10-K 1 uqm-20140331x10k.htm 10-K 84fa4f323546495

 

 

 

 

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________

FORM 10-K

_____________________

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2014

OR

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

Commission file number 1-10869

 

               UQM TECHNOLOGIES, INC.              

(Exact name of registrant as specified in its charter)

______________________

 

Colorado

 

84-0579156

 

 

(State or other jurisdiction

 

(I.R.S. Employer

 

 

of incorporation or organization)

 

Identification No.)

 

 

4120 Specialty Place, Longmont, Colorado

 

80504

 

 

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (303) 682-4900

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

 

 

 

 

 

 

Name of each exchange on which registered

 

 

Title of each class

 

NYSE MKT

 

 

Common Stock

 

Chicago Stock Exchange

 

 

 

 

 

 

 

 

 

 

 

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  [  ]   No  [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  [  ]   No  [X]

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]   No  [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such

shorter period that the registrant was required to submit and post such files).

Yes  [X]  No  [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 [  ]  Large accelerated filer

[  ]  Accelerated filer

[X]  Non-accelerated filer

[  ]  Smaller reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  (Do not check if a smaller reporting company)

Yes  [  ]   No  [X]

 

The aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates as of September 30, 2013, based on the closing price of the Common Stock as reported by the NYSE MKT on such date was approximately $65,867,660. As of May 27, 2014, there were 40,434,638 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document

 

Parts Into Which Incorporated

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held August 13, 2014.

 

Part III

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 Table of Contents

 

 

 

PART I ………………………………………………………………………………………………….……………

1

 

 

Item 1.     Business ……………………………………………………………………………………………

1

 

 

Item 1A.  Risk Factors ………………………………………………………………………………….….…………

8

 

 

Item 1B.  Unresolved Staff Comments ……………………………………….……………………………………

14

 

 

Item 2.     Properties …………………………………………………………….……………………….……………

14

 

 

Item 3.     Legal Proceedings …………………………………………………………..…………………..………….

14

 

 

Item 4.     Mine Safety Disclosure …………………………………………………………..……………..………….

14

 

 

PART II ……………………………………………………………………………………………………………

15

 

 

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

 

                      of Equity Securities…………………………………………..…………………………………………

15

 

 

Item 6.     Selected Financial Data ..…………………………………….……………………………………….

17

 

 

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations ...……………

18

 

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk ……………………………..………………

24

 

 

Item 8.     Financial Statements and Supplementary Data ………………………………………………………….

27

 

 

               Report of Independent Registered Public Accounting Firm ……………………………………………

27

 

 

               Consolidated Balance Sheets as of March 31, 2014 and March 31, 2013 ………………………………

28

 

 

               Consolidated Statements of Operations for the Fiscal Years ended March 31, 2014, 2013

 

                    and 2012 …………………………………………………………………………………………..

30

 

 

               Consolidated Statements of Stockholders’ Equity for the Fiscal Years

 

                   ended March 31, 2014, 2013 and 2012 ………………………………………………………………..

31

 

 

               Consolidated Statements of Cash Flows for the Fiscal Years ended March 31, 2014, 2013

 

                    and 2012 ……………………………………………………………………………………………….

32

 

 

               Notes to Consolidated Financial Statements ……………………………………………………………

34

 

 

Item 9.     Change In and Disagreements with Independent Accountants on Accounting and Financial Disclosure..

49

 

 

Item 9A.  Controls and Procedures ………………………………………………………………………………….

49

 

 

Item 9B.  Other Information …………………………………………………………………………………………

50

 

 

PART III …………………………………………………………………………………………………………

51

 

 

Item 10.   Directors, Executive Officers and Corporate Governance ……………………………………………….

51

 

 

Item 11.   Executive Compensation ………………………………………………………………………………

51

 

 

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

 

                    Matters ……………………………………………………………………………………………...…

51

 

 

Item 13.   Certain Relationships and Related Transactions and Director Independence ………………………

51

 

 

Item 14.   Principal Accountant Fees and Services ………………………………………………………………

51

 

 

PART IV ………………………………………………………………………………………………………

52

 

 

Item 15.   Exhibits and Financial Statement Schedules ………………………………………………………….

52

 

 

 

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Table of Contents 

PART I

 

ITEM 1.BUSINESS

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 could be 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, 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 I, Item 1A. Risk Factors.

Overview

UQM Technologies, Inc., (“UQM”, “Company”, “we”, “our”, or “us”) develops, manufactures and sells power dense, high efficiency electric motors, generators and power electronic controllers for the commercial truck, bus, automobile, marine and military markets. Our primary focus is incorporating our advanced technology as propulsion systems for electric, hybrid electric, plug-in hybrid electric and fuel cell electric vehicles, delivering the heart of the electric vehicle.

 

We believe our proprietary permanent magnet propulsion motor and motor control technology delivers exceptional performance at a competitive cost. Our principal products include propulsion motors and generators with power ratings from 50 kilowatts to 250 kilowatts, auxiliary motors and electronic controls and DC-to-DC converters. The principal attributes that we believe differentiate our proprietary products are compact size, high torque delivery, high power density (the ratio of power output to weight), design and manufacture of integrated motor/controller systems, and superior energy efficiency with full system ratings as high as 95%.

 

We have assembled a management team with significant experience in the automotive and electric propulsion market segments with critical experience in state of the art design and high quality production.  We obtained ISO/TS 16949 certification in March 2014, the highest level of quality certification in the automotive supplier industry and are pursuing ISO 14000 certification (environmental management and systems performance).  We have an approximately 130,000 square  foot combined headquarters and manufacturing facility located in Longmont, Colorado.  We were incorporated in 1967 as a Colorado corporation.

 

 

The Market

 

The electrified vehicle market is an emerging market with high growth potential being driven by several factors.  In the commercial truck and bus market, the drivers for growth include the demand for zero tailpipe emissions from full electric vehicles or during the electric only range for hybrids, improved operating costs due to a more efficient powertrain on a gas equivalent basis and reduced maintenance costs for the powertrain system and other systems, such as improved brake life.  Moreover, there is community support for cleaner buses and trucks operating in congested areas, along with government incentives and requirements to purchase electric and hybrid vehicles.  In the automotive market, these same growth drivers exist, as well as tremendous consumer acceptance of electric vehicles due to their excellent performance, quiet operation, zero or reduced tailpipe emissions and improved operating cost. In addition, significant Corporate Average Fuel Economy (“CAFÉ”) standards in the United States are expected to accelerate further electrification of the fleet. The major impediment to electrification of vehicles has been total vehicle cost, of which a substantial part is due to the cost of batteries. Battery cost has decreased considerably and is projected to continue to improve.  Government incentives have helped to offset these early additional costs and generate the volume and momentum that should further reduce these incremental costs through scale economies.

 

Many studies have been conducted indicating the potential for electric vehicles to capture significant market share over the next several years.  For example, in 2013, The International Energy Agency forecasted that 6 million electric vehicles will be on the road by 2020, as shown in the chart below: 

  

1

 


 

                             Picture 2

 

We believe that the trend toward increasing electrification of vehicles will continue at an accelerated pace providing a substantial opportunity for the broad commercial application of our products.

 

Governments around the world have implemented financial incentives to promote the sales of electric vehicles.  For example, the U.S. federal government currently offers a $7,500 federal tax credit for the purchase of an electric passenger vehicle, and there are additional tax credits and other benefits such as HOV lane access in various states for purchasers of qualifying vehicles.  In China, the country’s National Development and Reform Commission and three other ministries jointly announced in September 2013, a new round of New Energy Vehicle supportive policies for the years 2013 - 2015.  Various levels of government subsidies for electric vehicles were announced, including subsidies for pure electric buses of RMB 500,000 each (approximately $80,000), electric trucks of RMB 150,000 each (approximately $24,000) and plug-in electric and fuel cell passenger vehicles of RMB 60,000 each (approximately $9,600).  In Europe, a majority of European Union member states provide tax incentives for electrically chargeable vehicles.  The government of India announced in January 2013 plans for financial incentives of up to approximately $2,500 per electric automobile. 

 

We believe that the major drivers increasing the electrification of the vehicle fleet coupled with the government subsidies offered world-wide provide a substantial opportunity for the broad commercial application of our products.

 

Business Strategy

 

We are focused primarily on the transportation markets, with a strong emphasis on the commercial truck and bus space, followed by automotive and then marine, military and other. We have developed two basic frame size propulsion systems: the PowerPhase® Pro for passenger car, light commercial applications, light duty marine and other lighter duty applications and the PowerPhase® HD lineup of products for heavier commercial bus and truck applications and heavier duty marine and other HD applications.  We also utilize these products, customized versions of these products and all new custom solutions in these markets to meet various customer requirements.  We provide motor and controller systems for full-electric, hybrid electric, plug-in hybrid and fuel cell applications.    We also provide units for auxiliary systems, including motor and controller systems for the aircraft and fuel cell air compressor markets. 

 

 

 

We sell to the following markets:

 

·

Commercial Trucks, Vans and Shuttles - In 2012, according to ACT research, an estimated 425,000 medium and heavy-duty on-road trucks were sold in the United States, and this market is expected to grow.  We supply propulsion systems to Boulder EV, a developer and manufacturer of all-electric delivery trucks and work utility vehicles, under a multi-year supply agreement.  We also supply electric propulsion systems to Electric Vehicles International (“EVI”), a developer and manufacturer of all-electric medium-duty delivery trucks, under a multi-year supply agreement.  EVI is also developing a range extended electric vehicle 

2

 


 

(“REEV”) for PG&E to convert their truck fleet from gasoline engines to electric.  During fiscal year 2014, we announced that Zenith Motors, LLC selected UQM as the sole supplier of powertrain systems for their shuttle vans. 

 

·

Passenger Buses  Electric and hybrid passenger buses can have large positive impacts on the environment and many municipalities around the world are demanding more of these vehicles on the road.  For example, we supply electric propulsion systems to Proterra, Inc., a developer and manufacturer of all-electric composite transit buses, under a three-year supply agreement.  We also provide electric propulsion systems for Hino Bus, a subsidiary of Toyota Motor Corporation, for their electric city-buses.  In January 2014, we announced that PT Sarimas Ahmadi Pratama of Jakarta, Indonesia is using our motors and controllers for their all-electric 17-passenger bus.  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.   In addition, we are in discussions with other potential Chinese customers to supply our products for both all-electric and hybrid-electric vehicles, and we have shipped a small number of electric motor and controller systems into China for prototype testing in buses.

 

·

Automobiles – Government mandates for fuel economy and clean air emissions are accelerating the demand for electric passenger cars.  In the United States, for example, CAFÉ standards will increase the average fuel economy of each manufacturer’s passenger car and light truck model offerings to 35.5 miles per gallon by 2016 and 54.5 miles per gallon by 2025.  We have provided electric propulsion systems to many original equipment manufacturers (“OEMs”) over time, including Saab, Audi, Rolls Royce and others, for testing and product development.

 

·

Marine –  The marine market is a new and growing market for the CompanyIn January 2014, Research and Markets announced that marine electric vehicles are now a rapidly growing market due to new capability, affordability and legislation banning or restricting internal combustion engines. Their research found that the market for electric water craft, including those on and under water, is expected to increase rapidly from $2.6 billion to $6.3 billion in 2023.  In addition, there is a market for electric outboard motors that will more than triple in value as high power pure electric versions become increasingly viable.  We are seeing demand for electric solutions for both the clean and quiet operation afforded by full electric and hybrid electric solutions.  We supply ReGen Nautic with UQM motors and controllers used in a variety of applications and for a variety of customers.  ReGen Nautic has several versions of electric outboard motors utilizing our propulsion systems and also full electric and hybrid inboard solutions utilizing our propulsion systems.  We believe the marine market will be a growing segment of electrified vehicles. 

·

Military - The U.S. military purchases a wide-range of ground vehicles each year, including combat vehicles such as tanks, self-propelled artillery and armored personnel carriers, as well as a variety of light, medium and heavy-duty trucks for convoy and supply operations and for the transport of fuel used on the battlefield.  We have in the past worked with a number of military contractors and vehicle makers on prototype hybrid electric vehicles, high export power generators, and electric auxiliaries. There are a number of initiatives to reduce the carbon footprint of military bases that may drive additional efforts in this area. Although this market has not yet emerged, we believe that it may, driven by the availability of hybrid electric components in the commercial truck market that operate at similar power levels as those required by many military vehicles.

 

·

Other – We supply an automotive qualified DC-to-DC converter to Eaton, which is used in medium and heavy-duty hybrid trucks.  We sell electric motors for fuel cell compressors to Roush for various applications.  We also provide small motors and controllers for aircraft HVAC usage to AirComm.

 

Our business strategy is also comprised of the following:

·

Highly qualified and experienced managementWe have a management team with significant experience in the automotive industry and the requirements for high quality production programs and very deep technical knowledge of the motor and controller business.

 

·

State of the art manufacturing facility – Our headquarters and manufacturing plant are located in an approximately 130,000 square foot facility with fifteen adjacent acres for future expansion.  We have designed, installed and qualified volume production lines for our motors and their related electronic controllers.

 

3

 


 

·

Manufacturing capacityWe currently have the capacity to build 56,000 motor/controller systems annually, which is sufficient to meet demands of our current and future customers for the foreseeable future.

 

·

Highest production quality standards – Our Company was recently certified under the ISO/TS 16949 standards, the highest level of automotive quality standards in the industry.

 

·

Leading edge technologyOur technology base includes a number of proprietary technologies and patents related to brushless permanent magnet motors, generators and power electronic controllers, together with software code to intelligently manage the operation of our systems.  We continue to launch next generation products to achieve improved performance and efficiency, smaller package sizes and lower production costs.

 

Products

 

We offer a full range motors and controllers for electric, hybrid electric, plug-in hybrid electric and fuel cell electric commercial trucks, vans, buses and automobiles.  Our current core electric propulsion products are:

 

·

PowerPhase HD® 220:  Designed for medium and heavy duty trucks and buses.

 

·

PowerPhase HD® 250:  This product is designed for trucks and buses.

 

·

PowerPhase HD® 950T:  Also designed for heavy duty trucks and buses, this product delivers especially high torque performance compared to the PowerPhase HD® 220 and 250.    

 

·

PowerPhase Pro® 100:  Designed for smaller passenger vehicles.

 

·

PowerPhase Pro® 135:  The PP 135 offers slightly higher performance for passenger vehicles than our PowerPhase Pro® 100.

 

·

Auxiliary Motor Systems:  Multiple products are offered for compressor, pump and fan applications, including a family of motor/controller systems for fuel cell air compressors, an integrated motor/controller for aircraft air conditioning compressors, and an integrated motor/controller for aircraft air conditioning condenser fans.

 

·

We offer variations of the above motors in custom configurations as well as custom hybrid solutions to individual customer specifications.

 

We also sell four types of DC to DC converters at 1.6 kW and 2.2 kW levels, each available at two different voltage output ranges.

 

 

Product Development Activities

 

We continue to develop new variations of our product lineup to meet the expanding customer requirements and work on custom solutions for new prospective customers meeting their precise specifications.  We are also developing the next generation of PowerPhase Pro® products designed to be smaller, lighter weight, more energy efficient and producible at lower cost with equal or better performance than our current PowerPhase Pro® systems. Development targets include a substantial size reduction of the motor controller.  Adopting new generation components and control strategies are also elements of this development.  Target applications include automotive and light commercial truck and bus markets.

 

We are also pursuing an advanced motor design technology that eliminates the need for rare-earth elements in the magnets. The technology incorporates permanent magnets of an alternate chemistry, arranged in a unique way that maintains performance benefits. A patent application has been submitted to protect this innovation. We have a $4.0 million program with the Department of Energy (“DOE”) to develop non-rare-earth magnet electric motors for use in electric and hybrid vehicles. The DOE is providing $3.0 million of funding for this program and the Company is providing $1.0 million of cost-share contribution.   This award was announced in August 2011 and is a multi-year technology development program.

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Competition

 

All of the markets in which we operate are highly competitive and are characterized by rapid changes due to technological advances that can render existing technologies and products obsolete.  We believe our competitors are large automotive OEMs, Tier 1 suppliers to OEMs, Chinese electric motor manufacturers offering lower cost options, and numerous other competitors in nearly every region of the world

 

As a result, additional vehicle makers in both on-road and off-road markets are expected to develop and introduce a variety of hybrid electric and all-electric vehicles as market acceptance of these vehicles continues to grow. We cannot assure that we will be able to compete successfully in this market or any other market that now exists or may develop in the future. There are numerous companies developing products that do or soon will compete with our systems. Some of these companies possess significantly greater financial, personnel and other resources than we do, including established supply arrangements, volume manufacturing operations and access to governmental incentive programs.

 

Customers and Suppliers

 

We derive our revenue from two principal sources: 1) the sale of products designed, engineered and manufactured by us primarily to OEMs, Tier 1 suppliers of OEMs, and vehicle integrators; and 2) funded contract research and development services performed for strategic partners, customers and the U.S. government directed toward either the advancement of our proprietary technology portfolio or the application of our proprietary technology to customers’ products.

 

Our business is subject to revenue fluctuation based on the buying cycles of our customers.  Specific customers that reach 10% or more of revenues in any given fiscal quarter or year will also vary depending on these buying cycles.  In fiscal year ending March 31, 2014, EVI accounted for 10% of our total revenues, and contracts with the U.S. Government accounted for 12% of our total revenues.  Any loss of business with these customers could have a material adverse effect on our business, financial condition and results of operation.

 

Principal raw materials and components purchased by us include iron, steel, electronic components, rare-earth magnets and copper wire. Most of these items are available from several suppliers. Certain components used by us are custom designs and if our current supplier no longer made them available to us, we could experience production delays.

 

We can experience significant price fluctuation in the cost of magnets used in our motors, which contain the rare-earth elements neodymium and dysprosium and are primarily sourced from China. We have not experienced any disruption in supply of magnets and magnet prices may continue to be volatile until mining operations outside of China increase or restart.

 

Financial Information about Geographic Areas 

 

The following summarizes total revenue by geographic area:

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

 

2014

 

2013

 

2012

United States

$

5,694,144 

 

$

5,695,623 

 

$

7,774,946 

Foreign Countries

 

1,352,056 

 

 

1,483,086 

 

 

2,368,510 

 

$

7,046,200 

 

$

7,178,709 

 

$

10,143,456 

 

 

Classification of geographic area is determined based upon the country where the purchase transaction originated.

 

U.S. Government Contracts

 

We have a Grant from 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.  Under the terms of our Grant

5

 


 

Agreement, the DOE will reimburse us 50 percent of qualifying costs incurred for the purchase of facilities, tooling and manufacturing equipment, and for engineering expenditures related to product qualification and testing of our electric propulsion systems and other products.

 

The DOE conducted a thorough audit of our Grant program during fiscal year 2014. They concluded that we were in compliance with the requirements of the grant award and they are continuing to fund the program.  The period of the Grant is through January 12, 2015.  The Grant may be terminated at any time at the convenience of the DOE.

 

As of March 31, 2014, we had received cumulative reimbursements from the DOE of $24.4 million and had funds receivable of $0.6 million.  The continuation of the funding from this Grant through the duration of the program is essential to our cash flow needs.

 

We also have a $4.0 million program with the DOE to develop non-rare-earth magnet electric motors for use in electric and hybrid vehicles. The DOE is providing $3.0 million of funding for this three-year program and the Company is providing $1.0 million of cost-share contribution. The objective of the program is to identify and evaluate magnet materials and technology that can deliver performance comparable to our rare-earth magnet motors, broaden our product portfolio, potentially lower magnet costs and limit our exposure to price and supply concerns associated with rare-earth magnets.  At March 31, 2014, we had received reimbursements from the DOE under this program of $1.0 million.

 

 

Backlog

 

Our order backlog for products at April 30, 2014 was approximately $2.3 million versus $2.8 million at April 30, 2013. Certain orders are blanket purchase orders which are subject to the issuance of subsequent release orders directing the number and timing of actual deliveries. We had backlog of service contracts from customers, which will provide future revenue upon completion, totaling approximately $0.4 million at April 30, 2014 versus $1.0 million at April 30, 2013. Substantially all of the backlog amounts at April 30, 2014 and 2013 are subject to amendment, modification or cancellation.  We expect to ship motor and controller backlog products over the next twelve months and complete all service contracts in backlog over the next twenty-one months.

 

Intellectual Property 

 

We have numerous patents in the United States and in other countries to protect our intellectual property.

 

We determine if our intellectual property should be handled as a trade secret or submitted to the patent application process by deciding whether a technology successfully passes through three evaluation gates.  The first gate is an assessment of whether the expected breadth of the patent would offer a high level of protection or whether it will serve as an educational tool for competitors.  Based upon a patent and literature search, if the expected coverage is broad, the evaluation moves to the second gate, which is an assessment of infringement detection.  This is a review of whether or not it will be possible to detect patent infringement if a competitor were to adopt the technology.  Difficulty in detection reduces the value of a patent and will lead us to handle the technology as a trade secret rather than a patent.  The last gate is an assessment of whether the technology will have value for many years or whether the technology is a stepping stone to a different technology.  The patent process is a multi-year endeavor from the initial disclosure to the granted patent, which leads to the importance of this gate.  A technology that is expected to have value for five or more years will pass the final gate and the patent application process will then commence.

 

We also implement measures to protect our intellectual property, including the guarding of source code, nondisclosure of control techniques, and protection of product design details, drawings and documentation.

 

Trademarks

 

We have registered the letters "UQM" in the U.S. Patent and Trademark Office. Counterpart applications have been filed in numerous countries throughout the world, most of which have granted registrations or indicated them to be allowable. We own three U.S. Trademark Registrations for "UQM" (International Class 7 for power transducers, Class 12 for utility land vehicles, and Class 16 for publications). The foreign trademark registrations and applications include major markets where we are doing business or establishing business contacts.

 

We have also registered the trademark "POWERPHASE" which we use in conjunction with certain of our propulsion systems. The trademark is registered in the European Community and several other foreign countries.  

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Employee and Labor Relations

 

As of April 30, 2014, we had 60 total employees, of whom 59 are full-time employees. We have entered into employment agreements with our five officers.  The employment agreements expire on August 31, 2015.  We believe our relationship with employees has been generally satisfactory.

 

In addition to our full-time staff, we from time to time engage the services of outside consultants and contract employees to meet peak workload or specialized program requirements. We do not anticipate any difficulty in locating additional qualified engineers, technicians and production workers, if so required, to meet expanded research and development or manufacturing operations.  

 

Available Information

 

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Anyone seeking information about our business can receive copies of our Fiscal Year 2014 Annual Report on Form 10-K, Annual Report to Shareholders, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports and other documents, filed with the SEC at the public reference section of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. These documents also may be obtained, free of charge, by: contacting our Investor Relations office by e-mail at investor@uqm.com; by phone at (303) 682-4900; writing to UQM Technologies, Inc., Investor Relations, 4120 Specialty Place, Longmont, CO 80504-5400; or accessing our website at www.uqm.com. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available on our website as soon as reasonably practicable after we file or furnish the materials electronically with the SEC. To obtain any of this information, go to www.uqm.com, select “Investor Relations” and select the form you would like to access. Our website also includes our Audit Committee Charter and Code of Business Conduct and Ethics as well as the procedures for reporting a violation of business ethicsInformation on our website does not constitute part of this Annual Report.

 

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Table of Contents 

 

ITEM 1A.RISK FACTORS 

 

We operate in a challenging and changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth below may cause our actual results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.

 

We have incurred significant losses and may continue to do so.

 

We have incurred significant net losses as shown in the following tables:

 

 

 

 

 

 

 

 

 

 

 

 

                         Fiscal Year Ended March 31,                        

 

2014

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Net loss

$

2,773,244 

 

$

10,688,312 

 

$

4,928,520 

 

As of March 31, 2014, we had an accumulated deficit of $93,948,545.

 

In the future, we plan to make additional investments in product development, facilities and equipment and other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses for the foreseeable future. 

 

Our operating losses, anticipated capital expenditures and working capital requirements in the longer term may exceed our current cash balances.

 

Our net loss for the fiscal year ended March 31, 2014 was $2,773,244 versus a net loss for the fiscal years ended March 31, 2013 and 2012 of $10,688,312 and $4,928,520, respectively. At March 31, 2014, our cash and short-term investments totaled $10,310,141. We expect our losses to continue for the foreseeable future. Our existing cash resources, funding expected from our DOE Grant through early 2015, together with cash generated from reductions in our inventories of PowerPhase Pro propulsion systems, are expected to be sufficient to complete our business plan for at least the next several years. Should those resources be insufficient, we may need to secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.  

 

Our business depends, in part, on the expansion of the market for all-electric and hybrid electric vehicles.  

 

Although our electric propulsion systems may be used in a wide variety of products, the market for electric and hybrid vehicles is fairly new. At the present time, batteries used to power electric motors have limited life and require several hours to charge, and charging stations for electric motors are not widely available. Electric and hybrid vehicles also tend to be priced higher than comparable gasoline-powered vehicles. As a result, consumers may experience concerns about driving range limitations, battery charging time and higher purchase costs of electric or hybrid vehicles. If consumer preferences shift to vehicles powered by other alternative methods, or if concerns about the availability of charging stations cannot be overcome, the market for all-electric vehicles, and therefore our electric propulsion systems, may be limited. In addition, our electric propulsion systems are incorporated in buses used for mass transit in several U.S. cities.  If passenger traffic in these mass transit systems declines or government funding to transportation districts declines from current levels, demand for our products may also decrease.

 

The popularity of alternative fuel based vehicles and “green energy” initiatives are highly dependent on macro-economic conditions, including oil prices and the overall health of the economy. When oil prices fall, interest in and resources allocated to the development of advanced technology vehicles and propulsion systems may diminish. Downturns in the world economy may also have a severe impact on the automotive industry, slowing the demand for vehicles generally and reducing consumers' willingness to pay more for environmentally friendly technology.  

 

If our products do not achieve market acceptance, our business may not grow.  

 

Although we believe our proprietary systems are suited for a wide-range of vehicle electrification applications, our business and financial plan relies heavily on the introduction of new products that have limited testing in the

8

 


 

marketplace. We have made substantial investments in manufacturing facilities and equipment, production and application engineering, among other things, to increase our production capacity in order to capitalize on the anticipated expansion in demand for electric propulsion systems and generators in the commercial truck, bus and automobile markets. We are not certain that our existing products will achieve broad market acceptance, or that we will be able to develop new products or product enhancements that will achieve broad market acceptance.  

 

Our sales cycle is inherently long.

 

We must go through lengthy processes to achieve supply contracts with our customers.  Our products must conform to the technical specifications of the customer and meet design requirements of the electric vehicle.  Typically prototype testing is required to ensure consistent system performance on an ongoing basis.  These steps can often take many months to multiple years until decisions are made on whether or not to take a vehicle to production.  We may spend considerable financial and human resources over an extended period of time and not end up with a completed supply contract.  Failure to secure volume production levels within a reasonable period of time could have an adverse effect on our results of operations and our liquidity.

 

CODA Automotive filed for bankruptcy protection on May 1, 2013 and it is unlikely we will be able to recover more than insignificant amounts due to us under our Supply Agreement, including substantial amounts due for accounts receivable, inventory purchases and guaranteed minimum payments.

 

We executed a ten-year Supply Agreement with CODA in July, 2009 which provided a framework for CODA, or its manufacturing partner, to purchase from us electric propulsion systems for use in automobiles to be manufactured by CODA.  On May 1, 2013, CODA filed for bankruptcy protection.  Amounts due from CODA at March 31, 2014 totaled $3,838,092, all of which had been written off as uncollectible.  In addition, CODA is obligated under the Supply Agreement for inventory purchases totaling approximately $8.2 million and for a guaranteed minimum payment of $2 million due to their failure to purchase at least 15,000 units.  It is likely that we will recover only an insignificant amount of the balance owed to us under the Supply Agreement, if any.

 

We carry a large inventory balance originally acquired for CODA and may not be able to sell this inventory.

 

At March 31, 2014, we had aged inventory of $7.9 million of PowerPhase Pro® systems on our books originally acquired for now-bankrupt CODA.    We believe the PowerPhase Pro® system is right sized for many medium-duty truck, marine, passenger vehicle and stationary power applications, and this inventory is now for sale to other customers. While we believe that there continues to be a strong market for these products, a change in market conditions or technology advancements could make this inventory obsolete, causing a material adverse effect on our results of operations.

 

We entered into purchase contracts with our supply base to support the CODA program, some of which are non-cancellable by their terms.  Our actual liability under these contracts may vary from our current estimates.

 

We have recorded a liability as of March 31, 2014 of $774,974 representing the amount we expect to pay to settle non-cancellable contracts with certain suppliers to the CODA program that will not be fulfilled due to the bankruptcy filing by CODA. This liability is lower than the original amount we recorded of $1,050,000 as of March 31, 2013 as a result of negotiations and settlements we reached with some vendors during fiscal year 2014.  The amount of this liability represents management’s current estimate and may be subject to further adjustment based on future negotiations or litigation.  Settlements in excess of our estimates or any upward revision in our settlement estimate could result in a material change in our results of operations and financial condition.

 

If we do not satisfy the terms of our DOE Grant, we may not receive the remaining $8.0 million under the grant we were awarded.

 

We have a $32.4 million Grant under the American Recovery and Reinvestment Act's Electric Drive Vehicle Battery and Component Manufacturing Initiative with the U.S. Department of Energy. We have received funding of $24.4 million under this Grant as of March 31, 2014. This Grant is subject to terms and conditions specified in the agreement between us and the DOE. We are required to spend on a dollar-for-dollar matching basis in order to receive funds under this Grant. If we are unable to match the total amount of the $32.4 million Grant with funding from non-Federal sources, we will be unable to take advantage of the entire award, and could become ineligible for continued participation in the program. The award may be terminated at any time at the convenience of the government.

9

 


 

Although we expect to satisfy the requirements in the Grant, we cannot assure that all of the requirements will be satisfied and the contract will not be terminated prior to receiving all of the proceeds.

 

All funding from our DOE Grant will cease as of January 12, 2015 when the Grant expires.

 

We believe that we have adequate cash resources for at least the next two years.  However, if anticipated revenues are not realized and other cash resources are unavailable, the loss of the DOE Grant funding could significantly impact our ability to sustain operations.

 

 

The reduction or elimination of government subsidies and economic incentives for alternative energy technologies, including our electric vehicle motor technology, could reduce demand for our products and services, lead to a reduction in our revenues and adversely impact our operating results.

 

We believe that the near-term growth of alternative energy technologies, including our electric vehicle motor technology, relies on the availability and size of government and economic incentives both in the United States and in other countries.  Many of these government incentives expire, phase out over time, exhaust the allocated funding, require renewal by the applicable authority, and/or could be reduced or discontinued for other reasons. The reduction, elimination, or expiration of government subsidies and economic incentives may result in the diminished demand from our customers and could materially and adversely affect our future operating results.

 

We are subject to risks inherent in international operations.

 

Since we market our products both inside and outside the United States, our success depends in part, on our ability to secure international customers and our ability to manufacture products that meet foreign regulatory and commercial requirements in target markets. In addition, we are subject to tariff regulations and requirements for export licenses.  We can face numerous challenges in our international growth plans, including unexpected changes in regulatory requirements, potential conflicts or disputes that countries may have to deal with, fluctuations in currency exchange rates, longer accounts receivable requirements and collections, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of international laws. Any of these factors could adversely affect our results of operations and financial condition.

 

Our revenue is highly concentrated among a small number of customers.

 

A large percentage of our revenue is typically derived from a small number of customers, and we expect this trend to continue.

 

Our customer arrangements generally are non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. If one or more of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected.  

 

Our business relies on third parties, whose success we cannot predict.

 

As a manufacturer of motors, generators, and other component parts, our business model depends on the ability of third parties in our industry to develop, produce and market products that include or are compatible with our technology and then to sell these products into the marketplace. Our ability to generate revenue depends significantly on the commercial success of our customers and partners. Failure of these third parties to achieve significant sales of products incorporating our products and fluctuations in the timing and volume of such sales could have a material adverse effect on our business, financial condition and results of operations.  

 

Our electric propulsion systems use rare-earth minerals and unavailability or limited supply of these minerals could prevent us from manufacturing our products in production quantities or increase our costs.

 

Neodymium and dysprosium, rare-earth minerals, are key elements used in the production of magnets that are components of our electric propulsion systems. We currently source our magnets from China, and China has indicated

10

 


 

its intent to retain more of this mineral for China use, rather than exporting it. During calendar year 2011, we experienced significant price escalation in the cost of magnets used in our motors. This price escalation was primarily due to rare-earth government policy in China. Rare-earth prices have decreased substantially since peaking in the summer of 2011, and are now approaching the baseline prices (defined as the beginning of calendar year 2011). We have implemented a magnet surcharge process to recover these additional costs in the event of another price escalation. Although rare-earth magnets are available from other sources, these alternative sources are currently more costly. Reduced availability of neodymium and dysprosium from China could adversely affect our ability to obtain magnets in sufficient quantities, in a timely manner, or at a commercially reasonable cost. In the event that China's actions cause us to seek alternate sources of supply for magnets, it could cause an increase in our product costs, thereby reducing or eliminating our profit margin on electric propulsion systems if we are unable to pass the increase on to our customers. Increasing prices to our customers due to escalating magnet costs may reduce demand for our motors and make it difficult or impossible to compete with other motor manufacturers whose motors do not use rare-earth minerals.

 

Some of our contracts can be cancelled with little or no notice and could restrict our ability to commercialize our technology.

 

Our contracts with government agencies are 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. March-in rights can be exercised if we fail to commercialize the developed technology. The exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.

 

Some of our orders for the future delivery of products are placed under blanket purchase orders which may be cancelled by our customers at any time. The amount payable to us, if any, upon cancellation by the customer varies by customer. Accordingly, we may not recognize as revenue all or any portion of the amount of outstanding order backlog we have reported.  

 

We face intense competition and may be unable to compete successfully.  

 

In developing electric motors for use in vehicles and other applications, we face competition from very large domestic and international companies, including the world's largest automobile manufacturers. Many of our competitors 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. These competitors also have much greater experience in and resources for marketing their products. For these reasons, potential customers may choose to purchase electric motors from our competitors rather than from us. In addition, the U.S. government has awarded substantial financial grants under the stimulus bill to several large companies who compete with us. To the extent that some of these competitors received awards under the stimulus bill in amounts greater than we have, this could adversely impact our ability to compete.  

 

Changes in environmental policies could hurt the market for our products.  

 

The market for electric and other alternative fuel vehicles and equipment and the demand for our products are influenced, to a degree, by federal, state and local regulations relating to air quality, greenhouse gases and pollutants. These laws and regulations may change, which could result in transportation or equipment manufacturers abandoning or delaying their interest in electric or hybrid electric vehicles or equipment. In addition, a failure by authorities to enforce current laws and regulations or to adopt additional environmental laws or regulations could limit the demand for our products.

 

Although many governments have identified as a significant priority the development of alternative energy sources, governments may change their priorities, and any change they make could materially affect our revenue or the development of our products

 

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.  

 

11

 


 

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 the United States and 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 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 may not 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. Finally, patents may not deter third parties from attempting to reverse engineer our products and discovering our intellectual property.

 

We rely, in part, on contractual provisions to protect our trade secrets and proprietary knowledge, the adequacy of which may not be sufficient.

 

Confidentiality agreements to which we are party may be breached, and we may not have adequate remedies for any breach.  Our trade secrets may also be known without breach of such agreements or may be independently developed by competitors.  Our inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have.

 

Use of our motors in vehicles could subject us to product liability claims or product recalls, 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.  

 

The automotive industry experiences significant product liability claims. As a supplier of electric propulsion systems or other products to vehicle OEMs, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our systems or components caused an accident. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the award of damages. The sale of systems and components for the transportation industry entails a high risk of these claims, which may increase as our production and sales increase. In addition, we may be required to participate in recalls involving these systems if any of our systems prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships.

 

We carry product liability insurance of $10 million covering most 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. Any product liability claim brought against us also could have a material adverse effect on our reputation.  

 

We may be subject to warranty claims, and our provision for warranty costs may not be sufficient.  

 

We may be subject to warranty claims for defects or alleged defects in our products, and the risk of such claims arising will increase as our production and sales increase. In addition, in response to consumer demand, vehicle manufacturers have been providing, and may continue to provide, increasingly longer warranty periods for their products. As a consequence, these manufacturers may require their suppliers, such as us, to provide correspondingly longer product warranties. As a result, we could incur substantially greater warranty claims in the future.  

 

Our future success will depend on our ability to attract and retain qualified management and technical personnel.

12

 


 

 

Our future success is substantially dependent on the continued services and on the performance of our executive officers and other key management, engineering, manufacturing and operating personnel. The loss of the services of any executive officer, or other key management, engineering, manufacturing and operating personnel, could materially adversely affect our business. Our ability to achieve our growth plans will also depend on our ability to attract and retain additional qualified management and technical personnel, and we do not know whether we will be able to be successful in these regards. Our inability to attract and retain additional qualified management and technical personnel, or the departure of key employees, could materially and adversely affect our growth plans and, therefore, our business prospects, results of operations and financial condition.

 

Our stock price has been and could remain volatile.

 

The market price for our common stock has been and may continue to be volatile and subject to extreme price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

 

·

failure to meet growth expectations;

·

variations in our quarterly operating results from the expectations of investors;

·

downward changes in general market conditions;

·

announcements of new products or services by our competitors;

·

announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

·

additions or departures of key personnel;

·

investor perception of our industry or our prospects;

·

insider selling or buying;

·

demand for our common stock; and

·

general technological or economic trends.

 

In the past, following periods of volatility in the market price of their stock, many companies have been the subjects of securities class action litigation.  If we became involved in securities class action litigation in the future, it could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business prospects, results of operations and financial condition.

 

The maintenance and security of our information systems are critical to our operations.

 

We rely on our information systems to be functioning at all times, and that the data in those systems is protected and secure from viruses, illegal access and any other form of unauthorized use.  Should our information systems be compromised in any way, our business operations could be severely impacted.

 

 

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Table of Contents 

 

 

ITEM 1B.UNRESOLVED STAFF COMMENTS

 

None.

 

 

ITEM 2.PROPERTIES

 

We own our offices and manufacturing facility and believe the facility to be well maintained, adequately insured and suitable for its present and intended uses. Information concerning our facility as of March 31, 2014 is set forth in the table below:

 

 

 

 

 

 

 

 

 

 

Ownership or

 

Location

Square Feet

Expiration Date of Lease

Use

Longmont, Colorado

129,304 

Own

Manufacturing, laboratories and offices

 

 

 

 

 

ITEM 3.LEGAL PROCEEDINGS

 

Litigation 

 

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow.

 

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

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Table of Contents

Part II

 

ITEM 5.           MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock trades on the NYSE MKT and Chicago Stock Exchange under the symbol UQM. The high and low trade prices, by fiscal quarter, as reported by the NYSE MKT Stock Exchange for the last two fiscal years are as follows:

 

 

 

 

 

 

 

2014

 

            High

 

            Low

Fourth Quarter

 

$             3.45

 

$             1.56

Third Quarter

 

$             2.49

 

$             1.40

Second Quarter

 

$             2.20

 

$             1.00

First Quarter

 

$             1.55

 

$             0.68

 

 

 

 

 

2013

 

            High

 

           Low

Fourth Quarter

 

$             0.85

 

$             0.69

Third Quarter

 

$             1.44

 

$             0.68

Second Quarter

 

$             1.80

 

$             0.73

First Quarter

 

$             1.59

 

$             0.70

 

On May 27, 2014 the closing price of our common stock, as reported on the NYSE MKT, was $2.29 per share and there were 568 holders of record of our common stock.

 

We have not paid any cash dividends on our common stock since inception and we intend for the foreseeable future to retain any earnings to finance the growth of our business. Future dividend policy will be determined by our Board of Directors based upon consideration of our earnings, capital needs and other factors then relevant.    

 

15

 


 

PERFORMANCE GRAPH 2 

 

The following graph represents the yearly percentage change in the cumulative total return on the common stock of UQM Technologies, Inc., the group of companies comprising the S&P Electrical Equipment Index, and those companies comprising the S&P 500 Index for the five year period from March 31, 2009 through March 31, 2014:

 

Picture 2

 

 

 

 

 

 

 

 

 

 

3/09

3/10

3/11

3/12

3/13

3/14

UQM Technologies, Inc.

100.00 
256.71 
181.71 
90.24 
45.12 
160.98 

S&P 500

100.00 
149.77 
173.20 
187.99 
214.24 
261.06 

S&P Electrical Components & Equipment

100.00 
178.35 
234.11 
221.82 
262.24 
328.22 

 

 

 

 

 

 

 

*$100 invested on 3/31/09 in stock or index, including reinvestment of dividends

 

 

 

 

Fiscal year ending March 31.

 

 

 

 

 

 

 

 


2 The stock price performance graph depicted is not “soliciting material,” is not deemed "filed" with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation contained in such filing.

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Table of Contents 

 

ITEM 6.SELECTED FINANCIAL DATA

 

The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UQM Technologies, Inc.

 

Selected Consolidated Financial Data

 

 

 

Years Ended March 31,                                        

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

$

6,136,305 

 

$

5,910,153 

 

$

9,358,388 

 

$

8,413,098 

 

$

7,307,354 

Contract services revenue

$

909,895 

 

$

1,268,556 

 

$

785,068 

 

$

608,204 

 

$

1,384,599 

Loss before other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    (expense)

$

(2,782,503)

 

$

(10,707,432)

 

$

(4,953,336)

 

$

(2,349,174)

 

$

(4,201,091)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(2,773,244)

 

$

(10,688,312)

 

$

(4,928,520)

 

$

(1,992,358)

 

$

(4,140,872)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     basic and diluted

$

(0.07)

 

$

(0.29)

 

$

(0.14)

 

$

(0.06)

 

$

(0.13)

 

       

 

 

       

       

 

       

       

 

       

       

 

       

        

Total assets

$

29,835,133 

 

$

28,608,715 

 

$

39,655,601 

 

$

41,803,920 

 

$

42,682,573 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term obligations (1)

$

182,100 

 

$

627,412 

 

$

715,107 

 

$

1,316,372 

 

$

1,155,416 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared per

 

 

 

 

 

 

 

 

 

 

 

 

 

     common share

           -       

 

 

           -       

 

 

           -       

 

 

-      

 

 

-      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes current portion of long-term obligations.

 

 

 

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Table of Contents 

 

ITEM 7.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 could be 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, 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 above in Part I, Item 1A. Risk Factors.

 

Introduction

UQM Technologies, Inc., (“UQM”, “Company”, “we”, “our”, or “us”) is a developer and manufacturer of power dense, high efficiency electric motors, generators and power electronic controllers for the commercial truck, bus, automotive, 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 contract services. Our product sales consist of annually recurring volume production, prototype low volume sales, 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.

 

We have invested considerable financial and human resources into the development of our technology and manufacturing operations. We have developed and production-validated a full range of products for use in full-electric, hybrid electric, plug-in-hybrid and fuel cell applications for the commercial bus and truck, automotive, marine and military markets. These products are all highly efficient permanent magnet designs and feature outstanding performance, package size and weight valued by our customers. Our production capabilities and capacity are sufficient to meet the demands of our current and future customers for the foreseeable future.  We have recently been certified as an ISO/TS 16949 quality supplier, which is the highest level of quality standards in the automotive industry.  We have a management team with significant experience in the automotive industry and the requirements for high quality production programs and very deep technical knowledge of the motor and controller business. This team has the ability and background to grow the business to significantly higher levels, and we believe we have adequate cash balances to fund our operations for at least the next two years.

 

Our most important strategic initiative going forward is to develop customer relationships that lead to longer-term supply contracts.  Volume production is the key to our ongoing operations.  We are driving business development in the following ways:

 

·

We have created a well-defined, structured process to target potential customers of vehicle electric motor technology in the commercial truck/van and shuttles, passenger buses, automotive, marine, military and other targeted markets both domestically and internationally.

 

·

We have developed a customer pipeline where identified potential customers are synergistic and strategic in nature for longer-term growth potential.

 

·

We are building long term quantifiable and sustainable relationships within the identified target markets.

 

·

We provide service and support to our customers from pilot and test activities through commissioning processes and then ultimately to volume production operations. 

 

·

We improve our purchasing and manufacturing processes to develop competitive costs to ensure that our pricing to customers is market competitive.

 

·

We provide customized solutions to meet specification requirements that some customers require.

 

·

We participate in trade show events globally to demonstrate our products and engage with users of electric motor technology.

 

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·

We actively involve all functional groups within the Company to support the requests of our customers.

 

We believe that the successful execution of these activities will lead us to secure volume production commitments from customers, so that our operations will become cash flow positive and ultimately profitable.

 

The Department of Energy grant that was awarded to us in 2010 will expire on January 12, 2015.  Since the beginning of the grant program, we have billed a total of $25.0 million and been reimbursed a total of $24.4 million in matching funds through March 31, 2014.  These cumulative reimbursements have allowed us to achieve many milestones to support our business development efforts that we believe will lead to volume production opportunities.  First, we were able to relocate our headquarters and production operations to an approximate 130,000 square foot facility with fifteen adjacent acres of land for future expansion.  Within this modern facility, we were able to develop and install manufacturing capacity and infrastructure to build and test our state-of-the-art traction motors and controllers, with current capacity to produce up to 56,000 systems annually, and ultimately to achieve the capacity targets defined in our agreement with the DOE.   Throughout the program, the DOE grant supported product validation and release activities for both passenger vehicle and heavy duty truck and bus platforms.  In addition, the grant assisted us in implementing all of the required processes and systems to certify our facility to the ISO/TS 16949 quality standard that is a requirement to be a supplier to the automotive industry.

 

The funding from the DOE grant has brought us to a position of strength with regards to product validation and manufacturing capabilities.  This, in addition to the business development activities in place and the cash reserves we have to fund the operations for at least the next two years, makes us optimistic about the future of the Company.

  

In February 2014, we closed a $5.3 million offering of stock and stock purchase warrants with net proceeds of $4.9 million.  While we believed that our pre-financing cash balances at that time were sufficient to fund the Company’s operations for approximately two years, we decided to raise additional capital in anticipation of future working capital needs.  Specifically, a future supply contract with a customer in China could require us to establish a joint venture relationship and/or invest in a local manufacturing presence.  Should we secure a production agreement with a large customer, there will be ramp-up costs required to meet the needs of higher volume operations.  We, therefore, believed it was prudent to raise additional capital in advance of these types of growth scenarios, at a time when capital was available at reasonable costs to the Company.

Financial Condition

Cash and cash equivalents and short-term investments at March 31, 2014 were $10,310,141 and working capital was $20,052,187 compared with $4,527,899 and $16,011,344, respectively, at March 31, 2013. The increase in cash and short-term investments is primarily attributable to the proceeds from a follow-on offering of our common stock and warrants, which resulted in net proceeds of $4.9 million, and lower levels of accounts receivable and inventories, offset by operating losses, capital expenditures and lower levels of accounts payable and other current liabilities. The increase in working capital is primarily attributable to proceeds from the follow-on offering of our common stock, partially offset by operating losses and capital expenditures on property and equipment.

 

Accounts receivable decreased $1,251,976 to $960,419 at March 31, 2014 from $2,212,395 at March 31, 2013. The decrease is primarily due to cash receipts from the DOE under the Grant. 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 March 31, 2014 and 2013, we had an allowance for uncollectible accounts of zero and $3,838,092, respectively.

 

Costs and estimated earnings on uncompleted contracts increased to $341,255 at March 31, 2014 versus $178,264 at March 31, 2013. The increase is due to timing of billings on certain contracts in process at March 31, 2014 versus March 31, 2013. Estimated earnings on contracts in process increased to $670,596, or 30 percent of contracts in process of $2,219,909 at March 31, 2014, compared to estimated earnings on contracts in process of $515,299 or 38 percent of contracts in process of $1,353,545 at March 31, 2013. The increase in estimated earnings is attributable to higher levels of funded engineering contracts in process, partially offset by lower expected margin on certain contracts in process at March 31, 2014.

 

Inventories decreased $944,039 to $10,054,422 at March 31, 2014 compared to $10,998,461 at March 31, 2013, reflecting increased shipments of PowerPhase Pro®   and PowerPhase HD®  propulsion systems.

 

19

 


 

Prepaid expenses and other current assets decreased to $263,988 at March 31, 2014 from $309,957 at March 31, 2013, primarily due to lower levels of prepayments on software licenses outstanding at the end of the current fiscal year versus the prior fiscal year end.

 

We invested $377,224 for the acquisition of property and equipment during the fiscal year ended March 31, 2014 before reimbursements from the DOE Grant versus $561,669 during the fiscal year ended March 31, 2013. The decrease in capital expenditures is primarily attributable to decreased levels of investments in production equipment during the current fiscal year.  Cash reimbursements for capital assets under the Grant during the fiscal years ended March 31, 2014 and March 31, 2013 were $215,754 and $208,032, respectively.  

 

Patent costs increased to $227,015 at March 31, 2014 compared to $206,287 at March 31, 2013 primarily due to capitalized costs associated with a new patent application partially offset by the amortization of patent issuance costs.

 

Trademark costs decreased to $107,123 at March 31, 2014 compared to $110,528 at March 31, 2013 due to the amortization of trademark issuance costs.

 

Other assets decreased to $2,997 at March 31, 2014 from $76,731 at March 31, 2013 due to lower levels of long-term investments at the end of the current fiscal year versus the prior fiscal year end.

 

Accounts payable decreased $230,904 to $386,293 at March 31, 2014 from $617,197 at March 31, 2013, primarily due to the timing of vendor payments.

 

Other current liabilities decreased $1,107,690 to $1,491,745 at March 31, 2014 from $2,599,435 at March 31, 2013. The decrease is primarily attributable to reduced levels of accrued import duties, accrued vendor settlements, customer deposits and accrued payroll and employee benefits, partially offset by higher levels of accrued warranty costs at March 31, 2014.

 

Short-term deferred compensation under executive employment agreements was zero at March 31, 2014 versus $524,000 at March 31, 2013, reflecting a retirement payment to a former officer made in December 2013.  Long-term deferred compensation under executive employment agreements was $182,100 at March 31, 2014 versus $103,412 at March 31, 2013, reflecting periodic accruals of future severance obligations under executive employment agreements.

 

Common stock and additional paid-in capital increased to $397,778 and $121,325,762, respectively, at March 31, 2014 compared to $366,641 and $115,573,331 at March 31, 2013. The increases in common stock and additional paid-in capital were primarily attributable to shares issued under a follow-on offering in February, 2014, shares issued 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.

 

Results of Operations

Revenue

Total revenue for the fiscal year ended March 31, 2014 was $7,046,200 compared to $7,178,709 and $10,143,456 for the fiscal years ended March 31, 2013 and 2012, respectively.

 

Product sales this fiscal year increased 4 percent to $6,136,305 compared to $5,910,153 for the fiscal year ended March 31, 2013. The increase is primarily due to increased shipments of PowerPhase HD® and PowerPhase Pro® propulsion systems, partially offset by decreased levels of PowerPhase Select®  propulsion systems.  Product sales for the fiscal year ended March 31, 2013 decreased 37 percent to $5,910,153 compared to $9,358,388 for the fiscal year ended March 31, 2012. The decrease was primarily due to a reduction in product revenue from CODA.  Product revenue from CODA for the fiscal year ended March 31, 2013 was $21,762 versus $4,262,909 for the fiscal year ended March 31, 2012.

 

Revenue from contract services decreased $358,661, or 28 percent, to $909,895 for the fiscal year ended March 31, 2014 versus $1,268,556 for the fiscal year ended March 31, 2013. This was driven by a change in mix of contracts in process during the current fiscal year 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 fiscal year ended March 31, 2014 of $79,400. Revenue from contract services increased $483,488, or 62 percent, to $1,268,556 for the fiscal year ended March 31, 2013 versus $785,068 for the fiscal year ended March 31, 2012. The increase is primarily attributable to the application of additional engineering resources on the DOE non-rare earth program and other funded development programs.

20

 


 

Gross Profit Margin

Gross profit margins on product sales this fiscal year increased to 41 percent compared to 27 percent for fiscal 2013. The increase is primarily due to favorable changes in product mix and ramp-up costs during the prior fiscal year associated with the launch of our PowerPhase HD®.  Gross profit margins on product sales for the fiscal year ended March 31, 2013 decreased to 27 percent compared to 29 percent for fiscal 2012. The decrease is primarily due to a less favorable product mix and ramp-up costs associated with the launch of our PowerPhase HD®. Gross profit margins on contract services decreased to 18 percent this fiscal year compared to 44 percent for the fiscal year ended March 31, 2013, reflecting a change in the mix of contracts in process in the current fiscal year and the change in our cumulative estimate of reimbursable rates noted above. Gross profit margins on contract services for the fiscal year ended March 31, 2013 increased to 44 percent this fiscal year compared to 36 percent for the fiscal year ended March 31, 2012, primarily due to higher expected margins on certain contracts in process at March 31, 2013.

 

Costs and Expenses

Research and development expenditures for the fiscal year ended March 31, 2014 were $219,887 compared to $96,905 and $37,128 for the fiscal years ended March 31, 2013 and 2012, respectively.  The increase in research and development expenditures for the fiscal years ended March 31, 2014 and 2013 was primarily attributable to increased levels of cost-sharing on government research programs. 

 

Production engineering costs were $4,644,646 for the fiscal year ended March 31, 2014 versus $4,921,970 and $6,014,868 for the prior two fiscal years, respectively. The decrease for the current fiscal year is attributable to decreased levels of product qualification and testing activities during the current fiscal year.  The decrease for the fiscal year ended March 31, 2013 versus the fiscal year ended March 31, 2012 was attributable to higher than normal product qualification and testing activities during fiscal year 2012 associated with the launch of volume production for CODA and the redeployment of certain engineering resources on funded development programs.

 

Reimbursement of costs under the DOE Grant were $3,625,853 versus $4,205,678 and $3,794,324 for each of the two prior fiscal years, respectively.  During the current fiscal year, we changed our cumulative estimate of reimbursable rates under the Grant which resulted in an increase in our reimbursement recorded for the year of $958,000.  Excluding this adjustment, reimbursements recorded during the current fiscal year were 57 percent of production engineering expenditures versus 85 percent for the fiscal year ended March 31, 2013, reflecting a decrease in our estimated reimbursable overhead costs.  For the fiscal year ended March 31, 2013, reimbursements under the grant were 85 percent of production engineering expenditures compared to 63 percent for the fiscal year ended March 31, 2012, reflecting an increase in the estimated reimbursable overhead costs under the Grant. 

 

Selling, general and administrative expenses this fiscal year were $5,143,864 compared to $7,022,112 and $5,678,797 for the fiscal years ended March 31, 2013 and 2012, respectively. The decrease this fiscal year is attributable to cost reduction efforts implemented in the fourth quarter of fiscal year 2013.  The increase for fiscal year 2013 versus 2012 is attributable to higher levels of business development, marketing, legal and recruiting and relocation costs versus the prior fiscal year.

 

Other

Recovery of impaired assets was $868,475 for the fiscal year ended March 31, 2014 compared to impairment of assets of $4,980,117 and zero for the fiscal years ended March 31, 2013 and 2012, respectively.  During the fiscal year ended March 31, 2014, we recorded a reduction to our accrued import duties liability of $726,640 as a result of the ruling from the Department of Commerce that significantly reduced the amount of duties owed, and we reduced the carrying value of the accrued vendor settlement liability by $141,835, due to settlements with certain vendors during the year which were below the originally estimated amounts. During the fiscal year ended March 31, 2013, we recorded a reserve for impairments as a result of the CODA bankruptcy.

 

Interest income decreased to $1,787 for the current fiscal year compared to $15,743 and $22,805 for the fiscal years ended March 31, 2013 and 2012, respectively.  The decrease this fiscal year versus fiscal year 2013 is attributable to lower levels of invested cash balances.  The decrease for fiscal 2013 compared to fiscal 2012 is attributable to lower yields and lower levels of invested cash balances.

 

Other income for the fiscal year ended March 31, 2014 was $7,472 versus $3,377 and $2,011 for the fiscal years ended March 31, 2013 and 2012, respectively. The increase for fiscal year 2014 compared to fiscal year 2013 and 2012 is attributable to a recovery received from a bankruptcy proceeding during fiscal year 2014.

 

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Net Loss

As a result, net loss for the fiscal year ended March 31, 2014 was $2,773,244, or $0.07 per common share, compared to a net loss of $10,688,312, or $0.29 per common share, and $4,928,520 or $0.14 per common share, for the fiscal years ended March 31, 2013 and 2012, respectively.

 

Liquidity and Capital Resources

Our cash balances and liquidity throughout the fiscal year ended March 31, 2014 were adequate to meet operating needs. In February, 2014, we completed a follow-on offering consisting of 2,864,872 shares of our common stock, and common stock purchase warrants to purchase 1,432,436 shares of our common stock. The warrants have an exercise price of $2.1275 per whole share of common stock and are exercisable on or after August 6, 2014 and on or before August 5, 2018.  In addition, the placement agent was issued warrants to purchase 57,297 shares of common stock, on substantially the same terms as the warrants issued to the purchasers. Cash proceeds, net of offering costs, were $4,911,933. At March 31, 2014, we had cash and short-term investments of $10,310,141 and working capital of $20,052,187 compared to $4,527,899 and $16,011,344 at March 31, 2013, respectively.

 

For the year ended March 31, 2014, net cash used in operating activities was $622,732 compared to net cash used in operating activities of $7,259,552 and $11,414,137 for the years ended March 31, 2013 and 2012, respectively. The decrease in cash used in operating activities for the current fiscal year versus fiscal 2013 is primarily due to decreased net losses, significantly driven by lower operating costs as a result of a reduction in force and other strategic cost reductions, decreased levels of inventory purchases and decreased levels of accounts receivable, partially offset by decreases in accounts payable and deferred compensation under executive employment agreements.  The decrease in cash used in operating activities for fiscal 2013 compared to fiscal 2012 is associated with decreased levels of inventory purchases partially offset by decreased levels of accounts payable at March 31, 2013. 

 

Net cash provided by investing activities for the fiscal year ended March 31, 2014 was $1,348,248 compared to cash provided by investing activities of $114,556 and $7,124,741 for the fiscal years ended March 31, 2013 and 2012, respectively.  The increase for the current fiscal year versus fiscal 2013 was primarily due to cash proceeds from the sale of our former Frederick, Colorado facility, partially offset by decreased levels of net short-term investment maturities versus the prior fiscal year and increased levels of net capital expenditures. The decrease in cash provided in the fiscal year ended March 31, 2013 compared to fiscal 2012 is due to decreased net maturities of short-term investments, partially offset by a decrease in the amount of capital expenditures, net of reimbursements under our DOE Grant. 

 

Net cash provided by financing activities was $4,993,697 for the fiscal year ended March 31, 2014 versus cash provided by financing activities of $34,955 and $48,584 for the fiscal years ended March 31, 2013 and 2012, respectively. The increase in cash provided in the current fiscal year was primarily attributable to the completion of a follow-on offering which resulted in net cash proceeds of $4.9 million.  The decrease in cash provided in fiscal 2013 versus fiscal 2012 is attributable to higher levels of treasury stock purchases during the fiscal year ended March 31, 2013.

 

We expect to fund our operations over the next year from existing cash and short-term investment balances, the reduction of inventories and from bank financing, if available. 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. In addition, our $32.4 million DOE Grant requires us to provide matching funds of 50 percent on all qualifying expenditures under the Grant. As of March 31, 2014, $25 million had been expended under the Grant.

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If our existing financial resources are not sufficient to execute our business plan, including meeting future funding requirements under the DOE Grant, 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 and short-term investments 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 March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                             Payments due by Period                           

 

 

              

 

 Less Than

 

 

 

 

 

 

 

More than 

 

Total

 

    1 Year  

 

2 - 3 Years

 

4 - 5 Years

 

  5 Years   

Purchase obligations

$

268,279 

 

$

268,279 

 

$

 -

 

$

 -

 

$

 -

Executive employment agreements (1)

 

182,100 

 

 

 -

 

 

 -

 

 

 -

 

 

182,100 

Total

$

450,379 

 

$

268,279 

 

$

 -

 

$

 -

 

$

182,100 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes severance pay obligations under executive employment agreements contingently payable upon six months’ notice by executive officers of the Company, but not annual cash compensation under the agreements. 

 

 

 

 

 

 

 

 

 

 

 

 

 

Off-Balance Sheet Arrangements

We have no 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 America requires management to make judgments, assumptions and estimates that affect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to our consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for uncollectible accounts receivables, costs to complete contracts, the recoverability of inventories and the fair value of financial and long-lived assets. 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.

 

Inventories

We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assesses our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. On May 1, 2013, the date CODA filed for bankruptcy protection, we had approximately $8.2 million of PowerPhase Pro® inventory originally purchased or manufactured for CODA. As of March 31, 2014, $7.9 million of PowerPhase Pro® inventory was still on hand.   We believe the PowerPhase Pro® system is right sized for many medium-duty truck, marine, passenger vehicle and stationary power applications, and this inventory is now being sold to other customers. 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

23

 


 

impairment losses.  During the fiscal years ended March 31, 2014, 2013 and 2012, we recorded inventory impairments of $5,047, $8,928 and $10,169, respectively.

 

Accounts Receivable

Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectability of accounts receivable may change due to changing general economic conditions and factors associated with each customer’s particular business. 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 March 31, 2014, 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.

 

Percentage of Completion Revenue Recognition on 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 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 March 31, 2014 could change materially in the future, and any modification of management’s current estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.

 

Fair Value Measurements and Asset Impairment

Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. The determination of fair value for those assets that do not have quoted prices in active markets is highly judgmental. These estimates and judgments may include fair value determinations based upon the extrapolation of quoted prices for similar assets and liabilities in active or inactive markets, for observable items other than the asset or liability itself, for observable items by correlation or other statistical analysis, or from our assumptions about the assumptions market participants would use in valuing an asset or liability when no observable market data is available. 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.

 

Table of Contents 

 

ITEM 7A.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. One component of interest rate risk involves the short term investment of excess cash in short term, investment grade interest-bearing securities. If there are changes in interest rates, those changes would

24

 


 

affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations, although we expect that the impact would be immaterial. We do not use financial instruments to any degree to manage these risks and do not hold or issue financial instruments for trading purposes. All of our product sales and related receivables are payable in U.S. dollars. 

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Table of Contents 

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors and Shareholders

UQM Technologies, Inc.

 

We have audited the accompanying consolidated balance sheets of UQM Technologies, Inc. (a Colorado corporation) and subsidiaries (the “Company”) as of March 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UQM Technologies, Inc. and subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ GRANT THORNTON LLP

 

Denver, Colorado

May 29, 2014

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Table of Contents 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

 

 

 

 

 

 

March 31, 2014

 

March 31, 2013

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

10,247,112 

 

$

4,527,899 

Short-term investments

 

63,029 

 

 

 -

Accounts receivable, net of allowance for doubtful accounts of zero and

 

 

 

 

 

$3,838,092, respectively

 

960,419 

 

 

2,212,395 

Costs and estimated earnings in excess of billings on

 

 

 

 

 

uncompleted contracts

 

341,255 

 

 

178,264 

Inventories

 

10,054,422 

 

 

10,998,461 

Facility held for sale

 

 -

 

 

1,525,000 

Prepaid expenses and other current assets

 

263,988 

 

 

309,957 

Total current assets 

 

21,930,225 

 

 

19,751,976 

 

 

 

 

 

 

Property and equipment, at cost:

 

 

 

 

 

Land

 

1,683,330 

 

 

1,683,330 

Building

 

4,516,301 

 

 

4,516,301 

Machinery and equipment

 

7,706,066 

 

 

7,771,363 

 

 

13,905,697 

 

 

13,970,994 

Less accumulated depreciation

 

(6,337,924)

 

 

(5,507,801)

Net property and equipment

 

7,567,773 

 

 

8,463,193 

 

 

 

 

 

 

Patent costs, net of accumulated amortization of $878,707 and $845,795,  

 

 

 

 

 

respectively

 

227,015 

 

 

206,287 

Trademark costs, net of accumulated amortization of $68,718 and $64,230,  

 

 

 

 

 

respectively

 

107,123 

 

 

110,528 

Other assets

 

2,997 

 

 

76,731 

Total assets

$

29,835,133 

 

$

28,608,715 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, Continued

 

 

 

 

 

 

 

 

March 31, 2014

 

March 31, 2013

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

386,293 

 

$

617,197 

Other current liabilities

 

1,491,745 

 

 

2,599,435 

Short-term deferred compensation under executive employment

 

 

 

 

 

agreements

 

 -

 

 

524,000 

Total current liabilities

 

1,878,038 

 

 

3,740,632 

 

 

 

 

 

 

Long-term deferred compensation under executive employment agreements

 

182,100 

 

 

103,412 

 

 

 

 

 

 

Total liabilities

 

2,060,138 

 

 

3,844,044 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 50,000,000 shares

 

 

 

 

 

authorized; 39,777,767 and 36,664,097 shares

 

 

 

 

 

issued and outstanding, respectively

 

397,778 

 

 

366,641 

Additional paid-in capital

 

121,325,762 

 

 

115,573,331 

Accumulated deficit

 

(93,948,545)

 

 

(91,175,301)

Total stockholders’ equity

 

27,774,995 

 

 

24,764,671 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

29,835,133 

 

$

28,608,715 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

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Table of Contents 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

Year Ended

 

Year Ended

 

 

March 31, 2014

 

March 31, 2013

 

March 31, 2012

Revenue:

 

 

 

 

 

 

 

 

 

Product sales

 

$

6,136,305 

 

$

5,910,153 

 

$

9,358,388 

Contract services

 

 

909,895 

 

 

1,268,556 

 

 

785,068 

 

 

 

7,046,200 

 

 

7,178,709 

 

 

10,143,456 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of product sales

 

 

3,609,028 

 

 

4,333,005 

 

 

6,663,648 

Costs of contract services

 

 

743,068 

 

 

715,225 

 

 

499,813 

Research and development

 

 

219,887 

 

 

96,905 

 

 

37,128 

Production engineering

 

 

4,644,646 

 

 

4,921,970 

 

 

6,014,868 

Reimbursement of costs under DOE grant

 

 

(3,625,853)

 

 

(4,205,678)

 

 

(3,794,324)

Selling, general and administrative

 

 

5,143,864 

 

 

7,022,112 

 

 

5,678,797 

(Recovery) impairment of assets

 

 

(868,475)

 

 

4,980,117 

 

 

 -

(Gain) loss on disposal of long-lived assets

 

 

(37,462)

 

 

22,485 

 

 

(3,138)

 

 

 

9,828,703 

 

 

17,886,141 

 

 

15,096,792 

 

 

 

 

 

 

 

 

 

 

Loss before other income

 

 

(2,782,503)

 

 

(10,707,432)

 

 

(4,953,336)

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,787 

 

 

15,743 

 

 

22,805 

Other

 

 

7,472 

 

 

3,377 

 

 

2,011 

 

 

 

9,259 

 

 

19,120 

 

 

24,816 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,773,244)

 

$

(10,688,312)

 

$

(4,928,520)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.07)

 

$

(0.29)

 

$

(0.14)

Weighted average number of shares

 

 

 

 

 

 

 

 

 

of common stock outstanding -

 

 

 

 

 

 

 

 

 

basic and diluted

 

 

37,253,066 

 

 

36,564,952 

 

 

36,301,642 

 

 

 

 

See accompanying notes to consolidated financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

 

Additional

 

 

 

 

Total

 

 shares

 

Common

 

paid-in

 

Accumulated

 

stockholders’

 

    issued    

 

stock

 

capital

 

deficit

 

equity

Balances at April 1, 2011

36,213,293 

 

$

362,133 

 

$

113,391,049 

 

$

(75,558,469)

 

$

38,194,713 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock purchase plan

41,158 

 

 

412 

 

 

60,548 

 

 

 -

 

 

60,960 

Purchase of treasury stock

(6,191)

 

 

(62)

 

 

(12,314)

 

 

 -

 

 

(12,376)

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

stock bonus plan

107,917 

 

 

1,079 

 

 

167,545 

 

 

 -

 

 

168,624 

Compensation expense from

 

 

 

 

 

 

 

 

 

 

 

 

 

employee and director stock

 

 

 

 

 

 

 

 

 

 

 

 

 

option and common stock grants

 -

 

 

 -

 

 

764,278 

 

 

 -

 

 

764,278 

Net loss

 -

 

 

 -

 

 

 -

 

 

(4,928,520)

 

 

(4,928,520)

Balances at March 31, 2012

36,356,177 

 

$

363,562 

 

$

114,371,106 

 

$

(80,486,989)

 

$

34,247,679 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock purchase plan

85,550 

 

 

855 

 

 

74,530 

 

 

 -

 

 

75,385 

Purchase of treasury stock

(41,321)

 

 

(413)

 

 

(40,017)

 

 

 -

 

 

(40,430)

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

stock bonus plan

263,691 

 

 

2,637 

 

 

145,115 

 

 

 -

 

 

147,752 

Compensation expense from

 

 

 

 

 

 

 

 

 

 

 

 

 

employee and director stock

 

 

 

 

 

 

 

 

 

 

 

 

 

option and common stock grants

 -

 

 

 -

 

 

1,022,597 

 

 

 -

 

 

1,022,597 

Net loss

 -

 

 

 -

 

 

 -

 

 

(10,688,312)

 

 

(10,688,312)

Balances at March 31, 2013

36,664,097 

 

$

366,641 

 

$

115,573,331 

 

$

(91,175,301)

 

$

24,764,671 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock purchase plan

62,421 

 

 

624 

 

 

60,065 

 

 

 -

 

 

60,689 

Issuance of common stock in follow-on

 

 

 

 

 

 

 

 

 

 

 

 

 

offering, net of offering costs

2,864,872 

 

 

28,649 

 

 

4,883,284 

 

 

 -

 

 

4,911,933 

Issuance of common stock under

 

 

 

 

 

 

 

 

 

 

 

 

 

stock bonus plan

166,231 

 

 

1,663 

 

 

34,836 

 

 

 -

 

 

36,499 

Issuance of common stock upon exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

of employee options

20,146 

 

 

201 

 

 

20,874 

 

 

 -

 

 

21,075 

Compensation expense from

 

 

 

 

 

 

 

 

 

 

 

 

 

employee and director stock

 

 

 

 

 

 

 

 

 

 

 

 

 

option and common stock grants

 -

 

 

 -

 

 

753,372 

 

 

 -

 

 

753,372 

Net loss

 -

 

 

 -

 

 

 -

 

 

(2,773,244)

 

 

(2,773,244)

Balances at March 31, 2014

39,777,767 

 

$

397,778 

 

$

121,325,762 

 

$

(93,948,545)

 

$

27,774,995