<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to________
Commission file number 1-13516
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3973627
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11859 South Central Avenue
Alsip, Illinois 60803
(Address of principal executive offices)
(Zip Code)
(708) 293-4050
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of issuer's Common Stock, par value $.01 per share,
outstanding as of May 11, 2000 was 6,914,310 shares.
<PAGE> 2
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
- ------------------------------ -------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations
(Unaudited) - for the three months ended
March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows
(Unaudited) - for the three months ended
March 31, 2000 and 1999 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 9
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable to the Company in this report.
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 10
EXHIBIT II - Computation of Earnings Per Share 11
</TABLE>
2
<PAGE> 3
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash $ 10,950 $ 35,457
Accounts receivable, trade 18,407,742 15,849,708
Due from stockholders 237,262 237,262
Inventories 20,510,700 17,938,629
Deferred income taxes 395,000 395,000
Prepaid expenses and other current assets 1,189,292 1,060,650
Net current assets of discontinued operations 326,116 339,535
------------ ------------
41,077,062 35,856,241
------------ ------------
Property and Equipment - continuing operations, net 4,827,229 4,758,305
------------ ------------
Property and Equipment - discontinued operations, net 800,000 800,000
------------ ------------
Other Assets:
Goodwill, net 566,059 569,073
Deferred income taxes 490,000 490,000
Other assets 669,921 686,148
------------ ------------
1,725,980 1,745,221
------------ ------------
$ 48,430,271 $ 43,159,767
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $ 13,050,457 $ 10,691,507
Long-term indebtedness, current portion 411,296 508,955
Accrued expenses and other current liabilities 4,681,912 4,668,252
Estimated loss on disposal of discontinued operations 1,357,830 1,500,000
------------ ------------
19,501,495 17,368,714
------------ ------------
Long-term Liabilities:
Revolving loan indebtedness 19,767,293 16,764,671
Subordinated debenture 4,396,875 4,385,625
Long-term indebtedness, non-current portion 1,231,021 1,308,847
Deferred income taxes 258,271 258,734
------------ ------------
25,653,460 22,717,877
------------ ------------
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, 6,914,310 shares and 6,829,310 issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively) 69,143 68,293
Additional paid-in-capital 8,543,528 8,413,978
Retained earnings (4,457,662) (4,514,672)
Accumulated other comprehensive losses (879,693) (894,423)
------------ ------------
3,275,316 3,073,176
------------ ------------
$ 48,430,271 $ 43,159,767
============ ============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
3
<PAGE> 4
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 17,502,604 $ 13,898,678
Cost of Sales 13,814,105 11,446,455
------------ ------------
Gross Profit 3,688,499 2,452,223
Selling, General, and Administrative Expenses 3,087,660 2,402,602
------------ ------------
Income From Operations 600,839 49,621
------------ ------------
Other Expense:
Interest expense 577,454 459,280
Other (65,925) (594)
------------ ------------
511,529 458,686
------------ ------------
Income (Loss) before Provision for Income Taxes 89,310 (409,065)
Income Tax Provision (Benefit) 32,300 (195,518)
------------ ------------
Income (Loss) from Continuing Operations $ 57,010 (213,547)
Loss from Discontinued Operations -- (371,606)
------------ ------------
Net Income (Loss) $ 57,010 $ (585,153)
============ ============
Comprehensive Income (Loss):
Net Income (Loss) $ 57,010 $ (585,153)
Other Comprehensive Income (Loss), Foreign
Currency Translation Adjustment 14,730 (32,854)
------------ ------------
Comprehensive Income (Loss) $ 71,740 $ (618,007)
============ ============
Earnings (Loss) Per Share:
Basic:
Continuing operations $ 0.01 (0.03)
Discontinued operations 0.00 (0.06)
------------ ------------
Net $ 0.01 $ (0.09)
============ ============
Diluted:
Continuing operations $ 0.01 (0.03)
Discontinued operations 0.00 (0.06)
------------ ------------
Net $ 0.01 $ (0.09)
============ ============
Weighted average number of common shares
Outstanding:
Basic 6,839,310 6,771,647
Common stock equivalents resulting from
Warrants and options 1,172,035 0
------------ ------------
Diluted 8,011,345 6,771,647
============ ============
</TABLE>
The accompanying notes are an integral part of the
financial statements
4
<PAGE> 5
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 57,010 $ (585,153)
Net loss from discontinued operations -- (371,608)
----------- -----------
Income (loss) from continuing operations 57,010 (213,545)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 309,547 234,662
Provision for bad debts 88,512 90,712
Effect of exchange rate changes 14,730 (32,854)
Compensation expense for stock options 9,900 9,900
Deferred income taxes and other (463) 15,351
Other 11,250 --
Changes in operating assets and liabilities:
Accounts receivable, trade (2,646,546) (3,030,948)
Inventories (2,572,071) (1,128,153)
Prepaid expenses and other current assets (128,642) (166,478)
Other assets (41,267) (99,346)
Accounts payable, trade 2,358,950 3,170,093
Accrued expenses and other current liabilities 13,660 175,975
----------- -----------
Net cash used in operating activities from
continuing operations (2,525,430) (974,632)
Net cash provided by (used in) operating
activities from discontinued operations 28,068 (193,796)
----------- -----------
Net cash used in operating activities (2,497,362) (1,168,428)
Cash Flows for Investing Activities:
Purchase of property and equipment (324,907) (298,346)
----------- -----------
Net cash used in investing activities (324,907) (298,346)
----------- -----------
Cash Flows from Financing Activities:
Net increase in revolving loan indebtedness 3,002,621 1,280,000
Proceeds on notes payable -- 202,316
Principal (payments) on notes payable (175,485) (87,037)
Common stock issued by exercise of options 120,500 --
----------- -----------
Net cash provided by financing activities 2,947,636 1,395,279
----------- -----------
Net Increase (Decrease) in Cash 125,367 (71,495)
Cash, Beginning of Period 42,401 347,626
----------- -----------
Cash, End of Period $ 167,768 $ 276,131
=========== ===========
Cash of continuing operations $ 10,950 $ 150,101
Cash of discontinued operations (included with
net current assets of discontinued operations) 156,818 126,030
----------- -----------
$ 167,768 $ 276,131
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 601,009 $ 501,068
----------- -----------
Cash paid for income taxes $ 0 $ 0
----------- -----------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
5
<PAGE> 6
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim condensed financial statements are prepared pursuant to the requirements
for reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with generally accepted accounting
principles are omitted. For additional disclosures, see the Notes to
Consolidated Financial Statements contained in Universal Automotive Industries,
Inc. (the "Company") Annual Report on Form 10-K for the year ended December 31,
1999.
In the opinion of management of the Company, all adjustments, consisting solely
of normal recurring adjustments, necessary for the fair presentation of the
financial statements for these interim periods have been included. The current
period's results of operations are not necessarily indicative of results, which
ultimately may be achieved for the year.
2. INVENTORIES
March 31, 2000
--------------
Finished goods $ 16,850,633
Work in process 83,614
Raw materials 3,576,453
------------
$ 20,510,700
============
3. BASIS OF PRESENTATION
Net Income Per Share
Warrants and options issued by the Company are only included in the computation
of weighted average number of shares, where their inclusion is not
anti-dilutive. For the three months ended March 31, 1999, common stock
equivalents are not included in the weighted average number of shares
outstanding in determining net loss per share.
4. DISCONTINUED OPERATIONS
As previously disclosed in Note 9 of the 1999 audited financial statements, the
Company finalized its decision to discontinue its Hungarian operation in
December 1999. As of December 31, 1999, the Company provided for estimated costs
of disposition of $1,500,000 including estimated losses of the discontinued
operations during the disposal period. For the period ending March 31, 2000,
losses from the discontinued operations of $142,000 were applied against the
aforementioned reserve. The Statement of Operations for the period ended March
31, 1999 was restated to give effect to this treatment.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
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 both periods presented due to the treatment of the Company's
Hungarian foundry as a discontinued business.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999
Net sales for the three months ended March 31, 2000 increased $3,604,000 or
25.9% over the same quarter in 1999 to $17,503,000. Increased shipments of brake
products, especially to Pep Boys, Inc., a major new customer, more than offset
the lack of sales related to the Canadian distribution business which was sold
as of December 31, 1999.
Gross profits for the three months ended March 31, 2000 were $3,689,000 or
21.1% of net sales compared to $2,452,000 or 17.6% in the same period of 1999,
an increase of $1,236,000 or 50.4%. The period to period increase in gross
profit and percentage of gross profits to net sales is primarily attributable to
improved product mix and the incremental nature of the sales to new customers:
the Company's infrastructure was in place to service the new volume and,
therefore, fixed costs did not increase appreciably.
Selling, general and administrative expenses for the three months ended
March 31, 2000 increased by $685,000 or 28.5% to $3,088,000 from $2,403,000 for
the same period in 1999. The increase was due primarily to increased variable
costs associated with increased sales and costs incurred in connection with
additional marketing and sales efforts.
- --------
(1) Some of the statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations, may be considered to be "forward
looking statements" since such statements relate to matters which have not yet
occurred. For example, phrases such as "the Company anticipates," "believes" or
"expects" indicate that it is possible that the event anticipated, believed or
expected may not occur. Should such event not occur, then the result, which the
Company expected also, may not occur or occur in a different manner, which may
be more or less favorable to the Company. The Company does not undertake any
obligation to publicly release the result of any revisions to these forward
looking statements that may be made to reflect any future event or
circumstances.
7
<PAGE> 8
Other expense for the three months ended March 31, 2000 increased to
$512,000 from $459,000 for the same period of 1999. The increase is attributable
to higher interest expense in the first quarter ended March 31, 2000 compared to
the same period of 1999. The increase in interest expense was due primarily to a
higher level of borrowing at March 31, 2000 compared to March 31, 1999 and
higher interest rates.
The absence of a loss from discontinued operations for the quarter ended
March 31, 2000 is due to the fact that the loss from the discontinued Hungarian
iron foundry operation for the quarter ended March 31, 2000 of $142,000 has been
charged against the reserve for such losses established as of December 31, 1999.
The reserve balance as of March 31, 2000 is $1,358,000.
Net income for the three months ended March 31, 2000 was $57,000 compared
to net loss of $585,000 for the same period in 1999. This increase in net income
is attributed to the individual factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended March 31,
2000 was $2,525,430. Cash generated through an increase in accounts payable
($2.4 million) did not fully offset cash required to finance growth in accounts
receivable ($2.6 million) and inventories ($2.6 million) necessary to support
the Company's sales growth.
Net cash used in investing activities was $324,907, which is attributable
primarily to acquisition of various items of tooling, manufacturing equipment,
and warehouse equipment. Net cash provided by financing activities was
$2,947,636, consisting primarily of borrowings under the Company's revolving
credit agreement.
The Company expects to continue to finance its operations through cash flow
generated from operations, borrowings under the Company's bank lines of credit
and credit from its suppliers.
"YEAR 2000" ISSUE
YEAR 2000 ISSUE RESULTS
We have experienced no problems in information technology ("IT") and non-IT
systems and related software in use throughout our operations brought about by
the Year 2000 issue. We have also not experienced any problems with respect to
Year 2000 issues at third party vendors or customers. The Year 2000 issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. Thus, time sensitive software may recognize a date
using the digits "00" as the year 1900 rather than the year 2000. This could
result in system failure or miscalculation.
YEAR 2000 ISSUE COSTS
We have three major IT systems, the software for which has been licensed
from various IT vendors: a system that processes and controls sales, inventory,
and warehouse operations for its North American
8
<PAGE> 9
distribution business; an accounting system for its North American business; and
an integrated business/accounting system for its Hungarian foundry.
Our distribution business IT system required a software upgrade from the
vendor to be Year 2000 compliant. We chose to upgrade our computer hardware and
operating system prior to installing the software upgrades to take advantage of
more efficient computer operations and robust capabilities the new operating
system offers. The new hardware and operating system have been installed and
fully Year 2000 compliant software upgrades have been operating normally as
expected. The cost of the new hardware and operating system software was
approximately $75,000 and internal costs associated with the upgrade were
approximately $20,000. The vendor provided the upgrade version of the software
under a maintenance agreement.
The accounting system in use for the North American business had been
certified as Year 2000 compliant by the software publisher for the version in
use and required no additional costs.
The Year 2000 upgrade needed for the integrated business/accounting system
in use at the Hungarian foundry was provided and installed by the software
vendor under a maintenance agreement and required no additional costs.
FUTURE YEAR 2000 ISSUES
We are not aware of any situations wherein we may be exposed to future Year
2000 issues in the normal course of operations.
ITEM 3. 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 March
31, 2000, 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.
9
<PAGE> 10
PART II OTHER INFORMATION
ITEM 1 THROUGH 5 ARE NOT APPLICABLE TO THE COMPANY IN THIS REPORT.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit II - Computation of Earnings Per Share
b) The Company did not file any reports on Form 8-K during the period covered
by this report.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
/s/ ARVIN SCOTT
-----------------------------------------------
Arvin Scott, Chief Executive Officer, President
(Principal Executive Officer)
/s/ JEROME J. HISS
-----------------------------------------------
Jerome J. Hiss, Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
Date: May 15, 2000
10
<PAGE> 11
EXHIBIT II
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
BASIC NET INCOME (LOSS) PER COMMON SHARE
Net Income (Loss):
Continuing operations $ 57,010 $ (213,547)
Discontinued operations 0 (371,606)
----------- --------
Net $ 57,010 $ (585,153)
=========== ===========
Weighted average Common Shares outstanding 6,839,310 6,771,647
=========== ===========
Basic Net Income (Loss) Per Common Share:
Continuing operations $ 0.01 $ (0.03)
Discontinued operations 0.00 (0.06)
----------- -----------
Net $ 0.01 $ (0.09)
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Net Income (Loss):
Continuing operations $ 57,010 $ (213,547)
Discontinued operations 0 (371,606)
----------- -----------
Net $ 57,010 $ (585,153)
=========== ===========
Weighted average Common Shares outstanding 6,839,310 6,771,647
Options and warrants assumed to be Common Stock
equivalents using Treasury Stock Method 1,172,035 0
----------- -----------
Weighted average common shares outstanding, as
adjusted 8,011,345 6,771,647
=========== ===========
Diluted Net Income (Loss) per Common Share:
Continuing operations $ 0.01 $ (0.03)
Discontinued operations 0.00 (0.06)
----------- -----------
Net $ 0.01 $ (0.09)
=========== ===========
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,950
<SECURITIES> 0
<RECEIVABLES> 19,079,000
<ALLOWANCES> 433,996
<INVENTORY> 20,510,700
<CURRENT-ASSETS> 41,077,062
<PP&E> 9,700,263
<DEPRECIATION> 4,073,034
<TOTAL-ASSETS> 48,430,271
<CURRENT-LIABILITIES> 19,501,495
<BONDS> 25,395,189
0
0
<COMMON> 69,143
<OTHER-SE> 3,206,173
<TOTAL-LIABILITY-AND-EQUITY> 48,430,271
<SALES> 17,502,604
<TOTAL-REVENUES> 17,502,604
<CGS> 13,814,105
<TOTAL-COSTS> 13,814,105
<OTHER-EXPENSES> 2,999,148
<LOSS-PROVISION> 88,512
<INTEREST-EXPENSE> 577,454
<INCOME-PRETAX> 89,310
<INCOME-TAX> 32,300
<INCOME-CONTINUING> 57,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,010
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
