UQM Technologies Earnings 2019-03-31

 

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)

 

 

    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:

 

 

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 May 10,  2019 was 56,566,586.

 

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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, 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

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(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

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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):

 

 

 

 

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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 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:

 

 

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(8)   Inventories

 

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

 

 

 

 

 

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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 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:

 

 

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:

 

 

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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:

 

 

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.

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(12)   Stockholders’ Equity

 

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

 

 

The Company had issued warrants as follows:

 

 

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

 

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  (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:

 

 

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

 

 

 

 

(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.

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(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:

 

 

 

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:

 

 

 

(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.