Company Quick10K Filing
Quick10K
UQM Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.66 56 $93
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2015-03-31 Annual: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2014-03-31 Annual: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-04-23 Shareholder Vote
8-K 2019-04-16 Other Events
8-K 2019-01-21 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-31 Earnings, Exhibits
8-K 2018-10-17 Shareholder Vote, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-05-09 Regulation FD, Exhibits
8-K 2018-03-05 Regulation FD, Exhibits
8-K 2017-07-12 Officers
DLR Digital Realty Trust 24,490
BXP Boston Properties 20,220
PII Polaris Industries 5,490
HCM Hutchison China Meditech 3,410
NFE New Fortress Energy LLC 2,060
SAIL Sailpoint Technologies Holdings 1,710
SFS Smart & Final Stores 497
DWSN Dawson Geophysical 56
VSPC Viaspace 0
NOVA Nova Star Innovations 0
UQM 2019-03-31
Part I – Financial Information
Item 1. Financial Statements
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 uqm-20190331ex3119be416.htm
EX-31.2 uqm-20190331ex312e72808.htm
EX-32.1 uqm-20190331ex3218cca7b.htm

UQM Technologies Earnings 2019-03-31

UQM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 uqm-20190331x10q.htm 10-Q uqm_Current_Folio_10Q_Taxonomy2018

 

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 March 31, 2019

 

[  ] 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)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

UQM

NYSE American

 

 

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 May 10,  2019 was 56,566,586.

 

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

    

Page No.

PART I Financial Information 

 

1

 

 

 

Item 1.   Financial Statements (unaudited) 

 

 

 

 

 

Consolidated Condensed Balance Sheets as of March 31, 2019 and December 31, 2018 

 

1

 

 

 

Consolidated Condensed Statements of Operations for the quarters ended March 31, 2019 and 2018 

 

3

 

 

 

Consolidated Condensed Statements of Cash Flows for the quarters ended March 31, 2019 and 2018 

 

4

 

 

 

Notes to Consolidated Condensed Financial Statements 

 

5

 

 

 

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

 

16

 

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk 

 

20

 

 

 

Item 4.   Controls and Procedures 

 

20

 

 

 

PART II Other Information 

 

21

 

 

 

Item 1.     Legal Proceedings 

 

21

 

 

 

Item 1A.  Risk Factors 

 

21

 

 

 

Item 2.    Unregistered Sales of Equity Securities 

 

22

 

 

 

Item 3.     Defaults Upon Senior Securities 

 

22

 

 

 

Item 4.     Mine Safety Disclosures 

 

22

 

 

 

Item 5.    Other Information 

 

22

 

 

 

Item 6.       Exhibits 

 

23

 

 

 

 

 

i


 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,910,507

 

$

1,918,570

Restricted cash

 

 

222,392

 

 

296,314

Accounts receivable

 

 

1,541,178

 

 

1,681,289

Inventories, net

 

 

4,815,599

 

 

4,783,887

Prepaid expenses and other current assets

 

 

282,403

 

 

377,762

Total current assets 

 

 

9,772,079

 

 

9,057,822

 

 

 

 

 

 

 

Property and equipment, at cost:

 

 

 

 

 

 

Land

 

 

896,388

 

 

896,388

Building

 

 

4,516,301

 

 

4,516,301

Machinery and equipment

 

 

7,719,597

 

 

7,479,790

 

 

 

13,132,286

 

 

12,892,479

Less accumulated depreciation

 

 

(8,381,913)

 

 

(8,282,269)

Net property and equipment

 

 

4,750,373

 

 

4,610,210

 

 

 

 

 

 

 

Patent costs, net of accumulated amortization of $976,215 and $958,543, respectively

 

 

271,328

 

 

260,021

Trademark costs, net of accumulated amortization of $91,001 and $86,505, respectively

 

 

84,840

 

 

85,964

Other assets

 

 

94,899

 

 

 -

Total assets

 

$

14,973,519

 

$

14,014,017

 

 

 

See accompanying notes to consolidated condensed financial statements.

1


 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited), Continued

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,679,319

 

$

2,995,632

Unearned revenue

 

 

1,308,664

 

 

736,819

Other current liabilities

 

 

1,788,979

 

 

1,394,150

Deferred contract liabilities

 

 

230,116

 

 

110,727

Current debt, net of deferred financing costs of
$26,933 and $7,772, respectively

 

 

4,637,596

 

 

4,656,757

Total current liabilities

 

 

10,644,674

 

 

9,894,085

 

 

 

 

 

 

 

Other long-term liabilities

 

 

168,282

 

 

106,159

Total long-term liabilities

 

 

168,282

 

 

106,159

 

 

 

 

 

 

 

Total liabilities

 

 

10,812,956

 

 

10,000,244

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 56,222,189 and 54,267,440 shares issued and outstanding, respectively

 

 

562,222

 

 

542,674

Additional paid-in capital

 

 

137,323,841

 

 

134,645,911

Accumulated deficit

 

 

(133,725,500)

 

 

(131,174,812)

Total stockholders’ equity

 

 

4,160,563

 

 

4,013,773

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

14,973,519

 

$

14,014,017

 

See accompanying notes to consolidated condensed financial statements.

2


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Operations (unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2019

    

2018

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

Product sales

 

$

2,991,409

 

$

1,405,364

Contract services

 

 

692,327

 

 

206,210

 

 

 

3,683,736

 

 

1,611,574

Operating costs and expenses:

 

 

 

 

 

 

Costs of product sales

 

 

2,593,264

 

 

1,176,138

Costs of contract services

 

 

369,906

 

 

128,765

Research and development

 

 

502,184

 

 

678,505

Selling, general and administrative

 

 

2,692,207

 

 

1,519,917

 

 

 

6,157,561

 

 

3,503,325

 

 

 

 

 

 

 

Loss from operations

 

 

(2,473,825)

 

 

(1,891,751)

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

129

 

 

3,131

Interest expense

 

 

(75,005)

 

 

(43,768)

Amortization of deferred financing costs

 

 

(13,159)

 

 

(9,327)

Other

 

 

11,172

 

 

8,917

 

 

 

(76,863)

 

 

(41,047)

 

 

 

 

 

 

 

Net loss

 

$

(2,550,688)

 

$

(1,932,798)

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.05)

 

$

(0.04)

 

 

 

 

 

 

 

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

 

 

55,349,670

 

 

54,124,230

 

See accompanying notes to consolidated condensed financial statements.

3


 

 

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2019

    

2018

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 Net loss

$

(2,550,688)

 

$

(1,932,798)

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

 

 

 

 

 

    Depreciation and amortization

 

85,269

 

 

99,125

    Non-cash equity based compensation

 

139,519

 

 

73,361

    Change in operating assets and liabilities:

 

 

 

 

 

        Accounts receivable

 

140,111

 

 

(522,799)

        Inventories

 

(31,712)

 

 

(539,312)

        Prepaid expenses and other current assets

 

95,359

 

 

(106,925)

        Other assets

 

(94,899)

 

 

 -

        Accounts payable and other current liabilities

 

78,516

 

 

224,776

        Unearned revenue

 

571,845

 

 

1,672,926

        Deferred contract liability

 

119,389

 

 

165,790

        Other long-term liabilities

 

62,123

 

 

(5,000)

               Net cash used in operating activities

 

(1,385,168)

 

 

(870,856)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 Acquisition of property and equipment, net

 

(239,807)

 

 

(32,220)

 Cash paid for patent and trademark fees

 

(14,969)

 

 

(13,823)

               Net cash used in investing activities

 

(254,776)

 

 

(46,043)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 Cash received for shares exercised under employee stock purchase plan

 

615

 

 

17,957

 Cash received for issuance of common stock upon exercise of warrants

 

2,554,651

 

 

 -

 Cash received for issuance of common stock upon exercise of employee and directors options

 

2,693

 

 

 -

             Net cash provided by financing activities

 

2,557,959

 

 

17,957

 

 

 

 

 

 

Increase (decrease) in cash, cash equivalents, and restricted cash

 

918,015

 

 

(898,942)

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

 

2,214,884

 

 

6,809,325

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

$

3,132,899

 

$

5,910,383

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

Table of Contents

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, 2018.

 

(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 February 2016, the FASB issued its new lease accounting guidance in ASU 2016-02, Leases (Topic 842) 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, ASC Topic 842, is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company adopted this standard effective January 1, 2019 using the modified retrospective method with the cumulative effect recorded as of January 1, 2019 and additional disclosures.    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 on the basis 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 March 31, 2019, the Company has sustained recurring losses from continuing operations, had a working capital deficit of $872,595 and accumulated deficit of $133,725,500.  The Company’s cash and cash equivalents balance at March 31, 2019 was $2,910,507.

 

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 September 15, 2019 and the amounts repaid during the term of the loan may not be reborrowed. At the expiry date, all outstanding principal and interest are due. As of March 31, 2019, $4,664,529 was drawn on the line of credit.  For additional information, see Note 10.

 

On January 21, 2019, the Company announced it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Danfoss Power Solutions (US) Company (“Danfoss”). Under the terms of the Merger Agreement a wholly owned subsidiary of Danfoss will merge with and into the Company, and the Company will continue as the surviving corporation and a wholly-owned subsidiary of Danfoss (the “Merger”).  The board of directors of the Company unanimously approved and declared advisable the Merger.  If the transactions contemplated by the Merger Agreement are consummated, the Company’s common stock will be delisted from the NYSE American stock exchange and deregistered under the Securities Exchange Act of 1934, as amended (the “1934 Act”).

 

Our existing cash resources and cash generated from our revenues are not expected to be sufficient to complete our business plan for the next twelve months.  Given this expectation, we may need to renegotiate existing debt, secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all. Therefore, management believes there is substantial doubt about the entity’s ability to continue as a going concern.

 

Management believes completion of the Merger with Danfoss described above mitigates the substantial doubt raised by our historical operating result and fulfilling our estimated liquidity needs twelve months from the issuance of the financial statements.  The Merger is subject to approval by our shareholders, which was obtained on April 23, 2019 at a Special Meeting of the Shareholders.  The closing of the Merger is also subject to approval by the Committee on Foreign Investment in the United States (“CFIUS”) and therefore we are unable to predict with certainty the completion of the Merger.

 

 

(5) Revenue and Cost 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

6


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

incurred compared to the total estimated costs of the contract, as the performance obligations 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.

 

 

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):

 

 

 

 

 

 

 

Three months ended March 31,

 

    

2019

United States & Canada

 

$

2,035,656

Asia Pacific

 

 

1,509,080

Europe

 

 

139,000

Total Revenues

 

$

3,683,736

 

 

 

7


 

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.

 

 

 

 

 

 

 

 

 

 

March 31,

 

March 31,

 

    

2019

    

2018

Cash and cash equivalents

 

$

2,910,507

 

$

5,454,159

Restricted cash, current

 

 

222,392

 

 

456,224

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

 

$

3,132,899

 

$

5,910,383

 

Restricted cash 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.  The restrictions will lapse when the related debt is paid back in full.

 

(7)   Contracts in Process

 

At March 31, 2019 and December 31, 2018, 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:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Costs incurred on engineering services contracts

 

$

369,906

 

$

1,008,715

Estimated earnings

 

 

92,305

 

 

688,227

 

 

 

462,211

 

 

1,696,942

Less billings to date

 

 

(692,327)

 

 

(1,807,669)

 

 

 

 

 

 

 

Contracts in process

 

$

(230,116)

 

$

(110,727)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred contract liability

 

 

(230,116)

 

 

(110,727)

Contracts in process

 

$

(230,116)

 

$

(110,727)

 

8


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

(8)   Inventories

 

Inventories at March 31, 2019 and December 31, 2018 consisted of:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Raw materials

 

$

8,594,795

 

$

7,836,381

Work-in-process

 

 

367,647

 

 

351,402

Finished products

 

 

2,964,943

 

 

3,719,404

Reserve for excess and obsolete inventory

 

 

(7,111,786)

 

 

(7,123,300)

 

 

$

4,815,599

 

$

4,783,887

 

 

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 ended March 31, 2019,  no additional reserve was required.

 

 

(9)   Other Current Liabilities

 

Other current liabilities at March 31, 2019 and December 31, 2018 consisted of:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Accrued warranty costs

 

$

659,236

 

$

598,415

Accrued professional fees

 

 

523,325

 

 

72,731

Accrued payroll and employee benefits

 

 

225,028

 

 

159,966

Accrued fees to Sinotruk

 

 

160,000

 

 

160,000

Accrued import duties

 

 

87,100

 

 

87,100

Accrued personal property and real estate taxes

 

 

57,490

 

 

235,133

Accrued royalties

 

 

48,336

 

 

48,336

Other

 

 

28,464

 

 

32,469

 

 

$

1,788,979

 

$

1,394,150

 

 

 

 

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 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 6.48% as of March 31, 2019.  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 Balance Sheets as of March 31, 2019 and December 31, 2018.  The covenants under the debt agreement require the Company to have liquid assets with a minimum balance of $1.5 million held 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 March 31, 2019, the Company was in compliance with its covenants. The non-revolving line of credit will expire on September 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 become due and payable in full. As of March 31, 2019, $4,664,529 was drawn on the line of credit.  The Company incurred deferred financing costs of $73,060 upon securing the line of credit, and $32,320 during the quarter ended March 31, 2019 upon extending the maturity date.

 

(11)   Stock-Based Compensation

 

Stock-Based Compensation Expense

 

The table below shows total stock-based compensation expense for the quarters ended March 31, 2019 and 2018, and the classification of these expenses:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2019

    

2018

 

 

 

 

 

 

 

Costs of product sales

 

$

8,694

 

$

6,435

Costs of contract services

 

 

 -

 

 

2,923

Research and development

 

 

22,750

 

 

13,461

Selling, general and administrative

 

 

108,075

 

 

50,542

 

 

$

139,519

 

$

73,361

 

Stock Option Plans Activity

 

Additional information with respect to stock option activity during the three months ended March 31, 2019 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, 2018

 

4,190,470

 

$

1.16

 

 

6.5 years

 

$

170,233

Granted

 

 -

 

$

 -

 

 

 

 

 

 -

Exercised

 

(4,080)

 

$

0.66

 

 

 

 

 

 -

Forfeited

 

(6,042)

 

$

0.73

 

 

 

 

 

 -

Outstanding at March 31, 2019

 

4,180,348

 

$

1.16

 

 

6.3 years

 

$

2,310,509

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2019

 

2,706,347

 

$

1.20

 

 

5.0 years

 

$

1,500,208

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at March 31, 2019

 

3,479,842

 

$

1.25

 

 

6.0 years

 

$

1,677,160

 

10


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

 

 

 

As of March 31, 2019, there was $738,843 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 three months ended March 31, 2019 and 2018  was $0.

 

Stock Bonus Plan Activity

 

Activity with respect to non-vested shares under the Stock Bonus Plan as of March 31, 2019 and 2018 are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2019

 

2018

 

 

 

 

Weighted-Average

 

 

 

Weighted-Average

 

 

Shares Under

 

Grant Date

 

Shares Under

 

Grant Date

 

    

Contract

    

Fair Value

    

Contract

    

Fair Value

Unvested at beginning of period

 

169,872

 

$

1.15

 

57,760

 

$

0.68

Granted

 

 -

 

$

 -

 

 -

 

$

 -

Vested

 

 -

 

$

 -

 

 -

 

$

 -

Forfeited

 

 -

 

$

 -

 

 -

 

$

 -

Unvested at end of period

 

169,872

 

$

1.15

 

57,760

 

$

0.68

 

As of March 31, 2019, there was $118,113 of total unrecognized compensation cost related to common stock granted under our Stock Bonus Plan.  The unrecognized compensation cost at March 31, 2019 is expected to be recognized over a weighted-average period of fourteen months.

 

Employee Stock Purchase Plan Activity

 

During the three months ended March 31, 2019 and 2018, we issued 554 and 18,138 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 March 31, 2019 and 2018 was $615 and $17,957, respectively. As of March 31, 2019, 31,922 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


 

Table of Contents

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(unaudited)

 

(12)   Stockholders’ Equity

 

Changes in the components of stockholders’ equity during the three months ended March 31, 2019 and 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

 

Additional 

 

 

 

 

Total

 

 

shares

 

Common 

 

paid-in

 

Accumulated 

 

stockholders’

 

    

issued

    

stock

    

capital

    

deficit

    

equity

Balances at December 31, 2018

 

 

54,267,440

 

$

542,674

 

$

134,645,911

 

$

(131,174,812)

 

$

4,013,773

Issuance of common stock under employee stock purchase plan

 

 

554

 

 

 6

 

 

609

 

 

 -

 

 

615

Issuance of common stock upon exercise of warrants

 

 

1,950,115

 

 

19,501

 

 

2,535,150

 

 

 -

 

 

2,554,651

Issuance of common stock upon exercise of employee, directors and consultants options

 

 

4,080

 

 

41

 

 

2,652

 

 

 -

 

 

2,693

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

 

 

 -

 

 

 -

 

 

139,519

 

 

 -

 

 

139,519

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(2,550,688)

 

 

(2,550,688)

Balances at March 31, 2019

 

 

56,222,189

 

$

562,222

 

$

137,323,841

 

$

(133,725,500)

 

$

4,160,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

The Company had issued warrants 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

 

Warrant activity during the quarter ended March 31, 2019 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

Average

 

 

Warrants

 

Average

 

Remaining

 

 

Under

 

Exercise

 

Contractual

 

    

Option

    

Price

    

Life

Outstanding at December 31, 2018

 

4,000,000

 

$

1.31

 

 

1.8 years

Granted

 

 -

 

$

 -

 

 

 

Exercised

 

(1,950,115)

 

$

1.31

 

 

1.8 years

Forfeited

 

 -

 

$

 -

 

 

 

Outstanding at March 31, 2019

 

2,049,885

 

$

1.31

 

 

1.6 years

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2019

 

2,049,885

 

$

1.31

 

 

1.6 years

 

12


 

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 ended March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

    

 

 

    

 

    

 

 

 

    

 

    

Customer A

    

$

958,455

    

26

%  

 

$

 -

    

 -

%

Customer B

 

$

471,750

 

13

%  

 

$

499,758

 

31

%

Customer C

 

$

362,499

 

10

%  

 

$

297,210

 

18

%

Customer D

 

$

211,588

 

 6

%  

 

$

216,159

 

13

%

 

The following table summarizes accounts receivable from significant customers as of March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

    

 

 

 

    

 

 

Customer A

    

 2

%  

 -

%

Customer B

 

21

%  

30

%

Customer C

 

10

%  

 4

%

Customer D

 

 9

%  

17

%

 

 

 

(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 March 31, 2019 and 2018, 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.

13


 

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 ended March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2019

    

2018

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(2,550,688)

 

$

(1,932,798)

Denominator for basic and diluted net loss per common  share:

 

 

 

 

 

 

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

 

 

55,349,670

 

 

54,124,230

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.05)

 

$

(0.04)

 

 

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:

 

 

 

 

 

 

 

 

 

March 31,

 

    

2019

    

2018

 

 

 

 

 

 

Non-vested stock bonus plan shares

 

 

169,872

 

57,760

Stock options outstanding

 

 

4,180,348

 

3,317,560

Warrants to purchase common stock

 

 

2,049,885

 

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 $4,637,596 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.

14


 

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 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 $823,503.

 

Lease Commitments

 

The Company currently leases a facility in Shanghai, China.  The facility is used as a product service center and general office. The lease duration runs from the initiation date of July 30, 2018 to the expiration on August 31, 2022. At the time of expiration, UQM is eligible to negotiate a renewal to the lease. In the normal course of business, it is expected that this lease will be renewed or replaced by a similar lease on another property.  This lease is the Company’s only operating lease and it has no financing leases.

 

This lease provides for a 10% increase in annual rental payments after two years, and in increments of two years thereafter. Further, a quarterly service fee of $558 is assessed with the last rental payment of each period and included in the rent amounts shown below.  During the quarter ended March 31, 2019, the Company’s lease cost was $6,777 compared to $0 for the same quarter ended March 31, 2018.  Lease costs are classified on the Statements of Operations as selling, general and administrative expenses.  The depreciable life of lease assets is limited by the expected lease term and once terminated, there is no transfer of title. 

 

The current lease agreement does not establish requirements for UQM to comply with covenants or to maintain certain financial ratios nor does it contain any variable lease payments.

 

The Company recognized a right of use asset of $113,416, and current and long term lease liabilities of $27,775 and $74,642, respectively.

 

The following is a maturity analysis of the payments discounted at our bank borrowing rate of 6.48% of the operating lease liabilities, inclusive of the quarterly service fees, as of March 31, 2019, assuming the ¥/$ exchange rate as of the same date:

 

 

 

 

 

2019

 

$

20,331

2020

 

 

27,939

2021

 

 

29,600

2022

 

 

19,733

 

 

$

97,603

 

Litigation

 

During the quarter ended March 31, 2019, seven legal complaints, including five putative class actions, were filed by purported stockholders of UQM challenging the Merger and/or the Company’s disclosures in the proxy statements filed with the SEC related to the Merger.  These lawsuits are generally described in Item 1 of Part II of this Quarterly Report on Form 10-Q.  UQM believes that the claims asserted in each of these lawsuits are without merit.  However, to avoid the risk of litigation delaying or adversely affecting the Merger, UQM made certain supplemental disclosures regarding the Merger and the circumstances surrounding the negotiation of the Merger Agreement in a Current Report on Form 8-K filed with the SEC on April 25, 2019.  In connection therewith all of the plaintiffs agreed to voluntarily dismiss all claims asserted in their Lawsuits within five days of the closing of the Merger.  Certain plaintiffs already have voluntarily dismissed their lawsuits and the remaining plaintiffs have agreed to voluntarily dismiss their Lawsuits within five days of the closing of the Merger.  The dismissals are subject to the plaintiffs requests for fees, which fees are not estimable at this time.  Therefore, no provision has been made in the financial statements for the ultimate resolution of the Lawsuits.  Management believes that the final resolution of the Lawsuits will not have a material adverse effect on the Company’s financial position.

 

 

15


 

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 could be statements regarding our plans, beliefs or current expectations; including those plans, beliefs and expectations of our officers and directors with respect to, among other things, uncertainty regarding the timing and effect of the Plan of Merger and Merger Agreement (as described below) entered into between the Company and Danfoss Power Solutions (US) Company (“Danfoss), disruption in our business, customers and suppliers in connection with the Merger, failure or a delay in the contemplated merger with Danfoss, potential litigation related to the Merger, risks related to change in control provisions or delisting of the Company’s common stock, general business and economic conditions, international trade issues and geopolitical risks, our ability to enforce intellectual property rights in the U.S. and other countries, the impact of existing and future laws and regulations governing our products and operations, our ability to recruit and retain key executive and technical employees, the sufficiency of our cash and other resources to support our continued operations and liquidity needs over the coming twelve months, new product developments, future orders to be received from our customers, sales of products from inventory, future financial results, liquidity and the continued growth of the electric-powered vehicle industry. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed in our Annual Report on Form 10-K for the year ended December 31, 2018 and below in Part I, Item 1A. Risk Factors.

 

 

Introduction

 

UQM 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 full 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, military, and industrial markets. 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 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 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, and if we are able to complete the Merger transaction (as described in this quarterly report) we believe we have adequate cash and bank financing resources to fund our operations for at least the next twelve months.

 

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 on-going operations.  We are attempting to drive business development primarily in the following ways:

 

·

We have created a well-defined, structured process intended to target potential customers of vehicle electric motor technology in the commercial truck/van and shuttles, passenger buses, automotive, marine, and other targeted markets both domestically and internationally, particularly in China.

 

·

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. In 2018, we opened a service center in Shanghai, China to support our installed base of products there.

 

16


 

 

·

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

 

·

We are continuing to attempt to build 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 aim 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 intended 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 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 become cash flow positive and ultimately profitable.

 

Recent Events

 

On January 21, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Danfoss Power Solutions (US) Company, a Delaware corporation (“Danfoss”), and Danfoss-2019 Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Danfoss (the “Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged (the “Merger”) with and into the Company, as a result of which the Company will continue as the surviving corporation and a wholly-owned subsidiary of Danfoss.

 

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of the Company’s common stock (each a “Company Share”), other than shares owned by Danfoss, Merger Sub, or any wholly-owned subsidiary of the Company, or held in the Company’s treasury, will be cancelled and converted into the right to receive $1.71 per share in cash (the “Merger Consideration”). Each option to purchase Company Shares that is outstanding as of the Effective Time (whether vested or unvested) will be cancelled in exchange for the right to receive the excess of the Merger Consideration over the exercise price of such option, less applicable taxes required to be withheld. Restricted stock that is not vested immediately prior to the Effective Time will be automatically fully vested and free of any restrictions immediately prior to the Effective Time, and will be treated as Company Shares for all purposes of the Merger Agreement, including the right to receive the Merger Consideration, subject to applicable withholdings. Outstanding warrants that are outstanding at the Effective Time will be cancelled and the holders issued a replacement warrant that will be exercisable for an amount in cash equal to the aggregate number of Common Shares underlying the warrant multiplied by the excess, if any of the Merger Consideration over the per share exercise price of the warrant.

 

The board of directors of the Company (the “Company Board”) unanimously approved and declared advisable the Merger, the Merger Agreement, and the other transactions contemplated thereby.

Completion of the transaction is subject to the satisfaction or waiver of specified closing conditions, including (i) the approval of the Merger Agreement by the holders of two-thirds of the issued and outstanding Company Shares (the “Company Stockholder Approval”), which was obtained at the Special Shareholders Meeting on April 23, 2019, (ii) receipt of required regulatory approvals, including from the Committee on Foreign Investment in the United States, and (iii) other customary closing conditions, including the accuracy of each party’s representations and warranties (except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect (as defined in Merger Agreement)), each party’s performance in all material respects of its obligations under the Merger Agreement, and the absence of a Company Material Adverse Effect since the date of the Merger Agreement. Assuming the satisfaction of conditions, the Company expects the transaction to

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close in the second quarter of 2019. Holders of outstanding Common Shares that did not vote in favor of the Merger may be entitled to exercise dissenter’s rights in accordance with the terms, conditions and procedures of the Colorado Business Corporation Act and to receive the payment of the fair value of such shares.  

 

If the transactions contemplated by the Merger Agreement are consummated, the Company Shares will be delisted from the NYSE American stock exchange and deregistered under the Securities Exchange Act of 1934, as amended.    

 

On April 23, 2019, we held a Special Shareholders Meeting to consider, among other things, the proposed Merger.  At that meeting, our shareholders voted to approve the Merger.    Assuming we obtain approval from the Committee on Foreign Investment in the United States (“CFIUS”), we expect to close the Merger transaction, which we anticipate will happen in the quarter ended June 30, 2019 or soon thereafter.

 

Financial Condition

 

Cash and cash equivalents at March 31, 2019 were $2,910,507 and we had a working capital deficit of $872,595, compared with $1,918,570 and $836,263, respectively, at December 31, 2018.  The change in cash and working capital during the quarter is primarily attributable to operating losses,  acquisition of property and equipment,  and investments in inventory, offset by cash received from the exercise of warrants.

 

Restricted cash at March 31, 2019 was $222,392 versus $296,314 at December 31, 2018.  The restricted cash is reserved for payment of the interest on the line of credit. 

 

Accounts receivable decreased $140,111 to $1,541,178 at March 31, 2019 from $1,681,289 at December 31, 2018.  The decrease is primarily due to the mix in customer credit terms and customer prepayments at the end of the first 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 March 31, 2019 and December 31, 2018, we had no allowance for bad debts.

 

Total inventories increased $31,712 to $4,815,599 at March 31, 2019 from $4,783,887 at December 31, 2018 reflecting an increase in raw materials and work-in-process for confirmed sales orders to be sold to customers in 2019 and decreases in finished products from shipped orders.

 

Prepaid expenses and other current assets decreased to $282,403 at March 31, 2019 from $377,762 at December 31, 2018, primarily due to a decrease in vendor prepayments.

 

We invested $239,807 for the acquisition of property and equipment during the quarter ended March 31, 2019, compared to $32,220 during the comparable period last year. We purchased equipment for increased production needs. 

 

Patent costs increased $11,307 during the quarter ended March 31, 2019 due to new patent costs offset by amortization, and trademark costs decreased $1,124 during the quarter ended March 31, 2019 due to amortization.

 

Accounts payable decreased $316,313 to $2,679,319 at March 31, 2019 from $2,995,632 at December 31, 2018, primarily due to the timing of payments of invoices.

 

Unearned revenue increased to $1,308,664 at March 31, 2019 from $736,819 at December 31, 2018.  The increase is attributable to an increase in customer deposits for future shipments.

 

Other current liabilities increased to $1,788,979 at March 31, 2019 from $1,394,150 at December 31, 2018. The change is attributable to an increase in accrued warranty costs and professional fees incurred during the quarter primarily in relation to the proposed Merger, partially offset by the payment and reduction of accrued property taxes. 

 

Deferred contract liability related to engineering services contracts were $230,116 and $110,727 at March 31, 2019 and December 31, 2018, respectively. The increase was due to increased advance billings of contract services.

 

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Debt, net of deferred financing costs, decreased $19,161 during the quarter ended March 31, 2019 due to amortization of the deferred financing costs.

 

Other long-term liabilities increased $62,123 to $168,282 at March 31, 2019 from $106,159 at December 31, 2018 due to recognizing the long term portion of our Shanghai service center lease.

 

Common stock and additional paid-in capital were $562,222 and $137,323,841, respectively, at March 31, 2019 compared to $542,674 and $134,645,911 at December 31, 2018. 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, the exercise of warrants and the periodic expensing of non-cash share-based payments associated with option and stock grants under our equity compensation plans.

 

Results of Operations

 

Quarter Ended March 31, 2019

 

Revenue

 

Product sales revenue for the quarter ended March 31, 2019 increased to $2,991,409 versus $1,405,364 for the comparable period last year, reflecting increased shipments in all product lines.

 

Revenue from contract services was $692,327 for the quarter ended March 31, 2019  versus $206,210 for the comparable period last year. The increase is due to higher externally funded development contracts.

 

Gross Profit Margin

 

Total gross profit margin for the quarter ended March 31, 2019 increased to 19.6 percent compared to  19.0 percent for the comparable period in the prior year. Gross profit margin on product sales for the quarter ended March 31, 2019 decreased to 13.3 percent compared to 16.3 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 46.6 percent for the quarter ended March 31, 2019 compared to 37.6 percent for the same period last year, due to more favorable pricing terms.

 

Costs and Expenses

 

Research and development expenditures for the quarter ended March 31, 2019 decreased to $502,184  compared to $678,505 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 March 31, 2019 was $2,692,207 compared to $1,519,917 for the same period last year. The increase is primarily attributable to professional costs related to the Merger, and variable compensation expenses in the current period, compared to the same period last year.

 

Other income (expense)

 

Other income and (expense) for the quarter ended March 31, 2019 was $11,172 compared to $8,917 for the same period last year.

 

Net Loss

 

As a result, net loss for the quarter ended March 31, 2019 was $2,550,688, or $0.05 per common share, compared to a net loss of $1,932,798, or $0.04 per common share, for the comparable period last year.

 

 

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Contractual Obligations

 

The following table presents information about our contractual obligations and commitments as of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by Period

 

 

 

 

 

Less Than