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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended March 31, 1998
Commission file number 1-10869
UNIQUE MOBILITY, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0579156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Corporate Circle, Golden, Colorado 80401
(Address of principal executive offices) (Zip Code)
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 (13,653,258 shares) computed by reference to the closing price of
such stock on the American Stock Exchange, as of June 25, 1998:
$95,572,806
The number of shares outstanding (including shares held by affiliates) of each
of the registrant's classes of common stock, as of June 25, 1998:
15,880,709 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
September 14, 1998 Annual Meeting of Shareholders
ITEM 1. BUSINESS
This Report may contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the Risk Factors section of the Registration
Statement on Form S-3 (File No. 333-52861) filed by the Company with the SEC,
which identifies important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including the
Company's history of operating losses, its ability to obtain additional
financing, competition, the Company's ability to integrate acquired businesses
into existing operations, the Company's ability to protect its proprietary
information, and the Company's limited experience in manufacturing processes and
procedures and marketing and distribution. These forward-looking statements
represent the Company's judgment as of the date of this Report. The Company
disclaims, however, any intent or obligation to update these forward-looking
statements.
General
Unique Mobility, Inc. ("Unique" or the "Company") was incorporated in 1967. The
Company's common stock trades on the American, Boston, Chicago, Pacific and
Berlin stock exchanges under the symbol "UQM".
Historically, the majority of the Company's revenue has been derived from
contract research and development services performed for strategic partners and
clients. These sponsored research and development activities have supplemented
internally funded product development programs and have accounted for
approximately sixty percent of the Company's $34 million cumulative investment
in its proprietary technology portfolio. In addition, the Company has derived
revenue from the sale of prototype products to customers for evaluation and the
limited production and sale of highly energy efficient propulsion systems to
customers who compete in solar and hybrid electric vehicle racing and other such
competitions throughout the world.
The Company's objective is to leverage its technology base and name recognition
to develop, manufacture and market products in a number of high potential niche
markets in the near term, and automotive mass markets in the longer term.
Fundamental to this strategy is the creation of large scale manufacturing
capability for products developed by the Company. In furtherance thereof, the
Company formed a wholly owned subsidiary, Unique Power Products, Inc. ("UPP"),
in January 1997, to manufacture brushless permanent magnet motors for Invacare
Corporation pursuant to a two-year renewable supply arrangement. In January
1998, the Company completed the acquisition of Aerocom Industries, Inc.
("Aerocom"), a manufacturer of precision gears and gear assemblies for
automotive, industrial and aerospace application. Following the acquisition,
Aerocom constructed a 25,000 square foot manufacturing plant in Frederick,
Colorado, to house the manufacturing operations of both UPP and Aerocom. In
April 1998, the Company completed the acquisition of Franklin Manufacturing
Company ("Franklin"), a St. Charles, Missouri-based manufacturer of printed
circuit boards, wire harnesses and electronic boxes for the automotive, medical,
telecommunications and industrial markets.
In order to access markets in Taiwan and in other Asian countries, the Company
formed a joint venture with Kwang Yang Motor Co., Ltd., Taiwan's largest
producer of motor scooters and Turn-Luckily Technology Co., Ltd., a Taiwan-based
manufacturer of automotive components. The joint venture corporation, Taiwan UQM
Electric Co. Ltd., is licensed to manufacture the Company's motors and
controllers exclusively in Taiwan and non-exclusively throughout Asia. The
Company owns a 38.25 percent interest in Taiwan UQM. Taiwan UQM has constructed
a 75,000 square foot engineering and manufacturing facility in Tao-Yuan, Taiwan,
and is currently launching production of starter motors and alternators pursuant
to a supply agreement with KYMCO, although KYMCO has not yet accepted any of
Taiwan UQM's starter motors or alternators. KYMCO has indicated their intent to
use Taiwan UQM as their sole supplier of electric vehicle propulsion systems for
KYMCO electric scooters.
The Company believes that the manufacturing infrastructure and capacity recently
brought on line, the continuation of its acquisition strategy, cross marketing
activities amongst operating companies and the continued development of
strategic alliances with leading companies worldwide will provide the
opportunity for the Company to rapidly expand its operations and product lines
and access new markets.
Technology
The Company's technology base includes a number of proprietary technologies and
patents relating to brushless permanent magnet motors, generators and electronic
controls, together with software code and computer area network design utilized
to manage individual components and the flow of energy between components in a
system.
Attributes of the Company's permanent magnet motor technology include high
operating efficiencies (90%), packageability (small and lightweight) and
two-way operation as either a motor or generator. High pole count
configurations, together with a relatively large air-gap dimension, creates a
higher torque, lower speed motor than possible with more conventional
architectures. Typically, the Company's motors feature high copper utilization
(which minimizes energy loss); hollow construction (for the interior packaging
of other components such as gears and electromechanical brakes); good heat
rejection; lower iron content; and minimal mechanical losses.
Attributes of the Company's microprocessor-based controllers include four
quadrant control (forward/reverse and power in/power out), reduced switching
losses (which minimizes energy loss) and intelligent control. Patented circuitry
and software (Phase Advance Control) dynamically adjusts the phase angle of
current into the motor windings to increase base speed by a factor of three to
four times.
The Company's technology portfolio represents a cumulative investment of
approximately $34 million in the development of systems and components,
manufacturing processes and software. Approximately 60 percent of the investment
was funded by strategic partners and customers under research grants, "cost
share" contracts or sponsored application engineering programs.
Internally-funded research and development costs are expensed in the period they
are incurred. Income from sponsored development is recorded as contract services
revenue and the associated development costs are shown as cost of contract
services in the Company's financial statements. Internally-funded research and
development expenditures amounted to $902,407 for the fiscal year ended March
31, 1998, $513,544 for the five-month transition period ended March 31, 1997,
and $1,698,352 and $1,298,311 for the fiscal years ended October 31, 1996 and
1995, respectively.
In recent years, the Company has focused the major portion of its research and
development activities on the development of commercial products as opposed to
basic research in the field. Management believes that the Company's future
growth is dependent, in part, on the continued advancement of its core
technology, the extension of its technological capabilities and its ability to
develop additional products. Accordingly, the Company expects to continue to
invest in research and development at approximately the same levels as in prior
years .
Business Segments
The Company, subsequent to the acquisition of Aerocom Industries, Inc. and
Franklin Manufacturing Company, will operate in three business segments;
technology, mechanical products and electronic products. The principal
operations, products and services and markets served by each business segment
are described below.
Technology Business Segment
The technology segment encompasses the Company's technology-based operations
including core research to advance its technology, application engineering and
product development and job shop production of prototype components.
Historically, the technology business segment has accounted for substantially
all of the Company's revenue. Segment revenue is generated through the
performance of contract research and development services and the sale of
products which are constructed in small batch builds or are one-off engineering
prototypes.
The principle focus of the technology segment has been the development of
vehicle propulsion systems ranging in power from 1 horsepower to 135 horsepower.
Vehicle propulsion systems include low voltage components which have operating
voltages from 12v to 48v and high voltage components which have operating
voltage from 48v to 600v. Low voltage propulsion systems are used in small
vehicles such as bicycles, wheelchairs, scooters, golf carts, warehouse utility
vehicles and the like. High voltage propulsion systems are used in electric and
hybrid electric neighborhood vehicles, automobiles, trucks and buses.
The technology segment is also responsible for marketing contract services, and
for establishing strategic relationships with end user manufacturers. Typically,
these relationships are with industry leaders who provide partial funding for
specific product development programs. By sharing in the development costs, the
Company generally retains rights to the resultant intellectual property.
The Company has completed a strategic alliance with KYMCO which provided $1.4
million in product development funding for an electric propulsion system for
motor scooters and is a joint venture partner in Taiwan UQM.
Invacare Corporation funded, in part, the development of an electric wheelchair
motor through a private purchase of $500,000 of the Company's common stock.
Subsequently, the Company entered into a supply agreement with Invacare for the
manufacture of wheelchair motors with initial deliveries expected to commence in
fiscal 1999. Mr. J. B. Richey, Senior Vice President of Invacare, serves on the
Company's board.
The Company has a strategic alliance with EV Global Motors Company ("EVG") for
the development and manufacture of electric propulsion systems for light
electric vehicles, such as bicycles, scooters, autorickshaws and neighborhood
electric vehicles. As part of this alliance, EVG acquired approximately 11
percent of the Company's common stock, and the Company acquired approximately a
one percent equity position in EVG. In addition, EVG's Chairman and Chief
Executive Officer, Lee Iacocca, serves on the Company's board of directors and
Ray Geddes, the Company's Chairman and Chief Executive Officer, serves on EVG's
board of directors.
The Company expects to continue to pursue strategic alliances with leading
manufacturers and partners worldwide to accelerate the commercialization of its
technology, expand product lines and reach new markets.
Mechanical Products Segment
The mechanical products segment encompasses the manufacture and sale of
permanent magnet motors, precision gears, gear assemblies and related mechanical
products. This segment includes the operations of UPP, a wholly owned subsidiary
of the Company formed to manufacture motors and Aerocom, a recently acquired
manufacturer of gears.
UPP was organized in fiscal 1997 and is currently launching manufacturing
operations in a newly constructed 25,000 square foot facility in Frederick,
Colorado which it shares with Aerocom. UPP is expected to begin shipments of
wheelchair motors to Invacare during fiscal 1999 pursuant to a renewable two
year supply agreement. UPP expects to invest approximately $750,000 for
manufacturing equipment and tooling. At March 31, 1998, approximately $152,165
of this amount had been expended, with the balance to be funded during the first
half of fiscal 1999. Unique funded this subsidiary upon its formation with $1.5
million in cash. All expenditures for the launch of manufacturing operations,
including capital expenditures, are expected to be funded from cash balances on
hand.
In January 1998, the Company acquired all of the outstanding common stock of
Aerocom for $3,377,020. The purchase price consisted of a cash payment of
$337,702 and the issuance of 371,555 shares of the Company's common stock. In
addition, the Company assumed the then existing liabilities of Aerocom in the
amount of $1,308,788. The acquisition was accounted for under the purchase
method of accounting. The excess of the purchase price over the fair value of
Aerocom's net assets amounted to $1,297,087.
Historically, Aerocom's core business has been the precision grinding of gears
for customers serving the industrial and aerospace markets. These gears are used
in transmissions for large off-highway vehicles such as construction equipment
and agricultural machinery as well as in actuators for satellites and the space
shuttle program. This subsidiary is currently expanding its manufacturing
capability to include the heat treatment of manufactured parts and the
manufacture of complete gear shaft assemblies. Coincident with this expansion,
the Company constructed a 25,000 square foot manufacturing and office facility
in Frederick, Colorado which will be utilized by the Company's mechanical
products subsidiaries. The cost of the building was approximately $1.2 million
of which approximately $.9 million is expected to be funded through long-term
mortgage debt. In addition, the Company expects to acquire approximately $1.5
million in gear manufacturing equipment. The Company funded the gear
manufacturing subsidiary with an additional $.75 million in cash during the
fourth quarter of Fiscal 1998 to be used for these expansion activities and this
subsidiary completed loan agreements with a commercial bank which provides for a
$.75 million revolving line of credit and a $2 million equipment term loan
commitment.
Electronic Products Segment
The electronic products segment encompasses the manufacture and sale of surface
mount and thru-hole printed circuit boards, electro-mechanical assemblies, cable
harness assemblies and complete electronic boxes and the distribution of
electronic components. This segment includes the operations of Franklin, a
wholly owned subsidiary of the Company, which was acquired during the first
quarter of fiscal 1999.
This segment manufactures wire harness assemblies primarily for customers in the
automotive, and industrial markets which accounts for approximately seven
percent of its annual sales volume. Printed circuit board assemblies and the
manufacture of complete electronic boxes for customers in the automotive,
medical, telecommunications and industrial markets accounts for approximately 78
percent of its annual sales volume. Wholesale distribution of electronic
components accounts for approximately 15 percent of annual sales volume.
The Company acquired all of the outstanding common stock of Franklin in April
1998 for $6,247,316 which consisted of a cash payment of $4,000,000 and the
issuance of 286,282 shares of the Company's common stock. In addition, the
Company assumed the then existing liabilities of Franklin and debt on a
related asset in the amount of $3,148,146. The acquisition was accounted
for under the purchase method of accounting. The excess of the purchase
price over the fair value of Franklin's net assets amounted to $5,296,916.
Markets for the Company's Products and Services
The Technology Business Segment will continue to pursue contract opportunities
as sources of funding for technology development as well as product development.
It is expected that the U.S. Departments of Defense, Energy and Transportation
will continue to solicit research and development proposals for advanced motor,
generator and controller systems including electric and hybrid electric
propulsion systems. These solicitations are expected to include potentially
sizable awards as part of the Partnership for a New Generation of Vehicles
(PNGV) program as well as smaller awards as part of the Small Business
Innovative Research (SBIR) program. The Company plans to propose on those
opportunities that match its technology and product development goals. In
addition to government contracts, the Company plans to pursue contracts with
original equipment manufacturers (OEMs) and their 1st and 2nd tier suppliers to
supplement its product development expenses.
The Company's technology and products have been developed primarily for
application in electric and hybrid electric vehicles and its focus will be on
entering markets that have a high probability of near term production (providing
products that can be produced in its UPP, Aerocom and Franklin manufacturing
facilities). Target electric and hybrid electric vehicle markets include those
that are emerging such as bicycles, scooters, neighborhood vehicles, lawn and
grounds care equipment, automobiles, buses, trucks and off-highway agricultural,
construction and military equipment. Existing markets include wheelchairs, golf
carts, warehouse vehicles, floor cleaners and sweepers, fork lift trucks and
mining equipment. Target products that will be pursued include on and
off-highway, low and high voltage electric and hybrid electric traction systems,
generators, DC-DC converters, battery chargers, power steering pump motors, air
conditioning compressor motors, fuel cell air handling compressor motors and
cooling fan motors.
In addition to the electric and hybrid electric vehicle markets, the Company
believes that its technology has potential application in industrial markets
such as pumps, compressors, machine tool spindle drives, hoists, conveyors, and
stationary generator sets to name a few. These markets will be initially pursued
by leveraging off of products developed for vehicle application.
Through the acquisition of Aerocom, the Company has entered the gear market.
This market in the U.S. alone, is forecasted by The Freedonia Group, Inc. to
grow to $25 billion by the year 2000, at a rate of approximately 6%. This
subsidiary has focused on the off-highway equipment and aerospace market sectors
which account for $2.5 billion and $1.3 billion respectively, of that total. The
motor vehicle sector is forecasted at $17.5 billion. As a small player in a
large market, the Company has significant upside potential. As a flexible,
responsive, low cost supplier, the Company, through this subsidiary, is well
positioned to take advantage of the continuing trend of OEMs to outsource their
gear production requirements. Specific to electric propulsion, this subsidiary's
expertise lies in precision grinding which is required in quiet and durable
gearboxes. For electric drives, quiet is the name of the game and Aerocom is
well positioned to provide value-add to the Company's products sold to the
electric and hybrid electric vehicle growth market.
Franklin is an established player in the electronics contract manufacturing
market. This market in the U.S. alone is forecasted, by Frost and Sullivan, to
grow to nearly $50 billion at a rate of approximately 26%. This growth is being
fueled by the continuing trend by OEMs to outsource their electronic component
manufacturing. As is the case with the Company's gear manufacturing subsidiary,
Franklin is a small player in a very large market. As a low cost, high quality,
responsive supplier, the Company expects to continue to grow its electronic
products business. To gain a greater value-add, priority will be focused on
producing printed circuit boards and boxes that represent content in the
Company's other products sold into the electric and hybrid electric growth
market.
Expanding the Company's products beyond motors, generators and controls to
include gears and electronic components opens up a much greater marketing
opportunity. The Company's traditional customers when combined with those of the
acquired Aerocom and Franklin entities provide the opportunity to cross sell
product. Many customers want to buy integrated motor, gear and electronic
controls systems and the Company now has the components and credible
manufacturing resources in place to meet these requirements
Competition
All of the markets that the Company competes in are highly competitive. The
markets served by the technology segment are additionally characterized by rapid
changes due to technological advances that can render existing technologies and
products obsolete.
The technology segment has developed advanced electric drive systems and
components which it hopes to market to vehicle OEM's throughout the world for
use in electric and hybrid electric vehicles. At present, the market for such
systems is not significant, although various legislative mandates and incentives
are expected to accelerate the development of a market for vehicles propelled by
such systems. There are numerous companies developing products that do or soon
will compete with the Company's drive systems. Some of these companies possess
significantly greater financial, personnel and other resources than the Company,
including established supply arrangements and volume manufacturing operations.
The Company believes its principal competitors include Hitachi, Matsushita,
Siemens, Delphi, and Visteon.
The mechanical products segment competes primarily in the automotive, aerospace
and medical products industries. Each of these industries is extremely
competitive. The Company will face substantial competition on a continuing basis
from numerous competitors, many of whom possess longer operating histories,
significantly greater financial resources, marketing, distribution and
manufacturing capability. The Company believes its principal competitors include
Advanced DC, Emerson Electric, General Electric, Rockwell International, Baldor,
ABB, Fairfield Manufacturing, Precision Gear and Fairlane Gear.
The electronic products segment competes primarily in the automotive,
telecommunications, medical and industrial markets. Each of these markets is
extremely competitive. The Company will face substantial competition on a
continuing basis from numerous competitors, many of whom possess longer
operating histories, significantly greater financial resources, marketing,
distribution and manufacturing capability. The Company believes its principal
competitors include Jabil Circuit, Plexus, EFTC Corporation, Flextronics
International and Baldwin.
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, 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 was 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 been issued in Australia, Brazil, Canada,
India, Israel, South Korea, Mexico, New Zealand, South Africa and Taiwan. Six
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 patent
application (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 South 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 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; the European application has been allowed.
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 resulted in the issuance
of U.S. Patent 5,677,605 dated October 14, 1997. In June 1995 a counterpart PCT
International Patent Application was filed. Applications have been filed in
Canada, China, Finland, Hong Kong, Japan, Korea, Mexico, Norway and Europe.
In December 1997, the Company filed a new patent application titled "Motor with
Internal Brake" in connection with its current development of electric
wheelchair drives. This application remains pending.
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 registered the letters UQM and a stylized version thereof as its
new trademark. Counterpart applications have been filed in 26 countries
throughout the world and 24 of those 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 identifier 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 "POWER PHASE" 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 in the European community, which has issued a favorable search
report.
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.
Backlog
The Company's technology segment had unperformed service contracts from
customers which will provide payments to the Company upon completion aggregating
approximately $1,315,310 and $2,875,000 at May 31, 1998 and 1997,
respectively. The technology segment also had an order backlog for prototype
motors and controls of approximately $516,512 and $158,000 at May 31, 1998 and
1997, respectively. All such contracts are subject to amendment, modification or
cancellation. The Company expects to perform all unperformed service contracts
over the next twelve months.
The Company's mechanical products segment had an order backlog of approximately
$16.5 million at May 31, 1998, and expects to ship approximately $8.5 million
against this backlog over the next twelve months.
The Company's electronic products segment had an order backlog of approximately
$5.5 million at May 31, 1998. The Company expects to ship all backlog products
within the next twelve months.
Customers and Suppliers
The technology segment had six significant customers, KIA Motors Corp., Deere &
Co., Metropolitan Transit Authority, Koyo Seiko Co., Ltd., Pan Asia Technology
Co., Ltd., and the Southern Coalition of Advance Technology which accounted for
80 percent of contract services revenue during the year ended March 31, 1998.
For the five month transition period ended March 31, 1997 the technology segment
derived $452,478 or 65 percent of contract services revenue from General Motors
Corporation, KIA Motors Corp. and Pan Asia Technology, Co., Ltd.
The mechanical products segment had three significant customers, Eaton
Corporation, Funk Manufacturing, and Sunstrand Corporation which accounted for
approximately $1,354,000 or 67 percent of segment product sales during the
year ended March 31, 1998. During the five month transition period ended
March 31, 1997 the mechanical products segment derived $386,250 or 67
percent of product sales from Transmisiones TSP SA de CV, Funk Manufacturing
and Sundstrand Corporation.
The electronic products segment had three significant customers, Siemens, L.R.
Nelson and Montgomery Elevator, which accounted for $6,304,320 or 60 percent of
revenue for its most recently completed fiscal year prior to its acquisition by
the Company which ended September 30, 1997.
Principal raw materials and components purchased by the Company include iron,
steel, electronic components, magnet material and copper wire. All of the above
items are available from several suppliers and the Company generally relies on
more than one supplier for each item.
U.S. Government Contracts
For the year ended March 31, 1998, $846,740 or 30 percent of the Company's
contract services revenue was derived from contracts with agencies of the U.S.
Government and from subcontracts with U.S. Government prime contractors.
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 May 31, 1998, the Company had 146 full-time employees. The Company has
entered into employment contracts with its four executive officers, three of
which expire in December 1998 and one which expires in April, 2001. 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
The Company owns or leases its offices and manufacturing facilities and believes
these facilities to be well maintained, adequately insured and suitable for
their present and intended uses. Information concerning leased facilities of the
Company as of May 31, 1998, is set forth in the table below:
Ownership or
Square Expiration DateRenewal
Location Feet of Lease Option Use
Golden, Colorado 40,000 September 2002 Yes manufacturing,
laboratories
and offices
Boulder, Colorado 12,000 Month-to-Month No manufacturing
and offices
Frederick, Colorado 25,000 Own - manufacturing
and offices
St. Charles, Missouri 31,000 March 2007 No manufacturing,
warehouse
and offices
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 quarter ended March 31, 1998.
ITEM 5. MARKET PRICE OF COMMON STOCK
The Company's common stock trades on the American, Boston, Pacific,
Chicago and Berlin 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:
1998 High Low
Fourth Quarter .................... $ 8.88 $ 7.44
Third Quarter ..................... $ 9.44 $ 6.94
Second Quarter .................... $ 9.50 $ 5.81
First Quarter ..................... $ 7.2 $ 3.06
1997
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
On June 25, 1998 the closing price of the Company's common stock,
as reported on the American Stock Exchange, was $7.00 per share and
there were 912 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
Year Five Months
Ended Ended
March 31, March 31, Year Ended October 31,
1998 1997 1996 1995 1994 1993
Contract
Services
Revenue ..... $ 2,790,496 700,132 1,436,484 4,031,951 1,643,203 1,461,568
Product
Sales ....... $ 1,274,236 152,016 611,213 701,700 708,917 695,300
Operating
Loss ........ $ (3,007,599) (1,120,900) (2,744,606) (1,134,338) (3,367,873) (2,446,574)
Net Loss .... $ (3,266,360) (1,201,085) (2,904,743) (1,330,433) (3,395,356) (2,473,804)
Net Loss
Per Common
Share ....... $ (.23) (.12) (.26) (.13) (.35) (.28)
Total
Assets ...... $ 19,585,551 12,370,699 8,712,649 7,626,178 5,903,551 7,791,826
Long-term
Obligations . $ 1,029,924 726,218 744,389 807,003 886,996 921,758
Cash Divi-
dend Declared
Per Common
Share ....... $ -0- -0- -0- -0- -0- -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company changed its fiscal year end from October 31 to March 31 commencing
with periods beginning after October 31, 1996. This change resulted 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, 1998 and March 31, 1997 and results of
operations, changes in stockholders' equity and changes in cash flows for the
year ended March 31, 1998, the five-month transition period ended March 31, 1997
("Fiscal 1997") and the fiscal years ended October 31, 1996 and 1995,
respectively.
Financial Condition
The Company's financial condition strengthened during Fiscal 1998 due to the
sale of 626,875 shares of common stock pursuant to offerings under Regulation D
of the Securities Act of 1933, the issuance of common stock upon the exercise of
outstanding common stock warrants and options, the acquisition of Aerocom
Industries, Inc. and an investment in EV Global Motors Company. Cash proceeds to
the Company from the Regulation D offering, net of offering costs, amounted to
$4,673,797 and cash proceeds received upon the exercise of outstanding common
stock warrants and options amounted to $3,024,709. Primarily as a result, cash
and cash equivalents rose to $7,005,533 at March 31, 1998 from $5,713,557 at
March 31, 1997 and shareholders' equity rose to $16,731,132 from $8,574,799.
Subsequent to year-end, the Company used $4,000,000 in cash as part of the
consideration to acquire Franklin Manufacturing Company. Working capital
(the excess of current assets over current liabilities) increased to
$7,566,627 at March 31, 1998 from $4,174,184 at March 31, 1997.
Accounts receivable rose $716,152 to $1,105,466 at March 31, 1998 from $389,314
at March 31, 1997. The increase is attributable to the consolidation of the
trade accounts receivable of the two new subsidiaries, Aerocom and UPP, which
accounted for $371,815 and $304,177 of the increase, respectively.
Costs and estimated earnings on uncompleted contracts increased $262,853 to
$454,738 at March 31, 1998 from the fiscal 1997 year end level of $191,885. The
increase was due to increased levels of contract services in process and
milestone billing arrangements on such contracts. Estimated earnings on
contracts in process rose to $515,782 at March 31, 1998 on costs incurred on
contracts in process of $1,724,552 compared to estimated earnings on contracts
in process of $490,407 on costs incurred on contracts in process of $3,158,704
at March 31, 1997. The increase reflects improved margins on contracts in
process and is attributable to greater labor content in contracts in process and
a reduction in anticipated cost overruns.
Raw materials and finished products inventories declined by $206,778 and
$55,061, respectively, to $76,377 and $17,715, respectively, at March 31, 1998
compared to $283,155 and $72,776, respectively, at the beginning of Fiscal 1998.
The decrease is primarily attributable to an inventory write-down associated
with the Company's decision to terminate its past practice of batch production
of specialty motors and controllers and the associated stocking of these
specialty components in inventory. Coincident with this decision, the Company
intends to cease the marketing of these products to the solar racing market,
which has historically accounted for approximately $300,000 in specialty product
sales, although the Company intends to continue to produce these components for
customers on a custom build basis. Likewise, the Company recorded an inventory
write-down on its entire line of prototype motors, controllers and associated
components. The Company intends to devote substantially all of its marketing,
sales and engineering personnel to securing and executing development programs,
both customer and internally funded, which have a higher probability of
resulting in products that can be manufactured in volume and sold in existing
commercial markets. Work in process inventories rose $90,365 to $159,825 at
March 31, 1998 due to production of twenty SR286 motors and associated controls
pursuant to existing customer orders.
In January, 1998 the Company acquired all of the outstanding common stock of
Aerocom for $3,377,020. The purchase price consisted of a cash payment of
$337,702 and the issuance of 371,555 shares of the Company's common stock. The
acquisition was accounted for under the purchase method of accounting. Under
this method, the excess of the purchase price over the net assets acquired is
first allocated to increase the recorded value of the tangible assets acquired
to their fair market value, with any excess then recorded as goodwill. The
excess of the purchase price over the net assets acquired of Aerocom resulted in
an increase in the recorded value of property and equipment in the amount of
$1,788,598 with the excess of $1,297,087 being recorded as goodwill.
The Company invested $703,562 for the acquisition of property and equipment
during Fiscal 1998 compared to $118,608 for the five-month period ended
March 31, 1997 and $182,011 and $440,079 in Fiscal 1996 and 1995, respectively.
The increase in capital expenditures is primarily attributable to the purchase
of manufacturing equipment by Aerocom coincident with the expansion of their
manufacturing capabilities.
Investment in Taiwan joint venture declined to $2,044,393 at Fiscal 1998 year
end from $2,677,730 at the beginning of the fiscal year. The decrease is
attributable to the Company's proportionate share of operating losses which
amounted to $246,648 during Fiscal 1998 and foreign currency translation
adjustments which amounted to $386,689.
Patent and trademark costs, net of accumulated amortization, was $575,985 at
March 31, 1998 an increase of $73,688 from the Fiscal 1997 year end level. The
increase is primarily attributable to increased legal fees, application fees and
maintenance fees which amounted to $110,411 during Fiscal 1998 compared to
$47,865 for the five-month transition period ended March 31, 1997 and $92,390
and $64,766 for fiscal 1996 and 1995, respectively. Prior to June 1997, Alcan
Aluminium Limited paid one-half of the Company's qualifying patent prosecution
costs. Coincident with Alcan's sale of its equity stake in the Company this
reimbursement provision expired, contributing, in part, to the increase in
patent and trademark costs.
Accounts payable rose to $389,791 at March 31, 1998 from $169,403 at the end of
Fiscal 1997. The increase is primarily attributable to the consolidation of the
trade accounts payable of Aerocom which accounted for $147,197 of the increase.
Other current liabilities increased to $876,357 at Fiscal 1998 year end, from
$459,223 at March 31, 1997. The increase is primarily attributable to the
consolidation of the other current liabilities of Aerocom and UPP which
accounted for $113,709 and $467,871 of the increase. The principal components of
the increase were accrued machinery and equipment purchases which rose $402,834
and accrued material purchases which rose $82,357.
Billings in excess of costs and estimated earnings on uncompleted contracts
declined $659,357 to $450 at March 31, 1998 from $659,807 at March 31, 1997 due
to the completion of work on a large program where the customer made a
substantial prepayment.
Long-term debt rose $303,706 during Fiscal 1998 due to the assumption of debt
upon the acquisition of Aerocom. Long-term debt consists of term debt on the
manufacturing equipment of its gear manufacturing operations and mortgage debt
on the Company's facility in Golden, Colorado.
Common stock and additional paid-in capital increased to $153,946 and
$38,852,446 at March 31, 1998, respectively, compared to $130,430 and
$27,094,170 at March 31, 1997. The increases were due to the sale of common
stock to investors in the amount of $4,673,797; proceeds received upon the
exercise of warrants of $1,932,375; sales of common stock to employees and
consultant's through the Company's benefit plans and the exercise of options of
$1,163,892; the issuance of common stock for the acquisition of Aerocom of
$3,039,318; and the exchange of common stock for the common stock of EVG of
$1,000,000.
Results of Operations
Operations for the year ended March 31, 1998, resulted in a net loss of
$3,266,360 or $0.23 per share compared to a net loss of $1,201,085 or $0.12 per
share for the five-month transition period ended March 31, 1997, a net loss of
$2,904,743 or $0.26 per share for the year ended October 31, 1996 and a net loss
of $1,330,433 or $0.13 per share for the year ended October 31, 1995.
Revenue derived from contract services was $2,790,496 during fiscal 1998
compared to $700,132 for the five months ended March 31, 1997 and $1,436,484 and
$4,031,951 for the fiscal years ended October 31, 1996 and 1995, respectively.
The increase in contract services revenue over the annualized Fiscal 1997 and
the Fiscal 1996 levels is attributable to increased levels of sponsored
development activities in 1998 which were driven by several contracts with
governmental agencies for the development of higher power systems and an
electric vehicle conversion program for an international automotive OEM. The
decline in fiscal 1998 revenue compared to fiscal 1995 is due to the performance
of a multi-million dollar research program in fiscal 1995 for the US Department
of Energy and Ford Motor Company.
Product sales during Fiscal 1998 rose to $1,274,236 compared to $152,016 for the
five month transition period last year and $611,213 and $701,700 in Fiscal 1996
and 1995, respectively. The increase is primarily due to product sales by
Aerocom subsequent to its acquisition which amounted to $531,787. Product sales
by the technology segment remained at approximately the same levels as in prior
years.
Gross profit margins for fiscal 1998 increased to 11.0 percent compared to a
margin of 10.3 percent for the five-month transition period last year and
declined compared to margins of 15.1 percent and 28.7 percent for fiscal 1996
and 1995, respectively. Gross profit on contract services was 5.6 percent for
the year ended March 31, 1998 compared to 9.8 percent for the five-month
transition period ended March 31, 1997, 18.6 percent for the fiscal year ended
October 31, 1996 and 31.0 percent for the fiscal year ended October 31, 1995.
The decline in gross profit margins during fiscal 1998 compared to all prior
periods is attributable to increased material content in programs performed in
fiscal 1998 and cost overruns on various development programs which negatively
impacted margins. Gross profit on product sales in Fiscal 1998 was 23.1 percent
compared to a margin of 12.9 percent for the five-month transition period ended
March 31, 1997, 6.7 percent for the fiscal year ended October 31, 1996 and 15.2
percent for the fiscal year ended October 31, 1995. The increase in margins on
product sales in Fiscal 1998 is primarily attributable to higher margins on
product sales of gears which averaged 32.5 percent during the period following
the acquisition of Aerocom.
Research and development expenditures in fiscal 1998 declined to $902,407
compared to the annualized rate for the five month transition period ended March
31, 1997 of $1,232,506 and the fiscal 1996 and 1995 amounts of $1,698,352 and
$1,298,311, respectively. The decrease is generally attributable to decreasing
levels of internally-funded development activities and declining levels of
development expenditures on the product launch for Invacare Corporation.
General and administrative expense for Fiscal 1998 was $2,121,340 compared to
$695,263 for the five-month transition period ended March 31, 1997 and
$1,354,713 and $1,193,030 during fiscal 1996 and 1995, respectively. The
increase over the prior periods presented is generally attributable to the
consolidation of the general and administrative expenses of Aerocom and UPP
which amounted to total expenditures of $115,607 during Fiscal 1998, legal and
accounting expenditures related to the negotiation and due diligence for the
Aerocom and Franklin acquisitions which totaled $105,887, higher levels of
investor relations, marketing and business development expenditures which
totaled $85,073 and the write-off of an accounts receivable from a customer who
filed for bankruptcy of $229,872.
Interest income increased to $191,186 in Fiscal 1998 compared to $54,802 for the
five-month transition period last year and $113,582 and $50,890 for Fiscal 1996
and 1995, respectively. The increase is attributable to higher levels of
invested cash during Fiscal 1998.
Interest expense was $96,073 during Fiscal 1998 which represents a decrease from
the annualized Fiscal 1997 amount and the amounts reported for Fiscal 1996 and
1997. The decrease is attributable to generally lower interest rates in Fiscal
1998 and the funding of capital call obligations to Taiwan UQM during Fiscal
1997 which carried a 10 percent interest rate throughout the period they were
due and not paid.
Equity in loss of Taiwan joint venture rose to $246,648 for the year ended
March 31, 1997 compared to $24,121 for the five-month transition period ended
March 31, 1997 and $45,164 and $11,952 for the fiscal years ended October 31,
1996 and 1995, respectively. The increase is due to expanded staffing and
operations at Taiwan UQM preparatory to the launch of manufacturing operations.
Liquidity and Capital Resources
The Company's cash balances and liquidity throughout Fiscal 1998 were adequate
to meet operating needs. Net cash used by operating activities was $3,679,072
for the year ended March 31, 1998. Cash requirements throughout the period were
funded primarily through the sale of common stock to investors and cash received
upon the exercise of outstanding common stock warrants and options.
During the first quarter of Fiscal 1998, the Company entered into a strategic
alliance with EV Global Motors Company. As part of this alliance EVG exchanged
400,000 shares of its common stock for 200,000 shares of the Company's common
stock. The value of the exchange transaction was $1,000,000. Coincident with
this transaction Mr. Lee Iacocca, EVG's Chief Executive Officer joined the
Company's board of directors and Ray Geddes, the Company's Chief Executive
Officer, joined EVG's board of directors. As of May 31, 1998 EVG beneficially
owned 1,455,806 shares of the Company's common stock or 9.2 percent making EVG
the Company's largest shareholder.
During the fourth quarter of Fiscal 1998, the Company completed the acquisition
of all of the outstanding common stock of Aerocom Industries, Inc., a
privately-held Boulder, Colorado based precision gear manufacturer. The
acquisition price was $3,377,020 consisting of a cash payment of $337,702 and
the issuance of 371,555 shares of the Company's common stock. In addition, the
Company assumed $1,264,464 of then existing Aerocom liabilities and debt. The
cash portion of the transaction was paid from existing cash balances of the
Company. Subsequent to the acquisition, the Company began construction of a
25,000 square foot manufacturing plant in Frederick, Colorado. The plant is
situated on 2 acres of land and the Company holds an option to acquire an
adjacent 2 acre parcel to accommodate future expansion of the facility.
Construction cost of the plant, including land acquisition costs, is expected to
be $1.2 million. Construction financing was provided from existing cash
balances. The Company has received a commitment from a commercial bank for
mortgage financing which is expected to amount to approximately $.9 million.
Coincident with this expansion, prior to the end of Fiscal 1998 the Company
expended $461,550 for year manufacturing equipment of the approximately $2
million it expects to expend on such equipment prior to the end of calendar
1998. These expenditures are expected to increase its manufacturing capability,
both in manufacturing processes and throughput capacity. In order to expand its
operations and fund its capital expenditure needs, the Company secured financing
from a commercial bank which consists of a $.75 million revolving line-of-credit
and term loan financing for up to $2 million of manufacturing equipment
purchases, including the refinancing of existing term equipment loans. All
financing of the subsidiary has been unconditionally guaranteed by Unique as the
parent entity.
During the fourth quarter of Fiscal 1998, the Company completed the private
placement of 626,875 units of its securities, at $8.00 per unit, to
institutional investors and individual investors in an offering under Regulation
D of the Securities Act. Each unit sold consisted of one share of common stock
and one warrant to purchase one share of common stock at $8.00 per share for a
period of two years subsequent to the date of the offering. The warrants may be
called after one year from the date of the offering if the closing price of the
common stock on the American Stock Exchange has been $16.00 or more for a period
of 20 days. Net proceeds to the Company were $4,673,797. Subsequent, to the end
of Fiscal 1998, the Company acquired Franklin Manufacturing Company, a
privately-held St. Charles, Missouri manufacturer and distributor of electronic
assemblies and components. The Company completed the acquisition of the
outstanding common stock of Franklin for $4 million in cash, the assumption of
approximately $3.1 million in liabilities and debt and the issuance of 286,282
shares of the Company's common stock. The Company intends to negotiate an
increase in Franklin's revolving line-of-credit to accommodate future growth,
however, there can be no assurance that such negotiations will be successful.
All financing of Franklin has been unconditionally guaranteed by the Company. In
June 1998, Franklin was notified by a significant customer, who accounted for
$3,380,401 of revenue for the fiscal year ended September 30, 1997, to cease
production due to a labor dispute between the United Auto Workers and General
Motors Corporation. If the labor dispute is not settled expeditiously, the
cessation of product shipments to the customer could have a material adverse
effect on the Company's results of operations.
The Company met capital calls from Taiwan UQM of $1.4 million in both fiscal
1996 and 1997. Taiwan UQM reported a net loss of approximately $.6 million in
fiscal 1998. Further losses or capital investment by Taiwan UQM could result in
additional capital calls by Taiwan UQM.
During the first half of Fiscal 1999, the Company expects to invest
substantially greater amounts of capital to launch manufacturing operations and
supply motors to Invacare Corporation pursuant to a supply agreement executed
during Fiscal 1998. Anticipated capital expenditures for working capital,
production machinery, equipment, computer hardware and software are expected to
be approximately $1.5 million. The Company expects to fund this investment
requirement through a combination of existing cash resources and short-term bank
lines-of-credit. Although the Company has, to-date, not entered into formal
arrangements for such bank lines-of-credit, Management believes bank
lines-of-credit are readily available to the Company on terms acceptable to the
Company. However, there can be no assurance that such bank financing can be
obtained. The Company believes it has cash resources sufficient to fund
non-manufacturing operations over the next year.
For the longer-term, the Company expects to continue its strategy of growing its
business through expanding its product line of permanent magnet motors and
controllers, seeking strategic alliances to accelerate the commercialization of
its technology and pursuing synergistic and accretive acquisitions. The Company
expects to finance its future growth from existing cash resources, cash flow
from operations, if any, and through the issuance of equity or debt securities
or a combination thereof. There can, however, be no assurance that such
financing or capital will be available on terms acceptable to the Company. In
the event financing or capital for future growth as envisioned under the
Company's strategy is not available, the Company believes it can configure its
operations such that existing cash balances and cash flow from operations will
be sufficient to meet its operating requirements.
ITEM 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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended March 31, 1998, the five months ended March 31, 1997 and each of
the years in the two-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 38.25 percent owned investee company). The Company's investment at
March 31, 1998 in Taiwan UQM Electric Co., Ltd. was $2,044,393, and for the year
ended March 31, 1998 the Company recognized equity in the losses of Taiwan UQM
Electric Co., Ltd of $(246,648). 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 year ended March 31, 1998 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, 1998 and 1997, and the results of their operations
and their cash flows for the year ended March 31, 1998, the five months ended
March 31, 1997 and each of the years in the two-year period ended
October 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
May 22, 1998
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, March31,
Assets 1998 1997
Current assets:
Cash and cash equivalents .............. $ 7,005,533 5,713,557
Accounts receivable (note 14) .......... 1,105,466 389,314
Costs and estimated earnings in excess
of billings on uncompleted contracts
(note 3) ............................. 454,738 191,885
Inventories (note 4) ................... 253,917 425,391
Prepaid expenses ....................... 158,764 115,260
Other .................................. 18,361 17,675
Total current assets ........... 8,996,779 6,853,082
Property and equipment, at cost:
Land (notes 5 and 9) ................... 444,480 335,500
Building (notes 5 and 9) ............... 1,511,635 1,438,090
Molds .................................. 102,113 102,113
Transportation equipment ............... 209,920 258,675
Machinery and equipment ................ 5,605,326 1,963,146
7,873,474 4,097,524
Less accumulated depreciation .......... (2,186,805) (1,764,288)
Net property and equipment ..... 5,686,669 2,333,236
Investment in Taiwan joint venture (note 6) 2,044,393 2,677,730
Investment in EV Global (note 7) .......... 1,000,000 --
Patent and trademark costs, net of
accumulated amortization of $63,542
and $45,551(note 13) ................... 575,985 502,297
Goodwill, net of accumlated amortization
of $16,215 (note 2) .................... 1,280,872 --
Other assets .............................. 853 4,354
$ 19,585,551 12,370,699
(Continued)
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
March 31, March 31,
Liabilities and Stockholders' Equity 1998 1997
Current liabilities:
Accounts payable ....................... $ 389,791 169,403
Note payable to Taiwan joint venture
(note 6) ............................. -- 1,345,285
Other current liabilities (note 8) ..... 876,357 459,223
Current portion of long-term
debt (note 9) ........................ 163,554 45,180
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 3) ................... 450 659,807
Total current liabilities ....... 1,430,152 2,678,898
Long-term debt, less current portion
(note 9) ............................... 1,029,924 726,218
Total liabilities ............... 2,460,076 3,405,116
Minority interest in consolidated
subsidiary (note 5) .................... 394,343 390,784
Stockholders' equity (notes 11 and 12):
Common stock, $.01 par value, 50,000,000
shares authorized; 15,394,621 and
13,042,964 shares issued ............. 153,946 130,430
Additional paid-in capital ............. 38,852,446 27,094,170
Accumulated deficit .................... (21,798,724) (18,532,364)
Notes receivable from officers ......... (56,056) (83,646)
Cumulative translation adjustment ...... (420,480) (33,791)
Total stockholders' equity ...... 16,731,132 8,574,799
Commitments (notes 6, 9, 16, 19 and 20)
$ 19,585,551 12,370,699
See accompanying notes to consolidated financial statements.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year Five Months
Ended Ended
March 31, March 31, Year Ended October 31,
1998 1997 1996 1995
Revenue:
Contract services (note 14) ......... $ 2,790,496 700,132 1,436,484 4,031,951
Product sales ....................... 1,274,236 152,016 611,213 701,700
4,064,732 852,148 2,047,697 4,733,651
Operating costs and expenses:
Costs of contract services .......... 2,635,599 631,823 1,168,757 2,781,866
Costs of product sales .............. 980,034 132,418 570,481 594,782
Research and development ............ 902,407 513,544 1,698,352 1,298,311
General and administrative .......... 2,121,340 695,263 1,354,713 1,193,030
Amortization of goodwill ............ 16,215 -- -- --
Write-down of inventory ............. 416,736 -- -- --
7,072,331 1,973,048 4,792,303 5,867,989
Operating loss .............. (3,007,599) (1,120,900) (2,744,606) (1,134,338)
Other income (expense):
Interest income ..................... 191,186 54,802 113,582 50,890
Interest expense .................... (96,073) (84,704) (202,798) (177,051)
Equity in loss of Taiwan joint
venture (note 6) .................. (246,648) (24,121) (45,164) (11,952)
Minority interest share of earnings
of consolidated subsidiary ........ (70,905) (27,725) (69,400) (64,627)
Other ............................... (36,321) 1,563 43,643 6,645
(258,761) (80,185) (160,137) (196,095)
Net loss .................... $ (3,266,360) (1,201,085) (2,904,743) (1,330,433)
Net loss per common share -
basic and diluted (note 1n) $ (.23) (.12) (.26) (.13)
Weighted average number of shares
of common stock outstanding .......... 13,924,434 12,043,481 11,021,742 10,090,778
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, 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 11) .............. 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 services
(note 12) .......................... -- -- 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 11) ............. 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 11) .............. 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
Issuance of common stock in private
offerings, net of offering costs
of $341,202 (note 11) .............. 626,875 6,269 4,667,528 -- -- -- -- 4,673,797
Issuance of common stock upon
exercise of employee and directors
options ............................ 226,332 2,263 1,081,888 -- -- -- -- 1,084,151
Issuance of common stock upon
exercise of warrants ............... 918,026 9,180 1,923,195 -- -- -- -- 1,932,375
Issuance of common stock under
employee stock purchase plan ....... 7,523 75 23,963 -- -- -- -- 24,038
Issuance of common stock for
services ........................... 4,000 40 28,480 -- -- -- -- 28,520
Compensation expense accrued for
issuance of common stock options
granted for services ............... -- -- 19,000 -- -- -- -- 19,000
Issuance of common stock for
acquisition of Aerocom ............. 371,555 3,716 3,035,602 -- -- -- -- 3,039,318
Issuance of common stock for
investment in EV Global ............ 200,000 2,000 998,000 -- -- -- -- 1,000,000
Cumulative translation adjustment .... -- -- -- (386,689) -- -- -- (386,689)
Repayment of executive note .......... (2,654) (27) (19,380) -- -- 27,590 -- 8,183
Net loss ............................. -- -- -- -- (3,266,360) -- -- (3,266,360)
Balances at March 31, 1998 ........... 15,394,621 $ 153,946 38,852,446 (420,480)(21,798,724) (56,056) -- 16,731,132
See accompanying notes to consolidated financial statements.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Five Months
Ended Ended
March 31, March 31, Year Ended October 31,
1998 1997 1996 1995
Cash flows used by operating activities:
Net loss ....................................... $(3,266,360) (1,201,085) (2,904,743) (1,330,433)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization ............. 545,295 159,473 375,590 346,567
Minority interest share of earnings of
consolidated subsidiary ................. 70,905 27,725 69,400 64,627
Noncash compensation expense for
common stock and warrants issued
for services ............................ 28,520 3,949 61,391 50,000
Noncash compensation expense for stock
options granted to consultants .......... 19,000 -- -- --
Equity in loss of Taiwan joint venture .... 246,648 24,121 45,164 11,952
(Gain) loss on sale of property and
equipment ............................... 32,180 -- (45,676) (3,534)
Write-off of patent costs ................. 18,731 55,529 -- --
Other ..................................... -- 1,210 (20,092) (466)
Change in operating assets and liabilities:
Accounts receivable and costs and
estimated earnings in excess of
billings on uncompleted contracts .... (609,588) 167,846 (148,782) 161,223
Inventories ............................ 331,294 (17,246) (3,444) 70,450
Prepaid expenses and other current
assets ............................... (41,084) (66,910) (12,846) 27,105
Accounts payable and other current
liabilities .......................... (395,256) 106,497 (25,681) (200,703)
Billings in excess of costs and
estimated earnings on uncompleted
contracts ............................ (659,357) 634,122 25,685 (137,247)
Net cash used by operating
activities ..................... (3,679,072) (104,769) (2,584,034) (940,459)
Cash provided by(used by)investing activities:
Cash paid for acquisition of subsidiary, net ... (337,702) -- -- --
Acquisition of property and equipment .......... (703,562) (118,608) (182,011) (440,079)
Increase in patent and trademark costs ......... (110,411) (47,865) (92,390) (64,766)
Investment in Taiwan joint venture ............. -- (1,375,121) -- --
Proceeds from sale of certificates of deposit
and other investments ........................ -- -- 319,107 117,127
Proceeds from sale of property and equipment ... 25,250 -- 63,361 -
Net cash provided by (used by)
investing activities ............ $(1,126,425) (1,541,594) 108,067 (387,718)
(Continued)
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Year Five Months
Ended Ended
March 31, March 31, Year Ended October 31,
1998 1997 1996 1995
Cash flows provided by financing activities:
Proceeds from borrowings .................... $ -- -- -- 212,337
Repayment of debt ........................... (212,440) (34,085) (83,045) (250,905)
Repayment of note payable for investment
in Taiwan joint venture ................... (1,345,285) -- -- --
Proceeds from sale of common stock, net ..... 4,673,797 4,146,820 3,909,379 1,950,554
Issuance of common stock upon exercise
of employee options ....................... 1,092,334 45,000 130,565 76,396
Issuance of common stock under employee
stock purchase plan ....................... 24,038 -- 20,267 2,526
Issuance of common stock upon exercise of
warrants .................................. 1,932,375 -- -- --
Distributions paid to holders of minority
interest .................................. (67,346) (28,061) (67,345) (67,347)
Net cash provided by financing
activities .................... 6,097,473 4,129,674 3,909,821 1,923,561
Increase in cash and cash
equivalents ................... 1,291,976 2,483,311 1,433,854 595,384
Cash and cash equivalents at beginning of period 5,713,557 3,230,246 1,796,392 1,201,008
Cash and cash equivalents at end of period ..... $ 7,005,533 5,713,557 3,230,246 1,796,392
Interest paid in cash during the period ........ $ 129,599 276,591 82,494 89,133
Non-cash investing and financing transactions:
Cumulative translation adjustments of $386,689 were recorded for the year ended
March 31,1998, $12,761 for the five months ended March 31, 1997, and $21,030 for
the year ended October 31, 1996.
In January 1998, the Company purchased all of the outstanding stock of Aerocom
Industries, Inc. for $337,702 cash and 371,555 shares of the Company's common
stock (see note 2).
In June 1997, the Company entered into a stock purchase agreement with EV Global
Motors Company (EVG) whereby the Company exchanged 200,000 shares of its common
stock for 400,000 shares of EVG (see note 7).
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 6).
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 year ended March 31, 1998 and the five
months ended March 31, 1997, there were no such transactions. For the years
ended October 31, 1996 and 1995, the Company issued 13,666 and 32,130 shares of
common stock for options exercised for an aggregate exercise price of $10,250
and $22,130, respectively, for which the Company received 2,000 and
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
5,365 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. There were no notes receivable exchanged for the exercise
of options during the year ended March 31, 1998. 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 and 1995, the Company
issued 13,395 and 2,900 shares of common stock for an aggregate exercise price
of $13,395 and $1,750, 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 permanent magnet
electric motors and the electric controls for such motors. The
Company's revenue is derived primarily from contract research and
development services and sales of products developed from such
technology. Through its recently acquired wholly-owned subsidiary,
Aerocom Industries, Inc, the Company provides contract grinding
services and manufactures high-precision gears for the aerospace and
commercial industries.
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, 1998 and 1997, consisted of the
other stockholders' ownership interests in a subsidiary of the
Company. See Note 5.
(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.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 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 year ended
December 31, 1997, the two months ended December 31, 1996, and the
twelve months ended October 31, 1996 and 1995. Similarly, the
accompanying consolidated balance sheets and related footnote
disclosures as of March 31, 1998 and 1997, include the financial
position of the Taiwan joint venture as of December 31, 1997 and 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 year ended December 31, 1997, and
the two and twelve-month periods ended December 31, 1996, and October
31, 1996 and 1995, respectively, and the spot rates in effect at the
respective December 31, 1997 and 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) Goodwill
The excess of the consideration exchanged over the fair value of the
net assets obtained in acquisitions is recorded as goodwill.
Amortization of goodwill is calculated using the straight-line method
over a period of 20 years.
(i) 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 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 consolidated financial statements.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(j) 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 cost
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 and other indirect costs. General and administrative costs are
charged to expense as incurred. At the time a loss on a contract
becomes known, the entire amount of the estimated 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.
(k) 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.
(l) Research and Development
Costs of researching and developing new technology or significantly
altering existing technology are charged to operations as incurred.
(m) 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.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(n) 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).
(o) Loss Per Common Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"), which specifies the computation, presentation and
disclosure requirements for earnings per share. SFAS 128 is effective
for periods ending after December 15, 1997 and requires retroactive
restatement of earnings per share in prior periods. The statement
replaces the calculation of "primary earnings per share" with "basic
earnings per share" and redefines the "diluted earnings per share"
computation. Common stock equivalents were not included in the
computations because their effect was anti-dilutive. Adoption of SFAS
128 did not effect the reported net loss per common share for the year
ended March 31, 1998, the five months ended March 31, 1997 or the
years ended October 31, 1996 or 1995. 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.
(p) 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.
(q) 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) Acquisition of Aerocom
On January 16, 1998, the Company acquired all of the outstanding common
stock of Aerocom Industries, Inc. ("Aerocom") for cash and shares of the
Company's common stock totaling $3,377,020. The allocation of the purchase
price, based on preliminary estimates of fair value which may be subject to
adjustment, was as follows:
Accounts receivable $ 369,417
Inventories 159,820
Property, plant and equipment 2,812,054
Goodwill 1,297,087
Other 3,106
4,641,484
Debt and other liabilities
assumed (1,264,464)
Purchase price $ 3,377,020
The acquisition has been accounted for using the purchase method of
accounting and the results of Aerocom's operations have been included with
those of the Company since January 16, 1998. The unaudited pro forma
revenue, net loss, and loss per common share for the year ended March 31,
1998, assuming the acquisition occurred on November 1, 1996, is as follows:
Year Ended Five Months Ended
March 31, 1998 March 31, 1997
Revenue $ 5,515,859 1,438,293
Net loss $(3,200,747) (1,206,853)
Basic and diluted loss
per common share $ (.23) (.11)
The pro forma information does not necessarily represent the results that
would have occurred if the acquisition had been consummated on November 1,
1996, nor are they necessarily indicative of the results of future
operations.
(3) Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
and Billings in Excess of Costs and Estimated Earnings on Uncompleted
Contracts
At March 31, 1998, the estimated period to complete contracts in process
ranged from 1 to 12 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,
1998, within one year.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following summarizes contracts in process at March 31, 1998,
and 1997:
March 31, March 31,
1998 1997
Costs incurred on uncompleted
contracts ........................ $ 1,724,552 3,158,704
Estimated earnings ................. 515,782 490,407
2,240,334 3,649,111
Less billings to date .............. (1,786,046) (4,117,033)
$ 454,288 (467,922)
Included in the accompanying balance
sheets as follows:
Costs and estimated earnings
in excess of billings on
uncompleted contracts ........ $ 454,738 191,885
Billings in excess of costs and
estimated earnings on
uncompleted contracts ........ (450) (659,807)
$ 454,288 (467,922)
(4) Inventories
Inventories at March 31, 1998, and 1997 consists of:
March 31, March 31,
1998 1997
Raw materials ... $ 76,377 283,155
Work in process . 159,825 69,460
Finished products 17,715 72,776
$253,917 425,391
(5) 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 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
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
(6) 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 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 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.
During the current fiscal year an investment was made in Taiwan UQM by
employees of Taiwan UQM diluting the Company's investment to 38 1/4%.
Summarized unaudited financial information for Taiwan UQM is as follows:
December 31, December 31,
Financial Position 1997 1996
Current assets .................... $ 341,178 889,881
Noncurrent assets-land, property
and equipment ................... 6,474,301 4,542,142
Total assets ............... 6,815,479 5,432,023
Current liabilities ............... 1,470,684 607,453
Noncurrent liabilities ............ -- --
Stockholders' equity .............. 5,344,795 4,824,570
Total liabilities and equity $ 6,815,479 5,432,023
Year Two Months Year
Ended Ended Ended
December 31, December 31, October 31,
Results of Operations 1997 1996 1996
Revenue $ 663 10,123 --
Expenses (597,278) (56,403) (128,214)
Net loss $(596,615) (46,280) (128,214)
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Investment in EV Global
In June of 1997, the Company entered into a strategic relationship with EV
Global Motors Company (EVG) to develop and market light electric
transportation products. EVG purchased 1,151,925 shares of the Company's
common stock in a private transaction from Alcan Aluminum Limited 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 which was valued at $1,000,000.
(8) Other Current Liabilities
Other current liabilities at March 31, 1998 and 1997, consists of:
March 31, March 31,
1998 1997
Accrued interest ................ $ 5,692 39,218
Accrued loss reserves ........... 22,678 8,120
Accrued legal and accounting fees 55,376 37,171
Accrued payroll, consulting,
personal property
taxes and real estate taxes ... 158,604 99,997
Accrued material purchases ...... 82,357 --
Accrued machinery and equipment
purchases .................... 402,834 --
Unearned revenue ................ 65,037 --
Refund of overpayment ........... -- 250,005
Other ........................... 83,779 24,712
$876,357 459,223
(9) Long-term Debt
Long-term debt at March 31, 1998 and 1997, consists of:
March 31, March 31,
1998 1997
Note payable to bank, payable in monthly install-
ments with interest at 9.1%; matures October 2007;
secured by land and building with a net book value
of $1,530,041 ..................................... $ 726,202 771,398
Note payable to bank, payable in monthly installments
with interest at 10.05%; matures November 2001; see
note 20 ........................................... 467,276 --
Total long-term debt ...................... 1,193,478 771,398
Less current portion ............................. 163,554 45,180
Long-term debt, less current portion ...... $1,029,924 726,218
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The annual aggregate maturities of long-term debt for each of the next five
fiscal years and thereafter are as follows:
1999 $ 163,554
2000 179,278
2001 197,660
2002 155,388
2003 71,536
Thereafter 426,062
$ 1,193,478
(10) 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:
Five Months
Year Ended Ended
March 31, March 31, Year Ended October 31,
1998 1997 1996 1995
Computed "expected" tax
benefit $(1,110,562) (408,369) (987,613) (452,347)
Increase (decrease) in
taxes resulting from:
Increase in
valuation
allowance for
net deferred
tax assets 1,015,804 407,443 985,132 450,383
Other, net 94,758 926 2,481 1,964
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, March 31,
1998 1997
Deferred tax assets:
Research and development
credit carryforwards $ 74,864 61,188
Net operating loss
carryforwards 6,730,804 5,728,676
Total deferred
tax assets 6,805,668 5,789,864
Less valuation allowance 6,805,668 5,789,864
Deferred tax assets,
net of valuation
allowance $ -- --
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
As of March 31, 1998, the Company had net operating loss carryforwards
(NOL) of approximately $22.1 million for U.S. income tax purposes which
expire in varying amounts through 2013. Approximately $2.1 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 the Company fails to satisfy the continuity of business enterprise
requirement for the two-year period following an ownership change.
(11) Stockholders' Equity
During the year ended October 31, 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 the year ended October 31, 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.
During the year ended March 31, 1998, the Company completed one private
placement with institutional and private investors of 750,000 units
consisting of one share of the Company's common stock and one warrant at a
price of $8.00 per unit. Each warrant is exercisable into one share of the
Company's common stock at $8.00 per share and expires two years from the
date of issuance. Of the 750,000 units that were privately placed, 626,875
were issued in March 1998 and the remaining 123,125 were issued in April
1998.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Common Stock Options and Warrants
Incentive and Non-Qualified Option Plans
The Company has reserved 5,104,000 shares of common stock for key
employees, consultants and key suppliers under its Incentive and
Non-Qualified Option Plans of 1992 and 1982. Under these option plans the
exercise price of each option is set at the fair market value of the common
stock on the date of grant and the maximum term of the options is 10 years
from the date of grant. Options granted to employees vest ratably over a
three-year period. The maximum number of options that may be granted to any
eligible employee during the term of the 1982 and 1992 plans is 1,000,000
options. Options granted under the Company's plans to employees require the
option holder to abide by certain Company policies which restrict their
ability to sell the underlying common stock.
The following table summarizes activity under the plans:
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
Granted ....................... 601,000 7.88
Exercised ..................... (210,332) 4.75
Forfeited ..................... (13,772) 4.80
Outstanding at March 31, 1998 . 2,828,352 $ 5.34
Exercisable at March 31, 1998 . 1,781,046 $ 4.97
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table presents summarized information about stock options
outstanding at March 31, 1998:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
$0.50 - 1.00 112,117 1.5 years $0.79 112,117 $0.79
$2.25 - 3.31 623,256 8.0 years $3.08 297,085 $2.83
$3.50 - 5.00 805,086 6.6 years $4.05 666,162 $4.03
$5.38 - 8.13 1,287,893 7.8 years $7.64 705,682 $7.41
$0.50 - 8.13 2,828,352 7.5 years $5.34 1,781,046 $4.97
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 presents summarized activity under the plan:
Weighted
Shares Under Average
Option Exercise Price
Outstanding at October 31, 1994 48,000 $ 5.96
Granted 61,333 5.10
Outstanding at October 31, 1995 109,333 5.48
Granted 32,000 4.38
Outstanding at October 31, 1996
and March 31, 1997 141,333 5.23
Granted 64,000 7.13
Exercised (16,000) 5.38
Outstanding at March 31, 1998 189,333 $ 5.86
Exercisable at March 31, 1998 98,666 $ 5.31
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table presents summarized information about stock options
outstanding for non-employee directors:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
$4.38 - 6.00 93,333 7.3 years $4.85 66,666 $4.86
$6.25 - 7.13 96,000 8.3 years $6.84 32,000 $6.25
189,333 7.8 years $5.86 98,666 $5.31
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") defines a fair value method of
accounting for employee stock options and similar equity instruments. SFAS
123 permits an entity to choose to recognize compensation expense by
adopting the new fair value method of accounting or continue to measure
compensation costs using the intrinsic value methods prescribed by APB25.
The Company accounts for stock options granted to employees and directors
of the Company under the intrinsic value method. Stock options granted to
non-employees under the Company's 1992 Stock Option Plan are accounted for
under the fair value method. Had the Company reported compensation costs as
determined by the fair value method of accounting for option grants to
employees and directors, net loss and net loss per common share would have
been the pro forma amounts indicated in the following table:
Five Months
Year Ended Ended Year Ended
March 31, 1998 March 31, 1997 October 31, 1996
Net loss - as reported ....... $(3,266,360) (1,201,085) (2,904,743)
Compensation expense - current
period option grants ....... (821,800) (116,847) (339,221)
Compensation expense - prior
period option grants ....... (619,654) (145,042) -
Net loss - pro forma ......... (4,707,814) (1,462,974) (3,243,964)
Net loss per common share -
as reported ................ $ (.23) (.12) (.26)
Net loss per common share -
pro forma ................. $ (.34) (.14) (.29)
The fair value of stock options granted was calculated using the Black
Scholes option pricing model based on the following weighted average
assumptions:
Five Months
Year Ended Ended Year Ended
March 31, 1998 March 31, 1997 October 31, 1996
Expected volatility 48.1% 47.6% 49.1%
Expected dividend yield 0.0% 0.0% 0.0%
Risk free interest rate 5.7% 6.4% 5.6%
Expected life of option
granted 6 years 6 years 6 years
Fair value of options
granted as computed under
the Black Scholes option
pricing models $4.15 per share $1.79 per share $2.22 per share
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Pro forma net loss reflects only the fair value compensation expense of
options granted since November 1, 1995. Therefore, the full impact of
calculating compensation cost for stock options under SFAS 123 is not
reflected in the pro forma net loss amounts presented above because
compensation cost is reflected over the option vesting periods (ranging
from 1 to 3 years) and compensation cost for options granted prior to
November 1, 1995, is not considered. Future pro forma compensation cost by
fiscal year, assuming no additional grants by the Company to employees and
directors, is as follows:
Fiscal Year Pro Forma
Ended Compensation
March 31, Expense
1999 $1,274,212
2000 $ 985,386
Warrants
In connection with the original issuance of certain subordinated
convertible term notes to Advent and Techno, the Company granted Advent and
Techno warrants to acquire 790,000 shares of the Company's common stock at
the lower of $2.40 per share, being the market value of the Company's stock
at the time of issuance or the market price of the common stock averaged
over the 30 trading days immediately preceding the date of exercise. The
warrants allowed for a cashless exercise of the warrants into common shares
based on the spread between the market price of the common stock on the
date of exercise and the $2.40 exercise price and expired in August 1997.
On June 19, 1997, warrants to acquire 395,000 shares of common stock were
exercised on a cashless basis resulting in the issuance of 249,154 shares
of common stock. On July 31, 1997, warrants to acquire 45,000 shares of
common stock were exercised on a cashless basis resulting in the issuance
of 29,000 shares of common stock. On August 5, 1997, warrants to acquire
175,000 shares of common stock were exercised on a cashless basis resulting
in the issuance of 116,053 shares of common stock. The remaining warrants
to acquire 175,000 shares of the Company's common stock were exercised on a
cashless basis on August 15, 1997, resulting in the issuance of 117,069
shares of common stock.
The Company has reserved 300,000 shares of common stock for issuance
pursuant to a warrant agreement with an investment banking company. The
warrants are exercisable at a price of $6.00 per share and expire in
January, 1999. The warrants contain transfer restrictions and provisions
for the adjustment of the exercise price and the number and type of
securities issuable upon exercise based on the occurrence of certain
events. On March 19, 1998, warrants to acquire 80,000 shares of the
Company's common stock were exercised resulting in cash proceeds to the
Company of $480,000. Warrants to acquire 220,000 shares of the Company's
common stock remain outstanding at March 31, 1998.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In connection with the 1995 common stock issuance, the placement agent was
issued warrants expiring July, 1998, to acquire 150,000 shares of the
Compan's common stock at $5.75 per share. During September and
December 1997, and February 1998, warrants to acquire 120,000 shares of the
Company's common stock were exercised, resulting in cash proceeds to the
Company of $690,000. Warrants to acquire 30,000 shares of the Company's
common stock remain outstanding as of March 31, 1998.
In connection with the 1996 private placements, the placement agents were
issued warrants to acquire 50,000 shares of the Company's common stock at
$4.75 per share in February, 1996, 38,100 shares of the Company's common
stock at $5.00 per share in May, 1996, and 50,000 shares at $4.25 per share
in September, 1996, being the market price of the common stock of the
Company at the date of each respective grant. The warrants expire three
years from the date of issuance. During October 1997, warrants to acquire
5,000 shares of the Company's common stock at $4.25 per share were
exercised resulting in cash proceeds to the Company of $21,250. Warrants to
acquire 50,000 shares at $4.75 per share, 38,100 shares at $5.00 per share
and 45,000 shares at $4.25 per share remain outstanding as of March 31,
1998.
In connection with the 1997 private placement, the placement agents were
issued warrants in February 1997, to acquire 225,625 shares of the
Company's stock at an exercise price of $3.50 per share and warrants to
acquire 50,000 shares at an exercise price of $4.20 per share. The warrants
expire three years from the date of issuance. During the fiscal year ended
March 31, 1998, warrants to acquire 151,750 shares of the Company's common
stock at $3.50 per share were exercised, resulting in cash proceeds to the
Company of $531,125. During December 1997, warrants to acquire 50,000
shares of the Company's common stock at $4.20 per share were exercised,
resulting in cash proceeds to the Company of $210,000. Warrants to acquire
73,875 shares of the Company's common stock at $3.50 per share remain
outstanding as of March 31, 1998.
As discussed in Note 11, the Company completed a private placement in 1998
of 750,000 units consisting of one common share and one warrant. Of the
750,000 units privately placed, 626,875 were issued in March 1998 and the
remaining 123,125 were issued in April 1998. Also in connection with the
1998 private placement, the placement agents were issued warrants in
March 1998, to acquire 176,588 shares of the Company's common stock at an
exercise price of $8.00 per share. The warrants expire two years from the
date of issuance. All of the warrants issued prior to March 31, 1998 remain
outstanding as of that date.
(13) Alcan Royalty Agreement
During 1994, the Company and Alcan Aluminum Limited ("Alcan") executed an
agreement in which Alcan assigned to the Company all of its rights, title
and interests in certain motor technology developed under a program funded
by Alcan. This agreement further provides that the Company shall pay to
Alcan royalties of one-half of one percent on revenue derived from the
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
manufacture and sale of products or processes embodying the related
technology. For the year ended March 31, 1998, the five months ended March
31, 1997, and for the years ended October 31, 1996 and 1995, the Company
recorded royalty expense of $14,999, $4,077, $9,497 and $23,423,
respectively, under this agreement.
(14) 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 Year Ended
Year Ended Ended October 31,
March 31, 1998 March 31, 1997 1996 1995
Customer A $ - 162,500 - -
B 707,771 113,229 - -
C 182,651 176,749 - -
D - - 378,640 1,720,347
E - - 202,343 880,420
F - - 194,600 -
G - - 135,950 -
H - - - 657,330
I 385,950 - - -
J 571,924 - - -
K 173,130 - - -
L 218,435 - - -
$ 2,239,861 452,478 911,533 3,258,097
Percentage of
contract services
revenue 80% 65% 63% 81%
These customers, in total, also represented 15% and 49% of total accounts
receivable at March 31, 1998 and 1997, respectively, and the majority of
costs and estimated earnings in excess of billings on uncompleted
contracts.
During the year ended March 31, 1998, the Company derived significant
product sales revenue from three customers. Revenue derived was as
follows: customer M - $122,263; customer N - $75,858; and
customer O - $188,129. These three customers accounted for 30% of the
product sales revenue.
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 $846,740 for the year ended March 31, 1998, $78,532 for the
five months ended March 31, 1997, and $800,208 and $2,478,350 for the years
ended October 31, 1996 and 1995, respectively.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) 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 providing comparable security to
the lender.
(16) 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. 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 $100,212, $39,535,
$90,935 and $98,441 for the year ended March 31, 1998, the five months
ended March 31, 1997, and for the years ended October 31, 1996 and 1995,
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 year ended March 31, 1998, the Company
issued 7,523 shares of common stock 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 and
1995, the Company issued 6,668 shares and 511 shares of common stock,
respectively, under the Stock Purchase Plan.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Segments
Commencing in the current fiscal year, the Company has two reportable
segments: technology and mechanical products. The technology segment
encompasses the Company's technology-based operations including core
research to advance its technology, application engineering and product
development and job shop production of prototype components. The mechanical
products segment encompasses the manufacture and sale of permanent magnet
motors, precision gears, gear assemblies and related mechanical products.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies at note 1. During the year
ended March 31, 1998, there were no intersegment sales or transfers.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different business strategies.
The following table summarizes significant financial statement information
for each of the reportable segments for the year ended March 31, 1998:
Mechanical
Technology Products Totals
Revenue $ 3,489,586 575,146 4,064,732
Interest income 155,480 35,706 191,186
Interest expense (75,473) (20,600) (96,073)
Depreciation and amortization (383,137) (145,943) (529,080)
Goodwill amortization - (16,215) (16,215)
Equity in loss of Taiwan
joint venture (246,648) - (246,648)
Segment loss (3,243,204) (23,156) (3,266,360)
Segment assets 12,757,776 6,827,775 19,585,551
Expenditures for
segment assets $ (278,568) (535,405) (813,973)
In determining the foregoing segments, the Company has allocated corporate
overhead and expenses and intangible assets, including goodwill, to the
appropriate segment. Prior to the current fiscal year, the Company's
financial statement information related to the technology segment.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) 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
(19) Commitments
The Company has entered into various contracts to purchase vacant land and
construct a new manufacturing facility in Frederick, Colorado. Vacant land
was purchased under contract for $108,900 and the Company has an option to
purchase an adjoining block of land for $72,600.
The construction contract provides for the erection of a 25,000 square foot
manufacturing facility at a cost not to exceed $850,000 adjusted for change
orders. As of year-end, the Company had paid $73,545 in progress payments
in relation to this contract. The facility was completed in June 1998.
These commitments will be met through additional financing from third party
institutions that were arranged subsequent to year end.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(20) Subsequent Events
Acquisition of Franklin
On April 30, 1998, the Company acquired all of the outstanding common stock
of Franklin Manufacturing Company (Franklin) for cash and shares of the
Company's common stock totaling approximately $6,247,316. The allocation of
the purchase price based on preliminary estimates of fair value which may
be subject to adjustment, is as follows:
Assets purchased:
Cash $ 151,360
Accounts receivable 1,426,995
Inventories 1,089,539
Property, plant and equipment 877,199
Goodwill 5,296,916
Related asset acquisition 422,250
Other 131,203
9,395,462
Debt and other liabilities assumed (3,148,146)
Purchase price $ 6,247,316
The acquisition has been accounted for using the purchase method of
accounting. The unaudited pro forma revenue, net loss and loss per common
share for year ended March 31, 1998 and 1997 respectively, assuming the
acquisition occurred on April 1, 1996 is as follows:
Year Ended Year Ended
March 31, 1998 March 31, 1997
Revenue $ 15,366,148 $ 10,717,010
Net loss (3,167,509) (2,437,238)
Basic and diluted loss $ (.22) $(.21)
per common share
The pro forma information does not necessarily represent the results that
would have occurred if the acquisition had been consummated on April 1,
1996, nor are they necessarily indicative of the results of future
operations.
In conjunction with the closing of the acquisition, the Company refinanced
Franklin's existing long-term debt totaling approximately $1.7 million with
Commerce Bank. The Company is a guarantor on the new financing arrangement.
The annual aggregate maturities of the refinanced long-term debt is as
follows: 1999 - $424,250; 2000 - $1,168,009; and 2001 - $101,236.
UNIQUE MOBILITY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
New Financing
Subsequent to the end of the fiscal year, the Company refinanced Aerocom's
existing long-term debt totaling approximately $467,000. The new financing
arrangement includes a $750,000 revolving line of credit, a $2 million term
equipment financing line of credit and a $900,000 mortgage loan on the
Company's new building in Frederick, Colorado. As of May 22, 1998, a total
of approximately $900,000 has been drawn against the equipment financing
line of credit.
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 September 14,
1998, to be filed on or about August 3, 1998, 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, 1998 and March 31,
1997.
Consolidated Statements of Operations for the year ended
March 31, 1998, the five months ended March 31, 1997 and
each of the years in the two-year period ended
October 31, 1996.
Consolidated Statements of Stockholders' Equity for the
year ended March 31, 1998, the five months ended
March 31, 1997, and each of the years in the two-year
period ended October 31, 1996.
Consolidated Statements of Cash Flows for the year ended
March 31, 1998, the five months ended March 31, 1997
and each of the years in the two-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, 1997 and 1996
Statements of Income for the year ended December 31, 1997,
December 31,1996, and the period January 17, 1995 to
December 31, 1997.
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1997, and December 31, 1996.
Statement of Cash Flows, for the year ended December 31,
1997, December 31, 1996 and the period January 17,
1995 to December 31, 1997.
Notes to Financial Statements
2. Financial Statement Schedules:
None.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Taiwan UQM Electric Co., Ltd.
We have examined the balance sheets of Taiwan UQM Electric Co., Ltd. as of
December 31, 1997 and 1996, and the related statements of income, changes in
shareholders' equity and cash flows for the years then ended. 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 the 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, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
Republic of China applied on a consistent basis.
Horwath & Company
Taipei, Republic of China
January 15, 1998
TAIWAN UQM ELECTRIC CO., LTD.
BALANCE SHEETS
(In Development Stage)
December 31, 1997 and 1996
(Amounts Expressed in New Taiwan Dollars)
December 31, 1997 December 31, 1996
ASSETS Amounts % Amounts %
CURRENT ASSETS
Cash and cash equivalents (Notes 2 & 3) $ 8,039,291 3.52 $ 22,510,890 15.08
Other receivables (Note 4) ............ 489,564 0.21 1,880,181 1.25
Inventories (Notes 2 & 5) ............. 300,990 0.13 -- --
Other current assets (Note 6) ......... 2,305,201 1.02 69,657 0.05
Total Current Assets .................. 11,135,046 4.88 24,460,728 16.38
PROPERTY AND EQUIPMENT (Notes 2, 7 & 13)
Cost ................................... 212,982,928 93.30 123,488,380 82.70
Less: accumulated depreciation ......... (1,751,374) (0.77) (108,473) (0.07)
Net .................................... 211,231,554 92.53 123,379,907 82.63
OTHER ASSETS
Refundable deposits ................... 21,200 0.01 -- --
Deferred charges (Note 2) ............. 49,500 0.02 -- --
Deferred income tax assets
(Notes 2 & 11) ...................... 5,851,399 2.56 1,472,828 0.99
Total Other Assets .................... 5,922,099 2.59 1,472,828 0.99
TOTAL ASSETS ............................. $ 228,288,699 100.00 $ 49,313,463 100.00
See accompanying notes to financial statements.
TAIWAN UQM ELECTRIC CO., LTD.
BALANCE SHEETS
(In Development Stage)
December 31, 1997 and 1996
(Amounts Expressed in New Taiwan Dollars)
LIABILITIES AND December 31, 1997 December 31, 1996
SHAREHOLDERS' EQUITY Amounts % Amounts %
CURRENT LIABILITIES
Short-term debts (Note 8) $ 30,000,000 13.14 $ -- --
Notes payable 889,221 0.39 4,014 --
Other notes payable (Note 13) 5,758,710 2.52 15,915,177 10.66
Accounts payable 46,500 0.02 -- --
Other payables (Note 9) 11,157,308 4.90 703,820 0.47
Other current liabilities 146,310 0.06 74,440 0.05
Total Current Liabilities 47,998,049 21.03 16,697,451 11.18
SHAREHOLDERS' EQUITY
Common stock, $10 par value,
authorized and issued
19,880,000 shares in 1997,
authorized 19,500,000
shares and issued 10,000,000
shares in 1996 198,800,000 87.08 100,000,000 66.97
Capital received in advance -- -- 37,050,000 24.81
Deficit in development stage
(Note 10) (18,509,350) (8.11) (4,433,988) (2.96)
Total Shareholders' Equity 180,290,650 78.97 132,616,012 88.82
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 228,288,699 100.00 $ 149,313,463 100.00
See accompanying notes to financial statements.
TAIWAN UQM ELECTRIC CO., LTD.
STATEMENTS OF INCOME
(In Development Stage)
For the Years Ended December 31 ,1997 and 1996
(Amounts Expressed in New Taiwan Dollars)
January 17,1995 to
1997 1996 December 31,1997
NET SALES (Note 13) $ 21,400 $ -- $ 21,400
COST OF SALES (18,818) -- (18,818)
GROSS PROFIT 2,582 -- 2,582
OPERATING EXPENSES (Note 13) (14,114,286) (4,617,699) (20,551,473)
OPERATING LOSS (14,111,704) (4,617,699) (20,548,891)
NON-OPERATING INCOME
Interest income 1,484,153 278,258 2,014,524
Other income (Note 13) 1,525,421 -- 1,525,421
Total Non-operating Income 3,009,574 278,258 3,539,945
NON-OPERATING EXPENSES
Interest expense (13,718) -- (13,718)
Indemnity loss (Note 13) (5,642,847) -- (5,642,847)
Other expenses (1,695,238) -- (1,695,238)
Total Non-operating Expenses (7,351,803) -- (7,351,803)
LOSS BEFORE INCOME TAX (18,453,933) (4,339,441) (24,360,749)
INCOME TAX BENEFIT (EXPENSE)
(Notes 2 & 11)
Current -- -- --
Deferred 4,378,571 1,080,984 5,851,399
Total Income Tax Benefit 4,378,571 1,080,984 5,851,399
NET LOSS $ (14,075,362) (3,258,457) $ (18,509,350)
EARNINGS PER SHARE
Net loss (Note 12) $ (1.08) $ (0.33)
See accompanying notes to financial statements.
TAIWAN UQM ELECTRIC CO., LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Development Stage)
For the Years Ended December 31 ,1997 and 1996
(Amounts Expressed in New Taiwan Dollars)
Capital Received in Deficit in
Shares Outstanding Common Stock Advance Development Stage
BALANCE AT JANUARY 1, 1996 10,000,000 $ 100,000,000 $ -- $ (1,175,531)
Capital received in advance -- -- 37,050,000 --
Net loss for 1996 -- -- -- (3,258,457)
BALANCE AT DECEMBER 31, 1996 10,000,000 100,000,000 37,050,000 (4,433,988)
Capital received in advance -- -- 57,950,000 --
Capital increase by transfer from
capital received in advance 9,500,000 95,000,000 (95,000,000) --
Capital increase by cash from
employees' subscription 380,000 3,800,000 -- --
Net loss for 1997 -- -- -- (14,075,362)
BALANCE AT DECEMBER 31, 1997 19,880,000 $ 198,800,000 $ -- $ (18,509,350)
See accompanying notes to financial statements .
TAIWAN UQM ELECTRIC CO., LTD.
STATEMENTS OF CASH FLOWS
(In Development Stage)
For the Years Ended December 31, 1997 and 1996
(Amounts Expressed in New Taiwan Dollars)
January 17, 1995 to
1997 1996 December 31,1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (14,075,362) $ (3,258,457) $ (18,509,350)
Adjustments:
Depreciation 1,642,901 108,473 1,751,374
Amortization 5,500 -- 5,500
Deferred income tax benefit (4,378,571) (1,080,984) (5,851,399)
Net changes in:
Other receivables 1,390,617 (1,815,670) (489,564)
Inventories (300,990) -- (300,990)
Other current assets (2,235,544) (43,422) (2,305,201)
Notes payable 885,207 4,014 889,221
Accounts payable 46,500 -- 46,500
Other payables 1,833,488 311,091 2,537,308
Other current liabilities 71,870 60,652 146,310
Net Cash Used in Operating Activities (15,114,384) (5,714,303) (22,080,291)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property (91,031,015) (26,458,791) (198,604,218)
Increase in refundable deposits (21,200) -- (21,200)
Addition to deferred charges (55,000) -- (55,000)
Net Cash Used in Investing Activities (91,107,215) (26,458,791) (198,680,418)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term debts 30,000,000 -- 30,000,000
Initial paid-in capital, capital
received in advance and
capital increase by cash 61,750,000 37,050,000 198,800,000
Net Cash Provided by Financing Activities 91,750,000 37,050,000 228,800,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (14,471,599) 4,876,906 8,039,291
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 22,510,890 17,633,984 --
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 8,039,291 $ 22,510,890 $ 8,039,291
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Interest paid (net of amount capitalized) $ 13,718 $ -- $ 13,718
Income tax paid $ -- $ -- $ --
INVESTING AND FINANCING ACTIVITIES
PARTIALLY AFFECTING CASH FLOWS
Acquisition of property $ 89,494,548 $ 42,373,968 $212,982,928
Payable at beginning of year 15,915,177 -- --
Payable at end of year (14,378,710) (15,915,177) (14,378,710)
Cash paid $ 91,031,015 $ 26,458,791 $198,604,218
See accompanying notes to financial statements.
TAIWAN UQM ELECTRIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
(In Development Stage)
December 31, 1997 and 1996
(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 31,1997 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.
a. 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.
b. Inventories
Inventories are stated at the lower of weighted average cost or market.
c. 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. When property are depreciated to
residual value and are still in use, they are depreciated over their
remaining useful lives. When property 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.
d. Deferred charges
Deferred charges are amortized by the straight-line method over five years.
e. Income tax
Income tax is provided in accordance with Statement of Financial
Accounting Standards No. 22 "Accounting for Income Tax". Tax effects
of taxable temporary differences are recognized as deferred income tax
liabilities, while those of deductible temporary differences, loss
carryovers and tax credits are recognized as deferred income tax
assets. Valuation allowance is provided on the basis of the estimated
realizability of deferred income tax assets.
3 CASH AND CASH EQUIVALENTS
December 31
1997 1996
Cash on hand $ 16,335 $ 26,130
Checking accounts 33,497 18,647
Demand deposits 7,989,459 22,466,113
Total $ 8,039,291 $ 22,510,890
4 OTHER RECEIVABLES
December 31
1997 1996
Taxes refundable $ 174,564 $ 1,880,181
Others 315,000 --
Total $ 489,564 $ 1,880,181
5 INVENTORIES
December 31
1997 1996
Raw materials $ 296,406 $ --
Finished goods 4,584 --
Total $ 300,990 $ --
6 OTHER CURRENT ASSETS
December 31
1997 1996
Prepaid business tax $ 2,227,771 $ 48,332
Others 77,430 21,325
Total $ 2,305,201 $ 69,657
7 PROPERTY AND EQUIPMENT
December 31
1997 1996
Cost
Land .................... $ 86,563,756 $ --
Buildings ............... 98,205,445 --
Machinery and equipment . 20,015,000 --
Tools and equipment ..... 2,023,400 --
Transportation equipment 1,714,946 746,306
Furniture and fixtures .. 2,811,026 234,536
Other equipment ......... 593,955 --
Prepayment for land ..... -- 84,414,291
Construction in progress 1,055,400 38,093,247
Total ................ 212,982,928 123,488,380
Accumulated Depreciation
Buildings .............. 791,320 --
Machinery and equipment 303,256 --
Tools and equipment .... 88,419 --
Transportation equipment 299,103 82,923
Furniture and fixtures . 233,364 25,550
Other equipment ........ 35,912 --
Total .............. 1,751,374 108,473
Net ....................... $211,231,554 $123,379,907
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. As of December 31, 1997, the Company has
paid $ 86,563,756 for the land and $ 95,832,792 for the factory. Since
the titles of the land and factory have not been transferred to the
Company, the Company has obtained certain collaterals from Everlight
Electric Industrial Co., Ltd. and its affiliate to secure the
transactions.
8 SHORT-TERM DEBTS
December 31
1997 1996
Unsecured loans $ 30,000,000 $ --
Interest rates 8.75% --
9 OTHER PAYABLES
December 31
1997 1996
Payroll $ 1,898,815 $ 467,821
Equipment 8,620,000 --
Other 638,493 235,999
Total $ 11,157,308 $ 703,820
10 RETAINED EARNINGS
The Company's Articles of Incorporation provide that 10% of the annual
net income (less deficit, if any) shall be appropriated as legal
reserve, and 5% of the remainder shall be appropriated as employees'
bonus, and the remainder shall be appropriated at the shareholders'
meeting in the following year.
11 INCOME TAX
a. Summary of deferred income tax assets or liabilities
December 31
Amounts Tax Effects
a)Total deferred income tax liabilities $ -- $ --
b)Total deferred income tax assets 5,851,399 1,472,828
c)Valuation allowance for deferred income tax assets -- --
d)Tax effects of temporary differences -- --
December 31,1997
Amounts Tax Effects
Deferred organization cost $14,759,375 $ 3,689,844
Loss carryover 8,646,218 2,161,555
Total deferred income tax assets $ 5,851,399
December 31, 1996
1997 1996
Deferred organization cost $ 5,891,311 $ 1,472,828
b. Classification of deferred income tax assets and liabilities
December 31
1997 1996
Deferred income tax assets - noncurrent $ 5,851,399 $ 1,472,828
Valuation allowance -- --
Deferred income tax liabilities - noncurrent -- --
Net deferred income tax assets - noncurrent $ 5,851,399 $ 1,472,828
c. Income tax
Reconciliation of expected income tax computed on pretax earnings at
statutory rates to current income tax expense:
1997 1996
Expected income tax benefit $(4,613,484) $ (1,084,860)
Permanent differences 234,913 3,876
Deferred organization cost 2,217,016 1,080,984
Loss carryover 2,161,555 --
Current income tax expense $ -- $ --
12. EARNINGS PER SHARE
1997 1996
Net loss (A) $(14,075,362) $ (3,258,457)
Weighted average number of outstanding shares (B) 13,085,808 10,000,000
Earnings per share (A)/(B) $ (1.08) $ (0.33)
10,000,000+9,880,000*114/365=13,085,808 (shares)
13. RELATED PARTIES TRANSACTIONS
a. Related parties and relationship.
Related parties Relationship
Unique Mobility, Inc. Major shareholder
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 AUTO components Corp. Investee of the Company's
major shareholder
b. Significant transactions with related parties
a) Net sales
1997 1996
Amounts % Amounts %
Kymco Motor Co., Ltd. $ 21,400 100.00 $ -- --
a) Rental expense
1997 1996
Turn Luckily Technology Co., Ltd. $ 1,904 $ 40,000
DJ AUTO Components Corp. 186,000 257,143
$ 187,904 $ 297,143
b) Property purchased from Everlight Electric Industrial Co., Ltd.
Amounts Paid
Transactions Total Prices December 31,1997 December 31, 1996
Purchase of land $ 86,563,756 $86,563,756 $84,414,291
plus land value
increment tax
Purchase of factory 96,000,000 95,832,792 38,216,089
c) Other income
1997 1996
Turn Luckily Technology Co., Ltd. $ 405,637 $ --
Unique Mobility, Inc. 819,784 --
Total $1,225,421 --
d) Indemnity loss
1997 1996
Kymco Motor Co., Ltd. $ 5,642,847 $ --
In 1997, the Company entered a sale agreement with Kymco Motor Co., Ltd. and
received the advance payment of $72,700,000. Since the Company failed to
deliver the merchandise in accordance with the agreement, the Company has
returned the advance payment and also indemnified the related interest
loss of $ 5,642,847.
e) Other notes payable
December 31
1997 1996
Amounts % Amounts %
Overlight Electric Industrial Co., Ltd. $ -- -- $ 15,761,177 99.03
14 ADDITIONAL DISCLOSURES
1997 1996
Net loss per books (ROC GAAP) $ (14,075,362) $(3,258,457)
Differences in GAAP:
Accounting for pensions -- --
Accounting for income tax (4,378,571) (1,080,984)
Net loss per US $ (18,453,933) $ (4,339,441)
a. Accounting for pensions:
Under the ROC Generally Accepted Accounting Principles (GAAP), only
public companies are currently required to adopt ROC SFAS No.18
"Accounting for Pensions", which is similar to US SFAS No.87. Since
the Company is not a public company, it has not adopted ROC SFAS
No.18.The Company has not yet established an employees' retirement
plan in accordance with the Labor Standards Law and has not obtained
an actuarial valuation report to accrue the pension liability.
b. Accounting for income tax:
ROC SFAS No.22 "Accounting for Income Tax" is similar to US SFAS
No.109. However, the local accounting practices do not require that an
100% valuation allowance for deferred tax assets should be provided in
an operating loss situation. The aforementioned difference represented
the additional valuation allowance for deferred tax assets to be
provided for 1997 and 1996 under US GAAP.
(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 strategic alliance and purchase of Company common
stock by EV Global Motor Company dated June 30, 1997.
Report regarding signing of Letter of Intent to acquire Aerocom
Industries, Inc. dated December 9, 1997.
Report regarding the completion of the acquisition of Aerocom
Industries, Inc. dated January 20, 1998.
Report regarding signing of Letter of Intent to acquire Franklin
Manufacturing Company dated April 2, 1998.
Report regarding the completion of the acquisition of Franklin
Manufacturing Company dated May 6, 1998.
(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 Corporation 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.
Amendment to the Stock Purchase Agreement by and among Unique Mobility Inc.
and Invacare Corporation. Reference 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.
10.18 Incentive Stock Option Agreement with Ray A. Geddes, Reference is
made to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, (No. 0-9146) which is incorporated herein
by reference.
10.19 Non-qualified Stock Option Agreement with Ray A. Geddes, Reference is
made to Exhibit 10.2 in the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, (No. 0-9146) which is incorporated herein
by reference.
Agreement and Plan of Merger and Reorganization between Unique Mobility,
Inc., Unique Merger Sub, Inc., Aerocom Industries, Inc., Thomas J. Lang,
James M. Buschy, Robert C. Jeffers and Gary R. Morton. Reference is made to
Exhibit 2 in the Company's current report on Form 8-K filed January 20,
1998 (No. 0-9146) which is incorporated herein by reference.
Escrow Agreement between Unique Mobility, Inc., Thomas J. Lang, James M.
Buschy, Robert C. Jeffers, Gary P. Morton and Norwest Bank Colorado N.A.
Reference is made to Exhibit 2 in the Company's current report on Form 8-K
filed January 20,1998 (No. 0-9146) which is incorporated herein by
reference.
Share Exchange Agreement between Unique Mobility, Inc., Franklin
Manufacturing Company, Michael G. Franklin and Deborah M. McNatt. Reference
is made to Exhibit 2.2 in the Company's current report on Form 8-K filed
May 6, 1998, (No. 09146) which is incorporated herein by reference.
10.23 Escrow Agreement between Unique Mobility, Inc., Michael G. Franklin,
Deborah M. McNatt and Norwest Bank Colorado N.A. Reference is made to
Exhibit 2.1 in the Company's current report on Form 8-K filed May 6, 1998,
(No. 09146) which is incorporated herein by reference. 10.24 Employment
Agreement between Unique Mobility, Inc. and Michael G. Franklin. Reference
is made to Exhibit 2.3 in the Company's current report on Form 8-K filed
May 6, 1998, (No. 09146) which is incorporated herein by reference.
10.25 Non-competition Agreement between Unique Mobility, Inc. and
Michael G.Franklin. Reference is made to Exhibit 2.4 in the Company's
current report on Form 8-K filed May 6, 1998, (No. 09146) 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
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 to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Golden, Colorado on the 26th day of June, 1998.
UNIQUE MOBILITY, INC.,
a Colorado Corporation
By: "Ray A. Geddes"
Ray A. Geddes
Chairman of the Board of Directors
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of Unique Mobility, Inc., in the capacities indicted and on the date
indicated.
Signature Title Date
Chairman of the Board of Directors
"Ray A. Geddes" (Principal Executive Officer) June 26, 1998
Ray A. Geddes
Treasurer
(Principal Financial and
"Donald A. French" Accounting Officer) June 26, 1998
Donald A. French
"William G. Rankin" President and Director June 26, 1998
William G. Rankin
Director June __, 1998
Francis S.M. Hodsoll
"H. J. Young" Director June 24, 1998
H. J. Young
"J.B. Richey" Director June 25, 1998
J. B. Richey
"Lee Iacocca" Director June 24, 1998
Lee Iacocca
"Michael G. Franklin" Vice-President - Electronics June 26, 1998
Michael G. Franklin Manufacturing and Director