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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 31, 2003 [ ] Transition Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission File Number 1-10869 UQM
TECHNOLOGIES,
INC. (Exact name of registrant as specified in its charter) Colorado (State or other jurisdiction of incorporation or organization) 84-0579156 (I.R.S. Employer Identification No.) 7501 Miller Drive,
Frederick, Colorado 80530 (Address of principal executive offices) (Zip Code) (303)
278-2002 (Registrants telephone number, including area code) Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X
. No . Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act.) Yes.
No. X . The number of shares
outstanding (including shares held by affiliates) of the registrants common stock,
par value $0.01 per share at January 26,
2004 was 19,572,625. TABLE OF CONTENTS PART I - FINANCIAL
INFORMATION UQM TECHNOLOGIES, INC. AND SUBSIDIARIES December
31,2003 (Unaudited) $ 3,456,361 2,476,276 1,037,474 1,034,002 322,015 187,484 - 789,767 1,055,297 1,620,262 174,542 112,568 6,045,689 6,220,359 181,580 181,580 2,296,957 2,296,957 7,032,155 6,962,596 9,510,692 9,441,133 (5,660,312) (4,944,608) 3,850,380 4,496,525 760,610 751,473 24,205 24,205 $ 10,680,884 11,492,562 ======== ======== (Continued) UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued December 31,
2003 March 31, 2003 (Unaudited) $ 1,046,088 975,344 644,368 794,575 123,396 116,921 328,801 223,378 2,142,653 2,110,218 979,795 1,072,341 3,122,448 3,182,559 195,724 188,445 58,024,945 55,885,486 (50,260,103) (47,356,028) (384,300) (384,300) (17,830) (23,600) 7,558,436 8,310,003 $ 10,680,884 11,492,562 ======== ======== UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements
of Operations (unaudited) Quarter
Ended December 31, Nine
Months Ended December 31, 2003 2002 2003 2002 $ 870,210 837,769 2,209,514 2,225,811 748,429 2,864,068 4,435,682 10,321,589 1,618,639 3,701,837 6,645,196 12,547,400 682,335 719,831 1,793,256 1,931,419 1,018,853 3,232,954 4,704,798 10,359,600 97,892 - 394,405 111,408 632,480 919,045 1,925,034 2,911,764 688,815 - 688,815 - - 100,113 - 100,113 3,120,375 4,971,943 9,506,308 15,414,304 (1,501,736) (1,270,106) (2,861,112) (2,866,904) 7,886 6,099 18,956 21,591 (21,315) (15,463) (65,916) (46,366) 3,397 6,135 3,997 317,640 (10,032) (3,229) (42,963) 292,865 (1,511,768) (1,273,335) (2,904,075) (2,574,039) - - - (184,971) - - - (184,971) $ (1,511,768) (1,273,335) (2,904,075) (2,759,010) ======== ======== ======== ======== $ (.08) (.07) (.15) (.14) - - - (.01) $ (.08) (.07) (.15) (.15) == == == == 19,423,379 18,844,144 19,040,352 18,771,157 ======== ======== ======== ======== UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements
of Cash Flows (unaudited) Nine Months
Ended December 31, 2003 2002 $ (2,904,075) (2,574,039) 845,525 1,038,116 - (322,139) 688,815 - - 100,113 5,180 8,320 24,206 18,111 (138,003) 527,428 100,952 (17,289) 564,965 1,709,104 (61,974) 182,676 (79,463) (690,301) 105,423 140,801 (848,449) 120,901 (187,712) (284,479) 3,997 - - (1,049,692) (49,008) (60,765) (232,723) (1,394,936) - (2,254,000) (86,071) (1,677,980) - 1,225,000 2,127,401 4,435,212 5,770 5,275 14,157 9,104 2,061,257 1,742,611 980,085 468,576 - 277,245 980,085 745,821 2,476,276 1,411,509 $ 3,456,361 2,157,330 ======= ======= $ 66,312 71,566 ======= ======= UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to
Consolidated Financial Statements (unaudited) The accompanying consolidated financial statements are unaudited; however,
in the opinion of management, all adjustments, which were solely of a normal recurring
nature, necessary to a fair presentation of the results for the interim periods, have been
made. The results for the interim periods are not necessarily indicative of the results to
be expected for the fiscal year. The Notes contained herein should be read in conjunction
with the Notes to the Companys Consolidated Financial Statements filed on Form 10-K
for the year ended March 31, 2003. At December 31, 2003, the estimated period to complete contracts in
process ranged from one to twenty months, and the Company expects to collect substantially
all related accounts receivable arising therefrom within twenty-one months. Contracts in
process consist of the following: December 31, 2003 March 31, 2003 (unaudited) $ 2,058,590 1,903,214 508,775 619,403 2,567,365 2,522,617 (2,574,151) (2,558,511) $ (6,786) (35,894) ======= ======= $ 322,015 187,484 (328,801) (223,378) $ (6,786) (35,894) ======= ======= December 31, 2003 March 31, 2003 (unaudited) $ 684,823 1,118,944 266,846 136,683 103,628 364,635 $ 1,055,297 1,620,262 ======= ======= The Companys raw material inventory is subject to obsolescence and
potential impairment due to bulk purchases in excess of customer requirements. The Company
periodically assesses its inventory for recovery of its carrying value based on available
information, expectations and estimates and adjusts inventory carrying values for
estimated declines in the realizable value of its inventories. UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) December
31, 2003 March
31, 2003 (unaudited) $ 79,250 81,300 67,927 176,101 65,580 37,323 54,209 45,927 35,328 149,376 37,035 92,356 175,000 79,188 101,676 32,919 5,227 18,404 23,136 81,681 $ 644,368 794,575 ====== ====== As of December 31, 2003, the Company has 1,095,313 shares of common stock
available for future grant to key employees, consultants and key suppliers under its 2002
Equity Incentive Plan. Under the Plan, the exercise price of each option is set at the
fair market value of the common stock on the date of grant and the maximum term of the
option is 10 years from the date of grant. Options granted to employees vest ratably over
a three-year period. The maximum number of options that may be granted to any eligible
employee during the term of the 2002 Plan is 500,000 options. Forfeitures under the 2002
Equity Incentive Plan are available for re-issuance at any time prior to expiration of the
Plan in 2013. Options granted under the Companys plans to employees require the
option holder to abide by certain company policies, which restrict their ability to sell
the underlying common stock. Prior to the adoption of the 2002 Equity Incentive Plan the
Company issued stock options under its 1992 Incentive and Non-qualified Option Plan, which
expired by its terms in 2002. Forfeitures under the 1992 Incentive and Non-qualified
Option Plan may not be re-issued. The
following table summarizes activity under the plans for the nine months ended December 31,
2003: Weighted Shares Average Under Exercise
Option Price 2,778,128 $5.41 2,000 $2.54 (250,841) $6.31 2,529,287 $5.32 ======= 1,816,581 $5.95 ======= UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/03 Contractual Life Price at 12/31/03 Price $2.75
3.31 699,800 6.5 years $2.99 303,198 $3.31 $3.59 5.00 855,771 5.1 years $4.29 626,404 $4.35 $6.25 8.75 973,716 4.8 years $7.90 886,979 $7.98 $2.75 8.75 2,529,287 5.4 years $5.32 1,816,581 $5.95 ======= ======= In February 1994, the Companys Board of Directors ratified a Stock
Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive
stock options in lieu of cash compensation for their services as directors. As of December
31, 2003, the Company has 432,592 shares of common stock available for future grant under
the Plan. Option terms range from 3 to 10 years from the date of grant. Option prices
are equal to the fair market value of common shares at the date of grant. Forfeitures
under the Plan are available for re-issuance at a future date. The
following table summarizes activity under the plan for the nine months ended December 31,
2003: Weighted Shares Average Under Exercise Option Price 29,345 $4.41 17,596 $3.40 (4,808) $8.00 42,133 $3.58 ===== 42,133 $3.58 ===== Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/03 Contractual Life Price at 12/31/03 Price $2.55 3.40 34,080 2.5 years $2.99 34,080 $2.99 $5.85 8.00 8,053 1.4 years $6.07 8,053 $6.07 $2.55 8.00 42,133 2.3 years $3.58 42,133 $3.58 ===== ===== UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The Company periodically issues common stock or stock options to employees
and non-employees for services rendered. For common stock issuances, the cost of these
services is based upon the fair market value of the Companys common stock on the
date of issuance. For issuances of stock options to employees and directors, the Company
measures compensation cost using the intrinsic value method. Stock options granted to
non-employees are accounted for under the fair value method. Had the Company reported
compensation costs as determined by the fair value method of accounting for option grants
to employees and directors, net loss and net loss per common share would have been the pro
forma amounts indicated in the following table: Quarter
Ended December 31, 2003 2002 $ (1,511,768) (1,273,335) (2,904,075) (2,759,010) - - (11,526) (9,950) (189,429) (293,035) (618,876) (885,239) $ (1,701,197) (1,566,370) (3,534,477) (3,654,199) ======= ======= ======= ======= $ (.08) (.07) (.15) (.15) == == == == $ (.09) (.08) (.19) (.19) == == == == The fair value of stock options granted was calculated using the Black
Scholes option-pricing model based on the following weighted average assumptions: Quarter Ended
December 31, 2003 2002 2003 - - 49.1% 48.7% - - 0.0% 0.0% - - 2.6% 3.1% - - 4 years 4
years - - $1.44 $1.24 per
share per
share No options
were granted during the quarters ended December 31, 2003 and 2002. Future
pro forma compensation cost by fiscal year, assuming no additional grants by the Company
to employees and directors, is as follows: Fiscal Year
Ended March 31, Pro Forma
Compensation Expense 2004 $ 113,162 2005 $ 375,456 2006 $ 140,036 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) In October 2003, the Company completed a secondary offering of 720,000
shares of the Companys common stock. The placement agent was issued four-year
warrants to acquire 72,000 shares of the Companys common stock at an exercise price
of $3.96 per share. All of these warrants were outstanding at December 31, 2003. In April 2002, the Company completed a secondary offering of 1,160,095
shares of common stock together with two-year warrants to acquire an additional 232,019
shares of the Companys common stock. The warrants have an exercise price of $5.73
per share. The placement agent was issued four-year warrants to acquire 116,009 shares of
the Companys common stock at an exercise price of $5.17 per share. All of these
warrants were outstanding at December 31, 2003. In October 2001, the Company formalized a plan to close its contract gear
manufacturing business, which was part of its mechanical products segment. The operating results of this division for the quarters and nine months
ended December 31, 2003 and 2002 have been reported separately as discontinued operations
together with losses on the disposal of division assets. Loss from operations of
discontinued gear division also includes interest expense on debt used to acquire gear
manufacturing machinery and equipment but does not include allocations of general
corporate overheads which have been allocated to other business segments. All prior
periods presented have been restated to reflect the contract gear manufacturing division
as a discontinued operation. Net
sales and net loss from the discontinued gear division are shown in the following table: Quarter
Ended December 31, Nine
Months Ended December 31, 2002 2003 2002 $ - - - 127,239 $ - - - (184,971) Net loss per common share amounts are based on the weighted average number
of common shares outstanding during the quarters and nine months ended December 31, 2003
and 2002. Outstanding common stock options and warrants were not included in the
computation because the effect of such inclusion would be antidilutive. As of December 31,
2003, the Company had outstanding options to purchase 2,571,420 shares of its common stock
and warrants to purchase 420,028 shares of its common stock. Dilutive options and warrants
determined under the treasury stock method to acquire 89,301 shares and 12 shares of
common stock for the quarters ended December 31, 2003 and 2002, respectively, and 55,718
shares and 25 shares of common stock for the nine months ended December 31, 2003 and 2002,
respectively, were not included in the computation of diluted loss per share because to do
so would be antidilutive. UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The Company has three reportable segments: technology, mechanical products
and electronic products. The technology segment encompasses the Companys
technology-based operations including core research to advance its technology, application
engineering and product development and job shop production of prototype components. The
mechanical products segment encompasses the manufacture and sale of permanent magnet
motors. As discussed in note 6, the Company discontinued its gear operations in fiscal
year 2002 and accordingly the financial results of this operation are no longer reported
in continuing operations of the mechanical products segment in all periods presented. The
electronic products segment encompasses the manufacture and sale of wire harness
assemblies, electronic printed circuit board assemblies and electronic products.
Subsequent to the end of the quarter the Company announced its intentions to divest this
business segment during the quarter ending March 31, 2004, see also note 11 below.
Salaries of the executive officers and corporate general and administrative expense are
allocated equally to each segment. Corporate selling and marketing costs are allocated to
each segment based on usage. Intersegment sales or transfers which were eliminated upon consolidation
were $28,917 and $30,405 for the quarters ended December 31, 2003 and 2002, respectively,
and $78,541 and $89,838 for the nine months ended December 31, 2003 and 2002,
respectively. The Companys reportable segments are strategic business units that
offer different products and services. They are managed separately because each business
requires different business strategies. The following table summarizes significant financial statement information
for operations of each of the reportable segments for the quarter ended December 31, 2003: Mechanical Electronic Technology Products Products Total $ 968,879 218,302 431,458 1,618,639 6,850 1,036 - 7,886 (497) (20,818) - (21,315) (58,155) (32,639) (169,860) (260,654) (91,205) (52,487) (1,368,076) (1,511,768) 5,454,988 2,818,754 2,407,142 10,680,884 $ (29,640) (19,123) (6,073) (54,836) The following table summarizes significant financial statement information
for operations of each of the reportable segments for the quarter ended December 31, 2002: Mechanical Electronic Technology Products Products Total $ 1,117,812 1,110,452 1,473,573 3,701,837 5,910 189 - 6,099 - (15,463) - (15,463) (73,165) (54,634) (217,750) (345,549) (85,243) 55,547 (1,243,639) (1,273,335) 4,581,759 3,610,763 5,038,811 13,231,333 $ (83,250) (81,608) - (164,858) UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table summarizes significant financial statement information
for operations of each of the reportable segments for the nine months ended December 31,
2003: Mechanical Electronic Technology Products Products Total $ 2,708,581 1,567,519 2,369,096 6,645,196 15,743 3,213 - 18,956 (3,704) (62,212) - (65,916) (191,986) (134,158) (519,381) (845,525) (495,458) (58,686) (2,349,931) (2,904,075) 5,454,988 2,818,754 2,407,142 10,680,884 $ (132,108) (24,104) (80,508) (236,720) The following table summarizes significant financial statement information
for operations of each of the reportable segments for the nine months ended December 31,
2002: Mechanical Electronic Technology Products Products Total $ 2,603,012 3,390,283 6,554,105 12,547,400 21,005 586 - 21,591 - (39,078) (7,288) (46,366) (237,236) (148,874) (652,006) (1,038,116) (312,813) 79,527 (2,340,753) (2,574,039) (312,813) (105,444) (2,340,753) (2,759,010) 4,581,759 3,610,763 5,038,811 13,231,333 $ (305,993) (1,088,943) - (1,394,936) The Company has entered into employment agreements with two of its
officers, which expire December 31, 2007. The aggregate future compensation under the
employment agreements is $1,938,038. Lease
Commitments The Company has entered into operating lease agreements for office space
and equipment, which expire at various times through 2007. As of December 31, 2003, the
future minimum lease payments under operating leases with initial non-cancelable terms in
excess of one year are as follows: Fiscal Year
Ending March 31, 2004 $ 68,576 2005 299,405 2006 299,371 2007 288,564 $ 955,916 ====== UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Rental
expense under these leases totaled approximately $68,459 and $71,685 for the quarters
ended December 31, 2003 and 2002, respectively, and $206,910 and $338,349 for the nine
months ended December 31, 2003 and 2002, respectively. The
Company has lease commitments totaling $955,916 of which $919,623 is for the facility
lease of its wholly-owned subsidiary, UQM Electronics, Inc. which expires in March 2007.
The Company has guaranteed the payment of this facility lease obligation. See also note 11
below. Litigation The
Company filed a lawsuit in Circuit Court of St. Louis County, Missouri in June 2002
against Hussman Corporation, a wholly owned subsidiary of Ingersoll Rand Corporation, a
former contract manufacturing customer of its electronics product segment seeking payment
for inventory purchased on behalf of the customer and lost profits on a cancelled
production order. The Company was seeking damages of approximately $700,000 plus
attorneys fees and other costs. The customer filed various counterclaims, including
breach of contract. On January 16, 2004 the court issued a ruling that did not compel the
customer to honor its contract with the Company. As a result of this ruling ,
the Company has fully reserved for the recorded balance of inventory obligations of
certain customers during the quarter ended December 31, 2003, resulting in a charge of
$688,815. In
addition, the Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, and based on current available
information, the ultimate disposition of these matters is not expected to have a material
adverse effect on the Companys financial position, results of operations or cash
flow, although there can be no assurance that adverse developments in these matters could
not have a material impact on a future reporting period. Comprehensive
Income The
Companys comprehensive loss for the quarter and nine months ended December 31, 2003
and 2002 was equal to its net loss. Accumulated
comprehensive loss as of December 31, 2003 and March 31, 2003 consists entirely of foreign
currency translation adjustments relating to Taiwan UQM Electric Co., Ltd. When the
Company disposes of its ownership interest in Taiwan UQM, the Company will charge the
amount in accumulated comprehensive loss to operations as part of a realized gain or loss. (11) Subsequent
Event As described
in note 9 above, on January 16, 2004 the Company received an adverse ruling from a circuit
court regarding its ability to collect amounts due from former customers for inventory
purchased on their behalf. As a result, the Company fully reserved these obligations
during the quarter ended December 31, 2003. On January 22, 2004, the Company formalized a
plan to sell or close its contract electronics manufacturing business during the quarter
ending March 31, 2004. The Company expects to record a charge for discontinued operations
in the fourth quarter consisting of losses expected to be incurred on the disposition of
equipment and other assets, losses expected to be incurred in the satisfaction of
long-term lease commitments and expected losses for on-going operations during the winding
down of operations, including expected additional expenses for employee retention. ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS This Report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section 21E
of the Securities Exchange Act. These statements appear in a number of places in this
Report and include statements regarding our plans, beliefs or current expectations,
including those plans, beliefs and expectations of our officers and directors with respect
to, among other things the development of markets for our products; the charge to earnings
that will result from the sale or closure of the Companys contract electronics
manufacturing business during the quarter ending March 31, 2004; the adequacy of the
Companys cash balances and liquidity to meet future operating needs, and the ability
of the Company to issue equity or debt securities; the expected amount of future losses
from continuing operations; and the effect of legal actions and claims that the Company is
involved in. Important Risk Factors that could cause actual results to differ from those
contained in the forward-looking statements are listed below in Part II, Item 5 Other
Information. Financial Condition Cash and cash equivalents at December 31, 2003 were $3,456,361 compared
to $2,476,276 at March 31, 2003. The increase in cash and cash equivalents is primarily
attributable to the proceeds from the Companys secondary offering completed in
October 2003, which resulted in cash proceeds, net of offering costs, of $2,127,401. Accounts receivable increased $3,472 to $1,037,474 at December 31, 2003
from $1,034,002 at March 31, 2003. The increase is primarily attributable to slower
collections on trade receivables. Costs and estimated earnings on uncompleted contracts increased
$134,531 to $322,015 at December 31, 2003 from the fiscal 2003 year-end level of $187,484.
The increase is due to less favorable billing terms on certain engineering contracts in
process at December 31, 2003. Estimated earnings on contracts in process was $508,775 or
19.8 percent of contracts in process of $2,567,365 compared to estimated earnings on
contracts in process of $619,403 or 24.6 percent of contracts in process of $2,522,617 at
March 31, 2003. The decrease in estimated margins as a percentage of contracts in process
is attributable to anticipated cost overruns on certain engineering projects. Inventory obligations of certain customers decreased $789,767 to nil at
December 31, 2003. The decrease is primarily attributable to the Companys decision
to fully reserve these accounts coincident with an adverse court ruling on the
enforceability of the Companys purchase contracts. See also notes 9 and 11
above. Inventories declined $564,965 to $1,055,297 primarily due to lower
levels of raw materials and finished goods inventories, which declined $434,121 and
$261,007, respectively. The decline in inventories is attributable to reduced stocking
levels associated with lower production volumes, the purchase by a former customer of raw
material inventory held on their behalf and an increase in inventory reserves for obsolete
inventory. Prepaid expenses increased to $174,542 at December 31, 2003 from
$112,568 at March 31, 2003 reflecting higher premium costs on the Companys
commercial insurance coverages which are prepaid. The Company invested $187,712 for the acquisition of property and
equipment during the first nine months of the fiscal year compared to $284,479 for the
comparable period last year. The decrease in capital expenditures is primarily
attributable to planned reductions in capital spending. Accounts payable increased to $1,046,088 at December 31, 2003 from
$975,344 at March 31, 2003, primarily due to extended payment terms on selected inventory
purchases. Other current liabilities decreased $150,207 to $644,368 at December
31, 2003 from $794,575 at March 31, 2003. The decrease is primarily attributable to
lower levels of accrued raw material inventory purchases and accrued payroll and employee
benefits. Long-term debt, less current portion decreased $92,546 to $979,795 at
December 31, 2003 reflecting principal repayments on the Companys term bank debt on
the mortgage of its Frederick, Colorado facility. Billings in excess of costs and estimated earnings on uncompleted
contracts increased $105,423 to $328,801 at December 31, 2003 from $223,378 at March 31,
2003 reflecting billings on certain engineering contracts in advance of the performance of
the associated work. Common stock and additional paid-in capital at December 31, 2003
increased to $195,724 and $58,024,945, respectively, compared to $188,445 and $55,885,486
at March 31, 2003. The increases were primarily attributable to completion of a secondary
offering of 720,000 shares of common stock to institutional investors in North America and
Europe. Net cash proceeds to the Company from the offering were $2,127,401. Results of Operations Quarter Ended December 31, 2003 Operations for the quarter ended December 31, 2003, resulted in a net
loss of $1,511,768 or $0.08 per common share on total revenue of $1,618,639 compared to a
net loss of $1,273,335 or $0.07 per common share on total revenue of $3,701,837 for the
comparable quarter last year. Revenue from contract services rose $32,441 or 3.9 percent to $870,210
for the quarter ended December 31, 2003 compared to $837,769 for the comparable quarter
last year. The increase in contract services revenue is primarily attributable to higher
billing rate realization. Product sales for the quarter declined 73.9 percent to $748,429
compared to $2,864,068 for the comparable quarter last year. Mechanical products segment
revenue decreased $892,150 or 80.3 percent to $218,302 compared to $1,110,452 for the
comparable quarter last year due to decreased shipments of wheelchair motors arising from
the loss of a significant customer. Electronic products segment revenue for the quarter
declined by $1,042,115 or 70.7 percent to $431,458 due to reduced order levels from a
significant customer. Technology product sales decreased $181,374 to $98,669 for the
quarter ended December 31, 2003 compared to $280,043 for the prior year quarter due to
decreased shipments of propulsion systems for hybrid electric HUMVEEs. Consolidated gross profit margins for the third quarter increased to a
negative 5.1 percent compared to negative 6.8 percent for the comparable quarter last
year. Gross profit margin on contract services increased to 21.6 percent for the quarter
ended December 31, 2003 versus 14.1 percent for the comparable quarter last year. The
increase is primarily attributable to fewer charges for cost overruns on certain
engineering contracts during the current quarter versus the comparable quarter last year.
Gross profit margins on product sales during the third quarter declined to a negative 36.1
percent compared to a negative gross profit margin of 12.9 percent for the comparable
quarter last year due to decreased overhead absorption due to declining revenue levels. Research and development expense was $97,892 for the quarter ended
December 31, 2003 compared to nil for the comparable quarter last year primarily due to
internally funded development of a new micro-processor platform for the Companys
power electronic controls and production engineering costs associated with the production
launch of a new product for a customer. General and administrative expense for the quarter ended December 31,
2003 declined 31.2 percent to $632,480 compared to $919,045 for the comparable quarter
last year. The decrease is primarily attributable to cost reduction activities at UQM
Electronics. Loss on customer obligations was $688,815 for the quarter ended
December 31, 2003 compared to nil for the comparable quarter last year. The loss for the
quarter is attributable to the Companys decision to fully reserve the recorded
balance of inventory obligations of certain customers following an adverse court ruling on
the enforceability of the Companys purchase contracts. Write-down of assets was nil for the quarter ended December 31, 2003
compared to $100,113 for the comparable quarter last year. The prior year amount
represents the impairment of assets at the Companys electronics segment due to
under-utilization. Interest income increased to $7,886 for the third quarter compared to
$6,099 for the prior year third quarter. The increase is attributable to higher levels of
invested funds during the quarter versus the comparable quarter last year. Interest expense increased by $5,852 to $21,315 for the quarter ended
December 31, 2003 versus $15,463 for the comparable quarter last year. The increase is
attributable to higher average borrowings throughout the quarter versus the comparable
quarter last year. Nine Months Ended December 31, 2003 Continuing operations for the nine months ended December 31, 2003,
resulted in a loss of $2,904,075 or $0.15 per common share on total revenue of $6,645,196
compared to a loss from continuing operations of $2,574,039 or $0.14 per common share on
total revenue of $12,547,400 for the comparable period last year. Net loss for the nine
months ended December 31, 2003 was $2,904,075 or $ 0.15 per common share versus a net loss
of $2,759,010 or $0.15 per common share for the same period last year. Revenue from contract services for the nine months ended December 31,
2003 decreased $16,297 or 0.7 percent to $2,209,514 compared to $2,225,811 for the
comparable period last year. The decrease in contract services revenue is primarily
attributable to the application of engineering resources to internally funded research and
development programs. Product sales for the first nine months declined 57.0 percent to
$4,435,682 compared to $10,321,589 for the comparable period last year. Mechanical
products segment revenue for the nine months period decreased $1,822,764 or 53.8 percent
to $1,567,519 compared to $3,390,283 for the comparable period last year due to decreased
shipments of wheelchair motors. Electronic products segment revenue for the first nine
months declined by $4,185,009 or 63.9 percent to $2,369,096 from $6,554,105 for the same
period last year due to reduced order levels for several customers. Technology segment
product sales increased $121,866 or 32.3 percent to $499,067 for the nine months ended
December 31, 2003 compared to $377,201 for the same period last year due to increased
shipments of fuel cell air compressor drive motors and propulsion systems. Consolidated gross profit margins for the first nine months increased
to 2.2 percent compared to 2.0 percent for the comparable period last year. Gross profit
margin on contract services increased to 18.8 percent from 13.2 percent for the nine
months ended December 31, 2003 and 2002, respectively. The increase is primarily
attributable to lower levels of cost overruns in the current fiscal period versus the
prior year fiscal period. Gross profit margins on product sales during the first nine
months declined to a negative 6.1 percent compared to a negative 0.4 percent for the
comparable period last year. The decrease in margin on product sales is primarily
attributable to the write-down of electronic inventory of $140,000 during the period and
decreased production overhead absorption due to declining revenue levels. Research and development expense was $394,405 for the nine months ended
December 31, 2003 compared to $111,408 for the comparable period last year primarily due
to internally funded development of a new micro-processor platform for the Companys
power electronic controls, production engineering costs and an increase in cost-share type
contracts. General and administrative expense for the nine months ended December
31, 2003 declined 33.9 percent to $1,925,034 compared to $2,911,764 for the same period
last year. The decrease is primarily attributable to cost reduction activities at all
business units throughout the period. Loss on customer obligations was $688,815 for the nine months ended
December 31, 2003 compared to nil for the comparable period last year. The loss for the
period is attributable to the Companys decision to fully reserve the recorded
balance of inventory obligations of certain customers following an adverse court ruling on
the enforceability of the Companys purchase contracts. Write-down of assets was nil for the nine months ended December 31,
2003 compared to $100,113 for the comparable period last year. The prior year amount
represents the impairment of assets at the Companys electronics segment due to
under-utilization. Interest income declined to $18,956 for the first nine months compared
to $21,591 for the comparable prior year period. The decrease is attributable to lower
levels of invested cash and lower interest rates on invested funds during the current year
versus the comparable period last year. Interest expense increased by $19,550 to $65,916 for the first nine
months versus the comparable nine-month period last year. The increase is primarily
attributable to higher average borrowings throughout the nine-month period this year
versus the comparable period last year. Gain on sale of real estate and other assets was $3,997 for the nine
months ended December 31, 2003 compared to $317,640 for the comparable period last year.
The gain for the first nine months of this fiscal year resulted from the sale of property
and equipment. The gain for the first nine months of last fiscal year is attributable to
the recognition of deferred gain from the sale of the Companys former headquarters
facility. Results of Discontinued Operations In October 2001, the Company announced its intention to exit its
non-core contract gear manufacturing business. Loss from operations of the discontinued
gear division for the nine months ended December 31, 2002 was $184,971, or $0.01 per
common share. Liquidity and Capital Resources The Companys cash balances and liquidity throughout the nine
months ended December 31, 2003 were adequate to meet operating needs. At December 31,
2003, the Company had working capital (the excess of current assets over current
liabilities) of $3,903,036 compared to $4,661,106 at December 31, 2002. Net cash used by operating activities of continuing operations was
$848,449 for the nine months ended December 31, 2003 versus net cash provided by operating
activities of $120,901 for the comparable period last year. Cash used by operating
activities for the nine months is primarily attributable to higher levels of operating
losses and current assets and reduced levels of accounts payable and other current
liabilities during the period versus the comparable period last year. Net cash used by investing activities of continuing operations for the
nine months ended December 31, 2003 was $232,723 compared to $1,394,936 for the comparable
period last year. The decrease is primarily attributable to planned reductions in capital
spending and the expansion of the Companys Frederick, Colorado facility in the
comparable period last fiscal year. Net cash flows provided by financing activities of continuing
operations was $2,061,257 for the nine months ended December 31, 2003 versus $1,742,611
for the comparable period last year. The increase is primarily attributable to increased
levels of cash provided from equity offerings, net of debt repayments in the current
period versus the comparable period last year. The Companys operating results and liquidity during the quarter
were adversely impacted by the loss of a significant customer in its mechanical products
segment, and subsequent to the end of the third quarter, by an adverse court ruling,
resulting in the Companys decision to fully reserve the recorded balance of
inventory obligations from customers of $688,815 at December 31, 2003 at its electronic
products segment. In addition to these events, the Companys electronic products
business segment has continued to experience declining revenue and larger operating losses
coincident with a significant downturn in the contract electronics manufacturing sector.
As a result, the Company formalized a plan on January 22, 2004 to sell or close its
contract electronics manufacturing subsidiary on or before March 31, 2004. As a result of
this action, the Company expects to record a material charge for discontinued operations
in the fourth quarter reflecting losses expected to be incurred on the disposition of
equipment and other assets; losses expected to be incurred in the satisfaction of
long-term lease commitments; and expected losses for on-going operations during the
winding down of operations, including expected additional expenses for employee retention.
A portion of this charge will require funding from the Companys available cash
balances. Following the divestiture of this business, the Company expects losses from
continuing operations to decline to approximately $300,000 per quarter allowing it to
focus its management and cash resources on the development and commercialization of its
proprietary technology. The Company expects to have sufficient cash resources, following
the divestiture, to fund its operations for at least the next fifteen months. The Company expects to manage its operations and working capital
requirements to minimize the future level of operating losses and working capital usage,
however, we cannot provide assurance that we will be successful in achieving these
objectives. In addition, the Companys debt facilities require compliance with
certain financial covenants in order for the financing to continue to be available on a
long-term basis. At December 31, 2003 the Company was in compliance with all financial
covenants. In the event the Companys operating results are not sufficient to
maintain compliance with these covenants, the Company could experience a material adverse
change in liquidity. The Company is actively considering possible future acquisitions at any
given time and from time to time enters into non-binding letters of intent with respect to
possible acquisitions. The Company expects to continue its strategy of growing its
business through expanding its product line of permanent magnet motors and controllers,
designing and introducing new products for manufacture, seeking strategic alliances to
accelerate the commercialization of its technology and pursuing synergistic and accretive
acquisitions. The Company expects to finance its operations and future growth from
existing cash resources, cash flow from operations, if any, and through the issuance of
equity or debt securities or a combination thereof. There can, however, be no assurance
that existing cash resources will be sufficient to fund these objectives or that financing
or equity capital will be available on terms acceptable to the Company. In the event
existing cash resources are not sufficient to fund operations as currently configured, or
financing or equity capital to fund future growth is not available, the Company will
modify its strategy to align its operations with its then available financial resources. Critical Accounting Policies The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States requires
management to make judgments, assumptions and estimates that effect dollar values reported
in the Consolidated Financial Statements and accompanying notes. Estimates are used for,
but not limited to, allowance for doubtful accounts receivables, costs to complete
contracts, recoverability of inventories and warranty costs. Actual results could differ
materially from these estimates. The following critical accounting policies are impacted
significantly by judgments, assumptions and estimates used in preparation of the
Consolidated Financial Statements. Accounts Receivable The Companys trade accounts receivables are subject to credit
risks associated with the financial condition of its customers and their liquidity. The
Company evaluates all customers periodically to assess their financial condition and
liquidity and sets appropriate credit limits based on this analysis. As a result, the
collectibility of accounts receivable may change due to changing general economic
conditions and factors associated with each customers particular business. The
Company has established a reserve for potentially uncollectible trade accounts receivable
which is managements best estimate of the amount of trade accounts receivable that
it believes may become uncollectible at a future date due to the foregoing factors. At
December 31, 2003, the Company has recorded reserves for uncollectible trade accounts
receivable of $22,782. It is reasonably possible, that future events or changes in
circumstances could cause the realizable value of the Companys trade accounts
receivable to decline materially, resulting in additional material losses. Inventory Obligations of Certain Customers The Companys electronic products segment provides contract
manufacturing services for a variety of customers. Typically the Company requires its
customers to contractually commit to pay for any non-returnable or non-cancelable raw
material inventory purchased by the Company on behalf of its customers. The significant
economic downturn in the contract electronics manufacturing industry over the last two
years has caused originally scheduled or anticipated production runs to be reduced or
cancelled by customers resulting in substantial amounts of raw material inventory being
held by the Company for which current or former customers are contractually obligated. To
date several customers have failed to honor their contractual obligation to pay for
non-cancelable and non-returnable raw material purchased by the Company on their behalf.
Accordingly, the Company has reclassified this inventory, together with allowances for the
Companys best estimate of uncollectible amounts, in its financial statements. The
Company intended to pursue legal action against those customers who fail to honor their
contractual obligations to the Company. At December 31, 2003, one lawsuit had been
settled, one was pending and several others were being evaluated. On January 16, 2004, the
Circuit Court of Saint Louis County, Missouri issued a ruling in the pending lawsuit that
did not compel the customer to honor its contract with the Company. As a result of this
ruling, the Company recorded a charge of $688,815 in the quarter ended December 31, 2003
to fully reserve the recorded balance of inventory obligations of certain customers. Inventories The Company maintains raw material inventories of electronic
components, motor parts and other materials to meet its expected manufacturing needs for
proprietary products and for products manufactured to the design specifications of its
customers. Some of these components may become obsolete or impaired due to bulk purchases
in excess of customer requirements. Accordingly, the Company periodically assesses its raw
material inventory for potential impairment of value based on then available information,
expectations and estimates and establishes impairment reserves for estimated declines in
the realizable value of its inventories. The actual realizable value of the Companys
inventories may differ materially from these estimates based on future occurrences and any
resulting change in the Companys estimates. It is reasonably possible, that future
events or changes in circumstances could cause the realizable value of the Companys
inventories to decline materially, resulting in additional material impairment losses. Percentage of Completion Revenue Recognition on Long-term Contracts:
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts The Company recognizes revenue on the development projects funded by
its customers using the percentage-of-completion method. Under this method, contract
services revenue is based on the percentage that costs incurred to date bear to
managements best estimate of the total costs to be incurred to complete the project.
Many of these contracts involve the application of the Companys technology to
customers products and other applications with demanding specifications.
Managements best estimates have sometimes been adversely impacted by unexpected
technical challenges requiring additional analysis and redesign, failure of electronic
components to operate in accordance with manufacturers published performance
specifications, unexpected prototype failures requiring the purchase of additional parts
and a variety of other factors that may cause unforeseen delays and additional costs. It
is reasonably possible that total costs to be incurred on any of the projects in process
at December 31, 2003 could be materially different from managements estimates, and
any modification of managements 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. Asset Impairment The Company owns long-lived assets that are used in its operations. The
realizable value of these assets is dependent on the Companys ability to
productively utilize these assets in its operations. The Company periodically assesses the
deployment of its fixed assets for potential impairment in value based on then available
information, expectations and estimates and establishes impairment reserves for estimated
declines in realizable value below the carrying value of the assets. The actual realizable
value of the Companys long-lived assets may differ materially from these estimates
based on future occurrences and any resulting change in the Companys estimates. It
is reasonably possible that future events or changes in circumstances could cause the
realizable value of the Companys long-lived assets to decline materially, resulting
in material impairment losses. On January 22, 2004, the Company formalized a plan to sell
or close its contract electronics manufacturing business (see note 11 above). As a result
of this decision, the Company expects to record a material charge in the quarter ended
March 31, 2004, including the potential impairment of assets currently deployed in the
contract electronics manufacturing business. ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign currency exchange and interest rates. The Company
does not use financial instruments to any degree to manage these risks and does not hold
or issue financial instruments for trading purposes. All of the Companys product
sales, and related receivables are payable in U.S. dollars. The Company is subject to
interest rate risk on its debt obligations. One of the Companys long-term debt
obligations has a variable rate of interest indexed to the prime rate. The interest rate
on these instruments approximates current market rates as of December 31, 2003. A one
percent change in the prime interest rate would increase or decrease interest expense
annually by $2,069 based on outstanding borrowings at December 31, 2003 with adjustable
interest rate provisions. ITEM 4. CONTROLS AND PROCEDURES
Quarterly Controls Evaluation and Related CEO and CFO Certifications. We conducted an evaluation of the effectiveness of the design and
operation of our "disclosure controls and procedures" (Disclosure Controls) as
of the end of the period covered by this Quarterly Report. The controls evaluation was
done under the supervision and with the participation of management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO). Attached as exhibits to this Quarterly Report are certifications of the
CEO and the CFO, which are required in accord with Rule 13a-14 of the Exchange Act. This
Controls and Procedures section includes the information concerning the controls
evaluation referred to in the certifications and it should be read in conjunction with the
certifications for a more complete understanding of the topics presented. Definition of Disclosure Controls Disclosure Controls are controls and procedures designed to reasonably
assure that information required to be disclosed in our reports filed under the Exchange
Act, such as this Quarterly Report, is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms. Disclosure Controls are also
designed to reasonably assure that such information is accumulated and communicated to our
management, including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure. Our Disclosure Controls include components of our internal control
over financial reporting, which consists of control processes designed to provide
reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements in accordance with US generally accepted accounting
principles. To the extent that components of our internal control over financial reporting
are included within our Disclosure Controls, they are included in the scope of our
quarterly controls evaluation. Limitations on the Effectiveness of Controls The Companys management, including the CEO and CFO, does not
expect that our Disclosure Controls or our internal control over financial reporting will
prevent all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
systems objectives will be met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the controls. The design of any system of controls is based
in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or procedures.
Because of the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected. Scope of the Controls Evaluation The evaluation of our Disclosure Controls included a review of the
controls objectives and design, the Companys implementation of the controls
and the effect of the controls on the information generated for use in this Quarterly
Report. In the course of the controls evaluation, we sought to identify data errors,
controls problems or acts of fraud and confirm that appropriate corrective action,
including process improvements, were being undertaken. This type of evaluation is
performed on a quarterly basis so that the conclusions of management, including the CEO
and CFO, concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-Q and to supplement our disclosures made in our Annual Report on Form 10-K. Many
of the components of our Disclosure Controls are also evaluated on an ongoing basis by
personnel in our Finance organization, as well as our independent auditors who evaluate
them in connection with determining their auditing procedures related to their report on
our annual financial statements and not to provide assurance on our controls. The overall
goals of these various evaluation activities are to monitor our Disclosure Controls, and
to modify them as necessary. Among other matters, we also considered whether our evaluation
identified any "significant deficiencies" or "material weaknesses" in
our internal control over financial reporting, and whether the Company had identified any
acts of fraud involving personnel with a significant role in our internal control over
financial reporting. This information was important both for the controls evaluation
generally, and because item 5 in the certifications of the CEO and CFO require that the
CEO and CFO disclose that information to our Boards Audit Committee and to our
independent auditors. In the professional auditing literature, "significant
deficiencies" are referred to as "reportable conditions," which are
deficiencies in the design or operation of controls that could adversely affect our
ability to record, process, summarize and report financial data in the financial
statements. Auditing literature defines "material weakness" as a particularly
serious reportable condition where the internal control does not reduce to a relatively
low level the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and the risk that such
misstatements would not be detected within a timely period by employees in the normal
course of performing their assigned functions. Conclusions Based upon the controls evaluation, our CEO and CFO have concluded
that, subject to the limitations noted above, as of the end of the period covered by this
Quarterly Report, our Disclosure Controls were effective to provide reasonable assurance
that material information relating to the Company and its consolidated subsidiaries is
made known to management, including the CEO and CFO. Litigation The Company filed a lawsuit in Circuit
Court of St. Louis County, Missouri in June 2002 against Hussman Corporation, a wholly
owned subsidiary of Ingersoll Rand Corporation and a former contract manufacturing
customer of its electronics product segment, seeking payment for inventory purchased on
behalf of the customer and lost profits on a cancelled production order. The Company was
seeking damages of approximately $700,000 plus attorneys fees and other costs. The
customer filed various counterclaims, including breach of contract. On January 16, 2004,
the court issued a ruling that did not compel the customer to honor its contract with the
Company and dismissing the claims of both parties. As a result of this ruling,
the Company has fully reserved for the recorded balance of inventory obligations of
certain customers during the quarter ended December 31, 2003, resulting in a charge of $
688,815. In addition, the Company is involved in
various claims and legal actions arising in the ordinary course of business. In the
opinion of management, and based on current available information, the ultimate
disposition of these matters is not expected to have a material adverse effect on the
Companys financial position, results of operations or cash flow, although there can
be no assurance that adverse developments in these matters could not have a material
impact on a future reporting period. The following risk factors are applicable to our business: We have incurred significant operating losses and may continue to do so. We have incurred significant operating losses as shown in the following
tables: Quarter
Ended December 31, Nine
Months Ended December 31, 2003 2002 2003 2002 $ 1,511,768 $ 1,273,335 $ 2,904,075 $ 2,759,010 Fiscal
Years Ended March
31, 2003 2002 2001 $ 3,598,650 $ 8,592,655 $ 3,140,122 We have had accumulated deficits as follows: $ 50,260,103 March 31, 2003 $ 47,356,028 In the future, we plan to make additional investments in product
development and commercialization, which is likely to cause us to remain unprofitable. Our operating losses and working capital requirements could consume our
current cash balances. We had a net loss of $2,904,075 during the nine months ended December
31, 2003. Cash balances stood at $3,456,361 at December 31, 2003. In January 2004, we
announced our intention to sell or close our contract electronics manufacturing business.
As a result, we expect to incur a charge in the fourth quarter reflecting losses expected
to be incurred on the disposition of equipment, and other assets; losses expected to be
incurred in the satisfaction of long-term lease commitments; and expected losses for
on-going operations during the winding down of operations, including expected additional
expenses for employee retention. A portion of this charge will require funding from the
Companys available cash balances. Following the divestiture we expect our losses to
decline to approximately $300,000 per quarter. If our losses continue at this level, they
could consume some or all of our cash balances. During several fiscal years prior to the
fiscal years ended March 31, 2003 and 2002, we experienced substantial growth in our
revenue, which increased our working capital requirements. Should future growth resume at
a similar rate or an accelerated rate, the working capital requirements to fund our
operations and pursue acquisition opportunities may consume our existing cash balances. We have formalized a plan to sell or close our contract electronics
manufacturing subsidiary in the fourth quarter. The losses associated with this
divestiture could be greater than our estimates. On January 22, 2004, we formalized a plan to sell or close our contract
electronics manufacturing subsidiary, UQM Electronics, Inc. We expect to complete the
divestiture by March 31, 2004. As a result, we expect to record a charge for discontinued
operations in the fourth quarter reflecting losses expected to be incurred on the
disposition of equipment, and other assets; losses expected to be incurred in the
satisfaction of long-term lease commitments; and expected losses for on-going operations
during the winding down of operations, including expected additional expenses for employee
retention. A portion of this charge will require funding from the Companys available
cash balances. Changes in circumstances, market conditions and future events could cause
our estimate to change materially, causing a material adverse change in our financial
condition, results of operations and liquidity. Our government contracts can be cancelled with little or no notice and
could restrict our ability to commercialize our technology. Some of our technology has been developed under government funding by
United States government agencies. In some cases, government agencies in the United States
can require us to obtain or produce components for our systems from sources located in the
United States rather than foreign countries. Our contracts with government agencies are
also subject to the risk of termination at the convenience of the contracting agency and
in some cases grant "march-in" rights to the government. March-in rights are the
right of the United States government or the applicable government agency, under limited
circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to
any technology developed under contracts funded by the government to facilitate
commercialization of technology developed with government funding. March-in rights can be
exercised if we fail to commercialize the developed technology. The implementation of
restrictions on our sourcing of components or the exercise of march-in rights by the
government or an agency of the government could restrict our ability to commercialize our
technology. We face intense competition in our motor development and may be unable
to compete successfully. In developing electric motors for use in vehicles and other
applications, we face competition from very large domestic and international companies,
including the worlds largest automobile manufacturers. These companies have far
greater resources to apply to research and development efforts than we have, and they may
independently develop motors that are technologically more advanced than ours. If we are unable to protect our patents and other proprietary
technology, we will be unable to prevent third parties from using our technology, which
would impair our competitiveness and ability to commercialize our products. In addition,
the cost of enforcing our proprietary rights may be expensive and result in increased
losses. Our ability to compete effectively against other companies in our
industry will depend, in part, on our ability to protect our proprietary technology.
Although we have attempted to safeguard and maintain our proprietary rights, we do not
know whether we have been or will be successful in doing so. We have historically pursued
patent protection in a limited number of foreign countries where we believe significant
markets for our products exist or where potentially significant competitors have
operations. It is possible that a substantial market could develop in a country where we
have not received patent protection and under such circumstances our proprietary products
would not be afforded legal protection in these markets. Further, our competitors may
independently develop or patent technologies that are substantially equivalent or superior
to ours. We cannot assure you that additional patents will be issued to us or, if they are
issued, as to the scope of their protection. Patents granted may not provide meaningful
protection from competitors. Even if a competitors products were to infringe patents
owned by us, it would be costly for us to pursue our rights in an enforcement action, it
would divert funds and resources which otherwise could be used in our operations and we
cannot assure that we would be successful in enforcing our intellectual property rights.
In addition, effective patent, trademark, service mark, copyright and trade secret
protection may not be available in every country where we may operate or sell our products
in the future. If third parties assert technology infringement claims against us, the
defense of the claims could involve significant legal costs and require our management to
divert time and attention from our business operations. If we are unsuccessful in
defending any claims of infringement, we may be forced to obtain licenses or to pay
royalties to continue to use our technology. We may not be able to obtain any necessary
licenses on commercially reasonable terms or at all. If we fail to obtain necessary
licenses or other rights, or if these licenses are costly; our results of operations may
suffer either from reductions in revenues through our inability to serve customers or from
increases in costs to license third-party technologies. Use of our motors in vehicles could subject us to product liability
claims, and product liability insurance claims could cause an increase in our insurance
rates or could exceed our insurance limits, which could impair our financial condition,
results of operations and liquidity. Because some of our motors are designed to be used in vehicles, and
because vehicle accidents can cause injury to persons and property, we are subject to a
risk of claims for product liability. We carry product liability insurance of $1 million
covering all of our products. If we were to experience a large insured loss, it might
exceed our coverage limits, or our insurance carriers could decline to further cover us or
raise our insurance rates to unacceptable levels, any of which could impair our financial
position and results of operations. (a) Exhibits 10.1
Employment Agreement between the Company and William G. Rankin 10.2 Employment Agreement between the Company and Donald A. French 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form
8-K Report
regarding the execution of an underwriting agreement pursuant to which the Company sold
720,000 shares of common stock filed October 16, 2003. Report regarding the loss of a significant customer filed December 17,
2003. Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized UQM
Technologies, Inc. Registrant Date: January
28,2004 By: "Donald
A. French" Donald A. French Treasurer (Principal Financial and Accounting Officer) Exhibit 10.1
UQM TECHNOLOGIES, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of December 15, 2003, by and between UQM
TECHNOLOGIES, INC. f/k/a UNIQUE MOBILITY, INC., a corporation organized under the laws
of Colorado ("Employer"), and William G. Rankin, an adult resident of Golden,
Colorado ("Executive"). WHEREAS, Executive is currently a party to an Employment Agreement with Employer
dated January 1, 2003 (the "Old Agreement"); and WHEREAS, Executive and Employer wish to replace the Old Agreement with this
Agreement: NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions
hereinafter set forth, Employer and Executive agree as follows:
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first
above written. EXECUTIVE: ______________________________________ William G. Rankin EMPLOYER: UQM TECHNOLOGIES, INC. By: ______________________its Treasurer Donald A. French Exhibit 10.2
UQM TECHNOLOGIES, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of December 15, 2003, by and between UQM
TECHNOLOGIES, INC. f/k/a UNIQUE MOBILITY, INC., a corporation organized under the laws
of Colorado ("Employer"), and Donald A. French, an adult resident of Aurora,
Colorado ("Executive"). WHEREAS, Executive is currently a party to an Employment Agreement with Employer
dated January 1, 2003 (the "Old Agreement"); and WHEREAS, Executive and Employer wish to replace the Old Agreement with this
Agreement: NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions
hereinafter set forth, Employer and Executive agree as follows:
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first
above written.
EXECUTIVE:
______________________________________
Donald A. French
EMPLOYER: UQM TECHNOLOGIES, INC.
By: _________________________its President
William G. Rankin Exhibit 31.1 Certification I
ITEM 1: FINANCIAL STATEMENTS
March 31, 2003
Assets
Current assets:
Cash and cash
equivalents
Accounts receivable
Costs and estimated earnings in
excess of
billings on uncompleted contracts
(note 2)
Inventory obligations of certain
customers, net (note 9)
Inventories (note 3)
Prepaid expenses and other current
assets
Total current assets
Property and equipment, at cost:
Land
Building
Machinery and equipment
Less accumulated depreciation
Net property and equipment
Patent and trademark costs, net of
accumulated
amortization of $316,089 and
$276,218
Other assets
Liabilities and
Stockholders Equity
Current liabilities:
Accounts payable
Other current liabilities (note 4)
Current portion of long-term debt
Billings in excess of costs and
estimated
earnings on uncompleted contracts
(note 2)
Total current liabilities
Long-term debt, less current
portion
Total liabilities
Stockholders equity (notes 5
& 10):
Common stock, $.01 par value,
50,000,000
shares authorized; 19,572,403 and
18,844,515 shares issued and
outstanding
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive
loss
Note receivable from officer
Total stockholders equity
Commitments (note 9)
See accompanying notes to
consolidated financial statements
Revenue:
Contract services
Product sales
Operating costs and expenses:
Costs of contract services
Costs of product sales
Research and development
General and administrative
Loss on customer obligations
Write-down of assets
Loss from continuing operations
before
other income (expense)
Other income (expense):
Interest income
Interest expense
Gain on sale of real estate and
other assets
Loss from continuing operations
Discontinued operations (note 6):
Loss on disposal of gear division
including
operating losses during phase-out
period
Net loss
Net loss per common share - basic
and
diluted (note 7):
Continuing operations
Discontinued operations
Weighted average number of shares
of common
stock outstanding-basic and
diluted (note 7)
See accompanying notes to
consolidated financial statements.
Cash flows from operating
activities of continuing operations:
Loss from continuing operations
Adjustments to reconcile loss
from continuing operations to net cash
provided (used) by operating
activities of continuing operations:
Depreciation and amortization
Deferred gain on sale of real
estate
Loss on customer obligations
Write-down of assets
Non-cash compensation expense for
common stock issued
for services
Loss on disposal of property and
equipment
Change in operating assets and
liabilities:
Accounts receivable and costs and
estimated earnings in
excess of billings on uncompleted
contracts
Inventory obligations of certain
customers
Inventories
Prepaid expenses and other current
assets
Accounts payable and other current
liabilities
Billings in excess of costs and
estimated earnings on
uncompleted contracts
Net cash provided (used) by operating
activities
Cash flows from investing
activities of continuing operations:
Acquisition of property and
equipment
Proceeds from sale of property
and equipment
Expansion of facility
Increase in patent and trademark
costs
Net cash used by investing activities
Cash flows from financing
activities of continuing operations:
Repayments on revolving
line-of-credit, net
Repayment of debt
Proceeds from borrowing
Issuance of common stock in
secondary offering, net of offering costs
Issuance of common stock upon
exercise of employee options, net of
note repayments
Issuance of common stock under
employee stock purchase plan
Net cash provided by financing activities
Cash provided by continuing
operations
Net cash provided by discontinued
operations
Increase in cash and cash
equivalents
Cash and cash equivalents at
beginning of period
Cash and cash equivalents at end
of period
Interest paid in cash
during the period
See accompanying
notes to consolidated financial statements.
( 1)
( 2)
Costs incurred on uncompleted
contracts
Estimated earnings
Less billings to date
Included in the accompanying
balance sheets as follows:
Costs and estimated earnings in
excess of billings on
uncompleted contracts
Billings in excess of costs and
estimated earnings on
uncompleted contracts
( 3)
Inventories consist
of:
Raw materials
Work-in-process
Finished products
( 4)
Other current
liabilities consist of:
Accrued legal and accounting fees
Accrued payroll and employee
benefits
Accrued personal property and real
estate taxes
Accrued warranty costs
Accrued raw material purchases
Accrued losses on engineering
contracts
Customer deposits
Accrued rents
Accrued royalties
Other
( 5)
Common Stock Options
and Warrants
Incentive and
Non-Qualified Option Plans
Outstanding at March 31, 2003
Granted
Forfeited
Outstanding at December 31, 2003
Exercisable at December 31, 2003
The following table
presents summarized information about stock options outstanding at December 31, 2003:
Options
Outstanding
Options
Exercisable
Non-Employee
Director Stock Option Plan
Outstanding at March 31, 2003
Granted
Forfeited
Outstanding at December 31, 2003
Exercisable at December 31, 2003
The following table
presents summarized information about stock options outstanding for non-employee
directors:
Options
Outstanding
Options
Exercisable
Nine Months Ended
December 31,
2003
2002
Net loss - as reported
Deduct: Additional stock-based
employee
compensation expense determined
under
fair value method for all awards,
net of
related tax effects:
Current period option grants
Prior period option grants
Pro forma net loss
Earnings per share:
Basic and diluted-as reported
Basic and diluted-pro forma
Nine Months Ended December 31,
2002
Expected volatility
Expected dividend yield
Risk free interest rate
Expected life of options granted
Fair value of options granted as
computed
under the Black Scholes
option-pricing model
Warrants
( 6)
Discontinued
Operations
2003
Net sales
Net loss
( 7)
Earnings per Share
( 8)
Segments
Revenue
Interest income
Interest expense
Depreciation and amortization
Net loss
Total segment assets
Capital expenditures for segment assets
Revenue
Interest income
Interest expense
Depreciation and amortization
Net earnings (loss)
Total segment assets
Capital expenditures for segment assets
Revenue
Interest income
Interest expense
Depreciation and amortization
Net loss
Total segment assets
Capital expenditures for segment
assets
Revenue
Interest income
Interest expense
Depreciation and amortization
Earnings (loss) from continuing
operations
Net loss
Total segment assets
Capital expenditures for segment
assets
( 9)
Commitments and
Contingencies
Employment
Agreements
(10)
Net Loss
Net Loss
December 31, 2003
1. | I have reviewed this quarterly report on Form 10 -Q of UQM Technologies, Inc.: |
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2. | Based on my knowledge , this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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3. | Based on my knowledge , the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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4. | The registrant 's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
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a. | Designed such disclosure controls and procedures , or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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b. | Evaluated the effectiveness of the registrant 's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
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c. | Disclosed in this quarterly report any change in the registrant 's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. | The registrant 's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant 's ability to record, process, summarize and report financial information; and |
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b. | Any fraud , whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: January 28, 2003 |
/s/ William G. Rankin |
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William G. Rankin |
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Chairman , President and |
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Chief Executive Officer |
Exhibit 31.2
Certification
I
, Donald A. French, certify that:1. | I have reviewed this quarterly report on Form 10 -Q of UQM Technologies, Inc.: |
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2. | Based on my knowledge , this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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3. | Based on my knowledge , the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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4. | The registrant 's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
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a. | Designed such disclosure controls and procedures , or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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b. | Evaluated the effectiveness of the registrant 's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
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c. | Disclosed in this quarterly report any change in the registrant 's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. | The registrant 's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant 's ability to record, process, summarize and report financial information; and |
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b. | Any fraud , whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: January 28 , 2003 |
/s/ Donald A. French |
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Donald A. French |
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Treasurer , Secretary and |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES
-OXLEY ACT OF 2002In connection with the Quarterly Report of UQM Technologies, Inc. (the "Company") on Form 10-Q for the quarterly period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ William G. Rankin |
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William G. Rankin |
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Chairman , President and Chief Executive Officer |
/s/ Donald A. French |
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Donald A. French |
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Treasurer , Secretary and Chief Financial Officer |
Dated: January 28
, 2003