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 $7,500on the purchase of passenger electric vehicles, and various states offer additional rebates and incentives. Based on the success of California'sHybrid 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. 15 --------------------------------------------------------------------------------
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 Councilpublished its New Energy Vehicles plan in July, 2012, setting a goal of 500,000 energy-efficient and clean vehicles on the road in Chinaby 2015, and five million vehicles by 2020. In September, 2013, China's National Development and Reform Commissionand 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 500,000each (approximately $80,000), electric trucks of RMB 150,000each (approximately $24,000) and plug-in electric and fuel cell passenger vehicles of RMB 60,000each (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, Monacoand Miami, and in a variety of boats including the all-electric Mylne Bolt18 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 millionand had funds receivable under the Grant of $0.2 million. In the third quarter of fiscal year 2013, we recorded a liability of $813,740to accrue for potential import duties for products purchased from China. We appealed to the Department of Commerceand sought to have the duty fees reduced. In December, 2013, the Department of Commerceissued 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 $726,640to $87,100reflecting the amount now owed. We had listed our former facility in Frederick, Coloradofor 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 $1,650,000and 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
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
$1,529,415to $682,980at December 31, 2013from $2,212,395at 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, 2013and 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, 2013relates to amounts owed to us by CODA, which have since been written off. Costs and estimated earnings on uncompleted contracts increased $266,773to $445,037at December 31, 2013versus $178,264at March 31, 2013. The increase is due to timing of billings on certain contracts in process at December 31, 2013versus March 31, 2013. Estimated earnings on contracts in process increased to $636,517on revenue recognized of $2,003,226at December 31, 2013, compared to estimated earnings on contracts in process of $515,299on revenue recognized of $1,353,545at 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.
Prepaid expenses and other current assets decreased
$321,086and $840,331for 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 $81,270and $392,850during 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, 2013were $255,747and $430,455, respectively. Cash reimbursements for capital assets under the Grant for the quarter and nine month period ended December 31, 2012were $27,153and $170,289, respectively.
Patent costs increased
Accounts payable decreased
Other current liabilities decreased to
$1,666,114at December 31, 2013from $2,599,435at 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, 2013versus $524,000at March 31, 2013, reflecting a retirement payment made in December 2013. Long-term deferred compensation under executive employment agreements was $162,165at December 31, 2013versus $103,412at March 31, 2013, reflecting periodic accruals of future severance obligations under executive employment agreements. Common stock and additional paid-in capital were $368,917and $116,232,596, respectively, at December 31, 2013compared to $366,641and $115,573,331at 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. 17
Results of Operations
Total revenue for quarter ended
Product sales revenue for the current quarter increased 8 percent to
$1,825,351versus $1,692,276for 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
Gross profit margins for the quarter ended
December 31, 2013increased 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, 2013increased to $44,307compared to $23,190for the quarter ended December 31, 2012reflecting increased levels of activity on cost-sharing government research programs. Production engineering costs were $818,460for the third quarter versus $991,653for 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 $451,026for the quarter ended December 31, 2013versus $1,446,356for 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 $696,362recorded during the quarter ended December 31, 2012for 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, 2013was $1,220,184compared to $1,434,241for 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 $726,640for the quarter ended December 31, 2013compared to $3,833,860for the prior comparable quarter. During the quarter ended December 31, 2013, we recorded a reduction to our accrued import duties liability of $726,640as a result of the ruling from the Department of Commercethat significantly reduced the amount of duties owed, and during the quarter ended December 31, 2012we recorded a reserve for amounts due from CODA. Interest income decreased to $339for the quarter ended December 31, 2013versus $5,244for 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
Nine Months Ended
Total revenue for the nine month period ended
Product sales for the nine month period ended
and PowerPhase Pro® propulsion systems, partially offset by decreased levels of PowerPhase Select® propulsion systems.
Revenue from contract services decreased to
$679,431for the nine month period ended December 31, 2013versus $951,807for 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, 2013of $79,400. Gross profit margins for the nine month period ended December 31, 2013increased 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, 2013increased 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, 2013increased to $158,852compared to $55,647for the same period last year reflecting increased levels of activity on cost-sharing government research programs. Production engineering costs were $2,851,416for the nine month period ended December 31, 2013versus $3,646,975for 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 $2,576,685for the nine months ended December 31, 2013versus $3,176,556for 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, 2013was $4,079,660compared to $5,729,741for 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 $726,640for the nine month period ended December 31, 2013compared to $3,833,860for the prior comparable period. During the nine month period ended December 31, 2013, we recorded a reduction to our accrued import duties liability of $726,640as a result of the ruling from the Department of Commercethat significantly reduced the amount of duties owed, and during the nine month period ended December 31, 2012we recorded a reserve for amounts due from CODA.
Interest income decreased to
As a result, net loss for the nine month period ended
Liquidity and Capital Resources
Our cash balances and liquidity throughout the quarter ended
For the nine month period ended
Net cash provided by investing activities for the first nine months of this fiscal year was
$1,107,334compared to cash provided by investing activities of $238,207for 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, Coloradofacility, 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
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 millionDOE Grant requires us to provide matching funds of 50 percent on all qualifying expenditures under the Grant. As of December 31, 2013, $24.2 millionhad 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
Payments due by Period Less Than More than Total 1 Year 2 - 3 Years 4 - 5 Years 5 Years Purchase obligations
$ 370,529 $ 370,529$ - $ - $ - Executive employment agreements (1) 162,165 - -
- 162,165 Total
$ 532,694 $ 370,529$ - $ - $ 162,165
(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. 20
Off-Balance Sheet Arrangements
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 Americarequires 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, 2013describes 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.
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.
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 millionof 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 21 --------------------------------------------------------------------------------
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, 2013could 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. Governmentand 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
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