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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the quarterly period ended September 30, 2007 [ ] Transition Report pursuant to Section 13 or 15
(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission File Number 1-10869 UQM
TECHNOLOGIES,
INC. (Exact name of registrant, as specified in its charter) Colorado (State or other jurisdiction of incorporation or organization) 84-0579156 (I.R.S. Employer Identification No.) 7501 Miller
Drive, Frederick, Colorado 80530 (Address of principal executive offices) (Zip code) (303)
278-2002 (Registrant's telephone number, including area code) ________________________________________________________ (Former name, former address and former fiscal year, if
changed since last report.) 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 a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule
12b-2 of the Exchange Act.) (Check one): Large accelerated filer
Accelerated
filer X
Non-accelerated
filer Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act.) Yes No X
The number of shares outstanding (including shares held by
affiliates) of the registrant's common stock, par value $0.01 per share on
October 30, 2007 was 26,600,870.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES toc
Consolidated Balance Sheets (unaudited)
September 30, 2007 |
March 31, 2007 |
|||||||||||||||||
Assets |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and cash equivalents |
$ 3,798,008 |
1,952,177 |
||||||||||||||||
Short-term investments |
7,277,000 |
5,981,828 |
||||||||||||||||
Accounts receivable |
1,843,183 |
1,434,686 |
||||||||||||||||
Accounts receivable from discontinued operations |
26,266 |
76,097 |
||||||||||||||||
Costs and estimated earnings in excess of billings on |
|
|
||||||||||||||||
uncompleted contracts |
203,556 |
|
187,913 |
|||||||||||||||
Inventories |
1,014,538 |
899,885 |
||||||||||||||||
Prepaid expenses and other current assets |
318,516 |
279,343 |
||||||||||||||||
Total current assets |
14,481,067 |
10,811,929 |
||||||||||||||||
Property and equipment, at cost: |
||||||||||||||||||
Land |
181,580 |
181,580 |
||||||||||||||||
Building |
2,428,895 |
2,306,154 |
||||||||||||||||
Machinery and equipment |
3,384,621 |
3,152,296 |
||||||||||||||||
5,995,096 |
5,640,030 |
|||||||||||||||||
Less accumulated depreciation |
(3,156,996 ) |
(2,977,305 ) |
||||||||||||||||
Net property and equipment |
2,838,100 |
2,662,725 |
||||||||||||||||
Patent and trademark costs, net of accumulated |
||||||||||||||||||
amortization of $650,138 and $622,320 |
485,184 |
482,303 |
||||||||||||||||
Other assets |
54,666 |
55,650 |
||||||||||||||||
Total assets |
$ 17,859,017 |
14,012,607 |
||||||||||||||||
(Continued) |
||||||||||||||||||
See accompanying notes to consolidated financial statements. |
September 30, 2007 |
March 31, 2007 |
||||||||||||||
Liabilities and Stockholders' Equity |
|||||||||||||||
Current liabilities: |
|||||||||||||||
Accounts payable |
$ 549,027 |
982,931 |
|||||||||||||
Other current liabilities |
321,822 |
344,952 |
|||||||||||||
Current portion of long-term debt |
102,346 |
98,760 |
|||||||||||||
Short-term deferred compensation under executive employment |
|||||||||||||||
agreements |
340,437 |
149,325 |
|||||||||||||
Liabilities and commitments of discontinued operations |
- |
13,847 |
|||||||||||||
Billings in excess of costs and estimated earnings on |
|||||||||||||||
uncompleted contracts |
963,542 |
312,537 |
|||||||||||||
Total current liabilities |
2,277,174 |
1,902,352 |
|||||||||||||
Long-term debt, less current portion |
470,994 |
522,925 |
|||||||||||||
Long-term deferred compensation under executive employment agreements |
603,200 |
396,214 |
|||||||||||||
1,074,194 |
919,139 |
||||||||||||||
Total liabilities |
3,351,368 |
2,821,491 |
|||||||||||||
Commitments and contingencies |
|||||||||||||||
Stockholders' equity: |
|||||||||||||||
Common stock, $.01 par value, 50,000,000 |
|||||||||||||||
shares authorized; 26,508,882 and 25,176,889 shares |
|||||||||||||||
issued and outstanding |
265,089 |
251,769 |
|||||||||||||
Additional paid-in capital |
76,948,320 |
71,376,462 |
|||||||||||||
Accumulated deficit |
(62,705,760) |
(60,437,115) |
|||||||||||||
Total stockholders' equity |
14,507,649 |
11,191,116 |
|||||||||||||
Total liabilities and stockholders' equity |
$ 17,859,017 |
14,012,607 |
|||||||||||||
See accompanying notes to consolidated financial statements. |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited) toc
Quarter Ended September 30, |
Six Months Ended September 30, |
|||||||||||
2007 |
2006 |
2007 |
2006 |
|||||||||
Revenue: |
|
|||||||||||
Contract services |
$ 581,429 |
679,126 |
1,096,179 |
1,503,480 |
||||||||
Product sales |
1,409,162 |
935,092 |
2,348,864 |
1,412,070 |
||||||||
1,990,591 |
1,614,218 |
3,445,043 |
2,915,550 |
|||||||||
Operating costs and expenses: |
||||||||||||
Costs of contract services |
418,442 |
613,130 |
879,588 |
1,268,255 |
||||||||
Costs of product sales |
1,208,247 |
879,248 |
2,172,650 |
1,403,324 |
||||||||
Research and development |
128,175 |
79,330 |
226,499 |
174,481 |
||||||||
Production engineering |
403,422 |
232,517 |
949,455 |
480,889 |
||||||||
Selling, general and administrative |
1,082,529 |
780,322 |
1,712,365 |
1,452,839 |
||||||||
3,240,815 |
2,584,547 |
5,940,557 |
4,779,788 |
|||||||||
Loss from continuing operations before other |
||||||||||||
income (expense) |
(1,250,224) |
(970,329) |
(2,495,514) |
(1,864,238) |
||||||||
Other income (expense): |
||||||||||||
Interest income |
120,683 |
117,559 |
244,122 |
238,211 |
||||||||
Interest expense |
(10,353) |
(12,160) |
(21,253) |
(24,587) |
||||||||
Gain on sale of property and equipment |
- |
- |
4,000 |
- |
||||||||
110,330 |
105,399 |
226,869 |
213,624 |
|||||||||
Loss from continuing operations |
(1,139,894) |
(864,930) |
(2,268,645) |
(1,650,614) |
||||||||
Discontinued operations - loss from operations of |
||||||||||||
discontinued electronic products segment |
- |
(14,640 ) |
- |
(16,752) |
||||||||
Net loss |
$(1,139,894) |
(879,570 ) |
(2,268,645 ) |
(1,667,366 ) |
||||||||
Net loss per common share - basic and diluted |
||||||||||||
Continuing operations |
$ (.04) |
(.04) |
(.09) |
(.07) |
||||||||
Discontinued operations |
- |
- |
- |
- |
||||||||
$ (.04) |
(.04) |
(.09) |
(.07) |
|||||||||
Weighted average number of shares of common |
||||||||||||
stock outstanding - basic and diluted |
26,483,797 |
25,137,888 |
25,872,523 |
25,082,358 |
||||||||
See accompanying notes to consolidated financial statements. |
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited) toc
Six Months Ended September 30, |
|||||||||||||||
2007 |
2006 |
||||||||||||||
Cash flows from operating activities of continuing operations: |
|||||||||||||||
Net loss |
$(2,268,645) |
(1,667,366) |
|||||||||||||
Loss from discontinued operations |
- |
16,752 |
|||||||||||||
Loss from continuing operations |
(2,268,645) |
(1,650,614) |
|||||||||||||
Adjustments to reconcile loss from continuing operations to net cash |
|||||||||||||||
used in operating activities of continuing operations: |
|||||||||||||||
Depreciation and amortization |
216,794 |
206,666 |
|||||||||||||
Gain on disposal of property and equipment |
(4,000) |
- |
|||||||||||||
Non-cash compensation expense for common stock |
|||||||||||||||
issued for services |
312,125 |
474,384 |
|||||||||||||
Change in operating assets and liabilities: |
|||||||||||||||
Accounts receivable and costs and estimated earnings in |
|||||||||||||||
excess of billings on uncompleted contracts |
(424,140) |
(364,982) |
|||||||||||||
Inventories |
(114,653) |
(375,107) |
|||||||||||||
Prepaid expenses and other current assets |
(39,173) |
(121,966) |
|||||||||||||
Other assets |
1,548 |
- |
|||||||||||||
Accounts payable and other current liabilities |
(457,034) |
(259,856) |
|||||||||||||
Billings in excess of costs and estimated earnings on |
|||||||||||||||
uncompleted contracts |
651,005 |
150,468 |
|||||||||||||
Deferred compensation under executive employment |
|||||||||||||||
agreements |
398,098 |
73,525 |
|||||||||||||
Net cash used in operating activities |
(1,728,075) |
(1,867,482) |
|||||||||||||
Cash flows from investing activities of continuing operations: |
|||||||||||||||
Purchases of short-term investments, net |
(1,295,172) |
(740,365) |
|||||||||||||
Increase in other long-term assets |
(564) |
- |
|||||||||||||
Acquisition of property and equipment |
(364,351) |
(319,367) |
|||||||||||||
Proceeds from sale of property and equipment |
4,000 |
- |
|||||||||||||
Increase in patent and trademark costs |
(30,699 ) |
(6,172 ) |
|||||||||||||
Net cash used in investing activities |
(1,686,786) |
(1,065,904) |
|||||||||||||
Cash flows from financing activities of continuing operations: |
|||||||||||||||
Repayment of debt |
(48,345) |
(45,004) |
|||||||||||||
Issuance of common stock in private placement, net of placement |
|
||||||||||||||
costs |
5,183,677 |
- |
|||||||||||||
Issuance of common stock upon exercise of stock options |
56,675 |
614,072 |
|||||||||||||
Issuance of common stock upon exercise of warrants |
- |
427,795 |
|||||||||||||
Issuance of common stock under employee stock purchase plan |
32,701 |
6,195 |
|||||||||||||
Net cash provided by financing activities |
5,224,708 |
1,003,058 |
|||||||||||||
Net cash provided by (used in) continuing operations |
1,809,847 |
(1,930,328) |
|||||||||||||
Discontinued operations - net cash provided by (used in) operating |
|||||||||||||||
activities |
35,984 |
(52,810 ) |
|||||||||||||
Increase (decrease) in cash and cash equivalents |
1,845,831 |
(1,983,138) |
|||||||||||||
Cash and cash equivalents at beginning of period |
1,952,177 |
4,076,806 |
|||||||||||||
Cash and cash equivalents at end of period |
$ 3,798,008 |
2,093,668 |
|||||||||||||
Supplemental cash flow information: |
|||||||||||||||
Interest paid in cash during the period |
$ 21,524 |
24,866 |
See accompanying notes to consolidated financial statements.
( 1) |
The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim periods, have been made. Certain prior year amounts have been reclassified to conform to the current period presentation. 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 our Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2007. |
( 2) |
Stock-Based Compensation |
Stock Option Plans As of September 30, 2007 we had 1,188,081 shares of common stock available for future grant to employees, consultants and key suppliers under our 2002 Equity Incentive Plan ("Plan"). Under the Plan, the exercise price of each option is set at the fair 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 generally vest ratably over a three-year period. The maximum number of options that may be granted to any eligible employee under the Plan in any calendar year is 500,000 options. Forfeitures under the Plan are available for re-issuance at any time prior to expiration of the Plan in 2013. Options granted under the Plan to employees require the option holder to abide by certain Company policies, which restrict their ability to sell the underlying common stock. There were options to purchase 106,159 and 119,605 shares of common stock granted under the Plan during the quarters and six month periods ended September 30, 2007 and 2006, respectively. Prior to the adoption of the Plan, we issued stock options under our 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. Non-Employee Director Stock Option Plan In February 1994 our Board of Directors ratified a Stock Option Plan for Non-Employee Directors ("Directors Plan") pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. As of September 30, 2007, we had 360,441 shares of common stock available for future grant under the Directors Plan. Option terms range from 3 to 10 years from the date of grant. There were options to purchase 24,039 and 23,739 shares of common stock granted under the Directors Plan during the quarters and six month periods ended September 30, 2007 and 2006, respectively. Option exercise prices are equal to the fair value of the common shares on the date of grant. Options granted under the plan generally vest immediately. Forfeitures under the Directors Plan are available for re-issuance at a future date. Stock Purchase Plan We have established a Stock Purchase Plan under which eligible employees may contribute up to 10 percent of their compensation to purchase shares of our common stock at 85 percent of the fair market value at specified dates. We have reserved 95,907 shares of common stock for issuance under the Stock Purchase Plan. During the quarters and six month periods ended September 30, 2007 and 2006, we issued 3,288 and 12,282, and 1,883 and 1,883 shares of common stock, respectively, under the Stock Purchase Plan. Stock Bonus Plan We have a stock bonus plan administered by the Board of Directors, under which 406,409 shares of common stock are available for grant. Under the plan, shares of common stock may be granted to employees, key consultants, and directors who are not employees as additional compensation for services rendered. Vesting requirements for grants under the plan, if any, are determined by the Board of Directors at the time of grant. There were zero and 149,735 shares granted under the plan during the quarters ended September 30, 2007 and 2006, respectively. We account for stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ("SFAS 123(R)"). SFAS 123(R) requires employee share based compensation to be accounted for under the fair value method. Share based compensation is measured at the date of grant based on the fair value of the award. Options currently granted by the company generally expire ten years from the grant date. Options granted to existing and newly hired employees generally vest over a three-year period from the date of the grant. The exercise price of options is equal to the market price of our common stock (defined as the closing price reported by the American Stock Exchange) on the date of grant. We use the Black-Scholes-Merton option pricing model for estimating the fair value of stock option awards. Total share-based compensation expense for the quarters and six month periods ended September 30, 2007 and September 30, 2006 was $181,983 and $313,409, and $312,125 and $474,384, respectively. The following table shows the classification of these expenses: |
|
Quarter Ended September 30, |
Six Months Ended September 30, |
|||
2007 |
2006 |
2007 |
2006 |
||
Costs of contract services |
$ 25,729 |
37,003 |
55,205 |
73,346 |
|
Costs of product sales |
14,431 |
12,963 |
25,567 |
20,773 |
|
Research and development |
7,121 |
5,086 |
12,660 |
11,228 |
|
Production engineering |
30,866 |
29,460 |
59,890 |
54,658 |
|
Selling, general and administrative |
103,836 |
228,897 |
158,803 |
314,379 |
|
$ 181,983 |
313,409 |
312,125 |
474,384 |
In accordance with SFAS No. 123(R), we adjust share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments in the quarter and six month period ended September 30, 2007 was insignificant. All shares granted under the non-employee director stock option plan are vested. A summary of the status of non-vested shares under the incentive and non-qualified option plans as of September 30, 2007 and changes during the quarters and six month periods ended September 30, 2007 and 2006 is presented below: |
|
Periods Ending September 30, 2007 |
Periods Ending September 30, 2006 |
|||
Weighted-Average |
Weighted-Average |
||||
Shares Under |
Grant Date |
Shares Under |
Grant Date |
||
Option |
Fair Value |
Option |
Fair Value |
||
Non-vested at March 31 |
554,940 |
$ 1.71 |
926,197 |
$ 1.61 |
|
Granted |
- |
- |
- |
- |
|
Vested |
(10,000) |
$ 2.10 |
(10,000) |
$ 2.10 |
|
Forfeited |
( 2,387 ) |
$ 2.01 |
( 14,481 ) |
$ 1.17 |
|
Non-vested at June 30 |
542,553 |
$ 1.70 |
901,716 |
$ 1.61 |
|
Granted |
106,159 |
$ 1.89 |
119,605 |
$ 1.53 |
|
Vested |
(39,702) |
$ 1.52 |
- |
- |
|
Forfeited |
(2,000) |
$ 1.61 |
(48,276 ) |
$ 1.59 |
|
Non-vested at September 30 |
607,010 |
$ 1.75 |
973,045 |
$ 1.60 |
As of September 30, 2007, there was $509,165 of total unrecognized compensation costs related to stock options granted under our stock option plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 12 months. The total fair value of stock options that vested during the quarters and six month periods ended September 30, 2007 and 2006 was $60,181 and $21,000 and $81,181 and $21,000, respectively. A summary of the non-vested shares under the Stock Bonus Plan as of September 30, 2007 and 2006 and changes during the quarters and six month periods ended September 30, 2007 and 2006 is presented below: |
Periods Ending September 30, 2007 |
Periods Ending September 30, 2006 |
||||
Weighted-Average |
Weighted-Average |
||||
Shares Under |
Grant Date |
Shares Under |
Grant Date |
||
Contract |
Fair Value |
Option |
Fair Value |
||
Non-vested at March 31 |
136,035 |
$ 3.20 |
- |
- |
|
Granted |
- |
- |
- |
- |
|
Vested |
- |
- |
- |
- |
|
Forfeited |
- |
- |
- |
- |
|
Non-vested at June 30 |
136,035 |
$ 3.20 |
- |
- |
|
Granted |
- |
- |
149,735 |
$ 3.20 |
|
Vested |
(45,349) |
$ 3.20 |
(12,500) |
$ 3.20 |
|
Forfeited |
- |
- |
(1,200 ) |
$ 3.20 |
|
Non-vested at September 30 |
90,686 |
$ 3.20 |
136,035 |
$ 3.20 |
As of September 30, 2007 and 2006 there was $119,584 and $310,079 of total unrecognized compensation costs related to common stock granted under our Stock Bonus Plan. The unrecognized compensation cost at September 30, 2007 is expected to be recognized over a weighted average period of 7 months. The total fair value of common stock granted under the Stock Bonus Plan that vested during the quarter and six months ended September 30, 2007 was $145,117 and $145,117, respectively. During the quarters and six month periods ended September 30, 2007 and 2006, respectively, options to acquire 130,198 and 143,344 shares of common stock were granted under our Equity Incentive and Non-Employee Director Stock Option Plans. The weighted average estimated values of employee and director stock option grants, as well as the weighted average assumptions that were used in calculating such values during the quarters and six month periods ended September 30, 2007 and 2006, respectively, were based on estimates at the date of grant as follows: |
Quarter Ended September 30, |
Six Months Ended September 30, |
|||||
2007 |
2006 |
2007 |
2006 |
|||
Weighted average estimated fair |
||||||
value of grant |
$ 1.73 Per option |
$ 1.45 Per option |
$ 1.73 Per option |
$ 1.45 Per option |
||
Expected life (in years) |
3.9 years |
3.4 years |
3.9 years |
3.4 years |
||
Risk free interest rate |
4.4 % |
4.9 % |
4.4 % |
4.9 % |
||
Expected volatility |
61.6 % |
59.5 % |
61.6 % |
59.5 % |
||
Expected dividend yield |
0.0 % |
0.0 % |
0.0 % |
0.0 % |
Expected volatility is based on historical volatility. The expected life of options granted is based on the simplified calculation of expected life, described in the U.S. Securities and Exchange Commission's Staff Accounting Bulletin 107 whereby the simple average of the vesting period and contractual term is utilized as the expected life. |
Additional information with respect to stock option activity during the quarter and six month period ended September 30, 2007 under our incentive and non-qualified stock option plans is as follows: |
Weighted |
||||
Weighted |
Average |
|||
Shares |
Average |
Remaining |
Aggregate |
|
Under |
Exercise |
Contractual |
Intrinsic |
|
Option |
Price |
Life |
Value |
|
Outstanding at March 31, 2007 |
2,692,400 |
$ 4.33 |
||
Granted |
- |
- |
||
Exercised |
(1,599) |
$ 2.41 |
$ 2,942 |
|
Forfeited |
(3,579 ) |
$ 2.68 |
||
Outstanding at June 30, 2007 |
2,687,222 |
$ 4.33 |
5.4 years |
$ 2,070,665 |
Granted |
106,159 |
$ 3.57 |
||
Exercised |
(4,245) |
$ 2.41 |
$ 8,193 |
|
Forfeited |
(2,000) |
$ 3.57 |
||
Outstanding at September 30, 2007 |
2,787,136 |
$ 4.30 |
5.2 years |
$ 1,343,718 |
Exercisable at September 30, 2007 |
2,180,126 |
$ 4.56 |
4.5 years |
$ 1,109,562 |
Vested and expected to vest at September 30, 2007 |
2,745,751 |
$ 4.31 |
5.2 years |
$ 1,336,709 |
|
Additional information with respect to stock option activity during the quarter and six month period ended September 30, 2006 under our incentive and non-qualified stock option plans is as follows: |
Weighted |
||||
Weighted |
Average |
|||
Shares |
Average |
Remaining |
Aggregate |
|
Under |
Exercise |
Contractual |
Intrinsic |
|
Option |
Price |
Life |
Value |
|
Outstanding at March 31, 2006 |
3,006,329 |
$ 4.28 |
||
Granted |
- |
- |
||
Exercised |
(186,814) |
$ 3.29 |
$ 306,117 |
|
Forfeited |
(9,037 ) |
$ 2.26 |
||
Outstanding at June 30, 2006 |
2,810,478 |
$ 4.35 |
6.1 years |
$ 518,535 |
Granted |
119,605 |
$ 3.20 |
||
Exercised |
- |
- |
||
Forfeited |
(99,758 ) |
$ 5.61 |
||
Outstanding at September 30, 2006 |
2,830,325 |
$ 4.26 |
6.0 years |
$ 330,706 |
Exercisable at September 30, 2006 |
1,857,280 |
$ 4.86 |
4.6 years |
$ 159,507 |
Vested and expected to vest at September 30, 2006 |
2,747,365 |
$ 4.28 |
5.9 years |
$ 326,045 |
The total intrinsic value of options exercised under the plan during the quarters and six month periods ended September 30, 2007 and 2006 was $8,193 and zero and $11,135 and $306,117, respectively. |
Additional information with respect to stock option activity during the quarter and six month period ended September 30, 2007 under our non-employee director stock option plan is as follows: |
Weighted |
Weighted |
|||
Shares |
Average |
Average |
Aggregate |
|
Under |
Exercise |
Remaining |
Intrinsic |
|
Option |
Price |
Contractual Life |
Value |
|
Outstanding at March 31, 2007 |
70,520 |
$ 2.91 |
||
Granted |
- |
- |
||
Exercised |
- |
- |
|
|
Outstanding at June 30, 2007 |
70,520 |
$ 2.91 |
1.2 years |
$ 92,083 |
Granted |
24,039 |
$ 3.57 |
||
Exercised |
(18,518) |
$ 2.30 |
$ 21,111 |
|
Forfeited |
(9,259) |
$ 2.30 |
||
Outstanding at September 30, 2007 |
66,782 |
$ 3.40 |
2.0 years |
$ 21,661 |
Exercisable at September 30, 2007 |
66,782 |
$ 3.40 |
2.0 years |
$ 21,661 |
Vested and expected to vest at September 30, 2007 |
66,782 |
$ 3.40 |
2.0 years |
$ 21,661 |
Additional information with respect to stock option activity during the quarter and six month period ended September 30, 2006 under our non-employee director stock option plan is as follows: |
Weighted |
Weighted |
|||
Shares |
Average |
Average |
Aggregate |
|
Under |
Exercise |
Remaining |
Intrinsic |
|
Option |
Price |
Contractual Life |
Value |
|
Outstanding at March 31, 2006 |
59,281 |
$ 2.90 |
||
Granted |
- |
- |
||
Exercised |
- |
- |
|
|
Forfeited |
- |
- |
||
Outstanding at June 30, 2006 |
59,281 |
$ 2.90 |
1.2 years |
$ 16,666 |
Granted |
23,739 |
$ 3.20 |
||
Exercised |
- |
- |
||
Forfeited |
- |
- |
||
Outstanding at September 30, 2006 |
83,020 |
$ 2.99 |
1.6 years |
$ 12,222 |
Exercisable at September 30, 2006 |
83,020 |
$ 2.99 |
1.6 years |
$ 12,222 |
Vested and expected to vest at September 30, 2006 |
83,020 |
$ 2.99 |
1.6 years |
$ 12,222 |
Cash received by us upon the exercise of stock options for the quarters and six month periods ended September 30, 2007 and 2006 was $64,297 and zero and $89,376 and $620,267, respectively. The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares. |
( 3) |
We have an investment policy approved by the Board of Directors that governs the quality, acceptability and dollar concentration of our investments. Investments are comprised of marketable securities and consist primarily of commercial paper, asset-backed and mortgage-backed notes and bank certificates of deposits with original maturities beyond three months. All marketable securities are held in our name at two major financial institutions who hold custody of the investments. All of our investments are held-to-maturity investments that we have the positive intent and ability to hold until maturity. These securities are recorded at amortized cost. Investments with an original maturity of less than one year from the balance sheet date are classified as short-term. The amortized cost and unrealized gain or loss of our short-term investments at September 30, 2007 and March 31, 2007 were: |
September 30, 2007 |
March 31, 2007 |
|||
Amortized |
Unrealized |
Amortized |
Unrealized |
|
Cost |
Gain (Loss) |
Cost |
Gain (Loss ) |
|
U.S. government and government agency securities |
$ 2,740,935 |
(33,941) |
3,391,728 |
(43,456) |
Commercial paper, corporate and foreign bonds |
4,149,037 |
(62,309) |
2,320,479 |
(41,545) |
Certificates of deposit |
387,028 |
- |
269,621 |
- |
$ 7,277,000 |
(96,250 ) |
5,981,828 |
(85,001) |
As of September 30, 2007 and March 31, 2007, held-to-maturity securities with a time to maturity of three to six months and six months to one year were $2,260,931 and $627,829, and $5,016,069 and $5,353,999, respectively. |
( 4) |
At September 30, 2007, the estimated period to complete contracts in process ranged from one to fourteen months and we expect to collect substantially all related accounts receivable arising therefrom within sixty days of billing. The following summarizes contracts in process: |
September 30, 2007 |
March 31, 2007 |
||||||||
Costs incurred on uncompleted contracts |
$ 2,720,519 |
1,916,382 |
|||||||
Estimated earnings |
282,266 |
155,436 |
|||||||
3,002,785 |
2,071,818 |
||||||||
Less billings to date |
(3,762,771) |
(2,196,442) |
|||||||
$ (759,986) |
(124,624 ) |
||||||||
Included in the accompanying balance sheets as follows: |
|||||||||
Costs and estimated earnings in excess of billings on |
|||||||||
uncompleted contracts |
$ 203,556 |
187,913 |
|||||||
Billings in excess of costs and estimated earnings on |
|||||||||
uncompleted contracts |
(963,542 ) |
(312,537 ) |
|||||||
$ (759,986) |
(124,624 ) |
( 5) |
Inventories consist of: |
September 30, 2007 |
March 31, 2007 |
|||||
Raw materials |
$ 801,445 |
651,988 |
||||
Work-in-process |
120,882 |
109,916 |
||||
Finished products |
92,211 |
137,981 |
||||
$ 1,014,538 |
899,885 |
Our raw material inventory is subject to obsolescence and potential impairment due to bulk purchases in excess of customers' requirements. We periodically assess our inventory for recovery of its carrying value based on available information, expectations and estimates, and adjust inventory-carrying values to the lower of cost or market for estimated declines in the realizable value. |
( 6) |
Other current liabilities consist of: |
September 30, 2007 |
March 31, 2007 |
|||||
Accrued payroll and employee benefits |
$ 135,789 |
118,357 |
||||
Accrued personal property and real estate taxes |
59,822 |
42,103 |
||||
Accrued warranty costs |
92,073 |
74,850 |
||||
Accrued losses on engineering contracts |
8,414 |
14,592 |
||||
Unearned revenue |
- |
61,323 |
||||
Accrued royalties |
15,397 |
24,172 |
||||
Other |
10,327 |
9,555 |
||||
$ 321,822 |
344,952 |
( 7) |
Stockholders' Equity |
Changes in the components of shareholders' equity during the six month period ended September 30, 2007 were as follows:
Number of |
||||||
common |
Additional |
Total |
||||
shares |
Common |
paid-in |
Accumulated |
stockholders' |
||
issued |
stock |
capital |
deficit |
equity |
||
Balances at March 31, 2007 |
25,176,889 |
$ 251,769 |
71,376,462 |
(60,437,115) |
11,191,116 |
|
Issuance of common stock |
||||||
upon exercise of options |
24,362 |
244 |
56,431 |
- |
56,675 |
|
Issuance of common stock |
||||||
in private placement |
1,250,000 |
12,500 |
5,171,177 |
- |
5,183,677 |
|
Issuance of common stock under |
||||||
employee stock purchase plan |
12,282 |
123 |
32,578 |
- |
32,701 |
|
Issuance of common stock under |
||||||
the stock bonus plan |
45,349 |
453 |
(453) |
- |
- |
|
Compensation expense from |
||||||
employee and director stock |
||||||
option and common stock grants |
- |
- |
312,125 |
- |
312,125 |
|
Net loss |
- |
- |
- |
(2,268,645) |
(2,268,645 ) |
|
Balances at September 30, 2007 |
26,508,882 |
265,089 |
76,948,320 |
(62,705,760) |
14,507,649 |
We issued four-year warrants to the placement agent for our November 2004 follow-on offering to acquire 360,000 shares of our common stock at an exercise price of $2.58 per share. Warrants to acquire 85,267 shares of common stock remain outstanding at September 30, 2007 and 2006, respectively. We also issued four-year warrants to the placement agent for our October 2003 follow-on offering to acquire 72,000 shares of our common stock at an exercise price of $3.96 per share. All of these warrants were outstanding as of September 30, 2007 and 2006, respectively.
( 8) |
Significant Customers |
We have historically derived significant revenue from a few key customers. Revenue from Invacare Corporation totaled $238,922 and $78,933 and $238,922 and $139,845 for the quarters and six month periods ended September 30, 2007 and 2006, respectively, which was 12 and 5 percent and 7 and 5 percent of total revenue, respectively. Revenue from Lippert Components, Inc. totaled $238,226 and $262,192 and $610,850 and $583,504 for the quarters and six month periods ended September 30, 2007 and 2006, which was 12 and 16 percent and 18 and 20 percent of total revenue, respectively.
Trade accounts receivable from Invacare Corporation were 11 percent and 24 percent of total accounts receivable as of September 30, 2007 and March 31, 2007, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $173,735 and $99,958 as of September 30, 2007 and March 31, 2007, respectively. Trade accounts receivable from Lippert Components, Inc. were 7 percent and 7 percent of total accounts receivable as of September 30, 2007 and March 31, 2007, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $196,507 and $196,623 as of September 30, 2007 and March 31, 2007, respectively.
Contract services revenue derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors totaled $477,096 and $531,676 and $968,173 and $1,096,811 for the quarters and six month periods ended September 30, 2007 and 2006, respectively. Accounts receivable from government-funded contracts represented 44 percent and 32 percent of total accounts receivable as of September 30, 2007 and March 31, 2007, respectively.
( 9) |
Income Taxes |
The Company currently has a full valuation allowance, as it is management's judgment that it is more-likely-than-not that net deferred tax assets will not be realized to reduce future taxable income.
We adopted the provision of FIN No. 48 "Accounting of Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109, on April 1, 2007. The adoption of FIN 48 resulted in no impact to our consolidated financial statements and we have no unrecognized tax benefits that would impact our effective rate.
We recognize interest and penalties related to uncertain tax positions in "Other," net. As of September 30, 2007, we made no provisions for interest or penalties related to uncertain tax positions.
The tax years 2002 through 2006 remain open to examination by both the Internal Revenue Service of the United States and by the various state taxing authorities where we file.
(10) |
Discontinued Operations |
In January 2004, we committed to a plan to exit our contract electronics manufacturing business whose results were reported as the electronic products segment. In May 2004, we completed the divestiture of equipment and inventory of this business. We have recorded accounts receivable from discontinued operations of $26,266 reflecting sublease income earned but not yet paid.
The operating results of this business for the quarters and six month periods ended September 30, 2007 and 2006 have been reported separately as discontinued operations. Loss from discontinued operations includes interest expense on debt used to acquire manufacturing machinery and equipment but does not include allocations of general corporate overheads, which have been allocated to other business segments. Operating results of all prior periods presented have been adjusted to reflect the contract electronics manufacturing business as discontinued operations.
Net loss from the discontinued electronic products segment for the quarters and six month periods ended September 30, 2007 and 2006 was zero and $14,640 and zero and $16,752, respectively.
Liabilities and commitments of discontinued electronic products segment were zero and $13,847 at September 30, 2007 and March 31, 2007, respectively.
(11) |
Loss Per Common Share |
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"), requires presentation of both basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed by dividing income or loss available to common stockholders by all outstanding and potentially dilutive shares during the periods presented, unless the effect is antidilutive. At September 30, 2007 and 2006, respectively, issued but not yet earned common shares under our Stock Bonus Plan of 90,686 and 136,035 were being held in safekeeping by the Company. For the quarters and six month periods ended September 30, 2007 and 2006, 14,082 and zero and 17,040 and 14,584 shares, respectively, were potentially includable in the calculation of diluted loss per share under the treasury stock method but were not included, because to do so would be antidilutive. At September 30, 2007 and 2006, options to purchase 2,855,220 and 2,913,345 shares of common stock, respectively, and warrants to purchase 157,267, and 157,267 shares of common stock, respectively, were outstanding. For the quarters and six month periods ended September, 2007 and 2006, respectively, options and warrants for 1,573,683 and 1,873,798 and 1,179,705 and 1,578,262 shares, respectively, were not included in the computation of diluted loss per share because the option or warrant exercise price was greater than the average market price of the common stock. In-the-money options and warrants determined under the treasury stock method to acquire 425,721 and 213,000 and 476,199 and 458,126 shares of common stock for the quarters and six month periods ended September 30, 2007 and 2006, respectively, were potentially includable in the calculation of diluted loss per share but were not included, because to do so would be antidilutive.
(12) |
Segments |
At September 30, 2007, we have two reportable segments: technology and power products. Our reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies. The technology segment encompasses our technology-based operations including core research to advance our technology, application and production engineering and product development and job shop production of prototype components. The power products segment encompasses the manufacture and sale of motors and electronic controllers. As discussed in note 10, we discontinued our electronic products segment in fiscal year 2004, and accordingly, the financial results of this operation are no longer reported in continuing operations in all periods presented. Salaries of the executive officers and corporate general and administrative expense are allocated to our segments annually based on a variety of factors including revenue level of the segment, administrative time devoted to each segment by senior management, and square footage occupied by each segment. The percentages allocated to the technology segment and power products segment were 75 percent and 25 percent for the quarter and six month periods ended September 30, 2007, and were 52 percent and 48 percent for the quarter and six month periods0 ended September 30, 2006, respectively.
Intersegment sales or transfers, which were eliminated upon consolidation, were $159,822 and $10,208 and $335,822 and $38,310 for the quarters and six month periods ended September 30, 2007 and 2006, respectively.
The technology segment leases office, production and laboratory space in a building owned by the power products segment based on a negotiated rate for the square footage occupied. Intercompany lease payments, were $42,391 and $46,401 and $84,781 and $92,082 for the quarters and six month periods ended September 30, 2007 and 2006, respectively, and were eliminated upon consolidation.
The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the quarter ended September 30, 2007:
Power |
|||||||
Technology |
Products |
Total |
|||||
Revenue |
$ |
1,206,572 |
784,019 |
1,990,591 |
|||
Interest income |
118,343 |
2,335 |
120,678 |
||||
Interest expense |
- |
(10,353) |
(10,353) |
||||
Depreciation and amortization |
(58,083) |
(52,535) |
(110,618) |
||||
Segment loss from continuing operations |
(952,951) |
(186,943) |
(1,139,894) |
||||
Assets of continuing operations |
14,162,219 |
3,670,532 |
17,832,751 |
||||
Expenditures for long-lived segment assets |
(108,035) |
(128,468) |
(236,503) |
The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the quarter ended September 30, 2006:
Power |
|||||||
Technology |
Products |
Total |
|||||
Revenue |
$ |
1,130,528 |
483,690 |
1,614,218 |
|||
Interest income |
116,830 |
729 |
117,559 |
||||
Interest expense |
- |
(12,160) |
(12,160) |
||||
Depreciation and amortization |
(67,538) |
(41,164) |
(108,702) |
||||
Segment loss from continuing operations |
(695,161) |
(169,769) |
(864,930) |
||||
Assets of continuing operations |
11,365,226 |
3,169,017 |
14,534,243 |
||||
Expenditures for long-lived segment assets |
(31,787) |
(48,094) |
(79,881) |
The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the six month period ended September 30, 2007:
Power |
|||||||
Technology |
Products |
Total |
|||||
Revenue |
$ |
1,910,946 |
1,534,097 |
3,445,043 |
|||
Interest income |
239,819 |
4,298 |
244,117 |
||||
Interest expense |
- |
(21,253) |
(21,253) |
||||
Depreciation and amortization |
(113,535) |
(103,259) |
(216,794) |
||||
Segment loss from continuing operations |
(1,937,541) |
(331,104) |
(2,268,645) |
||||
Assets of continuing operations |
14,162,219 |
3,670,532 |
17,832,751 |
||||
Expenditures for long-lived segment assets |
(227,289) |
(167,761) |
(395,050) |
The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the six month period ended September 30, 2006:
Power |
|||||||
Technology |
Products |
Total |
|||||
Revenue |
$ |
2,010,160 |
905,390 |
2,915,550 |
|||
Interest income |
235,919 |
2,292 |
238,211 |
||||
Interest expense |
- |
(24,587) |
(24,587) |
||||
Depreciation and amortization |
(134,667) |
(71,999) |
(206,666) |
||||
Segment loss from continuing operations |
(1,301,208) |
(349,406) |
(1,650,614) |
||||
Assets of continuing operations |
11,365,226 |
3,169,017 |
14,534,243 |
||||
Expenditures for long-lived segment assets |
(117,020) |
(208,519) |
(325,539) |
(13) |
Commitments and Contingencies |
Employment Agreements
The Company has entered into Employment Agreements with Messrs. Rankin, French, Burton and Lutz pursuant to which each has agreed to serve in his present capacity for a five year term expiring on August 22, 2012. Pursuant to the Employment Agreements, Messrs. Rankin, French, Burton and Lutz shall receive an annual base salary of $301,600, $199,292, $167,405 and $134,000, respectively. Each executive also receives the use of an automobile and may receive bonuses, stock awards and stock options.
Messrs. Rankin and French's Employment Agreements provide that if employment is terminated by the Company or the executive without cause during or after the term of the agreement or upon retirement after attaining age 62 1/2, the officer shall receive 24 months salary. If the officer voluntarily terminates his employment after attaining twenty years of service as an officer and provides at least six months notice, he shall receive one month of pay for each year of service as an officer up to a maximum payment of 24 months pay. If the executive has less than twenty years of service or does not provide at least six months notice, he shall receive three months salary, unless the Company is in default under the Agreement, which shall be considered termination by the Company without cause.
Messrs. Burton and Lutz's Employment Agreements provide that if employment is terminated by the Company or the executive without cause during or after the term of the agreement, the officer shall receive the greater of six months pay or one month of pay for each year of service as an officer. If the officer voluntarily terminates his employment and provides at least six months notice, he shall receive six months pay. If the executive does not provide at least six months notice, he shall receive two months salary, unless the Company is in default under the Agreement, which shall be considered termination by the Company without cause. If the Executive provides at least six months notice of his voluntary retirement after attaining 62 1/2 years of age, executive shall receive a total payment consisting of one month of pay for each year of service as an officer plus six months of pay, up to a maximum total payment of 24 months pay.
Messrs. Rankin, French, Burton and Lutz's Employment Agreements provide that upon termination by the Company following a hostile change of control of the Company, the officer shall receive twice the payment due on a termination by the Company in the absence of a change of control. If an officer dies during employment, his estate shall receive three months compensation. If the officer elects to retire at 62 1/2 years of age or upon attaining 20 years of service with the Company, the officer shall be entitled to continue to participate in the Company's group health insurance plan (at the same cost as employees) until attaining age 65.
The employment agreements further provide that the Company shall maintain at its expense, life insurance coverage on Messrs. Rankin and French payable to their designees in an amount equal to three times the annual compensation payable to each executive.
The aggregate future base salary payable to these four executive officers under the Employment Agreements over their remaining 59 month term is $3,944,627. In addition, the Company has recorded a long-term liability of $943,637 representing the potential future compensation payable to Messrs. Rankin and French under the retirement and voluntary termination provisions of their Employment Agreements.
Litigation
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS toc |
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 status of our agreements with Phoenix Motorcars, Inc., improvements in our financial performance, the development of markets for our products and the adequacy of our cash balances and liquidity to meet future operating needs. 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.
Introduction
We generate revenue from two principal activities: 1) research, development and application engineering services that are paid for by our customers; and 2) the sale of motors, generators and electronic controls. 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. Our product sales consist of both prototype low volume sales, which are generally sold to a broad range of customers, and annually recurring higher volume production.
Revenue from funded engineering activities for the quarter ended September 30, 2007 declined to $581,429 versus $679,126 for the fiscal quarter ended September 30, 2006, due to the application of engineering personnel to product sales orders and production engineering activities. Product sales revenue for the fiscal quarter ended September 30, 2007 rose to $1,409,162 versus $935,092 for the fiscal quarter ended September 30, 2006, primarily as a result of shipments against volume production orders. On October 30,2007 we were notified by Phoenix Motorcars, Inc. of their intention to cancel the Purchase and Supply Agreement with us and an associated purchase order to buy $9.25 million of our products, due to significant issues at Phoenix Motorcars, Inc. unrelated to our performance. We believe that a substantial portion of the purchase order is not subject to cancellation. Accordingly, we expect to hold discussions with Phoenix to obtain additional information regarding their position and pursue a satisfactory resolution. As of the date of this report, all accounts receivable from Phoenix for prior deliveries under these agreements have been collected.
During the first quarter we completed a private placement of 1,250,000 shares of common stock to Heartland Value Fund and Turn of the Tide, a Wisconsin Limited Partnership. Net cash proceeds from the transaction were approximately $5.2 million. As a result, our cash and short-term investments increased to $11,075,008 at September 30, 2007 versus $7,934,005 at March 31, 2007.
Loss from continuing operations for the quarter ended September 30, 2007 was $1,139,894, or $0.04 per common share, versus a loss of $864,930, or $0.04 per common share for the comparable quarter last year, reflecting higher research and development expenditures, additional expenses from our growing investment in production engineering activities and compensation expense arising from amendments to the employment agreements of Messrs. Rankin and French.
Loss from continuing operations for the six month period ended September 30, 2007 was $2,268,645 or $0.09 per common share, versus a loss of $1,650,614, or $0.07 per common share for the comparable period last year, reflecting higher levels of research and development and production engineering expenditures and compensation expense arising from amendments to the employment agreements of Messrs. Rankin and French.
In May 2004, we divested a contract electronics manufacturing business. Operating losses from this business for all periods presented have been reclassified to discontinued operations and contributed nil per common share to our consolidated net loss for the quarter and six month periods ended September 30, 2007 and 2006.
We believe our existing cash and short-term investments, which amounted to approximately $11.1 million at September 30, 2007, will be adequate to fund our anticipated growth for the fiscal year ended March 31, 2008 and beyond, however, if our growth continues to accelerate, or is greater than what we currently anticipate we may require additional capital.
Financial Condition
Cash and cash equivalents and short-term investments at September 30, 2007 were $11,075,008 and working capital (the excess of current assets over current liabilities) was $12,203,893 compared with $7,934,005 and $8,909,577, respectively, at March 31, 2007. The increase in cash and short-term investments and working capital is primarily attributable to the completion of a private placement of 1,250,000 shares of common stock during the first quarter which resulted in net cash proceeds of approximately $5,183,677, offset by higher operating losses, higher levels of inventories, prepaid and other current assets, and investments in property and equipment.
Accounts receivable increased $408,497 to $1,843,183 at September 30, 2007 from $1,434,686 at March 31, 2007. The increase is primarily attributable to increased product shipments. Substantially all of our customers are large well-established companies of high credit quality. Accordingly, we have not established an allowance for bad debts at September 30, 2007 and similarly, no allowance for bad debts was deemed necessary at March 31, 2007.
Costs and estimated earnings on uncompleted contracts increased $15,643 to $203,556 at September 30, 2007 versus $187,913 at March 31, 2007. The increase is due to less favorable billing terms on certain contracts in process at September 30, 2007 versus March 31, 2007. Estimated earnings on contracts in process increased to $282,266 or 9.4 percent of contracts in process of $3,002,785 at September 30, 2007 compared to estimated earnings on contracts in process of $155,436 or 7.5 percent of contracts in process of $2,071,818 at March 31, 2007. The increase in estimated margins on contracts in process is attributable to improved overhead absorption.
Inventories increased $114,653 to $1,014,538 at September 30, 2007 principally due to higher levels of scheduled product shipments and higher levels of raw material inventories associated with the sourcing of parts internationally, offset by decreased levels of finished goods inventories due to shipments of auxiliary motors.
Prepaid expenses and other current assets increased to $318,516 at September 30, 2007 from $279,343 at March 31, 2007 primarily due to the prepayment of insurance premium costs on our commercial insurance coverage.
We invested $236,388 and $364,351 for the acquisition of property and equipment during the quarter and six month period ended September 30, 2007, respectively, compared to $77,481 and $319,367 during the comparable quarter and six month period last fiscal year. The increase in capital expenditures for the quarter and six month period is primarily due to increased purchases of manufacturing equipment and building improvements.
Patent and trademark costs increased $2,881 to $485,184 at September 30, 2007 versus $482,303 at March 31, 2007 primarily due to the initiation of two new patent applications, offset by the systematic amortization of patent issuance costs.
Accounts payable decreased $433,904 to $549,027 at September 30, 2007 from $982,931 at March 31, 2007, primarily due to improved payment processing during the quarter.
Other current liabilities decreased $23,130 to $321,822 at September 30, 2007 from $344,952 at March 31, 2007. The decrease is primarily attributable to lower levels of customer deposits and accrued royalties.
Short-term deferred compensation under executive employment agreements increased to $340,437 at September 30, 2007 from $149,325 at March 31, 2007 reflecting an amendment to an executive employment agreement during the second quarter which accelerated the recording of future severance obligations under the agreement.
Billings in excess of costs and estimated earnings on uncompleted contracts increased $651,005 to $963,542 at September 30, 2007 from $312,537 at March 31, 2007 reflecting accelerated billings on certain engineering contracts in process at September 30, 2007 in advance of the performance of the associated work versus March 31, 2007.
Long-term debt, less current portion decreased $51,931 to $470,994 at September 30, 2007 from $522,925 at March 31, 2007 reflecting scheduled principal repayments on the mortgage debt for our Frederick, Colorado facility.
Long-term deferred compensation under executive employment agreements increased to $603,200 at September 30, 2007 from $396,214 at March 31, 2007 reflecting an amendment to an executive employment agreement during the second quarter which accelerated the recording of future severance obligations under the agreement.
Common stock and additional paid-in capital increased to $265,089 and $76,948,320, respectively, at September 30, 2007 compared to $251,769 and $71,376,462 at March 31, 2007. The increases were primarily attributable to the completion of a private placement of 1,250,000 shares of common stock during the first quarter this fiscal year and the recording of non-cash share based payments under Statement of Financial Accounting Standards No. 123 (revised), Share-Based Payment ("SFAS 123(R)"). See also note 2 to the consolidated financial statements.
Results of Continuing Operations
Quarter ended September 30, 2007
Continuing operations for the quarter ended September 30, 2007, resulted in a loss of $1,139,894, or $0.04 per common share, compared to a loss from continuing operations of $864,930, or $0.04 per common share for the comparable period last year. The increase in the current year loss from continuing operations is primarily attributable to higher research and development and production engineering expenditures and compensation expense arising from amendments to the employment agreements of Messrs. Rankin and French.
Revenue from contract services decreased $97,697, or 14.4 percent, to $581,429 for the quarter ended September 30, 2007 versus $679,126 for the comparable quarter last year. The decrease is attributable to the increased allocation of engineering resources to product sales orders and production engineering activities during the quarter ended September 30, 2007.
Product sales for the second quarter increased to $1,409,162, compared to $935,092 for the comparable period last year reflecting increased product revenue in both of the Company's business segments. Power products segment revenue for the quarter ended September 30, 2007 increased $300,329 to $784,019 compared to $483,690 for the comparable quarter last fiscal year due to increased production levels for auxiliary motors and the launch of production of electric propulsion systems and DC-to-DC converters for Phoenix Motorcars. Technology segment product revenue for the quarter ended September 30, 2007 increased $173,741 to $625,143, compared to $451,402 for the quarter ended September 30, 2006 due to increased shipments of prototype propulsion motors and controllers.
Gross profit margins for the quarter ended September 30, 2007 increased to 18.3 percent compared to 7.5 percent for the quarter ended September 30, 2006 due to increased gross profit margin on contract services and product sales. Gross profit on contract services increased to 28.0 percent during the second quarter this fiscal year compared to 9.7 percent for the quarter ended September 30, 2006 due to improved program execution during the current quarter. Gross profit margin on product sales for the second quarter this year increased to 14.3 percent compared to 6.0 percent for the second quarter last year. The improvement is primarily due to improved overhead absorption due to higher production levels during the current quarter.
Research and development expenditures for the quarter ended September 30, 2007 increased to $128,175 compared to $79,330 for the quarter ended September 30, 2006. The increase is primarily due to increased levels of internally funded software development projects.
Production engineering costs were $403,422 for the second quarter versus $232,517 for the second quarter last fiscal year. The increase is attributable to production engineering activities related to the launch of production for the Phoenix Motorcars all-electric sport utility truck program.
Selling, general and administrative expense for the quarter ended September 30, 2007 was $1,082,529 compared to $780,322 for the same quarter last year. The increase is attributable to the amendment of executive employment agreements in the second quarter which accelerated the expensing of deferred compensation associated with the severance provisions of these agreements.
Interest income rose to $120,683 for the quarter ended September 30, 2007 versus $117,559 for the same period last fiscal year. The increase is attributable to higher invested cash balances.
Interest expense decreased to $10,353 for the quarter ended September 30, 2007 compared to $12,160 for the comparable period last fiscal year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.
Six Months Ended September 30, 2007
Continuing operations for the six month period ended September 30, 2007, resulted in a loss of $2,268,645, or $0.09 per common share, compared to a loss from continuing operations of $1,650,614, or $0.07 per common share for the comparable period last year. The increase in the loss from continuing operations for the six month period is primarily attributable to higher levels of research and development and production engineering expenses and compensation expense arising from amendments to the employment agreements of Messrs. Rankin and French.
Revenue from contract services decreased $407,301 or 27 percent to $1,096,179 for the six month period ended September 30, 2007 compared to $1,503,480 for the comparable period last year. The decrease is attributable to the increased allocation of engineering resources to product sales orders and production engineering activities during the six month period ended September 30, 2007.
Product sales for the six month period ended September 30, 2007 rose 66 percent to $2,348,864 compared to $1,412,070 for the comparable period last year. Power Products segment revenue for the six month period ended September 30, 2007 increased to $1,534,097 compared to $905,390 for the comparable period last year. The increase is principally attributable to higher revenue from vehicle auxiliary motors and the launch of production of electric propulsion systems and DC-to-DC converters for Phoenix Motorcars. Technology segment product revenue for the six month period ended September 30, 2007 increased to $814,767 compared to $506,680 for the comparable period last year due to higher levels of low volume product shipments.
Gross profit margins for the six month period ended September 30, 2007 rose to 11.4 percent compared to a 8.4 percent for the comparable period last year primarily due to improved overhead absorption associated with increasing product revenue levels. Gross profit margin on contract services was 19.8 percent for the six month period ended September 30, 2007 compared to 15.6 percent for the comparable period last year. The increase is attributable to improved program execution during the current six month period. Gross profit margin on product sales for the six month period ended September 30, 2007 was 7.5 percent compared to 0.6 percent for the comparable period last year. The increase is primarily due to improved overhead absorption due to higher production levels during the current six month period.
Research and development expenditures for the six month period ended September 30, 2007 rose to $226,499 compared to $174,481 for the same period last year. The increase is primarily due to increased levels of internally funded software development projects.
Production engineering costs were $949,455 for the six month period ended September 30, 2007 versus $480,889 for the comparable six month period last year. The increase is attributable to production engineering activities related to the launch of production for the Phoenix Motorcars all-electric sport utility truck program.
Selling, general and administrative expense for the six month period ended September 30, 2007 was $1,712,365 compared to $1,452,839 for the same period last year. The increase is attributable to the amendment of executive employment agreements in the second quarter which accelerated the expensing of deferred compensation associated with the severance provisions of these agreements.
Interest income rose to $244,122 for the six month period ended September 30, 2007 compared to $238,211 for the comparable period last year. The increase is attributable to higher invested balances during the current period.
Interest expense decreased to $21,253 for the six month period ended September 30, 2007 versus $24,587 for the comparable period last year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.
Results of Discontinued Operations
In January 2004, we committed to a plan to exit our contract electronics manufacturing business whose results were reported as the electronic products segment. In May 2004, we completed the divestiture of equipment and inventory of this business. We have recorded accounts receivable from discontinued operations of $26,266 reflecting sublease income earned but not yet paid.
The operating results of this business for the quarter and six month periods ended September 30, 2007 and 2006 have been reported separately as discontinued operations. Loss from discontinued operations includes interest expense on debt used to acquire manufacturing machinery and equipment but does not include allocations of general corporate overheads, which have been allocated to other business segments. Operating results of all prior periods presented have been adjusted to reflect the contract electronics manufacturing as discontinued operations.
Loss from the discontinued electronic products segment for the quarter and six month periods ended September 30, 2007 and 2006 was zero and $16,752, respectively. See also Note 10 to the consolidated financial statements.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the six month period ended September 30, 2007 were adequate to meet operating needs. At September 30, 2007, we had working capital (the excess of current assets over current liabilities) of $12,203,893 compared to $8,909,577 at March 31, 2007.
For the six month period ended September 30, 2007, net cash used in operating activities of continuing operations was $1,728,075 compared to net cash used in operating activities of continuing operations of $1,867,482 for the six month period ended September 30, 2006. The decrease in cash used for the six month period ended September 30, 2007 is primarily attributable to higher levels of billings in excess of costs and estimated earnings on uncompleted contracts, offset by higher levels of inventories and operating losses.
Net cash used in investing activities of continuing operations for the six month period ended September 30, 2007 was $1,686,786 compared to $1,065,904 for the comparable six month period last year. The increase for the current six month period is attributable to higher levels of purchases of short-term investments, and expenditures for capital equipment versus the comparable period last year.
Net cash provided by financing activities of continuing operations was $5,224,708 for the six month period ended September 30, 2007 versus $1,003,058 for the same period last fiscal year. The increase is attributable to the completion of a private placement in the first quarter this year.
We expect our working capital requirements to increase during fiscal 2008 due to expected growth in our total revenue. Although we expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage consistent with execution of our business plan; our planned working capital requirements may consume a substantial portion of our existing cash resources. In addition, we have begun, and expect to continue, to make substantial investments from our available cash resources in human resources, manufacturing facilities and equipment, production and application engineering. We expect to fund our operations over the next year from existing cash and short-term investment balances and from available bank financing, if any. We can, however, not provide any assurance that our existing financial resources will be sufficient to execute our business plan. If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, we will modify our strategy to align our operation with then available financial resources.
Contractual Obligations
The following table presents information about our contractual obligations and commitments as of September 30, 2007:
Payments due by Period |
|||||
Total |
Less Than 1 Year |
2 - 3 Years |
4 - 5 Years |
More than 5 Years |
|
Long-term debt obligations |
$ 573,340 |
102,346 |
470,994 |
- |
- |
Operating lease obligations |
29,700 |
29,700 |
- |
- |
- |
Purchase obligations |
2,421,506 |
2,421,506 |
- |
- |
- |
Deferred compensation under |
|||||
executive employment agreements |
943,637 |
340,437 |
603,200 |
- |
- |
Total |
$ 3,968,183 |
2,893,989 |
1,074,194 |
- |
- |
Critical Accounting Policies
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 effect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended March 31, 2007 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 doubtful accounts receivables, costs to complete contracts, and recoverability of inventories. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.
Accounts Receivable
Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customer's particular business. Because substantially all of our customers are large well-established companies with excellent credit worthiness we have not established a reserve at September 30, 2007 and March 31, 2007 for potentially uncollectible trade accounts receivable. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses.
Inventories
We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assess our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. The actual realizable value of our inventories may differ materially from these estimates based on future occurrences. It is reasonably possible that future events or changes in circumstances could cause the realizable value of our inventories to decline materially, resulting in additional material impairment losses.
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. Management's best estimates have sometimes been adversely impacted by unexpected technical challenges requiring additional analysis and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts and a variety of other factors that 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 September 30, 2007 could be materially different from management's estimates, and any modification of management's estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.
New Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for us during the fiscal year beginning April 1, 2008. We have not yet determined the impact of adopting this standard.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R) ("SFAS No. 158"). SFAS No. 158 requires an employer to recognize a plan's overfunded or underfunded status in its balance sheets and recognize the changes in a plan's funded status in comprehensive income in the year which the changes occur. These provisions of SFAS No. 158 were effective for our fiscal year ending March 31, 2007. In addition, SFAS No. 158 requires an employer to measure plan assets and obligations that determine its funded status as of the end of its fiscal year, with limited exceptions. This provision of SFAS No. 158 is effective for our fiscal year ending March 31, 2009. The provisions that were effective for the fiscal year ended March 31, 2007 did not have a material effect on our financial statements and the provisions effective for our fiscal year ending March 31, 2009 are not expected to have a material effect on our financial statements.
In February, 2007 the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"). This standard permits companies to choose to measure many financial instruments and certain other items at fair value, following the provisions of SFAS No. 157. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not yet determined the impact of adopting this standard.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK toc |
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not 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. We are not subject to interest rate risk on our debt obligations.
ITEM 4. |
CONTROLS AND PROCEDURES &nbs p; toc |
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 as of September 30, 2007 under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Based on their evaluation as of September 30, 2007, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective in alerting them in a timely manner about material information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission.
During this fiscal quarter, there has not occurred any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) of the Exchange Act), that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We received a purchase order dated January 8, 2007 from Phoenix Motorcars, Inc. in the amount of $9.25 million for the purchase of 500 propulsion systems and DC-to-DC converters. On January 12, 2007 we completed a Purchase and Supply Agreement with Phoenix Motorcars, Inc. that specifies the terms and conditions of our supply relationship with Phoenix. On October 30, 2007 we were notified by Phoenix Motorcars, Inc. of their intention to cancel the Purchase and Supply Agreement with us and an associated purchase order to buy $9.25 million of our products, due to significant issues at Phoenix Motorcars, Inc. unrelated to our performance. We believe that a substantial portion of the purchase order is not subject to cancellation. Accordingly, we expect to hold discussions with Phoenix to obtain additional information regarding their position and pursue a satisfactory resolution.
ITEM 1. |
LEGAL PROCEEDINGS & nbsp; toc |
Litigation
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS toc font> |
The annual meeting of our shareholders was held on August 22, 2007. The following is a summary of the matters submitted to a vote of security holders and the results of the voting thereon:
Proposal 1: Election of Directors | ||||
For |
|
Withhold Authority |
||
William G. Rankin |
16,994,364 |
4,220,077 |
||
Ernest H. Drew |
19,347,314 |
1,867,127 |
||
Stephen J. Roy |
19,368,244 |
1,846,197 |
||
Jerome H. Granrud |
19,365,988 |
1,848,453 |
||
Donald W. Vanlandingham |
19,349,194 |
1,865,247 |
||
Proposal 2: Proposal to Ratify the Appointment of Grant Thornton, L.L.P. to Act as Independent Auditors for the Fiscal Year Ending March 31, 2008. |
||||
For |
Against |
Abstain |
||
20,984,249 |
194,868 |
35,324 |
||
Total Voted Shares Represented in Person and by Proxy |
21,214,441 |
|||
Outstanding Votable Shares: |
26,574,717 |
|||
Percentage of the Outstanding Votable Shares: |
79.83 % |
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ITEM 5. |
OTHER INFORMATION &nbs p; toc |
Risk Factors
Before investing in our securities you should carefully consider the following factors and other information in this document and the information incorporated by reference.
We have incurred significant losses and may continue to do so.
We have incurred significant net losses. For the quarters and six month periods ended September 30, 2007 and 2006, our net loss was $1,139,894 and $879,570 and $2,268,645 and $1,667,366, respectively. Our net loss for each of the last three fiscal years were as follows:
|
|||
Fiscal Year Ended March 31, |
|||
2007 |
2006 |
2005 |
|
Net loss |
$ 3,431,357 |
$ 2,784,970 |
$ 1,868,896 |
We have had accumulated deficits as follows:
September 30, 2007 |
$ 62,705,760 |
|
March 31, 2007 |
$ 60,437,115 |
|
March 31, 2006 |
$ 56,796,847 |
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.
Our net loss for the quarters and six month periods ended September 30, 2007 was $1,139,894 and $2,268,645 versus a net loss for the comparable quarters and six month periods last year of $879,570 and $1,667,366, respectively. At September 30, 2007, our cash and short-term investments totaled $11,075,008. If our losses continue, operations could consume some or all of our cash balances. We expect to make additional investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, in order to effectively compete in the emerging market for hybrid electric vehicles. We cannot assure, however, that our existing cash resources will be sufficient to complete our business plan. Should our existing cash resources be insufficient, we may need to secure additional funding. We cannot assure you, however, that funding will be available on terms acceptable to us, if at all.
Some of our 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.
Some of our orders for the future delivery of products are placed under blanket purchase orders which are cancelable by our customers at any time prior to the issuance of non-cancelable product release orders which specify product delivery dates and quantities to be delivered.
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 world's largest automobile manufacturers. These companies have far greater resources to apply to research and development efforts than we have, and they may independently develop motors that are technologically more advanced than ours. These competitors also have much greater experience in and resources for marketing their products.
If we fail to develop and achieve market acceptance for our products, our business may not grow.
We believe our proprietary systems are suited for a wide range of hybrid electric vehicle platforms. We currently expect to make substantial investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, to capitalize on the anticipated expansion in demand for products related to this market area. However, our experience in this market area is limited. Our sales in this area will depend in part on the market acceptance of and demand for our proprietary propulsion systems and future products. We cannot be certain that we will be able to introduce or market our products, develop other new products or product enhancements in a timely or cost-effective manner or that our products will achieve market acceptance.
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 that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we cannot assure that we would be successful in enforcing our intellectual property rights. In addition, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country where we may operate or sell our products in the future. If third parties assert technology infringement claims against us, the defense of the claims could involve significant legal costs and require our management to divert time and attention from our business operations. If we are unsuccessful in defending any claims of infringement, we may be forced to obtain licenses or to pay royalties to continue to use our technology. We may not be able to obtain any necessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly, our results of operations may suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-party technologies.
Use of our motors in vehicles 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.
ITEM 6. |
EXHIBITS AND REPORTS ON FORM 8-K &nbs p; toc |
Exhibits
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
Reports on Form 8-K
Report regarding amendments to the employment agreements of William G. Rankin and Donald A. French and the execution of employment agreements with Ronald M. Burton and Jon Lutz filed September 20, 2007.
SIGNATURES |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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UQM Technologies, Inc. |
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Registrant |
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Date: October 31, 2007 |
/s/ Donald A. French |
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Donald A. French |
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Treasurer |
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(Principal Financial and Accounting Officer) |
Exhibit 31.1
Certification
I
, William G. Rankin, 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 officer 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 officer 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: October 31, 2007 |
/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 officer 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 officer 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: October 31, 2007 |
/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 September 30, 2007 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: October 31, 2007