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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 September 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
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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 tiled 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 $.O1 per share,
outstanding as of November 12, 2002 was 8,220,949 shares.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
INDEX
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Operations
(Unaudited) - for the three months and nine months ended
September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows
(Unaudited) - for the nine months ended
September 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 10
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Items 1 - Legal Proceedings 11
Items 2 thru 5 are not applicable to the Company in this report 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 11
Certificate of Chief Executive Officer 12
Certificate of Chief Financial Officer 13
EXHIBIT II - COMPUTATION OF EARNINGS PER SHARE 14
EXHIBIT 99.1 CERTIFICATE OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER 15
2
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
------------------ -----------------
(Unaudited)
Assets
Current Assets
Cash $ 34,274 $ 976,585
Accounts receivable, trade 15,808,884 15,789,886
Inventories 19,035,437 16,417,009
Deferred income taxes 240,000 240,000
Prepaid expenses and other current assets 407,332 486,293
------------ ------------
35,525,927 33,909,773
------------ ------------
Property and Equipment, net 4,349,374 4,728,034
------------ ------------
Other Assets:
Goodwill, net 482,429 480,498
Due from stockholders 320,929 320,929
Other assets 539,292 598,609
------------ ------------
1,342,650 1,400,036
------------ ------------
$ 41,217,951 $ 40,037,843
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable, trade $ 11,934,308 $ 11,446,262
Long-term indebtedness, current portion 470,887 871,346
Accrued expenses and other current liabilities 3,622,658 3,569,600
------------ ------------
16,027,853 15,887,208
------------ ------------
Long-term Liabilities:
Revolving loan indebtedness 19,046,623 19,021,873
Subordinated debenture 1,122,500 1,179,986
Long-term indebtedness, non-current portion 149,324 421,269
------------ ------------
20,318,447 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 September 30, 2002 and December 31, 2001 82,249 79,394
Additional paid-in-capital 15,202,516 14,583,947
Retained earnings (9,454,902) (10,136,023)
Accumulated other comprehensive losses (891,576) (882,825)
Stock subscription receivable (69,650) (120,000)
------------ ------------
4,871,651 3,527,507
------------ ------------
$ 41,217,951 $ 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 September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $ 17,146,536 $ 18,160,436 $ 55,215,258 $ 54,188,292
Cost of Sales 13,940,213 14,737,836 44,793,042 44,486,171
------------ ------------ ------------ ------------
Gross Profit 3,206,323 3,422,600 10,422,216 9,702,121
Selling, General and Administrative Expenses 2,855,154 2,979,215 8,472,768 8,584,211
Other Expenses
Loss from Hungarian operations 0 337,475 0 679,662
------------ ------------ ------------ ------------
Income from operations 351,169 105,910 1,949,448 438,248
------------ ------------ ------------ ------------
Other (income) expense:
Interest expense 352,713 589,085 1,106,956 1,804,273
Other (13,529) (53,740) 161,371 (54,413)
------------ ------------ ------------ ------------
339,184 535,345 1,268,327 1,749,860
------------ ------------ ------------ ------------
Income (Loss) before provision for income taxes 11,985 (429,435) 681,121 (1,311,612)
Income tax provision 0 0 0 0
------------ ------------ ------------ ------------
Net Income (Loss) $ 11,985 $ (429,435) $ 681,121 $ (1,311,612)
============ ============ ============ ============
Comprehensive Income (Loss):
Net Income (Loss) $ 11,985 $ (429,435) $ 681,121 $ (1,311,612)
Foreign currency translation adjustment (101,371) (203,948) (8,751) 97,083
------------ ------------ ------------ ------------
$ (89,386) $ (633,383) $ 672,370 $ (1,214,529)
============ ============ ============ ============
Income (Loss) per Share:
Basic $ 0.00 $ (0.06) $ 0.08 $ (0.18)
Diluted $ 0.00 $ (0.06) $ 0.06 $ (0.18)
Weighted average number of common shares outstanding:
Basic 8,220,949 7,697,944 8,187,803 7,489,009
Common stock equivalents resulting from
warrants and options 3,014,380 0 3,377,640 0
------------ ------------ ------------ ------------
Diluted 11,235,329 7,697,944 11,565,443 7,489,009
------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements
4
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ 681,121 $(1,311,612)
Adjustments to reconcile net income (loss) to cash used in operating
activities:
Depreciation and amortization 1,025,215 1,094,222
Provision for bad debts 294,674 318,483
Effect of exchange rate changes (8,751) 97,083
Compensation expense for stock options 19,800 29,700
Stock issued for services 0 80,500
Deferred income taxes 0 47,683
Changes in operating assets and liabilities:
Accounts receivable, trade (313,672) (2,877,956)
Inventories (2,618,428) 2,695,061
Prepaid expenses and other current assets (38,635) 57,582
Accounts payable, trade 488,046 (991,903)
Accrued expenses and other current liabilities 53,058 (614,736)
----------- -----------
Net cash used in operating activities
from continued operations (417,572) (1,375,893)
Net cash provided by Hungarian operations 0 309,674
----------- -----------
(417,572) (1,066,219)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (459,321) (674,843)
Proceeds from note receivable 2,500
----------- -----------
Net cash used in investing activities (456,821) (674,843)
----------- -----------
Cash flows from financing activities:
Net increase in revolving loan indebtedness 24,749 2,023,509
Proceeds from issuance of preferred stock 2,800,000
Principle payments on long-term indebtedness (694,290) (319,265)
Proceeds from issuance of common stock from the exercise of
options and warrants 601,623 1,452
----------- -----------
Net cash (used in) provided by financing activities (67,918) 4,505,696
----------- -----------
Net (decrease) increase in cash (942,311) 2,764,634
Cash, beginning of period 976,585 216,686
----------- -----------
$ 34,274 $ 2,981,320
=========== ===========
Cash of continuing operations $ 34,274 $ 2,869,691
Cash of Hungarian operations 0 84,629
----------- -----------
$ 34,274 $ 2,954,320
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,193,200 $ 1,805,890
Cash taxes paid $ 56,107 $ 0
Supplemental disclosure of noncash investing and Financing Activities:
Issuance of common stock for services $ 0 $ 80,500
Debt incurred in connection with acquisition of fixed assets $ 0 $ 74,014
Conversion of accounts payable into equity $ 0 $ 600,000
Reduction of note payable in exchange for subscription receivable $ 50,350 $ 0
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
SEPTEMBER 30, 2002 DECEMBER 31, 2002
------------------ -----------------
FINISHED GOODS $ 14,881,558 $ 12,057,191
WORK IN PROGRESS 816,901 888,742
RAW MATERIALS 3,336,978 3,471,076
------------ ---------------
$ 19,035,437 $ 16,417,009
------------ ---------------
3. BASIS OF PRESENTATION
Income Taxes
For the quarters and year to date periods ended September 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.
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, and provide, 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. On August 7, 2002 the credit agreement was
further extended to May 31, 2005 and the interest rate reduced by 1/2%. As of
September 30, 2002 the Company is in compliance with its financial and other
covenants.
6
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, the
Company is 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, the Company has adopted SFAS 142 and discontinued the
amortization of goodwill balances and intangible assets with indefinite useful
lives. The Company assessed its 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. The Company has
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. The Company plans to adopt SFAS 143 effective January 1, 2003. The
Company has not determined the effect of adopting SFAS 143 on results of
operations or its financial position.
7. HUNGARIAN 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 operations be included in the Statement of
Earnings as a component of income or loss from continuing operations.
Accordingly, a net loss of $679,662 ($0.09 per share) was charged to expense for
the nine month period ended September 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 September 30, 2002 Compared To Three Months Ended September
30, 2001
Net sales for the three months ended September 30, 2002 decreased $1,013,900 or
5.6% over the same quarter in 2001 to $17,146,536. The decreased sales of brake
parts is affected by the consolidation taking place in our customer base, price
compression and general sluggish economic conditions.
Gross profits for the three months ended September 30, 2002 were $3,206,323 or
18.7% of net sales compared to $3,422,600 or 18.8% in the same period of 2001, a
decrease of $216,277 or 6.3% of the gross profit total. This decrease is
attributable to the decline in net sales for the period.
Selling, general and administrative expenses of $2,855,154 (16.7% of net sales)
for the three months ended September 30, 2002 decreased by $124,061 when
compared to $2,979,215 (16.4% of net sales) for the same period in 2001. Cost
saving initiatives drives the favorable variance.
Other income and expense for the three months ended September 30, 2002 decreased
$196,161 to $339,184 from $535,345 for the same period of 2001. Interest expense
decreased $236,372 from the same period in 2001 due to the restructuring of our
Finova subordinated debt that became effective October 31, 2001 and a lower
interest rate on our revolving loan indebtedness. Also included in the results
for the quarter ended September 30, 2001 is $40,211 of other income related to
scrap sales and rental income.
Net income for the three months ended September 30, 2002 was $11,985 compared to
a loss of $429,435 in the same period in 2001. This increase in net income of
$441,420 is attributed to a reduction on the loss from Hungarian operations
incurred in 2001 of $337,475, reduced other income and expense of $152,782
partially offset by reduced net income from continuing operations.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Net sales for the nine months ended September 30, 2002 increased $1,026,966 or
1.9% over the same period in 2001 to $55,215,258. The increased sales of brake
parts are consistent with the strengthening experienced throughout the
automotive aftermarket.
Gross profits for the nine months ended September 30, 2002 were $10,422,216 or
18.9% of net sales compared to $9,702,121 or 17.9% in the same period of 2001,
an increase of $720,095 or 7.4% of the gross profit total. Approximately 25% 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 our manufacturing facilities.
- ---------------------------------
(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
Selling, general and administrative expenses of $8,472,768 (15.3% of net sales)
for the nine months ended September 30, 2002 decreased by $111,443 when compared
to $8,584,211 (15.8% of net sales) for the same period in 2001. Increased
freight costs on shipments to customers on the higher sales volume were more
than offset by cost savings initiatives.
Other income and expense for the nine months ended September 30, 2002 decreased
$481,533 to $1,268,327 from $1,749,860 for the same period of 2001. Interest
expense decreased $697,317 to $1,106,956 from $1,804,273 from the same period in
2001 due to the restructuring of our Finova subordinated debt that became
effective October 31, 2001 and the lowering of the interest rate on the
revolving loan indebtedness. Included in other expense for the nine months ended
September 30, 2002 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. In addition, included in the
results for the nine months ended September 30, 2001 is $40,784 of other income
related to the sale of excess equipment, scrap sales and rental income.
Net income for the nine months ended September 30, 2002 was $681,121 compared to
a loss of $1,311,612 for the same period in 2001. This increase in net income of
$1,992,733 is attributed to increased sales, higher efficiencies and overhead
absorption at our 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 nine months ended September 30,
2002 was $473,082. This usage of cash was primarily due to (a) an increase in
accounts receivable of $313,672, (b) an increase in inventory of $2,618,428
partially offset by (c) net income and non-cash items (principally depreciation
and amortization) of $2,004,010 and (d) an increase in accounts payable and
accrued expenses of $541,104.
Net cash used in investing activities was $401,311, which was attributable
primarily to acquisition of various items of tooling, manufacturing equipment
and warehouse equipment.
Net cash used by financing activities was $67,918, consisting primarily of
scheduled payments under term and subordinated debt of $694,290 offset by
proceeds in the exercise of warrants and options of $601,623.
We expect to continue to finance our operations through cash flow generated from
operations, borrowings under our bank lines of credit and credit from its
suppliers.
Future contractual obligations of ours are as follows:
CONTRACTUAL NEXT 12 AFTER
OBLIGATIONS TOTAL MONTHS 1-3 YEARS 4 YEARS
- ----------- ----- ------ --------- -------
Revolving loan $19,046,623 $ - $19,046,623 $ -
Subordinated debt $ 1,211,895 $ 89,395 $ 1,122,500 $ -
Long-term debt $ 262,936 $ 224,455 $ 38,481 $ -
Capital leases $ 241,462 $ 138,000 $ 103,462 $ -
Other long-term
obligations $ 26,418 $ 19,037 $ 7,381 $ -
Operating leases $ 5,489,166 $1,381,568 $ 2,298,318 $1,809,280
9
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We believe that we do not have significant exposure to market risk associated
with derivative financial instruments, other financial instruments, or
derivative commodity instruments. We had previously utilized only limited
derivative financial instruments and did not use them for trading purposes and
have never used derivative commodity instruments. At September 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, we believe that
the fair value is equivalent to the carrying value. We believe that the interest
rate of 7.0% on our Finova subordinated debenture is approximately equal to the
current rate available for similar debt. Accordingly, the fair value of this
debenture approximates its carrying value.
10
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on
their evaluation within 90 days of the filing date of this report, that our
disclosure controls and procedures are effective for gathering, analyzing and
disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of the previously mentioned
evaluation.
PART II OTHER INFORMATION
ITEMS 1 - LEGAL PROCEEDINGS
We have been named, along with numerous other defendants (typically, 100 or
more), in a total of 28 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
have referred these cases to experienced asbestos toxic tort counsel. We believe
we have a good faith defense in each case and either have filed or will 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.
ITEMS - 2, 3, 4 AND 5 ARE NOT APPLICABLE TO THE COMPANY IN THIS REPORT
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit II - Computation of Earnings Per Share
Exhibit 99.1 - Certification of Chief Executive Officer and Chief
Financial Officer
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: November 14, 2002 Arvin Scott, Chief Executive Officer,
President (Principal Executive
Officer)
/s/ ROBERT W. ZIMMER
-------------------------------------
Chief Financial Officer (Principal
Financial Officer)
11
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Arvin Scott, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Automotive
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I (herein the "Certifying
Officers") are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules l3a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, (collectively the "Company") is made known
to the Certifying Officers by others within the Company, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions of the Certifying
Officers about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's Certifying Officers have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Arvin Scott
- ---------------------------
Arvin Scott
Chief Executive Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
12
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert W. Zimmer, certify that:
l. I have reviewed this quarterly report on Form 10-Q of Universal Automotive
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I (herein the "Certifying
Officers") are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules l3a-14 and
15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, (collectively the "Company") is made known
to the Certifying Officers by others within the Company, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions of the Certifying
Officers about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's interval
controls; and
6. The registrant's Certifying Officers have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Robert W. Zimmer
- --------------------
Robert W. Zimmer
Chief Financial Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
13
EXHIBIT II
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Net Income (Loss):
Continuing operations $ 11,985 $ (91,960) $ 681,121 $ (631,950)
Hungarian operations 0 (337,475) 0 (679,662)
----------- ----------- ----------- -----------
Net 11,985 $ (429,435) $ 681,121 $(1,311,612)
Weighted average Common Shares outstanding 8,220,949 7,697,944 8,187,803 7,489,009
Basic Net Income (Loss) Per Common Share
Continuing operations $ 0.00 $ (0.01) $ 0.08 $ (0.09)
Hungarian operations 0.00 (0.05) 0.00 (0.09)
----------- ----------- ----------- -----------
Net $ 0.00 $ (0.06) $ 0.08 $ (0.18)
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Net Income (Loss):
Continuing operations $ 11,985 $ (91,960) $ 681,121 $ (631,950)
Hungarian operations 0 (337,475) 0 (679,662)
----------- ----------- ----------- -----------
Net $ 11,985 $ (429,435) $ 681,121 $(1,311,612)
Weighted average Common Shares outstanding 8,220,949 7,697,994 8,187,803 7,489,009
Options and warrants assumed to be
Common Stock equivalents using
Treasury Stock Method 3,014,380 0 3,377,640 0
----------- ----------- ----------- -----------
Weighted average common stock shares
outstanding, as adjusted 11,235,329 7,697,994 11,565,443 7,489,009
Diluted Net Income (Loss) per Common Share:
Continuing operations $ 0.00 $ (0.01) $ 0.08 $ (0.09)
Hungarian operations 0.00 (0.05) 0.00 (0.09)
----------- ----------- ----------- -----------
Net $ 0.00 $ (0.06) $ 0.08 $ (0.18)
14