UQM TECHNOLOGIES INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2003

[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission File Number 1-10869

UQM TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Colorado

(State or other jurisdiction of

incorporation or organization)

84-0579156

(I.R.S. Employer

Identification No.)

7501 Miller Drive, Frederick, Colorado 80530

(Address of principal executive offices) (Zip Code)

(303) 278-2002

(Registrant’s telephone number, including area code)

	Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
	Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
	required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .

	Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
	Yes. No. X .

	The number of shares outstanding (including shares held by affiliates) of the registrant’s common stock, par value $0.01
	per share at January 26, 2004 was 19,572,625.

TABLE OF CONTENTS

Part I	Financial Information

	Item 1	Financial Statements

		Consolidated balance sheets as of December 31, 2003 and March 31, 2003

		Consolidated statements of operations for the quarters and nine months ended December 31,
			2003 and 2002

		Consolidated statements of cash flows for the nine months ended December 31, 2002 and 2003

		Notes to consolidated financial statements

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 3	Quantitative and Qualitative Disclosures About Market Risk

	Item 4	Controls and Procedures

Part II	Other Information

	Item 1	Legal Proceedings

	Item 5	Other Information

	Item 6	Exhibits and Reports on Form 8-K

	Signatures

	Exhibit 10.1	Employment Agreement between the Company and William G. Rankin

	Exhibit 10.2	Employment Agreement between the Company and Donald A. French

	Exhibit 31.1	Certification of William G. Rankin, Chief Executive Officer

	Exhibit 31.2	Certification of Donald A. French, Chief Financial Officer

	Exhibit 32.1	Certificate Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
			Sarbanes-Oxley Act of 2002

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

				December 31,2003			March 31, 2003
					(Unaudited)
Assets

Current assets:
	Cash and cash equivalents				$ 3,456,361	2,476,276
	Accounts receivable				1,037,474	1,034,002
	Costs and estimated earnings in excess of
		billings on uncompleted contracts (note 2)			322,015	187,484
	Inventory obligations of certain customers, net (note 9)				-	789,767
	Inventories (note 3)				1,055,297	1,620,262
	Prepaid expenses and other current assets				174,542	112,568
			Total current assets		6,045,689	6,220,359

Property and equipment, at cost:
	Land				181,580	181,580
	Building				2,296,957	2,296,957
	Machinery and equipment				7,032,155	6,962,596
					9,510,692	9,441,133
	Less accumulated depreciation				(5,660,312)	(4,944,608)
			Net property and equipment		3,850,380	4,496,525

Patent and trademark costs, net of accumulated
	amortization of $316,089 and $276,218				760,610	751,473

Other assets					24,205	24,205


					$ 10,680,884	11,492,562
					========	========

						(Continued)

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, Continued

						December 31, 2003		March 31, 2003
						(Unaudited)
Liabilities and Stockholders’ Equity

Current liabilities:
	Accounts payable					$ 1,046,088	975,344
	Other current liabilities (note 4)					644,368	794,575
	Current portion of long-term debt					123,396	116,921
	Billings in excess of costs and estimated
			earnings on uncompleted contracts (note 2)			328,801	223,378
					Total current liabilities	2,142,653	2,110,218

Long-term debt, less current portion						979,795	1,072,341

					Total liabilities	3,122,448	3,182,559

Stockholders’ equity (notes 5 & 10):
		Common stock, $.01 par value, 50,000,000
				shares authorized; 19,572,403 and
				18,844,515 shares issued and outstanding		195,724	188,445
		Additional paid-in capital				58,024,945	55,885,486
		Accumulated deficit				(50,260,103)	(47,356,028)
		Accumulated other comprehensive loss				(384,300)	(384,300)
		Note receivable from officer				(17,830)	(23,600)
					Total stockholders’ equity	7,558,436	8,310,003

Commitments (note 9)


						$ 10,680,884	11,492,562
						========	========

See accompanying notes to consolidated financial statements

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

							Quarter Ended December 31,		Nine Months Ended December 31,
							2003	2002	2003	2002
Revenue:
	Contract services						$ 870,210	837,769	2,209,514	2,225,811
	Product sales						748,429	2,864,068	4,435,682	10,321,589
							1,618,639	3,701,837	6,645,196	12,547,400

Operating costs and expenses:
	Costs of contract services						682,335	719,831	1,793,256	1,931,419
	Costs of product sales						1,018,853	3,232,954	4,704,798	10,359,600
	Research and development						97,892	-	394,405	111,408
	General and administrative						632,480	919,045	1,925,034	2,911,764
	Loss on customer obligations						688,815	-	688,815	-
	Write-down of assets						-	100,113	-	100,113
							3,120,375	4,971,943	9,506,308	15,414,304

			Loss from continuing operations before
				other income (expense)			(1,501,736)	(1,270,106)	(2,861,112)	(2,866,904)

Other income (expense):
	Interest income						7,886	6,099	18,956	21,591
	Interest expense						(21,315)	(15,463)	(65,916)	(46,366)
	Gain on sale of real estate and other assets						3,397	6,135	3,997	317,640
							(10,032)	(3,229)	(42,963)	292,865

			Loss from continuing operations				(1,511,768)	(1,273,335)	(2,904,075)	(2,574,039)

Discontinued operations (note 6):
	Loss on disposal of gear division including
		operating losses during phase-out period					-	-	-	(184,971)
							-	-	-	(184,971)

			Net loss				$ (1,511,768)	(1,273,335)	(2,904,075)	(2,759,010)
							========	========	========	========
			Net loss per common share - basic and
					diluted (note 7):
						Continuing operations	$ (.08)	(.07)	(.15)	(.14)
						Discontinued operations	-	-	-	(.01)
							$ (.08)	(.07)	(.15)	(.15)
							==	==	==	==

Weighted average number of shares of common
	stock outstanding-basic and diluted (note 7)						19,423,379	18,844,144	19,040,352	18,771,157
							========	========	========	========


See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

											Nine Months Ended December 31,
											2003	2002
Cash flows from operating activities of continuing operations:
		Loss from continuing operations									$ (2,904,075)	(2,574,039)
		Adjustments to reconcile loss from continuing operations to net cash
				provided (used) by operating activities of continuing operations:
					Depreciation and amortization						845,525	1,038,116
					Deferred gain on sale of real estate						-	(322,139)
					Loss on customer obligations						688,815	-
					Write-down of assets						-	100,113
					Non-cash compensation expense for common stock issued
						for services					5,180	8,320
					Loss on disposal of property and equipment						24,206	18,111
					Change in operating assets and liabilities:
							Accounts receivable and costs and estimated earnings in
									excess of billings on uncompleted contracts		(138,003)	527,428
							Inventory obligations of certain customers				100,952	(17,289)
							Inventories				564,965	1,709,104
							Prepaid expenses and other current assets				(61,974)	182,676
							Accounts payable and other current liabilities				(79,463)	(690,301)
							Billings in excess of costs and estimated earnings on
								uncompleted contracts			105,423	140,801
										Net cash provided (used) by operating activities	(848,449)	120,901

Cash flows from investing activities of continuing operations:
	Acquisition of property and equipment										(187,712)	(284,479)
	Proceeds from sale of property and equipment										3,997	-
	Expansion of facility										-	(1,049,692)
	Increase in patent and trademark costs										(49,008)	(60,765)
										Net cash used by investing activities	(232,723)	(1,394,936)

Cash flows from financing activities of continuing operations:
	Repayments on revolving line-of-credit, net										-	(2,254,000)
	Repayment of debt										(86,071)	(1,677,980)
	Proceeds from borrowing										-	1,225,000
	Issuance of common stock in secondary offering, net of offering costs										2,127,401	4,435,212
	Issuance of common stock upon exercise of employee options, net of
			note repayments								5,770	5,275
	Issuance of common stock under employee stock purchase plan										14,157	9,104
										Net cash provided by financing activities	2,061,257	1,742,611

Cash provided by continuing operations											980,085	468,576
Net cash provided by discontinued operations											-	277,245
Increase in cash and cash equivalents											980,085	745,821
Cash and cash equivalents at beginning of period											2,476,276	1,411,509
Cash and cash equivalents at end of period											$ 3,456,361	2,157,330
											=======	=======

Interest paid in cash during the period											$ 66,312	71,566
											=======	=======
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

( 1)	The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim periods, have been made. The results for the interim periods are not necessarily indicative of the results to be expected for the fiscal year. The Notes contained herein should be read in conjunction with the Notes to the Company’s Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2003.






( 2)	At December 31, 2003, the estimated period to complete contracts in process ranged from one to twenty months, and the Company expects to collect substantially all related accounts receivable arising therefrom within twenty-one months. Contracts in process consist of the following:



				December 31, 2003	March 31, 2003
				(unaudited)

	Costs incurred on uncompleted contracts			$ 2,058,590	1,903,214
	Estimated earnings			508,775	619,403
				2,567,365	2,522,617
	Less billings to date			(2,574,151)	(2,558,511)

				$ (6,786)	(35,894)
				=======	=======

	Included in the accompanying balance sheets as follows:
		Costs and estimated earnings in excess of billings on
			uncompleted contracts	$ 322,015	187,484
		Billings in excess of costs and estimated earnings on
			uncompleted contracts	(328,801)	(223,378)

				$ (6,786)	(35,894)
				=======	=======

( 3)	Inventories consist of:
				December 31, 2003	March 31, 2003
				(unaudited)

	Raw materials			$ 684,823	1,118,944
	Work-in-process			266,846	136,683
	Finished products			103,628	364,635
				$ 1,055,297	1,620,262
				=======	=======

	The Company’s raw material inventory is subject to obsolescence and potential impairment due to bulk purchases in excess of customer requirements. The Company periodically assesses its inventory for recovery of its carrying value based on available information, expectations and estimates and adjusts inventory carrying values for estimated declines in the realizable value of its inventories.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(unaudited)

( 4)	Other current liabilities consist of:

			December 31, 2003		March 31, 2003
			(unaudited)

	Accrued legal and accounting fees		$ 79,250		81,300
	Accrued payroll and employee benefits		67,927		176,101
	Accrued personal property and real estate taxes		65,580		37,323
	Accrued warranty costs		54,209		45,927
	Accrued raw material purchases		35,328		149,376
	Accrued losses on engineering contracts		37,035		92,356
	Customer deposits		175,000		79,188
	Accrued rents		101,676		32,919
	Accrued royalties		5,227		18,404
	Other		23,136		81,681
			$ 644,368		794,575
			======		======


( 5)	Common Stock Options and Warrants

	Incentive and Non-Qualified Option Plans

	As of December 31, 2003, the Company has 1,095,313 shares of common stock available for future grant to key employees, consultants and key suppliers under its 2002 Equity Incentive Plan. Under the Plan, the exercise price of each option is set at the fair market value of the common stock on the date of grant and the maximum term of the option is 10 years from the date of grant. Options granted to employees vest ratably over a three-year period. The maximum number of options that may be granted to any eligible employee during the term of the 2002 Plan is 500,000 options. Forfeitures under the 2002 Equity Incentive Plan are available for re-issuance at any time prior to expiration of the Plan in 2013. Options granted under the Company’s plans to employees require the option holder to abide by certain company policies, which restrict their ability to sell the underlying common stock. Prior to the adoption of the 2002 Equity Incentive Plan the Company issued stock options under its 1992 Incentive and Non-qualified Option Plan, which expired by its terms in 2002. Forfeitures under the 1992 Incentive and Non-qualified Option Plan may not be re-issued.











	The following table summarizes activity under the plans for the nine months ended December 31, 2003:

				Weighted
		Shares		Average
		Under		Exercise
		Option		Price
	Outstanding at March 31, 2003	2,778,128		$5.41
	Granted	2,000		$2.54
	Forfeited	(250,841)		$6.31
	Outstanding at December 31, 2003	2,529,287		$5.32
		=======
	Exercisable at December 31, 2003	1,816,581		$5.95
		=======

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(unaudited)

The following table presents summarized information about stock options outstanding at December 31, 2003:

	Options Outstanding			Options Exercisable
		Weighted	Weighted		Weighted
Range of	Number	Average	Average	Number	Average
Exercise	Outstanding	Remaining	Exercise	Exercisable	Exercise
Prices	at 12/31/03	Contractual Life	Price	at 12/31/03	Price
$2.75 – 3.31	699,800	6.5 years	$2.99	303,198	$3.31
$3.59 – 5.00	855,771	5.1 years	$4.29	626,404	$4.35
$6.25 – 8.75	973,716	4.8 years	$7.90	886,979	$7.98
$2.75 – 8.75	2,529,287	5.4 years	$5.32	1,816,581	$5.95
	=======			=======


Non-Employee Director Stock Option Plan

In February 1994, the Company’s Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. As of December 31, 2003, the Company has 432,592 shares of common stock available for future grant under the Plan. Option terms range from 3 to 10 years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant. Forfeitures under the Plan are available for re-issuance at a future date.






The following table summarizes activity under the plan for the nine months ended December 31, 2003: