(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 elected to early adopt this standard in the quarter ended June 30, 2017. The ending cash balance in the Consolidated Condensed Statements of Cash Flows 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 September 30, 2017, the Company had sustained recurring losses from continuing operations, had working capital surplus of $8,816,965, and accumulated deficit of $123,390,582.
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 September 30, 2017, $3,164,529 was drawn on the line of credit. For additional information, see Note 9 of the Consolidated Condensed Financial Statements.
On July 6, 2017, the Company sold 15 acres of vacant land adjacent to its manufacturing facility. The gross selling price of the land was $1.5 million (net proceeds were $1.4 million) which was representative of the fair market value.
On September 25, 2017, the Company closed the first stage investment pursuant to a definitive stock purchase agreement entered into with
China National Heavy Duty Truck Group Co., Ltd. and its wholly-owned subsidiary, Sinotruk (BVI) Limited (the Buyer),
which resulted in the sale of 5,347,300 shares of the Company’s common stock to the Buyer
and the Company’s receipt of cash proceeds of $5.1 million on that date.
Based on management’s projections of operations, the non-revolving line of credit, and a cash balance of approximately $8.0 million on September 30, 2017, 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 September 30, 2017 and December 31, 2016 consisted of:
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|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Raw materials
|
|
$
|
7,564,248
|
|
$
|
7,277,612
|
Work-in-process
|
|
|
756,528
|
|
|
105,252
|
Finished products
|
|
|
1,389,386
|
|
|
1,531,544
|
Reserve for excess and obsolete inventory
|
|
|
(7,021,229)
|
|
|
(7,164,673)
|
|
|
$
|
2,688,933
|
|
$
|
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 Efficient Energy Co., Ltd, 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, nor have we received any payment as of the date of this quarterly filing. 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 nine months ended September 30, 2017, we sold $143,443 of inventory that was previously reserved as discussed in the preceding paragraph. There was no net cost basis in the inventory that was sold, and as a result of the transactions, there was no adjustment to the inventory cost basis.
(8) Other Current Liabilities
Other current liabilities at September 30, 2017 and December 31, 2016 consisted of:
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|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Accrued payroll and employee benefits
|
|
$
|
126,503
|
|
$
|
62,220
|
|
Accrued personal property and real estate taxes
|
|
|
179,879
|
|
|
232,326
|
|
Accrued warranty costs
|
|
|
346,539
|
|
|
289,710
|
|
Unearned revenue
|
|
|
587,519
|
|
|
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
|
|
|
-
|
|
|
272,222
|
|
Other
|
|
|
20,946
|
|
|
20,966
|
|
|
|
$
|
1,585,997
|
|
$
|
1,318,941
|
|
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 Transition Report on Form 10-KT for the nine-month transition period 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, 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:
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·
|
|
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, 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.
|
|
·
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|
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.
|
|
·
|
|
During the quarter ended September 30, 2017, we executed a stock purchase agreement with a strategic partner in China that meets three important criteria; the partner has capital, infrastructure and access to the Chinese domestic market (see below).
|
|
·
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|
We have developed a customer pipeline where identified potential customers are synergistic and strategic in nature for longer-term growth potential.
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|
·
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|
We are building long term quantifiable and sustainable relationships within the identified target markets.
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|
·
|
|
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.
Recent Announcements
On August 28, 2017, we announced that we entered into a definitive stock purchase agreement (“Agreement”) with China National Heavy Duty Truck Group Co., Ltd. through its wholly owned subsidiary, Sinotruk (BVI) Limited (collectively, “CNHTC”), the parent company of Sinotruk (Hong Kong) Limited (“Sinotruk”), a leading Chinese commercial vehicle manufacturer, and that UQM and CNHTC plan to create a joint venture (“JV”) to manufacture and sell electric propulsion systems for commercial vehicles and other vehicles in China. CNHTC has headquarters in Jinan, China. CNHTC’s investment and creation of the JV is planned to occur in two stages. First, CNHTC acquired newly issued common shares of UQM, resulting in a 9.9% ownership interest of common shares issued and outstanding. This first stage of the investment was closed on September 25, 2017, and we received cash proceeds of $5.1 million on that date. Second, CNHTC will acquire additional newly issued common shares resulting in CNHTC owning a total of 34% of UQM’s issued and outstanding common stock on a fully diluted basis. The purchase price is $0.95 per share, which represents a 15% premium over the 30-day closing price average for the period ending on the last trading date before signing. The total transaction will bring approximately $28.3 million in cash to UQM. The terms of the Agreement were unanimously approved by the boards of directors of both companies. Our shareholders will continue to hold their shares in UQM, and UQM stock will continue to be traded on the NYSE American.
The Agreement is subject to usual and customary closing conditions, and closing of the second stage will require approval by our shareholders representing a majority of UQM’s voting shares. Closing is expected to occur as soon as possible following shareholders’ approval and receipt of approval from the Committee on Foreign Investment in the United States (“CFIUS”) and the required Chinese regulatory authorities. We expect the closing will occur in December 2017.
As part of the Agreement, we have agreed that following the closing, CNHTC will have the right to nominate up to three of eight total directors to our board of directors with one CNHTC representative expected to be elected as the Chairman of the Board.
CNHTC is the parent company of Sinotruk (Hong Kong) Limited (“Sinotruk”), a leading heavy-duty commercial vehicle manufacturer in China and one of the largest commercial vehicle groups in the world. In addition to heavy and light-duty commercial trucks and buses, they also manufacture key parts and components such as engines, cabins, axles, steel frames, and gearboxes. In Sinotruk’s annual report for the year ended December 31, 2016, Sinotruk reported audited revenues from these vehicles, parts, and components of US$4.9 billion. They also reported shipping over 172,000 commercial vehicles and over 106,000 engines. Sinotruk has over 25,000 employees.
After the closing of the Agreement, we intend to form a joint venture with CNHTC for the manufacture and sales of electric propulsion systems in China. We expect Sinotruk to be a significant purchaser of electric drive trains from the JV for Sinotruk’s commercial vehicles and other customers will be identified for sales as well.
Financial Condition
Cash and cash equivalents at September 30, 2017 were $8,035,754 and working capital was $8,816,965, 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 proceeds from the sale of vacant land during the quarter ended September 30, 2017 and the sale of common shares pursuant to the Agreement as discussed above.
Restricted cash at September 30, 2017 was $541,982 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 $529,208 to $634,108 at September 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 September 30, 2017 and December 31, 2016, we had no allowance for bad debts.
Costs and estimated earnings on uncompleted contracts were zero and $29,917 at September 30, 2017 and December 31, 2016, respectively. The decrease was due to the completion of a customer contract.
Total inventories increased $939,198 to $2,688,933 at September 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 increased to $292,795 at September 30, 2017 from $259,682 at December 31, 2016, primarily due to timing of amortization of maintenance contracts.
We invested $8,751 and $46,158 for the acquisition of property and equipment during the quarter and nine months ended September 30, 2017, respectively, compared to $2,030 and $102,545 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 $2,461 for the nine months ended September 30, 2017 due to new patent costs offset by amortization. Trademark costs decreased $3,372 for the nine months ended September 30, 2017 due to amortization.
Accounts payable increased $578,875 to $1,388,825 at September 30, 2017 from $809,950 at December 31, 2016, primarily due to the timing of vendor payments and increased purchases of inventory.
Other current liabilities increased to $1,585,997 at September 30, 2017 from $1,318,941 at December 31, 2016. The increase is primarily attributable to an increase in unearned revenue offset by a decrease in accrued executive compensation.
Billings in excess of costs and estimated earnings on engineering services contracts were $25,378 and zero at September 30, 2017 and December 31, 2016, respectively. The increase was due to timing of billings on the conclusion of a customer contract.
Long-term debt net of deferred financing costs increased $3,110,123 during the nine months ended September 30, 2017 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 $15,000 to $126,667 at September 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 $540,353 and $133,767,272, respectively, at September 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 issuance of common stock under the Agreement with CNHTC, 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 September 30, 2017
Revenue
Product sales revenue for the current quarter increased to $2,752,554 versus $728,921 for the comparable quarter last year, reflecting increased shipments of PowerPhase Pro
®
135 systems, PowerPhase HD
®
propulsion systems and fuel cell compressor systems offset partially by decreased shipments of auxiliary motors.
Revenue from contract services was zero for the quarter ended September 30, 2017 versus $292,204 for the comparable quarter last year. The decrease is due to a Department of Energy grant program which expired as of September 30, 2016 and no revenue from new contracts.
Gross Profit Margin
Total gross profit margin for the quarter ended September 30, 2017 increased to 46.6 percent compared to 24.0 percent for the quarter ended September 30, 2016. Gross profit margin on product sales for the quarter this year increased to 46.6 percent compared to 27.9 percent for the same quarter last year primarily due to increased sales of fuel cell compressor systems which generated higher gross profit margins than electric propulsion systems. Gross profit margin on contract services was zero percent for the quarter this year compared to 14.0 percent for the quarter ended September 30, 2016, as there was no contract services revenue in the quarter.
Costs and Expenses
Research and development expenditures for the quarter ended September 30, 2017 decreased to $403,273 compared to $882,090 for the quarter ended September 30, 2016. The decrease is related to fewer headcount and engineering resources allocated to supporting business development efforts.
Selling, general and administrative expenses for the quarter ended September 30, 2017 was $1,983,450 compared to $1,738,439 for the same quarter last year. The increase is primarily attributable to legal fees, business development costs, and expenses pertaining to our UQM Asia operations, in the current quarter compared to the same period last year.
Other income and (expenses)
Other income and expense for the quarter ended September 30, 2017 was $562,102 compared to $7,763 for the same quarter last year. The increase is primarily attributable to the gain on the sale of vacant land in the current quarter.
Net Loss
As a result, net loss for the quarter ended September 30, 2017 was $543,401, or $0.01 per common share, compared to a net loss of 2,368,245, or $0.05 per common share, for the comparable quarter last year.
Nine Months Ended September 30, 2017
Revenue
Product sales revenue for the nine months increased to $5,169,479 versus $3,120,979 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 for the nine months ended September 30, 2017 versus $839,517 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
Total gross profit margin for the nine months ended September 30, 2017 increased to 41.6 percent compared to 27.1 percent for the nine month period last year. Gross profit margin on product sales for the nine months ended September 30, 2017 increased to 40.3 percent compared to 32.9 percent for the nine 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 nine months ended September 30, 2017 compared to 5.7 percent for the nine months last year, resulting from a change in the mix of contracts in process during the nine months ended September 30, 2017 versus the comparable nine months last year.
Costs and Expenses
Research and development expenditures for the nine months ended September 30, 2017 decreased to $1,591,520 compared to $2,285,354 for the nine months ended September 30, 2016. The decrease is related to fewer headcount and engineering resources allocated to supporting business development efforts.
Selling, general and administrative expense net of recovery of impaired assets for the nine months ended September 30, 2017 was $4,757,571 compared to $4,070,178 for the nine month period last year. The change is primarily attributable to expenses pertaining to our UQM Asia operations, and higher business development costs, partially offset by a decrease in consulting, legal, and deferred executive compensation expenses in the current year. In the nine months ended September 30, 2016, we recovered $585,800 in connection with a vendor settlement.
Other income and (expenses)
Other income and expense for the nine months ended September 30, 2017 was $542,327 compared to $27,760 for the same period last year. The increase is primarily attributable to the gain on the sale of vacant land in the current nine month period.
Net Loss
As a result, net loss for the nine month period ended September 30, 2017 was $3,497,648, or $0.07 per common share, compared to a net loss of $5,253,193, or $0.11 per common share, for the comparable nine month period last year.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the quarter ended September 30, 2017 were adequate to meet operating needs. At September 30, 2017, we had working capital of $8,816,965 compared to $3,173,848 at December 31, 2016. The increase in working capital is primarily attributable to a higher cash balance from the sale of land and common stock, and increased inventory purchases offset by higher accounts payable due to the timing of the vendor payments.
For the nine months ended September 30, 2017, net cash used in operating activities was $3,098,339 compared to net cash used in operating activities of $4,668,774 for the comparable period last year. The change in cash used in operating activities is due to higher inventory purchases, which was offset by a decrease in accounts receivable and settlement of vendor liabilities.
Net cash provided by investing activities for the nine months ended September 30, 2017 was $1,333,379 compared to net cash used in investing activities of $117,743 for the comparable nine months last year. The increase for the nine months ended September 30, 2017 was primarily due to the sale of vacant land as previously discussed
.
Net cash provided by financing activities for the nine months ended September 30, 2017 was $8,242,607 compared to net cash used in financing activities of $40,204 for the comparable period last year. The change is primarily due to borrowings on a bank line of credit and the sale of common stock associated pursuant to the Agreement executed during the nine months ended September 30, 2017.
We expect to fund our operations over the next year from existing cash and cash equivalent balances, cash generated from operations, and bank financing resources.
On March 15, 2017, the Company entered into a non-revolving line of credit with a lender for $5.6 million. The interest rate is variable based upon the one month LIBOR rate plus 4.0% per annum on the outstanding balance. The non-revolving line of credit will expire on March 15, 2019 and the amounts repaid during the term of the loan may not be re-borrowed. At the expiry date, all outstanding principal and interest are due.
For additional information, see Note 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 September 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
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
5 Years
|
|
Purchase obligations
(1)
|
|
$
|
796,286
|
|
$
|
796,286
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
(1)
|
|
Includes procurement of inventory to fulfill the backlog for products.
|
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 Transition Report on Form 10-KT for the 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 nine months ended September 30, 2017.
As of September 30, 2017 and December 31, 2016, we had accumulated deficits of $123,390,582 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 September 30, 2017 was $543,401 versus a net loss for the comparable quarter last year of $2,368,245. Our net loss for the nine-month transition period ended December 31, 2016 was $13,017,508. At September 30, 2017, our cash and cash equivalents totaled $8,035,754. 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.