NanoFlex Power Corp - Quarter Report: 2014 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 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
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
609-654-8839
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
|
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
|
|
(Do not check if 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 o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 43,297,678 shares of common stock are issued and outstanding as of May 13, 2014.
TABLE OF CONTENTS
|
|
Page
|
|
|
|
||
|
2
|
||
|
8
|
||
|
10
|
||
|
10
|
||
|
|
||
|
|
||
|
12
|
||
|
12
|
||
|
12
|
||
|
13
|
||
1
ITEM 1. FINANCIAL STATEMENTS
CONTENTS
|
FINANCIAL STATEMENTS
|
Page
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
2
|
(Formerly known as Universal Technology Systems Corp.)
|
||
|
(a development stage company)
|
||
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2014
(unaudited)
|
December 31,
2013
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash
|
$ | 60,409 | $ | 197,004 | ||||
|
Prepaid expenses and other current assets
|
15,605 | 13,645 | ||||||
|
Total current assets
|
76,014 | 210,649 | ||||||
|
Property and equipment, net
|
7,594 | 7,433 | ||||||
|
TOTAL ASSETS
|
$ | 83,608 | $ | 218,082 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Accounts payable
|
$ | 1,565,068 | $ | 689,119 | ||||
|
Accrued expenses
|
589,706 | 676,752 | ||||||
|
Short-term debt
|
100,000 | 100,000 | ||||||
|
Short-term debt- related party
|
150,000 | - | ||||||
|
Total current liabilities
|
2,404,774 | 1,465,871 | ||||||
|
TOTAL LIABILITIES
|
2,404,774 | 1,465,871 | ||||||
|
STOCKHOLDERS' DEFICIT:
|
||||||||
|
Common stock, 250,000,000 authorized, $0.0001 par value, 43,297,678 and 42,799,278 issued and outstanding, respectively
|
4,330 | 4,280 | ||||||
|
Additional paid in capital
|
171,633,909 | 171,010,959 | ||||||
|
Deficit accumulated during development stage
|
(173,959,405 | ) | (172,263,028 | ) | ||||
|
Total stockholders' deficit
|
(2,321,166 | ) | (1,247,789 | ) | ||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 83,608 | $ | 218,082 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
|
(Formerly known as Universal Technology Systems Corp.)
|
|
(a development stage company)
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
(unaudited)
|
|
Period from Inception
(February 7, 1994) to
|
||||||||||||
|
Three Months Ended March 31,
|
March 31,
|
|||||||||||
|
2014
|
2013
|
2014
|
||||||||||
|
OPERATING EXPENSES:
|
||||||||||||
|
Research and development
|
$ | 550,000 | $ | 221,875 | $ | 12,007,638 | ||||||
|
Research and development - stock-based compensation
|
- | - | 3,623,294 | |||||||||
|
Patent application and prosecution fees
|
414,436 | 325,477 | 13,142,864 | |||||||||
|
Salaries and related expenses
|
432,267 | 125,306 | 17,113,921 | |||||||||
|
Stock-based compensation
|
- | 811,031 | 56,945,272 | |||||||||
|
Selling,general and administrative expenses
|
299,041 | 181,342 | 7,822,066 | |||||||||
|
Depreciation expense
|
633 | 353 | 28,790 | |||||||||
|
Total operating expenses
|
1,696,377 | 1,665,384 | 110,683,845 | |||||||||
|
LOSS FROM OPERATIONS
|
(1,696,377 | ) | (1,665,384 | ) | (110,683,845 | ) | ||||||
|
OTHER INCOME (EXPENSES):
|
||||||||||||
|
Gain on settlement of lawsuit
|
- | - | 268,187 | |||||||||
|
Interest expense
|
- | (266,908 | ) | (19,229,445 | ) | |||||||
|
Interest income
|
- | - | 349,162 | |||||||||
|
Loss on extinguishment of debt
|
- | (1,811,800 | ) | (44,836,858 | ) | |||||||
|
Total other expense
|
- | (2,078,708 | ) | (63,448,954 | ) | |||||||
|
LOSS BEFORE INCOME TAX BENEFIT
|
(1,696,377 | ) | (3,744,092 | ) | (174,132,799 | ) | ||||||
|
INCOME TAX BENEFIT
|
- | - | 173,394 | |||||||||
|
NET LOSS
|
$ | (1,696,377 | ) | $ | (3,744,092 | ) | $ | (173,959,405 | ) | |||
|
NET LOSS per share (basic and diluted)
|
$ | (0.04 | ) | $ | (0.21 | ) | n/a | |||||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
|
||||||||||||
|
BASIC and DILUTED
|
43,131,260 | 17,485,413 | n/a | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
|
(Formerly known as Universal Technology Systems Corp.)
|
|
(a development stage company)
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(unaudited)
|
|
Period from Inception
(February 7, 1994) to
|
||||||||||||
|
Three Months Ended March 31,
|
March 31,
|
|||||||||||
|
2014
|
2013
|
2014
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net loss
|
$ | (1,696,377 | ) | $ | (3,744,092 | ) | $ | (173,959,405 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Common shares issued for license agreements
|
- | - | 1,400,000 | |||||||||
|
Warrants issued for legal settlement
|
- | - | (268,187 | ) | ||||||||
|
Depreciation expense
|
633 | 353 | 28,790 | |||||||||
|
Amortization of debt discounts and other non-cash interest expense
|
103,336 | 16,381,723 | ||||||||||
|
New warrants issued to substitute old warrants
|
- | - | 57,173 | |||||||||
|
Stock-based compensation
|
- | 811,031 | 60,422,377 | |||||||||
|
Loss on extinguishment of debt
|
- | 1,811,800 | 44,836,858 | |||||||||
|
Return of equity investment
|
- | - | (222,500 | ) | ||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Prepaid expenses and other current assets
|
(1,960 | ) | - | (15,605 | ) | |||||||
|
Accounts payable and accrued expenses
|
788,903 | 9,738 | 2,642,210 | |||||||||
|
Net cash used in operating activities
|
(908,801 | ) | (1,007,834 | ) | (48,696,566 | ) | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Purchases of fixed assets
|
(794 | ) | - | (36,384 | ) | |||||||
|
Common shares issued in reverse merger, net
|
- | - | 5,149 | |||||||||
|
Net cash used in investing activities
|
(794 | ) | - | (31,235 | ) | |||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds from exercise of warrants
|
- | 176,819 | 2,888,998 | |||||||||
|
Proceeds from sale of common shares and warrants
|
623,000 | 1,050,000 | 22,068,512 | |||||||||
|
Proceeds from sale of common shares - related party
|
- | - | 1,150,000 | |||||||||
|
Borrowings on debt
|
- | - | 19,162,000 | |||||||||
|
Borrowings on related party debt
|
150,000 | - | 12,187,500 | |||||||||
|
Principal repayments on debt
|
- | (160,000 | ) | (7,475,000 | ) | |||||||
|
Principal repayments on related party debt
|
- | (200,000 | ) | (1,193,800 | ) | |||||||
|
Net cash provided by financing activities
|
773,000 | 866,819 | 48,788,210 | |||||||||
|
NET (DECREASE) INCREASE IN CASH
|
(136,595 | ) | (141,015 | ) | 60,409 | |||||||
|
Cash, beginning of the period
|
197,004 | 344,656 | - | |||||||||
|
Cash, end of the period
|
$ | 60,409 | $ | 203,641 | $ | 60,409 | ||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
||||||||||||
|
Cash paid for interest
|
$ | - | $ | 714,036 | $ | 2,601,625 | ||||||
|
Cash paid for income taxes
|
$ | - | $ | - | $ | - | ||||||
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||
|
Warrants and common shares issued with debt
|
- | - | 7,244,532 | |||||||||
|
Common shares issued with related party debt
|
- | - | 2,206,278 | |||||||||
|
Warrants and common shares issued for debt
|
- | 230,000 | 9,766,953 | |||||||||
|
Common shares issued for forgiveness of related party debt
|
- | 105,000 | 4,105,000 | |||||||||
|
Common shares repurchased with debt
|
- | - | 60,000 | |||||||||
|
Warrants issued for legal settlement
|
- | - | 114,249 | |||||||||
|
Common shares issued for conversion of convertible debt upon merger
|
- | - | 11,433,200 | |||||||||
|
Beneficial conversion feature on converted debt
|
- | - | 169,486 | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
(Formerly known as Universal Technology Systems Corp.)
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND, BASIS OF PRESENTATION, AND GOING CONCERN:
Background
NanoFlex Power Corporation (the “Company,” formerly Global Photonic Energy Corporation) merged with Universal Technology Systems Corp. in a transaction recorded as a reverse merger on September 24, 2013. The Company is a development stage company organized to fund, develop and commercialize photonic energy conversion technologies utilizing organic semiconductor-based solar cells. The Company intends to enter into licensing arrangements and other strategic alliances for the development, manufacture and marketing of products utilizing this technology. The Company is a development stage company as defined by ASC 915, Accounting and Reporting by Development Stage Entities. The Company is devoting substantially all of its present efforts to establishing a new business. All losses accumulated since inception have been considered as part of the Company’s development stage activities.
Basis or Presentation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2013 included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of results to be expected for the full fiscal year or any other periods.
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures. Actual results may differ from these estimates.
Going Concern
The Company has not generated revenues to date. The Company has a working capital deficit of ($2,328,760) and an accumulated deficit of ($173,959,405) as of March 31, 2014. 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.
2. NOTES PAYABLE – RELATED PARTY
During the three months ended March 31, 2014, the Company borrowed $150,000 under a short term note agreement with a related party. Under the terms of this agreement, this note is due to be repaid within 6 months of funding and is non-interest bearing. If the Company defaults on this agreement, the note shall bear interest at a rate of 18 percent per annum for the entire term of the note.
3. EQUITY
During the three months ended March 31, 2014, the Company sold an aggregate of 498,400 units at $1.25 per unit for aggregate proceeds of $623,000. 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 $2.50 per share.
4. STOCK OPTIONS AND WARRANTS
2000 Stock Option Plan
On April 28, 2000, the Board of Directors adopted the 2000 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.
6
A summary of stock option activity during the three months ended March 31, 2014 is as follows:
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number of
|
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||||
|
Shares
|
Price
|
Term (in years)
|
Value
|
|||||||||||||
|
Outstanding as of December 31, 2013
|
105,000 | $ | 11.03 | |||||||||||||
|
Granted
|
- | |||||||||||||||
|
Cancelled
|
(12,000 | ) | $ | 11.20 | ||||||||||||
|
Exercised
|
- | |||||||||||||||
|
Outstanding as of March 31, 2014
|
93,000 | $ | 11.01 | 2.7 | $ | - | ||||||||||
|
Exercisable as of March 31, 2014
|
93,000 | $ | 11.01 | 2.7 | $ | - | ||||||||||
The exercise price of these options range from $10.00 to $15.00 per share.
A summary of warrant activity during the three months ended March 31, 2013 is as follows:
|
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 | |||||||||||||
|
Granted
|
498,400 | $ | 2.50 | |||||||||||||
|
Cancelled
|
- | |||||||||||||||
|
Exercised
|
- | |||||||||||||||
|
Outstanding as of March 31, 2014
|
20,055,383 | $ | 3.10 | 4.5 | $ | - | ||||||||||
|
Exercisable as of March 31, 2014
|
20,055,383 | $ | 3.10 | 4.5 | $ | - | ||||||||||
The exercise price of these warrants ranges from $2.50 to $17.50 per share.
During the three months ended March 31, 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.
7
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2013 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed on March 31, 2014.
Overview
NanoFlex is engaged in the development, commercialization, and licensing of advanced photovoltaic technologies and intellectual property. We have agreements with Princeton University which were assigned to University of Southern California and the University of Michigan (collectively, the “Universities”), pursuant to which we have developed certain technologies and prosecuted and paid for more than 680 issued or pending patents covering materials, architectures, and fabrication processes for organic and inorganic flexible, thin-film photovoltaic technologies. While each patent is issued in the names of the respective university that developed the subject technology, we have exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being our patents.
Unlike conventional thin film solar, the materials platforms that we have developed and are developing for solar cells are capable of ultrahigh efficiency accessible only by single crystalline inorganic materials such as silicon and gallium arsenide. The technologies we are developing allow the solar energy generating surfaces to be sufficiently flexible to be wrapped around 1 centimeter diameter cylinders without damage or loss of performance. Their ultra-light weight impacts other traditional costs associated with solar such as eliminating the need for costly, complex and robust panel mounts. We believe that these solar energy generating “films” can be used on architectural surfaces, on windows as attractive semi-transparent energy-generating coatings and even paints. Their flexibility allows their application to surfaces such as tents, clothing and other oddly shaped or “mobile” surfaces, including space-borne applications. Finally, the ability to be rolled around cylinders permits compact and low cost transport for deployment at remote sites.
We currently hold exclusive rights to more than 680 issued or pending patents worldwide which cover architecture, processes and materials for flexible, thin-film organic photovoltaic (“OPV”) and Gallium Arsenide (“GaAs”) technologies. In addition, we have several hundred more patents in process. Some of our technology holdings include foundational concepts in the following areas (many of which are being validated in other labs as indicated by the asterisks).
|
●
|
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 multiexciton generation
|
|
●
|
Mixed layer and nanocrystalline cells
|
|
●
|
Solar paints
|
|
●
|
Transparent/semi-transparent cells
|
|
●
|
Ultralow cost, ultrahigh efficiency, flexible thin film inorganic cells
|
|
●
|
Accelerated and recyclable liftoff process
|
|
●
|
Cold-weld bonding of inorganic solar cells to plastic substrates and metal foils
|
Plan of Operation and Liquidity and Capital Resources
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 plan to work closely with those companies interested in our technology solutions, both in our own technology development center, as well as within partner facilities, to develop proof-of-concept prototypes and processes to mitigate commercialization risks and gain early market entry and acceptance.
Although we currently do not have any commitments from third parties to license our technologies or otherwise provide revenue to us, we are aware of several laboratories and commercial suppliers who are exploring and positively validating technologies that we have developed and which are protected by our intellectual property portfolio. These interested parties potentially represent some of our first partners for joint technology development and acceptance into manufacturing production.
A key to reducing the risk to market entry by our partners is for us to qualify our technologies at a manufacturing scale. We believe that the best manner to do this is to develop our own technology development center in Ann Arbor, Michigan. The principal function of the facility will be to demonstrate our ability to prototype our inorganic and organic solar cells utilizing our proprietary technologies. In addition, we anticipate that advancements at the facility can attract other industry players to acquire early licenses to use our intellectual property. Finally, we believe that having a technology development center will allow us to obtain government funding from the National Aeronautics and Space Administration, the Department of Defense and the Department of Energy, each of which have interests in businesses that can deliver ultra lightweight, high-efficiency technologies for space, mobile warfighter, and grid-deployment applications.
8
The technology development center can also make us highly competitive to receive government grants to support GaAs and OPV research and development. A second revenue source is in joint development projects with existing solar cell manufacturers. The largest near-term opportunity will be in partnerships exploiting GaAs solar technology with existing GaAs cell manufacturers in the space programs, military operations and other suitable end use. We anticipate that partnerships with one or more of these companies will be supported by the facility, and will result in early revenue opportunities.
We believe that the costs of establishing the facility will be approximately $5,500,000 and that it can be in place by third quarter of 2014.
Our plan of operation is dependent upon our ability to raise additional capital to support our research and development operations. Since our inception, we have raised over $60,000,000 from various investors, which has been invested primarily in research and development activities and maintaining our patent portfolio. We anticipate that we will need to raise approximately $18,000,000 over the next 24 months until we earn sufficient revenue to support our operations, including our continuing research and development activities and patent prosecutions and to maintain our intellectual property portfolio. The following is a breakdown of the $18,000,000 budget:
|
R&D Payroll (technology development center)
|
$
|
2,275,000
|
||
|
R&D Sponsored Research
|
$
|
2,856,000
|
||
|
R&D Operating Expenses (technology development center)
|
$
|
948,000
|
||
|
R&D Equipment Purchases (technology development center)
|
$
|
1,950,000
|
||
|
Patent Prosecution and App Fees
|
$
|
3,045,000
|
||
|
General and Administrative
|
$
|
6,926,000
|
There can be no assurance that financing will be available to us to fund our $18,000,000 budget, or, if available, that it will be on terms acceptable to us.
Results of Operations
For the three months ended March 31, 2014 and March 31, 2013
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2014 were $550,000, a 148% increase from $221,875 for the three months ended March 31, 2013. The increase is attributable to additional funding we provided to the Universities pursuant to our research agreements.
Patent Application and Prosecution Fees
Patent application and prosecution fees consist of the fees due for prosecuting and maintaining our patents and were $414,436 for the three months ended March 31, 2014, a 27% increase from $325,477 for the three months ended March 31, 2013. The increase is attributable to an increase in the number of our patents and number of applications being researched for our technologies.
Salaries and Related Expenses
Salaries and related expenses were $432,267 for the three months ended March 31, 2014, a 245% increase from $125,306 for the three months ended March 31, 2013. The increase is attributable to a negotiated temporary decline in salaries during the first quarter of 2013 which was subsequently reinstated.
Stock-based Compensation
There was no stock-based compensation for the three months ended March 31, 2014 as compared to $811,031 for the three months ended March 31, 2013, relating to the vesting of awards granted in 2012. As of March 31, 2014, there was no remaining unamortized stock-based compensation associated with outstanding awards.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, consisting primarily of rent, office supplies, workers compensation insurance, medical insurance, postage and shipping, traveling expenses and consulting fees, were $299,041 for the three months ended March 31, 2014, a 65% increase from $181,342 for the three months ended March 31, 2013. The increase is primarily attributable to professional fees and other compliance related costs associated with us being a public company and increased rent due to the transition to our Arizona corporate headquarters.
9
Interest Expense
There was no interest expense for the three months ended March 31, 2014 as compared to $266,908 for the three months ended March 31, 2013 due to the effects of our reverse merger which eliminated all of our interest bearing debt.
Loss on Debt Extinguishment
There was no loss on debt extinguishment for the three months ended March 31, 2014 as compared to $1,811,800 for the three months ended March 31, 2013 as we have eliminated all of our interest bearing debt. The loss on debt extinguishment in 2013 related to (i) conversion of $230,000 of debt that was not originally convertible into 46,000 common shares and (ii) the issuance of 286,000 of common shares in connection with the extension of the maturity date on an aggregate of $1,400,000 of outstanding debt. We evaluated the modifications under ASC 470-50 and determined that the modifications were substantial and the revised terms constituted debt extinguishments for which a loss is recognized equal to the difference in fair value of the debt and shares before and after the modifications.
Net Loss
The net loss for the three months ended March 31, 2014 was $1,696,377, a 55% decrease from $3,744,092 for the three months ended March 31, 2013. The decrease in the net loss is primarily attributable to the decrease in stock-based compensation, interest expense and loss on debt extinguishment, partially offset by increases in cash-based operating expenses, each of which is described above.
Liquidity and Capital Resources
As of March 31, 2014, we had cash and cash equivalents of $60,409 and working capital of ($2,328,760), as compared to cash and cash equivalents of $197,004 and working capital of ($1,255,222). The decrease in cash and working capital is attributable to our operating losses as we have yet to generate revenues from our operations.
We are in the process of raising additional funds in order to continue to finance our research, development and commercialize photonic energy conversion technologies utilizing organic semiconductor-based solar cells. The additional funding is expected to consist of private sales of our equity securities. However, there can be no assurance that the additional funds will be available to us when needed, particularly in the current economic environment.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
There were no changes in our critical accounting policies during the three months ended March 31, 2014 from those set forth in “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 31, 2014.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Evaluation of Disclosure Controls and Procedures
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 Securities Exchange Act of 1934 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
|
10
|
●
|
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.
|
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 March 31, 2014, 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 under the standards of the Public Company Accounting Oversight Board 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 transactions which may result in a greater than normal risk that material errors may occur in the financial statements and not be detected timely; and
(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 in connection with the review of our financial statements as of March 31, 2014.
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. And, 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.
Changes in Internal Control over Financial Reporting
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, President and the CFO are seeking to improve communications regarding the importance of documentation of their assessments and conclusions of their meetings, as well as supporting analyses. 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.
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.
11
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
From January through March of 2014, the Company sold and issued to certain investors an aggregate of 498,400 shares of Common Stock and warrants to purchase an aggregate of 498,400 shares of Common Stock for gross proceeds of $623,000.
On February 26, 2014, the Company sold and issued to an investor a promissory note in the principal amount of $150,000.
The above issuance of the Company’s securities was 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 issuance.
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.
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||||||||
|
31.2
|
Certification of Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||||||||
|
31.3
|
Certification of Chief Financial Officer 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.** | ||||||||
** 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.
12
Pursuant to the requirements 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
|
|||
|
Date: May 13, 2014
|
By:
|
/s/ Dean L. Ledger
|
|
|
Dean L. Ledger
|
|||
|
Chief Executive Officer
(principal executive officer)
|
|||
|
Date: May 13, 2014
|
By:
|
/s/ Robert J. Fasnacht
|
|
|
Robert J. Fasnacht
|
|||
|
President and Chief Operating Officer
(principal executive officer)
|
|||
|
Date: May 13, 2014
|
By:
|
/s/ Amy B. Kornafel
|
|
|
Amy B. Kornafel
|
|||
|
Chief Financial Officer
|
|||
|
(principal financial officer and
principal accounting officer)
|
|||
13