UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2013
[ ] 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 1-10869
UQM TECHNOLOGIES, INC.
(Exact name of registrant, as specified in its charter)
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Colorado (State or other jurisdiction of incorporation or organization) | 84-0579156 (I.R.S. Employer Identification No.) |
4120 Specialty Place, Longmont, Colorado 80504
(Address of principal executive offices) (Zip code)
(303) 682-4900
(Registrant’s telephone number, including area code)
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 submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No Not Applicable .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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[ ] Large accelerated filer | [ ] Accelerated filer | [ X ] Non-accelerated filer | [ ] Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes No X .
The number of shares outstanding (including shares held by affiliates) of the registrant’s common stock, par value $0.01 per share at January 28, 2014 was 37,548,959.
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PART I Financial Information | |
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Item 1. Financial Statements | |
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Consolidated Condensed Balance Sheets as of December 31, 2013 and March 31, 2013 | |
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Consolidated Condensed Statements of Operations for the quarters and nine month periods ended December 31, 2013 and 2012 | |
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Consolidated Condensed Statements of Cash Flows for the nine month periods ended December 31, 2013 and 2012 | |
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Notes to Consolidated Condensed Financial Statements | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | |
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PART II Other Information | |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 6. Exhibits | |
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Part I – FINANCIAL INFORMATION
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
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| December 31, 2013 |
| March 31, 2013 | ||
| (unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents | $ | 6,263,510 |
| $ | 4,527,899 |
Accounts receivable, net of allowance for doubtful accounts of zero and |
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$3,838,092, respectively |
| 682,980 |
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| 2,212,395 |
Costs and estimated earnings in excess of billings on |
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uncompleted contracts |
| 445,037 |
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| 178,264 |
Inventories |
| 10,255,074 |
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| 10,998,461 |
Facility held for sale |
| - |
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| 1,525,000 |
Prepaid expenses and other current assets |
| 304,417 |
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| 309,957 |
Total current assets |
| 17,951,018 |
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| 19,751,976 |
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Property and equipment, at cost: |
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Land |
| 1,683,330 |
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| 1,683,330 |
Building |
| 4,516,301 |
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| 4,516,301 |
Machinery and equipment |
| 8,208,689 |
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| 7,771,363 |
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| 14,408,320 |
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| 13,970,994 |
Less accumulated depreciation |
| (6,348,064) |
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| (5,507,801) |
Net property and equipment |
| 8,060,256 |
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| 8,463,193 |
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Patent costs, net of accumulated amortization of $872,118 and $845,795, |
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respectively |
| 227,339 |
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| 206,287 |
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Trademark costs, net of accumulated amortization of $67,595 and $64,230, |
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respectively |
| 107,163 |
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| 110,528 |
Other assets |
| 65,880 |
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| 76,731 |
Total assets | $ | 26,411,656 |
| $ | 28,608,715 |
See accompanying notes to consolidated condensed financial statements.
1
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets, Continued
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| December 31, 2013 |
| March 31, 2013 | ||
| (unaudited) |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | 551,701 |
| $ | 617,197 |
Other current liabilities |
| 1,666,114 |
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| 2,599,435 |
Short-term deferred compensation under executive employment |
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agreements |
| - |
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| 524,000 |
Total current liabilities |
| 2,217,815 |
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| 3,740,632 |
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Long-term deferred compensation under executive employment agreements |
| 162,165 |
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| 103,412 |
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Total liabilities |
| 2,379,980 |
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| 3,844,044 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Common stock, $0.01 par value, 50,000,000 shares |
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authorized; 36,891,654 and 36,664,097 shares |
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issued and outstanding, respectively |
| 368,917 |
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| 366,641 |
Additional paid-in capital |
| 116,232,596 |
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| 115,573,331 |
Accumulated deficit |
| (92,569,837) |
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| (91,175,301) |
Total stockholders’ equity |
| 24,031,676 |
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| 24,764,671 |
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Total liabilities and stockholders’ equity | $ | 26,411,656 |
| $ | 28,608,715 |
See accompanying notes to consolidated condensed financial statements.
2
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations (unaudited)
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| Quarter Ended December 31, |
| Nine Months Ended December 31, | ||||||||
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| 2013 |
| 2012 |
| 2013 |
| 2012 | ||||
Revenue: |
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Product sales |
| $ | 1,825,351 |
| $ | 1,692,276 |
| $ | 5,351,287 |
| $ | 4,568,795 |
Contract services |
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| 214,898 |
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| 235,794 |
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| 679,431 |
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| 951,807 |
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| 2,040,249 |
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| 1,928,070 |
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| 6,030,718 |
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| 5,520,602 |
Operating costs and expenses: |
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Costs of product sales |
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| 1,053,716 |
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| 1,529,852 |
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| 3,134,230 |
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| 3,331,469 |
Costs of contract services |
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| 153,647 |
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| 121,624 |
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| 552,797 |
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| 518,159 |
Research and development |
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| 44,307 |
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| 23,190 |
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| 158,852 |
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| 55,647 |
Production engineering |
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| 818,460 |
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| 991,653 |
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| 2,851,416 |
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| 3,646,975 |
Reimbursement of costs under DOE grant |
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| (451,026) |
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| (1,446,356) |
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| (2,576,685) |
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| (3,176,556) |
Selling, general and administrative |
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| 1,220,184 |
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| 1,434,241 |
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| 4,079,660 |
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| 5,729,741 |
Impairment of assets |
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| (726,640) |
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| 3,833,860 |
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| (726,640) |
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| 3,833,860 |
(Gain) loss on disposal of long-lived assets |
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| - |
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| 407 |
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| (40,032) |
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| 407 |
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| 2,112,648 |
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| 6,488,471 |
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| 7,433,598 |
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| 13,939,702 |
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Loss before other income |
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| (72,399) |
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| (4,560,401) |
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| (1,402,880) |
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| (8,419,100) |
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Other income: |
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Interest income |
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| 339 |
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| 5,244 |
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| 1,409 |
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| 10,250 |
Other |
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| 6,147 |
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| 124 |
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| 6,935 |
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| 2,835 |
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| 6,486 |
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| 5,368 |
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| 8,344 |
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| 13,085 |
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Net loss |
| $ | (65,913) |
| $ | (4,555,033) |
| $ | (1,394,536) |
| $ | (8,406,015) |
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Net loss per common share - basic and |
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diluted |
| $ | 0.00 |
| $ | (0.12) |
| $ | (0.04) |
| $ | (0.23) |
Weighted average number of shares of common |
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stock outstanding - basic and diluted |
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| 36,878,092 |
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| 36,654,737 |
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| 36,794,834 |
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| 36,532,510 |
See accompanying notes to consolidated condensed financial statements.
3
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (unaudited)
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| Nine Months Ended December 31, | ||||
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| 2013 |
| 2012 | ||
Cash flows from operating activities: |
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Net loss |
| $ | (1,394,536) |
| $ | (8,406,015) |
Adjustments to reconcile net loss to net cash used in |
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operating activities: |
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Depreciation and amortization |
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| 869,951 |
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| 986,029 |
Impairment of assets |
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| (726,640) |
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| 3,833,860 |
(Gain) loss on disposal of long-lived assets |
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| (40,032) |
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| 407 |
Non-cash equity based compensation |
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| 610,716 |
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| 1,020,740 |
Change in operating assets and liabilities: |
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Accounts receivable and costs and estimated earnings in |
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excess of billings on uncompleted contracts |
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| 1,246,490 |
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| (523,607) |
Inventories |
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| 743,387 |
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| (2,198,745) |
Prepaid expenses and other current assets |
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| 5,540 |
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| 12,793 |
Accounts payable and other current liabilities |
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| (272,177) |
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| (709,770) |
Billings in excess of costs and estimated earnings on |
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uncompleted contracts |
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| - |
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| 78,584 |
Deferred compensation under executive |
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employment agreements |
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| (465,247) |
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| (100,186) |
Net cash provided by (used in) operating activities |
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| 577,452 |
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| (6,005,910) |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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| (447) |
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| (245,950) |
Maturities of short-term investments |
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| - |
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| 728,859 |
Increase in other long-term assets |
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| - |
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| (437) |
Acquisition of property and equipment |
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| (840,331) |
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| (392,850) |
Property and equipment reimbursements received from DOE under |
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grant |
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| 430,455 |
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| 170,289 |
Cash proceeds from sale of facility held for sale |
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| 1,565,032 |
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| - |
Increase in patent and trademark costs |
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| (47,375) |
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| (21,704) |
Net cash provided by investing activities |
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| 1,107,334 |
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| 238,207 |
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Cash flows from financing activities: |
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Issuance of common stock under employee stock purchase plan |
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| 39,438 |
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| 75,178 |
Issuance of common stock upon exercise of employee stock options |
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| 11,387 |
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| - |
Purchase of treasury stock |
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| - |
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| (40,430) |
Net cash provided by financing activities |
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| 50,825 |
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| 34,748 |
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Increase (decrease) in cash and cash equivalents |
| 1,735,611 |
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| (5,732,955) | |
Cash and cash equivalents at beginning of period |
| 4,527,899 |
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| 11,637,940 | |
Cash and cash equivalents at end of period | $ | 6,263,510 |
| $ | 5,904,985 | |
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See accompanying notes to consolidated condensed financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements appear in a number of places in this Report and include statements regarding our plans, beliefs or current expectations; including those plans, beliefs and expectations of our management with respect to, among other things, new product developments, future orders to be received from our customers, sales of products from inventory, future financial results, liquidity and the continued growth of the electric-powered vehicle industry. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed below in Part II, Item 1A. Risk Factors and in our annual report on Form 10-K for the fiscal year ended March 31, 2013.
Introduction
UQM Technologies, Inc., (“UQM” or the “Company”) is a developer and manufacturer of power dense, high efficiency electric motors, generators and power electronic controllers for the automotive, commercial truck, bus, marine and military markets. We generate revenue from two principal activities: 1) the sale of motors, generators and electronic controls; and 2) research, development and application engineering services that are paid for by our customers. Our product sales consist of annually recurring higher volume production sales, prototype low volume sales, which are generally sold to a broad range of customers, and revenues derived from the sale of refurbished and serviced products. The sources of engineering revenue typically vary from year to year and individual projects may vary substantially in their periods of performance and aggregate dollar value. Historically, quarterly product sales have fluctuated depending on our customers’ buying cycles, and we expect this fluctuation to continue in the future.
We expect demand for our electric propulsion system and generator products to increase as vehicle makers continue to focus on the development and introduction of electric and hybrid electric vehicles as part of a global effort to provide a broader selection of highly fuel efficient vehicles to consumers. This demand is due, in part, to an expansion in the number of all-electric and hybrid electric vehicle platforms being developed for potential introduction in the passenger bus, commercial truck and van and passenger automobile markets, the amount of government grants and loans available to encourage the development and introduction of clean vehicles, tax incentives to purchasers of these vehicles, and progressively more challenging Consumer Average Fuel Economy Standards ("CAFE") and carbon dioxide emission regulations. Domestically, the federal government offers a tax credit of up to $7,500 on the purchase of passenger electric vehicles, and various states offer additional rebates and incentives. Based on the success of California’s Hybrid and Zero Emission Truck and Bus Voucher program, a point-of-sale purchase incentive program, numerous other states have or are considering implementing similar subsidy plans. There are additional subsidies worldwide to encourage growth of the electric passenger car, bus and truck markets.
During the third quarter of this fiscal year, we announced the addition of the PowerPhase HD®250 to our production-ready product line for heavy-duty vehicles. The system delivers high performance for high-voltage electric and hybrid-electric vehicles, including heavy commercial truck, transit bus and marine applications. The system provides 900Nm (664 lb-ft) peak torque, 250 kW (335 horsepower) peak power and increases the maximum input (battery) voltage up to 750 volts. Providing up to 95 percent energy conversion efficiency, this system consists of an optimized permanent magnet motor/generator and a full-featured digital signal processor (DSP) based controller.
We have entered into multi-year agreements to supply electric propulsion systems to Proterra, a developer and manufacturer of all-electric composite transit buses, Boulder EV, a developer and manufacturer of all-electric delivery trucks and work utility trucks, and Electric Vehicles International (“EVI”), a developer and manufacturer of all-electric medium-duty delivery trucks. EVI has supplied UPS 100 all-electric delivery vans powered by our electric propulsion systems as a test program for their fleet of vans. We are supplying an automotive qualified DC-to-DC converter to Eaton Corporation, which is used in medium and heavy-duty hybrid trucks sold by Freightliner, International and Paccar. We also supply fuel cell compressor motors to Roush Performance Products, and PowerPhase Pro® 135 propulsion systems to PT Sarimas Ahmadi Pratama for an all-electric 17-passenger bus application in Indonesia.
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We supply our electric propulsion systems and generators to several international automakers as part of their hybrid-electric, plug-in hybrid electric, all-electric and fuel cell all-electric vehicle development programs. In particular, our electric propulsion systems are powering a large fleet of all-electric Audi A1 e-tron test vehicles. Also, we have renewed our discussions with National Electric Vehicle Sweden AB (“NEVS”), formerly SAAB, to supply them with our electric propulsion systems.
We are in discussions with several potential Chinese partners for both all-electric and hybrid-electric vehicles. We have signed a Memorandum of Understanding with one major Chinese company for the development and marketing of UQM® electric propulsion systems for New Energy Vehicles in China. This agreement expands the global reach of UQM, and represents the initial step in our strategy to penetrate the Chinese market with our leading electric propulsion products. Under the agreement, UQM and its China-based partner will work collaboratively to introduce UQM products into the Chinese market for use in New Energy Vehicles. The China State Council published its New Energy Vehicles plan in July, 2012, setting a goal of 500,000 energy-efficient and clean vehicles on the road in China by 2015, and five million vehicles by 2020. In September, 2013, China’s National Development and Reform Commission and three other ministries jointly announced a new round of New Energy Vehicle supportive policies for 2013 - 2015. Various levels of government subsidies for electric vehicles were announced, including subsidies for pure electric buses of RMB 500,000 each (approximately $80,000), electric trucks of RMB 150,000 each (approximately $24,000) and plug-in electric and fuel cell passenger vehicles of RMB 60,000 each (approximately $9,600).
The marine market is forecasted to be a growing segment of electrified vehicles, and we continue to see increased activity and interest within the marine segment. ReGen Nautic has three UQM based outboard motors, the E100, E180 and E300, along with several combinations of full electric and hybrid inboard combinations utilizing both the PowerPhase Pro® and PowerPhase HD® propulsion systems, and we continue to ship them product as their demand dictates. They have prominently displayed our product at several international boat shows including Dusseldorf, Monaco and Miami, and in a variety of boats including the all-electric Mylne Bolt 18 yacht tender, the Bruce Runabout all-electric motorboat, the Goldfish 23 e-Fusion, Alibi Catamarans, Rhea Marine, Bering Yachts and Grand Banks.
We have a grant (the “Grant”) with the DOE under the American Recovery and Reinvestment Act for reimbursements up to a maximum of $32.4 million. The Grant provides funds to facilitate the manufacture and deployment of electric drive vehicles, batteries and electric drive vehicle components in the United States. Pursuant to the terms of the Agreement, the DOE will reimburse us for 50 percent of qualifying costs for the purchase of facilities, tooling and manufacturing equipment, and for engineering related to product qualification and testing of our electric propulsion systems. The period of the Grant is through January 12, 2015. At December 31, 2013, we had received reimbursements from the DOE under the Grant totaling $24.0 million and had funds receivable under the Grant of $0.2 million.
In the third quarter of fiscal year 2013, we recorded a liability of $813,740 to accrue for potential import duties for products purchased from China. We appealed to the Department of Commerce and sought to have the duty fees reduced. In December, 2013, the Department of Commerce issued a ruling that significantly reduced the amount of duties owed. Therefore, in the quarter ended December 31, 2013, we reduced our accrual for import duties by $726,640 to $87,100 reflecting the amount now owed.
We had listed our former facility in Frederick, Colorado for sale with a commercial broker. As a result, the carrying value of the facility was classified as a current asset and listed under the caption facility held for sale at March 31, 2013. On June 6, 2013, we closed on the sale the building. The sales price was $1,650,000 and net proceeds were $1,565,032.
On May 1, 2013, our former customer CODA Automotive (“CODA”) filed for reorganization under the U.S. Bankruptcy Code. We have filed all appropriate claims against the CODA bankruptcy estate; however, we expect to ultimately recover only a small percentage of the amount claimed, if any. As of December 31, 2013, we believe we have recorded all impairments and liabilities that have or could arise as a result of the CODA bankruptcy.
Financial Condition
Cash and cash equivalents at December 31, 2013 were $6,263,510 and working capital was $15,733,203, compared with $4,527,899 and $16,011,344, respectively, at March 31, 2013. The increase in cash and cash equivalents is
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primarily attributable to the sale of our former facility, reduced levels of inventories and a reduction in accounts receivable due under the DOE Grant partially offset by operating losses.
Accounts receivable decreased $1,529,415 to $682,980 at December 31, 2013 from $2,212,395 at March 31, 2013. The decrease is primarily due to cash receipts from the DOE under the Grant. Many of our customers are large well-established companies of high credit quality. Our sales are conducted through acceptance of customer purchase orders or in some cases through supply agreements. For credit qualified customers, our standard terms are net 30 days. For international customers and customers without an adequate credit rating or history, our typical terms are irrevocable letter of credit or cash payment in advance of delivery. At December 31, 2013 and March 31, 2013, we had an allowance for bad debts of zero and $3,838,092, respectively. The allowance for bad debts as of March 31, 2013 relates to amounts owed to us by CODA, which have since been written off.
Costs and estimated earnings on uncompleted contracts increased $266,773 to $445,037 at December 31, 2013 versus $178,264 at March 31, 2013. The increase is due to timing of billings on certain contracts in process at December 31, 2013 versus March 31, 2013. Estimated earnings on contracts in process increased to $636,517 on revenue recognized of $2,003,226 at December 31, 2013, compared to estimated earnings on contracts in process of $515,299 on revenue recognized of $1,353,545 at March 31, 2013. The increase in estimated earnings is attributable to higher levels of funded engineering contracts in process, partially offset by lower expected margin on certain contracts in process at December 31, 2013.
Inventories decreased $743,387 to $10,255,074 at December 31, 2013, reflecting increased shipments of PowerPhase Pro® and PowerPhase HD® propulsion systems.
Prepaid expenses and other current assets decreased $5,540 to $304,417 at December 31, 2013 from $309,957 at March 31, 2013, primarily due to lower levels of prepayments on raw material purchases.
We invested $321,086 and $840,331 for the acquisition of property and equipment, before reimbursements under the Grant, during the quarter and nine month period ended December 31, 2013, respectively, compared to $81,270 and $392,850 during the comparable quarter and nine month period last fiscal year, respectively. The increase in capital expenditures is primarily attributable to investments in production equipment for our PowerPhase HD® propulsion system during the first nine months of this fiscal year. Cash reimbursements for capital assets under the Grant for the quarter and nine month period ended December 31, 2013 were $255,747 and $430,455, respectively. Cash reimbursements for capital assets under the Grant for the quarter and nine month period ended December 31, 2012 were $27,153 and $170,289, respectively.
Patent costs increased $21,052 to $227,339 at December 31, 2013 versus $206,287 at March 31, 2013 primarily due to capitalized costs associated with a new patent application partially offset by the amortization of patent issuance costs. Trademark costs decreased to $107,163 at December 31, 2013 versus $110,528 at March 31, 2013 primarily due to the amortization of trademark costs.
Accounts payable decreased $65,496 to $551,701 at December 31, 2013 from $617,197 at March 31, 2013, primarily due to the timing of vendor payments.
Other current liabilities decreased to $1,666,114 at December 31, 2013 from $2,599,435 at March 31, 2013. The decrease is primarily attributable to reduced levels of accrued import duties, accrued vendor settlements and accrued payroll and employee benefits, partially offset by increased levels of accrued warranty costs at December 31, 2013.
Short-term deferred compensation under executive employment agreements was zero at December 31, 2013 versus $524,000 at March 31, 2013, reflecting a retirement payment made in December 2013. Long-term deferred compensation under executive employment agreements was $162,165 at December 31, 2013 versus $103,412 at March 31, 2013, reflecting periodic accruals of future severance obligations under executive employment agreements.
Common stock and additional paid-in capital were $368,917 and $116,232,596, respectively, at December 31, 2013 compared to $366,641 and $115,573,331 at March 31, 2013. The increases in common stock and additional paid-in capital were primarily attributable to the issuance of shares under the Employee Stock Purchase Plan and the Stock Bonus Plan, and the periodic expensing of non-cash share-based payments associated with grants under our Equity Incentive Plan and Stock Bonus Plan.
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Results of Operations
Quarter Ended December 31, 2013
Total revenue for quarter ended December 31, 2013 increased 6 percent to $2,040,249 versus $1,928,070 for the comparable quarter last fiscal year.
Product sales revenue for the current quarter increased 8 percent to $1,825,351 versus $1,692,276 for the comparable quarter last fiscal year. The increase is primarily due to increased shipments of PowerPhase HD®, PowerPhase Pro®, PowerPhase Select® and other propulsion systems to a variety of customers.
Revenue from contract services decreased to $214,898 for the quarter ended December 31, 2013 versus $235,794 for the comparable quarter last year. This was driven by a change in mix of contracts in process during the current quarter.
Gross profit margins for the quarter ended December 31, 2013 increased to 40.8 percent compared to 14.3 percent for the quarter ended December 31, 2012. Gross profit margin on product sales for the third quarter this year increased to 42.3 percent compared to 9.6 percent for the third quarter last year primarily due to changes in product mix and improved efficiencies in production of our PowerPhase HD 220 systems in the current fiscal year. Gross profit margin on contract services decreased to 28.5 percent for the third quarter this fiscal year compared to 48.4 percent for the quarter ended December 31, 2012, resulting from a change in mix of contracts in process in the current quarter.
Research and development expenditures for the quarter ended December 31, 2013 increased to $44,307 compared to $23,190 for the quarter ended December 31, 2012 reflecting increased levels of activity on cost-sharing government research programs.
Production engineering costs were $818,460 for the third quarter versus $991,653 for the comparable quarter last fiscal year. The decrease is attributable to higher than normal product qualification and testing activities during the comparable quarter last year associated with product qualification and testing activities for our PowerPhase HD propulsion system.
Reimbursement of product qualification and testing costs under the DOE Grant was $451,026 for the quarter ended December 31, 2013 versus $1,446,356 for the comparable quarter last fiscal year. The decrease is primarily associated with decreased levels of reimbursable production engineering activities versus the comparable quarter last fiscal year and an adjustment of $696,362 recorded during the quarter ended December 31, 2012 for a change in estimated realizable rates under the Grant for the prior fiscal-year-to-date.
Selling, general and administrative expense for the quarter ended December 31, 2013 was $1,220,184 compared to $1,434,241 for the same quarter last year, a decrease of 15 percent. The decrease is primarily attributable to cost reduction efforts versus the comparable quarter last fiscal year.
Impairment of assets was negative $726,640 for the quarter ended December 31, 2013 compared to $3,833,860 for the prior comparable quarter. During the quarter ended December 31, 2013, we recorded a reduction to our accrued import duties liability of $726,640 as a result of the ruling from the Department of Commerce that significantly reduced the amount of duties owed, and during the quarter ended December 31, 2012 we recorded a reserve for amounts due from CODA.
Interest income decreased to $339 for the quarter ended December 31, 2013 versus $5,244 for the same quarter last fiscal year. The decrease is attributable to lower yields and lower levels of invested cash balances.
As a result, net loss for the quarter ended December 31, 2013 was $65,913, or $0.00 per common share, compared to a net loss of $4,555,033, or $0.12 per common share, for the comparable quarter last fiscal year.
Nine Months Ended December 31, 2013
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Total revenue for the nine month period ended December 31, 2013 increased 9 percent to $6,030,718 compared to $5,520,602 for the comparable nine month period last year.
Product sales for the nine month period ended December 31, 2013 increased 17 percent to $5,351,287 compared to $4,568,795 for the comparable period last year. The increase is primarily due to increased shipments of PowerPhase HD® and PowerPhase Pro® propulsion systems, partially offset by decreased levels of PowerPhase Select® propulsion systems.
Revenue from contract services decreased to $679,431 for the nine month period ended December 31, 2013 versus $951,807 for the comparable period last year. This was driven by a change in mix of contracts in process during the current nine month period and by a change in our cumulative estimate of reimbursable rates under a cost-reimbursement type contract which resulted in a decrease in contract services revenue recognized during the nine month period ended December 31, 2013 of $79,400.
Gross profit margins for the nine month period ended December 31, 2013 increased to 38.9 percent compared to 30.3 percent for the comparable nine month period last fiscal year. Gross profit margin on product sales for the nine month period ended December 31, 2013 increased to 41.4 percent compared to 27.1 percent for the comparable period last year. The increase is primarily due to changes in product mix and lower overhead costs arising from higher volumes. Gross profit margin on contract services decreased for the nine month period to 18.6 percent versus 45.6 percent for the comparable nine month period last fiscal year resulting from a change in mix of contracts in process in the current period and the change in our cumulative estimate of reimbursable rates noted above.
Research and development expenditures for the nine month period ended December 31, 2013 increased to $158,852 compared to $55,647 for the same period last year reflecting increased levels of activity on cost-sharing government research programs.
Production engineering costs were $2,851,416 for the nine month period ended December 31, 2013 versus $3,646,975 for the comparable nine month period last year. The decrease is attributable to higher than normal product qualification and testing activities during the prior comparable nine month period associated with product qualification and testing activities for our PowerPhase HD propulsion system.
Reimbursements of costs under the DOE Grant were $2,576,685 for the nine months ended December 31, 2013 versus $3,176,556 for the comparable period last year. During the nine month period ended December 31, 2013, we changed our cumulative estimate of reimbursable rates under the Grant which resulted in an increase in our reimbursement recorded for the period of $958,000. This increase was offset by decreased levels of reimbursable production engineering activities versus the comparable period last fiscal year.
Selling, general and administrative expense for the nine month period ended December 31, 2013 was $4,079,660 compared to $5,729,741 for the same period last year, a decrease of 29 percent. The decrease is primarily attributable to cost reduction efforts versus the comparable nine month period last fiscal year.
Impairment of assets was negative $726,640 for the nine month period ended December 31, 2013 compared to $3,833,860 for the prior comparable period. During the nine month period ended December 31, 2013, we recorded a reduction to our accrued import duties liability of $726,640 as a result of the ruling from the Department of Commerce that significantly reduced the amount of duties owed, and during the nine month period ended December 31, 2012 we recorded a reserve for amounts due from CODA.
Interest income decreased to $1,409 for the nine month period ended December 31, 2013 versus $10,250 for the comparable period last year. The decrease is attributable to lower yields and lower levels of invested cash balances.
As a result, net loss for the nine month period ended December 31, 2013 was $1,394,536, or $0.04 per common share, compared to a net loss of $8,406,015, or $0.23 per common share, for the comparable period last year.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the quarter ended December 31, 2013 were adequate to meet operating needs. At December 31, 2013, we had working capital of $15,733,203 compared to $16,011,344 at March 31, 2013.
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For the nine month period ended December 31, 2013, net cash provided by operating activities was $577,452 compared to net cash used in operating activities of $6,005,910 for the comparable period last fiscal year. The increase in cash provided by operating activities for the first nine months of this fiscal year is primarily attributable to decreased net losses, significantly driven by lower operating costs as a result of a reduction in force and other strategic cost reductions, decreased levels of inventory purchases and decreased levels of accounts receivable, partially offset by decreases in accounts payable and deferred compensation under executive employment agreements.
Net cash provided by investing activities for the first nine months of this fiscal year was $1,107,334 compared to cash provided by investing activities of $238,207 for the comparable nine month period last fiscal year. The change for this period was primarily due to cash proceeds from the sale of our former Frederick, Colorado facility, partially offset by decreased levels of net short-term investment maturities versus the prior comparable quarter and increased levels of net capital expenditures.
Net cash provided by financing activities for the first nine months this fiscal year was $50,825 compared to net cash provided by financing activities of $34,748 for the comparable period last fiscal year. The increase in cash provided was primarily attributable to a reduction in purchases of treasury stock during the first nine months of this fiscal year.
We expect to fund our operations over the next year from existing cash balances, the reduction of inventories and continuing operations. Although we expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage, our working capital requirements may increase in the future. If customer demand accelerates substantially, our working capital requirements may also increase substantially and we may need to raise additional capital. In addition, our $32.4 million DOE Grant requires us to provide matching funds of 50 percent on all qualifying expenditures under the Grant. As of December 31, 2013, $24.2 million had been expended under the Grant.
As the markets for electrified vehicles continue to emerge and expand into additional vehicle platforms over the next several years, we expect to experience potentially rapid growth in our revenue coincident with the introduction of electric products for our customers. We believe we have sufficient cash resources to fund our expected rate of future growth; however, if our future growth occurs at a rate higher than our expectations, our existing cash and short-term investments may not be adequate to fund our operations and we may need to raise additional capital.
If our existing financial resources are not sufficient to execute our business plan, including meeting future funding requirements under the DOE Grant or increased working capital needs, we may issue equity or debt securities in the future, although we cannot assure that we will be able to secure additional capital should it be required to implement our current business plan. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, or at all, we will modify our strategy to align our operations with then available financial resources. Based on our current level of operations, we believe we have sufficient cash to fund our operations for at least the next two years.
Contractual Obligations
The following table presents information about our contractual obligations and commitments as of December 31, 2013:
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| 2 - 3 Years |
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Purchase obligations | $ | 370,529 |
| $ | 370,529 |
| $ | - |
| $ | - |
| $ | - |
Executive employment agreements (1) |
| 162,165 |
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| - |
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| - |
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| 162,165 |
Total | $ | 532,694 |
| $ | 370,529 |
| $ | - |
| $ | - |
| $ | 162,165 |
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(1) | Includes severance pay obligations under executive employment agreements contingently payable upon six months’ notice by five officers of the Company, but not annual cash compensation under the agreements. |
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Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended March 31, 2013 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for doubtful accounts receivables, accrued warranty costs, accrued vendor settlement obligations, deferred compensation under executive employment agreements, costs to complete contracts, the recoverability of inventories, the fair value of long-lived assets and in the establishment of provisional billing rates on certain government contracts. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.
Accounts Receivable
Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectability of accounts receivable may change due to changing general economic conditions and factors associated with each customer’s particular business. Because substantially all of our current customers are large well-established companies with excellent credit worthiness, we have not historically established a reserve for potentially uncollectible trade accounts receivable. However, during the fiscal year ended March 31, 2013, we established an allowance for bad debts of $3,838,092, principally due to the bankruptcy filing of CODA. At December 31, 2013, the accounts receivable balance due from CODA and the associated allowance for bad debts has been written off. In light of current economic conditions, we may need to maintain an allowance for bad debts in the future. It is also reasonably possible that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses.
Inventories
We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assess our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. On May 1, 2013, the date CODA filed for bankruptcy protection, we had approximately $8.2 million of inventory originally purchased or manufactured for CODA, substantially all of which remained on hand at December 31, 2013. The inventory is now available for sale to other customers. The actual realizable value of this inventory and our inventories generally may differ materially from these estimates based on future occurrences. It is reasonably possible that future events or changes in circumstances could cause the realizable value of our inventories to decline materially, resulting in additional material impairment losses.
Long-term Contracts: Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
We recognize revenue on development projects funded by our customers using the percentage-of-completion method. Under this method, contract services revenue is based on the percentage that costs incurred to date bear to management’s best estimate of the total costs to be incurred to complete the project. Many of these contracts involve the application of our technology to customers’ products and other applications with demanding specifications. Estimated costs for each project are developed by our engineering staff based upon a progression of technical tasks required to attain the project's objectives. These estimates typically include the number of hours of work required by each category of personnel, the cost of subcontracts, materials and components, as well as costs for consultants and project related travel. These estimated costs are reviewed throughout the project and revised quarterly, if necessary, to accurately reflect our best estimate of the remaining costs necessary to complete the project. Management’s best estimates have sometimes been adversely impacted by unexpected technical challenges requiring additional analysis
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and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts, changes in actual overhead costs versus estimated overhead costs and a variety of other factors that may cause unforeseen delays and additional costs. It is reasonably likely that estimated project costs to complete the projects in process at December 31, 2013 could change materially in the future, and any modification of management’s current estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.
Fair Value Measurements and Asset Impairment
Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. Fair value estimates and judgments may be required by management for those assets that do not have quoted prices in active markets. Similarly, management evaluates both tangible and intangible assets for potential impairments in value. In conducting this evaluation, management may rely on a number of factors to value anticipated future cash flows including operating results, business plans and present value techniques. Rates used to value and discount cash flows may include assumptions about interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of asset impairment. Changes in any of the foregoing estimates and assumptions or a change in market conditions could result in a material change in the value of an asset or liability resulting in a material adverse change in our operating results.
Cost-Sharing and Cost-Plus Type Contracts
Some of our business with the U.S. Government and prime contractors is performed under cost-sharing or cost-plus- fixed-fee type contracts. These contracts provide for the reimbursement of costs, to the extent allocable and allowable under applicable government regulations. Typically, billings under these contracts are based on provisional rates, which are estimates of the actual costs expected to be incurred during the relevant period of performance. The final amounts qualified for reimbursement are determined in arrears, typically annually, based on the actual costs incurred during the relevant period of performance. The final costs eligible for reimbursement under these contracts may differ materially from the provisional rates. If actual costs incurred are less than the amounts estimated through provisional rates, we will be obligated to return any excess of provisional payments over final qualified costs, which could have a material adverse impact on our operating results and liquidity.
New Accounting Pronouncements
As of December 31, 2013, there were no new accounting pronouncements expected to significantly impact our consolidated financial statements, results of operations, or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not hold or issue financial instruments for trading purposes and all of our revenues, and related receivables are payable in U.S. dollars.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2013, we performed an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities and Exchange Act of 1934).
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Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2013.
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Litigation
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although adverse developments in these matters could have a material impact on a future reporting period.
Except as updated below, there have been no significant changes in the risk factors previously identified as being applicable to us and our business in our annual report on Form 10-K for the fiscal year ended March 31, 2013:
We have incurred significant losses and may continue to do so.
We have incurred significant net losses as shown in the following tables:
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Net loss | $ | 10,688,312 |
| $ | 4,928,520 |
| $ | 1,992,358 |
As of December 31, 2013 and March 31, 2013, we had accumulated deficits of $92,569,837 and $91,175,301, respectively.
In the future, we plan to make additional investments in product development, facilities and equipment and other costs related to the commercialization of our products. As a result, we may continue to incur net losses at least through March 31, 2014 and potentially beyond.
Our operating losses, anticipated capital expenditures and working capital requirements in the longer term may exceed our current cash balances.
Our net loss for the quarter ended December 31, 2013 was $65,913 versus a net loss for the comparable quarter last fiscal year of $4,555,033. Our net loss for the fiscal year ended March 31, 2013 was $10,688,312 versus a net loss for the fiscal years ended March 31, 2012 and 2011 of $4,928,520 and $1,992,358, respectively. At December 31, 2013, our cash balance was $6,263,510. We may continue to incur net losses. Our existing cash resources, together with funding expected from the Grant, should be sufficient to complete our business plan for at least the next two years. Should those resources be insufficient, we may need to secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.
CODA has filed for bankruptcy protection and we may not be able to recover any amounts due to us under our Supply Agreement, including substantial amounts due for accounts receivable, inventory purchases and guaranteed minimum payments.
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We executed a ten-year Supply Agreement with CODA in July, 2009 which provided a framework for CODA, or its manufacturing partner, to purchase from us electric propulsion systems for use in automobiles to be manufactured by CODA. On May 1, 2013, CODA filed for bankruptcy protection. Amounts due from CODA totaled $3.8 million, all of which had been written off as of December 31, 2013. In addition, CODA was obligated under the Supply Agreement for inventory purchases totaling approximately $8.2 million and for a guaranteed minimum payment of $2 million due to their failure to purchase at least 15,000 units. We filed all appropriate claims with the bankruptcy court; however, we may not receive any settlement on the balance owed to us under the Supply Agreement.
We entered into purchase contracts with our supply base to support the CODA program, some of which are non-cancellable by their terms. Our actual liability under these contracts may vary from our current estimates.
We have recorded a liability of $916,809 representing the amount we expect to pay to settle non-cancellable contracts with certain suppliers to the CODA program that will not be fulfilled due to the bankruptcy filing by CODA. The amount of this liability represents management’s current estimate and may be subject to further adjustment based on future negotiations or litigation. Settlements in excess of our estimates or any upward revision in our settlement estimate could result in a material change in our results of operations and financial condition.
(a) | Exhibits |
31.1Certification of Chief Executive Officer
31.2Certification of Chief Financial Officer
32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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| SIGNATURES |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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| UQM Technologies, Inc. |
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| Registrant |
Date: January 30, 2014 |
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| /s/ David I. Rosenthal | |
| David I. Rosenthal | |
| Treasurer | |
| (Principal Financial and | |
| Accounting Officer) | |
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