10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 Commission file number 1-10869 UNIQUE MOBILITY, INC. (Exact name of registrant as specified in its charter) Colorado 84-0579156 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 425 Corporate Circle Golden, Colorado 80401 (Address of principal executive offices) (zip code) (303) 278-2002 (Registrant's telephone number, including area code) 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 . The number of shares outstanding (including shares held by affiliates) of the registrant's common stock, par value $0.01 per share at October 17, 2000, was 17,362,906. PART I - FINANCIAL INFORMATION UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, March 31, Assets 2000 2000 (unaudited)
Current assets: Cash and cash equivalents $ 1,678,014 2,085,115 Accounts receivable, net (notes 6 and 8) 3,597,468 2,821,894 Costs and estimated earnings in excess of billings on uncompleted contracts (note 3) 269,930 329,111 Inventories (notes 4 and 6) 5,817,695 3,120,279 Prepaid expenses 119,804 192,492 Other 136 400,068 Total current assets 11,483,047 8,948,959 Property and equipment, at cost: Land 517,080 517,080 Building 2,678,525 2,678,525 Molds 102,113 102,113 Transportation equipment 146,386 146,386 Machinery and equipment 11,451,474 10,462,893 14,895,578 13,906,997 Less accumulated depreciation (6,115,285) (5,365,304) Net property and equipment 8,780,293 8,541,693 Patent and trademark costs, net of accumulated amortization of $145,447 and $125,078 744,714 731,282 Goodwill, net of accumulated amortization of $823,029 and $656,696 5,829,130 5,995,463 Other assets 99,206 40,446 $ 26,936,390 24,257,843
(Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued September 30, March 31, Liabilities and Stockholders' Equity 2000 2000 (unaudited)
Current liabilities: Accounts payable $ 2,140,570 1,379,316 Other current liabilities (note 5) 1,717,705 845,462 Current portion of long-term debt 1,123,155 972,123 Revolving line-of-credit (note 6) 956,000 - Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 456,406 79,499 Total current liabilities 6,393,836 3,276,400 Long-term debt, less current portion 3,478,390 3,422,459 Total liabilities 9,872,226 6,698,859 Minority interest in consolidated subsidiary 418,971 413,066 Stockholders' equity (note 7): Common stock, $.01 par value, 50,000,000 shares authorized; 17,332,877 and 17,194,192 shares issued 173,329 171,942 Additional paid-in capital 50,289,333 49,382,877 Accumulated deficit (33,433,169) (32,024,601) Accumulated other comprehensive loss (note 12) (384,300) (384,300) Total stockholders' equity 16,645,193 17,145,918 Commitments (note 11) $ 26,936,390 24,257,843
See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Quarter Ended Six Monthes Ended September 30, September 30, 2000 1999 2000 1999
Revenue (note 8): Contract services $ 352,881 381,984 897,899 815,423 Product sales 6,078,452 4,952,179 11,998,924 10,283,151 6,431,333 5,334,163 12,896,823 11,098,574 Operating costs and expenses: Costs of contract services 380,479 294,017 866,341 737,444 Costs of product sales 5,625,913 4,199,503 10,824,411 8,625,924 Research and development 27,501 108,267 65,410 134,446 General and administrative 1,064,499 1,481,527 1,965,232 2,355,528 Write-down of investments - 4,104,628 - 4,104,628 Impairment of assets 216,818 - 216,818 - Amortization of goodwill 83,167 83,166 166,333 166,045 7,398,377 10,271,108 14,104,545 16,124,015 Operating loss (967,044)(4,936,945) (1,207,722) (5,025,441) Other income (expense): Interest income 16,140 21,759 42,853 38,155 Interest expense (104,798) (122,787) (201,212) (239,939) Equity in loss of joint ventures - (139,602) - (280,170) Minority interest share of earnings of consolidated subsidiary (19,992) (18,631) (39,577) (36,893) Other 4 - (2,910) 2,331 (108,646) (259,261) (200,846) (516,516) Net loss $ (1,075,690)(5,196,206) (1,408,568) (5,541,957) Net loss per common share basic and diluted $ (.06) (.31) (.08) (.33) Weighted average number of shares of common stock outstanding (note 9) 17,269,444 16,572,161 17,242,489 16,484,458
See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended September 30, 2000 1999
Cash flows used by operating activities: Net loss $ (1,408,568) (5,541,957) Adjustments to reconcile net loss to net cash used by operating activities: Write-down of investments - 4,104,628 Depreciation and amortization 1,147,372 1,054,606 Impairment of assets 216,818 - Minority interest share of earnings of consolidated subsidiary 39,577 36,893 Noncash compensation expense for common stock issued for services 78,253 15,618 Equity in loss of joint ventures - 280,170 Loss on sale of property and equipment 2,917 - Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (700,153) (572,699) Inventories (2,697,416) 83,490 Prepaid expenses and other current assets 72,620 (176,780) Accounts payable and other current liabilities 1,633,497 194,063 Billings in excess of costs and estimated earnings on uncompleted contracts 376,907 121,569 Net cash used by operating activities (1,238,176) (400,399) Cash used by investing activities: Acquisition of property and equipment (1,426,005) (210,770) Proceeds from sale of property and equipment 7,000 - Increase in patent and trademark costs (33,801) (32,138) Proceeds from sale of Germany joint venture 400,000 - Investment in other long-term assets (75,000) (515,708) Net cash used by investing activities $ (1,127,806) (758,616)
(Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (unaudited) Six Months Ended September 30, 2000 1999
Cash provided by financing activities: Proceeds from borrowings $ 700,000 57,166 Repayment of debt (493,037) (520,455) Net borrowings on revolving line-of-credit 956,000 555,000 Proceeds from sale of common stock, net - 491,300 Issuance of common stock upon exercise of employee options, net of repayments 712,025 159,670 Issuance of common stock under employee stock purchase plan 21,565 19,107 Issuance of common stock upon exercise of warrants 96,000 55,250 Distributions paid to holders of minority interest (33,672) (33,673) Net cash provided by financing activities 1,958,881 783,365 Decrease in cash and cash equivalents (407,101) (375,650) Cash and cash equivalents at beginning of period 2,085,115 1,537,453 Cash and cash equivalents at end of period $ 1,678,014 1,161,803 Interest paid in cash during the period $ 198,718 251,790
Non-cash investing and financing transactions: Cumulative translation adjustment of $67,339 was recorded for the six months ended September 30, 1999. In May 1999, the Company acquired a 33.6 percent ownership interest in a German company. Pursuant to this transaction the Company issued 208,333 shares of common stock with an aggregate value of $1,149,894 in exchange for its ownership interest. See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (1) The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim period, have been made. The results for the interim period are not necessarily indicative of results to be expected for the fiscal year. The notes contained herein should be read in conjunction with the notes to the Company's Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2000. (2) Certain financial statement amounts have been reclassified for comparative purposes. (3) The estimated period to complete contracts in process ranged from one to twenty-one months at September 30, 2000, and from one to seventeen months at March 31, 2000. The Company expects to collect substantially all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts within twenty-two months. Contracts in process consist of the following: September 30, 2000 March 31, 2000 (unaudited)
Costs incurred on uncompleted contracts $ 1,204,266 645,425 Estimated earnings 158,231 180,293 1,362,497 825,718 Less billings to date (1,548,973) (576,106) $ (186,476) 249,612 Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 269,930 329,111 Billings in excess of costs and estimated earnings on uncompleted contracts (456,406) (79,499) $ (186,476) 249,612
(4) Inventories consist of: September 30, 2000 March 31, 2000 (unaudited)
Raw materials $ 5,057,362 2,446,779 Work in process 465,070 627,131 Finished products 295,263 46,369 $ 5,817,695 3,120,279
UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) (5) Other current liabilities consist of: September 30, 2000 March 31, 2000 (unaudited)
Accrued interest $ 23,853 21,360 Accrued legal and accounting fees 49,163 71,275 Accrued payroll, consulting, personal property taxes and real estate taxes 572,301 339,263 Accrued material purchases 927,994 327,828 Other 144,394 85,736 $ 1,717,705 845,462
(6) Lines of credit The Company recently renewed its two lines of credit; one lined remained the same at $.75 million, the other line of credit was increased from $2.5 million to $4.0 million. At September 30, 2000, the Company had advanced $956,000 against these lines. The $.75 million line of credit expires in October 2001. The $4.0 million line of credit is due on demand, but if no demand is made, it is due August 2001. Interest on the lines of credit is payable monthly at prime plus .75% (10.25% at September 30, 2000) and prime less .50% (9.00% at September 30, 2000), respectively. Both lines have various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The Company is also required to maintain certain financial ratios as defined in the agreements. Outstanding borrowings under both lines of credit are secured by accounts receivable, inventory and general intangibles, and are limited to certain percentages of eligible accounts receivable and inventory. (7) Common Stock Options and Warrants Incentive and Non-Qualified Option Plans The Company has reserved 6,104,000 shares of common stock for key employees, consultants and key suppliers under its Incentive and Non-Qualified Option Plans of 1992 and 1982. Under these option plans the exercise price of each option is set at the fair market value of the common stock on the date of grant and the maximum term of the options is 10 years from the date of grant. Options granted to employees vest ratably over a three-year period. The maximum number of options that may be granted to any eligible employee during the term of the 1982 and 1992 plans is 1,000,000 options. Options granted under the Company's plans to employees require the option holder to abide by certain Company policies which restrict their ability to sell the underlying common stock. The following table summarizes activity under the plans for the six months ended September 30, 2000: UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Shares Under Weighted-Average Option Exercise Price
Outstanding at March 31, 2000 3,231,394 $ 6.01 Granted 20,000 7.63 Exercised (115,077) 6.19 Forfeited (42,637) 8.45 Outstanding at September 30, 2000 3,093,680 $ 5.99 Exercisable at September 30, 2000 2,157,291 $ 5.55
The following table presents summarized information about stock options outstanding at September 30, 2000: Options Outstanding Options Exercisable Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/00 Contractual Life Price at 9/30/00 Price
$0.75 18,959 0.4 years $0.75 18,959 $0.75 $2.25 - 3.31 461,792 5.0 years $3.03 461,792 $3.03 $3.50 - 5.00 980,593 5.9 years $4.25 639,525 $4.18 $6.25 - 8.75 1,632,336 6.3 years $7.92 1,037,015 $7.61 $0.75 - 8.75 3,093,680 6.0 years $5.99 2,157,291 $5.55
Non-Employee Director Stock Option Plan In February 1994, the Company's Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. Directors electing options grants in lieu of cash compensation may elect option periods ranging from three years to ten years, and must elect to receive options at least six months prior to the anticipated grant date. The Company has reserved 500,000 shares of common stock for issuance pursuant to the exercise of options under the Plan. The options are vested on the date of grant and are exercisable for terms ranging from three years to ten years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant. The following table presents summarized activity under the plan for the six months ended September 30, 2000: Weighted Shares Under Average Option Exercise Price Outstanding at March 31, 2000 41,275 $5.68 Granted 5,785 7.94 Outstanding at September 30, 2000 47,060 $5.96 Exercisable at September 30, 2000 29,758 $6.09 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table presents summarized information about stock options outstanding for non-employee directors: Options Outstanding Options Exercisable Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/00 Contractual Life Price at 9/30/00 Price
$4.25 - 5.06 25,275 6.1 years $4.76 13,758 $4.88 $7.13 - 8.00 21,785 6.2 years $7.34 16,000 $7.13 $4.25 - 8.00 47,060 6.1 years $5.96 29,758 $6.09
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") defines a fair value method of accounting for employee stock options and similar equity instruments. SFAS 123 permits an entity to choose to recognize compensation expenses by adopting the fair value method of accounting or continue to measure compensation costs using the intrinsic value methods prescribed by APB 25. The Company accounts for stock options granted to employees and directors of the Company under the intrinsic value method. Stock options granted to non-employees under the Company's 1992 Stock Option Plan are accounted for under the fair value method. Had the Company reported compensation costs as determined by the fair value method of accounting for option grants to employees and directors, net loss and net loss per common share would have been the pro forma amounts indicated in the following table: Quarter Ended Six Months Ended September 30, September 30, 2000 1999 2000 1999
Net loss - as reported $(1,075,690) (5,196,206) (1,408,568) (5,541,957) Compensation expense - current option grants (10,200) (1,250) (19,150) (1,250) Compensation expense - prior period option grants (126,603) (398,103) (452,657) (816,655) Net loss - pro forma $(1,212,493) (5,595,559) (1,880,375) (6,359,862) Net loss per common share - as reported $ (.06) (.31) (.08) (.33) Net loss per common share - pro forma $ (.07) (.34) (.11) (.39)
The fair value of stock options granted was calculated using the Black Scholes option pricing model based on the following weighted average assumptions: Quarter Ended Six Months Ended September 30, September 30, 2000 1999 2000 1999
Expected volatility 49.1% 46.5% 46.3% 46.5% Expected dividend yield 0.0% 0.0% 0.0% 0.0% Risk free interest rate 6.4% 6.3% 6.5% 6.3% Expected life of option granted 3 years 3 years 8.7 years 3 years Fair value of options granted as computed under the Black Scholes option pricing model $3.12 per $1.62 per $4.75 per $1.62 per share share share share
UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Future pro forma compensation cost for the remainder of the current fiscal year and each fiscal year thereafter, assuming no additional grants by the Company to employees and directors, is as follows: Fiscal Year Pro Forma Ended Compensation March 31, Expense
2001 $ 672,509 2002 $ 1,212,784 2003 $ 581,614 2004 $ 1,250
Warrants The Company completed a private placement in fiscal 1998 of 750,000 units consisting of one common share and one warrant. Of the 750,000 units privately placed, 626,875 were issued in March 1998 and the remaining 123,125 were issued in April 1998. Also in connection with the 1998 private placement, the placement agents were issued warrants in March 1998, to acquire 176,588 shares of the Company's common stock at an exercise price of $8.00 per share. The warrants expire two years from the date of issuance, unless extended. During April, 2000 warrants to acquire 12,000 shares of the Company's common stock at $8.00 per share were exercised resulting in cash proceeds to the Company of $96,000. During fiscal 2000, warrants to purchase 299,375 shares of common stock were extended for a period of eighteen months at the fair value of such extension and remain outstanding as of September 30, 2000. In connection with the 1996 private placements, the placement agents were issued warrants to acquire 50,000 shares of the Company's common stock at $4.75 per share in February, 1996, 38,100 shares of the Company's common stock at $5.00 per share in May, 1996, and 50,000 shares at $4.25 per share in September, 1996. The warrants expire three years from the date of issuance. During May 1999, warrants to acquire 13,000 shares of the Company's common stock at $4.25 per share were exercised resulting in cash proceeds to the Company of $55,250. No warrants were outstanding as of September 30, 2000. (8) The Company has historically derived significant revenue from two customers. The customers from which this revenue has been derived and the percentage of total revenue for the quarter ended September 30, 2000 and 1999 was $1,987,161, or 31%, and $1,237,461, or 23%, respectively, and $4,231,905, or 33% and $2,378,950, or 21% for the six months ended September 30, 2000 and 1999, respectively. These customers also represented 27% and 19% of total accounts receivable at September 30, 2000 and 1999, respectively. Contract services revenue derived from contracts with agencies of the U.S. Government and from sub-contracts with U.S. Government prime contractors totaled $163,991 and $134,935 for the quarter ended September 30, 2000 and 1999, respectively, and $332,146 and $393,206 for the six months ended September 30, 2000 and 1999, respectively. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) (9) Net loss per common share amounts are based on the weighted average number of common shares outstanding during the quarter and six months ended September 30, 2000 and 1999. Outstanding common stock options and warrants were not included in the computation because the effect of such inclusion would be antidilutive. (10) Segments The Company has three reportable segments: technology, mechanical products and electronic products. The technology segment encompasses the Company's technology-based operations including core research to advance its technology, application engineering and product development and job shop production of prototype components. The mechanical products segment encompasses the manufacture and sale of permanent magnet motors, precision gears, gear assemblies and related mechanical products. The electronic products segment encompasses the manufacture and sale of wire harness assemblies, electronic circuit board assemblies and electronic products. During the quarter and six months ended September 30, 2000, intersegment sales or transfers were immaterial. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies. The following table summarizes significant financial statement information for each of the reportable segments for the quarter ended September 30, 2000: Mechanical Electronic Technology Products Products Total
Revenue $ 725,666 1,117,693 4,587,974 6,431,333 Interest income 13,161 2,979 - 16,140 Interest expense (13,919) (42,256) (48,623) (104,798) Depreciation and amortization (102,332) (236,239) (171,160) (509,731) Goodwill amortization - (15,580) (67,587) (83,167) Segment loss (276,370) (267,411) (531,909) (1,075,690) Segment assets 7,998,536 6,304,861 12,632,993 26,936,390 Expenditures for segment assets $ (72,095) (22,974) (256,258) (351,327)
UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table summarizes significant financial statement information for each of the reportable segments for the quarter ended September 30, 1999: Mechanical Electronic Technology Products Products Total
Revenue $ 509,255 1,017,904 3,807,004 5,334,163 Interest income 20,331 1,428 - 21,759 Interest expense (12,148) (49,832) (60,807) (122,787) Depreciation and amortization (90,537) (232,309) (122,135) (444,981) Write-down of investments (4,104,628) - - (4,104,628) Goodwill amortization - (15,579) (67,587) (83,166) Equity in loss of joint ventures (139,602) - - (139,602) Segment earnings (loss) (4,803,669) (490,388) 97,851 (5,196,206) Segment assets 4,631,755 6,781,661 12,619,946 24,033,362 Expenditures for segment assets $ (97,544) (9,765) (28,949) (136,258)
The following table summarizes significant financial statement information for each of the reportable segments for the six months ended September 30, 2000: Mechanical Electronic Technology Products Products Total
Revenue $ 1,523,783 2,205,634 9,167,406 12,896,823 Interest income 37,209 5,644 - 42,853 Interest expense (28,019) (86,130) (87,063) (201,212) Depreciation and amortization (197,349) (472,028) (311,662) (981,039) Goodwill amortization - (31,159) (135,174) (166,333) Segment loss (377,960) (602,506) (428,102) (1,408,568) Segment assets 7,998,536 6,304,861 12,632,993 26,936,390 Expenditures for segment assets $ (254,857) (29,034) (1,250,915) (1,534,806)
UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table summarizes significant financial statement information for each of the reportable segments for the six months ended September 30, 1999: Mechanical Electronic Technology Products Products Total
Revenue $ 1,049,863 2,429,404 7,619,307 11,098,574 Interest income 35,880 2,275 - 38,155 Interest expense (23,126) (99,901) (116,912) (239,939) Depreciation and amortization (181,109) (463,184) (244,268) (888,561) Write-down of investments (4,104,628) - - (4,104,628) Goodwill amortization - (31,158) (134,887) (166,045) Equity in loss of joint venture (280,170) - - (280,170) Segment earnings (loss) (5,250,707) (584,806) 293,556 (5,541,957) Segment assets 4,631,755 6,781,661 12,619,946 24,033,362 Expenditures for segment assets $ (152,061) (17,062) (73,785) (242,908)
(11) Commitments and Contingencies Employment Agreements The Company has entered into employment agreement with two of its officers which expire December 31, 2002. The aggregate future compensation under the employment agreements is $896,227. Lease Commitments The Company has entered into operating lease agreements for office space and equipment which expire at various times through 2007. As of September 30, 2000, the future minimum lease payments under operating leases with initial noncancelable terms in excess of one year for the remainder of the fiscal year and each fiscal year thereafter are as follows:
2001 $ 150,139 2002 272,597 2003 251,444 2004 253,961 2005 252,140 Thereafter 504,280 $ 1,684,561
Rental expense under these leases totaled $75,749 and $71,793 for the quarter ended September 30, 2000 and 1999, respectively, and $151,498 and $143,586 for the six months ended September 30, 2000 and 1999, respectively. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) (12) Comprehensive Income The following table summarizes the Company's comprehensive loss for the quarter and six months ended September 30, 2000 and 1999: Quarter Ended Six Months Ended September 30, September 30, 2000 1999 2000 1999 Net loss $(1,075,690) (5,196,206) (1,408,568) (5,541,957) Other comprehensive income - translation adjustment - 26,403 - 67,339 Comprehensive loss $(1,075,690) (5,169,803) (1,408,568) (5,474,618) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the Risk Factor section of the Registration Statement on Form S-3 (File No. 333-78525) filed by the Company with the SEC, which identified important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including the Company's ability to be profitable, its ability to obtain additional financing, the Company's reliance on major customers and suppliers and the possibility that product liability insurance may become unavailable. These forward-looking statements represent the Company's judgment as of the date of this report. The Company disclaims, however, any intent or obligation to update these forward-looking statements. Financial Condition Cash and cash equivalents at September 30, 2000 was $1,678,014. Working capital (the excess of current assets over current liabilities) was $5,089,211 compared with $5,672,559,respectively, at March 31, 2000. Accounts receivable rose $775,574 to $3,597,468 at September 30, 2000 from $2,821,894 at March 31, 2000. The increase is primarily attributable to record revenue levels during the six months ended September 30, 2000. Costs and estimated earnings on uncompleted contracts decreased $59,181 to $269,930 at September 30, 2000 from the fiscal 2000 year-end level of $329,111. The decrease was attributable to lower levels of unbilled work on engineering contracts. Estimated earnings on contracts in process decreased to $158,231 at September 30, 2000 on costs incurred on contracts in process of $1,204,266 compared to estimated earnings on contracts in process of $180,293 on costs incurred on contracts in process of $645,425 at March 31, 2000. The decrease in estimated earnings on contracts in process is attributable to lower billing rate realization and cost overruns on development programs in process. Raw materials and finished products inventories rose by $2,610,583 and $248,894, respectively, to $5,057,362 and $295,263, respectively, at September 30, 2000. Raw materials inventories rose primarily due to inventory accumulation in anticipation of the launch of new production orders, higher revenue levels in the Company's electronic products segment and sporadic part shortages of selected electronic components. Finished products inventories rose primarily as a result of the commencement of building certain electronic products in anticipation of future shipment release orders. Prepaid expenses declined to $119,804 at September 30, 2000 from $192,492 at March 31, 2000 reflecting the periodic expensing of prepaid insurance premium costs on the Company's commercial insurance coverages. Other current assets declined $399,932 to $136 at September 30, 2000 reflecting the collection of amounts due from the disposition of the Company's remaining equity interest in its German joint venture. The Company invested $342,023 and $1,426,005 for the acquisition of property and equipment during the quarter and six months ended September 30, 2000, respectively, compared to $126,761 and $210,770 for the quarter and six months ended September 30, 1999, respectively. The increase in capital expenditures is primarily attributable to expenditures for manufacturing equipment at the Company's electronic products segment to improve manufacturing throughput and component placement density. Patent and trademark costs rose $13,432 to $744,714 at September 30, 2000 reflecting expenditures for the filing and prosecution of trademarks and patents during the six months ended September 30, 2000, net of amortization on existing patents and trademarks. Goodwill, net of accumulated amortization, declined $166,333 to $5,829,130 at September 30, 2000 due to the amortization of this asset over its 20 year useful life. Other assets increased $58,760 to $99,206 at September 30, 2000 due primarily due to the Company's purchase of a minority equity interest in Aeromax Corporation. Accounts payable rose $761,254 to $2,140,570 at September 30, 2000 from $1,379,316 at March 31, 2000. The increase is primarily attributable to higher levels of inventory purchases from supplier in anticipation of higher levels of production. Other current liabilities increased $872,243 to $1,717,705 at the end of the first half from $845,462 at March 31, 2000. The increase is primarily attributable to the purchase of raw material as a result of a new order by a significant customer. Revolving line-of-credit rose to $956,000 at September 30, 2000 due to expanded working capital requirements during the six months ended September 30, 2000 primarily due to higher levels of trade accounts receivable and inventory purchases. Billings in excess of costs and estimated earnings on uncompleted contracts rose $376,907 to $456,406 at September 30, 2000 from $79,499 at March 31, 2000 reflecting the prepayment by several customers for engineering services commenced during the six months ended September 30, 2000. Long-term debt increased $55,931 to $3,478,390 at September 30, 2000 due to additional term borrowing for the purchase of manufacturing equipment at the Company's electronic products segment, offset by principal repayments on the Company's term bank debt during the first half. Common stock and additional paid-in capital increased to $173,329 and $50,289,333 at September 30, 2000, respectively, compared to $171,942 and $49,382,877 at March 31, 2000. The increases were primarily due to the proceeds received upon the exercise of stock options by employees of $712,025; and proceeds received upon the exercise of warrants of $96,000. Results of Operations Operations for the quarter ended September 30, 2000, resulted in a net loss of $1,075,690 or $.06 per share compared to a net loss of $5,196,206 or $0.31 per share for the quarter ended September 30, 1999. Operations for the six months ended September 30, 2000 resulted in a net loss of $1,408,568 or $0.08 per share compared to a net loss of $5,541,957 or $0.33 per share for the six months ended September 30, 1999. Operations for the quarter and six months ended September 30, 1999 were adversely impacted by the write-down of the Company's investments in various joint ventures which resulted in a charge to earnings of $4,104,628 or $0.25 per share. Total revenue for the quarter ended September 30, 2000 rose $1,097,170 or 21 percent to $6,431,333 compared to $5,334,163 for the comparable quarter last year. For the six months ended September 30, 2000 total revenue rose $1,798,249 or 16 percent to $12,896,823 compared to $11,098,574 for the comparable period last year. Contract services revenue decreased $29,103 or 8% to $352,881 compared to $381,984 for the comparable quarter last year, and rose $82,476 or 10% to $897,899 compared to $815,423 for the six months ended September 30, 2000. The decrease in contract services revenue for the quarter ended September 30, 2000 is attributable to lower billing rate realization and cost overruns on development programs. The increase for the first half was attributable to improved demand for development programs. Product sales for the quarter rose $1,126,273 or 23% to $6,078,452 versus $4,952,179 for the comparable quarter last year. Product sales for the six months ended September 30, 2000 rose $1,715,773 or 17% to $11,998,924 compared to $10,283,151 for the first half last year. The increase in product sales is attributable to over a three-fold increase in prototype propulsion system shipments by the technology segment for hybrid electric buses and new customer shipments in the electronic products segment. Revenue for the mechanical products segment was $1,117,693 and $2,205,634 for the quarter and six months ended September 30, 2000, respectively, compared to $1,017,904 and $2,429,404, for the comparable periods last year reflecting weakness in the over the road truck and agricultural sectors. Revenue for the electronic products segment was $4,587,974 and $9,167,406, respectively, compared to $3,807,004 and $7,619,307, for the comparable periods last year. Increased product sales by the electronic products segment is attributable to the launch of several customer orders and higher production volumes for certain customers. Gross profit margins for the second quarter and first half were 6.6 percent and 9.4 percent, respectively, compared to 15.8 percent and 15.6 percent for the comparable quarter and six month period last year. Gross profit margins on contract services was a negative 7.8 percent for the quarter ended September 30, 2000 and 3.5 percent for the six months ended September 30, 2000, compared to 23.0 percent and 9.6 percent for the comparable periods last year. The decline in contract services margins is attributable to lower billing rate realization and cost overruns on development programs. Gross profit margins on product sales for the second quarter and first half were 7.4 percent and 9.8 percent, respectively, compared to 15.2 percent and 16.1 percent for the comparable periods last year. The decrease in margins on product sales is primarily attributable to decreased overhead absorption resulting from lower production volumes at the Company's gear manufacturing operations and lower margins in the electronic products segment associated with start-up costs on new production orders. Research and development expenditures during the second quarter declined $80,766 to $27,501 and declined $69,036 to $65,410 for the first half. The decrease is generally attributable to lower levels of internally-funded development activities. General and administrative expense for the second quarter decreased $417,028 to $1,064,499 compared to $1,481,527 for the comparable quarter last year and decreased $390,296 to $1,965,232 for the first half compared to $2,355,528 for the comparable six month period last year. The decrease for the quarter and the six month period is primarily attributable to the accrual of compensation payable to the Company's former Chief Executive Officer under the terms of his employment agreement of $324,866 and the write-off of an uncollectible account receivable from a customer of $254,870 in the comparable prior year periods. Write-down of investments in the prior year periods represents charges resulting from the Company's write down of its investment in EVG, Europa and Taiwan UQM. During the quarter the Company amended its license agreement with Taiwan UQM to grant additional territories for certain fields of use of the Company technology and cancel other previously granted fields of use. The license, as amended, provides that Taiwan UQM shall have: (1) an exclusive license for Taiwan and non exclusive license for Asia including India and Japan for on-road electric and hybrid electric products for automobiles, trucks and buses; (2) an exclusive license for Taiwan and a non exclusive license for the remainder of the world for products for use in electric and hybrid electric bicycles; and (3) an exclusive license for Asia including India and Japan and a non exclusive license for the remainder of the world for licensed products for use in electric and hybrid electric motor scooters and on-road 3-wheel vehicles. All other fields of use are no longer licensed to Taiwan UQM. During the first half the Company purchased additional quick changeover "ball grid array" high component density placement equipment at its Franklin Manufacturing unit and subsequently conducted a re-layout and balancing of its manufacturing lines. As a result, certain older machines were taken out of service, resulting in an impairment change of $216,818. Interest income was $16,140 and $42,853 for the quarter and six months ended September 30, 2000 compared to $21,759 and $38,155 for the comparable prior year periods. The decrease for the quarter is attributable to the application of cash to fund working capital requirements. The increase in interest income during the first half of the year was due to higher levels of invested cash. Interest expense decreased $17,989 to $104,798 for the quarter ended September 30, 2000 and $38,727 to $201,212 for the six months ended September 30, 2000, respectively. The decrease for the quarter is attributable to lower levels of borrowing on the Company's revolving line-of-credit. The decrease for the first half is attributable to generally lower levels of long-term debt. Equity in loss of joint ventures for the prior year periods represents the Company's proportionate share of the losses of various joint ventures which the Company wrote down in the second quarter last year. As a result, the Company no longer reports its pro rata share of the earnings or loss of these entities. Liquidity and Capital Resources The Company's cash balances and liquidity throughout the quarter and six months ended September 30, 2000 were adequate to meet operating needs. Net cash used by operating activities was $1,584,903 and $1,238,176 for the quarter and six months ended September 30, 2000 versus net cash provided by operating activities of $387,868 for the comparable prior year quarter and cash used by operating activities of $400,399 for the six months ended September 30, 1999. Cash requirements throughout the first half of the year were funded from existing cash balances, cash proceeds from the exercise of warrants and employee stock options and from borrowings on the Company's revolving lines-of-credit. During the first six months of the year the Company experienced a significant increase in its working capital requirements as the result of higher levels of inventories and accounts receivable which rose $2,697,416 and 775,574 during the first half of the year. The increase in inventories was driven by the launch of new customer production orders and sporadic shortages of selected electronic components in the Company's electronic products segment and higher revenue levels generally. The Company expects inventory levels to decline throughout the remainder of the fiscal year. The increase in accounts receivables is primarily attributable to record revenue levels during the first six months. The Company funded its working capital requirements from a combination of cash balances on hand, increases in trade accounts payable balances and borrowings on its revolving lines-of-credit. The Company believes that existing cash balances and available bank facilities are sufficient to fund its current and anticipated operations. During the first half of the year the Company invested $1,426,005 for the purchase of additional manufacturing equipment. Over the remainder of the fiscal year the Company expects to invest a similar amount on additional equipment to improve its manufacturing capability and capacity, which it expects to fund from a combination of existing cash and borrowings of long-term debt. For the longer-term, the Company expects to continue its strategy of growing its business through expanding its product line of permanent magnet motors and controllers, securing production orders from new and existing customers for gear and component assemblies, design and introduce new products for manufacture, seek strategic alliances to accelerate the commercialization of its technology and pursue synergistic and accretive acquisitions. The Company expects to finance its future growth from existing cash resources, cash flow from operations and through the issuance of equity or debt securities or a combination thereof. There can, however, be no assurance that such financing or capital will be available on terms acceptable to the Company. In the event financing or capital for future growth as envisioned under the Company's strategy is not available, the Company will modify its strategy to align its operations with its then available financial resources. PART II - OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosure About Market Risks Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign exchange and interest rates. The Company does not use financial instruments to any degree to manage these risks and does not hold or issue financial instruments for trading purposes. Subsequently, all of the Company's product sales, and related receivables are payable in U.S. dollars. The Company is subject to interest rate risk on its debt obligations. Long-term debt obligations have fixed interest rates and the Company's revolving line-of-credit have variable rates of interest indexed to the prime rate. Interest rates on these instruments approximate current market rates as of September 30, 2000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial data schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Unique Mobility, Inc. Registrant Date: October 24, 2000 By: /s/Donald A. French Donald A. French Treasurer and Secretary (Principal Financial and Accounting Officer)