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EX-32.1 - EX-32.1 - UQM TECHNOLOGIES INCuqm-20180930ex321e2cf3c.htm
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EX-31.1 - EX-31.1 - UQM TECHNOLOGIES INCuqm-20180930ex311018e86.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September  30, 2018

 

[  ] 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 every interactive data file required to be submitted 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 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

[X]  Non-accelerated filer

[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 Annual 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 October 29,  2018 was 54,253,731.

 

i


 

TABLE OF CONTENTS

 

 

 

 

 

    

Page No.

PART I Financial Information 

 

1

 

 

 

Item 1.   Financial Statements (unaudited) 

 

 

 

 

 

Consolidated Condensed Balance Sheets as of September 30, 2018 and December 31, 2017 

 

1

 

 

 

Consolidated Condensed Statements of Operations for the quarters and nine months ended September 30, 2018 and 2017 

 

3

 

 

 

Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 

 

4

 

 

 

Notes to Consolidated Condensed Financial Statements 

 

5

 

 

 

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

 

17

 

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk 

 

22

 

 

 

Item 4.   Controls and Procedures 

 

22

 

 

 

PART II Other Information 

 

23

 

 

 

Item 1.     Legal Proceedings 

 

23

 

 

 

Item 1A.  Risk Factors 

 

23

 

 

 

Item 2.    Unregistered Sales of Equity Securities 

 

24

 

 

 

Item 3.     Defaults Upon Senior Securities 

 

24

 

 

 

Item 4.     Mine Safety Disclosures 

 

24

 

 

 

Item 5.    Other Information 

 

24

 

 

 

Item 6.       Exhibits 

 

25

 

 

 

 

 

i


 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

    

2018

    

2017

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,487,132

 

$

6,309,269

Restricted cash

 

 

358,627

 

 

176,193

Accounts receivable

 

 

1,287,194

 

 

823,793

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

45,850

 

 

 -

Inventories, net

 

 

4,575,472

 

 

2,341,360

Prepaid expenses and other current assets

 

 

452,307

 

 

233,566

Total current assets 

 

 

9,206,582

 

 

9,884,181

 

 

 

 

 

 

 

Property and equipment, at cost:

 

 

 

 

 

 

Land

 

 

896,388

 

 

896,388

Building

 

 

4,516,301

 

 

4,516,301

Machinery and equipment

 

 

7,413,005

 

 

7,136,578

 

 

 

12,825,694

 

 

12,549,267

Less accumulated depreciation

 

 

(8,182,410)

 

 

(7,936,056)

Net property and equipment

 

 

4,643,284

 

 

4,613,211

 

 

 

 

 

 

 

Patent costs, net of accumulated amortization of $968,891 and $953,491, respectively

 

 

252,134

 

 

222,461

Trademark costs, net of accumulated amortization of $88,753 and $85,381, respectively

 

 

87,088

 

 

90,460

Restricted cash

 

 

 -

 

 

323,863

Total assets

 

$

14,189,088

 

$

15,134,176

 

 

 

See accompanying notes to consolidated condensed financial statements.

1


 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited), Continued

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2018

 

2017

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,644,797

 

$

948,875

Unearned revenue

 

 

2,201,597

 

 

153,944

Other current liabilities

 

 

1,018,172

 

 

819,839

Billings in excess of costs and estimated earnings on engineering services contracts

 

 

277,967

 

 

199,160

Current portion of long-term debt, net of deferred financing costs of
$17,099 and $0, respectively

 

 

3,147,430

 

 

 -

Total current liabilities

 

 

9,289,963

 

 

2,121,818

 

 

 

 

 

 

 

Long-term debt, net of deferred financing costs of $0 and $45,079, respectively

 

 

 -

 

 

3,119,450

Other long-term liabilities

 

 

106,667

 

 

121,667

Total long-term liabilities

 

 

106,667

 

 

3,241,117

 

 

 

 

 

 

 

Total liabilities

 

 

9,396,630

 

 

5,362,935

 

 

 

 

 

 

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 54,228,955 and 54,108,510  shares issued and outstanding, respectively

 

 

542,290

 

 

541,085

Additional paid-in capital

 

 

134,465,515

 

 

133,901,406

Accumulated deficit

 

 

(130,215,347)

 

 

(124,671,250)

Total stockholders’ equity

 

 

4,792,458

 

 

9,771,241

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

14,189,088

 

$

15,134,176

 

See accompanying notes to consolidated condensed financial statements.

2


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Operations (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

3,747,846

 

$

2,752,554

 

$

7,497,209

 

$

5,169,479

Contract services

 

 

637,576

 

 

 -

 

 

1,201,442

 

 

387,075

 

 

 

4,385,422

 

 

2,752,554

 

 

8,698,651

 

 

5,556,554

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Costs of product sales

 

 

2,999,394

 

 

1,471,334

 

 

6,061,505

 

 

3,085,822

Costs of contract services

 

 

346,775

 

 

 -

 

 

570,738

 

 

161,616

Research and development

 

 

396,690

 

 

403,273

 

 

1,902,324

 

 

1,591,520

Selling, general and administrative

 

 

1,839,872

 

 

1,983,450

 

 

5,678,428

 

 

4,757,571

 

 

 

5,582,731

 

 

3,858,057

 

 

14,212,995

 

 

9,596,529

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,197,309)

 

 

(1,105,503)

 

 

(5,514,344)

 

 

(4,039,975)

       Other income (expense), net

 

 

55,731

 

 

(43,904)

 

 

(29,753)

 

 

(63,679)

Gain on sale of long-lived assets

 

 

 -

 

 

606,006

 

 

 -

 

 

606,006

Net loss

 

$

(1,141,578)

 

$

(543,401)

 

$

(5,544,097)

 

$

(3,497,648)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.02)

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

54,208,477

 

 

48,941,702

 

 

54,158,607

 

 

48,677,423

 

See accompanying notes to consolidated condensed financial statements.

3


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2018

    

2017

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 Net loss

$

(5,544,097)

 

$

(3,497,648)

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

 

 

 

 

 

    Depreciation and amortization

 

323,241

 

 

302,385

    Non-cash equity based compensation

 

525,624

 

 

269,891

    Gain on sale of long-lived assets

 

 -

 

 

(606,006)

    Change in operating assets and liabilities:

 

 

 

 

 

        Accounts receivable

 

(463,401)

 

 

529,208

        Costs and estimated earnings on uncompleted contracts

 

(45,850)

 

 

29,917

        Inventories

 

(2,234,112)

 

 

(939,197)

        Prepaid expenses and other current assets

 

(218,741)

 

 

(43,198)

        Accounts payable and other current liabilities

 

1,894,255

 

 

375,298

        Unearned revenue

 

2,047,653

 

 

470,633

        Billings in excess of costs and estimated earnings on

 

 

 

 

 

           engineering services contracts

 

78,807

 

 

25,378

        Other long-term liabilities

 

(15,000)

 

 

(15,000)

               Net cash used in operating activities

 

(3,651,621)

 

 

(3,098,339)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 Acquisition of property and equipment, net

 

(306,561)

 

 

(46,158)

 Cash paid for patent and trademark fees

 

(45,074)

 

 

(13,411)

 Cash proceeds from the sale of long-lived assets

 

 -

 

 

1,392,948

               Net cash (used in) / provided by investing activities

 

(351,635)

 

 

1,333,379

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 Cash received for shares exercised under employee stock purchase plan

 

32,881

 

 

36,327

 Proceeds from line of credit

 

 -

 

 

3,100,000

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

 

(10,462)

 

 

(12,381)

 Issuance of common stock upon definitive stock
purchase agreement

 

 -

 

 

5,099,898

 Issuance of common stock upon exercise of employee and
directors options

 

17,271

 

 

18,763

             Net cash provided by financing activities

 

39,690

 

 

8,242,607

 

 

 

 

 

 

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

 

(3,963,566)

 

 

6,477,647

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

 

6,809,325

 

 

2,100,089

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

$

2,845,759

 

$

8,577,736

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(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 with our Annual Report on Form 10-K for the year ended December 31, 2017.

 

(2)  Segment Reporting

 

UQM Technologies, Inc. (the “Company”, “UQM”, “we”, or “us”) 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 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, ASU 2014-09, 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.  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 has adopted this standard effective January 1, 2018 using the retrospective method with the cumulative effect and additional disclosures.    See Note 5.

 

In February 2016, the FASB issued a new standard, ASU 2016-02, in which the lessee should recognize an asset and liability that arise from leases no matter the type of lease the company enters into.  A lessee should recognize in the statement of financial position a liability allocated on a straight-line basis over the lease term to make lease payments and a right-of-use asset measured at the present value of the lease payments representing its right to use the underlying asset for the lease term.  All cash payments should be classified in the operating activities section of the statement of cash flows.  Another requirement under the new standard is that a company must separate the lease components from the nonlease components in a contract.  Only the lease components are subject to ASU 2016-02 recognition and measurement.  Lessees may make an accounting policy election to not separate lease components from nonlease components.  Both qualitative and quantitative disclosures are required.  Recognition and measurement is required at the beginning of the earliest period presented using a modified retrospective or cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company entered into a new operating lease in the quarter ended September 30, 2018 and is currently evaluating the effect on its financial statements.  See Note 17 for current disclosures.

 

In

5


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(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 September 30, 2018, the Company had sustained recurring losses from continuing operations, had a  working capital deficit of $83,381, and accumulated deficit of $130,215,347. 

 

On May 9, 2018, the Company announced that the Committee on Foreign Investment in the United States would likely not approve the second stage investment as anticipated in the Stock Purchase Agreement with China National Heavy Duty Truck Co., Ltd, which would have brought approximately $23 million of cash to the Company.  Since that announcement, the Company has been investigating other potentially favorable funding alternatives.

 

As of the date of the filing of this Form 10-Q, management has assessed the liquidity position of the Company per the requirements of ASU No. 2014-15 “Presentation of the Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”   Management’s cash flow forecast for the next twelve months, based on expectations of the receipt of new customer orders and revenues, indicates that the Company should be able to meet its obligations, but there can be no assurance that this will happen.  Therefore, with the losses that the Company has sustained, and its working capital deficit at September 30, 2018, substantial doubt exists about the Company’s ability to continue as a going concern without taking additional actions and/or finalizing orders that are currently in the negotiation stage.  Management believes that additional funding may be necessary, and is evaluating numerous options, including but not limited to:

 

·

Renegotiation of the maturity date of Company’s line of credit with its bank;

·

Sale and leaseback transaction related to the Company’s facility;

·

Investments from strategic partners; and

·

Capital market investment.

 

Management does not believe that there is an immediate need to raise capital given the recent improvements in revenues.  Management believes that it is likely that additional funding will be available at the appropriate time given these options, however, there can be no assurance that outside capital will ultimately be available to the Company on reasonable terms, if at all.

 

The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

 

(5) Revenue Recognition

 

Accounting Policies

 

Product Sales- Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied.  The majority of the Company’s contracts have a single performance obligation to transfer products.  Accordingly, the Company recognizes revenue when control has been transferred to the customer, generally at the time of shipment of products.  Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated fixed price.  The Company sells its products directly to customers under agreements with payment terms of prepayment or generally net 30 days for credit qualified customers.

 

Contract Services-  The majority of the Company’s contracts have a single performance obligation to transfer products or an agreed-upon task(s) over time.  Accordingly, revenue is recognized using cost input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract, as the performance obligations

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Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

are satisfied. Costs incurred towards contract completion may include costs associated with direct materials, labor, subcontractors, and other indirect costs.

 

Shipping and Handling Costs- We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products.  Accordingly, we record customer payment of shipping and handling costs as a component of net sales, and classify such costs as a component of cost of sales.

 

Product Warranties- Our standard product warranty is for one year and provides assurance to the customer that the purchased product will function as intended and complies with agreed-upon specifications.  A customer can negotiate an extended warranty period from four months up to four years.  The cost of the warranty can be included in the price of the unit or separately stated as a line item in the contract.  A majority of our customers have the warranty included in the sales price of the product which is then accounted for as a guarantee.  Warranties that are stated as a separate line item in the contract are considered a single performance obligation which is recognized by the time elapsed input method. 

 

Unearned Revenue- When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record unearned revenue, which represents a contract liability.  We recognize unearned revenue as net sales after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.

 

License Agreements- We account for our license agreements as multi-element arrangements.  Each element in the arrangement is considered a single performance obligation and is treated accordingly.  Revenue recognition for the licensing element in the agreement is recognized by the time elapsed input method. Revenue recognition for the product sales element follows the revenue recognition rules as noted above for product sales.

 

The effect of the adoption of new revenue recognition standard (ASC 606) on our Consolidated Statement of Operations and Balance Sheet as of December 31, 2017 as reported in our Annual Report on Form 10-K was immaterial.

 

Disaggregation of Revenue

 

In the following table, revenue is disaggregated by geographic region (using the location of the client as the basis of attributing revenues to the individual regions):

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

    

2018

    

2017

United States & Canada

 

$

5,050,379

 

$

3,093,034

Asia Pacific

 

 

3,504,679

 

 

2,227,800

Europe

 

 

143,593

 

 

235,720

Total Revenues

 

$

8,698,651

 

$

5,556,554

 

 

 

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Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(6)   Cash, cash equivalents, and restricted cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Condensed Statements of Cash Flows.

 

 

 

 

 

 

 

 

 

 

September 30,

 

September 30,

 

    

2018

    

2017

Cash and cash equivalents

 

$

2,487,132

 

$

8,035,754

Restricted cash, current

 

 

358,627

 

 

165,575

Restricted cash, long-term

 

 

 -

 

 

376,407

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

 

$

2,845,759

 

$

8,577,736

 

Restricted cash classified as a current asset on the Consolidated Condensed Balance Sheets 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 Sheets 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 debt is paid back in full.

 

(7)   Contracts in Process

 

At September 30, 2018 and December 31, 2017, the estimated period to complete contracts in process ranged from one to five and one to three months, respectively.  We expect to collect all accounts receivable arising from these contracts within ninety days of billing.

 

The following summarizes contracts in process:

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

    

2018

    

2017

Costs incurred on engineering services contracts

 

$

158,047

 

$

56,175

Estimated earnings

 

 

445,236

 

 

144,665

 

 

 

603,283

 

 

200,840

Less billings to date

 

 

(835,400)

 

 

(400,000)

 

 

 

 

 

 

 

Contracts in process

 

$

(232,117)

 

$

(199,160)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

45,850

 

$

 -

Billings in excess of costs and estimated earnings on engineering services contracts

 

 

(277,967)

 

 

(199,160)

Contracts in process

 

$

(232,117)

 

$

(199,160)

 

8


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(8)   Inventories

 

Inventories at September 30, 2018 and December 31, 2017 consisted of:

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

    

2018

    

2017

Raw materials

 

$

9,178,495

 

$

7,679,922

Work-in-process

 

 

1,073,612

 

 

289,848

Finished products

 

 

1,298,089

 

 

1,390,200

Reserve for excess and obsolete inventory

 

 

(6,974,724)

 

 

(7,018,610)

 

 

$

4,575,472

 

$

2,341,360

 

 

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.    During the quarter and nine months ended September 30, 2018, no additional reserve was required.

 

 

(9)   Other Current Liabilities

 

Other current liabilities at September 30, 2018 and December 31, 2017 consisted of:

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

    

2018

    

2017

Accrued payroll and employee benefits

 

$

216,103

 

$

94,680

Accrued personal property and real estate taxes

 

 

176,350

 

 

235,133

Accrued warranty costs

 

 

470,283

 

 

333,431

Accrued royalties

 

 

48,336

 

 

48,336

Accrued import duties

 

 

87,100

 

 

87,100

Other

 

 

20,000

 

 

21,159

 

 

$

1,018,172

 

$

819,839

 

 

 

 

9


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(10)  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 headquarter facility.  The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance, which was 6.26% as of September 30, 2018.  As a 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 Sheets as of September 30, 2018 and December 31, 2017.  For additional information, see Note 6 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 September 30, 2018, 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 September 30, 2018,  $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 which are amortized over the term using the effective interest rate method.

 

(11)   Stock-Based Compensation

 

Stock-Based Compensation Expense

 

The table below shows total stock-based compensation expense for the quarters and nine months ended September 30, 2018 and 2017, and the classification of these expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of product sales

 

$

9,637

 

$

9,300

 

$

25,695

 

$

16,627

Costs of contract services

 

 

6,900

 

 

 -

 

 

12,107

    

 

2,097

Research and development

 

 

16,275

 

 

18,521

 

 

53,772

 

 

37,422

Selling, general and administrative

 

 

116,685

 

 

113,522

 

 

434,050

 

 

213,745

 

 

$

149,497

 

$

141,343

 

$

525,624

 

$

269,891

 

10


 

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 nine months ended September 30, 2018 under our two separate 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, 2017

 

3,295,502

 

$

1.16

 

 

6.3 years

 

$

1,383,525

Granted

 

1,068,322

 

$

1.25

 

 

 

 

 

 -

Exercised

 

(23,964)

 

$

0.72

 

 

 

 

 

 -

Forfeited

 

(145,778)

 

$

1.89

 

 

 

 

 

7,178

Outstanding at September 30, 2018

 

4,194,082

 

$

1.16

 

 

6.7 years

 

$

1,225,225

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2018

 

2,730,432

 

$

1.19

 

 

5.4 years

 

$

921,790

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at September 30, 2018

 

3,449,842

 

$

1.25

 

 

6.4 years

 

$

812,630

 

 

 

 

As of September 30, 2018, there was $969,934 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-four months.  The total fair value of stock options that vested during the nine months ended September 30, 2018 and 2017 was $325,898 and $236,328, respectively.

 

Stock Bonus Plan Activity

 

Activity with respect to non-vested shares under the Stock Bonus Plan as of September 30, 2018 and 2017 and changes during the nine months ended September 30, 2018 and 2017 are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

2018

 

2017

 

 

 

 

Weighted-Average

 

 

 

Weighted-Average

 

 

Shares Under

 

Grant Date

 

Shares Under

 

Grant Date

 

    

Contract

    

Fair Value

    

Contract

    

Fair Value

Unvested at beginning of period

 

57,760

 

$

0.68

 

102,048

 

$

0.84

Granted

 

188,191

 

$

1.25

 

23,735

 

$

0.87

Vested

 

(76,079)

 

$

1.03

 

(68,023)

 

$

0.98

Forfeited

 

 -

 

$

 -

 

 -

 

$

 -

Unvested at end of period

 

169,872

 

$

1.15

 

57,760

 

$

0.68

 

As of September 30, 2018, there was $156,335 of total unrecognized compensation cost related to common stock granted under our Stock Bonus Plan.  The unrecognized compensation cost at September 30, 2018 is expected to be recognized over a weighted-average period of twenty-six months.

 

11


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

Employee Stock Purchase Plan Activity

 

During the nine months ended September 30, 2018 and 2017, we issued 31,187 and 45,849 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 nine months ended September 30, 2018 and 2017 was $32,881 and $17,881, respectively. As of September 30, 2018,  25,609 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.

 

(12)   Stockholders’ Equity

 

Changes in the components of stockholders’ equity during the nine months ended September 30, 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

 

Additional 

 

 

 

 

Total

 

 

shares

 

Common 

 

paid-in

 

Accumulated 

 

stockholders’

 

    

issued

    

stock

    

capital

    

deficit

    

equity

Balances at December 31, 2017

 

 

54,108,510

 

$

541,085

 

$

133,901,406

 

$

(124,671,250)

 

$

9,771,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

18,138

 

 

181

 

 

17,776

 

 

 -

 

 

17,957

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

 

 

 -

 

 

 -

 

 

73,361

 

 

 -

 

 

73,361

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(1,932,798)

 

 

(1,932,798)

Balances at March 31, 2018

 

 

54,126,648

 

$

541,266

 

$

133,992,543

 

$

(126,604,048)

 

$

7,929,761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

11,654

 

 

117

 

 

13,286

 

 

 -

 

 

13,403

Issuance of common stock upon exercise of employee and director options

 

 

2,200

 

 

22

 

 

1,470

 

 

 -

 

 

1,492

Retirement of vested shares

 

 

 

 

 

 

 

 

 

 

 

 -

 

 

 -

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

 

 

 -

 

 

 -

 

 

302,766

 

 

 -

 

 

302,766

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(2,469,721)

 

 

(2,469,721)

Balances at June 30, 2018

 

 

54,140,502

 

$

541,405

 

$

134,310,065

 

$

(129,073,769)

 

$

5,777,701

Issuance of common stock upon exercise of employee and director options

 

 

21,764

 

 

218

 

 

15,561

 

 

 -

 

 

15,779

Issuance of common stock under employee stock purchase plan

 

 

1,395

 

 

14

 

 

1,507

 

 

 -

 

 

1,521

Issuance of common stock under stock bonus plan

 

 

76,079

 

 

761

 

 

(761)

 

 

 -

 

 

 -

Common stock used for tax withholdings

 

 

(10,785)

 

 

(108)

 

 

(10,354)

 

 

 -

 

 

(10,462)

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

 

 

 -

 

 

 -

 

 

149,497

 

 

 -

 

 

149,497

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(1,141,578)

 

 

(1,141,578)

Balances at September 30, 2018

 

 

54,228,955

 

$

542,290

 

$

134,465,515

 

$

(130,215,347)

 

$

4,792,458

 

12


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

The Company has warrants outstanding as follows:

 

 

 

 

 

 

 

Common Stock

Warrants

 

 

 

Follow-on Offering

Under Option

Earliest

 

Offering Date

(Shares)

(Shares)

Exercise Date

Expiration Date

October, 2015

8,000,000

4,000,000

April 30, 2016

October 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

Average

 

 

Warrants

 

Average

 

Remaining

 

 

Under

 

Exercise

 

Contractual

 

    

Option

    

Price

    

Life

Outstanding at December 31, 2017

 

5,489,733

 

$

1.53

 

 

2.3 years

Granted

 

 -

 

$

 -

 

 

 

Exercised

 

 -

 

$

 -

 

 

 

Forfeited

 

(1,489,733)

 

$

2.13

 

 

 

Outstanding at September 30, 2018

 

4,000,000

 

$

1.31

 

 

2.1 years

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2018

 

4,000,000

 

$

1.31

 

 

2.1 years

 

13


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(13)   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 nine months ended September 30, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

    

 

 

    

 

    

 

 

 

    

 

    

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

    

$

269,576

    

 6

%  

 

$

52,364

    

 2

%

 

$

879,215

    

10

%  

 

$

227,502

    

 4

%  

Customer B

 

$

418,313

 

10

%  

 

$

 -

 

 -

%

 

$

1,110,042

 

13

%  

 

$

300,000

 

 5

%  

Customer C

 

$

426,026

 

10

%  

 

$

 -

 

 -

%

 

$

782,028

 

 9

%  

 

$

 -

 

 -

%  

Customer D

 

$

793,506

 

18

%  

 

$

308,341

 

11

%

 

$

1,730,414

 

20

%  

 

$

1,714,876

 

31

%  

Customer E

 

$

1,275,000

 

29

%  

 

$

1,800,000

 

65

%

 

$

1,275,000

 

15

%  

 

$

1,974,000

 

36

%  

 

The following table summarizes accounts receivable from significant customers as of September 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2018

    

2017

    

 

 

 

    

 

 

Customer A

    

22

%  

 4

%

Customer B

 

 -

%  

 -

%

Customer C

 

 1

%  

 -

%

Customer D

 

43

%  

80

%

Customer E

 

 -

%  

 -

%

 

 

 

(14) 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 September 30, 2018 and 2017, 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.

14


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(15) Loss Per Common Share

 

The following table sets forth the computation of basic and diluted net loss per share for the quarters and nine months ended September 30, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,141,578)

 

$

(543,401)

 

$

(5,544,097)

 

$

(3,497,648)

Denominator for basic and diluted net loss per common  share:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

54,208,477

 

 

48,941,702

 

 

54,158,607

 

 

48,677,423

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.02)

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

 

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:

 

 

 

 

 

 

 

 

 

September 30,

 

    

2018

    

2017

 

 

 

 

 

 

Non-vested stock bonus plan shares

 

 

169,872

 

57,760

Stock options outstanding

 

 

4,219,691

 

3,409,262

Warrants to purchase common stock

 

 

4,000,000

 

5,489,733

 

 

(16) Fair Value of Financial Instruments

 

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued and other current liabilities 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 debt of $3,147,430 is reported at amortized cost.  The Company’s debt is subject to variable rates of interest and accordingly its carrying value is considered to be representative of its fair market value.

15


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(17) Commitments and Contingencies

 

Employment Agreements

 

Effective July 1, 2017, the Company entered into new employment agreements with each of its four officers, which have terms through December 31, 2019.  The aggregate future base salary payable to the executive officers over the remaining terms of their employment agreements is $1,372,505.

 

Lease Commitments

 

Operating lease: In July 2018, the Company entered into a new lease agreement for its customer service center in Shanghai, China with a lease term of four years, effective July 30, 2018 through August 31, 2022. There were no operating leases or rental expense during the nine months ended September 30, 2017.

 

The table below summarizes the Company's scheduled future minimum lease payments under facility operating leases having initial or remaining non-cancellable lease terms of more than one year as of September 30, 2018:

 

 

 

 

 

2019

 

$

24,712

2020

 

 

25,536

2021

 

 

27,183

2022

 

 

18,122

Thereafter

 

 

 -

 

 

$

95,553

 

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.

 

 

 

 

 

 

 

 

16


 

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 Annual Report on Form 10-K for the year ended December 31, 2017.  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. (the “Company”, “UQM”, “we”, or “us”) develops, manufactures, and sells power dense, high efficiency electric motors, generators, power electronic controllers and fuel cell compressors for the commercial truck, bus, automotive, marine, and industrial markets.  We generate revenue from two principal activities: 1) the sale of motors, generators, electronic controls, and fuel cell compressors; and 2) research, development, and application engineering contract 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 service 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 range of products for use in full-electric, hybrid electric, plug-in-hybrid and fuel cell applications for the commercial bus and truck, automotive, marine, and industrial markets. These products are all intended to be highly efficient permanent magnet designs and feature outstanding performance, package size, and weight valued by our customers. We believe 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 9001 and IATF 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 the requirements for high quality production programs and very deep technical knowledge of the motor and controller business. We believe this team has the ability and background to grow the business to significantly higher levels.

 

Our most important strategic initiative going forward is to develop customer relationships that lead to longer-term supply contracts.  Volume production is the key to our ongoing operations.  We are taking steps to drive business development in various ways including:

 

·

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.

 

·

We have expanded our staff in China, and during the current quarter, we opened a customer service center in Shanghai.  China represents the largest market in the world for electric vehicles and we believe our presence in that market is critical to our long-term success.

 

·

On August 28, 2017, we entered into a definitive stock purchase agreement (“Agreement”) with China National Heavy Duty Truck Group Co., Ltd. through its wholly-owned subsidiary, Sinotruk (BVI) Limited (collectively, “CNHTC”), the parent company of Sinotruk (Hong Kong) Limited, a Chinese commercial vehicle manufacturer, and also announced that UQM and CNHTC plan to create a joint venture to manufacture and sell electric propulsion systems for commercial vehicles and other vehicles in China.  Today CNHTC owns approximately 9.9% of our outstanding shares of common stock.

 

17


 

·

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

 

·

We are building potentially 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 then ultimately leading to volume production operations. 

 

·

We strive 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 involve all functional groups within the Company to support the needs 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 eventually become cash flow positive and ultimately profitable.

 

Recent Events

 

On July 31, 2018, we announced that we had signed a lease agreement in Shanghai, China to open a customer service center for both our fuel cell compressor systems and propulsions systems. The facility should allow us to provide quick turnaround for service and spare parts to our customers in China, and eventually assemble the fuel cell compressor systems in that region.

 

On August 9, 2018, we announced that we had received new fuel cell compressor system purchase orders from several new and existing Chinese customers, including our major Chinese OEM customer. The new purchase orders are valued at approximately $3.0 million. All these orders represent incremental new business with shipments expected to be delivered through 2018 and into 2019.

 

On August 30, 2018, we announced that we had received an order from Lightning Systems for our eDT 220 electric propulsion systems for use in several new projects, including Class 6 vehicles for Zeem Solutions, located in New York, and a city bus program for Via Mobility, located in Boulder, Colorado. Shipments are currently expected to commence in 2018 and continue into 2019. We supply various powertrain components to Lightning Systems, including the UQM E-Drive paired with different gearbox solutions, making us the Tier 1 provider for the full assembly.

 

On September 11, 2018, we announced that we had unveiled our newest product launch at the Electric & Hybrid Vehicle Technology Expo held in Novi, Michigan. We introduced a full lineup of PowerPhase® HD2 electric motor inverters, which complements our signature motors and software controls, to further serve our customers in the electric vehicle market.

 

Financial Condition

 

Cash and cash equivalents at September 30, 2018 were $2,487,132 and we had a working capital deficit of ($83,381), compared with $6,309,269 and $7,762,363, respectively, at December 31, 2017.  The change in cash and working capital is primarily attributable to operating losses,  debt obligations being reclassified from long-term to current, and investments in inventory, offset in part by prepayments received from customers.

 

Restricted cash (current and long-term) at September 30, 2018 was $358,627 versus $500,056 at December 31, 2017.  The restricted cash is reserved for payment of the interest on the line of credit. 

 

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Accounts receivable increased $463,401 to $1,287,194 at September 30, 2018 from $823,793 at December 31, 2017.  The increase is primarily due to the mix in customer credit terms and increased customer shipments at the end of the third quarter.  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 September 30, 2018 and December 31, 2017, we had no allowance for bad debts.

 

Costs in excess of billings on uncompleted engineering service contracts were $45,850 and $0 at September 30, 2018 and December 31, 2017, respectively. The increase was due to timing of costs incurred and billings on customer contracts in progress at the end of the quarter.

 

Total inventories increased $2,234,112 to $4,575,472 at September 30, 2018 from $2,341,360 at December 31, 2017 reflecting an increase in raw materials and work-in-process for confirmed sales orders to be sold to customers in 2018.

 

Prepaid expenses and other current assets increased to $452,307 at September 30, 2018 from $233,566 at December 31, 2017, primarily due to an increase in vendor prepayments.

 

We invested $306,561 for the acquisition of property and equipment during the nine months ended September 30, 2018, compared to $46,158 during the comparable period last year. We purchase property and equipment to augment and replace existing fixed assets based on operational needs.

 

Patent costs increased $29,673 for the nine months ended September 30, 2018 due to new patent costs offset by amortization. Trademark costs decreased $3,372 for the nine months ended September 30, 2018 due to amortization.

 

Accounts payable increased $1,695,922 to $2,644,797 at September 30, 2018 from $948,875 at December 31, 2017, primarily due to the timing of vendor payments and increased purchases of inventory.

 

Unearned revenue increased to $2,201,597 at September 30, 2018 from $153,944 at December 31, 2017.  The increase is attributable to an increase in customer deposits for future shipments.

 

Other current liabilities increased to $1,018,172 at September 30, 2018 from $819,839 at December 31, 2017. The change is attributable to an increase in accrued warranty costs which reflect the increase in sales in the current year  and payroll and employee benefits.

 

Billings in excess of costs and estimated earnings on engineering services contracts were $277,967 and $199,160 at September 30, 2018 and December 31, 2017, respectively. The increase was due to timing of billings and completion of customer contracts in 2018.

 

Debt net of deferred financing costs (current and long-term) increased $27,980 during the nine months ended September 30, 2018 due to amortization of the deferred financing costs.

 

Other long-term liabilities decreased $15,000 to $106,667 at September 30, 2018 from $121,667 at December 31, 2017 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 $542,290 and $134,465,515, respectively, at September 30, 2018 compared to $541,085 and $133,901,406 at December 31, 2017. The increase in common stock and additional paid-in capital were primarily attributable to the issuance of common stock under the employee stock purchase plan and the periodic expensing of non-cash share-based payments associated with option and stock grants under our equity compensation plans.

 

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Results of Operations

 

Quarter Ended September 30, 2018

 

Revenue

 

Product sales revenue for the quarter ended September 30, 2018 increased to $3,747,846 versus $2,752,554 for the comparable period last year, reflecting increased shipments in all product lines.

 

Revenue from contract services was $637,576 for the quarter ended September 30, 2018  versus $0 for the comparable period last year. The increase is due to externally funded development contracts in progress.

 

Gross Profit Margin

 

Total gross profit margin for the quarter ended September 30, 2018 decreased to 23.7 percent compared to  46.6 percent for the comparable period in the prior year. Gross profit margin on product sales for the quarter this year decreased to 20.0 percent compared to 46.6 percent for the same period last year primarily due to higher sales of lower margin products and increased production headcount. Gross profit margin on contract services was 45.6 percent for the quarter this year compared to 0.0 percent for the same period last year, resulting from securing new contracts in the current period.

 

Costs and Expenses

 

Research and development expenditures for the quarter ended September 30, 2018 decreased to $396,690 compared to $403,273 for the same period last year. The decrease is related to a greater focus on externally funded development projects.

 

Selling, general and administrative expenses for the quarter ended September 30, 2018 was $1,839,872 compared to $1,983,450 for the same period last year. The decrease is primarily attributable to variable compensation and business development expenses in the current period compared to the same period last year.

 

Other income (expense)

 

Other income and (expense) for the quarter ended September 30, 2018 was $55,731 compared to $562,102 for the same period last year.  The decrease is primarily attributable to the gain on the sale of vacant land in 2017.

 

Net Loss

 

As a result, net loss for the quarter ended September 30, 2018 was $1,141,578, or $0.02 per common share, compared to a net loss of $543,401, or $0.01 per common share, for the comparable period last year.

 

Nine Months Ended September 30, 2018

 

Revenue

 

Product sales revenue for the nine months ended September 30, 2018 increased to $7,497,209 versus $5,169,479 for the comparable period last year, reflecting increased shipments in all product lines.

 

Revenue from contract services was $1,201,442 for the nine months ended September 30, 2018  versus $387,075 for the comparable period last year. The increase is due to customer contracts in progress.

 

Gross Profit Margin

 

Total gross profit margin for the nine months ended September 30, 2018 decreased to 23.8 percent compared to 41.6 percent for the comparable period in the prior year. Gross profit margin on product sales for the nine months this year

20


 

decreased to 19.2 percent compared to 40.3 percent for the same period last year primarily due to increased production department expenses related to increased headcount to support higher production demands and higher sales of lower margin products and increased production headcount. Gross profit margin on contract services was 52.5 percent for the nine months this year compared to 58.3 percent for the same period last year, resulting from a change in the mix of contracts in process during the respective periods.

 

Costs and Expenses

 

Research and development expenditures for the nine months ended September 30, 2018 increased to $1,902,324 compared to $1,591,520 for the same period last year. The increase is related to a greater focus on internally funded development projects.

 

Selling, general and administrative expenses for the nine months ended September 30, 2018 was $5,678,428 compared to $4,757,571 for the same period last year. The increase is primarily attributable to legal fees,  variable compensation, and related stock compensation in the current period compared to the same period last year.

 

Other income (expense)

 

Other income and (expense) for the nine months ended September 30, 2018 was expense of ($29,753) compared to income of $542,327 for the same period last year.  The change is primarily attributable to the gain on the sale of vacant land in 2017.

 

Net Loss

 

As a result, net loss for the nine  months ended September 30, 2018 was $5,544,097, or $0.10 per common share, compared to a net loss of $3,497,648, or $0.07 per common share, for the comparable period last year.

 

Liquidity and Capital Resources

 

Our cash balances and liquidity throughout the nine months ended September 30, 2018 were adequate to meet operating needs.  At September 30, 2018, we had a working capital deficit of ($83,381) compared to working capital of $7,762,363 at December 31, 2017. The decrease in working capital is primarily attributable to funding operations, higher unearned revenue and debt obligations being reclassified from long-term to current because of its maturity date.

 

For the nine months ended September 30, 2018, net cash used in operating activities was $3,651,621 compared to net cash used in operating activities of $3,098,339 for the comparable period last year. The increase in cash used in operating activities was due to higher accounts receivable and inventory purchases, partially offset by higher unearned revenue, accounts payable and other liabilities.

 

Net cash used in investing activities for the nine months ended September 30, 2018 was $351,635 compared to net cash provided by investing activities of $1,333,379 for the comparable nine months last year. The decrease for the nine months ended September 30, 2018 was primarily due to the sale of vacant land in the prior year.

 

Net cash provided by financing activities for the nine months ended September 30, 2018 was $39,690 compared to net cash provided by financing activities of $8,242,607 for the comparable period last year. The change is primarily due to borrowings on the line of credit and the sale of common stock pursuant to the Agreement executed during the nine months ended September 30, 2017.

 

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 10 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,

21


 

our working capital requirements may also increase substantially.  The Company intends to renegotiate the maturity date of the line of credit with the bank.

 

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.  See Footnote 4 to the Consolidated Condensed Financial Statements related to management’s assessment of the Company’s ability to continue as a going concern.

 

Contractual Obligations

 

The following table presents information about our contractual obligations and commitments as of September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by Period

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

More than

 

    

Total

    

1 Year

    

1 - 3 Years

    

3 - 5 Years

    

5 Years

Long-term debt obligations

 

$

3,164,529

 

$

3,164,529

 

$

 —

 

$

 —

 

$

 —

Purchase obligations

 

 

4,501,558

 

 

4,501,558

 

 

 —

 

 

 —

 

 

 —

Lease obligations

 

 

95,553

 

 

18,534

 

 

58,897

 

 

18,122

 

 

 —

Total

 

$

7,761,640

 

$

7,684,621

 

$

58,897

 

$

18,122

 

$

 —

 

 

 

 

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 Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. There have been no material changes in our Condensed Consolidated Financial Statements based on any of our critical accounting policies including the adoption of ASC 606, during the nine months ended September 30, 2018.

 

 

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 (as defined in Rule 13a-15 under the U.S. Securities and Exchange Act of 1934 (the “Exchange Act”)) 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 September 30, 2018, 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

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controls and procedures.  Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2018.

 

There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the nine months ended September 30, 2018 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 Annual Report on Form 10-K for the period ended December 31, 2017:

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

1,141,578

 

$

543,401

 

$

5,544,097

 

$

3,497,648

 

 

As of September 30, 2018 and December 31, 2017, we had accumulated deficits of $130,215,347 and $124,671,250, 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 nine months ended September 30, 2018 was $5,544,097 versus a net loss for the comparable period last year of $3,497,648.  Our net loss for the year ended December 31, 2017 was $4,778,316. At September 30, 2018, our cash, cash equivalents and restricted cash totaled $2,845,759.  We expect our losses to continue for the foreseeable future. See Footnote 4 to the Consolidated Condensed Financial Statements related to management’s assessment of the Company’s ability to continue as a going concern.

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

 

A large percentage of our revenue is typically derived from a small number of customers, and we expect this trend to continue.

 

Our customer arrangements generally have been non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. If one or more of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected.

 

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.

24


 

ITEM 6. EXHIBITS

 

(a)

Exhibits

 

 

 

 

31.1

 

Certification of Chief Executive Officer

 

 

 

31.2

 

Certification of Chief Financial Officer

 

 

 

32.1

 

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

 

 

 

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

 

 

 

25


 

 

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:  October 31, 2018

 

 

 

/s/

DAVID I. ROSENTHAL

 

 

David I. Rosenthal

 

 

Treasurer and Chief Financial Officer

 

 

(Duly Authorized Officer, Principal Financial and Accounting Officer)

 

 

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