UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2003
[ ] 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)
| Colorado
(State or other jurisdiction of incorporation or organization) |
84-0579156
(I.R.S. Employer Identification No.) |
7501 Miller Drive, Frederick, Colorado 80530
(Address of principal executive offices) (Zip Code)
(303) 278-2002
(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 is an accelerated filer (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 July 18, 2003 was 18,847,980.
Part I - Financial Information
Consolidated balance sheets as of June 30, 2003 and March 31, 2003
Consolidated statements of operations for the quarters ended June 30, 2003 and 2002
Consolidated statements of cash flows for the quarters ended June 30, 2003 and 2002
Notes to consolidated financial statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 6. Exhibits and Reports on Form 8-K
Certification of William G. Rankin, Chief Executive Officer
PART I - FINANCIAL INFORMATION
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
| Assets Current assets: Cash and cash equivalents Accounts receivable (note 7) Costs and estimated earnings in excess of billings
on Inventory obligations of certain customers, net Inventories (notes 4 and 7) Prepaid expenses and other current assets Total current assets Property and equipment, at cost: Land Building Machinery and equipment Less accumulated depreciation Net property and equipment Patent and trademark costs, net of accumulated amortization Other assets |
June 30, 2003 (Unaudited)
$ 2,162,090 1,436,254
1,232,946 401,668 6,240,881
181,580 2,296,957 7,037,864 9,516,401 (5,232,415)
777,942 24,205
$ 11,327,014 |
March 31, 2003
2,476,276 1,034,002
1,620,262 112,568 6,220,359
181,580 2,296,957 6,962,596 9,441,133 (4,944,608)
751,473 24,205
11,492,562 (Continued) |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
| Liabilities and Stockholders' Equity Current liabilities: Accounts payable Other current liabilities (note 5) Note payable Current portion of long-term debt Billings in excess of costs and estimated earnings on Total current liabilities Long-term debt, less current portion Total liabilities Stockholders’ equity (notes 6 and 12): Common stock, $.01 par value, 50,000,000 shares Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Note receivable from officer Total stockholders’ equity Commitments (note 11)
|
June 30, 2003 (Unaudited)
$ 1,150,221 735,131 162,473 118,969 2,354,955 1,041,908 3,396,863
55,894,045 (47,746,354) (384,300) (21,720) 7,930,151
$ 11,327,014 |
March 31, 2003
975,344 794,575 - 116,921
2,110,218 1,072,341 3,182,559
55,885,486 (47,356,028) (384,300) (23,600) 8,310,003
11,492,562 |
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Quarter Ended June 30, |
||
2003 |
2002 |
|
| Revenue (note 7): Contract services Product sales
Operating costs and expenses: Costs of contract services Costs of product sales Research and development General and administrative
Loss from continuing operations before other income (expense)
Other income (expense): Interest income Interest expense Gain on sale of assets
Loss from continuing operations Discontinued operations (note 8): Loss on disposal of gear division including operating losses during phase-out period
Net loss Net loss per common share-basic and diluted (note 9): Continuing operations Discontinued operations
Weighted average number of shares of common stock outstanding-basic and diluted (note 9) |
$ 633,315 2,536,148 3,169,463
471,541 2,320,888 144,789 606,544 3,543,762
(374,299)
6,587 (22,614) - (16,027) (390,326)
- - $ (390,326)
$ (.02) - $ (.02) 18,846,235 |
771,152 4,001,461 4,772,613
658,489 3,736,817 64,381 875,833 5,335,520
(562,907)
8,150 (19,233) 161,070 149,987 (412,920)
(184,971) (184,971) (597,891)
(.02) (.01) (.03) 18,624,606 |
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Quarter Ended June 30, |
||
2003 |
2002 |
|
| Cash flows from operating
activities of continuing operations: Loss from continuing operations Adjustments to reconcile loss from continuing operations to net cash used by operating activities of continuing operations: Depreciation and amortization Deferred gain on sale of real estate Non-cash compensation expense for common stock, stock options and warrants issued for services Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts Inventory obligations of certain customers Inventories Prepaid expenses and other current assets Accounts payable and other current liabilities Billings in excess of costs and estimated earnings on uncompleted contracts Net cash used by operating activities Cash flows from investing activities of continuing operations: Acquisition of property and equipment Increase in patent and trademark costs Net cash used by investing activities |
$ (390,326)
301,097 -
5,180
(411,719) (21,205) 387,316 (289,100) 115,433
(35,217) (338,541)
(75,268) (39,759) $ (115,027) |
(412,920)
342,829 (161,069)
8,320
(106,652) (7,052) 401,360 (87,940) 106,968
(225,870) (142,026)
(155,911) (4,545) (160,456) (Continued) |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(unaudited)
Quarter Ended June 30, |
||
2003 |
2002 |
|
| Cash flows from financing
activities of continuing operations: Increase in note payable, net Repayments on revolving line-of-credit, net Repayment of debt Issuance of common stock in secondary offering, net of offering costs Issuance of common stock upon exercise of employee options, net of note repayments Issuance of common stock under employee stock purchase plan Net cash provided by financing activities Cash provided (used) by continuing operations Net cash provided by discontinued operations Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
|
162,473 - (28,385)
-
3,413
1,881 139,382 (314,186) - (314,186) 2,476,276 2,162,090 21,175 |
- (2,254,000) (1,134,385)
4,431,254
1,718
4,101 1,048,688 746,206 277,245 1,023,451 1,411,509 2,434,960 55,541 |
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim periods, have been made. The results for the interim periods are not necessarily indicative of results to be expected for the fiscal year. The Notes contained herein should be read in conjunction with the Notes to the Company’s Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2003.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2) At June 30, 2003, the estimated period to complete contracts in process ranged from one to nine months, and the Company expects to collect substantially all related accounts receivable arising therefrom within ten months. Contracts in process consists of the following:
June 30, 2003 (unaudited) |
March 31, 2003 |
|
| Costs incurred on uncompleted
contracts Estimated earnings Less billings to date
Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts Billings in excess of costs and estimated earnings on uncompleted contracts |
$ 2,195,367 657,389 2,852,756 (2,843,966) $ 8,790
196,951
(188,161) $ 8,790 |
1,903,214 619,403 2,522,617 (2,558,511) (35,894)
187,484
(223,378) (35,894) |
(3) The Company requires substantially all of the customers of its electronic products segment to contractually commit to pay for any non-returnable or non-cancelable raw material inventory purchased by the Company on behalf of the customer. The Company separately classifies raw material inventory covered under these purchase commitments that is not currently being used or expected to be used in future production operations.
The value of raw materials inventory held pursuant to purchase obligations is as follows:
June 30, 2003 (unaudited) |
March 31, 2003
|
|
Inventory obligations of customers |
$ 1,188,074 |
1,157,477 |
Less: Allowance for uncollectible amounts |
(377,102) |
(367,710) |
$ 810,972 |
789,767 |
|
| ======== | ======== |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(4) Inventories consist of:
June 30, 2003 (unaudited) |
March 31, 2003 |
|
| Raw materials, net Work in process Finished products |
$
863,603 113,701 255,642 $ 1,232,946 |
1,118,944 136,683 364,635 1,620,262 |
The Company’s raw material inventory is subject to obsolescence, and potential impairment due to bulk purchases in excess of customer requirements. The Company periodically assesses its inventory for recovery of its carrying value based on available information, expectations and estimates and establishes reserves for estimated declines in the realizable value of its inventories. At June 30, 2003, the Company has recorded a reserve of $ 997,062 which is reflected in the above table ($1,032,290 at March 31, 2003). There can be no assurance that future events and information will not cause this reserve to be adjusted.
(5) Other current liabilities consists of:
June 30, 2003 (unaudited) |
March 31, 2003 |
|
Accrued legal and accounting fees Accrued payroll and employee benefits Accrued personal property and real estate taxes Accrued warranty costs Accrued raw material purchases Accrued losses on engineering contracts Customer deposits Accrued rents Accrued royalties Other |
$ 82,340 222,211 56,606 50,337 112,490 50,773 3,180 65,838 8,590 82,766 $ 735,131 |
81,300
176,101 37,323 45,927 149,376 92,356 79,188 32,919 18,404 81,681 794,575 |
(6) Common Stock Options and Warrants
Incentive and Non-Qualified Option Plans
As of June 30, 2003, the Company has 1,078,085 shares of common stock available for future grant to key employees, consultants and key suppliers under its 2002 Equity Incentive Plan. Under the Plan, the exercise price of each option is set at the fair market value of the common stock on the date of grant and the maximum term of the option is 10 years from the date of grant. Options granted to employees vest ratably over a three-year period. The maximum number of options that may be granted to any eligible employee during the term of the 2002 Plan is 500,000 options. Forfeitures under the 2002 Equity Incentive Plan are available for re-issuance at any time prior to expiration of the Plan in 2013. Options granted under the Company’s plans to employees require the option holder to abide by certain company policies, which restrict their ability to sell the underlying common stock. Prior to the adoption of the 2002 Equity Incentive Plan the Company issued stock options under its 1992 Incentive and Non-qualified Option Plan, which expired by its terms in 2002. Forfeitures under the 1992 Incentive and Non-qualified Option Plan may not be re-issued.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
The following table summarizes activity under the plans for the quarter ended June 30, 2003:
Shares Under |
Weighted-Average |
|
| Outstanding at March 31, 2003 Granted Forfeited Outstanding at June 30, 2003
|
2,778,128
2,000 (36,285) 2,743,843 1,996,013 |
$5.41 $2.54 $6.38 $5.40 $6.03 |
The following table presents summarized information about stock options outstanding at June 30, 2003:
Options Outstanding |
Options Exercisable |
||||
|
|
Weighted |
Weighted |
|
Weighted |
$2.75 - 3.31 $3.59 - 5.00 $6.25 - 8.75 $2.75 - 8.75 |
717,613
877,617 1,148,613 2,743,843 |
7.0
years 5.7 years 4.6 years 5.6 years |
$2.99
$4.29 $7.76 $5.40 |
303,198
635,927 1,056,888 1,996,013 |
$3.31
$4.35 $7.82 $6.03 |
Non-Employee Director Stock Option Plan
In February 1994, the Company’s Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. As of June 30, 2003, the Company has 445,380 shares of common stock available for future grant under the Plan. Option terms range from 3 to 10 years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant. Forfeitures under the Plan are available for re-issuance at a future date.
The following table presents summarized activity under the plan for the quarter ended June 30, 2003:
Shares Under Option |
Weighted-Average Exercise Price |
|
| Outstanding at March 31, 2003 Granted Forfeited Outstanding at June 30, 2003 Exercisable at June 30, 2003 |
29,345 - - 29,345 27,742 |
$4.41
$4.41
$4.20 |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
The following table presents summarized information about stock options outstanding for non-employee directors:
| Options Outstanding | Options Exercisable | ||||
Range of Exercise |
|
Weighted |
Weighted |
|
Weighted |
| $2.55
$5.85 – 8.00 $2.55 – 8.00 |
16,484
12,861 29,345 |
2.1
years 1.1 years 1.7 years |
$2.55 $6.79 $4.41 |
16,484
11,258 27,742 |
$2.55
$6.62 $4.20 |
The Company periodically issues common stock or stock options to employees and non-employees for services rendered. For common stock issuances, the cost of these services is based upon the fair market value of the Company’s common stock on the date of issuance. For issuances of stock options to employees and directors, the Company measures compensation cost using the intrinsic value method. Stock options granted to non-employees are accounted for under the fair value method. Had the Company reported compensation costs as determined by the fair value method of accounting for option grants to employees and directors, net loss and net loss per common share would have been the pro forma amounts indicated in the following table:
Quarter Ended June 30, |
||
2003 |
2002 |
|
| Net loss-as reported Deduct: Additional stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects: Current period option grants Prior period option grants Pro forma net loss
Basic and diluted-as reported
Basic and diluted-pro forma |
$
(390,326)
- (221,552) $ (611,878)
$ (.02)
|
(597,891)
- (328,111) (926,002)
(.03) |
Options to acquire 2,000 shares of common stock were granted and subsequently forfeited during the quarter ended June 30, 2003.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
The fair value of stock options granted was calculated using the Black Scholes option-pricing model based on the following weighted average assumptions:
Quarter Ended June 30, |
||
| 2003 | 2002 | |
| Expected volatility | 49.3% | - |
| Expected dividend yield | 0.0% | - |
| Risk free interest rate | 2.7% | - |
| Expected life of options granted | 6 years | - |
| Fair value of options granted as | ||
| computed under the Black | ||
| Scholes option-pricing model | $2.54 | - |
| per share | ||
Future pro forma compensation cost by fiscal year, assuming no additional grants by the Company to employees and directors, is as follows:
Fiscal Year Ended March
31, |
Pro Forma Compensation |
2004 2005 2006 |
$
555,345 $ 387,988 $ 146,270
|
Warrants
In April 2002, the Company completed a secondary offering of 1,160,095 shares of common stock together with two-year warrants to acquire an additional 232,019 shares of the Company’s common stock. The warrants have an exercise price of $5.73 per share. All of the warrants were outstanding at June 30, 2003.
The Company completed a private placement in fiscal 1998 of 750,000 units, each consisting of one common share and one warrant with an exercise price of $8.00 per share. The warrants were scheduled to expire two years from the date of issuance. In March 2002, warrants to acquire 299,375 shares of common stock were extended for eighteen months. Of the originally extended warrants to acquire 188,250 shares of common stocks were extended for an additional period of two years in fiscal 2002 at the fair value of such extensions resulting in cash proceeds to the Company of $105,007. The warrants expire in October, 2003. All of the extended warrants were outstanding at June 30, 2003.
(7) Significant Customers
The Company has historically derived significant revenue from a few key customers. The customers from which more than 10% of total revenue has been derived and the percentage of revenue is summarized as follows:
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
Quarter Ended June 30, |
||
| 2003 | 2002 | |
| Tyco International Invacare Corporation
Percentage of total revenue |
$ 778,057 1,010,064 $ 1,788,121 56% |
1,422,612
1,094,863 2,517,475 53% |
These customers also represented 61% and 48% of total accounts receivable at June 30, 2003 and 2002, respectively. Tyco International is a customer of the Company’s electronic products segment and Invacare Corporation is a customer of the mechanical products segment. Tyco International has notified the Company that they will not place additional orders after their current purchase commitment is fulfilled in August 2003. The Company’s electronic products segment manufactures products to customers’ design specifications as a contract manufacturer. As such, the Company generally purchases inventory on behalf of customers based on the understanding that the customer is financially obligated in the event their production order with the Company is cancelled or otherwise not fulfilled. As of June 30, 2003, the amount of raw materials and finished goods inventory held for Tyco International amounted to approximately $0.3 million. Inventories consisting of raw materials, work-in-progress and finished goods for Invacare Corporation were approximately $0.1 million as of June 30, 2003.
Contract services revenue derived from contracts with agencies of the U.S. Government and from sub-contracts with U.S. Government prime contractors totaled $ 287,882 and $412,680 for the quarters ended June 30, 2003 and 2002, respectively.
(8) Discontinued Operations
In October 2001, the Company formalized a plan to close its contract gear manufacturing business, which was part of its mechanical products segment.
The operating results of this division for the quarters ended June 30, 2003 and 2002 have been reported separately as discontinued operations together with losses on the disposal of division assets. Loss from operations of discontinued gear division also includes interest expense on debt used to acquire gear manufacturing machinery and equipment but does not include allocations of general corporate overheads which have been allocated to other business segments. All prior periods presented have been restated to reflect the contract gear manufacturing division as a discontinued operation.
Net sales and net loss from the discontinued gear division are shown in the following table.
Quarter Ended June 30, |
||
2003 |
2002 |
|
| Net sales Net loss |
$
- $ - |
127,239
(184,971) |
(9) Earnings per Share
Net loss per common share amounts are based on the weighted average number of common shares outstanding during the quarters ended June 30, 2003 and 2002. Outstanding common stock options and warrants were not included in the computation because the effect of such inclusion would be antidilutive. As of June 30, 2003, the Company had outstanding options to purchase 2,773,188 shares of its common stock and warrants to purchase 420,269 shares of its common stock. Dilutive options and warrants determined under the treasury stock method to acquire 944 shares and 175,548 shares of common stock for the quarters ended June 30, 2003 and 2002, respectively, were not included in the computation of diluted loss per share because to do so would be antidilutive.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(10) Segments
The Company has three reportable segments: technology, mechanical products and electronic products. The technology segment encompasses the Company’s technology-based operations including core research to advance its technology, application engineering and product development and job shop production of prototype components. The mechanical products segment encompasses the manufacture and sale of permanent magnet motors. As discussed in note 8, the Company discontinued its gear operations in fiscal year 2002 and accordingly the financial results of this operation are no longer reported in continuing operations of the mechanical products segment in all periods presented. The electronic products segment encompasses the manufacture and sale of wire harness assemblies, electronic printed circuit board assemblies and electronic products. Salaries of the executive officers and corporate general and administrative expense are allocated equally to each segment. Corporate selling and marketing costs are allocated to each segment based on usage.
Intersegment sales or transfers which were eliminated upon consolidation were $24,493 and $20,439 for the quarters ended June 30, 2003 and 2002, respectively, and were eliminated upon consolidation.
The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies.
The following table summarizes significant financial statement information for operations of each of the reportable segments for the quarter ended June 30, 2003:
Technology |
Mechanical Products |
Electronic Products |
Total |
|
| Revenue Interest income Interest expense Depreciation and amortization Earnings (loss) from continuing operations Net earnings (loss) Total segment assets Capital expenditures for segment assets |
$ 869,832 5,657 (1,971) (68,612) (112,595) (112,595) 4,036,137 $ (84,492) |
1,010,064 930 (20,643) (54,639) 43,507 3,507 3,283,635 - |
,289,567 - - (177,846) (321,238) (321,238) 4,007,242 (30,535) |
3,169,463 6,587 (22,614) (301,097) (390,326) (390,326) 11,327,014 (115,027) |
The following table summarizes significant financial statement information for operations of each of the reportable segments for the quarter ended June 30, 2002:
Technology |
Mechanical Products |
Electronic Products |
Total |
|
| Revenue Interest income Interest expense Depreciation and amortization Earnings (loss) from continuing operations Net earnings (loss) Total segment assets Capital expenditures for segment assets |
$ 845,821 7,977 - (81,214) (500) (500) 9,339,068 $ (56,868) |
1,094,963 173 (11,945) (46,882) 5,354 (179,617) 2,924,217 (103,588) |
2,831,829 - (7,288) (214,733) (417,774) (417,774) 3,026,912 - |
4,772,613 8,150 (19,233) (342,829) (412,920) (597,891) 15,290,197 (160,456) |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(11) Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with two of its officers, which expire December 31, 2007. The aggregate future compensation under the employment agreements is $1,944,000.
Lease Commitments
The Company has entered into operating lease agreements for office space and equipment, which expire at various times through 2007. As of June 30, 2003, the future minimum lease payments under operating leases with initial noncancelable terms in excess of one year are as follows:
Year Ending in March 31 |
|
2004 2005 2006 2007 |
$
169,657 299,405 299,371 288,564 $
1,056,997 |
Rental expense under these leases totaled approximately $69,991 and $136,413 for the quarters ended June 30, 2003 and 2002, respectively.
Litigation
The Company filed a lawsuit in Circuit Court of St. Louis County, Missouri in June 2002 against Hussman Corporation, a wholly owned subsidiary of Ingersoll Rand Corporation, a former customer of its electronics product segment seeking payment for inventory purchased on behalf of the customer and lost profits on a cancelled production order. The Company is seeking damages of approximately $700,000 plus attorneys’ fees and other costs. The customer has filed various counterclaims, including breach of contract. The Company believes it has substantial and meritorious defenses against the counterclaims and intends to vigorously contest them. In November 2002, the Company also filed an additional lawsuit against another former customer of its electronics product segment in the Circuit Court of St. Louis County, Missouri seeking payment for inventory purchased on behalf of the customer. The Company is seeking damages of approximately $180,000 plus attorneys’ fees and other costs. Both actions are currently scheduled for trial in the fall of 2003. It is not possible to predict or determine the outcome of these legal actions, or to provide an estimate of potential losses, if any, at this time, however, should the court award damages on the counterclaim it could have a material adverse effect on the Company’s financial position, results of operations and liquidity.
In addition, the Company is 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 the Company’s financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)
(12) Comprehensive Income
The Company's comprehensive loss for the quarters ended June 30, 2003 and 2002 was equal to its net loss.
Accumulated comprehensive loss as of June 30, 2003 and March 31, 2003 consists entirely of foreign currency translation adjustments relating to Taiwan UQM Electric Co., Ltd. When the Company disposes of its ownership interests in Taiwan UQM the Company will charge the amount in accumulated comprehensive loss to operations as part of a realized gain or loss.
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 officers and directors with respect to, among other things the development of markets for our products. 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 5 Other Information.
Financial Condition
Cash and cash equivalents at June 30, 2003 was $2,162,090 and working capital (the excess of current assets over current liabilities) was $3,885,926 compared with $2,476,276 and $4,110,141, respectively, at March 31, 2003. The decrease in cash and cash equivalents and working capital is primarily attributable to cash used by operating activities during the first quarter.
Accounts receivable increased $402,252 to $1,436,254 at June 30, 2003 from $1,034,002 at March 31, 2003. The increase is primarily attributable to increased billings for contract services and slower payment by a significant customer.
Costs and estimated earnings on uncompleted contracts increased $9,467 to $196,951 at June 30, 2003 from the fiscal 2003 year-end level of $187,484. The increase is due to less favorable billing terms on contracts in process at June 30, 2003. Estimated earnings on contracts in process was $657,389 or 23.0 percent of contracts in process of $2,195,367 compared to estimated earnings on contracts in process of $619,403 or 24.6 percent of contracts in process of $1,903,214 at March 31, 2003. The decrease in estimated margins as a percentage of contracts in process is attributable to anticipated cost overruns on certain engineering projects.
Inventory obligations of certain customers increased $21,205 to $810,972 at June 30, 2003 compared to $789,767 at March 31, 2003. The increase is due to additional inventory identified to specific customers during the first quarter.
Inventories declined $387,316 to $1,232,946 due to a decline in raw material, work-in-process and finished goods inventories, which declined $255,341, $22,982 and $108,993, respectively. The decline in inventories is attributable to reduced stocking levels due to lower purchase volumes compared to production.
Prepaid expenses increased to $401,668 at June 30, 2003 from $112,568 at March 31, 2003 reflecting the prepayment of insurance premium costs on the Company’s commercial insurance coverage.
The Company invested $75,268 for the acquisition of property and equipment during the first quarter of the fiscal year compared to $155,911 for the comparable period last year. The decrease in capital expenditures is primarily attributable to lower level of expenditures for capital equipment.
Accounts payable increased to $1,150,221 at June 30, 2003 from $975,344 at March 31, 2003, primarily due to increased material purchases in the Company’s technology segment.
Other current liabilities decreased $59,444 to $735,131 at June 30, 2003 from $794,575 at March 31, 2003. The decrease is primarily attributable to lower levels of accrued committed raw material inventory purchases, accrued loss reserves on certain engineering contracts, customer deposits and accrued royalties.
Notes payable increased to $162,473 at June 30, 2003 compared to zero at March 31, 2003 due to financing the premiums on the Company’s commercial insurance coverages.
Long-term debt, less current portion decreased $30,433 to $1,041,908 at June 30, 2003 reflecting principal repayments on the Company’s term bank debt during the quarter.
Billings in excess of costs and estimated earnings on uncompleted contracts decreased $35,217 to $188,161 at June 30, 2003 from $223,378 at March 31, 2003 reflecting billings on engineering contracts at a rate slower than the performance of the associated work during the quarter.
Common stock and additional paid-in capital increased to $188,480 and $55,894,045 at June 30, 2003, respectively, compared to $188,445 and $55,885,486 at March 31, 2003. The increase in these accounts totaling $8,594 is attributable to cash proceeds from the sale of common stock under the Company’s Employee Stock Purchase Plan of $3,414 and common stock issued to a Company director upon appointment to the Board of Directors of $5,180.
Results of Operations
Continuing operations for the quarter ended June 30, 2003, resulted in a loss of $390,326 or $0.02 per common share on total revenue of $3,169,463 compared to a loss from continuing operations of $412,920 or $0.02 per common share on total revenue of $4,772,613 for the comparable quarter last year. Operations for the first quarter resulted in a net loss of $ 390,326 or $ 0.02 per common share versus a net loss of $ 597,891 or $ 0.03 per common share for the first quarter last year.
Revenue from contract services declined $137,837 or 17.9 percent to $633,315 for the first quarter 2004 compared to $771,152 for the comparable quarter last year. The decrease in contract services revenue is primarily attributable to the application of engineering resources to an internally funded research and development program during the quarter which lowered billable contract services hours applied.
Product sales for the quarter declined 36.6 percent to $2,536,148 compared to $4,001,461 for the comparable quarter last year. Mechanical products segment revenue decreased $84,899 or 7.8 percent to $1,010,064 compared to $1,094,963 for the comparable quarter last year due to decreased shipments of wheelchair motors. Based on existing orders the Company expects shipments to decline substantially during the second quarter and potentially beyond the second quarter due to weak demand from our customer due to higher than normal levels of motor inventory in the possession of the customer. Electronic products segment revenue for the quarter declined by $1,542,262 or 54.5 percent to $1,289,567 due to reduced order levels. The Company expects revenue levels to decline substantially from first quarter levels during the second quarter and potentially beyond due to a significant customer’s indication that it does not intend to place additional orders with the Company after July, 2003. Technology product sales increased $161,848 to $236,517 for the quarter ended June 30, 2003 compared to $74,669 for the prior year quarter due to increased shipments of fuel cell air compressor drive motors.
Consolidated gross profit margins for the first quarter increased to 11.9 percent compared to 7.9 percent for the comparable quarter last year. Gross profit margin on contract services increased to 25.5 percent from 14.6 percent for the quarter ended June 30, 2003 and 2002, respectively. The increase in gross profit margin on contract services is primarily attributable to higher levels of cost overruns during the first quarter last year. Gross profit margins on product sales during the first quarter increased to 8.5 percent compared to gross profit margins of 6.6 percent for the comparable quarter last year. The increase in margins on product sales is primarily attributable to cost reduction efforts at the Company’s electronic products segment.
Research and development expense was $144,789 for the quarter ended June 30, 2003 compared to $64,381 for the comparable quarter last year primarily due to internally funded development of a new micro-processor platform for the Company’s power electronic controls.
General and administrative expense for the quarter ended June 30, 2003 declined to $606,544 compared to $875,833 for the comparable quarter last year. The decrease is primarily attributable to lower general and administrative expense in the Company’s electronic products segment.
Interest income declined to $6,587 for the first quarter compared to $8,150 for the prior year first quarter. The decrease is attributable to lower levels of invested cash and lower interest rates on invested funds during the quarter versus the comparable quarter last year.
Gain on sale of assets was zero for the quarter ended June 30, 2003 compared to $161,070 for the comparable quarter last year. The gain for the first quarter of last fiscal year is attributable to the recognition of deferred gain from the sale of the Company’s former headquarters facility.
Results of Discontinued Operations
In October 2001, the Company announced its intention to exit its non-core contract gear manufacturing business. Loss from operations of the discontinued gear division for the quarter ended June 30, 2002 was $184,971, or $0.01 per common share.
Liquidity and Capital Resources
The Company's cash balances and liquidity throughout the quarter ended June 30, 2003 were adequate to meet operating needs. At June 30, 2003, the Company had working capital, the excess of current assets over current liabilities, of $3,885,926 compared to $4,110,141 at June 30, 2002.
Net cash used by operating activities of continuing operations was $338,541 for the quarter ended June 30, 2003 versus net cash used by operating activities of $142,026 for the comparable quarter last year. The increase in cash used by operating activities is primarily attributable to operating losses and higher levels of trade accounts receivable and prepaid expenses which were partially offset by reduced inventory levels.
Net cash used by investing activities of continuing operations for the quarter ended June 30, 2003 was $115,027 compared to $160,456 for the comparable period last year. The decrease is primarily attributable to lower levels of capital expenditures for machinery and equipment at the Company’s mechanical products segment.
Net cash flows provided by financing activities of continuing operations was $139,382 for the quarter ended June 30, 2003 versus $1,048,688 for the comparable period last year. The decrease is primarily attributable to completion of a secondary offering during the first quarter of the prior fiscal year that resulted in net cash proceeds of $4,431,254, offset by repayments of debt and revolving line-of-credit, net of new borrowings, totaling $3,388,385.
The Company expects to manage its operations and working capital requirements to minimize the future level of operating losses and working capital usage, however, we cannot provide assurance that we will be successful in achieving these objectives. The Company believes its financial resources are sufficient to fund its operations through at least the end of the current fiscal year. However, some of the Company's significant customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. To the extent these customers experience financial difficulties sufficient to impair their ability to honor their financial commitments or further reduce their orders for goods and services, the Company could experience a material adverse change in its financial condition, results of operations and liquidity.
The Company is actively considering possible future acquisitions at any given time and from time to time enters into non-binding letters of intent with respect to possible acquisitions. The Company expects to continue its strategy of growing its business through expanding its product line of permanent magnet motors and controllers, securing production orders from new and existing customers for electronic assemblies, designing and introducing new products for manufacture, seeking strategic alliances to accelerate the commercialization of its technology and pursuing synergistic and accretive acquisitions. The Company expects to finance its operations and future growth from existing cash resources, cash flow from operations, if any, and through the issuance of equity or debt securities or a combination thereof. There can, however, be no assurance that existing cash resources will be sufficient to fund these objectives or that financing or equity capital will be available on terms acceptable to the Company. In the event existing cash resources are not sufficient to fund operations as currently configured, or financing or equity capital to fund future growth is not available, the Company will modify its strategy to align its operations with its then available financial resources.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in United States requires management to make judgments, assumptions and estimates that effect the amount reported in the Consolidated Financial Statements and accompanying notes. Estimates are used for but not limited to allowance for doubtful accounts receivables, costs to complete contracts, collectibility of inventory obligations of certain customers, recoverability of inventories and warranty costs. 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
The Company’s trade accounts receivables are subject to credit risks associated with the financial condition of its customers and their liquidity. The Company evaluates all customers periodically to assess their financial condition and liquidity and sets appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customers particular business. The Company has established a reserve for potentially uncollectible trade accounts receivable which is management’s best estimate of the amount of trade accounts receivable that it believes may become uncollectible at a future date due to the foregoing factors. At June 30, 2003, the Company has recorded reserves for uncollectible trade accounts receivable of $28,756. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company’s trade accounts receivable to decline materially, resulting in additional material losses.
Inventory Obligations of Certain Customers
The Company’s electronic products segment provides contract manufacturing services for a variety of customers. Typically the Company requires its customers to contractually commit to pay for any non-returnable or non-cancelable raw material inventory purchased by the Company on behalf of its customers. The significant economic downturn in the contract electronics manufacturing industry over the last two years has caused originally scheduled or anticipated production runs to be reduced or cancelled by customers resulting in substantial amounts of raw material inventory being held by the Company for which current or former customers are contractually obligated. To date several customers have failed to honor their contractual obligation to pay for non-cancelable and non-returnable raw material purchased by the Company on their behalf. Accordingly, the Company has reclassified this inventory, together with allowances for the Company’s best estimate of uncollectible amounts, in its financial statements. At June 30, 2003 such inventory, net of allowances for uncollectible amounts of $377,102, was $810,972. The Company intends to pursue legal action against those customers who fail to honor their contractual obligations to the Company and has filed to-date two such lawsuits, both of which are awaiting trial. Although the Company believes that its contracts with customers are enforceable, there are inherent risks in litigation and it is possible the Company will not prevail in these actions, the customer will assert counterclaims and prevail on such claims or that if the Company does prevail, the customer will nevertheless not have the financial resources to pay any judgment rendered by the court. In the event the Company does not prevail in litigation, substantially all of this inventory obligation could be rendered uncollectible. Such an outcome, should it occur, could have a materially adverse effect on the Company’s results of operations, financial condition and liquidity.
Inventories
The Company maintains raw material inventories of electronic components, motor parts and other materials to meet its expected manufacturing needs for proprietary products and for products manufactured to the design specifications of its customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, the Company periodically assesses its raw material inventory for potential impairment of value based on then available information, expectations and estimates and establishes impairment reserves for estimated declines in the realizable value of its inventories. The actual realizable value of the Company’s inventories may differ materially from these estimates based on future occurrences and any resulting change in the Company’s estimates. The Company separately classifies raw material inventory when the inventory for which the customer is contractually obligated to pay is not currently being utilized or is not expected to be used at a future date in production operations (see "Inventory Obligations of Certain Customers" above). At June 30, 2003, the Company has recorded inventory reserves of $997,062. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company’s inventories to decline materially, resulting in additional material impairment losses.
Percentage of Completion Revenue Recognition on Long-term Contracts: Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
The Company recognizes revenue on the development projects funded by its 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 the Company’s technology to customers’ products and other applications with demanding specifications. Management’s best estimates have sometimes been adversely impacted by unexpected technical challenges requiring, additional analysis and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts and a variety of other factors that caused unforeseen delays and additional costs. It is reasonably possible that total costs to be incurred on any of the projects in process at June 30, 2003 could be materially different from management’s estimates, and any modification of management’s 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.
New Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. On April 1, 2003, the Company adopted SFAS No. 149 which had no material impact on the Company’s financial condition and results of operations.
In May 2003, the FASB issued SFAS No.150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The Statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. FASB No.150 requires that those instruments be classified as liabilities in statements of financial position. The Statement is effective for financial instruments entered into or modified after May 31, 2003, otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. On June 15,2003, the Company adopted SFAS No. 150 which had no material impact on the Company’s financial condition and results of operations.
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. The Company does not use financial instruments to any degree to manage these risks and does not hold or issue financial instruments for trading purposes. All of the Company's product sales, and related receivables are payable in U.S. dollars. The Company is subject to interest rate risk on its debt obligations. One of the Company’s long-term debt obligations has a variable rate of interest indexed to the prime rate. The interest rate on these instruments approximates current market rates as of June 30, 2003. A one percent change in the prime interest rate would increase or decrease interest expense by $2,285 on an annual basis on outstanding borrowings at June 30, 2003 on debt with adjustable interest rate provisions.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In response to recent legislation and resulting regulatory rulemaking, the Company established a disclosure control policy which is designed to ensure that information required to be disclosed in its filings with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and communicated to the Chief Executive Officer and Chief Financial Officer, as required, to allow for the filing of required reports within the time periods specified by the Securities and Exchange Commission. Pursuant to this policy, the Company has established a Disclosure Control Committee to review potentially reportable items or events and make recommendations to the Chief Executive Officer and Chief Financial Officer as to the appropriate disposition.
The Company’s Chief Executive Officer and Chief Financial Officer have, within the 90-day period preceding the filing of this report, evaluated the Company’s disclosure controls and procedures and believe them to be operating effectively in alerting them on a timely basis to reportable items or events required to be included in the Company’s periodic filings with the Securities and Exchange Commission.
Changes in Internal Control
Internal control is a process, effected by the Company’s board of directors, management and other personnel, designed to provide management with reasonable, but not absolute, assurance regarding the achievement of objectives in the following categories: 1) reliability of financial reporting; 2) effectiveness and efficiency of operations; and 3) compliance with applicable laws and regulations. A system of internal controls will generally have the objective of ensuring that; 1) transactions are executed in accordance with management’s general or specific authorization; 2) transactions are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles and other regulatory requirements applicable to such statements and maintain accountability for assets; 3) access to assets is permitted only in accordance with management’s authorization; and 4) recorded assets are compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. In addition, the preparation of financial statements requires the use of estimates and judgments, which are subjective and relate largely to future conditions and events. Accordingly, internal controls relating to estimates and judgments are limited to procedures designed to provide reasonable assurance that individuals at appropriate levels in the organization review and consider sufficient, reliable information in making estimates and judgments.
The Company’s Chief Executive Officer and Chief Financial Officer supervised an evaluation of the design and operation of the Company’s system of internal controls within the 90 days preceding the date of filing of this report. No significant deficiencies were noted which could affect our ability to record, process, summarize and report financial data. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.
Litigation
The Company filed a lawsuit in Circuit Court of St. Louis County, Missouri in June 2002 against Hussman Corporation, a wholly-owned subsidiary of Ingersoll Rand Corporation, a former customer of its electronics product segment seeking payment for inventory purchased on behalf of the customer and lost profits on a cancelled production order. The Company is seeking damages of approximately $700,000 plus attorney’s fees and other costs. The customer has filed various counterclaims, including breach of contract. The Company believes it has substantial and meritorious defenses against the counterclaims and intends to vigorously contest them. In November 2002, the Company also filed an additional lawsuit against another former customer of its electronics product segment in the Circuit Court of St. Louis County, Missouri seeking payment for inventory purchased on behalf of the customer. The Company is seeking damages of approximately $180,000 plus attorney’s fees and other costs. Both actions are currently scheduled for trial in the fall of 2003. It is not possible to predict or determine the outcome of these legal actions, or to provide an estimate of potential losses, if any, at this time, however, should the court award damages on the counterclaim it could have a material adverse effect on the Company’s financial position, results of operations and liquidity.
In addition, the Company is 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 the Company’s financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.
The following risk factors are applicable to our business:
We have incurred significant operating losses and may continue to do so.
We have incurred significant operating losses as shown in the following tables:
Quarter Ended June 30, |
||
| 2003 | 2002 | |
Net Loss |
$ 390,326 | $ 597,891 |
Fiscal Years Ended March 31, |
|||
| 2003 | 2002 | 2001 | |
Net Loss |
$ 3,598,650 | $ 8,592,655 | $ 3,140,122 |
We have had accumulated deficits as follows:
| June 30, 2003 | $ 47,746,354 |
| March 31, 2003 | $ 47,356,028 |
In the future we plan to make additional investments in product development and commercialization, which is likely to cause us to remain unprofitable.
The current economic downturn has resulted in a reduction in our contract manufacturing revenue and future reductions could further adversely affect our financial condition, results of operations and liquidity.
Our electronic products segment manufactures products to customers' design specifications as a contract manufacturer. We purchase inventory on behalf of customers for which the customer is financially obligated in the event its production order with us is cancelled or otherwise not fulfilled. Some of our customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. In addition, our electronics manufacturing contracts generally do not include minimum purchase requirements and during economic downturns such as we have experienced in the current fiscal year, some of our customers have reduced and may continue to reduce their orders for our services and our electronics manufacturing revenue has declined and may continue to decline. If customers were to experience financial difficulties, reduce their orders, not honor financial obligations for the inventory we hold for them, or not pay the accounts receivable due from them, we could experience a material adverse change in our financial condition, results of operations and liquidity.
Most of our net sales come from two customers, one of which will no longer be a customer after July 2003 and we expect reductions in purchases by our remaining significant customer in the second fiscal quarter which could further negatively impact our financial condition, results of operations and liquidity.
A significant portion of our total revenue is currently concentrated among two large customers, Tyco International and Invacare Corporation. Tyco International has informed us that they will not place additional orders with us after their current purchase commitment is fulfilled in July 2003. Although the Company hopes to replace some or all of the revenue from the loss of the Tyco International business with orders from new customers and additional orders from existing customers, the Company has replaced only a small portion of this revenue as of the date of this report, and there can be no assurance that the Company will be successful in replacing such revenue in future periods. If the Company is not successful in replacing all the revenue now derived from Tyco International we will experience a material adverse change in our financial condition, results of operations and liquidity. In addition, based on existing orders, the Company expects revenue derived from its remaining significant customer, Invacare Corporation, to decline substantially in the second quarter and potentially beyond the second quarter due to weak demand from Invacare due to higher than normal levels of motor inventory in the possession of Invacare. This reduction in revenue from Invacare may cause a material adverse change in our financial condition, results of operations and liquidity. Further, should we lose this remaining significant customer, we could experience a material adverse change in our financial condition, results of operations and liquidity.
The failure by our customers to adapt their products to rapidly changing competitive conditions could harm our business.
Historically, a large portion of our sales have been to companies in the electronics industry, which is subject to rapid technological change and product obsolescence. If our customers are unable to create products that keep pace with the changing technological environment, our customers' products could become obsolete and the demand for our manufacturing services could decline significantly, causing a material adverse change in our financial condition, results of operations and liquidity.
Our operating losses and working capital requirements could consume our current cash balances.
We had a net loss of $390,326 during the first quarter ended June 30, 2003. Cash balances stood at $2,162,090 at June 30, 2003. If our losses continue at this level, they could consume some or all of our current cash balances. During several fiscal years prior to the fiscal years ended March 31, 2003 and 2002, we experienced substantial growth in our revenue, which increased our working capital requirements. Should future growth resume at a similar rate or an accelerated rate, the working capital requirements to fund our operations and pursue acquisition opportunities may consume our existing cash balances.
Our government contracts can be cancelled with little or no notice and could restrict our ability to commercialize our technology.
Some of our technology has been developed under government funding by United States government agencies. In some cases, government agencies in the United States can require us to obtain or produce components for our systems from sources located in the United States rather than foreign countries. Our contracts with government agencies are also subject to the risk of termination at the convenience of the contracting agency and in some cases grant "march-in" rights to the government. March-in rights are the right of the United States government or the applicable government agency, under limited circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government to facilitate commercialization of technology developed with government funding if we fail to commercialize the developed technology. The implementation of restrictions on our sourcing of components or the exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.
We face intense competition in our motor development and may be unable to compete successfully.
In developing electric motors for use in vehicles, wheelchairs and other applications, we face competition from very large domestic and international companies, including the world's largest automobile manufacturers. These companies have far greater resources to apply to research and development efforts than we have, and they may independently develop motors that are technologically more advanced than ours.
If we are unable to protect our patents and other proprietary technology, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our products. In addition, the cost of enforcing our proprietary rights may be expensive and result in increased losses.
Our ability to compete effectively against other companies in our industry will depend, in part, on our ability to protect our proprietary technology. Although we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be successful in doing so. We have historically pursued patent protection in a limited number of foreign countries where we believe significant markets for our products exist or where potentially significant competitors have operations. It is possible that a substantial market could develop in a country where we have not received patent protection and under such circumstances our proprietary products would not be afforded legal protection in these markets. Further, our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours. We cannot assure you that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we cannot assure that we would be successful in enforcing our intellectual property rights. In addition, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country where we may operate or sell our products in the future.
If third parties assert technology infringement claims against us, the defense of the claims could involve significant legal costs and require our management to divert time and attention from our business operations. If we are unsuccessful in defending any claims of infringement, we may be forced to obtain licenses or to pay royalties to continue to use our technology. We may not be able to obtain any necessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly; our results of operations may suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-party technologies.
Use of our motors in vehicles including wheelchairs could subject us to product liability claims, and product liability insurance claims could cause an increase in our insurance rates or could exceed our insurance limits, which could impair our financial condition, results of operations and liquidity.
Because some of our motors are designed to be used in vehicles including wheelchairs, and because vehicle accidents can cause injury to persons and property, we are subject to a risk of claims for product liability. We carry product liability insurance of $1 million covering all of our products. If we were to experience a large insured loss, it might exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable levels, any of which could impair our financial position and results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
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.
UQM Technologies, Inc.
Registrant
Date: July 22, 2003
By: "Donald A. French"
Donald A. French
Treasurer
(Principal Financial and
Accounting Officer)
I, William G. Rankin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UQM Technologies, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditor’s any material weaknesses in internal control; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 22, 2003
/s/ William G. Rankin
William G. Rankin
Chairman, President and
Chief Executive Officer
I, Donald A. French, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UQM Technologies, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make the
statements made, in light of
the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditor’s any material weaknesses in internal control; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 23, 2003
/s/ Donald A. French
Donald A. French
Treasurer, Secretary and
Chief Financial Officer