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| UQM > SEC Filings for UQM > Form 10-Q on 31-Jan-2013 | All Recent SEC Filings |
31-Jan-2013
Quarterly Report
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, future orders to be received, future shipments and payments 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 below in Part II, Item 1A Risk Factors.
Introduction
We are a developer and manufacturer of power dense, high efficiency electric motors, generators and power electronic controllers for the automotive, commercial truck, bus and military markets. Our primary focus is incorporating our advanced technology into products for clean vehicles including propulsion systems for clean vehicles including electric, hybrid-electric, plug-in hybrid-electric and fuel cell electric vehicles.
We generate revenue from two principal activities: 1) the sale of motors, generators and electronic controls; and 2) research, development and application engineering services that are paid for by our customers. 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 third quarter this fiscal year we announced the completion of a memorandum of understanding with a major Chinese company for the development and marketing of UQM electric propulsion systems for New Energy Vehicles in China. This agreement expands the global reach of UQM to China, and represents the initial step in our strategy to penetrate the Chinese market with our electric propulsion products. Under the agreement, we plan to work collaboratively with our China-based partner to introduce UQM products into the Chinese market for use in New Energy Vehicles. Our Chinese partner, with over $5 billion USD in annual revenue, has a substantial footprint throughout China and we believe is well-positioned to introduce our products into the country's developing New Energy Vehicle market. This agreement is an important step in our strategic plan to enter the Chinese market with our highly efficient electric propulsion systems and related products.
Also during the third quarter we announced that our PowerPhase Pro® 100 electric propulsion system is powering the new all-electric Mylne Bolt 18 yacht tender, which debuted in September at the 2012 Monaco Yacht Show. Mylne has been making distinctive yachts since 1896, and the Bolt 18 is the company's first all-electric vessel designed as a yacht tender. The Bolt 18 can hold a crew of six and tow water-skiers and wake boarders. Additionally, Mylne is developing all-electric yachts which will also use UQM PowerPhase systems, further expanding UQM product offerings in the marine market.
In 2009, we entered into a ten year supply agreement with CODA Automotive ("CODA") to supply UQM PowerPhase Pro 100 electric propulsion systems to CODA for their all-electric passenger automobile. CODA introduced its passenger vehicle in the State of California in March 2012. We began deliveries of production qualified PowerPhase Pro 100 systems under our supply agreement with CODA in October 2011. CODA's production and delivery of vehicles to its dealers since introduction of the vehicle has been at a significantly reduced rate versus initial CODA forecasts. Due to the slower launch rate, we suspended production for CODA and have not shipped any production propulsion systems to CODA during this fiscal year. CODA announced earlier this year that they are seeking additional capital to fund their ongoing operations, however, CODA has experienced difficulty and delays in raising substantial amounts of new capital and as a result is significantly delinquent in the payment of amounts due to us under the Supply Agreement. In December 2012 CODA reduced its workforce by fifteen percent and in early January 2013, CODA furloughed additional employees. In light of these developments, we have determined that there is substantial uncertainty regarding CODA's ability to honor their obligations to us under the Supply Agreement. Accordingly, we have recorded a charge to earnings during the third quarter of approximately $3.8 million representing reserves for
accounts receivable, customs duties and excess magnet costs owed to us under the Supply Agreement. In the event CODA is unable to secure funding, we may record additional charges in future periods associated with settling outstanding purchase obligations to some of our suppliers. Although the settlement of these obligations is subject to future negotiation, we believe the aggregate amount of any potential charges will be within the range of $1 million to $2 million.
The PowerPhase Pro system associated with the CODA production program is right sized for many passenger cars, medium-duty trucks and marine applications and we have already begun to sell units out of the CODA-designated inventories to other customers and utilize certain components in our other products. Going forward we will continue to work aggressively to develop additional customers for this product. We expect these additional sales will allow us to monetize the CODA-designated inventories and improve our cash position.
Finally, we are implementing a number of internal actions to improve our operating efficiency, reduce losses and conserve cash to ensure that we can continue to aggressively pursue new customers, grow with our current customers and develop new products and segments for the future. These actions include a staff reduction of approximately 20 percent and other cost reduction initiatives throughout the Company. We expect these actions to substantially reduce our cost base in future periods.
We also supply electric propulsion systems to Proterra, Inc. ("Proterra"), a developer and manufacturer of all-electric composite transit buses. Proterra recently announced that its battery-electric EcoRide™ BE35 transit bus, powered by a UQM PowerPhase HD® electric drive system, successfully completed the rigorous Federal Transit Administration (FTA) New Model Bus Testing Program often referred to as "Altoona testing". Many transit system operators in the U.S. limit their bus purchases to vehicles that have successfully completed this rigorous testing regimen. We believe that Proterra's achievement of this milestone, together with the recent expansion of their production facilities and a new capital infusion of $23 million, will allow them to accelerate commercialization of their battery-electric BE35 bus.
In the medium-duty truck market, we supply propulsion systems to Electric Vehicles International ("EVI") and Boulder EV ("BEV"), developers and manufacturers of all-electric medium-duty delivery trucks and vans. EVI has announced orders from UPS for 100 all-electric delivery vans and from Frito Lay for delivery trucks. During the quarter and nine months ended December 31, 2012 revenue from EVI totaled $735,190 and $978,230, respectively, representing 38 percent and 18 percent of total revenue for the quarter and nine month period, respectively. BEV has announced orders from Federal Express for delivery vans, all of which are powered by our electric propulsion systems. Deliveries for this program are ongoing.
We also supply DC-to-DC converters to Eaton Corporation as part of their hybrid electric propulsion system which powers medium-duty hybrid trucks manufactured by International Truck and Engine Corporation, PACCAR and Freightliner Trucks. Deliveries for this program are ongoing.
We have a $45.1 million Grant from the U.S. Department of Energy ("DOE") under the American Recovery and Reinvestment Act ("ARRA") 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 Automotive, Proterra, EVI, BEV and other customers are eligible for reimbursement under the DOE program. The term of the Grant is through January 12, 2015. Funding for qualifying project costs is currently limited to $32 million. We are currently obligated to demonstrate firm commitments for our cost share beyond this amount by July 12, 2013, unless extended. We recorded reimbursements under the DOE Grant through December 31, 2012 for capital assets acquired of $9.1 million, which were recorded as a reduction in the cost basis of the assets acquired. Total reimbursements of product qualification and testing costs from the inception of the Grant through December 31, 2012 were $10.9 million.
We have listed our former facility in Frederick, Colorado 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 commitment 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 Consumer Average Fuel Economy Standards ("CAFE") and 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. The California Air Resources Board has recently passed rules to require 15.4 percent of all new vehicles sold in California to be EV's, PHEV's or hydrogen fuel cell powered vehicles by 2025, in addition there are ten additional states considering adopting this new rule.
Net loss for the quarter ended December 31, 2012 increased to $4,555,033, or $0.12 per common share, on consolidated total revenue of $1,928,070, including the charge of $3,833,860 or $0.10 per common share related to CODA, versus a net loss of $846,416, or $0.03 per common share, on consolidated total revenue of $2,719,323 for the third quarter last fiscal year. The increase in net loss is primarily attributable to the reserve of amounts due from CODA, decreased revenue and gross margins partially offset by a decrease in production engineering costs and an increase in reimbursements of product qualification and testing costs recorded under the DOE Grant arising from changes in estimated reimbursable overhead costs.
Our liquidity throughout the third quarter was sufficient to meet our operating requirements. At December 31, 2012 we had cash and cash equivalents totaling $5,904,985. Net cash used in operating activities and net capital expenditures for property and equipment for the quarter ended December 31, 2012 were $1,103,644 and $54,117, respectively versus $3,679,100 and $314,809, respectively for the comparable quarter last fiscal year.
As the markets for electrified vehicles continue to emerge and expand into additional vehicle platforms over the next several years, we expect to experience growth in our revenue coincident with the introduction of electric products for our customers. We believe we have sufficient cash resources to fund our expected rate of future growth, however, if our future growth occurs at a rate higher than our expectations, our existing cash and short-term investments may not be adequate to fund our operations and we may need to raise additional capital. Otherwise, we believe our cash balances are sufficient to fund our operations for at least the next eighteen months.
Financial Condition
Cash and cash equivalents and short-term investments at December 31, 2012 were $5,904,985 and working capital (the excess of current assets over current liabilities) was $18,445,572 compared with $12,120,849 and $25,025,517, respectively, at March 31, 2012. The decrease in cash and short-term investments is primarily attributable to operating losses, and lower levels of accounts payable. The decrease in working capital is primarily attributable to reduced levels of accounts receivable associated with the CODA write-off, partially offset by increased inventory levels and lower levels of accounts payable and accrued liabilities.
Accounts receivable decreased $3,498,801 to $1,430,316 at December 31, 2012 from $4,929,117 at March 31, 2012. The decrease is primarily due to the reserve of amounts due from CODA under the Supply Agreement, partially offset by higher levels of billings under our DOE Grant during the quarter. Many of our other 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 or history our typical terms are irrevocable letter of credit or cash payment in advance of delivery. At December 31, 2012, we had an allowance for bad debts of $3,838,092 and at March 31, 2012 we had an allowance for bad debts of $127,697.
Costs and estimated earnings on uncompleted contracts increased $161,343 to $239,719 at December 31, 2012 versus $78,376 at March 31, 2012. The increase is due to less favorable billing terms on certain contracts in process at December 31, 2012 versus March 31, 2012. Estimated earnings on contracts in process increased to $723,527 on contracts in process of $1,906,996 at December 31, 2012 compared to estimated earnings on contracts in process of $380,713 on contracts in process of $1,587,499 at March 31, 2012. The increase in estimated earnings is attributable to higher expected margins on certain contracts in process at December 31, 2012.
Inventories increased $845,677 to $11,409,825 at December 31, 2012 from $10,564,148 at March 31, 2012 principally due to higher levels of raw material inventories, partially offset by a decrease finished goods and in work-in-process inventories. Raw material inventories increased $1,409,890 primarily reflecting inventory purchases to support the CODA, EVI, BEV and Proterra production programs. Finished goods and work-in-process inventories decreased
$116,039 and $448,174, respectively, reflecting decreased levels of low volume propulsion system builds in process at December 31, 2012.
Prepaid expenses and other current assets decreased to $432,922 at December 31, 2012 from $556,592 at March 31, 2012 primarily due to lower levels of prepayments on raw material purchases partially offset by prepayments on commercial insurance policies.
We invested $81,270 and $392,850 for the acquisition of property and equipment, before reimbursements under the DOE Grant, during the quarter and nine months ended December 31, 2012 compared to $561,160 and $1,890,405 during the comparable quarter and nine months last fiscal year. The decrease in capital expenditures is primarily attributable to reduced renovation costs on our facility and decreased acquisitions of equipment during the quarter and nine months ended December 31, 2012 versus the comparable quarter and nine months last fiscal year. Cash reimbursements for capital assets under the DOE Grant for the quarter and nine month period ended December 31, 2012 were $27,153 and $170,289, respectively. Cash reimbursements for capital assets under the DOE Grant for the quarter and nine month period ended December 31, 2011 were $246,351 and $1,325,094, respectively.
Patent costs decreased to $221,353 at December 31, 2012 versus $222,836 at March 31, 2012 primarily due to the systematic amortization of patent issuance costs which were partially offset by patent application costs. Similarly, trademark costs decreased to $110,479 at December 31, 2012 versus $113,844 at March 31, 2012 primarily due to the systematic amortization of trademark costs.
Accounts payable decreased $1,505,855 to $850,658 at December 31, 2012 from $2,356,513 at March 31, 2012, primarily due to decreased raw material purchases for CODA.
Other current liabilities decreased to $1,657,009 at December 31, 2012 from $2,329,101 at March 31, 2012. The decrease is primarily attributable to lower levels of unearned revenue and accrued employee benefits expenses partially offset by higher levels of accrued import duties and property taxes at December 31, 2012.
Short-term deferred compensation under executive employment agreements decreased to zero at December 31, 2012 from $152,007 at March 31, 2012 reflecting a severance payment made during the first quarter.
Billings in excess of costs and estimated earnings on uncompleted contracts increased $78,584 to $85,785 at December 31, 2012 from $7,201 at March 31, 2012 reflecting increased billings on certain engineering contracts in process at December 31, 2012 in advance of the performance of the associated work versus March 31, 2012.
Common stock and additional paid-in capital were $366,639 and $115,423,517, respectively, at December 31, 2012 compared to $363,562 and $114,371,106 at March 31, 2012. The increases in common stock and additional paid-in capital were primarily attributable to the issuance of shares under the Employee Stock Purchase and Stock Bonus Plans and the periodic expensing of non-cash share-based payments associated with option grants under our equity incentive plan.
Results of Operations
Quarter Ended December 31, 2012
Operations for the quarter ended December 31, 2012, resulted in a net loss of $4,555,033, or $0.12 per common share, including the charge of $3,833,860 or $0.10 per common share related to CODA, compared to a net loss of $846,416, or $0.03 per common share for the comparable quarter last fiscal year. The increase in net loss is primarily attributable to the reserve of amounts due from CODA, decreased revenue and gross margins partially offset by a decrease in production engineering costs and an increase in reimbursements of product qualification and testing costs recorded under the DOE grant arising from changes in estimated reimbursable overhead costs.
Revenue from contract services increased to $235,794 at December 31, 2012 versus $210,047 for the comparable quarter last fiscal year. The increase is primarily due to funded research activities on an onboard vehicle power generation program and our non-rare earth motor development program.
Product sales revenue for the current quarter decreased to $1,692,276 versus $2,509,276 for the comparable quarter last fiscal year. The decrease is primarily due to the suspension of shipments to CODA. Product sales revenue during the
quarter from customers other than CODA increased 60.4 percent to $1,692,276 for the current quarter versus the comparable quarter last year after excluding shipments to CODA of $1,454,176.
Gross profit margins for the quarter ended December 31, 2012 decreased to 14.3 percent compared to 21.3 percent for the quarter ended December 31, 2011. Gross profit margin on contract services was 48.4 percent for the third quarter this fiscal year compared to 39.4 percent for the quarter ended December 31, 2011. The improvement is primarily due to improved overhead absorption on contracts in process at December 31, 2012 versus the comparable quarter last fiscal year. Gross profit margin on product sales for the third quarter this year decreased to 9.6 percent compared to 19.8 percent for the second quarter last year primarily due to changes in product mix, inefficiencies in initial production builds of our PowerPhase HD 220 systems and reduced overhead absorption.
Research and development expenditures for the quarter ended December 31, 2012 increased to $23,190 compared to $5,861 for the quarter ended December 31, 2011 reflecting increased levels of cost-sharing on government research programs.
Production engineering costs were $991,653 for the third quarter versus $1,210,506 for the comparable quarter last fiscal year. The decrease is attributable to higher than normal product qualification and testing activities during the comparable quarter last year associated with preparations for the launch of volume production for CODA and the redeployment of certain engineering resources on funded development programs.
During the third quarter we recorded reimbursements of production engineering costs from the U.S. Department of Energy under our Grant of $1,446,356 versus $937,273 for the comparable quarter last fiscal year. The increase during the quarter is primarily due to the recognition of additional reimbursements under the Grant arising from improvements in estimated billing rate realization for the fiscal year versus estimates at the beginning of the fiscal year.
Selling, general and administrative expense for the quarter ended December 31, 2012 was $1,434,241 compared to $1,149,659 for the same quarter last year. The increase is primarily attributable to higher levels of business development, marketing and legal expenses versus the comparable quarter last fiscal year.
Impairment of assets under the CODA Supply Agreement was $3,833,860 compared to the prior comparable quarter reflecting the reserve during the current quarter of amounts due from CODA under the Supply Agreement.
Interest income increased to $5,244 for the quarter ended December 31, 2012 versus $3,386 for the same quarter last fiscal year. The increase is attributable to higher yields on invested cash balances.
Nine Months Ended December 31, 2012
Operations for the nine month period ended December 31, 2012, resulted in a net loss of $8,406,015, or $0.23 per common share, including the charge of $3,833,860 or $0.10 per common share related to CODA compared to a net loss of $3,476,144, or $0.10 per common share for the comparable period last year. The increase in net loss is primarily attributable to the reserve of amounts due from CODA under the Supply Agreement, decreased levels of product shipments and higher levels of business development and marketing, legal and recruiting and relocation costs partially offset by lower levels of net production engineering expenses.
Revenue from contract services increased to $951,807 for the nine month period ended December 31, 2012 versus $421,896 for the comparable period last year. The increase is primarily attributable to the application of additional engineering resources on funded development programs.
Product sales for the nine month period ended December 31, 2012 decreased to $4,568,795 compared to $5,946,710 for the comparable period last year. The decrease is primarily attributable to the suspension of shipments to CODA throughout the period, partially offset by additional shipments to Electric Vehicles International. Product sales revenue during the current nine month period from customers other than CODA increased 24.4 percent to $4,568,795 for the current period versus the comparable nine month period last year after excluding shipments to CODA of $2,272,731.
Gross profit margins for the nine month period ended December 31, 2012 decreased to 30.3 percent compared to 34.3 percent for the comparable nine month period last fiscal year. Gross profit margin on contract services increased for the nine month period to 45.6 percent versus 38.6 percent for the comparable nine month period last fiscal year primarily due to improved overhead absorption. Gross profit margin on product sales for the nine month period ended December
31, 2012 decreased to 27.1 percent compared to 34.0 percent for the comparable period last year. The decrease is primarily due to changes in product mix, inefficiencies in initial production builds of our PowerPhase HD 220 systems and decreased overhead absorption.
Research and development expenditures for the nine month period ended December 31, 2012 increased to $55,647 compared to $10,671 for the same period last year reflecting increased levels of cost-sharing on government research programs.
Production engineering costs were $3,646,975 for the nine month period ended December 31, 2012 versus $4,407,492 for the comparable nine month period last year. The decrease is attributable to higher than normal product qualification and testing activities during the prior comparable nine month period associated with preparations for the launch of volume production for CODA and the redeployment of certain engineering resources on funded development programs.
Reimbursements of costs under the DOE Grant were $3,176,556 for the nine months ended December 31, 2012 versus $3,169,943 for the comparable period last year. For the current nine month period reimbursements under the grant were 87.1 percent of production engineering expenditures compared to 71.9 percent for the prior comparable period reflecting an increase in estimated reimbursable overhead costs under the Grant.
Selling, general and administrative expense for the nine month period ended December 31, 2012 was $5,729,741 compared to $4,438,287 for the same period last year. The increase is primarily attributable to higher levels of business development, marketing, legal and recruiting and relocation costs versus the comparable period last fiscal year.
Interest income decreased to $10,250 for the nine month period ended December 31, 2012 versus $19,281 for the comparable period last year. The decrease is attributable to lower yields and lower levels of invested cash balances.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the quarter and nine month period ended December 31, 2012 were adequate to meet operating needs. At December 31, 2012, we had working capital (the excess of current assets over current liabilities) of $18,445,572 compared to $25,025,517 at March 31, 2012.
Net cash used by operating activities for the quarter ended December 31, 2012 was $1,103,644 compared to $3,679,100 for the comparable quarter last fiscal year. The change for the current quarter is primarily associated with decreased levels of inventory purchases versus the comparable quarter last fiscal year. For the nine month period ended December 31, 2012, net cash used in operating activities was $6,005,910 compared to net cash used in operating activities of $8,586,901 for the comparable period last fiscal year. The decrease in cash used for the nine month period is primarily attributable to decreased levels of cash used for inventory purchases, prepaid expenses and deferred compensation under executive employment agreements partially offset by higher operating losses.
Net cash provided by investing activities for the third quarter this fiscal year was $185,477 compared to cash provided by investing activities of $3,113,991 for the comparable quarter last fiscal year. For the nine months ended December 31, 2012, net cash provided by investing activities was $238,207 compared to net cash provided by investing activities of $4,242,715 for the same period last year. The change for both the quarter and nine month period ended December 31, 2012 was primarily due to decreased levels of short-term investment maturities . . .
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