UQM Technologies Earnings 2018-09-30

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)

 

 

    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.

 

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.

 

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TABLE OF CONTENTS

 

 

 

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Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

 

 

 

 

See accompanying notes to consolidated condensed financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited), Continued

 

 

See accompanying notes to consolidated condensed financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Operations (unaudited)

 

 

See accompanying notes to consolidated condensed financial statements.

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UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

 

 

See accompanying notes to consolidated condensed financial statements.

 

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(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

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(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:

 

 

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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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):

 

 

 

 

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(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.

 

 

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:

 

 

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(8)   Inventories

 

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

 

 

 

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:

 

 

 

 

 

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(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:

 

 

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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:

 

 

 

 

 

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:

 

 

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.

 

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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:

 

 

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The Company has warrants outstanding as follows: