ITEM 1.
BUSINESS
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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, orders to be received under our supply agreement with CODA Automotive, Inc. ("CODA Automotive" or "CODA"), future financial results and the continued growth of the electric-powered vehicle industry. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed below in Part I, Item 1A.
ITEM 1A. RISK FACTORS
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We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth below may cause our actual results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.
We have incurred significant losses and may continue to do so.
We have incurred significant net losses as shown in the following tables:
As of March 31, 2012 we had an accumulated deficit of $80,486,989.
In the future, we plan to make additional investments in product development, facilities and equipment and other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses at least through March 31, 2013 and potentially beyond, although the level of our losses may decline as revenue from our Supply Agreement with CODA increases.
Our operating losses, anticipated capital expenditures and working capital requirements in the longer term may exceed our current cash balances.
Our net loss for the fiscal year ended March 31, 2012 was $4,928,520 versus a net loss for the fiscal years ended March 31, 2011 and 2010 of $1,992,358
and $4,140,872, respectively. At March 31, 2012, our cash and short-term investments totaled $12,120,849. We expect our losses to continue through at least March 31, 2013 and potentially beyond, although the level of our losses may decline as revenue from our Supply Agreement with CODA increases. Our existing cash resources, together with funding expected from our ARRA grant should be sufficient to complete our business plan for at least the next eighteen months. Should those resources be insufficient, we may need to secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.
If we do not satisfy the terms of our U.S. Department of Energy grant, we may not receive all of the $45.1 million grant we were awarded and may be required to return amounts already paid to us under the grant.
We have a $45.1 million Grant under the American Recovery and Reinvestment Act's Electric Drive Vehicle Battery and Component Manufacturing Initiative with the U.S. Department of Energy. We have received funding of $16.5 million under this Grant as of March 31, 2012. This Grant is subject to terms and conditions specified in the agreement between us and the DOE. We are required to make a cash investment on a dollar-for-dollar matching basis to receive funds under this Grant. If we are unable to match the total amount of the $45.1 million Grant with funding from non-Federal sources, we will be unable to take advantage of the entire award, and could become ineligible for continued participation in the program. The reimbursement of qualified costs under the award is currently limited to $32.0 million. On or before July 12, 2013, we are required to provide to the DOE an updated total estimated cost of the project along with firm commitments to fund our 50 percent share of the total estimated cost of the project above the $32.0 million of matching funds we have previously received credit for. If an extension or modification of this requirement has not occurred or all such funds have not been secured, we must submit, by such date, a funding plan to obtain the remainder of such funds, which is acceptable to the DOE, or the Grant may be terminated. In addition, the award may be terminated at any time at the convenience of the government. Although we expect to satisfy the requirement in the Grant, we cannot assure that this requirement will be satisfied and the contract will not be terminated prior to receiving all of the proceeds.
CODA may not purchase from us all of the 20,000 systems provided for under its Supply Agreement.
We have executed a Supply Agreement with CODA that provides a framework for CODA, or its manufacturing partner, to purchase from us 20,000 electric propulsion systems for use in automobiles to be manufactured by CODA during the initial two-year term of the agreement. Under the terms of this agreement, CODA will issue blanket purchase orders covering their annual purchase requirements and specifying the timing of delivery for such units, with a portion of the delivery schedule considered to be "firm" and noncancellable. If CODA, or its manufacturing partner, does not purchase at least 15,000 units under the CODA Supply Agreement, CODA may be required to make specific payments to us. For example, if CODA is unsuccessful in the development of its electric automobile, CODA would not be obligated to purchase electric propulsion systems from us, but CODA would then be obligated to make the payments specified in the contract to us. While these specific payments would cover much of our capital costs in preparing to supply electric propulsion systems to CODA, the payments are substantially less than the amount we would receive for sales of systems under the Supply Agreement. In addition, CODA may not have adequate funds to make any such payments to us or may otherwise contest its obligation to pay, and as a result it is possible that we may never receive any such funds. CODA may also terminate the Supply Agreement for any number of reasons.
We may experience challenges in launching production of electric propulsion systems on the scale envisioned under the CODA Supply Agreement.
Although we have installed and qualified production lines and begun production on these lines, we have not ever produced electric propulsion systems on the scale necessary to fulfill our obligations under the CODA Supply Agreement. We also may need to hire additional personnel as production volumes for CODA increase. We may encounter difficulties and challenges in ramping-up our operations. If we are unable to successfully increase our production volumes coincident with CODA's delivery requirements we could breach our Supply Agreement. If any such difficulties are encountered during production launch it could have a material adverse effect on our financial condition and results of operations.
Our revenue is highly concentrated among a small number of customers.
A large percentage of our revenue is typically derived from a small number of customers, and we expect this trend to continue and intensify as production under the CODA Supply Agreement increases. CODA may become the source of a substantial portion of our revenue in at least the near-term. The magnitude of this revenue is dependent on CODA's ability to introduce and sell its passenger vehicle in commercial volumes.
Our customer arrangements generally are non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. If one or more of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected.
Our business relies on third parties, whose success we cannot predict.
As a manufacturer of motors, generators, and other component parts, our business model depends on the ability of third parties in our industry to develop, produce and market products that include or are compatible with our technology and then to sell these products into the marketplace. Our ability to generate revenue depends significantly on the commercial success of our customers and partners. Failure of these third parties to achieve significant sales of products incorporating our products and fluctuations in the timing and volume of such sales could have a material adverse effect on our business, financial condition and results of operations.
Our electric propulsion systems use rare-earth minerals and unavailability or limited supply of these minerals could prevent us from manufacturing our products in production quantities or increase our costs.
Neodymium, a rare-earth mineral, is a key ingredient used in the production of magnets that are a component of our electric propulsion systems. We currently source our magnets from China, and China has indicated its intent to retain more of this mineral for the use of Chinese companies, rather than exporting it. Since the beginning of calendar 2011 we have experienced a significant price escalation in the cost of magnets used in our motors, which contain the rare-earth elements neodymium and dysprosium. The price escalation is primarily due to changes in government policy in China. Although prices have decreased materially since peaking in the summer of 2011 they are nevertheless, still well above the baseline prices at the beginning of calendar year 2011. We have amended our supply agreement with CODA to pass a substantial portion of our increased magnet purchase costs through to CODA in the form of a surcharge and have implemented a magnet surcharge for all of our other customers to recover these escalated costs. Although neodymium iron boron magnets are available from other sources, these alternative sources are currently more costly. Reduced availability of neodymium from China could adversely affect our ability to obtain magnets in sufficient quantities, in a timely manner, or at a commercially reasonable cost. In the event that China's actions cause us to seek alternate sources of supply for magnets, it could cause an increase in our production costs thereby reducing or eliminating our profit margin on electric propulsion systems if we are unable to pass the increase in our production costs on to our customers. Increasing prices to our customers due to escalating magnet costs may reduce demand for our motors and make it difficult or impossible to compete with other motor manufacturers whose motors do not use rare-earth minerals.
Some of our contracts can be cancelled with little or no notice and could restrict our ability to commercialize our technology.
Our contracts with government agencies are subject to the risk of termination at the convenience of the contracting agency and in some cases grant "march-in" rights to the government. March-in rights are the right of the United States government or the applicable government agency, under limited circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government to facilitate commercialization of technology developed with government funding. March-in rights can be exercised if we fail to commercialize the developed technology. The exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.
Some of our orders for the future delivery of products are placed under blanket purchase orders which may be cancelled by our customers at any time. The amount payable to us, if any, upon cancellation by the customer varies by customer. Accordingly, we may not recognize as revenue all or any portion of the amount of outstanding order backlog we have reported.
We face intense competition and may be unable to compete successfully.
In developing electric motors for use in vehicles and other applications, we face competition from very large domestic and international companies, including the world's largest automobile manufacturers. Many of our competitors have far greater resources to apply to research and development efforts than we have, and they may independently develop motors that are technologically more advanced than ours. These competitors also have much greater experience in and resources for marketing their products. For these reasons, potential customers may choose to purchase electric motors from our competitors rather than from us. In addition, the U.S. government has awarded substantial financial grants under the stimulus bill to several large companies who compete with us. To the extent that some of these competitors received awards under the stimulus bill in amounts greater than we have, could adversely impact our ability to compete.
Our business depends, in part, on the expansion of the market for hybrid electric vehicles and the future introduction and growth of a market for all-electric vehicles.
Although our electric propulsion systems may be used in a wide variety of products, the market for electric and hybrid vehicles is fairly new. At the present time, batteries used to power electric motors have limited life and require several hours to charge, and charging stations for electric motors are not widely available. Electric and hybrid vehicles also tend to be priced higher than comparable gasoline-powered vehicles. As a result, consumers may experience concerns about driving range limitations, battery charging time and higher purchase costs of electric or hybrid automobiles. If consumer preferences shift to vehicles powered by other alternative methods, or if concerns about the availability of charging stations cannot be overcome, the market for all-electric cars, and therefore our electric propulsion systems, may be limited. In addition, our electric propulsion systems are incorporated in buses used for mass transit in several U.S. cities. If passenger traffic in these mass transit systems declines or government funding to transportation districts declines from current levels, demand for our products may also decrease.
The popularity of alternative fuel based vehicles and "green energy" initiatives are highly dependent on macro-economic conditions, including oil prices and the overall health of the economy. When oil prices fall, interest in and resources allocated to the development of advanced technology vehicles and propulsion systems may diminish. Downturns in the world economy may also have a severe impact on the automotive industry, slowing the demand for vehicles generally and reducing consumers' willingness to pay more for environmentally friendly technology.
If our products do not achieve market acceptance, our business may not grow.
Although we believe our proprietary systems are suited for a wide-range of vehicle electrification applications, our business and financial plan relies heavily on the introduction of new products that have limited testing in the marketplace. We are currently making substantial investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, to ramp up our production capacity in order to capitalize on the anticipated expansion in demand for electric propulsion systems and generators in the automobile and light truck markets. Our sales of electric propulsion systems and generators in the automobile and light truck markets to date have consisted of limited quantities of preproduction evaluation and field test units. We are not certain that our existing products will achieve broad market acceptance, or that we will be able to develop new products or product enhancements that will achieve broad market acceptance.
Changes in environmental policies could hurt the market for our products.
The market for electric and other alternative fuel vehicles and equipment and the demand for our products are influenced, to a degree, by federal, state and local regulations relating to air quality, greenhouse gases and pollutants. These laws and regulations may change, which could result in transportation or equipment manufacturers abandoning or delaying their interest in electric or hybrid electric vehicles or equipment. In addition, a failure by authorities to enforce current laws and regulations or to adopt additional environmental laws or regulations could limit the demand for our products.
Although many governments have identified as a significant priority the development of alternative energy sources, governments may change their priorities, and any change they make could materially affect our revenue or the development of our products.
If we are unable to protect our patents and other proprietary technology, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our products. In addition, the cost of enforcing our proprietary rights may be expensive and result in increased losses.
Our ability to compete effectively against other companies in our industry will depend, in part, on our ability to protect our proprietary technology. Although we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be successful in doing so. We have historically pursued patent protection in the United States and a limited number of foreign countries where we believe significant markets for our products exist or where potentially significant competitors have operations. It is possible that a substantial market could develop in a country where we have not received patent protection and under such circumstances our proprietary products would not be afforded legal protection in these markets. Further, our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours. We cannot assure that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we may not be successful in enforcing our intellectual property rights. In addition, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country where we may operate or sell our products in the future. If third parties assert technology infringement claims against us, the defense of the claims could involve significant legal costs and require our management to divert time and attention from our business operations. If we are unsuccessful in defending any claims of infringement, we may be forced to obtain licenses or to pay royalties to continue to use our technology. We may not be able to obtain any necessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly, our results of operations may suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-party technologies.
Use of our motors in vehicles could subject us to product liability claims or product recalls, and product liability insurance claims could cause an increase in our insurance rates or could exceed our insurance limits, which could impair our financial condition, results of operations and liquidity.
The automotive industry experiences significant product liability claims. As a supplier of electric propulsion systems or other products to vehicle OEMs, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our systems or components caused an accident. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the award of damages. The sale of systems and components for the transportation industry entails a high risk of these claims, which may increase as our production and sales increase. In addition, we may be required to participate in recalls involving these systems if any of our systems prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships.
We carry product liability insurance of $10 million covering most of our products. If we were to experience a large insured loss, it might exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable levels, any of which could impair our financial position and results of operations. Any product liability claim brought against us also could have a material adverse effect on our reputation.
We may be subject to warranty claims, and our provision for warranty costs may not be sufficient.
We may be subject to warranty claims for defects or alleged defects in our products, and the risk of such claims arising will increase as our production and sales increase. In addition, in response to consumer demand, vehicle manufacturers have been providing, and may continue to provide, increasingly longer warranty periods for their products. As a consequence, these manufacturers may require their suppliers, such as us, to provide correspondingly longer product warranties. As a result, we could incur substantially greater warranty claims in the future.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
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None.
ITEM 2.
ITEM 2. PROPERTIES
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We own our offices and manufacturing facilities and believe these facilities to be well maintained, adequately insured and suitable for their present and intended uses. Information concerning our facilities as of March 31, 2012 is set forth in the table below:
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS 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.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
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Not applicable.
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our common stock trades on the NYSE MKT (formerly called NYSE Amex), Chicago, Pacific Stock, Frankfurt, Berlin and Stuttgart Stock Exchanges. The high and low trade prices, by fiscal quarter, as reported by the NYSE MKT Stock Exchange for the last two fiscal years are as follows:
High
Low
Fourth Quarter
$1.90
$1.37
Third Quarter
$2.19
$1.28
Second Quarter
$2.41
$1.54
First Quarter
$3.15
$2.01
High
Low
Fourth Quarter
$3.83
$2.22
Third Quarter
$2.85
$1.89
Second Quarter
$4.19
$2.06
First Quarter
$4.64
$3.10
On May 21, 2012 the closing price of our common stock, as reported on the NYSE MKT, was $1.24 per share and there were 641 holders of record of our common stock.
We have not paid any cash dividends on our common stock since inception and we intend for the foreseeable future to retain any earnings to finance the growth of our business. Future dividend policy will be determined by the Board of Directors based upon consideration of our earnings, capital needs and other factors then relevant.
PERFORMANCE GRAPH 2
The following graph represents the yearly percentage change in the cumulative total return on the common stock of UQM Technologies, Inc., the group of companies comprising the S&P Electrical Equipment Index, and those companies comprising the S&P 500 Index for the five year period from 2008 through 2012:
3/07
3/08
3/09
3/10
3/11
3/12
UQM Technologies, Inc.
100.00
41.12
39.90
102.43
72.51
36.01
S&P 500
100.00
94.92
58.77
88.02
101.79
110.48
S&P Electrical Components & Equipment
100.00
112.80
62.90
112.18
147.25
139.52
*$100 invested on 3/31/07 in stock or index, including reinvestment of dividends
Fiscal year ending March 31.
The stock price performance graph depicted is not "soliciting material," is not deemed "filed" with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation contained in such filing.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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, orders to be received under our Supply Agreement with CODA, future financial results and the continued growth of the electric-powered vehicle industry. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed above in Part I, Item 1A. Risk Factors.
Introduction
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. During the fiscal year ended March 31, 2012 our product sales increased 11.2 percent to $9,358,388, driven primarily by an increase in demand for propulsion systems.
In 2010, we entered into a ten year Supply Agreement with CODA Automotive to supply our PowerPhase Pro® 100 kW electric propulsion systems for CODA's all-electric four-door sedan. Our Supply Agreement with CODA also provides that if CODA or its manufacturing partners, if any, do not collectively purchase 15,000 units within the first two years following the launch of production, they will be required to make specific payments to us. In September 2011 we amended the Supply Agreement to permit the recovery of neodymium magnet costs above a benchmark price stated in the amendment.
In October 2011, we launched volume production of this system and began shipments to CODA. In March 2012, CODA began selling its all-electric passenger car to fleets and consumers in the State of California through its recently established dealer network. To date, CODA has established five dealers in California and has announced its intention to establish an additional 40 dealers in 25 cities across the United States by the end of calendar year 2012. CODA has also recently completed an agreement with Great Wall Motors Company, Baoding, China to co-develop an all-electric vehicle for worldwide distribution. Great Wall is one of China's fastest growing automobile manufacturers in 2011 with 487,000 vehicle sold. Under this arrangement Great Wall and CODA intend to co-develop and introduce the most affordable EV on the market, comparable to entry-level internal combustion engine vehicles after incentives.
CODA has stated that it hopes to sell between 10,000 and 14,000 vehicles in the first year following introduction of the vehicle. If CODA achieves their sales objectives we expect our revenue from the sale of propulsion systems to CODA and our working capital requirements to increase materially.
We also supply electric propulsion systems to Proterra, a developer and manufacturer of all-electric composite transit buses and Electric Vehicles International ("EVI"), a developer and manufacturer of all-electric medium-duty delivery trucks. EVI recently announced that they have received an order from UPS for 100 all-electric delivery vans powered by our electric propulsion systems, the majority of which are expected to be delivered in calendar year 2012. We are also supplying an automotive qualified DC-to-DC converter to Eaton Corporation, which is used onboard medium and heavy-duty hybrid trucks sold by Freightliner, International and Paccar.
Our electric propulsion systems are being used in several development vehicles including the Audi A1 e-tron all-electric car and the Rolls Royce all-electric 102EX Phantom car. In addition to these programs, the Company is supplying its electric propulsion systems and generators to numerous other international automakers and entrepreneurial automobile developers as part of their HEV, PHEV and EV vehicle development programs.
We have a $45.1 million Grant from the DOE under the American Recovery and Reinvestment Act to accelerate the manufacturing and deployment of electric vehicles, batteries and components in the United States. The Grant provides for a 50 percent cost-share by the Company. Capital expenditures for facilities, tooling and manufacturing equipment and the qualification and testing of products associated with the launch of volume production for CODA, Proterra, EVI and other customers are eligible for reimbursement under the DOE program. We recorded reimbursements of $8.9 million under the DOE Grant through March 31, 2012 for capital assets acquired, which were recorded as a reduction in the cost basis of the assets acquired. We also recorded reimbursements of product qualification and testing costs under the Grant through March 31, 2012 of $7.8 million. In April 2012 we amended this contract to extend the period of performance by two years to January 12, 2015 and to extend the date for demonstrating our ability to provide additional cost-sharing funds until July 12, 2013. These amendments will allow us additional time to automotive qualify and commercialize additional products and the next generation of our existing products for the expanding markets for clean vehicles.
We are also pursuing an advanced motor technology that eliminates rare-earth elements. The technology incorporates permanent magnets of an alternate chemistry, arranged in a unique way that maintains performance benefits. A patent application has been submitted to protect this innovation. UQM was also selected and awarded $3 million by the DOE in a competitive solicitation to pursue this technology. This award was announced in August 2011 and is a three-year technology development program.
We have developed and recently introduced at Electric Vehicle Symposium 26 a production qualified and higher power version of our larger frame size motor, the PowerPhase HD® 220 for the medium-duty truck and bus markets. This system produces 220 kW of peak power (at 360 VDC) in a smaller more cost effective package. We have also begun work on the next generation PowerPhase Pro® system for the automotive market. The objective of this program is to introduce a higher performance electric propulsion system that has increased efficiency over a broader operating range, a smaller package size and reduced costs.
Our former facility in Frederick, Colorado is currently listed for sale with a commercial broker. As a result, the carrying value of the facility has been classified as a current asset and listed under the caption facility held for sale.
We expect demand for our electric propulsion system and generator products to remain strong for the foreseeable future as vehicle makers continue to focus on the development and introduction of electric and hybrid electric vehicles as part of the evolution of the global automotive industry to provide a broader selection of highly fuel efficient vehicles to consumers. This demand is due, in part, to an expansion in the number of all-electric and hybrid electric vehicle platforms being developed for potential introduction in the passenger automobile market, the amount of government grants and loans available to encourage the development and introduction of clean vehicles, tax incentives to purchasers of these vehicles, progressively more challenging CAFE and global carbon dioxide emission regulations, and a desire on the part of the global automotive industry to provide a broader selection of highly fuel efficient vehicles.
Product sales revenue for the fiscal year ended March 31, 2012 increased 11.2 percent to $9,358,388 versus $8,413,098 last fiscal year. The increase is primarily due to increased propulsion system shipments to CODA under our Supply Agreement partially offset by decreased levels of prototype propulsion system sales.
Revenue from funded engineering activities for the fiscal year ended March 31, 2012 increased to $785,068 versus $608,204 last fiscal year. The increase is primarily attributable to increased levels of customer funded engineering activities.
Gross profit margins on product sales for the fiscal year increased to 28.8 percent versus 27.6 percent last fiscal year, due to a more favorable product mix, improved overhead absorption and lower manufacturing burden arising from a change in the method of allocating costs associated with excess facility capacity. Gross profit contribution dollars increased to $2,979,995 versus $2,392,703 last fiscal year.
Net loss for the fiscal year ended March 31, 2012 increased to $4,928,520, or $0.14 per common share on consolidated total revenue of $10,143,456, versus a net loss of $1,992,358, or $0.06 per common share on consolidated total revenue of $9,021,302 for the previous fiscal year. The increase in current year net loss is primarily attributable to the reimbursement of prior period production engineering costs of $1,546,446 in the prior fiscal year under the DOE Grant which increased the reimbursement percentage for that fiscal year to 113 percent versus 63 percent for the current fiscal year, a recovery from a bankruptcy proceeding during the prior fiscal year of $265,474 and higher levels of selling, general and administrative expenses during the fiscal year ended March 31, 2012 due primarily to recruiting costs and the addition of a Vice President of Sales and Business Development to our executive team.
Our liquidity throughout the fiscal year was sufficient to meet our operating requirements. At March 31, 2012, we had cash and short-term investments totaling $12,120,849. Net cash used in operating activities for the fiscal year was $11,414,137 versus $2,284,396 last fiscal year due primarily to planned increases in inventory levels associated with the launch of production for CODA. Capital expenditures, net of reimbursements from the DOE for the fiscal year were $645,603 versus $3,652,569 last fiscal year.
Financial Condition
Cash and cash equivalents and short-term investments at March 31, 2012 were $12,120,849 and working capital (the excess of current assets over current liabilities) was $25,025,517 compared with $24,211,275 and $27,413,664, respectively, at March 31, 2011. The decrease in cash and short-term investments is primarily attributable to operating losses, higher levels of inventories, accounts receivables and capital expenditures partially offset by higher levels of accounts payable and other current liabilities. The decrease in working capital is primarily attributable to operating losses and increased levels of other current liabilities which were partially offset by higher levels of accounts receivables.
Accounts receivable increased $1,402,063 to $4,929,117 at March 31, 2012 from $3,527,054 at March 31, 2011. The increase is primarily attributable to higher levels of billings under our purchase and supply agreement with CODA. Substantially all of our customers are large well-established companies of high credit quality. Our sales are conducted through acceptance of customer purchase orders or in some cases through supply agreements. For credit qualified customers our standard terms are net 30 days. For international customers and customers without an adequate credit rating our typical terms are irrevocable letter of credit or cash payment in advance of delivery. During the year ended March 31, 2012, our customer Saab filed for bankruptcy protection. As a result, we had an allowance for bad debts of $127,697 at March 31, 2012 representing approximately 90 percent of the amount due from Saab. No allowance for bad debts was deemed necessary at March 31, 2011.
Costs and estimated earnings on uncompleted contracts decreased to $78,376 at March 31, 2012 versus $126,775 at March 31, 2011. The decrease is due to more favorable billing terms on certain contracts in process at March 31, 2012 versus March 31, 2011. Estimated earnings on contracts in process decreased to $380,713 or 24.0 percent of contracts in process of $1,587,499 at March 31, 2012 compared to estimated earnings on contracts in process of $424,184 or 9.4 percent of contracts in process of $4,530,042 at March 31, 2011. The decrease in estimated earnings is attributable to lower levels of funded engineering contracts in process partially offset by higher expected margin on certain contracts in process at March 31, 2012.
Inventories increased $8,350,707 to $10,564,148 at March 31, 2012 as compared to $2,213,441 at March 31, 2011 principally due to increased levels of raw materials and finished goods inventories. Raw materials, work-in-process and finished goods inventory increased $5,420,316, $321,956 and $2,608,435, respectively, principally due to the ramping up of production for CODA.
Prepaid expenses and other current assets increased to $556,592 at March 31, 2012 from $367,154 at March 31, 2011 primarily due to higher levels of prepayments on raw material inventories outstanding at the end of the current fiscal year versus the prior fiscal year end.
We invested $2,132,593 for the acquisition of property and equipment during the fiscal year before reimbursements from the DOE Grant compared to $7,388,288 during the fiscal year ended March 31, 2011. The decrease in gross capital expenditures is primarily attributable to reduced renovation costs on our facility and decreased acquisitions of equipment this year reflecting the completion of the installation of our volume production lines during the prior fiscal year.
Patent costs decreased $41,255 to $222,836 at March 31, 2012 as compared to $264,091 at March 31, 2011 due to systematic amortization of patent issuance costs and the impairment of a patent application during the year, partially offset by the costs associated with the filing and pursuit of new patent applications.
Trademark costs decreased $4,487 to $113,844 at March 31, 2012 as compared to $118,331 at March 31, 2011 due to systematic amortization of trademark issuance costs.
Other assets decreased $133,259 to $90,105 at March 31, 2012 from $223,364 at March 31, 2011 due to lower levels of prepayments on capital equipment purchases outstanding at the end of the current fiscal year versus the prior fiscal year end.
Accounts payable increased $983,110 to $2,356,513 at March 31, 2012 from $1,373,403 at March 31, 2011, primarily due to increased levels of inventory purchases offset by lower levels of capital asset purchases and reduced outstanding construction draws associated with the renovation of our facility at the end of the prior fiscal year.
Other current liabilities increased $1,425,395 to $2,329,101 at March 31, 2012 from $903,706 at March 31, 2011. The increase is primarily attributable to deferred revenue arising from our magnet purchase agreement with CODA and higher levels of customer deposits outstanding at March 31, 2012.
Short-term deferred compensation under executive employment agreements decreased $587,193 to $152,007 at March 31, 2012 versus $739,200 at March 31, 2011 reflecting a retirement payment made to the Company's former CEO during the first quarter of the fiscal year, partially offset by severance obligations due to our former Senior Vice President of Operations under the terms of his employment agreement.
Billings in excess of costs and estimated earnings on uncompleted contracts decreased $8,525 to $7,201 at March 31, 2012 from $15,726 at March 31, 2011 reflecting decreased levels of billings on certain engineering contracts in process at the end of the fiscal year ended March 31, 2012 in advance of the performance of the associated work versus the prior fiscal year.
Long-term deferred compensation under executive employment agreements decreased $14,072 to $563,100 at March 31, 2012 from $577,172 at March 31, 2011 reflecting the reduction of estimated future severance obligations due to the departure of our Senior Vice President of Operations which were partially offset by periodic accruals of future severance obligations under executive employment agreements.
Common stock and additional paid-in capital increased to $363,562 and $114,371,106, respectively, at March 31, 2012 compared to $362,133 and $113,391,049 at March 31, 2011. The increase in common stock and additional paid-in capital was primarily attributable to the expensing of non-cash share-based payments associated with equity grants under our stock bonus and equity incentive plans and share issuances under our employee stock purchase plan and stock bonus plan.
Results of Operations
Operations for the fiscal year ended March 31, 2012, resulted in a net loss of $4,928,520, or $0.14 per common share, compared to a net loss of $1,992,358, or $0.06 per common share, and $4,140,872, or $0.13 per common share, for the fiscal years ended March 31, 2011 and 2010, respectively. The increase in current year net loss is primarily attributable to the reimbursement of prior period production engineering costs of $1,546,446 in the prior fiscal year under the DOE Grant, a recovery from a bankruptcy proceeding during the prior fiscal year of $265,474 and higher levels of selling, general and administrative expenses due primarily to recruiting costs and the addition of a Vice President of Sales and Business Development to our executive team.
Revenue from contract services increased $176,864, or 29.1 percent, to $785,068 for the fiscal year ended March 31, 2012 versus $608,204 for the fiscal year ended March 31, 2011. The increase is primarily attributable to increased levels of customer funded engineering activities. Revenue from contract services decreased to $608,204 for the fiscal year ended March 31, 2011 compared to $1,384,599 for the fiscal year ended March 31, 2010. The decrease is primarily attributable to lower levels of funded development programs and the application of engineering resources from the contract services group to support production engineering, low volume production and internally funded research and development activities.
Product sales this fiscal year increased 11.2 percent to $9,358,388 compared to $8,413,098 for the fiscal year ended March 31, 2011. The increase is primarily due to increased propulsion system shipments to CODA under our Supply Agreement partially offset by decreased levels of prototype propulsion system sales. Product sales for the fiscal year ended March 31, 2011 increased 15.1 percent to $8,413,098 compared to $7,307,354 for the fiscal year ended March 31, 2010. The increase was primarily attributable to shipments of propulsion systems under the CODA, Proterra and EVI supply agreements and shipments of propulsion systems under a fleet build program with Audi.
Gross profit margins on contract services increased to 36.3 percent this fiscal year compared to 11.0 percent for the fiscal year ended March 31, 2011 primarily due to higher expected margins on certain contracts in process at March 31, 2012. Gross profit margins on contract services decreased to 11.0 percent fiscal year ended March 31, 2011 compared to 35.5 percent for the fiscal year ended March 31, 2010 due to reduced overhead absorption and higher incurred costs than planned on certain engineering contracts in process. Gross profit margins on product sales this fiscal year increased to 28.8 percent compared to 27.6 percent for fiscal 2011. The increase is primarily due to a more favorable product mix, improved overhead absorption and lower manufacturing burden arising from a change in the method of allocating costs associated with excess facility capacity. Gross profit margins on product sales for the fiscal year ended March 31, 2011 decreased to 27.6 percent compared to 30.5 percent for fiscal 2010. The decrease is primarily due to lower margins on pre-production units shipped to CODA.
Research and development expenditures for the fiscal year ended March 31, 2012 were $37,128 compared to $292,865 and $576,341 for the fiscal years ended March 31, 2011 and 2010, respectively. The decrease in research and development expenditures for the fiscal year ended March 31, 2012 compared to the prior fiscal year was primarily due to reduced levels of internally funded and cost-sharing programs. The decrease in research and development expenditures for the fiscal year ended March 31, 2011 compared to the prior fiscal year was primarily due to reduced levels of internally funded programs.
Production engineering costs were $6,014,868 for the fiscal year ended March 31, 2012 versus $3,536,287 and $2,908,334 for the prior two fiscal years. The increase for the current fiscal year versus fiscal year 2011 is primarily attributable to the utilization of engineering resources from our contract services group, and expansion of the production engineering group and its activities in preparation for the launch of higher volume manufacturing operations for CODA, development of our next generation PowerPhase Pro® propulsion systems for the passenger automobile market and increased product qualification and testing activities on our PowerPhase HD® 220 system for the truck and bus markets. The increase for the fiscal year ended March 31, 2011 versus fiscal 2010 was primarily attributable to the utilization of engineering resources from our contract services group, and expansion of the production engineering group and its activities in preparation for the launch of higher volume manufacturing operations for CODA.
Reimbursement of costs under the DOE Grant were $3,794,324 versus $3,988,655 and zero for each of the two prior fiscal years, respectively. Last fiscal year the Company satisfied various conditions of the Grant allowing for the recognition and reimbursement of all product qualification and testing costs incurred between August 5, 2009 and September 30, 2010. As a result, during the fiscal year ended March 31, 2011 we recorded reimbursements of $1,546,446 for product qualification and testing costs incurred in the prior fiscal year. Excluding this amount, reimbursements for the fiscal year ended March 31, 2012 increased $1,352,115 versus the prior fiscal year reflecting increased levels of reimbursable product qualification and testing costs.
Selling, general and administrative expenses this fiscal year were $5,678,797 compared to $4,884,373 and $3,433,549 for the fiscal years ended March 31, 2011 and 2010, respectively. The increase this year is attributable to increases in salary and benefits expenses associated with an expansion in our administrative staff and executive team, higher levels of accounting fees, the establishment of an allowance for bad debts related to the Saab bankruptcy filing and increased recruiting and general insurance costs partially offset by decreases in non-cash equity based compensation and marketing expenses. The increase for fiscal 2011 versus 2010 is primarily attributable to higher levels of annual cash and non-cash incentive compensation grants, costs arising from the recruitment and relocation of a new Chief Executive Officer and moving expenses associated with our relocation to a new facility.
Interest income decreased to $22,805 for the current fiscal year compared to $91,342 and $64,916 for the fiscal years ended March 31, 2011 and 2010, respectively. The decrease for fiscal 2012 versus fiscal 2011 is attributable to lower invested balances and lower yields during the fiscal year ended March 31, 2012. The increase for fiscal 2011 versus fiscal 2010 is attributable to higher yields on invested balances due to a greater mix of investments with a longer period to maturity.
Interest expense was zero for the year ended March 31, 2012 compared to zero and $15,697 for the fiscal years ended March 31, 2011 and 2010, respectively. The decrease for fiscal 2012 and 2011 versus fiscal 2010 is due to the payoff of the mortgage on the company's former facility during the fiscal year ended March 31, 2010.
Other income for the fiscal year ended March 31, 2012 was $2,011 versus $265,474 and $11,000 for the fiscal years ended March 31, 2011 and 2010, respectively. The decrease this fiscal year is attributable to a recovery received from a bankruptcy proceeding during the fiscal year ended March 31, 2011.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the fiscal year ended March 31, 2012 were adequate to meet operating needs. At March 31, 2012, we had cash and short-term investments of $12,120,849 and working capital (the excess of current assets over current liabilities) of $25,025,517 compared to $24,211,275 and $27,413,664 at March 31, 2011, respectively.
For the year ended March 31, 2012, net cash used in operating activities was $11,414,137 compared to net cash used in operating activities of $2,284,396 and $2,428,007 for the years ended March 31, 2011 and 2010, respectively. The increase in cash used in operating activities this fiscal year is primarily attributable to increased levels of inventory and accounts receivable principally associated with the launch of volume production for CODA and higher operating losses, partially offset by higher levels of accounts payable and other current liabilities. The decrease in cash used for the year ended March 31, 2011 is primarily attributable to lower operating losses, offset by higher levels of accounts receivable and inventories at the end of the fiscal year.
Net cash provided by investing activities for the fiscal year ended March 31, 2012 was $7,124,741 compared to cash provided by investing activities of $475,688 for the previous fiscal year and cash used in investing activities of $14,793,339 for fiscal 2010. The increase in the fiscal year ended March 31, 2012 is due to increased net maturities of short-term investments and a decrease in the amount of capital expenditures, net of reimbursements under our DOE Grant. The increase in cash provided by investing activities for fiscal 2011 versus fiscal 2010 is due to reimbursements received from the DOE under the Grant, higher levels of investment maturities and reduced levels of capital expenditures.
Net cash provided by financing activities was $48,584 for the fiscal year ended March 31, 2012 versus cash used in financing activities of $52,140 and cash provided by financing activities of $32,458,947 for the fiscal years ended March 31, 2011 and 2010, respectively. The decrease in cash provided in fiscal 2012 versus fiscal 2010 and the decrease in cash provided in fiscal 2011 versus fiscal 2010 and is primarily attributable to the completion of a follow-on public offering in the third quarter of fiscal 2010 which resulted in cash proceeds of $31,664,373.
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 may need to invest substantially greater financial resources during fiscal 2013 on the commercialization of our products in the automotive market, including a significant increase in human resources, and increased expenditures for equipment, tooling and facilities. These capital requirements may be substantially reduced by funding available under our DOE Grant, which provides reimbursement of 50 percent of qualified capital expenditures and product qualification and testing costs. We expect our working capital requirements to increase further if CODA achieves their annual vehicle sales target of 10,000 vehicles. We believe we have sufficient cash resources to meet our working capital requirements, including those we expect to arise from higher production volumes for CODA, and to fund our operations for at least the next eighteen months.
We expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage consistent with the execution of our business plan, although it is possible that with higher than expected growth next year and beyond, our working capital requirements could consume a substantial portion of our cash reserves at March 31, 2012. If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future, although we cannot assure that we will be able to secure additional capital should it be required to implement our current business plan. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, or at all, we will modify our strategy to align our operation with then available financial resources.
Contractual Obligations
The following table presents information about our contractual obligations and commitments as of March 31, 2012:
Off-Balance Sheet Arrangements
None.
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 affect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for doubtful accounts receivables, costs to complete contracts, the recoverability of inventories and the fair value of financial and long-lived assets. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.
Accounts Receivable
Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectability of accounts receivable may change due to changing general economic conditions and factors associated with each customer's particular business. Because substantially all of our customers are large well-established companies with excellent credit worthiness, we have not historically established a reserve for potentially uncollectible trade accounts receivable. However, during the fiscal year ended March 31, 2012 we established an allowance for bad debts of $127,697, principally due to the bankruptcy filing of Saab. In light of current economic conditions we may need to maintain an allowance for bad debts in the future. It is also reasonably possible, that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses.
Inventories
We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assesses our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. 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. During the fiscal years ended March 31, 2012, 2011 and 2010, we recorded inventory impairments of $10,169, $10,160 and $26,714, respectively.
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 March 31, 2012 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.
Fair Value Measurements and Asset Impairment
Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. The determination of fair value for those assets that do not have quoted prices in active markets is highly judgmental. These estimates and judgments may include fair value determinations based upon the extrapolation of quoted prices for similar assets and liabilities in active or inactive markets, for observable items other than the asset or liability itself, for observable items by correlation or other statistical analysis, or from our assumptions about the assumptions market participants would use in valuing an asset or liability when no observable market data is available. Similarly, management evaluates both tangible and intangible assets for potential impairments in value. In conducting this evaluation, management may rely on a number of factors to value anticipated future cash flows including operating results, business plans and present value techniques. Rates used to value and discount cash flows may include assumptions about interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management's judgment in applying them to the analysis of asset impairment. Changes in any of the foregoing estimates and assumptions or a change in market conditions could result in a material change in the value of an asset or liability resulting in a material adverse change in our operating results.
ITEM 7A.
ITEM 7A. 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. One component of interest rate risk involves the short term investment of excess cash in short term, investment grade interest-bearing securities. If there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations. 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.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
toc*
Board
of Directors and
Shareholders of UQM Technologies, Inc.
We have audited the accompanying consolidated balance sheets of UQM Technologies, Inc. (a Colorado corporation) and subsidiaries (collectively, the "Company") as of March 31, 2012 and 2011, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UQM Technologies, Inc. and subsidiaries as of March 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated May 24, 2012 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Denver, Colorado
May 24, 2012
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
Board of Directors and
Shareholders of UQM Technologies, Inc.
We have audited UQM Technologies, Inc. (a Colorado Corporation) and subsidiaries (collectively, the "Company") internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of UQM Technologies, Inc. and subsidiaries as of March 31, 2012 and 2011 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2012, and our report dated May 24, 2012 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Denver, Colorado
May 24, 2012
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
toc*
March 31, 2012
March 31, 2011
Assets
Current assets:
Cash and cash equivalents
$ 11,637,940
15,878,752
Short-term investments
482,909
8,332,523
Accounts receivable, net
4,929,117
3,527,054
Costs and estimated earnings in excess of billings on uncompleted contracts
78,376
126,775
Inventories
10,564,148
2,213,441
Facility held for sale
1,621,257
-
Prepaid expenses and other current assets
556,592
367,154
Total current assets
29,870,339
30,445,699
Property and equipment, at cost:
Land
1,683,330
1,859,988
Building
4,484,493
6,822,850
Machinery and equipment
7,868,481
6,766,539
14,036,304
15,449,377
Less accumulated depreciation
(4,677,827
)
(4,696,942)
Net property and equipment
9,358,477
10,752,435
Patent costs, net of accumulated amortization of $816,259 and $781,608
222,836
264,091
Trademark costs, net of accumulated amortization of $59,743 and $55,256
113,844
118,331
Other assets
90,105
223,364
Total assets
$ 39,655,601
$ 41,803,920
See accompanying notes to consolidated financial statements.
(Continued)
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
March 31, 2012
March 31, 2011
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 2,356,513
1,373,403
Other current liabilities
2,329,101
903,706
Short-term deferred compensation under executive employment agreements
152,007
739,200
Billings in excess of costs and estimated earnings on uncompleted contracts
7,201
15,726
Total current liabilities
4,844,822
3,032,035
Long-term deferred compensation under executive employment agreements
563,100
577,172
Total liabilities
5,407,922
3,609,207
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 50,000,000 shares authorized;
36,356,177 and 36,213,293 shares issued and outstanding
363,562
362,133
Additional paid-in capital
114,371,106
113,391,049
Accumulated deficit
(80,486,989
)
(75,558,469)
Total stockholders' equity
34,247,679
38,194,713
Total liabilities and stockholders' equity
$ 39,655,601
41,803,920
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
toc*
Year Ended
Year Ended
Year Ended
March 31, 2012
March 31, 2011
March 31, 2010
Revenue:
Contract services
$ 785,068
608,204
1,384,599
Product sales
9,358,388
8,413,098
7,307,354
10,143,456
9,021,302
8,691,953
Operating costs and expenses:
Costs of contract services
499,813
541,214
892,649
Costs of product sales
6,663,648
6,087,385
5,082,171
Research and development
37,128
292,865
576,341
Production engineering
6,014,868
3,536,287
2,908,334
Reimbursement of costs under DOE grant
(3,794,324)
(3,988,655)
-
Selling, general and administrative
5,678,797
4,884,373
3,433,549
Loss (gain) on disposal of assets
(3,138
)
17,007
-
15,096,792
11,370,476
12,893,044
Loss before other income (expense)
(4,953,336)
(2,349,174)
(4,201,091)
Other income (expense):
Interest income
22,805
91,342
64,916
Interest expense
-
-
(15,697)
Other
2,011
265,474
11,000
24,816
356,816
60,219
Net loss
$ (4,928,520)
(1,992,358
)
(4,140,872
)
Net loss per common share-basic and diluted:
$ (0.14)
(0.06)
(0.13)
Weighted average number of shares of common
stock outstanding - basic and diluted
36,301,642
36,070,364
30,720,368
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
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Number of
common
Additional
Total
shares
Common
paid-in
Accumulated
stockholders'
issued
stock
capital
deficit
equity
Balances at April 1, 2009
26,727,694
$ 267,277
78,767,154
(69,425,239)
9,609,192
Issuance of common stock in follow-on offering, net of offering costs
8,625,000
86,250
31,578,123
-
31,664,373
Issuance of common stock under employee stock purchase plan
61,362
106,000
-
106,613
Purchase of treasury stock
(38,750)
(388)
(159,787)
-
(160,175)
Issuance of common stock upon exercise of employee options
374,349
3,743
1,081,120
-
1,084,863
Issuance of common stock upon exercise of warrants
70,142
179,495
-
180,196
Issuance of common stock under stock bonus plan
126,941
1,271
(1,271)
-
-
Compensation expense from employee and
director stock option and common stock grants
-
-
660,393
-
660,393
Net loss
-
-
-
(4,140,872)
(4,140,872)
Balances at March 31, 2010
35,946,738
359,467
112,211,227
(73,566,111)
39,004,583
Issuance of common stock under employee stock purchase plan
9,828
22,397
-
22,495
Purchase of treasury stock
(55,045)
(550)
(143,201)
-
(143,751)
Issuance of common stock upon exercise of employee options
31,966
68,796
-
69,116
Issuance of common stock under stock bonus plan
279,806
2,798
334,375
-
337,173
Compensation expense from employee and
director stock option and common stock grants
-
-
897,455
-
897,455
Net loss
-
-
-
(1,992,358)
(1,992,358)
Balances at March 31, 2011
36,213,293
362,133
113,391,049
(75,558,469)
38,194,713
Issuance of common stock under employee stock purchase plan
41,158
60,548
-
60,960
Purchase of treasury stock
(6,191)
(62)
(12,314)
-
(12,376)
Issuance of common stock under stock bonus plan
107,917
1,079
167,545
-
168,624
Compensation expense from employee and
director stock option and common stock grants
-
-
764,278
-
764,278
Net loss
-
-
-
(4,928,520)
(4,928,520)
Balances at March 31, 2012
36,356,177
$ 363,562
114,371,106
(80,486,989)
34,247,679
See accompanying notes to consolidated financial statements.
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Notes to Consolidated Financial Statements
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( 1) Summary of Significant Accounting Policies
(a) Description of Business
UQM Technologies, Inc. and our wholly-owned subsidiaries are engaged in the research, development and manufacture of permanent magnet electric motors and the electronic controls for such motors. Our facility is located in Longmont, Colorado. Our revenue is derived primarily from product sales to customers in the automotive, industrial, and aerospace markets, and from contract research and development services. We are impacted by other factors such as the continued receipt of contracts from industrial and governmental parties, our ability to protect and maintain the proprietary nature of our technology, continued product and technological advances and our ability together with our partners, to commercialize our products and technology.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of UQM Technologies, Inc. and those of all majority-owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents and Short-term Investments
We consider cash on hand and investments with original maturities of three months or less to be cash and cash equivalents. Investments with original maturities of greater than three months and less than one year from the balance sheet date are classified as short-term.
We limit our cash and cash equivalents and investments to high quality financial institutions in order to minimize our credit risk.
(d) Investments
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 securities and bank certificates of deposits with original maturities beyond three months. All marketable securities are held in our name at three major financial institutions who hold custody of the investments. All of our investments are held-to-maturity investments as we have the positive intent and ability to hold these securities until maturity. All investments are recorded at amortized cost.
The amortized cost and unrealized gain or loss of our investments were:
The time to maturity of held-to-maturity securities were:
(e) Accounts Receivable
We extend unsecured credit to most of our customers following a review of the customers' financial condition and credit history. Our sales are conducted through acceptance of customer purchase orders or in some cases through supply agreements. For credit qualified customers our standard terms are net 30 days. For international customers without an adequate credit rating, our typical terms are irrevocable letter of credit or cash payment in advance of delivery. We establish an allowance for doubtful accounts based upon a number of factors including the length of time trade receivables are past due, the customer's ability to pay its obligation to us, the condition of the general economy, estimates of credit risk, historical trends and other information. We write off accounts receivable when they become uncollectible against our allowance for uncollectible accounts receivable. At March 31, 2012 and 2011, we had an allowance for uncollectible accounts receivable of $127,697 and zero, respectively. Accounts receivable are deemed to be past due when they have not been paid by their contractual due dates.
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. We charge directly to expense slow moving or obsolete inventory items during the period we assess the value of such inventory to be impaired. For the fiscal years ended March 31, 2012, 2011 and 2010, we impaired inventory of $10,169, $10,160 and $26,714, respectively.
(g) Property and Equipment
Property and equipment are stated at cost, unless the asset was acquired, in part, with DOE Grant funds, in which case it is stated at cost net of DOE reimbursements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to five years, except for buildings, which are depreciated over 27.5 years. Maintenance and repairs are charged to expense as incurred. Depreciation expense for the fiscal years ended March 31, 2012, 2011 and 2010 was $1,139,821, $817,033 and $547,365, respectively.
(h) Patent and Trademark Costs
Patent and trademark costs consist primarily of legal expenses, and represent those costs incurred by us for the filing of patent and trademark applications. Amortization of patent and trademark costs is computed using the straight-line method over the estimated useful life of the asset, typically 17 years for patents, and 40 years for trademarks. Amortization expense for the fiscal years ended March 31, 2012, 2011 and 2010 was $39,137, $47,539, and $55,730, respectively.
(i) Impairment of Long-Lived Assets
We periodically evaluate whether circumstances or events have affected the recoverability of long-lived assets including intangible assets with finite useful lives. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or groups of assets from expected future cash flows (undiscounted and without interest charges) estimated by management. If expected future cash flows are less than the carrying value, an impairment loss is recognized to adjust the asset to fair value as determined by expected discounted future cash flows.
(j) Product Warranties
Our warranty policy generally provides three months to three years of coverage depending on the product. We record a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on our actual historical experience with our current products or similar products. For new products, the required reserve is based on historical experience of similar products until sufficient historical data has been collected on the new product. Adjustments are made as new information becomes available.
(k) Revenue and Cost Recognition
We manufacture proprietary products and other products. Revenue from sales of products are generally recognized at the time title to the goods and the benefits and risks of ownership passes to the customer which is typically when products are shipped based on the terms of the customer purchase agreement.
Revenue relating to long-term fixed price contracts is recognized using the percentage of completion method. Under the percentage of completion method, contract revenues and related costs are recognized based on the percentage that costs incurred to date bear to total estimated costs. Changes in job performance, estimated profitability and final contract settlements may result in revisions to cost and revenue, and are recognized in the period in which the revisions are determined. Contract costs include all direct materials, subcontract and labor costs and other indirect costs. Selling, general and administrative costs are charged to expense as incurred. At the time a loss on a contract becomes known, the entire amount of the estimated loss is accrued.
The aggregate of costs incurred and estimated earnings recognized on uncompleted contracts in excess of related billings is shown as a current asset, and billings on uncompleted contracts in excess of costs incurred and estimated earnings is shown as a current liability.
(l) Government Grants
The Company recognizes government grants when it is probable that the Company will comply with the conditions attached to the grant arrangement and the grant will be received. Government grants are recognized in the consolidated statements of operations on a systematic basis over the periods in which the Company recognizes the related costs for which the government grant is intended to compensate. Specifically, when government grants are related to reimbursements for cost of revenues or operating expenses, the government grants are recognized as a reduction of the related expense in the consolidated statements of operations. For government grants related to reimbursements of capital expenditures, the government grants are recognized as a reduction of the basis of the asset and recognized in the consolidated statements of operations over the estimated useful life of the depreciable asset as reduced depreciation expense.
The Company records government grants receivable in the consolidated balance sheets in accounts receivable.
(m) Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The valuation of deferred tax assets may be reduced if future realization is not assured. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense or benefit in the period that includes the enactment date. The Company has unexpired net operating losses and research and development credits carrying forward into current years that date from the tax year 1998 and 2001, respectively. As such, all federal tax returns from 1998 to the present are subject to federal audit.
(n) Research and Development
Costs of researching and developing new technology, or significantly altering existing technology, are expensed as incurred.
(o) Loss per Common 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 March 31, 2012, 2011 and 2010, respectively, issued but not yet earned common shares of 167,680, 62,199, and 98,929 were being held in safekeeping by the Company. For the fiscal years 2012, 2011 and 2010, shares in the amount of zero, 8,794, and 26,260, 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 March 31, 2012, 2011 and 2010, options to purchase 3,254,905, 2,971,251 and 2,637,875 shares of common stock, respectively, were outstanding. For the fiscal years ended March 31, 2012, 2011 and 2010, respectively, options for 3,201,569, 1,032,297, and 678,815 shares were not included in the computation of diluted loss per share because the option exercise price was greater than the average market price of the common stock. In-the-money options determined under the treasury stock method to acquire 2,834 shares, 363,356 shares and 612,807 shares of common stock for the fiscal years ended March 31, 2012, 2011 and 2010, respectively, were potentially includable in the calculation of diluted loss per share but were not included, because to do so would be antidilutive.
(p) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
( 2) Stock Based Compensation
Stock Option Plans
As of March 31, 2012, we had 260,004 shares of common stock available for future grant to employees, consultants and key suppliers under our 2002 Equity Incentive Plan ("Plan"). This Plan expired on April 2, 2012 by its terms. We adopted a new plan, the 2012 Equity Incentive Plan on April 11, 2012 ("2012 Plan") and authorized 1,300,000 shares of common stock which are available for future grant to employees, consultants and key suppliers, subject to ratification by the Company's shareholders. The term of the 2012 Plan is ten years. Under the 2012 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 ten 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 an 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 2022. 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. Prior to the adoption of the 2012 Plan, we issued stock options under our 2002 Equity Incentive Plan. Forfeitures under the 2002 Equity Incentive 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. On November 2, 2011 the board of directors approved an amendment to the Directors Plan increasing the number of common stock available for future grant by 500,000 shares, subject to ratification by the company's shareholders. As of March 31, 2012, we had 448,509 shares of common stock available for future grant under the Directors Plan. Option terms range from three to ten years from the date of grant. 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. As of March 31, 2012 we had 455,621 shares of common stock available for issuance under the Stock Purchase Plan. During the years ended March 31, 2012, 2011 and 2010, respectively, 41,158, 9,828 and 61,362 shares of common stock were issued under the Stock Purchase Plan. Cash received by us upon the issuance of shares under the Stock Purchase Plan for the years ended March 31, 2012, 2011 and 2010, was $60,960, $22,495 and $106,613, respectively.
Stock Bonus Plan
We have a Stock Bonus Plan ("Stock Plan") administered by the Board of Directors. As of March 31, 2012 there were 550,320 shares of common stock available for future grant under the Stock Plan. On May 9, 2012, the Board of Directors approved an amendment to the plan increasing the number of shares available for future grant by 200,000 shares, subject to ratification by the company's shareholders. Under the Stock 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 Stock Plan, if any, are determined by the Board of Directors at the time of grant. There were 213,398, 243,076, and zero shares granted under the Stock Plan during the years ended March 31, 2012, 2011, and 2010, respectively.
We use the straight-line attribution method to recognize share-based compensation costs over the requisite service period of the award. Options granted by us 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 NYSE MKT) 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 and the classification of these expenses for the last three fiscal years were as follows:
Year Ended
Year Ended
Year Ended
March 31, 2012
March 31, 2011
March 31, 2010
Cost of contract services
$ 21,592
90,189
84,331
Cost of product sales
98,807
105,714
76,809
Research and development
1,110
15,892
29,606
Production engineering
193,474
100,802
103,669
Selling, general and administrative
617,919
922,031
365,978
$ 932,902
1,234,628
660,393
Share-based compensation capitalized in inventories was insignificant as of March 31, 2012 and 2011.
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 for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments during the years ended March 31, 2012, 2011 and 2010 was insignificant.
All options granted under the Non-Employee Director Stock Option Plan are vested. A summary of the status of non-vested shares under the 2002 Equity Incentive Plan as of March 31, 2012, 2011 and 2010, and changes during the years ended March 31, 2012, 2011 and 2010 are presented below:
As of March 31, 2012, there was $660,870 of total unrecognized compensation cost related to stock options granted under our stock option plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 23 months. The total fair value of stock options that vested during the years ended March 31, 2012, 2011 and 2010 was $363,238, $512,720 and $194,945, respectively.
A summary of the non-vested shares under the Stock Bonus Plan as of March 31, 2012, 2011 and 2010, and changes during the years ended March 31, 2012, 2011 and 2010 are presented below:
As of March 31, 2012 there was $288,786 of total unrecognized compensation cost related to common stock granted under our Stock Bonus Plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 25 months. The total fair value of common stock granted under the Stock Bonus Plan that vested during the years ended March 31, 2012, 2011 and 2010 was $245,745, $743,454, and $401,384, respectively.
During the years ended March 31, 2012, 2011 and 2010 options to acquire 569,710, 629,965, and 246,840 shares of common stock, respectively, were granted under our 2002 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 years ended March 31, 2012, 2011 and 2010, were based on estimates at the date of grant as follows:
Expected volatility is based on historical volatility. Options granted to members of the board of directors and executives with option terms of less than ten years utilize the simplified calculation of expected life described by SAB 107 because we do not have sufficient historical experience for option grants with option terms of less than ten years. The expected life of all other options granted is based on historical experience.
Additional information with respect to stock option activity during the year ended March 31, 2012 under our 2002 Equity Incentive Plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2011
2,630,491
$ 3.00
3.7 years
$ 959,001
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
(6,309
)
$ 3.08
Outstanding at June 30, 2011
2,624,182
$ 3.00
3.5 years
$ 39,661
Granted
389,588
$ 2.40
Exercised
-
$ -
$ -
Forfeited
(35,931
)
$ 3.54
Outstanding at September 30, 2011
2,977,839
$ 2.92
4.1 years
$ -
Granted
25,000
$ 2.10
Exercised
-
$ -
$ -
Forfeited
(1,985
)
$ 2.40
Outstanding at December 31, 2011
3,000,854
$ 2.91
3.9 years
$ -
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
(218,398
)
$ 4.14
Outstanding at March 31, 2012
2,782,456
$ 2.81
4.0 years
$ -
Exercisable at March 31, 2012
2,113,734
$ 2.87
2.7 years
$ -
Vested and expected to vest at March 31, 2012
2,755,229
$ 2.82
3.9 years
$ -
Additional information with respect to stock option activity during the year ended March 31, 2011 under our 2002 Equity Incentive Plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2010
2,377,075
$ 3.45
3.9 years
$ 2,509,155
Granted
-
$ -
Exercised
(1,000)
$ 3.57
$ 600
Forfeited
(3,166
)
$ 3.57
Outstanding at June 30, 2010
2,372,909
$ 3.45
3.7 years
$ 1,264,435
Granted
510,132
$ 2.52
Exercised
-
$ -
$ -
Forfeited
(6,334
)
$ 3.59
Outstanding at September 30, 2010
2,876,707
$ 3.28
4.0 years
$ 328,687
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
(7,119)
$ 2.37
Outstanding at December 31, 2010
2,869,588
$ 3.29
3.7 years
$ 74,736
Granted
-
$ -
Exercised
(30,966)
$ 2.12
$ 35,590
Forfeited
(208,131
)
$ 7.07
Outstanding at March 31, 2011
2,630,491
$ 3.00
3.7 years
$ 959,001
Exercisable at March 31, 2011
2,154,557
$ 2.99
3.2 years
$ 759,243
Vested and expected to vest at March 31, 2011
2,612,913
$ 3.00
3.7 years
$ 950,395
Additional information with respect to stock option activity during the year ended March 31, 2010 under our 2002 Equity Incentive Plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2009
2,740,815
$ 3.66
4.7 years
$ -
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at June 30, 2009
2,740,815
$ 3.66
4.4 years
$ 341,705
Granted
-
$ -
Exercised
(254,094)
$ 2.71
$ 535,449
Forfeited
(5,873
)
$ 2.66
Outstanding at September 30, 2009
2,480,848
$ 3.76
4.0 years
$ 5,803,280
Granted
193,304
$ 4.73
Exercised
(79,009)
$ 3.55
$ 722,353
Forfeited
(667
)
$ 3.57
Outstanding at December 31, 2009
2,594,476
$ 3.84
3.9 years
$ 8,237,679
Granted
-
$ -
Exercised
(21,444)
$ 2.39
$ -
Forfeited
(195,957
)
$ 8.75
Outstanding at March 31, 2010
2,377,075
$ 3.45
3.9 years
$ 2,509,155
Exercisable at March 31, 2010
2,038,328
$ 3.40
3.7 years
$ 2,257,051
Vested and expected to vest at March 31, 2010
2,362,503
$ 3.40
3.9 years
$ 2,494,713
Additional information with respect to stock option activity during the year ended March 31, 2012 under our non-employee director stock option plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2011
329,786
$ 2.86
3.1 years
$ 129,642
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at June 30, 2011
329,786
$ 2.86
2.9 years
$ 9,734
Granted
155,122
$ 2.04
Exercised
-
$ -
$ -
Forfeited
(25,996
)
$ 2.33
Outstanding at September 30, 2011
458,912
$ 2.61
3.7 years
$ -
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
(13,158
)
$ 3.40
Outstanding at December 31, 2011
445,754
$ 2.59
3.6 years
$ -
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at March 31, 2012
445,754
$ 2.59
3.3 years
$ -
Exercisable at March 31, 2012
445,754
$ 2.59
3.3 years
$ -
Vested and expected to vest at March 31, 2012
445,754
$ 2.59
3.3 years
$ -
Additional information with respect to stock option activity during the year ended March 31, 2011 under our non-employee director stock option plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2010
256,653
$ 3.15
2.6 years
$ 303,651
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
(977
)
$ 7.63
Outstanding at June 30, 2010
255,676
$ 3.13
2.4 years
$ 143,003
Granted
100,136
$ 2.63
Exercised
-
$ -
$ -
Forfeited
(24,039
)
$ 3.57
Outstanding at September 30, 2010
331,773
$ 2.96
3.3 years
$ 45,771
Granted
19,697
$ 1.92
Exercised
-
$ -
$ -
Forfeited
(21,684
)
$ 3.40
Outstanding at December 31, 2010
329,786
$ 2.86
3.4 years
$ 14,384
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at March 31, 2011
329,786
$ 2.86
3.1 years
$ 129,642
Exercisable at March 31, 2011
329,786
$ 2.86
3.1 years
$ 129,642
Vested and expected to vest at March 31, 2011
329,786
$ 2.86
3.1 years
$ 129,642
Additional information with respect to stock option activity during the year ended March 31, 2010 under our non-employee director stock option plan is as follows:
Weighted
Weighted
Average
Shares
Average
Remaining
Aggregate
Under
Exercise
Contractual
Intrinsic
Option
Price
Life
Value
Outstanding at April 1, 2009
222,919
$ 2.77
2.7 years
$ -
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at June 30, 2009
222,919
$ 2.77
2.5 years
$ 48,096
Granted
-
$ -
Exercised
(19,802)
$ 3.20
$ 13,861
Forfeited
-
$ -
Outstanding at September 30, 2009
203,117
$ 2.73
2.5 years
$ 614,947
Granted
53,536
$ 4.73
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at December 31, 2009
256,653
$ 3.15
2.9 years
$ 950,797
Granted
-
$ -
Exercised
-
$ -
$ -
Forfeited
-
$ -
Outstanding at March 31, 2010
256,653
$ 3.15
2.6 years
$ 303,651
Exercisable at March 31, 2010
256,653
$ 3.15
2.6 years
$ 303,651
Vested and expected to vest at March 31, 2010
256,653
$ 3.15
2.6 years
$ 303,651
Cash received by us upon the exercise of stock options for the years ended March 31, 2012, 2011 and 2010 was zero, $69,116 and $1,084,863, respectively. The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares.
( 3) Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
At March 31, 2012, the estimated period to complete contracts in process ranged from one to ten months, and we expect to collect substantially all related accounts receivable arising therefrom within sixty days of billing.
The following summarizes contracts in process:
( 4) Inventories
Inventories consist of:
March 31, 2012
March 31, 2011
Raw materials
$ 7,189,930
$ 1,769,614
Work-in-process
710,603
388,647
Finished products
2,663,615
55,180
$ 10,564,148
$ 2,213,441
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-value to the lower of cost or market for estimated declines in the realizable value. For the fiscal years ended March 31, 2012, 2011 and 2010, we impaired obsolete inventory with a carrying value of $10,169, $10,160 and $26,714, respectively.
( 5) Government Grants
We have a $45,145,534 grant (the "Grant") with the DOE under the American Recovery and Reinvestment Act. The Grant provides funds to facilitate the manufacture and deployment of electric drive vehicles, batteries and electric drive vehicle components in the United States. Pursuant to the terms of the Agreement, the DOE will reimburse us for 50 percent of qualifying costs for the purchase of facilities, tooling and manufacturing equipment, and for engineering related to product qualification and testing of our electric propulsion systems and other products. The period of the Grant is through January 12, 2015.
We recognize government grants when it is probable that the Company will comply with the conditions attached to the grant arrangement and the grant will be received.
Funding for qualifying project costs incurred is initially limited to $32.0 million until we provide the DOE with an updated total estimated cost of the project along with evidence of firm commitments for our 50 percent share of the total estimated cost of the project no later than July 12, 2013. If all such funds have not been secured, we must submit, by such date, a funding plan to obtain the remainder of such funds, which is acceptable to the DOE. In the event we do not satisfy the foregoing contingency, the Grant may be terminated. In addition, the Grant may be terminated at any time at the convenience of the government.
The Grant is also subject to our compliance with certain reporting requirements. The American Recovery and Reinvestment Act imposes minimum construction wages and labor standards for projects funded by the Grant.
If we dispose of assets acquired using Grant funding, we may be required to reimburse the DOE upon such sale date if the fair value of the asset on the date of disposition exceeds $5,000. The amount of any such reimbursement shall be equal to 50 percent of the fair value of the asset on the date of disposition.
While UQM has exclusive patent ownership rights for any technology developed with Grant funds, we are required to grant the DOE a non-exclusive, non-transferable, paid-up license to use such technology.
In the fiscal year ended March 31, 2011, we recognized reimbursements of $1,546,446 for certain engineering costs incurred from August 5, 2009, through March 31, 2010 upon the satisfaction of certain conditions contained in the Grant.
At March 31, 2012 we had received reimbursements from the DOE under the American Recovery and Reinvestment Act totaling $16,464,981 and had grant funds receivable of $280,674.
The application of grant funds to eligible capital asset purchases under the DOE Grant as of March 31, 2012 and 2011 are as follows:
( 6) Impairment of Long-Lived Assets
During the fiscal year ended March 31, 2012, 2011 and 2010, we recorded total impairment charges of $27,845, zero and zero, respectively for the impairment of long-lived assets.
Impairments for the fiscal year ended March 31, 2012 consist solely of capitalized costs, principally legal fees, associated with the preparation and filing of patent applications that were subsequently abandoned. Because no patents were issued, none of these patent application costs were amortized prior to their impairment.
( 7) Patents and Trademarks
Patents owned by the Company, had a gross carrying amount of $1,039,095 and $1,045,699, accumulated amortization of $816,259 and $781,608, and a net carrying amount of $222,836 and $264,091, at March 31, 2012 and 2011, respectively. Trademarks owned by the Company had a gross carrying amount of $173,587 and $173,587, accumulated amortization of $59,743 and $55,256, and a net carrying value of $113,844 and $118,331 at March 31, 2012 and 2011, respectively. Amortization expense for the years ended March 31, 2012, 2011 and 2010, was $39,137, $47,539, and $55,730, respectively. Patents and trademarks are amortized on a straight-line basis over the estimated useful life of the asset, typically 17 years for patents, and 40 years for trademarks.
Estimated future amortization of these intangible assets by fiscal year is as follows:
Patents
Trademarks
$ 35,022
4,487
32,489
4,487
23,766
4,487
18,801
4,487
18,801
4,487
Thereafter
93,957
91,409
$ 222,836
113,844
( 8) Other Current Liabilities
Other current liabilities consist of:
Under the terms of the Supply Agreement with CODA, as amended, we are reimbursed by CODA for magnet purchase costs above a baseline amount specified in the Agreement. Magnet purchase costs above the baseline amount are recorded as unearned revenue at the time of payment to the vendor. Unearned revenue also includes payments from customers in advance of shipment of the purchased product.
( 9) Income Taxes
Income tax benefit attributable to loss from operations differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following:
The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are presented below:
As of March 31, 2012, we had net operating loss carry-forwards (NOL) of approximately $62.4 million for U.S. income tax purposes that expire in varying amounts through 2032. Approximately $5.3 million of the net operating loss carry-forwards are attributable to stock options, the benefit of which will be credited to additional paid-in capital if realized. However, due to the provisions of Section 382 of the Internal Revenue Code, the utilization of a portion of these NOLs may be limited. Future ownership changes under Section 382 could occur that would result in additional Section 382 limitations, which could further restrict the use of NOLs. In addition, any Section 382 limitation could reduce our ability for utilization to zero if we fail to satisfy the continuity of business enterprise requirement for the two-year period following an ownership change.
The valuation allowance for deferred tax assets of $22.9 million and $21.7 million at March 31, 2012 and 2011, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily net operating loss carry forwards in various tax jurisdictions. The Company continually assesses both positive and negative evidence to determine whether it is more-likely-than-not that the deferred tax assets can be realized prior to their expiration. Based on the Company's assessment it has determined the deferred tax assets are not currently realizable.
We have not recorded any potential liability for uncertain tax positions taken on our tax returns.
We may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Penalties are recorded in selling, general and administrative expenses and interest paid or received is recorded in interest expense or interest income, respectively, in the consolidated statements of operations.
(10) Stockholders' Equity
In the fiscal year ended March 31, 2010 we completed a follow-on offering of 8,625,000 shares of our common stock. Cash proceeds, net of offering costs, were $31,664,373.
(11) Significant Customers
We have historically derived significant revenue from a few key customers. Revenue from CODA totaled $4,313,728, $1,301,224 and $573,250 for the fiscal years ended March 31, 2012, 2011 and 2010, respectively, which was 43 percent, 14 percent, 7 percent of consolidated total revenue, respectively.
Trade accounts receivable from CODA were 61 percent and 16 percent of consolidated total accounts receivable as of March 31, 2012 and 2011, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $8,048,999 and $832,320 as of March 31, 2012 and 2011.
Revenue derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors totaled $684,489, $1,112,307, and $2,488,321 for the years ended March 31, 2012, 2011 and 2010, respectively, which was 7 percent, 12 percent, and 29 percent of total consolidated revenue, respectively. Accounts receivable from government-funded contracts represented 9 percent and 49 percent of total accounts receivable as of March 31, 2012 and 2011, respectively. Of these amounts, revenue derived from subcontracts with AM General LLC totaled $55,724, $792,508, and $1,807,063 which represented 1 percent, 9 percent, and 21 percent of our consolidated total revenue for the fiscal years ended March 31, 2012, 2011 and 2010, respectively. This customer also represented 2 percent and nil of total accounts receivable at March 31, 2012 and 2011, respectively. Inventories consisting of raw materials, work-in-process and finished goods for AM General LLC totaled zero at both March 31, 2012 and 2011.
(12) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable:
The carrying amounts approximate fair value because of the short maturity of these instruments.
Investments:
The carrying value of these instruments is the amortized cost of the investments which approximates fair value. See Note 1(d).
(13) Fair Value Measurements
Liabilities measured at fair value on a recurring basis as of March 31, 2012 are summarized below:
Liabilities measured at fair value on a recurring basis as of March 31, 2011 are summarized below:
Deferred compensation under executive employment agreements represents the future compensation potentially payable under the retirement and voluntary termination provisions of executive employment agreements (see also note 16). The value of the Level 3 liability in the foregoing table was determined under the income approach, using inputs that are both unobservable and significant to the value of the obligation including changes in the Company's credit worthiness and changes in interest rates.
A summary of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follows:
(14) 401(k) Employee Benefit Plan
We have established a 401(k) Savings Plan ("401K Plan") under which eligible employees may contribute up to 15 percent of their compensation. Employees over the age of 18 are eligible immediately upon hire to participate in the 401K Plan. At the direction of the participants, contributions are invested in several investment options offered by the 401K Plan. We currently match 33 percent of participants' contributions, subject to certain limitations. These matching contributions vest ratably over a three-year period. Matching contributions to the 401K Plan were $135,825, $96,074, and $84,262, for the years ended March 31, 2012, 2011, and 2010, respectively.
(15) Segments
Effective April 1, 2011 the Company merged its wholly-owned subsidiary UQM Power Products, Inc. into UQM Technologies, Inc. As a result of this merger the operations of each of these entities are no longer managed or reported upon to management separately, and accordingly, the Company is no longer presenting segment information in its financial statements.
Last fiscal year we had two reportable segments: technology and power products. These reportable segments were strategic business units that offered different products and services. They were managed separately because each business required different business strategies. The technology segment encompassed 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 encompassed the manufacture and sale of motors and electronic controllers. Salaries of the executive officers and corporate general and administrative expense were allocated to each segment annually based on factors established at the beginning of the fiscal year. The percentages allocated to the technology segment and power products segment for the fiscal years ended March 31, 2011 and March 31, 2010 were 76 percent and 24 percent, and 82 percent and 18 percent, in each year.
Intersegment sales or transfers, which were eliminated upon consolidation, were $767,935 and $522,925 for the two years ended March 31, 2011 and 2010, respectively.
The Company leased office, production and laboratory space in a building owned by a wholly-owned subsidiary of the Company. During the fiscal years ended March 31, 2011 and 2010, this wholly-owned subsidiary's operations were included as part of the former Power Products segment. Intercompany lease payments were based on a negotiated rate for the square footage occupied and were $298,593 and $183,600 for the years ended March 31, 2011 and 2010, respectively, and were eliminated upon consolidation.
The following table summarizes significant financial statement information after deducting intersegment eliminations of each of the reportable segments as of and for the year ended March 31, 2011:
Power
Technology
Products
Total
Revenue
$
5,884,486
3,136,816
9,021,302
Interest income
$
89,343
1,999
91,342
Interest expense
$
-
-
-
Depreciation and amortization
$
(462,312)
(402,260)
(864,572)
Impairment of inventories
$
(3,924)
(6,236)
(10,160)
Segment loss
$
(1,015,085)
(977,273)
(1,992,358)
Total assets
$
29,474,989
12,328,931
41,803,920
Expenditures for long-lived segment assets
$
(1,297,816)
(6,099,992)
(7,397,808)
The following table summarizes significant financial statement information after deducting intersegment eliminations of each of the reportable segments as of and for the year ended March 31, 2010:
Power
Technology
Products
Total
Revenue
$
6,236,177
2,455,776
8,691,953
Interest income
$
62,141
2,775
64,916
Interest expense
$
-
(15,697)
(15,697)
Depreciation and amortization
$
(389,725)
(213,370)
(603,095)
Impairment of inventories
$
(26,714)
-
(26,714)
Segment loss
$
(3,681,599)
(459,273)
(4,140,872)
Total assets
$
34,214,998
8,467,575
42,682,573
Expenditures for long-lived segment assets
$
(718,040)
(8,530,736)
(9,248,776)
(16) Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with Messrs. Ridenour, French, Burton, Lutz and Schaffer. Subsequent to the end of the fiscal year, on May 1, 2012 the Company entered into an employment agreement with Joseph Mitchell, who succeeded Mr. Burton who left the Company. Mr. Ridenour has agreed to serve in his present capacity for a five year term expiring on August 31, 2015. Messrs. French, and Lutz have agreed to serve in their present capacity for a term expiring on August 22, 2012. Mr. Schaffer has agreed to serve in his present capacity for a three year term expiring on November 30, 2014. Mr. Mitchell has agreed to serve as Vice president of Operations for a three year term expiring May 31, 2015. Pursuant to the employment agreements, Messrs. Ridenour, French, Lutz, Schaffer and Mitchell shall receive an annual base salary of $425,000, $255,000, $199,000, $200,000 and $200,000, respectively. Each executive also receives an automobile allowance and may receive bonuses, stock awards and stock options.
In accordance with the terms of Mr. Burton's employment agreement dated August 13, 2010, upon Mr. Burton's leaving the employ of the Company, he received a severance payment of $152,007, representing one months' pay for each year of service with the Company and his employment agreement was terminated.
Mr. Ridenour's employment agreement provides that if employment is terminated by the Company or the executive without cause during or after the term of the agreement, Mr. Ridenour shall receive the greater of one year base pay or two months of base pay for each year of service as an officer. If Mr. Ridenour voluntarily terminates his employment and provides at least six months' notice, he shall receive six month's base pay. If the executive does not provide at least six months' notice, he shall receive two months base 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 60 years of age, executive shall receive a total payment consisting of two months base pay for each year of service as an officer up to a maximum total payment of 24 months base pay.
Mr. French's employment agreement provides that if employment is terminated by the Company or the executive without cause during or after the term of the agreement upon attaining twenty years of service as an officer, or upon retirement after attaining age 62 1/2, the officer shall receive 24 months base 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 base pay for each year of service as an officer up to a maximum payment of 24 months base 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 base salary, unless the Company is in default under the Agreement, which shall be considered termination by the Company without cause.
Messrs. Lutz, Schaffer and Mitchell'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 base pay or one month of base 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 base pay. If the executive does not provide at least six months' notice, he shall receive two months base 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 base pay for each year of service as an officer plus six months of base pay, up to a maximum total payment of 24 months base pay.
Messrs. Ridenour, French, Lutz, Schaffer and Mitchell'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. If an officer dies during employment, his estate shall receive three months base pay. If the officer elects to retire at 60 years of age in the case of Mr. Ridenour, or in the cases of Messrs. French, Lutz Schaffer and Mitchell 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. Ridenour, French, Lutz, Schaffer and Mitchell 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 Messrs. Ridenour, French, Burton, Lutz, and Schaffer under their employment agreements over their remaining terms is $2,203,083. Future payments under Mr. Mitchell's employment agreement are not included because he will not join the Company until June 1, 2012. The Company has recorded a liability of $715,107 representing the potential future compensation payable to these executive officers under the retirement and voluntary termination provisions of their employment agreements.
Lease Commitments
At March 31, 2012 there were no operating leases.
Rental expense for the years ended March 31, 2012, 2011 and 2010, respectively, was zero, $30,938 and $62,827.
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.
(17) Interim Financial Data (Unaudited)
(18) Valuation and Qualifying Accounts
ITEM 9
ITEM 9
.
CHANGE IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
toc*
None.
ITEM 9A
ITEM 9A
.
CONTROLS AND PROCEDURES
toc*
Controls Evaluation
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012 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 March 31, 2012, 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 to ensure that the information required to be disclosed by our management in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for all aspects of the business, including the preparation of the consolidated financial statements in this annual report. Management prepared the consolidated financial statements using accounting principles generally accepted in the United States. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements.
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, including safeguarding of assets against unauthorized acquisition, use or disposition. This system is designed to provide reasonable assurance to management and the board of directors regarding preparation of reliable published financial statements and safeguarding of our assets. This system is supported with written policies and procedures and contains self-monitoring mechanisms. Appropriate actions are taken by management to correct deficiencies as they are identified. All internal control systems have inherent limitations, including the possibility of circumvention and overriding of controls, and, therefore, can provide only reasonable assurance as to the reliability of financial statement preparation and such asset safeguarding.
Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, it used the criteria described in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management has concluded that, as of March 31, 2012, our internal control over financial reporting is effective. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors who oversees the financial reporting process.
The consolidated financial statements have been audited by the independent registered public accounting firm, Grant Thornton LLP, who independently assessed the effectiveness of the Company's internal control over financial reporting. Grant Thornton LLP has issued its report on the effectiveness of our internal control over financial reporting, which is included above in Part II, Item 8 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
May 23, 2012
Eric R. Ridenour
Donald A. French
President and Chief Executive Officer
Treasurer, Secretary and
Chief Financial Officer
ITEM 9B
ITEM 9B
. OTHER INFORMATION
toc*
Compensatory Arrangements of Certain Officers
On May 22, 2012, the compensation and benefits committee of the Company's Board of Directors completed its annual review of the Company's executive compensation. The Company's Board of Directors reviewed the committee's recommendations, and approved the following changes in base salary for each of the following named executive officers:
Amendment to the Employment Agreement of Eric R. Ridenour - The Company's President and Chief Executive Officer, Eric R. Ridenour, is a party to an employment agreement with the Company, incorporated by reference from the Company's Current Report on Form 8-K filed August 24, 2010 as Exhibit 10.1. The Board of Directors approved an increase in Mr. Ridenour's annual base salary to $436,000 effective May 16, 2012. Mr. Ridenour, will continue to receive an auto allowance of $9,720 per year.
Amendment to Employment Agreement of Donald A. French - The Company's Secretary, Treasurer and Chief Financial Officer, Donald A. French, was a party to an employment agreement with the Company, incorporated by reference from the Company's Current Report on Form 8-K dated August 18, 2010 as Exhibit 10.1. The Board of Directors approved an increase in Mr. French's annual base salary to $262,000 effective May 16, 2012. Mr. French, will continue to receive an auto allowance of $9,720 per year.
On May 2, 2012 Mr. Burton, the Company's Senior Vice President of Operations, left the employ of the Company. Pursuant to the terms of his employment agreement dated August 13, 2010, Mr. Burton received a lump-sum payment of $152,007, representing one month's pay for each year of service with the Company and his employment agreement was terminated.
Amendment to Employment Agreement of Jon Lutz - The Company's Vice President of Engineering, Jon Lutz, is a party to an employment agreement with the Company, incorporated by reference from the Company's Current Report on Form 8-K dated August 18, 2010 as Exhibit 10.3. The Board of Directors approved an increase in Mr. Lutz's annual base salary to $204,000 effective May 16, 2012. Mr. Lutz, will continue to receive an auto allowance of $9,720 per year.
Employment Agreement with Adrian Schaffer - The Company's Vice President of Sales and Business Development, Adrian Schaffer, is a party to an employment agreement with the Company, incorporated by reference from the Company's Current Report on Form 8-K dated November 4, 2011 as Exhibit 10.1. The Board of Directors approved an increase in Mr. Schaffer's annual base salary to $203,000 effective May 16, 2012. Mr. Schaffer, will continue to receive an auto allowance of $9,720 per year.
Employment Agreement with Joe Mitchell - The Company's Vice President of Operations, Joe Mitchell, is a party to an employment agreement with the Company, incorporated by reference from the Company's Current Report on Form 8-K dated May 8, 2012 as Exhibit 10.1. The Board of Directors approved an annual base salary to $200,000 effective June 1, 2012, Mr. Mitchell's start date. Mr. Mitchell will be eligible for an annual cash bonus with a target level of 25% of base salary, and will be eligible for annual awards of stock options and bonus stock under the Company's equity compensation plans at a target fair value of 50% of base salary. Mr. Mitchell will also receive a one-time moving allowance of up to $50,000 and will be reimbursed for other temporary living expenses associated with his relocation to Colorado. The Board of Directors has approved the grant on June 1, 2012 to Mr. Mitchell of stock options to acquire 25,000 shares of the Company's common stock at an exercise price equal to the closing price of the Company's common stock on the NYSE MKT on the grant date. The stock options will be for a term of five years and will vest ratably over a three year period. Mr. Mitchell will also receive an annual automobile allowance of $9,720.
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
toc*
Additional information required by Item 10 is incorporated by reference from and contained under the headings "Election of Directors", "Management" "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Ethics" in our Definitive Proxy Statement for the Annual Meeting of Shareholders' to be held August 8, 2012.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
toc*
The information required by Item 11 is incorporated by reference from and contained under the headings "Executive Compensation", "Option Grants during Fiscal Year 2012," "Aggregate Option Exercises During Fiscal Year 2012," "Option Values at the End of Fiscal Year 2012," "Director Compensation," "Compensation discussion and Analysis," "Compensation and Benefits Committee Report," and "Compensation Committee Interlocks" in our definitive Proxy Statement for the Annual Meeting of Shareholders' to be held August 8, 2012.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
toc*
The information required by Item 12 is incorporated by reference from and contained under the heading "Security Ownership of Certain Owners and Management" and "Equity Compensation Plan Information" in our definitive Proxy Statement for the Annual Meeting of Shareholders' to be held August 8, 2012.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
toc*
The information required by Item 13 is incorporated by reference from and contained under the headings "Certain Relationships and Related Transactions" in our definitive Proxy Statement for the Annual Meeting of Shareholders' to be held August 8, 2012.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
toc*
The information required by Item 14 is incorporated by reference from and contained under the heading "Ratification of Selection of Independent Auditors" in our definitive Proxy Statement for the annual meeting of shareholders to be held August 8, 2012.
ITEM 15
ITEM 15
. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
toc*
(a)
1.
Financial Statements
UQM Technologies, Inc. (included in Part II):
Reports of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets, March 31, 2012 and March 31, 2011.
Consolidated Statements of Operations for the Years Ended March 31, 2012, 2011, and 2010.
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2012, 2011, and 2010.
Consolidated Statements of Cash Flows for the Years Ended March 31, 2012, 2011, and 2010.
Notes to Consolidated Financial Statements.
2.
Financial Statement Schedules:
Valuation and Qualifying Accounts. See note 18 to the Consolidated Financial Statements above.
3.
Exhibits
:
3.1
Restated Articles of Incorporation. Reference is made to Exhibit 3.2 of our Annual Report on Form 10-K for the year ended October 31, 1993 (No. 1-10869), which is incorporated herein by reference.
3.2
Bylaws. Reference is made to Exhibit 3.1 of our Annual Report on Form 10-K for the year ended March 31, 2005 (No. 1-10869)), which is incorporated herein by reference.
3.3
Amendment to the Bylaws. Reference is made to Exhibit 3.1 of our current report on Form 8-K filed
February 14, 2011 (No. 1-10869), which is incorporated herein by reference.
4.1
Specimen Stock Certificate. Reference is made to Exhibit 3.1 of our Registration Statement on Form 10 dated February 27, 1980 (No. 1-10869), which is incorporated herein by reference.
10.1
UQM Technologies, Inc. Employee Stock Purchase Plan. Reference is made to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 333-164705) filed on February 5, 2011, which is incorporated herein by reference.
10.2
Stock Bonus Plan. Reference is made to Exhibit 10.2 of our Current Report on Form 8-K filed on August 12, 2005 (No. 1-10869), which is incorporated herein by reference.
10.3
Form of Incentive Stock Option Agreement. Reference is made to Exhibit 10.6 of our Annual Report on Form 10-K filed on May 22, 2009 (No. 1-10869), which is incorporated herein by reference.
10.4
Form of Non-Qualified Stock Option Agreement. Reference is made to Exhibit 10.7 of our Annual Report on Form 10-K filed on May 22, 2009 (No. 1-10869), which is incorporated herein by reference.
10.5
Assistance Agreement between the Company and the U.S. DOE/NETL. Reference is made to Exhibit 10.1 of our Current Report on Form 8-K filed on January 20, 2011 (No. 1-10869), which is incorporated herein by reference.
10.6
Modification Number One to the Assistance Agreement between the Company and the U.S. DOE/NETL. Reference is made to Exhibit 10.1 of our Current Report on Form 8-K, filed on May 17, 2011 (No. 1-10869), which is incorporated herein by reference.
10.7
Modification Number Two to the Assistance Agreement between the Company and the U.S. DOE/NETL. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed on June 28, 2010 (No. 1-10869), which is incorporated herein by reference.
10.8
Modification Number Three to the Assistance Agreement between the Company and the U.S. DOE/NETL. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed August 26, 2010 (No. 1-10869), which is incorporated herein by reference.
10.9
Modification Number Four to the Assistance Agreement between the Company and the U.S. DOE/NETL. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed September 9, 2010 (No. 1-10869), which is incorporated herein by reference.
10.10
Employment Agreement with Eric R. Ridenour dated August 3, 2010. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed August 24, 2010 (No. 1-10869), which is incorporated herein by reference.
10.11
Amended employment agreement with Donald A. French dated August 13, 2010. Reference is made to Exhibit 10.1 to our current report on Form 8-K, filed on August 18, 2011 (No. 1-10869), which is incorporated herein by reference.
10.12
Amended employment agreement with Jon Lutz dated August 13, 2010. Reference is made to Exhibit 10.3 to our current report on Form 8-K, filed on August 18, 2011 (No. 1-10869), which is incorporated herein by reference.
10.13
Employment Agreement with Adrian Schaffer dated October 14, 2011. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed November 4, 2011 (No. 1-10869), which is incorporated herein by reference.
10.14
Employment Agreement with Joseph Mitchell dated May 1, 2012. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed May 8, 2012 (No. 1-10869), which is incorporated herein by reference.
10.15
At Market Issuance Sales Agreement between the Company and Stifel Nicolaus & Company Incorporated dated September 15, 2010. Reference is made to Exhibit 10.1 of our current report on Form 8-K, filed September 16, 2010 (No. 1-10869), which is incorporated herein by reference.
10.16
Amended Restricted Stock Agreement with Mr. Ridenour dated October 20, 2010. Reference is made to Exhibit 10.1 to our current report on Form 8-K filed October 22, 2010 (No. 1-10869), which is incorporated herein by reference.
10.17
Supply Agreement with CODA Automotive*. Reference is made to Exhibit 99.1 of our Quarterly Report on Form 10-Q, filed October 28, 2010 (No. 1-10869), which is incorporated herein by reference.
10.18
Amendment to the Supply Agreement with CODA Automotive*. Reference is made to Exhibit 10.1 of our Form 10-Q filed October 27, 2011, which is incorporated herein by reference.
10.19
UQM Technologies, Inc. 2012 Equity Incentive Plan adopted April 11, 2012.
10.20
Form of Restricted Stock Agreement, amended May 9, 2012.
10.21
UQM Technologies, Inc. Outside Director Stock Option Plan amended November 2, 2011.
10.22
UQM Technologies, Inc. Stock Bonus Plan amended May 9, 2012.
10.23
Separation Agreement and release with Ron Burton dated May 2, 2012.
21.1
Subsidiaries of the Company.
23.1
Consent of Grant Thornton LLP.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, UQM Technologies, Inc. has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Longmont, Colorado on the 23rd day of May, 2012.
UQM TECHNOLOGIES, INC.,
a Colorado Corporation
By:
/s/
ERIC R. RIDENOUR
Eric R. Ridenour
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of UQM Technologies, Inc., in the capacities indicated and on the date indicated.
Signature
Title
Date
/s/
WILLIAM G. RANKIN
William G. Rankin
Chairman of the Board of Directors
May 23, 2012
/s/
ERIC R. RIDENOUR
Eric R. Ridenour
President and Chief Executive Officer
May 23, 2012
/s/
DONALD A. FRENCH
Donald A. French
Treasurer and Secretary (Principal Financial and Accounting Officer)
May 23, 2012
/s/
STEPHEN J. ROY
Stephen J. Roy
Director
May 22, 2012
/s/
JEROME H. GRANRUD
Jerome H. Granrud
Director
May 23, 2012
/s/
DONALD W. VANLANDINGHAM
Donald W. Vanlandingham
Director
May 23, 2012
/s/
JOSEPH P. SELLINGER
Joseph P. Sellinger
Director
May 22, 2012