UQM TECHNOLOGIES INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

[ ] 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                        84-0579156
(State or other jurisdiction of        (I.R.S. Employer
incorporation or organization)       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)

425 Corporate Circle, Golden, Colorado 80401
(Former name, former address and former fiscal year if changed since last report)

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

The number of shares outstanding (including shares held by affiliates) of the registrant's common stock, par value $0.01 per share at October 24, 2002, was 18,844,467.

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Part I-Financial Information

Item 1. Financial Statements

Consolidated balance sheets as of September 30, 2002 and March 31, 2002

Consolidated statements of operations for the quarter and six months ended September 30, 2002 and 2001

Consolidated statements of cash flow for the six months ended September 30, 2002 and 2001

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 4. Submission of matters to a vote of security holders

Item 5. Other Information

Item 6. Exhibits and reports on Form 8-K

Signatures

Certification of William G. Rankin, Chief Executive Officer

Certification of Donald A. French, Chief Financial Officer

Exhibit 99.1 Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002

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PART I-FINANCIAL INFORMATION

ITEM 1. Financial Statements

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

	September 30,	March 31,
Assets	2002	2002
	(unaudited)
Current assets:
Cash and cash equivalents	$ 2,110,010	1,411,509
Accounts receivable (notes 5 and 7)	2,194,534	2,662,554
Costs and estimated earnings in excess
of billings on uncompleted contracts (note 2)	233,581	442,213
Inventories (notes 3, 5 and 7)	3,855,267	4,636,312
Prepaid expenses	300,951	220,528
Equipment of discontinued operations
held for sale, net (note 8)	-	1,253,432
Other	9,935	130,934

Total current assets	8,704,278	10,757,482

Property and equipment, at cost:
Land	181,580	181,580
Building	2,188,247	1,247,265
Machinery and equipment	7,456,120	8,622,471
	9,825,947	10,051,316
Less accumulated depreciation	(4,715,785)	(5,482,194)

Net property and equipment	5,110,162	4,569,122

Patent and trademark costs, net of
accumulated amortization of $244,781
and $219,084	739,943	757,059

Other assets	24,205	45,872

	$ 14,578,588 ==========	16,129,535 ==========

		(Continued)

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued

	September 30,	March 31,
Liabilities and Stockholders' Equity	2002	2002
	(unaudited)
Current liabilities:
Accounts payable	$ 2,266,309	2,693,312
Other current liabilities (note 4)	1,137,107	568,554
Current portion of deferred gain on
sale of real estate	-	322,139
Current portion of long-term debt	66,216	562,043
Term debt and accrued future losses of
discontinued operations (note 8)	-	789,960
Revolving line-of-credit (note 5)	-	2,254,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 2)	243,759	382,739

Total current liabilities	3,713,391	7,572,747

Long-term debt, less current portion	453,893	1,108,023

Total liabilities	4,167,284	8,680,770

Stockholders' equity (notes 6 and 12):
Common stock, $.01 par value, 50,000,000
shares authorized; 18,843,175 and
17,679,848 shares issued	188,432	176,798
Additional paid-in capital	55,877,462	51,444,359
Accumulated deficit	(45,243,053)	(43,757,378)
Accumulated other comprehensive income	(384,300)	(384,300)
Note receivable from officer	(27,237)	(30,714)

Total stockholders' equity	10,411,304	7,448,765

Commitments (note 11)
	$ 14,578,588 ==========	16,129,535 ==========

See accompanying notes to consolidated financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(unaudited)

	Quarter Ended September 30,		Six Months Ended September 30,
	2002	2001	2002	2001
Revenue (note 7):
Contract services	$ 616,890	641,044	1,388,042	1,317,275
Product sales	3,456,060	4,580,443	7,457,521	10,414,006
	4,072,950	5,221,487	8,845,563	11,731,281
Operating costs and expenses:
Costs of contract services	553,099	443,872	1,211,588	961,298
Costs of product sales	3,389,829	4,327,039	7,126,646	9,401,306
Research and development	47,027	6,601	111,408	70,744
General and administrative	1,116,886	1,113,293	1,992,719	2,016,363
Amortization of goodwill	-	67,587	-	135,174
	5,106,841	5,958,392	10,442,361	12,584,885
Loss from continuing operations before other income (expense)	(1,033,891)	(736,905)	(1,596,798)	(853,604)
Other income (expense):
Interest income	7,342	19,516	15,492	44,297
Interest expense	(11,670)	(90,711)	(30,903)	(197,528)
Gain on sale of real estate	150,435	22,439	311,505	51,375
	146,107	(48,756)	296,094	(101,856)
Loss from continuing operations	(887,784)	(785,661)	(1,300,704)	(955,460)
Discontinued operations (note 8):
Loss from operations of discontinued gear division	-	(326,644)	-	(644,650)
Loss on disposal of gear division including operating losses during phase-out period	-	(1,676,450)	(184,971)	(1,676,450)
	-	(2,003,094)	(184,971)	(2,321,100)
Net loss	$ (887,784) ==========	(2,788,755) ==========	(1,485,675) ==========	(3,276,560) ==========
Net loss per common share - basic and diluted (note 9):
Continuing operations	$ (.05)	(.05)	(.07)	(.06)
Discontinued operations	-	(.11)	(.01)	(.13)
	$ (.05) ===	(.16) ===	(.08) ===	(.19) ===
Weighted average number of shares of common stock outstanding (note 9)	18,843,128 ==========	17,524,504 ==========	18,734,464 ==========	17,480,202 ==========

See accompanying notes to consolidated financial statements

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)

	Six Months Ended September 30,
	2002	2001

Cash flows provided by operating activities
of continuing operations:
Loss from continuing operations	$ (1,300,704)	(955,460)
Adjustments to reconcile loss from continuing
operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization	692,567	769,793
Gain on sale of real estate	(322,139)	(57,858)
Non-cash compensation expense for stock options	8,320	9,558
Loss on disposal of property and equipment	13,237	6,493
Change in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts	471,051	1,090,877
Inventories	781,045	557,455
Prepaid expenses and other current assets	40,576	(108,020)
Accounts payable and other current liabilities	370,074	64,977
Billings in excess of costs and estimated
earnings on uncompleted contracts	(138,980)	265,282

Net cash provided by operating
activities of continuing operations	615,047	1,643,097

Cash flows used by investing activities of continuing
operations:
Cash proceeds from sale of property and equipment	350	-
Acquisition of property and equipment	(241,833)	(413,173)
Expansion of building	(979,664)	-
Increase in patent and trademark costs	(8,581)	(32,207)

Net cash used by investing activities
of continuing operations	$ (1,229,728)	(445,380)

(Continued)

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(unaudited)

	Six Months Ended September 30,
	2002	2001

Cash flows provided (used) by financing activities
of continuing operations:
Repayments on revolving line-of-credit, net	$ (2,254,000)	(582,000)
Repayment of debt	(1,149,957)	(345,274)
Issuance of common stock in secondary offering,
net of offering costs	4,432,316	-
Issuance of common stock upon exercise of
employee options, net of note repayments	3,477	464,375
Issuance of common stock under employee stock
purchase plan	4,101	17,008

Net cash provided (used) by financing activities of continuing operations	1,035,937	(445,891)

Increase of cash and cash equivalent from continuing operations	421,256	751,826

Net cash provided (used) by discontinued operations	277,245	(563,265)

Increase in cash and cash equivalents	698,501	188,561

Cash and cash equivalents at beginning of period	1,411,509	2,399,006

Cash and cash equivalents at end of period	$ 2,110,010 =========	2,587,567 =========

Interest paid in cash during the period	$ 58,509 =========	291,961 =========

Non-Cash Investing and Financing Transactions:

In accordance with the provisions of the Company's stock option plans, the Company accepts as payment of the exercise price, mature shares of the Company's common stock held by the option holder for a period of six months prior to the date of the option exercise. For the six months ended September 30, 2001, the Company issued 64,360 shares of common stock for options exercised with an aggregate exercise price of $234,875, for which the Company received 36,302 shares of common stock in payment of the exercise price. The shares received were recorded at cost as treasury stock and were subsequently retired.

See accompanying notes to consolidated financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)

(1)     The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all
        adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for
        the interim period, have been made. The results for the interim period are not necessarily indicative of results
        to be expected for the fiscal year. The Notes contained herein should be read in conjunction with the Notes to the
        Company's Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2002.

(2)     At September 30, 2002, the estimated period to complete contracts in process ranged from 1 to 8 months, and the
        Company expects to collect substantially all related accounts receivable arising therefrom within 9 months.
        Contracts in process consists of the following:

	September 30,	March 31,
	2002	2002
	(unaudited)

Costs incurred on uncompleted contracts	$ 2,207,756	2,486,598
Estimated earnings	762,146	1,025,313
	2,969,902	3,511,911
Less billings to date	(2,980,080)	(3,452,437)
	$ (10,178)	59,474
Included in the accompanying balance
sheets as follows:
Costs and estimated earnings
in excess of billings on
uncompleted contracts	$ 233,581	442,213
Billings in excess of costs and
estimated earnings on
uncompleted contracts	(243,759)	(382,739)

	$ (10,178) =========	59,474 =========

(3) Inventories consist of:

	September 30,	March 31,
	2002	2002
	(unaudited)

Raw materials	$ 3,025,172	3,494,195
Work in process	406,665	878,699
Finished products	423,430	263,418

	$ 3,855,267	4,636,312

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)

The Company's raw material inventory is subject to obsolescence, the possibility that certain components may become unusable due to design changes by customers, or unusable due to customers inability to honor their obligations to purchase from the Company. The Company periodically assesses its inventory for recovery of its carrying value based on available information, expectations and estimates and establishes reserves for estimated declines in the realizable value of its inventories. At September 30, 2002, the Company has identified approximately $1.5 million of slow moving inventory with potential recovery concerns and has recorded a reserve of $550,994 which is reflected in the above table ($554,998 at March 31, 2002). There can be no assurance that future events and information will not cause this reserve to be adjusted.

(4) Other current liabilities consists of:

	September 30,	March 31,
	2002	2002
	(unaudited)

Accrued legal and accounting fees	$ 57,705	134,200
Accrued payroll and employee benefits	209,595	210,504
Accrued personal property and real
estate taxes	194,145	106,109
Accrued warranty costs	69,877	35,169
Accrued raw material purchases	119,900	-
Accrued building construction costs	317,715	-
Other	168,170	82,572

	$ 1,137,107 =========	568,554 =======

(5) Line-of-credit

The Company had a $4.0 million line-of-credit of which $2.25 million was outstanding at March 31, 2002 and term equipment loans at March 31, 2002 of $1.12 million. These facilities expired on May 15, 2002, unless renewed. In April 2002, the Company repaid approximately $3.2 million due on its line-of-credit and term debt facilities, which were subsequently not renewed. The Company also had a $0.4 million line-of-credit with a second commercial bank. This facility expired on July 31, 2002, unless renewed. This facility was also not renewed.

(6) Common Stock Options and Warrants

Incentive and Non-Qualified Option Plans

The Company has reserved 1,492,500 shares of common stock for 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

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)

common stock on the date of grant and the maximum term of an 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 in a calendar year under the 2002 Plan is 500,000 options. Options granted under the 2002 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 2002 Option Plan the Company issued stock options under its 1992 and 1982 Incentive and Non-qualified Option Plans.

The following table summarizes activity under the plans for the six months ended September 30, 2002:

	Shares Under	Weighted-Average
	Option	Exercise Price

Outstanding at March 31, 2002	2,766,196	$5.87
Granted	7,500	$3.59
Forfeited	(246,876)	$5.59
Outstanding at September 30, 2002	2,526,820 =========	$5.89 ====

Exercisable at September 30, 2002	1,796,538 =========	$6.01 ====

The following table presents summarized information about stock options outstanding at September 30, 2002:

	Options Outstanding			Options Exercisable
		Weighted	Weighted		Weighted
	Number	Average	Average	Number	Average
Range of	Outstanding	Remaining	Exercise	Exercisable	Exercise
Exercise Prices	at 9/30/02	Contractual Life	Price	at 9/30/02	Price

$3.31 - 3.31	303,198	4.3 years	$3.31	303,198	$3.31
$3.59 - 5.00	954,970	6.6 years	$4.28	533,987	$4.39
$6.25 - 8.75	1,268,652	5.3 years	$7.72	959,353	$7.77
$3.31 - 8.75	2,526,820 =========	5.7 years	$5.89	1,796,538 =========	$6.01

Non-Employee Director Stock Option Plan

In February 1994, the Company's Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. The Company has reserved 500,000 shares of common stock for issuance pursuant to the exercise of options under the Plan. The options are exercisable from 3 to 10 years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)

The following table presents summarized activity under the plan for the six months ended September 30, 2002:

	Shares Under	Weighted Average
	Option	Exercise Price

Outstanding at March 31, 2002	54,136	$5.94
Granted	16,484	$2.55
Forfeited	(9,275)	$4.25

Outstanding at September 30, 2002	61,345 ======	$5.29 ====

Exercisable at September 30, 2002	59,417 ======	$5.20 ====

The following table presents summarized information about stock options outstanding for non-employee directors:

	Options Outstanding			Options Exercisable
		Weighted	Weighted		Weighted
	Number	Average	Average	Number	Average
Range of	Outstanding	Remaining	Exercise	Exercisable	Exercise
Exercise Prices	at 9/30/02	Contractual Life	Price	at 9/30/02	Price

$2.55 - 5.06	32,484	4.4 years	$3.79	32,484	$3.79
$5.85 - 8.00	28,861	3.5 years	$6.98	26,933	$6.91
$2.55 - 8.00	61,345 ======	4.0 years	$5.29	59,417 ======	$5.20

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") defines a fair value method of accounting for employee stock options and similar equity instruments. SFAS 123 permits an entity to choose to recognize compensation expense by adopting the fair value method of accounting or continue to measure compensation costs using the intrinsic value methods prescribed by APB 25. The Company accounts for stock options granted to employees and directors of the Company under the intrinsic value method. Stock options granted to non-employees under the Company's Stock Option Plans are accounted for under the fair value method. Had the Company reported compensation costs as determined by the fair value method of accounting for option grants to employees and directors, net loss and net loss per common share would have been the pro forma amounts indicated in the following table:

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(unaudited)

Quarter Ended
     September 30,

Six Months Ended
     September 30,

2002

2001

2002

2001

Net loss - as reported

$   (887,784)

(2,788,755)

(1,485,675)

(3,276,560)

Compensation expense - current period option grants

(4,975)

(1,250)

(4,975)

(1,250)

Compensation expense -

prior period option grants

(295,321)

(360,676)

(604,954)

(731,700)

Net loss - pro forma

$ (1,188,080)
=========

(3,150,681)
=========

(2,095,604)
=========

(4,009,510)
=========

Net loss per common share - as   reported

$ (.05)
===

(.16)
===

(.08)
===

(.19)
===

Net loss per common share -
pro forma

$ (.06)
===

(.18)
===

(.11)
===

(.23)
===

The fair value of stock options granted was calculated using the Black Scholes option-pricing model based on the following weighted average assumptions:



Quarter Ended September 30,

Six Months Ended September 30,

2002

2001

2002

2001

Expected volatility

48.7%

47.7%

	Quarter Ended September 30,		Six Months Ended September 30,
	2002	2001	2002	2001

Net loss - as reported	$ (887,784)	(2,788,755)	(1,485,675)	(3,276,560)
Compensation expense - current period option grants	(4,975)	(1,250)	(4,975)	(1,250)
Compensation expense - prior period option grants	(295,321)	(360,676)	(604,954)	(731,700)
Net loss - pro forma	$ (1,188,080) =========	(3,150,681) =========	(2,095,604) =========	(4,009,510) =========
Net loss per common share - as reported	$ (.05) ===	(.16) ===	(.08) ===	(.19) ===
Net loss per common share - pro forma	$ (.06) ===	(.18) ===	(.11) ===	(.23) ===