NanoFlex Power Corp - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

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 x

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 x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically 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 x 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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

As of June 30, 2017, 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 $16,602,764, at $0.45 per share, based on the price at which the registrant’s common equity was last sold as of June 30, 2017.

As of March 26, 2018, the number of shares of the registrant’s common stock outstanding was 69,281,778.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

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:

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:

PART I

ITEM 1. BUSINESS

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 and as a result, the Company owned 100% of the 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 incorporated in Pennsylvania on February 7, 1994. The Company was organized to fund, develop, commercialize and license advanced photovoltaic technologies that enable thin film solar products with industry-leading efficiencies, light weight, flexibility, and low total system cost.

These technologies are targeted at certain broad applications, including: (a) mobile and off-grid solar power generation, (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 automobiles or other consumer applications and internet of things applications (IoT) including sensors.

The results we have achieved in a laboratory environment with our research partners have resulted in collaboration with industry partners and potential customers to commercialize certain of our technologies.

Our Business

The Company is engaged in the research, development, and commercialization of advanced photovoltaic technologies that enable thin film solar products with what we believe can be industry-leading efficiencies, light weight, flexibility, and low total system cost. Our sponsored research programs at the University of Southern California (“USC”), the University of Michigan (“Michigan”), and Princeton University (“Princeton”) have resulted in an extensive portfolio of issued and pending patents worldwide covering flexible, thin-film photovoltaic technologies. Pursuant to our license agreement with our university research partners, we have obtained the exclusive worldwide license and right to sublicense any and all intellectual property which resulted from sponsored research programs with the universities. While each patent is issued in the name of the respective university that developed the subject technology, the Company has exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being the Company’s patents.

As of December 31, 2017, there were approximately 74 issued patents and 48 pending non-provisional applications, 1 pending provisional application and 6 Patent Cooperation Treaty (“PCT”) applications. In addition, in countries and regions outside the U.S., including, but not limited to, China, European Patent Convention, India, Japan, Korea and Taiwan, there were a total of approximately 81 issued patents and 184 pending patent applications. These numbers exclude issued and pending patents that the Company has identified for abandonment to optimize its patent portfolio and reduce unnecessary or redundant costs while still protecting critical technologies. The duration of the issued U.S. and foreign patents is typically 20 years from their respective first effective filing dates.

These patented and patent-pending technologies fall into two general categories – (1) cost reducing and performance-enhancing fabrication processes and device architectures for ultra-high efficiency Gallium Arsenide (“GaAs”)-based solar thin films and (2) organic photovoltaic (“OPV”) materials, architectures, and fabrication processes for low cost, ultra-thin solar films offering high quality aesthetics, such as semi-transparency and tinting, and highly flexible form factors. The technologies are targeted at certain broad applications that require high power conversion efficiency, flexibility, and light weight. These applications include: (a) mobile and off-grid solar power generation, (b) BAPV, (c) BIPV, (d) space vehicles and UAVs, (e) semi-transparent solar power generating glazing or windows, (f) ultra-thin solar films for automobiles or other consumer applications and sensors and other devices for the Internet of Things (“IoT”). The Company believes these technologies have been demonstrated in a laboratory environment with our research partners.

The Company is working with industry partners to commercialize its technologies for key applications where it believes they present compelling competitive advantages. For example, the Company has established an engineering team comprised of four employees 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 Joint Development Agreement with SolAero Technologies Corp. (“SolAero”). The Company’s Joint Development Agreement with SolAero provides for the joint development of high efficiency solar cells utilizing our proprietary manufacturing processes in conjunction with SolAero’s advanced high efficiency solar cell technologies. In May 2017, SolAero was awarded an approximately $6.3 million contract with the Army Research Laboratory to design power mats. A power mat would replace the 25 pounds of batteries typically carried by a soldier into battle. It is powered by GaaS and will generate approximately 310 watts under one sun and will weigh approximately three pounds. The Company is a subcontractor to SolAero and our portion of this contract is approximately $3.3 million of which $1.6 million is subcontracted out to the University of Michigan over a four-year period.

As reported in the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2017, on February 2, 2017, the Company entered into a License Agreement with SolAero pursuant to which, the Company agreed to grant SolAero a non-exclusive worldwide license to use, sell, offer for sale, import or otherwise dispose of certain products (the “Licensed Products”) using the Company’s patented proprietary manufacturing processes relating to Gallium Arsenide-based photovoltaic cells (the “Licensed Patents’) within the space and near-space fields of use (the “Licensed Field”). SolAero is to pay the Company a royalty based on sales of the Licensed Products within the Licensed Field. The agreement does not provide SolAero with the right to sublicense the Licensed Patents. The term of the agreement runs from February 2, 2017, through the expiration date of the last expiring patent included in the Licensed Technology. However, each party may terminate the agreement upon a material breach by the other party.

By establishing our own engineering team, we have also been able to become less reliant on our university partners. As a result, we have suspended our sponsored research agreement with the University of Southern California which covered our OPV technologies and on August 31, 2017, suspended our research agreements with the University of Michigan and established a time and materials contract to access Michigan’s LNF lab as needed to continue to commericialize our technologies.

The Company’s business model is oriented around licensing and sublicensing processes and technologies to large, well-positioned commercial partners which can provide manufacturing and marketing capabilities to enable rapid commercial growth. These manufacturing partners can supply customers directly, from which the Company expects to receive license royalties. Additionally, these manufacturing partners can also serve as a source of solar cell supply for the Company to provide products to customers on its own through a “fab-less” manufacturing model, particularly in the early stages of market development.

The Company is continuing to seek additional partners for its GaAs-based processes and technologies and our engineering team is focused on further development of these processes and technologies.

The Company is in the development stage as it has not yet commercialized any products or received any royalties licensing its intellectual property. The Company’s auditors’ opinion states that there is substantial doubt about the Company’s ability to continue as a going concern based on its need to continue raising capital to support its activities.

Sponsored Research and License Agreements

Research and development of the Company’s high efficiency solar thin films and OPV technologies have been conducted in collaboration with University partners through sponsored research agreements. 

The Company established direct research and development agreements with Michigan on June 16, 2016, which were amended on July 21, 2016, to provide engineering support and facility access associated with technology transfer and commercialization of its high efficiency thin film solar technologies. The Company suspended these research agreements with Michigan on August 31, 2017 and established a time and materials contract to access Michigan’s LNF lab as needed.

A separate Research Agreement, dated December 20, 2013, among the Company and USC (the “2013 Research Agreement”), governs research conducted by USC and Michigan on high efficiency thin film and OPV technologies. Michigan is a subcontractor to USC on this research agreement. The 2013 Research Agreement expires on January 31, 2021.

On August 8, 2016, the Company amended the 2013 Research Agreement with USC, suspending the agreement effective as of August 15, 2016. The Company requested this amendment to temporarily suspend its OPV-related sponsored research activities to reduce near-term expenditures while it seeks a development partner for OPV commercialization and to allow the Company to bring its account with USC current through a payment plan. The suspension is to continue until the date that is 30 days after expenses incurred by USC have been reimbursed by the Company. Under this amendment, the Company was required to repay expenses to USC in quarterly installments through February 2018, unless earlier repaid at the Company’s option. The amended agreement provides USC with the option to terminate the agreement upon any late installment payments. The final installment was paid in January 2018.

Under the Company’s currently effective License Agreement, as amended on August 22, 2016, among the Company and USC, Michigan, and Princeton (the “Fourth Amendment to License Agreement”), wherein the Company 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 the Universities 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. A previous amendment to the License Agreement (the Third Amendment to License Agreement dated December 20, 2013) 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 Fourth Amendment to the License Agreement sets out a payment schedule for the minimum royalties due in 2014 and 2015 to be paid in 2016 and 2017, which have been paid.

There is currently no ongoing research activity at Princeton related to the Company, although the Company maintains licensing rights to technology previously developed by Princeton.

During the years ended December 31, 2017 and 2016, we incurred research and development costs pertaining to our sponsored research efforts and our establishment of our internal engineering team of $708,840 and $1,683,464, 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).

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).

Philosophy and Approach

The Company is currently focusing its efforts on its architectures, manufacturing processes, and technologies aim to provide manufacturers of compound semiconductor solar cells 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. We believe 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. The Company is also seeking partners to commercialize its OPV thin film solar technologies which aim to 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, other applications that demand design flexibility and light weight and solar powered IoT sensors. Additionally, we believe 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.

The Company 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 the Company 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 the Company as an important player in the solar industry with rapid, high-margin revenue growth. Potential partners for our high efficiency technologies include current manufacturers of compound semiconductor solar cells, 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, the Company 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.

The Company also anticipates that advancements achieved by its engineering team can attract other industry partners to acquire early licenses to use its intellectual property. Finally, new licenses and agreements can be made possible by ongoing technology development, especially that relating to perfecting and broadening of the Company’s intellectual property in ultra-thin-film semi-transparent organic solar cells.

High Efficiency Thin Film Solar Technologies

The Company’s first technology platform is focused on improving the manufacturing process and device architecture of solar cells based on III-V compound semiconductors, including GaAs, 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. The very highest single-junction and multi-junction solar cell efficiencies (approximately 29% and 44%, respectively, according to the National Renewable Energy Laboratory (“NREL”)) are based on GaAs. However, 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 ultra-high efficiency compound semiconductor solar technologies requires substantial cost reductions.

The Company’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 decrease the size of the active solar cell used within a solar module. Furthermore, the Company’s technology combines the high-power conversion efficiency of compound semiconductor 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.

The primary cost in fabricating GaAs-based solar cells is the very high cost of the GaAs 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-based solar cell. During the fabrication process currently used in industry, these expensive parent wafers are destroyed when the solar cell layer is removed, yielding only a single solar thin film for each expensive 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 parent wafer. The Company, through its researchers, has developed an architecture and process enabling the active solar cell layer (approximately 1/1,000th 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. Further, lab tests also reflect no degradation in solar cell performance from each growth and removal cycle.

We believe this patented ND-ELO process revolutionizes the cost structure of GaAs-based compound semiconductor 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 solar cell. Further, as part of the ND-ELO process, the ultra-thin photovoltaic layer 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 solar cells.

A second aspect of the Company’s high efficiency thin film solar technology centers on minimizing the required size of the high-efficiency solar cell through the use of mini-concentrators, thereby further reducing cost. In this design, narrow strips of 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 solar cell. This enables solar energy harvesting throughout the day and the integrated device is able to capture approximately the equivalent energy production density (measured in kW-hrs/m2) as a full-sized solar cell at a substantially reduced cost.

With the combination of the high conversion efficiencies of compound semiconductor solar cells and the cost reductions associated with implementing our proprietary ND-ELO processes and mini-concentration technologies, we believe the costs of ultra-high efficiency GaAs-based solar cells can approach cost-per-Watt metrics associated with competing solar technologies, particularly thin films such as CIGS, 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 presents compelling advantages relating to form factor flexibility and aesthetics 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 1/10,000th 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 or non-planar 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 there is no need for energy-intensive fabrication 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 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.

The Company’s approach has been to advance all dimensions of OPV technology, including the invention and development of new materials, new high efficiency device architectures, and high-speed, low-energy-intensity production processes such as organic vapor phase deposition and solar cell modulization.

OPV’s form factor flexibility offers the potential for solutions in various tints and transparencies, offering unique solutions 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.

Intellectual Property

We currently hold the exclusive commercialization rights to more than 350 issued patents and pending patent applications worldwide which cover architecture, processes and materials for high efficiency and OPV technologies. As of December 31, 2017, U.S. issuances and applications were as follows: approximately 74 issued patents, 48 pending non-provisional applications, 1 pending provisional applications, and 6 PCT applications. For regions outside of the U.S.: approximately 81 issued patents, and 184 pending patent applications. In addition to our issued patents set forth above, we have numerous patent applications in process. The patent numbers presented exclude issued and pending patents that the Company has identified for abandonment in order to optimize its patent portfolio and reduce unnecessary or redundant costs while still protecting critical technologies. While each patent is issued in the name of the respective university that developed the subject technology, the Company has exclusive commercial license rights to all of the patents and their attendant technologies and the patents are referred to herein as being the Company’s patents.

The patent applications currently being filed are part of a dynamic, comprehensive development strategy to protect our commercialization rights. Following this developmental strategy, current work builds on 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.

Exemplary U.S. patents related to our high efficiency thin film solar technologies include U.S. Patent Nos. 8,378,385, 8,927,319, 9,118,026, 9,548,218, 9,461,193, and 9,412,960, which will expire on September 9, 2030, October 23, 2030, September 14, 2031, February 7, 2033, August 7, 2033, and December 16, 2033, respectively. In addition to these issued patents, we are pursuing additional protection for our high efficiency thin film portfolio in 15 pending U.S. patent applications, 4 pending PCT applications, which will be filed in the U.S. before their respective due dates. If U.S. patents are successfully issued with respect to these pending applications, we expect that the earliest expiration date for the patents will be no earlier than June 2032.

Exemplary U.S. patents related to our OPV-related technologies include U.S. Patent Nos. 9,666,816, 9,391,284, 9,515,275, 8,912,036, 8,158,972, 9,768,402, 8,785,624, 9,447,107, 8,816,332, 9,130,170 and 9,847,487, which will expire on August 22, 2028, August 28, 2028, October 26, 2029, March 19, 2030, March 24, 2030, April 6, 2031, June 27, 2031, September 9, 2031, February 21, 2032, November 1, 2032, and November 22, 2033, respectively.  In addition to these issued patents, we are pursuing additional protection for our OPV-related portfolio in over 30 pending U.S. patent applications.

Some of our technology holdings include foundational concepts in the following areas.

High Efficiency Thin Film Solar Technologies:

Organic Photovoltaics:

Development Goals

If necessary capital is available to it, of which there can be no assurance, the Company plans to accelerate the commercialization of its high efficiency technology as set forth below. Our research and development efforts are projected to consist of collaborative research and development with industry partners, including existing compound semiconductor solar cell manufacturers. Our engineering team is in position to support the transfer of technologies from university laboratories to implementation in industry partners’ commercial product designs and fabrication processes.

The engineering team is tasked with serving several key functions, including working closely with the Company’s sponsored research organizations and its industry partners to integrate and customize our proprietary processes and technologies into the partner’s existing product designs and fabrication processes. Our engineering team will also work closely with downstream partners and customers such as military users for mobile field applications, and system integrators, installers, and architects for BAPV and BIPV applications, and EPC companies and project developers for solar farm applications. This customer interaction allows the Company to better understand application specific requirements and incorporate these requirements into our product development cycle. Our primary technical objective is to demonstrate the efficacy of our high efficiency solar thin film technologies. We plan to demonstrate ND-ELO technology on GaAs wafers of increasing diameter and on compound semiconductor solar cells of increasing complexity. The Company plans to integrate mini-concentrators with the ND-ELO and cold-weld-bonded cells to effect further cost reductions. The Company plans to produce prototypes for demonstrations, test, and evaluation.

The Company aims 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 of increasing width.

Overall Operating Plan

The Company’s 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. The Company 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 the Company to provide products to customers on its own through a “fab-less” manufacturing model, particularly in the early stages of market development.

We have made contact with major solar cell and electronics manufacturers world-wide and are finding commercial interest in both our high efficiency 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.

The Company has identified its high efficiency solar technologies as its nearest term market opportunity. A key to reducing the risk to market entry of the Company’s high efficiency technologies by our partners is for us to demonstrate our technologies on their product designs and fabrication processes. To support this joint development, the Company has established its own engineering team and plans to expand this team contingent on its ability to secure sponsored development funding and/or raise the necessary capital. This team is tasked with serving several key functions, including working closely with the Company’s industry partners to integrate and customize our proprietary processes and technologies into the partner’s existing product designs and fabrication processes. In addition, the Company is pursuing commercialization efforts in the emerging IoT market with solar powered sensors. In conjunction with facilitating technology transfer, our engineering team is working closely with downstream partners and customers such as military users for mobile field applications and system integrators, installers, and architects for BAPV and BIPV applications, and engineering, procurement, and construction (“EPC”) companies and project developers for solar farm applications. This customer interaction allows the Company to better understand application specific requirements and incorporate these requirements into our product development cycle.

In addition, our dedicated OPV team is in the process of building OPV solar cells and prototypes to prove the efficacy of the technology.

To support this work, the Company’s engineering team leverages the facilities and equipment at the University of Michigan on a recharge basis, which we believe is a cost-effective approach to move the technologies toward commercialization. We believe that this allows our engineering team to work directly with industry partners to acquire early licenses to use our intellectual property without the need for large-scale capital investment in clean room facilities and solar cell fabrication equipment.

The Company is pursuing sponsored development funding to generate revenue in the near-term. Having an established technical team enables us to more effectively pursue and execute sponsored research projects from the DoD, DOE, and NASA, each of which has interests in businesses that can deliver ultra-lightweight, high-efficiency solar technologies for demanding applications.

Another potential revenue source is from JDAs with existing solar cell manufacturers. Once we are able to initially demonstrate the efficacy of our processes and technologies on partner’s products and fabrication processes, we expect to be in a position where we can sign agreements covering further joint development, IP licensing, solar cell supply and joint marketing, as applicable. We anticipate that partnerships with one or more of the existing high efficiency solar cell manufacturers can be supported by the Company’s engineering team, and result in near-term revenue opportunities, as we have demonstrated with our current joint development partner.

There can be no assurance that our overall 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 nor that we will be awarded the government contracts that we are currently pursuing. 

Near Term Operating Plan

Our near-term focus is on advancing our product development efforts while containing costs. The Company requires approximately $10 million to continue its operations over the next twelve months to support its 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:

The Company believes that it has made progress with each of the components of this operating plan and has aligned its operations and cost structure with expediting the development and commercialization of our high efficiency solar technologies. The Company has taken steps to reduce patent expenses, particularly related to optimizing its OPV patent portfolio. The Company has realigned its research and development operations with several strategic actions, including hiring Company engineers to focus on high efficiency product development and technology transfer from Michigan to a commercial environment with our industry partner. The Company remains focused on increasing its revenue through joint development agreements and license agreements with industry partners. The Company believes that it is making positive progress with these efforts.

There can be no assurance that the Company’s near term operating plan will be successful or that it 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 nor that we will be awarded the government contracts that it is currently pursuing.

In the event that we raise less than the required amount of capital, our focus is planned to be on prioritizing our commercialization effort to capture near-term revenue opportunities and limiting spending on general and administrative expenses and patent costs.

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. These trends are driving a pronounced shift away from oil, coal, and nuclear towards renewables and natural gas. Expectations are building for a concerted global effort to tackle climate change, according to the International Energy Agency’s World Energy Outlook 2016.

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.

Solar PV installations have experienced rapid growth over the past several years. According to IHS Technology, global solar installations were estimated to have reached 77 gigawatts (“GW”) in 2016, 90 GW in 2017 and are forecast to reach 108 GW in 2018.

The dominant solar photovoltaics (“PV”) technology, used in approximately 90% of installations, is wafer-based crystalline silicon (“c-Si”), with thin-film technologies, such as cadmium telluride (“CdTe”), copper indium gallium selenide (“CIGS”), and amorphous silicon (“a-Si”), 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 solar to rooftop and utility-scale installations, which currently dominate the solar power installed base.

The Company plans to initially focus its high efficiency technologies and products on applications that are not well-served by c-Si-based solar panels and rather demand solar solutions with some combination of high power, light weight, and flexibility. These markets include aerospace (space vehicles and UAVs), mobile and field generation, and BIPV and BAPV, where high efficiency GaAs thin films can be applied to multi-story rooftops as well as building facades and IoT applications for solar powered sensors and devices. 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 as well as IoT applications for solar powered sensors and devices.

Global BIPV installations were 4.9 GW in 2017 and are projected to increase to 11.1 GW in 2020, according to Science Direct Energy Procedia (2017) 993-999.. 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 required to retrofit to meet NZEB goals by 2030.

Competition

The Company is focused on developing commercializing and licensing advanced solar technologies that will enable entry of solar PV into new applications and also potentially compete with established solar technologies in traditional solar markets.

The solar PV 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 c-Si technology, with some penetration by CdTe and CIGS thin film technologies, according to SolarBuzz. C-Si solar cells are produced at massive scale and have established a low-cost position within the rooftop and utility-scale PV markets. Advanced solar technology development efforts encompass various multiple technology platforms at various stages of development.

The Company believes its 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.

High efficiency compound semiconductor 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 high efficiency solar sector, there are a small number of manufacturers, including Spectrolab, a subsidiary of The Boeing Company; SolAero, Azur Space (Germany); MicroLink Devices; Sharp Corporation (Japan); Alta Devices, a subsidiary of Hanergy Thin Film (China); Spectrolab, SolAero, and Azur Space 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 high efficiency compound semiconductor solar technologies into commercial terrestrial markets. We believe the Company’s patented GaAs ND-ELO and mini-concentration technologies present the opportunity to significantly reduce the cost for high efficiency solutions and believe that we could potentially license our technology to these companies.

OPV technologies are 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; 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 the Company’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.

Regulation

The Company has not yet introduced commercial products and, as such, has not commenced any governmental approval process. The Company anticipates that the applicability and extent of government approval requirements will depend on the particular end-market. Successful introduction of our products into certain markets may require significant government testing and evaluation prior to high volume procurement. We anticipate that the installation of products based on our high efficiency and OPV 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.

Governments implement various policies to facilitate the adoption of solar power, including customer-focused financial incentives such as capital cost rebates, performance-based incentives, feed-in tariffs, tax credits, and net metering. Capital cost rebates provide funds to customers based on the cost and size of a customer’s solar power system. Performance-based incentives provide funding to a customer based on the energy produced by their solar power system. Feed-in tariffs pay customers for solar power system generation based on energy produced, at a rate generally guaranteed for a period of time. Tax credits reduce a customer’s taxes at the time the taxes are due. Net metering allows customers to deliver to the electric grid any excess electricity produced by their on-site solar power systems, and to be credited for that excess electricity at or near the full retail price of electricity.

In addition to the mechanisms described above, new market development mechanisms to encourage the use of renewable energy sources continue to emerge. For example, many states in the United States have adopted renewable portfolio standards which mandate that a certain portion of electricity delivered to customers come from eligible renewable energy resources. In certain developing countries, governments are establishing initiatives to expand access to electricity, including initiatives to support off-grid rural electrification using solar power.

Employees

Currently, the Company employees consist of seven full-time personnel – our Chief Executive Officer, Executive Chief Financial Officer, four engineers, and an office manager. The Company’s Chief Technology Officer provides support on a consulting basis. 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.

ITEM 1A. RISK FACTORS

Risks Relating to Our Business

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.

The Company has only generated limited revenues to date. In their audit reports for the fiscal years 2017 and 2016, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern. The Company had current liabilities of $10,087,199 and current assets of $147,200 as of December 31, 2017. As of December 31, 2017, the Company had a working capital deficit of $9,939,999 and an accumulated deficit of $216,545,120. We generated revenues of $199,080 and $115,400 for the years ended December 31, 2017 and 2016, respectively, 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 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 as we seek to commercialize our technologies and that the continuation of our business and our ability to service existing liabilities will continue to be dependent primarily 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.

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 other than our Agreement with SolAero, as discussed above, or sold any products, and have only generated limited revenues and are solely dependent on raising capital to fund our operations. We currently need to raise capital in order to maintain the Company’s operations, our patent portfolio, research and development activities and efforts to commercialize our technologies, as well as to pay our approximately $3.4 million in outstanding accounts payable and accrued liabilities as of December 31, 2017.

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 or 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 our shareholders’ investments.

We have entered into convertible note transactions which contain variable conversion prices which could result in substantial dilution to our shareholders.

As disclosed in our filings with the SEC, we have entered into a number of financing transactions in which we have sold convertible notes which, if not paid by the stipulated maturity date, can convert into shares of our common stock at a significant discount to the market price. In connection with each of these transactions, we have been required to reserve a significant number of shares for conversion with our transfer agent in the event that conversion occurs. For instance, in a transaction on January 23, 2018 for a $130,000 convertible note, we reserved 13,944,630 shares of our common stock.

While the Company plans to repay each of these convertible notes prior to maturity, and in fact has paid off previous notes with similar terms, there can be no assurance that monies will be available to do so as the Company needs to raise additional capital. In the event any of these notes are converted by their holders and such holders sell our common stock in the market, it is anticipated that this will result in a substantial decrease in our stock price and substantial dilution to our shareholders as a result of the discounted prices at which the holders will obtain our common stock. The more stock that is sold by a holder of these notes, the more likely it is that our stock price will be substantially lowered by such selling activity as the market for our common stock is not well developed or active.

We will need additional capital to fund our growth and 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, if 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 limitations 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.

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 high efficiency and organic photovoltaics (“OPV”) technologies to support our operations. Our high efficiency and OPV 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 or secure financing on terms that are favorable to us, 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.

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 shareholders’ entire investment may be lost.

Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.

As of December 31, 2017, we had total indebtedness of approximately $6.7 million. Our substantial indebtedness could have important consequences to our stockholders. For example, it makes it more difficult to raise additional equity or debt capital; it could require us to dedicate a substantial portion of our cash flow from operations, when and if such cash flow commences to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business; place us at a competitive disadvantage compared to our competitors that have less debt; limit our ability to borrow additional funds, dispose of assets, and make certain investments; and make us more vulnerable to a general economic downturn than a company that is less leveraged.

A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.

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. Changes in interest rates may increase our costs of capital and negatively affect our ability to secure financing on favorable terms. 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.

The Company’s patents depend upon the continued effectiveness of the Company’s license agreement, the termination of which could materially impair the Company’s ability to continue its business.

Pursuant to that certain License Agreement, as amended, with USC, Michigan and Princeton University, we have obtained the exclusive worldwide license and right to sublicense any and all intellectual property resulting from our sponsored research programs. If the License Agreement expires or is terminated for any reason, including by the Company’s default or breach thereof, our ability to generate revenues could be substantially impaired and our business and financial condition could be materially and adversely impacted.

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. 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.

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 high efficiency or OPV 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 high efficiency or OPV 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 high efficiency or OPV 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 high efficiency or OPV technologies fail to achieve the performance and cost metrics that we anticipate, then we may be unable to develop a demand for our products or generate sufficient revenue to support our operations.

Our high efficiency and OPV 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 high efficiency and OPV technologies, and our business, results of operations and financial condition could be materially and adversely affected.

We may not reach profitability if our high efficiency and OPV technologies are not suitable for widespread adoption or sufficient demand for our technologies does not develop or develops slower than we anticipate.

The extent to which solar photovoltaic (“PV’) products based on our technologies will be widely adopted is uncertain. If our high efficiency and OPV technologies prove unsuitable for widespread adoption or demand for our high efficiency and OPV 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 PV technology and demand for our high efficiency and OPV products, including the following:

If we do not reach profitability because our PV technology is not suitable for widespread adoption or due to insufficient demand for solar PV modules, our financial condition and business could be materially and adversely affected.

The Company’s intellectual property rights with regard to its high efficiency and OPV technologies may be challenged.

Pursuant to the license agreement, 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 PV 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 high efficiency and OPV 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.

Our success is dependent on a small number of management personnel.

As we are a development stage company, our management consists of only three management employees who together, are responsible for all management functions in the Company, including, commercialization of our technologies, strategic development, financing, accounting and other critical functions. We do not have key man insurance on any of our management personnel. Our future success significantly depends on the continued service and performance of our management personnel and the loss of the services of any of them would materially and adversely affect our business and prospects.

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 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, Michigan, and Princeton. The Company 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 and could harm our profitability. We may need to raise additional funds to protect and maintain our intellectual property rights.

If we are unable to successfully maintain or license existing patents, our ability to generate revenues could be substantially impaired.

Our business model includes licensing or sublicensing our proprietary high efficiency and OPV technologies to industry partners and customers, and the Company is currently entitled to the exclusive right to sub-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.

Our insurance coverage may be inadequate to cover all significant risk exposures.

We will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.

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. 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. 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.

Risks Relating to Our Industry

Our industry has historically been cyclical and experienced periodic downturns.

Our future success partly depends on continued demand for solar 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 PV 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, utility rates, and internal policies of 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, and continue to be, continuously modified. The market for electric generation equipment is also influenced by trade and local content laws, regulations and policies. These regulations and policies could deter end-user purchases of PV products and investment in the research and development of PV technology. For example, without a mandated regulatory exception for PV 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 PV systems, it is likely that they would increase the cost to our end-users of using PV systems which could make them less desirable, thereby harming our business, prospects, results of operations and financial condition. In addition, electricity generated by PV 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 PV systems to achieve lower prices in order to compete with the price of electricity from other sources.

The Company has not yet introduced commercial products and, as such, has not commenced any governmental approval process. The applicability and extent of government approval requirements will depend on the particular end-market. Successful introduction of our products into certain markets may require significant government testing and evaluation prior to high volume procurement. We anticipate that the installation of products based on our high efficiency and OPV 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. In addition, the U.S., European Union and Chinese governments, among others, have imposed tariffs or are in the process of evaluating the imposition of tariffs on solar panels, solar cells, polysilicon, and potentially other components. These tariffs may increase the price of our solar products, which could harm our results of operations and financial condition. 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.

The solar energy industry depends, in part, on continued support in the form of rebates, tax credits and other incentives from federal, state and local governments. An elimination or reduction of these rebates, tax credits and other incentives could negatively impact the Company’s ability to successfully introduce products and secure capital.

Federal, state and local governments currently provide tax credits, rebates, and other incentives to owners, users, and manufacturers of solar energy. Any elimination or reduction of such incentives would increase the cost of solar energy, which would negatively impact the Company’s ability to introduce products and secure necessary capital. The federal government currently provides a 30% federal tax credit (the “ITC”) for solar systems installed on residential and commercial properties under Sections 25(d) and 48(a) of the Internal Revenue Code, respectively. In December 2015, legislation was signed into law extending the 30% ITC for both residential and commercial projects through the end of 2019; after which the ITC drops to 26% in 2020 and 22% in 2021 before dropping permanently to 10% for commercial projects and 0% for residential projects. Unless modified by a further change in law, the reduction of the ITC may negatively impact the demand for our solar products and our ability to obtain financing support.

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.

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 high efficiency and OPV 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 high efficiency and OPV 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.

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 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, natural gas, and other fossil fuels, could cause the demand for solar power systems to decline, which would have a negative impact on our business.

Risks Relating to Our Securities

An investment in the Company’s common stock is extremely speculative and there can be no assurance of any return on any such investment.

An investment in the Company’s common stock is extremely speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in the Company, including the risk of losing their entire investment.

The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market and other factors, many of which we have little or no control over. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.

Our shares are subject to the Securities and Exchange Commission’s “penny stock” rules that limit trading activity in the market, which may make it more difficult for our shareholders to sell their common stock.

Penny stocks generally are equity securities with a price of less than $5.00. Since our common stock is trading at less than $5.00 per share, we are subject to the penny stock rules adopted by the Securities and Exchange Commission that require broker-dealers to deliver extensive disclosure to its customers prior to executing trades in penny stocks not otherwise exempt from the rules. The broker-dealer must also provide its customers with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held by the customer. 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. The additional burdens from the penny stock requirements may deter broker-dealers from effecting transactions in our securities, which could limit the liquidity and market price of our securities. These disclosure requirements may cause a reduction in the trading activity of our common stock, which likely would make it difficult for our stockholders to resell their securities.

We will continue to incur significant costs to ensure compliance with United States corporate governance and accounting requirements.

We will continue to incur significant costs associated with our public company reporting requirements, costs associated with 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 will result in significant 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 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.

As 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.

Our shareholders’ percentage of ownership may become diluted upon conversion of our convertible promissory notes, upon the exercise of currently outstanding warrants, or upon the issuance of new shares of stock or other securities, including issuances to consultants as compensation.

As of December 31, 2017, there were outstanding warrants to purchase 79,381,367 shares of our common stock. Furthermore, as of December 31, 2017, outstanding warrants to purchase a total of 17,888,500 shares of our common stock had and continue as of the date of this report to have anti-dilution provisions and the exercise price of such warrants will be automatically reduced to a lower price if the Company issues securities in a subsequent offering at a price which is less than each such warrant’s then-effective exercise price. Of the Company’s warrants with anti-dilution provisions, outstanding warrants to purchase 7,333,500 shares of our common stock, as of December 31, 2017, also provide that the number of shares of common stock that can be issued under such warrants will be adjusted in the event of a subsequent lower price issuance such that the aggregate exercise price of such warrants remain the same.

In addition, as of December 31, 2017, the Company had outstanding options to purchase 215,000 shares of our common stock, with a weighted average exercise price of $0.65 per share, and convertible notes outstanding in the aggregate amount of $2,253,184, with a conversion price of $0.50 per share.

We may enter into additional agreements with independent contractors, consultants, and other unaffiliated third parties for services and compensation under such agreements may be payable in equity. The conversion of outstanding debt, the exercise of outstanding warrants, and the issuance of new securities could result in significant dilution to existing stockholders. Additionally, securities issued in connection with future financing activities or any potential acquisitions could have preferences and rights senior to the rights of common stock.

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.

There has been a limited trading market for our common stock and an active trading market for our common stock may not ever develop which may impair your ability to sell your shares

Our common stock is quoted on the OTCQB Marketplace (“OTCQB”), under the symbol “OPVS”. The OTCQB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many over the counter securities that are not listed on a national securities exchange. Trading volume for our common stock has been limited and OTCQB quotations for our common stock price may not represent the true market value of our common stock. 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 (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 (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 Securities and Exchange Commission 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 companies 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.

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock and warrants will likely decline.

The trading market for our common stock and warrants will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the market price for our common stock and warrants could decline. In the event we obtain securities or industry analyst coverage, the market price of our common stock and warrants could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business.

ITEM 2. PROPERTIES

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 $7,518, and subject to 3% annual increases.

ITEM 3. LEGAL PROCEEDINGS

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.

As reported in the Company’s prior filings, and specifically as described in the Company’s quarterly report for the quarter ended June 30, 2017, which was filed with the SEC on August 9, 2017, the Company was a party to a lawsuit in the United States District Court Southern District of New York, which was brought by John D. Kuhns. The parties have settled the matter. Pursuant to the settlement, all claims against the Company have been dismissed in exchange for issuing Mr. Kuhns 1,750,000 shares of the Company’s Common Stock and a promissory note for $125,000. This resulted in a loss on settlement of $633,292. This note is currently in default and accruing interest at 12% per annum.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable. 

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock commenced trading on the OTCQB Marketplace (the “OTCQB”) operated by OTC Market Group, Inc. on July 14, 2015 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.

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 stock.

The following table sets forth, for the fiscal quarters indicated, the high and low sales prices of our common stock as reported by the OTCQB:

Common Stock

As of the date of this Report, the Company had 69,069,778 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

We had 769 record holders of our common stock, par value $.0001, issued and outstanding as of December 31, 2017. 

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 79,381,367 shares of our common stock as of December 31, 2017. 77,781,367 warrants are 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.

Options

There were options to purchase a total of 215,000 shares of our Common Stock issued and outstanding as of December 31, 2017. The exercise prices of the outstanding options range from $0.50 to $1.03 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

Private Placement of the Company’s Notes

On January 27, 2017, the Company entered into a note purchase agreement with an investor pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000 and a warrant to purchase 400,000 shares of the company’s common stock with a $.50 exercise price and 5-year term. The Note automatically converted by its terms 30 days after issuance, on February 27, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, the investor was issued a one-year promissory note convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 200,000 5-year warrants with an exercise price of $.50 and a cashless conversion feature.

On January 27, 2017, the Company issued a Non-Convertible Promissory Note for $380,000 to an investor in exchange for $380,000. This note expires on the 4-month anniversary date of the issuance date, and in lieu of interest under the note, the Company agreed to pay the investor $19,000 in cash within three days of the expiration of such note.

On March 8, 2017, the Company entered into a note purchase agreement with an investor pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000 and a warrant to purchase 400,000 shares of the company’s common stock with a $0.50 exercise price and 5-year term. The Note automatically converted by its terms 30 days after issuance, on April 8, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, the investor was issued a one-year promissory note, convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants with an exercise price of $0.50 and a cashless conversion feature.

On March 9, 2017, the Company entered into note purchase agreements with an investor pursuant to which the investor purchased a promissory note from the Company in exchange for $150,000, and a warrant to purchase 300,000 shares of the company’s common stock, respectively, with a $0.50 exercise price and 5-year term. The Note automatically converted by its terms 30 days after issuance, on April 9, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, the investor was issued a one-year promissory note convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants with an exercise price of $0.50 and a cashless conversion feature.

On March 12, 2017, the Company entered into note purchase agreement with an investor pursuant to which the investor purchased a promissory note from the Company in exchange for $100,000, respectively, and a warrant to purchase 200,000 shares of the Company’s common stock, respectively, with a $0.50 exercise price and 5-year term. The Note automatically converted by its terms 30 days after issuance, on April 12, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, the investor was issued a one-year promissory note convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants with an exercise price of $0.50 and a cashless conversion feature.

On March 7, 2017, the Company issued a Non-Convertible Promissory Note for $120,000 to an investor in exchange for $120,000. This note expires on the 4-month anniversary date of the issuance date, and in lieu of interest under the note, the Company agreed to pay the investor $6,000 in cash within three days of the expiration of such note.

On April 8, 2017, pursuant to an automatic conversion of a $200,000 promissory note originally issued on March 8, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, an investor was issued a $200,000 one year promissory note, convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants to purchase 200,000 shares of the Company’s Common Stock with an exercise price of $0.50 and a cashless conversion feature.

On April 9, 2017, pursuant to an automatic conversion of a $150,000 promissory note originally issued on March 9, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, an investor was issued a $150,000 one year promissory note convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants to purchase 150,000 shares of the Company’s Common Stock with an exercise price of $0.50 and a cashless conversion feature. 

On April 12, 2017, pursuant to an automatic conversion of a $100,000 promissory note originally issued on March 12, 2017, into an investment in the principal amount of the note in the Company’s convertible notes and warrants, upon automatic conversion, an investor was issued a $100,000 one year promissory note convertible into shares of the Company’s Common Stock at a $0.50 conversion price and 5-year warrants to purchase 100,000 shares of the Company’s Common Stock with an exercise price of $0.50 and a cashless conversion feature.

On April 2, 2017, the Company issued a Non-Convertible Promissory Note for $100,000 to an investor in exchange for $100,000. The note expires on the 4-month anniversary date of the issuance date and in lieu of interest under the note, the Company agreed to pay the investor $5,000 in cash within three days of the expiration of such note.

On April 24, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. pursuant to which Power Up purchased a convertible promissory note evidencing a loan of $58,500. On April 25, 2017, the Company issued Power Up a $58,500 convertible promissory note. This note entitles the holder to 12% interest per annum and matures on February 10, 2018. Power Up may convert the note into common stock beginning on the date which is 180 days from the issuance date of the note, at a price equal to 61% of the average of the lowest two trading prices during the 15 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by Power Up and its affiliates. If the Company prepays the note within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31^st day and the 60^th day after the issuance of the note, then such redemption premium is 115%; if such repayment is made from the sixty first 61^st to the 90th day after issuance, then such redemption premium is 120%; if such repayment is made from the 91^st to the 120^th day after issuance, then such redemption premium is 125%; if such repayment is made from the 121^st to the 150th day after issuance, then such redemption premium is 130%; and if such prepayment is after the 151^st day and before the 181^st date of issuance of the note then such redemption premium is 135%. The foregoing descriptions of the Securities Purchase Agreement and note is not complete and is qualified in its entirety by reference to the full text of the form of Securities Purchase Agreement and form note, copies of which were filed as Exhibit 10.2 and 10.3, respectively, to the Company’s quarterly report for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and are incorporated by reference herein. In connection with this note, the Company’s transfer agent reserved 1,018,424 shares of the Company’s common stock, in the event that the note is converted.

On April 25, 2017, the Company borrowed $115,000 from JSJ Investments, Inc. and issued to JSJ a $115,000 convertible promissory note with a maturity date of January 25, 2018. The interest under the note is 12% and the default interest under the note is 18%. Under the note originally as issued JSJ was entitled, at its option, to convert all or a portion of the outstanding principal amount and accrued interest of the note at any time after issuance of the note. However pursuant to an amendment to the note executed on July 28, 2017, a copy of which is filed herewith as Exhibit 10.9 and is incorporated by reference herein, JSJ now is entitled to convert all or a portion of the outstanding principal amount and accrued interest under the note, at its option at any time after the 180th day after the issuance date of the note into shares of the Company’s common stock at a conversion price for each share of common stock equal to a price which is a 40% discount to the lowest trading price during the 20 days prior to the day that JSJ requests conversion. JSJ may not convert the Note to the extent that such conversion would result in JSJ’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by JSJ and its affiliates. If the Company prepays the note within 60 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made from the 61^st to the 91^st day after issuance, then such redemption premium is 120%; and if such prepayment is after the one 120^th date of issuance of the note then such redemption premium is 140%. The foregoing description of the note is not complete and is qualified in its entirety by reference to the full text of the form of the note, a copy of which was filed as Exhibit 10.1 to the Company’s quarterly report for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and is incorporated by reference herein. In connection with the issuance of this note, the Company’s transfer agent reserved 2,400,000 shares of the Company’s common stock, in the event that the note is converted.  The Company paid off this note in full on October 19, 2017 resulting in a prepayment penalty loss of $52,730.

On April 28, 2017, the Company entered into a Securities Purchase Agreement with Silo Equity Partners Venture Fund, LLC pursuant to which Silo purchased a convertible promissory note evidencing a loan of $100,000. On April 27, 2017, the Company issued Silo a $100,000 convertible promissory note evidencing the loan. This note entitles the holder to 8% interest per annum and matures on April 24, 2018. The default interest under this note is 24%. Silo may convert the note into common stock beginning on the date which is 180 days from the issuance date of the note, at a price equal to 55% of the lowest two trading prices during the 20 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Silo may not convert the note to the extent that such conversion would result in Silo’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by Silo and its affiliates. If the Company prepays the note within 60 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 120%; if such prepayment is made between the 61^st day and the 121^st day after the issuance of the note, then such redemption premium is 130%; if such repayment is made from the 122^nd to the 181^st day after issuance, then such redemption premium is 135%. The foregoing descriptions of the Securities Purchase Agreement and note are not complete and are qualified in their entirety by reference to the full text of the form of Securities Purchase Agreement and form note, copies of which were filed as Exhibit 10.4 and 10.5, respectively, to the Company’s quarterly report for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and are incorporated by reference herein. In connection with this note, the Company’s transfer agent reserved 3,000,000 shares of the Company’s common stock, in the event that the note is converted. 

On May 4, 2017, the Company agreed to borrowed $315,790 from JMJ Financial and issued to JMJ a convertible promissory note of up to $500,000, evidencing the loan with a maturity date of May 4, 2018. The amount of the promissory note funded by JMJ on May 4, 2017 was $315,790. Mr. Dean Ledger, our CEO and sole member of the Company’s board of directors, agreed to personally guarantee this note, pursuant to a Personal Guaranty and Recourse Agreement entered into between Mr. Ledger and JMJ. In connection with the note, the Company also entered into a Representation and Warranties Agreement Regarding Debt and Variable Securities, pursuant to which the Company made certain representation and warranties to JMJ, including that the Company will not issue any debt within 90 days of the issuance of the note without written consent from JMJ, unless the proceeds of such debt are used to repay the note within 2 business days. In the RW Agreement, the Company also agreed not to issue any convertible security or any variable security within 90 days of the issuance of the note, unless the proceeds of same are used to pay off the note in 2 business days. Further subsequent to the issuance of the JMJ Note, and within 90 days thereof, the Company has issued short term debt and warrants, and has used such funds for operating costs of the Company’s business. The Company paid off the JMJ Note in full on August 4, 2017. A portion of the funds used to pay off the JMJ Note were borrowed from a shareholder as further described in Note 6 of the financial statements included herein. The foregoing descriptions of the note, the Personal Guaranty and Recourse Agreement, and the RW Agreement are not complete and are qualified in their entirety by reference to the full text of the form of the note, Personal Guaranty and Recourse Agreement, and RW Agreement, copies of which were filed as Exhibits 10.6, 10.7 and 10.8 to the Company’s quarterly report for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017, and are incorporated by reference herein.

On June 22, 2017, the Company entered into a Loan Agreement with an investor pursuant to which, the investor invested $1,000,000 in a non-convertible 7-month unsecured promissory note issued on June 22, 2017, and in consideration of the investor making the loan to the Company as evidenced by the note, the Company issued to the investor, a 10-year warrant to purchase 3,000,000 shares of the Company’s Common Stock on June 22, 2017. The interest under the note is a cash payment of $40,000.

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 Securities Act of 1933, as amended (the “1933 Act”), for such issuances.

Issuance of Promissory Notes and Warrants

On July 17, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000, and a warrant to purchase 800,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converted the note 60 days after issuance on September 15, 2017 into 400,000 shares of Common Stock and a warrant to purchase 400,000 shares of Common Stock.

On July 25, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) pursuant to which Power Up purchased a convertible promissory note evidencing a loan of $43,000. This note entitles the holder to 12% interest per annum and matures on April 30, 2018. Power Up may convert the note into shares of the Company’s Common Stock beginning on the date which is 180 days from the issuance date of the note, at a price equal to 61% of the average of the lowest two trading prices during the 15 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding Common Stock together with all shares owned by Power Up and its affiliates. If the Company prepays the note within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the note, then such redemption premium is 115%; if such repayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 120%; if such repayment is made from the 91st to the 120th day after issuance, then such redemption premium is 125%; if such repayment is made from the 121st to the 150th day after issuance, then such redemption premium is 130%; and if such prepayment is after the 151st day and before the 181st date of issuance of the note then such redemption premium is 135%. In connection with the Note and Securities Purchase Agreement the Company paid $3,000 for Power Up’s legal fees incurred in connection with the note and Securities Purchase Agreement and therefore only received $40,000 under the note. The Company agreed that so long as it has any obligation under the note, that is shall not sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business without the written consent of Power Up. The Company’s transfer agent reserved 1,040,469 shares of the Company’s Common Stock, in the event that the note is converted. The foregoing descriptions of the Securities Purchase Agreement and note is not complete and is qualified in its entirety by reference to the full text of the form of Securities Purchase Agreement and form note, copies of which were filed as Exhibit 10.10 and 10.11, respectively, to the Company’s quarterly report for the quarter ended June 30, 2017, field with the SEC on August 9, 2017, and are incorporated by reference herein.

On July 28, 2017, the Company entered into a Loan Agreement with an investor pursuant to which, the investor invested $20,000 in a non-convertible 8-month unsecured promissory note issued on July 28, 2017, and in consideration of the investor making the loan to the Company as evidenced by the note, the Company issued to the investor, a 5-year warrant to purchase 60,000 shares of the Company’s Common Stock at an exercise price of $0.50 on July 28, 2017. The interest under the note is a cash payment of $1,600.

On July 31, 2017, the Company entered into a Loan Agreement with an investor pursuant to which, the investor invested $100,000 in a non-convertible 10-month unsecured promissory note issued on July 31, 2017, and in consideration of the investor making the loan to the Company as evidenced by the note, the Company issued to the investor, a 5-year warrant to purchase 300,000 shares of the Company’s Common Stock at an exercise price of $0.50 on July 31, 2017. The interest under the note is a cash payment of $8,000.

On August 3, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $15,000, and a warrant to purchase 30,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converted the note 60 days after issuance, on October 2, 2017 into 30,000 shares of Common Stock and a warrant to purchase 30,000 shares of Common Stock.

On August 10, 2017 the Company entered into a Loan Agreement with an investor pursuant to which, the investor invested $30,000 in a non-convertible 10-month unsecured promissory note issued on August 10, 2017, and in consideration of the investor making the loan to the Company as evidenced by the note, the Company issued to the investor, a 5-year warrant to purchase 90,000 shares of the Company’s Common Stock at an exercise price of $0.50 on August 10, 2017. The interest under the note is a cash payment of $1,600.

On August 10, 2017, the Company took a short-term loan for $200,000 from a major shareholder, the proceeds of which were used by the Company to pay off the JMJ note as further described in the Company’s quarterly report for the quarter ended June 30, 2017, filed with the SEC on August 9, 2017.

On August 21, 2017 the Company entered into a Loan Agreement with an investor pursuant to which, the investor invested $20,000 in a non-convertible 8-month unsecured promissory note issued on August 21, 2017, and in consideration of the investor making the loan to the Company as evidenced by the note, the Company issued to the investor, a 5-year warrant to purchase 60,000 shares of the Company’s Common Stock at an exercise price of $0.50 on August 21, 2017. The interest under the note is a cash payment of $1,600.

On August 21, 2017 the Company entered into Note Purchase Agreements with 4 investors pursuant to which, each of the investors invested $50,000 into non-convertible 12-month unsecured promissory notes, which were issued on August 21, 2017, and pursuant to the agreements, the Company issued to each of the four investors, 5-year warrants to purchase 300,000 shares of the Company’s Common Stock at an exercise price of $0.50 on August 21, 2017. The interest under each of the notes is a cash payment of $2,000.

On September 7, 2017, the Company entered into note purchase agreement with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $25,000, and a warrant to purchase 100,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converted the note 60 days after issuance, on November 6, 2017, into 50,000 shares of Common Stock and a warrant to purchase 50,000 shares of Common Stock.

On September 26, 2017, the Company entered into note purchase agreement with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $100,000, and a warrant to purchase 500,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 5-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 60 days after issuance, into 200,000 shares of Common Stock and a warrant to purchase 200,000 shares of Common Stock.

On October 3, 2017, the Company entered into three note purchase agreements with three investors, pursuant to which each investor purchased a promissory note from the Company in exchange for $25,000, and each received a warrant to purchase 75,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory notes. The promissory notes have a clause that automatically converted the notes 30 days after issuance, on November 2, 2017, into an investment in the principal amount in the Company’s Note Offering and each investor was issued a one-year promissory note with a principal amount of $25,000 and warrants to purchase 25,000 shares of the Company’s Common Stock with a $0.50 exercise prices and a 10-year term.

On October 5, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $25,000 and received a warrant to purchase 75,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converted the note 30 days after issuance, on November 4, 2017 into an investment in the principal amount in the Company’s Note Offering and the investor was issued a one-year promissory note with a principal amount of $25,000 and warrants to purchase 25,000 shares of the Company’s Common Stock with a $0.50 exercise price and a 10-year term.

On October 9, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $25,000 and received a warrant to purchase 75,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converted the note 30 days after issuance, on November 8, 2017, into an investment in the principal amount in the Company’s Note Offering and the investor was issued a one year 8% $25,000 convertible promissory note and a warrant to purchase 25,000 shares of the Company’s Common Stock with a $0.50 exercise price and a 10-year term.

On October 10, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $50,000 and received a warrant to purchase 150,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, on November 9, 2017, into an investment in the principal amount in the Company’s Note Offering and the investor was issued a one year 8% $50,000 convertible promissory note and a warrant to purchase 50,000 shares of the Company’s Common Stock with a $0.50 exercise price and a 10-year term.

On October 11, 2017, the Company entered into a Note Conversion Agreement and on October 18, 2017, the Company entered into an amendment thereto (referred herein to together as the “Note Conversion Agreement”) with a major shareholder pursuant to which the Company and the major shareholder agreed to convert six promissory notes issued to the major shareholder upon their specific expiration dates, together with an additional investment amount of $1,000,000, which was received by the Company on October 18, 2017, into a convertible promissory note (the “Conversion Note”). The original principal amount under the Conversion Note was the total of four promissory notes that had passed their maturity date as of the date of the entry into the Note Conversion Agreement, which equaled $1,191,884 An additional $1,000,000 was added to the principal amount of the Conversion Note on October 18, 2017, upon its receipt by the Company. Further, upon the end of the term of another of the six notes on November 7, 2017, the amount due on that note which equals $126,000 shall be added to the total amount due under the Conversion Note. Further, upon the end of the term of the last of the six notes on December 4, 2017, the amount due on that note which equals $105,000 shall be added to the total amount due under the Conversion Note for a total of $2,496,478. The Conversion Note has a term of one year and accrues interest at 10% for every four months that it is issued and can be converted at the option of the major shareholder into an investment in the Company’s offering of its convertible promissory notes and warrants (the “Note Offering”), at a 15% discount. Further pursuant to the Note Conversion Agreement, on October 18, 2017, the major shareholder was issued a warrant to purchase 1,000,000 shares of the Company’s Common Stock with a ten-year term and an exercise price of $.50. The foregoing descriptions of the Note Conversion Agreement and Conversion Note is not complete and is qualified in its entirety by reference to the full text of the form the Note Conversion Agreement (and amendment thereto) and the Conversion Note and warrant, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this report, and are incorporated by reference herein. The form of subscription agreement, form of note and form of warrant for the Note Offering, are filed as Exhibit 10.3 to this report.

On October 17, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $12,500 and received a warrant to purchase 37,500 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, into an investment in the principal amount in the Company’s Note Offering.

On October 17, 2017, the Company entered into a second note purchase agreement with another investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $12,500 and received a warrant to purchase 37,500 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, into an investment in the principal amount in the Company’s Note Offering.

On October 19, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $20,000 and received a warrant to purchase 60,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, into an investment in the principal amount in the Company’s Note Offering.

On October 31, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $75,000 and received a warrant to purchase 225,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, into an investment in the principal amount in the Company’s Note Offering.

On November 21, 2017, the Company borrowed $108,000 from JSJ Investments, Inc. (“JSJ”) and issued to JSJ a $108,000 convertible promissory note with a maturity date of November 21, 2018 (the “Note”). The interest rate under the Note is 12% and the default interest rate under the Note is 18%. Under the Note JSJ is entitled at its option, to convert all or a portion of the outstanding principal amount and accrued interest of the Note at any time after the 180th day after the issuance date of the Note (the “Pre-Payment Date”) into shares of  the Company’s common stock at a conversion price for each share of common stock a price which is either $.50 if the conversion is made prior to the Pre-Payment Date or if the conversion is made after the Pre-Payment Date or pursuant to an event of default under the Note, a price equal to a 42% discount to the lowest trading price during the 20 days prior to the day that JSJ requests conversion. JSJ may not convert the Note to the extent that such conversion would result in JSJ’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by JSJ and its affiliates.  If the Company, without any demand from JSJ, prepays the Note within 90 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 135%; if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 140%; and if such prepayment is after the 121st date of the issuance of the Note and prior to the Pre-Payment Date, then such redemption premium is 145%, if such prepayment is made after the Pre-Payment Date and before the maturity date, then such redemption premium is 150%.  JSJ can also demand that the Company pay the principal balance together with all interest accrued on the Note at any time prior to the maturity date of the Note.  In connection with the issuance of this Note, the Company’s transfer agent reserved 4,400,000 shares of the Company’s common stock, in the event that the Note is converted.

On November 22, 2017, the Company entered into a note purchase agreement with an investor, pursuant to which the investor purchased a promissory note from the Company in exchange for $100,000 and received a warrant to purchase 300,000 shares of the Company’s Common Stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 30 days after issuance, into an investment in the principal amount in the Company’s Note Offering.

On December 12, 2017, the Company issued Power Up a $128,000 convertible promissory note (the “Power Up Note”). The Power Up Note entitles the holder to 12% interest per annum and matures on September 20, 2018. Power Up may convert the Power Up Note into shares of the Company’s common stock beginning on the date which is 180 days from the issuance date of the Power Up Note, at a price equal to 61% of the average of the lowest two trading prices during the 15 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by Power Up and its affiliates. If the Company prepays the Power Up Note within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note , then such redemption premium is 115%; if such repayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 120%; and if such repayment is made from the 91st to the 180th day after issuance, then such redemption premium is 125%. After the expiration of the 180 days following the issuance, there shall be no further right of pre-payment. In connection with the Power Up Note, the Company’s transfer agent reserved 4,728,700 shares of the Company’s common stock, in the event that the Power Up Note is converted. The funds for the Power Up Note were received by the Company on December 15, 2017.

On December 12, 2017, the Company entered into a Securities Purchase Agreement with Morningview Financial, LLC (“MV”) pursuant to which MV purchased a convertible promissory note evidencing a loan of $100,000. On December 12, 2017, the Company issued MV a $100,000 convertible promissory note (the “MV Note”) which had a purchase price of $95,000 and an original issue discount of $5,000. The MV Note entitles the holder to 8% interest per annum and matures on December 12, 2018. MV may convert the MV Note at any time after the issuance date of the note and up until the 180th calendar day after the issuance date of the MV Note into shares of the Company’s common stock at a conversion price of $.50 per share. After the 180th calendar day after the issuance date of the MV Note, MV can convert the MV Note into shares of the Company’s common stock, at a price equal to 58% of the lowest trading price during the 20 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that MV may not convert the note to the extent that such conversion would result in MV’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by MV and its affiliates. MV also has the right under the MV note to waive such 4.99% limit and increase this up to 9.99%. If the Company prepays the MV Note within 90 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 130%; if such prepayment is made between the 91st day and the 120th day after the issuance of the MV Note, then such redemption premium is 135%; and if such repayment is made from the 121^st day after issuance to the 180th day after issuance, then such redemption premium is 130%. After the expiration of the 180 days following the issuance, there shall be no further right of pre-payment. In connection with the MV Note, the Company’s transfer agent reserved 8,679,728 shares of the Company’s common stock, in the event that the MV Note is converted. The funds for the MV Note were received by the Company on December 19, 2017. 

On December 15, 2017, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund, LLC (“First”) pursuant to which First purchased a convertible promissory note evidencing a loan of $135,000. On December 15, 2017, the Company issued First a $135,000 convertible promissory note (the “First Note”). The First Note entitles the holder to 12% interest per annum and matures nine months from the issuance date. First may convert the First Note at any time after the issuance date of the First Note and up until the 179^th calendar date of the issuance of the Fist Note, into shares of the Company’s common stock at a conversion price of $.50 per share. However, after the earlier of the 180^th date after issuance of the First Note or upon the occurrence of an event of default under the First Note, then the conversion price shall be the lower of $.50 or a price equal to 60% of the lowest trading price during the 20 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that First may not convert the note to the extent that such conversion would result in First’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by First and its affiliates. First also has the right under the First Note to waive such 4.99% limit. If the Company prepays the First Note within 90 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 135%; if such prepayment is made between the 91st day and the 120th day after the issuance of the First Note, then such redemption premium is 140%; and if such repayment is made from the 121st day after issuance to the 180th day after issuance, then such redemption premium is 145%. After the expiration of the 180 days following the issuance, there shall be no further right of pre-payment. In connection with the First Note, the Company’s transfer agent reserved 20,000,000 shares of the Company’s common stock, in the event that the First Note is converted. The funds for the First Note were received by the Company on December 21, 2017. Pursuant to the Securities Purchase Agreement with First, on December 15, 2017, the Company also issued to First a warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $.50 per share subject to certain anti-dilution adjustments. The warrant has a 3-year term and expires on December 15, 2020.

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 Securities Act of 1933, as amended (the “1933 Act”), for such issuances.

Issuance of Common Stock and Warrants

In April of 2017, the Company sold and issued 502,000 shares of its Common Stock and warrants to purchase 502,000 shares of its common stock in exchange for aggregate proceeds of $251,000.

In May of 2017, the Company sold and issued 10,000 shares of its Common Stock and warrants to purchase 10,000 shares of its common stock in exchange for aggregate proceeds of $5,000.

In June of 2017, the Company sold and issued 162,548 shares of its Common Stock and warrants to purchase 162,548 shares of its common stock in exchange for aggregate proceeds of $81,274.

In August of 2017, the Company issued 40,498 shares of its Common Stock and warrants to purchase 40,498 shares of its Common Stock in exchange for aggregate proceeds of $20,249.

The above issuances 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 Common Stock

During January 2017, the Company issued 107,000 shares of the Company’s Common Stock upon conversion of certain promissory notes.

During February 2017, the Company issued 64,800 shares of the Company’s Common Stock upon conversion of a certain promissory note.

On February 13, 2017, the Company issued 336,000 shares of the Company’s Common Stock to certain note holders for accrued interest.

During March 2017, the Company issued 600,000 shares of the Company’s Common Stock upon conversion of certain promissory notes.

During March 2017, the Company issued 100,000 shares of the Company’s Common Stock together with warrants to purchase 100,000 shares of the Company’s Common Stock for aggregate proceeds of $50,000.

On June 5, 2017, the Company issued 3,400,000 shares of its common stock to an investor pursuant to a letter agreement (the “Letter Agreement”) executed between the Company and the investor dated June 5, 2017. In the Letter Agreement, the Company and the investor agreed that the investors loans to the company made from November of 2016 through April of 2017, totaling $1,100,000 are to be convertible, at the investor’s option, into an investment in the company’s next financing round resulting in gross proceeds to the Company of at least $1,000,000. Further, pursuant to the Letter Agreement, the Company agreed to provide the investor with a one-time full ratchet anti-dilution adjustment to the Conversion Shares, as defined below, with a value equal to the Original Conversion Price, as defined below and as a result issued the 3,400,000 shares of the Company’s Common Stock as set forth above, based on the lowest priced financing since the offering of the Bridge Notes, as defined below, of $0.50. The Investor previously invested a total of $6,800,000 in the Company’s 2013 Bridge Debenture Offering (the “Bridge Notes”). The Bridge Notes were then converted into 6,849,370 shares of the Company’s common stock (the “Conversion Shares”) at a conversion price of $1.00 (the “Original Conversion Price”) and included interest paid in kind under the Bridge Notes.

The above issuances 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.

Issuances Upon Note Conversion

During January 2017 the Company issued warrants to purchase 107,000 shares of its Common Stock related to the conversion of certain convertible notes. Such warrants have an exercise price of $0.50 and a term of 5 years and a cashless conversion feature.

During February 2017 the Company issued warrants to purchase 64,800 shares of its Common Stock related to the conversion of a certain convertible note. Such warrants have an exercise price of $0.50 and a term of 5 years and a cashless conversion feature.

During March 2017, the Company issued warrants to purchase 600,000 shares of the Company’s Common Stock related to the conversion of certain promissory notes. Such warrants have an exercise price of $0.50 and a term of 5 years and a cashless conversion feature.

On April 12, 2017, the aggregate principal and interest of certain convertible notes totaling $450,000 were converted pursuant to the terms of the notes into 900,000 shares of the Company’s common stock and 900,000 warrants to purchase common stock.

Between September 15, 2017 and November 25, 2017, the aggregate principal and interest of certain convertible notes totaling $340,000 were converted pursuant to the terms of the notes into 680,000 shares of the Company’s Common Stock and 900,000 warrants to purchase common stock.

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 Service Provider Warrants

On February 1, 2017, the Company issued warrants to purchase 30,000 shares of its Common Stock to a service provider in exchange for services provided to the Company. 5,000 of the warrants vested on February 28, 2017, and 5,000 warrants shall vest on the last date of each month following February 2017, until final vesting on July 31, 2107. As of the date of this report, 10,000 of the warrants have vested. The warrants have an exercise price of $0.50 and a 5-year term.

On March 6, 2017, the Company issued warrants to purchase 200,000 shares of its Common Stock to a service provider in exchange for services provided to the Company. The warrants have an exercise price of $0.50 and a 5-year term.

On April 12, 2017, the Company issued warrants to purchase 100,000 shares of its common stock at $0.50 per share to a consultant in exchange for services already performed. The warrants have a 5-year term and are immediately vested.

On May 10, 2017, the Company appointed Ronald DaVella as the Company’s Chief Financial Officer and a member of its board of directors effective as of May 15, 2017. In connection with Mr. DaVella’s appointment, the Company entered into an Employment Agreement with Mr. DaVella on May 18, 2017, pursuant to which the Company agreed to employ Mr. DaVella as the Chief Financial Officer of the Company for a term of four (4) years (the “Agreement”). Under the Agreement, in addition to other compensation as further described in the Company’s current report on Form 8-K filed with the SEC on May 18, 2017, Mr. DaVella received warrants to purchase 1,800,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The warrants shall vest in increments of 25% with the first vesting to take place immediate upon execution of the Agreement and each following vesting to take place on the one-year anniversary of the Agreement over the three (3) years following the agreement.

On July 1, 2017, the Company entered into an Independent Contractor Services Agreement with a service provider pursuant to which it issued to the service provider on July 1, 2017, a warrant to purchase 50,000 shares of the Company’s Common Stock with a 5-year term and an exercise price of $0.50. 25,000 of the warrant shares vested on July 1, 2017 and the remaining 25,000 shares vested on December 31, 2017.

On August 10, 2017, the Company issued a warrant to purchase 10,000 shares of its Common Stock with a $0.50 exercise price and a 5- year term to a service provider in consideration of services provided to the Company.

On September 21, 2017, the Company issued a warrant to purchase 25,000 shares of its Common Stock with a $0.50 exercise price and a 10-year term to a service provider in consideration of services provided to the Company.

On September 29, 2017, the Company issued a warrant to purchase 25,000 shares of its Common Stock with a $0.50 exercise price and a 10-year term to a service provider in consideration of services provided to the Company.

On October 4, 2017, the Company issued a warrant to purchase 50,000 shares of its Common Stock with a $0.50 exercise price and a 10-year term to a service provider in consideration of services provided to the Company.

On October 24, 2017, the Company issued a warrant to purchase 500,000 shares of its Common Stock with a $0.50 exercise price and a 10-year term to a service provider in consideration of services provided to the Company.

On November 8, 2017, the Company issued a warrant to purchase 50,000 shares of its Common Stock with a $0.50 exercise price and a 10-year term to four different service providers (an aggregate of 200,000) in consideration of services provided to the Company.

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 Options

On April 1, 2017, 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 2027.

On October 19, 2017, 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 2027.

On November 14, 2017, 15,000 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 15-month period. The options expire in 2027.

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.

Exercise Notices Received

From May 28, 2017 through June 14, 2017, 23 holders of a total of 132 warrants (the “Warrants”) pursuant to which 36,547,903 shares of the Company’s Common Stock are issuable, submitted exercise notices to the Company, pursuant to which the holders agreed that the Warrants shall be exercised by way of a cashless exercise feature automatically upon such time as the market price for the company’s common stock reaches $1.50 on a trading date. If this occurs, the company shall have to issue 24,365,269 shares of its Common Stock to the holders.

Issuances Pursuant to Letter Agreements

On July 17, 2017, the Company entered into a letter agreement with an investor pursuant to which, the Company agreed that the investor’s non-convertible notes totaling $1,100,000 in the aggregate shall each have their maturity date extended and each note amount has been increased to include accrued interest on the notes and the Company agreed to issue the investor a warrant to purchase 1,000,000 shares of the Company’s Common Stock with a 10-year term and an exercise price of $0.50. The new aggregate total of the notes after adding the interest amount as discussed above is $1,155,000 and the new maturity dates of the notes range from August 27, 2017 to December 4, 2017.

On August 24, 2017, the Company entered into a letter agreement with an investor pursuant to which, the investor agreed to extend the maturity date of a promissory note which expired on August 12, 2017, to a new maturity date of February 12, 2018, and in exchange to agreeing to extend the maturity date of such note, the investor was issued 100,000 shares of the company’s Common Stock and a warrant to purchase 2,000,000 shares of the Company’s Common Stock with a $0.50 exercise price and a 10 year term.

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.

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, 2017.

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 photovoltaic technologies that enable thin film solar products 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.

These patented and patent-pending technologies fall into two general categories – (1) cost reducing and performance-enhancing fabrication processes and device architectures for ultra-high efficiency Gallium Arsenide (“GaAs”)-based solar thin films and (2) organic photovoltaic (“OPV”) materials, architectures, and fabrication processes for low cost, ultra-thin solar films offering high quality aesthetics, such as semi-transparency and tinting, and highly flexible form factors. The technologies are targeted at certain broad applications that require high power conversion efficiency, flexibility, and light weight. These applications include: (a) portable and off-grid solar power generation, (b) BAPV, (c) BIPV, (d) space vehicles and UAVs, (e) semi-transparent solar power generating glazing or windows, and (f) ultra-thin solar films for automobiles or other consumer applications and (g)sensors and other devices for the internet of things (“IoT”). The Company believes these technologies have been demonstrated in a laboratory environment with our research partners. 

The Company currently holds 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”)-based 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.

Plan of Operation and Liquidity and Capital Resources

Overall Operating Plan

Our 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. These manufacturing partners can supply customers directly, from which we expect to receive license royalties. Additionally, these manufacturing partners can also serve as a source of solar cell supply for NanoFlex to provide products to customers on its own through a “fab-less” manufacturing model. We believe this “fab-less” manufacturing model is necessary during the early stages of developing new markets.

We have made contact with major solar cell and electronics manufacturers world-wide and are finding potential commercial interest in both our high efficiency 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.

We have identified high efficiency thin film solar technologies as our nearest term market opportunity. A key to reducing the risk to market entry of our high efficiency technologies by our partners is for us to demonstrate our technologies on their product designs and fabrication processes through technology transfer and joint development. To support this joint development, we have established our own engineering team and plan to expand this team contingent on our ability to secure sponsored development funding and/or raise the necessary capital. This team serves several key functions, including working closely with our sponsored research organizations and its industry partners to integrate and customize our proprietary processes and technologies into the partner’s existing product designs and fabrication processes. In addition, the Company is pursuing commercialization efforts in the emerging IoT market with solar powered sensors. In conjunction with facilitating technology transfer, our engineering team will also work closely with downstream partners and customers such as military users for mobile field applications, system integrators, installers, and architects for BAPV and BIPV applications, and engineering, procurement, and construction (“EPC”) companies and project developers for solar farm applications. This customer interaction allows us to better understand application specific requirements and incorporate these requirements into its product development cycle.

To support this work, our engineering team leverages the facilities and equipment at the University of Michigan on a recharge basis, which we believe is a cost-effective approach to move the technologies toward commercialization. We believe that this allows our engineering team to work directly with industry partners to acquire early licenses to use our intellectual property without the need for large-scale capital investment in clean room facilities and solar cell fabrication equipment.

We are pursuing sponsored development funding to generate revenue in the near-term. In connection with our focus on potential government-sponsored research projects, on June 19, 2017, the Company announced that that it is part of a consortium that was awarded a $5.7 million contract from the Army Research Laboratory’s Army Research Office to develop high power, flexible, and lightweight solar modules for portable power applications. The consortium consists of NanoFlex, SolAero, the University of Michigan, and the University of Wisconsin. Pursuant to the foregoing and as part of the consortium, SolAero was awarded a 4-year contract amounting to $5.7 million with the Army Research Lab (ARL) to develop solar power mats.  SolAero has engaged the Company as a subcontractor for $3.3 million over 4 years of which $1.6 million will be provided to the University of Michigan as a subcontractor to the Company. The Company’s contract with SolAero provides for direct reimbursement of the Company’s costs including indirect overheard. Having an established technical team enables us to more effectively pursue and execute sponsored research projects from the Department of Defense (“DoD”), the Department of Energy (“DOE”), and the National Aeronautics and Space Administration (“NASA”), each of which has interests in businesses that can deliver ultra-lightweight, high-efficiency solar technologies for demanding applications. However, there can be no assurance that the Company can effectively pursue such research projects, nor if it can, that such pursuit will be successful.  

Another potential revenue source is from JDAs and license agreements with existing solar cell manufacturers, similar to the JDA with SolAero. Once we are able to initially demonstrate the efficacy of our processes and technologies on partner’s products and fabrication processes, we expect to be in a position where we can sign licenses covering further joint development, IP licensing, solar cell supply, and joint marketing, as applicable. We anticipate that partnerships with one or more of the existing high efficiency solar cell manufacturers can be supported by our engineering team, and result in near-term revenue opportunities, as we have demonstrated with our current joint development partner.

As reported in the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2017, on February 2, 2017, the Company entered into a License Agreement with SolAero Technologies Corp. (“SolAero”) pursuant to which, the Company agreed to grant SolAero a non-exclusive worldwide license to use, sell, offer for sale, import or otherwise dispose of certain products (the “Licensed Products”) using the Company’s patented proprietary manufacturing processes relating to Gallium Arsenide-based photovoltaic cells (the “Licensed Patents’) within the space and near-space fields of use (the “License Field”). SolAero is to pay the Company a royalty based on sales of the Licensed Products within the Licensed Field. The agreement does not provide SolAero with the right to sublicense the Licensed Patents. The term of the agreement runs from February 2, 2017, through the expiration date of the last expiring patent included in the Licensed Technology. However, each party may terminate the agreement upon a material breach by the other party.

There can be no assurance that our overall 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 nor that we will be awarded the government contracts that we are currently pursuing in addition to the ARL Contract.

Near Term Operating Plan

Our near-term focus is on advancing our product development efforts while containing costs. We require approximately $9 million to $10 million to continue our operations over the next twelve months to support our development and commercialization activities, fund patent application and prosecution, service outstanding liabilities, and support our corporate functions. Our operating plan over the next twelve months is comprised of the following:

We believe that we have made progress with each of the components of this operating plan and have aligned our operations and cost structure with expediting the development and commercialization of our high efficiency solar technologies. We have taken steps to reduce patent expenses, particularly related to optimizing our OPV patent portfolio. We have realigned our research and development operations with several strategic actions, including hiring Company engineers to focus on high efficiency product development and technology transfer from the University of Michigan to a commercial environment with our industry partner while suspending our research agreement with the University of Michigan on August 31, 2017. We remain focused on increasing our revenue through JDAs and license agreements with industry partners and through government-sponsored research projects and we believe that we are making positive progress with these efforts. 

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 nor that we will be awarded the joint development arrangements that we are currently pursuing in addition to the ARL contract.

In the event that we raise less than the required amount of capital, our focus is planned to be on prioritizing our commercialization effort to capture near-term revenue opportunities and limiting spending on general and administrative expenses and patent costs. In the event that we cannot pay all of our patent costs, we may lose valuable patents and/or be unable to pursue patent protection for intellectual property we paid to develop which could jeopardize our ability to commercialize out technologies

Results of Operations

For the years ended December 31, 2017 and December 31, 2016

Revenue

Revenue was $199,080 and $115,400 for the year ended December 31, 2017 and 2016, respectively. The revenue for 2017 primarily relates to engineering services provided under the ARL contract. The revenue for 2016 relates to engineering services provided under our JDA.

We do not believe that inflation or changing prices have had a material effect on our business, financial condition, or results of operations.

Cost of Services

Cost of services was $235,202 and $458,576 for the year ended December 31, 2017 and 2016, respectively. This decrease was due to decreased services provided under the Joint Development Agreement (“JDA”), while the Company focused its engineering efforts on product development for portable power applications, partially offset by costs related to the ARL contract.

Research and Development Expenses

Research and development expenses were $708,840 for the year ended December 31, 2017, a 58% decrease from $1,683,464 for the year ended December 31, 2016. The decrease is attributable to an overall reduction in expense associated with our sponsored research activity including temporary suspension of our research agreement with the University of Michigan on August 31, 2017 as we increased our focus on product development and commercialization. The, decrease was also due to a decrease in non-cash expenses consisting of warrants issued for services. Non-cash expenses recaptured were $51,376 for the year ended December 31, 2017 and non-cash expenses were $1,266,043 for the year ended December 31, 2016.

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 the Company and were $1,274,991 for the year ended December 31, 2017, a 16% decrease from $1,525,695 for the year ended December 31, 2016. The year-over-year decrease is attributable to the timing of application and prosecution of patents and the result of optimizing our patent portfolio for OPV as discussed earlier.

Legal Settlement Expense

During the year ended December 31, 2017, the Company recorded a legal settlement expense of $633,292 relating to the settlement of the John Kuhns litigation discussed in Note 8. The parties settled the matter and preparing the necessary documentation for same, pursuant to which all claims against the Company would be dismissed in exchange for issuing Mr. Kuhns 1,750,000 shares of the Company’s Common Stock and $125,000 in cash. 

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $2,273,440 for the year ended December 31, 2017, a 23% decrease from $2,930,222 for the year ended December 31, 2016. The decrease is primarily attributable to a reduction in non-cash expenses associated with warrants issued to employees during the year. Non-cash expenses were $767,964 and $1,063,248 and for the year ended December 31, 2017 and 2016, respectively.

Other Expense

Other expense for the year ended December 31, 2017 was $5,876,781 as compared to $582,804 for the year ended December 31, 2016.  These changes are primarily due to the gain (loss) on change in fair value of derivative liabilities, the timing of entering into interest bearing debt agreements and the timing of the conversion of existing debt and extinguishment of old debt.

Net Loss

The net loss for the year ended December 31, 2017 was $10,803,466, a 53% increase from $7,065,361 for the year ended December 31, 2016. The change in net loss is impacted by non-cash expenses, including the gain(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, general and administrative expenses, each of which is described above.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2017, we had cash and cash equivalents of $61,459 and a working capital deficit of $9,939,999, as compared to cash and cash equivalents of $2,986 and a working capital deficit of $19,246,667 as of December 31, 2016. The decrease in working capital is attributable to the early adoption of ASU 2017-11 and the elimination of derivative liabilities on the balance sheet.

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 and GaAs semiconductor-based solar cells. In the next 12 months,we need to raise approximately $10 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 $483,185 to $5,105,581 for the year ended December 31, 2017, compared to $4,622,396 for the year ended December 31, 2016. The cash used in operating activities was attributable primarily to increased net loss, loss on extinguishment of debt, a decrease in interest expense related to conversion of debt, a decrease in warrants and options issued as compensation, offset by the change in fair value of derivative liabilities.

Net cash used in investing activities was $11,060 and $0 during the years ended December 31, 2017, and 2016, respectively. This amount represents purchases of property and equipment.

Net cash provided by financing activities was $5,175,114 and $4,619,127 during the years ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2017 this includes proceeds from the sale of common shares and warrants of $407,524, borrowings on related party debt of $1,800,000, borrowings on promissory note debt of $1,370,000, borrowings on convertible debt of $2,353,200, advances received from related party, partially offset by repayments on convertible debt of $589,290 and advances repaid to related party of $304,820. For the year ended December 31, 2016 this includes proceeds from sale of common shares and warrants of $663,922, proceeds from exercise of warrants of $72,205, borrowings on short-term debt of $300,000, borrowings on related party debt of $1,875,000, borrowings on convertible debt of $1,458,000, advances received from related party of $730,000, partially offset by payments on related party debt of $150,000 and advances repaid to related party of $330,000.

Going Concern

The Company has only generated limited revenues to date. The Company has a working capital deficit of $9,939,999 and an accumulated deficit of $216,545,120 as of December 31, 2017. 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 revenue recognition, 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 consolidated 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

We recognize revenue from our 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 JDA and the ARL contract is recognized as services are provided and are limited to the total dollar amount specified in the agreement. R&D engineering services, through JDAs are a core component of the Company’s operations and business model, since they are a necessary prerequisite to obtaining intellectual property licensing agreements with customers. As such, R&D engineering services are expected to be a sustained revenue stream for the Company as it works with additional customers and the services constitute a portion of the Company’s ongoing central operations.

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, 2017 and 2016, 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.

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, 2017 and 2016 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:

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, 2017, 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 (“2013”) 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) The Company’s board of directors has no audit committee, or independent director with financial expertise, which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting;

(2) 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;

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, 2017.

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:

(1) We have created a position to segregate duties consistent with control objectives and increased our personnel resources and technical accounting expertise within the accounting function.

(2) 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.

Changes in internal controls over financial reporting

There have been no other significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the period covered by this report.

Further, subsequent to the period covered by the report, management plans to implement measures to remediate the material weaknesses in internal controls over financial reporting described above to the extent sufficient capital is available to do so. Specifically, the CEO and 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.

ITEM 9B. OTHER INFORMATION

None. 

PART III

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. Mark R. Tobin served as the Company’s Chief Financial Officer from September 1, 2015 through May 15, 2017. In June 2015, Norman Allen was appointed as the Company’s Chief Technology Officer. Robert J. Fasnacht served as our President and Chief Operating Officer from September 2013 through April 2015 and Executive Vice President from April 2015 through April 2016. On May 18, 2017, the Company appointed Ronald DaVella as the Company’s Chief Financial Officer.

Dean L. Ledger, age 69, 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. 

Ronald V. DaVella, age 60, has served as a Director and NanoFlex’s Chief Financial Officer since May 2017. He is also currently a Director and the Chairman of the Audit Committee for The Joint Corp.’s Board of Directors. Mr. DaVella formerly served as the Chief Financial Officer for Amazing Lash Studio Franchise LLC, a franchisor of eyelash extension service studios with over 120 operating locations in the US. Since August 2015 Mr. DaVella is also a franchise owner with Amazing Lash Studio Franchise LLC. Mr. DaVella was an audit partner with Deloitte & Touche LLP from June 1989 to July 2014. Prior to becoming a partner at Deloitte and Touche, Mr. DaVella served as an audit manager and staff accountant from August 1980 to June 1989. He has assisted clients with mergers and acquisitions, operational and financial controls, internal and external reporting, financings and public offerings and filings with the SEC. Mr. DaVella is a certified public accountant in the State of Arizona. He received a bachelor’s of science degree in accounting from Queens College in 1979 and a master’s in business administration in finance from Pace University in 1985.

Norman Allen, age 66, 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 worked 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.

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 the fiscal year ended December 31, 2017 and 2016, the Board of Directors did not meet and instead transacted business by unanimous written consent on a total of 47 and 14 occasions, respectively.

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 a Director of the Board of Directors of the Company, and Mr. Ronald DaVella serves as the Chief Financial Officer and a Director of the Board of Directors 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. 

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:

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. Therefore, 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 2017 and 2016.

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 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 such time as the Board of Directors of the Company determined that the Company had 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 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. On October 21, 2016, Mr. Ledger executed a second amendment to his employment agreement pursuant to which a clause was added thereto stating that if the Company raises not less than $6,000,000 in funds from sales of its securities subsequent to the amendment, then Mr. Ledger’s base salary would increase from $210,000 to $240,000, and Mr. Ledger’s severance upon the termination of Mr. Ledger in connection with a change of control transaction was reduced to six (6) months.

On May 10, 2017, the Company appointed Ronald DaVella as the Company’s Chief Financial Officer and a member of its board of directors effective as of May 15, 2017. In connection with Mr. DaVella’s appointment, the Company entered into an Employment Agreement with Mr. DaVella on May 18, 2017, pursuant to which the Company agreed to employ Mr. DaVella as the Chief Financial Officer of the Company for a term of four (4) years (the “Agreement”). Under the Agreement, in addition to other compensation as further described in the Company’s current report on Form 8-K filed with the SEC on May 18, 2017, Mr. DaVella received warrants to purchase 1,800,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The warrants shall vest in increments of 25% with the first vesting to take place immediate upon execution of the Agreement and each following vesting to take place on the one-year anniversary of the Agreement over the three (3) years following the agreement.

On June 19, 2015, the Company appointed Norman Allen of Power Strategies, LLC, as its Chief Technology Officer. It was 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 vested on the first anniversary date of the amendment, and an additional 600,000 warrants will vest on the second anniversary date of the amendment. On October 21, 2016, the Company entered into a second amendment to the Independent Contractor Agreement with Mr. Allen. The second amendment added in a clause stating that if the Company raises not less than $6,000,000 in funds from sales of its securities subsequent to the amendment, then the cash compensation under the Independent Contractor Agreement would be amended from a $1,500 daily fee to a $15,000 monthly fee.

Compensation Committee Report

As set forth above, the Company does not have a compensation committee. Accordingly, the Company’s entire board of directors, which consists solely of Messrs Ledger and DaVella, performs the functions of a compensation committee. No officer or employee of the Company participated in deliberations of the board concerning executive compensation. Neither Mr. Ledger nor Mr. DaVella has discussed the compensation paid, awarded to or earned by any named executive officer with management or any other parties and they make all decisions regarding compensation to executive officers in their sole discretion. Further, we do not believe it is necessary for our board of directors to appoint a compensation committee at this time because the volume of executive compensation matters that come before our board of directors for consideration permits our directors to give sufficient time and attention to such matters.

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, 2017:

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, 2017.

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, 2017 and 2016.

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.

* 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.

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.

During the year ended December 31, 2016, the Company received advances from its Chief Executive Officer totaling $730,000 and repaid advances totaling $330,000. Advances payable has a balance of $510,000 at December 31, 2016. Such advances do not accrue interest and are payable upon demand. During the year ended December 31, 2017, the Company received advances from its Chief Executive Officer totaling $138,500 and repaid advances totaling $304,820. Advances payable has a balance of $343,680 at December 31, 2017. Such advances do not accrue interest and are payable upon demand.

On November 21, 2016, the Company borrowed $300,000 under a short-term note agreement with a majority shareholder. Under the terms of this agreement, the note is to be repaid within 60 days of funding along with $15,000 paid at the maturity of the note in lieu of interest. As of the date of this report, the note is in default and the interest is accrued but not yet paid.

On December 27, 2016, the Company borrowed $200,000 under a short term note agreement with a majority shareholder. Under the terms of this agreement, the note is to be repaid within 60 days of funding along with $10,000 paid at the maturity of the note in lieu of interest.

On January 27, 2017, the Company borrowed $380,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is to be repaid within four months of funding along with $19,000 paid at the maturity of the note in lieu of interest. On July 17, 2017, the Company entered into a letter agreement to extend the maturity date to September 27, 2017 and increase the note amount to include accrued interest. The foregoing note has been consolidated into the Conversion Note, as such term is defined below.

On March 6, 2017, the Company borrowed $120,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is to be repaid within four months of funding along with $6,000 paid at the maturity of the note in lieu of interest. On July 17, 2017, the Company entered into a letter agreement to extend the maturity date to November 7, 2017 and increase the note amount to include accrued interest. The foregoing note has been consolidated into the Conversion Note, as such term is defined below.

On April 4, 2017, the Company borrowed $100,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is going to be repaid within four months of funding along with $5,000 paid at the maturity of the note in lieu of interest. On July 17, 2017, the Company entered into a letter agreement to extend the maturity date to December 4, 2017 and increase the note amount to include accrued interest. The foregoing note has been consolidated into the Conversion Note, as such term is defined below.

On May 18, 2017, the Company entered into an employment agreement with Ron DaVella in his capacity as the Company’s Chief Financial Officer. Pursuant to the employment agreement, on May 18, 2017 the Company issued Mr. DaVella warrants to purchase 1,800,000 shares of the Company’s common stock at $0.50 per share.

On July 17, 2017, the Company entered into a letter agreement with a major shareholder pursuant to which the Company agreed that the shareholder’s non-convertible notes totaling $1,100,000 in the aggregate shall each have their maturity date extended and each note amount has been increased to include accrued interest on the notes. Pursuant to this agreement, the Company agreed to issue the investor a warrant to purchase 1,000,000 shares of the Company’s Common Stock with a 10-year term and an exercise price of $.50. The Company recorded an additional amount of $122,884 to principal which increased the aggregate balance of the notes to $1,222,884 under the letter agreement. The new maturity dates of the notes range from August 27, 2017 to December 4, 2017 with an interest rate of 5%. The relative fair value of the 1,000,000 warrants was $495,044 which was recorded as a loss on extinguishment of debt since the change in value was greater than 10%. The foregoing note has been consolidated into the Conversion Note, as such term is defined below.

On August 10, 2017, the Company entered into a Loan Agreement with a major shareholder pursuant to which, the shareholder invested $200,000 in a non-convertible 30-day unsecured promissory note issued on August 10, 2017. The interest under the note is a cash payment of $30,000 due at maturity. The foregoing note has been consolidated into the Conversion Note, as such term is defined below.

On October 11, 2017, the Company entered into a Note Conversion Agreement and on October 18, 2017, the Company entered into an amendment thereto (referred herein to together as the “Note Conversion Agreement”) with a major shareholder pursuant to which the Company and the major shareholder agreed to convert six promissory notes issued to the major shareholder upon their specific expiration dates, together with an additional investment amount of $1,000,000, which was received by the Company on October 18, 2017, into a convertible promissory note (the “Conversion Note”). The original principal amount under the Conversion Note was the total of four promissory notes that had passed their maturity date as of the date of the entry into the Note Conversion Agreement, which equaled $1,221,844 An additional $1,000,000 was added to the principal amount of the Conversion Note on October 18, 2017, upon its receipt by the Company. Further, upon the end of the term of another of the six notes on November 7, 2017, the amount due on that note which equals $126,000 shall be added to the total amount due under the Conversion Note. Further, upon the end of the term of the last of the six notes on December 4, 2017, the amount due on that note which equals $105,000 shall be added to the total amount due under the Conversion Note. The Conversion Note has a term of one year and accrues interest at 10% for every four months that it is issued and can be converted at the option of the major shareholder into an investment in the Company’s offering of its convertible promissory notes and warrants (the “Note Offering”), at a 15% discount. Further pursuant to the Note Conversion Agreement, on October 18, 2017, the major shareholder was issued a warrant to purchase 1,000,000 shares of the Company’s Common Stock with a ten-year term and an exercise price of $.50. The foregoing descriptions of the Note Conversion Agreement and Conversion Note is not complete and is qualified in its entirety by reference to the full text of the form the Note Conversion Agreement (and amendment thereto) and the Conversion Note and warrant, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this report, and are incorporated by reference herein. The form of subscription agreement, form of note and form of warrant for the Note Offering, are filed as Exhibit 10.3 to this report.

As of December 31, 2017, there is $12,372, due to related parties, which is non-interest bearing and due on demand.

Except the above transactions, during the fiscal year 2017, 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.

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 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.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following are filed as part of this report:

The financial statements of NanoFlex Power Corporation and Report of Independent Registered Public Accounting Firm are presented in the “F” pages of this Report. 

The following exhibits are filed or “furnished” herewith:

* Filed herewith.

SIGNATURES

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.

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.

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

NanoFlex Power Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NanoFlex Power Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2010.

Houston, Texas

March 26, 2018

NANOFLEX POWER CORPORATION

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

NANOFLEX POWER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

NANOFLEX POWER CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

See accompanying notes to consolidated financial statements.

NANOFLEX POWER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

NANOFLEX POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Background, Basis of Presentation:

Background

NanoFlex Power Corporation (‘we” “our”, the “Company”, 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 incorporated in Pennsylvania on February 7, 1994. The Company is organized to fund, develop, commercialize and license advanced photovoltaic technologies that enable thin film solar products with what we believe to be industry-leading efficiencies, light weight, flexibility, and low total system cost.

These technologies are targeted at certain broad applications, including: (a) portable 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 solar power generating windows or glazing, and (f) ultra-thin solar films for automobiles or other consumer applications and (g)sensors and other devices for the internet of things (“IoT”)

We believe these technologies have been demonstrated in a laboratory environment with our research partners. The Company is currently taking steps to pursue product development and commercialization on some of these technologies in collaboration with industry partners and potential customers.

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, derivative valuation and long lived assets. 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.

Note 2: Going Concern

The Company has only generated limited revenues to date. The Company has a working capital deficit of $9,939,999 and an accumulated deficit of $216,545,120 as of December 31, 2017. 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.

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 wholly owned subsidiary. Intercompany transactions and balances are eliminated at consolidation.

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.

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.

Basic and Diluted Earnings per share

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

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 under which the awards are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and are recognized as expense over the service period.

Related Party Transactions

FASB ASC 850, “Related Party Disclosures” requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.

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 property and equipment, 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.

The Company’s revenue and accounts receivable are currently earned from one customer.

Revenue Recognition

The Company recognizes revenue from our 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 (“JDA’s”) are recognized as services are provided and are limited to the total dollar amount specified in the agreement. R&D engineering services, through JDAs are a core component of the Company’s operations and business model, since they are a necessary prerequisite to obtaining intellectual property licensing agreements with customers. As such, R&D engineering services are expected to be a sustained revenue stream for the Company as it works with additional customers and the services constitute a portion of the Company’s ongoing central operations.

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, 2017 and 2016, the Company had no deferred development costs. 

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 on 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.