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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 March 31, 2004
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 0-25198
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3973627
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(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 [ ]
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 [X]
The number of shares of issuer's Common Stock, par value $.01 per share,
outstanding as of May 12, 2004 was 11,092,790 shares.
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page(s)
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 3
Consolidated Statements of Operations
(Unaudited) - for the three months ended
March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows
(Unaudited) - for the three months ended
March 31, 2004 and 2003 5
Notes to Condensed Financial Statements (Unaudited) 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 - 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable to the Company in this report 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
EXHIBITS
2.1 Asset Purchase Agreement between the Kelsey-Hayes Company and
Universal Automotive, Inc.
31.1 Certificate of Chief Executive Officer
31.2 Certificate of Chief Financial Officer
32 Certification of Chief Executive Officer and Chief Financial Officer
99 Computation of Earnings Per Share
2
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2004 December 31, 2003
-------------- -----------------
(Unaudited)
Assets
Current assets:
Cash $ 1,147,172 $ 605,211
Accounts receivable - trade, net 16,935,210 9,724,502
Inventories 37,843,568 14,875,045
Deferred income taxes 240,000 240,000
Prepaid expenses and other current assets 511,299 133,218
------------ ------------
56,677,249 25,577,976
------------ ------------
Property and equipment , net 4,118,496 3,913,867
------------ ------------
Other assets:
Goodwill, net 480,498 480,498
Due from employees 40,250 40,250
Deferred financing costs, net 2,247,398 1,932,179
Other assets 252,676 605,586
------------ ------------
3,020,822 3,058,513
------------ ------------
$ 63,816,567 $ 32,550,356
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable - trade $ 14,191,810 $ 9,814,785
Accrued expenses and other current liabilities 7,318,668 2,417,821
Long-term indebtedness , current portion 50,899 81,430
Convertible note, current portion 1,636,364 909,091
Subordinated debenture, current portion 132,229 60,000
------------ ------------
23,329,970 13,283,127
------------ ------------
Long-term liabilities:
Revolving line of credit 22,864,963 11,997,526
Long-term indebtedness, non-current portion 33,766 37,234
Convertible note, non-current portion 4,995,518 3,868,265
Subordinated debenture, non-current portion 684,120 773,120
------------ ------------
28,578,367 16,676,145
------------ ------------
Stockholders' equity:
Preferred stock (authorized 2,000,000 shares, $.01 par 3,014 3,014
value, 201,438 shares of Series A and 100,000 shares of
Series B issued and outstanding)
Common stock (authorized 30,000,000 shares, $.01 par value, 109,349 89,481
10,930,726 and 8,948,097 shares issued and outstanding as
of March 31, 2004 and December 31, 2003)
Additional paid-in-capital 18,488,922 16,912,641
Accumulated deficit (6,157,141) (13,885,621)
Accumulated other comprehensive loss (491,764) (479,781)
Stock subscription receivable (44,150) (48,650)
------------ ------------
11,908,230 2,591,084
------------ ------------
$ 63,816,567 $ 32,550,356
============ ============
The accompanying notes are an integral part of the financial statements.
3
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
-------------------------------
2004 2003
------------ ------------
Net sales $ 23,347,747 $ 15,016,910
Cost of sales 20,774,200 13,268,771
------------ ------------
GROSS PROFIT 2,573,547 1,748,139
Selling, general, and administrative expenses 4,224,572 2,491,562
------------ ------------
LOSS FROM OPERATIONS (1,651,025) (743,423)
Other income/ (expense)
Interest expense (513,909) (238,841)
Gain on valuation of assets purchased 9,886,328 -
Other 7,089 7,794
------------ ------------
9,379,508 (231,047)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 7,728,483 (974,470)
Income tax provision - -
------------ ------------
NET INCOME (LOSS) $ 7,728,483 $ (974,470)
============ ============
Comprehensive income (loss):
Net (loss) income $ 7,728,483 $ (974,470)
Other comprehensive income (loss)-
Foreign currency translation adjustment (11,983) 67,788
------------ ------------
Comprehensive income (loss) $ 7,716,500 $ (906,682)
============ ============
(Loss) earnings per share:
Basic $ 0.76 $ (0.12)
============ ============
Diluted $ 0.57 $ (0.12)
============ ============
Weighted average number of common shares outstanding:
BASIC 10,159,384 8,224,949
Common stock equivalents resulting from:
Conversion of preferred stock 3,014,380 -
Warrants and options 403,244 -
------------ ------------
DILUTED 13,577,008 8,224,949
============ ============
The accompanying notes are an integral part of the financial statements
4
UNIVERSAL AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
-------------------------------
2004 2003
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 7,728,483 $ (974,470)
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
Depreciation and amortization 567,967 236,770
Provision for bad debts (276,045) 47,612
Income from valuation of purchased assets (9,886,328) -
Other, net 4,502 7,500
Changes in operating assets and liabilities:
Accounts receivable, trade (1,115,736) (1,085,762)
Inventories 2,345,663 1,914,111
Prepaid expenses and other current assets (378,081) (221,040)
Other assets 6,514 -
Accounts payable, trade 1,009,899 1,199,508
Accrued expenses and other current liabilities (887,722) (482,434)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (880,884) 641,795
INVESTING ACTIVITIES
Advances to stockholders, net - (1,458)
Purchase of certain assets of Kelsey-Hayes Company (11,571,008) -
Purchase of property and equipment (424,468) (102,820)
------------ ------------
Net cash used in investing activities (11,995,476) (104,278)
FINANCING ACTIVITIES
Net increase/(decrease) in revolving loan indebtedness 10,867,437 (89,252)
Principal payments on notes payable and subordinated debt (50,770) (111,335)
Proceeds from issuance of convertible notes, net 1,743,700 -
Proceeds from conversion of warrants and options 869,940 -
------------ ------------
Net cash provided by (used in) financing activities 13,430,307 (200,587)
Effect of exchange rate changes on cash (11,983) 612
------------ ------------
Net increase in cash 541,964 337,542
Cash, beginning of period 605,211 237,600
------------ ------------
Cash, end of period $ 1,147,175 $ 575,142
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 334,636 $ 235,723
Cash paid for income taxes $ - $ 1,900
Supplemental disclosure of non-cash financing activities:
Issuance of warrants in connection with convertible notes $ 167,047 $ -
Conversion of convertible notes into common stock $ 559,162 $ -
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,
2003.
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, 2003. 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.
2. BASIS OF PRESENTATION
Net Loss Per Share
Common stock equivalents resulting from the conversion of preferred stock,
warrants and options issued by the Company are only included in the computation
of weighted average number of shares outstanding, where their inclusion is not
anti-dilutive. For the three months ended March 31, 2003, common stock
equivalents are not included in the weighted average number of shares
outstanding in determining net loss per share.
Income Taxes
For the quarter ended March 31, 2004 the provision for income taxes was offset
by the benefit associated with the utilization of the tax loss carryforward. For
the quarter ended March 31, 2003, no tax benefit associated with the loss
incurred has been provided as the Company believed that, consistent with
accounting principles generally accepted in the United States, it was not more
likely than not that the tax benefits associated with the balance of loss
carryforwards and other deferred tax assets will be realized through future
taxable earnings or alternative tax strategies.
3. INVENTORIES
March 31, 2004 December 31, 2003
-------------- -----------------
Finished goods $ 31,025,756 $ 12,231,089
Work in process 391,846 574,730
Raw materials 6,425,966 2,069,226
------------ ------------
$ 37,843,568 $ 14,785,045
------------ ------------
6
4. CONGRESS INDEBTEDNESS
On January 12, 2004 the Company entered into a revolving line-of-credit
agreement with Congress Financial Corporation ("Congress"), replacing the
LaSalle indebtedness. The maximum available amount of the revolving
line-of-credit is $35,000,000 based on eligible accounts receivable and
inventory and is fully secured by a first lien on the inventory and the accounts
receivable of the Company. The revolving line-of-credit has a term ending
January 12, 2007 and an interest rate of prime plus .50% per annum. The line is
subject to an ongoing option to convert to LIBOR plus 2.75% per annum.
The Congress agreement contains certain limitations on dividends and capital
expenditures and requires the Company to satisfy a financial test concerning
earnings before interest, taxes, depreciation and amortization (EBITDA). At
March 31, 2004, the Company was in compliance with these financial covenants.
5. CONVERTIBLE NOTES
On January 9, 2004 the Company issued a secured convertible note to Laurus
Master Funds Ltd. ("Laurus") in the amount of $2,000,000 which is payable in 33
equal monthly installments beginning April 1, 2004 and is secured by a first
lien on the fixed assets of the Company, including the fixed assets acquired in
connection with the acquisition of Autospecialty (See note 7). Interest is
payable at the prime rate plus two percent (6.0% as of March 31, 2004). The note
provides that payments of principal and interest may, at the sole option of the
Company, be made in cash or in shares of common stock of the Company. The
payment of principal and interest may be made in common stock of the Company if
the closing price for the five trading days preceding the payment date is at
least $1.30 per share. If the Company's common stock is not $1.30 per share for
the five days preceding the payment date, the conversion price will be 90% of
the five lowest closing prices for the last twenty two trading days prior to the
payment date, with a floor conversion price of $0.50 per share. If the payment
of principal and interest is made in cash, the amount due will be 103% of the
amount which would otherwise be due. The Company also issued 280,000 warrants to
Laurus and 250,000 warrants to a financial advisor. The Laurus warrants are
exercisable over five years at a price of $1.60 to $2.01 per share. The warrants
issued to the financial advisor are exercisable over five years at $1.76 per
share. The warrants were valued at $167,047 and were recorded as deferred
financing fees. Total fees and expenses paid in cash were $226,000 and have been
recorded as deferred financing fees. These costs will be amortized over the term
of the note.
On January 15, 2004 the Company issued an unsecured convertible note in the
original amount of $300,000 to GCA Strategic Investment Fund Ltd, an affiliate
of Global Capital Funding Group, L.P., for proceeds of $240,000. The note
provides for a lump sum payment of $300,000 on January 15, 2006. In addition,
the note contains a voluntary conversion at the option of the note holder at the
lesser of $3.00 per share or 95% of the volume weighted average market value of
the Company's common stock for the ten business days immediately prior to the
date of conversion notice, except that in no event will the conversion price be
less than $0.35 per share. Total fees and expenses paid in cash were $4,000 and
have been recorded as deferred financing fees. These costs will be amortized
over the term of the note.
7
6. STOCK-BASED COMPENSATION
The Company has elected to follow APB Opinion NO. 25, Accounting for Stock
Issued to Employee, and related interpretations in accounting for the stock
options granted to employees and directors. Accordingly, employee and director
compensation expense is recognized only for those options whose price is less
than fair market value at the measurement date. The Company has adopted the
disclosure-only provisions of SFAS No. 125, Accounting for Stock-Based
Compensation, as amended.
The Company has computed the pro forma disclosures required under SFAS No.
123, as amended by SFAS No. 148, for options granted using the minimal value
option-pricing model prescribed by SFAS No. 13. The assumptions used for grants
during the periods ended March 31, 2004 and 2003 include a dividend yield of
0.0%, risk-free interest rates of 2.50%, an option term of immediate to 10 years
and a volatility factor of 78%. Had the compensation costs for these plans been
determined consistent with SFAS No. 123, the Company's net income would have
been reduced by approximately $30,316 to $7,698,167 for the period ended March
31, 2004 and the net loss for the period ended March 31, 2003 would have been
increased by $33,729 to $1,008,199.
7. ACQUISITION OF CERTAIN ASSETS OF KELSEY-HAYES COMPANY
On January 12, 2004 the Company purchased substantially all the assets of the
Autospecialty division of Kelsey-Hayes Company a subsidiary of TRW Automotive,
Inc ("Autospecialty"), for a total cost, including transaction fees and
expenses, of approximately $11,925,000 plus the assumption of certain
liabilities as set forth in the Purchase Agreement dated December 23, 2003
between the Company and TRW Automotive, Inc. The purchase price is subject to
certain adjustments based upon the future collection of trade accounts
receivable. Negative goodwill recorded in conjunction with the acquisition
transaction included an approximate $9.9 million non-operating, non-cash gain
reflected in Company's Statement of Operations for the quarter ended March 31,
2004.
During the period ending March 31, 2004 the Company incurred costs in connection
with the consolidation and integration of this acquisition including the closing
of two distribution centers, Itasca, Illinois and Compton, California, into its
Alsip, Illinois and Carson, California distribution facilities respectively. In
addition the Carson, California rotor manufacturing operations was relocated and
combined into the Company's Alsip, Illinois rotor manufacturing facility. A
reserve of $700,000 was established under the purchase method of accounting for
these and other integration and business consolidation expenditures. As of March
31, 2004 approximately $258,000 has been charged against this reserve.
Further details of the acquisition (in thousands of dollars) as are follows:
Tangible assets acquired $ 31,141
Liabilities assumed (8,630)
Reserve recorded (700)
----------
21,811
Purchase price 11,925
----------
Gain on valuation of assets purchased $ 9,886
==========
This acquisition has been accounted for using the purchase method of accounting.
Accordingly, the allocation of the cost of the acquired assets and liabilities
has been made on the basis of the estimated fair value. The consolidated
financial statements include the operating results of each business from the
date of acquisition. The financial statements reflect the preliminary allocation
of the purchase price and contained certain subjective reserves. Accordingly, it
is expected that the purchase price allocation will be finalized upon the
realization of the acquired accounts receivable and inventory.
8
In conjunction with recording the acquisition using the purchase method of
accounting, the assets acquired and liabilities assumed have different bases for
income tax purposes. It is expected that the gain on the valuation of assets
purchased would not be taxable for income tax purposes until the underlying
assets acquired are sold. The gain on the valuation of assets acquired
substantially contributed to a realized net income for the quarter ended March
31, 2004. There was no recorded income tax provision for the quarter ended March
31, 2004, nor was a deferred tax liability recorded, because the Company has net
operating loss carryforwards that are expected to reduce any taxable income.
On a pro forma basis, had the acquisition of Autospecialty occurred as of the
beginning of the quarter ended March 31, 2004, the results of operations and
statement of changes in financial position would not have changed materially
from the amounts reflected herein. Had the acquisition occurred as of the
beginning of the quarter ended March 31, 2003, the combined business would have
had revenues of approximately $26.9 million and loss from operations of
approximately $2.9 million, as compared with the historical reported amounts of
$15.0 million and $(0.7) million, respectively.
9
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
caliper, clutch, chassis and hydraulic parts. We believe that we are the leading
supplier of private label brake parts (brake parts sold at prices below those of
certain leading national brand name brake parts) to mass-market retailers,
traditional warehouse distributors and specialty undercar distributors in North
America.(1)
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 Compared To Three Months Ended March 31, 2003
Three Months Ending
----------------------------------------------- Change from 2003 to 2004
March 31, % of March 31, % of ------------------------
2004 Revenues 2003 Revenues $ %
-------- -------- -------- -------- --------- ----------
Revenues
Brake Parts, Net $ 20,310 87.0% $ 11,788 78.5% $ 8,522 72.3%
Wholesale Products 3,038 13.0% 3,229 21.5% (191) -5.9%
-------- -------- -------- -------- -------- --------
$ 23,348 100.0% $ 15,017 100.0% $ 8,331 55.5%
Cost of sales
Brake Parts, Net 18,184 89.5% 10,394 88.2% 7,790 74.9%
Wholesale Products 2,590 85.3% 2,875 89.0% (285) -9.9%
-------- -------- -------- -------- -------- --------
20,774 89.0% 13,269 88.4% 7,505 56.6%
-------- -------- -------- -------- -------- --------
GROSS PROFIT 2,574 11.0% 1,748 11.6% 826 47.3%
Selling,general &
administrative expenses 4,225 18.1% 2,491 16.6% 1,734 69.6%
-------- -------- -------- -------- -------- --------
LOSS FROM OPERATIONS (1,651) -7.1% (743) -4.9% (908) 122.2%
Other income (expense)
Interest expense (514) -2.2% (239) -1.6% (275) 115.1%
Gain on valuation of assets purchased 9,886 42.3% - 0.0% 9,886
Other 7 0.0% 8 0.1% (1) -12.5%
-------- -------- -------- -------- -------- --------
9,379 40.2% (231) -1.5% 9,610 102.5%
INCOME (LOSS) BEFORE INCOME TAXES 7,728 33.1% (974) -6.5% 8,702 -893.4%
Income Taxes - 0.0% - 0.0% -
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 7,728 33.1% $ (974) -6.5% $ 8,702 -893.4%
-------- -------- -------- -------- -------- --------
Net sales for the three months ended March 31, 2004 increased $8,331,000 or
55.5% over the same quarter in 2003 to $23,348,000. The increase sales were a
result of the new customers obtained in the acquisition of certain assets of The
Kelsey-Hayes Company ("Kelsey-Hayes") of $8,522,000 offset by a decrease in
sales of wholesale products of $191,000.
- ------------------
(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.
10
Gross profit for the three months ended March 31, 2004 is $2,574,000 or 11.0% of
net sales compared to $1,748,000 or 11.6% in the same period of 2003, an
increase of $826,000 or 47.3%. This increase in gross profit is a result of
increased margins on the higher sales of brake parts of $732,000 coupled with
increased margins of $94,000 from the sale of wholesale products.
Selling, general and administrative expenses of $4,225,000 (18.1% of net sales)
for the three months ended March 31, 2004 increased by $1,734,000 when compared
to $2,491,000 (16.6% of net sales) for the same period in 2003. This increase
was a result of costs associated with operations of the acquired Kelsey-Hayes
Company assets, increased freight costs and the amortization of certain expenses
related to the issuance of warrants in 2003.
Loss from operations for the three months ended March 31, 2004 increased
$908,000 to $1,651,000 as compared to a loss for operation of $743,000 for the
same period in 2003. This increased loss relates to increased selling, general
and administrative expenses partially offset by increased margins on higher
sales volume.
Other income for the three months ended March 31, 2004 increased $9,610,000 to
$9,379,000 from a loss of $231,000 for the same period of 2003. This increase is
a result of the gain recognized in the valuation of the certain assets purchased
from Kelsey-Hayes offset by an increase in interest expense on higher
indebtedness.
Net income for the three months ended March 31, 2004 was $7,728,000 compared to
a net loss of $974,000 for the same period in 2003, an increase of $8,702,000.
The increase in net income is attributed to the gain on the valuation of assts
acquired from Kelsey-Hayes, $9,886,000 and increased gross margin on higher
sales of $826,000 offset by increased selling, general and administrative
expenses of $1,734,000 and increased interest expense on higher indebtedness of
$275,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities for the three months ended March 31, 2004
was $880,887 which was primarily due to (a) net income for the period of
$7,728,480 (b) reduction in inventories of $2,345,663, (c) net increase in
accounts payable and accrued expenses of $122,177 (d) non-cash items consisting
of depreciation and amortization of $567,967, and (e) a decrease in other assets
of $11,016, offset by (f) non-cash gain on the valuation of assets purchased
from Kelsey-Hayes of $9,886,328, (g) a increase in net trade accounts receivable
of $1,391,781, and (h) an increase in prepaid expenses of $378,081.
Net cash used in investing activities was $11,995,476, which is attributable
primarily to the purchase of certain assets of Kelsey-Hayes for $11,571,008 and
leasehold improvements incurred in connection with the relocation of the rotor
manufacturing from Carson, CA into the Alsip, IL facility.
Net cash provided by financing activities was $13,430,307, consisting primarily
of an increase to the revolving line of credit of $10,867,437, net proceeds from
the issuance of convertible notes of $1,743,700 and the exercise of warrants on
options of $869,940 offset by principal payments on notes payable and
subordinated debt of $50,770.
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.
11
Future contractual obligations of the Company are as follows:
PAYMENTS DUE BY PERIOD
------------------------------------------------------------
CONTRACTUAL NEXT 12 AFTER
OBLIGATIONS TOTAL MONTHS 1-3 YEARS 4 YEARS
- ----------- ------- -------- ----------- ----------
Revolving Loan $ 22,864,963 $ 22,864,963
Convertible notes $ 6,631,882 1,636,364 4,995,518 -
Subordinated debt $ 816,349 132,229 684,120
Capital leases $ 84,665 50,889 33,776
Operating leases $ 10,513,512 3,060,592 5,527,020 1,925,900
SIGNIFICANT ACCOUNTING POLICIES
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, 2003. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We believe that our Company does not have significant exposure to market risk
associated with derivative financial instruments, other financial instruments,
or derivative commodity instruments. We previously utilized only limited
derivative financial instruments and did not use them for trading purposes and
have never used derivative commodity instruments. At March 31, 2004, 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 with Congress Financial Corporation and term
loan with The Laurus Funds adjusts with the changes in the market rate of
interest, the Company believes that the fair value is equivalent to the carrying
value.
We believe the interest rate of eight percent (8.0%) on the subordinated
debenture held by FINOVA Mezzanine Capital, Inc. is approximately equal to the
current rate available for similar debt. Accordingly, the fair value of this
debenture approximates its carrying value.
ITEM 4. CONTROLS AND PROCEDURES.
We maintain a system of controls and procedures designed to provide reasonable
assurance as to the material reliability of the financial statements and other
disclosures included in this report as well as to safeguard assets from
unauthorized use or disposition. However, no cost effective systems of internal
controls will preclude all errors and irregularities, and management is
necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
We evaluated the effectiveness of the design and operation of our disclosure
controls and procedures under the supervision and with the participation of
management, including our chief executive officer and chief financial officer,
within 90 days prior to the filing date of the this report. Based upon that
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic Securities
and Exchange Commission filings. No significant changes were made to our systems
of internal controls or other factors that could significantly affect these
disclosure controls and procedures subsequent to the date of their evaluation.
12
PART II OTHER INFORMATION
ITEMS 1 THROUGH 5 ARE NOT APPLICABLE TO THE COMPANY IN THIS REPORT.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Document
- ------------- --------------------------------------------------------------
2.1 Autospeciality Asset Purchase Agreement by and between
Kelsey-Hayes Company, a Delaware Corporation, and Universal
Automotive, Inc., an Illinois Corporation dated December 23,
2003. The schedules to this Agreement have been omitted. A
copy of the omitted schedules will be provided upon request by
the Securities and Exchange Commission.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99 Computation of Earnings Per Share.
(b) Reports on Form 8-K
A Form 8-K was filed on January 12, 2004, under Item 5, relating to our Press
Release on January 12, 2004, in which we announced that we had acquired certain
assets of TRW Automotive's Kelsey-Hayes Subsidiary.
A Form 8-K was filed on January 27, 2004, under Item 2, 5 and 7, announcing our
acquisition of business assets of Autospecialty, a division of Kelsey-Hayes
Company, whose indirect parent is TRW Automotive, Inc.
A Form 8-K/A was filed on March 29, 2004, under Item 7, in order to provide the
audited financial statement of Autospecialty, a division of Kelsey-Hayes
Company, whose indirect parent is TRW Automotive, Inc.
A Form 8-K was filed on March 31, 2004, under Item 12, relating to our Press
Release on March 30, 2004, in which we announced our financial results for the
fourth quarter and year ending December 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant
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: May 20, 2004 Arvin Scott, Chief Executive Officer, President
(Principal Executive Officer)
/s/ ROBERT W. ZIMMER
--------------------------------------
Date: May 20, 2004 Robert W. Zimmer, Chief Financial Officer
(Principal Financial Officer)
14