PANACEA LIFE SCIENCES HOLDINGS, INC. - Quarter Report: 2015 September (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2015
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Or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number: 333-183360
SPIRAL ENERGY TECH., INC.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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27-1085858
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(State or Other Jurisdiction of Incorporation)
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(I.R.S. Employer Identification Number)
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5510 Merrick Road
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Massapequa, NY
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11758
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(Address of Principal Executive Offices)
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(Zip Code)
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(516) 659-7558
(Registrant’s Telephone Number, Including Area Code)
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 þ No ¨
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, any Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (Section 232.405) of this chapter during the preceding 12 months or for such shorter period that the Registrant was required to submit and post such files. Yes ¨ No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a
smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The registrant had 15,144,885 shares of Common Stock, par value $0.0001 par value per share, outstanding as of November 4, 2015.
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PAGE
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PART I.
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FINANCIAL INFORMATION
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1
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2
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3
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4
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12
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16
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16
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PART II.
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OTHER INFORMATION
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17
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ITEM 1 Financial Statements.
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Spiral Energy Tech, Inc.
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September 30,
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December 31,
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2015
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2014
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(Unaudited)
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ASSETS
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Current Assets
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Cash and cash equivalents
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$ | 11,710 | $ | 41,692 | ||||
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Accounts receivable, net allowance for doubtful accounts of $0 and $0, respectively
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- | 1,491 | ||||||
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Due from related parties
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9,731 | 6,115 | ||||||
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Investment in marketable securities
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15 | 805 | ||||||
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Prepaid expenses
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1,617 | 4,167 | ||||||
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Deferred tax
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- | 3,201 | ||||||
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Total current assets
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23,073 | 57,471 | ||||||
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Property and equipment, net of accumulated depreciation of $1,663 and $4,661, respectively.
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1,704 | 23,706 | ||||||
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Intellectual property, net
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4,080 | 3,630 | ||||||
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TOTAL ASSETS
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$ | 28,857 | $ | 84,807 | ||||
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LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
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Current Liabilities
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Accounts payable
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$ | 94,820 | $ | 32,043 | ||||
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Accrued expenses
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- | 7,000 | ||||||
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Total Current Liabilities
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94,820 | 39,043 | ||||||
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TOTAL LIABILITIES
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94,820 | 39,043 | ||||||
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Stockholders' (Deficit) Equity
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Preferred stock: 50,000,000 authorized; $0.0001 par value 0 shares issued and outstanding
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- | - | ||||||
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Common stock: 200,000,000 shares authorized; $0.0001 par value 15,144,885 shares issued and outstanding, respectively
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1,514 | 1,514 | ||||||
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Additional paid-in capital
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641,122 | 429,442 | ||||||
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Accumulated other comprehensive loss
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- | (6,210 | ) | |||||
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Accumulated deficit
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(708,599 | ) | (378,982 | ) | ||||
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Total Stockholders' (Deficit) Equity
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(65,963 | ) | 45,764 | |||||
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TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
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$ | 28,857 | $ | 84,807 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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Spiral Energy Tech, Inc.
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(Unaudited)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2015
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2014
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2015
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2014
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Revenues
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$ | - | $ | 213 | $ | 213 | $ | 639 | ||||||||
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Operating Expenses
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Stock-based compensation
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- | 55,010 | - | 55,010 | ||||||||||||
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General and administration
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31,353 | 4,160 | 91,126 | 95,078 | ||||||||||||
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Professional
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45,745 | 15,497 | 129,158 | 29,052 | ||||||||||||
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Research and development
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25,079 | - | 77,344 | - | ||||||||||||
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Impairment on equipment
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- | - | 20,625 | - | ||||||||||||
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Depreciation and amortization
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251 | 437 | 1,377 | 1,310 | ||||||||||||
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Total operating expenses
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102,428 | 75,104 | 319,630 | 180,450 | ||||||||||||
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Net loss from operations
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(102,428 | ) | (74,891 | ) | (319,417 | ) | (179,811 | ) | ||||||||
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Other Income (loss)
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Other income
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- | - | - | 9,436 | ||||||||||||
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Gain on sale of marketable securities
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- | - | - | 114,251 | ||||||||||||
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Impairment on marketable securities
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(10,200 | ) | - | (10,200 | ) | - | ||||||||||
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Total other (loss) income
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(10,200 | ) | - | (10,200 | ) | 123,687 | ||||||||||
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Net loss before income taxes
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(112,628 | ) | (74,891 | ) | (329,617 | ) | (56,124 | ) | ||||||||
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Provision for income tax
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- | - | - | - | ||||||||||||
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Net Loss
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$ | (112,628 | ) | $ | (74,891 | ) | $ | (329,617 | ) | $ | (56,124 | ) | ||||
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Other comprehensive loss, net of tax
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515 | (79 | ) | - | (108,109 | ) | ||||||||||
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Total Comprehensive Loss
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$ | (112,113 | ) | $ | (74,970 | ) | $ | (329,617 | ) | $ | (164,233 | ) | ||||
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Basic and Diluted Loss per Common Share
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | ||||
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Weighted Average Number of Common Shares Outstanding
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15,144,885 | 12,514,950 | 15,144,885 | 12,269,415 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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Spiral Energy Tech, Inc.
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Nine Months Ended
September 30,
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2015
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2014
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Cash Flows From Operating Activities:
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Net loss
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$ | (329,617 | ) | $ | (56,124 | ) | ||
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Adjustments to reconcile net loss to cash used in operations:
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Depreciation and amortization
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1,377 | 1,310 | ||||||
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Expenses incurred on behalf of related company
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(354,810 | ) | - | |||||
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Expenses paid by related company
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25,145 | |||||||
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Bad debt
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1,704 | - | ||||||
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Impairment on equipment
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20,625 | - | ||||||
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Impairment on investment in marketable securities
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10,200 | |||||||
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Stock-based compensation
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- | 55,010 | ||||||
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Gain on sale of marketable securities
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- | (114,251 | ) | |||||
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Changes in operating assets and liabilities:
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(Increase) decrease in operating assets:
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Accounts receivable
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(213 | ) | (639 | ) | ||||
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Due from related parties
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(3,616 | ) | - | |||||
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Prepaid expenses
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2,550 | - | ||||||
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Increase (decrease) in operating liabilities:
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Accounts payable
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62,777 | 8,062 | ||||||
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Accrued expenses
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(7,000 | ) | (3,500 | ) | ||||
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Net Cash Used In Operating Activities
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(570,878 | ) | (110,132 | ) | ||||
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Cash Flows From Investing Activities:
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Acquisition of property and equipment
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- | (4,500 | ) | |||||
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Net Cash Used In Investing Activities
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- | (4,500 | ) | |||||
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Cash Flows From Financing Activities:
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Proceeds from sale of marketable securities
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- | 165,326 | ||||||
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Proceeds from related party (contributed capital)
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540,896 | - | ||||||
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Net Cash Provided By Financing Activities
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540,896 | 165,326 | ||||||
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Net (decrease) increase in cash and cash equivalents
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(29,982 | ) | 50,694 | |||||
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Cash and cash equivalents at beginning of period
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41,692 | 35,499 | ||||||
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Cash and cash equivalents at end of period
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$ | 11,710 | $ | 86,193 | ||||
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Supplemental Cash Flow Information:
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Cash paid for interest
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$ | - | $ | - | ||||
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Cash paid for taxes
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$ | - | $ | - | ||||
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Non-Cash transactions:
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Purchase of Patent by related party
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$ | 450 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
Spiral Energy Tech, Inc.
Notes to Unaudited Condensed Financial Statements
September 30, 2015
The accompanying unaudited condensed financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. The financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s General form for registration of securities under the Securities Act of 1933 on Form S-1/A for the fiscal year ended December 31, 2014 originally filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2015. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for fair presentation.
The preparation of 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change include assumptions used in determining the fair value of securities owned or issued and non-readily marketable securities.
The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire year or for any other period.
We adopted early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements effective September 30, 2014, therefore, inception-to-date information and other remaining disclosure requirements of Topic 915 is not presented or disclosed.
NOTE 2. BUSINESS DESCRIPTION AND GOING CONCERN
Organization and Business Description
Spiral Energy Tech, Inc. (f/k/a Solid Solar Energy, Inc.) (“Spiral”, “our”, “us”, “we” or the “Company”) was incorporated on January 18, 2008 in the State of Nevada as a for-profit Company. On May 16, 2013, we filed a certificate of amendment to the Company’s amended and restated articles of incorporation to change our name to “Spiral Energy Tech., Inc.” from Solid Solar Energy, Inc.
Our primary focus is developing and commercializing our proprietary SkyPorts drone support and Energy Demand Network (“EDEN”) technology. This technology seeks to permit a drone to operate predictably many miles outside of a “home range” limitation, defined by the drone’s finite battery power, by allowing for a flight path of numerous stops (or waypoints) at recharging stations along the way, thus extending the limit of the drone’s useful range. Currently, we do not plan to build or design any drones or autonomous vehicles; rather we intend to employ our technology in non-military drones manufactured by third party commercial manufacturers.
We have filed patents for technology related to SkyPorts and EDEN technology as follows:
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US Provisional patent application No. 62/075,317; Drone Recharging Station and Method of Networking
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US Provisional patent application No. 62/145,216; Controlling Autonomous UAV Delivery Based Fleet Services
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Also, we are engaged in developing and commercializing our XTRAX® remote monitoring system, designed to measure the production of solar and other renewable energy systems and to enable transmission of the data via the cellular and radio frequency network (and potentially via microwave transmission network or satellite). On April 25, 2013, we purchased the patents and trademarks relating to the XTRAX® remote monitoring system from Carbon 612 Corporation and one of its creditors. On May 13, 2013, we entered into an agreement with a patent assertion entity, pursuant to which we sold Endeavor the XTRAX® patents and obtained a perpetual, royalty-free, irrevocable, non-exclusive and worldwide license to develop, distribute and sell the products and services covered by the patents and to a portion of the revenues generated by patent enforcement activities. Our principal revenue during the period covered by this report has been amounts paid related to settlement of patent enforcement actions.
Our core business strategy is to employ our technology in non-military, commercial drones, targeting the enthusiast and commercial application market sector. We intend to obtain revenues from partnerships and joint ventures with drone manufacturers and being compensated for customization, research and development of our technology. Our principal activities to date have been focused on design, research and development. Currently, we are not generating revenue from our SkyPorts and EDEN drone technology or from the XTRAX® remote monitoring system.
As of September 30, 2015, we had no products available for sale. There can be no assurance that our technology will be commercially successful. In addition, we operate in an environment of rapid change in technology and are dependent upon the continued services of our current employees, consultants and subcontractors.
Since our inception in 2008, we have generated losses from operations. We have limited capital resources and operations since inception have been funded with the proceeds from equity financings, capital provided from our major shareholder and license fee arrangements. As of September 30, 2015, we had approximately $11,700 of cash and cash equivalents. We anticipate that our existing capital resources will enable us to continue operations for the next several months. In order to continue as a going concern beyond such time, we will need, among other things, additional capital resources. Our plan to obtain such resources includes obtaining capital from existing shareholders and third parties, and fees for developmental activities. However, we cannot provide any assurance that we will be successful in obtaining such funds. In addition, profitability will ultimately depend upon the level of revenues received from business operations and there is no assurance that we will attain profitability.
These financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of our assets and the carrying amount of our liabilities based on the going concern uncertainty. We have considered ASU 2014-15 in consideration of reporting requirements of the going concern financial statements.
The Company’s headquarters are located at 5510 Merrick Road, Massapequa, New York 11758. The elected year end is December 31.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. We have not experienced any losses on such accounts and we do not believe we are exposed to any significant credit risk.
Cash and cash equivalents were $11,710 and $41,692 at September 30, 2015 and December 31, 2014, respectively.
Fair Value Measurements
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, “Fair Value Measurements and Disclosures,” 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 that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
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Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
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Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
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As of September 30, 2015
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Fair Value Measuring Using
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Carrying Value
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Level 1
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Level 2
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Level 3
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Total
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Investment in Marketable Securities, available for sale
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$
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15
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15
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-
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-
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$
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15
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Total
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$
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15
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15
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-
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$
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15
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Marketable Securities
The Company’s marketable equity securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date. We classify our marketable equity securities as either short-term or long-term based on the nature of each security and its availability for use in current operations. The Company’s marketable equity securities are carried at fair value, with the unrealized gains or losses reported as a component of shareholder’s equity.
Adjustments resulting from the change in fair value, included in accumulated other comprehensive income in shareholder’s equity, were loss, net of tax, of $0 and $108,109 as of September 30, 2015 and 2014, respectively. We recognized an impairment of $10,200 in our marketable securities, for the three and nine months ended September 30, 2015.
Long-Lived Assets Including Other Acquired Intangible Assets
Property and equipment is stated at cost. Depreciation is computed by the straight-line method over estimated useful lives, which is between 3 years for computer equipment and 5-20 years for production equipment. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon our most recent analysis, we recognized an impairment of $0 and $20,625 of property and equipment for the three and nine months ended September 30, 2015.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, we estimate fair value by using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We recognized impairment losses of $0 and $20,625 for the three and nine months ended September 30, 2015.
Revenue Recognition
We recognize revenue when it is realized or realizable and estimable in accordance with ASC 605, “Revenue Recognition”.
Advertising Costs
Advertising costs are expensed as incurred. No advertising costs were incurred for the periods ending September 30, 2015 and 2014.
Research and Development Expenses
We follow ASC 730-10, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $25,079 and $77,344 and $0 and $0 were incurred for the three and nine months ending September 30, 2015 and 2014, respectively.
Related Parties
We follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
Stock-Based Compensation Expenses
ASC 718, “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments, such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
We account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $0 and $55,010 for the periods ending September 30, 2015 and 2014, respectively.
Deferred Income Taxes and Valuation Allowance
We account for income taxes under ASC 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Deferred tax assets totaled $0 and $3,201 as of September 30, 2015 and December 31, 2014, respectively.
Earnings per Share
We compute basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.
As of September 30, 2015 and 2014, the Company had no dilutive potential common shares.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company is required to record all components of comprehensive income (loss) in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), net of their related tax effect, arrived at a comprehensive income (loss). Other comprehensive loss was $0 and $108,109 for the nine months ended September 30, 2015 and 2014, respectively and other comprehensive gain was $515 and other comprehensive loss was $79 for the three months ended September 30, 2015 and 2014, respectively.
Restricted Stock
The Company issues restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.
Recent Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management.
NOTE 4. MARKETABLE SECURITIES
The following table shows the Company’s available-for-sale security, received from Endeavor, as of September 30, 2015:
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Cost
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Unrealized Gains
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Unrealized Losses
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Fair Value
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ENIP – 50,000 common shares
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$ | 15 | $ | - | $ | - | $ | 15 | ||||||||
We recognized an impairment of $10,200 in our marketable securities, for the three and nine months ended September 30, 2015.
NOTE 5. PROPERTY AND EQUIPMENT
Property consists of equipment purchased for the production of revenues. The following table shows the Company’s property and equipment as of September 30, 2015 and December 31, 2014:
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September 30,
2015
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December 31, 2014
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Estimated Service Lives in Years
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Production equipment
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$ | 900 | $ | 25,900 | 5-20 | |||||||
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Office and computer
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2,467 | 2,467 | 3 | |||||||||
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Total property and equipment
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3,367 | 28,367 | ||||||||||
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Less accumulated depreciation
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1,663 | 4,661 | ||||||||||
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Property and equipment, net
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$ | 1,704 | $ | 23,706 | ||||||||
Assets are depreciated over there useful lives when placed in service. Depreciation expense was $1,377 and $1,310 for the nine months ended September 30, 2015 and 2014, respectively and $251 and $437 for the three months ended September 30, 2015 and 2014, respectively.
We recognized an impairment loss of $0 and $20,625 on production equipment for the three and nine months ended September 30, 2015.
NOTE 6. INCOME TAXES
As of December 31, 2014, the Company has a deferred tax asset, resulting from benefits of net operating loss carry forward generated from inception, which expire in varying amounts between 2031 and 2034. Management believes it is more likely than not that the deferred tax assets will not be realized. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize deferred tax assets through future operations.
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34% to the net income (loss) before provision for income taxes. As of September 30, 2015, there was approximately $112,100 in deferred tax assets, which were off-set by an equal valuation allowance.
The Company has not taken positions contrary to the Internal Revenue Code, however, the tax years of 2011 through 2014 remain subject to audit by the Internal Revenue Service.
As of September 30, 2015 and December 31, 2014 the Company had a deferred tax asset of $0 and $3,201, respectively, attributable to the valuations (unrealized) of the marketable securities available for sale.
NOTE 7. EQUITY TRANSACTIONS
Preferred Stock
The Company’s authorized preferred stock consists of 50,000,000 shares with a par value of $0.0001. There was no preferred stock issued and outstanding as of September 30, 2015 and December 31, 2014.
Common Stock
The Company’s authorized common stock consists of 200,000,000 shares with a par value of $0.0001. There were 15,144,885 common shares issued and outstanding at September 30, 2015 and December 31, 2014.
There were no issuances of shares of Common Stock during the nine month period ended September 30, 2015.
Warrants and Options
There are no warrants or options outstanding to acquire any additional shares of common stock of the Company.
NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table details the changes in accumulated other comprehensive income (“AOCI”) for the period ended September 30, 2015:
|
Accumulated Other
Comprehensive Loss
|
||||
|
Balance at December 31, 2014
|
$ | (6,210 | ) | |
|
Other comprehensive loss on available-for-sale securities, net of tax
|
6,210 | |||
|
Balance at September 30, 2015
|
$ | - | ||
We recognized an impairment of $10,200 in our marketable securities, for the three and nine months ended September 30, 2015. As a result, we recognized no accumulated other comprehensive income at September 30, 2015.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 10. RELATED PARTY CONSIDERATIONS
Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. We have not formulated a policy for the resolution of such conflicts.
We do not have employment contracts with our key employees, including the officers of the Company.
In September 2014, we issued to Mr. Ezra Green, our Chief Executive Officer, 1,000,000 shares of common stock for $52,200.
During the period ended September 30, 2015 and the year ended December 31, 2014, Ezra Green, our Chief Executive Officer and director, received cash and stock-based compensation in the amount of $0 and $187,290, respectively.
In July 2014, we paid Paradox $1,048 as a commission for royalty revenues of $10,485 that we received in June 2014.
In September 2014, the Company issued 2,000,000 shares of our common stock to Mr. Bhansali, a former officer of the Company, for services valued at $200.
During the nine month period ended September 30, 2015, we received $540,896 from Fuse Science, Inc. (“Fuse”) and paid $354,810 of expenses on behalf of Fuse, which as of June 30, 2015, owned 7,723,892 (51%) of Spiral shares. During the three months ended September 30, 2015, Fuse sold 6,600,000 of their Spiral shares, in private transactions, which reduced their ownership to 7.4%. Of these shares, 6,200,000 were sold for the benefit of Spiral and recorded as contributed capital of $25,595.
NOTE 11. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date the financial statements were issued and determined there are no additional items to disclose.
The following discussion and analysis of our financial condition and results of operations contains information that management believes is relevant to an assessment and understanding of our results of operations. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s General form for registration of securities under the Securities Act of 1933 on Form S-1/A for the fiscal year ended December 31, 2014 originally filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2015. Certain statements set forth below constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements”. References to “Spiral,” the “Company,” “we,” “us” and “our” refer to Spiral Energy Tech, Inc.
General
We are a technology company engaged in the development and commercialization of our proprietary SkyPorts drone support and Energy Demand Network, or (“EDEN”) technology. This technology seeks to permit a drone to operate predictably many miles outside of a “home range” limitation, defined by the drone’s finite battery power, by allowing for a flight path of numerous stops (or waypoints) at recharging stations along the way, thus extending the drone’s useful range. Currently, we do not plan to build or design any drones or autonomous vehicles; rather we intend to employ our technology in non-military drones manufactured by existing third party commercial manufacturers.
Also, we are engaged in developing and commercializing our XTRAX® remote monitoring system, designed to measure the production of solar and other renewable energy systems and to enable transmission of the data via the cellular and radio frequency network (and potentially via microwave transmission network or satellite). On April 25, 2013, we purchased the patents and trademarks relating to the XTRAX® remote monitoring system from Carbon 612 Corporation and one of its creditors. On May 13, 2013, we entered into an agreement with a patent assertion entity, pursuant to which we sold the XTRAX® patents. As a result of the agreement, the and Company obtained a perpetual royalty-free, irrevocable, non-exclusive and worldwide license to develop, distribute and sell the products and services covered by the patents and to obtain a portion of the revenues generated by Endeavor’s patent enforcement activities. Our principal revenue during the period covered by this report has been amounts paid related to settlement of patent enforcement actions.
Our core business strategy is to employ our technology in non-military, commercial drones, targeting the enthusiast and commercial application market sector. We intend to obtain revenues from partnerships and joint ventures with drone manufacturers and being compensated for customization, research and development of our technology. Our principal activities to date have been focused on design, research and development. Other than license fees from its patents sold to Endeavor, Spiral does not presently generate generating revenue from either its SkyPorts or EDEN drone technology or from the XTRAX® remote monitoring system.
Results of Operations
Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014:
|
Three Months Ended
|
||||||||||||
|
September, 30
|
||||||||||||
|
2015
|
2014
|
change
|
||||||||||
|
Revenue
|
$ | - | $ | 213 | $ | (213 | ) | |||||
|
Operating expenses
|
102,428 | 75,104 | 27,324 | |||||||||
|
Net loss from operations
|
(102,428 | ) | (74,891 | ) | (27,537 | ) | ||||||
|
Other income
|
(10,200 | ) | - | (10,200 | ) | |||||||
|
Net loss
|
$ | (112,628 | ) | $ | (74,891 | ) | $ | (37,737 | ) | |||
The Company had revenue of $0 for the three month period ended September 30, 2015, as compared to $213 for the three month period ended September 30, 2014. The decrease in revenue is because as of April 1, 2015, management decided to abandon its claim to any future income from the single solar photovoltaic system installed by the Company in a residential home. Pursuant to a residential power plan solar customer agreement with the owner of the residence, the Company had been entitled to approximately $71 per month ($213 per three month period). As of April 1, 2015, management decided to abandon efforts to collect past or future amounts due under the solar power customer agreement and to write off the carrying cost of the associated fixed asset.
Operating expenses increased by $27,324, from $75,104 for the three months ended September 30, 2014 to $102,428 for the comparable period ended September 30, 2015. The difference primarily is attributable to: an increase in professional and compliance fees of approximately $30,200 resulting from the filing of a registration statement with the SEC and associated “public company” activities; an increase in R&D expense of approximately $25,100 related to engineering design fees incurred in the quarter ended September 30, 2015; and an increase general and administration expenses of approximately $27,200 resulting from an increase in office rental expense of $4,650, insurance expense of $4,800, and management fees of $11,200. During the three months ended September 30, 2014 operating expenses included $55,010 for stock-based compensation as compared to $0 during the comparable period ended September 30, 2015.
As a result of the foregoing, we generated an operating loss of $102,428 for the three month period ended September 30, 2015 as compared to an operating loss of $74,891 for the three month period ended September 30, 2014, a change of $27,537.
The Company had other loss of $10,200 for the three month period ended September 30, 2015, as compared to $0 for the three month period ended September 30, 2014. The increase in other loss is attributable the impairment on marketable securities recorded in 2015.
As a result of the foregoing, we generated a net loss of $112,628 for the three month period ended September 30, 2015 as compared to a net loss of $74,891 for the three month period ended September 30, 2014, a change of $37,737.
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014:
|
Nine Months Ended
|
||||||||||||
|
September, 30
|
||||||||||||
|
2015
|
2014
|
change
|
||||||||||
|
Revenue
|
$ | 213 | $ | 639 | $ | (426 | ) | |||||
|
Operating expenses
|
319,630 | 180,450 | 139,180 | |||||||||
|
Net loss from operations
|
(319,417 | ) | (179,811 | ) | (139,606 | ) | ||||||
|
Other ( loss) income
|
(10,200 | ) | 123,687 | (133,887 | ) | |||||||
|
Net (loss) income
|
$ | (329,617 | ) | $ | (56,124 | ) | $ | (273,493 | ) | |||
Revenue decreased by $426, from $639for the nine month period ended September 30, 2014 to $213 for the comparable period ended September 30, 2015. The $213 of revenue recognized in the nine month period ended September 30, 2015 was earned in the first three months of such period. As of April 1, 2015, management decided to abandon its claim to any future income from the single solar photovoltaic system installed by the Company in a residential home. Pursuant to a residential power plan solar customer agreement with the owner of the residence, the Company had been entitled to approximately $71 per month ($213 per three month period). As of April 1, 2015, management decided to abandon efforts to collect past or future amounts due under the solar power customer agreement and to write off the carrying cost of the associated fixed asset.
Operating expenses increased by $139,180, from $180,450 for the nine month period ended September 30, 2014 to $319,630 for the comparable period ended September 30, 2015. The difference primarily is attributable to: an increase in professional and compliance fees of approximately $100,100 resulting from the filing of a registration statement with the SEC and associated “public company” activities; an increase in R&D expense of approximately $77,300 related to engineering design fees incurred in the period ended September 30, 2015; an increase in impairment of fixed assets of approximately $20,600 and bad debt expense of $1,700 attributable to the decision to abandon efforts to collect past or future amounts due under the solar power customer agreement and to write off the carrying value of the associated solar equipment; partially offset by a reduction in General & Administrative expense of approximately $4,000 resulting from a decrease in management fees of approximately $48,000, which was offset by an increases in travel expenses of approximately $7,400, website costs of $4,500, office rent expense of $14,000, and insurance expense of $13,000.
During the nine months ended September 30, 2014 operating expenses included $55,010 for stock-based compensation as compared to $0 during the comparable period ended September 30, 2015.
As a result of the foregoing, we generated an operating loss of $319,417 for the nine month period ended September 30, 2015 as compared to an operating loss of $179,811 for the nine month period ended September 30, 2014, a change of $139,606.
The Company had other loss of $10,200 for the nine month period ended September 30, 2015, as compared to other income of $123,687 for the nine month period ended September 30, 2014. The decrease of $133,887 was due to an impairment on marketable securities during 2015 of $10,200 as compared to a one-time gain from sales of marketable securities of $114,251 and Endeavor license fees of $9,436 in 2014.
As a result of the foregoing, we generated a net loss of $329,617 for the nine month period ended September 30, 2015 as compared to net loss of $56,124 for the nine month period ended September 30, 2014, a change of $273,493.
Liquidity and Capital Resources
Since our inception in 2008, we have generated losses from operations. As of September 30, 2015, our accumulated deficit was $708,599. Our loss from operations for the nine month periods ended September 30, 2015 and 2014 was $319,417 and $179,811, respectively. Our cash used in operations was $570,878 and $110,132 for the nine months ended September 30, 2015 and 2014, respectively. Our Stockholders’ deficit was $65,963 as of September 30, 2015.
We have limited capital resources and operations since inception have been funded with the proceeds from equity financings and license fee arrangements. As of September 30, 2015, we had approximately $11,710 of cash and cash equivalents. We anticipate that our existing capital resources will not enable us to continue operations for the next twelve months. In order to continue as a going concern during such time, we will need, among other things, additional capital resources. Our plan to obtain such resources includes obtaining capital from management and significant stockholders sufficient to meet minimal operating expenses. However, we cannot provide any assurance that we will be successful in obtaining such funds. In addition, profitability will ultimately depend upon the level of revenues received from business operations and there is no assurance that we will attain profitability.
The audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2014 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
As of September 30, 2015, we had no material off-balance sheet arrangements.
In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.
Critical Accounting Estimates and New Accounting Pronouncements
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.
Long-lived Assets. Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We recognized impairment losses of $20,625 for the nine months ended September 30, 2015.
Application of Significant Accounting Policies
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards.
Recent Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Not Applicable
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s principal executive and financial officers, have not yet conducted an evaluation of the design and effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our CEO and CFO believe that as of September 30, 2015, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The conclusion was due to the presence of the following material weaknesses in disclosure controls and procedures due to our small size and limited resources: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC Guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistleblower policy.
Our CEO and CFO plan to review and implement appropriate disclosure controls and procedures to remediate these material weaknesses, including (i) appointing additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopting sufficient written policies and procedures for accounting and financial reporting and a whistle blower policy; and (iii) implementing sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan.
Changes in Internal Controls over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Not required for smaller reporting companies.
None.
Not applicable.
Our Chief Financial Officer, Elliot Maza, has taken a brief leave of absence from the Company. We expect him to return to active service in the near future. During his temporary absence, our CEO, Ezra Green, has also served as Acting Chief Financial Officer.
|
31.1*
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
31.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
32.1*
|
Certification of Principal ExecutiveOfficer and of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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|
101.INS**
|
XBRL Instance Document
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|
101.SCH**
|
XBRL Taxonomy Extension Schema
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase
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|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase
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|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase
|
* Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
November 6, 2015
|
Spiral Energy Tech, Inc.
|
|
/s/ Ezra J. Green
|
|
|
Ezra J. Green
|
|
|
Chief Executive Officer and Acting Chief Financial Officer
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-18-