-----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, BYD9vkEQyx88x69JlLO66bHKhfpHZm2eRhojfRYkHDENU37Lgmw9GeitHr0lyU06 5felbZwx1o7Vr4x3+yoHsA== 0000315449-98-000010.txt : 19981118 0000315449-98-000010.hdr.sgml : 19981118 ACCESSION NUMBER: 0000315449-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98750303 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 September 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 November 10, 1998, was 15,972,612. PART I - FINANCIAL INFORMATION UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, March 31, Assets 1998 1998 (unaudited) Current assets: Cash and cash equivalents $ 1,513,037 7,005,533 Accounts receivable (note 10) 2,389,636 1,105,466 Costs and estimated earnings in excess of billings on uncompleted contracts (note 3) 514,024 454,738 Inventories (note 4) 2,467,052 253,917 Prepaid expenses 111,589 158,764 Other 118,970 18,361 Total current assets 7,114,308 8,996,779 Property and equipment, at cost (note 7): Land 444,480 444,480 Building 2,586,878 1,511,635 Molds 102,113 102,113 Transportation equipment 218,335 209,920 Machinery and equipment 8,246,007 5,605,326 11,597,813 7,873,474 Less accumulated depreciation (2,810,492) (2,186,805) Net property and equipment 8,787,321 5,686,669 Investment in Taiwan joint venture (note 5) 1,744,584 2,044,393 Investment in EV Global 1,000,000 1,000,000 Patent and trademark costs, net of accumulated amortization of $73,637 and $63,542 627,889 575,985 Goodwill, net of accumulated amortization of $157,088 and $16,215 6,386,176 1,280,872 Other assets 25,402 853 $ 25,685,680 19,585,551 (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued September 30, March 31, Liabilities and Stockholders' Equity 1998 1998 (unaudited) Current liabilities: Accounts payable $ 2,541,169 472,148 Other current liabilities (note 6) 599,318 794,000 Current portion of long-term debt (note 7) 581,131 163,554 Revolving line-of-credit (note 7) 453,000 - Current income tax payable 156,005 - Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 181,925 450 Total current liabilities 4,512,548 1,430,152 Long-term debt, less current portion (note 7) 2,933,563 1,029,924 Total liabilities 7,446,111 2,460,076 Minority interest in consolidated subsidiary 396,663 394,343 Stockholders' equity (note 9): Common stock, $.01 par value, 50,000,000 shares authorized; 15,972,344 and 15,394,621 shares issued 159,723 153,946 Additional paid-in capital 42,483,886 38,852,446 Accumulated deficit (24,163,780) (21,798,724) Notes receivable from officers (116,924) (56,056) Accumulated comprehensive loss (note 14) (519,999) (420,480) Total stockholders' equity 17,842,906 16,731,132 Commitments (note 11) $ 25,685,680 19,585,551 See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Quarter Ended September 30, Six Months Ended September 30, 1998 1997 1998 1997 Revenue: Contract services (notes 10 and 12) $ 445,994 673,759 745,328 1,703,370 Product sales 2,941,800 118,870 5,495,247 346,421 3,387,794 792,629 6,240,575 2,049,791 Operating costs and expenses: Costs of contract services 437,279 708,279 698,070 1,578,270 Costs of product sales 2,975,567 98,356 5,150,517 266,138 Research and development 173,274 167,899 450,722 256,737 General and administrative 884,931 369,320 1,732,136 692,116 Depreciation and amortization 144,340 52,869 265,627 104,593 4,615,391 1,396,723 8,297,072 2,897,854 Operating loss (1,227,597) (604,094) (2,056,497) (848,063) Other income (expense): Interest income 27,282 46,296 80,585 97,969 Interest expense (101,628) (17,735) (155,250) (41,814) Equity in loss of Taiwan joint venture (note 5) (105,869) (16,905) (200,289) (31,433) Minority interest share of earnings of consolidated subsidiary (17,381) (16,671) (35,994) (33,119) Other 2,389 10 2,389 2,012 (195,207) (5,005) (308,559) (6,385) Net loss $ (1,422,804) (609,099) (2,365,056) (854,448) Net loss per common share basic and diluted $ (.09) (.04) (.15) (.06) Weighted average number of shares of common stock outstanding (note 8) 15,925,669 13,701,823 15,834,864 13,393,582 See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended September 30, 1998 1997 Cash flows used by operating activities: Net loss $(2,365,056) (854,448) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 808,013 180,243 Minority interest share of earnings of consolidated subsidiary 35,994 33,119 Noncash compensation expense for common stock issued for services 19,000 38,520 Equity in loss of Taiwan joint venture 200,289 31,433 Loss (gain) on sale of property and equipment (2,900) 23,100 Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts 103,559 (481,789) Inventories (1,123,596) 72,044 Prepaid expenses and other assets 83,940 (23,083) Accounts payable and other current liabilities 606,655 (120,065) Billings in excess of costs and estimated earnings on uncompleted contracts 181,475 (625,056) Net cash used by operating activities (1,452,627) (1,725,982) Cash used by investing activities: Cash paid for acquisition of subsidiary, net (3,848,640) - Acquisition of property and equipment (2,458,251) (197,464) Proceeds from sale of assets 2,900 - Increase in patent and trademark costs (62,000) (113,754) Investment in Taiwan joint venture - (1,345,285) Net cash used by investing activities $(6,365,991) (1,656,503) (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (unaudited) Six Months Ended September 30, 1998 1997 Cash provided by financing activities: Proceeds from borrowings $ 4,061,635 - Repayment of debt (3,011,877) (21,964) Proceeds from sales of common stock, net 956,329 - Repayment of notes receivable from officers 8,308 574 Issuance of common stock upon exercise of employee and non-employee options 148,177 749,913 Issuance of common stock under employee stock purchase plan 3,849 19,294 Issuance of common stock upon exercise of warrants 193,375 460,000 Distributions paid to holders of minority interest (33,674) (33,674) Net cash provided by financing activities 2,326,122 1,174,143 Decrease in cash and cash equivalents (5,492,496)(2,208,342) Cash and cash equivalents at beginning of period 7,005,533 5,713,557 Cash and cash equivalents at end of period $ 1,513,037 3,505,215 Interest paid in cash during the period $ 136,122 74,939 Non-cash investing and financing transactions: Cumulative translation adjustments of $99,519 and $97,989 were recorded for the six months ended September 30, 1998 and 1997, respectively (see note 14). 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. 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 July and August 1997, warrant holders exercised warrants to acquire 395,000 shares of common stock on a cashless exchange basis resulting in the issuance of 307,122 shares of common stock based upon the fair market value of the common stock on the dates of exchange of $6.75, $7.13 and $7.25 per share. In accordance with the provisions of the Company's stock option plans, the Company accepts as payment of the exercise price, mature shares of the Company's common stock held by the option holder for a period of six months prior to the date of the option exercise. For the six months ended September 30, 1998, the Company issued 15,870 shares of common stock for options exercised for an aggregate exercise price of $15,870, for which the Company received 2,308 shares of common stock as payment for the exercise price. The shares received were recorded at cost as treasury stock and were subsequently retired. (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (unaudited) In accordance with the provisions of the Company's stock option plans, the Company may, and has, accepted promissory notes from officers of the Company in satisfaction of the exercise price of options exercised. These notes receivable are recorded as a reduction of shareholders' equity in the consolidated financial statements. For the six months ended September 30, 1998, the Company issued 71,900 shares of common stock for an aggregate exercise price of $69,176 for which the Company received promissory notes for the same amount. 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. (2) Certain financial statement amounts have been reclassified for comparative purposes. (3) The estimated period to complete contracts in process ranged from one to six months at September 30, 1998, and from one to nine months at September 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 eight months. Contracts in process consist of the following: September 30, 1998 March 31, 1998 (unaudited) Costs incurred on uncompleted contracts $ 1,606,481 1,724,552 Estimated earnings 565,959 515,782 2,172,440 2,240,334 Less billings to date (1,840,341) (1,786,046) $ 332,099 454,288 Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 514,024 454,738 Billings in excess of costs and estimated earnings on uncompleted contracts (181,925) (450) $ 332,099 454,288 (4) Inventories consist of: September 30, 1998 March 31, 1998 (unaudited) Raw materials $ 1,936,199 76,377 Work in process 479,823 159,825 Finished products 51,030 17,715 $ 2,467,052 253,917 (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, Continued (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 $ 182,819 341,178 Noncurrent assets-land, property and equipment 6,293,799 6,474,301 Total assets 6,476,618 6,815,479 Current liabilities 292,101 1,470,684 Noncurrent liabilities 1,623,513 - Stockholders' equity 4,561,004 5,344,795 Total liabilities and equity $ 6,476,618 6,815,479 Quarter Ended Six Months Ended June June June 30, June 30, Results of Operations 1998 1997 1998 1997 Revenue $ 4,656 65,408 4,656 65,408 Expenses (281,438) (108,756) (528,285) (146,005) Net loss $(276,782) (43,348) (523,629) (80,597) (6) Other current liabilities consist of: September 30, March 31, 1998 1998 (unaudited) Accrued interest $ 23,276 5,692 Accrued loss reserves 27,750 22,678 Accrued legal and accounting fees 44,307 55,376 Accrued payroll, consulting, personal property taxes and real estate taxes 288,955 158,604 Accrued machinery and equipment purchases 116,346 402,834 Unearned revenue 965 65,037 Other 97,719 83,779 $ 599,318 794,000 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) (7) Long-term debt consists of: September 30, March 31, 1998 1998 (unaudited) Note payable to bank, payable in monthly installments with interest at 8.65%; matures July 2003; secured by land and building $ 917,938 - Note payable to bank, payable in monthly installments with interest at 9.1%; matures October 2007; secured by land and building 702,257 726,202 Note payable to bank, payable in monthly installments with interest at 10.05%; matures November 2001; secured by equipment - 467,276 Note payable to bank, payable in monthly Installments with interest at 8.50%; matures October 2001; secured by equipment 437,960 - Note payable to bank, payable in monthly installments with interest at 8.5%; matures April 2005; secured by equipment 416,630 - Note payable to bank, payable in monthly installments with interest at 8.5%; matures May 2005; secured by equipment 131,098 - Note payable to bank, payable in monthly installments with interest at 8.125%; matures July 2001; secured by accounts receivable, inventory and equipment 885,417 - Capital lease obligation 23,394 - Total long-term debt 3,514,694 1,193,478 Less current portion 581,131 163,554 Long-term debt, less current portion $ 2,933,563 1,029,924 The Company's has two lines of credit of $.75 million and $2.5 million expiring in June 1999 and August 1999, 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. The weighted average rate of interest on these lines as of September 30, 1998 was prime less .5% or 8.0%. (8) 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, 1998 and 1997. 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 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) 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: 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 (131,452) 1.77 Forfeited (26,983) 7.91 Outstanding at September 30, 1998 2,819,917 $ 5.62 Exercisable at September 30, 1998 1,658,193 $ 5.21 The following table presents summarized information about stock options outstanding at September 30, 1998: Options Outstanding Options Exercisable Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/98 Contractual Life Price at 9/30/98 Price $0.50 - 1.00 27,347 2.2 years $0.72 27,347 $0.72 $2.25 - 3.31 602,292 7.6 years $3.09 283,431 $2.85 $3.50 - 5.00 779,368 6.2 years $4.05 641,733 $4.03 $5.38 - 8.31 1,410,910 7.5 years $7.66 705,682 $7.41 $0.50 - 8.31 2,819,917 7.3 years $5.62 1,658,193 $5.21 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) 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 500,000 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. 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, and March 31, 1997 141,333 5.23 Granted 64,000 7.13 Exercised (16,000) 5.38 Outstanding at March 31, 1998 189,333 5.86 Granted 18,392 5.06 Outstanding at September 30, 1998 207,725 $ 5.79 Exercisable at September 30, 1998 120,000 $ 5.64 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 9/30/98 Contractual Life Price at 9/30/98 Price $4.38 - 6.00 111,725 6.9 years $4.89 66,667 $4.86 $6.25 - 7.13 96,000 8.0 years $6.84 53,333 $6.60 207,725 7.5 years $5.79 120,000 $5.64 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 APBO25. The Company accounts for stock options granted to employees of the Company under the intrinsic value method. Stock options granted to non-employees under the Company's 1992 Stock Option Plan and directors under the Non-employee Director 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 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) option grants to employees, net loss and net loss per common share would have been the pro forma amounts indicated in the following table: Quarter Ended September 30, Six Months Ended September 30, 1998 1997 1998 1997 Net loss - as reported $ (1,422,804) (609,099) (2,365,056) (854,448) Compensation expense - Current period option grants (50,094) (42,750) (100,189) (64,667) Compensation expense - prior period option grants (334,752) (154,914) (669,505) (309,827) Net loss - pro forma $ (1,807,650) (806,763) (3,134,750) (1,228,942) Net loss per common share - as reported $ (.09) (.04) (.15) (.06) Net loss per common share - pro forma $ (.11) (.06) (.20) (.09) 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 September 30,Six Months Ended September 30, 1998 1997 1998 1997 Expected volatility - 48.9% 48.5% 48.9% Expected dividend yield- 0.0% 0.0% 0.0% Risk free interest rate- 6.2% 5.8% 6.2% Expected life of option granted - 6 years 6 years 6 years Fair value of options granted as computed under the Black Scholes option pricing model- $3.75 per $4.26 per $3.70 per share share share Pro forma net loss reflects only the fair value compensation expense of options granted since November 1, 1995. 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: Pro Forma Compensation Expense__ 1999 $1,539,386 2000 $1,250,560 2001 $ 200,377 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) 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 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. On July 31, 1997, warrants to acquire 45,000 shares of common stock were exercised on a cashless basis resulting in the issuance of 29,000 shares of common stock. On August 5, 1997, warrants to acquire 175,000 shares of common stock were exercised on a cashless basis resulting in the issuance of 116,053 shares of common stock. The remaining warrants to acquire 175,000 shares of the Company's common stock were exercised on a cashless basis on August 15, 1997, resulting in the issuance of 117,069 shares of common stock. No warrants were outstanding at September 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. On March 19, 1998, warrants to acquire 80,000 shares of the Company's common stock were exercised resulting in cash proceeds to the Company of $480,000. Warrants to acquire 220,000 shares of the Company's common stock remain outstanding at September 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, 38,100 shares of the Company's common stock at $5.00 per share and 50,000 shares at $4.25 per share. The exercise price of the warrants was set at the market price of the common stock on the date of each respective grant. The warrants expire three years from the date of issuance. During October 1997, warrants to acquire 5,000 shares of the Company's common stock at $4.25 per share were exercised resulting in cash proceeds to the Company of $21,250. During June 1998, warrants to acquire 38,100 shares of the Company's common stock in cash at $5.00 per share were exercised resulting in 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 September 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. During the fiscal year ended March 31, 1998, warrants to acquire 151,750 shares of the Company's common stock at $3.50 per share were exercised, resulting in cash proceeds to the Company of $531,125. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) In December 1997, warrants to acquire 50,000 shares of the Company's common stock at $4.20 per share were exercised, resulting in cash proceeds to the Company of $210,000. Warrants to acquire 73,875 shares of the Company's common stock at $3.50 per share remain outstanding as of September 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 remain outstanding as of September 30, 1998. (10) The Company has historically derived significant revenue from contract services from a few key customers. The customers from which this revenue has been derived and the percentage of total revenue is summarized as follows: Quarter Ended Six Months Ended September 30, September 30, 1998 1997 1998 1997_ Customer: Deere & Company $ - 117,903 - 207,194 Kia Motors Corporation - 87,905 - 512,786 Houston Metropolitan Transit Authority 216,261 161,124 324,940 246,878 Siemens Electromechanical Components 618,502 - 1,162,261 - Methode Electronics 347,722 - 428,540 - $ 1,182,485 366,932 1,915,741 966,858 Percentage of revenue 35% 46% 31% 47% These customers, in total, also represented 29% and 4% of total accounts receivable at September 30, 1998 and 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 $217,007 and $280,320 for the quarter ended September 30, 1998 and 1997, respectively, and $332,963 and $413,941 for the six months ended September 30, 1998 and 1997, respectively. (11) The Company has entered into employment agreements with three of its officers which expire December 31, 1999 and with one officer which expires March 31, 2001. The aggregate annual future compensation under these agreements through the expiration date is $937,582. (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 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) 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, 1998, 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, 1998: Mechanical Electronic Technology Products Products Total Revenue $ 493,795 537,849 2,356,150 3,387,794 Interest income 19,601 7,681 - 27,282 Interest expense (17,571) (47,233) (36,824) (101,628) Depreciation and amortization (100,338) (185,448) (65,817) (351,603) Goodwill amortization - (14,308) (66,210) (80,518) Equity in loss of Taiwan joint venture (105,869) - - (105,869) Segment loss (856,280) (418,138) (148,386) (1,422,804) Segment assets 7,830,670 8,136,627 9,718,383 25,685,680 Expenditures for segment assets $ (129,438) (504,269) (138,002) (771,709) The following table summarizes significant financial statement information for each of the reportable segments for the six months ended September 30, 1998: Mechanical Electronic Technology Products Products Total Revenue $ 1,139,685 1,203,246 3,897,644 6,240,575 Interest income 59,207 21,378 - 80,585 Interest expense (32,949) (69,770) (52,531) (155,250) Depreciation and amortization (200,033) (357,411) (109,696) (667,140) Goodwill amortization - (30,523) (110,350) (140,873) Equity in loss of Taiwan joint venture (200,289) - - (200,289) Segment loss (1,485,860) (668,730) (210,466) (2,365,056) Segment assets 7,830,670 8,136,627 9,718,383 25,685,680 Expenditures for segment assets $ (294,858) (2,025,391) (138,002) (2,458,251) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) In determining the foregoing segments, the Company has allocated corporate overhead and expenses and intangible assets, including goodwill, to the appropriate segment. (13) Reporting Comprehensive Income (Loss) Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. The following table summarizes the Company's comprehensive loss for the six months ended September 30, 1998 and 1997: Quarter Ended September 30, Six Months Ended September 30, 1998 1997 1998 1997 Net loss (1,422,804) (609,099) (2,365,056) (854,448) Translation loss (98,723) (25,661) (99,519) (97,989) Income tax effect - - - - Comprehensive loss (1,521,527) (634,760) $ (2,464,575) (952,437) 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. 333-52861) 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 remained strong throughout the quarter ended September 30, 1998, despite a net loss of $1,422,804. Cash used by operations, before changes in operating assets and liabilities, was $857,933 and $1,301,760 for the quarter and six months ended September 30, 1998, respectively. Working capital (the excess of current assets over current liabilities) declined to $2,601,760 at September 30, 1998, from $7,566,627 at March 31, 1998. Accounts receivable rose $1,284,170 to $2,389,636 at September 30, 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 substantially all of the increase. Costs and estimated earnings on uncompleted contracts increased $59,286 to $514,024 at September 30, 1998, from the fiscal 1998 year end level of $454,738. The increase was due to work performed on funded programs containing milestone billing arrangements. Estimated earnings on contracts in process rose to $565,959 at September 30, 1998, on costs incurred on contracts in process of $1,606,481 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 resulting from greater labor content and a reduction in anticipated costs. Raw materials, work in process and finished products inventories increased by $1,859,822, $319,998 and $33,315, respectively, to $1,936,199, $479,823 and $51,030, respectively, at September 30, 1998. Raw materials inventories rose primarily as a result of the consolidation of Franklin's inventory. Work in process and finished products inventories rose due to production of motors and associated controls pursuant to existing customer orders. In April 1998, the Company acquired all of the outstanding common stock of Franklin for $6,247,316 plus the assumption of 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 adjust the recorded value of the tangible and identified intangible assets acquired to their fair market value, with any excess then recorded as goodwill. In the case of Franklin, the excess of the purchase price over the net assets acquired 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. The Company invested $2,458,251 for the acquisition of property and equipment during the six months ended September 30, 1998, compared to $197,464 for the six months ended September 30, 1997. The increase in capital expenditures is attributable to the construction of a manufacturing plant and the purchase of manufacturing equipment by the mechanical products segment of $1,144,518 and $880,873 respectively; the purchase of manufacturing equipment and tooling by the electronic products segment of $138,002 and equipment purchases of $294,858 by the technology segment. Investment in the Taiwan joint venture declined to $1,744,584 at September 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 was $200,289 for the first half and foreign currency translation adjustments which amounted to $99,519. Goodwill, net of accumulated amortization, rose to $6,386,176 at September 30, 1998, from $1,280,872 at March 31, 1998, due to the acquisition of Franklin. Accounts payable rose to $2,541,169 at September 30, 1998, from $472,148 at March 31, 1998. The increase is primarily attributable to the consolidation of Franklin's accounts payable, ($1,151,886), and higher accounts payable at Aerocom resulting from increased product shipments, ($925,464). Revolving line-of-credit rose to $453,000 at September 30, 1998 due to the consolidation of Franklin's revolving line-of-credit. Other current liabilities decreased to $599,318 at the end of the first half from $794,000 at March 31, 1998. The decrease is primarily attributable to a decline in the level of manufacturing equipment purchase commitments. Current portion of long-term debt rose $417,577 to $581,131 at September 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 $2,933,563 at September 30, 1998, due to term borrowings by Aerocom which amounted to $1,522,210, and the consolidation of Franklin's long-term debt which amounted to $596,311. Common stock and additional paid-in capital increased to $159,723 and $42,483,886 at September 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 $193,375; sales of common stock to employees and consultants through the Company's benefit plans and the exercise of options of $152,026; and the issuance of common stock for the acquisition of Franklin of $2,247,314. Results of Operations Operations for the quarter ended September 30, 1998, resulted in a net loss of $1,422,804 or $.09 per share compared to a net loss of $609,099 or $0.04 per share for the quarter ended September 30, 1997. Operations for the six months ended September 30, 1998, resulted in a net loss of $2,365,056 or $0.15 per share compared to a net loss of $854,448 or $0.06 per share for the six months ended September 30, 1997. Operations for the quarter and six months ended September 30, 1998, were adversely impacted by the strike against General Motors, to whom Franklin is a Tier 2 supplier, and the relocation and setup of the Company's mechanical products manufacturing operations. These two events occurred principally during the second quarter. Despite the impact of the foregoing events, product sales revenue for the quarter ended September 30, 1998, rose over twenty four-fold to $2,941,800 compared to $118,870 for the comparable quarter last year and was 15 percent above first quarter product sales of $2,553,447. For the six months ended September 30, 1998, product sales revenue rose over fifteen-fold to $5,495,247 from $346,421 for the comparable period last year. The increase in product sales is primarily due to the acquisition of Franklin which generated revenue of $2,356,150 and $3,897,644 for the second quarter and first half, respectively, and Aerocom which generated revenue of $529,776 and $1,108,456 during the second quarter and first half, respectively. Contract services revenue declined $227,765 or 34 percent to $445,994 during the second quarter and $958,042 or 56 percent to $745,328 for the first half. The decrease in contract services revenue is attributable to a shift in focus from customer sponsored research programs to commercial product development activities. Gross profit margins on contract service revenue for the second quarter and first half were two percent and six percent, respectively, compared to a negative margin of five percent for the comparable quarter last year, and a positive margin of seven percent for the comparable six month period last year. The decline is attributable to increased levels of cost overruns on development programs during the second quarter this year compared to the comparable period, last year. Gross profit margins on product sales during the second quarter and first half were negative one percent and six percent. The lower than expected margins are attributable to the impact of fixed overhead cost allocations over lower production levels for the mechanical and electronic products segments during the quarter and first half. Research and development expenditures during the second quarter and first half rose to $173,274 and $450,722, respectively. The increase is generally attributable to internally-funded development activities and development expenditures on the product launch for Invacare Corporation. General and administrative expense for the second quarter rose to $884,931 compared to $369,320 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 $367,655 and higher business development and legal expenses. General and administrative expenses for the six months ended September 30, 1998, rose to $1,732,136 compared to $692,116 for the comparable period last year. The increase is attributable to the consolidation of the general and administrative expenses of Franklin and Aerocom, and higher levels of business development, legal, accounting and acquisition costs. Depreciation and amortization expense rose to $144,340 and $265,627 for the second quarter and first half, respectively, due primarily to amortization of goodwill arising from the acquisition of Franklin and Aerocom. Interest expense rose to $101,628 and $155,250 for the quarter and six months ended September 30, 1998, due to the consolidation of interest expense of Franklin and Aerocom and increased levels of borrowing on revolving credit facilities and term equipment lines during the period. Equity in loss of the Taiwan joint venture rose to $105,869 and $200,289 for the second quarter and first half, respectively, compared to $16,905 and $31,433, respectively, for the comparable periods last year. 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 quarter and six months ended September 30, 1998, were adequate to meet operating needs. Net cash used by operating activities was $543,421 and $1,452,627 for the quarter and six months ended September 30, 1998. Cash requirements throughout the period were funded primarily through the sale of common stock, cash received upon the exercise of outstanding common stock warrants and options, and borrowings on the Company's bank facilities. During the first half, the Company completed the construction of a 25,000 square foot manufacturing plant in Frederick, Colorado. The plant is situated on two acres of land and the Company holds an option to acquire an adjacent two acre parcel to accommodate future expansion. Construction cost of the plant, including land acquisition costs, was $1.25 million. Construction financing was provided from existing cash balances prior to obtaining secured mortgage financing during the second quarter in the amount of $0.9 million. The Company expended an additional $0.6 million during the first half for manufacturing equipment which was funded principally through borrowings on the Company's long-term equipment credit line. These investments are intended to increase manufacturing capability, both in manufacturing processes and throughput capacity. In addition to borrowings for capital expenditures during the quarter, the Company refinanced approximately $0.5 million of equipment loans. Also, during the first half, the Company completed the acquisition of all 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 acquisition, Franklin completed a loan facility with a commercial bank to accommodate future growth. The loan facility consists of a revolving line-of-credit of $2.5 million, a term loan of $0.8 million and a term equipment facility for future purchases of manufacturing equipment in the amount of $1.25 million The Company met capital calls from Taiwan UQM in the aggregate of $1.4 million in fiscal 1996 and 1997. Taiwan UQM reported a net loss of approximately $0.6 million last year and $0.5 million during the six months ended June 30, 1998. Further losses or capital investment by Taiwan UQM could result in additional capital calls which the Company would be required to fund or suffer a dilution of its ownership interest. During the second half, the Company expects to invest greater amounts of capital to launch expanded gear grinding and assembly operations and the manufacture of motors for Invacare. Capital is necessary to fund the expected growth in inventories and accounts receivable. The Company expects to fund this working capital requirement through a combination of existing cash resources and short-term bank lines-of-credit. Although the Company has not, as yet, arranged for expanded bank lines-of-credit, Management believes such credit lines are readily available on terms acceptable to the Company. However, there can be no assurance that such financing can be obtained. During the first half, the Company experienced larger than anticipated operating losses due to the impact of the strike against General Motors. Production levels in the Company's electronic products segment were adversely impacted, not only during the period of the strike, but throughout the entire second quarter. At October 31, 1998, production levels for the General Motors had returned to approximately 85 percent of pre-strike levels. Although, the Company believes it has cash resources and borrowing capacity sufficient to fund its operations for a period of at least one year, the impact of an unexpected and extended economic event in one of the key markets served by the Company or by a significant customer of the Company, could cause the Company to experience liquidity problems. For the longer-term, the Company expects to continue its strategy of growing its business through the expansion of its product line of motors and controllers; increased production orders from new and existing customers for gear and electronic assemblies; the development of new products for manufacture; strategic alliances to accelerate the commercialization process; and 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. Year 2000 Issues The Year 2000 presents issues because many computer hardware and software systems use only the last two digits to refer to a calendar year. Consequently, these systems may fail to process dates correctly after December 31, 1999, which may cause systems failures. State of Readiness The Company has conducted numerous internal discussions over the last eighteen months amongst its management and technical staff to informally assess the extent of the Year 2000 Issue on the Company's operations. In September, 1998 the Company adopted a formal project to evaluate all of the Company's systems for Year 2000 compliance. The project is being monitored and supervised by the Company's Chief Operating Officer. The evaluation of all hardware and software systems is expected to be completed by January 31, 1999. Those hardware and software systems which are not compliant, if any, are expected to be repaired or replaced prior to June 30, 1999. The Company's electronics manufacturing operations are reliant upon an operating software system ("System"). The System was evaluated and found not to be Year 2000 compliant. The software vendor corrected the software deficiencies in the System in August 1998, and the system is now Year 2000 compliant. As part of the Company's Year 2000 compliance evaluation, the Company expects to contact key suppliers and customers beginning in the fourth calendar quarter of 1998 to determine the extent to which the Company is vulnerable to third parties failures to remediate their Year 2000 compliance issues. However, we cannot guarantee or assure you that the systems of other companies that we rely on, such as suppliers of raw materials, electricity providers and other similar suppliers, or the customers who buy products from us, will effectively address their Year 2000 issues. In the event these suppliers and customers experience a disruption in their operations or cease operations indefinitely as a result of not addressing their Year 2000 issues, our operations could be significantly impacted including the temporary or permanent cessation of operations. Costs to Address the Year 2000 Issue The total cost to address the Year 2000 issue, including the cost of Company personnel and outside vendors and consultants is expected to be less than $50,000. To date the Company has spent less than $5,000 to evaluate and address the Year 2000 Issue. Risks Associated with the Company's Year 2000 Issues The Company believes that by modifying its MRP system as described above, its information systems will be prepared to operate normally subsequent to December 31, 1999. However, if the modifications currently underway are not completed on a timely basis or are not correctly implemented, the Year 2000 could impact the ability of the Company to manufacture product, procure and manage materials, and administer other functions and processes necessary to operate the business effectively, any of which could have a materially adverse effect on the Company's business, financial condition and results of operations. The Company utilizes a number of suppliers both large and small to provide raw materials and components for its products. The failure of third party suppliers to become Year 2000 compliant on a timely basis could create a need for the Company to change suppliers or otherwise impair the sourcing of raw materials, components or services to the Company, any of which could have a material effect on the Company's business, financial condition and results of operations. Likewise, the failure of the Company's customers to become Year 2000 compliant, could cause a disruption or termination of their operations which could result in a reduction or the elimination of orders to purchase goods and services from the Company. Either of the foregoing occurrences could have a material effect on the Company's business, financial condition and results of operations. Contingency Plan The Company does not currently have a contingency plan if Year 2000 issues are not resolved or go undetected. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of Unique Mobility, Inc. was held on August 19, 1997. The following is a summary of the matters submitted to a vote of security holders and the results of the voting thereon: Proposal 1:Election of Directors Withhold For Authority Ray A. Geddes 12,012,976 410,484 Lee A. Iacocca 12,383,289 40,171 Frank Hodsoll 11,908,801 514,659 William G. Rankin 12,383,176 40,284 H. J. Young 11,963,858 459,602 J. B. Richey 12,323,789 99,671 Michael G. Franklin 12,383,176 40,284 Proposal 2:Proposal to ratify the appointment of KPMG Peat Marwick LLP as the Independent Auditors of the Company. For Against Abstain 12,268,942 115,846 38,672 Proposal 3:Proposal to amend the Stock Option Plan for Non-Employee Directors to increase the number of shares available for grant from 250,000 to 500,000. For Against Abstain 10,891,970 1,404,783 126,707 Total votable shares: 15,914,852 Total shares represented in person and by proxy: 12,423,460 Percentage of votable shares voted: 78.06% Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None 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: November 16, 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 FROM THE CONSOLIDATED BALANCE SHEETS OF UNIQUE MOBILITY, INC. AND CONSOLIDATED SUBSIDIARIES AS OF SEPTEMBER 30, 1998, AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1999 SEP-30-1998 1,513,037 0 2,389,636 0 2,981,076 7,114,308 11,597,813 2,810,492 25,685,680 4,512,548 2,933,563 0 0 42,643,609 (24,800,703) 25,685,680 2,941,800 3,387,794 3,412,846 4,615,391 (93,579) 0 101,628 (1,422,804) 0 (1,422,804) 0 0 0 (1,422,804) (0.09) (0.09)
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