increased $381,000 to
$642,000 in 1998 from $261,000 in 1997. The greater loss was due to
significantly reduced orders in 1998 from a major customer who produced goods
destined for Russia.
Net loss for the year ended December 31, 1998 decreased by $1,905,000
to a net loss of $181,000 from a loss of $2,086,000 in 1997. These changes
result from the factors discussed above.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Net sales for the year ended December 31, 1997 decreased by $1,188,000
or 2% to $55,821,000 from $57,009,000 in 1996. The Company's increase in brake
sales of approximately $9,200,000 (22%) was not quite sufficient to make up for
non-brake warehouse distribution sales discontinued in 1996 and a decrease in
sales in the wholesale "commodities" operation.
Gross profit for the year ended December 31, 1997 increased by
$1,175,000 or 11% to $11,981,000 from $10,806,000 in 1996. Gross profit margin
increased to 21.5% in 1997 from 19.0% in 1996. The increase in gross profit and
gross profit margin is attributable to a more favorable sales mix as the
proportion of higher margin brake sales to total sales increased in 1997
compared to 1996.
Selling, general and administrative expenses for the year ended
December 31, 1997 increased to $12,774,000 from $9,479,000 in 1996 or 35%.
Approximately $2.3 million of the increase is attributable to unusual, non
recurring bad debt charges as a result of bankruptcy filings by several major
customers due to continued consolidation in the automotive aftermarket. The
remainder of the increase is due to increased
14
<PAGE> 17
variable sales expenses as brake sales carry relatively higher variable sales
costs as compared to non-brake sales.
Income (loss) from operations for the year ended December 31, 1997
decreased $2,120,000 to a loss of $793,000 in 1997 from income of $1,327,000 in
1996. This decrease is due to the bad debt charges due to industry consolidation
described above, offset by higher gross profit attributable to a higher
proportion of brake parts sales to total sales than in 1996.
Other expenses for the year ended December 31, 1997 increased
$1,290,000 to $2,103,000 from $813,000 in 1996. Interest expense increased 55%
to $1,422,000 in 1997 from $916,000 in 1996. This increase is due to an increase
in subordinated and bank borrowings during 1997. Total borrowings at December
31, 1997 were $20.7 million compared to $18.8 million at December 31, 1996. The
increased borrowings were used for working capital purposes to support increased
brake sales. Also, the average interest rate increased due to the 12.25%
subordinated debenture issued in July 1997. Other expense also includes a one
time provision for settlement of a lawsuit as more fully described in Note 10 of
our Notes to Consolidated Financial Statements. This $650,000 pretax provision
was recorded in the first quarter of 1997.
Loss from the discontinued Hungarian foundry business decreased in 1997
to $261,000 from $908,000 in 1996 due to greater volume and productivity gains
as a result of facility improvements.
Net loss for the year ended December 31, 1997 increased $1,593,000 to a
net loss of $2,086,000 from a loss of $493,000 in 1996. These changes result
from the factors discussed above.
CAPITAL EXPENDITURES
For the year ended December 31, 1997, capital expenditures totaled
approximately $574,000, consisting primarily of (i) the acquisition of brake
friction manufacturing machinery and equipment and (ii) the acquisition of
machinery, equipment, and additional brake rotor patterns.
For the year ended December 31, 1998, capital expenditures totaled
approximately $511,000, consisting primarily of (i) the acquisition of brake
friction manufacturing machinery and equipment and (ii) the acquisition of
machinery, equipment, and additional brake rotor patterns.
For the year ended December 31, 1999, capital expenditures totaled
approximately $1,635,000, consisting primarily of (i) the acquisition of
machinery and equipment used to produce friction products, (ii) the acquisition
of leaseholds and fixtures related to the new larger Alsip Corporate
Distribution Center, and (iii) additional brake rotor patterns.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are associated with carrying accounts
receivable and maintaining inventories. We rely on internally generated funds,
credit made available from suppliers and senior and subordinated lines of
credit. Our working capital needs are generally not seasonal in nature, although
business slows down slightly during the winter months.
We have incurred significant indebtedness, to date, in connection with
its operations. As of December 31, 1999, our total consolidated indebtedness was
approximately $23.0 million. A substantial portion of this indebtedness is
secured by substantially all of our assets (except the Hungarian foundry assets)
and by a pledge of all of the outstanding capital stock of our subsidiaries. As
a result of such indebtedness, we (i) are prohibited from paying cash dividends
pursuant to certain covenants and restrictions contained in the loan agreements
governing such indebtedness, (ii) could be hindered in our 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 our
borrowings are at floating rates of interest.
On September 29, 1999, we completed a renewal and restructuring of our
credit agreement with LaSalle Bank National Association or its subsidiaries
("LaSalle") for a revolving line of credit of up to $22,000,000, based on
eligible accounts receivable and inventory, and a term loan in the amount of
$3,779,194 secured by the Company's equipment and real estate. In connection
with the sale of our Chicago facility in October 1999, we paid down the term
loan at that time by $2,842,873. Our revolving
15
<PAGE> 18
credit facility, which is for an initial term ending May 1, 2002, bears interest
at the Bank's announced prime rate plus 0.5% per annum, subject to an ongoing
option to convert to an interest rate at LIBOR plus 2.5% per annum. The term
loan is payable in monthly principal installments of $18,705, with a balloon
payment of $3,183,292 due on May 1, 2002, and bears interest at prime plus 0.75%
per annum.
On July 14, 1997, we sold a $4,500,000 subordinated debenture to Finova
Mezzanine Capital, Inc. (formerly Tandem Capital, Inc.) calling for payments of
interest at 12.25% per annum through maturity on July 14, 2002. Through December
31, 1999, we issued Finova warrants to purchase 1,125,000 shares of our common
stock at an exercise prices ranging from $0.83 to $1.53, based on 80% of the
average closing bid price of our common stock for the 20 days preceding the
respective issuance dates. Finova will also receive warrants to purchase an
additional 225,000 shares of common stock on each of August 14, 2000 and August
14, 2001; except, however, if we prepay the debenture before a scheduled warrant
issue date, then we will not issue any subsequent warrants. In each instance,
the exercise price for the warrants is 80% of the average closing bid price of
our common stock for the 20 days preceding each such warrant issue date.
We believe that cash generated from operations, borrowings under our
bank line of credit and credit from our suppliers is sufficient to fund our
working capital requirements and capital expenditures through 2000.
SEASONALITY
Our business is slightly seasonal in nature, primarily as a result of
the impact of weather conditions on the demand for automotive replacement parts.
Historically, our sales and profits have been slightly higher in the second and
third calendar quarters of each year than in the first or fourth quarters.
EFFECTS OF INFLATION
We historically have 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We believe that our Company does not have significant exposure to
market risk associated with derivative financial instruments, other financial
instruments, or derivative commodity instruments. The Company had previously
utilized only limited derivative financial instruments and did not use them for
trading purposes and has never used derivative commodity instruments. At
December 31, 1999, there were no such derivative instruments. The fair value of
financial instruments, other than debt instruments, closely approximates their
carrying value. Because the interest rate of the revolving loan and the term
loan with LaSalle National Bank adjusts with the changes in the market rate of
interest, we believe that the fair value is equivalent to the carrying value. We
believe that the interest rate of 12.25% on the subordinated debenture is
approximately equal to the current rate available for similar debt. Accordingly,
the fair value of this debenture approximates its carrying value.
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.
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item 10 is set forth in our Proxy Statement for
the Annual Meeting of Stockholders to be held on June 1, 2000 (the "2000 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 our 2000 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 our 2000 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 our 2000 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.:
<TABLE>
<S> <C>
Independent Auditors' Report..................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998..................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997...............................................F-6 to F-7
Notes to Consolidated Financial Statements.......................................F-8 to F-17
(2) Financial Statement Schedules:
Independent Auditors' Report.................................................... S-1
Schedule I -- Condensed Financial Information of Registrant..................... S-2 to S-4
Schedule II -- Valuation and Qualifying Accounts................................ S-5
</TABLE>
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)*
17
<PAGE> 20
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)*
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)*
18
<PAGE> 21
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)*
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)*
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)*
19
<PAGE> 22
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)*
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)*
20
<PAGE> 23
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 no reports of Form 8-K during the fourth quarter of
1999.
21
<PAGE> 24
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:
Arvin Scott, Chief Executive Officer
Date: April 11, 2000
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>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Arvin Scott Chief Executive Officer, President and
- --------------------------------------------Director (Principal Executive Officer) April 11, 2000
Arvin Scott
/s/ Jerome J. Hiss Chief Financial Officer (Principal Financial
- --------------------------------------------Officer and Principal Accounting Officer) April 11, 2000
Jerome J. Hiss
/s/ Yehuda Tzur Director April 11, 2000
- --------------------------------------------
Yehuda Tzur
/s/ Sami Israel Director April 11, 2000
- --------------------------------------------
Sami Israel
/s/ Sheldon Robinson Director April 11, 2000
- --------------------------------------------
Sheldon Robinson
/s/ Sol S. Weiner Director April 11, 2000
- --------------------------------------------
Sol S. Weiner
/s/ Dennis Kessler Director April 11, 2000
- --------------------------------------------
Dennis Kessler
</TABLE>
22
<PAGE> 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FINANCIAL STATEMENTS AND SCHEDULES
December 31, 1999
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> 26
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1999 and 1998 F - 3
Consolidated Statement of Operations, Years Ended December 31,
1999, 1998 and 1997 F - 4
Consolidated Statement of Changes in Stockholders' Equity, Years
Ended December 31, 1999, 1998 and 1997 F - 5
Consolidated Statement of Cash Flows, Years Ended
December 31, 1999, 1998 and 1997 F - 6 to F - 7
Notes to the Financial Statements F - 8 to F - 17
ADDITIONAL FINANCIAL DATA:
Independent Auditors' Report on Schedules S - 1
Condensed Financial Information of Registrant (Schedule I) S - 2 to S - 4
Valuation and Qualifying Accounts (Schedule II) S - 5
</TABLE>
F-1
<PAGE> 27
[ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Universal Automotive Industries, Inc
We have audited the accompanying consolidated balance sheets of UNIVERSAL
AUTOMOTIVE INDUSTRIES, INC as of December 31, 1999 and 1998, 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, 1999. 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 the Company's
discontinued Hungarian subsidiary (Notes 1 and 9) which statements reflect
aggregate total assets of $1,139,535 and $3,441,997 as of December 31, 1999 and
1998. 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 (before estimated loss on disposal) 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, 1999 and 1998, and the consolidated results
of their operations and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
/s/ ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
March 10, 2000
F-2
<PAGE> 28
[ARTHUR ANDERSEN LOGO]
UBP-Csepel Iron Foundry Kft.
1211 Budapest
Gyepsor u. 1.
THIS IS THE ENGLISH TRANSLATION OF THE HUNGARIAN ORIGINAL (NOTE 0)
INDEPENDENT AUDITORS' REPORT
To the quotaholder of UBP-Csepel Iron Foundry Kft.:
1. We have audited the accompanying balance sheet of UBP-Csepel Iron Foundry
Kft. ("the Company") as at 31 December 1999, which shows total assets of
HUF'000 621,533 and a retained loss for the year of HUF'000 233,753, the
related statement of operations for the year then ended and the supplement
(collectively "the financial statements") included in the Company's 1999
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.
2. We have also audited the Company's Annual Report for the year ended 31
December 1998 and issued an unqualified opinion. Reference is made to our
Auditors' Report dated 19 February 1999.
3. 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.
4. For the years ended 31 December 1998 and 31 December 1999 the Company
incurred a net operating loss of HUF'000 48,852 and HUF'000 199,117,
respectively. Although the parent company has supported the Company's
financing during 1999, we were not able to obtain written confirmation with
regard to future intentions of the parent company. The Company has prepared
a business plan for the year 2000, which is presented in note 18 of the
supplement. This plan indicates that the Company will once again incur a
net loss for the year 2000. Based on the above, there is significant
uncertainty to the ability of the Company to continue operations as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-2 (b)
<PAGE> 29
5. This Annual Report has been prepared for the consideration of the members
at the forthcoming General Meeting and does not reflect the effects, if
any, of resolutions that might be adopted at that meeting.
6. In our opinion, subject to the effects on the financial statements of such
adjustments, if any, as might have been required had the outcome of the
uncertainty referred to in the paragraph 4 been known and 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 considering the above qualifications gives a true
and fair view of the financial position of UBP-Csepel Iron Foundry Kft.
as of 31 December 1999 and of the results of its operations for the year
then ended.
Budapest, 4 February 2000
(The original Hungarian language version has been signed)
- ----------------------------------- ------------------------------------
Judit Szilagyi Hajnalka Szarvas
Arthur Andersen Audit Kft. Registered Auditor
MKVK-000023 MKVK-005105
F-2 (b)
<PAGE> 30
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 35,457 $ 228,850
Accounts receivable, trade (net of allowance for doubtful
accounts of $429,319 and $493,729 in 1999 and 1998) 15,849,708 9,925,906
Due from stockholders 237,262 0
Inventories 17,938,629 15,407,194
Deferred income taxes 395,000 1,062,800
Prepaid expenses and other current assets 1,060,650 943,312
Net current assets of discontinued operations 339,535 931,912
------------ ------------
35,856,241 28,499,974
------------ ------------
Property and Equipment - continuing operations, net of
accumulated depreciation 4,758,305 5,847,268
------------ ------------
Property and Equipment - discontinued operations, 1998 net
of accumulated depreciation 800,000 2,363,279
------------ ------------
Other Assets:
Goodwill, net of accumulated amortization of $296,372
and $106,682 in 1999 and 1998 569,073 305,945
Deferred income taxes 490,000 145,200
Other assets 686,148 793,413
Other assets - discontinued operations 0 146,806
------------ ------------
1,745,221 1,391,364
------------ ------------
$ 43,159,767 $ 38,101,885
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $ 10,691,507 $ 6,341,213
Long-term indebtedness, current portion 508,955 321,500
Accrued expenses and other current liabilities 4,668,252 3,729,755
Estimated loss on disposal of discontinued operations 1,500,000 0
------------ ------------
17,368,714 10,392,468
------------ ------------
Long-term Liabilities:
Revolving loan indebtedness 16,764,671 12,910,000
Long-term indebtedness, noncurrent portion 1,308,847 3,784,340
Subordinated debenture 4,385,625 4,340,625
Deferred income taxes 258,734 177,072
------------ ------------
22,717,877 21,212,037
------------ ------------
Commitments and Contingencies
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, $0.01 par value,
6,829,310 and 6,769,425 shares issued and outstanding in 1999
and 1998, respectively) 68,293 67,694
Additional paid-in capital 8,413,978 8,257,398
Accumulated deficit (4,514,672) (1,228,070)
Accumulated other comprehensive loss (894,423) (599,642)
------------ ------------
3,073,176 6,497,380
------------ ------------
$ 43,159,767 $ 38,101,885
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 31
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 67,759,358 $ 58,252,073 $ 55,820,854
Cost of Sales 53,539,565 45,916,825 43,839,631
------------ ------------ ------------
Gross Profit 14,219,793 12,335,248 11,981,223
Selling, General and Administrative Expenses 11,909,230 10,100,658 12,773,578
------------ ------------ ------------
Income (Loss) from Operations 2,310,563 2,234,590 (792,355)
------------ ------------ ------------
Other Expense (Income):
Interest expense 2,025,125 1,915,617 1,421,641
(Gain) Loss on disposition of assets (1,153,454) 0 12,266
Provision (Benefit) for lawsuit settlement 0 (151,000) 650,000
Other (9,806) 94,555 18,599
------------ ------------ ------------
861,865 1,859,172 2,102,506
------------ ------------ ------------
Income (Loss) before Provision (Benefit) for Income
Taxes 1,448,698 375,418 (2,894,861)
------------ ------------ ------------
Income Tax Provision (Benefit):
Current (6,471) (166,816) (133,480)
Deferred 404,662 80,895 (936,400)
------------ ------------ ------------
398,191 (85,921) (1,069,880)
------------ ------------ ------------
Income (Loss) from Continuing Operations 1,050,507 461,339 (1,824,981)
------------ ------------ ------------
Discontinued Operations:
Loss from Discontinued Operations (1,253,909) (641,982) (260,911)
Loss on Disposal of Discontinued
Operations (3,083,200) 0 0
------------ ------------ ------------
Total Loss from Discontinued Operations (4,337,109) (641,982) (260,911)
------------ ------------ ------------
Net Loss $ (3,286,602) $ (180,643) $ (2,085,892)
============ ============ ============
Earnings (Loss) per Share:
Basic:
Continuing operations $ 0.15 $ 0.07 $ (0.27)
Discontinued operations (0.63) (0.10) (0.04)
------------ ------------ ------------
Net $ (0.48) $ (0.03) $ (0.31)
============ ============ ============
Diluted:
Continuing operations $ 0.14 $ 0.07 $ (0.27)
Discontinued operations (0.59) (0.09) (0.04)
------------ ------------ ------------
Net $ (0.45) $ (0.02) $ (0.31)
============ ============ ============
Weighted average number of common shares outstanding:
Basic 6,789,582 6,769,425 6,751,732
Common stock equivalents resulting
from warrants and options 511,129 152,708 0
------------ ------------ ------------
Diluted 7,300,711 6,922,133 6,751,732
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 32
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Additional
Shares Paid-in
Outstanding Amount Capital
----------- ----------- -----------
<S> <C> <C> <C>
Balances, January 1, 1997 6,729,425 $ 67,294 $ 7,777,788
----------- ----------- -----------
Comprehensive Loss for 1997:
Net loss
Other comprehensive loss, foreign currency
translation adjustment
Comprehensive Loss
Stock Options Recorded as Compensation 158,097
Warrants Issued with Subordinated Debenture 225,000
Shares Issued in Lieu of Cash for Commissions Payable 40,000 400 57,004
----------- ----------- -----------
40,000 400 440,101
----------- ----------- -----------
Balances, December 31, 1997 6,769,425 67,694 8,217,889
----------- ----------- -----------
Comprehensive Loss for 1998:
Net loss
Other comprehensive loss, foreign currency
translation adjustment
Comprehensive Loss
Stock Options Recorded as Compensation 39,509
-----------
39,509
-----------
Balances, December 31, 1998 6,769,425 67,694 8,257,398
-----------
Comprehensive Loss for 1999:
Net loss
Other comprehensive loss, foreign currency
translation adjustment
Comprehensive Loss
Stock Options Recorded as Compensation 39,600
Shares Issued in Lieu of Cash for Services Rendered 59,885 599 116,980
----------- ----------- -----------
59,885 599 156,580
----------- ----------- -----------
Balances, December 31, 1999 6,829,310 $ 68,293 $ 8,413,978
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Retained Other
Earnings Comprehensive
(Deficit) Loss Total
----------- ----------- -----------
<S> <C> <C> <C>
Balances, January 1, 1997 $ 1,038,465 $ (27,146) $ 8,856,401
----------- ----------- -----------
Comprehensive Loss for 1997:
Net loss (2,085,892) (2,085,892)
Other comprehensive loss, foreign currency
translation adjustment (141,721) (141,721)
-----------
Comprehensive Loss (2,227,613)
-----------
Stock Options Recorded as Compensation 158,097
Warrants Issued with Subordinated Debenture 225,000
Shares Issued in Lieu of Cash for Commissions Payable 57,404
----------- ----------- -----------
440,501
-----------
Balances, December 31, 1997 (1,047,427) (168,867) 7,069,289
----------- ----------- -----------
Comprehensive Loss for 1998:
Net loss (180,643) (180,643)
Other comprehensive loss, foreign currency
translation adjustment (430,775) (430,775)
-----------
Comprehensive Loss (611,418)
-----------
Stock Options Recorded as Compensation 39,509
----------- ----------- -----------
39,509
-----------
Balances, December 31, 1998 (1,228,070) (599,642) 6,497,380
----------- ----------- -----------
Comprehensive Loss for 1999:
Net loss (3,286,602) (3,286,602)
Other comprehensive loss, foreign currency
translation adjustment (294,781) (294,781)
-----------
Comprehensive Loss (3,581,383)
-----------
Stock Options Recorded as Compensation 39,600
Shares Issued in Lieu of Cash for Services Rendered 117,579
----------- ----------- -----------
157,179
-----------
Balances, December 31, 1999 $(4,514,672) $ (894,423) $ 3,073,176
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 33
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(3,286,602) $ (180,643) $(2,085,892)
Net loss from discontinued operations (4,337,109) (641,982) (260,911)
----------- ----------- -----------
Income (loss) from continuing operations 1,050,507 461,339 (1,824,981)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,117,341 978,177 1,067,818
Gain on sale of property and equipment (1,153,454) 0 0
Provision for bad debts 426,868 39,968 2,783,401
Provision for lawsuit settlement 0 (151,000) 650,000
Other, net 45,000 45,000 20,625
Effect of exchange rate changes (294,781) (430,777) (141,721)
Deferred income taxes 404,662 80,895 (946,336)
Compensation expense for stock
options 39,600 39,509 158,097
Stock issued for services 117,579 0 0
Increase (Decrease) in cash from
changes in:
Accounts receivable, trade (6,350,670) (1,099,616) (563,004)
Inventories (2,531,435) (665,575) (1,169,681)
Prepaid expenses and other
current assets (117,338) (219,124) 39,894
Other assets (198,748) (400,525) (280,604)
Accounts payable, trade 4,350,294 851,404 (2,665,802)
Accrued expenses and other
liabilities 938,497 850,231 1,781,784
----------- ----------- -----------
Net cash provided by (used in) operating
activities from continuing operations (2,156,078) 379,906 (1,090,510)
Net cash provided by (used in) operating
activities from discontinued operations (793,285) (370,876) (293,233)
----------- ----------- -----------
Net cash provided by (used in) operating
activities, forward (2,949,363) 9,030 (1,383,743)
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (1,635,335) (510,691) (573,901)
Proceeds from disposition of assets 2,950,102 0 58,361
Loans to stockholders (237,262) 0 0
----------- ----------- -----------
Net cash provided by (used in) investing
activities, forward 1,077,505 (510,691) (515,540)
----------- ----------- -----------
</TABLE>
F-6
<PAGE> 34
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities,forwarded $(2,949,363) $ 9,030 $(1,383,743)
----------- ----------- -----------
Net cash provided by (used in) investing
activities, forwarded 1,077,505 (510,691) (515,540)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net increase in revolving loan
indebtedness 3,854,671 935,000 542,475
Proceeds on notes payable 941,792 0 4,450,000
Principal payments on notes payable (3,229,830) (260,659) (5,504,228)
Proceeds from subordinated debentures 0 0 4,500,000
Payments on stockholder loans, net 0 (21,064) (906,660)
Payments on subordinated notes 0 0 (1,050,000)
----------- ----------- -----------
Net cash provided by financing activities 1,566,633 653,277 2,031,587
----------- ----------- -----------
Net Increase (Decrease) in Cash (305,225) 151,616 132,304
Cash, Beginning of Year 347,626 196,010 63,706
----------- ----------- -----------
Cash, End of Year $ 42,401 $ 347,626 $ 196,010
=========== =========== ===========
Cash of continuing operations $ 35,457 $ 228,850 $ 57,069
Cash of discontinued operations (included with
net current assets of discontinued
operations) 6,944 118,776 138,941
----------- ----------- -----------
$ 42,401 $ 347,626 $ 196,010
=========== =========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 2,053,220 $ 1,983,572 $ 1,491,549
=========== =========== ===========
Income taxes $ 0 $ 50,000 $ 75,561
=========== =========== ===========
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Liability satisfied by issuance of stock $ 117,579 $ 0 $ 57,404
=========== =========== ===========
Warrants issued in connection
with debenture $ 0 $ 0 $ 225,000
=========== =========== ===========
Debt incurred in connection with
acquisition of Virginia assets $ 360,000 $ 0 $ 0
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 35
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1--STRUCTURE
Universal Automotive Industries, Inc. (the Company) acts as a holding company
for its wholly-owned direct and indirect subsidiaries which as of December 31,
1999 are as follows:
Universal Automotive, Inc. (Universal)
Universal Automotive of Virginia, Inc. (formed 1999)
UBP Canholdings, Inc. (Canholdings) and its wholly owned subsidiaries,
all Canadian corporations:
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 (See Notes 2 and 9).
eParts eXchange, Inc. (planned E-Commerce business-to-business activity)
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 operating from leased facilities in
Alsip, Illinois; Compton, California; Walkerton, Virginia; Laredo, Texas; and
Toronto, Canada. Sales are made throughout the United States and Canada. The
Company's Hungarian subsidiary, engaged in the manufacture of iron casting
products, is accounted for as a discontinued operation as described in Note 9.
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.
SEGMENTS--Effective December 31, 1999, the Company's operations involve
only one geographic and industry segment. As discussed in Note 9, the
Company decided in December 1999 to discontinue its Hungarian
operations. The continuing United States and Canadian operations are
vertically integrated, and are considered part of the same industry
segment and geographic segment (North America).
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 revenue 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 entitled "Accumulated Other
Comprehensive Loss" (consisting solely of such translation adjustments).
The financial statements of the discontinued Hungarian operation had
been measured as if the functional currency was the U.S. dollar, and
thus, the currency adjustments had been included in the determination of
net loss (now reflected as part of the loss from discontinued
operations).
F-8
<PAGE> 36
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2--NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
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.
DERIVATIVES--The Company had previously utilized only limited derivative
financial instruments and did not use them for trading purposes. At
December 31, 1999, there were no such instruments.
INCOME TAXES--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).
ADVERTISING--All costs associated with advertising are charged to
operations by inclusion in selling, general and administrative expenses
when incurred.
RECLASSIFICATION--Certain amounts reported in the 1998 and 1997
financial statements have been reclassified to conform with the 1999
presentation without affecting previously reported net losses.
EARNINGS PER SHARE--The Company computes earnings per share under
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). Under SFAS 128, "Basic Earnings per Share" is
computed by dividing net loss by the weighted average number of shares
of common stock outstanding during the period. "Diluted Earnings per
Share" reflects the potential dilution that could occur if warrants and
options (Note 11) or other contracts to issue common stock were
exercised and resulted in the issuance of additional common shares. All
options and warrants are omitted from the computation of diluted
earnings per share when net losses are reported because the options and
warrants are antidilutive. Income from continuing operations is used as
the "control number" in determining whether those potential common
shares are dilutive or antidilutive. For the year ended December 31,
1997 diluted earnings per share and basic earnings per share are
identical because the loss from continuing operations incurred during
that year is antidilutive. For the years ended December 31, 1999 and
1998, there is income from continuing operations and, accordingly, the
additional options and warrants are considered because their effect is
dilutive.
F-9
<PAGE> 37
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2--NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial
instruments, other than debt instruments, closely approximates their
carrying value. Because the interest rate of the revolving loan and the
term loan with LaSalle National Bank adjusts with changes in the market
rate of interest, management believes the fair value is equivalent to
the carrying value. Management believes that the interest rate of 12.25%
on the subordinated debenture is approximately equal to the current rate
available for similar debt. Accordingly, the fair value of these
debentures approximates their carrying value.
NOTE 3--SELECTED FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Inventories:
Finished goods $15,353,722 $13,915,820
Work-in-process 83,614 0
Raw materials 2,501,293 1,491,374
----------- -----------
$17,938,629 $15,407,194
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Estimated
Lives 1999 1998
-------------- ---------- ----------
<S> <C> <C> <C>
Property, plant and equipment:
Machinery and equipment 5 to 11 years $5,083,231 $4,137,315
Building and improvements 25 to 39 years 0 1,709,750
Land 0 218,278
Tools and dies 5 to 11 years 882,063 687,522
Patterns 5 to 10 years 1,073,833 879,396
Computer equipment 3 to 5 years 618,678 429,230
Autos and trucks 3 to 5 years 360,475 319,924
Furniture and fixtures 5 to 11 years 277,517 267,722
Leasehold improvements 5 years 286,503 358,276
---------- ----------
8,582,300 9,007,413
Less accumulated depreciation 3,823,995 3,160,145
---------- ----------
$4,758,305 $5,847,268
========== ==========
</TABLE>
In October 1999, the Company's Chicago headquarters and warehouse
facility were sold for net proceeds of $2,890,102 resulting in a
gain of $1,199,756. See Note 8 for newly leased Chicago area
facility.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Depreciation expense $927,651 $727,342 $787,299
Advertising expense 300,825 299,525 136,274
</TABLE>
F-10
<PAGE> 38
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4--SUBORDINATED DEBENTURE
On July 14, 1997, the Company sold a $4,500,000 subordinated debenture to Finova
Mezzanine Capital, Inc. (formerly Tandem Capital, Inc.) calling for payments of
interest at 12.25% per annum through maturity on July 14, 2002. Through December
31, 1999 the Company has issued Finova warrants to purchase 1,125,000 shares of
the Company's common stock at exercise prices ranging from $0.83 to $1.53, based
on 80% of the average closing bid price of the Company's common stock for the 20
days preceding the respective issuance dates. Finova will also receive warrants
to purchase an additional 225,000 shares of common stock on each of August 14,
2000 and August 14, 2001 except, however, that if the debenture is prepaid
before any scheduled warrant issue date, then all subsequent warrants will not
be issued. The warrants are exercisable at any time through the sixth
anniversary of the debenture issue date. In 1997, $225,000 was allocated to such
warrants which approximates the amount of increased interest the buyer would
have required without a warrant feature. Such amount is being amortized to
interest expense with a corresponding increase in the reported liability for
such debentures.
NOTE 5--LASALLE INDEBTEDNESS
On September 29, 1999, the Company completed a renewal and restructuring of its
credit agreement with LaSalle Bank National Association or its subsidiaries
("LaSalle") for (a) a revolving line of credit of up to $22,000,000 based on
eligible accounts receivable and inventory and (b) a term loan in the amount of
$3,779,194. The term loan was reduced by $2,842,873 in October 1999 from the
proceeds of the sale of the Company's Chicago facility (Note 3).
The revolving credit facility, which is for an initial term ending May 1, 2002,
bears interest of prime plus 0.5% per annum, subject to an ongoing option to
convert to LIBOR plus 2.5% per annum. The term loan is payable in monthly
principal installments of $18,705, with a balloon payment due on May 1, 2002,
and bears interest at prime plus 0.75% per annum.
At December 31, 1999 and 1998, respectively, amounts of $16,764,671 and
$12,910,000 were due on the revolving credit line and amounts of $880,206 and
$4,054,448 were due on the term loan (see Note 6).
The LaSalle agreement contains certain limitations on dividends and capital
expenditures and requires the Company to satisfy certain financial tests
concerning defined minimum tangible net worth and ratios of liabilities to
tangible net worth and fixed charge coverage. At December 31, 1999, the Company
was in compliance with all loan covenants (or had received waivers). The entire
credit facility is secured by a first lien on substantially all of the Company's
North American assets. At December 31, 1999, approximately $757,000 was
available for borrowing under the revolving credit line.
The weighted average interest rates on the aforementioned borrowings were 8.19%,
8.67% and 8.22% for the years ended December 31, 1999, 1998, and 1997,
respectively.
F-11
<PAGE> 39
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6--LONG-TERM INDEBTEDNESS
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
LaSalle term loan (see Note 5) $ 880,206 $4,054,448
Amounts due under Asset Purchase Agreement (see
below) 340,000 0
Capital lease obligation (see Note 8) 540,807 51,392
Vehicle acquisition loans 56,789 0
---------- ----------
Total long-term indebtedness 1,817,802 4,105,840
Less current portion 508,955 321,500
---------- ----------
Noncurrent portion $1,308,847 $3,784,340
========== ==========
</TABLE>
In connection with the November 1999 acquisition by a newly formed subsidiary
(Note 1) of certain assets of a manufacturing facility in Walkerton, Virginia,
the Company is liable to the seller for $360,000, repayable in 36 monthly
installments of $10,000 plus interest at the LaSalle prime rate.
The approximate aggregate maturities of long-term indebtedness (other than
capital leases - Note 8) are:
<TABLE>
<CAPTION>
Year Ending
December 31
Amount
----------
<S> <C>
2000 $ 357,265
2001 356,917
2002 544,194
2003 13,632
2004 4,987
----------
$1,276,995
==========
</TABLE>
NOTE 7--INCOME TAXES
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal $ (6,471) $ (102,000) $ (201,700)
Foreign 0 (18,616) 116,520
State 0 (46,200) (48,300)
Deferred 404,662 80,895 (936,400)
----------- ----------- -----------
$ 398,191 $ (85,921) $(1,069,880)
=========== =========== ===========
Discontinued Operations $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
F-12
<PAGE> 40
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7--INCOME TAXES, CONTINUED
The components of the United States net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax benefits upon future liquidation of
Hungarian Subsidiary (Note 9) $ 1,900,000 $ 0
Bad debt allowance 142,100 162,100
Reserve for lawsuit settlement 114,700 114,700
Variation of inventories between tax and financial
reporting purposes 221,800 150,800
Net operating loss carryforward 368,600 690,300
Compensation expense for stock options 210,700 195,700
Other accruals 112,100 79,200
----------- -----------
Total deferred tax assets 3,070,000 1,392,800
Deferred tax liability - depreciation temporary
differences (285,000) (184,800)
----------- -----------
Net deferred tax assets 2,785,000 1,208,000
Valuation allowance (1,900,000) 0
----------- -----------
Net deferred tax assets $ 885,000 $ 1,208,000
=========== ===========
Current $ 395,000 $ 1,062,800
Noncurrent 490,000 145,200
----------- -----------
$ 885,000 $ 1,208,000
=========== ===========
</TABLE>
At December 31, 1999, the Company had a United States net operating loss
carryover of approximately $970,000, expiring in 2018.
The components of the Canadian net deferred tax liabilities are:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax liability:
Depreciation differences between tax reporting and
financial reporting $ 413,888 $ 311,885
Deferred tax assets:
Tax carryforwards (155,154) (134,813)
----------- -----------
Net deferred tax liabilities $ 258,734 $ 177,072
=========== ===========
</TABLE>
F-13
<PAGE> 41
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7--INCOME TAXES, CONTINUED
A reconciliation of the provision for income taxes and the amount computed by
applying the federal statutory rate to income (loss) from continuing operations
before income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) from continuing operations
before income tax expense:
United States $ 1,210,100 $ 653,700 $(3,020,300)
Canadian 238,600 (278,300) 125,600
----------- ----------- -----------
$ 1,448,700 $ 375,400 $(2,894,700)
=========== =========== ===========
Computed income tax expense (benefit) at
federal statutory rate $ 492,558 $ 127,636 $ (984,198)
Reduction resulting from effect of different
Canadian and U.S. rates (94,367) (213,557) (85,682)
----------- ----------- -----------
Total $ 398,191 $ (85,921) $(1,069,880)
=========== =========== ===========
</TABLE>
NOTE 8--LEASES AND OTHER COMMITMENTS
The Company leases from unaffiliated parties all of its facilities including the
new Alsip, Illinois headquarters occupied in 1999. The lease terms range from
month-to-month to long-term leases, the latest of which expires in 2004.
Aggregate rent expense for all facilities was approximately $1,112,000, $729,000
and $725,000 for 1999, 1998 and 1997, respectively.
The Company leases certain equipment under capital leases payable in aggregate
monthly installments of $12,641 with the latest expiring in 2004. The net book
value of such equipment under capital lease is $558,335. Certain vehicles and
equipment are also leased under operating leases, the latest expiring in 2001.
Approximate minimum lease payments due over the remaining terms of the leases
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
2000 $ 151,690 $1,379,978
2001 151,690 1,147,259
2002 143,650 966,763
2003 132,397 648,313
2004 68,476 526,910
---------- ----------
647,903 4,669,223
Less interest portion 107,096 0
---------- ----------
$ 540,807 $4,669,223
========== ==========
</TABLE>
F-14
<PAGE> 42
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 9--DISCONTINUED OPERATIONS
On December 9, 1999, the Company finalized its decision to discontinue its
Hungarian operation (Notes 1 and 2). At December 31, 1999, the carrying value of
the Hungarian plant and equipment has been reflected at its estimated net
realizable value of $800,000, resulting in a writedown of $1,583,000. The
Company has provided for estimated costs of disposition (expected to occur by
the end of 2000) of $1,500,000, including estimated losses of the discontinued
operations during the disposal period.
The following is a summary of financial information for the Company's
discontinued operations:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales $4,908,000 $5,616,000 $5,446,000
========== ========== ==========
Loss from discontinued operations:
Before income taxes $1,254,000 $ 642,000 $ 261,000
Income tax benefit 0 0 0
---------- ---------- ----------
Net
1,254,000 642,000 261,000
---------- ---------- ----------
Estimated loss on disposal:
Before income taxes 3,083,000 0 0
Income tax benefit 0 0 0
---------- ---------- ----------
Net 3,083,000 0 0
---------- ---------- ----------
Total loss from discontinued operations $4,337,000 $ 642,000 $ 261,000
========== ========== ==========
</TABLE>
NOTE 10--CONTINGENCIES
During 1995, a lawsuit was filed against the Company in the United States
Bankruptcy Court (the Court) by a Trustee of the bankruptcy estate of First
National Parts Exchange, Inc. with which the Company had transacted both
purchases and sales of certain automotive parts in 1992 and 1993. The Company
recorded a provision of $650,000 in 1997 to reflect an estimated liability for
such contingency. On July 10, 1998, after a trial was concluded, the Court ruled
that the vast majority of the Trustee's claims were invalid. The Company's
liability for the claims held as valid was approximately $499,000, for which the
Company paid approximately $198,000 in 1998. As a result, the Company recorded
benefit for lawsuit settlement of $151,000 (pre-tax) in 1998. The Trustee has
appealed certain portions of the judgment and the Company has appealed certain
portions of the $499,000 judgement against it, seeking a reduction of its
liabilities. While the Trustee's claim involves substantial amounts, it is the
opinion of management that the ultimate resolution of this matter will not have
a material adverse effect on the Company's financial position or results of
operations.
In January 2000, a lawsuit was filed against the Company by the Plan
Administrator for a bankrupt former customer (APS Holding Corporation) seeking
recovery of alleged preferences in excess of $2,200,000. The Company believes
that all payments received by it were in the ordinary course of business and
intends to vigorously contest such allegations. Potential damages, if any, are
not covered by insurance. Management believes that the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position or results of operations.
F-15
<PAGE> 43
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11--STOCK WARRANTS AND OPTIONS
The Company has outstanding 1,495,000 redeemable common stock purchase warrants.
When the warrants were originally issued in December 1994, each warrant entitled
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. Effective November 5, 1999, the Company reduced the exercise
price of these warrants to $2.25 per share and extended the expiration date to
December 31, 2000. Also in December 1999, 130,000 common stock purchase warrants
issued to the underwriter of the Company's 1994 public stock offering expired.
In addition to the warrants discussed above and in Note 4, in exchange for
consulting services the Company issued (a) in 1999 warrants to purchase 200,000
shares of the Company's common stock at exercise prices ranging from $1.4375 to
$2.00 per share exercisable until 2004 and (b) in 1998 warrants to purchase
50,000 shares of the Company's common stock at an exercise price of $1.375 per
share exercisable until 2003.
The Company maintains a Stock Option Plan (as amended and restated effective
June 9, 1998) 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 700,000 shares of common stock
for issuance under the Stock Option Plan. Following is a table indicating the
activity during 1999, 1998 and 1997 for such Stock Option Plan:
<TABLE>
<CAPTION>
Weighted
Average
Stock Exercise
Options Price
-------- --------
<S> <C> <C>
Options outstanding at December 31, 1996 138,026 $ 3.38
1997:
Options granted 41,500 4.86
--------
Balance, December 31, 1997 179,526 3.72
1998:
Options granted 213,150 1.54
Options forfeited (44,700) (3.02)
Options cancelled (70,000) (2.48)
--------
Balance, December 31, 1998 277,976 2.47
1999:
Options granted 303,500 1.88
Options forfeited (4,800) (1.90)
--------
Balance, December 31, 1999 576,676 2.18
========
Options exercisable, December 31, 1999 245,261 2.43
========
</TABLE>
F-16
<PAGE> 44
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11--STOCK WARRANTS AND OPTIONS, CONTINUED
The following table summarizes information about the outstanding and exercisable
stock options as of December 31, 1999:
Options Outstanding
<TABLE>
<CAPTION>
Weighted- Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
------ ----------- ----------- ----------
<S> <C> <C> <C>
$ 1.00 - 1.88 286,050 110 months $ 1.36
2.00 - 2.40 215,100 105 months 2.28
3.00 5,000 93 months 3.00
5.00 70,526 92 months 5.00
-------
576,676
=======
</TABLE>
Options Exercisable
<TABLE>
<CAPTION>
Weighted-
Range of Average
Exercise Number Exercise
Prices Outstanding Price
------ ----------- ----------
<S> <C> <C>
$ 1.00 - 1.88 122,580 $ 1.31
2.00 - 2.40 60,360 2.22
3.00 5,000 3.00
5.00 57,321 5.00
-------
245,261
=======
</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 1999, 1998 and 1997,
amounts of $39,600, $39,509 and $158,097, 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 Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123) and continues to account for stock options in accordance with APB Opinion
25. The foregoing amount of compensation expense for 1999, 1998 and 1997 differs
by less than $.01 per share 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-17
<PAGE> 45
ADDITIONAL FINANCIAL DATA
<PAGE> 46
[ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
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 10,
2000 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, 1999, 1998 and 1997. In our
opinion, these schedules present fairly, in all material respects, the
information required to be set forth therein.
ALTSCHULER, MELVOIN AND GLASSER LLP
/s/ ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
March 10, 2000
S-1
<PAGE> 47
Schedule I, Page 1
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Balance Sheets (Not Consolidated)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Cash and Cash Equivalents $ 101 $ 101
Prepaid Expenses and Other Assets 130 130
Investment in and Advances to Wholly Owned Subsidiaries 3,072,945 6,497,149
----------- -----------
$ 3,073,176 $ 6,497,380
=========== ===========
Liabilities and Stockholders' Equity
Liabilities $ 0 $ 0
----------- -----------
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,
6,829,310 and 6,769,425 shares issued and outstanding in
1999 and 1998 respectively) 68,293 67,694
Additional paid-in capital 9,376,605 9,220,025
Retained earnings (deficit) (5,477,299) (2,190,697)
Accumulated other comprehensive loss (894,423) (599,642)
----------- -----------
3,073,176 6,497,380
----------- -----------
$ 3,073,176 $ 6,497,380
=========== ===========
</TABLE>
S-2
<PAGE> 48
Schedule I, Page 2
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Statement of Operations and Retained Earnings (Deficit) (Not Consolidated)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Equity in net loss of subsidiaries $(3,247,002) $ (141,134) $(1,889,247)
----------- ----------- -----------
(3,247,002) (141,134) (1,889,247)
----------- ----------- -----------
Expenses:
Compensation expense for stock options 39,600 39,509 158,097
Miscellaneous (primarily amortization) 0 0 38,548
----------- ----------- -----------
39,600 39,509 196,645
----------- ----------- -----------
Net Loss for Period (3,286,602) (180,643) (2,085,892)
Retained Earnings (Deficit), Beginning of Period (2,190,697) (2,010,054) 75,838
----------- ----------- -----------
Retained Earnings (Deficit), End of Period $(5,477,299) $(2,190,697) $(2,010,054)
=========== =========== ===========
</TABLE>
S-3
<PAGE> 49
Schedule I, Page 3
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Statement of Cash Flows (Not Consolidated)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash from Operating Activities:
Net loss $(3,286,602) $ (180,643) $(2,085,892)
Adjustments to reconcile net loss to cash used in operating activities:
Compensation expense for stock options 39,600 39,509 158,097
Equity in net loss of subsidiaries 3,247,002 141,134 1,889,247
Amortization 0 0 38,548
----------- ----------- -----------
Cash used in operating activities 0 0 0
Cash and Cash Equivalents, Beginning of Period 101 101 101
----------- ----------- -----------
Cash and Cash Equivalents, End of Period $ 101 $ 101 $ 101
=========== =========== ===========
</TABLE>
S-4
<PAGE> 50
Schedule II
SCHEDULE II
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
COLUMN B COLUMN C
BALANCE AT CHARGED COLUMN E
BEGINNING TO COSTS COLUMN D BALANCE AT
OF PERIOD AND EXPENSE WRITEOFFS END OF PERIOD
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
1999:
Allowance for doubtful accounts $ 493,729 $ 426,868 $ 491,278 $ 429,319
=========== =========== =========== ===========
1998:
Allowance for doubtful accounts $ 1,876,987 $ 41,115 $ 1,424,373 $ 493,729
=========== =========== =========== ===========
1997:
Allowance for doubtful accounts $ 459,827 $ 2,786,510 $ 1,369,350 $ 1,876,987
=========== =========== =========== ===========
1999:
Reserve for inventory obsolescence $ 158,399 $ 386,101 $ 0 $ 544,500
=========== =========== =========== ===========
1998:
Reserve for inventory obsolescence $ 217,785 $ (59,386) $ 0 $ 158,399
=========== =========== =========== ===========
1997:
Reserve for inventory obsolescence $ 219,836 $ (2,051) $ 0 $ 217,785
=========== =========== =========== ===========
1999:
Valuation allowance for deferred income taxes $ 0 $ 1,900,000 $ 0 $ 1,900,000
=========== =========== =========== ===========
</TABLE>
S-5
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
<TABLE>
<CAPTION>
STATE OF NAME UNDER WHICH
NAME INCORPORATION SUBSIDIARY DOES BUSINESS
- ---- ------------- ------------------------
<S> <C> <C>
UBP Universal Brake Parts
Universal Automotive, Inc. Illinois Jet Automotive
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
E Parts eXchange, Inc. Illinois N/A
Universal Automotive of Virginia, Inc. Virginia N/A
</TABLE>
<PAGE> 1
EXHIBIT 23
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 10, 2000 relating to the
consolidated financial statements and financial statement schedules of Universal
Automotive Industries, Inc. as of December 31, 1999, 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
Chicago, Illinois
April 6, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,457
<SECURITIES> 0
<RECEIVABLES> 16,279,027
<ALLOWANCES> 429,319
<INVENTORY> 17,938,629
<CURRENT-ASSETS> 35,856,241
<PP&E> 9,382,300
<DEPRECIATION> 3,823,995
<TOTAL-ASSETS> 43,159,767
<CURRENT-LIABILITIES> 17,368,714
<BONDS> 22,459,143
0
0
<COMMON> 68,293
<OTHER-SE> 3,004,883
<TOTAL-LIABILITY-AND-EQUITY> 43,159,767
<SALES> 67,759,358
<TOTAL-REVENUES> 67,759,358
<CGS> 53,539,565
<TOTAL-COSTS> 53,539,565
<OTHER-EXPENSES> 11,909,230
<LOSS-PROVISION> 426,868
<INTEREST-EXPENSE> 2,025,125
<INCOME-PRETAX> 1,448,698
<INCOME-TAX> 398,191
<INCOME-CONTINUING> 1,050,507
<DISCONTINUED> (4,337,109)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,286,602)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.45)
</TABLE>
