-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZ5QMKMyNWFsy5gk68/o59dj6W8sXDc5ctiZ00OhjwSYGCNUcRepOJPEv6bkfCA4 ET0QT2++GRRDJARLRbAh6g== 0000315449-98-000009.txt : 19980817 0000315449-98-000009.hdr.sgml : 19980817 ACCESSION NUMBER: 0000315449-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: AMEX SROS: BSE SROS: CSX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIQUE MOBILITY INC CENTRAL INDEX KEY: 0000315449 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 840579156 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10869 FILM NUMBER: 98687171 BUSINESS ADDRESS: STREET 1: 425 CORPORATE CIRCLE CITY: GOLDEN STATE: CO ZIP: 80401 BUSINESS PHONE: 3032782002 MAIL ADDRESS: STREET 1: 425 CORPORATE CIRCLE CITY: GOLDEN STATE: CO ZIP: 80401 10-Q 1 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 June 30, 1998 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 August 12, 1998, was 15,913,044. PART I - FINANCIAL INFORMATION UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, March 31, Assets 1998 1998 (unaudited) Current assets: Cash and cash equivalents $ 2,659,991 7,005,533 Accounts receivable (note 10) 2,551,115 1,105,466 Costs and estimated earnings in excess of billings on uncompleted contracts (note 3) 407,296 454,738 Inventories (note 4) 1,604,756 253,917 Prepaid expenses 174,718 158,764 Other 117,492 18,361 Total current assets 7,515,368 8,996,779 Property and equipment, at cost (notes 7 and 13): Land 444,480 444,480 Building 2,558,619 1,511,635 Molds 102,113 102,113 Transportation equipment 231,920 209,920 Machinery and equipment 7,503,007 5,605,326 10,840,139 7,873,474 Less accumulated depreciation (2,477,968) (2,186,805) Net property and equipment 8,362,171 5,686,669 Investment in Taiwan joint venture (note 5) 1,851,252 2,044,393 Investment in EV Global 1,000,000 1,000,000 Patent and trademark costs, net of accumulated amortization of $68,589 and $63,542 583,768 575,985 Goodwill, net of accumulated amortization of $76,570 and $16,215 (note 13) 6,517,433 1,280,872 Other assets 25,402 853 $ 25,855,394 19,585,551 (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued June 30, March 31, Liabilities and Stockholders' Equity 1998 1998 (unaudited) Current liabilities: Accounts payable $ 1,219,837 389,791 Other current liabilities (note 6) 1,074,118 876,357 Current income taxes payable 155,207 - Revolving line-of-credit 1,213,861 - Current portion of long-term debt (note 7) 482,976 163,554 Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 16,690 450 Total current liabilities 4,162,689 1,430,152 Long-term debt, less current portion (note 7) 2,067,211 1,029,924 Total liabilities 6,229,900 2,460,076 Minority interest in consolidated subsidiary 396,118 394,343 Stockholders' equity (notes 9 and 13): Common stock, $.01 par value, 50,000,000 shares authorized; 15,880,709 and 15,394,621 shares issued 158,807 153,946 Additional paid-in capital 42,383,351 38,852,446 Accumulated deficit (22,740,976) (21,798,724) Notes receivable from officers (52,604) (56,056) Accumulated comprehensive loss (note 14) (519,202) (420,480) Total stockholders' equity 19,229,376 16,731,132 Commitments (notes 5, 9, 11 and 13) $ 25,855,394 19,585,551 See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Quarter Ended June 30, 1998 1997 Revenue (notes 10 and 12): Contract services $ 299,334 1,029,611 Product sales 2,553,447 227,551 2,852,781 1,257,162 Operating costs and expenses: Cost of contract services 260,791 869,991 Cost of product sales 2,176,758 158,381 Research and development 277,448 98,239 General and administrative 805,287 322,797 Depreciation and amortization 161,397 51,724 3,681,681 1,501,132 Operating loss (828,900) (243,970) Other income (expense): Interest income 53,303 51,673 Interest expense (53,622) (24,079) Equity in loss of Taiwan joint venture (note 5) (94,420) (14,527) Minority interest share of earnings of consolidated subsidiary (18,613) (16,447) Other - 2,002 (113,352) (1,378) Net loss $ (942,252) (245,348) Net loss per common share basic and diluted $ (.06) (.02) Weighted average number of shares of common stock outstanding (note 8) 15,743,062 13,084,151 See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Quarter Ended June 30, 1998 1997 Cash flows used by operating activities: Net loss $ (942,252) (245,348) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 375,892 90,902 Minority interest share of earnings of consolidated subsidiary 18,613 16,447 Noncash compensation expense for common stock issued for services 9,500 - Equity in loss of Taiwan joint venture 94,420 14,527 Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (1,931) (272,574) Inventories (261,300) 32,504 Prepaid expenses and other current assets 22,289 30,143 Accounts payable and other current liabilities (240,675) (149,888) Billings in excess of costs and estimated earnings on uncompleted contracts 16,240 (557,583) Net cash used by operating activities (909,206) (1,040,870) Cash used by investing activities: Cash paid for acquisition of subsidiary, net of cash acquired (3,848,640) - Acquisition of property and equipment (1,686,542) (51,092) Increase in patent and trademark costs (12,830) (59,653) Investment in Taiwan joint venture - (1,345,285) Net cash used by investing activities $(5,548,012) (1,456,030) (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (unaudited) Quarter Ended June 30, 1998 1997 Cash flows provided by financing activities: Proceeds from borrowings $ 1,449,677 - Repayment of debt (528,565) (10,773) Net repayment of revolving line-of-credit (75,000) - Proceeds from sale of common stock, net 956,329 - Issuance of common stock upon exercise of employee options 132,891 30,259 Issuance of common stock under employee stock purchase plan 2,682 11,212 Issuance of common stock upon exercise of warrants 190,500 - Distributions paid to holders of minority interest (16,838) (16,837) Net cash provided by financing activities 2,111,676 13,861 Decrease in cash and cash equivalents (4,345,542)(2,483,039) Cash and cash equivalents at beginning of period 7,005,533 5,713,557 Cash and cash equivalents at end of period $ 2,659,991 3,230,518 Interest paid in cash during the period $ 43,885 57,336 Non-cash investing and financing transactions: Cumulative translation adjustments of $98,722 and $25,661 were recorded for the quarters ended June 30, 1998 and 1997, respectively. In April 1998, the Company purchased all of the outstanding stock of Franklin Manufacturing Company for $4,000,000 cash and 286,282 shares of the Company's common stock (see note 13). In June 1997, the Company entered into a stock purchase agreement with EV Global Motors Company (EVG) whereby the Company exchanged 200,000 shares of its common stock for 400,000 shares of EVG. In June 1997, warrant holders exercised warrants to acquire 395,000 shares of common stock on a cashless exchange basis resulting in the issuance of 249,154 shares of common stock based upon a fair market value of the common stock on the date of exchange of $6.50 per share. See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (1) The accompanying financial statements are unaudited; however, in the opinion of management, all adjustments which were solely of a normal recurring nature, necessary to a fair statement 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. (2) Certain financial statement amounts have been reclassified for comparative purposes. (3) The estimated period to complete contracts in process ranged from one to eight months at June 30, 1998, and from one to twelve months at June 30, 1997. The Company expects to collect substantially all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts within one year. Contracts in process consist of the following: June 30, 1998 March 31, 1998 (unaudited) Costs incurred on uncompleted contracts $ 1,398,452 1,724,552 Estimated earnings 594,136 515,782 1,992,588 2,240,334 Less billings to date (1,601,982) (1,786,046) $ 390,606 454,288 Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 407,296 454,738 Billings in excess of costs and estimated earnings on uncompleted contracts (16,690) (450) $ 390,606 454,288 (4) Inventories consist of: June 30, 1998 March 31, 1998 (unaudited) Raw materials $ 1,189,926 76,377 Work in process 368,462 159,825 Finished products 46,368 17,715 $ 1,604,756 253,917 (5) Investment in Taiwan Joint Venture On January 29, 1994, the Company, Kwang Yang Motor Co. Ltd. ("KYMCO"), and Turn Luckily Technology Co. Ltd. ("TLT"), entered into a joint venture agreement (the "Joint Venture Agreement") providing for the formation, funding, and operation of Taiwan UQM Electric Company, Ltd., a company organized under the laws of the Republic of China ("Taiwan UQM"). Taiwan UQM was incorporated in April 1995. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The Company owns a 38 1/4% interest in Taiwan UQM and its investment is accounted for under the equity method. Summarized unaudited financial information for Taiwan UQM is as follows: June 30, December 31, Financial Position 1998 1997 Current assets $ 380,862 341,178 Noncurrent assets-land, property and equipment 6,248,840 6,474,301 Total assets 6,629,702 6,815,479 Current liabilities 1,789,828 1,470,684 Noncurrent liabilities - - Stockholders' equity 4,839,874 5,344,795 Total liabilities and equity $ 6,629,702 6,815,479 Quarter Quarter Ended Ended June 30, June 30, Results of Operations 1998 1997 Revenue $ - - Expenses (246,847) (37,249) Net loss $(246,847) (37,249) (6) Other Current Liabilities Other current liabilities consists of: June 30, March 31, 1998 1998 (unaudited) Accrued interest $ 13,763 5,692 Accrued loss reserves - 22,678 Accrued legal and accounting fees 35,837 55,376 Accrued payroll, consulting, personal property taxes and real estate taxes 202,100 158,604 Accrued material purchases 62,770 82,357 Accrued machinery and equipment purchases 575,903 402,834 Unearned revenue - 65,037 Other 183,745 83,779 $ 1,074,118 876,357 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (7) Long-term Debt Long-term debt consists of: June 30, March 31, 1998 1998 Note payable to bank, payable in monthly installments with interest at 9.1%; matures October 2007; secured by land and building $ 714,369 726,202 Note payable to bank, payable in monthly installments with interest at 10.05%; matures November 2001; secured with equipment 450,252 467,276 Note payable to bank, payable in monthly installments with interest at 8.5%; matures April 2005; secured by equipment 445,007 - Note payable to bank, payable in monthly installments with interest at 8.5%; matures May 2005; secured by equipment 134,778 - Note payable to bank, payable in monthly installments with interest at 8.5%; matures June 2000; secured by accounts receivable, inventory and equipment 777,998 - Capital lease obligation 27,783 - Total long-term debt 2,550,187 1,193,478 Less current installments 482,976 163,554 Long-term debt, less current portion $2,067,211 1,029,924 (8) Net loss per common share amounts are based on the weighted average number of common shares outstanding during the first quarter of each fiscal year presented. Outstanding common stock options and warrants were not included in the computation because the effect of such inclusion would be antidilutive. (9) Common Stock Options and Warrants Incentive and Non-Qualified Option Plans The Company has reserved 5,104,000 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. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The following table summarizes activity under the plans: Shares Under Weighted-Average Option Exercise Price Outstanding at October 31, 1995 1,852,232 $ 5.12 Granted 590,000 4.15 Exercised (100,542) 1.53 Forfeited (315,978) 5.63 Outstanding at October 31, 1996 2,025,712 4.94 Granted 500,000 3.31 Exercised (40,105) 1.57 Expired (30,000) 5.00 Forfeited (4,151) 3.31 Outstanding at March 31,1997 2,451,456 4.66 Granted 601,000 7.88 Exercised (210,332) 4.75 Forfeited (13,772) 4.80 Outstanding at March 31, 1998 2,828,352 5.34 Granted 150,000 7.94 Exercised (38,174) 3.39 Forfeited (26,983) 7.91 Outstanding at June 30, 1998 2,913,195 $ 5.48 Exercisable at June 30, 1998 1,748,212 $ 5.00 The following table presents summarized information about stock options outstanding at June 30, 1998: Options Outstanding Options Exercisable Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 6/30/98 Contractual Life Price at 6/30/98 Price $0.50 - 1.00 105,117 1.6 years $0.78 105,117 $0.78 $2.25 - 3.31 616,911 7.8 years $3.08 294,970 $2.83 $3.50 - 5.00 780,257 6.4 years $4.05 642,443 $4.03 $5.38 - 8.31 1,410,910 7.6 years $7.66 705,682 $7.41 $0.50 - 8.31 2,913,195 7.4 years $5.48 1,748,212 $5.00 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. The Company has reserved 250,000 shares of common stock for issuance pursuant to the exercise of options under the Plan. The options vest ratably over a three-year period beginning one year from the date of grant and are exercisable for 10 years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The following table presents summarized activity under the plan: Weighted Shares Under Average Option Exercise Price Outstanding at October 31, 1995 109,333 $ 5.48 Granted 32,000 4.38 Outstanding at October 31, 1996, March 31, 1997, and March 31, 1998 141,333 5.23 Granted 64,000 7.13 Exercised (16,000) 5.38 Outstanding at June 30, 1998 189,333 $ 5.86 Exercisable at June 30, 1998 98,666 $ 5.31 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 12/31/97 Contractual Life Price at 12/31/97 Price $4.38 - 6.00 93,333 7.2 years $4.85 66,666 $4.86 $6.25 - 7.13 96,000 8.2 years $6.84 32,000 $6.25 189,333 7.8 years $5.86 98,666 $5.31 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 expense by adopting the new fair value method of accounting or continue to measure compensation costs using the intrinsic value methods prescribed by APB25. 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: UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) Quarter Quarter Ended Ended June 31, 1998 June 30, 1997 Net loss - as reported $ (942,252) (245,348) Compensation expense - current period option grants (384,847) (376,563) Compensation expense - prior period option grants (526,841) (150,278) Net loss - pro forma $ (1,853,939) (772,189) Net loss per common share - as reported $ (.06) (.02) Net loss per common share - pro forma $ (.12) (.06) The fair value of stock options granted was calculated using the Black Scholes option pricing model based on the following weighted average assumptions: Quarter Quarter Ended Ended June 30, 1998 June 30, 1997 Expected volatility 48.5% 48.2% Expected dividend yield 0.0% 0.0% Risk free interest rate 5.8% 6.6% Expected life of option granted 6 years 6 years Fair value of options granted as computed under the Black Scholes option pricing models $4.26 per share $2.60 per share Pro forma net loss reflects only the fair value compensation expense of options granted since November 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma net loss amounts presented above because compensation cost is reflected over the option vesting periods (ranging from 1 to 3 years) and compensation cost for options granted prior to November 1, 1995, is not considered. Future pro forma compensation cost by fiscal year, assuming no additional grants by the Company to employees and directors, is as follows: Quarter Pro Forma Ended Compensation June 30, Expense 1999 $1,539,386 2000 $1,250,560 2001 $ 200,377 Warrants In connection with the original issuance of certain subordinated convertible term notes to Advent and Techno, the Company granted Advent and Techno warrants to acquire 790,000 shares of the Company's common stock at the lower of $2.40 per share, being the market value of the Company's stock at the time of issuance or the market price of the common stock averaged over the 30 trading days immediately preceding the date of exercise. The warrants allowed for a cashless exercise of the warrants into common shares based on the spread between the UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) market price of the common stock on the date of exercise and the $2.40 exercise price and expired in August 1997. On June 19, 1997, warrants to acquire 395,000 shares of common stock were exercised on a cashless basis resulting in the issuance of 249,154 shares of common stock. No warrants were outstanding at June 30, 1998. The Company has reserved 300,000 shares of common stock for issuance pursuant to a warrant agreement with an investment banking company. The warrants are exercisable at a price of $6.00 per share and expire in January, 1999. The warrants contain transfer restrictions and provisions for the adjustment of the exercise price and the number and type of securities issuable upon exercise based on the occurrence of certain events. Warrants to acquire 220,000 shares of the Company's common stock remain outstanding at June 30, 1998. In connection with the 1995 common stock issuance, the placement agent was issued warrants expiring July, 1998, to acquire 150,000 shares of the Company's common stock at $5.75 per share. Warrants to acquire 30,000 shares of the Company's common stock remain outstanding as of June 30, 1998. 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, being the market price of the common stock of the Company at the date of each respective grant. The warrants expire three years from the date of issuance. During June 1998, warrants to acquire 38,100 shares of the Company's common stock at $5.00 per share were exercised resulting in cash proceeds to the Company of $190,500. Warrants to acquire 50,000 shares at $4.75 per share, and 45,000 shares at $4.25 per share remain outstanding as of June 30, 1998. In connection with the 1997 private placement, the placement agents were issued warrants in February 1997, to acquire 225,625 shares of the Company's stock at an exercise price of $3.50 per share and warrants to acquire 50,000 shares at an exercise price of $4.20 per share. The warrants expire three years from the date of issuance. Warrants to acquire 73,875 shares of the Company's common stock at $3.50 per share remain outstanding as of June 30, 1998. The Company completed a private placement in 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. All of the warrants issued remain outstanding as of June 30, 1998. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (10) The Company has historically derived significant revenue services from a few key customers. The customers from which this revenue has been derived and the percentage of this revenue as a percentage of total revenue is summarized as follows: Quarter Ended June 30, 1998 1997 Customer: Kia Motors Corporation $ - 424,881 Koyo Seiko Company - 122,874 Asia Pacific Technology Co., Ltd. - 147,575 Siemens Electronics Company, Inc. 543,759 - Flight Safety International 220,602 - State Farm Mutual Aut. Ins. Co. 214,421 - $ 978,782 695,330 Percentage of revenue 34% 55% These customers, in total, also represented 23% and 36% of total accounts receivable at June 30, 1998, and June 30, 1997, respectively. Contract services revenue derived from contracts with agencies of the U.S. Government and from sub-contracts with U.S. Government prime contractors, certain portions of which are included in revenue from other key customers above, totaled $95,987 and $133,621 for the quarter ended June 30, 1998 and June 30, 1997, respectively. (11) The Company has entered into employment agreements with three of its officers which expire December 31, 1999. The aggregate annual future compensation under these agreements through the expiration date is $681,983. (12) 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. The accounting policies of the segments are the same as those described in the summary of significant accounting policies at note 1. During the quarter ended June 30, 1998, there were no intersegment sales or transfers. 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. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) The following table summarizes significant financial statement information for each of the reportable segments for the quarter ended June 30, 1998: Mechanical Electronic Technology Products Products Totals Revenue $ 645,890 665,397 1,541,494 2,852,781 Interest income 39,606 13,697 - 53,303 Interest expense (15,378) (22,537) (15,707) (53,622) Depreciation and amortization (99,695) (171,963) (43,879) (315,537) Goodwill amortization - (16,215) (44,140) (60,355) Equity in loss of Taiwan joint venture (94,420) - - (94,420) Segment loss (629,580) (250,592) (62,080) (942,252) Segment assets 8,523,660 7,866,236 9,465,498 25,855,394 Expenditures for segment assets $ (165,420) (1,521,122) - (1,686,542) In determining the foregoing segments, the Company has allocated corporate overhead and expenses and intangible assets, including goodwill, to the appropriate segment. (13) Acquisition of Franklin Manufacturing Company On April 30, 1998, the Company acquired all of the outstanding common stock of Franklin Manufacturing Company (Franklin) for cash and shares of the Company's common stock totaling $6,247,316. The allocation of the purchase price based on estimates of fair value which may be subject to adjustment, is as follows: Assets purchased: Cash $ 151,360 Accounts receivable 1,426,995 Inventories 1,089,539 Property, plant and equipment 877,199 Goodwill 5,296,916 Related asset acquisition 422,250 Other 131,203 9,395,462 Debt and other liabilities assumed (3,148,146) Purchase price $ 6,247,316 The acquisition has been accounted for using the purchase method of accounting. The unaudited pro forma revenue, net loss and loss per common share for quarter ended June 30, 1998 and 1997 respectively, assuming the acquisition occurred on April 1, 1997 is as follows: UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) Quarter Ended Quarter Ended June 30, 1998 June 30, 1997 Revenue $ 3,812,494 $ 4,502,353 Net loss (908,684) (99,772) Basic and diluted loss per common share $ (.06) $ (.01) The pro forma information does not necessarily represent the results that would have occurred if the acquisition had been consummated on April 1, 1997, nor are they necessarily indicative of the results of future operations. (14) Reporting Comprehensive Income (Loss) The Company has adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," for the quarter ended June 1998. SFAS No. 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The cumulative translation adjustment is the Company's only component of comprehensive income. The following table summarizes the Company's comprehensive loss for the quarters ended June 30, 1998 and 1997: Quarter Ended Quarter Ended June 30, 1998 June 30, 1997 Net loss (942,252) (245,348) Other comprehensive loss (98,722) (25,661) Income tax effect - - Comprehensive loss $ (1,040,972) (271,009) TEM 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. 333-52861) 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 history of operating losses, its ability to obtain additional financing, competition, the Company's ability to integrate acquired businesses into existing operation, the Company's ability to protect its proprietary information, and the Company's limited experience in manufacturing processes and procedures and marketing and distribution. 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 The Company's financial condition strengthened during the quarter ended June 30, 1998 due to the sale of 123,125 shares of common stock pursuant to an offering under Regulation D of the Securities Act of 1933, the issuance of common stock upon the exercise of outstanding common stock warrants and options, and the acquisition of Franklin Manufacturing Company. Cash proceeds to the Company from the Regulation D offering, net of offering costs, amounted to $956,329 and cash proceeds received upon the exercise of outstanding common stock warrants and options amounted to $323,391. Primarily as a result, shareholders' equity rose to $19,229,376 at June 30, 1998 from $16,731,132 at March 31, 1998. Working capital (the excess of current assets over current liabilities) declined to $3,352,679 at June 30, 1998 from $7,566,627 at March 31, 1998. Accounts receivable rose $1,445,649 to $2,551,115 at June 30, 1998 from $1,105,466 at March 31, 1998. The increase is primarily attributable to the consolidation of the trade accounts receivable of the Company's new manufacturing subsidiary, Franklin Manufacturing Company ("Franklin"), which accounted for $1,214,071 of the increase. Costs and estimated earnings on uncompleted contracts decreased $47,442 to $407,296 at June 30, 1998 from the fiscal 1998 year end level of $454,738. The decrease was due to increased levels of milestone billing during the quarter. Estimated earnings on contracts in process rose to $594,136 at June 30, 1998 on costs incurred on contracts in process of $1,398,452 compared to estimated earnings on contracts in process of $515,782 on costs incurred on contracts in process of $1,724,552 at March 31, 1998. The increase reflects improved margins on contracts in process and is attributable to greater labor content in contracts in process and a reduction in anticipated cost overruns. Raw materials, work in process and finished products inventories increased by $1,113,549, $208,637 and $28,653, respectively, to $1,189,926, $368,462 and $46,368, respectively, at June 30, 1998. Raw materials inventory rose primarily as a result of the consolidation of raw material inventories of Franklin. Work in process inventories rose due to production of SR286 motors and associated controls pursuant to existing customer orders. In April, 1998 the Company acquired all of the outstanding common stock of Franklin Manufacturing Company for $6,247,316 plus the assumption then existing debt of $3,148,146. The purchase price consisted of a cash payment of $4,000,000 and the issuance of 286,282 shares of the Company's common stock. The acquisition was accounted for under the purchase method of accounting. Under this method, the excess of the purchase price over the net assets acquired is first allocated to increase the recorded value of the tangible and identified intangible assets acquired to their fair market value, with any excess then recorded as goodwill. The excess of the purchase price over the net assets acquired of Franklin resulted in an increase in the recorded value of property and equipment in the amount of $950,400 with the excess of $5,296,916 being recorded as goodwill. See also note 13 to the consolidated financial statements. The Company invested $1,686,542 for the acquisition of property and equipment during first quarter of fiscal 1999 compared to $51,092 for the quarter ended June 30, 1997. The increase in capital expenditures is primarily attributable to the purchase of manufacturing equipment by Aerocom coincident with the expansion of their manufacturing capabilities of $290,159 and the construction of a new manufacturing plant in Frederick, Colorado of $1,046,984. Investment in Taiwan joint venture declined to $1,851,252 at June 30, 1998 from $2,044,393 at the beginning of the fiscal year. The decrease is attributable to the Company's proportionate share of operating losses which amounted to $94,420 during the first quarter and foreign currency translation adjustments which amounted to $98,722. Goodwill, net of accumulated amortization, rose to $6,517,433 at June 30, 1998 from $1,280,872 at March 31, 1998 due to the acquisition of Franklin during the first quarter. Accounts payable rose to $1,219,837 at June 30, 1998 from $389,791 at the end of Fiscal 1998. The increase is primarily attributable to the consolidation of the trade accounts payable of Franklin which accounted for $895,844 of the increase. Other current liabilities increased to $1,074,118 at the end of the first quarter from $876,357 at March 31, 1998. The increase is primarily attributable to the consolidation of the other current liabilities of Franklin which accounted for $159,199 of the increase. Revolving line-of-credit of $1,213,861 at June 30, 1998 is due to the consolidation of the revolving line-of-credit of Franklin. Current portion of long-term debt rose $319,422 to $482,976 at June 30, 1998. The increase is due to current principal maturities on manufacturing equipment loans by Aerocom and the consolidation of the current principal maturities of the debt of Franklin. Long-term debt rose to $2,067,211 during the first quarter due to term equipment borrowings of Aerocom for equipment which amounted to $492,583, and the consolidation of Franklin's long-term debt which amounted to $556,897. Common stock and additional paid-in capital increased to $158,807 and $42,383,351 at June 30, 1998, respectively, compared to $153,946 and $38,852,446 at March 31, 1998. The increases were due to the sale of common stock to investors in the amount of $956,329; proceeds received upon the exercise of warrants of $190,500; sales of common stock to employees and consultants through the Company's benefit plans and the exercise of options of $135,573; the issuance of common stock for the acquisition of Franklin of $2,247,314. Results of Operations Operations for the quarter ended June 30, 1998, resulted in a net loss of $942,252 or $.06 per share compared to a net loss of $245,348 or $0.02 per share for the quarter ended June 30, 1997. Total revenue for the Fiscal 1999 first quarter rose over two-fold to $2,852,781 compared to $1,257,162 for the comparable quarter last year. The increase in total revenue was driven by an eleven-fold increase in product sales which rose to $2,553,447 for the quarter compared to $227,551 for the comparable quarter last year. Revenue derived from contract services declined 71 percent to $299,334 during first quarter compared to $1,029,611 for the comparable quarter last year reflecting the Company's shift in focus to deploying technical resources on product development activities rather than customer sponsored research programs. The increase in product sales versus the prior year comparable amount is primarily due to two months of product sales by Franklin, subsequent to its acquisition, which amounted to $1,541,494, product sales by Aerocom during the quarter of $578,680 and a 53 percent increase in product sales by the technology segment to $346,557. Despite large percentage gains in product sales revenue in the first quarter over the first quarter last year, revenue growth and gross profit margins was nevertheless negatively impacted during the quarter by the relocation of Aerocom's manufacturing operations from Boulder, Colorado to Frederick, Colorado and the effects of a labor dispute between General Motors and the United Auto Workers on Franklin's shipments of selected electronic assemblies to a tier 1 supplier to General Motors. Gross profit margins for the first quarter declined to 14.6 percent compared to a margin of 18.2 percent for the comparable quarter last year. Gross profit on contract services was 12.9 percent for the quarter ended June 30, 1998 compared to 15.5 percent for the first quarter last year. The decline in gross profit margins on contract services during the first quarter is attributable to cost overruns on various development programs which negatively impacted margins. Gross profit on product sales during the first quarter was 14.8 percent compared to a margin of 30.4 percent for the comparable quarter last year. The decrease in margins on product sales is primarily attributable to the consolidation of Aerocom and Franklin in the quarter ended June 30, 1998. In addition to the Aerocom relocation and the labor dispute discussed above, margins are negatively impacted by high levels of depreciation on manufacturing equipment at these recently-acquired subsidiaries. Research and development expenditures during the first quarter rose to $277,448 compared to $98,239 for the quarter ended June 30, 1997. The increase is generally attributable to increased levels of internally-funded development activities and increased levels of development expenditures on the product launch for Invacare Corporation. General and administrative expense for the Fiscal 1999 first quarter rose to $805,287 compared to $322,797 for the comparable quarter last year. The increase is attributable to the consolidation of the general and administrative expenses of Aerocom and Franklin which amounted to $372,810 during the quarter, legal and accounting expenditures related to the negotiation and due diligence for the Franklin acquisition which totaled $158,802. Interest income increased to $53,303 for the quarter ended June 30, 1998 compared to $51,673 for the quarter ended June 30, 1997. The increase is attributable to higher levels of invested cash during the first quarter of Fiscal 1999. Interest expense was $53,622 for the first quarter, an increase of $29,543 over the comparable amount during the first quarter last year of $24,079. The increase is attributable to increased levels of borrowing on the Company's revolving line-of-credit and increased levels of long-term debt. Equity in loss of Taiwan joint venture rose to $94,420 for the quarter ended June 30, 1998 compared to $16,447 for the quarter ended June 30, 1997. The increase is due to expanded staffing and operations at Taiwan UQM coincident with the launch of manufacturing operations. Liquidity and Capital Resources The Company's cash balances and liquidity throughout the first quarter of Fiscal 1999 were adequate to meet operating needs. Net cash used by operating activities was $909,206 for the quarter ended June 30, 1998 versus $1,040,870 for the comparable prior year quarter. Cash requirements throughout the period were funded primarily through the sale of common stock to investors, cash received upon the exercise of outstanding common stock warrants and options and borrowings on the Company's bank facilities. During the first quarter of Fiscal 1998, the Company completed the construction of a 25,000 square foot manufacturing plant in Frederick, Colorado. The plant is situated on 2 acres of land and the Company holds an option to acquire an adjacent 2 acre parcel to accommodate future expansion of the facility. Construction cost of the plant, including land acquisition costs, was $1.2 million. Construction financing was provided from existing cash balances. The Company secured mortgage financing on the facility in July 1998 in the amount of $.9 million. Coincident with this expansion, the Company expended $405,054 during the first quarter for manufacturing equipment raising total equipment purchases since the acquisition of Aerocom in January, 1998 for such equipment to $653,581. Subsequently, all of these capital expenditures were financed through borrowings on the Company's term equipment loan facility. These expenditures are expected to increase its manufacturing capability, both in manufacturing processes and throughput capacity. In order to expand its operations and fund its capital expenditure needs, the Company secured a loan facility from a commercial bank which consists of a $.75 million revolving line-of-credit and a term equipment loan financing for up to $2 million of manufacturing equipment purchases, including the refinancing of previously existing term equipment loans. In addition to borrowings for capital expenditures during the quarter the Company refinanced approximately $.5 million of then existing equipment loans. As of June 30, 1998, the Company has not drawn against the revolving line-of-credit and has borrowed $1,030,037 against the term equipment loan. All financing of the subsidiary has been unconditionally guaranteed by the Company. During the first quarter of Fiscal 1999, the Company acquired Franklin Manufacturing Company, a privately-held St. Charles, Missouri manufacturer and distributor of electronic assemblies and components. The Company completed the acquisition of the outstanding common stock of Franklin for $4 million in cash, the assumption of approximately $3.1 million in liabilities and debt and the issuance of 286,282 shares of the Company's common stock. Subsequent to the end of the first quarter, the Company completed a loan facility with a commercial bank to accommodate future Franklin growth. The loan facility consists of a revolving line-of-credit of $2.5 million, a term loan of $.78 million and a term equipment facility for future purchases of manufacturing equipment in the amount of $1.25 million. As of June 30, 1998, the Company has drawn $1,213,861 against the revolving line-of-credit, has borrowed $777,998 against the term loan and has not borrowed against the term equipment facility. All financing of Franklin has been unconditionally guaranteed by the Company. The Company met capital calls from Taiwan UQM of $1.4 million in both fiscal 1996 and 1997. Taiwan UQM reported a net loss of approximately $.6 million in fiscal 1998 and $.3 million during the first quarter of Fiscal 1999. Further losses or capital investment by Taiwan UQM could result in additional capital calls by Taiwan UQM which the Company would be required to fund or suffer a dilution of its ownership interest. During the second and third quarters of Fiscal 1999, the Company expects to invest substantially greater amounts of capital to launch manufacturing operations and supply motors to Invacare Corporation pursuant to a supply agreement executed during Fiscal 1998. Anticipated capital expenditures for working capital, production machinery, equipment, computer hardware and software are expected to be approximately $1.0 million. The Company expects to fund this investment requirement through a combination of existing cash resources and short-term bank lines-of-credit. Although the Company has, to-date, not entered into formal arrangements for such bank lines-of-credit, Management believes bank lines-of-credit are readily available to the Company on terms acceptable to the Company. However, there can be no assurance that such bank financing can be obtained. The Company believes it has cash resources sufficient to fund non-manufacturing operations over the next year. 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 manufacture 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, if any, 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 believes it can configure its operations such that existing cash balances and cash flow from operations will be sufficient to meet its operating requirements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial data schedule (b) Reports on Form 8-K Current Report dated April 2, 1998 regarding the signing of a letter of intent to acquire Franklin Manufacturing Company. Current Report dated May 6, 1998 regarding the completion of the acquisition of Franklin Manufacturing Company. Current report dated June 29, 1998 amending the Company's current report filed May 6, 1998 to include audited financial statements and pro forma financial statements of Franklin Manufacturing Company. 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: August 13, 1998 By:/s/ Donald A. French Donald A. French Treasurer (Principal Financial and Accounting Officer) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF UNIQUE MOBILITY, INC. AND CONSOLIDATED SUBSIDIARIES AS OF JUNE 30, 1998, AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1999 JUN-30-1998 2,659,991 0 2,551,115 0 2,012,052 7,515,368 10,840,139 2,477,968 25,855,394 4,162,689 2,067,211 0 0 42,542,158 (23,312,782) 25,855,394 2,553,447 2,852,781 2,437,549 3,681,681 113,033 0 53,622 (942,252) 0 (942,252) 0 0 0 (942,252) (.06) (.06)
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