(1) Basis of Presentation
The accompanying consolidated condensed financial statements are unaudited; however, in the opinion of management, all adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim periods, have been made. The results for the interim periods are not necessarily indicative of the results to be expected for the year. The Notes contained herein should be read in conjunction with the Notes to our Consolidated Financial Statements filed on Form 10-KT for the nine-month transition period ended December 31, 2016.
(2) Segment Reporting
The Company has performed its quarterly assessment to determine if additional disclosures are required for segment reporting. Management has determined that the Company has one operating segment because the chief operating decision maker (CODM) and management make business decisions based on product and contract services revenues taken as a whole. Therefore, no further disclosure is required at this time. Management will perform an assessment quarterly to determine if additional disclosures around this standard are needed in the future.
(3) New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for us for the first fiscal year beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application and providing additional disclosures. The Company currently anticipates adopting the standard using the retrospective method with the cumulative effect and additional disclosures at the period of adoption. Based on the Company’s assessment on the impact of this guidance on our consolidated condensed financial statements, we expect revenue related to product and contract services to remain substantially unchanged.
In July 2015, the FASB issued guidance on simplifying the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for years beginning after December 15, 2016, including interim periods within those fiscal years. Prospective application is allowed as of the beginning of an interim or annual reporting period. An entity is only required to disclose the nature of and reason for the change in accounting principle in the first interim and annual period of adoption. The Company adopted this new standard in the quarter ended March 31, 2017. There was no material impact on the consolidated financial statements upon adoption.
In March 2016, the FASB issued guidance on improvements to employee share-based payment accounting for stock compensation. The new standard addresses the topics of accounting for income taxes, classification of excess tax benefits on the Statement of Cash Flows, forfeitures, minimum statutory tax withholding requirements, and classification of employee taxes paid on the Statement of Cash Flows when an employer withholds shares for tax withholding purposes. This is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted
within any interim or annual period. Any adjustments should be reflective as of the beginning of the fiscal year that includes that interim period. The Company adopted this new standard in the quarter ended March 31, 2017. No adjustments were necessary upon adoption of the standard.
In November, 2016, the FASB issued guidance on the Statement of Cash Flows and the presentation of restricted cash in the statement. The new standard will require the Statement of Cash Flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. As a result, the amounts generally described as restricted cash should be included in the cash and cash equivalents when reconciling the beginning of the period and end of the period total amounts shown on the Statement of Cash Flows. This is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using the retrospective transition method in each period presented. The Company has elected to early adopt this standard in the quarter ended June 30, 2017. The ending cash balance in the Consolidated Condensed Cash Flow Statement was updated to reflect the adoption of the standard. Additional disclosure has been included in Note 5 of the Consolidated Condensed Financial Statements as required by adopting the standard.
(4) Going Concern
These consolidated condensed financial statements are presented assuming that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of June 30, 2017, the Company has sustained recurring losses from continuing operations, had working capital surplus of $3,185,302, and accumulated deficit of $122,847,181.
On March 15, 2017, the Company entered into a non-revolving line of credit for $5.6 million. The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance. The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due. As of June 30, 2017, $3,164,529 was drawn on the line of credit.
Based on management’s projections of operations and the non-revolving line of credit, the Company believes that it currently has sufficient cash and bank financing resources to support day to day activities through operations as they become due and sustain operations for at least the next twelve months.
(7) Inventories
Inventories at June 30, 2017 and December 31, 2016 consisted of:
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|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Raw materials
|
|
$
|
7,626,365
|
|
$
|
7,279,855
|
Work-in-process
|
|
|
370,579
|
|
|
105,252
|
Finished products
|
|
|
1,466,849
|
|
|
1,531,544
|
Reserve for excess and obsolete inventory
|
|
|
(7,107,279)
|
|
|
(7,166,916)
|
|
|
$
|
2,356,514
|
|
$
|
1,749,735
|
We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assess our raw material and finished product inventories for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves as appropriate.
As of December 31, 2016, we re-evaluated the carrying value of our PowerPhase Pro® product. A key factor in our analysis during the nine-month transition period ended December 31, 2016 was that in October 2016, our customer, ITL Efficiency Corporation, informed us of their intention to purchase in cash a significant portion of the PowerPhase Pro® inventory by the filing date of our Form 10-KT for the nine-month transition period ended December 31, 2016. That payment had not at that point in time been received. Because of the long delays in this customer’s product launch and the lack of a significant cash payment towards this inventory, we determined that approximately $6.8 million of this inventory be reserved as excess inventory and we took a charge for this amount against this inventory as of December 31, 2016. We have purchase orders from existing customers to acquire the remaining balance of the PowerPhase Pro® inventory. We also reserved approximately $350,000 for other obsolete inventory as of December 31, 2016.
During the six months ended June 30, 2017, we recovered $57,394 of the reserve due to parts being used in production of units to be sold or repaired for customers.
(8) Other Current Liabilities
Other current liabilities at June 30, 2017 and December 31, 2016 consisted of:
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|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Accrued payroll and employee benefits
|
|
$
|
129,359
|
|
$
|
62,220
|
|
Accrued personal property and real estate taxes
|
|
|
119,936
|
|
|
232,326
|
|
Accrued warranty costs
|
|
|
305,983
|
|
|
289,710
|
|
Unearned revenue
|
|
|
236,575
|
|
|
116,886
|
|
Accrued royalties
|
|
|
48,336
|
|
|
48,336
|
|
Accrued import duties
|
|
|
87,100
|
|
|
87,100
|
|
Accrued vendor settlements
|
|
|
189,175
|
|
|
189,175
|
|
Accrued executive compensation
|
|
|
350,000
|
|
|
272,222
|
|
Other
|
|
|
20,565
|
|
|
20,966
|
|
|
|
$
|
1,487,029
|
|
$
|
1,318,941
|
|
(13) Income Taxes
The Company currently has a full valuation allowance against its deferred tax assets, as it is management’s judgment that it is more-likely-than-not that net deferred tax assets will not be realized to reduce future taxable income.
As of June 30, 2017 and 2016, we had no provisions for interest or penalties related to uncertain tax positions.
The Company is subject to taxation in the U.S. and various state jurisdictions. As of June 30, 2017, the Company’s tax years for 2012 to 2016 are subject to examination by the tax authorities.
(14) Loss Per Common Share
The following table sets forth the computation of basic and diluted net loss per share for the quarters and six months ended June 30, 2017 and 2016:
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|
|
Quarter Ended June 30,
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|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,348,221)
|
|
$
|
(1,954,030)
|
|
$
|
(2,954,247)
|
|
$
|
(2,884,948)
|
Denominator for basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding - basic and diluted
|
|
|
48,563,209
|
|
|
48,346,344
|
|
|
48,543,093
|
|
|
48,327,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.03)
|
|
$
|
(0.04)
|
|
$
|
(0.06)
|
|
$
|
(0.06)
|
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Non-vested stock bonus plan shares
|
|
|
102,048
|
|
82,974
|
|
Stock options outstanding
|
|
|
3,024,234
|
|
2,488,838
|
|
Warrants to purchase common stock
|
|
|
5,489,733
|
|
5,489,733
|
|
(15) Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.
The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis and its long-term debt of $3,100,797 is reported at amortized cost. The Company’s long-term debt is subject to variable rates of interest and accordingly its carrying value is considered to be representative of its fair market value.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements appear in a number of places in this Report and include statements regarding our plans, beliefs or current expectations. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed below in Part II, Item 1A. Risk Factors and in our Transitional Report on Form 10-KT for the period nine-months ended December 31, 2016. Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the U.S. Securities and Exchange Commission (“SEC”). We assume no obligation to update, and, except as may be required by law, do not intend to update, any forward-looking statements.
Introduction
UQM Technologies, Inc., (“UQM”, “Company”, “we”, “our”, or “us”) is a developer and manufacturer of power dense, high efficiency electric motors, generators, power electronic controllers and fuel cell compressors for the commercial truck, bus, automotive, marine, military and industrial markets. We generate revenue from three principal activities: 1) the sale of electric propulsion systems, which includes motors and controllers; and 2) the sale of auxiliary products including generators, fuel cell compressors, air conditioning compressor systems, and DC-to-DC converters; and 3) services, including research, development and application engineering contract services and remanufacturing services. Our product sales consist of annually recurring volume production, prototype low volume sales, and revenues derived from the sale of refurbished and serviced products. The sources of engineering contract revenue typically vary from year to year and individual projects may vary substantially in their periods of performance and aggregate dollar value.
We have invested considerable financial and human resources into the development of our technology and manufacturing operations. We have developed and production-validated a full range of products for use in full-electric, hybrid electric, plug-in-hybrid and fuel cell applications for the markets we serve. These products are all highly efficient permanent magnet designs and feature outstanding performance, package size and weight valued by our customers. Our production capabilities and capacity are sufficient to meet the demands of our current and future customers for the foreseeable future. We are certified as an ISO/TS 16949 quality supplier, which is the highest level of quality standards in the automotive industry, and we are ISO 14001 certified, meeting the highest environmental standards. We have a management team with significant experience in the automotive industry, and with the requirements for high quality production programs that our customers demand, they have very deep technical knowledge of the electric motor and controller business. This team has the ability and background to grow the business to significantly higher levels, and we believe we have adequate cash balances and bank financing resources to fund our operations for at least the next twelve months.
Our most important strategic initiative is to develop customer relationships that lead to longer-term supply contracts. Volume production is the key to our ongoing operations. We are driving business development in the following ways:
|
·
|
|
We have created a well-defined, structured process to target potential customers of vehicle electric motor technology in the commercial truck/van and shuttles, passenger buses, automotive, marine, military and other targeted markets both domestically and internationally. In particular, we are focused on developing customer relationships in China which is the world’s largest market for vehicle electrification products.
|
|
·
|
|
We hired our first employees in China in 2016. As China represents the largest market in the world for electric vehicles, our presence in that market is critical to our long-term success.
|
|
·
|
|
We continue to seek out a strategic partner in China that meets three important criteria; the partner should have capital, infrastructure and access to the Chinese domestic market.
|
|
·
|
|
We have developed a customer pipeline where identified potential customers are synergistic and strategic in nature for longer-term growth potential.
|
|
·
|
|
We are building long term quantifiable and sustainable relationships within the identified target markets.
|
|
·
|
|
We provide service and support to our customers from pilot and test activities through commissioning processes and ultimately to volume production operations.
|
|
·
|
|
We continually look for ways to improve our purchasing and manufacturing processes to develop competitive costs to ensure that our pricing to customers is market competitive.
|
|
·
|
|
We provide customized solutions to meet specification requirements that some customers require.
|
|
·
|
|
We participate in trade show events globally to demonstrate our products and engage with users of electric motor technology.
|
|
·
|
|
We actively involve all functional groups within the Company to support the requests of our customers.
|
We believe that the successful execution of these activities will lead us to secure volume production commitments from customers, so that our operations will become cash flow positive and ultimately profitable.
Financial Condition
Cash and cash equivalents at June 30, 2017 were $2,074,389 and working capital was $3,185,302, compared with $2,100,089 and $3,173,848, respectively, at December 31, 2016. The change in cash and working capital is primarily attributable to operating losses offset by draws on the line of credit.
Restricted cash at June 30, 2017 was $585,943 versus $0 at December 31, 2016. The restricted cash is for payment of interest on the draws from the line of credit. The current portion is for estimated interest payment due within the next twelve months. The long-term portion is the remaining amount expected to be paid by the end of the term of the line of credit on March 15, 2019.
Accounts receivable decreased $371,398 to $791,918 at June 30, 2017 from $1,163,316 at December 31, 2016. The decrease is primarily due to the mix in customer credit terms. Our sales are conducted through acceptance of customer purchase orders, or in some cases, through supply agreements. For international customers and customers without an adequate credit rating or history, our typical terms require irrevocable letters of credit or cash payment in advance of delivery. For credit qualified customers, our typical terms are net 30 days. As of June 30, 2017 and December 31, 2016, we had no allowance for bad debts.
Costs and estimated earnings on uncompleted contracts was $29,917 at June 30, 2017 and December 31, 2016.
Total inventories increased $606,779 to $2,356,514 at June 30, 2017 from $1,749,735 at December 31, 2016 reflecting purchases for anticipated sales of fuel cell compressor and PP220 PowerPhase
HD®
systems.
Prepaid expenses and other current assets decreased to $206,243 at June 30, 2017 from $259,682 at December 31, 2016 primarily due to timing of amortization of maintenance contracts.
We invested $26,313 and $37,407 for the acquisition of property and equipment during the quarter and six months ended June 30, 2017, respectively, compared to $15,862 and $100,515 during the comparable periods last year. We believe that we have sufficient property and equipment in place to meet our production requirements for the foreseeable future.
Patent costs decreased $2,891 for the six months ended June 30, 2017 due to new patent costs offset by amortization. Trademark costs decreased $2,248 for the six months ended June 30, 2017 due to amortization.
Accounts payable increased $142,012 to $951,962 at June 30, 2017 from $809,950 at December 31, 2016, primarily due to the timing of vendor payments.
Other current liabilities increased to $1,487,029 at June 30, 2017 from $1,318,941 at December 31, 2016. The increase is primarily attributable to an increase in accrued executive compensation, accrued payroll and associated benefits, unearned revenue and accrued warranty costs offset by a decrease in accrued property taxes.
Long-term debt net of deferred financing costs increased $3,100,797 due to borrowings on a bank line of credit secured on March 15, 2017. For additional information, see Note 9 of the Consolidated Condensed Financial Statements.
Other long-term liabilities decreased $10,000 to $131,667 at June 30, 2017 from $141,667 at December 31, 2016 due to amortization of a license fee received from a customer under a ten-year cooperation agreement.
Common stock and additional paid-in capital were $485,665 and $128,556,455, respectively, at June 30, 2017 compared to $485,193 and $128,409,933 at December 31, 2016. The increases in common stock and additional paid-in capital were primarily attributable to the periodic expensing of non-cash share-based payments associated with option and stock grants under our equity compensation plans and the issuance of shares under the Employee Stock Purchase Plan.
Results of Operations
Quarter Ended June 30, 2017
Revenue
Product sales revenue for the current quarter increased to $1,571,390 versus $1,173,261 for the comparable quarter last year, reflecting increased shipments of PowerPhase HD
®
propulsion systems and fuel cell compressor systems offset by decreased shipments of auxiliary motor and PowerPhase Pro
®
135 systems.
Revenue from contract services decreased to $217,565 for the quarter ended June 30, 2017 versus $261,820 for the comparable quarter last year. The decrease is primarily due to a Department of Energy grant program which expired as of September 30, 2016 and lower revenue from new contracts.
Gross Profit Margin
Gross profit margin for the quarter ended June 30, 2017 increased to 39.2 percent compared to 30.1 percent for the quarter ended June 30, 2016. Gross profit margin on product sales for the quarter this year increased slightly to 35.9 percent compared to 35.3 percent for the same quarter last year primarily due to a change in product mix. Gross profit margin on contract services increased to 63.0 percent for the quarter this year compared to 9.5 percent for the quarter ended June 30, 2016, resulting from a change in the mix of contracts in process during the quarter ended June 30, 2017 versus the comparable quarter last year.
Costs and Expenses
Research and development expenditures for the quarter ended June 30, 2017 decreased to $555,465 compared to $718,918 for the quarter ended June 30, 2016. The decrease is related to a reduction of allocated resources to internally funded projects.
Selling, general and administrative expenses for the quarter ended June 30, 2017 was $1,470,914 compared to $1,684,645 for the same quarter last year. The decrease is primarily attributable to reduced consulting and legal fees, partially offset by new personnel and related expenses pertaining to our UQM Asia operations, in the current quarter compared to the same period last year.
Net Loss
As a result, net loss for the quarter ended June 30, 2017 was $1,348,221, or $0.03 per common share, compared to a net loss of $1,954,030, or $0.04 per common share, for the comparable quarter last year.
Six Months Ended June 30, 2017
Revenue
Product sales revenue for the six months increased to $2,416,925 versus $2,392,058 for the comparable period last year, reflecting increased shipments of PowerPhase HD
®
propulsion systems and fuel cell compressor systems offset by decreased shipments of auxiliary motor and PowerPhase Pro
®
135 systems.
Revenue from contract services decreased to $387,075 at June 30, 2017 versus $547,313 for the comparable period last year. The decrease is primarily due to a Department of Energy grant program which expired as of September 30, 2016 and lower revenue from new contracts.
Gross Profit Margin
Gross profit margin for the six months ended June 30, 2017 increased to 36.7 percent compared to 28.2 percent for the six month period last year. Gross profit margin on product sales for the six months ended June 30, 2017 decreased to 33.2 percent compared to 34.4 percent for the six month period last year primarily due to a change in product mix. Gross profit margin on contract services increased to 58.3 percent for the six months ended June 30, 2017 compared to 1.3 percent for the six months last year, resulting from a change in the mix of contracts in process during the six months ended June 30, 2017 versus the comparable six months last year.
Costs and Expenses
Research and development expenditures for the six months ended June 30, 2017 decreased to $1,188,247 compared to $1,403,264 for the six months ended June 30, 2016. The decrease is related to a reduction of allocated resources for internally funded projects.
Selling, general and administrative expense net of recovery of impaired assets for the six months ended June 30, 2017 was $2,774,121compared to $2,331,739 for the same six months last year. The change is primarily attributable to new personnel and related expenses pertaining to our UQM Asia operations in the current year which is offset by a decrease in consulting and legal fees. In addition, we recovered $585,800 in connection with a vendor settlement during the six months ended June 30, 2016.
Net Loss
As a result, net loss for the six month period ended June 30, 2017 was $2,954,247, or $0.06 per common share, compared to a net loss of $2,884,948, or $0.06 per common share, for the comparable six month period last year.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the quarter ended June 30, 2017 were adequate to meet operating needs. At June 30, 2017, we had working capital of $3,185,302 compared to $3,173,848 at December 31, 2016. The increase in working capital is primarily attributable to higher inventory purchases offset by higher accounts payable due to the timing of the vendor payments.
For the six months ended June 30, 2017, net cash used in operating activities was $2,513,106 compared to net cash used in operating activities of $3,040,873 for the comparable period last year. The change in cash used in operating activities is due to increased receipts from outstanding accounts receivable and higher inventory purchases, which was offset by a decrease in settlement of vendor liabilities.
Net cash used in investing activities for the six months ended June 30, 2017 was $45,098 compared to net cash used in investing activities of $106,653 for the comparable six months last year. The decrease for the six months ended June 30, 2017 was primarily due to reduction in expenditures for the acquisition of property and equipment.
Net cash provided by financing activities for the six months ended June 30, 2017 was $3,118,447 compared to net cash used in financing activities of $43,586 for the comparable period last year. The change is primarily due to borrowings on a bank line of credit secured during the six months ended June 30, 2017, partially offset by a decrease in cash received for shares exercised under the employee stock purchase plan and cash paid for the registered direct offering.
We expect to fund our operations over the next year from existing cash and cash equivalent balances, cash generated from operations, and bank financing resources.
On March 15, 2017, the Company entered into a non-revolving line of credit with a lender for $5.6 million. The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance. The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due.
For additional information, see Note 9 of the Consolidated Condensed Financial Statements. Although we expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage, our working capital requirements may increase in the future. If customer demand accelerates substantially, our working capital requirements may also increase substantially.
If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future, although we cannot assure that we will be able to secure additional capital should it be required to implement our current business plan. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, or at all, we will modify our strategy to align our operations with then available financial resources. Based on our current level of operations, current cash balance and bank credit availability, we believe we have sufficient liquidity to fund our operations for at least the next twelve months.
Contractual Obligations
The following table presents information about our contractual obligations and commitments as of June 30, 2017:
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|
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|
|
|
|
|
|
|
|
|
|
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|
Payments due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
1 Year
|
|
2 - 3 Years
|
|
4 - 5 Years
|
|
5 Years
|
|
Purchase obligations
(1)
|
|
$
|
1,152,757
|
|
$
|
1,152,757
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Executive employment agreements
(2)
|
|
|
350,000
|
|
|
350,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
1,502,757
|
|
$
|
1,502,757
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
(1)
|
|
Includes procurement of inventory to fulfill the backlog for products.
|
|
(2)
|
|
Includes retention bonus payable under executive employment agreements if our officers remain employees of UQM continuously through June 30, 2017, but not annual cash compensation under the agreements. This is reflected in other current liabilities in the accompanying Consolidated Condensed Balance Sheets.
|
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the dollar values reported in the consolidated condensed financial statements and accompanying notes. Note 1 to the Consolidated Condensed Financial Statements contained in our Transitional Report on Form 10-KT for the period nine-month transition period ended December 31, 2016 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There have been no material changes in any of our critical accounting policies during the six months ended June 30, 2017.
As of June 30, 2017 and December 31, 2016, we had accumulated deficits of $122,847,181 and $119,892,934, respectively.
In the future, we plan to make additional investments in product development, facilities and equipment and incur other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses for the foreseeable future.
Our operating losses, anticipated capital expenditures and working capital requirements in the longer term may exceed our current cash balances.
Our net loss for the quarter ended June 30, 2017 was $1,348,221 versus a net loss for the comparable quarter last year of $1,954,030. Our net loss for the nine-month transition period ended December 31, 2016 was $13,017,508. At June 30, 2017, our cash and cash equivalents totaled $2,074,389. We expect our losses to continue for the foreseeable future. Our existing cash resources and availability under our bank line of credit are expected to be sufficient to complete our business plan for at least the next twelve months. Should those resources be insufficient, we may need to secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.
Our revenue is highly concentrated among a small number of customers.
We have historically derived a large percentage of our revenue from a small number of customers, and we expect this trend to continue.
Our customer arrangements generally have been non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. Further, although we entered into a 10-year exclusive supply agreement with ITL in October 2015, the amount of revenue we will generate pursuant to the ITL Agreement is uncertain. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. If one or more of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.