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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number 1-13516
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3973627
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11859 South Central Avenue
Alsip, Illinois 60803
(Address of principal executive offices)
(Zip Code)
(708) 293-4050
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of issuer's Common Stock, par value $.01 per share,
outstanding as of August 12, 2002 was 8,220,949 shares.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page (s)
-------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Operations
(Unaudited) - for the three months and six months ended
June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows
(Unaudited) - for the six months ended
June 30, 2002 and 2001 5
Notes to Condensed Financial Statements (Unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 8 - 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION
Items 1 - Legal Proceedings 11
Items 2 and 3 are not applicable to the Company in this report
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 is not applicable to the Company in this report
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
EXHIBIT II - COMPUTATION OF EARNINGS PER SHARE 13
EXHIBIT 99.1 CERTIFICATE OF CHIEF EXECUTIVE OFFICER 14
EXHIBIT 99.2 CERTIFICATE OF CHIEF FINANCIAL OFFICER 15
2
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
June 30,2002 December 31, 2001
------------ -----------------
(Unaudited)
Assets
Current Assets:
Cash $ 260,911 $ 976,585
Accounts receivable, trade 19,942,682 15,789,886
Inventories 15,556,820 16,417,009
Deferred income taxes 240,000 240,000
Prepaid expenses and other current assets 681,751 486,293
36,682,164 33,909,773
------------ ------------
Property and Equipment, net 4,611,345 4,728,034
------------ ------------
Other Assets:
Goodwill, net 480,498 480,498
Due from stockholders 320,929 320,929
Other assets 535,378 598,609
------------ ------------
1,336,805 1,400,036
------------ ------------
$ 42,630,314 $ 40,037,843
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $ 12,088,617 $ 11,446,262
Long-term indebtedness, current portion 514,222 871,346
Accrued expenses and other current liabilities 3,025,106 3,569,600
------------ ------------
15,627,945 15,887,208
------------ ------------
Long-term Liabilities:
Revolving loan indebtedness 20,675,107 19,021,873
Subordinated debenture 1,179,986 1,179,986
Long-term indebtedness, non-current portion 236,589 421,269
------------ ------------
22,091,682 20,623,128
------------ ------------
Stockholders' Equity:
Preferred stock (authorized 2,000,000 shares,
$.01 par value, 201,438 shares of Series A and
100,000 shares of Series B issued and outstanding) 3,014 3,014
Common stock (authorized 30,000,000 shares,
$.01 par value, 8,220,949 shares and 7,939,599
issued and outstanding at June 30, 2002 and
December 31, 2001 respectively) 82,249 79,394
Additional paid-in-capital 15,202,516 14,583,947
Retained earnings (9,466,887) (10,136,023)
Accumulated other comprehensive losses (790,205) (882,825)
Stock subscription receivable (120,000) (120,000)
------------ ------------
4,910,687 3,527,507
------------ ------------
$ 42,630,314 $ 40,037,843
============ ============
The accompanying notes are an integral part of the financial statements.
3
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 20,424,405 $ 19,999,491 $ 38,068,722 $ 36,027,856
Cost of sales 16,424,626 16,258,452 30,852,829 29,917,303
------------ ------------ ------------ ------------
Gross profit 3,999,779 3,741,039 7,215,893 6,110,553
Selling, general, and administrative expenses 2,918,890 2,807,973 5,617,614 5,495,146
------------ ------------ ------------ ------------
Income from operations 1,080,889 933,066 1,598,279 615,407
------------ ------------ ------------ ------------
Other (Income) Expense:
Interest expense 403,415 635,185 754,243 1,215,188
Loss from discontinued operation 0 187,294 0 342,188
Other 160,249 (81,663) 174,900 (59,792)
------------ ------------ ------------ ------------
563,664 740,816 929,143 1,497,584
------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for
income taxes 517,225 192,250 669,136 (882,177)
Income tax provision (benefit) 0 (10,500) 0 0
------------ ------------ ------------ ------------
Net income (loss) $ 517,225 $ 202,750 $ 669,136 $ (882,177)
============ ============ ============ ============
Comprehensive Income (Loss):
Net income (loss) $ 517,225 $ 202,750 $ 669,136 $ (882,177)
Other comprehensive gain
(loss), foreign currency translation adjustment 137,634 63,609 92,620 301,031
------------ ------------ ------------ ------------
Comprehensive Income (Loss) $ 654,859 $ (266,359) $ 761,756 $ (581,146)
============ ============ ============ ============
Earnings (Loss) Per Share:
Basic: $ 0.06 $ 0.03 $ 0.08 $ (0.12)
Diluted: $ 0.05 $ 0.03 $ 0.06 $ (0.12)
Weighted average number of common shares Outstanding:
Basic 8,185,921 7,473,682 8,170,955 7,384,542
Common stock equivalents resulting from
warrants and options 2,781,181 396,190 3,051,294 0
------------ ------------ ------------ ------------
Diluted 10,967,102 7,869,872 11,222,249 7,384,542
============ ============ ======== === ============
The accompanying notes are an integral part of the financial statements
4
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
---------------------------
2002 2001
----------- -----------
Cash Flows from Operating Activities:
Net Income (Loss) $ 669,136 $ (882,171)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 687,944 718,608
Provision for bad debts 169,369 178,847
Effect of exchange rate changes 92,620 301,031
Compensation expense for stock options 19,800 19,800
Stock issued for services 0 80,560
Deferred income taxes 0 45,014
Changes in operating assets and liabilities:
Accounts receivable, trade (4,322,165) (5,232,852)
Inventories 860,189 1,509,655
Prepaid expenses and other current assets (154,760) (110,522)
Accounts payable, trade 642,356 (251,034)
Accrued expenses and other current liabilities (544,494) (477,364)
----------- -----------
Net cash provided by (used in) operating activities from
continuing operations (1,880,005) (4,100,441)
Net cash used in operating activities from
discontinued operations 0 39,612
----------- -----------
Net cash provided by (used in) operating activities (1,880,005) (4,060,829)
----------- -----------
Cash Flows for Investing Activities:
Proceeds from note receivable 2,500 0
Purchase of property and equipment (515,621) (557,858)
----------- -----------
Net cash used in investing activities (513,121) (557,858)
----------- -----------
Cash Flows from Financing Activities:
Net increase in revolving loan indebtedness 1,653,234 4,812,471
Principal payments on notes payable (577,405) (257,745)
Proceeds from issuance of common stock from exercise of
options 601,623 1,452
----------- -----------
Net cash provided by financing activities 1,677,452 4,556,178
----------- -----------
Net Increase (Decrease) in Cash (715,674) (62,509)
Cash, Beginning of Period 976,585 216,686
----------- -----------
Cash, End of Period $ 260,911 $ 154,177
=========== ===========
Cash of continuing operations $ 260,911 $ 110,032
Cash of discontinued operations (included with
net current assets of discontinued operations) 0 44,145
----------- -----------
$ 260,911 $ 154,177
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 807,517 $ 1,216,803
Supplemental Disclosures of Noncash Investing and Financing
Activities -
Debt incurred in connection with the acquisition of fixed assets
$ 0 $ 33,194
Conversion of Accounts Payable into equity
$ 0 $ 100,000
The accompanying notes are an integral part of the financial statements
5
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim condensed financial statements are prepared pursuant to the requirements
for reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with generally accepted accounting
principles are omitted. For additional disclosures, see the Notes to
Consolidated Financial Statements contained in Universal Automotive Industries,
Inc. (the "Company") Annual Report on Form 10-K for the year ended December 31,
2001.
Our significant accounting policies are described in Note 2 to the Consolidated
Financial Statements contained in the Universal Automotive Industries, Inc. (the
"Company") Annual Report on Form 10-K for the year ended December 31, 2001. The
application of these policies may require management to make judgments and
estimates about the amounts reflected in the financial statements. Management
uses historical experience and all available information to make these estimates
and judgments, and different amounts could be reported using different
assumptions and estimates.
In the opinion of management of the Company, all adjustments, consisting solely
of normal recurring adjustments, necessary for the fair presentation of the
financial statements for these interim periods have been included. The current
period's results of operations are not necessarily indicative of results, which
ultimately may be achieved for the year.
Certain reclassifications have been made for the period presented in the
financial statements to conform to the classifications presented in 2002.
2. INVENTORIES
June 30, 2002 December 31, 2001
------------- -----------------
Finished goods $11,694,390 $12,057,191
Work in process 948,559 888,742
Raw materials 2,913,871 3,471,076
----------- -----------
$15,556,820 $16,417,009
=========== ===========
3. BASIS OF PRESENTATION
Net Income Per Share
Warrants and options issued by the Company are only included in the computation
of weighted average number of shares, where their inclusion is not
anti-dilutive. For the six months ended June 30, 2001, common stock equivalents
are not included in the weighted average number of shares outstanding in
determining net loss per share.
Income Taxes
For the quarters and year to date periods ended June 30, 2002 and 2001, the
provision for income taxes differed from the amount computed by applying the
statutory rate to income (loss) before income taxes primarily due to adjustments
to the valuation allowance for deferred tax benefit.
6
4. LASALLE INDEBTEDNESS
The LaSalle Credit Agreement contains certain limitations on dividends and
capital expenditures and requires the Company to satisfy certain financial tests
concerning earnings before interest, taxes, depreciation and amortization
(EBITDA), defined minimum tangible net worth and debt service coverage. At
December 31, 2001, the Company was not in compliance with certain of these
financial covenants. On March 27, 2002, LaSalle informed the Company that it
would waive such violation upon completion of required documentation that
included certain modifications and amendments to the Credit Agreement. These
modifications and amendments were executed on April 30, 2002, which provides,
among their provisions, an extension of the Credit Agreement until May 31, 2003
and modifications to certain financial covenants for which the Company was in
compliance as of March 31, 2002. As of June 30, 2002 the Company is in
compliance with its financial and other covenants. On August 7, 2002 the credit
agreement was further extended to May 31, 2005 and the interest rate reduced by
1/2%.
5. RECENTLY ADOPTED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, we are
no longer required to amortize goodwill and other intangible assets with
indefinite lives, but will be subject to periodic testing for impairment.
Effective January 1, 2002, we have adopted SFAS 142 and discontinued the
amortization of goodwill balances and intangible assets with indefinite useful
lives. We assessed our goodwill for impairment and will test for impairment at
least annually thereafter.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The provisions of SFAS 144 are
effective in fiscal years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. We have adopted SFAS
144 effective January 1, 2002.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Obligations Associated with the Retirement of Long-Lived
Assets" ("SFAS 143"). SFAS 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. We plan to adopt SFAS 143 effective January 1, 2003. We have not
determined the effect of adopting SFAS 143 on results of operations or our
financial position.
7. DISCONTINUED OPERATIONS
As previously disclosed in Note 11 of the 2001 Form 10-K, the Company finalized
its decision to discontinue its Hungarian operation in December 1999. As of
December 31, 1999, the Company provided for estimated costs of disposition of
$1,500,000 including estimated losses of the discontinued operations during the
disposal period. The disposition was initially expected to occur by the end of
2000. Commencing in 2001, because the Company had not disposed of the Hungarian
operations within one year, generally accepted accounting principles required
that income or loss from such discontinued operations be included in the
Statement of Earnings as a component of income or loss from continuing
operations. Accordingly, a net loss of $342,188 ($0.05 per share) was charged to
expense for the six month period ended June 30, 2001. The Company sold its
interest in the Hungarian operations effective December 31, 2001.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
GENERAL
We are a manufacturer and distributor of brake rotors, drums, disc brake pads,
relined brake shoes, non-asbestos friction lining, and a complete line of
hydraulic parts. We believe that we are the leading supplier of "value line"
brake parts (brake parts sold at prices significantly below those of certain
leading national brand name brake parts) to mass-market retailers, traditional
warehouse distributors and specialty undercar distributors in North America.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 Compared To Three Months Ended June 30, 2001
Net sales for the three months ended June 30, 2002 increased $424,914 or 2.1%
over the same quarter in 2001 to $20,424,405. The increased sales of brake parts
are consistent with the strengthening experienced throughout the automotive
aftermarket.
Gross profits for the three months ended June 30, 2002 were $3,999,779 or 19.6%
of net sales compared to $3,741,039 or 18.7% in the same period of 2001, an
increase of $258,740 or 6.9%. Approximately 50% of the increase is attributable
to increased sales. The remainder of the increase is primarily due to increased
efficiency and overhead absorption over 2001 levels at the Company's
manufacturing facilities.
Selling, general and administrative expenses of $2,918,890 (14.3% of net sales)
for the three months ended June 30, 2002 increased by $110,917 when compared to
$2,807,973 (14.0% of net sales) for the same period in 2001. Increased freight
costs on shipments to customers on the higher sales volume were partially offset
by cost savings initiatives and other cost reduction efforts.
Other expense for the three months ended June 30, 2002 decreased $177,152 to
$563,664 from $740,816 for the same period of 2001. Interest expense decreased
$231,770 from the same period in 2001 due to the restructuring of the Finova
subordinated debt that became effective October 31, 2001 and a lower interest
rate on the revolving loan indebtedness. Included in other expense for the
quarter ended June 30, 2001 is $175,000 of costs and expenses related to the
potential strategic alliance with Competition Friction, LLC. Discussions
regarding this strategic alliance terminated in April 2002. Included in other
expense for the quarter ended June 30, 2001 are losses of $187,294 from the
discontinued Hungarian foundry (see Note 7 of Notes to Condensed Financial
Statements). Also included in the results for the quarter ended June 30, 2001 is
$80,000 of other income related to the sale of excess equipment.
Net income for the three months ended June 30, 2002 was $517,225 compared to
$200,750 for the same period in 2001. This increase in net income is attributed
to increased sales, higher efficiencies and overhead absorption at the Company's
manufacturing facilities, reduced selling, general and administrative expenses
resulting from cost containment and reduction programs and lower interest
expense.
- ----------------
(1) Some of the statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations may be considered to be "forward
looking statements" since such statements relate to matters which have not yet
occurred. For example, phrases such as "the Company anticipates," "believes" or
"expects" indicate that it is possible that the event anticipated, believed or
expected may not occur. Should such event not occur, then the result, which the
Company expected, also may not occur or may occur in a different manner, which
may be more or less favorable to the Company. The Company does not undertake any
obligation to publicly release the result of any revisions to these forward
looking statements that may be made to reflect any future event or
circumstances.
8
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net sales for the six months ended June 30, 2002 increased $2,040,866 or 5.7%
over the same quarter in 2001 to $38,068,772. The increased sales of brake parts
are consistent with the strengthening experienced throughout the automotive
aftermarket.
Gross profits for the six months ended June 30, 2002 were $7,215,893 or 18.9% of
net sales compared to $6,110,553 or 16.9% in the same period of 2001, an
increase of $1,105,348 or 18.1%. Approximately 55% of the increase is
attributable to increased sales. The remainder of the increase is primarily due
to increased efficiency and overhead absorption over 2001 levels at the
Company's manufacturing facilities.
Selling, general and administrative expenses of $5,617,614 (14.8% of net sales)
for the six months ended June 30, 2002 increased by $122,768 when compared to
$5,495,146 (15.3% of net sales) for the same period in 2001. Increased freight
costs on shipments to customers on the higher sales volume were partially offset
by cost savings initiatives and other cost reduction efforts.
Other expense for the six months ended June 30, 2002 decreased $568,411 to
$929,143 from $1,497,589 for the same period of 2001. Interest expense decreased
$460,945 from the same period in 2001 due to the restructuring of the Finova
subordinated debt that became effective October 31, 2001 and lowering the
interest rate on the revolving loan indebtedness. Included in other expense for
the six months ended June 30, 2001 is $175,000 of costs and expenses related to
the potential strategic alliance with Competition Friction, LLC. Discussions
regarding this strategic alliance terminated in April 2002. Included in other
expense for the six months ended June 30, 2001 are losses of $342,188 from the
discontinued Hungarian foundry (see Note 7 of Notes to Condensed Financial
Statements). Also included in the results for the six months ended June 30, 2001
is $80,000 of other income related to the sale of excess equipment.
Net income for the six months ended June 30, 2002 was $669,136 compared to a
loss of $882,177 for the same period in 2001. This increase of $1,551,313 is
attributed to increased sales, higher efficiencies and overhead absorption at
the Company's manufacturing facilities, reduced selling, general and
administrative expenses resulting from cost containment and reduction programs,
lower interest expense and the elimination of losses related to the Hungarian
foundry.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30, 2002 was
$1,880,005. This usage of cash was primarily due to (a) an accounts receivable
increase of $4,322,165 from December 31, 2001 due to seasonality and increased
sales, partially offset by (b) net income and non-cash items (principally
depreciation and amortization) of $1,357,080 and (c) a decrease in inventory of
$860,189.
Net cash used in investing activities was $515,621, which was attributable
primarily to acquisition of various items of tooling, manufacturing equipment
and warehouse equipment.
Net cash provided by financing activities was $1,677,452, consisting primarily
of increases in borrowings under the Company's revolving credit agreement of
$1,653,234, offset by scheduled payments under term and subordinated debt of
$577,405 and cash received by the exercise of certain of the Company's options
and warrants of $601,623.
The Company expects to continue to finance its operations through cash flow
generated from operations, borrowings under the Company's bank lines of credit
and credit from its suppliers.
9
Future contractual obligations of the Company are as follows:
CONTRACTUAL NEXT 12 AFTER
OBLIGATIONS TOTAL MONTHS 1-3 YEARS 4 YEARS
- ----------- ----------- ---------- -------------- -----------
Revolving loan $20,675,107 $ -- $ 20,675,107 $ --
Subordinated debt $ 1,255,041 $ 75,055 $ 1,179,986 $ --
Long-term debt $ 319,051 $ 224,455 $ 94,596 $ --
Capital leases $ 290,083 $ 156,843 $ 133,240 $ --
Other long-term
obligations $ 66,622 $ 57,869 $ 8,753 $ --
Operating leases $ 5,797,995 $ 1,496,583 $ 2,540,228 $1,761,184
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are described in Note 2 to the Consolidated
Financial Statements contained in Universal Automotive Industries, Inc. (the
"Company") Annual Report on Form 10-K for the year ended December 31, 2001. The
application of these policies may require management to make judgments and
estimates about the amounts reflected in the financial statements. Management
uses historical experience and all available information to make these estimates
and judgments, and different amounts could be reported using different
assumptions and estimates.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, we are
no longer required to amortize goodwill and other intangible assets with
indefinite lives, but will be subject to periodic testing for impairment.
Effective January 1, 2002, we have adopted SFAS 142 and discontinued the
amortization of goodwill balances and intangible assets with indefinite useful
lives. We assessed our goodwill for impairment and will test for impairment at
least annually thereafter.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The provisions of SFAS 144 are
effective in fiscal years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. We have adopted SFAS
144 effective January 1, 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Obligations Associated with the Retirement of Long-Lived
Assets" ("SFAS 143"). SFAS 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. We plan to adopt SFAS 143 effective January 1, 2003. We have not
determined the effect of adopting SFAS 143 on results of operations or financial
position.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that it does not have significant exposure to market risk
associated with derivative financial instruments, other financial instruments,
or derivative commodity instruments. The Company had previously utilized only
limited derivative financial instruments and did not use them for trading
purposes and has never used derivative commodity instruments. At June 30, 2002,
there were no such derivative instruments. The fair value of financial
instruments, other than debt instruments, closely approximates their carrying
value. Because the interest rate of the revolving loan and the term loan with
LaSalle National Bank adjusts with the changes in the market rate of interest,
the Company believes that the fair value is equivalent to the carrying value.
The Company believes that the interest rate of 7.0% on the subordinated
debenture is approximately equal to the current rate available for similar debt.
Accordingly, the fair value of this debenture approximates its carrying value.
PART II OTHER INFORMATION
ITEMS 1 - LEGAL PROCEEDINGS
We have been named, along with at least 100 other defendants, in four lawsuits
in Madison County, Illinois. The lawsuits name most of the major domestic
manufacturers and distributors of brake parts, among others. The counts against
us allege negligence (Count I) and willful and wanton conduct (Count II)
regarding asbestos exposure over extended periods of time. We understand that
plaintiffs' attorney can be expected to file at least ten more of these suits,
and in all likelihood we will be named as a defendant in the new lawsuits. Our
answer in each of these suits is not yet due. Two were filed in late June and
the other two were filed in mid July. We have referred these cases to
experienced asbestos toxic tort counsel. We believe we have a good faith defense
in each case and expect to file answers or other pleadings denying liability in
the near future. Our current liability insurance policy does not cover asbestos
related claims. We have not yet established a reserve against potential
liability with respect to these lawsuits.
ITEM 2 AND 3 ARE NOT APPLICABLE TO THE COMPANY IN THIS REPORT
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 20, 2002, Universal Automotive Industries, Inc. held its annual meeting
of shareholders. Present at this meeting, in person and by proxy, were
shareholders representing 10,104,645 of the 11,235,329 issued and outstanding
shares of voting securities consisting of Common Stock of 7,090,265 shares,
Preferred Series A of 2,014.38 shares, which have voting rights equivalent to
2,014,380 shares of Common Stock and Preferred Series B of 1,000 shares, which
have voting rights equivalent to 1,000,000 shares of Common Stock, at the date
of record (89.94% of the total number of shares of voting securities outstanding
and entitled to vote). The only item voted upon at the meeting was the election
of directors.
The following Directors were elected to the Board:
NAME VOTES FOR VOTES AGAINST VOTES WITHHELD
- ---- --------- ------------- --------------
Feng Dong 10,102,845 0 1,800
Sami Israel 10,103,845 0 800
M. Catherine Jaros 10,102,845 0 1,800
Dennis Kessler 10,102,845 0 1,800
Sheldon Robinson 10,102,845 0 1,800
Arvin Scott 10,102,845 0 1,800
Yehuda Tzur 10,103,845 0 800
Sol S. Weiner 10,103,845 0 800
Zemin Xu 10,101,845 0 2,800
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ITEM 5 IS NOT APPLICABLE TO THE COMPANY IN THE REPORT.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit II - Computation of Earnings Per Share
Exhibit 99.1 Certificate of Chief Executive Officer
Exhibit 99.2 Certificate of Chief Financial Officer
b) The Company filed a Report on Form 8-K on April 4, 2002 wherein it
disclosed information under Item 5, Other Events.
The Company filed a Report on Form 8-K on June 25, 2002 wherein it
disclosed the appointment of Ernst & Young, LLC as the Company's
independent auditors for 2002.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
/s/ ARVIN SCOTT
----------------------------------------
Date: August 14, 2002 Arvin Scott, Chief Executive Officer,
President
(Principal Executive Officer)
/s/ ROBERT W. ZIMMER
----------------------------------------
Chief Financial Officer
(Principal Financial Officer)
12