10-Q/A 1 qa93001.txt 10-Q/A, 9/30/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 Commission file number 1-10869 UQM TECHNOLOGIES, INC. --------------------------------------- (Exact name of registrant as specified in its charter) Colorado 84-0579156 ------------------------------ -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 425 Corporate Circle Golden, Colorado 80401 ------------------------------------------- (Address of principal executive offices) (zip code) (303) 278-2002 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . The number of shares outstanding (including shares held by affiliates) of the registrant's common stock, par value $0.01 per share at November 5, 2001, was 17,563,117.
PART I - FINANCIAL INFORMATION UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, March 31, Assets 2001 2001 ------ ------------- -------- (unaudited) Current assets: Cash and cash equivalents $ 2,587,567 2,399,006 Accounts receivable (notes 6 and 8) 2,853,629 3,899,041 Costs and estimated earnings in excess of billings on uncompleted contracts (note 3) 632,428 572,009 Inventories (notes 4,6 and 8) 6,157,609 6,656,236 Prepaid expenses 305,458 184,405 Equipment of discontinued operations held for sale, net (note 9) 1,498,370 - Other 59,768 52,065 ---------- ---------- Total current assets 14,094,829 13,762,762 ---------- ---------- Property and equipment, at cost: Land 181,580 181,580 Building 1,247,265 1,240,435 Machinery and equipment 8,534,898 12,433,475 ---------- ---------- 9,963,743 13,855,490 Less accumulated depreciation (4,817,367) (6,577,035) ---------- ---------- Net property and equipment 5,146,376 7,278,455 ---------- ---------- Patent and trademark costs, net of accumulated amortization of $193,792 and $170,204 740,326 731,707 Goodwill, net of accumulated amortization of $1,008,967 and $873,793 4,483,807 5,662,797 Other assets 45,872 45,872 ---------- ---------- $ 24,511,210 27,481,593 ========== ========== (Continued)
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued September 30, March 31, Liabilities and Stockholders' Equity 2001 2001 ------------------------------------ ---------- ------- (unaudited) Current liabilities: Accounts payable $ 2,651,142 2,777,737 Other current liabilities (note 5) 1,183,842 1,031,028 Current portion of long-term deferred gain on sale of real estate 115,713 115,713 Current portion of long-term debt 759,206 865,685 Revolving line-of-credit (note 6) 3,455,000 4,037,000 Term debt and accrued future losses of discontinued operations (note 9) 1,461,496 - Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 463,101 197,819 ---------- ---------- Total current liabilities 10,089,500 9,024,982 Long-term deferred gain on sale of real estate 578,565 636,423 Long-term debt, less current portion 1,414,651 2,606,075 ---------- ---------- Total liabilities 12,082,716 12,267,480 Stockholders' equity (notes 7 and 13): Common stock, $.01 par value, 50,000,000 shares authorized; 17,561,729 and 17,423,358 shares issued 175,617 174,233 Additional paid-in capital 51,112,499 50,626,120 Accumulated deficit (38,441,283) (35,164,723) Accumulated other comprehensive income (384,300) (384,300) Note receivable from officer (34,039) (37,217) ---------- ---------- Total stockholders' equity 12,428,494 15,214,113 ---------- ---------- Commitments (note 12) $ 24,511,210 27,481,593 ========== ========== See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Quarter Ended September 30, Six Months Ended September 30, 2001 2000 2001 2000 --------- --------- --------- ---------- Revenue (note 8): Contract services $ 641,044 352,881 1,317,275 897,899 Product sales 4,580,443 5,735,254 10,414,006 11,373,983 ---------- --------- ---------- ---------- 5,221,487 6,088,135 11,731,281 12,271,882 ---------- --------- ---------- ---------- Operating costs and expenses: Costs of contract services 443,872 380,479 961,298 866,341 Costs of product sales 4,327,039 5,119,389 9,401,306 9,819,578 Research and development 6,601 27,501 70,744 65,410 General and administrative 1,113,293 1,018,761 2,016,363 1,871,327 Impairment of assets - 216,818 - 216,818 Amortization of goodwill 67,587 67,587 135,174 135,174 ---------- ---------- ---------- ---------- 5,958,392 6,830,535 12,584,885 12,974,648 ---------- ---------- ---------- ---------- Loss from operations (736,905) (742,400) (853,604) (702,766) Other income (expense): Interest income 19,516 13,459 44,297 37,773 Interest expense (90,711) (66,768) (197,528) (123,695) Minority interest share of earnings of consolidated subsidiary - (19,992) - (39,577) Other 22,439 4 51,375 (2,910) ---------- ---------- --------- ---------- (48,756) (73,297) (101,856) (128,409) ---------- ---------- --------- ---------- Loss from continuing operations (785,661) (815,697) (955,460) (831,175) Discontinued operations (note 9): Loss from operations of discontinued gear division (326,644) (259,993) (644,650) (577,393) Loss on disposal of gear division including provision of $663,792 for operating losses during phase-out period (1,676,450) - (1,676,450) - ---------- --- --------- --- (2,003,094) (259,993) (2,321,100) (577,393) ---------- --------- --------- --------- Net loss $ (2,788,755) (1,075,690) (3,276,560) (1,408,568) ========== ========== ========== ========== Net loss per common share - basic and diluted (note 10) Continuing operations $ (.05) (.05) (.06) (.05) Discontinued operations (.11) (.01) (.13) (.03) --- --- --- --- $ (.16) (.06) (.19) (.08) === === === === Weighted average number of shares of common stock outstanding (note 10) 17,524,504 17,269,444 17,480,202 17,242,489 ========== ========== ========== ========== See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended September 30, ------------------------------ 2001 2000 ------ ------ Cash flows provided (used) by operating activities of continuing operations: Loss from continuing operations $ (955,460) (831,175) Adjustments to reconcile loss from continuing operations to net cash provided (used) by operating activities of continuing operations: Depreciation and amortization 769,793 694,712 Deferred gain on sale of real estate (57,858) - Impairment of assets - 216,818 Minority interest share of earnings of consolidated subsidiary - 39,577 Non-cash compensation expense for common stock, stock options and warrants issued for services 9,558 78,253 Loss on sale of property and equipment 6,493 2,917 Change in operating assets and liabilities: Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts 1,090,877 (696,106) Inventories 557,455 (2,729,659) Prepaid expenses and other current assets (108,020) 56,484 Accounts payable and other current liabilities 64,977 1,565,239 Billings in excess of costs and estimated earnings on uncompleted contracts 265,282 376,907 --------- ---------- Net cash provided (used) by operating activities of continuing operations 1,643,097 (1,226,033) --------- ---------- Cash flows used by investing activities of continuing operations: Acquisition of property and equipment (413,173) (1,401,545) Proceeds from sale of property and equipment - 7,000 Increase in patent and trademark costs (32,207) (33,801) Proceeds from sale of Germany joint venture - 400,000 Investment in other long-term assets - (75,000) --------- ---------- Net cash used by investing activities of continuing operations $ (445,380) (1,103,346) --------- ----------
(Continued)
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (unaudited) Six Months Ended September 30, ------------------------------ 2001 2000 ------ -------- Cash flows provided (used) by financing activities of continuing operations: Borrowings (repayments) on revolving line-of-credit, net $ (582,000) 1,656,000 Repayment of debt (345,274) (350,908) Issuance of common stock upon exercise of employee options, net of note repayments 464,375 712,025 Issuance of common stock under employee stock purchase plan 17,008 21,565 Issuance of common stock upon exercise of warrants - 96,000 Distributions paid to holders of minority interest - (33,672) --------- --------- Net cash provided (used) by financing activities of continuing operations (445,891) 2,101,010 --------- --------- Cash provided (used) by continuing operations 751,826 (228,369) Net cash used in discontinued operations (563,265) (178,732) --------- --------- Increase (decrease) in cash and cash equivalents 188,561 (407,101) Cash and cash equivalents at beginning of period 2,399,006 2,085,115 --------- --------- Cash and cash equivalents at end of period $ 2,587,567 1,678,014 ========= ========= Interest paid in cash during the period $ 291,961 198,718 ========= =========
Non-cash investing and financing transactions: In accordance with the provisions of the Company's stock option plans, the Company accepts as payment of the exercise price, mature shares of the Company's common stock held by the option holder for a period of six months prior to the date of the option exercise. For the six months ended September 30, 2001, the Company issued 64,360 shares of common stock for options exercised for an aggregate exercise price of $234,875, for which the Company received 36,302 shares of common stock as payment for the exercise price. The shares received were recorded at cost as treasury stock and were subsequently retired. See accompanying notes to consolidated financial statements. UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (1) The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim period, have been made. The results for the interim period are not necessarily indicative of results to be expected for the fiscal year. The Notes contained herein should be read in conjunction with the Notes to the Company's Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2001. (2) Certain financial statement amounts have been reclassified for comparative purposes. (3) The estimated period to complete contracts in process ranged from one to eighteen months at September 30, 2001, and from one to fifteen months at March 31, 2001. The Company expects to collect substantially all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts within nineteen months. Contracts in process consist of the following:
September 30, 2001 March 31, 2001 ------------------ -------------- (unaudited) Costs incurred on uncompleted contracts $ 2,089,194 1,974,471 Estimated earnings 984,629 720,333 --------- --------- 3,073,823 2,694,804 Less billings to date (2,904,496) (2,320,614) --------- --------- $ 169,327 374,190 ========= ========= Included in the accompanying balance sheets as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 632,428 572,009 Billings in excess of costs and estimated earnings on uncompleted contracts (463,101) (197,819) --------- --------- $ 169,327 374,190 ========= ========= (4) Inventories consist of: September 30, 2001 March 31, 2001 ------------------ -------------- (unaudited) Raw materials $ 4,878,047 5,159,632 Work in process 921,955 352,632 Finished products 357,607 1,143,972 --------- --------- $ 6,157,609 6,656,236 ========= =========
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) (5) Other current liabilities consist of: September 30, 2001 March 31, 2001 ------------------ -------------- (unaudited) Accrued interest $ 13,582 41,917 Accrued legal and accounting fees 68,035 85,110 Accrued payroll, commissions, personal property taxes and real estate taxes 706,026 684,296 Accrued warranty costs 66,482 34,275 Customer deposits and prepayments 26,137 44,575 Accrued contingent pricing arrangement 139,600 - Other 163,980 140,855 --------- --------- $ 1,183,842 1,031,028 ========= =========
(6) Lines-of-credit At September 30, 2001, the Company had lines-of-credit of $.4 million and $4.0 million. The $.4 million line-of-credit expires in July, 2002 and had no amount outstanding at September 30, 2001. The $4.0 million line-of-credit is due on demand, but if no demand is made, it is due December 15, 2001. The Company expects that its lines-of-credit will be renewed or replaced with similar facilities. Interest on the lines-of-credit is payable monthly at prime plus .75% (6.75% at September 30, 2001) and prime plus 1% (7.00% at September 30, 2001), respectively. Outstanding borrowings under both lines-of-credit are secured by accounts receivable, inventory and general intangibles, and are limited to certain percentages of eligible accounts receivable and inventory which changes from month-to-month. At September 30, 2001 the Company's borrowings on its lines-of-credit were limited to $4.0 million of which borrowings of $3.5 million were outstanding. Both lines have various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The $4.0 million line-of-credit requires the Company to maintain certain financial ratios as defined in the agreement. As of September 30, 2001, the Company was in compliance with the required ratios. (7) Common Stock Options and Warrants Incentive and Non-Qualified Option Plans The Company has reserved 6,104,000 shares of common stock for key employees, consultants and key suppliers under its Incentive and Non-Qualified Option Plans of 1992 and 1982. Under these option plans the exercise price of each option is set at the fair market value of the common stock on the date of grant and the maximum term of the options is 10 years from the date of grant. Options granted to employees vest ratably over a three-year period. The maximum number of options that may be granted to any eligible employee during the term of the 1982 and 1992 plans is 1,000,000 options. Options granted under the Company's plans UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) to employees require the option holder to abide by certain Company policies which restrict their ability to sell the underlying common stock. The following table summarizes activity under the plans for the six months ended September 30, 2001: Shares Under Weighted-Average Option Exercise Price ------------ ---------------- Outstanding at March 31, 2001 2,814,820 $5.96 Granted - Exercised (172,108) 4.06 Forfeited (112,091) 7.44 --------- Outstanding at September 30, 2001 2,530,621 $6.03 ========= Exercisable at September 30, 2001 1,789,300 $5.50 ========= The following table presents summarized information about stock options outstanding at September 30, 2001:
Options Outstanding Options Exercisable ----------------------------------------- ----------------------- Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/01 Contractual Life Price at 9/30/01 Price --------------- ----------- ---------------- -------- ----------- -------- $2.25 - 3.31 427,198 4.1 years $3.00 427,198 $3.00 $3.50 - 5.00 665,624 5.2 years $4.27 577,813 $4.25 $6.25 - 8.75 1,437,799 6.7 years $7.74 784,289 $7.78 --------- --------- $2.25 - 8.75 2,530,621 5.9 years $6.03 1,789,300 $5.50 ========= =========
Non-Employee Director Stock Option Plan In February 1994, the Company's Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. The Company has reserved 500,000 shares of common stock for issuance pursuant to the exercise of options under the Plan. The options are exercisable from 3 to 10 years from date of grant. Option prices are equal to the fair market value of common shares at the date of grant. UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table presents summarized activity under the plan for the six months ended September 30, 2001: Shares Under Weighted-Average Option Exercise Price ------------ ---------------- Outstanding at March 31, 2001 47,060 $5.96 Granted 7,076 5.85 Exercised - Forfeited - --- Outstanding at September 30, 2001 54,136 $5.94 ======= Exercisable at September 30, 2001 38,509 $5.81 =======
The following table presents summarized information about stock options outstanding for non-employee directors: Options Outstanding Options Exercisable ----------------------------------------- ----------------------- Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/01 Contractual Life Price at 9/30/01 Price --------------- ----------- ---------------- -------- ----------- -------- $4.25 - 5.06 25,275 5.1 years $4.76 22,183 $4.83 $5.85 - 8.00 28,861 4.6 years $6.98 16,326 $7.14 ------ ------ $4.25 - 8.00 54,136 4.9 years $5.94 38,509 $5.81 ====== ======
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") defines a fair value method of accounting for employee stock options and similar equity instruments. SFAS 123 permits an entity to choose to recognize compensation expenses by adopting the fair value method of accounting or continue to measure compensation costs using the intrinsic value methods prescribed by APB 25. The Company accounts for stock options granted to employees and directors of the Company under the intrinsic value method. Stock options granted to non-employees under the Company's 1992 Stock Option Plan are accounted for under the fair value method. Had the Company reported compensation costs as determined by the fair value method of accounting for option grants to employees and directors, net loss and net loss per common share would have been the pro forma amounts indicated in the following table:
Quarter Ended September 30, Six Months Ended September 30, --------------------------- ------------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Net loss - as reported $ (2,788,755) (1,075,690) (3,276,560) (1,408,568) Compensation expense - current period option grants (1,250) (10,200) (1,250) (19,150) Compensation expense - prior period option grants (360,676) (126,603) (731,700) (452,657) --------- --------- --------- --------- Net loss - pro forma $ (3,150,681) (1,212,493) (4,009,510) (1,880,375) ========= ========= ========= ========= Net loss per common share - as reported $ (.16) (.06) (.19) (.08) === === === === Net loss per common share - pro forma $ (.18) (.07) (.23) (.11) === === === ===
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The fair value of stock options granted was calculated using the Black Scholes option pricing model based on the following weighted average assumptions:
Quarter Ended September 30, Six Months Ended September 30, --------------------------- ------------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Expected volatility 47.7% 49.1% 47.7% 46.3% Expected dividend yield 0.0% 0.0% 0.0% 0.0% Risk free interest rate 4.1% 6.4% 4.1% 6.5% Expected life of options granted 3 years 3 years 3 years 8.7 years Fair value of options granted as computed under the Black Scholes option pricing model $2.12 per $3.12 per $2.12 per $4.75 per share share share share
Future pro forma compensation cost for the remainder of the fiscal year and each fiscal year thereafter, assuming no additional grants by the Company to employees and directors, is as follows: Fiscal Year Pro Forma Ended Compensation March 31, Expense ----------- --------- 2002 $ 677,393 2003 $ 1,088,442 2004 $ 495,465 2005 $ 1,250 Warrants The Company completed a private placement in fiscal 1998 of 750,000 units consisting of one common share and a warrant to acquire one share of common stock at an exercise price of $8.00 per share. Warrants expire on October 31, 2001, unless extended. At September 30, 2001 warrants to purchase 299,375 shares of common stock were outstanding. (8) Significant Customers The Company has historically derived significant revenue from a few key customers. The customers from which more than 10% of total revenue from continuing operations has been derived and the percentage of total revenue is summarized as follows: UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Quarter Ended September 30, Six Months Ended September 30, --------------------------- ------------------------------ 2001 2000 2001 2000 ---------- --------- --------- --------- Customer A $ 1,248,973 785,918 2,807,415 2,033,687 B 229,034 1,201,243 1,136,894 2,198,218 C 1,116,840 774,495 2,049,375 1,580,693 --------- --------- --------- --------- $ 2,594,847 2,761,656 5,993,684 5,812,598 ========= ========= ========= ========= Percentage of total revenue from continuing operations 50% 45% 51% 47% === === === === The significant customers for the quarter and six months ended September 30, 2001 and 2000, were customers in the Company's electronic products and mechanical products segments. These customers, in total, also represented 36% and 30% of total accounts receivable at September 30, 2001 and 2000, respectively. In addition, the Company's electronic products segment manufactures products to customers design specification as a contract manufacturer. As such, the Company purchases inventory on behalf of customers for which the customer is financially obligated in the event his production order with the Company is cancelled or otherwise not fulfilled. Substantially all inventories carried by the electronic products segment are covered by customer commitments and approximately $2.2 million is attributable to customers A and B. Contract services revenue derived from contracts with agencies of the U.S. Government and from sub-contracts with U.S. Government prime contractors totaled $170,864 and $163,991 for the quarter ended September 30, 2001 and 2000, respectively, and $440,427 and $332,146 for the six months ended September 30, 2001 and 2000, respectively. (9) Discontinued Operations In October, 2001, the Company formalized a plan to sell or close its contract gear manufacturing business which is part of its mechanical products segment. The Company expects to complete the sale of its contract gear manufacturing business or its assets within ten months. Accordingly, the operating results of this division for the quarter and six months ended September 30, 2001 have been reported separately as discontinued operations together with estimated losses from the disposal of division assets and an accrual for estimated operating losses to be incurred during the phase-out period. Loss from operations of discontinued gear division also includes interest expense on debt used to acquire gear manufacturing machinery and equipment but does not include allocations of general corporate overheads which have been reallocated to other business segments. All prior periods presented have been restated to reflect the contract gear manufacturing division as a discontinued operation. UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Net revenue and losses from discontinued gear divisions were as follows: Quarter Ended September 30, Six Months Ended September 30, --------------------------- ------------------------------ 2001 2000 2001 2000 ---------- ------- ---------- ------- Net sales $ 345,070 343,199 698,399 624,941 Net loss $ (326,644) (259,993) (644,650) (577,393) Assets and liabilities of the discontinued gear division were as follows:
September 30, 2001 March 31, 2001 ------------------ -------------- (unaudited) Accounts receivable, inventories and other assets 651,801 466,353 Property and equipment, net 1,498,370 1,927,728 Goodwill, net - 1,043,816 ------- --------- Total assets 2,150,171 3,437,897 --------- --------- Accounts payable and other liabilities 195,061 233,819 Accrued future loses of discontinued operations 663,792 - Term debt 797,705 952,630 -------- -------- Total liabilities 1,656,558 1,186,449 --------- --------- Net assets of discontinued gear division 493,613 2,251,448 ======== =========
As of September 30, 2001 all assets and liabilities of the discontinued gear division have been classified as current. (10) Net loss per common share amounts are based on the weighted average number of common shares outstanding during the quarter and six months ended September 30, 2001 and 2000. Outstanding common stock options and warrants were not included in the computation because the effect of such inclusion would be antidilutive. As of September 30, 2001, the Company has outstanding options to purchase 2,584,757 shares of its common stock and warrants to purchase 299,375 shares of its common stock which could potentially dilute basic earnings per share in the future. (11) Segments The Company has three reportable segments: technology, mechanical products and electronic products. The technology segment encompasses the Company's technology-based operations including core research to advance its technology, application engineering and product development and job shop production of prototype components. The mechanical products segment encompasses the manufacture and sale of permanent magnet motors. As discussed in Note 9 the Company discontinued its gear operations in fiscal year 2002 and accordingly are UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) no longer reported in continuing operations of the mechanical products segment in all periods presented. The electronic products segment encompasses the manufacture and sale of wire harness assemblies, electronic printed circuit board assemblies and electronic products. Salaries of the executive officers and corporate general and administrative expense is allocated to all segments of continuing operations. During the quarter and six months ended September 30, 2001, intersegment sales or transfers were immaterial. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies. The following table summarizes significant financial statement information for the continuing operations of each of the reportable segments for the quarter ended September 30, 2001:
Mechanical Electronic Technology Products Products Total Revenue $ 838,531 1,116,839 3,266,117 5,221,487 Interest income 19,326 190 - 19,516 Interest expense - (3,584) (87,127) (90,711) Depreciation and amortization (78,726) (28,381) (209,587) (316,694) Goodwill amortization - - (67,587) (67,587) Segment earnings (loss) from continuing operations (299,296) 49,944 (536,309) (785,661) Assets of continuing operations 5,525,687 2,922,556 13,912,796 22,361,039 Assets of discontinued operations - 2,150,171 - 2,150,171 Total segment assets 5,525,687 5,072,727 13,912,796 24,511,210 Expenditures for segment assets $ (84,485) (6,428) (67,185) (158,098)
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited)
The following table summarizes significant financial statement information for the continuing operations of each of the reportable segments for the quarter ended September 30, 2000: Mechanical Electronic Technology Products Products Total Revenue $ 725,666 774,495 4,587,974 6,088,135 Interest income 13,161 298 - 13,459 Interest expense (13,919) (4,226) (48,623) (66,768) Depreciation and amortization (175,688) 48,092 (171,160) (298,756) Goodwill amortization - - (67,587) (67,587) Segment earnings (loss) from continuing operations (276,370) (7,418) (531,909) (815,697) Assets of continuing operations 7,998,536 2,747,537 12,632,993 23,379,066 Assets of discontinued operations - 3,557,324 - 3,557,324 Total segment assets 7,998,536 6,304,861 12,632,993 26,936,390 Expenditures for segment assets $ (72,095) (4,574) (256,258) (332,927) The following table summarizes significant financial statement information for the continuing operations of each of the reportable segments for the six months ended September 30, 2001: Mechanical Electronic Technology Products Products Total Revenue $ 1,794,047 2,049,375 7,887,859 11,731,281 Interest income 44,054 243 - 44,297 Interest expense - (7,344) (190,184) (197,528) Depreciation and amortization (160,971) (56,815) (416,833) (634,619) Goodwill amortization - - (135,174) (135,174) Segment earnings (loss) from continuing operations (443,214) 89,242 (601,488) (955,460) Assets of continuing operations 5,525,687 2,922,556 13,912,796 22,361,039 Assets of discontinued operations - 2,150,171 - 2,150,171 Total segment assets 5,525,687 5,072,727 13,912,796 24,511,210 Expenditures for segment assets $ (177,020) (12,229) (256,131) (445,380)
UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) The following table summarizes significant financial statement information for the continuing operations of each of the reportable segments for the six months ended September 30, 2000:
Mechanical Electronic Technology Products Products Total Revenue $ 1,523,783 1,580,693 9,167,406 12,271,882 Interest income 37,209 564 - 37,773 Interest expense (28,019) (8,613) (87,063) (123,695) Depreciation and amortization (197,349) (50,527) (311,662) (559,538) Goodwill amortization - - (135,174) (135,174) Segment earnings (loss) from continuing operations (530,556) 127,483 (428,102) (831,175) Assets of continuing operations 7,998,536 2,747,537 12,632,993 23,379,066 Assets of discontinued operations - 3,557,324 - 3,557,324 Total segment assets 7,998,536 6,304,861 12,632,993 26,936,390 Expenditures for segment assets $ (254,857) (4,574) (1,250,915) (1,510,346)
(12) Commitments and Contingencies Employment Agreements The Company has entered into employment agreements with two of its officers which expire December 31, 2002. The aggregate future compensation under the employment agreements is $518,750. Lease Commitments The Company has entered into operating lease agreements for office and manufacturing space and equipment which expire at various times through 2007. As of September 30, 2001, the future minimum lease payments under operating leases with initial noncancelable terms in excess of one year for the remainder of the fiscal year and each fiscal year thereafter are as follows: 2002 $ 272,826 2003 401,727 2004 274,242 2005 270,208 2006 261,868 Thereafter 252,140 --------- $ 1,733,011 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (unaudited) Rental expense under these leases totaled $138,219 and $140,750 for the quarter ended September 30, 2001 and 2000, respectively, and $280,057 and $281,500 for the six months ended September 30, 2001 and 2000, respectively. (13) Comprehensive Income The Company's comprehensive loss for the quarter and six months ended September 30, 2001 and 2000 was equal to its net loss. Accumulated comprehensive loss as of September 30, 2001 and March 31, 2001 consists entirely of translation adjustments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the Risk Factors listed below in Part II, Item 5 Other Information which identifies important risk factors that could cause actual results to differ from those contained in the forward-looking statements. These forward-looking statements represent the Company's judgment as of the date of the press release. The Company disclaims, however, any intent or obligation to update these forward-looking statements. Financial Condition Cash and cash equivalents at September 30, 2001 was $2,587,567 and working capital (the excess of current assets over current liabilities) was $4,005,329 compared with $2,399,006 and $4,737,780,respectively, at March 31, 2001. Accounts receivable declined $1,045,412 to $2,853,629 at September 30, 2001 from $3,899,041 at March 31, 2001. The decrease is primarily attributable to accelerated collections from a significant customer and lower revenue levels during the six months ended September 30, 2001. Costs and estimated earnings on uncompleted contracts increased $60,419 to $632,428 at September 30, 2001 from $572,009 at March 31, 2001. The increase was due to the performance of work on engineering contracts at a rate greater than the associated billing arrangements. Estimated earnings on contracts in process rose to $984,629 at September 30, 2001 on costs incurred on contracts in process of $2,089,194 compared to estimated earnings on contracts in process of $720,333 on costs incurred on contracts in process of $1,974,471 at March 31, 2001. The increase is attributable to an expanded amount of work and an improved pricing. Inventories declined $498,627 to $6,157,609 principally due to a decline in finished products inventories. The decline in finished products inventories is due to shipments of finished products by the electronic products segment during the first quarter. Prepaid expenses increased to $305,458 at September 30, 2001 from $184,405 at March 31, 2001 reflecting the prepayment of insurance premium costs on the Company's commercial insurance coverage. Equipment of discontinued operations held for sale, net reflects the net book value of property and equipment of the discontinued gear division held for sale. The Company invested $413,173 for the acquisition of property and equipment during the six months ended September 30, 2001, compared to $1,401,545 for the six months ended September 30, 2000. The decrease in capital expenditures is primarily attributable to higher than normal expenditures for manufacturing equipment at the Company's electronic products segment during the prior year period. Goodwill, net of accumulated amortization, declined $1,178,990 to $4,483,807 at September 30, 2001 primarily due to write-down of goodwill associated with the discontinuation of the Company's gear division operations. Accounts payable declined $126,595 to $2,651,142 at September 30, 2001 from $2,777,737 at March 31, 2001, primarily due to reduced raw material inventory purchases. Other current liabilities increased $152,814 to $1,183,842 at the end of the first half from $1,031,028 at March 31, 2001. The increase is primarily attributable to future payments under a contingent pricing arrangement with a customer that provides for a retroactive price concession if the customer meets annual volume delivery targets. Pursuant to this arrangement, the Company invoices at the current purchase order price, records product sales at the lower annual volume delivery target price and records the cumulative difference in these amounts as an accrued liability. At June 30, 2001 deferred revenues under this arrangement accounted for $139,600 of the increase in accrued liabilities. Current portion of long-term debt decreased $106,479 to $759,206 primarily due to the retirement of a portion of the Company's term debt during the first half of the year. Revolving line-of-credit declined $582,000 to $3,455,000 at September 30, 2001 from $4,037,000 at March 31, 2001. The decrease is attributable to lower working capital requirements during the six months ended September 30, 2001 arising principally from lower levels of accounts receivable and finished products inventory. Term debt and accrued future losses of discontinued operation reflects the current indebtedness of the discontinued gear division of $797,704 and $663,792 representing the expected future operating losses to be incurred during phase-out of operations (see Note 9). Billings in excess of costs and estimated earnings on uncompleted contracts rose $265,282 to $463,101 at September 30, 2001 from $197,819 at March 31, 2001 reflecting billing to customers for certain sponsored development contracts in advance of performance of the associated work. Long-term debt decreased $1,191,424 to $1,414,651 at September 30, 2001 reflecting principal repayments on the Company's term bank debt during the first half and the reclassification of the term debt of the discontinued gear division to current liabilities. Common stock and additional paid-in capital increased to $175,617 and $51,112,499 at September 30, 2001, respectively, compared to $174,233 and $50,626,120 at March 31, 2001. The increases were primarily due to issuances of common stock under the Company's employee benefit plans. Results of Continuing Operations Continuing operations for the quarter ended September 30, 2001, resulted in a net loss of $785,661 or $.05 per share compared to a net loss of $815,697 or $0.05 per share for the quarter ended September 30, 2000. Continuing operations for the six months ended September 30, 2001 resulted in a net loss of $955,460 or $0.06 per share compared to a net loss of $831,175 or $0.05 per share for the six months ended September 30, 2000. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter increased by $71,917 to ($310,669) or $(.02) per share and increased by $24,629 to $11,861 or nil per share for the six months ended September 30, 2001. EBITDA is a broadly used financial term which many investment professionals use as an approximation of the operating cash flow generated by a business. Management believes that this information may be useful to investors in the Company due to the amount of noncash depreciation and amortization charges reported by the Company. Investors are cautioned, however, that EBITDA is not a replacement or substitute for net earnings or loss determined by the application of generally accepted accounting principles and our calculation of EBITDA may not be comparable to similarly titled disclosures made by other companies. Total revenue from continuing operations for the quarter ended September 30, 2001 declined $866,648 or 14 percent to $5,221,487 compared to $6,088,135 for the comparable quarter last year. For the six months ended September 30, 2001 total revenue declined $540,601 or 4 percent to $11,731,281 compared to $12,271,882 for the comparable period last year. Contract services revenue increased $288,163 or 82% to $641,044 compared to $352,881 for the comparable quarter last year, and rose $419,376 or 47% to $1,317,275 compared to $897,899 for the six months ended September 30, 2001. The increase in contract services revenue is attributable to improved demand for development projects. Product sales for the quarter declined $1,154,811 or 20% to $4,580,443 versus $5,735,254 for the comparable quarter last year. Product sales for the six months ended September 30, 2001 declined $959,977 or 8% to $10,414,006 compared to $11,373,983 for the first half last year. Mechanical product sales revenue increased $342,344 or 44% to $1,116,839 and increased $468,682 or 30% to $2,049,375 for the quarter and six months ended September 30, 2001, respectively, compared to $774,495 and $1,580,693 for the comparable periods last year due to increased shipments of wheel chair motors. Electronic product sales revenue decreased $1,321,857 or 29% to $3,266,117 and decreased $1,279,547 or 14% to $7,887,859 for the quarter and six months ended September 30, 2001, respectively, compared to $4,587,974 and $9,167,406 for the comparable periods last year. The decrease is primarily attributable to lower revenue from consumer products in the Company's electronics products segment. Gross profit margins for the second quarter and first half were 8.6 percent and 11.7 percent, respectively, compared to 9.7 percent and 12.9 percent for the comparable quarter and six month period last year. Gross profit margins on contract services was 30.8 percent and 27.0 percent for the quarter and six months ended September 30, 2001 compared to a negative 7.8 percent and positive 3.5 percent for the comparable periods last year. The improvement in gross profit margin on contract services is attributable to improved performance and improved margins on development programs. Gross profit margins on product sales for the second quarter and first half were 5.5 percent and 9.7 percent, respectively, compared to 10.7 percent and 13.7 percent for the comparable periods last year. The decrease in margins on product sales is primarily attributable to decreased overhead absorption at the Company's electronic product segment. Research and development expenditures during the second quarter declined $20,900 to $6,601 compared to $27,501 due to a decrease in cost share development programs, and increased $5,334 to $70,744 compared to $65,410 for the first half due to higher levels of internally-funded development activities. General and administrative expense for the second quarter increased $94,532 to $1,113,293 and increased $145,036 to $2,016,363 for the quarter and six months ended September 30, 2001, respectively, compared to $1,018,761 and $1,871,327 for the comparable prior year periods. The increase for both periods was primarily due to legal, accounting and investment banking fees associated with the due diligence review of a potential acquisition target of $156,461 which were charged to expense upon termination of negotiations during the quarter. Impairment of assets in the prior year periods presented represents charges associated with the retirement of certain older machines taken out of service. Interest income was $19,516 and $44,297 for the quarter and six months ended September 30, 2001 compared to $13,459 and $37,773 for the comparable prior year periods. The increase for the quarter and six months is attributable to higher levels of invested cash. Interest expense increased $23,943 to $90,711 and $73,833 to $197,528 for the quarter and six months ended September 30, 2001, respectively. The increase is attributable to higher levels of borrowing on the Company's revolving line-of-credit during the quarter and six months ended September 30, 2001 versus the comparable periods last year. Results of Discontinued Operations Operations for the quarter ended September 30, 2001, for the gear division resulted in a net loss of $2,003,094 or $.11 per share compared to a net loss of $259,993 or $0.01 per share for the quarter ended September 30, 2000. Operations for the six months ended September 30, 2001 resulted in a net loss of $2,321,100 or $0.13 per share compared to a net loss of $577,393 or $0.03 per share for the six months ended September 30, 2000. The increase in losses for both periods is attributable to the write-down of the goodwill and the accrual for estimated operating losses to be incurred during the phase-out period, which totaled $1,676,450 or $0.10 per share. Total revenue for the quarter ended September 30, 2001 was $345,070 compared to $343,199 for the comparable quarter last year. For the six months ended September 30, 2001 total revenue rose $73,458 or 12 percent to $698,399 compared to $624,941 for the comparable period last year. The increase for the six month period is attributable to increased aerospace work. General and administrative expense for the second quarter increased to $58,997 and $117,995 for the quarter and six months ended September 30, 2001 compared to $45,738 and $93,905 for the comparable periods last year. The increase for the quarter and the six months period is primarily attributable to higher payroll costs. Interest income was $1,710 and $2,182 for the quarter and six months ended September 30, 2001 compared to $2,681 and $5,080 for the comparable prior year periods. The decrease for the quarter and six months is attributable to the application of cash to fund working capital requirements. Interest expense decreased to $32,260 and $66,098 for the quarter and six month period ended September 30, 2001 compared to $38,031 and $77,517 for the comparable periods last year, respectively. The decrease is attributable to lower levels of term debt. Liquidity and Capital Resources The Company's cash balances and liquidity throughout the quarter and six months ended September 30, 2001 were adequate to meet operating needs. Net cash provided by operating activities was $1,643,097 for the six months ended September 30, 2001 versus net cash used by operating activities of $1,226,033 for the six months ended September 30, 2000. Cash requirements throughout the first half of the year were funded from existing cash balances, cash generated from operations and proceeds from the exercise of employee stock options. The increase in cash from operating activities is primarily attributable to lower levels of accounts receivable ($1,090,877) and inventory ($557,455) during the first six months, substantially all of which was applied to the reduction of debt. Cash used by investing activities for the first half of the year was $445,380 compared to $1,103,346 for the comparable period last year, reflecting lower levels of capital expenditures. Coincident with the Company's decision to exit the gear contract manufacturing business the Company amended its mechanical product segment line-of-credit with a commercial bank effective September 30, 2001, decreasing the available facility from $750,000 to $400,000, of which no amount was drawn, eliminating performance related covenants and extending the expiration date to July 2002. In addition, the Company agreed to reduce the outstanding balance of its mortgage debt to the bank by an additional $242,311 in October 2001. Management believes the loan agreement, as amended, will allow for the orderly liquidation of its gear division and the term debt collateralized by gear division assets. The Company's other line-of-credit covering its electronics segment is with a commercial bank in the amount of $4.0 million and expires in December 2001. The Company expects to either renew the line-of-credit on or before its expiration date or replace it with a similar facility. At September 30, 2001, $3,455,000 was drawn against this facility. Both loan agreements have terms limiting borrowings on the line to certain percentages of eligible accounts receivable and inventory and have been unconditionally guaranteed by UQM Technologies as the parent entity. The Company believes that is existing cash balances and bank lines-of-credit will be sufficient to meet its operating capital requirements for at least the next twelve months, exclusive of acquisition financing requirements, however, some of the Company's significant customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. To the extent these customers experience financial difficulties sufficient to impair their ability to honor their financial commitments, the Company could experience a material adverse change in its liquidity and results of operations. The Company is actively considering possible future acquisitions at any given time and from time to time enters into non-binding letters of intent with respect to possible acquisitions. For the longer-term, the Company expects to continue its strategy of growing its business through expanding its product line of permanent magnet motors and controllers, seek strategic alliances to accelerate the commercialization of its technology and pursue synergistic and accretive acquisitions. The Company expects to finance its future growth from existing cash resources, cash flow from operations and through issuance of equity or debt securities or a combination thereof. There can, however, be no assurance that such financing or capital will be available on terms acceptable to the Company. In the event financing or capital for future growth as envisioned under the Company's strategy is not available, the Company will modify its strategy to align its operations with its then available financial resources. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that, beginning on the first day of the Company's next fiscal year, goodwill will no longer be amortized for any intangible assets determined to have an indefinite useful life acquiredin a business combinations accounted for under the purchase method completed prior to June 30, 2001. In addition, the Company will be required to assign goodwill to specific reporting units and then test it for impairment at least annually under a two step approach designed to compare the carrying value of each reporting unit to the fair value of the reporting unit. Upon implementation, the Company will be required to reassess its intangible assets, including goodwill recorded in connection with earlier acquisitions accounted for under the purchase method, including their useful lives. The Company expects to implement SFAS 142 in the first fiscal quarter ending June 30, 2002. The Company has not yet assessed the impact the implementation of SFAS 142 will have on its financial condition and results of operations, and does not expect to do so until the quarter ending June 30, 2002. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The adoption of SFAS 141 will not have an effect on the Company's consolidated financial statements. Management is currently assessing the impact, if any, of SFAS 142 and 144 on the Company's consolidated financial statements for future periods. Item 3. Quantitative and Qualitative Disclosure About Market Risks Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company does not use financial instruments to any degree to manage these risks and does not hold or issue financial instruments for trading purposes. Subsequently, all of the Company's product sales, and related receivables are payable in U.S. dollars. The Company is subject to interest rate risk on its debt obligations. Long-term debt obligations have fixed interest rates and the Company's lines-of-credit have variable rates of interest indexed to the prime rate. Interest rates on these instruments approximate current market rates as of September 30, 2001. A one percent change in the prime interest rate would increase or decrease interest expense by $34,550 on an annual basis based on outstanding borrowings at September 30, 2001 on debt with adjustable interest rate provisions. PART II - OTHER INFORMATION Item 2. Changes in Securities The Company completed a private placement in fiscal 1998 of 750,000 units consisting of one common share and a warrant to acquire on share of common stock at an exercise price of $8.00 per share. At September 30, 2001 warrants to purchase 299,375 shares of common stock were outstanding. The warrants were scheduled to expire on various dates from September 13 to October 8, 2001, and were unilaterally extended by the Company to October 31, 2001. The Company has offered to further extend the warrants for an additional two years for an additional payment based on the Black-Scholes model. At November 8, 2001, warrants to purchase 38,250 shares had been so extended. Item 4. Submissions of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of UQM Technologies, Inc. was held on August 22, 2001. 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 Withhold For Authority William G. Rankin 15,449,526 103,385 J. B. Richey 15,450,651 102,260 Ernest H. Drew 15,450,651 102,260 Stephen J. Roy 15,450,351 102,560 Proposal 2: Proposal to ratify the appointment of KPMG LLP as the independent auditors of the Company. For Against Abstain 15,474,207 25,529 53,175 Outstanding votable shares: 17,451,518 Total voted shares represented in person and by proxy: 15,552,911 Percentage of the outstanding votable shares: 89.12% Item 5. Other Information The following risk factors are applicable to our business: 1. We have incurred significant operating losses. We have incurred significant operating losses as shown in the following tables: arter ended September 30, Six Months ended September 30, ------------------------- ------------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Net loss $ 2,788,755 $ 1,075,690 $ 3,276,560 $ 1,408,568 Fiscal Year Ended March 31, ----------------------------------- 2001 2000 1999 ---- ---- ---- Net loss $ 3,140,122 $ 6,471,807 $ 3,754,070 We have had accumulated deficits as follows: March 31, 2001 $ 35,164,723 March 31, 2000 $ 32,024,601 In the future we plan to make additional investments in product development and commercialization which is likely to cause us to remain unprofitable. Although most of our product development costs are paid by our customers this may not continue to be the case. The level of development revenue we receive from our customers can be affected by a number of factors including general economic conditions, competition, marketing and strategic considerations as well as our customers' internal financial and strategic considerations. If the level of revenue we receive from our customers for product development decreases from current levels it could cause us to reduce the rate of product development or incur additional operating losses, or both. Most of our development contracts with our customers are firm fixed price. Consequently, our ability to perform development work for these customers within the budget funded by the customer could affect the level of our losses. Our customers can generally terminate their contracts with us on short notice. Contract services revenue and operating losses could be adversely affected by renegotiation or termination of any of our revenue development programs. The motor and electronic products that we expect to develop and commercialize incorporating our technology may require significant additional development, testing and investment. The expenditure on future development may not result in a commercially viable product which could cause our investment in such a product to have little or no future value. Although we have been able to obtain funds from customers for the development of our technology for specific purposes in the past, we cannot guarantee you that these revenue development programs will continue, that development programs will be completed within budget or that any products that we develop will be commercially successful. 2. We depend on a few large customers. A significant portion of our total revenue has historically been concentrated among three large customers. Our electronic products segment manufactures products to customers' design specifications as a contract manufacturer. As such, we purchase inventory on behalf of customers for which the customer is financially obligated in the event his production order with us is cancelled or otherwise not fulfilled. Our loan agreements have terms limiting borrowings to certain percentages of eligible accounts receivable and inventory. Some of our significant customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. To the extent any of these customers experiences financial difficulties sufficient to impair their ability to honor their financial commitments, we could experience an adverse material change in our liquidity and results of operations. 3. We may require additional financing. We expect to have operating losses during fiscal 2002. Cash balances stood at $2,587,567 at September 30, 2001. If general economic conditions deteriorate further our losses could become larger consuming some or all of our current cash balances. Over the last several years we have experienced substantial growth in our revenue which has increased our working capital requirements. Should future growth continue at a similar rate or an accelerated rate, the working capital requirements to fund our operations may consume our existing cash balances. We are actively pursuing accretive and synergistic acquisition opportunities as part of our business plan. We may need additional financing to complete acquisitions. We have revolving lines-of-credit with two banks which permit borrowings up to $4.4 million depending on the level of our trade accounts receivable and inventories. At September 30, 2001, maximum borrowings were limited to $4.0 million of which $3.5 million had been borrowed and an additional $0.5 million was available to be borrowed. If customers were not to honor financial obligations for the inventory we hold for them, or not pay the accounts receivable due from them, we would be required to repay a portion of the loan in order to be in compliance with our borrowing limitation provisions and operating performance of our loan agreement covenants. We cannot assure you that we would then be able to obtain waivers of such covenants or to obtain replacement financing on terms acceptable to us. In such a circumstance, we would have to curtail certain of our operations which could result in lower revenue levels and additional operating losses. We were in compliance with all our loan covenants as of September 30, 2001. 4. Our growth and expansion may strain our ability to manage our operations and financial resources. Our rapid annual growth rate and acquisitions have increased our operating complexity. We are actively considering possible future acquisitions at any given time and from time to time enter into non-binding letters of intent with respect to possible acquisitions. To manage continued rapid growth we must: o expand, train and manage our employee base and attract and retain additional highly skilled personnel o expand and improve our computer systems and software tools to manage our manufacturing and engineering activities o continue to develop and market new products and services o integrate acquired operations with our existing operations o control expenses and working capital requirements related to the expansion of our business We cannot assure you that we will be able to satisfy these requirements, or otherwise manage our growth effectively, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations. 5. Certain industries we service are experiencing weaker demand for their products. Currently, many sectors of the agricultural, automotive, truck and computer industries are experiencing a significant decrease in demand for their products and services, which has led to reduced demand for the products manufactured by us for our customers in these industries. One of our largest customers has recently significantly reduced the level of deliveries of products manufactured by us to customer specifications, causing the level of raw materials inventory ordered on his behalf to grow substantially. A protracted downturn in these industries or the failure of any of our customers to honor their financial obligations to us could have a significant negative impact on our business liquidity and results of operations. 6. Our customers may cancel their orders, change production quantities or schedules, and delay production. We generally do not obtain firm, long-term purchase commitments from our customers for products that we manufacture, and we continue to experience reduced lead-times in orders received from these customers. Customers may cancel their orders, change production quantities or schedules, and delay production for a number of reasons, most of which are outside of our control. The uncertain economic condition of several of the industries of our customers has resulted, and may continue to result, in some of our customers delaying the delivery of products we manufacture for them. Cancellations, reductions, rescheduling or delays by a significant customer or by a group of customers would seriously harm our results of operations. 7. Our operating results vary significantly from period to period. Although our operations are generally not seasonal, our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control, and may not meet the expectations of securities analysts or investors. If this occurs, the price of our stock could decline. The factors that contribute to fluctuations include: o the timing of customer orders o market acceptance of our products and our customers' new products o our ability to manage the timing and amount of our procurement of components to avoid delays in production and excess inventory levels o changes in economic conditions o the rate and timing of new product introductions by our customers which incorporate our proprietary technology o the possibility of labor disruptions at our customers facilities o costs associated with pursuing acquisitions that are not complete 8. If we are unable to continue to develop our technology portfolio and to commercialize our technology in new product applications and enhancements, our future growth will be limited. We believe that our future success will depend upon our ability to continue to develop our advanced motor, generator and electronic inverter technology, and to produce products and product enhancements based on our technology that meet the changing needs of our customers. This requires that we successfully anticipate and respond to technological changes in design and manufacturing processes in a cost-effective and timely manner. We cannot, however, assure you that our product development efforts will be successful. The introduction of new products embodying new technologies and the emergence of shifting customer demands or changing industry standards could render our existing products obsolete and unmarketable, which would harm our ability to generate revenues. 9. We face intense competition and may be unable to compete successfully. In addition to the substantial competition we face in the conventional markets we serve we have developed or are developing proprietary motors, generators and electronic inverters for emerging markets including electric, hybrid electric and fuel cell electric vehicles and distributed and renewable power generation. At present, the market for such products is not significant, although various legislative mandates and incentives and environmental and market concerns are expected to accelerate the development of potentially sizable markets for a variety of products. There are numerous companies developing products for these emerging markets that do, or soon will compete with our current products or our products under development. Many of these companies possess longer operating histories, significantly greater financial resources, marketing distribution and manufacturing capability. 10. Our government contracts could restrict our ability to commercialize our technology. Some of our technology has been developed under government funding by the United States. 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, potential disclosure of our confidential information to third parties and in some cases grant "march-in" rights to the government. March-in rights are the right of the United States government or the applicable government agency, under limited circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government to facilitate commercialization of technology developed with government funding if we fail to commercialize the developed technology. The disclosure of our confidential information, 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 harm our business. 11. Our business could be harmed if we are unable to protect our patents and other proprietary technology. We currently own seven U.S. patents which expire between 2008 and 2016. We also have one patent application pending with the U.S. Patent and Trademark Office. Our patent and trade secret rights are very important to us and to our future prospects. 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 give you assurance 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 can not assure you 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. 12. Other companies may claim that our technology infringes their intellectual property rights. We believe that we do not infringe the proprietary rights of other companies and, to date, no third party has asserted an infringement claim against us, but we may be subject to infringement claims in the future. The defense of any claims of infringement made against us by third parties 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. 13. Product liability insurance may become unavailable to us The sale of our products involves a risk of claims for product liability. We carry product liability insurance of $1 million covering all of our products. We cannot assure you that we will be able to maintain product liability insurance for either our present or our future sales on acceptable terms and cost or that our insurance, if maintained, will provide adequate protection against potential claims. 14. Our business may be harmed by shortages of required electronic components. At various times, there have been shortages of some of the electronic components that we use, and suppliers of some components have lacked sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production of assemblies using that component, which has contributed to an increase in our inventory levels and higher levels of operating losses. Moreover, we use several components that are produced to our design by only one supplier. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing and shipping delays, which could reduce our revenues and harm our results of operations. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UQM Technologies, Inc. Registrant Date: February 15, 2002 By:/s/ Donald A. French Donald A. French Treasurer (Principal Financial and Accounting Officer)