UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
|
Commission File No. 333-187308 |
| NANOFLEX POWER CORPORATION |
| (Exact Name of Registrant as Specified in its Charter) |
| Florida | 46-1904002 | |
|
(State
or Other Jurisdiction of
Incorporation or Organization) |
(I.R.S.
Employer
Identification No.) |
|
17207 N. Perimeter Dr., Suite 210 Scottsdale, AZ 85255 |
( 480) 585-4200 | |
| (Address of Principal Executive Offices and Zip Code) | (Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act: None
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of June 30, 2015, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $440,896, at $0.02 per share, based on the price at which the registrant’s common equity was last sold as of June 30, 2015.
As of March 10, 2016, the number of shares of the registrant’s common stock outstanding was 55,854,735.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:
| ● | The availability and adequacy of our capital to meet our requirements including, but not limited to, maintaining our patent portfolio and continuing research and development and commercialization activities; | |
| ● | Changes or developments in laws, regulations or taxes in our industry; | |
| ● | Competitors developing better or more commercially acceptable or marketable technologies; and | |
| ● | Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC. |
This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Defined Terms
Except as otherwise indicated by the context, references in this Report to:
| ● | The “Company,” “we,” “us,” or “our,” are references to the combined business of (i) NanoFlex Power Corporation, a Florida corporation, and (ii) Global Photonic Energy Corporation, a Pennsylvania corporation (“GPEC”); | |
| ● | “Common Stock” refers to the common stock, par value $.0001, of the Company; | |
| ● | “U.S. dollar,” “$” and “US$” refer to the legal currency of the United States; | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; and | |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended. |
Introduction
NanoFlex Power Corporation, formerly known as Universal Technology Systems, Corp., was incorporated in the State of Florida on January 28, 2013. On September 24, 2013, the Company completed the acquisition of Global Photonic Energy Corporation, a Pennsylvania corporation (“GPEC”) pursuant to a Share Exchange Agreement (the “Share Exchange Transaction”). Immediately following the closing of the Share Exchange Transaction, the Company incorporated the business of GPEC and as a result, the Company owns 100% of equity interests of GPEC and GPEC became a wholly-owned subsidiary of the Company. On November 25, 2013, the Company changed its name from “Universal Technology Systems, Corp.” to “NanoFlex Power Corporation” and its trading symbol was changed to “OPVS” on December 26, 2013.
GPEC was founded and incorporated on February 7, 1994 and is engaged in the research, development, and commercialization of advanced configuration solar technologies. The Company’s sponsored research programs at the University of Southern California (“USC”), the University of Michigan (“Michigan”), and Princeton University have resulted in an extensive portfolio of issued and pending patents worldwide. Pursuant to its sponsored research agreements, NanoFlex has obtained the exclusive worldwide license and right to sublicense any and all intellectual property resulting from the Company’s sponsored research programs. While each patent is issued in the name of the respective university that developed the subject technology, NanoFlex has exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being NanoFlex’s patents.
The Company’s Common Stock is quoted on the OTCQB under the symbol “OPVS.”
Our Business
NanoFlex Power Corporation is engaged in the research, development, and commercialization of advanced configuration solar technologies which enable unique thin-film solar cell implementations with what we believe will be industry-leading efficiencies, light weight, flexibility, and low total system cost. NanoFlex’s sponsored research programs at USC, Michigan, and Princeton University have resulted in an extensive portfolio of issued and pending patents worldwide covering flexible, thin-film photovoltaic technologies. Pursuant to its sponsored research agreements, NanoFlex has obtained the exclusive worldwide license and right to use and sublicense any and all intellectual property resulting from the Company’s sponsored research programs.
These patented and patent-pending technologies fall into two general categories. Gallium Arsenide (GaAs) solar technologies involve fabrication processes and device architectures to substantially reduce the cost of ultra-high efficiency GaAs thin films. Organic Photovoltaics (OPV) technologies involve the materials, architectures, and fabrication processes for ultra-thin film semi-transparent solar cells. The technologies are targeted at, but not limited to, certain broad applications that require high power conversion efficiency, flexibility, and light weight. These applications include, but are not limited to: (a) portable power mats and sheets for military and field use, (b) building applied photovoltaics (“BAPV”), (c) building integrated photovoltaics (“BIPV”), (d) space vehicles and unmanned aerial vehicles (“UAVs”), (e) semi-transparent solar power generating glazing or windows, and (f) ultra-thin solar films for consumer applications such as mobile devices or automobiles. Laboratory feasibility prototypes have been developed by the engineering team at the University of Michigan that successfully demonstrate key building block principles for these technology application areas.
The Company is beginning to and plans to continue working with industry partners to commercialize its technologies for key applications where we believe they present compelling competitive advantages. For example, the Company has begun staffing our engineering team to support the transfer of technologies from university laboratories to implementation in industry partners’ commercial product designs and fabrication processes. To this end, as further described below, on August 26, 2015, the Company signed a Joint Development Agreement (the “JDA”) with SolAero Technologies Corp. ("SolAero"). The JDA provides for the joint development of GaAs solar cells utilizing our proprietary manufacturing processes in conjunction with SolAero's advanced high efficiency solar cell technologies.
Further, the Company plans to license the right to use and or sublicense its intellectual property to industry partners and customers. These manufacturing partners can supply customers directly, but also serve as a source of solar cell supply for NanoFlex to provide products to customers on its own, particularly in the early stages of market development. This business model is oriented around licensing and sublicensing processes and technologies to large, well-positioned commercial partners who can provide manufacturing and marketing capabilities to enable rapid commercial growth.
Sponsored Research and License Agreements
On October 22, 1993, American Biomimetics Corporation (“ABC”) entered into a Sponsored Research Agreement and License Agreement with Princeton University for research work being conducted in the laboratory of Dr. Mark E. Thompson. In August 1995, this original sponsored research agreement with Princeton University was assigned to USC when Dr. Thompson accepted a position at USC. In August of 1996, ABC assigned to GPEC its rights to various research inventions under the foregoing agreements. On May 1, 1998, GPEC, Princeton University, and USC entered into a new Sponsored Research Agreement (“1998 Sponsored Research Agreement”), which continued without interruption the research of Dr. Thompson (at USC) and added to it the research being done by Dr. Stephen R. Forrest (at Princeton University). At the same time, the parties entered into a License Agreement (the “1998 License Agreement”) which they considered an amendment of the earlier license agreement. This 1998 Sponsored Research Agreement formed the basis for future renewals of this agreement in 2004, 2006 and 2009 (together with such amendments, extensions and renewals referred to as the “Research Agreement”).
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In 2006, the Company’s remaining principal researcher at Princeton University, Dr. Stephen R. Forrest, accepted a tenured position at Michigan and became its Vice President of Research. The USC Research Agreement, dated January 1, 2006 as later amended in 2009 (the “2009 Research Agreement”) is the renewal of the 1998 Sponsored Research Agreement and it retained the Company’s relationship with Dr. Thompson and his team, and established USC as the lead researcher and Michigan as the subcontractor. In addition, the 1998 License Agreement was also amended in 2006 (the “License Agreement 2006 Amendment”) to include Michigan, where Dr. Forrest has been conducting research for the Company.
On December 20, 2013, the Company entered into a Research Agreement with USC (“2013 Research Agreement”) to amend and replace the 2009 Research Agreement to continue the sponsored research at USC and Michigan from February 1, 2014 through January 31, 2021. On the same day, they also entered into a Third Amendment to the License Agreement which renews and extends the License Agreement by and between USC, Michigan, Princeton and GPEC (“Third Amendment to License Agreement”). GPEC assigned to the Company and the Company assumed all the rights and obligations under both the 2013 Research Agreement and the Third Amendment to License Agreement.
Currently, research and development of our flexible, thin-film OPV and GaAs technologies is being conducted at USC and Michigan under the seven year 2013 Research Agreement dated December 20, 2013. Under the 2013 Research Agreement, the Company made a deposit of $550,000 (the “Deposit”) in early 2014. This deposit was used by USC to pay for research costs and expenses as it incurred, including payments to Michigan, during any billing quarter. When the Company pays the related quarterly billing, the funds go to replenish the Deposit back to the full amount of $550,000, which is to continue until the end of the 2013 Research Agreement.
Under the currently effective License Agreement, as amended, with USC, Michigan, and Princeton wherein NanoFlex has obtained the exclusive worldwide license and right to sublicense any and all intellectual property resulting from the Company’s sponsored research agreements, we have agreed to pay for all reasonable and necessary out of pocket expenses incurred in the preparation, filing, maintenance, renewal and continuation of patent applications designated by the Company. In addition, the Company is required to pay to USC 3% of net sales of licensed products or licensed processes used, leased or sold by the Company, 3% of revenues received by the Company from the sublicensing of patent rights and 23% of revenues (net of costs and expenses, including legal fees) received by the Company from final judgments in infringement actions respecting the patent rights licensed under the agreement. The Third Amendment to License Agreement amended the minimum royalty section to eliminate the accrual of any such royalties until 2014. Furthermore, the amounts of the non-refundable minimum royalties, which would be applicable starting in 2014, were adjusted to be lower than the amounts in the previous License Agreement.
The Company has an exclusive worldwide license and rights to use and sublicense any and all intellectual property conceived or developed under its sponsorship at USC, Michigan, and Princeton University. There is currently no ongoing research activity at Princeton University related to the Company, although the Company maintains licensing rights to technology previously developed there.
During the years ended December 31, 2015 and 2014, we incurred research and development costs pertaining to our sponsored research efforts and our establishment of our internal engineering team of $2,325,539 and $1,174,473, respectively.
Founding Researchers
Dr. Stephen R. Forrest (University of Michigan)
Professor Stephen R. Forrest has been working with the Company since 1998 under the Company's Sponsored Research Program with Princeton University, USC, and Michigan. Professor Forrest is one of the Company's Founding Research Scientists; his focus is on organic and GaAs photovoltaics. In 2006, he rejoined the University of Michigan as Vice President for Research, and as the William Gould Dow Collegiate Professor in Electrical Engineering, Materials Science and Engineering, and Physics. A Fellow of the APS, IEEE and OSA and a member of the National Academy of Engineering, he received the IEEE/LEOS Distinguished Lecturer Award in 1996-97, and in 1998 he was co-recipient of the IPO National Distinguished Inventor Award as well as the Thomas Alva Edison Award for innovations in organic LEDs. In 1999, Professor Forrest received the MRS Medal for work on organic thin films. In 2001, he was awarded the IEEE/LEOS William Streifer Scientific Achievement Award for advances made on photodetectors for optical communications systems. In 2006 he received the Jan Rajchman Prize from the Society for Information Display for invention of phosphorescent OLEDs, and is the recipient of the 2007 IEEE Daniel Nobel Award for innovations in OLEDs. Professor Forrest has been honored by Princeton University establishing the Stephen R. Forrest Faculty Chair in Electrical Engineering in 2012. Professor Forrest has authored 525 papers in refereed journals, and has 247 patents. He is co-founder or founding participant in several companies and is on the Board of Directors of Applied Materials and PD-LD, Inc. He has also served from 2009-2012 as Chairman of the Board of Ann Arbor SPARK, the regional economic development organization, and serves on the Board of Governors of the Technion – Israel Institute of Technology, as well as the Vanderbilt University School of Engineering Board of Visitors. From 1979 to 1985, Professor Forrest worked at Bell Labs investigating photodetectors for optical communications. In 1992, Professor Forrest became the James S. McDonnell Distinguished University Professor of Electrical Engineering at Princeton University. He served as director of the National Center for Integrated Photonic Technology, and as Director of Princeton's Center for Photonics and Optoelectronic Materials (POEM). From 1997-2001, he served as the Chair of the Princeton’s Electrical Engineering Department. He was appointed the CSM Visiting Professor of Electrical Engineering at the National University of Singapore from 2004-2009. In 2011, Professor Forrest was named number 13 of the top 100 most influential material scientists in the world by Thomson-Reuters, based largely on his work with organic electronics. Professor Forrest is a graduate of the University of Michigan (MSc Physics, 1974 and PhD Physics, 1979) and the University of California at Berkeley (B.A. Physics, 1972).
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Dr. Mark E. Thompson (University of Southern California)
Professor Mark E. Thompson has been working with the Company since 1994 under the Company's Sponsored Research Program with Princeton University, USC and Michigan. Professor Thompson is one of the Company’s Founding Research Scientists and is a professor of Chemistry at USC. Professor Thompson, in conjunction with Professor Stephen R. Forrest, was instrumental in the discovery of phosphorescent materials central to the highly efficient OLED technology marketed by Universal Display Corporation (NASDAQ: OLED). In 2013, Professor Thompson was named a Fellow of the American Association for the Advancement of Science. In 2012, Professor Thompson received the prestigious Alexander von Humboldt Research Award. In 2011, Professor Thompson was named number 12 of the top 100 most influential chemists in the world by Thomson-Reuters, based largely on his work with organic electronics. In 2007, Professor Thompson was awarded USC’s Associate’s Award for Excellence in Research (given to one faculty member per year). In 2006, he was awarded the MRS Medal by the Materials Research Society, and in the same year, Professors Forrest and Thompson were the co-recipients of the Jan Rajchman Prize from the Society for Information Display. Both the MRS medal and the Rajchman Prize were based on the invention of phosphorescent OLEDs. In 1998, Professor Thompson was co-recipient of The Intellectual Property Owners Association National Distinguished Inventor Award as well as the Thomas Alva Edison Award for innovations in organic LEDs. Professor Thompson joined The University of Southern California in 1995, and from 2005 through 2008, he served as the Department of Chemistry Chairman at USC. From 1987 to 1995, Professor Thompson worked at Princeton University. From 1985 to 1987, Professor Thompson worked at Oxford University and was an S.E.R.C. Research Fellow. From 1983 to 1985, Professor Thompson worked at E.I. duPont de Nemours & Company as a Visiting Scientist. Professor Thompson has authored over 200 papers in refereed journals, and has 75 patents. Professor Thompson is a graduate of the California Institute of Technology (Ph.D. Inorganic Chemistry, 1985) and the University of California Berkley (B.S. Chemistry with honors, 1980).
Summary Business Description
NanoFlex Power Corporation is engaged in the research, development, and commercialization of advanced configuration solar technologies which enable unique thin-film solar cell implementations with what we believe will be industry-leading efficiencies, light weight, flexibility, and low total system cost. NanoFlex’s sponsored research programs at USC, Michigan, and Princeton University have resulted in an extensive portfolio of issued and pending patents worldwide covering flexible, thin-film photovoltaic technologies. Pursuant to its sponsored research agreements, NanoFlex has obtained the exclusive worldwide license and right to sublicense any and all intellectual property resulting from the Company’s sponsored research programs. Building upon the university research, the Company plans to work with industry partners to commercialize its technologies to target key applications where we believe they present compelling competitive advantages.
These patented and patent-pending technologies fall into two general categories. Gallium Arsenide (GaAs) solar technologies involve fabrication processes and device architectures to substantially reduce the cost of ultra-high efficiency GaAs thin films. Organic Photovoltaics (OPV) technologies involve the materials, architectures, and fabrication processes for ultra-thin film semi-transparent solar cells. The technologies are targeted at, but not limited to, certain broad applications that require high power conversion efficiency, flexibility, and light weight. These applications include, but are not limited to: (a) portable power mats and sheets for military and field use, (b) building applied photovoltaics (“BAPV”), (c) building integrated photovoltaics (“BIPV”), (d) space vehicles and unmanned aerial vehicles (“UAVs”), (e) semi-transparent solar power generating glazing or windows, and (f) ultra-thin solar films for consumer applications such as mobile devices or automobiles. Laboratory feasibility prototypes have been developed by the engineering team at University of Michigan that successfully demonstrate key building block principles for these technology application areas.
NanoFlex’s sponsored research activities have generated an extensive portfolio of issued and pending patents worldwide to which the Company has exclusive commercial rights. The patents cover materials, architectures, and processes for flexible, thin-film OPV technologies and high efficiency thin-film GaAs technologies. As of January 31, 2016, there were 63 issued patents, 43 pending non-provisional applications and 13 pending provisional applications in the U.S. and 18 pending PCT applications. In addition, in countries and regions outside the U.S., including but not limited to Australia, Canada, China, European Patent Convention, Hong Kong, India, Japan, Korea and Taiwan, there were a total of 141 issued patents and 263 pending patent applications. The duration of the issued U.S. and foreign patents is typically 20 years from their respective first effective filing dates.
The Company has identified GaAs solar technologies as its nearest term market opportunity. We are executing a plan to commercialize the patented GaAs-based processes and technologies on an accelerated program. We have begun staffing our engineering team to support the transfer of technologies from University laboratories to implementation in industry partners’ commercial products through Joint Development Agreements (“JDAs”). Upon successful completion of joint development, our intention is to enter into licensing and supply agreements with industry partners. We are also in discussions with system integrators, installers, and architects to assist with requirements, definition and technology development for several targeted applications. Additionally, we are working with our University researchers as well as industry partners to submit proposals for government programs to advance our technology development for both GaAs and OPV technologies.
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The Company is currently in the development stage and has not sold any products nor licensed any of its technologies. NanoFlex’s auditors’ opinion states that there is substantial doubt about the Company’s ability to continue as a going concern.
Philosophy and Approach
NanoFlex is focusing on two parallel technology development efforts: (a) its GaAs architectures, manufacturing processes, and technologies aim to provide GaAs solar cell manufacturers with the capability of producing ultra-high efficiency GaAs solar cells in thin-film form factors at a substantially reduced cost that is competitive with existing thin-film solar technologies. This has the potential to open new market segments such as portable field generation, mobile power, BAPV, BIPV and aerospace which are not well-served by crystalline silicon solar technologies; and (b) its portfolio of OPV thin film solar technologies provide highly flexible solar energy solutions for new applications such as BIPV (semi-transparent solar films for glass) and ultra-thin films for coatings on automobiles and other applications that demand design flexibility and light weight. Additionally, OPV technologies have the potential to achieve a very low cost structure relative to other solar technologies due to minimal material usage and compatibility with roll-to-roll processing.
NanoFlex is not, and does not plan to be, a direct manufacturer of its technologies. Rather, it plans to license or sublicense its intellectual property to industry partners and customers. These manufacturing partners can supply customers directly, but also serve as a source of solar cell supply for NanoFlex to provide products to customers on its own, particularly in the early stages of market development. This business model is oriented around licensing and sublicensing processes and technologies to large, well-positioned commercial partners who can provide manufacturing and marketing capabilities to enable rapid commercial growth. This model is also intended to quickly establish NanoFlex as an important player in the solar industry with rapid, high-margin revenue growth. Potential partners for our GaAs technologies include current manufacturers of GaAs solar technology, who recognize the potential for our technology to dramatically reduce production costs, improve their margins, and open new market opportunities. Potential partners for our OPV technologies include manufacturers of electronics, including organic electronics, existing developers of OPV solar technologies, producers of advanced materials and films, manufacturers of building materials, and glass manufacturers.
In addition, NanoFlex believes that there are several avenues for early revenue generation that become possible with the establishment of its developmental engineering team. First among these avenues is government funding. The Department of Energy (“DOE”), Department of Defense (“DoD”), and National Aeronautics and Space Administration (“NASA”) all have interests in technologies that can deliver lightweight, high-efficiency solar power that contribute toward ubiquitous solar.
NanoFlex also anticipates that advancements achieved by its engineering team can attract other industry players to acquire early licenses to use NanoFlex intellectual property. Finally, new licenses and agreements can be made possible by ongoing technology development, especially that related to perfecting and broadening of NanoFlex’s intellectual property in ultra-thin-film semi-transparent organic solar cells.
Gallium Arsenide Solar Technologies
The Company’s first technology platform is based on the GaAs semiconductor, and is currently advancing toward commercialization. GaAs is a key component of many ultra-high performance electronic technologies used in cellular telephones and military applications. While the very highest single-junction and multi-junction solar cell efficiencies (approximately 29% and 44%, respectively, according to the National Renewable Energy Laboratory, “Best Research Cell Efficiencies,” www.nrel.gov/ncpv) are based on GaAs, they are prohibitively expensive for mass markets and hence are only considered for specialty applications where performance and weight requirements outweigh cost considerations, such as space-borne applications. Broader market acceptance of GaAs-based solar technologies requires substantial cost reductions.
NanoFlex’s patented technology has the potential to enable these cost reductions in two ways: (a) reducing the cost of the solar cell by re-using expensive GaAs source material and (b) using mini-concentrators to reduce the amount of semiconductor material used within a solar module. Furthermore, NanoFlex’s technology combines the high power conversion efficiency of GaAs solar cells with an extremely light weight and flexible form factor that meets requirements for applications that are not well-served by crystalline silicon technologies, due to heavy weight and rigidity, or by other thin films due to low power conversion efficiency.
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The primary cost in fabricating GaAs solar cells is the very high cost of the substrates on which the thin active region (called the epitaxial layers) is grown. These substrates, or “parent wafers,” constitute the largest portion of the total cost of a GaAs solar cell. During the fabrication process that is currently in use in industry, these expensive parent wafers are destroyed when the solar cell layer is removed, yielding only a single solar thin film for each parent wafer. Existing GaAs solar cell fabricators continue to seek methods to prevent damage to the parent wafer to enable multiple re-growths thereby fabricating multiple solar thin films from a single wafer. NanoFlex, through its researchers, has developed an architecture and process enabling the active solar cell layer (approximately 1/1,000 th of the thickness of a human hair) to be removed from the parent wafer on which it is grown in a non-destructive manner without degradation in surface area, thereby allowing for the re-use of the wafer multiple times. Furthermore, lab tests also reflect no degradation in solar cell performance from each growth and removal cycle.
We believe this process, called non-destructive epitaxial lift-off (“ND-ELO”), revolutionizes the cost structure of GaAs solar cell technology, allocating the high cost of the parent wafer to multiple solar thin films, substantially reducing the total cost per watt for each GaAs solar cell. Further, as part of the ND-ELO process, the ultra-thin semiconductor is bonded to a flexible and thin secondary substrate such as plastic or metal foil using our adhesive-free, lightweight, ultra-strong and flexible process called cold-weld bonding. The cold-weld bonding process enables highly flexible and lightweight thin film GaAs solar cells.
A second aspect of the Company’s GaAs technology centers on minimizing the required size of the GaAs solar cell through the use of mini-concentrators, thereby further reducing cost. In this design, small GaAs thin-film cells are placed at the trough of low-profile plastic parabolic concentrators. The concentrators harvest solar energy using a wide acceptance angle and focus it into the small GaAs cell. This enables solar energy harvesting throughout the day and the integrated device is able to capture the equivalent energy production density (measured in kW-hrs/m2) as a full-sized GaAs cell at a substantially reduced cost.
With the combination of GaAs’s high conversion efficiencies and the cost reductions associated with implementing our proprietary ND-ELO processes and mini-concentration technologies, we believe the costs of GaAs solar cells can approach cost metrics associated with competing solar technologies, particularly thin films, while providing substantial performance advantages associated with power per surface area and power per weight.
Organic Photovoltaic Technologies
The Company’s second technology platform is based on flexible, thin-film OPV technologies that have been researched and developed over the last two decades by our sponsored research partners. Relative to other solar technologies, we believe OPV present compelling advantages relating to form factor flexibility and has the potential to realize extremely low production costs.
Because the organic films are lightweight and extremely thin (in this case the entire structure is approximately 1/10,000 th of the thickness of a human hair), they can be made semitransparent and adjusted to any desirable color. As a result, we believe there are significant opportunities to achieve heretofore unrealizable applications such as window glazing and ultra-thin films or coatings to be incorporated into non-conformal surfaces.
OPV technologies have potential to achieve a very low cost structure, derived from low materials cost and highly efficient roll-to-roll processing. The ultra-thin layer of OPV requires small quantities of materials. Furthermore, layers of OPV material can be deposited directly onto plastic or metal foils and therefore is no need for energy-intensive processes required by other solar technologies, such as silicon. Rather, there is the opportunity to “print” organic solar cells onto continuous rolls of plastic in an ultra-high-speed and low energy intensity manufacturing process. We believe the potential for printed electronics - making solar films roll-to-roll rather than by batch processing - makes OPV a potentially revolutionary step in the widespread acceptance and deployment of solar energy.
NanoFlex’s approach has been to advance all dimensions of OPV technology, including the development of new materials, new high efficiency device architectures, and ultra-high-speed, low-energy-intensity production processes such as organic vapor phase deposition developed in NanoFlex’s researcher’s laboratories, and solar cell modulization.
Our sponsored research efforts aim to advance the practical viability of OPV by demonstrating reliable, large area and high-efficiency organic multi-junction cells based on small molecule materials systems. NanoFlex development targets aim to achieve greater than 15% power conversion efficiencies on organic solar cells with operational lifetimes of 20 years on barrier-coated plastic or metal foil substrates, and to demonstrate roll-to-roll “printing” of solar cells on plastic or metal foil substrates.
OPV’s form factor flexibility offers the potential for solutions in various tints and transparencies, offering a unique solution well-suited for BIPV applications, including facades, curtain walls, skylights, and windows. Our discussions with architects emphasize a need for BIPV solutions offering design flexibility and high quality aesthetics. Furthermore, OPV also offers the potential for very low costs due to its low material usage and suitability for roll-to-roll processing.
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Intellectual Property
As a result of its sponsored research programs, NanoFlex currently holds the exclusive commercialization rights to more than 540 issued and pending patents worldwide which cover architecture, processes and materials for OPV and GaAs technologies. As of January 31, 2016, U.S. issuances and applications were as follows: 63 issued patents, 43 pending non-provisional applications, 13 pending provisional applications, and 18 Patent Cooperation Treaty (“PCT”) applications. For regions outside of the U.S.: 141 issued patents, and 263 pending patent applications. While each patent is issued in the name of the respective university that developed the subject technology, NanoFlex has exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being NanoFlex’s patents.
The patent applications being filed as a result of NanoFlex’s sponsored research programs are part of a dynamic, comprehensive development strategy to protect NanoFlex’s commercialization rights. Following this developmental strategy, current work builds off of earlier work, with new discoveries continually developed and protected. Additionally, as we progress with product development and commercialization, we also have focused on optimizing the patent portfolio, reducing unnecessary or redundant costs while still protecting critical technologies. The patent numbers presented exclude issued and pending patents that the Company has identified for abandonment under this criterion.
Patent lifetimes typically run twenty years from a patent application’s effective filing date, not from when the patent was granted. There is a huge backlog in patent offices around the world, and as a result the processing time from application filing to the grant of the patent generally takes 3-5 years, and sometimes longer. In the following table, both the lower number of entries related to the patents with 15-20 years of remaining life and the much higher number of entries related to the patents with 10-15 years of remaining life reflect the lengthy processing time currently needed to obtain a patent. Simply put, waiting 3-5 years after filing to obtain a patent is a rather common occurrence.
For U.S. Patents (as of January 31, 2016):
8/63 of issued patents have 0-5 years remaining;
27/63 of issued patents have 5-10 years remaining;
19/63 of issued patents have 10-15 years remaining; and
9/63 of issued patents have 15-20 years remaining.
For Foreign Patents (as of January 31, 2016):
7/141 of issued patents have 0-5 years remaining;
57/141 of issued patents have 5-10 years remaining;
62/141 of issued patents have 10-15 years remaining; and
15/141 of issued patents have 15-20 years remaining.
In addition, the Company has numerous patent applications in process. Some of the Company’s technology holdings include foundational concepts in the following areas.
Gallium Arsenide Photovoltaics:
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Accelerated and recyclable liftoff process. Our research partners have invented and patented manufacturing processes and materials that allow current manufacturers of GaAs solar cells to reduce their existing fabrication costs, because the process preserves the integrity of the parent substrate which can be re-used without chemo-mechanical polishing.
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Cold-weld bonding of inorganic solar cells to plastic substrates and metal foils. This cold-weld bonding process enables the direct bonding of active solar material to a thin plastic or metal substrate without using adhesive. This creates thin-film cells that are lighter weight and highly flexible.
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Micro-inverters monolithically integrated into GaAs solar cells during production. Integrating micro-inverters into the solar cell has the potential to greatly reduce the total cost of a photovoltaic system.
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Low cost thermos-formed plastic mini-compound parabolic concentrator arrays. This allows a fraction of the GaAs solar cell material while collecting an equivalent amount of energy over the course of a sun arc.
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| ● | Integrated tracking technology. Lattice-like solar cells, with a design inspired by Kirigami, that can stretch like an accordion, allowing them to tilt along the sun’s trajectory and capture up to 36% more energy than flat cells. |
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Organic Photovoltaics:
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Multi-junction organic solar cell. Individual conventional solar cells have limited spectral coverage, voltage output, and tradeoff between absorption length and charge collection length. By stacking multiple solar cells with complementary absorption profiles, voltages of the cells can be added (at a constant current). This can make a more efficient cell. The researchers at Michigan have achieved 12.6% power conversion efficiency in the lab.
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Fullerene acceptors. Fullerenes include molecules such as C 60 , C 70 , C 84 and derivatives that are designed to dissolve in solvents and are the most prevalent acceptor in organic photovoltaics. Fullerenes offer better efficiency than any other acceptor molecule implemented to date.
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Blocking layers. In most solar cell designs, excitons must be blocked and reflected away from the metallic (or transparent) contact so that they can be dissociated at the donor-acceptor junction. Additionally, it is desired that these layers block the wrong carrier from contacting the electrode.
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New materials for visible and infrared sensitivity. Current OPV materials absorb light in the visible and deep red part of the solar spectrum, but do not collect light in the near infrared (NIR). Extending efficient light collection into the NIR has the potential to increase photocurrent generation by 40%, markedly improving OPV performance.
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| ● | Scalable growth technologies. A number of growth technologies have been developed for organic materials. These include vacuum thermal evaporation and organic vapor phase deposition for materials that can be sublimed or evaporated directly and gravure or ink-jet printing of dissolved materials. All of these processes are compatible with rigid planar substrates, but more importantly can be applied to flexible plastic or metal foil substrates, for roll-to-roll fabrication of OPVs. |
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Inverted solar cells. One of the most air sensitive parts of the OPV is the region between the anode and electron acceptor. This region is degraded by oxygen and water in the dark and even more so under illumination. This interfacial region in a “conventional” OPV is exposed to the atmosphere directly, requiring that the OPV be kept in a hermetic package. If the OPV is prepared as an inverted cell, the air sensitive anode/organic interfacial region is placed below the donor, buffer layer and cathode. Thus, the device itself provides a level of “packaging,” markedly slowing environmental degradation of the device, minimizing packaging requirements for long term deployment in the field.
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| ● | Materials for enhanced light collection via multi-exciton generation. The Shockley-Queisser limit for solar cell efficiency is 29% for silicon based cells and 31% for cells made with GaAs. In order to prepare solar cells with efficiencies higher than the Shockley-Queisser, researchers have turned to multi-junction cells, however, these cells are very expensive. An alternate approach is to collect the high energy part of the spectrum, i.e. UV-to-green, and double the energy collected from this part of the solar spectrum using singlet fission (“SF”). SF materials absorb high energy light and generate two excitons for every photon absorbed, thus doubling the light collection efficiency. The SF approach has the potential to give a single solar cell a 45% efficiency, well over the Shockley-Queisser limit, without increasing the cost to produce the cell. |
| ● | Mixed layer and nanocrystalline cells. In planar (e.g., bilayer) cells, the thickness of a layer is limited by the distance an exciton is expected to travel before it recombines. If the layer is too thick, photons absorbed may never result in collected charge. If the layers are too thin, there is insufficient material available for absorption of the light. By mixing the donor and acceptor throughout a thicker layer, an additional donor-acceptor interface is created throughout the layer, improving photocurrent generation capability. Nanocrystalline cells have a higher degree of phase separation between the donor and acceptor with nanocrystalline domains, with high purity and domain sizes in the nanometer scale. |
| ● | Solar films and coatings. OPV technology enables materials to be deposited onto virtually any substrate (needs to be smooth, but not flat). The idea is to create solar coatings or films that can be applied quickly and easily to any surface, including, for example, mobile communications devices, electric cars, roofing materials, building siding and glass). | |
| ● | Transparent/semi-transparent cells. In certain applications it may be desirable to have a partially transparent solar cell. These applications include tinted windows. Instead of just absorbing or reflecting the light, the light would be absorbed and converted into energy. The unique nature of organics allows the Company to tune the wavelengths absorbed to those that it does not want transmitted or that are not useful for vision, such as in the infrared region of the spectrum |
Development Goals
If necessary capital is available to it, of which there can be no assurance, NanoFlex plans to accelerate the commercialization of its GaAs technology during 2016 as set forth below. Our research and development efforts are projected to consist of a continuation of work by our university researchers along with collaborative research and development with industry partners, including existing GaAs solar cell manufacturers. We have begun staffing our engineering team to support the transfer of technologies from University laboratories to implementation in industry partners’ commercial product designs and fabrication processes. To this end, on August 26, 2015, the Company signed a JDA with SolAero Technologies Corp. ("SolAero"). The JDA provides for the joint development of GaAs solar cells utilizing our proprietary manufacturing processes in conjunction with SolAero's advanced high efficiency solar cell technologies.
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In addition to our researchers and manufacturing partners, we plan to work with key stakeholders along the supply chain to assist with requirements definition and help prioritize technology development efforts. For mobile field generation applications, we plan to work closely with the military which is eager for mobile power solutions to reduce demand for diesel fuel at forward operating locations, which is expensive and logistically challenging. For targeted BAPV and BIPV applications, we plan to work with system integrators, installers, and architects. Additionally, we are working with our University researchers as well as industry partners to submit proposals for government programs to advance our technology development.
Our primary technical objective for GaAs is to demonstrate the efficacy of our technologies. We plan to demonstrate ND-ELO technology on GaAs wafers of increasing diameter and on GaAs solar cells of increasing complexity. NanoFlex plans to integrate mini-concentrators within the ND-ELO and cold-weld-bonded cells to effect further cost reductions.
With respect to its OPV technology, NanoFlex plans to continue its sponsored research activities at the universities. We also plan to work with system integrators, installers, and architects to assist with requirements definition and technology development for targeted applications. Additionally, we are working with our University researchers as well as industry partners to submit proposals for government programs to advance our technology development.
NanoFlex plans to achieve greater than 15% power conversion efficiencies on organic solar cells with operational lifetimes of 20 years on barrier-coated plastic or metal foil substrates, and to demonstrate roll-to-roll “printing” of solar cells on plastic or metal foil substrates.
Overall Operating Plan
We have made contact with major solar cell and electronics manufacturers world-wide and are finding commercial interest in both our GaAs and OPV technologies. We are seeking to work closely with those companies interested in our technology solutions to develop proof-of-concept prototypes and processes to mitigate commercialization risks and gain early market entry and acceptance.
A key to reducing the risk to market entry of our GaAs technologies by our partners is for us to demonstrate our technologies on their product designs and fabrication processes. To support this joint development, NanoFlex must establish its own developmental engineering team if we are available to raise the necessary capital. This team would serve several key functions, including working closely between the universities and our industry partners to integrate and customize our processes and technologies into the partner’s existing product designs and fabrication process. Our engineering team would also work closely with downstream partners such as military users for mobile field applications and system integrators, installers, and architects for BAPV and BIPV applications to better understand requirements and incorporate these requirements into our research and development cycle.
To support this work, NanoFlex’s engineering team is able to utilize the facility and equipment onsite at the University of Michigan on a recharge basis, which will be cost effective in moving the technologies toward commercialization. This can allow our engineering team to work directly with industry players to acquire early licenses to use our intellectual property without the need for any immediate standalone technology facility.
Additionally, having an established technical team can enable us to more effectively pursue and execute sponsored research projects from the DoD, the DOE, and NASA, each of which has interests in businesses that can deliver ultra-lightweight, high-efficiency technologies for demanding applications.
A second potential revenue source is in JDAs with existing GaAs solar cell manufacturers. Once we are able to initially demonstrate the efficacy of our GaAs processes and technologies on partner’s fabrication process, we expect to be in a position where we can sign licenses covering further joint development, IP licensing, and solar cell supply. We anticipate that partnerships with one or more of the existing GaAs solar cell manufacturers can be supported by the developmental engineering team, and result in early revenue opportunities, as with our initial partner, SolAero.
Near Term Operating Plan
Our near-term focus is on concentrating our efforts on advancing our development efforts while containing costs. The company requires approximately $6 million to $8 million to continue its operations over the next twelve months to support its research, development, and commercialization activities, fund patent application and prosecution, service outstanding liabilities, and support its corporate functions. Our operating plan over the next twelve months is comprised of the following:
| 1. | Cost cutting and containment to reduce our annual burn rate; |
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| 2. | Prioritizing our existing IP based on our technology development strategy to identify opportunities for cost reduction; |
| 3. | Closely aligning our research and development activities with near-term commercialization opportunities; |
| 4. | Partnering with strategic partners for licensing and/or joint development of our technologies; and |
| 5. | Raising adequate capital (approximately $6 million to $8 million) to support our activities for at least 12 months. |
In the event that we raise less than the required amount of capital, our focus will be on prioritizing our GaAs commercialization effort to capture near-term revenue opportunities and limiting spending on general and administrative expenses and patent costs.
There can be no assurance that our near term operating plan will be successful or that we will be able to fulfill it as it is largely dependent on raising capital and there can be no assurance that capital can be raised.
Market Opportunity
There are several key trends that we believe are reshaping the future of the global energy mix, including continued rapid growth in the use of solar technologies, a retreat from nuclear power in some countries, and the emergence of unconventional natural gas production, according to the International Energy Agency’s (the “IEA”) World Energy Outlook 2013. These trends are driving a pronounced shift away from oil, coal, and nuclear towards renewables and natural gas.
Expansion of solar generation worldwide is a necessary component of any serious strategy to mitigate climate change, according to the Massachusetts Institute of Technology (“MIT”) Energy Initiative. In recent years, solar costs have fallen substantially and installed capacity has grown very rapidly. Nonetheless, solar energy currently accounts for only about 1% of global electricity generation (MIT Energy Initiative, “The Future of Solar Power,” 2015).
Solar PV installations have experienced rapid growth over the past several years. According to IHS Technology, global solar installations reached 59 GW in 2015, a 35% increase over 2014, while growth in 2016 is expected to increase a further 17% to 69 GW (www.pv-tech.org; “IHS Forecasts Global Solar Market to Top 69 GW in 2016,” February 29, 2016).
The dominant PV technology, used in approximately 90% of installations, is wafer-based crystalline silicon, with thin-film technologies accounting for approximately 10% of the PV market, according to the MIT Energy Initiative. However, current c-Si technologies have inherent technical limitations, including high processing complexity and low intrinsic light absorption, which requires a thick silicon wafer, resulting in rigidity and heavy weight, according to the MIT Energy Initiative. We believe these form factor constraints largely limit the addressable market for crystalline silicon-based to rooftop and utility-scale installations.
NanoFlex plans to initially focus its GaAs technologies on applications that are not well-served by crystalline silicon-based solar panels and are suited for high power, thin film solar solutions. These markets include aerospace (space vehicles and unmanned aerial vehicles), mobile and field generation, and building integrated photovoltaics (“BIPV”) and building applied photovoltaics (“BAPV”), where high efficiency GaAs thin films can be applied to multi-story rooftops as well as building facades. Likewise, the Company will focus its OPV technologies on BIPV solutions where its highly flexible form factor and semi-transparency add value, such as glazing applications, including skylights, curtain walls, facades, and windows.
Global BIPV installations were 1.6 GW in 2014 and are projected to increase to 2.6 GW in 2019, according to BCC Research (BCC Research, “Building Integrated Photovoltaics (BIPV): Technologies and Global Markets,” January 2015). We expect adoption of BIPV solutions will be driven in part by Net Zero Energy Building (“NZEB”) regulations, which require buildings to produce as much energy as it uses over the course of a year. NZEB goals are achieved through a combination of energy efficiency measures and onsite renewable energy generation. The California Public Utilities Commission (“CPUC”) has set several NZEB goals, including targeting all new residential construction and all new commercial construction within the State to be net zero energy by 2020 and 2030, respectively and 50% of existing buildings will be retrofit to NZEB by 2030 (California Public Utilities Commission, “CPUC/IOU Zero Net Energy Building Activities: Setting the Stage,” May 18, 2015).
Competition
NanoFlex is focused on developing commercializing and licensing advanced solar technologies that will enable entry of solar PV into new applications and also eventually compete with established solar technologies in traditional solar markets. As a technology licensor, we believe our competitive exposure is somewhat insulated from industry dynamics, because we aim to partner with key industry participants and license our technology. Additionally, our licensing business model does not require us to directly establish high-volume manufacturing, which is a key competitive factor for product-based companies.
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The solar photovoltaic sector is highly competitive, characterized by intense price competition among commercialized technologies and aggressive investment in emerging technologies as companies attempt to compete within the solar markets as well as within the overall electric power industry. The current solar market is dominated by crystalline silicon (“c-Si”) technology, with some penetration by Cadmium Telluride (“CdTe”) and Copper Indium Gallium Selenide (“CIGS”) thin film technologies, according to SolarBuzz (www.solarbuzz.com). Crystalline silicon solar cells are produced at massive scale and have established a low-cost position within the rooftop and utility-scale photovoltaics markets. Advanced solar technology development efforts encompass various multiple technology platforms at various stages of development.
We believe our technologies will compete with established technologies as well as advanced technologies under development by other organizations primarily on a basis of cost and performance, which is typically measured as cost per watt, largely a function of production costs and power conversion efficiency. Within emerging applications, we anticipate our technologies will compete primarily with advanced technologies on a basis of cost and performance, and also functionality and aesthetics as we attempt to open new markets to solar power. Additionally, we believe that we will compete with other research and development organizations for funding from government agencies, laboratories, research institutions, and universities. Some of our existing or future competitors may be part of larger corporations that have greater financial resources than we do and, as a result, may be better positioned to adapt to changes in the industry or the economy as a whole.
GaAs solar technologies have been limited to specialty, niche applications due to their high costs; although numerous research efforts are focused on reducing manufacturing costs. Within the GaAs solar sector, there are a small number of manufacturers, including Spectrolab, a subsidiary of Boeing; SolAero Technologies, Azur Space (Germany), MicroLink Devices, and Alta Devices (acquired by Hanergy Thin Film). Spectrolab, SolAero, and Azur produce commercial GaAs solar cells for highly specialized applications such as military and space-borne systems, which are inelastic to the high prices associated with the technology. Some of these companies are attempting to reduce manufacturing costs to enable entry of GaAs-based solar technologies into commercial terrestrial markets. We believe NanoFlex’s patented GaAs ND-ELO™ and mini-concentration technologies present the opportunity to significantly reduce the cost for GaAs solutions and believe that we could potentially license our technology to these companies.
OPV technologies remain in the development stage, with numerous activities ongoing among government laboratories, universities, and private enterprises. Currently, we are not aware of any commercialized OPV technologies, but we believe there are a limited number of developers planning introduction within the next several years.
Ongoing research and development on OPV materials and devices are currently being performed by Heliatek (Dresden, Germany), Mitsubishi Chemical Holdings Corporation, LG Chemical, and BELECTRIC OPV (Kolitzheim, Germany), Solvay (Brussels, Belgium; acquired Plextronics), Polyera (Skokie, Illinois), and Solarmer Energy (El Monte, California), among others. Research institutions may also become our competitors, such as University of California, Los Angeles, University of California, Berkley, Fraunhofer-Institut fur Solare Energiesysteme (ISE), Empa, a Swiss federal laboratory for materials science and technology. We believe NanoFlex’s exclusive Intellectual Property, rights surrounding technologies for small molecule OPVs present a formidable obstacle for those wishing to compete with us and present opportunities for potential partnerships.
Employees
Currently, the Company employees consist of four full-time personnel – our Chief Executive Officer; Chief Financial Officer; Executive Vice President, Secretary and Treasurer; and Senior Process Engineer. Our Chief Technology Officer works on a part-time basis as a consultant. Depending on the availability of capital, the Company plans to expand its engineering team, hiring process and product engineers to facilitate technology transfer and commercialization. The Company’s engineering team is augmented by numerous post-doctoral fellows and PhD candidates that are employed in our sponsored university research programs at USC and Michigan.
Risks Related to the Company
WE ARE PRESENTLY SOLELY DEPENDENT ON RAISING CAPITAL TO MAINTAIN THE COMPANY, OUR PATENT PORTFOLIO, RESEARCH AND DEVELOPMENT ACTIVITIES AND EFFORTS TO COMMERCIALIZE OUR TECHNOLOGIES .
We are currently in the development stage and have not yet commercialized any of our technologies nor have we licensed any of our technologies or sold any products, and have only generated limited revenues and are solely dependent on raising capital. We currently need to raise capital in order to maintain the Company, our patent portfolio, research and development activities and efforts to commercialize our technologies, as well as to make payments on our approximately $7.2 million in liabilities, excluding derivative liabilities.
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There can be no assurance that we will be able to raise the capital that we need or that if we can, that it will be available on terms that are acceptable to the Company and its shareholders or which would not substantially dilute existing shareholders’ interests. If we fail to raise sufficient capital, we will be unable to maintain the Company, or our patents or commercialize our technologies which may result in a total loss of shareholders’ investments.
The Company has incurred, and expects to continue to incur, significant losses as we SEEK TO COMMERCIALIZE OUR TECHNOLOGIES
The Company’s operating subsidiary was incorporated under the laws of the Commonwealth of Pennsylvania in February 1994. We have been a development-stage company since that time, and have only generated limited revenues to date. Since the Company’s incorporation we have incurred significant losses. We expect that our expenditures will increase to the extent we seek to continue to develop strategic partnerships to commercialize our products. We expect these losses to continue until such time, if ever, as we are able to generate sufficient revenues from the commercial exploitation of our OPV and GaAs technologies to support our operations. Our OPV and GaAs technologies may never be incorporated in any commercial applications. We have encountered and will continue to encounter risks and difficulties frequently experienced by early, commercial-stage companies in rapidly evolving industries. If we do not address these risks successfully, our business will suffer. The Company may never be profitable. We may be unable to satisfy our obligations solely from cash generated from operations. If, for any reason, we are unable to make required payments under our obligations, one or more of our creditors may take action to collect their debts. If we continue to incur substantial losses and are unable to secure additional financing, we could be forced to discontinue or further curtail our business operations; sell assets at unfavorable prices; refinance existing debt obligations on terms unfavorable to us; or merge, consolidate or combine with a company with greater financial resources in a transaction that may be unfavorable to us.
THERE IS DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FINANCING AND FORCE US TO CEASE OPERATIONS.
In their audit reports for the fiscal year 2015 and 2014, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern. The Company has a working capital deficit of $28,065,878 resulting from current liabilities of $28,168,610 and current assets of $102,732 and an accumulated deficit of $204,989,355 as of December 31, 2015. As of the date of this report, we have generated revenues of $119,998 in the fourth quarter of 2015, and we lack sufficient capital to fund ongoing operations including our research and development activities and for maintenance of our patent portfolio. The Company has funded its initial operations primarily by way of sale of equity securities, convertible note financing, short term financing from private parties, and advances from related parties. We anticipate that we will continue to experience net operating losses and the continuation of our business and servicing existing liabilities at the present time are dependent solely on raising capital.
Our net operating losses require that we finance our operations from outside sources through funding from the sale of our securities. If we are unable to obtain such additional capital, we will not be able to sustain our operations and would be required to cease our operations. Investors should consider this when determining if an investment in our company is suitable.
Even if we do raise sufficient capital and generate sufficient revenues to support our operating expenses, there can be no assurance that the revenue will be sufficient to enable us to develop our business to a level where it will generate sufficient profits and cash flows from operations, or provide a return on investment. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders and the trading price of our common stock could be adversely affected. Further, if we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to continue as a going concern, our shareholders may lose their entire investment.
The Company is In Arrears ON Payments to Certain Critical Vendors and May Not Have Sufficient Capital to Pay Such Vendors in the future WHICH COULD NEGATIVELY IMPACT THE COMPANY’s BUSINESS.
The Company is currently in arrears with regard to payments to certain of its vendors and may not have sufficient capital to pay such Vendors in the short term or long term future. If the Company continues to fall behind on these payments and if the Company is unable to ultimately pay its vendors, the vendors may stop providing critical services to the Company and may act to repossess critical items already provided to the Company that the Company needs to remain in business. Additionally, if the Company’s vendors remain unpaid they may seek to recover payments owed to them by bringing legal claims for such payments against the Company. The Company may not be able to successfully defend these claims which may lead to the Company being ordered to pay such amounts by a court of lawful jurisdiction which could have a negative effect on the Company’s business operations.
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Our inability to achieve and sustain profitability could cause us to go out of business and for OUR SHAREHOLDERS to lose THEIR entire investment.
We are a development-stage company, and have only generated limited revenues to date. We cannot provide any assurance that any of our business strategies will be successful or that future growth in revenues or profitability will ever be achieved or, if they are achieved, that they can be consistently sustained or increased on a quarterly or annual basis. If we are unable to grow our business sufficiently to achieve and maintain positive net cash flow, the Company may not be able to sustain operations and our investors’ entire investment may be lost.
The solar energy industry is an emerging market that is constantly evolving and may not develop to the size or at the rate we expect.
The solar energy industry is an emerging and constantly evolving market. The solar energy industry may take several years to fully develop and mature, and we cannot be certain that the market will grow at the rate we expect. Any future growth of the solar energy market and the success of our solar business depend on many factors beyond our control, including recognition and acceptance of the solar service market by consumers, the pricing of alternative sources of energy and our ability to commercialize our solar technologies effectively. If the markets for solar energy do not develop at the rate we expect, our business may be adversely affected. Solar energy has yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits and other incentives from federal, state and local governments. If this support diminishes, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. Such funding limitations could lead to inadequate financing to support our business and could cause our shareholders to lose their entire investment.
THE SUCCESS OF THE COMPANY IS DEPENDENT IN PART on market acceptance of thin-film SOLAR technology.
The success of the Company’s business is dependent in part on market acceptance of thin-film solar technology. Thin-film technology has a limited operating history making it difficult to predict a level at which the technology is competitive with other energy sources without government subsidies. If thin-film technology performs below expectations or if it does not achieve cost competitiveness with conventional or other solar or non-solar renewable energy sources without government subsidies, it could result in the failure of the technology to be widely adopted in the market. This could significantly affect demand for thin-film solar technologies and negatively impact our business.
The Company may never develop OR LICENSE a product that uses its organic photovoltaic (OPV) or gallium arsenide technologies.
We have devoted substantially all of our financial resources and efforts to developing our OPV™ technologies and identifying potential users of our technologies. Development and commercialization of the photovoltaic technologies is a highly speculative undertaking and involves a substantial degree of uncertainty. Neither the Company nor anyone else has developed any product that uses our OPV™ technologies, nor has the Company licensed its OPV™ or GaAs technologies to anyone else who has developed such a product. The Company may never develop a commercially viable use for those technologies, may never achieve commercially viable performance for our OPV™ technologies and may never license our OPV™ or GaAs technologies to anyone. Even if the Company or a licensee of the Company does develop a commercially viable product or use, the product may never become profitable, either because it is not developed quickly enough, it is not developed to meet industry standards, or because no market for the product is identified, or otherwise.
Our business is based on new and unproven technologIES, and if our OPV™ or gallium arsenide technologies fail to achieve the performance and cost metrics that we ANTICIPATE, then we may be unable to develop demand for our products and generate sufficient revenue to support our operations.
Our OPV™ and GaAs technologies are new and unproven at commercial scale production, and such technologies may never gain market acceptance, if they do not compare favorably against competing products on the basis of cost, quality, efficiency and performance. Our business plan and strategies assume that we will be able to achieve certain milestones and metrics in terms of throughput, uniformity of cell efficiencies, yield, cost and other production parameters. We cannot assure you that our technologies will prove to be commercially viable in accordance with our plan and strategies. Further, we or our strategic partners and licensees may experience operational problems with such technology after its commercial introduction that could delay or defeat the ability of such technology to generate revenue or operating profits. If we are unable to achieve our targets on time and within our planned budget, then we may not be able to develop adequate demand for our OPV and GaAs technologies, and our business, results of operations and financial condition could be materially and adversely affected.
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We may not reach profitability if OPV technology is not suitable for widespread adoption or sufficient demand for OUR OPV or inorganic gallium arsenide TECHNOLOGIES does not develop or develops slower than we anticipate.
The solar energy market is at a relatively early stage of development and the extent to which solar PV products based on our technologies will be widely adopted is uncertain. If our OPV and GaAs technologies prove unsuitable for widespread adoption or demand for our OPV and GaAs technologies fails to develop sufficiently, we may be unable to grow our business or generate sufficient revenue from operations to reach profitability or maintain our business. In addition, demand for solar modules in our targeted markets may not develop or may develop to a lesser extent than we anticipate. Many factors may affect the viability of widespread adoption of solar photovoltaic technology and demand for our OPV and GaAs products, including the following:
| ● | performance and reliability of solar modules and thin film technology compared with conventional and other non-solar renewable energy sources and products; |
| ● | cost-effectiveness of solar modules compared with conventional and other non-solar renewable energy sources and products; |
| ● | availability of government subsidies and incentives to support the development of the solar photovoltaic industry; |
| ● | success of other renewable energy generation technologies, such as hydroelectric, wind, geothermal, solar thermal, concentrated photovoltaic and biomass; |
| ● | fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the price of oil and other fossil fuels; |
| ● | fluctuations in capital expenditures by end-users of PV systems, which tend to decrease in slower economic environments, periods of rising interest rates, or a tightening of the supply of capital; and |
| ● | deregulation of the electric power industry and the broader energy industry. |
If we do not reach profitability because our photovoltaic technology is not suitable for widespread adoption or due to insufficient or timely demand for solar photovoltaic modules, our financial condition and business could be materially and adversely affected.
Our industry has historically been cyclical and experienced periodic downturns.
Our future success partly depends on continued demand for solar photovoltaics (“PV”) systems in the solar energy markets, including in the United States and internationally. The solar equipment industry has historically been cyclical and has experienced periodic downturns which may affect the demand for our solar technologies. The solar industry has undergone challenging business conditions, including downward pricing pressure for PV modules, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases. There is no assurance that the solar industry will not suffer significant downturns in the future, which may adversely affect demand for our solar technologies and our operations.
Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar Photovoltaic products, which may significantly reduce demand for our TECHNOLOGIES.
The market for electricity generation products is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end-user purchases of photovoltaic products and investment in the research and development of photovoltaic technology. For example, without a mandated regulatory exception for photovoltaic systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. If these interconnection standby fees were applicable to photovoltaic systems, it is likely that they would increase the cost to our end-users of using photovoltaic systems which could make them less desirable, thereby harming our business, prospects, results of operations and financial condition. In addition, electricity generated by photovoltaic systems mostly competes with expensive peak hour electricity, rather than the less expensive average price of electricity. Modifications to the peak hour pricing policies of utilities, such as to a flat rate for all times of the day, would require photovoltaic systems to achieve lower prices in order to compete with the price of electricity from other sources.
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We anticipate that the installation of products based on our OPV and GaAs technologies will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar modules may result in significant additional expenses to us, our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar modules.
Environmental obligations and liabilities could have a substantial negative impact on our business and financial condition.
The solar energy industry is subject to heavy laws, rules and regulations, some of which pertain to environmental concerns. The solar energy industry can involve the use handling, generation, processing, storage, transportation, and disposal of hazardous materials which are subject to extensive environmental laws and regulations at the national, state, local, and international levels. These environmental laws and regulations include those governing the discharge of pollutants into the air and water, the use, management, and disposal of hazardous materials and wastes, the cleanup of contaminated sites, and occupational health and safety. As the Company proceeds to seek to develop and commercialize its solar technologies, we and our potential license partners will have to comply with applicable environmental requirements, future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of presently unknown environmental conditions may require expenditures that could have a material adverse effect on our business, results of operations, and financial condition.
Our success is dependent on key personnel of the Company, whom we may not be able to retain or hire.
Our business relies heavily on the efforts and talents of our researchers and our management. The development and application of our technologies originated and will greatly depend on the research by Dr. Mark E. Thompson and Dr. Stephen R. Forrest. None of our researchers or executives is currently insured for the benefit of the Company by key man life insurance. The loss of the services of any of these persons could result in material adverse effect to the development and commercialization of our technologies. Competition for experienced researchers and management personnel in the photovoltaic sector is intense, the pool of qualified candidates is very limited, and we may not be able to attract qualified candidates or retain the services of those already engaged, which could significantly negatively impact our business.
We may be unable to protect our intellectual property RIGHTS or keep up with that of our competitors .
We regard our intellectual property rights as highly valuable to our business strategy, and intend to rely on the maximum protection provided by law to protect our rights. We have entered into and continue to use confidentiality agreements with our employees and contractors and, to the extent practicable, nondisclosure agreements with our suppliers and strategic partners in order to limit access to and disclosure of our information. We cannot be sure that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or deter independent third-party development of similar technologies. Our failure to protect our intellectual property rights could put us at a competitive disadvantage in the future. Any such failure could have a materially adverse effect on our future business, results of operations and financial condition. We intend to defend vigorously our intellectual property against any known infringement, but such actions could involve significant legal fees, and we have no guarantee that such actions will be resolved entirely in our favor. We also cannot be sure that any steps taken by us will be adequate to prevent misappropriation or infringement of our intellectual property.
We also intend to sell and/or license our products and technology in countries worldwide, including some with limited ability to protect intellectual property of products and services sold in those countries by foreign firms. We cannot be sure that the steps taken by us will be adequate to prevent misappropriation or infringement of our intellectual property in these countries.
WE MAY NOT HAVE SUFFICIENT FUNDS AND MAY NEED ADDITIONAL CAPITAL TO PROTECT AND MAINTAIN OUR INTELLECTUAL PROPERTY RIGHTS.
The Company’s sponsored research has resulted in an extensive portfolio of issued and pending U.S. patents, plus their foreign counterparts, which are in the names of our sponsored research partners, USC, Princeton and Michigan. NanoFlex has the exclusive commercial rights to these intellectual property rights and the obligation to maintain, defend and fund the defense of these patents. The Company has only generated limited revenues from its operating business and it expects to have limited cash flow in the near future. In the event of filing infringement lawsuits or defending any infringement suits that are filed against the Company, relevant expenses and fees will increase substantially therefore harm our profitability. We may need to raise additional funds to protect and maintain our intellectual property rights.
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If we are unable to successfully maintain or license existing patents, our ability to generate revenues could be substantially impaired.
Our business model is to license or sublicense our proprietary OPV™ and GaAs technologies to partners and customers in the photovoltaic industry, and the Company is currently entitled to the exclusive right to license an extensive portfolio of issued and pending U.S. patents, plus their foreign counterparts. Our ability to be successful in the future therefore will depend on our continued efforts and success in licensing existing patents, including maintaining and prosecuting our patents properly. If we are unable to successfully maintain and license our existing patents, our ability to generate revenues could be substantially impaired and our business and financial condition could be materially and adversely impacted.
The Company’s proprietary rights with regard to its OPV™ and gallium arsenide technologies may be challenged.
As part of the sponsored research program, the Company has obtained exclusive rights to an extensive portfolio of issued and pending U.S. patents, plus their foreign counterparts relating to advanced thin-film photovoltaic technologies. The Company may obtain rights to additional patents and patent applications under its Sponsored Research Agreements. However, additional patent applications may never be filed and the Company may never obtain any rights to such applications. Any patent applications now pending or filed in the future may not result in patents being issued. Any patents now licensed to the Company, or licensed to us in the future, may not provide the Company with any competitive advantages or prove enforceable. The Company’s rights to these patents may be challenged by third parties. The cost of litigation to uphold the validity, or to prevent infringement of patents and to enforce licensing rights can be substantial and beyond the Company’s financial means. Furthermore, others may independently develop similar technologies or duplicate our OPV and GaAs technologies licensed to the Company or design around the patented aspects of such technology. In addition, there can be no assurance that the products and technologies the Company will seek to commercialize will not infringe patents or other rights owned by others, or that licenses for other’s technology will be available.
Competition is intense in the energy industry.
The global energy industry is presently dominated by hydrocarbon, hydroelectric and nuclear-based technologies, and therefore our solar energy-based technologies will primarily compete against the providers of these established energy sources. However, we also compete directly against large multinational corporations (including global energy suppliers and generators) and numerous small entities worldwide that are pursuing the development and commercialization of renewable and non-renewable technologies that might have performance and/or price characteristics similar or even superior to our OPV and GaAs technologies. Most of our current competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience than we do. We also expect that new competitors are likely to join existing competitors in this industry.
The Company’s attempt to develop commercially viable technologies based on Company-funded research will also encounter competition from other academic institutions and/or governmental laboratories, which are conducting or funding research in alternative technologies similar to our OPV and GaAs technologies. These academic institutions and/or governmental laboratories likely will have financial resources substantially greater than the resources available to the Company. Given the foregoing competitive environment, the Company cannot determine at this time whether it will be successful in its development and commercialization efforts or whether such efforts, even if successful, will be commercially viable and profitable.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY GENERAL ECONOMIC CONDITIONS WHICH MAY NEGATIVELY AFFECT OUR ABILITY TO BE PROFITABLE.
Our business could be adversely affected in a number of ways by general economic conditions, including higher interest rates, consumer credit conditions, unemployment and other economic factors. During economic downturns, we may have greater difficulty in gaining new customers for our products and services. Our strategies to acquire new customers may not be successful, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
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WE WILL NEED ADDITIONAL CAPITAL TO FUND OUR GROWTH; WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL ON REASONABLE TERMS AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
If adequate additional financing is not available to us, or if available, it is not available on reasonable terms, we may not be able to fund our future operations and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us.
If we cannot obtain additional funding, we may be required to: (i) limit internal growth (ii) limit the recruitment and retention of additional key personnel, and (iii) limited acquisitions of businesses and technology. Such reductions could materially adversely affect our business and our ability to compete.
Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
There is competition betweeN manufacturers of crystalline silicon solar modules, as well as thin-film solar modules and solar thermal and concentrated PV systems; if global supply exceeds global demand, it could lead to a reduction in the demand and price for PV modules, which could adversely affect our business.
The solar energy and renewable energy industries are highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with the larger electric power industry. Within the global photovoltaics (“PV”) industry, there is competition from crystalline silicon solar module manufacturers, other thin-film solar module manufacturers and companies developing solar thermal and concentrated PV technologies. Existing or future solar manufacturers might be acquired by larger companies with significant capital resources, thereby intensifying competition. This intensified competition can lead to a large amount of supply which can exceed the demand. Even if demand for solar modules continues to grow, the rapid manufacturing capacity expansion undertaken by many solar module manufacturers, particularly manufacturers of crystalline silicon solar modules, has created and may continue to cause periods of structural imbalance during which supply exceeds demand. We anticipate that competitors will continue to develop competing solar PV technologies and will attempt to commercialize these technologies. If these competing technologies present a compelling value proposition or are available to market sooner than our technologies, then our market opportunity could diminish.
Our business and financial results may be harmed as a result of increases in MATERIALS AND COMPONENT costs.
the cost of raw materials and key components associated with our technologies could increase in the future due to a variety of factors, including trade barriers, export regulations, regulatory or contractual limitations, industry market requirements and changes in technology and industry standards. If we are unable to adjust our cost structure in the future to deal with potential increases in costs, we may not be able to achieve profitability, which could have a material adverse effect on our business and prospects.
Developments in alternative technologies or improvements in distributed solar energy generation may have a material adverse effect on our business.
Significant developments in alternative technologies, such as advances in other forms of distributed solar PV power generation, storage solutions such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production may have a material adverse effect on our business and prospects. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products and lack of revenues.
A drop in the retail price of conventional energy or non-solar alternative energy sources may negatively impact our profitability.
We believe that an end customer’s decision to purchase or install solar energy is primarily driven by the cost and return on investment resulting from solar energy. Fluctuations in economic and market conditions that affect the prices of conventional and non-solar alternative energy sources, such as decreases in the prices of oil and other fossil fuels, could cause the demand for solar power systems to decline, which would have a negative impact on our business.
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If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our Common Stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. The Company currently does not have an audit committee. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.
Risks Related to Our SECURITIES
OUR SHARES ARE CLASSIFIED AS A “PENNY STOCK” AS THAT TERM IS GENERALLY DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934 TO MEAN EQUITY SECURITIES WITH A PRICE OF LESS THAN $5.00. OUR SHARES ARE SUBJECT TO RULES THAT IMPOSE SALES PRACTICE AND DISCLOSURE REQUIREMENTS ON BROKER-DEALERS WHO ENGAGE IN CERTAIN TRANSACTIONS INVOLVING A PENNY STOCK.
We are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor.
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability are subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
We will incur significant costs to ensure compliance with United States corporate governance and accounting requirements.
We will incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
In order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result in substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of our securities outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our common stock. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.
We are not likely to pay cash dividends in the foreseeable future.
We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate.
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THERE IS doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing and force us to cease operations which COULD LEAD TO OUR SHAREHOLDERS LOSING THEIR ENTIRE INVESTMENT.
The Company is currently in the development stage and has not sold any products nor licensed any of its technologies and has only generated limited revenues to date. Our ability to continue as a going concern is an issue because to date, we have incurred net operating losses. We anticipate that we will continue to experience net operating losses.
Our net operating losses will require that we finance our operations from outside sources, such as obtaining additional funding from the sale of our securities. If we are unable to obtain such additional capital, we will not be able to sustain our operations and would be required to cease our operations. You should consider this when determining if an investment in our Company is suitable.
Even if we do raise sufficient capital and generate revenues to support our operating expenses, there can be no assurance that the revenue will be sufficient to enable us to develop our business to a level where it will generate profits and cash flows from operations, or provide a return on investment. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders and the trading price of our common stock could be adversely affected. Further, if we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to continue as a going concern, you may lose your entire investment.
There has been A LIMITED TRADING market for our Common Stock which may impair your ability to sell your shares.
Although on July 13, 2015, the Company’s Common Stock began actively trading; there is a limited trading market for the Common Stock in the over-the-counter market. The lack of an active market will impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market will also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using Common Stock as consideration.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
In April 2012, the President signed into law the Jumpstart Our Business Startups Act, or the JOBS Act. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for “emerging growth companies,” including certain requirements relating to accounting standards and compensation disclosure. We are classified as an emerging growth company. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes Oxley Act of 2002, (2) comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, (4) provide certain disclosure regarding executive compensation required of larger public companies or (5) hold shareholder advisory votes on executive compensation.
Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.
Under the JOBS Act we have elected to use an extended period for complying with new or revised accounting standards.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1), which allows us to delay adoption of new or revised accounting standards that have different effective dates for public and private until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
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The Company’s executive offices are currently located at 17207 N. Perimeter Dr., Suite 210, Scottsdale, AZ 85255 and it started leasing its offices from DTR10, LLC on November 15, 2013. The office space is approximately 3,077 square feet. Its monthly rental is $6,916 is subject to 3% increases in the following years.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
On March 18, 2015, the Company received correspondence from the counsel of Mr. John Kuhns, the Company’s former Co-CEO and Executive Chairman alleging that Mr. Kuhns has “Good Reason” to terminate his Employment Agreement for an alleged failure to pay his salary in full. On March 30, 2015, Mr. Kuhns advised that if the alleged breaches of the Employment Agreement were not cured there was a possibility that he would pursue litigation
As of March 30, 2015, shareholders holding approximately 67.26% of the total shares of common stock of the Company that are entitled to vote on all Company matters approved by written consent the removal of John D. Kuhns from his position as a member of the Company’s Board of Directors. Mr. Kuhns’ removal was for “Cause” as defined under his Employment Agreement as amended and dated as of October 1, 2013 (the “Employment Agreement”). The removal arose as a result of his documented conduct and statements, which breached his fiduciary duties to the Company in order to advance personal monetary and other interests, and thereby threatened serious financial injury to the Company, its shareholders and its debtholders. On March 31, 2015, the Board of Directors terminated the Employment Agreement with Mr. Kuhns for Cause and removed him from his positions as Co-CEO, and from all other officer positions he held with the Company and its subsidiaries and affiliates, and all director positions with the Company’s subsidiaries and affiliates.
On April 24, 2015, the Company received a letter from Mr. Kuhns’ counsel (the “Response Letter”) stating that Mr. Kuhns disagreed with statements in the Initial Filing regarding the circumstances of his removal as a director and officer.
The Response Letter was accompanied by a copy of a complaint (the “Complaint”) filed by John D, Kuhns (the “Plaintiff”) in the United States District Court Southern District of New York against the Company, Mr. Dean L. Ledger, our current CEO and member of our Board of Directors, Mr. Robert J. Fasnacht, our current Executive Vice President and member of our Board of Directors and Mr. Ronald B. Foster, a shareholder of the Company (each, a “Defendant,” collectively, the “Defendants”). The Complaint alleges, among other things, that the Plaintiff was terminated by the Company in violation of Section 922 of the Dodd-Frank Act, that the Company wrongfully terminated the Employment Agreement, that the Defendants made false statements to shareholders regarding the Plaintiff, that the Defendants (other than the Company) tortuously interfered with the Plaintiff’s Employment Agreement, and that Mr. Ledger and Mr. Fasnacht breached their fiduciary duties to the Company and its shareholders.
The Plaintiff seeks monetary damages, including (i) two (2) times of the alleged owed compensation to him, together with interest as well as litigation costs, expert witness fees and reasonable attorneys’ fees; (ii) damages for the alleged breach of the Employment Agreement by the Company, estimated to be at least $2 million, plus interest and attorney’s fees; (iii) an unspecified amount for his alleged libel claim; and (iv) damages for the alleged tortious interference with contract, including punitive damages of at least $2 million. The Plaintiff is also seeking a declaratory judgment, claiming that he was not terminated as a director and should continue to hold a seat on the Company’s Board of Directors.
On September 3, 2015 the Company filed a Motion to Dismiss portions of the Complaint in the United States District Court Southern District of New York. The Company believes that the allegations in the Complaint to be without any merit and will vigorously defend against the claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Beginning July 13, 2015, our common stock is traded on the OTC Market Group Inc.’s OTCQB, under the symbol “OPVS.” Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects.
OTCQB securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions are conducted through a telephone and computer network connecting dealers in stocks.
For the periods indicated, the following table sets forth the high and low sales prices for our common stock:
| Fiscal Year 2014 | High | Low | ||||||
| First Quarter | $ | - | $ | - | ||||
| Second Quarter | $ | - | $ | - | ||||
| Third Quarter | $ | - | $ | - | ||||
| Fourth Quarter* | $ | - | $ | - | ||||
| Fiscal Year 2015 | High | Low | ||||||
| First Quarter | $ | - | $ | - | ||||
| Second Quarter | $ | - | $ | - | ||||
| Third Quarter | $ | 10.00 | $ | 1.35 | ||||
| Fourth Quarter | $ | 3.00 | $ | .78 | ||||
*As of December 31, 2014 the first and only trade of the Company’s Common Stock was on October 29, 2013 and was for $0.0167 per share.
Common Stock
As of the date of this Report, the Company had 55,854,735 shares of Common Stock issued and outstanding. The Company’s Common Stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any Preferred Stock. Holders of the Company’s Common Stock representing fifty percent (50%) of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of the Company’s stockholders. The Company’s Articles of Incorporation do not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred Stock created by the Company’s Board of Directors from time to time, the holders of shares of the Company’s Common Stock will be entitled to such cash dividends as may be declared from time to time by the Company’s Board of Directors from funds available therefore.
Subject to any preferential rights of any outstanding series of Preferred Stock created from time to time by the Company’s Board of Directors, upon liquidation, dissolution or winding up, the holders of shares of the Company’s common stock will be entitled to receive pro rata all assets available for distribution to such holders.
Holders of the Company’s common stock have no preemptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Holders
As of December 31, 2015, we had 51,473,157 shares of our common stock par value, $.0001 issued and outstanding. There were approximately 731 beneficial owners of our common stock.
Transfer Agent and Registrar
VStock Transfer, LLC at 18 Lafayette Place, Woodmere, New York 11598 is the registrar and transfer agent for our common stock. Their telephone number is (212) 828-8436.
Warrants
There were outstanding warrants to purchase a total of 40,026,431 shares of our common stock as of December 31, 2015. Each warrant shall be exercisable at any time and from time to time as provided in the warrant. The exercise prices of the outstanding warrants range from $0.50 to $17.50 per share.
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Options
There were options to purchase a total of 50,000 shares of our Common Stock issued and outstanding as of December 31, 2015. The exercise prices of the outstanding options are $0.50 per share.
Penny Stock Regulations
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock, when and if a trading market develops, may fall within the definition of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 individually, or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. In addition, the broker-dealer must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.
In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the investors’ ability to buy and sell our stock.
Dividend Policy
Any future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our board of directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. Our board of directors currently intends to retain all earnings for use in the business for the foreseeable future.
Securities authorized for issuance under equity compensation plans
On September 24, 2013 the directors of the Company unanimously approved the 2013 Equity Incentive Plan (the “Plan”) under which the Company has reserved a number of shares of its Common Stock equal to 10% of the Company’s fully diluted Common Stock for awards under the Plan of any stock option, stock appreciation right, restricted stock, performance share, or other stock-based award or performance-based cash awards under the Plan.
Unregistered Sales of Equity Securities
Issuance Pursuant to Exercise of Warrants
During January 5 through March 16, 2015, the Company issued a total of 649,650 shares of Common Stock as a result of the exercise of the Company’s warrants by some warrant holders.
During April 28, 2015 through June 9, 2015, the Company issued a total of 1,103,499 shares of Common Stock as a result of the exercise of the Company’s warrants by some warrant holders.
The above issuance of the Company’s securities were not registered under the Securities Act of 1933, as amended (the “1933 Act”), and the Company relied on an exemption from registration provided by Rule 506(b) of Regulation D promulgated under the 1933 Act for such issuances.
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Private Placement of the Company’s Notes
During the year ended December 31, 2015, the Company issued promissory notes to a shareholder in aggregate of $625,000. 1,250,000 cashless warrants for the Company’s common stock were issued with the debt at a strike price of $0.50 per share in lieu of cash interest. The relative fair value of the warrants of $418,332 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note.
During the year ended December 31, 2015, the Company issued a promissory note of $50,000. 100,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share in lieu of cash interest. The relative fair value of the warrants of $45,243 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note.
The above issuance of the Company’s securities were not registered under the 1933 Act, and the Company relied on an exemption from registration pursuant to Section 4(2) of the 1933 Act for such issuances.
Private Placement of the Company’s Convertible Notes
In March 2015, the Company issued and sold convertible promissory notes together with warrants to purchase 700,000 shares of the Company’s Common Stock for gross proceeds of $700,000.
In June 2015, the Company issued and sold convertible promissory notes together with warrants to purchase 530,000 shares of the Company’s common stock for gross proceeds of $530,000.
During the three months ended September 30, 2015, the Company issued and sold convertible promissory notes together with warrants to purchase 427,500 shares of the Company’s common stock for gross proceeds of $427,500.
On October 19, 2015, 75,288 shares of the Company’s common stock were cancelled in exchange for convertible notes of $37,644 and the issuance of 37,644 warrants to purchase 37,644 shares of the Company’s common stock. The agreement was subsequently amended to include an additional 75,288 warrants to purchase 75,288 shares of the Company’s common stock.
During the three months ended December 31, 2015, the Company issued and sold convertible promissory notes together with warrants to purchase 448,905 shares of the Company’s common stock for gross proceeds of $448,905.
The above issuance of the Company’s securities were not registered under the 1933 Act, and the Company relied on an exemption from registration provided by Rule 506(b) of Regulation D promulgated under the 1933 Act for such issuances
Issuance of Units
During the year ended December 31, 2015, the Company sold an aggregate of 86,000 units, respectively, at $1.00 per unit for aggregate proceeds of $86,000. Each unit consisted of one common share and one warrant. Each warrant is exercisable for a period of five years from the date of issuance, at $1.00 per share.
On December 9, 2015, the Company issued units which consisted of 100,000 shares and warrants to purchase 250,000 shares of its common stock exercisable at $0.50 per share and a term of 10 years in exchange for total proceeds of $50,000. The Company allocated the gross proceeds of $50,000 between common stock and warrants based on their relative fair value, estimated on the date of grant, valued common stock and the warrants at $14,532 and $35,468, respectively.
The above issuance of the Company’s securities were not registered under the 1933 Act, and the Company relied on an exemption from registration provided by Rule 506(b) of Regulation D promulgated under the 1933 Act for such issuances.
Issuance of Common Stock
During the three months ended June 30, 2015, the Company issued 1,400,000 shares of its common stock related to the conversion of $700,000 of convertible notes.
During the three months ended September 30, 2015, the Company issued 1,515,190 shares of its common stock related to the conversion of $745,000 of convertible notes. Of the common shares issued, 25,190 shares related to the payment of interest of $12,595.
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During the three months ended December 31, 2015, the Company issued 408,040 shares of its common stock related to the conversion of $189,928 of convertible notes. Of the common shares issued, 28,184 shares related to the payment of interest of $14,092.
On November 6, 2015, the Company issued 350,000 shares of its common stock in exchange for services pursuant to a consulting agreement a copy of which is attached hereto as Exhibit 10.15.
The above issuance of the Company’s securities were not registered under 1933 Act, and the Company relied on an exemption from registration provided by Rule 506(b) of Regulation D promulgated under the 1933 Act for such issuances..
Issuance of Warrants Upon Note Conversion
During the three months ended September 30, 2015, the Company issued warrants to purchase 1,515,190 shares of its common stock related to the conversion of $745,000 of convertible notes. Of the common shares issuable upon exercise of the warrants, 25,190 shares related to the payment of interest of $12,595.
During the three months ended December 31, 2015, the Company issued warrants to purchase 408,040 shares of its common stock related to the conversion of $189,928 of convertible notes. Of the common shares issuable upon exercise of the warrants 28,184 shares related to the payment of interest of $14,092.
The above issuances of the Company’s securities were not registered under the 1933 Act, and the Company relied on an exemption from registration pursuant to Section 4(2) of the 1933 Act for such issuances.
Issuance of Stock Options
On December 23, 2015, 50,000 stock options were granted to an employee of the Company. The options vest on a monthly basis of 1,000 shares per month over a 50 month period. The options expire in 2025.
The above issuance of the Company’s securities were not registered under the Securities Act of 1933, as amended (the “1933 Act”), and the Company relied on an exemption from registration pursuant to Section 4(2) of the 1933 Act for such issuances.
Issuance of Warrants Not Tied to Note Investments
On September 1, 2015 the Company entered into an Employment Agreement (the “Employment Agreement”) with Mark Tobin in his capacity as the Company’s Chief Financial Officer. Pursuant to the Employment Agreement, on September 1, 2015 the Company issued Mr. Tobin warrants to purchase 1,500,000 shares of the Company’s common stock at $1.00 per share (the “Warrant Shares”). 375,000 of the Warrant Shares vested on September 1, 2015, an additional 375,000 warrant shares will vest on the first anniversary date of the Employment Agreement, an additional 375,000 warrant shares will vest on the second anniversary date of the Employment Agreement, and, an additional 375,000 warrant shares will vest on the third anniversary date of the Employment Agreement.
On November 4, 2015, the Company modified a service agreement and granted 2,400,000 warrants to purchase 2,400,000 shares of the Company’s common stock. The warrants will vest as follows: 1,200,000 warrants vest immediately, 600,000 warrants will vest 1-year from the amendment date, and the remaining 600,000 warrants will vest 2-years from the amendment date.
On November 5, 2015, the Company issued a warrant to purchase 3,000,000 shares of the Company’s $.0001 par value common stock to the Company’s Chief Executive Officer, Dean Ledger, in exchange for services already performed. These warrants are immediately vested.
On November 9, 2015, the Company issued a warrant to purchase 500,000 shares of the Company’s $.0001 par value common stock to Robert J. Fasnacht, our current Executive Vice President and member of our Board of Directors, in exchange for services already performed. These warrants are immediately vested.
The above issuance of the Company’s securities were not registered under the 1933 Act, and the Company relied on an exemption from registration pursuant to Section 4(2) of the 1933 Act for such issuances.
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Issuances Pursuant to Conversion Agreement
On January 22, 2016, the Company entered into a Note Conversion Agreement (the “Conversion Agreement”) with an investor (the “Investor”). A form of the Conversion Agreement was filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 27, 2016. Pursuant to the Conversion Agreement, the Investor converted his promissory notes in the Company, which totaled $2,000,000, into an investment of $2,000,000 into the Company’s private placement of convertible notes and warrants. For $2,000,000, the Investor received a convertible note (the “Convertible Note”) and a warrant to purchase 2,000,000 shares of Common stock (the “Warrant”). The Warrant has a ten year term and an exercise price of $0.50 per share. The Convertible Note accrued interest of 8% per annum, had a maturity date of one year and was convertible at $0.50 per unit, into units, with each unit consisting of a share of the Company’s Common Stock and a warrant to purchase a share of Common Stock with a ten year term and an exercise price of $.50 per share.
Pursuant to the Conversion Agreement, if the Investor converted the Convertible Note within thirty (30) days of its issuance, the Company was required to pay the Investor the interest under the Convertible Note in shares of its Common Stock as if the Investor did not convert the Convertible Note for a period of one (1) year from the date of issuance. On January 25, 2016 the Investor converted the Convertible Note into 4,320,000 shares of the Company’s Common Stock and a warrant to purchase 4,320,000 shares of the Company’s Common Stock with a ten year term and an exercise price of $.50. Of the 4,320,000 shares of Common Stock, 320,000 shares represent interest paid on the Convertible Note pursuant to the terms of the Conversion Agreement.
The securities issued pursuant to the Conversion Agreement as referenced above, were not registered under 1933 Act and the relied on the exemptions under Rule 506 of Section 4(a)(2) of the 1933 Act for such issuances and the Investor provided a written representation to the Company that he qualifies as an “accredited investor” as that term is defined in Rule 501 of Regulation D under the 1933 Act.
Except as disclosed above, all unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 8-K and the Company’s quarterly reports on Form 10-Q.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
We have not repurchased any shares of our common stock during the fiscal year ended December 31, 2015.
ITEM 6. SELECTED FINANCIAL DATA
Disclosure in response to this item is not required of a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected revenue, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
The "Company", "we," "us," and "our," refer to (i) NanoFlex Power Corporation and (ii) Global Photonic Energy Corporation.
Overview
NanoFlex Power Corporation is engaged in the development, commercialization, and licensing of advanced configuration solar technologies which enable unique thin-film solar cell implementations with industry-leading efficiencies, light weight, flexibility, and low total system cost. NanoFlex has the exclusive worldwide license to the intellectual property resulting from the Company's sponsored research programs, which have resulted in an extensive portfolio of issued and pending U.S. patents, plus their foreign counterparts. The patents are referred to herein as being the Company’s patents or as our “IP”. Building upon the sponsored research, the Company plans to work with industry partners to commercialize its technologies to target key applications where is believes products incorporating its technologies present compelling competitive advantages.
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The Company’s research programs have yielded two solar thin film technology platforms - Gallium Arsenide (GaAs) thin film technology for high power applications and organic photovoltaic (OPV) technology for applications demanding high quality aesthetics, such as semi-transparency and tinting and ultra-flexible form factors. These technologies are targeted at certain broad applications, including: (a) mobile and off-grid power generation, (b) building applied photovoltaics ("BAPV"), (c) building integrated photovoltaics ("BIPV"), (d) space vehicles and unmanned aerial vehicles ("UAVs"), (e) semi-transparent photovoltaic windows or glazing and (f) ultra-thin solar films or paints for automobiles or other consumer applications. Laboratory feasibility prototypes have been developed that successfully demonstrate key building block principles for these applications and the Company is working with industry partners to commercialize its technologies.
The Company currently hold exclusive rights to an extensive portfolio of issued and pending U.S. patents, plus their foreign counterparts, which cover architecture, processes and materials for flexible, thin-film organic photovoltaic (“OPV”) and Gallium Arsenide (“GaAs”) solar technologies. In addition, we have an extensive collection of patents in process. Some of our technology holdings include foundational concepts in the following areas.
| ● | Tandem organic solar cell |
| ● | Fullerene acceptors |
| ● | Blocking layers |
| ● | New materials for visible and infrared sensitivity |
| ● | Scalable growth technologies |
| ● | Inverted solar cells |
| ● | Materials for enhanced light collection via multi-exciton generation |
| ● | Mixed layer and nanocrystalline cells |
| ● | Solar films, coatings, or paints |
| ● | Semi-transparent cells |
| ● | Ultra-low cost, ultra-high efficiency, flexible thin film GaAs cells |
| ● | Accelerated and recyclable liftoff process |
| ● | Cold-weld bonding of GaAs solar cells to plastic substrates and metal foils |
| ● | Micro-inverters monolithically integrated into GaAs solar cells |
| ● | Low cost, thermo-formed plastic mini-compound parabolic concentrator arrays |
Plan of Operation and Liquidity and Capital Resources
Overall Operating Plan
NanoFlex plans to license or sublicense its intellectual property to industry partners and customers, rather than being a direct manufacturer of its technologies. These manufacturing partners can supply customers directly, but also serve as a source of solar cell supply for NanoFlex to provide products to customers on its own, particularly in the early stages of market development. This business model is oriented around licensing and sublicensing processes and technologies to large, well-positioned commercial partners who can provide manufacturing and marketing capabilities to enable rapid commercial growth.
We have made contact with major solar cell and electronics manufacturers world-wide and are finding commercial interest in both our GaAs and OPV technologies. We are seeking to work closely with those companies interested in our technology solutions to develop proof-of-concept prototypes and processes to mitigate commercialization risks and gain early market entry and acceptance.
A key to reducing the risk to market entry of our GaAs technologies by our partners is for us to demonstrate our technologies on their product designs and fabrication processes. To support this joint development, NanoFlex must establish its own developmental engineering team if we are available to raise the necessary capital. This team would serve several key functions, including working closely between the universities and our industry partners to integrate and customize our processes and technologies into the partner’s existing product designs and fabrication process. Our engineering team would also work closely with downstream partners such as military users for mobile field applications and system integrators, installers, and architects for BAPV and BIPV applications to better understand requirements and incorporate these requirements into our research and development cycle.
To support this work, NanoFlex’s developmental engineering team is able to utilize the facility and equipment onsite at the University of Michigan on a recharge basis, which will be cost effective in moving the technologies toward commercialization. This can allow a developmental engineering team to work directly with industry players to acquire early licenses to use our intellectual property without the need for any immediate standalone technology facility.
Additionally, having an established technical team can enable us to more effectively pursue and execute sponsored research projects from the DoD, the DOE, and NASA, each of which has interests in businesses that can deliver ultra-lightweight, high-efficiency technologies for demanding applications.
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A second potential revenue source is in JDAs with existing solar cell manufacturers. Once we are able to initially demonstrate the efficacy of our GaAs processes and technologies on partner’s fabrication process, we expect to be in a position where we can sign licenses covering further joint development, IP licensing, and solar cell supply. We anticipate that partnerships with one or more of the existing GaAs solar cell manufacturers can be supported by the developmental engineering team, and result in early revenue opportunities, as with our initial partner, SolAero.
Near Term Operating Plan
Our near-term focus is on focusing our efforts on advancing our development efforts while containing costs. The Company requires approximately $6 million to $8 million to continue its operations over the next twelve months to support its research, development, and commercialization activities, fund patent application and prosecution, service outstanding liabilities, and support its corporate functions. Our operating plan over the next twelve months is comprised of the following:
| 1. | Cost cutting and containment to reduce our annual burn rate; |
| 2. | Prioritizing our existing IP based on our technology development strategy to identify opportunities for cost reduction; |
| 3. | Closely aligning our research and development activities with near-term commercialization opportunities; |
| 4. | Partnering with strategic partners for licensing and/or joint development of our technologies; and |
| 5. | Raising adequate capital (approximately $6 million to $8 million) to support our activities for at least 12 months. |
In the event that we raise less than the required amount of capital, our focus will be on prioritizing our GaAs commercialization effort to capture near-term revenue opportunities and limiting spending on general and administrative expenses and patent costs.
There can be no assurance that our near term operating plan will be successful or that we will be able to fulfill it as it is largely dependent on raising capital and there can be no assurance that capital can be raised.
Results of Operations
For the years ended December 31, 2015 and December 31, 2014
Revenue
Revenue was $119,998 for the year ended December 31, 2015. This relates to engineering services provided under our joint development agreement. There was no revenue for the year ended December 31, 2014.
Cost of Services
Cost of services was $114,947 for the year ended December 31, 2015. This relates to expenses incurred as part of our services provided under our joint development agreement. There was no cost of services for the year ended December 31, 2014.
Research and Development Expenses
Research and development expenses were $2,325,539 for the year ended December 31, 2015, a 98% increase from $1,174,473 for the year ended December 31, 2014. The increase is attributable to non-cash expenses of $1,334,017 associated with warrants issued to a consultant during the year. This was partially offset by lower expense associated with out sponsored research activity.
Patent Application and Prosecution Fees
Patent application and prosecution fees consist of the fees due for prosecuting and maintaining the patents resulted from the research program sponsored by NanoFlex and were $1,724,988 for the year ended December 31, 2015, a 28% decrease from $2,394,118 for the year ended December 31, 2014. The year-over-year decrease is attributable to reduced submittal and processing of patent applications resulting from efforts to optimize the patent portfolio to align it with the Company’s development and commercialization strategy.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $7,018,803 for the year ended December 31, 2015, a 203% increase from $2,314,315 for the year ended December 31, 2014. The increase is primarily attributable to non-cash expenses of $4,747,101 associated with warrants issued to employees during the year, partially offset by a reduction in base salaries that was negotiated with the Company’s employees in an effort to conserve capital resources.
Interest Expense
Interest expense for the year ended December 31, 2015 was $1,685,162 as compared to $80,522 for year ended December 31, 2014 due to new a large amount of interest bearing debt agreements entered into during 2015, the conversion of existing debt and extinguishment of old debt.
Net Loss
The net loss for the year ended December 31, 2015 was $26,801,396, a 352% increase from $5,924,931 for the year ended December 31, 2014. The change in net loss is impacted by non-cash expenses, including the loss on change in fair value of the derivative liability and an increase in interest expense offset by changes in research and development, patent application and prosecution fees, and selling, and general and administrative expenses, each of which is described above.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2015, we had cash and cash equivalents of $6,255 and a working capital deficit of $28,065,878, as compared to cash and cash equivalents of $168 and a working capital deficit of $6,058,021 as of December 31, 2014. The increase in cash is due to the increase in short term debt compared to December 31, 2014. The decrease in working capital is attributable to the loss on change in fair value of derivative liabilities.
On April 15, 2015, the Company offered to reduce the exercise price of certain warrants of the Company to $0.50 as an incentive to the holders to exercise such warrants (“April 2015 Warrant Price Reduction”). Thus far warrant holders have sent notices to exercise their warrants for a total of 1,178,786 shares of our Common Stock, which have yet to be issued, for proceeds received in the amount of $589,394. As a result of the decrease in the warrant price, the exercise price of certain of the Company’s outstanding warrants will be permanently reduced to $0.50 per share pursuant to their terms and certain of those warrants have a provision which will cause them to increase in number by multiplying the number by a fraction equal to the original warrant exercise price divided by the new warrant exercise price.
The Company needs to raise additional capital and is in the process of raising additional funds in order to continue to finance our research and development, service existing liabilities and commercialize photonic energy conversion technologies utilizing organic semiconductor-based solar cells. We need to raise approximately $6 million $8 million in additional capital in order to continue our operations as described above and support our corporate functions. We anticipate that the additional funding can result from private sales of our equity securities. However, there can be no assurance that the additional funds will be available to us when needed, or if available, on terms that will be acceptable to us or our shareholders. If we are unable to raise sufficient funds the Company may have to cease its operations.
Analysis of Cash Flows
Net cash used in operating activities increased by $52,874 to $3,501,546 for the year ended December 31, 2015, compared to $3,448,672 for the year ended December 31, 2014. The cash used in operating activities was attributable primarily to increased net loss partially offset by loss on change in fair value of derivative liabilities and warrants issued for services.
Net cash used in investing activities was $5,842 and $10,064 during the years ended December 31, 2015, and 2014, respectively. These amounts represent purchases of property and equipment.
Net cash provided by financing activities was $3,513,475 and $3,261,900 during the years ended December 31, 2015 and 2014, respectively. For the year ended December 31, 2015 this includes borrowings on debt of $2,781,405, proceeds from the exercise of warrants of $914,220, advances received from related party of $212,350, proceeds from the sale of common shares and warrants of $136,000, partially offset by advances repaid to related party of $530,500. For the year ended December 31, 2014, this includes borrowings on debt of $950,000, advances received from related party of $721,150, proceeds from sale of common shares and warrants of $1,883,750, partially offset by advances repaid to related party of $293,000.
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Going Concern
The Company has only generated limited revenues to date. The Company has a working capital deficit of $28,065,878 and an accumulated deficit of $204,989,355 as of December 31, 2015. The ability of the Company to continue as a going concern is dependent on raising capital to fund ongoing operations and carry out its business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, expenses, and other financial information. Actual results may differ significantly from our estimates under other assumptions and conditions. We believe that our accounting policies related to stock-based compensation, research and development, impairment of long lived assets, development stage and property plant and equipment as described below, are our “critical accounting policies” as contemplated by the SEC.
Basis of Accounting
The Company’ policy is to maintain its books and prepare its combined financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be measured reliably. This is normally demonstrated when: (i) persuasive evidence of an arrangement exists; (ii) the fee is fixed or determinable; (iii) performance of service has been delivered; and (iv) collection is reasonably assured. Revenue from our joint development agreements are recognized as services are provided and are limited to the total dollar amount specified in the agreement. R&D engineering services, through joint development agreements are a core component of NanoFlex’s operations and business model, since they are a necessary prerequisite to obtaining IP licensing agreements with customers. As such, R&D engineering services are expected to be a sustained revenue stream for NanoFlex as it works with additional customers and the services constitute a portion of the Company's ongoing central operations. The terms of the joint development agreement require the counterparty to pay Nanoflex up to $120,000 for the Company’s engineering related expenses upon successful completion of a proof of concept. Terms of the invoices are net 30 days. As of December 31, 2015, the Company has entered into one joint development agreement.
Stock-Based Compensation
We account for stock based compensation in accordance with FASB ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. In prior years, we accounted for stock-based awards under APB No. 25, “Accounting for Stock Issued to Employees.” We account for non-employee share-based awards in accordance with FASB ASC 505-50.
Research and Development
Research and development costs are expensed in the period they are incurred in accordance with ASC 730, Research and Development unless they meet specific criteria related to technical, market and financial feasibility, as determined by management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life, or written off if a product is abandoned. At December 31, 2015 and 2014, the Company had no deferred development costs.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or estimated salvage value.
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Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to eight years.
Off Balance Sheet Arrangements:
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure in response to this item is not required of a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-1. The Company’s balance sheets as of December 31, 2015 and 2014 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended have been audited by MaloneBailey, LLP. MaloneBailey, LLP is an independent registered public accounting firm. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-K as promulgated by the Securities and Exchange Commission and are included herein pursuant to Part II, Item 8 of this Form 10-K. The financial statements have been prepared assuming the Company will continue as a going concern.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosures Control and Procedures
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer and the Company’s Executive Vice President, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses were:
(1) We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness;
(2) The Company’s board of directors has no audit committee, independent director or member with financial expertise, which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting;
(3) We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness;
(4) We lack the financial infrastructure to account for complex debt and equity transactions which may result in a greater than normal risk that material errors may occur in the financial statements and not be detected timely;
(5) We lack qualified resources to perform the internal audit functions properly, and the scope and effectiveness of the internal audit function are yet to be developed. Specifically, the reporting mechanism between the accounting department and the Board of Directors and the CFO was not effective;
The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer and Executive Vice President in connection with the review of our financial statements as of December 31, 2015.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We intend to create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We also will increase our procedures regarding the tracking of complex debt and equity transactions that we enter into. Further, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. We will also be working with our independent registered public accounting firm and refining our internal procedures.
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Changes in internal controls over financial reporting
Other than the change in its Chief Financial Officer as described below, our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
Subsequent to the period covered by the report, management is implementing measures to remediate the material weaknesses in internal controls over financial reporting described above. Specifically, the CEO and Executive Vice President are seeking to improve communications regarding the importance of documentation of their assessments and conclusions of their meetings, as well as supporting analyses. Additionally, the Company has hired an accounting firm to perform financial close and reporting procedures, and to help remediate the material weakness described above. As the business increases, the Company is seeking to hire accounting professionals and it will continue its efforts to create an effective system of disclosure controls and procedures for financial reporting.
Additionally, as reported in the Company’s Form 8-K filed with the SEC on June 24, 2015, on June 19, 2015, Mark Tobin was appointed as the Company’s Chief Financial Officer replacing Dean Ledger. With the appointment of Mr. Tobin, the Company now has a dedicated CFO which will help to remediate the identified weaknesses discussed above.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
On September 1, 2015 the Company entered into an Employment Agreement (the “Employment Agreement”) with Mark Tobin in his capacity as the Company’s Chief Financial Officer. Pursuant to the Employment Agreement, on September 1, 2015 the Company issued Mr. Tobin warrants to purchase 1,500,000 shares of the Company’s common stock at $1.00 per share (the “Warrant Shares”). 375,000 of the Warrant Shares vested on September 1, 2015, an additional 375,000 warrant shares will vest on the first anniversary date of the Employment Agreement, an additional 375,000 warrant shares will vest on the second anniversary date of the Employment Agreement, and, an additional 375,000 warrant shares will vest on the third anniversary date of the Employment Agreement. A copy of the Agreement was filed as Exhibit 10.1 to the Company’s Quarterly Report for the period ending September 31, 2015 filed on November 13, 2015.
On November 4, 2015, the Company entered into an amendment to the Independent Contractor Agreement (the “Amendment”) with a service provider pursuant to which the service provider is to be issued warrants to purchase 2,400,00 shares of the Company’s common stock at $1.00 per share (the “Warrant Shares”). 1,200,00 of the Warrant Shares vested on November 4, 2015, an additional 600,000 Warrant Shares will vest on the first anniversary date of the Amendment, an additional 600,000 warrant shares will vest on the second anniversary date of the Amendment. A copy of the Amendment was filed as Exhibit 10.2 to the Company’s Quarterly Report for the period ending September 31, 2015 filed on November 13, 2015.
Effective February 4, 2016, the Company agreed to pay $10,500 pursuant to a separation agreement relating to the termination of an employee.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the name and position of each of our current executive officers and directors. All directors hold office until the next annual meeting of stockholders or until their respective successors are elected, except in the case of death, resignation or removal. During the fiscal year ended December 31, 2014, John D. Kuhns served as a Member of our Board of Directors, Executive Chairman and as our co-CEO since March 30, 2015. Mr. Kuhns was removed as a Director and terminated from his officer positions as set forth in our Current Report on Form 8-K filed with the SEC on April 3, 2015. Joey S. Stone served as our Senior Vice President of Corporate Development from September 2013 through October 2015. On September 1, 2015, Mark R. Tobin was appointed as the Company’s Chief Financial Officer. In June 2015, Norman Allen was appointed as the Company’s Chief Technology Officer.
| Name | Age | Position | ||||
| Dean L. Ledger | 67 | Chief Executive Officer, Director | ||||
| Robert J. Fasnacht | 58 | Executive Vice President, Director | ||||
| Mark R. Tobin | 42 | Chief Financial Officer, Director of Business Development | ||||
| Norman Allen | 64 | Chief Technology Officer | ||||
Dean L. Ledger , age 67, has served as a Director and senior executive of GPEC since its inception and was instrumental in its founding. Mr. Ledger is GPEC’s Chief Executive Officer, and was elected as the Chief Executive Officer of the Company on September 24, 2013. On February 6, 2015, Mr. Ledger replaced Ms. Amy B. Kornafel as our Chief Financial Officer and remained as our Chief Executive Officer. Mr. Ledger has significant experience in capital formation and business building as he played instrumental roles in both Universal Display Corporation (NASDAQ: OLED) and InterDigital Corporation (NASDAQ: IDCC) from their inception. From 1994 to 2012, Mr. Ledger served as Executive Vice President-Corporate Development of Universal Display Corporation. From July 1994 to January 2001, Mr. Ledger served as a member of the Board of Directors of Universal Display Corporation. From December 2001 to July 2003, Mr. Ledger served as a member of the Board of Directors of North American Technologies, Inc. (NASDAQ: NATK). From May 1991 until October 1992, Mr. Ledger was a consultant to the IntelCom Group. Mr. Ledger served as a consultant to InterDigital Communications Corporation from October 1989 to April 1991. Prior to October 1989, Mr. Ledger spent 12 years as a financial consultant with E.F. Hutton, Shearson Lehman Brothers and Paine Webber. He is a graduate of Colorado College (B.A., Business Administration, 1972). The Board concluded that Mr. Ledger should serve as a Director of the Company based on his extensive experience and knowledge of the history of our Company and of all of its related technologies. Furthermore, he has a proven track record in leveraging information technology to capture new commercial opportunities and to increase operational efficiencies in various industries.
Robert J. Fasnacht, age 58, is a director and Executive Vice President of GPEC and he was elected as a director, President and Chief Operating Officer of the Company on September 24, 2013. On February 6, 2015, Mr. Fasnacht’s position was changed from President and Chief Operating Officer to our Executive Vice President. He first joined GPEC in 2011 as its Executive Vice President, General Counsel and corporate Secretary. Prior to that, he was engaged in a private legal practice emphasizing both corporate transactions and complex civil litigation. He also served for a number of years as a Board Member of various U.S. companies, including a U.S. based privately held restaurant Franchisor. He is admitted to practice in the 9th Circuit Court of Appeals, along with several state and federal courts, including the U.S. Tax Court. Mr. Fasnacht is a graduate of the University of Idaho (B.S., Chemistry, 1983 and J.D., 1985). Mr. Fasnacht was selected as a Director due to his extensive knowledge both from his scientific education and his legal training on all aspects of the Company’s organic and inorganic photovoltaic technologies and on its related intellectual property portfolio. He also demonstrated an extraordinary ability to understand the business and technological aspects of the Company as they relate to the Company’s strategy moving forward.
Mark R. Tobin , age 42, has served as NanoFlex’s Chief Financial Officer and Director of Business Development since June 2015. He also is a managing partner at Capital Gate Research (formerly known as Tobin Tao & Company, Inc.), a capital markets consulting firm. Additionally, Mr. Tobin serves as a Director and Audit Committee Chairman for Cellceutix Corporation, a publicly-listed clinical stage biopharmaceutical company. From 2013 to 2016, Mr. Tobin served as a Managing Director at Digital Offering, a merchant bank. From 2005 to 2013, Mr. Tobin served as Director of Research and as a Senior Research Analyst at Roth Capital Partners, where he oversaw equity research on more than 500 small-cap public companies across a variety of sectors during his tenure. He helped establish Roth's Energy, Industrials, and Cleantech practice and has published research as a lead analyst on approximately 50 small-cap companies within the sector. From 2002 to 2005, Mr. Tobin was a Program Manager and Senior Systems Engineer at Science Applications International Corporation, a FORTUNE 500 scientific, engineering, and technology applications company. Mr. Tobin began his career as an officer in the United States Air Force, overseeing advanced technology development programs and representing the U.S. as a NATO delegate. Mr. Tobin graduated with honors from the U.S. Air Force Academy with a Bachelor's of Science in Management in 1996 and received an MBA from the University of Pittsburgh in 1997.
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Norman Allen , age 64, has served as NanoFlex’s Chief Technology Officer since June 2015. He is also currently an Operating Partner of Potomac Energy Fund where he advises investors on screening startup investment opportunities and start-up companies on how to bring new energy generating and energy storage products to market. From 2007 to 2010, Mr. Allen was the Founder and Chief Executive Officer of Solidia Technologies. Mr. Allen co-founded Solidia with Dr. Richard Riman of Rutgers University. Solidia was funded by Kleiner Perkins Caufield & Byers and is developing revolutionary ceramics materials that can replace concrete and other ceramics while consuming carbon dioxide as a feedstock. From 2006 to 2007, Mr. Allen was the President of Power Strategies, LLC where he consulted for Kleiner Perkins Caufield & Byers on alternative energy investments with a specific focus on advanced batteries, fuel cells, solar cells and supercapacitors. From 2003 to 2006, Mr. Allen was the founder and Chief Operating Officer of UltraCell Inc. There, Mr. Allen created the business plan, invested, and completed Series A and B financing rounds for the reformed methanol micro fuel cell company. From 1998 to 2000, Mr. Allen was the Founder, President, and Chief Operating Officer of PowerSmart Inc., where Mr. Allen led the effort to acquire Duracell's smart battery technology and developed industry leading integrated circuits for smart batteries and patented sensors for large battery arrays. From 1995 to 1997, Mr. Allen was the President of the New Products and Technology Division of Duracell Inc. Mr. Allen was on Duracell's Operating Committee and headed up all research and development, Rechargeable and Global OEM Sales. There, Mr. Allen oversaw 400 people as well as $108,000,000 in sales, and additionally oversaw the research center and two manufacturing plants. From 1984 to 1995, Mr. Allen was the Vice President of New Products and Technology at Duracell Inc., where he had responsibility for sales and Marketing to all original equipment manufacturers in the U.S. and Japan inclusive of all battery and flashlight product lines. From 1977 to 1984, Mr. Allen was in the GM Activair Division of Gould Inc., and from 1972 to 1975, Mr. Allen was a Product Design Engineer in the Product Development Group at Ford Motor Co. Mr. Allen received his BSE in Science Engineering from the University of Michigan in 1972 and an MBA in Finance and Marketing, with Distinction Beta Gamma Sigma Honorary from the University of Michigan in 1976.
On February 6, 2015, the board of directors of the appointed John D. Kuhns, then Executive Chairman of the Board, as co-Chief Executive Officer of the Company with Dean L. Ledger remaining as our co-Chief Executive Officer and replacing Ms. Amy B. Kornafel as our Chief Financial Officer. Mr. Robert J. Fasnacht, our former President and Chief Operating Officer, was appointed as our Executive Vice President. Ms. Amy B. Kornafel resigned as Chief Financial Officer of the Company as of December 31, 2014. Her resignation was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.
On March 30, 2015, Mr. Kuhns was removed as a Director and terminated from his officer positions on March 31, 2015 as set forth in our Current Report on Form 8-K filed with the SEC on April 3, 2015.
Additionally, as reported in the Company’s Form 8-K filed with the SEC on June 24, 2015, on June 19, 2015, Mark Tobin was appointed as the Company’s Chief Financial Officer and Norman Allen was appointed as the Company’s Chief Technology Officer.
On October 31, 2015, Joey S. Stone resigned as our Senior Vice President of Corporate Development. Her resignation was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.
Board Committees
We do not have a standing nominating, compensation or audit committee. Rather, our full board of directors performs the functions of these committees. Also, we do not have an “audit committee financial expert” on our board of directors as that term is defined by Item 401(d)(5)(ii) of Regulation S-K. We do not believe it is necessary for our board of directors to appoint such committees because the volume of matters that come before our board of directors for consideration permits the directors to give sufficient time and attention to such matters to be involved in all decision making. Additionally, because our Common Stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. We believe that none of our directors would be considered to be independent, as that term is defined in the listing standards of NASDAQ.
Meetings of the Board of Directors
During its fiscal year ended December 31, 2015, the Board of Directors met on four occasions through teleconferencing. In addition to meetings, the Board of Directors otherwise has transacted business by unanimous written consent during the fiscal year 2014.
Board Leadership Structure and Role in Risk Oversight
Our Board recognizes that the leadership structure and combination or separation of the President and Chairman roles is driven by the needs of the Company at any point in time. Currently, Mr. Dean L. Ledger serves as the Chief Executive Officer and Chief Financial Officer, and Mr. Robert J. Fasnacht serves as the Executive Vice President of the Company. We have no policy requiring the combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed, and will continue to allow, our Board the flexibility to establish the most appropriate structure for our company at any given time.
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Code of Ethics
On January 28, 2013, we adopted a Code of Ethics and Business Conduct which is applicable to our employees and which also includes a Code of Ethics for our CEO and principal financial officer and persons performing similar functions. A copy of our Code of Business Conduct and Ethics has been filed with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-1 filed March 15, 2013. A code of ethics is a written standard designed to deter wrongdoing and to promote:
| ● | honest and ethical conduct, | |
| ● | full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, | |
| ● | compliance with applicable laws, rules and regulations, |
| ● | the prompt reporting violation of the code, and | |
| ● | accountability for adherence to the code. |
Section 16(a) Beneficial Ownership Reporting Compliance
We do not yet have a class of equity securities registered under the Securities Exchange Act of 1934, as amended. Hence, compliance with Section 16(a) thereof by our officers and directors is not required.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned for services rendered to NanoFlex during each of the last two years by our Chief Executive Officer and the other highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers at the end of 2015 and 2014.
| Name and Position(s) | Year |
Salary
($) |
Stock Awards
($) |
All other Compensation
($) |
Total Compensation
($) |
|||||||||||||||
|
Dean L. Ledger (1) Co-Chief Executive Officer, |
2015 | $ | 210,000 | $ | 2,790,017 | $ | - | $ | 3,000,017 | |||||||||||
| Chief Financial Officer, and Director | 2014 | $ | 300,000 | $ | - | $ | - | $ | 300,000 | |||||||||||
|
John D. Kuhns (2) Co-Chief Executive Officer, |
2015 | $ | 60,000 | $ | - | $ | - | $ | 60,000 | |||||||||||
| Executive Chairman and Director | 2014 | $ | 240,000 | $ | - | $ | - | $ | 240,000 | |||||||||||
| Robert J. Fasnacht (3) | 2015 | $ | 190,000 | $ | 465,184 | $ | - | $ | 655,184 | |||||||||||
| Executive Vice President and Director | 2014 | $ | 240,000 | $ | - | $ | - | $ | 240,000 | |||||||||||
| Mark R. Tobin (4) | 2015 | $ | 63,333 | $ | 1,141,900 | $ | 84,873 | $ | 1,290,106 | |||||||||||
| CFO and Director of Business Development | 2014 | $ | - | $ | - | $ | 80,300 | $ | 80,300 | |||||||||||
| Joey Stone (5) | 2015 | $ | 100,000 | $ | - | $ | - | $ | 100,000 | |||||||||||
| Senior Vice President of Corporate Development | 2014 | $ | 180,000 | $ | - | $ | - | $ | 180,000 | |||||||||||
| Amy B. Kornafel (6) | 2015 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Former CFO and Secretary | 2014 | $ | 156,000 | $ | - | $ | - | $ | 156,000 | |||||||||||
| Norman Allen (7) | 2015 | $ | - | $ | 1,334,017 | $ | 148,698 | $ | 1,482,715 | |||||||||||
| Chief Technology Officer | 2014 | $ | - | $ | - | $ | 18,983 | $ | 18,983 | |||||||||||
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|
(1) |
Mr. Dean L. Ledger was appointed as our Director and Chief Executive Officer on September 24, 2013. On February 6, 2015, Mr. Ledger was appointed as our Chief Financial Officer. Mark Tobin replaced him as Chief Financial Officer on June 1, 2015. In October 2014, the Company and Mr. Ledger agreed to limit Mr. Ledger’s annual salary to $300,000 for the year of 2014. At year-end 2014 Mr. Ledger received $166,667 of his annual salary and deferred the balance of $133,333 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. On February 5, 2015, Mr. Ledger agreed to defer a portion of his annual salary in excess of $210,000 until such time as the Board of Directors of the Company determined that the Company had sufficient funds to pay such deferred compensation. On May 8, 2015, Mr. Ledger executed an amendment to his employment agreement, a copy of which is filed herewith as Exhibit 10.18, in which he agreed to permanently reduce his salary to $210,000 which reduction was effective retroactively to January 1, 2015. Further, on November 5, 2015, the Company agreed to issue warrants to Mr. Ledger to purchase 3,000,000 shares of the Company's Common Stock in exchange for Mr. Ledger previously agreeing to forego a portion of his salary. |
| (2) | Mr. John D. Kuhns served as our Executive Chairman between September 24, 2013 and March 30, 2015 and as our co-Chief Executive Officer between February 6, 2015 and March 31, 2015. In October 2014, the Company and Mr. Kuhns agreed to limit Mr. Kuhns’ annual salary to $240,000 for the year of 2014. At year-end 2014, Mr. Kuhns received $133,333 of his annual salary and deferred the balance of $106,667 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. |
| (3) | Mr. Robert J. Fasnacht was appointed as our Director, President and Chief Operating Officer on September 24, 2013. On February 6, 2015, Mr. Fasnacht’s position was changed to our Executive Vice President. In October 2014, the Company and Mr. Fasnacht agreed to limit Mr. Fasnacht’s annual salary to $240,000 for the year of 2014. At year-end 2014 Mr. Fasnacht received $150,000 of his annual salary and deferred the balance of $90,000 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. On February 5, 2015, Mr. Fasnacht agreed to defer a portion of his annual salary in excess of $190,000 until such time as the Board of Directors of the Company determined that the Company had sufficient funds to pay such deferred compensation. On May 8, 2015, Mr. Fasnacht executed an amendment to his employment agreement, a copy of which is filed herewith as Exhibit 10.17, in which he agreed to permanently reduce his salary to $190,000 which reduction was effective retroactively to January 1, 2015. Further, on November 9, 2015, the Company agreed to issue warrants to Mr. Fasnacht to purchase 500,000 shares of the Company's Common Stock in exchange for Mr. Fasnacht previously agreeing to forego a portion of his salary. |
| (4) | In June 2015, Mr. Mark Tobin was appointed as our Chief Financial Officer. Prior to June 2015, Mr. Tobin provided consulting services to the Company. |
|
(5)
(6) |
Mr. Joey Stone was appointed as our Senior Vice President of Corporate Development on September 24, 2013. Mr. Joey Stone resigned on October 31, 2015. Ms. Amy B. Kornafel was formerly our Chief Financial Officer and Secretary from September 24, 2013 through December 31, 2014. |
| (7) |
Mr. Norman Allen was appointed as our Chief Technology Officer on June 19, 2015. Prior to June 2015, Mr. Allen provided consulting services to the Company.
|
Employment Agreements
Employment Agreements with Current Executives
On September 24, 2013, the Company and Dean L. Ledger entered into an Employment Agreement, as amended and restated on October 1, 2013, pursuant to which commencing October 1, 2013 Mr. Ledger is being employed as Chief Executive Officer of the Company for a term of five years. The initial five year term of employment automatically shall be extended for additional one-year periods unless within 60 days prior to the end of the term a party gives written notice to the other of its decision not to renew the term. Under the agreement, Mr. Ledger is entitled to the compensation consisting of $400,000 per year for base salary (plus annual cost of living increases of 3% per year), an annual bonus at the discretion of the Board of the Directors and other benefits such as family health and dental insurance coverage and eligibility to participate in profit-sharing, 401K, stock option, bonus and performance award plans that are generally made available to executive officers of the Company. In October 2014, the Company and Mr. Ledger agreed to limit Mr. Ledger’s annual salary to $300,000 for the year of 2014. At year-end 2014 Mr. Ledger received $166,667 of his annual salary and deferred the balance of $133,333 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. On February 5, 2015, Mr. Ledger agreed to defer a portion of his annual salary in excess of $210,000 until such time as the Board of Directors of the Company determined that the Company had sufficient funds to pay such deferred compensation. On May 8, 2015, Mr. Ledger executed an amendment to his employment agreement, a copy of which is filed herewith as Exhibit 10.18, in which he agreed to permanently reduce his salary to $210,000 which reduction was effective retroactively to January 1, 2015. Further, on November 5, 2015, the Company agreed to issue warrants to Mr. Ledger to purchase 3,000,000 shares of the Company's Common Stock in exchange for Mr. Ledger previously agreeing to forego a portion of his salary.
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On September 24, 2013, the Company and Robert J. Fasnacht entered into an Employment Agreement, as amended and restated on October 1, 2013, pursuant to which commencing October 1, 2013 Mr. Fasnacht is being employed as President and Chief Operating Officer of the Company for a term of five years. The initial five year term of employment automatically shall be extended for additional one-year periods unless within 60 days prior to the end of the term a party gives written notice to the other of its decision not to renew the term. Under the agreement, Mr. Fasnacht is entitled to the compensation consisting of $360,000 per year for base salary (plus annual cost of living increases of 3% per year), an annual bonus at the discretion of the Board of the Directors and other benefits such as family health and dental insurance coverage and eligibility to participate in profit-sharing, 401K, stock option, bonus and performance award plans that are generally made available to executive officers of the Company. In October 2014, the Company and Mr. Fasnacht agreed to limit Mr. Fasnacht’s annual salary to $240,000 for the year of 2014. At year-end 2014 Mr. Fasnacht received $150,000 of his annual salary and deferred the balance of $90,000 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. On February 5, 2015, Mr. Fasnacht agreed to defer a portion of his annual salary in excess of $190,000 until such time as the Board of Directors of the Company determined that the Company had sufficient funds to pay such deferred compensation. On May 8, 2015, Mr. Fasnacht executed an amendment to his employment agreement, a copy of which is filed herewith as Exhibit 10.17, in which he agreed to permanently reduce his salary to $190,000 which reduction was effective retroactively to January 1, 2015. Further, on November 9, 2015, the Company agreed to issue warrants to Mr. Fasnacht to purchase 500,000 shares of the Company's Common Stock in exchange for Mr. Fasnacht previously agreeing to forego a portion of his salary.
On June 19, 2015, the Company appointed Mark Tobin as Chief Financial Officer as part of a consulting agreement. On September 1, 2015, the Company and Mark Tobin entered into an Employment Agreement, pursuant to which commencing September 1, 2015, Mr. Tobin is being employed as Chief Financial Officer of the Company for a term of four years. The Company shall have the option to renew the agreement on the anniversary of the effective date or terminate this agreement and the executive’s employment by giving the executive 90 days’ written notice. Under the agreement, Mr. Tobin is entitled to the compensation consisting of $190,000 per year for base salary and other benefits such as family health and dental insurance coverage and eligibility to participate in profit-sharing, 401K, stock option, bonus and performance award plans that are generally made available to executive officers of the Company. In addition, Mr. Tobin received warrants to purchase 1,500,000 shares of the Company’s common stock. 375,000 of the Warrant Shares vested on September 1, 2015, an additional 375,000 warrant shares will vest on the first anniversary date of the Employment Agreement, an additional 375,000 warrant shares will vest on the second anniversary date of the Employment Agreement, and, an additional 375,000 warrant shares will vest on the third anniversary date of the Employment Agreement.
On June 19, 2015, the Company appointed Norman Allen of Power Strategies, LLC, as its Chief Technology Officer. It is agreed that Norman Allen will serve in his capacity as Chief Technology Officer as an independent contractor and that no employment relationship is formed between him and the Company. On November 4, 2015, the Company entered into an amendment to the Independent Contractor Agreement with Mr. Allen pursuant to which he is to be issued warrants to purchase 2,400,00 shares of the Company’s common stock at $1.00 per share. 1,200,00 of the warrants vested on November 4, 2015, an additional 600,000 warrants will vest on the first anniversary date of the amendment, an additional 600,000 warrants will vest on the second anniversary date of the amendment.
Employment Agreement with a Former Executive in 2014
On September 24, 2013, the Company and John D. Kuhns entered into an Employment Agreement, as amended and restated on October 1, 2013, pursuant to which commencing October 1, 2013 Mr. Kuhns was employed as Executive Chairman of the Board of the Company. Under the agreement, Mr. Kuhns was entitled to the compensation consisting of $400,000 per year for base salary (plus annual cost of living increases of 3% per year), an annual bonus at the discretion of the Board of the Directors and other benefits such as family health and dental insurance coverage and eligibility to participate in profit-sharing, 401K, stock option, bonus and performance award plans that are generally made available to executive officers of the Company. In October 2014, the Company and Mr. Kuhns agreed to limit Mr. Kuhns’ annual salary to $240,000 for the year of 2014. At year-end 2014, Mr. Kuhns received $133,333.32 of his annual salary and deferred the balance of $106,666.68 until the Board of Directors determines when the Company has sufficient funds to pay such deferred compensation. In February 2015, the Company and Mr. Kuhns made further modifications to his Employment Agreement. Specifically, for 2015 and continuing through the remaining term of his Employment Agreement, Mr. Kuhns was to receive $210,000 annually with an additional amount of $190,000 annually being deferred until the Board of Directors determines that the Company has sufficient funds to pay such deferred compensation.
On March 18, 2015, the Company received correspondence from Mr. Kuhns’ counsel alleging that Mr. Kuhns has “Good Reason” to terminate the Employment Agreement for an alleged failure to pay his salary in full. On March 30, 2015, Mr. Kuhns advised that if the alleged breaches of the Employment Agreement are not cured there is a possibility that he will pursue litigation.
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As of March 30, 2015, shareholders holding approximately 67.26% of the total outstanding shares of common stock of the Company that are entitled to vote on all Company matters approved by written consent the removal of Mr. Kuhns from his position as a member of the Company’s Board of Directors.
Mr. Kuhns’ removal was for “Cause” as defined under his Employment Agreement. The removal arose as a result of his documented conduct and statements, which breached his fiduciary duties to the Company in order to advance personal monetary and other interests, and thereby threatened serious financial injury to the Company, its shareholders and its debt holders.
On March 31, 2015, the Board of Directors terminated the Employment Agreement with Mr. Kuhns for Cause and removed him from his positions as co-CEO, and from all other officer positions he held with the Company and its subsidiaries and affiliates, and all director positions with the Company’s subsidiaries and affiliates.
Outstanding Equity Awards at Fiscal Year-End
The following table reflects the unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of the end of the fiscal year ended December 31, 2015:
| Option Awards | ||||||||||||||||||||||||
| Name | Grant Date |
Number of Securities Underlying Unexercised Options
(#) Exercisable |
Number of Securities Underlying Unexercised Options
(#) Unexercisable |
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price
($) |
Option Expiration Date | ||||||||||||||||||
| Dean L. Ledger | - | - | - | - | - | - | ||||||||||||||||||
| - | - | |||||||||||||||||||||||
| Robert J. Fasnacht | - | - | - | - | - | - | ||||||||||||||||||
| Mark Tobin | - | - | - | - | - | - | ||||||||||||||||||
| Norman Allen | - | - | - | - | - | - | ||||||||||||||||||
Securities Authorized for Issuance Under Equity Compensation Plan
There were no unexercised options, stock that has not vested or equity incentive plan awards under the Company’s 2013 Equity Incentive Plan for any named executive officer outstanding as of December 31, 2015.
Equity Compensation Plan Information
On September 24, 2013 the directors of the Company unanimously approved the 2013 Equity Incentive Plan (the “Plan”) under which the Company has reserved a number of shares of its Common Stock equal to 10% of the Company’s fully diluted Common Stock for awards under the Plan of any stock option, stock appreciation right, restricted stock, performance share, or other stock-based award or performance-based cash awards under the Plan.
Director Compensation
The following table sets forth the compensation paid to our directors (other than those to the executive officers which have been disclosed in earlier this Section) during the years ended December 31, 2015 and 2014.
| 40 |
| Name and Position | Year | Fees Earned or Paid in Cash ($) |
Stock Awards
($) |
All other Compensation
($) |
Total
($) |
|||||||||||||||
| John D. Kuhns (1) | 2015 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Executive Chairman | 2014 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Dean L. Ledger (2) | 2015 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Director | 2014 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Robert J. Fasnacht (3) | 2015 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Director | 2014 | $ | - | $ | - | $ | - | $ | - |
| (1) | Mr. Kuhns was the Company’s Executive Chairman between September 24, 2013 and March 30, 2015. |
| (2) | Mr. Ledger is serving as the Company’s director since September 24, 2013. |
| (3) | Mr. Fasnacht is serving as the Company’s director since September 24, 2013. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of the date of this report, and by the officers and directors, individually and as a group immediately. Except as otherwise indicated, all shares are owned directly and the shareholders listed possesses sole voting and investment power with respect to the shares shown.
| Name and Address* of Officers and Directors | Office |
Shares Beneficially
Owned (1) |
Percent of Class (2) | |||||||
| Dean L. Ledger | Chief Executive Officer, Director | 5,061,667 | (3) | 8.60 | % | |||||
| Robert J. Fasnacht | Executive Vice President, Director | 2,297,023 | (4) | 4.08 | % | |||||
| Mark Tobin | Chief Financial Officer | 575,000 | (5) | 1.02 | % | |||||
| Norman Allen | Chief Technology Officer | 600,000 | (6) | 1.06 | % | |||||
| All officers and directors as a group (4 persons) | 8,533,690 | 15.28 | % | |||||||
| 5% Securities Holders | ||||||||||
| Ronald B. Foster | 28,316,090 | (7) | 40.70 | % | ||||||
| (1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. |
| (2) | Based on 55,854,735 shares of the Company’s common stock outstanding as of the date of this report. |
| (3) | Includes 3,000,000 shares of the Company’s common stock that may be issued upon exercise of immediately exercisable warrants. This also includes: (i) 2,061,667 shares issued to Dean Ledger Revocable Living Trust dated 12/13/2006 Dean Ledger, Trustee. |
| (4) | Includes 500,000 shares of the Company’s common stock that may be issued upon exercise of immediately exercisable warrants. Also includes 780,000 shares issued in the name of Robert J. Fasnacht and Susan A. Fasnacht and 1,017,023 shares of common stock held by Robert J. Fasnacht. |
| 41 |
| (5) | Includes 375,000 shares of the Company’s common stock that may be issued upon exercise of immediately exercisable warrants. |
| (6) | Includes 1,200,000 shares of the Company’s common stock that may be issued upon exercise of immediately exercisable warrants. |
| (7) | Includes 1,250,000 shares of the Company’s common stock that may be issued upon exercise of immediately exercisable warrants. Also includes 1,250,000 shares of the Company’s common stock that may be issued upon conversion of immediately convertible promissory notes. |
* Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is 17207 N. Perimeter Dr., Suite 210, Scottsdale, AZ 85255.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE
Our policy is that a contract or transaction either between the Company and a director, or between a director and another company in which he is financially interested is not necessarily void or voidable if the relationship or interest is disclosed or known to the Board of Directors and the stockholders are entitled to vote on the issue, or if it is fair and reasonable to our company.
On February 26, 2014, the Company sold and issued a promissory note in the principal amount of $150,000 to Douglas Ledger, the son of Dean L. Ledger, CEO of NanoFlex and GPEC.
On April 9, 2014, the Company sold and issued to Nina Ledger, the daughter of Dean L. Ledger, CEO of NanoFlex and GPEC, 80,000 shares of Common Stock and warrants to purchase 80,000 shares of Common Stock for investment of a total of $100,000.
During the year ended December 31, 2015, the Company received advances from its Chief Executive Officer totaling $212,350 and repaid advances totaling $530,500. Advances payable has a balance of $110,000 at December 31, 2015. Such advances do not accrue interest and are payable upon demand.
On June 19, 2015, the Company appointed Norman Allen of Power Strategies, LLC, as its Chief Technology Officer. It is agreed that Norman Allen will serve in his capacity as Chief Technology Officer as an independent contractor and that no employment relationship is formed between him and the Company. On November 4, 2015, the Company entered into an amendment to the Independent Contractor Agreement with Mr. Allen pursuant to which he is to be issued warrants to purchase 2,400,00 shares of the Company’s common stock at $1.00 per share. 1,200,00 of the warrants vested on November 4, 2015, an additional 600,000 warrants will vest on the first anniversary date of the amendment, an additional 600,000 warrants will vest on the second anniversary date of the amendment.
On November 5, 2015, the Company issued a warrant to purchase 3,000,000 shares of the Company’s $.0001 par value common stock to the Company’s Chief Executive Officer, Dean Ledger, in exchange for services already performed. The warrants are immediately vested, have an exercise price of $1.00 and have a 10 year term.
On November 9, 2015, the Company issued a warrant to purchase 500,000 shares of the Company’s $.0001 par value common stock to Robert J. Fasnacht, our current Executive Vice President and member of our Board of Directors, in exchange for services already performed. The warrants are immediately vested, have an exercise price of $1.00 and have a 10 year term.
During the year ended December 31, 2015, the Company issued promissory notes to Ronald Foster, a majority shareholder, in aggregate of $625,000. The notes have a term ranging from 120 – 150 days from the effective date. 1,250,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50/share in lieu of cash interest. As of December 31, 2015, the outstanding balance under these notes is $625,000.
As of December 31, 2015, there is $62,469 due to Tobin, Tao & Company, of which Mark Tobin serves as Managing Partner, which is non interest bearing due on demand.
Except the above transactions, during the fiscal year 2015, neither GPEC nor the Company was a party to any transaction (where the amount involved exceeded the lesser of $120,000 or 1% of the average of our assets for the last two fiscal years) in which a director, executive officer, holder of more than five percent of our common stock, or any member of the immediate family of any such person have or will have a direct or indirect material interest and no such transactions are currently proposed.
| 42 |
The Company’s Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has not adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. However, the Board believes that the related party transactions are fair and reasonable to the Company and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The following table sets forth the aggregate fees billed or to be billed to the Company by its independent registered public accounting firm, Malone Bailey, LLP for the fiscal years indicated. The Company has also engaged Zook, Dinon, CPA’s to perform its tax returns for the years indicated.
| ACCOUNTING FEES AND SERVICES | 2015 | 2014 | ||||||
| Audit fees | $ | 80,206 | $ | 79,720 | ||||
| Tax fees | $ | 11,338 | $ | 33,411 | ||||
| Total | $ | 91,544 | $ | 113,131 | ||||
The category of “Audit fees” includes fees for our annual audit, quarterly reviews and services rendered in connection with regulatory filings with the SEC, such as the issuance of comfort letters and consents.
The category of “Audit-related fees” includes employee benefit plan audits, internal control reviews and accounting consultation.
All above audit services and audit-related services were pre-approved by the Board of Directors, which concluded that the provision of such services by Malone Bailey, LLP was compatible with the maintenance of the firm’s independence in the conduct of its audits.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | Financial Statements |
The following are filed as part of this report:
| Financial Statements |
The financial statements of NanoFlex Power Corporation and Report of Independent Registered Public Accounting Firm are presented in the “F” pages of this Report.
| (b) | Exhibits |
The following exhibits are filed or “furnished” herewith:
| Exhibit No. | Description | Incorporation by Reference | ||||||
| Form | Exhibit | Filing Date | ||||||
| 2.1 | Share Exchange Agreement, dated September 24, 2013 | 8-K | 2.1 | 09/30/2013 | ||||
| 3.1 | Articles of Incorporation | S-1 | 3.1 | 03/15/2013 | ||||
| 3.2 | Bylaws | S-1 | 3.2 | 03/15/2013 | ||||
| 3.3 | Articles of Amendment to Articles of Incorporation | 8-K | 3.1 | 11/25/2013 | ||||
| 4.1 | Specimen Certificate of Common Stock | S-1 | 4.1 | 2/11/2014 | ||||
| 4.2 | Form of Warrant issued pursuant to the Conversion of Series A Preferred Stock | 8-K | 4.2 | 09/30/2013 | ||||
| 43 |
| 4.3 | Form of Warrant issued pursuant to the Conversion of the Bridge Note | 8-K | 4.3 | 09/30/2013 | ||||
| 4.4 | Form of Warrant issued pursuant to the Exchange of Warrant held by holders of Global Photonic Energy Corporation | 8-K | 4.4 | 09/30/2013 | ||||
| 4.5 | Form of Option to Purchase Common Stock of the Company | 8-K | 3.1 | 11/04/2013 | ||||
| 4.6 | Form of Warrant issued in the First PIPE | 10-K | 4.6 | 04/10/2015 | ||||
| 4.7 | Form of Warrant issued in the Second PIPE | 10-K | 4.7 | 04/10/2015 | ||||
| 10.1 | Form of Subscription Agreement between the Company and certain purchasers and schedule of purchasers setting forth the number of shares of the Company’s common stock purchased by each purchaser on September 24, 2013 | 8-K | 10.1 | 09/30/2013 | ||||
| 10.2 | 2013 Company Equity Incentive Plan | 8-K | 10.2 | 09/30/2013 | ||||
| 10.3 | Employment Agreement between the Company and John D. Kuhns, as amended, dated October 1, 2013 | 8-K | 10.3 | 11/25/2013 | ||||
| 10.4 | Employment Agreement between the Company and Dean L. Ledger, as amended, dated October 1, 2013 | 8-K | 10.4 | 11/25/2013 | ||||
| 10.5 | Employment Agreement between the Company and Robert J. Fasnacht, as amended, dated October 1, 2013 | 8-K | 10.5 | 11/25/2013 | ||||
| 10.6 | Research Agreement, dated May 1, 1998, between GPEC and University of Southern California | 8-K | 10.6 | 11/25/2013 | ||||
| 10.7# | The University of Southern California Research Agreement, dated January 1, 2006 | 8-K | 10.7 | 11/25/2013 | ||||
| 10.8 | Letter Agreement, dated April 16, 2009, between GPEC and USC | 8-K | 10.8 | 11/25/2013 | ||||
| 10.9 | The University of Southern California, Princeton University, Global Photonic Energy Corporation Amended License Agreement, dated May 1, 1998 | 8-K | 10.9 | 11/25/2013 | ||||
| 10.10 | Amendment No. 1 to the Amended License Agreement by and among Princeton University, The University of Southern California, the Regents of the University of Michigan and GPEC, dated May 15, 2006 | 8-K | 10.10 | 11/25/2013 | ||||
| 10.11 | The University of Southern California Research Agreement, dated December 20, 2013 | 8-K | 10.1 | 01/16/2014 | ||||
| 10.12 | Third Amendment to the Amended License Agreement, dated December 20, 2013 | 8-K | 10.2 | 01/16/2014 | ||||
| 10.13 | Subscription Agreement for the First PIPE, dated November 23, 2013 | 10-K | 10.13 | 04/10/2015 | ||||
|
10.14
|
Subscription Agreement for the Second PIPE, dated June 24, 2014 and as amend on February 23, 2015
|
10-K |
10.14
|
04/10/2015
|
||||
| 10.15 | Consulting Agreement | 8-K | 10.2 | 01/27/2016 | ||||
| 10.16 | Conversion Agreement | S-1 | 21.1 | 02/11/2014 | ||||
| 10.17 | Amendment to Employment Agreement with Robert J. Fasnacht, dated May 8, 2015* | |||||||
| 10.18 | Amendment to Employment Agreement with Dean L. Ledger dated May 8, 2015* |
| 44 |
| 21.1 | List of Subsidiaries | S-1 | 21.1 | 02/11/2014 | ||||
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |||||||
| 31.2 | Certification of Executive Vice President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |||||||
| 32.1 | Certification of Principal Executive Officers and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |||||||
| 101.INS | XBRL Instance Document.** | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document.** | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.** | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.** | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document.** | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.** |
* Filed herewith.
** Users of this data are advised pursuant to Rule 406T of Regulation S-X that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purpose of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections
# Portions of such exhibit have been omitted pursuant to a request for confidential treatment submitted to the Securities and Exchange Commission.
| 45 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NANOFLEX POWER CORPORATION | ||
| Dated: March 18, 2016 | By: | /s/ Dean L. Ledger |
|
Dean L. Ledger Chief Executive Officer (principal executive officer)
|
||
| Dated: March 18, 2016 | By: | /s/ Mark Tobin |
|
Mark Tobin Chief Financial Officer (principal financial and accounting officer) |
||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Dated: March 18, 2016 | By: | /s/ Dean L. Ledger |
|
Dean L. Ledger Director
|
||
| Dated: March 18, 2016 | By: | /s/ Robert J. Fasnacht |
|
Robert J. Fasnacht Director |
| 46 |
CONTENTS
| F- 1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
NanoFlex Power Corporation
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of NanoFlex Power Corporation and its subsidiaries (collectively the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses from operation since inception and has a working capital deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this mater are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
March 18, 2016
| F- 2 |
CONSOLIDATED BALANCE SHEETS
| December 31, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 6,255 | $ | 168 | ||||
| Accounts receivable | 95,623 | - | ||||||
| Prepaid expenses and other current assets | 854 | 5,519 | ||||||
| Total current assets | 102,732 | 5,687 | ||||||
| Property and equipment, net | 13,735 | 13,678 | ||||||
| Total assets | $ | 116,467 | $ | 19,365 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,341,905 | $ | 1,857,911 | ||||
| Accounts payable- related party | 62,469 | 48,064 | ||||||
| Accrued expenses | 1,840,537 | 1,958,403 | ||||||
| Warrant derivative liability | 12,796,146 | 847,791 | ||||||
| Conversion option derivative liability | 8,145,160 | - | ||||||
| Short-term debt, net of unamortized discounts | 150,000 | 100,000 | ||||||
| Short-term debt- related party, net of unamortized discounts | 670,848 | 150,000 | ||||||
| Convertible debt, net of unamortized discounts | 1,051,545 | 673,389 | ||||||
| Advances - related party | 110,000 | 428,150 | ||||||
| Total current liabilities | 28,168,610 | 6,063,708 | ||||||
| Total liabilities | 28,168,610 | 6,063,708 | ||||||
| Stockholders' deficit: | ||||||||
| Common stock, 250,000,000 authorized, $0.0001 par value, 51,473,157 | ||||||||
| and 44,306,278 issued and outstanding as of December 31, 2015 | ||||||||
| and December 31, 2014, respectively | 5,148 | 4,431 | ||||||
| Additional paid-in capital | 176,932,064 | 172,139,185 | ||||||
| Accumulated deficit | (204,989,355 | ) | (178,187,959 | ) | ||||
| Total stockholders' deficit | (28,052,143 | ) | (6,044,343 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 116,467 | $ | 19,365 | ||||
See accompanying notes to consolidated financial statements.
| F- 3 |
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Year Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| Revenue | $ | 119,998 | - | |||||
| Cost of services | (114,947 | ) | - | |||||
| Gross profit | 5,051 | - | ||||||
| Operating expenses: | ||||||||
| Research and development | $ | 2,325,539 | $ | 1,174,473 | ||||
| Patent application and prosecution fees | 1,724,988 | 2,394,118 | ||||||
| Selling, general and administrative expenses | 7,018,803 | 2,314,315 | ||||||
| Total operating expenses | 11,069,330 | 5,882,906 | ||||||
| Loss from operations | (11,064,279 | ) | (5,882,906 | ) | ||||
| Other income (expenses): | ||||||||
| Gain (loss) on change in fair value of derivative | (13,901,957 | ) | 38,497 | |||||
| Loss on extinguishment of debt | (150,000 | ) | - | |||||
| Interest expense | (1,685,160 | ) | (80,522 | ) | ||||
| Total other expense | (15,737,117 | ) | (42,025 | ) | ||||
| Loss before income tax benefit | (26,801,396 | ) | (5,924,931 | ) | ||||
| Income tax benefit | - | - | ||||||
| Net loss | $ | (26,801,396 | ) | $ | (5,924,931 | ) | ||
| Net loss per share, basic and diluted | $ | (0.56 | ) | $ | (0.14 | ) | ||
| Weighted average common shares outstanding, basic and diluted | 47,893,197 | 43,640,824 | ||||||
See accompanying notes to consolidated financial statements.
| F- 4 |
| NANOFLEX POWER CORPORATION |
| CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT |
| FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 |
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2013 | 42,799,278 | $ | 4,280 | $ | 170,813,285 | $ | (172,263,028 | ) | $ | (1,445,463 | ) | |||||||||
| Common Stock and warrants issued for cash | 1,507,000 | 151 | 1,883,599 | - | 1,883,750 | |||||||||||||||
| Fair value of warrant derivative liability | - | - | (688,614 | ) | - | (688,614 | ) | |||||||||||||
| Recognition of contingent beneficial conversion feature and warrants | - | - | 130,915 | - | 130,915 | |||||||||||||||
| Net loss | - | - | (5,924,931 | ) | (5,924,931 | ) | ||||||||||||||
| Balance at December 31, 2014 | 44,306,278 | $ | 4,431 | $ | 172,139,185 | $ | (178,187,959 | ) | $ | (6,044,343 | ) | |||||||||
| Common stock returned and cancelled for issuance of convertible note | (75,288 | ) | (7 | ) | (37,637 | ) | - | (37,644 | ) | |||||||||||
| Common stock and warrants issued for cash | 186,000 | 19 | 135,981 | - | 136,000 | |||||||||||||||
| Common stock issued for services | 350,000 | 35 | 349,965 | - | 350,000 | |||||||||||||||
| Warrants issued for services | - | - | 4,615,154 | - | 4,615,154 | |||||||||||||||
| Warrants exercised for cash | 1,828,437 | 183 | 914,037 | - | 914,220 | |||||||||||||||
| Additional common shares issued related to warrant reset | 1,554,500 | 155 | (155 | ) | - | - | ||||||||||||||
| Warrants reclassified as derivative liabilities | - | - | (76,368 | ) | - | (76,368 | ) | |||||||||||||
| Warrants issued upon conversion of debt | - | - | 246,460 | - | 246,460 | |||||||||||||||
| Convertible debt reclassified as derivative liabilities | - | - | (9,146,853 | ) | - | (9,146,853 | ) | |||||||||||||
| Conversion of debt to common stock and warrants | 3,323,230 | 332 | 1,661,283 | - | 1,661,615 | |||||||||||||||
| Beneficial conversion feature and warrants issued with debt | - | - | 1,451,832 | - | 1,451,832 | |||||||||||||||
| Resolution of derivative liabilities | - | - | 4,678,816 | - | 4,678,816 | |||||||||||||||
| Options issued for services | - | - | 364 | - | 364 | |||||||||||||||
| Net loss | - | - | - | (26,801,396 | ) | (26,801,396 | ) | |||||||||||||
| Balance at December 31, 2015 | 51,473,157 | $ | 5,148 | $ | 176,932,064 | $ | (204,989,355 | ) | $ | (28,052,143 | ) | |||||||||
See accompanying notes to consolidated financial statements.
| F- 5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (26,801,396 | ) | $ | (5,924,931 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 5,785 | 3,819 | ||||||
| Amortization of debt discounts | 1,316,935 | 4,304 | ||||||
| Loss (gain) on change in fair value of derivative liabilities | 13,901,957 | (38,497 | ) | |||||
| Loss on extinguishment of debt | 150,000 | - | ||||||
| Derivative warrants issued for services | 1,346,935 | - | ||||||
| Warrants issued as compensation | 4,615,154 | - | ||||||
| Common shares issued for services | 350,000 | - | ||||||
| Stock options issued for services | 364 | - | ||||||
| Interest expense from warrants issued upon conversion of debt | 246,460 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 4,665 | 8,126 | ||||||
| Accounts receivable | (95,623 | ) | - | |||||
| Accounts payable | 1,483,992 | 1,168,792 | ||||||
| Accounts payable - related party | 14,405 | 48,064 | ||||||
| Accrued expenses | (41,179 | ) | 1,281,651 | |||||
| Net cash used in operating activities | (3,501,546 | ) | (3,448,672 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of fixed assets | (5,842 | ) | (10,064 | ) | ||||
| Net cash used in investing activities | (5,842 | ) | (10,064 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowings on convertible debt | 2,106,405 | 800,000 | ||||||
| Proceeds from exercise of warrants | 914,220 | - | ||||||
| Borrowings from short-term debt | 50,000 | - | ||||||
| Advances received from related party | 212,350 | 721,150 | ||||||
| Proceeds from sale of common shares and warrants | 136,000 | 1,883,750 | ||||||
| Advances repaid to related party | (530,500 | ) | (293,000 | ) | ||||
| Borrowings on related party debt | 625,000 | 150,000 | ||||||
| Net cash provided by financing activities | 3,513,475 | 3,261,900 | ||||||
| NET INCREASE (DECREASE) IN CASH | 6,087 | (196,836 | ) | |||||
| Cash, beginning of the period | 168 | 197,004 | ||||||
| Cash, end of the period | $ | 6,255 | $ | 168 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 11,984 | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Warrants and common shares issued for debt | $ | 1,634,928 | $ | - | ||||
| Discount on beneficial conversion feature and warrants issued with debt | 1,451,832 | 130,915 | ||||||
| Discount due to derivative liabilities | 300,218 | - | ||||||
| Reclassification of conversion options as derivative liabilities | 9,146,853 | - | ||||||
| Reclassification of warrants as derivative liabilities | 76,368 | 688,614 | ||||||
| Resolution of derivative liabilities | 4,678,816 | - | ||||||
| Accrued interest converted to debt | 50,000 | - | ||||||
| Warrants and common shares issued for accrued interest | 26,687 | - | ||||||
| Common stock returned and cancelled for issuance of convertible notes | 37,644 | - | ||||||
| Issuance of common stock related to PIPE II make-hold provisions | 155 | - | ||||||
See accompanying notes to consolidated financial statements.
| F- 6 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Background, Basis of Presentation:
Background
NanoFlex Power Corporation, formerly known as Universal Technology Systems, Corp., was incorporated in the State of Florida on January 28, 2013. On September 24, 2013, the Company completed the acquisition of Global Photonic Energy Corporation, a Pennsylvania corporation (“GPEC”), pursuant to a Share Exchange Agreement (the “Share Exchange Transaction”). Immediately following the closing of the Share Exchange Transaction, the Company owned 100% of equity interests of GPEC and GPEC became a wholly-owned subsidiary of the Company. On November 25, 2013, the Company changed its name from “Universal Technology Systems, Corp.” to “NanoFlex Power Corporation” and its trading symbol was changed to “OPVS” on December 26, 2013.
GPEC was founded and incorporated on February 7, 1994 and is engaged in the research, development, and commercialization of advanced configuration solar technologies. The Company’s sponsored research programs at the University of Southern California (“USC”), the University of Michigan (“Michigan”), and Princeton University have resulted in an extensive portfolio of issued and pending patents worldwide. Pursuant to its sponsored research agreements, NanoFlex has obtained the exclusive worldwide license and right to sublicense any and all intellectual property resulting from the Company’s sponsored research programs. While each patent is issued in the name of the respective university that developed the subject technology, NanoFlex has exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being NanoFlex’s patents.
These patented and patent-pending technologies fall into two general categories. Gallium Arsenide (GaAs) solar technologies involve fabrication processes and device architectures to substantially reduce the cost of ultra-high efficiency GaAs thin films. Organic Photovoltaics (OPV) technologies involve the materials, architectures, and fabrication processes for ultra-thin film semi-transparent solar cells. The technologies are targeted at, but not limited to, certain broad applications that require high power conversion efficiency, flexibility, and light weight. These applications include, but are not limited to: (a) portable power mats and sheets for military and field use, (b) building applied photovoltaics (“BAPV”), (c) building integrated photovoltaics (“BIPV”), (d) space vehicles and unmanned aerial vehicles (“UAVs”), (e) semi-transparent solar power generating glazing or windows, and (f) ultra-thin solar films for consumer applications such as mobile devices or automobiles. Laboratory feasibility prototypes have been developed by the engineering team at University of Michigan that successfully demonstrate key building block principles for these technology application areas and the Company is working with industry partners to commercialize its technologies.
Basis of Presentation
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, inventory, long lived assets and contingencies. These estimates are based on management’s best knowledge of current events, historical experience, actions that we may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results could differ materially from these estimates and assumptions.
Revision of Previously-Issued Financial Statements
During the three months ended June 30, 2015, the Company identified errors in its financial statements for the last quarter of the fiscal year ended December 31, 2013, all quarters of fiscal year ended December 31, 2014, and the first quarter of fiscal year ended December 31, 2015 as included in the Company’s 2013 annual report on Form 10-K, the Company’s 2014 interim reports on Form 10-Q, the Company’s 2014 annual report on Form 10-K, and Company’s first quarter of 2015 interim reports on Form 10-Q, respectively, related to an unrecorded derivative liability and the related gain or loss on the change in fair value of the derivative liability. The derivative liability is associated with certain warrants containing anti-dilution features that cause the instruments to no longer be indexed to the Company’s own stock. The Company has made adjustments in each period related to this.
| F- 7 |
The Company assessed the effect of the above errors in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletins No. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not material to any of the Company’s prior interim and annual financial statements.
The Company determined that the correction of the cumulative amounts of the errors would be material to the year ended December 31, 2015 financial statements, and as such, the Company revised its previously-issued financial statements for each period in 2013, 2014 and 2015. The financial statements for the year ended December 31, 2014 included in this Form 10-K are revised as described below for those adjustments.
All financial information contained in the accompanying notes to these financial statements has been revised to reflect the correction of these errors.
The following table presents the effect of the aforementioned revision on the Company’s consolidated balance sheet as of December 31, 2014:
| As of December 31, 2014 | ||||||||||||
| As Reported | Revision | As Revised | ||||||||||
| Warrant liability | $ | - | $ | 847,791 | $ | 847,791 | ||||||
| Total current liabilities | 5,215,917 | 847,791 | 6,063,708 | |||||||||
| Total liabilities | 5,215,917 | 847,791 | 6,063,708 | |||||||||
| Accumulated deficit | (178,226,456 | ) | 38,497 | (178,187,959 | ) | |||||||
| Additional paid in capital | 173,025,473 | (886,288 | ) | 172,139,185 | ||||||||
| Total stockholders' deficit | (5,196,552 | ) | (847,791 | ) | (6,044,343 | ) | ||||||
| Total liabilities and stockholders' deficit | 19,365 | - | 19,365 | |||||||||
The following tables present the effect of the aforementioned revisions on the Company’s consolidated statements of operations for the year ended December 31, 2014:
| Year Ended December 31, 2014 | ||||||||||||
| As Reported | Revision | As Revised | ||||||||||
| Gain (loss) on change in fair value of derivative | $ | - | $ | 38,497 | $ | 38,497 | ||||||
| Total other expense | (80,522 | ) | 38,497 | (42,025 | ) | |||||||
| Loss before income tax benefit | (5,963,428 | ) | 38,497 | (5,924,931 | ) | |||||||
| Net loss | (5,963,428 | ) | 38,497 | (5,924,931 | ) | |||||||
| Net loss per share (basic and diluted) | (0.14 | ) | (0.00 | ) | (0.14 | ) | ||||||
The following tables present the effect of the aforementioned revisions on the Company’s consolidated statements of cash flows for the year ended December 31, 2014:
| Year Ended December 31, 2014 | ||||||||||||
| As Reported | Revision | As Revised | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (5,963,428 | ) | $ | 38,497 | $ | (5,924,931 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| (Gain) loss on change in fair value of derivative | - | (38,497 | ) | (38,497 | ) | |||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||||||
| Reclassification of warrants as derivative liabilities | - | 688,614 | 688,614 | |||||||||
Sponsored Research Agreement
Research and development of the Technology is being conducted at the University of Southern California (“USC”) and, on a subcontractor basis, at the University of Michigan, beginning 2006 and currently under a 5-year Sponsored Research Agreement dated May 1, 2009. During this period, the Company has agreed to pay USC up to $6,338,341 for work to be performed. On December 20, 2013, the Company entered into a Research Agreement with USC (“2013 Research Agreement”) to amend and replace the 2009 Research Agreement to continue the sponsored research at USC and Michigan from February 1, 2014 through January 31, 2021. On the same day, they have also entered into a Third Amendment to the License Agreement which renews and extends the License Agreement by and between USC, Michigan, Princeton and GPEC (“Third Amendment to License Agreement”). GPEC assigned to the Company and the Company assumed all the rights and obligations under both the 2013 Research Agreement and the Third Amendment to License Agreement.
| F- 8 |
License Agreement
The Company possesses an exclusive worldwide license and the right to sublicense any and all inventions and intellectual property resulting from the Company’s research agreements. Royalties due under the agreement are 5% of net sales of licensed products or licensed processes used, leased or sold by the Company, 3% of revenues from sublicensing technology and 23% of revenues from any patent rights lawsuit proceeds. Minimum royalties are as follows:
| Years ending December 31, | ||||
| 2016 | 50,000 | |||
| 2017 | 65,000 | |||
| 2018 | 75,000 | |||
| 2019 | 100,000 | |||
| 2020 | 100,000 | |||
| 2021 and thereafter | 100,000 | |||
Note 2: Going Concern
The Company has only generated limited revenues to date. The Company has a working capital deficit of $28,065,878 and an accumulated deficit of $204,989,355 as of December 31, 2015. The ability of the Company to continue as a going concern is dependent on raising capital to fund ongoing operations and carry out its business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. To date, the Company has funded its initial operations primarily by way of the sale of equity securities, convertible note financing, short term financing from private parties, and advances from related parties. The Company currently needs to raise additional capital in order to maintain its sponsored research agreements, its patent portfolio, research and development activities and efforts to commercialize its technologies, as well as to make payments on existing liabilities. The Company is continuing to raise capital, as it did during the year ended December 31, 2015, in order to continue the Company’s business operations. The Company currently requires approximately $6 million to $8 million to continue its operations over the next twelve months. There can be no assurance that the Company will be able to continue to raise sufficient capital or that it will be available on terms that are acceptable to the Company and its shareholders. The Company’s management is also actively seeking strategic partners for licensing and/or joint development of Company technologies as well as prioritizing our current IP portfolio to identify opportunities for cost reduction. The Company’s management is also seeking to reduce costs. There can be no assurance that the Company’s management will be successful in its planned efforts, and a failure to do so may lead to the Company being unable to continue its operations.
Note 3: Summary of Significant Accounting Policies
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its controlled subsidiaries. Intercompany transactions and balances are eliminated at consolidation. Equity investments in which we exercise significant influence, but do not control and are not the primary beneficiary, are accounted for using the equity method of accounting. Investments in which we do not exercise significant influence over the investee are accounted for using the cost method of accounting.
Accounts Receivable
Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts based on the probability of future collection. Management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company reserves for receivables that are determined to be uncollectible, if any, in its allowance for doubtful accounts. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance.
| F- 9 |
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to eight years.
Impairment of Long-lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or estimated salvage value.
Stock-Based Compensation
We account for stock based compensation in accordance with FASB ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. We account for non-employee share-based awards in accordance with FASB ASC 505-50.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the financial statements and accompanying notes. The significant estimates relate useful lives of software licenses, valuation of beneficial conversion feature on convertible debts, valuation of warrants and stock options, and valuation allowance for deferred income taxes. Actual results could differ from those estimates.
Concentration of Credit Risk and Significant Customers
Cash is maintained in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash.
All of the Company’s revenue and accounts receivable are currently earned from one customer.
Revenue Recognition
The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be measured reliably. This is normally demonstrated when: (i) persuasive evidence of an arrangement exists; (ii) the fee is fixed or determinable; (iii) performance of service has been delivered; and (iv) collection is reasonably assured. Revenue from our joint development agreements are recognized as services are provided and are limited to the total dollar amount specified in the agreement. R&D engineering services, through joint development agreements are a core component of NanoFlex’s operations and business model, since they are a necessary prerequisite to obtaining IP licensing agreements with customers. As such, R&D engineering services are expected to be a sustained revenue stream for NanoFlex as it works with additional customers and the services constitute a portion of the Company's ongoing central operations. The terms of the joint development agreement require the counterparty to pay Nanoflex up to $120,000 for the Company’s engineering related expenses upon successful completion of a proof of concept. Terms of the invoices are net 30 days. As of December 31, 2015, the Company has entered into one joint development agreement.
Research and Development
Research and development costs are expensed in the period they are incurred in accordance with ASC 730, Research and Development unless they meet specific criteria related to technical, market and financial feasibility, as determined by management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life, or written off if a product is abandoned. At December 31, 2015 and 2014, the Company had no deferred development costs.
| F- 10 |
Fair Value of Financial Instruments
The carrying value of short-term financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, and short-term borrowings approximate fair value due to the relatively short period to maturity for these instruments. The long-term borrowings approximate fair value since the related rates of interest approximates current market rates.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
We have net operating loss carry-forwards available to reduce future taxable income. Future tax benefits for these net operating loss carry-forwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that is it more likely than not that the tax positions will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Significant judgment is required to evaluate uncertain tax positions. Evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of tax audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in income tax expense in the period in which the change is made, which could have a material impact our effective tax position.
Note 4: Fair Value of Financial Instruments
ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
As of December 31, 2015 the significant inputs to the Company’s derivative liability calculation were Level 3 inputs.
| F- 11 |
The following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of December 31, 2015 and December 31, 2014:
|
Fair Value Measurements as of
December 31, 2015 |
||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| None | $ | - | $ | - | $ | - | ||||||
| Total assets | - | - | - | |||||||||
| Liabilities | ||||||||||||
| Warrant derivative liability | - | - | 12,796,146 | |||||||||
| Conversion option derivative liability | - | - | 8,145,160 | |||||||||
| Total liabilities | - | - | 20,941,306 | |||||||||
|
Fair Value Measurements as of
December 31, 2014 |
||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| None | $ | - | $ | - | $ | - | ||||||
| Total assets | - | - | - | |||||||||
| Liabilities | ||||||||||||
| Warrant derivative liability | - | - | 847,791 | |||||||||
| Conversion option derivative liability | - | - | - | |||||||||
| Total liabilities | - | - | 847,791 | |||||||||
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
| Significant Unobservable | ||||||||
| Inputs | ||||||||
| (Level 3) | ||||||||
| Year Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Beginning balance | 847,791 | 197,674 | ||||||
| Change in fair value | 6,472,607 | (38,497 | ) | |||||
| Additions reclassified from equity | 9,223,221 | - | ||||||
| Additions recognized as debt discounts | 300,218 | 688,614 | ||||||
| Additions recognized as compensation expense | 1,346,935 | - | ||||||
| Additions recognized as derivative expense | 7,429,350 | - | ||||||
| Resolution of derivative liabilities | (4,678,816 | ) | - | |||||
| Ending balance | 20,941,306 | 847,791 | ||||||
Note 5: Recent Accounting Pronouncements
In the quarter ended June 30, 2014, the Company elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.
| F- 12 |
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. This ASU 2015-16 simplifies the treatment of adjustments to provisional amounts recognized in the period for items in a business combination for which the accounting is incomplete at the end of the reporting period. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015. As this applies to future business combinations, the adoption of this ASU has no impact on the Company’s current consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 470): Balance Sheet Classification of Deferred Taxes. The amendments in ASU 2015-17 eliminate the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU-2015-17 can be either applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented and early adoption is permitted. The Company is currently evaluating the effect of adoption of this standard, if any, on its consolidated financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. The Company is currently evaluating the effect its adoption of this standard, if any, on our consolidated financial position, results of operations or cash flows.
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which includes a lessee accounting model that recognizes two types of leases - finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. New disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases are also required. These disclosures include qualitative and quantitative requirements, providing information about the amounts recorded in the financial statements. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect its adoption of this standard, if any, on our consolidated financial position, results of operations or cash flows.
Note 6: Debt
Notes Payable
The Company has a note payable due to Mr. Seligsohn, its former Chief Executive Officer and President. The note is due on demand and bears an interest rate at the minimum applicable rate for loans of similar duration, which was 0.5% as of December 31, 2015. As of December 31, 2015, the outstanding balance under this note is $100,000.
During the year ended December 31, 2015, the Company issued a promissory note of $50,000. The term of the note expires 120 days from the effective date. 100,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50/share in lieu of cash interest. As of December 31, 2015, the outstanding balance under these notes is $50,000. The relative fair value of the warrants of $45,243 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $45,243 associated with the amortization of debt discount for the year ended December 31, 2015.
As of December 31, 2015 and 2014, the aggregate outstanding balance of notes payable was $150,000 and $100,000, respectively.
Notes Payable – Related Party
On February 26, 2014, the Company borrowed $150,000 under a short term note agreement with a related party, the Chief Executive Officer’s son. Under the terms of this agreement, the note was to be repaid within 6 months of funding. In November 2014, the note agreement was amended to extend the due date to February 26, 2015, and in April of 2015, the note agreement was amended to extend the maturity date to February 26, 2016 and set a 4% simple interest rate on the note. As of December 31, 2015 and 2014, $509 and $22,784, respectively was recorded as accrued interest relating to this note. This note is currently past due and in default. The Company is in the process of renegotiating the terms of this agreement.
During the year ended December 31, 2015, the Company issued promissory notes to a majority shareholder in aggregate of $625,000. The notes have a term ranging from 120 – 150 days from the effective date. 1,250,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50/share in lieu of cash interest. As of December 31, 2015, the outstanding balance under these notes is $625,000. The relative fair value of the warrants of $418,332 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $314,180 associated with the amortization of debt discount for the year ended December 31, 2015.
As of December 31, 2015 and 2014, the aggregate outstanding balance of notes payable to related parties was $670,848 and $150,000, respectively, net of unamortized discounts of $104,152 and $0.
Advances – Related Party
During the year ended December 31, 2014, the Company received advances from its Chief Executive Officer totaling $721,150 and repaid advances totaling $293,000. Such advances do not accrue interest and are payable upon demand.
| F- 13 |
During the year ended December 31, 2015, the Company received advances from its Chief Executive Officer totaling $212,350, and repaid advances totaling $530,500. Such advances are payable upon demand and do not accrue interest. The Company paid interest of $7,989 during the year ended December 31, 2015.
As of December 31, 2015 and 2014, the aggregate outstanding balance of advances to related parties was $110,000 and $428,150, respectively.
Convertible Notes Payable
In July 2014, the Company borrowed $500,000 under two short term note agreements of $250,000 each. Under the terms of each agreement, the principal balance of $250,000 and interest of $16,500 was due to be repaid within 4 months of the date of the note. These agreements were amended on February 23, 2015 to extend the due date to July 21, 2015 and increase the interest amount to $25,000. The Company analyzed the amendment of the note under ASC 470 and concluded that the amendment did not qualify as a substantial modification. The agreements allow the holder to convert all or a portion of the principal and accrued interest into equity as a conversion rate of $1.25. On June 30, 2015, these notes and accrued interest of $50,000 were exchanged for two new convertible note agreements for $350,000 each and the issuance of 700,000 warrants with a five year life and an exercise price of $0.50 per share. The convertible note each have a principal amount of $350,000, interest of 8% per annum, a maturity date of June 30, 2016 and are convertible into 700,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The Company analyzed the amendment of the note under ASC 470 and concluded that the exchange gave rise to a debt extinguishment, which resulted in a loss on extinguishment of $150,000. The Company allocated the new proceeds to the warrants and the convertible debt based on their respective fair values, then, computed the effective conversion price of each instrument, noting that the convertible debt gave rise to a beneficial conversion feature in accordance with the provisions of ASC 470-20 “ Debt - Debt with Conversion and Other Options.” Based on this, $106,510 was allocated to the warrants, and $6,743 was allocated to the beneficial conversion feature, each of which are reflected in additional paid-in-capital. This allocation gave rise to a debt discount of $113,253 which is being amortized on a straight-line basis over the term of the note. The full principal balance of the notes was immediately converted pursuant to the terms of the note into shares of common stock and Warrants to purchase common stock on June 30, 2015. Upon conversion, the Company recorded amortization of debt discount of $113,253 and interest expense of $246,460 related to warrants issued at conversion.
On December 19, 2014, the Company received aggregate proceeds of $300,000 in exchange for a convertible note and the issuance of 200,000 warrants with a five year life and an exercise price of $2.50 per share. The convertible note has a principal amount of $300,000, interest of 8% per annum, a maturity date of December 19, 2015, and is convertible into 300,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $1 per share, subject to certain anti-dilution provisions. The Company allocated the proceeds to the warrants and the convertible debt based on their respective fair values, then computed the effective conversion price of each instrument, noting that the convertible debt gave rise to a beneficial conversion feature in accordance with the provisions of ASC 470-20 “ Debt - Debt with Conversion and Other Options.” Of the $300,000 proceeds received, $71,369 was allocated to the warrants, and $59,546 was allocated to the beneficial conversion feature, each of which are reflected in additional paid-in-capital. This allocation gave rise to a debt discount of $130,915 which is being amortized on a straight-line basis over the term of the note. This note was modified on June 29, 2015 to change the conversion price and exercise price to $0.50 per share. The Company analyzed the modification of the note under ASC 470 and determined that it did not qualify as a substantial modification. This note is currently past due and in default. The Company is in the process of renegotiating the terms of this agreement.
In March 2015, the Company received aggregate proceeds of $700,000 in exchange for convertible notes and the issuance of 466,667 warrants with a five year life and an exercise price of $2.50 per share. The convertible notes have a principal amount of $700,000, interest of 8% per annum, a maturity date of March 2016 and are convertible into 700,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $1 per share, subject to certain anti-dilution provisions. The Company allocated the proceeds to the warrants and the convertible debt based on their respective fair values, then, computed the effective conversion price of each instrument, noting that the convertible debt gave rise to a beneficial conversion feature in accordance with the provisions of ASC 470-20 “ Debt - Debt with Conversion and Other Options.” Of the $700,000 proceeds received, $137,863 was allocated to the warrants, and $87,563 was allocated to the beneficial conversion feature, each of which are reflected in additional paid-in-capital. This allocation gave rise to a debt discount of $225,426 which is being amortized on a straight-line basis over the term of the note. These notes were modified on June 29, 2015 to change the conversion price and exercise price to $0.50 per share. The Company analyzed the modification of the note under ASC 470 and determined that it did not qualify as a substantial modification.
| F- 14 |
In June 2015, the Company received aggregate proceeds of $530,000 in exchange for convertible notes and the issuance of 530,000 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes have a principal amount of $530,000, interest of 8% per annum, a maturity date of June 2016 and are convertible into 1,060,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $.50 per share, subject to certain anti-dilution provisions. The Company allocated the proceeds to the warrants and the convertible debt based on their respective fair values, then, computed the effective conversion price of each instrument, noting that the convertible debt gave rise to a beneficial conversion feature in accordance with the provisions of ASC 470-20 “ Debt - Debt with Conversion and Other Options.” Based on this, $80,643 was allocated to the warrants, and $5,106 was allocated to the beneficial conversion feature, each of which are reflected in additional paid-in-capital. This allocation gave rise to a debt discount of $85,749 which is being amortized on a straight-line basis over the term of the note.
On July 8, 2015, the Company received proceeds of $50,000 in exchange for a convertible note and the issuance of 50,000 warrants with a five year life and an exercise price of $0.50 per share. The convertible note has a principal amount of $50,000, interest of 8% per annum, a maturity date of June 2016 and is convertible into 100,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $.50 per share, subject to certain anti-dilution provisions. The Company allocated the proceeds to the warrants and the convertible debt based on their respective fair values, then, computed the effective conversion price of each instrument, noting that the convertible debt gave rise to a beneficial conversion feature in accordance with the provisions of ASC 470-20 “ Debt - Debt with Conversion and Other Options.” Based on this, $8,731 was allocated to the warrants, and $5,047 was allocated to the beneficial conversion feature, each of which are reflected in additional paid-in-capital. This allocation gave rise to a debt discount of $13,778 which is being amortized on a straight-line basis over the term of the note.
On July 13, 2015, the Company’s common stock began actively trading. As a result, the embedded conversion and anti-dilution features of the Company’s convertible debt agreements were determined to meet the definition of a derivative per ASC 815, Derivatives and Hedging. This resulted in the recording of a derivative liability, which was a reclassification out of additional paid-in capital of $9,146,853 for the Company’s convertible note agreements representing the fair value of the conversion options as of the date the Company’s common stock began actively trading. The fair value of the convertible feature was determined based on a fair value of $4,970,141 and $4,176,712 assigned to the warrant and common stock conversion options, respectively.
From July 13, 2015 to September 30, 2015, the Company received aggregate proceeds of $377,500 in exchange for convertible notes and the issuance of 377,500 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes have an aggregate principal amount of $377,500, interest of 8% per annum, a maturity date of one year and are convertible into 755,000 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 377,500 warrants issued with the debt was determined to be $274,625 and it was recognized as a discount to the debt. The fair value of the conversion options in the note was determined to be $4,892,969 of which $102,875 was recognized as an additional discount to the debt and $4,790,094 was recognized as a loss on derivatives. The fair value of the convertible feature was determined based on a fair value of $2,532,710 and $2,360,259 assigned to the warrant and common stock conversion options, respectively. The total debt discount of $377,500 is being amortized on a straight-line basis over the term of the note.
During September 2015, the full principal balances of certain notes totaling $745,000 and accrued interest were converted pursuant to the terms of the notes into 1,515,190 shares of the Company’s common stock and 1,515,190 warrants to purchase common stock. Of the 1,515,190 shares of common stock issued, 25,190 shares related to the payment of interest of $12,595. Upon conversion, the Company wrote-off the fair value of the derivative liability associated with the converted notes of $3,670,697 to additional paid-in capital.
From October 1, 2015 to December 31, 2015, the Company received aggregate proceeds of $486,549 in exchange for convertible notes and the issuance of 486,549 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes have an aggregate principal amount of $486,549, interest of 8% per annum, a maturity date of one year and are convertible into 973,098 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 489,549 warrants issued with the debt was determined to be $289,206 and it was recognized as a discount to the debt. The fair value of the conversion options in the note was determined to be $2,836,599 of which $197,343 was recognized as an additional discount to the debt and $2,639,256 was recognized as a loss on derivatives. The fair value of the convertible feature was determined based on a fair value of $1,531,858 and $1,304,741 assigned to the warrant and common stock conversion options, respectively. The total debt discount of $489,549 is being amortized on a straight-line basis over the term of the note.
During the three months ended December 31, 2015, the full principal balances of certain notes totaling $189,928 were converted pursuant to the terms of the notes into 408,040 shares of the Company’s common stock and 408,040 warrants to purchase common stock. Of the 408,040 shares of common stock issued, 28,184 shares related to the payment of interest of $14,092. Upon conversion, the Company wrote-off the fair value of the derivative liability associated with the converted notes of $1,008,119 to additional paid-in capital.
| F- 15 |
For the remaining outstanding convertibles notes as of December 31, 2015, the fair value of the derivative liability conversion options was $8,145,160 as of December 31, 2015.
Aggregate amortization of the discounts on the convertible notes for the year ended December 31, 2015 and 2014 was $957,512 and $4,304, respectively. As of December 31, 2015 and 2014, the aggregate outstanding balance of convertible notes payable was $1,051,545 and $673,389, respectively, net of unamortized discounts of $457,576 and $0.
Derivative Liabilities - Convertible Notes
On July 13, 2015, the Company’s common stock began actively trading. As a result, the embedded conversion and anti-dilution features of the Company’s convertible debt agreements were determined to meet the definition of a derivative per ASC 815, Derivatives and Hedging. This resulted in the recording of a derivative liability on July 13, 2015, which was a reclassification out of additional paid-in capital of $9,146,853 representing the fair value of the conversion options in the outstanding derivative notes as of July 13, 2015.
Additional convertible note borrowings between July 14, 2015 and December 31, 2015 resulted in additional derivative liabilities recognized of $7,729,568 for which $300,218 was recognized as a discount to the debt and $7,429,350 was recognized as a loss on derivatives. Due to conversion of the convertible debt to common stock during the period from July 14, 2015 through December 31, 2015, the fair value of the derivative liabilities associated with the converted notes of $4,678,816 was reclassified to additional paid-in capital. The Company recorded the change in fair value of the conversion option derivative liabilities recognizing a gain of $4,052,445 for the year ended December 31, 2015. As of December 31, 2015, the fair value of the outstanding convertible note derivatives was determined to be $8,145,160.
The valuation of the derivative liabilities attached to the convertible debt was arrived at through the use of Black-Scholes Option Pricing Model and the following assumptions:
| Year Ended December 31, | ||||
| 2015 | 2014 | |||
| Volatility | 113.46% - 197.50% | - | ||
| Risk-free interest rate | 0.10% - 1.76% | - | ||
| Expected term | 0.25 - 5 years | - | ||
Accounts Payable - Related Party
As of December 31, 2015 and 2014, there is $62,469 and $48,064, respectively, due to a related party, the Company’s Chief Financial Officer, which is non interest bearing due on demand.
Note 7. Equity
Common Stock
During the year ended December 31, 2014, the Company sold an aggregate of 1,507,000 units at $1.25 per unit for aggregate proceeds of $1,883,750. Each unit consisted of one common share and one warrant. Each warrant is exercisable for a period of five years from the date of issuance, at $2.50 per share.
During the year ended December 31, 2015, the Company sold an aggregate of 86,000 units, at $1.00 per unit for aggregate proceeds of $86,000, respectively. Each unit consisted of one common share and one warrant. Each warrant is exercisable for a period of five years from the date of issuance, at $1.00 per share.
During the year ended December 31, 2015, the Company issued an aggregate of 3,323,230 shares of its common stock related to the conversion of $1,634,928 of principal and $26,687 accrued interest expense on convertible notes. Of the common shares issued, 53,374 shares related to the payment of interest.
During the year ended December 31, 2015, the Company issued an aggregate of 1,828,437 shares of its common stock related to the exercise of 1,828,437 warrants and received cash proceeds of $914,220.
Pursuant to an anti-dilution provision in the subscription agreements executed by the $1.00 PIPE II and $1.25 PIPE II investors which provides for the issuance of a certain number of additional shares based on a formula in the subscription agreements, to these holders in the event that the company within 36 months of the completion of all PIPE II sales issues any common stock or securities convertible into or exercisable for shares of common stock at a lower price than the purchase price paid by the PIPE II investors. As a result of the Company's offering of such securities at a price lower than the price paid by the PIPE II investors, the Company issued 1,554,500 shares of common stock to the PIPE II investors in the year ended December 31, 2015.
| F- 16 |
On October 19, 2015, 75,288 shares of the Company’s common stock were cancelled in exchange for convertible notes of $37,644 and the issuance of 37,644 warrants with a five year life and an exercise price of $0.50 per share, as well as 75,288 warrants with a five year life and an exercise price of $2.50 per share. The convertible notes have a principal amount of $37,644, interest of 8% per annum, a one year term, and are convertible into 37,644 units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The agreement was subsequently amended to include an additional 75,288 units with each unit consisting of a share of common stock with a five year life from the date of grant and an exercise price of $2.50 per share, subject to certain anti-dilution provisions.
On November 6, 2015, the Company issued 350,000 shares of its common stock in exchange for services pursuant to a consulting agreement. The shares were valued at $350,000 which was based on the stock price on the grant date.
On December 9, 2015, the Company issued units which consisted of 100,000 shares and warrants to purchase 250,000 shares of its common stock exercisable at $0.50 per share and a term of 10 years in exchange for total proceeds of $50,000. The Company allocated the gross proceeds of $50,000 between common stock and warrants based on their relative fair value, estimated on the date of grant, valued common stock and the warrants at $14,532 and $35,468, respectively.
Stock Options
On April 28, 2013, the Board of Directors adopted the 2013 Stock Option Plan. Under the Plan, the Company may grant incentive stock options to employees and non-qualified stock options to employees, non-employee directors and/or consultants. The Plan provides for the granting of a maximum of 2,000,000 options to purchase common stock. The ISO exercise price per share may not be less than the fair market value of a share on the date the option is granted. The maximum term of the options may not exceed ten years.
On December 23, 2015, 50,000 stock options were granted to an employee of the Company. The options vest on a monthly basis of 1,000 shares per month over a 50 month period. The options expire in 2025. These options were valued based on the grant date fair value of the instruments, net of estimated forfeitures, using a Black-Scholes option pricing model with the following assumptions:
| Years Ended December 31, | ||||
| 2015 | 2014 | |||
| Volatility | 122.87% | - | ||
| Risk-free interest rate | 1.91% | - | ||
| Expected term | 6.06 years | - | ||
The volatility used was based on historical volatility of similar sized companies due to lack of historical data of the Company’s stock price. The risk free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.
Stock option awards are expensed on a straight-line basis over the requisite service period. During the years ended December 31, 2015 and 2014, the Company recognized expense of $364 and $0, respectively, associated with stock option awards. At December 31, 2015, future stock compensation expense (net of estimated forfeitures) not yet recognized was $68,938 and will be recognized over a weighted average remaining vesting period of 4.2 years.
| F- 17 |
A summary of stock option activity during the year ended December 31, 2015 and 2014 is as follows:
| Weighted | Weighted | |||||||||||
| Average | Average | |||||||||||
| Number of | Exercise | Remaining | ||||||||||
| Shares | Price | Contractual Life (years) | ||||||||||
| Outstanding at December 31, 2013 | 105,000 | $ | 11.03 | 2.6 | ||||||||
| Granted | - | - | ||||||||||
| Exercised | - | - | ||||||||||
| Forfeited | (56,000 | ) | 10.26 | |||||||||
| Outstanding at December 31, 2014 | 49,000 | 11.01 | ||||||||||
| Granted | 50,000 | 0.50 | ||||||||||
| Exercised | - | - | ||||||||||
| Forfeited | (49,000 | ) | 11.92 | |||||||||
| Outstanding at December 31, 2015 | 50,000 | $ | 0.50 | 10.0 | ||||||||
| Exercisable at December 31, 2015 | 1,000 | $ | 0.50 | 10.0 | ||||||||
The intrinsic value of the Company’s stock options outstanding was $55,500 and $0 at December 31, 2015 and 2014, respectively.
Warrants
During 2014, the Company modified an aggregate of 860,150 of warrants to reduce their exercise price from a range of $12.00 to $17.50 per share to $2.50 per share. All other terms and conditions remained the same. The Company determined that this transaction did not constitute a modification under ASC 718-10 or ASC 505-50 as it met the scope exceptions for a transaction with an investor or lender. Accordingly, no expense was recognized in connection with these transactions.
During the three months ended March 31, 2015, the Company offered to reduce the exercise price of certain warrants of the Company to $0.50 per share as an incentive to the holders to exercise such warrants (“Warrant Price Reduction”). As a result of the Warrant Price Reduction, a total of 649,650 shares of our Common Stock were issued after exercise of these warrants in exchange for $324,825 of proceeds. The Company determined that this transaction did not constitute a modification under ASC 718-10 or ASC 505-50 as it met the scope exceptions for a transaction with an investor. Accordingly, no expense was recognized in connection with these transactions.
In March 2015, the Company received aggregate proceeds of $700,000 in exchange for convertible notes and the issuance of 466,667 warrants with a five year life and an exercise price of $2.50 per share. The convertible notes are convertible into units, with each unit consisting of a share of common stock and a warrant with a five year life from the date of conversion and an exercise price of $1 per share, subject to certain anti-dilution provisions.
On April 15, 2015, the Company offered to reduce the exercise price of certain warrants of the Company to $0.50 per share as an incentive to the holders to exercise such warrants (“April 2015 Warrant Price Reduction”). Through December 31, 2015, warrant holders exercised their warrants for a total of 1,178,786 shares of our Common Stock, for proceeds received in the amount of $589,393. As a result of the decrease in the warrant price, the exercise price of certain of the Company’s outstanding warrants will be permanently reduced to $0.50 per share pursuant to their terms and certain of those warrants have a provision which will cause them to increase in number by multiplying the number by a fraction equal to the original warrant exercise price divided by the new warrant exercise price. The Company determined that this transaction does not constitute a modification under ASC 718-10 or ASC 505-50 as it met the scope exceptions for a transaction with an investor or lender. Accordingly, no expense was recognized in connection with these transactions.
On April 17, 2015, the Company amended the Engagement Agreement originally dated October 1, 2013, between the Company and Tobin Tao & Company, Inc. (“Tobin Tao”). This amendment grants Tobin Tao warrants to purchase 200,000 shares of the Company’s common stock at $0.50 per share. The anti-dilution features qualify these as a derivative instrument. The valuation of the derivative liability of the warrants was determined through the use of a Black Scholes options model for an amount of $102,654, which the Company believes approximates fair value. These warrants were recognized as derivative liabilities.
On May 26, 2015, the Company granted 250,000 warrants with a an exercise price of $0.50 and a five year term to Darren Ofsink in exchange for services. The anti-dilution features qualify these as a derivative instrument. The valuation of the derivative liability of the warrants was determined through the use of a Black Scholes options model for an amount of $128,317, which the Company believes approximates fair value. These warrants were recognized as derivative liabilities.
| F- 18 |
In June 2015, the Company received aggregate proceeds of $530,000 in exchange for convertible notes and the issuance of 530,000 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes are convertible into units, with each unit consisting two shares of common stock and two warrants with a five year life from the date of conversion and an exercise price $0.50 per share, subject to certain anti-dilution provisions. During September 2015, the full principal balances of these notes were converted pursuant to the terms of the notes into shares of the Company’s common stock and warrants to purchase common stock.
On June 30, 2015, the Company granted 700,000 warrants to two convertible debt holders in order to modify the outstanding convertible debt. An additional 1,400,000 warrants were issued as the modified notes were immediately converted. The warrants have a five year life and an exercise price of $0.50 per share.
On September 1, 2015 the Company entered into an Employment Agreement (the “Employment Agreement”) with Mark Tobin in his capacity as the Company’s Chief Financial Officer. Pursuant to the Employment Agreement, on September 1, 2015 the Company issued Mr. Tobin warrants to purchase 1,500,000 shares of the Company’s common stock at $1.00 per share (the “Warrant Shares”). 375,000 of the Warrant Shares vested on September 1, 2015, an additional 375,000 warrant shares will vest on the first anniversary date of the Employment Agreement, an additional 375,000 warrant shares will vest on the second anniversary date of the Employment Agreement, and, an additional 375,000 warrant shares will vest on the third anniversary date of the Employment Agreement.
During the three months ended September 30, 2015, the Company received aggregate proceeds of $377,500 in exchange for convertible notes and the issuance of 377,500 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes are convertible into units, with each unit consisting two shares of common stock and two warrants with a five year life from the date of conversion and an exercise price $0.50 per share, subject to certain anti-dilution provisions.
During September 2015, the aggregate principal and interest of certain convertible notes totaling $757,595 were converted pursuant to the terms of the notes into 1,515,190 shares of the Company’s common stock and 1,515,190 warrants to purchase common stock.
On November 4, 2015, the Company entered into an amendment to the Independent Contractor Agreement (the “Amendment”) with a service provider pursuant to which the service provider is to be issued warrants to purchase 2,400,000 shares of the Company’s common stock at $1.00 per share (the “Warrant Shares”). 1,200,000 of the Warrant Shares vested on November 4, 2015, an additional 600,000 Warrant Shares will vest on the first anniversary date of the Amendment, an additional 600,000 warrant shares will vest on the second anniversary date of the Amendment.
On November 5, 2015, the Company issued a warrant to purchase 3,000,000 shares of the Company’s $.0001 par value common stock to the Company’s Chief Executive Officer, Dean Ledger, in exchange for services already performed. The warrants are immediately vested, have an exercise price of $1.00 and have a 10 year term.
On November 9, 2015, the Company issued a warrant to purchase 500,000 shares of the Company’s $.0001 par value common stock to Robert J. Fasnacht, our current Executive Vice President and member of our Board of Directors, in exchange for services already performed. The warrants are immediately vested, have an exercise price of $1.00 and have a 10 year term.
During the three months ended December 31, 2015, the Company received aggregate proceeds of $486,549 in exchange for convertible notes and the issuance of 486,549 warrants with a five year life and an exercise price of $0.50 per share. The convertible notes are convertible into units, with each unit consisting two shares of common stock and two warrants with a five year life from the date of conversion and an exercise price $0.50 per share, subject to certain anti-dilution provisions.
During the three months ended December 31, 2015, the aggregate principal and interest of certain convertible notes totaling $204,020 were converted pursuant to the terms of the notes into 408,040 shares of the Company’s common stock and 408,040 warrants to purchase common stock. See details in Note 6.
During the year ended December 31, 2015, the Company sold an aggregate of 86,000 units, respectively, at $1.00 per unit for aggregate proceeds of $86,000. Each unit consisted of one common share and one warrant. Each warrant is exercisable for a period of five years from the date of issuance, at $1.00 per share. During the year ended December 31, 2015, the Company granted an additional 86,000 warrants to the investors due to the reset provision.
During the year ended December 31, 2015, the Company issued promissory notes in aggregate of $675,000. 1,350,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50/share in lieu of cash interest. The relative fair value of the warrants of $463,575 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note.
During the year ended December 31, 2015, the Company granted an additional 5,284,500 warrant to investors due to the reset provision.
| F- 19 |
The following summarizes the warrant activity for the years ended December 31, 2015 and 2014:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Shares | Price | Term (in years) | Value | |||||||||||||
| Outstanding as of December 31, 2013 | 19,556,983 | $ | 3.60 | 4.7 | $ | - | ||||||||||
| Granted | 1,707,000 | 2.50 | ||||||||||||||
| Expired | (12,000 | ) | ||||||||||||||
| Exercised | - | |||||||||||||||
| Outstanding as of December 31, 2014 | 21,251,983 | $ | 2.53 | 3.8 | $ | - | ||||||||||
| Granted | 15,481,234 | 0.75 | ||||||||||||||
| Warrants issued related to reset provision | 5,284,500 | 2.50 | ||||||||||||||
|
Expired/Cancelled |
(162,850 | ) | 3.00 | |||||||||||||
|
Exercised |
(1,828,436 | ) | 2.41 | |||||||||||||
| Outstanding as of December 31, 2015 | 40,026,431 | $ | 1.83 | 4.6 | $ | 54,932,218 | ||||||||||
| Exercisable as of December 31, 2015 | 38,826,431 | $ | 1.88 | 4.6 | $ | 54,932,218 | ||||||||||
The reset shares are the result of reducing the exercise price of the warrants issued under Pipe I from $2.50 to $0.50, and Pipe II from $2.50 to $1.00. The increase in shares offset the reduced exercise price therefore the net value of the Pipe I & Pipe II warrants remain constant in total.
Derivative Liabilities - Warrants
The anti-dilution features in the freestanding warrants issued in the year ended December 31, 2015 cause the instruments to no longer be indexed to the Company’s own stock and requires that they be accounted for as derivative liabilities based on guidance in FASB ASC 815, Derivatives and Hedging.
The valuation of the derivative liability of the warrants was determined through the use of a Black Scholes options model, which the Company believes approximates fair value. Using this model, the Company had a balance of $197,674 at December 31, 2013. The Company determined a fair value of $688,614 at issuance date for warrants issued during the year ended December 31, 2014. The Company recorded the change in the fair value of the warrant liabilities recognizing a gain of $38,497 for the year ended December 31, 2014, to reflect the value of the warrant derivative liability of $847,791 at December 31, 2014.
The Company determined a fair value of $1,423,303 at issuance date for warrants issued during the year ended December 31, 2015 of which $76,368 was reclassified from additional paid-in capital and $346,935 was recognized as compensation expense. The Company recorded the change in the fair value of the warrant liabilities recognizing a loss of $10,525,052 for the year ended December 31, 2015, to reflect the value of the warrant derivative liability of $12,796,146 at December 31, 2015.
The warrants were valued using the Black-Scholes pricing model with the following assumptions:
| Year Ended December 31, | ||||
| 2015 | 2014 | |||
| Volatility | 108.72% - 132.58% | 98.25% - 102.46% | ||
| Risk-free interest rate | .725% - 2.27% | .670% .825% | ||
| Expected term | 3 - 10 years | 4.25 - 5 years | ||
Note 8. Commitments and Contingencies
Contractual Agreements
Under the 2013 Research Agreement with USC, the Company is obligated to make certain payments to USC based on work performed by USC under that agreement, and by Michigan under its subcontractor agreement with USC. (See Note 1)
| F- 20 |
Under the terms of the 2013 Amended License Agreement, the Company is required to make minimum royalty payments to Princeton. (See Note 1)
The Company has agreements with three executive officers which provide for certain cash and other benefits upon termination of employment of the officer in connection with a change in control of the Company. Each executive is entitled to a lump-sum cash payment equal to three times the sum of the average annual base salary also they are entitled to a cash bonus.
Lease Commitments
In November 2013, the Company entered into a 60-month lease agreement for its corporation facility in Arizona. Total rent expense for the year ended December 31, 2015 and 2014 was $91,871 and $80,584, respectively.
Future minimum lease payments are as follows:
| 2016 | $ | 81,925 | ||
| 2017 | 84,233 | |||
| 2018 | 71,797 | |||
| 2019 | - | |||
| 2020 | - | |||
| Thereafter | - | |||
| Total | $ | 237,955 |
Concentrations
All of the Company’s revenue and accounts receivable are currently earned from one customer.
Legal Matters
On March 18, 2015, the Company received correspondence from the counsel of Mr. John Kuhns, the Company’s former Co-CEO and Executive Chairman alleging that Mr. Kuhns has “Good Reason” to terminate his Employment Agreement for an alleged failure to pay his salary in full. On March 30, 2015, Mr. Kuhns advised that if the alleged breaches of the Employment Agreement were not cured there was a possibility that he would pursue litigation.
As of March 30, 2015, shareholders holding approximately 67.26% of the total shares of common stock of NanoFlex Power Corporation (the “Company,” “we,” “our” or “us”) that are entitled to vote on all Company matters approved by written consent the removal of John D. Kuhns from his position as a member of the Company’s Board of Directors. Mr. Kuhns’ removal was for “Cause” as defined under his Employment Agreement as amended and dated as of October 1, 2013 (the “Employment Agreement”). The removal arose as a result of his documented conduct and statements, which breached his fiduciary duties to the Company in order to advance personal monetary and other interests, and thereby threatened serious financial injury to the Company, its shareholders and its debtholders.
On March 31, 2015, the Board of Directors terminated the Employment Agreement with Mr. Kuhns for Cause and removed him from his positions as Co-CEO, and from all other officer positions he held with the Company and its subsidiaries and affiliates, and all director positions with the Company’s subsidiaries and affiliates.
On April 24, 2015, the Company received a letter from Mr. Kuhns’ counsel (the “Response Letter”) stating that Mr. Kuhns disagreed with statements in the Initial Filing regarding the circumstances of his removal as a director and officer.
The Response Letter was accompanied by a copy of a complaint (the “Complaint”) filed by John D, Kuhns (the “Plaintiff”) in the United States District Court Southern District of New York against the Company, Mr. Dean L. Ledger, our current CEO and member of our Board of Directors, Mr. Robert J. Fasnacht, our current Executive Vice President and member of our Board of Directors and Mr. Ronald B. Foster, a shareholder of the Company (each, a “Defendant,” collectively, the “Defendants”). The Complaint alleges, among other things, that the Plaintiff was terminated by the Company in violation of Section 922 of the Dodd-Frank Act, that the Company wrongfully terminated the Employment Agreement, that the Defendants made false statements to shareholders regarding the Plaintiff, that the Defendants (other than the Company) tortuously interfered with the Plaintiff’s Employment Agreement, and that Mr. Ledger and Mr. Fasnacht breached their fiduciary duties to the Company and its shareholders.
| F- 21 |
The Plaintiff seeks monetary damages, including (i) two (2) times of the alleged owed compensation to him, together with interest as well as litigation costs, expert witness fees and reasonable attorneys’ fees; (ii) damages for the alleged breach of the Employment Agreement by the Company, estimated to be at least $2 million, plus interest and attorney’s fees; (iii) an unspecified amount for his alleged libel claim; and (iv) damages for the alleged tortious interference with contract, including punitive damages of at least $2 million. The Plaintiff is also seeking a declaratory judgment, claiming that he was not terminated as a director and should continue to hold a seat on the Company’s Board of Directors.
On September 3, 2015 the Company filed a Motion to Dismiss portions of the Complaint in the United States District Court Southern District of New York. The Company believes that the allegations in the Complaint to be without any merit and will vigorously defend against the claims.
Note 9. Income Taxes
The Company has incurred losses since inception. As of December 31, 2015, the Company has net operating loss carry-forwards of approximately $61,000,000 that begin to expire in 2017. Pursuant to Sections 382 and 383 of the Internal Revenue Code, the utilization of NOLs and other tax attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as defined by the Internal Revenue Code). A valuation allowance was established for all the net deferred tax assets because realization is not assured. The components of the deferred tax assets consist of the following:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Net operating loosed | $ | 21,000,000 | $ | 19,000,000 | ||||
| Less: valuation allowance | (21,000,000 | ) | (19,000,000 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Note 10. Subsequent Events
Note Conversion Agreement
On January 6, 2016, the Company issued an additional promissory note to an investor in the amount of $1,375,000 in exchange for a loan in that amount. The Company issued 2,750,000 warrants in connection with this note, for the Company’s common stock at an exercise price of $0.50 per share in lieu of cash interest.
January 22, 2016, the Company entered into a note conversion agreement with the investor. Pursuant to this agreement, the investor converted the notes, which total $2,000,000, into an investment of $2,000,000 into the Company’s private placement of convertible notes and warrants.
For $2,000,000, the investor received a convertible note and a warrant to purchase 2,000,000 shares of common stock. The warrant has a ten year term and an exercise price of $0.50 per share. The convertible note accrues interest of 8% per annum, has a maturity date of one year and is convertible at $0.50 per unit, into units, with each unit consisting of a share of the Company’s common stock and a warrant to purchase a share of common stock with a ten year term and an exercise price of $.50 per share.
Pursuant to the conversion agreement, if the investor converted the convertible note within 30 days of its issuance, the Company was required to pay the investor the interest under the convertible note in shares of its common stock as if the investor did not convert the convertible note for a period of one year from the date of issuance. On January 25, 2016, the investor converted the convertible note into 4,320,000 shares of the Company’s common stock and a warrant to purchase 4,320,000 shares of the Company’s common stock with a ten year term and an exercise price of $.50. Of the 4,320,000 shares of Common Stock, 320,000 shares represent interest paid on the convertible note pursuant to the terms of the conversion agreement.
Other
Effective February 4, 2016, the Company agreed to pay $10,500 pursuant to a separation agreement relating to the termination of an employee.
F-22
Exhibit 10.17
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made this 8 th day of May, 2015 by and between Robert J. Fasnacht ("Executive") and NanoFlex Power Corporation (the "Company"). All capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have the respective meanings ascribed to them in that certain Employment Agreement dated as of October 22, 2013 (the "Employment Agreement") between the parties.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
| 1. | Modification of Employment Agreement. |
| 1.1 | Modification of Base Salary . Section 4.1 of the Employment Agreement, which had been modified in October 2014, to reduce base salary from $400,000 to $240,000, shall be further modified effective January 1, 2015 reflect that base salary for Executive shall be $190,000. |
| 2. | Further Agreement as to Base Salary. The parties hereby agree that there shall be no cost of living increase in the Base Salary. | |
| 3. | Miscellaneous. Except as amended pursuant to this Amendment, the Employment Agreement (including the Schedules and Exhibits thereto) remains in effect in all respects. The provisions of Section 18 of the Employment Agreement, to the extent applicable, are hereby incorporated herein by reference. |
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Employment Agreement to be executed as of the date first written above.
| NanoFlex Power Corporation | E xecutive: | ||
| By: | /s/ Dean Ledger | /s/ Robert J. Fasnacht | |
| Dean Ledger, CEO and Director | Robert J. Fasnacht | ||
Exhibit 10.18
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this " Amendment ") is made this 8 th day of May, 2015 by and between Dean L. Ledger (" Executive ") and NanoFlex Power Corporation (the " Company "). All capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have the respective meanings ascribed to them in that certain Employment Agreement dated as of October 22, 2013 (the " Employment Agreement ") between the parties.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
| 1. | Modification of Employment Agreement. |
| 1.1 | Modification of Base Salary. Section 4.1 of the Employment Agreement, which had been modified in October 2014, to reduce base salary from $400,000 to $300,000, shall be further modified effective January 1, 2015 reflect that base salary for Executive shall be $210,000. |
| 2. | Further Agreement as to Base Salary. The parties hereby agree that there shall be no cost of living increase in the Base Salary. | |
| 3. | Miscellaneous. Except as amended pursuant to this Amendment, the Employment Agreement (including the Schedules and Exhibits thereto) remains in effect in all respects. The provisions of Section 18 of the Employment Agreement, to the extent applicable, are hereby incorporated herein by reference. |
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Employment Agreement to be executed as of the date first written above.
| NanoFlex Power Corporation | E xecutive: | ||
| By: | /s/ Robert J. Fasnacht | /s/ Dean L. Ledger | |
| Robert J. Fasnacht, Director and EVP | Dean L. Ledger | ||
Exhibit 31.1
CERTIFICATION
I, Dean L. Ledger, Chief Executive Officer of NanoFlex Power Corporation, formerly known as Universal Technology Systems Corp. (the “registrant”), certify that:
| 1. | I have reviewed this annual report on Form 10-K of the registrant for the period ended December 31, 2015; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: March 18, 2016
| /s/ Dean L. Ledger | |
| Dean L. Ledger | |
| Chief Executive Officer | |
| (principal executive officer) | |
Exhibit 31.2
CERTIFICATION
I, Mark Tobin, Chief Financial Officer of NanoFlex Power Corporation, formerly known as Universal Technology Systems Corp. (the “registrant”), certify that:
| 1. | I have reviewed this annual report on Form 10-K of the registrant for the period ended December 31, 2015; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: March 18, 2016
| /s/ Mark Tobin | |
| Mark Tobin | |
| Chief Financial Officer | |
| (principal financial and accounting officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of NanoFlex Power Corporation, formerly Universal Technology Systems Corp. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Company’s Annual Report on Form 10-K for the period ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 18, 2016
| /s/ Dean L. Ledger | |
| Dean L. Ledger | |
| Chief Executive Officer | |
| (principal executive officer) | |
| /s/ Mark Tobin | |
| Mark Tobin | |
| Chief Financial Officer | |
| (principal financial and accounting officer) |