-----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, SmLuqpCwKQn04JBOHlil+HfI8DrW8AEZVD22cZRuk3tNp5aSd4FwnBIS9dh2s5Iw QjhKhgB8Qwg1JVD9giqyzA== 0000899733-97-000077.txt : 19971008 0000899733-97-000077.hdr.sgml : 19971008 ACCESSION NUMBER: 0000899733-97-000077 CONFORMED SUBMISSION TYPE: 10-KT/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19971007 SROS: AMEX SROS: BSE SROS: CSX SROS: PSE 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-KT/A SEC ACT: SEC FILE NUMBER: 001-10869 FILM NUMBER: 97691873 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-KT/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KT/A [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from November 1, 1996, to March 31, 1997 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) Registrant's telephone number, including area code: (303) 278-2002 Securities registered pursuant to Section 12(b) of the Act: Common stock, $.01 par value Name of each exchange on which registered: American Stock Exchange Boston Stock Exchange Pacific Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01 par value 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 . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by nonaffiliates of the registrant (11,700,585 shares) computed by reference to the closing price of such stock on the American Stock Exchange, as of June 25, 1997: $81,904,095 The number of shares outstanding (including shares held by affiliates) of each of the registrant's classes of common stock, as of June 25, 1997: 13,355,435 shares of the registrant's common stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE In Part III certain information is incorporated by reference from the Company's definitive Proxy Statement for the August 19, 1997 Annual Meeting of Shareholders ITEM 1. BUSINESS General Unique Mobility, Inc. ("Unique" or the "Company") was organized in 1967 and presently develops and manufactures high efficiency permanent magnet (PM) motors and controls for automotive, industrial and aerospace applications. Since 1990, the Company's focus has been to apply its products to several types of electric (EV) and hybrid electric vehicle (HEV) propulsion systems. The Company's objective is to leverage its technology base and name recognition to serve a number of high potential niche markets in the near-term, and automotive mass markets in the longer-term. The Company's common stock trades on the American, Boston, Pacific and Chicago Stock Exchanges under the symbol "UQM". Historically, the Company's revenue has been derived from contract research and development services. These sponsored research and development activities have supplemented internally funded product development programs and have added significantly to the Company's technology base. Now, the Company, its affiliates and its licensees hope to begin commercial production of products that the Company hopes will generate a more consistent and greater revenue stream than that of prior years. The Company's future commercial products are expected to include: Bicycle Motors: Proprietary PM motors, controllers and chargers for application in electrically powered bicycles. Wheelchair Motors: Proprietary PM wheelchair motors that are compact and energy efficient for application in motorized wheelchair products. Scooter Motors: Advanced hub-mounted PM traction motors and controls for motor scooter applications. These matched systems deliver high performance over a wide power range with programmable control and regenerative braking. They will be manufactured in Taiwan by the Company's licensee for Kwang Yang Motor Co., Ltd. (KYMCO), one of the world's largest producers of motor scooters. Golf Cart Motors: Higher power (5-10 kW) variations of the scooter motor and controller designed to reach existing markets for small electric vehicles such as golf carts, light industrial vehicles and lawn care products. EV and HEV Motors: Power ranges from 30-100 kW. Typical is the UQM PowerPhase System, developed for on-road EV and HEV applications and is currently offered for sale on a prototype low volume basis. The system includes a 53 kW PM motor, matching controller and single stage transaxle with differential gearing and parking lock. Larger versions (63-100 kW) are currently offered or under development for bus and truck applications. Management believes that the innovative designs, carefully selected materials and advanced manufacturing processes used in UQM products provide a number of benefits. These benefits include high power density (packageability), high efficiency over a wide range of operation, and simplified construction that is capable of achieving cost benefits at higher production levels. High power density and efficiency are critical attributes in any application where space is at a premium and the energy supply is limited. Unique's relationships with major original equipment manufacturers (OEMs) and other industry leaders has enabled the Company to obtain partial funding for product development while still retaining substantially all rights to its intellectual property. In some cases, these funding sources are, or are expected to become, manufacturing partners, customers or licensees of the developed products. Such is the case with KYMCO, co-funder and licensee of the Company's electric scooter power system, who is also the Company's partner in a Taiwan based joint venture company. The Company intends to continue to advance its technology base and to develop new products that have a high potential for commercialization. Key among these are the development of 75 and 100 kW traction drive systems for trucks and buses; an advanced high speed motor for flywheels, spindle drives and vacuum pumps; electric and hybrid electric passenger car conversion projects for customers in Korea and Taiwan; and the application of the Company's electric scooter power system to small vehicles for customers in Asia and Europe. In addition, the UQM powered Ethos 3 EV electric car is being demonstrated to potential licensees in collaboration with the Pininfarina Group of Turin, Italy (Pininfarina). Unique believes that its technology, its developed products, its cadre of strategic partners and its key management and technical personnel have positioned the Company to potentially capitalize on existing niche markets an global mass markets, should they develop, for energy-efficient clean vehicles and related products. Recent Developments During fiscal 1997, the Company continued to strengthen its strategic relationships with Invacare Corporation (Invacare), KYMCO and Pininfarina. The Company also formed a new strategic relationship with EV Global Motors, a new company formed by former Chrysler Chairman, Lee A. Iacocca, to market light electric vehicles. Invacare Relationship: The design for manufacture of the Invacare wheelchair motor has been completed and prototypes have been delivered to Invacare for in- chair testing. Invacare is a leading U.S. based manufacturer and marketer of home medical equipment with products that include a complete line of wheelchairs, patient aids, seating and positioning products, home institutional beds, and respiratory assistance products. Mr. J. B. Richey, Invacare's top technical executive, is a member of the Company's board of directors. The Company is currently negotiating with Invacare (1) to manufacture wheelchair motors pursuant to a long-term supply agreement and (2) to grant Invacare an exclusive worldwide royalty bearing license to make, use and sell other of the Company's motors for application in medical products. There can be no assurance, however, that such negotiations will be successful. Taiwan Joint Venture: During fiscal 1997, Taiwan UQM Electric Co., Ltd. (Taiwan UQM), a Taiwan corporation owned jointly by the Company, KYMCO and Turn-Luckily Technology (TLT), completed construction of a factory for the manufacture of products under license from the Company. Taiwan UQM is currently installing semi-automated manufacturing equipment and is planning to launch the production of conventional starter motors and generators in August 1997 pursuant to a supply agreement with KYMCO. Taiwan UQM plans to launch production of electric power systems for KYMCO scooters in 1999 and eventually will produce a full line of UQM products for other Asian automotive and industrial customers. The Pininfarina Ethos 3 EV: The Company has continued to demonstrate the Ethos 3 EV electric car to automotive OEMs and other interested parties with its partner Pininfarina. During fiscal 1997, product presentations and demonstrations were conducted in Italy for Audi, BMW, Fiat, Mercedes-Micro Compact Car, Rover and Saab. Upon its return to the U.S., the vehicle was showcased at the Denver "Summit of the Eight." Other demonstrations are planned in Denver and in Italy throughout the remainder of calendar 1997. It is the objective of these demonstrations to secure one or more funded programs leading to the development of a global family of "clean" vehicles that can be industrialized and distributed by third party automotive clients for sale to the general public in several models in many markets worldwide. EV Global Motors: In June 1997, the Company entered into a strategic partnership with EV Global Motors Company (EVG), a new entity recently formed by former Chrysler Chairman Lee Iacocca to develop and market light electric transportation systems such as bicycles, scooters and electric cars. EVG purchased 1,151,925 shares of the Company's stock in a private transaction from Alcan Aluminum Limited and purchased warrants from other sources for an additional 350,000 shares. Separately, the Company and EVG entered into a Stock Purchase Agreement whereby the Company has agreed to purchase 400,000 shares of EVG's common stock in exchange for 200,000 newly-issued shares of the Company's common stock. Upon completion of the latter transaction, EVG's beneficial ownership will represent approximately 12.2 percent of the Company's outstanding shares, making EVG the Company's largest shareholder. Concurrently, it is contemplated that Mr. Iacocca will join the Company's board of directors and Mr. Ray A. Geddes, the Company's chairman and Chief Executive Officer, will join the board of EVG. Also in June 1997, the Company, EVG, KYMCO, TLT and Taiwan UQM entered into a memorandum of understanding for the formation of an international strategic alliance to develop and market KYMCO electric scooters in North and South America. Products/Technology The Company has an aggressive strategy to commercialize its technologies and develop products to provide for future growth. Initial product offerings are being directed primarily toward near term markets for low voltage small vehicle traction applications and will be followed by an expansion into the markets, should they develop, for larger, high voltage vehicle propulsion systems. Small vehicle applications include wheelchairs, bicycles, motor scooters, small industrial vehicles, golf carts and lawn care products that generally require power levels from 1 kW to 10 kW at voltages from 12 Vdc to 48 Vdc. Large vehicle applications include electric and hybrid electric passenger cars, commercial trucks and urban transit buses that generally require power levels from 20 kW to 250 kW at voltages from 96 Vdc to 400 Vdc. The Company's current product offerings typically utilize a number of proprietary technologies, several of which are patented, including high pole- count PM motor design with six step commutation and phase advanced control. The high pole-count, together with a relatively large air-gap diameter, create a higher torque, lower speed motor than that of more conventional architectures. Higher torque at lower speed allows for a lower gear ratio, fewer mechanical losses and higher efficiency at light "cruising" loads. These designs have excellent heat rejection capability, high copper utilization (i.e. tight end turns), and a "hollow" profile that provides room to package other components inside the motor. Six step commutation enables the use of low cost rotor positioning sensing mechanisms and reduces switching losses to improve inverter efficiency. Phase advanced control is a technique for manipulating current to allow the motor to run faster and thus deliver more power without the cost of having to increase the current supply. Currently developed products include: Wheelchair Motor: A proprietary PM motor has been developed for the Invacare powered wheelchair product line. The Motor is compact and energy efficient. While it was developed specifically for powered wheelchair applications, management believes that scaled-up versions of the motor can serve several other markets for electrically powered vehicles. The Company is currently negotiating with Invacare to manufacture motors for its wheelchairs; however, there can be no assurance that such negotiations will be successful. Picture of Wheelchair and Motor Fig. 1 Invacare Storm' Wheelchair and PM Wheelchair Motor Scooter Motor and Controller: A 3.6 kW hub-mounted PM motor and full authority 48 Vdc controller with integrated charger and dc-dc converter has been developed for the KYMCO electric scooter product line. This system is air-cooled, compact and efficient over a wide operating range. It delivers torque at a wide range of speeds and provides regenerative braking down to zero rpm. While the scooter motor system was developed for KYMCO's exclusive use in most Asian markets, the Company has reserved commercial rights in Japan and India and in all markets outside Asia. Picture of Prototype Electric Scooter FIG. 2 KYMCO Prototype Electric Scooter and Traction System Golf Cart Motor and Controller: A higher power (5-10 kW) variation of the KYMCO scooter motor and controller is being developed to reach existing markets for small electric vehicles such as golf carts, light industrial vehicles and lawn care products. The golf cart motor is longer in dimension than the scooter motor, but has the same diameter stator core and can be built from the same tooling. Its features of merit are similar to those of the scooter motor, but at power levels up to 10 kW. Management believes this product can be marketed as an aftermarket replacement motor as well as original equipment, and for this reason universal motor mounts have been designed for easy "drop-in" installation. Picture of Golf Cart Motor Fig. 3 Golf Cart Motor PowerPhase System: A high power, modular traction drive system for on-road electric and hybrid electric vehicle applications. The PowerPhase system was initially developed for the Ethos 3 EV demonstrator vehicle, but has application as a power system for all types of passenger cars and light trucks. The system includes a matched set of components composed of a 53 kW liquid cooled PM motor, a 180-400 Vdc microprocessor based programmable controller with phase advance control, and a single stage transaxle with differential and a mechanical parking lock. The transaxle connects the output shaft of the motor to the road wheels in a variety of front or rear wheel drive configurations. A 63 kW motor and controller of the same frame size is offered with in-line gear reduction for bus and heavy truck applications. Picture of Unique PowerPhase System Fig. 4 53 kW PowerPhase System Ethos 3 EV Demonstrator In partnership with Pininfarina, the Company has developed the system architecture for the Ethos 3 EV electric car. The Ethos 3 EV is a four-door, four-passenger hatchback sedan, styled as a wedge-like aerodynamic cube. It has a rectangular base, short in length, but wide and tall to provide a roomy interior. The split tailgate simplifies the loading of cargo from above, particularly when the car is parked bumper to bumper along the curb. The McPherson-type front suspension has telescoping arms and coil springs, while the rear suspension has interconnected trailing arms. Electric power steering is by rack and pinion and the braking system incorporates full regenerative braking supplemented by discs on the front and drums on the rear. Picture of Ethos e EV Demonstrator and Space Frame Structure Fig. 5 Ethos 3 EV Demonstrator and Space Frame Structure The Ethos 3EV is built on an extruded aluminum space frame that forms a sturdy cage to give a high level of occupant protection. Impact beams are incorporated in the doors. The front seats are fitted with pre-tensioned seat belts and a driver's side air bag. Instruments and controls include a speedometer, a battery state-of-charge gauge, shift lever, an engine-on light, and a main power disconnect switch. Integrated into the dash panel is an efficient heating, cooling and ventilating system specially developed for the Ethos 3 EV by Calsonic International, one of the world's largest suppliers of automotive climate control systems. At the heart of the Ethos 3 EV is the front mounted UQM PowerPhase traction drive system that provides 53 kW maximum power and 150 Nm of continuous torque. The motor drives through a 6.8 to 1 single stage transaxle with a mechanical differential and parking brake. Electric current is supplied to the motor by a 400 Vdc, 300 Amp inverter using IGBT power switching modules with digital microprocessor control. Proprietary software provides for smooth, quick acceleration with phase advance control for extended power and full regenerative braking for extended range. The UQM PowerPhase system is matched to a high-performance energy storage system that uses 26 Ovonic nickel metal-hydride (NiMH) batteries. NiMH batteries are characterized by high power, long cycle life, no memory effect, few maintenance problems and they are totally recyclable. GM Ovonic, a joint venture between General Motors and Ovonic Battery Company is the manufacturing agent. In the Ethos 3 EV, the batteries are housed in three compartments, two under the front seats and one under the rear cargo area. They have a specific energy of 70 Wh/kg, a specific power of 220 W/kg and are connected in series to provide 312 Vdc with 85 Amp hours of capacity. This system permits the Ethos 3 EV to travel more than twice as far per charge as would lead-acid batteries of the same size and weight, or approximately 150 miles at 45 mph. Marketing/Markets The Company's marketing strategy is to build on its technology base to become a leading supplier of advanced vehicle power systems for energy efficient, environmentally clean surface transportation throughout the world. In the near term, the Company's focus is being directed toward existing markets for low-voltage systems used in small vehicles such as wheelchairs, bicycles, electric scooters, golf carts, light industrial vehicles and lawn care equipment. This effort will be followed by initiatives to reach the market for larger, high-voltage systems required for on-road passenger cars, trucks and buses, should such a market develop. Near Term Markets Wheelchair Motors: The Company hopes to manufacture wheelchair motors for Invacare. Each powered wheelchair requires two motors. Invacare is the country's largest manufacturer of home health care and mobility products. It holds the No. 1 position in powered wheelchairs with approximately 60 percent of the market and is No. 2 in Europe. The Company is currently negotiating with Invacare to manufacture motors for its wheelchairs; however, there can be no assurance that such negotiations will be successful. Scooter Motors and Controllers: The Company's electric scooter power system is expected to be manufactured by Taiwan UQM for KYMCO and possibly for other scooter manufacturers in markets where KYMCO does not have exclusive rights (i.e., Japan, India and all markets outside Asia). KYMCO is Taiwan's largest producer of two-wheeled vehicles with approximately one third of the market. Timing for the production launch of the KYMCO electric scooter has not as yet been released, but the launch is scheduled to occur no later than 1999 to meet a government mandate requiring, by the year 2000, that two percent of all scooters sold in Taiwan be electric. There can be no assurance that the government mandates will not be modified or rescinded. The Taiwan Ministry of Transportation and Communication reports that 1994 domestic sales of gasoline powered two-wheeled vehicles totaled 1,192,503 units with approximately 500,000 additional units being produced for export, primarily to the People's Republic of China. This would indicate a Taiwanese market of 23,850 electric scooters by the year 2000, assuming a flat sales rate from now until then. Other potential markets for electric scooters and/or power system components include China, India and Indonesia, all of which have larger usage of two-wheeled vehicles than Taiwan. Golf Cart Motors and Controllers: Motors used to power golf carts are also used for other commercial vehicle applications. To better understand the potential, the Company commissioned Markowitz & McNaughton, Inc., a Reston, Virginia, consulting firm, to define and quantify the U.S. market for golf cart motors and controllers. The golf cart market is defined as vehicles sold to golf courses, golf communities and resorts for the transport of one or more persons around a golf course or residential community. Also included are golf carts operating as utility vehicles for on-site and in-plant materials transport and security patrol vehicles. The domestic market for golf carts is approximately 190,000 units annually, with 65,000 being electric. Environmental concerns are expected to increase the percentage of electric models in future years. Neighborhood electric vehicles (NEVs) are an outgrowth of electric golf carts. They are used for personal transportation, primarily to carry two or four persons around closed residential subdivisions, resorts, and town centers. Current market size is estimated at 15,000 units annually, with most being some type of modified golf cart. Growth of this segment is expected to come from the retired residential community market that is being served by a combination of new NEV manufacturers and the golf cart industry. Industrial personnel and cargo carriers also represent a market for golf cart motors. These vehicles are used for towing, materials handling and people transport in plants, industrial parks, warehouses and other close proximity manufacturing and industrial settings. Generally, they are electrically driven by brushed dc motors that often require expensive brush replacement maintenance during the life of the vehicle. Market size of this segment is estimated at 6,000 units annually. Lawn tractors, riding mowers and turf equipment are used for residential or commercial grounds keeping. They are almost exclusively gasoline powered and current vehicle designs are not oriented toward electric motor use. However, the demand for electric equipment could escalate with environmental regulation and advances in battery technology. Electric versions would require at least two motors, one or more for the cutting blade and one for propulsion. Current U.S. market size is estimated at 135,000 riding mowers and 1,000,000 riding tractors, not including farm equipment. At present, the Company does not have distribution channels in place to reach the described markets for golf cart motors and controllers. It is the Company's goal, however, to establish distribution channels either directly or by a joint venture or licensing arrangement with a major original equipment manufacturer during calendar 1997, although, there can be no assurance that it will be successful. Emerging Growth Markets In a world that produces over 50 million cars, trucks and buses every year, the Company believes that the potential for electric and hybrid electric vehicle power systems is substantial, especially in those markets that place a premium on fuel efficiency and good air quality. The Company's long term goal has been, and is, to become a leading provider to this emerging segment of the automotive industry. However, the electric vehicle market has been slow to develop and the hybrid electric vehicle market could take even longer. Early product offerings are costly, advanced batteries are not yet in mass production and battery charging infrastructure is virtually non-existent. Recently, a joint study by the Electric Vehicle Association of the Americas (EVAA) and the Electric Transportation Coalition (ETC) attempted to project a timetable for the emergence of a sustainable market for electric vehicles. The conclusions drawn from this study reveal an anticipated three-phase growth pattern: Phase I: Entry of electric vehicles into limited early markets, primarily fleets; time frame 1996-1998 with production of low thousand of units over the period. Phase II: Expansion to additional markets with improved technology (batteries); time frame 1999-2002 with production of tens of thousands of units over the period. Phase III: Broad based market launch of commercially competitive electric vehicles; time frame 2003-2006 with production of 50,000 units or more. Several market drivers such as advanced battery development, government incentives and the degree to which the market accepts early product offerings could speed up or slow down this timetable, making accurate forecasting extremely difficult. The Company believes that its technology, as evidenced by the Ethos 3 EV and the UQM PowerPhase system, has positioned it well to capitalize on this potential, should such a market develop. Environmental Initiatives and Legislation The major driving force behind the commercialization of electric and hybrid electric vehicles in the United States is the demand for clean urban air. The federal government has responded with the Clean Air Act, the Energy Policy Act and other initiatives directed toward reducing vehicular emissions. Some state governments, California, Massachusetts and New York in particular, have done likewise. California, for example, mandated that beginning in 1998, at least two percent of all cars and light trucks offered for sale by major automakers must be zero emission vehicles (ZEVs). The requirement was to increase to five percent in 2001 and to ten percent in 2003. Massachusetts and New York adopted similar regulations. During 1996, California canceled the mandates for ZEVs until 2003 when all automakers that sell more than 3,000 vehicles in California will be required to meet the ten percent ZEV requirement. Massachusetts has announced its intention to follow California, but New York has not. In lieu of the earlier mandates, the California Air Resources Board (CARB) opted for a market-based approach whereby the major automakers agreed to install limited ZEV manufacturing capacity prior to 2003, and CARB would grant credit for early ZEV sales toward the 2003 mandate. As of December 31, 1996, six manufacturers --- GM, Ford, Chrysler, Toyota, Nissan and Honda --- have announced plans to market limited numbers of ZEVs beginning in the first quarter of 1997. Also during 1996, the U.S. Department of Energy modified its rules governing how certain state government and utility/fuel provider fleets covered by the Energy Policy Act of 1992 must comply with the Act's requirements for the use of alternative fuels. Under the modified rules, covered fleets must make increasingly higher purchases of alternatively fueled light duty vehicles (which may include electric) over the 1997-2001 period. A fleet is covered by the Act if the fleet has 50 or more light-duty vehicles (under 8,500 GVW). The current fleet acquisition formula is as follows: Model Utility/Fuel State Government Year Provider Fleets Fleets 1997 30% 10% 1998 50% 15% 1999 70% 25% 2000 90% 50% 2001 90% 75% The Company views the relaxation of the California ZEV mandates as a positive step in the development of the EV industry. While the ZEV mandates were instrumental in jump starting the development of several new technologies, they have the potential to force manufacturers to offer poorly performing products at prohibitive costs that may not be accepted in the marketplace. Management believes such a result would create an artificial market and would seriously damage the ultimate acceptance of electric vehicles. There can be no assurance that the state and federal mandates will not be further modified or rescinded. License Agreements The Company and Alcan Aluminium Limited (Alcan) have entered into an agreement (Assignment Agreement) wherein Alcan assigned to the Company all of its rights, title and interest in all technology previously developed by the Company for or on behalf of Alcan. The Assignment Agreement further provides that the Company shall pay to Alcan royalties on revenue derived from the manufacture and sale of products or processes embodying PM technology, subject to an offset in the amount of one-half of the Company's patent application and maintenance fees related to the PM technology. In May 1996, the Company entered into a License and Technical Assistance Agreement with Taiwan UQM, a joint venture company in which the Company has a 39 percent equity interest. Pursuant to the agreement, Taiwan UQM was granted an exclusive license in Taiwan to make, use and sell the Company's electric motors and controls an exclusive license in the People's Republic of China with respect to the propulsion system developed for KYMCO and a nonexclusive license throughout the rest of Asia (except India and Japan) for the Company's electric motors and controls. The license is royalty bearing except for propulsion systems manufactured by Taiwan UQM for KYMCO. In November 1996, KYMCO entered into a supply agreement with Taiwan UQM relating to the purchase from Taiwan UQM of propulsion systems developed by the Company. With the execution of the supply agreement, the grant of license contained in the Company's Product Development and License Agreement with KYMCO became effective. Pursuant thereto, KYMCO has a worldwide, royalty-free license, exclusive in Asia except for Japan and India, to sell scooters with propulsion systems manufactured by Taiwan UQM using the Company's technology. Competition The automotive, industrial and commercial markets into which the Company hopes to introduce and market its products are all highly competitive and characterized by rapid changes due to technological improvements. The automotive industry, in particular, is currently being driven by legislation and other initiatives to develop low-emission, fuel efficient vehicle propulsion systems. The Company is aware of efforts by many companies, including large automotive OEMs, to develop electric and hybrid electric vehicles. The Company believes that its principal competitors in the automotive supply sector include Auxilec, Delco Power Electronics, Fuji Electric, Hitachi, Matsushita and Siemans. Principal competitors in the industrial and commercial sectors include Advanced DC, Emerson Electric, General Electric and the Reliance Division of Rockwell International. The Company is aware of other companies, both large and small, that have entered or may enter the market and expects competition to intensify as demand increases for high efficiency PM motors. Although the Company is not as well capitalized as many of its competitors, its strategy is to compete with larger companies on the basis of technical skills, proprietary know-how and its affiliation with large and well-financed strategic partners. Patents and Trademarks The Company filed a motor patent application with the U.S. Patent office in December 1985, and similar applications are being prosecuted in many other countries throughout the world. As a result of the original U.S. Application, U.S. Patent No. 5,004,944 was issued on April 2, 1991 containing one independent claim and three dependent claims. A Continuing Application of the 1985 application was filed in October 1990 to pursue subject matter that was not allowed in the original U.S. Patent. As a result, U.S. Patent 5,311,092 issued on May 10, 1994 with four independent claims and one dependent claim. Of the foreign applications, a patent has been published covering thirteen European member countries of the European Patent Office (EPO), and an opposition thereto has been resolved. In addition, corresponding patents have issued in Australia, Brazil, Canada, India, Israel, South Korea, Mexico, New Zealand, South Africa and Taiwan. Seven other foreign applications remain pending, three of which have been indicated to be allowable. In August 1989, the Company filed a separate application with the U.S. Patent office to cover certain proprietary aspects of its electronic control circuitry. Additional claims were added by means of a Continuation in Part (CIP) filed in May 1990. In April 1992, the Company was issued U.S. Patent No. 5,107,151 as a result of the CIP Application. In August 1990, an International Patent Application corresponding to the U.S. Application and the Continuation in Part was filed under the provisions of the Patent Cooperation Treaty (PCT) which includes the EPO, Japan and South Korea, among others. National applications were also filed in eight additional countries including India, Taiwan and Israel; patents have been granted in Mexico, Taiwan, India and Israel. Applications remain pending in Japan and Korea but the EPO Application has been withdrawn. In March 1990, a Continuing Application was filed to claim the method of constructing the motor as disclosed in U.S. Patent No. 5,004,944. The Continuing Application resulted in U.S. Patent 5,319,844 issued June 14, 1994. In March 1991 the Company filed an International Patent Application corresponding to the U.S. Application; as a result a patent has been granted in Australia and there are seven applications pending in foreign countries and one pending application in the European Patent Office (EPO) which designates the European group of countries. In September 1992, the Company filed a separate application with the U.S. Patent Office titled "Stator and Method of Constructing Same for High Power Density Electric Motors and Generators" which has resulted in issuance of U.S. Patent 5,382,859 in January, 1995. This patent embodies the Company's most recent enhancement to its motor technology which utilizes a segmented iron powder stator ring developed specifically for brushless permanent magnet stator cores. A Divisional U.S. Patent Application has been filed to pursue a second invention disclosed in the original application; that divisional application has resulted in U.S. Patent 5,592,731 issued January 14, 1997. Patent Applications in Canada,Europe, Japan and Korea are pending as a result of a counterpart PCT International Patent Application. In July 1994 the Company filed an application in the U.S. Patent office titled "Brushless DC motor using Phase Timing Advance" which embodies a low cost method of controlling the drive current to a motor to achieve operating characteristics ideal for vehicle traction drives. This application has been allowed and the company is awaiting issuance of the patent. In June 1995 a counterpart PCT International Patent Application was filed and various foreign country patent applications are now being filed. During 1994 the Company acquired the assets of Everton Developments of Birmingham, England including all rights under PCT Application WO 92/22121 published December 10, 1992. Patent applications filed thereunder are still pending in four countries. The United States application has been allowed and the company is awaiting issuance of the patent. Corresponding patents have been granted in Australia and in Europe where the patent is effective as to France, Germany, Italy, Switzerland, Liechtenstein and United Kingdom. The Company elected to write-off the costs associated with this patent during the five months ended March 31, 1997, due to the uncertainty of applying the underlying technology to commercial markets in the near term. See also "Management Discussion and Analysis of Financial Condition and Result of Operations" below. The Company owns the trademark "UM," which is registered with the United States Patent and Trademark Office and is subject to renewal in October 2000. This trademark is available for use in connection with the products and publications of Unique. The Company owns three U.S. Trademark Registrations for "UNIQ" (International Class 7 for power Transducers, and Class 12 for Utility Land Vehicles and Class 16 for Publications). The Class 12 trademark is subject to renewal in June 2006; the Class 7 trademark is subject to renewal in August 2006; and the Class 16 trademark is subject to renewal in February 2007. The Company currently holds a patent issued by the United States Patent Office, in August 1980, which covers certain mechanical features of the ElecTrek automobile, principally its composite unibody structure and battery trays. This patent expires in August 1997. The Company no longer produces or market its ElecTrek automobile. The Company has also initiated registration of the letters UQM and a stylized version thereof as its new trademark in the U.S. and 26 countries throughout the world. Two U.S. Trademark Registrations and 22 out of 26 of the foreign countries have granted registrations or indicated them to be allowable. These trademarks are directed to the same trademark classes as for the marks "UM" and "UNIQ". UQM is the American Stock Exchange code identification for the Company. The foreign trademark registrations and applications include major markets where the Company is doing business or establishing business contacts. The Company has recently begun using "POWERPHASE" as a trademark to identify its modular brushless permanent magnet electric motor traction drives for electric and hybrid electric vehicles. An application for trademark registration in the United States was filed in September 1996 and is still pending. Corresponding applications for trademark registration have been filed in 11 countries and the European community. In November 1994, the Company and Alcan completed an assignment agreement which provided, among other things, that for so long as Alcan beneficially owns at least five percent of the Company's common stock, it shall be obligated to pay one-half of the patent application and maintenance fees (including reasonable attorney's fees related thereto) associated with the Company's PM technology in an amount not to exceed the aggregate amount of royalty revenue derived from the PM technology. The Company's future success depends, in part, on the diligent prosecution of its issued and pending motor and electronic patents, as well as the filing and prosecution of patents on future technological advances, if any. There can be no assurance that the Company will possess the financial resources necessary to prosecute and maintain existing applications or to pursue additional patents. If the Company is not able to prosecute and maintain its existing patent applications, they will lapse. There can be no assurance that the Company's patents will not be circumvented, invalidated or infringed, or that the Company will possess the financial resources to enforce its existing patents and patent applications in the event of an infringement. Further, new technology may be developed by third parties or may already exist unknown to the Company causing the Company's proprietary technology to be obsolete. The Company also intends to rely on the unpatented proprietary know-how it has developed and now utilizes in its products. There can be no assurance that others will not independently develop, acquire or obtain access to the Company's technology. Although the Company protects its proprietary rights by executing confidentiality agreements with its management, employees and others with access to the Company's technology, these measures may not be adequate to protect the Company from disclosure or misappropriation of its proprietary information. Manufacturing To date, the Company has manufactured all of its products at its facility in Golden, Colorado. The Company anticipates investing in manufacturing equipment to further develop the manufacturing capacity at this facility at such time as the Company secures a commitment for the volume purchase of its products. The Golden facility has current available capacity of approximately 15,000 square feet which can be dedicated to manufacturing operations without significant alteration. Although the Company has no prior experience in delivering large volumes of its products, it is currently in the process of establishing the capacity to meet such high volume production requirements and has retained talented personnel with experience in motor manufacturing to assist in the launch of such operations. The Company believes additional manufacturing space and equipment is readily available. Backlog At May 31, 1997, the Company had unperformed service contracts from customers which will provide payments to the Company upon completion aggregating approximately $2,875,000. The Company expects to complete substantially all of these service contracts during the five month transition period ending March 31, 1997 and the balance during the fiscal year ending March 31, 1998. All such contracts are subject to amendment, modification or cancellation. At January 28, 1997, the Company had unperformed service contracts from customers of approximately $2,750,000. In addition, the Company had an order backlog for motors and electronic controls at May 31, 1997, with an aggregate sales value of approximately $158,000. The Company expects to ship all of its current backlog of products during fiscal 1998. At January 31, 1997, the Company had an order backlog for products of approximately $70,000. Customers and Suppliers The Company has historically derived significant contract services revenue from a few key customers. The customers from which this revenue has been derived and the percentage of total contract services revenue is summarized in the following table: Five Months ended Year ended October 31, March 31, 1997 1996 1995 1994 Ford Motor Company, $378,640 $1,720,347 $316,740 Kwang Yang Motor Co., Ltd. 202,343 880,420 369,595 Pentastar Electronics, Inc. 194,600 Hyundai Motor Company 135,950 Naval Air Systems Command 657,330 Walt Disney Imagineering 280,469 General Motors Corporation 162,500 Kia Motors Corp. 113,229 Asia Pacific Technology, Ltd. 176,749 Total 452,478 911,533 3,258,097 966,831 Percentage of total contract services revenue 65% 63% 81% 59% Principal raw materials purchased by the Company include iron, steel, copper wire, neodymium boron iron alloy, fiberglass and epoxy resins. All of the above items are available from several suppliers and the Company generally relies on more than one for each item. Principal purchased products include power electronic switching devices and magnet material which are available from several suppliers.] US Government Contracts For the five months ended March 31, 1997, $78,532 or 11 percent of the Company's contract service revenue was derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors. Some of the Company's business with the U.S. Government was performed on a cost plus fixed fee basis. These contracts provide for reimbursement of costs, to the extent allocable and allowable under applicable regulations, and payment of a fee. Certain other contracts with the U.S. Government provide for the reimbursement of costs on a 50 percent cost sharing basis based on not-to-exceed billing rates negotiated between the Company and the U.S. Government. Other U.S. Government business is performed under firm fixed price contracts. On "cost-share" and "firm fixed price" contracts, the Company can incur an actual loss in the performance thereof if incurred costs exceed the contract amount. All U.S. Government contracts with the Company are subject to modification or cancellation at the convenience of the Government. Employee and Labor Relations As of March 31,1997, the Company had 32 full-time employees. The Company has entered into employment contracts with its three executive officers which expire in December 1999. None of the Company's employees are covered by a collective bargaining agreement. The Company's management believes that its relationship with its employees has been generally satisfactory. In addition to its full-time staff, the Company from time to time engages the services of outside consultants and contract labor to meet peak workload or specialized program requirements. The Company does not anticipate any difficulty in locating additional qualified professional engineers, technicians and production workers, if so required, to meet expanded research and development or manufacturing operations. ITEM 2. PROPERTIES Facilities The Company leases a 40,000 square foot office/laboratory/warehouse building in Golden, Colorado, from a limited liability company of which the Company and an investor are equal owners. The Company has entered into a ten-year lease of the building at $21,667 per month with an option for an additional five years at the then market rate. The Company is required to pay all taxes, maintenance and insurance. The Company currently subleases 12,500 square feet of this facility for $7,031 per month plus an allocable share of taxes, maintenance and insurance costs. The Company believes its existing facilities are adequate to meet its operational needs for the foreseeable future. The Company also owns the basic tools and equipment, including computer hardware and software, necessary for the conduct of its production, research and development and vehicle prototyping activities. ITEM 3. LEGAL PROCEEDINGS There is no material litigation with respect to which the Company is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted for vote by security holders of the Company during the five months ended March 31, 1997. ITEM 5. MARKET PRICE OF COMMON STOCK The Company's common stock trades on the American, Boston, Pacific and Chicago Stock Exchanges. The high and low closing prices, by fiscal quarter, as reported by the American Stock Exchange for the last three years, the quarter ended January 31, 1997, and the five months ended March 31, 1997, are as follows: 1997 High Low Two Months Ended March 31, 1997. . . . . . $4.50 $3.18 Quarter Ended January 31, 1997. . . . . . . $4.88 $3.18 1996 Fourth Quarter. . . . . . . . . . . . . . . .$5.19 $3.81 Third Quarter . . . . . . . . . . . . . . . .$5.00 $3.50 Second Quarter. . . . . . . . . . . . . . . .$5.13 $4.19 First Quarter . . . . . . . . . . . . . . . .$4.50 $3.31 1995 Fourth Quarter . . . . . . . . . . . . . . . $5.38 $3.63 Third Quarter. . . . . . . . . . . . . . . . $5.56 $3.83 Second Quarter . . . . . . . . . . . . . . . $5.63 $3.75 First Quarter. . . . . . . . . . . . . . . . $5.75 $4.75 1994 Fourth Quarter . . . . . . . . . . . . . . . $7.00 $4.88 Third Quarter. . . . . . . . . . . . . . . . $6.88 $4.88 Second Quarter . . . . . . . . . . . . . . . $7.88 $5.75 First Quarter. . . . . . . . . . . . . . . . $8.63 $7.00 On June 25, 1997 the closing price of the Company's common stock, as reported on the American Stock Exchange, was $7.00 per share and there were 891 holders of record of the common stock. The Company has not paid any cash dividends on its common stock since inception and intends for the foreseeable future to retain any earnings to finance the growth of its business. Future dividend policy will be determined by the Board of Directors of the Company based upon consideration of the Company's earnings, capital needs and other factors then relevant. ITEM 6. SELECTED FINANCIAL DATA Unique Mobility, Inc. Consolidated Selected Financial Data
Five Months Ended March 31, 1997(1) 1996 1995 1994 1993 1992 Contract Services Revenue $ 700,132 1,436,484 4,031,951 1,643,203 1,461,568 2,306,070 Product Sales $ 152,016 611,213 701,700 708,917 695,300 468,508 Operating Loss $(1,120,900) (2,744, (1,134,338) (3,367,873) (2,446,574) (2,240,170) Net Loss $(1,201,085) (2,904,743) (1,330,433) (3,395,356) (2,473,804) (2,217,207) Net Loss Per Common Share $ (.12) (.26) (.13) (.35) (.28) (.33) Total Assets $12,370,699 8,712,649 7,626,178 5,903,551 7,791,826 4,700,507 Long-term Obligations $ 726,218 744,389 807,003 886,996 921,758 2,161,376 Cash Divi- dend Declared Per Common Share $ -0- -0- -0- -0- -0- -0-
(1) Prior to March 31, 1997, the Company's fiscal year ended on October 31. Effective March 31, 1997, the Company changed its fiscal year to end on March 31. The following table sets forth unaudited consolidated selected financial data for the unaudited five months ended March 31, 1996: Contract Services Revenue $ 331,761 Product Sales $ 216,325 Operating Loss $(1,313,705) Net Loss $(1,367,261) Net Loss per Common Share $ (0.13) Total Assets $ 7,799,981 Long-Term Obligations $ 774,248 Cash Divident declared per Common Share $ 0 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed in this Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and any documents incorporated herein by reference, as well as, in the Company's Registration Statement on Form S-3 (file no. 23843). 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. The Company has changed its fiscal year end from October 31 to March 31. This change results in a five month transition period for financial reporting purposes commencing on November 1, 1996, and ending on March 31, 1997. This report covers the Company's financial condition at March 31, 1997 and October 31, 1996 and results of operations, changes in stockholders' equity and changes in cash flows for the five months ended March 31, 1997, and the fiscal years ended October 31, 1996, 1995 and 1994, respectively. Financial Condition The Company's financial condition strengthened during five months ended March 31, 1997, due to the sale of 1,289,288 shares of common stock pursuant to offerings under Regulation S and Regulation D of the Exchange Act of 1934. Cash proceeds to the Company from the offering, net of offering costs, amounted to $4,146,820. Primarily as a result thereof, cash and cash equivalents rose to $5,713,557 at March 31, 1997 compared to $3,230,246 at fiscal 1996 year end and shareholders' equity rose to $8,574,799 at March 31, 1997, from $5,592,876 at October 31, 1996. Working capital (the excess of current assets over current liabilities) increased to $4,174,184 at March 31, 1997 from $2,469,197 at October 31, 1996. Accounts receivable declined to $389,314 at March 31, 1997 from $569,562 at October 31, 1996, reflecting collection of certain overdue trade receivables. Accordingly, the accounts receivable balance at March 31, 1997, represented approximately 69 days revenue compared to 102 days revenue at fiscal 1996 year end. Costs and estimated earnings on uncompleted contracts increased $12,402 to $191,885 at March 31, 1997 from the fiscal 1996 year end level of $179,483. The increase was due to increased levels of contract services in process. Estimated earnings on contracts in process decreased to $490,407 at March 31, 1997 on total contracts in process of $3,649,111 compared to estimated earnings on contracts in process of $596,765 on total contracts in process of $1,678,117 at October 31, 1996. The decrease is attributable to two contracts, representing 9 percent of total contracts in process at March 31, 1997, which have cost overruns of approximately $119,000 in the aggregate and a greater proportion of material costs in contracts in process at March 31, 1997. Raw materials and work in process inventories rose to $283,155 and $69,460, respectively, at March 31, 1997 compared to $273,527 and $55,996, respectively, at October 31, 1996. The increase is attributable to increased demand for the Company's PowerPhase drive system. Finished products inventories declined $5,846 to $72,776 at March 31, 1996 due to increased product sales and product utilization in contract services contracts during the five months ended March 31, 1997. The Company invested $118,608 for the acquisition of property and equipment during the five months ended March 31, 1997, compared to $22,279 for the comparable five month period ended March 31, 1996. The increase in capital expenditures is primarily attributable to improvements to the Company's Golden, Colorado, facility by Unique Building Partners. The Company expended $47,865 on the prosecution of its trademark and patent applications during the five months ended March 31, 1997. Investment in Taiwan joint venture rose to $2,677,730 at March 31, 1997, from $1,366,540 at October 31, 1996, reflecting the recording of future capital call obligations to Taiwan UQM. The capital call obligation to Taiwan UQM was funded in April 1997 from the proceeds of the Company's sale of common stock completed in March, 1997. See also "Liquidity and Capital Resources" below. Patent and trademark costs, net of accumulated amortization, was $502,297 at March 31, 1997 a decrease of $17,669 from October 31, 1996. The decrease represents the net effect of the write-off of a patent acquired from Everton Developments Limited in fiscal 1995. The write-off of the patent costs reflects the Company's assessment that the revenue realizable from the technology encompassed under the patent over the near term would be insufficient to support the carrying cost of the associated technology asset. Accounts payable rose to $169,403 at March 31, 1997 from $121,790 at October 31, 1996, due to increased levels of purchased components and materials for projects in process in the normal course of operation. Other current liabilities increased to $459,223 at March 31, 1997, from $400,574 at October 31, 1996. The increase was primarily attributable to an overpayment by a participant in the Company's March 1997 common stock offering. Billings in excess of costs and estimated earnings on uncompleted contracts rose to $659,807 at March 31, 1997 from $25,685 at October 31, 1996 primarily due to a substantial prepayment by an overseas customer on a development program. Long-term debt declined $18,171 during the five months ended March 31, 1997, due to scheduled principal payments on the mortgage debt associated with the Company's facility. Common stock and additional paid-in capital increased to $130,430 and $27,094,170 at March 31, 1997, respectively, compared to $117,514 and $23,021,339 at October 31, 1996. The increases were due to the sale of common stock to institutional investors and an individual investor in the amount of $4,146,820; sales of common stock to employees and consultant's through the company's benefit plans of $45,000; and the issuance of common stock for services of $3,949. Results of Operations Five months ended March 31, 1997 Operations for the five months ended March 31, 1997, resulted in a net loss of $1,201,085 or $0.12 per share compared to a net loss of $1,367,261 or $0.13 per share for the comparable five month period last year. Revenue derived from contract services was $700,132 for the five months ended March 31, 1997 versus $331,761 for the comparable period last year. The increase is attributable to increased levels of sponsored development activities. Product sales during the five months ended March 31, 1997, declined to $152,016 compared to $216,325 for the comparable five month period last year due principally to price reductions and lower unit volumes of high voltage products and decreased sales to the solar race car market. Gross profit margins for the five months ended March 31, 1997, increased to 10.3 percent compared to a negative margin of 10.3 percent for the comparable five month period last year. Gross profit on contract services was 9.8 percent for the five months ended March 31, 1997, compared to a negative margin of 13.5 percent for the comparable period last year. Gross profit on product sales for the five months ended March 31, 1997, was 12.9 percent compared to a negative margin of 5.4 percent for the comparable period last year. The increase in contract services margins for the five months ended March 31, 1997, is attributable to increased absorption of overhead costs. The increase in margins on product sales is attributable to lower overhead allocations and improvement in purchased material costs. Research and development expenditures for the five months ended March 31, 1997, decreased $118,557 to $513,544 for the five months ended March 31, 1997 from the amount expended during the comparable period last year of $632,101. The decrease is attributable to lower levels of internally-funded production and facilitization engineering activities associated with the launch of volume manufacturing operations at the Company's Golden, Colorado facility and lower levels of "cost sharing" type contracts during the five months ended March 31, 1997. General and administrative expense for the five months ended March 31, 1997, rose $70,267 over the amount expended during the comparable period last year to $695,263. The increase during the five months ended March 31, 1997, was due primarily to the impairment of patent costs which were written off during the period of approximately $55,000 and commission costs on the production design phase of the KYMCO development program of approximately $30,000 which were recorded during the five months ended March 31, 1997. Interest income increased to $54,802 during the five months ended March 31, 1997, compared to $46,214 for the comparable period last year. The increase is attributable to higher levels of invested cash and improved yields on short-term investment instruments. Interest expense decreased to $84,704 during the five months ended March 31, 1997, compared to $91,780 for the comparable period last year due primarily to a lower interest rate achieved through refinancing of the mortgage loan on the Company's facility. Equity in loss of Taiwan joint venture rose to $24,121 for the five months ended March 31, 1997 compared to $16,682 for the comparable period last year. The increase is due to expanded staffing and operations at Taiwan UQM preparatory to the launch of manufacturing operations. Effect of Recently Issued Accounting Standards The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") which will be effective for interim and annual periods ending after December 15, 1997, and changes the computation and disclosure requirements for earnings per share. Had earnings per share been reported under the provisions of SFAS 128 for the five months ended March 31, 1997, basic earnings per share would have been $0.12 per share. The effect of the adoption of SFAS 128 is not expected to have a material effect on the earnings per share disclosures. Fiscal years ended October 31, 1996, 1995 and 1994 Operations for the year ended October 31, 1996, resulted in a net loss of $2,904,743 or $0.26 per share. This compares to a net loss of $1,330,433 or $0.13 for the year ended October 31,1995, and a net loss of $3,395,356 or $0.35 per share of the year ended October 31, 1994. Revenue derived from contract services in fiscal 1996 declined 64 percent or $2,595,467 from the fiscal 1995 level, and 13 percent or $206,719 from the fiscal 1994 level. The decrease in revenue from fiscal 1995 was attributable principally to a reduced level of work performed for Ford Motor Company and the U.S. Department of Energy which accounted for $1,526,445 or 59 percent of the decrease in revenue. The decrease in revenue from fiscal 1994 was also primarily attributable to a reduced level of work performed under the product development agreement with KYMCO which accounted for $167,252 or 81 percent of the decrease in revenue. Product sales during fiscal 1996 declined 13 percent from the fiscal 1995 level and 14 percent from the fiscal 1994 level. The decrease is attributable to price reductions on the Company's high voltage prototype products and decreased sales to the solar racing market. Gross profit margins for fiscal 1996 declined to 15.1 percent compared to 28.7 percent for fiscal 1995 and were 4.2 percent higher than the fiscal 1994 margin of 10.9 percent. The fiscal 1996 decline is attributable to price reductions in the Company's high voltage product line and decreased absorption of overhead costs on sponsored development contracts. Gross profit on contract services was 18.6 percent for fiscal 1996 compared to 31.0 percent in fiscal 1995 and 8.6 percent in fiscal 1994. Gross profit on product sales was 6.7 percent for fiscal 1996 compared to 15.2 percent in fiscal 1995 and 16.3 percent in fiscal 1994. Research and development expenditures in fiscal 1996 rose $400,041 over the fiscal 1995 level and declined $428,429 from the amount expended during fiscal 1994. The fiscal 1996 increase is attributable primarily to production and facilitization engineering activities associated with the planned launch of volume manufacturing operations for Invacare which accounted for approximately $780,000 or 46 percent of internally-funded research and development expenditures. The decrease from fiscal 1994 expenditures is attributable to a decline in "cost sharing" development contracts which amounted to approximately $440,000 in fiscal 1996 compared to $710,000 for fiscal 1994. General and administrative expense for fiscal 1996 rose $161,683 over the fiscal 1995 level and declined $142,915 from the amount expended in fiscal 1994. The fiscal 1996 increase was primarily attributable to higher levels of professional services costs ($20,369), commission expenses associated with the sublease of a portion of the Company's facility ($53,483), and legal fees associated with an adverse arbitration award ($15,623). The decrease from the fiscal 1994 expenditure level was primarily attributable to lower levels of legal expenses ($56,952)and reduced staffing of administrative functions ($62,535). During the second quarter of fiscal 1996 an arbitrator awarded compensation and legal fees to a consultant of the Company for work the consultant asserted was performed at the Company's request on its contract with Ford Motor Company and the U.S. Department of Energy. The Company was unable to secure reimbursement of the consultant's costs under the Ford/DOE contract and therefore recorded such costs as a cost of contract services. Legal costs of the arbitration proceeding were recorded as general and administrative expense. The foregoing award represented a complete settlement of all claims by the consultant against the Company. Interest income increased to $113,582 in fiscal 1996 compared to $50,890 and $98,228 for fiscal 1995 and 1994, respectively. The increases were primarily attributable to higher levels of invested cash during fiscal 1996. Interest expense rose to $202,798 during fiscal 1996 due to increased loan value underlying leases issued by UQM Leasing, Inc. and interest accruals under the waiver and option agreement with KYMCO. See also "Liquidity and Capital Resources" below. Equity in loss of Taiwan joint venture rose to $45,164 in fiscal 1996 compared to $11,952 and $3,888 for fiscal 1995 and 1994, respectively. The increases were due to expanded staffing and operations at Taiwan UQM preparatory to the launch of manufacturing operations. Other income rose to $43,643 in fiscal 1996 primarily as a result of a gain on the sale of real estate held for investment ($38,124) and foreign currency exchange gains ($5,700). Liquidity and Capital Resources The Company's cash balances and liquidity during the five months ended March 31, 1997, were adequate to meet its operating needs. Net cash used by operating activities was $104,769 for the five month period ended March 31, 1997 compared to net cash used by operations for the comparable period last year of $1,371,427. The decrease is primarily attributable to a reduction in trade accounts receivable and prepayments by customers for contract services reflected as an increase in billings in excess of costs and estimated earnings on uncompleted contracts. Cash requirements during the period were funded primarily through the sale of common stock. In January 1996, Invacare purchased 129,032 shares of common stock at a price of $3.88 per share. Net proceeds to the Company were $500,000, all of which were applied to fund the development of a wheelchair motor for Invacare. Contingent upon achieving development milestones, Invacare further agreed to purchase additional shares at the then market price, the proceeds of which would be used, in part, to fund the Company's anticipated capital investment in motor anufacturing tools and equipment. The Company is currently negotiating with Invacare to manufacture motors for its wheelchairs. During the course of these negotiations, Invacare has informed the Company that they would prefer to invest directly in the assets required to launch production, such as tooling and dedicated manufacturing equipment in lieu of the second investment envisioned in the original stock purchase agreement. Accordingly, the Company does not anticipate any further sales of its equity securities to Invacare. There can be no assurance that negotiations will lead to the completion of a definitive supply agreement. During the five months ended March 31, 1997, the Company completed the placement of 1,289,288 shares of its common stock to various institutional investors and an individual investor in offerings under Regulation S and Regulation D of the Securities and Exchange Act. The common stock was sold at $3.50 per share which was the average closing price of the common stock on the American Stock Exchange for the ten days prior to the offering pricing date. Net proceeds to the Company, after deducting offering costs of $365,688, was $4,146,820. The Company also completed two offerings of its common stock to overseas individual and institutional investors under Regulation S in fiscal 1996. Pursuant to these offerings, the Company placed 1,057,708 shares of common stock and received cash proceeds, net of offering expenses, of $3,909,379. In fiscal 1994, the Company, KYMCO and TLT entered into a joint venture agreement which provided for the formation, capitalization and operation of Taiwan UQM, a company organized under the laws of the Republic of China. The Company purchased 39 percent of the initial stock of Taiwan UQM for NT$1,170,000 (US$45,082 on the transaction date). Pursuant to the joint venture agreement, the venture partners are obligated to meet future capital calls as the Board of Directors of Taiwan UQM, by unanimous vote, determines. During fiscal 1995, the company was unable to fund its capital call obligations. In June 1995, the Company, KYMCO and TLT entered into a waiver and option agreement pursuant to which KYMCO agreed to purchase those shares of Taiwan UQM underlying the Company's capital call obligations. The purchase price of such shares was NT$37,830,000 (U.S.$1,403,493 at October 31, 1995). The Company was granted the option to repurchase the shares for the original capital call amount plus 10 percent interest and associated transfer taxes. In November 1996, the Company exercised its option and subsequently repurchased the shares from KYMCO, thus maintaining the Company's ownership position at 39 percent of the then outstanding shares of Taiwan UQM. The repurchase price plus interest and taxes totaled NT$44,175,505 (US$1,612,539 on the transaction date). In November 1996, the Board of Directors of Taiwan UQM announced an additional capital call to provide cash to fund facility construction and the launch of electric component production. The Company's capital call obligation pursuant thereto is NT$37,050,000 (US$1,348,300 as of December 1, 1996), plus interest at the rate of 10 percent per annum on the outstanding amount from December 1, 1996, through the due date. The obligation was due and payable in two equal installments on March 1, 1997 and June 1, 1997. In April, the Company elected to fund the entire capital call obligation in one payment and remitted approximately $1,384,000 including accrued interest of approximaterly $40,000 in complete satisfaction of its capital call obligation. The Company believes that Taiwan UQM is adequately capitalized to meet its operating cash requirements over the next twelve months. Accordingly, the Company does not anticipate any additional capital calls by Taiwan UQM in fiscal 1998. Over the next several months, the Company expects to invest substantially greater amounts of capital to launch manufacturing operations for Invacare, should Invacare elect to purchase motors from the Company. Anticipated capita expenditures for working capital, production machinery, equipment, computer hardware and software are expected to exceed $1.5 million. The Company is negotiating to sell motors to Invacare, a leading wheelchair manufacturer. There can be no assurance that a final agreement will be reached. 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. There can, however, be no assurance that the Company will launch volume manufacturing operations for Invacare or others. The Company believes it has cash resources, in addition to those required to launch volume manufacturing operations, sufficient to fund non-manufacturing operations through at least March 31, 1998. ITEM 8. Financial Statements Independent Auditors' Report The Board of Directors Unique Mobility, Inc.: We have audited the accompanying consolidated balance sheets of Unique Mobility, Inc. and subsidiaries as of March 31, 1997 and October 31, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the five months ended March 31, 1997 and each of the years in the three-year period ended October 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Taiwan UQM Electric Co., Ltd., (a 39% percent owned investee company). The Company's investment in Taiwan UQM Electric Co., Ltd. at March 31, 1997 was $2,677,730, and its equity in the losses of Taiwan UQM Electric Co., Ltd were $(24,121) for the five months ended March 31, 1997. The financial statements of Taiwan UQM Electric Co., Ltd. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Taiwan UQM Electric Co., Ltd. for the five months ended March 31, 1997 is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unique Mobility, Inc. and subsidiaries as of March 31, 1997 and October 31, 1996, and the results of their operations and their cash flows for the five months ended March 31, 1997 and each of the years in the three-year period ended October 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Denver, Colorado June 26, 1997 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets March 31, October 31, Assets 1997 1996 Current Assets Cash and cash equivalents $ 5,713,557 3,230,246 Accounts receivable (note 12) 389,314 569,562 Costs and estimated earnings in excess of billings on uncompleted contracts (note 2) 191,885 179,483 Inventories (note 3) 425,391 408,145 Prepaid expenses 115,260 37,848 Other current assets 17,675 28,177 Total current assets 6,853,082 4,453,461 Property and equipment, at cost: Land (notes 4 and 7) 335,500 335,500 Building (notes 4 and 7) 1,438,090 1,364,500 Molds 102,113 102,113 Transportation equipment 258,675 258,675 Machinery and equipment 1,963,146 1,918,128 4,097,524 3,978,916 Less accumulated depreciation (1,764,288) (1,613,786) Net property and equipment 2,333,236 2,365,130 Investment in Taiwan joint venture (note 5) 2,677,730 1,366,540 Patent and trademark costs, net of accumulated amortization of $45,551 and $40,030 (note 11) 502,297 519,966 Other assets 4,354 7,552 $ 12,370,699 8,712,649 (Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued March 31, October 31, Liabilities and Stockholders' Equity 1997 1996 Current liabilities: Accounts payable $ 169,403 121,790 Note payable to Taiwan joint venture (note 5) 1,345,285 1,375,121 Other current liabilities (note 6) 459,223 400,574 Current portion of long-term debt (note 7) 45,180 61,094 Billings in excess of costs and estimated earnings on uncompleted contracts (note 2) 659,807 25,685 Total current liabilities 2,678,898 1,984,264 Long-term debt, less current portion (note 7) 726,218 744,389 Total liabilities 3,405,116 2,728,653 Minority interest in consolidated subsidiary (note 4) 390,784 391,120 Stockholders' equity (notes 9 and 10) Common stock, $.01 par value, 50,000,000 shares authorized; 13,042,964 and 11,751,365 shares issued 130,430 117,514 Additional paid-in capital 27,094,170 23,021,339 Accumulated deficit (18,532,364) (17,331,279) Notes receivable from officers (83,646) (65,816) Cumulative translation adjustment (33,791) (21,030) Treasury stock, at cost - (127,852) Total stockholders' equity 8,574,799 5,592,876 Commitments (notes 5 and 14) $ 12,370,699 8,712,649 See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Operations
Five Months Ended March 31, Year Ended October 31, 1997 1996 1995 1994 Revenue: Contract services (note 12) $ 700,132 1,436,484 4,031,951 1,643,203 Product sales 152,016 611,213 701,700 708,917 852,148 2,047,697 4,733,651 2,352,120 Operating costs and expenses: Costs of contract services 631,823 1,168,757 2,781,866 1,501,919 Costs of product sales 132,418 570,481 594,782 593,665 Research and development 513,544 1,698,352 1,298,311 2,126,781 General and administrative 695,263 1,354,713 1,193,030 1,497,628 1,973,048 4,792,303 5,867,989 5,719,993 Operating loss (1,120,900) (2,744,606) (1,134,338) (3,367,873) Other income (expense): Interest income 54,802 113,582 50,890 98,228 Interest expense (84,704) (202,798) (177,051) (73,813) Equity in loss of Taiwan joint venture (note 5) (24,121) (45,164) (11,952) (3,888) Minority interest share of earnings of consolidated subsidiary (27,725) (69,400) (64,627) (69,517) Other 1,563 43,643 6,645 21,507 (80,185) (160,137) (196,095) (27,483) Net loss $ (1,201,085) (2,904,743) 1,330,433) (3,395,356) Net loss attributable to common stockholders (note 1n) $ (1,402,085) (2,904,743) Net loss per common share (note 1n) $ (.12) (.26) (.13) (.35) Weighted average number of shares of common stock outstanding 12,043,481 11,021,742 10,090,778 9,763,391
See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity
Number of Notes common Additional Cumulative Accumu- receivable Total shares Common paid-in translation lated due from Treasury stockholders' issued stock capital adjustment deficit officers stock equity Balances at October 31, 1993 9,461,385 $ 94,614 15,557,205 - (9,700,747) (31,944) (41,823) 5,877,305 Issuance of common stock upon exercise of Alcan preemptive right (note 9) 111,395 1,114 199,397 - - - - 200,511 Issuance of common stock upon exercise of underwriter warrants 20,000 200 46,400 - - - - 46,600 Issuance of common stock upon exercise of employee options 325,133 3,251 936,996 - - (18,727) (53,649) 867,871 Issuance of common stock for directors' compensation 6,000 60 42,490 - - - - 42,550 Issuance of common stock under employee stock purchase plan 1,632 16 8,507 - - - - 8,523 Net loss - - - (3,395,356) - - (3,395,356) Balances at October 31, 1994 9,925,545 99,255 16,790,995 - (13,096,103) (50,671) (95,472) 3,648,004 Issuance of common stock in private offerings, net of offering costs of $141,446 (note 9) 581,111 5,812 1,944,742 - - - - 1,950,554 Issuance of common stock upon exercise of employee options 64,786 648 99,628 - - (1,750) (22,130) 76,396 Issuance of common stock under employee stock purchase plan 511 5 2,521 - - - - 2,526 Issuance of warrants for service (note 10) - - 50,000 - - - - 50,000 Net loss - - - - (1,330,433) - - (1,330,433) Balances at October 31, 1995 10,571,953 105,720 18,887,886 - (14,426,536) (52,421) (117,602) 4,397,047 Issuance of common stock in private offerings, net of offering costs of $247,309 (note 9) 1,057,708 10,577 3,898,802 - - - - 3,909,379 Issuance of common stock upon exercise of employee options 100,542 1,005 153,205 - - (13,395) (10,250) 130,565 Issuance of common stock under employee stock purchase plan 6,668 67 20,200 - - - - 20,267 Issuance of common stock for services 14,494 145 61,246 - - - - 61,391 Cumulative translation adjustment - - - (21,030) - - - (21,030) Net loss - - - - (2,904,743) - - (2,904,743) Balances at October 31, 1996 11,751,365 117,514 23,021,339 (21,030) (17,331,279) (65,816) (127,852) 5,592,876 Issuance of common stock in private offerings, net of offering costs of $365,688 (note 9) 1,289,288 12,893 4,133,927 - - - - 4,146,820 Issuance of common stock upon exercise of employee options 40,105 401 62,429 - - (17,830) - 45,000 Issuance of common stock for services 1,547 15 3,934 - - - - 3,949 Cumulative translation adjustment - - - (12,761) - - - (12,761) Retirement of treasury stock (39,341) (393) (127,459) 127,852 - Net Loss - - - - (1,201,085) - - (1,201,085) Balances at March 31, 1997 13,042,964 $130,430 27,094,170 (33,791) (18,532,364) (83,646) - 8,574,799
See accompanying notes to consolidated financial statements. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows
Five Months Ended March 31, Year Ended October 31, 1997 1996 1995 1994 Cash flows provided by (used by) operating activities: Net loss $ (1,201,085) (2,904,743) (1,330,433) (3,395,356) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 159,473 375,590 346,567 271,772 Minority interest share of earnings of consolidated subsidiary 27,725 69,400 64,627 69,517 Noncash compensation expense for common stock and warrants issued for services 3,949 61,391 50,000 42,550 Equity in loss of Taiwan joint venture 24,121 45,164 11,952 3,888 Gain on sale of property and equipment - (45,676) (3,534) - Write-off of patent costs 55,529 - - - Other 1,210 (20,092) (466) 35,919 Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts 167,846 (148,782) 161,223 28,995 Inventories (17,246) (3,444) 70,450 52,215 Prepaid expenses and other current assets (66,910) (12,846) 27,105 28,660 Accounts payable and other current liabilities 106,497 (25,681) (200,703) 276,212 Billings in excess of costs and estimated earnings on uncompleted contracts 634,122 25,685 (137,247) 74,060 Net cash used by operating activities (104,769) (2,584,034) (940,459) (2,511,568) Cash provided by (used by)investing activities: Acquisition of property and equipment (118,608) (182,011) (440,079) (413,907) Increase in patent and trademark costs (47,865) (92,390) (64,766) (131,652) Investment in Taiwan joint venture (1,375,121) - - (45,082) Proceeds from sale of certificates of deposit and other investments - 319,107 117,127 - Proceeds from sale of property and equipment - 63,361 - - Net cash provided by (used by) investing activities $ (1,541,594) 108,067 (387,718) (590,641)
(Continued) UNIQUE MOBILITY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued
Five Months Ended March 31, Year Ended October 31, 1997 1996 1995 1994 Cash flows provided by financing activities: Proceeds from borrowings $ - - 212,337 - Repayment of debt (34,085) (83,045) (250,905) (36,077) Proceeds from sale of common stock, net 4,146,820 3,909,379 1,950,554 - Issuance of common stock upon exercise of employee options 45,000 130,565 76,396 867,871 Issuance of common stock under employee stock purchase plan - 20,267 2,526 8,523 Issuance of common stock upon exercise of underwriter warrants - - - 46,600 Issuance of common stock upon exercise of Alcan preemptive right - - - 200,511 Distributions paid to holders of minority interest (28,061) (67,345) (67,347) (60,613) Net cash provided by financing activities 4,129,674 3,909,821 1,923,561 1,026,815 Increase (decrease) in cash and cash equivalents 2,483,311 1,433,854 595,384 (2,075,394) Cash and cash equivalents at beginning of period 3,230,246 1,796,392 1,201,008 3,276,402 Cash and cash equivalents at end of period $ 5,713,557 3,230,246 1,796,392 1,201,008 Interest paid in cash during the period $ 276,591 82,494 89,133 72,638
Non-cash investing and financing transactions: In December 1996, the Company financed an additional investment in the Taiwan joint venture through the issuance of a note payable in the amount of $1,345,285 (see note 5). 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 five months ended March 31, 1997, there were no such transactions. For the years ended October 31, 1996, 1995 and 1994, the Company issued 13,666, 32,130 and 24,364 shares of common stock for options exercised for an aggregate exercise price of $10,250, $22,130 and $53,649, respectively, for which the Company received 2,000, 5,365 and 6,813 shares of common stock as payment for the exercise price. The shares received were recorded at cost as treasury stock and were subsequently retired. 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 five months ended March 31, 1997, the Company issued 20,105 shares of common stock for an aggregate exercise price of $17,830 for which the Company received promissory notes for the same amount. For the years ended October 31, 1996, 1995 and 1994, the Company issued 13,395, 2,900 and 48,352 shares of common stock for an aggregate exercise price of $13,395, $1,750 and $18,727, respectively, 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 (1) Summary of Significant Accounting Policies (a) General Business Unique Mobility, Inc. and subsidiaries (the "Company") is engaged in the research, development and commercialization of electric and hybrid electric vehicles, propulsion systems for such vehicles, as well as other non-automotive applications of its technologies. The Company's revenue is derived primarily from contract research and development services and sales of products developed from such technology. The Company's operations are based in the United States with a significant investment in a joint venture in Taiwan. (b) Principles of Consolidation The consolidated financial statements include the accounts of Unique Mobility, Inc. and those of all majority-owned or controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The minority interests as of March 31, 1997, and October 31, 1996, consisted of the other stockholders' ownership interests in a subsidiary of the Company. See Note 4. (c) Cash and Cash Equivalents The Company considers cash on hand and investments with original maturities of three months or less to be cash equivalents. (d) Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. (e) Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to five years, except for the building which is depreciated over 31 years. Maintenance and repairs are charged to expense as incurred. (f) Investment in Taiwan Joint Venture The Company's investment in a joint venture located in Taiwan is accounted for under the equity method of accounting. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of the net earnings or losses of the joint venture. Income or loss recognition is limited to the extent of the Company's investment in, advances to and guarantees of the joint venture. Commencing with the five months ended March 31, 1997, due to timing considerations, the financial position and results of operations UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued for the Taiwan joint venture are included in the Company's consolidated financial statements on a three-month time lag. Accordingly, the consolidated statements of operations, stockholders' equity and cash flows include activity of the Taiwan joint venture for the two months ended December 31, 1996, and the twelve months ended October 31, 1996, 1995 and 1994. Similarly, the accompanying consolidated balance sheets and related footnote disclosures as of March 31, 1997, and October 31, 1996, include the financial position of the Taiwan joint venture as of December 31, 1996, and October 31, 1996, respectively. The cumulative foreign currency translation adjustments with respect to the Taiwan joint venture were calculated using the average rates in effect during the respective two and twelve month periods ended December 31, 1996, and October 31, 1996, 1995 and 1994, respectively and the spot rates in effect at the respective December 31, 1996, and October 31, 1996, balance sheet dates. (g) Patent and Trademark Costs Patent and trademark costs consist primarily of legal expenses, and represent those costs incurred by the Company for the filing of patent and trademark applications and the annual fees paid to maintain the patents in good standing. Amortization of patent and trademark costs is computed using the straight-line method over the estimated useful life of the asset, typically 17 years for patents, and 40 years for trademarks. (h) Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company adopted SFAS 121 in 1996 and the adoption of SFAS 121 did not have an effect on the Company's financial statements. (i) Contract Services Revenue and Cost Recognition Revenue relating to long-term fixed price contracts is recognized using the percentage of completion method. Under the percentage-of-completion method, contract revenues and related costs are recognized based on the percentage that costs incurred to date bear to total estimated costs. Changes in job performance, estimated profitability and final contract settlements may result in revisions to cost and revenue, and are recognized in the period in which the revisions are determined. Contract costs include all direct materials, subcontract and labor costs. General and administrative costs and other indirect costs are UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued charged to expense as incurred. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued. The aggregate of costs incurred and estimated earnings recognized on uncompleted contracts in excess of related billings is shown as a current asset, and billings on uncompleted contracts in excess of costs incurred and estimated earnings is shown as a current liability. Revenue relating to cost-plus type contracts is recognized as costs are incurred. Revenue relating to "milestone billing" contracts is recognized upon completion of the various stages (milestones) of the project, based upon the contractual amounts. (j) Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (k) Research and Development Costs of researching and developing new technology or significantly altering existing technology are charged to operations as incurred. (l) Equity Instruments Issued for Non-Employee Services The Company periodically issues common stock to non-employees for services rendered. The cost of these services is recorded based upon the fair market value of the Company's common stock on the date of issuance. (m) Foreign Currency Translation The net assets of the foreign investment of the Company is translated at the appropriate period-end exchange rates. Income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from results of operations and accumulated as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in other income (expense). UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (n) Loss Per Common Share Loss per common share is based on the weighted average number of shares of common stock outstanding during each year. Common stock equivalents were not included in the computations because their effect was anti-dilutive. The fair value of the pre-emptive rights arising from the issuance of employee stock options during the five months ended March 31, 1997, has been treated in a manner similar to a preferred stock dividend in the calculation of net loss per common share. The estimated aggregate fair value of these rights, determined using the Black-Scholes option pricing model, was $201,000. (o) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (p) Reclassifications Certain prior year amounts have been reclassified to conform to the current period presentation. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (2) Revenue in Excess of Billings and Billings in Excess of Revenue At March 31, 1997, the estimated period to complete contracts in process ranged from 1 to 15 months, and the Company expects to collect substantially all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts as of March 31, 1997, within one year. The following summarizes contracts in process at March 31, 1997, and October 31, 1996: March 31, October 31, 1997 1996 Costs incurred on uncompleted contracts $ 3,158,704 1,081,352 Estimated earnings 490,407 596,765 3,649,111 1,678,117 Less billings to date (4,117,033) (1,524,319) $ (467,922) 153,798 Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 191,885 179,483 Billings in excess of costs and estimated earnings on uncompleted contracts (659,807) (25,685) $ (467,922) 153,798 (3) Inventories Inventories at March 31, 1997, and October 31, 1996 consists of: March 31, October 31, 1997 1996 Raw materials $ 283,155 273,527 Work in process 69,460 55,996 Finished products 72,776 78,622 $ 425,391 408,145 (4) Limited Liability Company In September 1992, the Company and a private investor formed a Colorado limited liability company to acquire, own and maintain a 40,000 square-foot facility in Golden, Colorado, and the surrounding land. This facility serves UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued as the Company's corporate headquarters. Ownership in this limited liability company is divided equally between the Company and the private investor. However, the Company is deemed to have a controlling interest in the limited liability company by virtue of the operating agreement which authorizes the Company to make all decisions with respect to the business of the limited liability company, subject only to certain protective rights of the private investor, and by virtue of the lease agreement with the limited liability company covering the entire facility. The limited liability company is, therefore, accounted for as a consolidated subsidiary. Minority interest in consolidated subsidiary represents the private investor's allocable portion of the equity of the consolidated subsidiary. (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. In 1994, the Company purchased 39% of the initial equity capital of Taiwan UQM for $45,082, and agreed to invest 39% of any additional capital calls. Pursuant to the Joint Venture Agreement, the venturers are required to invest additional funds in Taiwan UQM, as the board of directors of Taiwan UQM by unanimous vote determines to be required. During 1995, the Company was unable to make payments for additional capital call obligations under the Joint Venture Agreement. The Company, KYMCO and TLT entered into a Waiver and Option Agreement (the "Option Agreement") on June 12, 1995, whereby KYMCO agreed to first purchase those shares of Taiwan UQM underlying the Company's additional capital call obligations in the amount of $1,403,493. Under the Option Agreement, the Company had the option to repurchase these shares from KYMCO for the additional capital call amount, plus interest at 10% per annum. The purchase by KYMCO of the shares related to the Company's additional capital call obligations was accounted for as a financing arrangement. Accordingly, for financial reporting purposes, at October 31, 1995, the Company recorded $1,403,493 as an addition to its investment in the joint venture and as a note payable to the joint venture participant. The note payable remained outstanding at October 31, 1996, with the decrease in its recorded value to $1,375,121 due to exchange rate fluctuations. The Company exercised its option prior to the November 30, 1996, expiration date of the option and tendered cash to repay the principal amount due to the joint venture participant. The related interest and taxes due under the Option Agreement were also paid in conjunction with the payment of the principal amount. In December 1996, Taiwan UQM made an additional capital call which was payable in two equal installments due March 1, 1997, and June 1, 1997, with interest accruing at 10% per annum. The Company's 39% share of the December 1996 capital call was $1,345,285. Although 50% of the Company's UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued obligation was payable March 1, 1997, it was not paid until April 17, 1997, at which time the entire obligation plus accrued interest was paid. Therefore, the note payable remained outstanding at March 31, 1997. Summarized financial information for Taiwan UQM is as follows: December 31, October 31, Financial Position 1996 1996 Current assets $ 889,881 330,826 Noncurrent assets-land and construction in process 4,542,142 3,196,300 Total assets 5,432,023 3,527,126 Current liabilities 607,453 19,816 Noncurrent liabilities - 3,361 Stockholders' equity 4,824,570 3,503,949 Total liabilities and equity $ 5,432,023 3,527,126 Two Months Ended Year Ended December 31, October 31, Results of Operations 1996 1996 Revenue $ 10,123 - Expenses 56,403 128,214 Net loss $ (46,280) (128,214) The financial statements from which the summarized financial information for Taiwan UQM has been derived were prepared in accordance with generally accepted accounting principles in the Republic of China which do not differ materially from generally accepted accounting principles in the United States. (6) Other Current Liabilities Other current liabilities at March 31, 1997, and October 31, 1996, consists of: March 31, October 31, 1997 1996 Accrued interest $ 39,218 214,002 Accrued legal and accounting fees 37,171 45,237 Accrued payroll, consulting, personal property taxes and real estate taxes 67,207 52,585 Refund of overpayment 250,005 - Other 65,622 88,750 $ 459,223 400,574 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (7) Long-term Debt Long-term debt at March 31, 1997, and October 31, 1996, consists of: March 31, October 31, 1997 1996 Note payable to bank, payable in monthly installments with interest at 9.1%; matures October 2007; secured interest at a by land and building with a net book value of $1,575,420 $ 771,398 789,793 Note payable to bank, payable in monthly installments with interest at 12%; repaid in March 1997 - 15,690 Total long-term debt 771,398 805,483 Less current portion 45,180 61,094 Long-term debt, less current portion $ 726,218 744,389 The annual aggregate maturities of long-term debt for each of the next five fiscal years and thereafter are as follows: 1998 $ 45,180 1999 49,528 2000 54,597 2001 59,523 2002 65,255 Thereafter 497,315 $ 771,398 (8) Income Taxes Income tax expense (benefit) attributable to income (loss) from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 34% as a result of the following: UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued March 31, Year Ended October 31, 1997 1996 1995 1994 Computed "expected" tax benefit $ (408,369) (987,613) (452,347) (1,154,421) Increase (decrease) in taxes resulting from: Increase in valuation allowance for net deferred tax assets 407,443 985,132 450,383 1,142,656 Other, net 926 2,481 1,964 11,765 Income tax benefit $ - - - - The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are presented below: March 31, October 31, 1997 1996 Deferred tax assets: Research & development credit carryforwards $ 61,188 61,188 Net operating loss carryforwards 5,728,676 5,321,233 Total deferred tax assets 5,789,864 5,382,421 Less valuation allowance 5,789,864 5,382,421 Deferred tax assets, net of valuation allowance $ - - As of March 31, 1997, the Company had net operating loss carryforwards (NOL) of approximately $18.3 million for US income tax purposes which expire in varying amounts through 2012. Approximately $1.4 million of the net operating loss carryforwards are attributable to stock options, the benefit of which will be credited to additional paid-in capital if realized. However, due to the provisions of Section 382 of the Internal Revenue Code, the utilization of a portion of these NOLs is limited. At October 21, 1991, the Company experienced an ownership change for purposes of Section 382 subjecting approximately $2.8 million in NOLs to an annual usage limitation of approximately $0.9 million. The amount of this annual limitation is sufficient to allow for the utilization of the entire amount of these NOLs prior to expiration should sufficient taxable income be generated. Future ownership changes under Section 382 could occur that would result in an additional Section 382 limitation which would further restrict the use of NOLs. In addition, the Section 382 limitation could be reduced to zero if UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued the Company fails to satisfy the continuity of business enterprise requirement for the two-year period following an ownership change. (9) Stockholders' Equity Alcan Alcan Aluminum Limited (Alcan) and certain affiliates of Advent International Corporation (Advent) and Techno-Venture U.S.A., Inc. (Techno), significant stockholders, have preemptive rights to acquire 16.7%, 13.1% and 2.1%, respectively, of the Company's shares of common stock offered in any offering for so long as they hold any shares of the Company's common stock. In June 1997, Advent and Techno sold their holding in the Company to various investors and the preemptive rights granted to Advent and Techno were terminated. Additionally, Alcan has the right of first refusal to purchase any private placement equity securities to be issued or sold to third parties if such issuance would cause such parties to become the beneficial owner of more than 5% of any class of the Company's equity securities. Separately, the Company's Chairman, who holds or has the right to acquire 982,438 shares of the Company's common stock, has granted Alcan a right of first refusal to purchase any shares to be sold or transferred by the Chairman in any public or private sale. Private Placement During fiscal 1995, the Company completed three private placements of common stock with institutions outside of the United States. In total, 581,111 shares of common stock were privately placed at $3.60 per share. During fiscal 1996, the Company completed several private placements of common stock with institutional and private investors outside of the United States. In total 928,676 shares were placed at between $3.30 and $4.75 per share. In addition, 129,032 shares of common stock were sold to Invacare Corporation in a private placement, at $3.88 per share. During the five months ended March 31, 1997, the Company completed one private placement of common stock with institutional and private investors outside of the United States. In total 1,289,288 shares of common stock were privately placed at $3.50 per share. (10) Common Stock Options and Warrants The Company has three stock option plans, the 1982 and 1992 Incentive and Non-Qualified Stock Option Plans and the Non-Employee Director Stock Option Plan. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock- Based Compensation ("SFAS 123"). This standard 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 UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued adopting the new fair value method of accounting or continue to measure compensation costs using the intrinsic value methods of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). The Company has elected to continue to account for its employee stock compensation plans using the method prescribed by APB 25 and, accordingly, because the Company grants its options at or above the current market value, no compensation cost has been recognized for stock options granted under the Company's stock option plans. Had the Company reported compensation cost as determined by the fair value method of accounting for option grants under its stock option plans as prescribed by SFAS 123, net loss and net loss per common share would have been the proforma amounts indicated. Five Months Ended Year Ended March 31, 1997 October 31, 1996 Net loss - as reported $ (1,201,085) (2,904,743) Net loss - pro forma $ (1,462,974) (3,243,964) Net loss per common share - as reported $(.12) (.26) Net loss per common share - pro forma $(.14) (.29) The fair value of stock options granted was calculated using the Black Scholes option pricing model based on the following assumptions: Five Months Ended Year Ended March 31, 1997 October 31, 1996 Expected volatility 47.6% 49.1% Expected dividend yield 0.0% 0.0% Risk free interest rate 6.4% 5.6% Expected life of options granted 6 years 6 years Fair value of options granted as computed under the Black Scholes option pricing model $1.79 per share $2.22 per share Pro forma net loss reflects only options granted in the five months ended March 31, 1997, and the year ended October 31, 1996. 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. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Incentive and Non-Qualified Option Plans The Company reserved 4,104,000 shares of common stock for key employees, consultants and key supplier 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 shares that may be granted to any eligible employee during the term of the 1982 and 1992 plans is 500,000 shares. 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 during the last three fiscal years and the five months ended March 31, 1997: Shares Under Weighted-Average Option Exercise Price Outstanding at October 31, 1994 1,914,533 $5.02 Granted 100,000 5.00 Exercised (64,786) 1.55 Forfeited (97,515) 5.38 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 Exercisable at March 31, 1997 1,566,715 4.97 The following table presents summarized information about stock options outstanding at March 31, 1997:
Options Outstanding Options Exercisable Weighted Number Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 3/31/97 Contractual Life Exercise Price at 3/31/97 Exercise Price $0.50 - 1.00 113,117 3.0 years $0.79 113,117 $0.79 2.25 - 3.31 649,849 8.6 years 3.06 154,000 2.25 3.50 - 5.00 884,555 7.5 years 4.03 595,663 3.99 5.38 - 8.13 803,935 6.8 years 7.20 703,935 7.07 0.50 - 8.13 2,451,456 7.4 years 4.66 1,566,715 4.97
UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. The following table summarizes activity under the plan: Shares under Per share option exercise price Granted during 1994 and outstanding at October 31, 1994 48,000 $ 5.38 - 6.25 Granted 61,333 5.00 - 5.13 Outstanding at October 31, 1995 109,333 5.00 - 6.25 Granted 32,000 4.38 Outstanding at October 31, 1996 and March 31, 1997 141,333 4.38 - 6.25 At March 31, 1997, options to purchase 83,556 shares were exercisable. 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 expire August 1997, and allow 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. All of these warrants remain outstanding at March 31, 1997. The Company has reserved 300,000 shares of common stock for issuance pursuant to a warrant agreement with an investment banking company. Warrants to acquire 200,000 shares of common stock vested on January 20, 1994, and the remaining 100,000 shares vested on January 20, 1995. The warrants were exercisable for a period of five years, expiring on January 19, 1999, at a price of $7.63 per share. Further, the warrants were redeemable on a one-time basis only through June 30, 1994, for a like number of warrants, at the then current fair market value of the Company's common stock with otherwise identical terms. On April 18, 1994, the warrants were redeemed in accordance with the above provision for a like UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued number of warrants which are exercisable at a price of $6.00 per share, the market price of the common stock of the Company at the date of redemption. 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. All of these warrants remain outstanding at March 31, 1997. The estimated fair value of the warrants issued of $50,000 was recorded as compensation for the investment banking services rendered in 1995. In connection with the 1995 common stock issuance, the placement agent was issued warrants expiring July 21, 1998, to acquire 150,000 shares of the Company's common stock at $5.75 per share. All of these warrants remain outstanding at March 31, 1997. 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 on February 27, 1996, 38,100 shares of the Company's common stock at $5.00 per share on May 31, 1996, and 50,000 shares at $4.25 per share on September 30, 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. All of these warrants remain outstanding at March 31, 1997. In connection with the 1997 private placement, the placement agents were issued warrants to acquire 225,625 shares of the Company's stock at $3.50 per share on February 27, 1997, being the average of the closing price of the Company' stock for the ten days preceding the closing of such placement. The agents were also issued warrants to acquire 50,000 shares of the Company's common stock at $4.20 per share on February 27, 1997, being 120% of the average closing price of the Company's common stock for the ten days preceding the closing of the placement. All of these warrants remain outstanding at March 31, 1997. (11) Alcan Agreements The Company had previously entered into agreements with Alcan. Under terms of the agreements, the Company's then existing motor technology and technology resulting from development projects for Alcan were cross- licensed between Alcan and the Company. Royalties from the manufacture and sale of licensed products and a portion of royalties received from the sub-licensing of technology to third parties were payable by the licensing party to the other if the technology was commercialized. During 1994, the Company and Alcan executed another agreement, in which Alcan assigned to the Company all of its rights, title and interests in all technology developed under the original agreements between Alcan and the Company. The 1994 agreement further provides that the Company shall pay to Alcan royalties of one-half of one percent on revenue derived from the manufacture and sale of products or processes embodying the related technology (the Technology). The Company has also agreed to offer to Alcan a first right of refusal to acquire any and all intellectual and proprietary property related to the Technology prior to consummating and assignment or sale of any Technology. In addition, subject to certain conditions, Alcan has agreed to reimburse the Company for 50% of its UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued patent application and maintenance expenditures, up to an amount not to exceed the annual royalties from the Company. For the five months ended March 31, 1997, and for the years ended October 31, 1996, 1995 and 1994, the Company recorded royalty expense of $4,077, $9,497, $23,423 and $11,458, respectively, all of which was applied as a reduction of patent application and maintenance expenditures. (12) Significant Customers The Company has historically derived significant contract services revenue 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 contract services revenue is summarized as follows: Five Months Ended Year Ended October 31, March 31, 1997 1996 1995 1994 Customer A $ 162,500 - - - B 113,229 - - - C 176,749 - - - D - 378,640 1,720,347 316,740 E - 202,343 880,420 369,595 F - 194,600 - - G - 135,950 - - H - - 657,330 - I - - - 280,496 $ 452,478 911,533 3,258,097 966,831 Percentage of contract services revenue 65% 63% 81% 59% These customers, in total, also represented 49% and 38% of total accounts receivable at March 31, 1997 and October 31, 1996, 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 $78,532 for the five months ended March 31, 1997, and $800,208, $2,478,350 and $331,440 for the years ended October 31, 1996, 1995 and 1994, respectively. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (13) Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, certificates of deposit, accounts receivable, notes payable to joint venture participant, and accounts payable: The carrying amounts approximate fair value because of the short maturity of these instruments. Long-term debt: The carrying amount of the Company's long-term debt approximates fair value since the interest rate on this debt represents the current market rate for similar financing available to the Company. (14) Employee Benefit Plans 401(k) Plan The Company has established a 401(k) Savings Plan (the Plan) under which eligible employees may contribute up to 15% of their compensation. At the direction of the participants, contributions are invested in several investment options offered by the Plan including the Company's common stock.The Company matches participant contributions on a dollar-for-dollar basis on the participant's contributions up to 5 percent of the participant's salary and 25% of participant contributions in excess of this limit, subject to certain limitations. These contributions vest ratably over a three-year period. Matching contributions to the Plan by the Company were $39,535, $90,935, $98,441 and $95,257 for the five months ended March 31, 1997, and for the years ended October 31, 1996, 1995 and 1994, respectively. Stock Purchase Plan The Company has established a stock purchase plan which allows eligible employees to purchase, through payroll deductions, shares of the Company's common stock at 85% of the fair market value at specified dates. The Company has reserved 200,000 shares of common stock for issuance under the stock purchase plan. During the five months ended March 31, 1997, the Company did not issue any shares under the Stock Purchase Plan. During the years ended October 31, 1996, 1995 and 1994, the Company issued 6,668 shares, 511 shares and 1,632 shares of common stock, respectively, under the stock purchase plan. UNIQUE MOBILITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (15) Transition Period Comparative Financial Information (Unaudited) The following table sets forth certain unaudited statement of operations data for the five months ended March 31, 1996: Revenue: Contract services $ 331,761 Product sales 216,325 548,086 Operating costs and expenses: Costs of contract services 376,614 Costs of product sales 228,080 Research and development 632,101 General and administrative 624,996 1,861,791 Operating loss (1,313,705) Other income (expense): Interest income 46,214 Interest expense (91,780) Equity in loss of Taiwan joint venture (16,682) Minority interest share of earnings of consolidated subsidiary (28,588) Other 37,280 (53,556) Net loss $(1,367,261) Net loss per common share $ (.13) Weighted average number of shares of common stock outstanding 10,708,645 (16) Subsequent Event In June of 1997, the Company entered into a strategic relationship with EV Global Motors Company (EVG) to develop and market light electrical transportation products. EVG purchased 1,151,925 shares of the Company's common stock in a private transaction from Alcan and purchased warrants to acquire an additional 350,000 shares of common stock from other sources. Separately, the Company and EVG entered into a stock purchase agreement whereby the Company agreed to purchase 400,000 shares of EVG common stock in exchange for 200,000 shares of the Company's common stock. ITEM 9. CHANGE IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Pursuant to instruction G(3) to Form 10-K, the information required in Items 10-13 is hereby incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholder to be held on August 19, 1997, to be filed on or about July 7, 1997, pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Unique Mobility, Inc. (included in Part II): Independent Auditors' Report. Consolidated Balance Sheets, March 31, 1997 and October 31, 1996. Consolidated Statements of Operations for the five months ended March 31, 1997 and each of the years in the three year period ended October 31, 1996. Consolidated Statements of Stockholders' Equity for the five months ended March 31, 1997, and each of the years in the three year period ended October 31, 1996. Consolidated Statements of Cash Flows for five months ended March 31, 1997 and each of the years in the three year period ended October 31, 1996. Notes to Consolidated Financial Statements. Taiwan UQM Electric Co., Ltd. (included in Part IV): Independent Auditors' Report. Balance Sheets, December 31, 1996 and 1995. Statements of Income for the year ended December 31, 1996, and the period January 17, 1995 to December 31, 1995. Statement of Changes in Shareholders' Equity for the year ended December 31, 1996 and the period January 17, 1995, to December 31, 1995. Statements of Cash Flows, for the year ended December 31, 1996 and the period January 17, 1995 to December 31, 1995. Notes to Financial Statements. 2. Financial Statement Schedules: INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Taiwan UQM Electric Co., Ltd. We have examined the balance sheets of Taiwan UQM Electric Co., Ltd. as of December 31, 1996 and 1995, and the related statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1996 and the period January 17, 1995 to December 31, 1995. Our examinations were made in accordance with auditing standards generally accepted in the Republic of China and the regulations governing such examinations and, accordingly, included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances. Such auditing standards are substantially equivalent to auditing standards generally accepted in the United States. In our opinion, the financial statements referred to above present fairly the financial position of Taiwan UQM Electric Co., Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the year ended December 31, 1996 and the period January 17, 1995 to December 31, 1995, in conformity with accounting principles generally accepted in the Republic of China applied on a consistent basis. Horwath & Company Taipei, Republic of China January 16, 1997 TAIWAN UQM ELECTRIC CO., LTD. BALANCE SHEETS (In Development Stage) December 31, 1996 and 1995 (Amounts Expressed in New Taiwan Dollars) December 31 1996 1995 ASSETS Amounts % Amounts % CURRENT ASSETS Cash and cash equivalents (Notes 2 & 3) $ 22,510,890 15.08 $ 17,633,984 17.77 Other receivables 1,880,181 1.25 64,511 0.06 Other current assets 69,657 0.05 26,235 0.03 Total Current Assets 24,460,728 16.38 17,724,730 17.86 PROPERTY AND EQUIPMENT (Notes 2, 4 & 7) Cost 980,842 0.66 - - Less: accumulated depreciation (108,473) (0.07) - - Add: construction in progress and prepayment for land 122,507,538 82.04 81,114,412 81.74 Net 123,379,907 82.63 81,114,412 81.74 OTHER ASSETS Deferred income tax assets (Notes 2 & 6) 1,472,828 0.99 391,844 0.40 TOTAL ASSETS $149,313,463 100.00 $ 99,230,986 100.00 December 31 LIABILITIES AND 1996 1995 SHAREHOLDERS' EQUITY Amounts % Amounts % CURRENT LIABILITIES Notes payable $ 4,014 - $ - - Other notes payable 15,915,177 10.66 - - Accrued expenses (Note 7) 703,820 0.47 392,729 0.01 Other current liabilities 74,440 0.05 13,788 0.40 Total Current Liabilities 16,697,451 11.18 406,517 0.41 SHAREHOLDERS' EQUITY Common stock-$10 par value, 10,000,000 shares authorized and issued 100,000,000 66.97 100,000,000 100.77 Capital received in advance 37,050,000 24.81 - - Deficit in development stage (Note 5) (4,433,988) (2.96) (1,175,531) (1.18) Total Shareholders' Equity 132,616,012 88.82 98,824,469 99.59 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $149,313,463 100.00 $ 99,230,986 100.00 (See accompanying notes to financial statements) TAIWAN UQM ELECTRIC CO., LTD. STATEMENTS OF INCOME (In Development Stage) For the Year Ended December 31 ,1996 and the Period January 17, 1995 to December 31,1995 (Amounts Expressed in New Taiwan Dollars) January 17,1995 to 1996 1995 December 31, 1996 NET SALES $ - $ - $ - COST OF GOODS SOLD - - - GROSS PROFIT - - - OPERATING EXPENSES (Note 7) (4,617,699) (1,819,488) (6,437,187) OPERATING LOSS (4,617,699) (1,819,488) (6,437,187) NON-OPERATING INCOME Interest income 278,258 252,113 530,371 INCOME BEFORE INCOME TAX (4,339,441) (1,567,375) (5,906,816) INCOME TAX (Notes 2 & 6) Current tax expense - - - Deferred tax benefit 1,080,984 391,844 1,472,828 NET LOSS $(3,258,457) $(1,175,531) $(4,433,988) EARNINGS PER SHARE Net loss $ (0.33) $ (0.31) (See accompanying notes to financial statements) TAIWAN UQM ELECTRIC CO., LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Development Stage) For the Year Ended December 31,1996 and the Period January 17, 1995 to December 31,1995 (Amounts Expressed in New Taiwan Dollars) Common Stock Issued Capital Deficit in Received Development Shares Amounts in Advance Stage INITIAL PAID-IN CAPITAL, JANUARY 17,1995 2,500,000 $ 25,000,000 $ - $ - Capital increase by cash 7,500,000 75,000,000 - - Net loss for the period January 17, 1995 to December 31,1995 - - - (1,175,531) BALANCE, DECEMBER 31,1995 10,000,000 100,000,000 - (1,175,531) Capital received in advance - - 37,050,000 - Net loss for 1996 - - (3,258,457) BALANCE, DECEMBER 31, 1996 10,000,000 $100,000,000 $37,050,000 $(4,433,938) (See accompanying notes to financial statements) TAIWAN UQM ELECTRIC CO., LTD. STATEMENTS OF CASH FLOWS (In Development Stage) For the Year Ended December 31, 1996 and the Period January 17, 1995 to December 31, 1995 (Amounts Expressed in New Taiwan Dollars) January 17, 1995 to 1996 1995 December 31,1996 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(3,258,457) $(1,175,531) $ (4,433,988) Adjustments: Depreciation 108,473 - 108,473 Net changes in: Other receivables (1,815,670) (64,511) (1,880,181) Other current assets (43,422) (26,235) (69,657) Deferred income tax assets (1,080,984) (391,844) (1,472,828) Notes payable 4,014 - 4,014 Accrued expenses 311,091 392,729 703,820 Other current liabilities 60,652 13,788 74,440 Net Cash Used in Operating Activities (5,714,303) (1,251,604) (6,965,907) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (26,458,791) (81,114,412) (107,573,203) CASH FLOWS FROM FINANCING ACTIVITIES Initial paid-in capital and capital increase by cash - 100,000,000 100,000,000 Increase in capital received in advance 37,050,000 - 37,050,000 Net Cash Provided by Financing Activities 37,050,000 100,000,000 137,050,000 NET INCREASE IN CASH AND CASH EQUIVALENTS 4,876,906 17,633,984 22,510,890 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,633,984 - - CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,510,890 $17,633,984 $ 22,510,890 (See accompanying notes to financial statements) TAIWAN UQM ELECTRIC CO., LTD. NOTES TO FINANCIAL STATEMENTS (In Development State) December 31, 1996 and 1995 (Amounts Expressed in New Taiwan Dollars) 1. ORGANIZATION AND NATURE OF BUSINESS Taiwan UQM Electric Co., Ltd. (the Company) was incorporated on January 17, 1995, as a company limited by shares under the Company Law of the Republic of China. The Company is mainly engaged in the manufacture and sale of motors, motor controllers and related components. However, the Company was still in development stage as of December 31, 1996, and was mainly engaged in financial planning, recruitment and training, factory construction, etc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company's accounting policies conform with accounting principles generally accepted in the Republic of China. 1) Cash and cash equivalents The statements of cash flows are prepared on the basis of cash and cash equivalents. Cash equivalents are short-term and highly liquid investments with original maturities of three months or less. 2) Property and equipment Property and equipment are stated at cost. Major additions, replacements and betterments are capitalized, while maintenance and repairs are expensed currently. Depreciation is provided by the straight-line method over the estimated useful lives of the respective assets. Property and equipment which are depreciated to residual values and are still in use will be depreciated over their remaining useful lives. When assets are retired or disposed of, their cost and related accumulated depreciation are removed from the respective accounts. Any resulting gain or loss is credited or charged to income, and the gain after deducting the applicable income tax is transferred to capital surplus in the following year. 3) Income tax The Company provides income tax in accordance with Statement of Financial Accounting standards 22 "Accounting for Income Tax." The tax effects of taxable temporary differences are recognized as deferred income tax liabilities, while those of deductible temporary differences, loss carryover and tax credits are recognized as deferred income tax assets. The valuation allowance is provided on the basis of the estimated realizability of deferred income tax assets. 3. CASH AND CASH EQUIVALENTS December 31 1996 1995 Cash on hand $ 26,130 $ 8,379 Checking accounts 18,647 - Demand deposits 22,466,113 3,625,605 Time deposits - 14,000,000 Total $ 22,510,890 $17,633,984 4. PROPERTY AND EQUIPMENT December 31 1996 1995 Cost Transportation equipment $ 746,306 $ - Furniture and fixtures 234,536 - Construction in progress 38,093,247 - Prepayment for land 84,414,291 84,414,412 123,488,380 84,414,412 Accumulated Depreciation 82,923 - Transportation equipment Furniture and fixtures 25,550 - 108,473 - Net $123,379,907 $84,414,412 As of December 31, 1996, the Company has signed contracts with Everlight Electric Industrial Co., Ltd. to purchase land and factory, aggregating $86,563,756 and $96,000,000, respectively. The Company has paid $84,414,291 for the land and $36,396,275 for the factory. To secure the transactions, the Company has obtained certain collateral's from Everlight Electric Industrial Co., Ltd. and its affiliate. 5. RETAINED EARNINGS The Company's Articles of Incorporation provide that 10% of annual net income shall be appropriated as legal reserve, and 5% of the remainder shall be appropriated as employees' bonus, the remainder shall be appropriated at the shareholders' meeting in the following year. 6. INCOME TAX 1) Summary of deferred income tax assets or liabilities December 31 1996 1995 a)Total deferred income tax liabilities $ - $ - b)Total deferred income tax assets 1,472,828 391,844 c)Valuation allowance for deferred income tax assets - - d)Tax effects of temporary differences December 31, 1996 Amounts Tax effects Deferred Organization Cost $5,891,311 $1,472,828 December 31, 1995 Amounts Tax effects Deferred Organization Cost $1,567,375 $ 391,844 2) Classification of deferred income tax assets and liabilities December 31 1996 1995 Deferred income tax assets - noncurrent $1,472,828 $391,844 Valuation allowance - - $1,472,828 $ 391,844 Deferred income tax liabilities - noncurrent - - Net deferred income tax assets - noncurrent $1,472,828 $ 391,844 3) Income tax December 31 1996 1995 Current income tax expense $ - $ - Deferred income tax benefit Deferred organization cost 1,080,984 391,884 Net $1,080,984 $ 391,884 7. RELATED PARTIES TRANSACTIONS 1) Related parties and relationship Related parties Relationship Kymco Motor Co., Ltd. Major shareholder Turn Luckily Technology Co., Ltd. Major shareholder Everlight Electric Industrial Co., Ltd. Its major shareholder is the director of the Company DJ ATO Components Corp. Invested by the Company's major shareholder 2) Significant transactions with related parties a) Rental expense and related payable 1996 1995 Rental Rental expense Payable expense Payable Turn Luckily Technology Co., Ltd. $ 40,000 $ - $181,500 $85,575 DJ ATO Components Corp. 257,143 - - - Total $297,143 $ - $181,500 $85,575 b) Property and equipment 1996 Amount Paid as of Transactions Total amount December 31, 1996 Everlight Electric Purchase Industrial Co. Ltd. of land $86,563,756 $84,414,291 plus land value increment tax Everlight Electric Industrial Co., Ltd. Purchase of $96,000,000 factory $36,396,275 1995 Amount paid as of Everlight Electric Transactions Total Amount December 31, 1995 Industrial Co., Ltd Purchase of $87,994,507 $81,114,412 land Plus land value increment tax (b) Reports on Form 8-K: Report regarding Memorandum of Understanding for the formation of a strategic alliance to import, distribute and market electric scooters dated June 18, 1997. Report regarding completion of offering of common stock pursuant to Regulation S and Regulation D dated March 31, 1997. (c) Exhibits 3.1 Articles of Incorporation and Bylaws. Reference is made to Exhibit 3.1 of the Company's Registration Statement on Form S-1 (No. 33-42342), which is incorporated herein by reference. 3.2 Restated Articles of Incorporation. Reference is made to Exhibit 3.2 of the Company's Quarter Report on Form 10-K for the year ended October 31, 1993 (No. 0-9146) which is incorporated herein by reference. 4.1 Specimen Stock Certificate. Reference is made to Exhibit 3.1 of the Company Registration Statement on Form 10, dated February 27, 1980 (No. 0-9146) which is incorporated herein by reference. 10.1 Shareholder Agreement by and among Alcan International Limited, Ray A. Geddes and Unique Mobility, Inc. dated June 7, 1988. Reference is made to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1988 (No. 0-9146) which is incorporated herein by reference. 10.2 Unique Mobility, Inc. Incentive and Non-qualified Stock Option Plan (amended and restated effective January 1, 1988). Reference is made to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1988 (No. 0-9146). 10.3 Unique Mobility, Inc. 1992 Stock Option Plan. Reference is made to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 33-47454), which is incorporated herein by reference. 10.4 Unique Mobility, Inc. Employee Stock Purchase Plan. Reference is made to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No. 33-34612), which is incorporated herein by reference. 10.5 401(k) Savings Plan of Unique Mobility, Inc. Reference is made to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No. 33-34613), which is incorporated herein by reference. 10.6 Amendment to Shareholder Agreement dated March 25, 1992 between Unique Mobility, Inc., Ray A. Geddes and Alcan International Limited. Reference is made to Exhibit 19.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1992 (No. 0-9146) which is incorporated herein by reference. 10.6 Unique Building Partners, Ltd. Liability Co. Operating Agreement dated September 16, 1992. Reference is made to Exhibit 10.33 of the Company's Registration Statement on Form S-2 (No. 33-53376), which is incorporated herein by reference. 10.8 Lease between the Company and Unique Building Partners, Ltd. Liability Co. dated September 22, 1992. Reference is made to Exhibit 10.34 of the Company's Registration Statement on Form S-2 (No. 33-53376), which is incorporated herein by reference. 10.9 Amended Warrant Agreements between Unique Mobility, Inc. and affiliates of Advent International Corporation and Techno Venture U.S.A., Inc. Reference is made to exhibits 10.1 through 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1993, (No. 0-9146) which is incorporated herein by reference. 10.10 Unique Mobility, Inc. Stock Option Plan for Non-Employee Directors. Reference is made to Exhibit 10.39 of the Company's Quarter Report on Form 10-K (No. 0-9146) for the year ended October 31, 1993 which is incorporated herein by reference. 10.11 Warrant Agreement with Arnhold and S. Bleichroeder, Inc. Reference is made to Exhibit 10.41 of the Company's Quarter Report on Form 10-K (No. 0-9146) for the year ended October 31, 1993 which is incorporated herein by reference. 10.12 Assignment Agreement with Alcan International Limited. Reference is made to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994 (No. 0-9146) which is incorporated herein by reference. 10.13 Amendment to the 1992 Stock Option Plan of Unique Mobility, Inc. Reference is made to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994 (No. 0-9146) which is incorporated herein by reference. 10.14 Amendment to the 401(k) Savings Plan of Unique Mobility, Inc. dated January 18, 1995. Reference is made to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1995 (No. 0-9146) which is incorporated herein by reference. 10.15 Amendment to the 1992 Stock Option Plan of Unique Mobility, Inc. dated December 7, 1994. Reference is made to Exhibit 10.2 in the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1995 (No. 0-9146) which is incorporated herein by reference. 10.16 Stock Purchase Agreement by and among Unique Mobility, Inc. and Invacare Corporat on dated December 7, 1995. Reference is made to exhibit 10.36 in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995, (No. 1-10869)which is incorporated herein for reference. 10.17 Amendment to the Stock Purchase Agreement by and among Unique Mobility Inc. and Invacare Corporation. Referenced is made to exhibit 10.3 in the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1996, (No. 0-9146) which is incorporated herein by reference. 21* Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Horwath & Co. (Taiwan) 27* Financial Data Schedule - - ---------- * Filed with original filing of Form 10-K. (d) Financial Statement Schedules None. SIGNATURES Pursuant to the requirements of Section 13 of the Securities and Exchange Act of 1934, Unique Mobility, Inc. has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in Golden, Colorado on the 6th day of October, 1997. UNIQUE MOBILITY, INC., a Colorado corporation By: /s/ Donald A. French Donald A. French, Treasurer EX-23.1 2 Exhibit 23.1 Consent of Independent Auditors The Board of Directors Unique Mobility, Inc.: We consent to the incorporation by reference in the registration statements (Nos. 33-61166, 33-63399, 333-01919 and 333-13883) on Form S-3 and in the registration statements (Nos. 33-23113, 33-24071, 33-34612, 33-35055, 33-34613, 33-41325, 33-64852, 34-47454, 33-81430, and 33-92288) on Form S-8 of Unique Mobility, Inc. of our report dated June 26, 1997 relating to the consolidated balance sheets of Unique Mobility, Inc. and subsidiaries as of March 31, 1997 and October 31, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the five months ended March 31, 1997 and each of the years in the three-year period ended October 31, 1996, which report appears in the March 31, 1997 Transition Report on Form 10-KT/A of Unique Mobility, Inc. KPMG Peat Marwick LLP Denver, Colorado October 6, 1997 EX-23.2 3 Exhibit 23.2 Consent of Independent Auditors The Board of Directors Unique Mobility, Inc: We consent to the incorporation by reference in the registration statements (Nos. 33-61166, 33-63399, 333-01919 and 333-13883) on Form S-3 and in the registration statements (Nos. 33-23113, 33-24071, 33-34612, 33-35055, 33-34613, 33-41325, 33-64852, 34-47454, 33-81430, and 33-92288) on Form S-8 of Unique Mobility, Inc. of our report dated January 16, 1997 relating to the balance sheets of Taiwan UQM Electric Co., Ltd. as of December 31, 1996 and 1995, and the related statements of income, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 1996, which report appears in the March 31, 1997 Transition Report on Form 10-K of Unique Mobility, Inc. Horwath & Company Taipei, Republic of China September 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----