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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 June 30, 2017

 

[  ] 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
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

    4120 Specialty Place, Longmont, Colorado 80504    

(Address of principal executive offices) (Zip code)

 

                                (303) 682-4900                               

(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 has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X    No             

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.   See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

[  ]  Large accelerated filer

[  ]  Accelerated filer

[  ]  Non-accelerated filer (Do not check if a smaller reporting company)

[X]  Smaller reporting company

 

[  ]  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

 

Indicate by check mark whether the registrant is a shell company (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 August 4,  2017 was 48,643,824.

 

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

    

Page No.

PART I Financial Information 

 

1

 

 

 

Item 1.   Financial Statements  

 

 

 

 

 

Consolidated Condensed Balance Sheets as of June 30, 2017 and December 31, 2016 

 

1

 

 

 

Consolidated Condensed Statements of Operations for the quarters and six months ended June 30, 2017 and 2016 

 

3

 

 

 

Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2017 and 2016 

 

4

 

 

 

Notes to Consolidated Condensed Financial Statements 

 

5

 

 

 

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

 

15

 

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk 

 

20

 

 

 

Item 4.   Controls and Procedures 

 

20

 

 

 

PART II Other Information 

 

20

 

 

 

Item 1.   Legal Proceedings 

 

20

 

 

 

Item 1A. Risk Factors 

 

20

 

 

 

Item 5.   Other Information 

 

21

 

 

 

Item 6.   Exhibits.

 

22

 

 

i


 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,074,389

 

$

2,100,089

 

Restricted cash

 

 

165,312

 

 

 -

 

Accounts receivable

 

 

791,918

 

 

1,163,316

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

29,917

 

 

29,917

 

Inventories, net

 

 

2,356,514

 

 

1,749,735

 

Prepaid expenses and other current assets

 

 

206,243

 

 

259,682

 

Total current assets 

 

 

5,624,293

 

 

5,302,739

 

 

 

 

 

 

 

 

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Land

 

 

896,388

 

 

1,683,330

 

Building

 

 

4,516,301

 

 

4,516,301

 

Machinery and equipment

 

 

7,090,147

 

 

7,052,740

 

 

 

 

12,502,836

 

 

13,252,371

 

Less accumulated depreciation

 

 

(7,771,450)

 

 

(7,590,641)

 

Net property and equipment

 

 

4,731,386

 

 

5,661,730

 

 

 

 

 

 

 

 

 

Patent costs, net of accumulated amortization of $943,147 and $932,564, respectively

 

 

210,435

 

 

213,326

 

Trademark costs, net of accumulated amortization of $83,133 and $80,885, respectively

 

 

92,707

 

 

94,955

 

Restricted cash

 

 

420,631

 

 

 -

 

Land held for sale

 

 

786,942

 

 

 -

 

Total assets

 

$

11,866,394

 

$

11,272,750

 

 

 

 

See accompanying notes to consolidated condensed financial statements.

1


 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited), Continued

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

951,962

 

$

809,950

 

Other current liabilities

 

 

1,487,029

 

 

1,318,941

 

Total current liabilities

 

 

2,438,991

 

 

2,128,891

 

 

 

 

 

 

 

 

 

Long-term debt, net of deferred financing costs of $63,732 and $0, respectively

 

 

3,100,797

 

 

 -

 

Other long-term liabilities

 

 

131,667

 

 

141,667

 

Total long-term liabilities

 

 

3,232,464

 

 

141,667

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

5,671,455

 

 

2,270,558

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 48,566,548 and 48,519,313  shares issued and outstanding, respectively

 

 

485,665

 

 

485,193

 

Additional paid-in capital

 

 

128,556,455

 

 

128,409,933

 

Accumulated deficit

 

 

(122,847,181)

 

 

(119,892,934)

 

Total stockholders’ equity

 

 

6,194,939

 

 

9,002,192

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

11,866,394

 

$

11,272,750

 

 

See accompanying notes to consolidated condensed financial statements.

2


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Operations (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended June 30,

 

Six Months Ended June 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

1,571,390

 

$

1,173,261

 

$

2,416,925

 

$

2,392,058

 

Contract services

 

 

217,565

 

 

261,820

 

 

387,075

 

 

547,313

 

 

 

 

1,788,955

 

 

1,435,081

 

 

2,804,000

 

 

2,939,371

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of product sales

 

 

1,006,639

 

 

759,089

 

 

1,614,488

 

 

1,568,923

 

Costs of contract services

 

 

80,552

 

 

236,949

 

 

161,616

 

 

540,390

 

Research and development

 

 

555,465

 

 

718,918

 

 

1,188,247

 

 

1,403,264

 

Selling, general and administrative

 

 

1,470,914

 

 

1,684,645

 

 

2,774,121

 

 

2,917,539

 

Recovery of impaired assets

 

 

 -

 

 

 -

 

 

 -

 

 

(585,800)

 

 

 

 

3,113,570

 

 

3,399,601

 

 

5,738,472

 

 

5,844,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,324,615)

 

 

(1,964,520)

 

 

(2,934,472)

 

 

(2,904,945)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/ (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

449

 

 

3,408

 

 

2,099

 

 

7,290

 

Interest expense

 

 

(21,363)

 

 

 -

 

 

(22,731)

 

 

 -

 

Amortization of deferred financing costs

 

 

(9,327)

 

 

 -

 

 

(10,881)

 

 

 -

 

Other

 

 

6,635

 

 

7,082

 

 

11,738

 

 

12,707

 

 

 

 

(23,606)

 

 

10,490

 

 

(19,775)

 

 

19,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,348,221)

 

$

(1,954,030)

 

$

(2,954,247)

 

$

(2,884,948)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.03)

 

$

(0.04)

 

$

(0.06)

 

$

(0.06)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares of common stock outstanding - basic and diluted

 

 

48,563,209

 

 

48,346,344

 

 

48,543,093

 

 

48,327,310

 

 

See accompanying notes to consolidated condensed financial statements.

3


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

    

2017

    

2016

    

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(2,954,247)

 

$

(2,884,948)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

204,521

 

 

384,740

 

Non-cash equity based compensation

 

 

128,548

 

 

103,332

 

Recovery of impaired assets

 

 

 -

 

 

(585,800)

 

(Recoveries) or impairment of inventories

 

 

(57,394)

 

 

9,906

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

371,398

 

 

(16,419)

 

Costs and estimated earnings on uncompleted contracts

 

 

 -

 

 

(41,772)

 

Inventories

 

 

(549,384)

 

 

(61,076)

 

Prepaid expenses and other current assets

 

 

43,352

 

 

24,571

 

Accounts payable and other current liabilities

 

 

310,100

 

 

3,525

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

 -

 

 

(60,266)

 

Other long-term liabilities

 

 

(10,000)

 

 

83,334

 

Net cash used in operating activities

 

 

(2,513,106)

 

 

(3,040,873)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(37,407)

 

 

(100,515)

 

Cash paid for patent and trademark fees

 

 

(7,691)

 

 

(6,138)

 

Net cash used in investing activities

 

 

(45,098)

 

 

(106,653)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Cash received for shares exercised under employee stock purchase plan

 

 

18,447

 

 

22,386

 

Registered direct offering costs

 

 

 -

 

 

(65,000)

 

Draw on line of credit

 

 

3,100,000

 

 

 -

 

Payment of employee tax withholdings in exchange for return of common stock

 

 

 -

 

 

(972)

 

Net cash provided / (used) by financing activities

 

 

3,118,447

 

 

(43,586)

 

 

 

 

 

 

 

 

 

Increase / (Decrease) in cash, cash equivalents, and restricted cash

 

 

560,243

 

 

(3,191,112)

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

2,100,089

 

 

8,688,668

 

Cash, cash equivalents, and restricted cash  at end of period

 

$

2,660,332

 

$

5,497,556

 

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(1)   Basis of Presentation

 

The accompanying consolidated condensed 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 year.  The Notes contained herein should be read in conjunction with the Notes to our Consolidated Financial Statements filed on Form 10-KT for the nine-month transition period ended December 31, 2016.

 

(2) Segment Reporting

 

The Company has performed its quarterly assessment to determine if additional disclosures are required for segment reporting.  Management has determined that the Company has one operating segment because the chief operating decision maker (CODM) and management make business decisions based on product and contract services revenues taken as a whole. Therefore, no further disclosure is required at this time. Management will perform an assessment quarterly to determine if additional disclosures around this standard are needed in the future.

 

(3)   New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for us for the first fiscal year beginning after December 15, 2017.  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application and providing additional disclosures. The Company currently anticipates adopting the standard using the retrospective method with the cumulative effect and additional disclosures at the period of adoption. Based on the Company’s assessment on the impact of this guidance on our consolidated condensed financial statements, we expect revenue related to product and contract services to remain substantially unchanged.

 

In July 2015, the FASB issued guidance on simplifying the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  This guidance is effective for years beginning after December 15, 2016, including interim periods within those fiscal years.  Prospective application is allowed as of the beginning of an interim or annual reporting period.  An entity is only required to disclose the nature of and reason for the change in accounting principle in the first interim and annual period of adoption.  The Company adopted this new standard in the quarter ended March 31, 2017.  There was no material impact on the consolidated financial statements upon adoption.

 

In March 2016, the FASB issued guidance on improvements to employee share-based payment accounting for stock compensation.  The new standard addresses the topics of accounting for income taxes, classification of excess tax benefits on the Statement of Cash Flows, forfeitures, minimum statutory tax withholding requirements, and classification of employee taxes paid on the Statement of Cash Flows when an employer withholds shares for tax withholding purposes.  This is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods.  Early adoption is permitted

5


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

within any interim or annual period.  Any adjustments should be reflective as of the beginning of the fiscal year that includes that interim period.  The Company adopted this new standard in the quarter ended March 31, 2017.    No adjustments were necessary upon adoption of the standard.

 

In November, 2016, the FASB issued guidance on the Statement of Cash Flows and the presentation of restricted cash in the statement. The new standard will require the Statement of Cash Flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash.  As a result, the amounts generally described as restricted cash should be included in the cash and cash equivalents when reconciling the beginning of the period and end of the period total amounts shown on the Statement of Cash Flows. This is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.  The amendments should be applied using the retrospective transition method in each period presented.  The Company has elected to early adopt this standard in the quarter ended June 30, 2017.  The ending cash balance in the Consolidated Condensed Cash Flow Statement was updated to reflect the adoption of the standard.  Additional disclosure has been included in Note 5 of the Consolidated Condensed Financial Statements as required by adopting the standard.

 

(4)      Going Concern

 

These consolidated condensed financial statements are presented assuming that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of June 30, 2017, the Company has sustained recurring losses from continuing operations, had working capital surplus of $3,185,302, and accumulated deficit of $122,847,181. 

 

On March 15, 2017, the Company entered into a non-revolving line of credit for $5.6 million.  The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance.  The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due. As of June 30, 2017, $3,164,529 was drawn on the line of credit.

 

Based on management’s projections of operations and the non-revolving line of credit, the Company believes that it currently has sufficient cash and bank financing resources to support day to day activities through operations as they become due and sustain operations for at least the next twelve months.

 

6


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(5)   Cash, cash equivalents, and restricted cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Consolidated Condensed Balance Sheet to the cash on the Consolidated Condensed Statement of Cash Flows.

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

    

2017

    

2016

Cash and cash equivalents

 

$

2,074,389

 

$

2,100,089

Restricted cash

 

 

165,312

 

 

 -

Restricted cash included in other long-term assets

 

 

420,631

 

 

 -

Total cash, cash equivalents, and restricted cash shown in the Consolidated Condensed Statement of Cash Flows

 

$

2,660,332

 

$

2,100,089

 

Restricted cash classified as a current asset on the Consolidated Condensed Balance Sheet represents the amount required to be set aside pursuant to a contractual agreement with the Company’s lender for the payment of interest on borrowings from the line of credit that is expected to be paid within the next twelve months.   In addition, restricted cash included in other long-term assets on the Consolidated Condensed Balance Sheet represents interest due on the line of credit more than twelve months from the date of the financial statements as contractually required by the lender.  The restrictions will lapse when the related long-term debt is paid off.

 

(6)   Contracts in Process

 

At June 30, 2017 and December 31, 2016, the estimated period to complete contracts in process ranged from one month and one to six months, respectively.  We expect to collect all accounts receivable arising from these contracts within sixty days of billing.

 

The following summarizes contracts in process:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Costs incurred on uncompleted contracts

 

$

502,701

 

$

502,701

 

Estimated earnings

 

 

331,969

 

 

331,969

 

 

 

 

834,670

 

 

834,670

 

Less billings to date

 

 

(804,753)

 

 

(804,753)

 

 

 

 

 

 

 

 

 

Contracts in process

 

$

29,917

 

$

29,917

 

 

 

 

 

 

 

 

 

Included in the accompanying Consolidated Condensed Balance Sheets is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

29,917

 

$

29,917

 

Contracts in process

 

$

29,917

 

$

29,917

 

 

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Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(7)   Inventories

 

Inventories at June 30, 2017 and December 31, 2016 consisted of:

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

    

2017

    

2016

Raw materials

 

$

7,626,365

 

$

7,279,855

Work-in-process

 

 

370,579

 

 

105,252

Finished products

 

 

1,466,849

 

 

1,531,544

Reserve for excess and obsolete inventory

 

 

(7,107,279)

 

 

(7,166,916)

 

 

$

2,356,514

 

$

1,749,735

 

 

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 assess our raw material and finished product inventories for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves as appropriate.

 

As of December 31, 2016, we re-evaluated the carrying value of our PowerPhase Pro® product.  A key factor in our analysis during the nine-month transition period ended December 31, 2016 was that in October 2016, our customer, ITL Efficiency Corporation, informed us of their intention to purchase in cash a significant portion of the PowerPhase Pro® inventory by the filing date of our Form 10-KT for the nine-month transition period ended December 31, 2016.  That payment had not at that point in time been received.  Because of the long delays in this customer’s product launch and the lack of a significant cash payment towards this inventory, we determined that approximately $6.8 million of this inventory be reserved as excess inventory and we took a charge for this amount against this inventory as of December 31, 2016.  We have purchase orders from existing customers to acquire the remaining balance of the PowerPhase Pro® inventory. We also reserved approximately $350,000 for other obsolete inventory as of December 31, 2016.

 

During the six months ended June 30, 2017, we recovered $57,394 of the reserve due to parts being used in production of units to be sold or repaired for customers.  

 

 

(8)   Other Current Liabilities

 

Other current liabilities at June 30, 2017 and December 31, 2016 consisted of:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

Accrued payroll and employee benefits

 

$

129,359

 

$

62,220

 

Accrued personal property and real estate taxes

 

 

119,936

 

 

232,326

 

Accrued warranty costs

 

 

305,983

 

 

289,710

 

Unearned revenue

 

 

236,575

 

 

116,886

 

Accrued royalties

 

 

48,336

 

 

48,336

 

Accrued import duties

 

 

87,100

 

 

87,100

 

Accrued vendor settlements

 

 

189,175

 

 

189,175

 

Accrued executive compensation

 

 

350,000

 

 

272,222

 

Other

 

 

20,565

 

 

20,966

 

 

 

$

1,487,029

 

$

1,318,941

 

 

 

8


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(9)  Debt

 

On March 15, 2017, the Company entered into a non-revolving line of credit for $5.6 million.  The loan is collateralized by the Company’s headquarters facility.  The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance which was 5.22% as of June 30, 2017.    As a of condition of the loan,  $600,000 was immediately drawn on the line of credit to be used for monthly interest payments on borrowings over the life of the loan.  This is reported as restricted cash on the Consolidated Condensed Balance Sheet as of June 30, 2017.  For additional information, see Note 5 to the Consolidated Condensed Financial Statements.  The covenants under the debt agreement require the Company to have liquid assets of a minimum of $1.5 million with the lender.  In addition, financial statements are to be presented no later than 45 days after the end of each quarter and 90 days after the end of each fiscal year.  These covenants took effect for the quarter ending June 30, 2017.  As of June 30, 2017, the Company was in compliance with its covenants. The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due. As of June 30, 2017, $3,164,529 was drawn on the line of credit.  The Company incurred deferred financing costs of $73,060 upon securing the line of credit.

 

(10)   Stock-Based Compensation

 

Share-Based Compensation Expense

 

The table below shows total share-based compensation expense for the quarters and six months ended June 30, 2017 and 2016 and the classification of these expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended June 30,

 

Six Months Ended June 30,

 

 

    

2017

    

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of product sales

 

$

4,391

 

$

2,974

 

$

7,327

 

$

5,254

 

Costs of contract services

 

 

1,280

 

 

2,409

 

 

2,097

    

 

4,335

 

Research and development

 

 

10,293

 

 

6,817

 

 

18,901

 

 

11,412

 

Selling, general and administrative

 

 

51,019

 

 

41,564

 

 

100,223

 

 

82,331

 

 

 

$

66,983

 

$

53,764

 

$

128,548

 

$

103,332

 

 

9


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

Stock Option Plans Activity

 

Additional information with respect to stock option activity during the six months ended June 30, 2017 under our Stock Option Plans is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

 

Shares

 

Average

 

Remaining

 

Aggregate

 

 

 

Under

 

Exercise

 

Contractual

 

Intrinsic

 

 

    

Option

    

Price

    

Life

    

Value

 

Outstanding at December 31, 2016

 

3,004,798

 

$

1.20

 

 

6.4 years

 

$

 -

 

Granted

 

 -

 

$

 -

 

 

 

 

 

 -

 

Exercised

 

 -

 

$

 -

 

 

 

 

$

 -

 

Forfeited

 

(27,003)

 

$

1.10

 

 

 

 

$

168

 

Outstanding at June 30, 2017

 

2,977,795

 

$

1.20

 

 

6.0 years

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2017

 

2,168,542

 

$

1.38

 

 

5.0 years

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at June 30, 2017

 

2,716,789

 

$

1.21

 

 

5.8 years

 

$

 -

 

 

 

 

 

As of June 30, 2017, there was $231,388 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 twenty months.  The total fair value of stock options that vested during each of the six months ended June 30, 2017 and 2016 was $0 and $1,773, respectively.

 

Stock Bonus Plan Activity

 

Activity with respect to non-vested shares under the Stock Bonus Plan as of June 30, 2017 and 2016 and changes during the six months ended June 30, 2017 and 2016 are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

Six Months Ended June 30, 2016

 

 

 

 

 

Weighted-Average

 

 

 

Weighted-Average

 

 

 

Shares Under

 

Grant Date

 

Shares Under

 

Grant Date

 

 

    

Contract

    

Fair Value

    

Contract

    

Fair Value

    

Unvested at beginning of period

 

102,048

 

$

0.84

 

90,561

 

$

1.36

 

Granted

 

 -

 

$

 -

 

 -

 

$

 -

 

Vested

 

 -

 

$

 -

 

(3,667)

 

$

(0.69)

 

Forfeited

 

 -

 

$

 -

 

(3,920)

 

$

(1.25)

 

Unvested at end of period

 

102,048

 

$

0.84

 

82,974

 

$

1.39

 

 

As of June 30, 2017, there was $39,908 of total unrecognized compensation cost related to common stock granted under our Stock Bonus Plan.  The unrecognized compensation cost at June 30, 2017 is expected to be recognized over a weighted-average period of twenty months.

10


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

Employee Stock Purchase Plan Activity

 

During the three months ended June 30, 2017 and 2016, we issued 43,412 and 18,097 shares of common stock, respectively, under the Employee Stock Purchase Plan.  Cash received by us upon the purchase of shares under the Employee Stock Purchase Plan for the three months ended June 30, 2017 and 2016 was $16,497 and $9,591, respectively. As of June 30, 2017, 46,439 options had been purchased under this plan but the employee(s) had not exercised their right to acquire the common stock under the terms of the Employee Stock Purchase Plan.

 

(11)   Stockholders’ Equity

 

Changes in the components of stockholders’ equity during the six months ended June 30, 2017 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

 

Additional 

 

 

 

 

Total

 

 

 

shares

 

Common 

 

paid-in

 

Accumulated 

 

stockholders’

 

 

    

issued

    

stock

    

capital

    

deficit

    

equity

 

Balances at December 31, 2016

 

 

48,519,313

 

$

485,193

 

$

128,409,933

 

$

(119,892,934)

 

$

9,002,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

3,823

 

 

38

 

 

1,912

 

 

 -

 

 

1,950

 

Compensation expense from employee and director stock option and common stock grants

 

 

 -

 

 

 -

 

 

61,564

 

 

 -

 

 

61,564

 

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(1,606,026)

 

 

(1,606,026)

 

Balances at March 31, 2017

 

 

48,523,136

 

$

485,231

 

$

128,473,409

 

$

(121,498,960)

 

$

7,459,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

43,412

 

 

434

 

 

16,062

 

 

 -

 

 

16,496

 

Compensation expense from employee and director stock option and common stock grants

 

 

 

 

 

 -

 

 

66,984

 

 

 -

 

 

66,984

 

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(1,348,221)

 

 

(1,348,221)

 

Balances at June 30, 2017

 

 

48,566,548

 

$

485,665

 

$

128,556,455

 

$

(122,847,181)

 

$

6,194,939

 

 

The Company has warrants outstanding as follows:

 

 

 

 

 

 

Common Stock

Warrants

 

 

 

Follow-on Offering

Under Option

Earliest

 

Offering Date

(Shares)

(Shares)

Exercise Date

Expiration Date

February, 2014

2,864,872

1,489,733

August 6, 2014

August 5, 2018

October, 2015

8,000,000

4,000,000

April 30, 2016

October 30, 2020

 

10,864,872

5,489,733

 

 

11


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

Average

 

 

Warrants

 

Average

 

Remaining

 

 

Under

 

Exercise

 

Contractual

 

    

Option

    

Price

    

Life

Outstanding at December 31, 2016

 

5,489,733

 

$

1.53

 

 

3.3 years

Granted

 

 -

 

$

 -

 

 

 

Exercised

 

 -

 

$

 -

 

 

 

Forfeited

 

 -

 

$

 -

 

 

 

Outstanding at June 30, 2017

 

5,489,733

 

$

1.53

 

 

2.8 years

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2017

 

5,489,733

 

$

1.53

 

 

2.8 years

 

 

 

(12)   Significant Customers 

 

We have historically derived significant revenue from a few key customers.  The following table summarizes revenue and percent of total revenue from significant customers for the quarters and six months ended June 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

    

 

 

    

 

    

 

 

 

    

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

    

$

847,601

    

47

%  

 

$

353,435

    

25

%

 

$

1,406,535

    

50

%  

 

$

763,655

    

26

%  

 

Customer B

 

$

211,000

 

12

%  

 

$

 -

 

 -

%

 

$

300,000

 

11

%  

 

$

 -

 

 -

%  

 

Customer C

 

$

224,730

 

13

%  

 

$

12,212

 

 1

%

 

$

224,730

 

 8

%  

 

$

45,897

 

 2

%  

 

Customer D

 

$

142,334

 

 8

%  

 

$

225,105

 

16

%

 

$

175,138

 

 6

%  

 

$

358,010

 

12

%  

 

Customer E

 

$

32,270

 

 2

%  

 

$

109,431

 

 8

%

 

$

34,282

 

 1

%  

 

$

296,231

 

10

%  

 

Customer F

 

$

 -

 

 -

%  

 

$

250,519

 

17

%

 

$

 -

 

 -

%  

 

$

536,013

 

18

%  

 

 

The following table summarizes accounts receivable from significant customers as of June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

    

 

 

 

    

 

 

Customer A

    

61

%  

45

%

Customer B

 

 -

%  

 -

%

Customer C

 

20

%  

29

%

Customer D

 

15

%  

10

%

Customer E

 

 2

%  

11

%

Customer F

 

 -

%  

 -

%

 

12


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

 

(13) Income Taxes

 

The Company currently has a full valuation allowance against its deferred tax assets, as it is management’s judgment that it is more-likely-than-not that net deferred tax assets will not be realized to reduce future taxable income.

 

As of June 30, 2017 and 2016, we had no provisions for interest or penalties related to uncertain tax positions.

 

The Company is subject to taxation in the U.S. and various state jurisdictions. As of June 30, 2017, the Company’s tax years for 2012 to 2016 are subject to examination by the tax authorities.

 

(14) Loss Per Common Share

 

The following table sets forth the computation of basic and diluted net loss per share for the quarters and six months ended June 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,348,221)

 

$

(1,954,030)

 

$

(2,954,247)

 

$

(2,884,948)

Denominator for basic and diluted net loss per common  share:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares of common stock outstanding - basic and diluted

 

 

48,563,209

 

 

48,346,344

 

 

48,543,093

 

 

48,327,310

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.03)

 

$

(0.04)

 

$

(0.06)

 

$

(0.06)

 

 

The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

    

2017

    

2016

    

 

 

 

 

 

 

 

Non-vested stock bonus plan shares

 

 

102,048

 

82,974

 

Stock options outstanding

 

 

3,024,234

 

2,488,838

 

Warrants to purchase common stock

 

 

5,489,733

 

5,489,733

 

 

 

(15) Fair Value of Financial Instruments

 

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.

 

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis and its long-term debt of $3,100,797 is reported at amortized cost.  The Company’s long-term debt is subject to variable rates of interest and accordingly its carrying value is considered to be representative of its fair market value.

 

13


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(16) Commitments and Contingencies

 

Employment Agreements

 

On July 21, 2015, the Company entered into new employment agreements with its four officers that expired on June 30, 2017. 

 

Effective July 1, 2017, the Company entered into new employment agreements with its four officers, which expire December 31, 2019.  The aggregate future base salary payable to the executive officers over their remaining terms is $2,666,260.

 

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) Subsequent Event

 

On July 6, 2017, the Company sold 15 acres of vacant land adjacent to its manufacturing facility. The gross selling price of the land was $1.5 million (net proceeds were $1.4 million) which was representative of the fair market value.  This land is classified as held for sale on the Consolidated Condensed Balance Sheet as of June 30, 2017.

 

 

14


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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.  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 and in our Transitional Report on Form 10-KT for the period nine-months ended December 31, 2016.  Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the U.S. Securities and Exchange Commission (“SEC”). We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements.

 

 

Introduction

 

UQM Technologies, Inc., (“UQM”, “Company”, “we”, “our”, or “us”) is a developer and manufacturer of power dense, high efficiency electric motors, generators, power electronic controllers and fuel cell compressors for the commercial truck, bus, automotive, marine, military and industrial markets. We generate revenue from three principal activities: 1) the sale of electric propulsion systems, which includes motors and controllers; and 2) the sale of auxiliary products including generators, fuel cell compressors, air conditioning compressor systems, and DC-to-DC converters; and 3) services, including research, development and application engineering contract services and remanufacturing services. Our product sales consist of annually recurring volume production, prototype low volume sales, and revenues derived from the sale of refurbished and serviced products. The sources of engineering contract revenue typically vary from year to year and individual projects may vary substantially in their periods of performance and aggregate dollar value.

 

We have invested considerable financial and human resources into the development of our technology and manufacturing operations. We have developed and production-validated a full range of products for use in full-electric, hybrid electric, plug-in-hybrid and fuel cell applications for the markets we serve. These products are all highly efficient permanent magnet designs and feature outstanding performance, package size and weight valued by our customers. Our production capabilities and capacity are sufficient to meet the demands of our current and future customers for the foreseeable future.  We are certified as an ISO/TS 16949 quality supplier, which is the highest level of quality standards in the automotive industry, and we are ISO 14001 certified, meeting the highest environmental standards.  We have a management team with significant experience in the automotive industry, and with the requirements for high quality production programs that our customers demand, they have very deep technical knowledge of the electric motor and controller business. This team has the ability and background to grow the business to significantly higher levels, and we believe we have adequate cash balances and bank financing resources to fund our operations for at least the next twelve months.

 

Our most important strategic initiative is to develop customer relationships that lead to longer-term supply contracts.  Volume production is the key to our ongoing operations.  We are driving business development in the following ways:

 

·

We have created a well-defined, structured process to target potential customers of vehicle electric motor technology in the commercial truck/van and shuttles, passenger buses, automotive, marine, military and other targeted markets both domestically and internationally. In particular, we are focused on developing customer relationships in China which is the world’s largest market for vehicle electrification products.

 

·

We hired our first employees in China in 2016.  As China represents the largest market in the world for electric vehicles, our presence in that market is critical to our long-term success.

 

·

We continue to seek out a strategic partner in China that meets three important criteria; the partner should have capital, infrastructure and access to the Chinese domestic market.

 

·

We have developed a customer pipeline where identified potential customers are synergistic and strategic in nature for longer-term growth potential.

 

15


 

·

We are building long term quantifiable and sustainable relationships within the identified target markets.

 

·

We provide service and support to our customers from pilot and test activities through commissioning processes and ultimately to volume production operations.

 

·

We continually look for ways to improve our purchasing and manufacturing processes to develop competitive costs to ensure that our pricing to customers is market competitive.

 

·

We provide customized solutions to meet specification requirements that some customers require.

 

·

We participate in trade show events globally to demonstrate our products and engage with users of electric motor technology.

 

·

We actively involve all functional groups within the Company to support the requests of our customers.

 

We believe that the successful execution of these activities will lead us to secure volume production commitments from customers, so that our operations will become cash flow positive and ultimately profitable.

 

Financial Condition

 

Cash and cash equivalents at June 30, 2017 were $2,074,389 and working capital was $3,185,302, compared with $2,100,089 and $3,173,848, respectively, at December 31, 2016.  The change in cash and working capital is primarily attributable to operating losses offset by draws on the line of credit.

 

Restricted cash at June 30, 2017 was $585,943 versus $0 at December 31, 2016.  The restricted cash is for payment of interest on the draws from the line of credit.  The current portion is for estimated interest payment due within the next twelve months.  The long-term portion is the remaining amount expected to be paid by the end of the term of the line of credit on March 15, 2019.

 

Accounts receivable decreased $371,398 to $791,918 at June 30, 2017 from $1,163,316 at December 31, 2016.  The decrease is primarily due to the mix in customer credit terms.  Our sales are conducted through acceptance of customer purchase orders, or in some cases, through supply agreements. For international customers and customers without an adequate credit rating or history, our typical terms require irrevocable letters of credit or cash payment in advance of delivery. For credit qualified customers, our typical terms are net 30 days. As of June 30, 2017 and December 31, 2016, we had no allowance for bad debts.

 

Costs and estimated earnings on uncompleted contracts was $29,917 at June 30, 2017 and December 31, 2016.

 

Total inventories increased $606,779 to $2,356,514 at June 30, 2017 from $1,749,735 at December 31, 2016 reflecting purchases for anticipated sales of fuel cell compressor and PP220 PowerPhase HD® systems.

 

Prepaid expenses and other current assets decreased to $206,243 at June 30, 2017 from $259,682 at December 31, 2016 primarily due to timing of amortization of maintenance contracts.

 

We invested $26,313 and $37,407 for the acquisition of property and equipment during the quarter and six months ended June 30, 2017, respectively, compared to $15,862 and $100,515 during the comparable periods last year. We believe that we have sufficient property and equipment in place to meet our production requirements for the foreseeable future.

 

Patent costs decreased $2,891 for the six months ended June 30, 2017 due to new patent costs offset by amortization. Trademark costs decreased $2,248 for the six months ended June 30, 2017 due to amortization.

 

Accounts payable increased $142,012 to $951,962 at June 30, 2017 from $809,950 at December 31, 2016, primarily due to the timing of vendor payments.

 

16


 

Other current liabilities increased to $1,487,029 at June 30, 2017 from $1,318,941 at December 31, 2016. The increase is primarily attributable to an increase in accrued executive compensation, accrued payroll and associated benefits, unearned revenue and accrued warranty costs offset by a decrease in accrued property taxes.

 

Long-term debt net of deferred financing costs increased $3,100,797 due to borrowings on a bank line of credit secured on March 15, 2017. For additional information, see Note 9 of the Consolidated Condensed Financial Statements.

 

Other long-term liabilities decreased $10,000 to $131,667 at June 30, 2017 from $141,667 at December 31, 2016 due to amortization of a license fee received from a customer under a ten-year cooperation agreement.

 

Common stock and additional paid-in capital were $485,665 and $128,556,455, respectively, at June 30, 2017 compared to $485,193 and $128,409,933 at December 31, 2016. The increases in common stock and additional paid-in capital were primarily attributable to the periodic expensing of non-cash share-based payments associated with option and stock grants under our equity compensation plans and the issuance of shares under the Employee Stock Purchase Plan.

 

Results of Operations

 

Quarter Ended June 30, 2017

 

Revenue

 

Product sales revenue for the current quarter increased to $1,571,390 versus $1,173,261 for the comparable quarter last year, reflecting increased shipments of PowerPhase HD® propulsion systems and fuel cell compressor systems offset by decreased shipments of auxiliary motor and PowerPhase Pro®  135 systems.

 

Revenue from contract services decreased to $217,565 for the quarter ended June 30, 2017 versus $261,820 for the comparable quarter last year. The decrease is primarily due to a Department of Energy grant program which expired as of September 30, 2016 and lower revenue from new contracts.

 

Gross Profit Margin

 

Gross profit margin for the quarter ended June 30, 2017 increased to 39.2 percent compared to 30.1 percent for the quarter ended June 30, 2016. Gross profit margin on product sales for the quarter this year increased slightly to 35.9 percent compared to 35.3 percent for the same quarter last year primarily due to a change in product mix. Gross profit margin on contract services increased to 63.0 percent for the quarter this year compared to 9.5 percent for the quarter ended June 30, 2016, resulting from a change in the mix of contracts in process during the quarter ended June 30, 2017 versus the comparable quarter last year.

 

Costs and Expenses

 

Research and development expenditures for the quarter ended June 30, 2017 decreased to $555,465 compared to $718,918 for the quarter ended June 30, 2016. The decrease is related to a reduction of allocated resources to internally funded projects.

 

Selling, general and administrative expenses for the quarter ended June 30, 2017 was $1,470,914 compared to $1,684,645 for the same quarter last year. The decrease is primarily attributable to reduced consulting and legal fees,  partially offset by new personnel and related expenses pertaining to our UQM Asia operations, in the current quarter compared to the same period last year.

 

Net Loss

 

As a result, net loss for the quarter ended June 30, 2017 was $1,348,221, or $0.03 per common share, compared to a net loss of $1,954,030, or $0.04 per common share, for the comparable quarter last year.

17


 

Six Months Ended June 30, 2017

 

Revenue

 

Product sales revenue for the six months increased to $2,416,925 versus $2,392,058 for the comparable period last year, reflecting increased shipments of PowerPhase HD® propulsion systems and fuel cell compressor systems offset by decreased shipments of auxiliary motor and PowerPhase Pro®  135 systems.

 

Revenue from contract services decreased to $387,075 at June 30, 2017 versus $547,313 for the comparable period last year. The decrease is primarily due to a Department of Energy grant program which expired as of September 30, 2016 and lower revenue from new contracts.

 

Gross Profit Margin

 

Gross profit margin for the six months ended June 30, 2017 increased to 36.7 percent compared to 28.2 percent for the six month period last year. Gross profit margin on product sales for the six months ended June 30, 2017 decreased to 33.2 percent compared to 34.4 percent for the six month period last year primarily due to a change in product mix. Gross profit margin on contract services increased to 58.3 percent for the six months ended June 30, 2017 compared to 1.3 percent for the six months last year, resulting from a change in the mix of contracts in process during the six months ended June 30, 2017 versus the comparable six months last year.

 

Costs and Expenses

 

Research and development expenditures for the six months ended June 30, 2017 decreased to $1,188,247 compared to $1,403,264 for the six months ended June 30, 2016. The decrease is related to a reduction of allocated resources for internally funded projects.

 

Selling, general and administrative expense net of recovery of impaired assets for the six months ended June 30, 2017 was $2,774,121compared to $2,331,739 for the same six months last year. The change is primarily attributable to new personnel and related expenses pertaining to our UQM Asia operations in the current year which is offset by a decrease in consulting and legal fees.  In addition, we recovered $585,800 in connection with a vendor settlement during the six months ended June 30, 2016.

 

Net Loss

 

As a result, net loss for the six month period ended June 30, 2017 was $2,954,247, or $0.06 per common share, compared to a net loss of $2,884,948, or $0.06 per common share, for the comparable six month period last year.

 

Liquidity and Capital Resources

 

Our cash balances and liquidity throughout the quarter ended June 30, 2017 were adequate to meet operating needs.  At June 30, 2017, we had working capital of $3,185,302 compared to $3,173,848 at December 31, 2016. The increase in working capital is primarily attributable to higher inventory purchases offset by higher accounts payable due to the timing of the vendor payments.

 

For the six months ended June 30, 2017, net cash used in operating activities was $2,513,106 compared to net cash used in operating activities of $3,040,873 for the comparable period last year. The change in cash used in operating activities is due to increased receipts from outstanding accounts receivable and higher inventory purchases, which was offset by a decrease in settlement of vendor liabilities.

 

Net cash used in investing activities for the six months ended June 30, 2017 was $45,098 compared to net cash used in investing activities of $106,653 for the comparable six months last year. The decrease for the six months ended June 30, 2017 was primarily due to reduction in expenditures for the acquisition of property and equipment.

 

18


 

Net cash provided by financing activities for the six months ended June 30, 2017 was $3,118,447 compared to net cash used in financing activities of $43,586 for the comparable period last year. The change is primarily due to borrowings on a bank line of credit secured during the six months ended June 30, 2017, partially offset by a decrease in cash received for shares exercised under the employee stock purchase plan and cash paid for the registered direct offering.

 

We expect to fund our operations over the next year from existing cash and cash equivalent balances, cash generated from operations, and bank financing resources.  On March 15, 2017, the Company entered into a non-revolving line of credit with a lender for $5.6 million.  The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance.  The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due.     For additional information, see Note 9 of the Consolidated Condensed Financial Statements.  Although we expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage, our working capital requirements may increase in the future. If customer demand accelerates substantially, our working capital requirements may also increase substantially.

 

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 operations with then available financial resources. Based on our current level of operations, current cash balance and bank credit availability, we believe we have sufficient liquidity to fund our operations for at least the next twelve months.

 

Contractual Obligations

 

The following table presents information about our contractual obligations and commitments as of June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by Period

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

More than

 

 

    

Total

    

1 Year

    

2 - 3 Years

    

4 - 5 Years

    

5 Years

 

Purchase obligations (1)

 

$

1,152,757

 

$

1,152,757

 

$

 —

 

$

 —

 

$

 —

 

Executive employment agreements (2)

 

 

350,000

 

 

350,000

 

 

 —

 

 

 —

 

 

 —

 

Total

 

$

1,502,757

 

$

1,502,757

 

$

 —

 

$

 —

 

$

 —

 

 


 

 

(1)

Includes procurement of inventory to fulfill the backlog for products.

(2)

Includes retention bonus payable under executive employment agreements if our officers remain employees of UQM continuously through June 30, 2017, but not annual cash compensation under the agreements.  This is reflected in other current liabilities in the accompanying Consolidated Condensed Balance Sheets.

 

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 condensed financial statements and accompanying notes.  Note 1 to the Consolidated Condensed Financial Statements contained in our Transitional Report on Form 10-KT for the period nine-month transition period ended December 31, 2016 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There have been no material changes in any of our critical accounting policies during the six months ended June 30, 2017.

19


 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates.  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 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the SEC) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

 

As of June 30, 2017, we performed an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities and Exchange Act of 1934 (the “Exchange Act”)).  Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2017.

 

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 June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

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, although adverse developments in these matters could have a material impact on a future reporting period.

 

ITEM 1A. RISK FACTORS

 

Risk Factors

 

Our business is subject to a number of risks and uncertainties, many of which are outside of our control. Except as indicated below, there have been no material changes in the risk factors contained in our Transitional Report on Form 10-KT for the nine-month transition period ended December 31, 2016:

 

We have incurred significant losses and may continue to do so.

 

We have incurred significant net losses as shown in the following tables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

Nine months ended December 31,

 

Year ended March 31,

 

    

2017

    

2016

    

2016

 

 

 

 

 

 

 

 

 

Net loss

 

$

2,954,247

 

$

13,017,508

 

$

6,938,351

 

 

20


 

As of June 30, 2017 and December 31, 2016, we had accumulated deficits of $122,847,181 and $119,892,934, respectively.

 

In the future, we plan to make additional investments in product development, facilities and equipment and incur other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses for the foreseeable future.  

 

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 quarter ended June 30, 2017 was $1,348,221 versus a net loss for the comparable quarter last year of $1,954,030.  Our net loss for the nine-month transition period ended December 31, 2016 was $13,017,508. At June 30, 2017, our cash and cash equivalents totaled $2,074,389.  We expect our losses to continue for the foreseeable future. Our existing cash resources and availability under our bank line of credit are expected to be sufficient to complete our business plan for at least the next twelve 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.

 

Our revenue is highly concentrated among a small number of customers.

 

We have historically derived a large percentage of our revenue from a small number of customers, and we expect this trend to continue.

 

Our customer arrangements generally have been non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. Further, although we entered into a 10-year exclusive supply agreement with ITL in October 2015, the amount of revenue we will generate pursuant to the ITL Agreement is uncertain. 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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

21


 

ITEM 6. EXHIBITS

 

(a)

Exhibits

 

 

 

 

31.1

 

Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13(a)- 14(a)

31.2

 

Certification of Chief Financial Officer Pursuant to Exchange Ac Rule 13(a)- 14(a)

32.1

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10.1

 

Employment Agreement with Joseph R. Mitchell.  ** Reference is made to Exhibit 10.1 to our report on Form 8-K, filed on July 5, 2017 (No. 1-10869), which is incorporated herein by reference.

10.2

 

Employment Agreement with David I. Rosenthal.  ** Reference is made to Exhibit 10.2 to our report on Form 8-K, filed on July 5, 2017 (No. 1-10869), which is incorporated herein by reference.

10.3

 

Employment Agreement with Adrian P. Schaffer.    ** Reference is made to Exhibit 10.3 to our report on Form 8-K, filed on July 5, 2017 (No. 1-10869), which is incorporated herein by reference.

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

** management contract or compensation plan

 

 

 

22


 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

    

UQM Technologies, Inc.

 

 

Registrant

Date:  August 7, 2017

 

 

 

/s/

DAVID I. ROSENTHAL

 

 

David I. Rosenthal

 

 

Treasurer and Chief Financial Officer

 

 

(Duly Authorized Officer, Principal Financial and Accounting Officer)

 

 

23