Attached files
| file | filename |
|---|---|
| EX-23.2 - CONSENT OF STOWE & DEGON LLC - US SOLARTECH INC | fs1a4ex23ii_ussolartech.htm |
| EX-4.12 - FORM OF CONVERTIBLE SUBORDINATED NOTE. - US SOLARTECH INC | fs1a4ex4xii_ussolartech.htm |
| EX-10.12 - FORM OF SECURITIES PURCHASE AGREEMENT. - US SOLARTECH INC | fs1a4ex10xii_ussolartech.htm |
| EX-4.13 - FORM OF WARRANT - US SOLARTECH INC | fs1a4ex4xiii_ussolartech.htm |
| EX-10.14 - EXECUTIVE EXTENSION - US SOLARTECH INC | fs1a4ex10xiv_ussolartech.htm |
| EX-10.13 - LETTER AGREEMENT - US SOLARTECH INC | fs1a4ex10xiii_ussolartech.htm |
As
filed with the Securities and Exchange Commission on October 13 , 2009
Registration
No. 333-157805
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
PRE–EFFECTIVE
AMENDMENT NO. 4 TO
REGISTRATION
STATEMENT ON
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
US
SolarTech, Inc.
(Exact
Name of Registrant As Specified in Its Charter)
|
Delaware
|
3674
|
27-0128686
|
||
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
US
SolarTech, Inc.
199
Main Street Suite 706
White
Plains, New York 10601
(914) 287-2423
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Dr.
Mohd Aslami
Chief
Executive Officer
680
N. Main Street, C-2
Wolfeboro, NH
03894
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
copies to:
Daniel
E. Baron, Esq.
c/o
Outside Counsel Solutions, Inc.
1430
Broadway, Suite 1615
New
York, NY 10018
Phone:
(646) 328-0782
Fax:
(646) 328-1162
Approximate date of commencement of
proposed sale to the public: As soon as practicable after this
registration statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of
Securities
to Be Registered
|
Amount
to Be Registered(1)(2)
|
Proposed
Maximum
Offering
Price Per Share(3)
|
Proposed
Maximum
Aggregate
Offering
Price(3)
|
Amount
of
Registration
Fee
|
||||||||||||
|
Common
Stock, par value $.0001 per share
|
6,932,123
|
$
|
1.50
|
$
|
10,398,185
|
$
|
580.22
|
|||||||||
|
(1)
|
Consisting
of shares of common stock issued to the selling stockholders
hereunder.
|
|
(2)
|
Pursuant
to Rule 416 of the General Rules and Regulations under the Securities Act
of 1933 (the “Securities Act”), the registration statement of which this
prospectus is a part also registers a currently indeterminate number of
additional shares of our common stock that may be issued upon the
occurrence of any of the dilutive events set forth in Rule 416. The
Company has made a good faith effort to estimate the actual number of
shares issuable.
|
|
(3)
|
Estimated
pursuant to Rules 457(c) and 457(h) solely for the purpose of calculating
the registration fee and based on the last sale of registrant’s common
stock as no exchange or over-the-counter market exists for the
registrant’s common stock. The last sale of shares of the registrant’s
common stock occurred on September 30, 2008 at a price of
$1.50.
|
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the Registration Statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
|
PRELIMINARY PROSPECTUS
|
SUBJECT TO COMPLETION, DATED OCTOBER 13 ,
2009
|
 |
US
SolarTech, Inc.
6,932,123
Shares of Common Stock
The registration
statement of which this prospectus is a part registers the resale of a
total of 6,932,123 shares of common stock, $.0001 par value per share (the
“Common Stock”) of US SolarTech, Inc (the “Company”). We will not receive
any of the proceeds from the sale of shares of common stock by the selling
stockholders. Our common stock is not currently listed on any exchange or
quotation system. In connection with this offering, we are applying to
list our common stock for quotation on the OTC Bulletin Board.
Accordingly, there is no set market price for our common stock. Our last
private sale of securities on September 30, 2008 valued our common stock
at $1.50 per share. Until our common stock is quoted on the OTC
Bulletin Board, selling stockholders may only sell shares at a fixed price
of $1.50 per share. See “Plan
of Distribution.”
THE SECURITIES OFFERED HEREBY
ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH DEGREE OF RISK. THESE
SECURITIES SHOULD ONLY BE PURCHASED BY INVESTORS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. SEE “RISK FACTORS,” BEGINNING ON PAGE
5 OF THIS
PROSPECTUS.
NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of
this Prospectus is October __,
2009.
|
US
SOLARTECH, INC.
You
should only rely on information contained in this prospectus. We have not
authorized anyone to provide you with information that is different from that
contained in this prospectus. This prospectus may only be used where it is legal
to offer and sell the securities described herein. Unless otherwise indicated,
the information in this prospectus is only current as of the date of this
prospectus.
i
US
SolarTech, Inc., referred to herein as the Company, we, us, our, and similar
such references, has filed with the Securities and Exchange Commission (the
“Commission”) a Registration Statement on Form S-l (such Registration Statement,
together with all amendments and exhibits thereto, being hereinafter referred to
as the “Registration Statement”) under the Securities Act of 1933, for the
registration under the Securities Act of the common stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement, which contains further information with respect to the Company and
our common stock. Statements herein concerning the provisions of documents filed
as exhibits to the Registration Statement are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
Following
completion of this offering (the “Offering”), the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and in accordance therewith will file reports, including
annual and quarterly reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at the Commission’s Public Reference Room, 100 F
Street, NE, Washington, D.C. 20549 and the regional offices of the Commission
listed at http://www.sec.gov/contact/addresses.htm,
including the New York regional office at 3 World Financial Center, Suite 400
New York, NY 10281-1022. Further information on the Public Reference Room may be
obtained by calling the Commission at 1-800-SEC-0330. In addition, such reports,
proxy statements and other information may be accessed through the Commission’s
Internet website located at http://www.sec.gov.
We
publish our financial statements in United States dollars (“dollars” or “$”) and
all references to dollars herein are to United States dollars.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in the Prospectus Summary and under the captions “Risk Factors,”
“Business”, “Management's Discussion and Analysis of Financial Condition and
Results of Operations” and elsewhere in this Prospectus constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements, or industry results, to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: changes in general economic and business conditions; loss of
market share through competition; introduction of competing products by other
companies; changes in industry capacity; pressure on prices from competition or
from purchasers of our products; fluctuations in energy prices; technological
advancements in the manufacture of solar cells and their efficiencies; new
discoveries associated with alternative energy; government incentives available
to competing businesses; unanticipated challenges to our intellectual property
rights; availability of qualified personnel; the loss of any significant
customers; and other factors both referenced and not referenced in this
Prospectus. When used in this Prospectus, the words “estimate,” “project,”
“anticipate,” “expect,” “intend,” “believe,” and similar expressions are
intended to identify forward-looking statements.
|
Overview
We
are a technology company positioned to commercialize our proprietary
intellectual property to manufacture high purity silicon used in the
production of silicon wafers and solar cells. We believe that our unique
and versatile approach will enable us to effectively compete in the
rapidly growing solar energy market. As we are in the initial phase of
implementing our business plan, we are a developmental stage company and
have no revenues to date. Our internet website, currently under
construction, will be located at www.ussolartech.com.
We
were formed on September 9, 2004 as SilicaTech, LLC, a Connecticut limited
liability company. Since our formation, we have developed our own
proprietary plasma-based technology for use in the solar energy industry.
We also purchased certain assets, including patented intellectual
property, associated with the manufacture of optical fiber from FiberCore,
Inc. a Chapter 7 debtor, pursuant to an Asset Purchase and Settlement
Agreement approved by the United States Bankruptcy Court, District of
Massachusetts (Western Division) on February 3, 2006. Three of our four
directors, Dr. Mohd Aslami, Steven Phillips, and Charles DeLuca, were
members of the board of directors of FiberCore, Inc. We are currently
exploring opportunities to derive revenues from those purchased assets
through licensing technology to manufacturers of optical fiber preform,
the high purity glass core from which manufacturers draw optical fiber, as
the fiber optic market has shown substantial improvement over the last few
years. However, the primary intellectual property on which most of our
business plan is based was developed independently by us and was not
acquired from FiberCore, Inc. SilicaTech, LLC was converted into US
SolarTech, Inc., a Delaware corporation, effective January 1, 2009. See “Recent
Developments” for a discussion of the conversion.
We
are in the process of commercializing our plasma technology and processes
for the manufacture of silicon and other products used in the rapidly
growing solar energy industry. Despite its significant growth, solar
energy represents less than 2% of global energy usage and we believe that
substantial expansion lies ahead. Over the past several years, it has been
reported that solar cell manufacturers have been experiencing a severe
shortage in silicon, the primary raw material used in the manufacture of
solar cells. While analysts cited in The Green Chip Review, SolarBuzz,
Semiconductor International and other industry publications anticipate
that there will be an increase in supply of such raw materials in 2010 and
2011, it is uncertain whether that additional supply will meet or exceed
demand. Although the current global recession is reducing demand growth
and available credit, we believe that solar technology will remain strong
as the demand for alternative energy technologies continues growing and as
silicon usage in the solar industry already surpasses) its usage in the
semiconductor industry. As for the impact of the global recession,
analysts expect that while demand growth slowed substantially in the first
half of 2009, there is potential for increase during the second half of
2009, and forecast growth and a re-acceleration in 2010. Nevertheless, in
late March 2009, the Chinese government announced the world’s largest
solar power subsidy program. In late May, 2009, the United States Senate
Energy and Natural Resources Committee voted to approve President Obama’s
renewable power mandate requiring that 15% of the United States’
electricity come from renewable sources such as wind and solar by 2021, a
fivefold increase from the 3% produced today. And, in late June, the
American Clean Air Energy Act was approved by the House of Representatives
and is presently awaiting Senate approval. A recent Photon International
article estimates the US market for solar energy to increase from 357 MW
in 2008 to 3000 MW by 2011. However, there can be no assurance these or
any predictions of growth will prove accurate, especially in today’s
uncertain economic environment. See the
Risk Factor below entitled “The reduction or elimination of government
subsidies and economic incentives could cause our revenue to
decline.”
For
many years prior to FiberCore’s bankruptcy filing in 2003, FiberCore
developed plasma-based technology for use in the fiber optic industry,
which requires fast, highly uniform and ultra pure deposition of
silicon-based compounds. We have adapted this versatile and cost-effective
technology for the manufacture of pure silicon and crystalline silicon
ingots, both used in the manufacture of solar cells, which require less
purity than in the making of fiber. In addition, we have adapted our
plasma technology to manufacture thin-film integrated solar cells and
modules using silicon or other semiconductor materials. While we plan to
replicate our prototype system to engage in commercial manufacture of
silicon, we have not yet produced any commercial products.
|
|
We
believe that we have the experience and know-how necessary to operate a
manufacturing facility, establish a customer base, raise funds, and
operate a publicly traded company. In the past, our management team has
succeeded in managing optical fiber manufacturing, a material that
requires a higher purity level than silicon used in the manufacture of
solar cells, and has demonstrated that it can also manufacture silicon
using plasma.
We
believe that our competitive strengths properly position us for entry into
the photovoltaic market. Among other factors that we believe support our
business model, we have relatively low manufacturing costs, a system
uniquely scalable and easy to license, high quality products, and the
potential to diversify into manufacturing for industries other than solar
manufacturers. See
“Competitive Strengths.”
We
have been actively marketing our products and have identified several
potential customers. These prospective customers have agreed to test our
product samples to determine whether they meet their potential customers’
quality and technical specifications. We anticipate that by the middle of
2010, subject to our obtaining necessary financing, we will have installed
equipment that will be able to produce silicon sufficient to manufacture
solar cells capable of producing 10 megawatts (“MW”) of energy
(approximately 120 tons) per year, and expect that by 2012, our total
capacity after our gradual purchase and activation of additional equipment
will be approximately 50 MW. Although we had earlier anticipated we could
commence commercial production sooner, unanticipated delays in perfecting
our prototype system required us to revise our forecast. See
Business — “Our History” and “Background
and Intellectual Property.”
|
| THE OFFERING | ||||
|
Securities
Offered:
|
6,932,123 shares of
our common stock, par value $.0001 per share. See
“Description of Securities.”
|
|||
|
Shares
of Common Stock Outstanding prior to the Offering:
|
12,915,735
shares of our common stock, as of June 30, 2009, which includes 232,569
shares issued to certain stockholders as of June 30 upon conversion of a
contingent payable to such stockholders and 16,500 of shares both issued
as of June 30, 2009, but excludes shares issuable upon conversion of
warrants, options and other shares issuable upon conversion of an
outstanding obligation of the Company into equity. See “Shares of Common
Stock Outstanding after the Offering.”
|
|||
|
Shares
of Common Stock Outstanding after the Offering:
|
Up
to 15,075,292 shares of our common stock, in the event of a 100% exercise
of (i) 110,000 outstanding options, (ii) 685,624 warrants, and (iii)
conversion of 666,666 Series A Preferred Stock (“Convertible Securities”)
totaling 1,462,290 shares and 697,267 shares issuable on the conversion of
$1,045,900 owed to the executive officers (see “Recent
Issuances of Unregistered Securities”).
|
|||
|
Use
of Proceeds:
|
We
will not receive any proceeds from the resale of shares of common stock
whose resale is registered by the registration statement of which this
prospectus is a part.
|
|||
|
We
intend to use such proceeds, if any, to purchase equipment, for research
and development, working capital, and general corporate
purposes.
|
||||
|
Risk
Factors:
|
Investing in the
securities offered hereby involve a high degree of risk. See
“Risk Factors.”
|
|||
|
Proposed
OTC Bulletin Board Symbol:
|
The
OTC Bulletin Board will assign a symbol under which our securities will
trade.
|
|||
Investing
in our common stock involves a high degree of risk. You should consider
carefully the risks described below and the other information in this
prospectus, including our financial statements and the related notes included
elsewhere in this prospectus, before deciding to invest in our common
stock.
Risks
Related to Our Business
We
have not yet commenced commercial manufacturing operations and our limited
operating history makes it difficult to predict future results.
We were
founded in September 2004 and opened our first facility, which remains in its
preliminary stages, in February 2008. We have not yet commenced commercial
manufacturing activities, and as a new business that has not yet generated sales
revenue, our revenue and income potential remains unproven. In addition, we are
subject to all the risks inherent in an early stage business. Such risks
include, but are not limited to, rejection or limited acceptance of our products
by our customers, the inability to establish networks for distribution of our
products, inefficient and unreliable manufacturing processes and the inability
to obtain sufficient capital necessary to sustain us and expand our
manufacturing capacity. To achieve profitable operations, we must successfully
overcome these and other new business risks. There can be no assurance that any
or all of our efforts will be successful or that we will ever be
profitable.
Further,
our business model is constantly evolving, and, because the solar industry in
which we participate is constantly changing, we may need to modify our business
model to adapt to these changes. Our ability to diversify risks depends upon our
ability to raise capital and the availability of suitable prospects. If our
efforts are unsuccessful, purchasers of shares of common stock could lose their
entire investment.
The
success of our business depends on the continuing efforts of our key personnel
and we may be unable to develop our business if we lose their
services.
Our
future success depends, to a significant extent, on our ability to attract,
train and retain qualified technical personnel, particularly those with
expertise in the solar power industry. There is substantial competition for
qualified technical personnel, and there can be no assurance that we will be
able to attract or retain our qualified technical personnel. The unexpected loss
of the services of one or more of these executives, and the inability to find
suitable replacements within a reasonable period of time thereafter, could have
a material adverse effect on our financial condition and results of operations.
Since the beginning of 2009, we have increased the number of full-time employees
from five to seven, comprised of three executive officers, two engineers, one
technician and one controller. In addition, we presently retain five part time
consultants. The contribution of one of those consultants, Dr. Dau Wu, is
extremely important to our business, and his retention is governed by consulting
agreement. Dr. Wu has provided services to the Company in the past, and his
professional relationship with our executive management dates back almost two
decades and Dr. Wu owns 20,000 shares of our common stock. Dr. Wu’s consulting
agreement with us expires on July 1, 2010 . Further,
Dr. Wu is entitled to terminate the contract upon 30 days’ prior notice at his
discretion. If we are unable to renew the agreement on acceptable terms, there
could be a material adverse effect on our business, prospects and financial
condition.
The
consultants provide chemical, mechanical, plasma, process, and environmental
engineering services to us. We may retain these consultants and/or offer them
full-time positions and hire other consultants and administrative personnel in
the near future, according to our personnel requirements.
Specifically,
we heavily rely on the services of our founders and executive management Mohd
Aslami, Charles DeLuca, and Steven Phillips, the same management team that also
managed FiberCore, the entity that developed and from which we purchased certain
intellectual property assets associated with the manufacture of optical
fiber.
We do not
presently maintain key man life insurance on any of our executive officers,
employees or consultants. However, we plan to obtain key man insurance for our
key employees to the extent available on economically reasonable terms. We
believe our future success will depend upon our ability to retain these key
employees and our ability to attract and retain other skilled managerial,
engineering, sales and marketing personnel.
We have
entered into employment agreements with our three executive officers. See
Management — Executive Compensation. In addition, our executives and
all key employees, consultants and directors have signed a non-disclosure and
non-compete agreement. Each of our key, non-executive employees has signed an
offer letter. However, if one or more of our executive officers or key employees
are unable or unwilling to continue in their present positions, we may not be
able to easily replace them, if at all. As a result, our business may be
severely disrupted and we may incur additional expenses to recruit and retain
new officers. In addition, if any of our executives joins a competitor or forms
a competing company, we may lose some or all of our customers. The loss of one
or more of our key executives or employees could have a material adverse effect
on our business, prospects, and financial condition.
We
have limited managerial experience in the solar industry.
Our
executive management team has experience with start-up and public companies
related to the fiber industry. However, it does not have experience in the solar
energy industry, and may not have the ability to properly market products made
from technology used in the manufacture of optical fiber to the solar energy
industry. Our lack of extensive experience could reduce the effectiveness of
management and could impair proper implementation of our business plan.
Furthermore, we may not be able to properly respond to market trends in the
solar energy industry or to accurately identify risks and opportunities. Our
lack of experience could negatively influence our business, prospects, and
financial condition.
We
will require substantial funds and will need to raise additional capital in the
future.
Although
we intend to finance a portion of our working capital and capital expenditure
requirements with cash we expect to generate from operations, we will
nonetheless need to raise substantial additional funds to fully fund our
operations. As a consequence of a silicon shortage, customers in the industry
typically were prepaying between 25% and 50% of the purchase price of their
silicon orders. However, in the current global recession, we believe that
prepayment will either no longer be viable or that the prepayment percentage
will be reduced. As such, we anticipate that we will need to raise additional
funds for development, production and expansion of our business. As of June 30,
2009, we had positive working capital of approximately $130,000 (including
current assets of $656,000 in cash and cash equivalents and current liabilities
of $526,000. We plan on offering an incentive to holders of warrants to exercise
such warrants by our agreeing to provide them with new three year warrants on
substantially the same terms in the event they exercise their existing warrants.
Exercise of all outstanding warrants would result in proceeds of approximately
an additional $1,028,436, which we anticipate that we would use for additional
working capital. However, we can provide no assurance that holders of our
warrants will so exercise. Such proceeds would be in addition to amounts we
would otherwise raise.
We are
offering up to $2 million of subordinated convertible notes, bearing interest at
7.5% and maturing on September 30, 2011 as well as warrants to purchase shares
of our common stock, subject to the terms and conditions described herein. Under
the terms of the Note, the number of warrants will decrease on a sliding scale,
depending upon when loan proceeds are received. See “Recent
Events” and “Description of
Securities.” As of September
30, 2009, we received $525,000 in proceeds from the sale of our notes, of which
$250,000 was received from Mr. Alnamlah, the holder of our Series A Preferred
Stock. In addition, Mr. Alnamlah has committed to purchase a principal amount of
notes equal to the principal amount of additional notes purchased by third
parties, up to a total of an additional $200,000.
While we
continue to explore options with potential investors, we have secured no
commitments for additional financing and we will receive no proceeds from this
offering. We may not be able to find additional financing on commercially
reasonable terms, or at all. Furthermore, the current tightening of global
credit markets due to the credit crisis which began in the second half of 2008
and the current volatility in the financial markets may make it difficult for us
to obtain such financing.
Once we
complete improvements on our existing prototype system, it will be capable of
producing salable products. However, we intend to use the prototype system for
further process development and to improve system efficiency. We are, therefore,
currently seeking to raise privately up to $4 million in funds from parties with
whom we have a substantial prior relationship in order to build additional
capacity to produce products for sale.
Depending
upon market conditions, and considering the time required to increase our
production capacity, we estimate that we will need between $4 and $6 million in
additional funding (including the $4 million described in the preceding
paragraph) to achieve profitability. If we are unable to obtain such additional
financing on commercially reasonable terms when needed, we might be required to
curtail or cease our operations.
If any
future financing involves the sale of our securities or securities convertible
into our equity securities, holders of our common and preferred stock could be
substantially diluted. If we borrow money or issue debt securities, we could be
exposed to interest rate fluctuation, restrictive covenants and the possibility
that
we may
not be able to pay principal and interest on the indebtedness when due. Our
failure to make timely payments could trigger cross defaults in the event we
become party to credit and other agreements in which such provisions are
common.
Insufficient
funds will prevent us from implementing our business plan and could require us
to delay, scale back, or eliminate certain of our programs or to license our
technology to third parties, an option which is not a primary consideration in
our short-term strategy. Failure to raise sufficient capital could have a
material adverse effect on our business, prospects, and financial
condition.
Once
we begin operations, we may not be able generate sufficient cash flow from such
operations to operate and grow our business.
Our
business plan contemplates financing our operations, in part, from internal cash
flow. We anticipate that once our initial business begins to generate revenues,
we will be able to finance a portion of its working capital and capital
expenditure requirements with cash flow from operations. Future cash flows will
be subject to a number of variables, such as:
|
•
|
the
present and future levels of silicon and ingot
production;
|
|
•
|
improvements
in current technology;
|
|
•
|
the
success and timing of development of other technologies to compete in the
marketplace;
|
|
•
|
Increase
in the cost of capital
expenditures;
|
|
•
|
market
prices of silicon and ingots;
|
|
•
|
Industry
practice with respect to prepayments for our
materials;
|
|
•
|
cost
overruns, including the cost of our raw materials, which represent the
largest cost of goods component;
|
|
•
|
energy
prices, which affect our production
costs;
|
|
•
|
direct
costs and general and administrative expenses of
operations;
|
|
•
|
our
indemnification obligations for losses or liabilities incurred in
connection with our activities; and
|
|
•
|
general
economic, financial, competitive, legislative, regulatory and other
factors beyond our control.
|
We can
provide no assurance that our business will ever generate or continue to
generate cash flow at sufficient levels. If our revenues were to decrease due to
lower silicon or ingot prices, decreased production, increased production costs,
or other factors, and if we cannot obtain capital through reasonable financing
arrangements, such as a credit line, or otherwise, our ability to execute our
business plan could be limited. Failure to generate sufficient cash flow could
have a material adverse effect on our business, prospects, and financial
condition.
Once
we begin operations, if we are unable to obtain raw materials in sufficient
quantities on commercially reasonable terms on a regular basis, we may not be
able to meet customer demand; we could generate lower than expected profits, and
could be forced to manufacture our products at higher costs.
Our
manufacturing process uses silicon tetrachloride (“STC”). In addition, we plan
to explore the possible use of other chemicals such as tri-chloro and di-chloro
silanes for use in the manufacture of silicon. Such additional chemicals can
provide additional sources of raw materials, as well as possibly reducing the
cost if such material can be purchased for significantly lower cost than STC. As
an alternative, we are exploring the building of our own STC facility, which
will require approximately $6 million and could produce STC at costs
significantly less than the price currently being offered by suppliers. Without
additional capacity expansion, we estimate that the facility would produce STC
to generate 15MW, but we can offer no assurance that we will be able to obtain
necessary financing or that our own manufacturing of STC will consistently be
able to supply us with STC at anticipated costs lower than market
prices.
We have
identified several different suppliers of STC and believe that there is
sufficient supply in the market for our needs. However, if we are not successful
in our efforts to diversify or to build an STC facility for our raw material
base, we may be unable to maintain optimum production levels in the event of a
shortage of STC, and we may not be able to manufacture our products at a profit
if the cost of STC rises beyond certain levels. Our failure to diversify the
types of raw materials we use could have a negative impact on our business,
prospects, and financial condition.
Once
commenced, our manufacturing process will consume significant quantities of
electricity, and increased energy costs could reduce our
profitability.
We have
not yet commenced commercial production of our products. Our manufacturing
process uses significant amounts of electrical energy and we anticipate using
large amounts of electricity once we begin production. Energy prices will
therefore affect our production costs, and increases in the cost of electricity
will reduce our margins. Recent volatility of energy prices has caused
substantial volatility in the price of electricity and it may be difficult for
us to properly predict energy prices when pricing our products. Furthermore, our
competitors may use less costly forms of energy or discover more energy
efficient manufacturing processes, placing us at a disadvantage. Substantial
increases in our electricity costs could have a material adverse effect on our
business, prospects, and financial condition.
We
do not yet have any definitive supply agreements in place and may be unable to
enter into any such agreements on commercially reasonable terms.
While our
management team has begun negotiations with potential customers, we are still in
the early stages of implementing our business plan, and it is still premature
for us to enter into agreements to supply customers with our product until our
customers are in place. Our ability to secure one or more agreements is subject
to, among other things (i) the amount of capital we raise in the future for the
purchase of equipment; (ii) the value of our present and future technology in
the marketplace; (iii) the development of ventures in the geographical regions
in which our business is focused; and (iv) our ability to identify and negotiate
favorable contracts with prospective customers. Even if we enter into agreements
pursuant to which we would supply customers with silicon, we anticipate that
only a portion of the purchase price, if any, would be prepaid and that we would
be exposed to collection risk with respect to deferred payments on orders for
our products. Our failure to enter into supply agreements or to collect payments
owed under such agreements would have a material adverse effect on our business,
prospects, and financial condition and would, in all likelihood, result in the
cessation of our business operations.
Our
manufacturing business once commenced will involve many operating risks that can
cause substantial losses.
The
manufacture of our products requires us to purchase, use, handle, and dispose of
toxic materials in the course of our business. Our operations will produce
byproducts that are considered pollutants. See the Risk
Factor below entitled “Compliance with environmental regulations can be
expensive, and noncompliance with these regulations may result in adverse
publicity and potentially significant monetary damages and fines.” Our
manufacturing processes could result in liability, either as a result of an
accidental, unlawful discharge or as a result of new findings on the effects our
operations have on human health or the environment. As such, our operations may
also involve one or more of the following risks:
|
•
|
fires;
|
|
•
|
explosions;
|
|
•
|
blow-outs;
|
|
•
|
uncontrollable
flow of gases;
|
|
•
|
pipe
or cement failures;
|
|
•
|
casing
collapses;
|
|
•
|
abnormally
pressured formations; and
|
|
•
|
environmental
hazards such as spills, natural gas leaks, pipeline ruptures and
discharges of toxic gases.
|
In the
event that any of the foregoing events occur, we could incur substantial losses
as a result of injury or loss of life; severe damage or destruction of property,
natural resources or equipment; pollution and other environmental damage;
investigatory and clean-up responsibilities; regulatory investigation and
penalties; suspension of operations; or repairs to resume operations. If we
experience any of these problems, our ability to conduct operations could be
adversely affected. These conditions can cause substantial damage to facilities
and interrupt production. If realized, the foregoing risks could have a material
adverse affect on our business, prospects and financial condition.
We
have limited insurance coverage and once commercial manufacturing operations
begin we may incur significant losses resulting from operating hazards, product
liability claims or business interruptions.
We
currently carry commercial general liability protection with a reputable carrier
against claims relating to personal injury, property or environmental damage
arising from accidents on our properties or relating to our operations. Our insurance coverage is subject to
the following limits : general total limit $2,000,000; products and
completed work limit $2,000,000; personal injury (each person) $1,000,000;
advertising injury (each person) $1,000,000 and each event premises damage
$500,000; and medical expenses $10,000. To the extent we can do so on
commercially reasonable terms, we intend to increase coverage as needed.
However, any occurrence of the risks described in the preceding risk factor or
other accidents in our operation that exceeds amounts recoverable from insurance
could have a material adverse effect on our business, financial condition or
results of operations.
We are
also exposed to risks associated with product liability claims in the event that
the use of the raw material we sell results in injury. Although our silicon
products do not generate electricity without being incorporated into modules or
other solar power devices, it is possible that users could be injured or killed
by modules or other devices incorporating our silicon products, whether by
product malfunctions, defects, improper installation or other causes. We have
not yet commenced commercial shipment of our products and are unable to predict
whether product liability claims will be brought against us in the future or the
effect of any resulting adverse publicity on our business. Moreover, although we
may purchase it in the future, we do not have any product liability insurance
and may not have adequate resources to satisfy a judgment in the event of a
successful claim against us.
A claim
associated with any of the foregoing that is successfully asserted against us
could have a material adverse effect on our business, prospects and financial
condition.
We
will be dependent upon others for the storage and transportation of gases, which
could significantly reduce our profitability.
In
addition to STC, we will use several gases in our manufacturing process
including argon, nitrogen and hydrogen. We do not presently own storage or
transportation facilities and, therefore, will depend upon third parties to
store and transport our gas resources. We will be subject to price changes and
termination provisions in contracts we may enter into with these third-party
service providers. Even if such sources are initially identified, we cannot
guarantee that we will be able to identify alternative storage and
transportation providers in the event of contract price increases or
termination. In the event we are unable to find acceptable third-party service
providers, we would be required to contract for our own storage facilities and
employees to transport our resources. We may not have sufficient capital
available to assume these obligations, and our inability to do so could result
in a material adverse effect on us, including the cessation of our
business.
Our
future success substantially depends on our ability to significantly increase
our manufacturing capacity, output and sales. Our ability to achieve our
expansion goals is subject to a number of risks and uncertainties. In addition,
we may not be able to manage our expansion effectively.
Our
future success depends on our ability to significantly increase our
manufacturing capacity, output and sales. We do not yet have commercial
manufacturing capacity and we currently use our existing equipment for product
development and the production of samples. Over the next few years we intend to
install about 40 systems at our current location, which would be capable of
producing silicon sufficient to produce cells capable of generating at least
50MW of power.
In
addition, our ability to establish or successfully operate our additional
manufacturing capacity and increase output is subject to other significant risks
and uncertainties, including:
|
•
|
our
ability to raise sufficient funds to build and maintain adequate working
capital to operate new manufacturing
facilities;
|
|
•
|
our
ability to secure adequate supplies of raw materials, that is, STC and
certain gases, including our ability to maintain adequate working capital
to make prepayments on such supplies, if
needed;
|
|
•
|
attracting
and retaining and adding additional key
personnel;
|
|
•
|
delays
and cost overruns associated with the build-out of any additional
facilities due to factors, many of which may be beyond our control, such
as delays in government approvals, problems with equipment vendors or raw
material suppliers, and equipment malfunctions and
breakdowns;
|
|
•
|
delays
in equipment and process optimization, and yield
improvements;
|
|
•
|
diversion
of significant management attention and other resources;
and
|
|
•
|
failure
to execute our expansion plan
effectively.
|
If we are
unable to establish or successfully operate additional manufacturing capacity or
increase our manufacturing output, we may be unable to expand our business as
planned. If we are unable to carry out our planned expansions, we may not be
able to meet customer demand, which could result in lower profitability and a
loss in market share. Moreover, we cannot assure you that if we do increase our
manufacturing capacity and output we will be able to generate sufficient
customer demand for our products to support our increased production levels. In
addition, to manage the potential growth of our operations, we will be required
to improve our operational and financial systems, procedures and controls, and
expand, train and manage our growing employee base. Furthermore, our management
will be required to initiate, maintain and expand our relationships with new and
existing customers, suppliers and other third parties. We cannot assure you that
we are able to improve our operations, personnel, systems, internal procedures
and controls to adequately support our future growth. If we are unable to manage
our growth effectively, we may not be able to take advantage of market
opportunities, execute our business strategies or respond effectively to
competitive pressures.
We
may not be able to manage our anticipated growth.
We expect
to significantly expand operations to accommodate additional development
projects and other opportunities. This expansion will likely strain our
management, operations, systems and financial resources. To manage our recent
growth and any future growth of our operations and personnel, we must improve
and effectively utilize our existing operational, management and financial
systems and successfully recruit, hire, train and manage personnel and maintain
close coordination among our technical, finance, development and production
staffs. We believe that we can, through the purchase of additional machinery,
upgrade our present facility to an annual capacity of 50 MW (meaning silicon
sufficient to manufacture solar cells capable of producing 50 MW of energy). We
plan to begin operating at a 10 MW capacity, followed by a gradual expansion to
50 MW by 2012, in each case, subject to obtaining financing on commercially
reasonable terms. We may not be able to implement those upgrades in time,
resulting in our inability to timely fill orders. We may also miss opportunities
if demand grows beyond our capacity and finding additional facilities to meet
demand could take time.
We will
need to hire additional personnel in all areas throughout most of 2009 in order
to implement our business plan. In addition, we may also need to increase the
capacity of our software, hardware and telecommunications systems on short
notice, and will need to manage an increasing number of complex relationships
with strategic partners and other third parties, some of whom may be located
outside of the United States. The failure to manage this growth could disrupt
our operations and ultimately prevent us from generating meaningful revenue, and
could have a material adverse effect on our business, profits and financial
condition.
An
interruption in the supply of materials, resources and services we plan to
obtain from third party sources could cause a decline in revenue.
Our
operations require resources and services, including, but not limited to,
specialized chemicals and raw materials, particularly STC. There may be only a
limited number of manufacturers and suppliers of these materials, resources and
services. These manufacturers and suppliers may experience difficulty in
supplying us with materials, resources and services sufficient to meet our needs
or may terminate or fail to renew contracts for supplying these materials,
resources or services on terms we find acceptable including, without limitation,
acceptable pricing terms. We are currently not a party to any supply agreements
for the provision of any raw materials. Any significant interruption in the
supply of any of these materials, resources or services, or significant
increases in the amounts we are required to pay for these materials, resources
or services, could result in a reduction in our profitability, or the cessation
of our operations. If we are unable to replace any material sources in a
reasonable period of time, the interruption in supply could have a material
adverse effect on our business, prospects and financial condition.
Because
we compete in a highly competitive market and many of our competitors have
greater resources than us, we may not be able to compete
successfully.
The solar
power market in which we hope to sell our products is intensely competitive and
rapidly evolving. We expect to face increased competition, which may result in
price reductions, reduced margins or loss of market share. In the global market,
our competitors include photovoltaic divisions of large
conglomerates.
Silicon
material is the key element of a solar cell. We face intense competition from
larger producers of silicon that are well-established and financed. The majority
of the new entrants to the market use what is known as the Siemens process to
manufacture silicon. However, several manufacturers claim to have developed new
proprietary processes that are more cost effective than the well known Siemens
process. We have no knowledge as to whether such claims are valid, nor can we be
certain whether these new processes are more or less efficient than our
process.
Our
business plan contemplates that we will become a well-recognized second source
of silicon and ingots for cell manufacturers, enabling them to bypass the
substantially costlier spot market. Accordingly, we do not plan to compete
directly with the major silicon producers. However, many of our existing and
potential competitors have substantially greater financial, technical,
manufacturing and other resources than we do. See “Competition”
for a detailed description of competition and specific competitors. Our
competitors’ greater size and longer operating history in some cases provides
them with a competitive advantage with respect to manufacturing costs because of
their economies of scale and their ability to purchase raw materials at lower
prices. For example, those of our competitors that also manufacture
semiconductors may source both semiconductor grade silicon and solar grade
silicon from the same supplier. As a result, such competitors may have stronger
bargaining power with suppliers and have an advantage over us in pricing. Many
of our competitors also have greater brand name recognition, more established
distribution networks and larger customer bases. In addition, many of our
competitors have well-established relationships with our potential customers and
have extensive knowledge of our target markets.
As a
result, our competitors may be able to devote greater resources to the research,
development, promotion and sale of their products and respond more quickly to
evolving industry standards and changes in market conditions than we can. Our
failure to adapt to changing market conditions and to compete successfully with
existing or new competitors may materially and adversely affect our financial
condition and results of operations. Accordingly, if we are unable to
effectively compete, investors could lose all or part of their
investment.
If
we do not achieve satisfactory yields or quality in our future production of
silicon, especially in a start-up operation, we may not succeed in making sales
and our relationships with prospective customers and our reputation may be
harmed.
The
manufacture of silicon is a highly complex process. Minor deviations in the
manufacturing process can cause substantial decreases in yields, affect the
quality of the product and in some cases, cause production to be suspended or
yield products unfit for commercial sale.
This
often occurs during the production of new products or the installation and
start-up of new process technologies or equipment. At first, we plan to produce
silicon in order to produce 10 MW per year, followed by the purchase and
installation of additional equipment in order to increase capacity, at our
present location, to 50 MW per year by 2012, in each case subject to financing
on commercially reasonable terms.
As we
expand our manufacturing capacity and add additional manufacturing lines or
facilities, we may experience lower yields and conversion efficiencies initially
as is typical with any new equipment or process, even though we have improved
yield production. If we do not achieve satisfactory yields or quality, our
product costs could increase, our sales could decrease and our relationships
with our customers and our reputation could be harmed, any of which could have a
material adverse effect on our business and results of operations.
We
may face risks associated with the marketing, distribution and sale of our
products internationally, and if we are unable to effectively manage these
risks, they could impair our ability to expand our business abroad.
As part
of our growth strategy, we plan to expand our sales in new and existing markets,
including overseas markets. Any international marketing, distribution and sale
of our products will expose us to a number of risks, including:
|
•
|
fluctuations
in currency exchange rates (our contracts will be U.S. dollar
based);
|
|
•
|
difficulty
in engaging and retaining distributors who are knowledgeable about, and
can function effectively in, overseas
markets;
|
|
•
|
increased
costs associated with maintaining marketing efforts in various
countries;
|
|
•
|
difficulty
and cost relating to compliance with the different commercial and legal
requirements of the overseas markets in which we offer our
products;
|
|
•
|
inability
to obtain, maintain or enforce intellectual property rights;
and
|
|
•
|
trade
barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could increase the prices of our products
and make us less competitive in some
countries.
|
If we are
unable to effectively manage these risks, we may not be able to successfully
expand our business abroad and grow our businesses as we have
planned.
If
photovoltaic technology is not suitable for widespread adoption, or sufficient
demand for solar power products does not develop or takes longer to develop than
we anticipate, our sales may not continue to increase or may even decline, and
we may be unable to sustain profitability.
The solar
power market is still developing and the extent to which solar power products
will be widely adopted is uncertain. Market data in the solar power industry are
not as readily available as those in other more established industries where
trends can be assessed more reliably from data gathered over a longer period of
time. Many factors may affect the viability of widespread adoption of
photovoltaic technology and demand for solar power products,
including:
|
•
|
cost-effectiveness
of solar power products compared to conventional and other non-solar
energy sources and products;
|
|
•
|
performance
and reliability of solar power products compared to conventional and other
non-solar energy sources and
products;
|
|
|
availability
of government subsidies and incentives to support the development of the
solar power industry;
|
|
•
|
success
of other alternative energy generation technologies, such as fuel cells,
wind power and biomass;
|
|
•
|
fluctuations
in economic and market conditions that affect the viability of
conventional and non-solar alternative energy sources, such as increases
or decreases in the prices of oil and other fossil fuels;
and
|
|
•
|
capital
expenditures by end users of solar power products, which tend to decrease
when the economy slows down.
|
The solar
power market also competes with other sources of renewable energy and
conventional power generation. If prices for conventional and other renewable
energy resources decline, or if these resources enjoy greater policy support
than solar power, the solar power market could suffer. If photovoltaic
technology proves unsuitable for widespread adoption or if demand for solar
power products fails to develop sufficiently, we may not be able to grow our
business or generate sufficient revenues to sustain our profitability. In
addition, demand for solar power products in our target markets may not develop
or may develop to a lesser extent than we anticipated. A softening in the demand
of photovoltaic products could have a material adverse effect on our business,
products and financial condition.
The
reduction or elimination of government subsidies and economic incentives could
cause a reduction in our anticipated revenue.
We
believe that the near-term growth of the market for on-grid applications, where
solar power is used to supplement a customer’s electricity purchased from the
utility network, depends in a large part on the availability and size of
government subsidies and economic incentives. Most of the solar power market is
segmented into two main application types: on-grid applications and off-grid
applications. In 2008, on-grid application represented 96% of the whole solar
power market, according to SolarBuzz and remains the dominant market for solar
energy. The reduction or elimination of government and economic incentives may
adversely affect the growth of this market or result in increased price
competition, both of which could cause our revenue to decline and materially and
adversely affect our business, financial conditions and results of
operations.
Today,
the cost of solar power exceeds the cost of power furnished by the electric
utility grid in many locations. As a result, government bodies in many
countries, most notably Germany, Spain, Japan and the U.S., have provided
incentives in the form of rebates, tax credits, feed-in tariffs (fixed price for
purchase by the utility company), low interest loan guarantees, and other
incentives to end users, distributors, system integrators and manufacturers of
solar power products to promote the use of solar energy in on-grid applications
and to reduce dependency on other forms of energy. These government economic
incentives could be reduced or eliminated altogether. According to SolarBuzz,
the 2008 worldwide solar market produced 5,948 MW of which Germany represented
31%, Spain 41%, the U.S. 6% and Japan and Italy 4% each, with the rest of Europe
and the rest of the world representing 5% and 8%, respectively. Even with the
supply of silicon exceeding demand, starting in about the the last half of 2008
was a strong year in the solar industry. However, in 2009 with the deepening of
the global recession, Spain capped its government incentives. While Germany, the
world’s leading producer and user of solar energy, announced it would double its
use of renewable energy (solar and wind) by 2012 to 47%, there can be no
assurance that its support for the solar industry will be sustained. Although
SolarBuzz reported that the United States’ share of the global solar market
could rise from 6% of the market in 2008 to between 21 to 27% by 2013 or a CAGR
of between approximately 30 to 35%, the United States government may not adopt
an effective policy and allocate sufficient resources to foster the growth of
solar energy, even given the current administration’s alternative energy
program.
In
October of 2008, the United States Congress, as part of its economic bailout
package, renewed solar energy subsidies for eight years. Further, on January 17,
2009, the Wall Street Journal reported that President Obama pledged to, over the
next three years, double the United States’ wind, solar and geothermal energy
generating capacity. The American Recovery and Restoration Act, signed into law
by President Obama in February of 2009, provides for tens of billions of dollars
to encourage renewable energy and reduce dependency on fossil fuels. Further, in
late May, 2009, the United States Senate Energy and Natural Resources Committee
voted to approve President Obama’s renewable power mandate requiring that 15% of
the United States’ electricity come from renewable sources such as wind and
solar by 2021, a fivefold increase from the 3% produced today. The foregoing
renewable energy bill has recently been approved by the House of Representatives
and is presently awaiting Senate approval. In late March 2009, the Chinese
government announced the world’s largest solar power subsidy program and through
the Associated Press recently announced, as part of that program, a target of
generating at least 15% of its power from wind, solar and other renewable
sources by 2020. However, the degree to which the solar industry will benefit
from such incentives remains unclear and the legislation is not expected to have
a significant effect on the industry in 2009. In a similar vein,
Germany
has been a strong supporter of solar power products and systems and political
changes in Germany could result in significant reductions or eliminations of
incentives, including the reduction of feed-in tariffs over time. Some solar
program incentives expire, decline over time, are limited in total funding or
require renewal of authority. Reductions in, or eliminations or expirations of,
these governmental subsidies and economic incentives could result in decreased
demand for our products and cause our revenue to decline. There can be no
assurance that the governments of other major economies such as France, Spain,
Italy and the United Kingdom will adopt similar measures. In addition, despite
governmental subsidies and economic incentives, these countries may from time to
time experience a slowdown in demand for photovoltaic products.
Future
increases in the supply of silicon, increased competition and other changing
market conditions may cause a decline in the demand and average selling prices
of silicon and may potentially increase the level of our earnings volatility and
reduce our profitability.
It is
expected that silicon supply constraints will begin to ease as early as 2010 as
silicon producers increase production to meet demand and, perhaps, sooner in the
wake of the current global recession. Any significant increase in the silicon
supply may allow higher utilization of existing and planned solar cell
production capacity which could result in significant downward pressure on the
average selling prices of silicon. In addition, increased competition from
existing solar cell producers and new market participants as well as changes in
other market conditions, such as reduced demand for solar power products in the
end user markets, may cause a decline in the demand and average selling prices
of our products. Such price declines could result in increases in the level of
our earnings volatility and reductions in our profitability, which would
materially and adversely affect our business, financial condition and results of
operations. At the same time, there are continuing efforts to reduce the amount
of silicon needed to produce a single megawatt of energy. Just a few years ago,
14 tons of silicon was required to produce sufficient solar cell capable of
generating a single megawatt of energy. Today, that number has decreased to 12
tons. We expect that continued improvements in technology and efficiency will
continue to reduce the number of tons required to produce the same amount of
energy.
Significant
increases in the supply of silicon could lower market price, and could have a
material adverse effect on our business, prospects, and financial
condition.
We
obtain certain manufacturing equipment from sole suppliers and if such equipment
is damaged or otherwise unavailable, our ability to deliver products on time
once we commence production will suffer, which in turn could result in order
cancellations and loss of revenue.
Some of
the equipment we will use in the manufacture of our solar products has been
developed and made specifically for us, is not readily available from
alternative vendors and would be difficult to repair or replace if it were to
become damaged or stop working. While generators, the most costly piece of
equipment in our manufacturing systems, are readily available, we currently
purchase our generators from a single high quality manufacturer and might find
it difficult to find comparable equipment if that vendor were no longer able to
meet our needs. In addition, several components of our system were specifically
manufactured for us according to our designs and specifications, and if we
needed to replace parts and could not use our existing suppliers, it could be
difficult and time consuming to identify a manufacturer who could meet our
proprietary needs. In addition, a supplier's failure to supply our ordered
equipment in a timely manner, with adequate quality and on terms acceptable to
us, could delay the capacity expansion of our manufacturing facilities and
otherwise disrupt our production schedule or increase our costs of
production.
Once
we commence commercial manufacturing, problems with product quality or product
performance in our solar products could result in a decrease in revenue,
unexpected expenses and loss of market share.
While we
plan to employ quality assurance procedures at key manufacturing stages to
identify and resolve quality issues, our solar products may contain defects that
are not detected until after they are shipped or installed. These defects could
cause us to incur significant re-engineering costs, divert the attention of our
engineering personnel from product development efforts, lead to returns of, or
requests to return our products and significantly affect our customer relations
and business reputation. If we deliver silicon with errors, defects or if there
is a perception that our silicon contains errors or defects, our credibility and
the market
acceptance
and sales of our solar power products could be harmed. In particular, if we
produce lower purity product than ordered, our reputation could be damaged, and
if we are unable to rapidly deliver product conforming to the customer’s
specifications, we could lose business and our reputation could suffer. Such
failures, should they occur, could have a material adverse effect on our
business, prospects and financial condition.
Changes
to existing regulations of the utility sector and the solar power industry may
present technical, regulatory and economic barriers to the purchase and use of
solar power products, which may significantly reduce demand for our products
once we commence commercial manufacturing.
The
market for power generation products is heavily influenced by government
regulations and policies concerning the electric utility industry, as well as
the internal policies of electric utility companies. These regulations and
policies often relate to electricity pricing and technical interconnection of
end-user owned power generation. In a number of countries, these regulations and
policies are being modified and may continue to be modified. End users’
purchases of alternative energy sources, including solar power products, could
be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products. For
example, utility companies commonly charge fees to larger, industrial customers
for disconnecting from the electricity transmission grid or for having the
capacity to use power from the electricity transmission grid for back-up
purposes. Utilities with a financial interest in retaining customers whose
business would be threatened by increased use of solar energy may succeed in
lobbying legislators and government officials in a manner that results in
regulation that discourages customers from switching to alternative energy
sources. Disconnection fees could increase end users’ costs of using our solar
power products and make products that use our solar cells less desirable,
thereby having an adverse effect on our business, prospects, results of
operations and financial condition.
Compliance
with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary
damages and fines.
We use,
generate and discharge toxic, volatile and otherwise hazardous chemicals and
wastes in our research and development and will use such chemicals and waste in
our manufacturing activities. Once we begin manufacturing, we will be subject to
regulations and periodic monitoring by local and federal environmental
protection authorities and are required to comply with all federal and local
environmental protection laws and regulations. The scope and extent of the
regulations are dependent on the size of our manufacturing
operation.
Under
U.S. environmental regulations, we are required to obtain a pollutant
discharging permit and a safety appraisal, which includes a permit for the
storage and use of hazardous chemicals and a permit for the use of atmospheric
pressure containers, with relevant governmental authorities after we have
completed the installation of our manufacturing lines, but before the
manufacturing lines commence commercial production. We are also required to
undergo an environmental protection examination and obtain approval with
relevant governmental authority within three months of the launch of trial
production and before the manufacturing lines commence full operation. We
believe that we are in full compliance with all federal, state and local
environmental regulations and obtained all currently necessary permits for the
conduct of our business in light of the raw materials we use. We have also
installed scrubbers to ensure that any discharge from our facility complies with
applicable law. The relevant governmental authorities have the right to impose
fines or a deadline to cure any non-compliance, or order us to cease production
if we fail to comply with these requirements. Failure to comply with applicable
laws and regulations, or the occurrence of damage to surrounding business and
residences even if we comply could also expose us to negative publicity and
additional civil liability.
In
addition, if more stringent regulations are adopted in the future, the costs of
compliance with these new regulations could be substantial. Any failure by us to
control the use of or to adequately restrict the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines or suspensions in our business operations. See also the Risk
Factor above entitled “Our manufacturing business will involve many operating
risks that can cause substantial losses.”
The
expenses of being a public company may adversely affect our
results.
Following
the effective date of our filing with the SEC of the registration statement of
which this prospectus is a part, we anticipate that compliance with federal
securities rules and regulations applicable to
public
companies will significantly increase our legal and financial compliance costs
and make some activities more time-consuming and costly. While we believe that
the benefits to our stockholders justify our becoming subject to public filing
requirements, the cost of such compliance could be substantial and adversely
affect our ability to generate profits.
Risks
Related to Our Intellectual Property
Our
failure to protect our intellectual property rights may undermine our
competitive position, and litigation to protect our intellectual property rights
may be costly and may not be resolved in our favor.
We seek
to protect our proprietary manufacturing processes, documentation and other
written materials primarily through intellectual property laws and contractual
restrictions. We have filed four patent applications relating to our solar
activities that includes the patented application apparatus that we have
modified for our solar activities, and a fifth patent application associated
with fiber optics; to date, the patents have not been issued. While as of July
24, 2009, no objections to the patents were filed, our patents remain subject to
objection as well as challenge, once registered.
In
addition, we rely on non-disclosure agreements when dealing with third parties.
We also require employees and consultants with access to our proprietary
information to execute confidentiality agreements with us. While we believe our
efforts are in conformance with industry norms, our steps to protect our
proprietary information may not be adequate to prevent misappropriation of our
technology. In addition, our proprietary rights may not be adequately protected
because:
|
•
|
people
may not be deterred from misappropriating our technologies despite the
existence of laws or contracts prohibiting it;
and
|
|
•
|
policing
unauthorized use of our intellectual property may be difficult, expensive
and time-consuming, especially when infringers are overseas, and we may be
unable to determine the extent of any unauthorized
use.
|
Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technologies could enable third parties to benefit from our technologies without
paying us for doing so. Any inability to adequately protect our proprietary
rights could harm our ability to compete, to generate revenue and to grow our
business. While we are not aware of any infringement, we cannot assure you that
infringement on our intellectual property rights by other parties does not exist
now or that it will not occur in the future.
To
protect our intellectual property rights and to maintain our competitive
advantage, we may file suits against parties whom we believe infringe on our
intellectual property. Such litigation may be costly and may divert management
attention as well as expend our other resources away from our business. In
certain situations, we may have to bring suit in foreign jurisdictions, in which
case we are subject to different risks as to the result of the proceedings and
the amount of damages that we can recover. An adverse determination in any such
litigation may impair our intellectual property rights and may harm our
business, prospects and reputation. In addition, we have limited insurance
coverage for litigation costs and have no present intent to purchase such
insurance. Accordingly, we would have to bear all costs arising from such
litigation to the extent we are unable to recover them from other parties. The
occurrence of any of the foregoing infringements on our intellectual property
could have a material adverse effect on our business, results of operations and
financial condition.
We
are currently engaged in litigation over our ownership of certain intellectual
property associated with the fiber optic industry and an unfavorable result
could impair us from monetizing such assets.
We are
currently engaged in litigation with j-fiber GmbH, the successor to a subsidiary
of FiberCore, Inc., regarding our ownership of certain intellectual property
associated with the manufacture of optical fiber. We are not at risk of
liability for monetary damages and the litigation is not material to our primary
business of manufacturing silicon for the solar industry, which is based on
technology not in dispute. Nonetheless an unfavorable result of such litigation
could lead to a judicial determination that we do not have rights to such
intellectual property. Such a result would prevent us from using the disputed
intellectual property in the manufacture of optical fiber and from licensing to
third parties technology based on that intellectual
property. However, we may have additional foreclosure rights with
respect to the intellectual property. See “Litigation.”
We
may be exposed to infringement or misappropriation claims by third parties,
which, if determined adversely to us, could cause us to lose significant rights
and pay significant damage awards.
Our
success also depends largely on our ability to use and develop our technology
and know-how without infringing the intellectual property rights of third
parties. The validity and scope of claims relating to photovoltaic technology
patents involve complex scientific, legal and factual questions and analysis. It
is therefore difficult to accurately predict whether or not a third party will
assert that we are infringing on its intellectual property or whether it would
prevail. Although we are not currently aware of any infringement or of any
parties pursuing or intending to pursue infringement claims against us, we
cannot assure you that we will not be subject to such claims in the future.
Also, in many jurisdictions, patent applications remain confidential and are not
published for about 5 to 6 months after filing. Thus, we may be unaware of other
persons’ pending patent applications that relate to our products or processes.
While at present, we are unaware of competing patent applications, competing
applications could potentially surface.
The
defense and prosecution of intellectual property suits, patent opposition
proceedings and related legal and administrative proceedings can be both costly
and time consuming and may significantly divert the efforts and resources of our
technical and management personnel. An adverse determination in any such
litigation or proceedings to which we may become a party could subject us to
significant liability to third parties, require us to seek licenses from third
parties, to pay ongoing royalties, to redesign our products, or subject us to
injunctions prohibiting the manufacture and sale of our products or the use of
our technologies. An injunction from using our technology could cause us to
default on our obligations to our customers, exposing us to consequential
damages and substantial damage to our reputation. If we are required to pay
royalties to third parties, we might be unable to fill existing orders without
incurring losses. Protracted litigation could also result in our customers
deferring or limiting their purchase or use of our products until resolution of
such litigation, and in the interim our customers may find alternative sources
of silicon. The occurrence of any of the foregoing could have a material adverse
effect on our business, results of operations and financial
condition.
Changes
in estimates related to our evaluation of property, plant, equipment, goodwill,
and particularly our intellectual property, for impairment could adversely
affect our reported results of operations.
We make
certain significant assumptions, estimates, and projections related to the
useful lives and valuation of our property, plant, and equipment and the
valuation of goodwill and other intangible assets related to acquisitions. The
carrying amount and/or useful life of these assets are subject to periodic
and/or annual valuation tests for impairment. Impairment results when the
carrying value of an asset exceeds the undiscounted (or for goodwill and
indefinite-lived intangible assets the discounted) future cash flows associated
with the asset. If actual experience were to differ materially from the
assumptions, estimates, and projections used to determine useful lives or the
valuation of property, plant, equipment, goodwill, or intangible assets, a
write-down for impairment of the carrying value of the assets, or acceleration
of depreciation or amortization of the assets, could result. In particular,
intellectual property comprised $979,000 of our total assets of $2,222,000,
constituting approximately 44% of our total assets as of June 30, 2009.
Approximately 50% of the $979,000 represents intellectual property related to
our solar activities with the remainder relating to our fiber related
intellectual property, including patents, know-how, and rights to license fees
therefrom. Accordingly, a write-down or acceleration of depreciation or
amortization of our assets, particularly our intellectual property, could have
an adverse impact on our reported results of operations.
Risks
Related to Our Stock
We
may not have the funds necessary to redeem outstanding shares of Series A
Preferred Stock if required to do so on September 30, 2010.
According
to the designations of the Series A Preferred Stock set forth in our certificate
of incorporation, we are required to redeem any outstanding and unconverted
shares of our Series A Preferred Stock on September 30, 2010. The Series A,
Preferred Stock automatically converts into our common stock in the event that
we are publicly traded and the trading price of our common stock on a 30-day
weighted average price of our common stock is greater than $2.15 per share
(based on 13,998,956 shares on a fully diluted basis, as of September 30,
2008).
In
addition, as of June 15, 2009, we entered into a letter agreement with Mr.
Alnamlah pursuant to which Mr. Alnamlah agreed to convert his shares of our
Series A Preferred Stock earlier than otherwise required upon the following
terms and conditions:
|
•
|
In
the event that prior to August 31, 2009, the holder of our Series A
Preferred Stock converts all such shares into shares of our common stock,
we shall pay such holder an additional 125,000 shares of our common
Stock.
|
|
•
|
The
holder agreed to convert any unconverted shares of our Series A Preferred
Stock into shares of our common stock pro rata in proportion
to the portion of the $1,045,900 in unpaid compensation and unreimbursed
expenses payable collectively to Dr. Mohd Aslami, Mr. Steven Phillips and
Mr. Charles DeLuca actually converted by such individuals into shares of
common stock in accordance with their agreements with
us.
|
The
option to receive additional shares has expired since the holder of the Series A
Preferred Stock did not convert prior to August 31, 2009.
However,
if all such shares remain outstanding on September 30, 2010, we would be
required to pay approximately $1.6 million to the holder of the Series A
Preferred Stock to redeem the shares. While we intend to raise additional funds
and use revenues from operations to enable us to meet our redemption obligations
if triggered, there can be no assurance that we will have sufficient funds to
fulfill our redemption obligation in the event the shares remain outstanding on
September 30, 2010.
If we
default on our redemption obligation, the holder of the Series A Preferred Stock
could enforce its rights against us, and even potentially force us into
bankruptcy or liquidation. Our failure to timely redeem the Series A Preferred
Stock could have a material adverse effect on our business, prospects and
financial condition.
We
may not have the funds necessary to repay our outstanding 7.5% convertible
subordinated notes if required to do so on September 30,
2011.
Payment of the interest
and principal on our 7.5% convertible subordinated notes is due on September 30,
2011. See “Recent Events” and “Description of Securities.”
Although the interest rate on our notes is initially 7.5%, the interest rate on
any notes which remain outstanding and are not converted into our equity by
September 30, 2010 will be retroactively adjusted as of the issue date of the
notes to have accrued interest at a rate equal to 15% per annum, thereby
increasing the amount of interest we are obligated to repay. We currently have
sold $525,000 in aggregate principal amount of convertible subordinated notes
through private placements, and may sell up to a total of $2,000,000 in
aggregate principal amount of notes.
If we default on our
repayment obligation with respect to the notes, the holders of our convertible
subordinated notes could enforce their rights against us, and even potentially
force us into bankruptcy or liquidation. Our failure to timely repay our
convertible subordinated notes could have a material adverse effect on our
business, prospects and financial condition.
Our
stock price may be volatile and could fluctuate widely.
Since our
common stock is expected to be quoted on the Over the Counter or OTC Bulletin
Board quote service, our stock price may be subject to wider fluctuations than
on a national exchange. Accordingly, the market price of our common stock is
likely to be highly volatile and could fluctuate widely in price in response to
various factors, many of which are beyond our control, including, but not
limited to, the following:
|
•
|
technological
innovations or new products and services by us or our
competitors;
|
|
•
|
intellectual
property disputes;
|
|
•
|
additions
or departures of key personnel;
|
|
•
|
sales
of our common stock;
|
|
•
|
our
ability to execute our business
plan;
|
|
•
|
operating
results that fall below
expectations;
|
|
•
|
loss
of any strategic relationship;
|
|
•
|
industry
developments;
|
|
•
|
economic
and other external factors; and
|
|
•
|
period-to-period
fluctuations in our financial
results.
|
The
limited or lack of a market for our common stock may adversely affect trading
prices or the ability of a shareholder to sell our shares in the public
market.
In
addition, the securities markets commonly experience significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
The
trading prices for equity securities in the stock market in general, and of
solar energy-related companies in particular, have been subject to wide
fluctuations that may be unrelated to the operating performance of the
particular company affected by such fluctuations. Consequently, broad market
fluctuations may have an adverse effect on the trading price of our common
stock, regardless of our operating results.
Although
we intend to list our common stock for trading on the OTC Bulletin Board, we
anticipate that the market for our common stock will be limited, and there can
be no assurance that this market will be maintained or broadened. Accordingly,
investors may lack the liquidity associated with an active trading market. We
cannot guarantee that our common stock will become eligible for listing on the
New York Stock Exchange, NYSE Amex Equities or the NASDAQ Capital market in the
near future, or ever, and we have no current plans to apply for listing on any
of those markets and platforms.
Furthermore,
for companies whose securities are traded on the OTC Bulletin Board, it is more
difficult to obtain accurate quotations, and to obtain coverage for significant
news events because major wire services generally do not publish press releases
about such companies. If we fail to comply with OTC Bulletin Board rules, we
could be delisted and subject to trading on the “pink sheets” which would likely
reduce our liquidity and stockholders’ ability to dispose of our securities in
an active market.
Because
we do not expect to pay dividends in the foreseeable future, any return on
investment may be limited to the value of our common stock.
We do not
anticipate paying dividends on our common stock in the foreseeable future. Any
future decision to pay dividends on our common stock will depend on our
earnings, financial condition, need for additional capital, and other business
and economic factors affecting us. If we do not pay dividends, you will only be
able to realize value on your investment through appreciation of our stock
price. We can provide no assurance that our stock price will rise in the near or
distant future.
Because
our common stock may be deemed a “penny stock,” investors may find it more
difficult to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules apply to companies whose common
stock trades at less than $5.00 per share or that have tangible net worth of
less than $5.0 million ($2.0 million if the company has been operating for three
or more years) and are not quoted on NASDAQ or on an exchange. These rules
require, among other things, that brokers who trade a penny stock to persons
other than “established customers” complete certain documentation, make
suitability inquiries of investors and provide investors with certain risk
disclosure information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade penny stocks because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. Remaining subject to the
penny stock rules for any significant period could have an adverse effect on the
market, if any, for our securities. If our securities are subject to the penny
stock rules, investors will find it more difficult to dispose of our
securities.
Substantial
sales of our common stock could cause our stock price to fall.
As of
June 30, 2009, we had 12,915,735 shares of common stock outstanding and up to
15,075,292 shares of common stock on a fully diluted basis that includes shares
issuable upon the exercise of warrants, options, and conversion of preferred
stock and outstanding long-term liabilities owed to our officers. The
registration statement of which this prospectus is a part registers the resale
of 6,932,123 of such shares, which includes 956,155 of shares owned by the
principal stockholders or 16% of the non-affiliated shareholders. See “Principal
Stockholders”. Sales by the selling stockholders hereunder, especially if
in heavy volume and at the same time, could negatively affect our stock
price.
No
prediction can be made as to the precise effect, if any, that sales of shares of
our common stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for our common stock and could impair
our ability to raise capital through the sale of our equity
securities.
Because
our directors, executive officers and entities affiliated with them beneficially
own a substantial number of shares of our common stock, they have significant
control over certain major decisions on which a stockholder vote is required and
they may discourage an acquisition of us.
Three
members of our board and executive management Mohd Aslami, our President and
Chief Executive Officer, Steven Phillips, our Executive Vice President, Chief
Financial Officer and Treasurer, and Charles DeLuca, our Executive Vice
President — Business Development and Secretary, together, based on
their beneficial ownership interest, control approximately 35% of our
outstanding common stock, allocated approximately as follows: Messrs. Aslami,
Phillips, and DeLuca, 2%, 18% and 15%, respectively. The foregoing assumes such
officers’ full conversion of a total of $1,045,900 in compensation and expenses
collectively owed to them as of September 30, 2008 into 697,267 shares of common
stock. If the $1,045,900 is not converted, Messrs. Aslami, Phillips and DeLuca
together, based on their beneficial ownership interest, would control
approximately 33% of our outstanding common stock, allocated as follows: Messrs.
Aslami, Phillips and DeLuca, 0%, 18% and 15%, respectively.
See “Principal
Stockholders”. As a result, these current officers, directors and
affiliated persons will have significant influence over all corporate actions
requiring stockholder approval, irrespective of how our other stockholders may
vote, including the following actions:
|
•
|
Elect
or defeat the election of our
directors;
|
|
•
|
amend
or prevent amendment of our certificate of incorporation or
by-laws;
|
|
•
|
effect
or prevent a merger, sale of assets or other corporate transaction;
and
|
|
•
|
the
outcome of any other matter submitted to the stockholders for
vote.
|
Management’s
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
Anti-takeover
provisions could deter attempts to acquire us and limit appreciation of the
market price for shares of our common stock.
Delaware
law and our bylaws contain provisions that may have the impact of delaying or
precluding an acquisition of our company without the approval of our board of
directors. These provisions may limit the price that investors might be
otherwise willing to pay in the future for shares of our common stock. These
provisions include provisions providing for a staggered board of directors,
advance notice procedures for stockholder proposals and director nominations and
a provision in our amended and restated bylaws that does not afford stockholders
the right to call a special meeting of stockholders. In addition, there are
provisions of Delaware law that may also have the effect of precluding an
acquisition of us without the approval of our board of directors.
If
we raise additional funds through the issuance of equity securities, or
determine in the future to register additional common stock, existing
stockholders' percentage ownership will be reduced, they will experience
dilution which could substantially diminish the value of their stock and such
issuance may convey rights, preferences or privileges senior to existing
stockholders' rights which could substantially diminish their rights and the
value of their stock.
We may
issue shares of our common stock for various reasons and may grant additional
stock options and/or restricted common stock to employees, officers, directors
and third parties. We may also decide to sell shares directly to the public in a
registered offering or in a connection with a merger, acquisition, or other
business combination. Since one of the factors that generally affects the market
price of publicly traded equity securities is the number of shares outstanding
in relationship to assets, net worth, earnings or anticipated earnings, such
sales may cause the market price of our common stock to decline. Furthermore,
the public perception of future dilution can have the same effect even if actual
dilution does not occur.
Further,
in order for us to obtain additional capital or complete a business combination,
we may find it necessary to issue securities, including but not limited to
notes, debentures, options, warrants or shares of preferred stock, conveying
rights senior to those of the holders of our common stock. Those rights
may
include
voting rights, liquidation preferences and conversion rights. To the extent
senior rights are conveyed, the value of the common stock may
decline.
The
sale of shares of our common stock by the selling stockholders will result in
immediate dilution to purchasers.
In
addition, the sale by the selling stockholders of the shares of common stock
registered pursuant to the registration statement of which this prospectus is a
part will result in immediate dilution to purchasers of such shares of common
stock in the amount of $1.38 in the net tangible book value per share. See the section
entitled “Dilution.”
Our
issuance of preferred stock could adversely affect the value of our common
stock.
Our
Certificate of Incorporation authorizes us to issue up to 10,000,000 shares of
Preferred Stock, par value $.0001 per share, of which we have already issued
666,666 shares of Series A Preferred Stock to Abdulaziz M. Alnamlah as of August
31, 2009. See “Description
of Securities — Preferred Stock”. Our authorized but unissued
preferred stock constitutes what is commonly referred to as “blank check”
preferred stock. Our board may cause us to issue preferred stock from time to
time on any number of occasions, without stockholder approval, in one or more
series of shares comprised of any number of the authorized but unissued shares
of preferred stock, designated by resolution of the Board of Directors, stating
the name and number of shares of each series and setting forth separately for
such series the relative rights, privileges and preferences thereof, including,
if any, the: (i) rate of dividends payable thereon; (ii) price, terms and
conditions of redemption; (iii) voluntary and involuntary liquidation
preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v)
terms of conversion to common stock, including conversion price; and (vi) voting
rights. The designation of such shares could be dilutive of the interest of the
holders of our common stock and could grant proprietary rights to the purchasers
of such preferred stock. The ability to issue such preferred stock could also
give our Board of Directors the ability to hinder or discourage any attempt to
gain control of us by a merger, tender offer at a control premium price, proxy
contest or otherwise, through the grant of special voting rights to holders of
preferred stock. Our issuances of preferred stock could limit your voting power
and could create a right to receive proceeds upon our liquidation that is senior
to your rights.
As
we have granted and will continue to grant stock options to certain of our
directors, officers, employees and consultants, our net income will be adversely
affected.
In order
to attract and retain key personnel, we plan to adopt the Company’s 2009 Stock
Incentive Plan, under which we may initially grant options to any or all of our
employees, directors, officers, consultants to purchase up to 500,000 shares of
our common stock. As of the filing date, we have issued non-qualified options to
purchase 155,000 shares of our common stock at an exercise price of $1.75-$2.00
per share, which shares are not currently included under the yet to be adopted
Company Stock Incentive Plan.
In
accordance with Statement No. 123 (Revised 2004), “Share-Based Payment,” or SFAS
123(R), of the Financial Accounting Standards Board, which requires all
companies to recognize, as an expense, the fair value of share options and other
share-based compensation to employees and consultants, we are required to
account for compensation costs for all share options including share options
granted to our directors, employees and consultants using a fair-value based
method and recognize expenses in our statement of operations in accordance with
the relevant rules under U.S. GAAP, which may have a material and adverse effect
on our reported earnings.
We will
not receive any proceeds from the resale of securities by the Selling
Stockholders.
The
offering price of $1.50 per share of our common stock represents the last price
our equity sold on September 30, 2008, as of which we sold a membership interest
in Silica Tech, LLC which on January 1, 2009 converted into 666,666 shares of
our common stock at a purchase price of $1.50 per share for proceeds of
$1,000,000 and 666,666 shares of our Series A Preferred Stock, convertible into
666,666 shares of our common stock, an effective conversion price of $1.50, for
additional proceeds of $1,000,000.
Our net
tangible book value per share, as of June 30, 2009, is determined by dividing
our tangible net worth (tangible assets less total liabilities) by the total
number of outstanding shares, 12,915,735 of common stock. If you purchase our
common stock from the selling stockholders identified in this prospectus, you
will experience immediate dilution of $1.37 in the net tangible book value per
share of our common stock assuming a sale price of $1.50 per share. The
following table illustrates the per share dilution to new investors purchasing
shares from the selling stockholders identified in this prospectus.
|
Assumed
offering price per share
|
$
|
1.50
|
|
|||||
|
Net
tangible book value before the conversion of the Convertible Securities
(based on 12,915,735 shares outstanding)
|
$ |
(.09
|
)
|
|
||||
|
Increase
in net tangible book value per share attributable to the issuance of
2,159,557 shares of common stock upon exercise or conversion of
Convertible Securities
|
$
|
.22
|
||||||
|
Pro-forma
net tangible book value per share after the offering (based upon shares
outstanding)
|
$
|
.13
|
|
|||||
|
Dilution
of net tangible book value per share of new stockholders
|
$
|
1.37
|
(91
|
)%
|
We have
never declared or paid any dividends on our common stock. We do not anticipate
paying any cash dividends in the foreseeable future. We currently intend to
retain future earnings, if any, to finance operations and to expand our
business.
Our board
of directors has complete discretion on whether to pay dividends. Even if our
board of directors decides to pay dividends, the form, frequency and amount will
depend upon our future operations and earnings, capital requirements and
surplus, general financial conditions, contractual restrictions and other
factors that the board of directors may deem relevant. We cannot assure you that
we will ever pay dividends.
The
following table sets forth our actual capitalization as of June 30, 2009, and
capitalization as adjusted to give effect to the issuance of 2,159,557 shares of
common stock upon the conversion or exercise of Convertible Securities as of
such date, conversion of the Long-Term Payable to Officers, and the application
of the estimated net proceeds derived from the exercise of Warrants, as
described under the section entitled “Use Of
Proceeds.” This table should be read in conjunction with our Financial
Statements appearing elsewhere in the Prospectus.
|
June
30, 2009
|
||||||||
|
|
Actual
|
As
Adjusted
|
||||||
|
Long-Term
Payable to officers
|
$
|
1,045,900
|
$
|
0
|
||||
|
Preferred
Stock, $.0001 par value, 10,000,000 shares authorized;
666,666
shares issued and outstanding, net of unamortized discount
|
$
|
866,533
|
$
|
0
|
||||
|
Stockholders’
Equity:
|
|
|
||||||
|
Common
Stock, $.0001 par value, 100,000,000 shares authorized; 12,915,735 shares
issued and outstanding; 15,075,292 shares as adjusted
|
1,292
|
1,508
|
||||||
|
Additional
paid in capital
|
3,443,063
|
6,737,183
|
||||||
|
Deficit
accumulated during development stage
|
(3,661,029
|
)
|
(3,794,496
|
)
|
||||
|
Total
capitalization
|
$
|
(216,674
|
)
|
$
|
2,944,195
|
|||
Our
History
We are a
technology company in the developmental stage positioned to commercialize our
proprietary intellectual property to manufacture high purity silicon used in the
production of silicon wafers and solar cells. We believe that our unique and
versatile approach will enable us to effectively compete in the rapidly growing
solar energy market. Our internet website, currently under construction, will be
located at www.ussolartech.com.
We plan
to utilize our intellectual property in making silicon, the raw material used in
the manufacture of solar cells using STC. In addition, in anticipation of the
growing use of thin-film technology for the making of solar panels, we have
filed two patents that apply our plasma technology to the making of thin-film
integrated solar cells, modules, or panels.
Our
intellectual property has been developed over the past 10 years, originally for
use in the fiber optic industry which requires fast, highly uniform and ultra
pure deposition of silicon-based compounds. We have been able to adapt this
versatile and cost effective technology for use in the manufacture of pure
silicon, crystalline silicon ingots and thin-film production of silicon that are
used in the manufacturing of solar cells.
We were
formed as Silica Tech, LLC, a limited liability company, in Connecticut on
September 9, 2004. Since our formation, we have developed our own proprietary
plasma-based technology for use in the solar energy industry. We also purchased
certain assets, including patented intellectual property associated with the
manufacture of optical fiber from FiberCore, Inc. a Chapter 7 debtor, pursuant
to an Asset Purchase and Settlement Agreement approved by the United States
Bankruptcy Court, District of Massachusetts (Western Division) on February 3,
2006. We are not a corporate successor or affiliate of FiberCore, although
through the assets we purchased, we succeeded to certain rights and claims of
FiberCore.
Silica
Tech, LLC was converted into US SolarTech, Inc, a Delaware corporation,
effective January 1, 2009. See “Recent
Developments” for a discussion of the conversion.
We are in
the process of commercializing our plasma technology and processes for the
manufacture of silicon and other products used in the rapidly growing solar
energy industry. Despite its significant growth, solar energy represents less
than 2% of global energy usage and we believe that substantial growth lies
ahead. Over the past several years, it has been widely reported that solar cell
manufacturers have been experiencing a severe shortage in silicon, the primary
raw material used in the manufacture of solar cells. While analysts cited in The
Green Chip Review, SolarBuzz, Semiconductor International and other industry
publications anticipate that there will be an increase in supply of such raw
materials in 2010 and 2011; it is uncertain whether that additional supply will
meet or exceed demand.
Although
the current global recession is reducing demand growth and available credit, we
believe that solar technology will remain strong as the demand for alternative
energy technologies continues growing. Already, silicon usage in the solar
industry surpasses its usage in the semiconductor industry. As for the impact of
the global recession, analysts expect demand growth to slow substantially in the
first half of 2009 with the potential for increase during the second half of
2009, and forecast growth and a re-acceleration in 2010. However, there can be
no assurance that this or any prediction will prove accurate, especially in
today’s uncertain economic environment.
Our
initial business plan contemplated our entry into the optical fiber industry,
followed by our entry into the solar energy industry. To help implement our
initial strategy, we sought to acquire certain assets from FiberCore, Inc., a
publicly traded manufacturer of optical fiber that filed for Chapter 11
bankruptcy in November 2003. FiberCore, Inc. had previously been managed by our
executive officers. Our subsequent analysis and market research, coupled with
strong demand in the solar industry, led us to focus our efforts directly on the
solar industry. However, we continue to explore opportunities in the fiber
industry. We are currently engaged in litigation to establish our ownership,
free and clear of any liens, of certain of our intellectual property associated
with the fiber industry and intend to more extensively consider opportunities in
the fiber industry if and when such litigation is resolved in our favor. See the risk
factor entitled: “We are currently engaged in litigation over our ownership of
certain intellectual property associated with the fiber optic industry and
an
unfavorable
result could impair us from monetizing such assets” and the section
entitled “Litigation.”
Our ownership of our intellectual property associated with the solar industry
has not been disputed.
To fund
our initial strategy of entering the optical fiber industry, in late August
2005, we raised $1,090,000 in equity from accredited investors in private sales.
We then purchased from Tyco International Sigma S.A. and Tyco International
Finance Alpha GmbH, both subsidiaries of Tyco International Ltd. (collectively
“Tyco”): (i) $8.8 million in secured claims against FiberCore, Inc.; (ii) $1.5
million in secured claims against FiberCore USA, Inc., a wholly owned subsidiary
of FiberCore, Inc. that was not in bankruptcy; and (iii) all right, title, and
interest in the Tyco entities’ equity interests in FiberCore, Inc. The assets we
purchased from the Tyco entities also included security interests in
intellectual property related to the manufacture of optical fiber preforms and
other assets. We paid a total of $670,000 for the assets we purchased from Tyco
of which $570,000 was allocated to the optical fiber related intellectual
property. The consideration consisted of $575,000 in cash and an assumption of
Tyco’s obligation to pay $95,000 to our three executive officers to reimburse
them for out-of-pocket disbursements for legal fees associated with protecting
certain intellectual property assets of FiberCore, Inc. We reimbursed
approximately $70,000 to our three executive officers by December 31, 2005 and
the remaining $25,000 in December 2008. See “Related
Party Transactions.”
On
February 3, 2006, in accordance with the rights we purchased from Tyco, the
United States Bankruptcy Court, District of Massachusetts, entered an order
authorizing and approving the sale of certain assets of FiberCore, Inc. to us,
as set forth in the Asset Purchase and Settlement Agreement by and among Steven
Weiss, Chapter 7 Trustee of FiberCore, Inc. and Silica Tech, LLC, dated as of
November 2005. The sale closed in March 2006.
Shortly
after the closing, based on market research which revealed an increased
worldwide focus on alternative energy, particularly solar energy, we modified
our business plan to focus exclusively on the solar energy market. During the
period between June 2006 and December 2007, we raised funds through private
sales of our securities, filed patent applications, continued litigation
activities to preserve our intellectual property rights, and sought business
opportunities.
In
anticipation of the deployment of our intellectual property for the manufacture
of silicon for use in the solar energy industry, in November 2007, we began
ordering equipment for use in our pilot plant which we are currently leasing but
which we plan on purchasing in order to expand to a full manufacturing
operation. We plan to raise funds in additional financing to purchase the
building, with respect to which we have a right of first refusal.
In
December 2007, we sold our 7% interest in Middle East Fiber Company, an asset
included in the FiberCore assets we purchased, for $325,000, to Abdulaziz
Alnamlah, who already owned 85% of Middle East Fiber Company immediately prior
to the sale. Of the $325,000, $80,000 was received in December 2007 and the
balance, less legal fees, was received in January 2008. Our allocated cost under
the Agreement was approximately $37,000 and was comprised of our cost basis,
legal fees, and fees paid to a Cayman Islands trustee in connection with the
entity through which we owned our interest. Mr. Alnamlah is the same individual
who on September 30, 2008, purchased 666,667 shares of our common stock at a
purchase price of $1.50 per share for proceeds of $1,000,000 and 666,666 shares
of our Series A Preferred Stock, convertible into 666,666 shares of our common
stock, an effective conversion price of $1.50, for additional proceeds of
$1,000,000.
During
the fourth quarter of 2007, we ordered the primary equipment from which we built
our manufacturing systems. The equipment arrived at the end of the first quarter
of 2008 through the beginning of the second quarter of 2008.
In
February 2008, we leased our pilot operation in Southbridge, Massachusetts to
develop and adapt our technology for use in production of silicon for use in the
solar industry.
From
April 2008 until October 2008, we focused our operations on installing equipment
and designing, ordering and incorporating proprietary system components and
parts.
In late
February 2009 we produced our first silicon prototype sample, a significant
milestone in that it confirmed that our technology as adapted could be used to
manufacture silicon.
In June
2009, we produced high purity, market acceptable, solar grade silicon and expect
to produce semi-conductor grade silicon by the fall of 2009. Solar grade silicon
requires a purity level of at least 99.999% (five nines) while semi-conductor
grade silicon requires a purity level of at least 99.99999% (seven nines). Our
achievement in production of solar grade silicon demonstrates that we can
produce silicon with the level of purity necessary to effectively implement our
business plan.
Our
samples were tested by an independent laboratory which is not affiliated with us
or our management. We expect to begin shipping samples to potential customers
for their own testing approximately by the end of the third quarter of 2009 in
order to solicit orders and to reach a semi-conductor purity level. However, in
order to ship meaningful quantities of products to customers, we must obtain
additional funding to increase capacity. As we continue to expand, we also
expect to improve the quality of our silicon and to recruit additional full-time
personnel, including process and chemical engineers, operating technicians, and
administrative staff.
We plan
on continuing to increase our manufacturing capacity and we will need additional
funds to continue to upgrade. In addition to the $2,000,000 we received on
September 30, 2008 from Mr. Alnamlah (See Recent Sales
of Unregistered Securities), we are seeking an estimated $10,000,000 in
additional funds for plant expansion and working capital. Of the $10,000,000, we
are currently seeking to raise up to $4 million in funds from current and other
private investors that we have a substantial prior relationship with followed
shortly thereafter with efforts to raise the additional $6 million.
We
anticipate that during the second half of 2009, as funds are raised, to
gradually order system parts, build additional systems for the manufacture of
silicon, and purchase the building in which our pilot plant facility is
located.
Once the
first of the new systems becomes operational, we believe we will be able to
generate revenue. We will use our existing system for further process
development toward increasing our overall manufacturing efficiency. We
anticipate that by the middle of 2010, subject to our obtaining necessary
financing, we will have installed equipment that will be able to produce silicon
sufficient to manufacture solar cells capable of producing 10 megawatts (“MW”)
of energy (approximately 120 tons) per year, and expect that by 2012, our total
capacity after our gradual purchase and activation of additional equipment will
be approximately 50 MW. Although we had earlier anticipated we could commence
commercial production sooner, unanticipated delays in perfecting our prototype
system required us to revise our forecast.
Background
and Intellectual Property
We own
four patents and have filed applications for an additional five patents. Our
business plan primarily involves deploying the technology included in the five
patents pending toward the manufacture of solar grade silicon, while exploring
opportunities to generate revenue through the existing four
patents.
Existing
Patents
Our
management’s experience with plasma technology gave rise to the issuance of four
optical fiber patents that employ plasma technology during the period in which
our management managed FiberCore, Inc. Pursuant to a bankruptcy court order, in
March 2006, we acquired the patents listed below.
|
•
|
U.S.
Patent No. 6,253,580, issued July 3, 2001, entitled “Method of Making a
Tubular Member for the Optical Fiber Production Using Plasma Outside Vapor
Deposition” expiring December 2018.
|
|
•
|
U.S.
Patent No. 6,536,240, issued March 25, 2003, entitled “Method of Making an
Optical Fiber Preform via Multiple Plasma Deposition and Sintering Steps,”
expiring June 2020.
|
|
•
|
U.S.
Patent No. 6,793,775, issued September 21, 2004, entitled “Multiple
Torch-Multiple Target Method and Apparatus for Plasma Outside Chemical
Vapor Deposition,” expiring February
2022.
|
|
•
|
U.S.
Patent No. 6,769,275, issued August 3, 2004, entitled “Method for Making
Optical Fiber Preform Using Simultaneous Inside and Outside Deposition,”
expiring March 2022.
|
The
patents relate to the use of plasma in optical fiber processing, only, and do
not apply to our proprietary process for the manufacture of
silicon.
Patent
Applications
We own
five patent applications which involve application of plasma technology to the
solar industry. Our patent applications include technology which employs POVD
(plasma outside vapor deposition)/PIVD (plasma inside vapor deposition)
technologies, which were originally developed for optical fiber manufacturing.
With the filing of four new patent applications, we are now adapting this
technology to manufacture silicon (powder or chunks), and doped (which involves
the intentional introduction of another component in order to obtain certain
properties) or un-doped crystalline silicon ingot, a-Si thin-film integrated
solar cells, modules or panels, and/or an MJ-Si based thin-film, integrated
solar cells, modules or panels.
|
|
|
|
||
|
Application
Date
|
Application
Title
|
Technology
Type
|
||
|
•
12/26/06
|
Ring
Plasma Jet method and Apparatus
|
Fiber
|
||
|
•
12/28/06
|
Plasma
Torch for Making Synthetic Silica
|
Silicon
Fiber
|
||
|
•
3/6/07
|
Plasma
Deposition Apparatus And Method for Making Polysilicon
|
Silicon
|
||
|
•
4/13/07
|
Plasma
Deposition Apparatus for Making Solar cells
|
Thin
Film
|
||
|
•
4/15/08
|
Plasma
Inside Vapor Deposition Apparatus and Method for Making Multi-Junction
Silicon Thin-Film Solar Cells and Modules
|
Thin
Film
|
In
general, patents are effective for twenty years following the date on which an
application is filed.
While we
are initially focusing primarily on the silicon business, we intend to dedicate
some of our resources to the exploring the thin-film process. Once the silicon
business is established, additional resources will be used on the thin-film
processing in order to hedge against a technology shift from silicon to thin
film.
Solar
Energy Technologies
Research
and Development (“R&D”)
Our
technical team spends most of their working time on product development. Our
technical team first tested the individual components of our system separately,
then integrated them into a manufacturing system, produced the plasma we will
use to manufacture our end product, and finally produced silicon of increasingly
pure quality until it manufactured solar grade silicon in June 2009. Our
development activities to date, therefore, primarily have involved experimenting
with, and fine-tuning our manufacturing system.
Our
primary R&D focus going forward will be on improving the quality and
lowering the manufacturing cost of our initial products: silicon powder or
chunks, and crystalline silicon ingot. In addition, we will engage one machine
design to improve its manufacturing efficiency and cost, and scale up
engineering activities. The system we are using for development may also be used
to manufacture commercial product.
In
addition, we plan to diversify our products in the photovoltaic or PV market
into thin-film integrated solar cells and modules, and possibly into complete PV
systems in the future, depending on market realities that develop. We may engage
in initial development activities, but have no plans at this time to engage in
large scale research and development or manufacturing.
Raw
Materials
We use
STC as our main raw material to manufacture silicon and/or crystalline silicon
ingot. STC is currently available in the marketplace from several sources. We
are considering entering into long-term purchase agreements with suppliers of
STC once we secure firm orders for our product. We are also exploring the use of
other chemical compounds in our production process. Using alternative raw
materials could potentially lower our cost and increase our options in the event
of a shortage of raw materials. We are also seeking to enter into long-term
contracts with the suppliers of various chemicals. In addition, we are exploring
manufacturing our own STC, which will not only eliminate the risk of limited
availability and rising prices in the event there is an STC shortage, but would
over time reduce overall manufacturing costs by producing STC at a cost lower
than the market prices available from third parties. With capacity expansion,
the STC facility could also sell STC to third parties. We estimate that the cost
of building a facility to manufacture our own
STC would
be approximately $6 million and that it would take approximately nine months to
complete the project. Of the $6 million, we estimate $4 million would be
financed through loans and that such facility size would produce enough STC to
generate about 15 MW; an estimated additional $8 million would be required to
expand the facility so as to produce the STC needed to manufacture silicon
capable of generating 50MW. To the extent that our STC requirements would lag
STC production, the excess STC would be available for resale to third parties.
The other components used in our proprietary manufacturing process are available
from several sources. A continuous source of electrical energy, provided in part
by the chemicals, is needed for the operation of the systems used in its
production.
Proprietary
Manufacturing Process and Products
Silicon
in the Solar Industry
Silicon
is the essential component needed to make solar cells. Silicon is manufactured
by first converting natural quartz or high purity sand to a metallurgical grade
silicon, or “MGS,” which we expect will be less pure than our end product. The
MGS is then converted into Tri Chloro Silane, or “TCS,” which is purified and
converted into pure silicon. The pure silicon is then melted and grown into
mono-crystalline ingots or cast into multi-crystalline ingot.
The
Siemens Process
The most
common process for converting the MGS into TCS and then converting the TCS into
pure silicon is known as the Siemens process. The Siemens process produces STC
as a byproduct. The STC is then further purified for use in the semiconductor
and optical fiber industries.
Until the
recent onset of global recession, there was a sizeable industry-wide shortage of
silicon, which resulted in limited availability of silicon wafers and caused
significant increases in the price of silicon. As demand for solar cells
increased, many participants or companies in the solar power industry announced
plans to add additional manufacturing capacity. However, these expansion efforts
appear to have slowed because of the global recession. Nevertheless, once the
recession eases and this added manufacturing capacity comes on-line, silicon
prices may drop unless the demand for silicon continues to increase. It is also
possible that pent-up demand generated by strong government support in the U.S.,
China, Germany, and in other countries could further exacerbate the current
silicon shortage. Moreover, high purity silicon is also used in the
semiconductor industry and any increase in demand from that sector could
compound the shortage.
Silicon
suppliers have been adding manufacturing capacity in response to the growing
demand in recent years. However, building silicon production facilities
generally requires significant capital and it typically takes an average of 24
to 36 months to construct a working facility that utilizes the conventional
Siemens process. As a result, silicon suppliers are generally willing to expand
only if they are certain of sufficient customer demands to justify such capital
commitment.
Owing to
the present economic climate, a recent report in Solar Buzz, a trade
publication, reported that silicon suppliers have eased their requirement that
customers prepay for raw materials well in advance of their shipment, which, in
turn, leads to an increase in working capital commitments for cell
manufacturers. Such manufacturers would therefore be required to dedicate a
larger portion of their capital to purchasing raw materials, diverting funds
from other business activities. In addition, the production of silicon using the
Siemens process generally becomes economically viable only when launched in
large scale, and is expensive to scale down.
Our
Proprietary Process
Our
patent-pending technology utilizes STC, the by-product of the Siemens process,
which is already pure enough for solar application, or uses the higher grade
semiconductor or optical grade STC manufactured for the optical fiber industry
(which is what the Company is currently purchasing and plans to purchase in
large quantities for production) and converts it to pure silicon in one step
through a process that requires significantly less capital investment than is
required in converting sand into solar grade silicon. We then convert the pure
silicon to a crystalline ingot. There are two types of crystalline silicon ingot
in use today:
single or
mono-crystalline ingot, and multi-crystalline ingot. We plan to manufacture the
single or mono-crystalline ingot. The ingots are then sliced into wafers,
converted into solar cells, incorporated into a solar module or panel, and
finally installed as a complete system along with other components typically
referred to as “balance of system components.”
In
addition to manufacturing pure silicon, we plan to convert the silicon into a
single crystal ingot using commercially available manufacturing equipment that
is well proven and reasonably automated. In the future, we are considering
developing our own multi-crystalline ingot that will be integrated in a one-step
process with the manufacture of pure silicon from STC.
Sales
and Marketing
While the
global recession has caused a softening in demand for polysilicon, the demand
for the products we intend to manufacture, high-purity silicon and single
crystal silicon ingot, which result in a higher efficiency solar cell, still
remains relatively strong. We plan to use a direct sales effort in the U.S.,
while overseas we plan to use a team of sales representatives to develop a brand
name associated with a higher quality and more efficient product than that of
our competitors. We anticipate that our sales efforts will primarily focus on
those customers interested in entering into long-term purchase contracts with
us.
To assist
with our overseas sales effort, we have been in contact with distributors in
China and Thailand that are experienced in selling high-tech material. We also
plan to attend various renewable energy conferences that are held around the
world at various times of the year.
We
anticipate that we will sell our products to long-term customers as well as
customers who buy in the spot market, which traditionally commands much higher
prices than those provided for in long-term contracts.
Customers
Over the
past several years, there has been a silicon supply shortage. Despite recent
softening in demand, we anticipate that the shortage will continue for several
years, even with the increase in supply. Nevertheless, we intend to diversify
our client base, and market ourselves as a second source of silicon for
customers already purchasing their silicon elsewhere.
Strategy
Our
initial focus will be to bring our current plant to full capacity, which is
estimated to produce sufficient silicon ingot for the manufacture of solar cells
capable of producing up to 50MW of energy. We currently do not yet have
commercial manufacturing capacity and use our existing equipment for product
development and to produce samples. Once our Southbridge plant operates at full
capacity, we plan on considering additional plant sites in the US, Europe and
Asia. In Asia, possible locations under consideration include China, India and
the Middle East, specifically, Saudi Arabia and the UAE, in order to supply key
world markets.
We are
also exploring opportunities to expand our manufacturing capacity through
licensing and joint venture manufacturing agreements with large customers
through which we would license our technology to third parties who would produce
silicon on their own premises. We have engaged in preliminary discussions with
potential customers and suppliers who have also expressed an interest in
considering entering into an offshore joint venture arrangement with us. In
addition, we are evaluating the possibility of vertically integrating into the
solar photovoltaic market through mergers and acquisitions if and when
opportunities arise.
Competition
We are
faced with major competitors who have brand name recognition and are financially
more stable. According to Deutsche Bank A.G. in a research report published in
January of 2009, several large companies are responsible for the overwhelming
majority of capacity and production of silicon. The following ten companies will
account for approximately 89% of silicon global capacity in 2008 and estimates
show will account for approximately 84% of capacity in 2010:
|
•
|
Hemlock;
|
|
•
|
Wacker-Chemie
AG;
|
|
•
|
Renewable
Energy Corporation;
|
|
•
|
MEMC
Electronic Materials;
|
|
•
|
Tokuyama;
|
|
•
|
Mitsubishi;
|
|
•
|
Sumitomo;
|
|
•
|
M-Setek;
|
|
•
|
DC
Chemical; and
|
|
•
|
Sharp.
|
Some of
our competitors have also become vertically integrated in areas such as module
manufacturing and solar power system integration. We also expect to compete with
future entrants to the photovoltaic market that offer new technological
solutions. Many of our competitors are developing or currently producing
products based on new photovoltaic technologies, including thin film, silicon
based ribbon, and new materials based on nano-technologies, which they believe
will ultimately cost the same as or less than crystalline silicon technologies
similar to ours. In addition, the entire photovoltaic industry also faces
competition from conventional and non-solar renewable energy technologies,
including wind, bio-fuels and bio-diesel. Due to the relatively high
manufacturing costs compared to most other energy sources, solar energy is
generally not competitive without government incentive programs.
There are
several thin film technologies in various stages of development. The oldest one
of these technologies is a-Si thin film integrated solar cell/module, which has
the lowest manufacturing cost, the largest manufacturing volume at this time,
but also the lowest efficiency. The most advanced thin film technology is based
on copper indium gallium diselenide, (“CIGS”) with potentially the same
efficiency as silicon-wafer based technology, but at substantially lower
cost.
Several
companies are engaged in the development of this process, but none has achieved
high efficiency in manufacturing. The most successful thin film manufacturer to
date is First Solar (NASDAQ: FSLR), which uses a cadmium telluride (“CdTe”)
based integrated solar cell/module using its own proprietary process. However,
while thin-film manufacturing costs are generally substantially lower than
silicon-wafer technology, thin film technology provides lower efficiency (a
percentage measurement of sunlight converted into electrical energy) than the
efficiency generated with silicon wafer technology. Although silicon producers
will continually seek technology improvements to lower costs and increase
efficiency, thin film producers may improve efficiency and reduce manufacturing
cost to the point that they could capture more than a minor market share from
the silicon wafer based solar cell and module.
As a
hedge against changing technologies, we plan to diversify our products in the
photovoltaic market into thin film integrated solar cells and modules, and
possibly into complete photovoltaic systems in the future. We have already filed
for two thin-film patents. The first relates to the manufacture of a-Si thin
film integrated solar cell and modules or panels. The second relates to the use
of plasma inside vapor deposition apparatus for the making of a MJ-Si- thin-film
integrated solar cell, module, or panels. We may engage in initial thin-film
development activities, but do not have plans, at this moment, to invest in
large scale thin-film research and development or manufacturing. Further, there
is no assurance that our thin-film activities will be successful or that these
efforts will not divert resources from our manufacture of silicon based
products.
Over the
past several years, in response to the silicon shortage, over 20 new producers
of silicon have entered the marketplace, though many of them use the Siemens
process, which requires extensive capital outlays. However, several
manufacturers claim to have developed new proprietary processes which are more
cost effective than the well known Siemens process. We have no knowledge as to
whether such claims are valid, nor can we be certain whether these new processes
are more or less efficient than our process.
In
addition, Wacker-Chemie AG (“Wacker”) recently announced plans to build a $1
billion polysilicon plant in Tennessee, with an anticipated capacity of 10,000
tons per year or 833 MW of energy, and which is expected to employ 550 people.
Wacker’s $1 billion investment translates to a cost of $1.2 million per MW,
which is significantly higher than our estimated cost of $500,000 per MW,
resulting in our cost being approximately 60% lower. See the risk
factor entitled “Because we compete in a highly competitive market and many of
our competitors have greater resources than us, we may not be able to compete
successfully.”
Employees
and Contractors
As of
August 31, 2009, we had 8 full-time employees, and 5 part-time contractors
engaged as follows:
|
Part-Time
Employee/
Contractors
|
Full-Time
Employees
|
|||||||
|
Administration
|
—
|
3
|
||||||
|
Research
and Development/Technical Support
|
5
|
4
|
||||||
|
Business
Development and Sales
|
—
|
1
|
||||||
As we
expand our pilot facility to a 10 MW manufacturing facility over the next year
provided we obtain financing on commercially reasonable terms, we plan to hire
approximately 25 full-time employees, primarily in the areas of administration,
production, and research and development. Given our plant’s capacity and the
perceived continued demand for silicon from potential customers interested in
placing orders, we believe that limited marketing and sales efforts will suffice
in enabling us to sell up to our maximum capacity.
We also
anticipate that over time a few of our independent contractors will become
full-time employees. From time to time, we intend to use independent contractors
to support our activities, including research and development. As new products
are developed and as operations grow, we will need additional
personnel.
We are a
start-up entity and, to date, have had no employee or contractor turnover. We
consider our relationship with our employees, contractors and subcontractors to
be satisfactory. We are not, and do not expect to become, party to any
collective bargaining agreement.
Recent
Developments
Pilot
Plant
In
February 2008, we opened our pilot plant, located at 15 Sandersdale Road in
Southbridge MA. We spent the following ten months, upgrading the facility to
accommodate, and proceeded to construct, our pilot system.
Following system testing, in early February 2009, we produced
“prototype material,” the first sample of our product. The achievement
demonstrated that our technology is capable of producing silicon and is a
promising alternative to costlier and larger scale techniques used to produce
the same material. Test results for this first sample showed the presence of
impurities, largely due to oxygen leaking into the system. In subsequent trials,
with consistently isolating and eliminating the leakage, we reached higher
purity levels. In late June 2009, we produced high purity, market acceptable
solar grade silicon and we expect to begin shipping samples to potential
customers for their own testing by approximately the end of the third quarter of
2009 in order to solicit orders as well as to produce semi-conductor grade
silicon. We are highly confident that remaining impurities will be eliminated
with design modifications. Industry analysts expect that producers of lower
purity silicon are more susceptible to falling margins as supply increases and
demand decreases, especially in 2009. The process requires ongoing quality
testing involving both potential customers and independent laboratories. In
connection with achieving the milestone of producing our sample, we have started
recruiting additional full-time personnel, including process and chemical
engineers, operating technicians, and administrative staff. In addition to the
funds received from the sale of our Series A Preferred Stock as described below,
we intend to raise in the future an estimated $10 million in additional funds in
order to purchase the Southbridge building, to build additional manufacturing
systems and to provide working capital.
We plan
on continually focusing on increasing product yield in order to reduce
manufacturing costs and increase production. We intend to increase capacity at
our Southbridge, Massachusetts facility to enable us to produce approximately
120 tons of silicon, an amount which under present technology is sufficient to
produce
10 MW of
energy, subject to our obtaining financing on commercially reasonable terms. We
anticipate then a capacity upgrade through adding systems to produce 480 tons of
silicon capable of producing 40MW of energy, also subject to financing. We
believe that through purchasing additional equipment and leasing or purchasing
the entire premises in the building at, but without expanding our Southbridge
facility, we can achieve a maximum capacity of 600 tons of silicon annually,
which is equivalent to the amount necessary to manufacture silicon-based solar
cells with an aggregate capacity to produce 50 MW of energy.
Over the
past several years, technical improvements in the manufacture of cells have
reduced the number of tons of silicon required to produce solar cells capable of
generating one MW of solar energy. Just a few years ago, 14 tons were required
to produce solar cells capable of generating a single MW of energy. Today, that
number has gone down to 12 tons. We expect that continued improvements in
technology and efficiency will continue to reduce the number of tons required to
produce the same amount of energy. We believe that some solar cell manufacturers
have been able to produce a MW of energy with only 10 tons of silicon, and we
believe that it will be possible to produce a MW with as little as 8 tons as
technology improves.
Conversion
to a Delaware Corporation
Effective
January 1, 2009, we converted from Silica Tech, LLC, a Connecticut limited
liability company into US SolarTech, Inc., a Delaware corporation. Pursuant to
the conversion, members of Silica Tech, LLC received common stock of US
SolarTech, Inc. and warrants to purchase shares of common stock of US SolarTech,
Inc. Pursuant to the conversion, members of Silica Tech, LLC each received a
pro rata portion of
12,666,666 shares of common stock of US SolarTech, Inc.; certain members
received a pro-rata
portion of 685,624 warrants. Mr. Alnamlah received 666,666 shares of Series A
Preferred Stock, (all priced at $1.50), based on a company valuation of
$20,000,000.
In
addition, in connection with the conversion, we agreed to make cash payments to
stockholders upon the achievement of certain milestones. As of June 30, 2009,
our stockholders agreed to receive payment in stock in lieu of
cash.
Under
Delaware law, US SolarTech, Inc. is deemed to own the assets of, and be
obligated for the debts of Silica Tech, LLC, and to have been formed on
September 9, 2004, the date on which Silica Tech, LLC was formed.
Sale
of Preferred Stock
As of
September 30, 2008, we sold a 10% membership interest in Silica Tech, LLC to Mr.
Alnamlah for total proceeds of $2,000,000. On January 1, 2009, such membership
interest was converted to common and preferred equity, and warrants to purchase
common equity, in connection with the conversion of Silica Tech, LLC into US
SolarTech, Inc. See “Recent
Developments” for a discussion of the conversion. Specifically, pursuant
to the terms and conditions of the investment, Mr. Alnamlah received 666,667
shares of our common stock and warrants, expiring January 1, 2012, to purchase
300,000 shares of our common stock, at an exercise price of $1.50, and 666,666
of shares our Series A Preferred Stock for consideration of $2 million. See “Description
of Securities.”
Sale
of Middle East Fiber Company Interest
In a
separate transaction in December 2007, Mr. Alnamlah purchased all of our 7%
interest in Middle East Fiber Company, a company controlled by Mr. Alnamlah, for
proceeds of $325,000. Our interest in Middle East Fiber Company was among the
assets we purchased from FiberCore, Inc.
Sale
of 7.5% Convertible Subordinated Notes
On
September 30, 2009, we sold $525,000 in aggregate principal amount of 7.5%
convertible subordinated notes together with related warrants in a private
placement to existing investors. We are privately offering up to
$2,000,000 in aggregate principal amount of notes to investors we have
identified through means other than any public offering, seeking primarily
investors having pre-existing relationships with us. We anticipate
that the offering will remain open to qualified investors until November 15,
2009, unless extended. We are not registering the resale of the
notes, or any shares of our common stock issuable upon conversion of the notes
or exercise of the warrants.
Interest. The notes are due on September
30, 2011 and bear interest at a rate of 7.5% per annum, provided that the
interest rate on any notes which remain outstanding and are not converted into
our equity by September 30, 2010 will be retroactively adjusted as of the issue
date of the notes to have accrued interest at a rate equal to 15% per annum,
thereby increasing the amount of interest we are obligated to repay.
Furthermore, upon conversion of the notes into shares of our common stock,
for purposes of calculating the number of shares issuable upon conversion, the
notes shall be deemed to retroactively have accrued interest since the issue
date at a rate equal to 25% per annum.
Conversion. Subject to the terms of the
note, a holder may convert a note into our common stock beginning at such time
at which the Company’s common stock has been publicly traded for one full
calendar month, through September 30, 2010. During such period, a holder
of Notes shall, acting in its sole discretion, be entitled to convert any
portion or all of the principal sum and unpaid interest accrued under a note
into shares of the Company’s common stock, at a price per share of equal to the
weighted average trading price of our common stock on the exchange or quotation
system on which it is publicly traded over the preceeding 20 trading days,
provided that notwithstanding any provision in the Note, such price shall not be
less than $1.50 per share .
If at any
time on or after the beginning of the period during which the holder may
convert, the calculated conversion price equals or exceeds $2.00 per share for
20 consecutive trading days, we are required to provide the Holder with a
written notice stating that the requirements for conversion at our option have
been met, whereupon on the 5th business day following the holder’s receipt of
such notice, we shall have the right, at our sole discretion, to convert all of
the principal sum of the notes and unpaid interest accrued thereon into shares
of our common stock at such price.
Warrants. Each
purchaser of notes will receive a warrant to purchase the number shares of our
common stock calculated as follows:
|
·
|
Where
the Company receives the purchase price for the notes prior to or on
September 30, 2009, the number of shares issuable upon exercise shall
equal 50% of the principal of the note purchased divided by $1.50 provided
that Mr. Alnamlah shall be entitledto such percentagewith respect to up to
his purchase of an additional $200,000 in aggregate principal amount of
notes on or prior to November 15,
2009.
|
|
·
|
Where
the Company receives the purchase price for the notes between October 1,
2009 and October 31, 2009, the number of shares issuable upon exercise
shall equal 33% of the principal of the note purchased divided by
$1.50.
|
|
·
|
Where
the Company receives the purchase price for the notes between November 1,
2009 and the expiration of the offering, the number of shares issuable
upon exercise shall equal 15% of the principal of the note purchased
divided by $1.50.
|
The
warrants become exercisable at such time at which the Company’s common stock has
been publicly traded for one full calendar month, and entitle the
holder to purchase the number of shares of our common stock calculated above at
$1.50 per share. The warrants expire September 30,
2011.
Subordination. The notes shall
rank pari passu with
respect to each other and shall be subordinated to all other indebtedness
reflected on our financial statements as of September 30,
2009.
Use of Proceeds. We
intend to use the proceeds of our sales of notes and exercise of warrants, if
any, to purchase equipment in connection with our planned expansion, for
research and development, working capital, and general corporate
purposes.
Funding
Commitment. As of September 30,
2009, we received $525,000 proceeds from the sale of our notes, of which
$250,000 was received from Mr. Alnamlah, the holder of our Series A Preferred
Stock. See “Recent Sales of Unregistered
Securities.” Mr. Alnamlah has committed to purchase up to an
additional $200,000 in principal amount of notes by matching amounts we receive
from the sale of notes to third parties. In consideration of his matching fund
commitment, upon such funding, we have agreed to provide Mr. Alnamlah with
warrants to purchase shares of our common stock calculated as if his
purchase of notes occurred on September 30, 2009; i.e. the number of shares
issuable upon exercise would equal 50% of the principal of the note purchased
divided by $1.50. We have made the same warrant terms available to Mr.
Alnamlah until November 15, 2009 with respect to additional purchases of up to
an additional $500,000 aggregate principal amount of
notes .
Listing
of Our Common Stock
We have
received information from several transfer agents and have already spoken with a
market maker who will file a Form 211 with the Financial Investment National
Regulations Authority (“FINRA”). A market maker that files a Form 211 with
respect to a company indicates that it desires to trade, quote, and “make a
market” in the company’s securities. The SEC must first declare the registration
statement of which this prospectus is a part effective before FINRA will approve
the quotation of our common stock on the OTC Bulletin Board.
Letter
Agreement with Holder of Series A Preferred Stock
As of
June 15, 2009, we entered into a letter agreement with Mr. Alnamlah, the holder
of our Series A Preferred Stock, pursuant to which Mr. Alnamlah agreed to
convert his shares of our Series A Preferred Stock earlier than otherwise
required upon the following terms and conditions:
|
•
|
In
the event that prior to August 31, 2009, the holder of our Series A
Preferred Stock converts all such shares into shares of our common stock,
we shall pay such holder an additional 125,000 shares of our common
Stock.
|
|
•
|
The
holder agreed to convert any unconverted shares of our Series A Preferred
Stock into shares of our common stock pro rata in proportion
to the portion of the $1,045,900 in unpaid compensation and unreimbursed
expenses payable collectively to Dr. Mohd Aslami, Mr. Steven Phillips and
Mr. Charles DeLuca actually converted by such individuals into shares of
common stock in accordance with their agreements with
us.
|
The
option to receive additional shares has expired since the holder of the Series A
Preferred Stock did not convert prior to August 31, 2009.
Agreement
Concerning Conversion of Existing Payable to Executive Officers
As of
September 30, 2008, we owed a total of $1,045,900 to Dr. Aslami, Mr. Phillips
and Mr. DeLuca in unpaid compensation and unreimbursed expenses. As of June 15,
2009, all three executive officers signed a letter agreement concerning the
conversion of such payable into shares of our common stock. Specifically, the
letter agreement provides that
|
•
|
In
the event we raise additional equity and pay each executive an amount
equal a pro rata portion of 10% of the proceeds of a closing(s) up to a
maximum of $200,000, we have the option to pay the remainder in shares of
our common stock at a conversion price of $1.50 per share. The $200,000 is
to be applied to the payment of
taxes.
|
|
•
|
and
to the extent amounts owed have not been converted by us, each executive
has the option to convert up to 100% of the amount owed to such executive
at anytime, at his sole discretion, subject to the Company’s automatic
right to convert if and when the weighted average price of the company’s
stock for 30 consecutive trading days is at least $2.00 per
share.
|
In
connection with each conversion by us, upon such conversion, we would also pay
each executive, or withhold from each executive as applicable law requires, an
amount which approximates the tax obligation incurred by the executive in
connection with receipt of such shares, against which the $200,000 would be
applied.
Aside
from a possible maximum payment of $200,000 as described, while we have the
right to pay each executive in cash, subject to notice, the executives have
agreed to defer the Company’s obligation to pay any outstanding amount of the
total payable of $1,045,900 until August 1, 2010, and later
extended the date until February 1, 2011 . The letter agreement with each
executive effectively amends each such executive’s employment
agreement.
Our
executives have executed non-competition and non-disclosure agreements, which
include among other provisions, the obligation to retain confidential
information in strict confidence and obligations not to disclose such
information to anyone except to other employees who have a need to know such
information or except as required in the performance of his or her duties in
connection with employment, subject to certain exceptions set forth therein. The
executive shall not use our confidential information other than for our
benefit.
Offer
to Exercise Warrants
We plan
on offering an incentive to holders of warrants to exercise such warrants by our
agreeing to provide them with new three year warrants on substantially the same
terms in the event they exercise their existing warrants. Exercise of all
outstanding warrants would result in proceeds of approximately an additional
$1,028,436, which we anticipate that we would use for additional working
capital. However, we can provide no assurance that holders of our warrants will
so exercise. Such proceeds would be in addition to amounts we would otherwise
raise.
Solar
Industry Background
The solar
power or photovoltaic (“PV”) market has grown significantly in the past decade.
According to SolarBuzz LLC, an independent solar energy research and consulting
company, the world PV market, as measured by annual solar PV installations,
increased from 1,086 MW in 2004 to 5,948 MW in 2008, representing a compounded
annual growth rate, or CAGR, of 53%. In 2008, the world PV industry growth
reached 110% compared to 62% growth from 2006 to 2007. However, growth was
slowed by limited silicon supply in 2007, which increased by only
30% — both for solar and semiconductor industries
combined.
Despite
its rapid growth, solar energy still constitutes only a small fraction of the
world’s energy output and we believe it has significant growth potential.
Moreover, the United States Department of Energy projected that by 2012, solar
electricity will reach parity with retail electricity in certain parts of the
United States. Between now and then, we anticipate that governments of most
developed countries, including the United States (federal and most state
governments), Japan, and all major countries in Europe will have adopted various
incentives to accelerate the growth and economic viability of renewable energy
including solar. Royal Dutch Shell, PLC, one of the world’s leading energy
companies, predicted that solar energy will be the largest source of power by
the middle of this century, exceeding oil and gas combined. We are therefore
optimistic about the prospects of growth of solar energy and the demand for
materials associated with it, in the 21st century.
Solar
power generation has emerged as one of the most rapidly growing renewable
sources of electricity. Solar power generation has several advantages over other
forms of electricity generation, including:
|
•
|
Reduced dependence on fossil
fuels. Solar power electricity generation does not
consume fossil fuels. Increases in solar power generation therefore reduce
dependence on fossil fuels.
|
|
•
|
Environmental
advantages. Solar power is pollution free during use and
therefore has less impact on the environment than other forms of
electricity generation. This makes solar power more appealing for locales
and industries seeking “greener”
energy.
|
|
•
|
Matching peak time output with
peak time demand. When connected to a grid, solar energy
can effectively supplement electricity supply from an electricity
transmission grid during times of peak
demand.
|
|
•
|
Modularity and
scalability. As the electricity generating capacity of a
solar energy system is a function of the number of solar modules
installed, solar technology is rapidly scalable and
versatile.
|
|
•
|
Flexible
locations. Solar power production facilities can be
installed where grid connection or fuel transport is difficult, costly, or
impossible, and the installation of power production facilities at the
customer site reduces investment in production and transportation
infrastructure.
|
|
•
|
Government
incentives. A growing number of countries and local
governments have established incentive programs for the development of
solar power, resulting in solar power being increasingly viable
economically.
|
Our
Competitive Strengths
While we
have not yet commenced commercial production and have no product sales to date,
we believe that we have numerous competitive strengths that will enable us to
compete effectively and to capitalize on growth opportunities in the solar PV
market. Those strengths include:
|
•
|
Low manufacturing
costs. Our patent pending technology for manufacturing
high purity silicon is unique, automated, and suitable for small and large
scale operations. Our technology is a “one step” process for the making of
silicon from STC, which also allows for the recycling of unused chemicals
until fully converted to silicon. We believe our manufacturing cost will
be highly competitive with existing
technologies.
|
|
•
|
Unique
System. Our manufacturing system is uniquely designed so
that with yield improvements, over time, one machine should manufacture
silicon to generate 1 to 1.3 MW of energy per year. This makes the system
uniquely suitable for licensing to meet customers rapidly growing demand.
In addition, we may develop manufacturing lines with substantially larger
capacity.
|
|
•
|
High quality
products. We believe we can produce optical grade
silicon that is purer than solar grade silicon manufactured by most other
suppliers at very competitive
prices.
|
|
•
|
Scalable manufacturing
capacity. Our patent pending process for manufacturing
silicon can easily be scaled up in small or large increments, which is a
unique advantage of its process.
|
|
•
|
Ability to quickly broaden and
diversify our customer base. We have identified several
potential domestic and international customers. In addition, we will be
using STC to convert into silicon in a one-step process, while the major
silicon producers use natural quartz as a starting material in addition to
many other processes to produce pure silicon. As the major silicon
producers require, among other things, significantly more set-up time, we
can provide greater flexibility in satisfying customer’s current silicon
needs. We are seeking to become a second source silicon supplier,
representing about 10% of a customer’s overall requirements. Our business
approach we believe will increase our potential of growing our customer
base, as customers usually need a second source. Moreover, given the
systems’ attractive set-cost and quick set-up time compared to other
silicon producers, we can license our technology to third party silicon
producers. However, we will need significantly more funding in order to
increase manufacturing capacity to satisfy the potential customer
requirements. See Risk
Factors.
|
|
•
|
Economies of
scale — available to
independents — licenses. Our patent pending
technology can be licensed to solar cell and semiconductor manufacturers
seeking a second source of silicon or to vertically integrate because of
the technology’s economic scalability. For example, Wacker-Chemie AG
(“Wacker”) recently announced plans to build a $1 billion polysilicon
plant in Tennessee, with an anticipated capacity of 10,000 tons per year
or 833 MW of energy, and which is expected to employ 550 people. Wacker’s
$1 billion investment translates to a cost of $1.2 million per MW which is
significantly (60%) higher than our estimated cost of $500,000 per MW. In
addition, our systems can be operational in less than 9 months compared to
the 2 to 3 years it will take Wacker. Such operational efficiency would be
more attractive to cell manufacturers looking to avoid having to access
the “spot market.”
|
|
•
|
Potential for expanding into
other markets — semiconductor. Our patent
pending technology can service the semiconductor market as well as the
solar market, because we anticipate that our process will enable us to
manufacture the higher level of purity required for semiconductor
applications.
|
Our
Strategies
Our
objective is to play a significant role in developing and manufacturing
low-cost, high-performance silicon and ingot products. We intend to achieve this
objective by pursuing the following strategies:
|
•
|
Execute long term agreements
with customers and suppliers. We intend to enter into
long-term supply agreements with multiple suppliers as we execute sales
contracts with solar cell and/or silicon wafer manufacturers and
distributors.
|
|
•
|
Expand manufacturing
capacity. We intend to expand capacity to match our
customers’ sales contracts. Our initial capacity planning includes a 10 MW
per year facility by the second half of 2010, increasing to a 50 MW per
year facility by the end of 2012, bringing our Southbridge facility to
full capacity, in each case, subject to financing on commercially
reasonable terms. Further expansion, based on customer requirements, will
require either expanding the present facility or adding another facility
either in the United States or overseas near our customers’ facilities. In
addition, to improve profitability, we plan to market value-added products
in the form of mono-crystalline and multi-crystalline silicon ingot
manufactured using commercially available known technologies, or using our
proprietary technology as soon as it is fully developed for adaptation to
such other products.
|
|
•
|
Further enhance our technology
through focused research and development efforts. We
intend to further enhance our technology to improve silicon efficiency and
lower manufacturing costs by increasing our investment in research and
development and through cooperation with our suppliers and customers.
While silicon is expected to remain the major product in the making of
solar cells, thin-film technology has been making inroads against
silicon/cell manufacturing. In order to hedge our technology position, we
have filed two thin-film patent applications and are exploring the
development of marketable thin-film products in the
future.
|
|
•
|
Build US SolarTech into a
leading brand. We intend to build US SolarTech into a
leading silicon ingot brand by emphasizing our product features that
include a combination of high performance stable supplies and competitive
prices.
|
|
•
|
Expand sales in new and
existing markets and diversify customer base. As we
increase capacity, we plan to expand our sales outside of the US into
China and other overseas markets, including Germany, Thailand, Malaysia,
India, and South Korea, and to diversify and grow our customer base to
include some of the largest established players in the global PV
industry.
|
|
•
|
Thin
film — We plan to diversify our products in the PV market
into thin-film integrated solar cells and modules, and possibly into
complete PV systems in the future. We have filed one patent application
related to the manufacture of amorphous silicon thin-film solar cells. We
also filed a second patent application regarding a thin-film process which
employs plasma inside vapor deposition for the making of multi-junction
silicon based (“MJ-Si”) thin-film integrated solar cells, modules and or
panels. While we have no current plans to engage in large scale thin-film
research and development or manufacturing, we anticipate that our further
research and development will explore opportunities related to
thin-film.
|
Our
manufacturing facility is located in a 36,000 sq. ft building located at 15
Sandersdale Road, Southbridge, Massachusetts, 01550. Currently, we lease
approximately 7,000 square feet of which we currently occupy approximately 4,000
sq. ft. pursuant to a month-to-month lease, dated February 2008. In addition, we
have a right of first refusal to lease or purchase the entire building. We plan
to purchase the building in order to expand our operations. We believe that the
facility should be able to accommodate about 40 systems, which over the next
several years should be able to generate about 600 tons of silicon or enough
silicon under current standards to yield about 50 MW annually.
We
maintain our corporate offices at 199 Main Street, Suite 706, White Plains, NY
10601. Currently, Mr. Phillips, our Chief Financial Officer, occupies this space
under a sub-lease which expires on October 31, 2009. Since inception, our usage
of this space has increased from about 50% to 95%. We reimburse Mr. Phillips for
our allocable share of lease costs, which is currently at $900 per
month.
We currently carry commercial general liability protection with a
reputable carrier against claims relating to personal injury, property or
environmental damage arising from accidents on our properties or relating to our
operations. The coverage limits follow: general total limit $2,000,000; products
and completed work limit $2,000,000, personal injury (each person) $1,000,000;
advertising injury (each person) $1,000,000, and each event: premises damage
$500,000 and medical expenses $10,000. To the extent we can do so on
commercially reasonable terms, we intend to increase coverage as
needed.
POVD
Patent Litigation
On
February 17, 2006, we filed a declaratory-judgment action against j-fiber GmbH (“J-Fiber”) in the United States District
Court for the District of Massachusetts. The action was captioned Silica Tech, L.L.C. v. J-Fiber,
GmbH, 06-CV-10293 (D. Mass.). The action was assigned to Judge Reginald
C. Lindsay.
The
action seeks to establish that we own free and clear of any claims of J-Fiber,
all right, title and interest in and to patents and patent applications
(together, the “Patent Assets”) of FiberCore,
Inc. (“FiberCore”). We acquired the Patent Assets in FiberCore’s bankruptcy
proceedings. J-Fiber is the successor-in-interest of FiberCore’s former
subsidiary, FiberCore Jena AG (“FC Jena”).
The
Patent Assets include those described and claimed in the following U.S. patents
and related patent applications filed by FiberCore — along with their
respective foreign counterpart patents and patent applications:
|
•
|
U.S.
Patent No. 6,253,580, issued July 3, 2001, entitled “Method of Making a
Tubular Member for the Optical Fiber Production Using Plasma Outside Vapor
Deposition.”
|
|
•
|
U.S.
Patent Application No. 09/058,207, filed April 10, 1998, entitled “Method
of Making an Optical Fiber Preform.” (This application relates to U.S.
Patent No. 6,536,240).
|
|
•
|
U.S.
Patent No. 6,536,240, issued March 25, 2003, entitled “Method of Making an
Optical Fiber Preform via Multiple Plasma Deposition and Sintering
Steps.”
|
|
•
|
U.S.
Patent No. 6,793,775, issued September 21, 2004, entitled “Multiple
Torch-Multiple Target Method and Apparatus for Plasma Outside Chemical
Vapor Deposition.”
|
|
•
|
U.S.
Patent No. 6,769,275, issued August 3, 2004, entitled “Method for Making
Optical Fiber Preform Using Simultaneous Inside and Outside
Deposition.”
|
See
“Background
and Intellectual property” for a more detailed description of our
intellectual property, including our filed patent applications.
Our
acquisition of the Patent Assets from FiberCore was approved by a February 3,
2006 order of the United States Bankruptcy Court for the District of
Massachusetts In re - FiberCore, Inc., No. 03-46551 (the
“Bankruptcy Court Order”). The Bankruptcy Court Order permitted the sale subject
to certain “Surviving Claims” retained by J-Fiber. According to the Bankruptcy
Court Order, the Surviving Claims were limited to in rem claims against the
Patent Assets and “shall not
in any manner constitute claims against US SolarTech” (emphasis
On August
28, 2006, J-Fiber filed an Amended Answer, Counterclaim, and Jury Demand
claiming that it is the rightful owner of the Patent Assets. J-Fiber asserted
four counterclaims: (I) a conversion claim alleging that the assignments of the
Patent Assets by their inventors to FiberCore (the “Assignments”) constituted
conversions of FC Jena’s property; (II) a fraudulent-conveyance claim alleging
that the Assignments constituted fraudulent conveyances of FC Jena property;
(III) a declaratory-judgment claim seeking a judgment that J-Fiber is the sole
and rightful owner of the Patent Assets; and (IV) an alternative
declaratory-judgment claim requesting that if the court determines that J-Fiber
does not have ownership rights to the Patent Assets, it rule that J-Fiber can
use the Patent Assets without being subject to claims of infringement. Included
in J-Fiber’s Prayers for Relief are requests for attorneys fees, costs,
expenses, and “such other equitable or monetary relief as may be just and
proper,” without specifying an amount of any alleged damages. On September 25,
2006, we filed our answer to J-Fiber’s Counterclaim.
Discovery
commenced in the summer of 2007. On July 2, 2007, the court ordered J-Fiber to
file a statement concerning its contention that German law applies to the case,
and gave us an opportunity to respond. J-Fiber filed its statement on July 25,
2007, largely relying on a Preliminary Statement Regarding Applicable Principles
of German and European Union Law, which it had filed on March 23, 2007. We filed
our response on September 17, 2007 (followed by a corrected copy on October 2,
2007), arguing that Massachusetts law should govern the case and that German law
is inapplicable. On November 9, 2007, the court referred the case to Magistrate
Judge Marianne B. Bowler for determination of the applicability of German
law.
On
December 31, 2007, we filed a motion for judgment on the pleadings seeking
dismissal of J-Fiber’s counterclaims pursuant to Federal Rule of Civil Procedure
12(c) (the “12(c) Motion”). We argued that none of the counterclaims qualifies
as a “Surviving Claim” permitted by the Bankruptcy Court Order and that each
counterclaim fails as a matter of law on independent grounds.
On
January 4, 2008, we filed a stay motion requesting, among other things, that the
court stay depositions, and its determination of the applicability of German
law, pending disposition of the 12(c) Motion. On January 8 and 9, 2008, the
court referred the stay motion and case management to Magistrate Judge Bowler.
On January 10, 2008, J-Fiber filed its opposition to our stay motion. At a
conference on January 15, 2008, Magistrate Judge Bowler granted our request to
stay depositions pending resolution of the 12(c) Motion, but denied our request
to stay the determination of the applicability of German law.
On
January 16, 2008, the court referred the 12(c) Motion to Magistrate Judge
Bowler. On February 16, 2008, J-Fiber filed its opposition to the 12(c) Motion.
On April 1, 2008, Magistrate Judge Bowler heard argument on the 12(c) Motion,
but not on the applicability of German law. During the hearing, J-Fiber’s
counsel clarified that J-Fiber’s counterclaims are in rem claims against the
Patent Assets and are not damages claims against us. The action was reassigned to Judge William G. Young after
Judge Lindsay unfortunately passed away.
On May
19, 2009, Magistrate Judge Bowler issued her Report and Recommendation regarding
the applicability of German law and the 12(c) Motion (the “Report”). The Report
found that Massachusetts law should govern the action, though it does not
foreclose the possibility of a later determination, based on a more developed
factual record, that German law applies, “particularly with respect to the
assignments of the ’775 and ’275 patents.”
On the
12(c) Motion, the Report found that, based on statements of prior counsel to the
Bankruptcy Court in connection with the Bankruptcy Court Order, we are
“judicially estopped” from arguing that J-Fiber’s claims are not Surviving
Claims permitted by the Order. However, the Report found that much of J-Fiber’s
Counterclaim should be dismissed on independent grounds. The Report found that
Count II of J-Fiber’s Counterclaim fails to state a valid fraudulent-conveyance
claim under the Massachusetts Uniform Fraudulent Transfer Act, though it does
state an equitable fraudulent-conveyance claim. Yet that equitable claim is
time-barred under the statute of limitations as to the ’580 Patent, the ’775
Patent, the ’275 Patent, and the ’207 Patent Application. The Report concludes
that Count II survives only as an equitable fraudulent-conveyance claim with
respect to the ’240 Patent.
Similarly,
the Report found that J-Fiber’s conversion claim, Count I, is time-barred as to
the ’580, ’775, and ’275 Patents, as well as the ’207 Patent Application. Count
I survives only as to the ’240 Patent. Furthermore, the Report concluded that
since portions of J-Fiber’s conversion and fraudulent-conveyance claims (Counts
I and II) survive dismissal — as to the ’240 Patent — Counts
III and IV, for declaratory judgment, also survive. Finally, as to the portions
of Counts I and II that are to be dismissed, the Report indicated that J-Fiber
may file a motion for leave to amend its Counterclaim to re-plead those
claims.
Magistrate
Judge Bowler’s Report was not a final, binding decision of the district court,
but rather a Report and Recommendation to be adopted, modified, or rejected by
the new district judge assigned to the case, Judge Young. The parties submitted
objections to the Report on August 3, 2009 and responses to each other’s
objections on August 17, 2009. On August 19, 2009, Judge Young adopted the
Report as an order of the court, granting in part and denying in part the 12(c)
Motion.
On July 22, 2009, we filed an unopposed motion to amend the
caption and pleadings in the action to reflect our corporate name change from
Solar Tech, L.L.C. to US SolarTech, Inc. The court granted that motion on
August 25, 2009. Thus, the action is now captioned US SolarTech,
Inc. v. J-Fiber, GmbH, 06-CV-10293 (D. Mass.).
On August 24, 2009,
J-Fiber filed the first in a series of procedural motions aimed at reviving a
related, dormant adversary proceeding in the In re FiberCore, Inc. bankruptcy
case – J-Fiber GmbH v. Steven Weiss, Trustee of FiberCore, Inc., Adv. Pro. No.
04-4531 (the “Adversary Proceeding”). J-Fiber filed the motions in the
United States District Court for the District of Massachusetts and the court
assigned Judge Richard G. Stearns, and case number 09-CV-40145 under the caption
In re FiberCore, Inc., to the new case.
J-Fiber originally
filed the Adversary Proceeding in the Bankruptcy Court in December 2004 to
assert rights in certain intellectual property of FiberCore, including the
Patent Assets, and to invalidate a Patent and Technology Information License
Agreement between FiberCore and FC Jena (see description of “Know-How
Litigation” below for further information concerning the license
agreement). The Adversary Proceeding had been dormant since December 2005
until J-Fiber filed its August 24, 2009 motion to “withdraw reference,” which
seeks to move the Adversary Proceeding from the Bankruptcy Court to the District
Court. Subsequently, on September 30, 2009, J-Fiber moved to substitute us
as the defendant in place of FiberCore’s trustee and to consolidate the
Adversary Proceeding with the main action, 06-CV-10293. One express
purpose of J-Fiber’s efforts to revive the Adversary Proceeding is to partially
avert the court’s ruling on our 12(c) Motion that the statute of limitations
bars certain of J-Fiber’s counterclaims, by taking advantage of the earlier
filing date of the Adversary Proceeding (December 2004).
On October 2, 2009,
before we had an opportunity to oppose J-Fiber’s motions, Judge Stearns granted
J-Fiber’s motions to substitute and consolidate. We opted not to oppose
the motion to withdraw reference. But on October 8, 2009, we moved the
court to reconsider its allowance of J-Fiber’s motions to substitute and
consolidate and to afford us an opportunity to brief the issues the motions
raise (the “Reconsideration Motion”). Our primary arguments in the
Reconsideration Motion include that the court should not permit J-Fiber to
circumvent its ruling on the 12(c) Motion and that the Adversary Proceeding
should be dismissed for J-Fiber’s failure to prosecute it. The
Reconsideration Motion currently is pending.
On October 7, 2009,
the court ordered that the main action (06-CV-10293) was no longer referred to
Magistrate Judge Bowler and was reassigned from Judge Young to Judge Rya W.
Zobel. Judge Zobel has scheduled a status hearing in the action for
November 5, 2009. On October 8, 2009, the court ordered that the Adversary
Proceeding action (09-CV-40145) was reassigned from Judge Stearns to Judge
Young.
These actions are at an early stage, as discovery has not
been completed and depositions have not been taken, we cannot predict its
outcome. We intend to vigorously prosecute our case against J-Fiber and defend
against J- Fiber’s counterclaims. In the event that we do not prevail, we
believe that pursuant to the Asset Purchase and Settlement Agreement between us
and FiberCore’s Trustee, we would retain a $7,500,000 claim against
J-Fiber. While that claim is unsecured against FiberCore, the claim is
secured with respect to its assertion against J-Fiber because the assets which
we purchased from Tyco and its affiliates included a collateral interest in
the Patent Assets . Accordingly, even if the
court declares that J-Fiber owns the Patent Assets ,
we could commence actions to foreclose on the Patent Assets to the extent they
are valued up to $7,500,000. Furthermore, the Patent Assets are related to
optical fiber and, accordingly, even if we are not declared the owner of the
Patent Assets , we will nonetheless be able to
continue pursuing our solar related business, the primary business contemplated
by our business plan, since none of our proprietary technology used in
manufacturing solar grade silicon relies on the Patent
Assets that are the subject of the litigation.
Know-How
Litigation
On
January 20, 2009, we filed a complaint against J-Fiber in the United States
District Court for the Southern District of New York. The action is captioned
US SolarTech, Inc. v. J-fiber,
GmbH, 09-CV-00527 (S.D.N.Y.). The action was assigned to Judge Cathy
Seibel and Magistrate Judge Paul Davison.
Our
complaint asserts claims of breach-of-contract, misappropriation of trade
secrets, and unjust enrichment against J-Fiber. We allege that FiberCore and FC
Jena entered into a Patent and Technology Information License Agreement, dated
May 22, 2003 (the “License Agreement”). In the License Agreement, FiberCore
agreed to license to FC Jena its patents, patent applications, and technical
information — including know-how and trade secrets relating to
fiber-optic preform manufacturing. The License Agreement provides for FC Jena to
pay certain research-and-development fees to FiberCore. It also contains a
change-in-control provision that provides that if certain conditions are met,
two million Euros would be due and payable to FiberCore.
Our
complaint alleges that we have succeeded to FiberCore’s interest in the License
Agreement pursuant to the Bankruptcy Court Order, and that J-Fiber has succeeded
to FC Jena’s interest. We allege that J-Fiber acquired FC Jena’s assets in
receivership proceedings in Germany and thereby triggered the change-in-control
provision in the License Agreement and a two million Euro obligation to us. We
allege that J-Fiber has continuously used, in its day-to-day operations, the
trade secrets and know-how that FiberCore disclosed to FC Jena and that are now
intellectual property belonging to us, but never paid any compensation to us for
that intellectual property under the License Agreement or
otherwise.
We allege
that J-Fiber’s use of our trade secrets constitutes a misappropriation of trade
secrets in violation of Massachusetts law (Mass. Gen. Laws ch. 93, § 42) and
that J-Fiber has been unjustly enriched by profiting from our trade secrets and
know-how. Among other relief, our complaint seeks damages for J-Fiber’s breaches
of the License Agreement — including the 2,000,000 Euros we claim are
due and owing; double damages for misappropriation of trade secrets under
Massachusetts law; and restitution of J-Fiber’s profits attributable to our
trade secrets and know-how.
On
January 28, 2009, we filed an amended complaint that added one paragraph to our
original complaint. On July 15, 2009, J-Fiber was served with the
amended complaint pursuant to the procedures of the Hague Convention. On September 18, 2009, J-Fiber moved
to dismiss the amended complaint. J-Fiber’s motion to dismiss argues that:
(i) the court lacks personal jurisdiction over J-Fiber; (ii) the court lacks
subject-matter jurisdiction over our tort claims of trade-secret
misappropriation and unjust enrichment because the conduct underlying those
claims occurred in Germany; and (iii) the case should be stayed or transferred
because the POVD Patent Litigation in the District of Massachusetts is allegedly
duplicative in that J-Fiber purportedly has asserted in that litigation claims
to the intellectual property we purchased from
FiberCore.
This
action is at an early stage and we cannot predict its outcome. We intend to
vigorously prosecute our case against J-Fiber.
Litigation
Against Our Executive Officers
In or
about March 2004, FC Jena filed for receivership in Germany. Approximately two
months later, J-Fiber, which is controlled and managed by parties who were
employed by and associated with FC Jena, GmbH (“J-Fiber”) acquired the assets of
FC Jena.
In
December 2005, J-Fiber filed an action in Gera, Germany, reference number 1HKO
296/05 against Mr. Aslami and Mr. DeLuca with respect to a multi-party
transaction among a subsidiary of Tyco International, Ltd, FiberCore, FC Jena,
and Xtal Fibras Opticas S.A. Brazil, a company 90% owned by FiberCore. As part
of the transaction, Tyco loaned $1,500,000 to a wholly-owned subsidiary of
FiberCore collateralized by a secured lien on $3,000,000 of newly purchased
specialized equipment used in the making of preforms, the raw material for
making optical fiber. Title to the equipment was transferred to the subsidiary
from Xtal in consideration of Xtal being discharged from certain obligations
both to FiberCore as well as to FC Jena. FC Jena received a 16% interest in the
subsidiary as well as other consideration.
J-Fiber
claims that defendants Aslami and DeLuca, who served as members of FCJ’s
supervisory and executive boards, respectively, breached their fiduciary duties
to FC Jena in the transaction in that the equipment had no value and,
accordingly, the 16% interest that FC Jena received did not have any value;
FiberCore held the remaining 84%.
Defendants
Aslami and DeLuca filed a brief challenging the claim and submitted supporting
documentation as to the then $3,000,000 valuation, a Bill of Sale, as well as FC
Jena’s valid approval for the transaction.
In
December 2006, J-Fiber filed a second suit in Gera, Germany, reference number
1HKO-242/06, claiming that in 2001, Messrs. Aslami, DeLuca and Phillips, through
the use of service, sales and other agreements, improperly transferred funds
from FCJ to FiberCore for services. J-Fiber claims that there were no services
rendered to FC Jena.
Defendants
Aslami, DeLuca, and Phillips filed several briefs challenging the claim and
submitted supporting documentation, including a Management Report from FC Jena’s
auditors Deloitte & Touche, confirming FiberCore’s rendering of the services
in question.
On
November 12, 2007, a court hearing was held in Gera, Germany for both cases. The
defendants, including Mr. Phillips, who was added as a defendant, presented
their supporting documentation and responded to numerous questions from the
judge. Mr. Phillips served as a director, Chief Financial Officer (July 2000 to
July 2001) and a consultant to FiberCore and as a member of FC Jena’s
supervisory board. The judge provided a summary of the proceedings and allowed
both parties to submit follow-up briefs. The judge also informed both parties
that a new judge would be assigned to both cases, as she would be taking a
personal leave.
At the
hearing, J-Fiber served upon Messrs. Aslami, DeLuca, and Phillips an amended
complaint in case 1HKO-250/06 that extended J-Fiber’s claims to cover the years
2002 and 2003, in addition to 2001.
In April
2007, a new judge was assigned and called for a second hearing for both cases to
be held in Germany on September 7, 2008.
At the
September 7 hearing, the judge stated for the 296/05 case that he was going to
solicit an independent equipment valuation in order to determine the value of
the specialized equipment at the time of the transaction. In the 295/06 case,
the court indicated its inclination to dismiss the case, but agreed to allow
J-Fiber to introduce an additional witness, the Deloitte & Touche audit
partner, at a future hearing. A new hearing date has not been set.
In late
August 2009, the defendants’ German counsel was advised that the Gera Court was
being restructured and that a new judge was recently assigned to the case. The
new judge apologized for the courts delays and expressed the court’s commitment
to review the cases as soon as possible.
To date,
the executives have only sought and received from us reimbursement for their
trips to Germany for the two hearings. The executives and their German law
counsel intend to vigorously defend against the claims against them and believe
that the claims are without merit.
We
believe that the lawsuits were brought against the executives on account of
their current executive positions with us and as leverage against us in our POVD
patent litigation and other pending actions against J-Fiber, as confirmed by the
testimony of J-Fiber’s own counsel during the first hearing. Accordingly, the
executives would be entitled to indemnification from us with respect to legal
fees and liability, if any, arising from the German lawsuits pursuant to the
provisions in our certificate of incorporation and bylaws governing
indemnification as the suit was specifically brought against our executive
officers “by reason of the fact” that they are the Company’s executive officers.
The Company’s by-laws provide in Article VIII that the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director or officer of the Company, or is or was a director or officer of
the Company serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding unless such liability.
Directors
and Executive Officers
The
following table sets forth our directors and executive officers, their ages as
of the date of this prospectus and the positions held by them. The corporate
address for each of our directors and executive officers is 199 Main Street,
White Plains, New York 10601.
|
Name
|
Age
|
Position
|
||||||
|
Mohd
Aslami
|
62
|
Director;
President, Chief Executive Officer and Chief Technology
Officer
|
||||||
|
Charles
DeLuca
|
73
|
Director;
Executive VP — Business Development; Secretary
|
||||||
|
Steven
Phillips
|
64
|
Director;
Executive VP; Chief Financial Officer and Treasurer
|
||||||
|
Vinod
K. Sareen
|
53
|
Director*
|
||||||
|
*
|
Mr.
Sareen serves as a board member representing Mr. Alnamlah. See the
description of the rights of holders of preferred stock under “Description
of Securities.”
|
Dr. Mohd
Aslami is our co-founder, President, and Chief Executive Officer/Chief
Technology Officer and is a member of our board of directors. He is also a
co-inventor of our intellectual property. Over the past 24 years, Dr. Aslami
co-founded several companies in the field of fiber optics. He served as Chairman
of the Board of Directors and Chief Executive Officer of FiberCore a
NASDAQ-listed company, as well as the Chairman of the Supervisory Board of
FiberCore’s subsidiary FC Jena. He was also a co-founder, director and executive
vice president of engineering and manufacturing with SpecTran Corp., a publicly
traded manufacturer of optical fiber in the U.S., which was later acquired by
Lucent. Prior experience includes technical management positions at Galileo
Electro Optics and Corning, Incorporated. Dr. Aslami began his career in
academics, teaching at Kabul University, University of Cincinnati, and the
University of Petroleum and Minerals in Dhahran, Saudi Arabia. He has published
several articles and has authored, and co-authored several patents relating to
fiber optic manufacturing and fiber optic related processes and products, as
well the Company’s primary plasma based patents for manufacturing pure silicon,
crystalline silicon ingot and thin film.
During
the past five years, in addition to co-founding and developing the company, and
managing his personal investments, Dr. Aslami also co-founded and served as
President and CEO of Solec International, Inc. (“Solec”). Solec, incorporated in
September 2005, which has since ceased operations, was actively involved in the
development of a copper indium gallium diselenide or CIGS (non-silicon-based)
thin-film, an integrated solar cell/module, based on the NREL (National
Renewable Energy Lab) process, as well as system design and integration based on
silicon based solar modules. Solec received a license from NREL. In June 2008,
Dr. Aslami personally filed a patent application for a thin-film process. See “Related
Party Transactions.”
Dr.
Aslami holds a B.S. degree in chemical engineering from Purdue University (1968)
and a Ph.D. in chemical engineering from the University of Cincinnati
(1974).
Mr. Charles
DeLuca is our co-founder and Executive Vice President for Business
Development and Secretary is a member of our board of directors. He brings over
25 years of expertise in the fields of management and business development to US
SolarTech. Since leaving FiberCore in June of 2003, he has focused on business
development in the Asian markets. In his last position at FiberCore, Mr. DeLuca
was secretary and the managing director of the three operations in Jena,
Germany: FC Jena a fiber operation, FiberCore Machinery GmbH, a machinery
building company, and FiberCore Glass GmbH, where the engineering and
pre-production work for our intellectual property was undertaken. The FiberCore
Glass GmbH operation produced saleable product for the medical market and part
of the operation also served as the research and development facility for
ongoing development of patent work related to our intellectual property. Mr.
DeLuca was also a co-founder of FiberCore’s ALT subsidiary that designed,
developed, and installed fiber optical network for the local area network
market. He also held the position of director and executive vice president of
sales and marketing for a FiberCore subsidiary.
Mr.
DeLuca was also a co-founder of SpecTran Corp. and served as the secretary of
SpecTran, a director and executive vice president of sales and marketing for
both SpecTran and SoneTran, a joint venture with Southern New England Telephone
producing single mode fiber for the telecommunications market. He
was
responsible
for the development of sales of optical fiber in the telecommunications and data
communications markets. Mr. DeLuca was employed at Exxon Optical Information
Systems and Galileo Electro Optics Corporation from 1980 to 1981 and from 1976
to 1980, respectively, in marketing management positions. Prior to his
employment at Galileo, he served as marketing manager for five operating high
tech product lines with Bendix International.
For the
past five years, Mr. DeLuca, aside from his activities for the company, has
invested in real estate and retail activities, including managing his
investments.
Mr.
DeLuca holds a B.S. in economics from Queens College, New York and an MBA in
management and marketing from St. John’s University, New York. He has
co-published several articles in the fiber optics field.
Mr. Steven
Phillips is our co-founder and Executive Vice President, Chief Financial
Officer and Treasurer, and is a member of our board of directors. Mr. Phillips
has over thirty years of experience as a CFO, director, and consultant in a
variety of high technology industries. He brings to us skills in the area of
corporate finance, start-up environments, turnarounds and corporate partnering.
In addition to participating in numerous private transactions, Mr. Phillips was
actively involved with FiberCore from 1995 to 2003, and served as interim chief
financial officer from August 2000 to July 2001. He became a director of
FiberCore in May 1995 and a Supervisory Board Member of FiberCore’s German
subsidiary in December 2001. He was primarily responsible for about $90 million
of FiberCore’s major fund raising and joint venture activities involving Tyco
International Ltd, banks, and other financial institutions. Mr. Phillips,
operating through One Financial Group Incorporated, a company he has controlled
for over twenty years, provides financial services to companies and
individuals.
From
November 2003 until mid-2005, Mr. Phillips worked with FiberCore’s bankruptcy
trustee and negotiated the Tyco Agreement between Tyco and the Company, dated
August 25, 2005. In addition to his private practice activities, he co-founded
the company in September 2004 and thereafter, worked on developing the
Company.
Mr.
Phillips also served as interim Chief Financial Officer for a start-up Internet
company and as chief financial officer of the Winstar Government Securities
Company L.P., a registered U.S. Government securities dealer, which he
co-founded in 1991 and sold in 1998. From August 1987 until about August 1998,
Mr. Phillips served as a director and secretary of James Money Management, Inc.,
a private investment company. Mr. Phillips holds a BBA in accounting from City
College of the City University of New York.
Mr. Vinod K.
Sareen is a Certified Public Accountant with over 25 years of experience
in finance and corporate management and who has worked in lead roles in the
United States, Europe, Middle East, Yemen and India. During the period from 1995
to 2001, he has worked in the startup, financing and operations of Middle East
Specialized Cables and Middle East Fiber Cable Manufacturing Company. He was
also involved in joint ventures, business evaluations, mergers, investments and
public issues of Middle East Specialized Cables. Since 2001 he has served
full-time as vice president of finance with Royle Systems Group, an equipment
manufacturing company, and has been involved in re-structuring and turnaround of
the business. He is also a business consultant to several other
companies.
Mr.
Sareen holds a B.Com. (Bachelor in Commerce) degree from Punjab University
Chandigarh and is a Chartered Accountant from the Indian Institute of Chartered
Accountants of India.
Board
of Directors
Our board
of directors currently consists of four directors. We are not currently required
to comply with the corporate governance rules of any stock exchange or quotation
system and, as a private company we are not currently subject to the
Sarbanes-Oxley Act of 2002 and related SEC rules. However, upon the
effectiveness of this registration statement, we will become subject to
Sarbanes-Oxley and, if our common stock becomes so listed, the rules of the
applicable stock exchange or quotation system.
Directors
owe a fiduciary duty to us to act in good faith for our best interests, to
exercise their powers and perform their duties honestly, to avoid conflicts of
interest, and not to personally profit from opportunities that arise from the
office of director.
There are
no family relationships among our directors and officers.
Standing
Committees of the Board
We have
not established any committees of our board of directors. Upon effectiveness of
the registration statement of which this prospectus is a part, we plan to secure
authorization for quotation of our common stock on the OTC Bulletin Board. As
such, we will not be subject to the requirements of a national securities
exchange or an inter-dealer quotation system with respect to the establishment
and maintenance of any standing committees. We nonetheless plan to establish a
separate standing audit committee and compensation committee.
The audit
committee will perform the following functions:
|
•
|
select
and oversee of our independent
accountant;
|
|
•
|
establish
procedures for the receipt, retention and treatment of complaints
regarding accounting, internal controls and auditing matters;
and
|
|
•
|
engage
the services of outside advisors. As we are not a “listed company” under
SEC rules, its audit committee is not required to be comprised of only
independent directors. The board has determined that all board members who
could serve on the audit committee are not independent directors (and the
audit committee does not include an independent director who is an “audit
committee financial expert” within the meaning of the rules and
regulations of the SEC.) The board has determined, however, that each of
the members of the audit committee is able to read and understand
fundamental financial statements and has substantial business experience
that results in that member's financial sophistication. Accordingly, the
board believes that each of the members of the audit committee have the
sufficient knowledge and experience necessary to fulfill the duties and
obligations required to serve on the audit
committee.
|
The
compensation committee will have two primary responsibilities:
|
•
|
establish,
review and approve executive management compensation;
and
|
|
•
|
monitor
our management resources, structure, succession planning, development and
selection process as well as the performance of key executives. It also
oversees any other compensation and equity-based
plans.
|
All of
our directors serve on our nominating committee.
Compensation
of Directors
Our board
of directors is newly created. We intend that any members of the board of
directors who are our employees, including subsidiaries, if any, will not be
compensated by us for service on the board of directors or on any of its
committees. Other members of the board of directors will receive an annual board
membership fee of $10,000 and committee chairmen (other than chairman who are
our employees) will receive $2,500. The non-employee members of the board of
directors will also receive an attendance fee of $500 for each in-person meeting
of the board of directors and $250 for each telephonic meeting of the board of
directors. Non-employee directors will receive 10,000 shares of our common
stock, annually, with the first issuance after the first six months of service.
Directors will also receive stock options in the amount of 10,000 options of our
common stock after the first six months of service upon election to the board
and 10,000 options of our common stock, annually thereafter. The initial options
fully vest upon issuance and subsequent stock options fully vest six months from
issuance. All of the options expire three years from the vesting date. The
exercise price will be based on the fair market value of our common stock on the
date of grant. Directors will be reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance at committee or board of
directors meetings. As our revenue increases and we expand, we may increase
director compensation from time to time.
Code
of Ethics
The board
of directors plans to adopt a Code of Ethics that applies to all of our
directors, officers, and employees, including our executive officers. The code
will address, among other things, honesty and ethical
conduct,
conflicts of interest, compliance with laws, regulations and policies, including
disclosure requirements under the federal securities laws, confidentiality,
trading on inside information, and reporting of violations of the
code.
Executive
Compensation
We have
entered into employment agreements with Dr. Mohd Aslami, Mr. Charles DeLuca and
Mr. Steven Phillips, our executive officers. The terms of the employment
agreements were reviewed and approved by our non-employee director who was
appointed by Mr. Alnamlah. The employment agreements provide that compensation
will include for each executive officer a base salary, a cash incentive bonus
based on the meeting of certain targets, and share appreciation rights. The
employment agreements contain other customary provisions, including termination
provisions for cause, death and disability, as well as termination by the
employee for cause and change of control.
Under the
employment agreements, from March 1, 2009 and thereafter, Dr. Aslami is entitled
to an annual base compensation of $232,500, Mr. DeLuca to $104,500 and Mr.
Phillips to $163,000 totaling $500,000 for all executive officers. Prior to
March 1, 2009, Dr. Aslami’s base salary was $139,500, Mr. Phillips was $97,800
and Mr. DeLuca’s was $62,700, totaling $300,000 for all executive officers,
which compensation is consistent with the amount payable by Silica Tech, LLC,
our entity as it existed prior to conversion to a Delaware corporation, to
Silica Tech Holdings, LLC, for managing Silica Tech, LLC. Silica Tech Holdings,
LLC would have forwarded such amount to its own managers, the same three
individuals.
The cash
incentive bonus available to the executive officers pursuant to the employment
agreements is an amount equal to 4.75% of pre-incentive operating income. For
purposes of calculating incentive bonus, “pre-incentive operating income” is
determined by first calculating operating income according to generally accepted
accounting principles exclusive of the incentive bonus amount. The bonus is then
determined by dividing such operating income by 95.25% (100% minus 4.75%, the
incentive bonus percentage) and then subtracting operating income from the
resulting quotient. Such bonus shall be allocated 2.21% to Dr. Aslami, .99% to
Mr. DeLuca and 1.55% to Mr. Phillips.
The
employment agreements entitle our executive officers to receive 2,000,000 stock
appreciation rights (“SAR”) allocated 46.5% to Dr. Aslami, 20.9% to Mr. DeLuca,
and 32.6% to Mr. Phillips. A total of 20% of the share appreciation rights vest
in the first year, 40% in the second, and 40% in the third year with threshold
price of $1.50 per share and share appreciation targets of $3.00, $4.50, and
$6.00 for years one, two and three, respectively, subject to the terms and
conditions set forth in the employment agreements and the exhibits thereto.
Rights may be exercised quarterly. The Company has the option to pay the awards
in cash, common stock, or both. Awards shall equal difference between the
aggregate fair market value of our common stock (based upon the share price as
of the close of market on the exercise date with respect to which such SAR is
exercised, but in no event in excess of the applicable share price performance
target and the threshold price.) Under this arrangement, if the appreciation
targets are satisfied and 100% of the award is paid in shares of our common
stock, a total of 1,333,333 shares would be issued the executives, as allocated
above. Sales of the shares of common stock issued under the SAR agreements are
not being registered in the registration statement of which this prospectus is a
part.
Further,
the employment agreements with our executive officers provide, in pertinent
part, that in connection with the termination of employment by us without cause
or by the executive officer for good reason and not during a change of control
period (as defined in the employment agreements), the executive officer shall be
entitled to receive a severance payment equal to his base compensation for a
period of eighteen months in equal consecutive monthly installments payable over
an eighteen month period (the “Severance Payment”). In the event the termination
of employment by us is without cause or by the executive officer for good reason
during a change of control period, the executive officer shall be entitled to
receive a Severance Payment equal to: (i) 200% of the executive officer’s base
compensation, if the termination occurs prior to December 31, 2009, (ii) 250% of
the executive’s base compensation, if the termination occurs between January 1,
2010 and December 31, 2010, or (iii) 300% of the executive officer’s base
compensation, if the termination occurs on any date after January 1, 2011. We
would be required to pay the Severance Payment in equal consecutive monthly
installments payable over an eighteen (18) month period commencing within the
month immediately following the month in which the Date of Termination occurs.
In addition, any SARS held by the executive
would be
deemed fully vested, any stock or incentive awards would become fully vested and
we would have to continue to provide health and welfare benefits during the
severance period or equivalent value.
Under the
employment agreements, change of control includes certain events in which a
third party becomes the beneficial owner of more than 40% of our equity, certain
material changes in the constitution of our board of directors, and stockholder
approval of certain merger and consolidation transactions or a sale of
substantially all of our assets, in each case subject to the terms and
conditions set forth in the employment agreements.
The
employment agreements expire on January 1, 2012. Following December 31, 2011,
the employment agreement may be extended for an additional year at the sole
discretion of the executive officer. Thereafter, the employment agreement may be
extended for additional one year periods, subject to our approval.
Letter
Agreement Concerning Conversion of Existing Payable to Executive
Officers
As of
September 30, 2008, we owed a total of $1,045,900 to Dr. Aslami, Mr. Phillips
and Mr. DeLuca in unpaid compensation and unreimbursed expenses. As of June 15,
2009, all three executive officers signed a letter agreement concerning the
conversion of such payable into shares of our common stock. Specifically, the
letter agreement provides that
|
•
|
In
the event we raise additional equity and pay each executive an amount
equal a pro rata portion of 10% of the proceeds of a closing(s) up to a
maximum of $200,000, we have the option to pay the remainder in shares of
our common stock at a conversion price of $1.50 per share. The $200,000 is
to be applied to the payment of
taxes.
|
|
•
|
and
to the extent amounts owed have not been converted by us, each executive
has the option to convert up to 100% of the amount owed to such executive
at anytime, at his sole discretion, subject to the Company’s automatic
right to convert if and when the weighted average price of the company’s
stock for 30 consecutive trading days is at least $2.00 per
share.
|
In
connection with each conversion by us, upon such conversion, we would also pay
each executive, or withhold from each executive as applicable law requires, an
amount which approximates the tax obligation incurred by the executive in
connection with receipt of such shares, against which the $200,000 would be
applied.
Aside
from a possible maximum payment of $200,000 as described, while we have the
right to pay each executive in cash, subject to notice, the executives have
agreed to defer the Company’s obligation to pay any outstanding amount of the
total payable of $1,045,900 until August 1, 2010, and later
extended the date until February 1, 2011 . The letter agreement with each
executive effectively amends each such executive’s employment
agreement.
Our
executives have executed non-competition and non-disclosure agreements, which
include among other provisions, the obligation to retain confidential
information in strict confidence and obligations not to disclose such
information to anyone except to other employees who have a need to know such
information or except as required in the performance of his or her duties in
connection with employment, subject to certain exceptions set forth therein. The
executive shall not use our confidential information other than for our
benefit.
For the
period, August 25, 2005 through September 31, 2008, the executive officers are
collectively owed, net of a $20,000 offset, $931,000 in base compensation,
$115,000 in expense reimbursements, which are the subject the letter agreement,
dated June, 2009, which is described above and $60,000 in insurance premium
reimbursements, allocated as follows:
|
Base
Compensation
|
Expenses
|
Consent
Letter Total
|
Insurance
Premiums
|
Total
|
||||||||||||||||
|
Dr.
Aslami
|
$
|
433,000
|
30,000
|
$
|
463,000
|
$
|
22,000
|
$
|
485,000
|
|||||||||||
|
Mr.
DeLuca
|
$
|
195,000
|
46,000
|
$
|
241,000
|
$
|
18,000
|
$
|
259,000
|
|||||||||||
|
Mr.
Phillips
|
$
|
303,000
|
39,000
|
$
|
342,000
|
$
|
20,000
|
$
|
362,000
|
|||||||||||
|
Total
|
$
|
931,000
|
115,000
|
$
|
1,046,000
|
$
|
60,000
|
$
|
1,106,000
|
|||||||||||
For the
period September 9, 2004, the inception date, until August 25, 2005, the
executives waived any claims for compensation. The $20,000 offset relates to the
amount owed by Mr. Aslami with respect to costs inadvertently incurred by us in
connection with his personal filing of a thin-film patent application in June
2008. See
“Related Party Transactions.”
As of
June 30, 2009, we owe the executive officers, $931,000 in base compensation,
$115,000 in non-reimbursed expenses, and $28,000 in reimbursable insurance
premiums. Payment of base compensation and expense reimbursements, totaling
$1,046,000, is subject to the terms of letter agreement, dated June 15, 2009,
described above. The insurance reimbursements are paid in monthly installments
of approximately $7,000 and will be fully paid by October 31, 2009. Effective
February 1, 2009, we established a health insurance plan to cover all
employees.
Terms
of Directors
Our
bylaws provide for our having a staggered board of board of directors. Our board
members are therefore grouped into classes. Each class represents a third of the
total number of directors, and only one class is elected in a given year.
Directors may be removed from office by resolutions of the
stockholders.
Stock
Options/Restricted Stock Plans
By the
date on which the registration statement of which this prospectus is a part
becomes effective, we plan to establish a 2009 stock incentive plan which will
provide for the grants of incentive stock options, non-qualified stock options,
restricted stock and other related forms of award. The purpose of the plan is to
provide additional incentive and motivation to those officers, employees,
directors and consultants and other service providers whose contributions are
essential to the growth and success of the business and to retain competent and
dedicated persons.
Summary
Compensation Table
The table
below summarizes the total compensation accrued or awarded to each of the Named
Executive Officers for each of the previous three calendar years. For a more
thorough discussion of the executive compensation program, see the compensation
discussion above.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All
Other
Compensation
($)
|
Total
|
|||||||||||||||||||||
|
Mohd
Aslami
Chief
Executive Officer,
President
and Chief Technology Officer
|
2008
|
$
|
139,500
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
139,500
|
|||||||||||||||
|
2007
|
$
|
139,500
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
139,500
|
||||||||||||||||
|
|
2006
|
$
|
139,500
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
139,500
|
|||||||||||||||
|
Charles
DeLuca
Executive
Vice President – Business
Development
and Secretary
|
2008
|
$
|
62,700
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
62,700
|
|||||||||||||||
|
2007
|
$
|
62,700
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
62,700
|
||||||||||||||||
|
|
2006
|
$
|
62,700
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
62,700
|
|||||||||||||||
|
Steven
Phillips
Executive
Vice President,
Chief
Financial Officer and Treasurer
|
2008
|
$
|
97,800
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
97,800
|
|||||||||||||||
|
2007
|
$
|
97,800
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
97,800
|
||||||||||||||||
|
|
2006
|
$
|
97,800
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
97,800
|
|||||||||||||||
Directors
and Officers Insurance
We are
presently in the process of obtaining directors’ and officers’ liability
insurance as well as errors and omissions coverage. We expect to have this
coverage within the next 30 days.
The
following table sets for certain information regarding the beneficial ownership
of our common stock as of August 31, 2009 to reflect the sale of outstanding
shares of common stock offered hereby, with respect to (i) each person known by
us to own beneficially more than 5% of our outstanding common stock, (ii) each
executive officer named in the Summary Compensation Table, (iii) each of our
directors and (iv) all our directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned. Beneficial ownership is
determined in accordance with Rule 13d-3(d)(1) and therefore includes securities
issuable within 60 days.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership of Common Stock
|
Percentage
of Common Stock
Beneficially
Owned
|
Amount
and Nature of Beneficial Ownership of Series A Preferred
Stock
|
Percentage
of Series A
Preferred
Stock
Beneficially
Owned(1)
|
||||||||||||
|
Mohd
Aslami(1)(2)
680
N. Main Street, C-2
Wolfeboro,
NH 03894
|
308,677
|
2.14
|
%
|
0
|
0
|
%
|
||||||||||
|
Charles
DeLuca(3)
261
Foster Street
South
Windsor, CT 06074
|
2,206,585
|
15.31
|
%
|
0
|
0
|
%
|
||||||||||
|
Steven
Phillips(4)
25
Forest Street 14A
Stamford,
CT 06901
|
2,655,657
|
18.43
|
%
|
0
|
0
|
%
|
||||||||||
|
Vinod
K. Sareen(1)
54
Kingsland Court,
Fairlawn,
NJ 07410
|
20,000
|
.14
|
%
|
0
|
0
|
%
|
||||||||||
|
John
Ronnquist(1)
P.O.B.
356
Chartlon,
Mass 01507
|
6,500
|
.05
|
%
|
0
|
0
|
%
|
||||||||||
|
Total
Beneficial Ownership of Officers and Directors as a Group
|
5,197,419
|
36.07
|
%
|
|
|
|||||||||||
|
Abdulaziz
M. Alnamlah
PO
Box 29880 Riyadh,
Kingdom
of Saudi Arabia
|
966,666
|
6.71
|
%
|
666,666
|
100
|
%
|
||||||||||
|
Kabul
Foundation Trust(5)
c/o
Sheila Newth
16
Rowena Rd.
Newton,
MA 02459
|
1,517,047
|
10.53
|
%
|
0
|
0
|
%
|
||||||||||
|
Aslami
Children Trust(6)
c/o
Homa Rastgooy
24921
Muirlands Blvd, spc#46
Lake
Forest, CA 92630
|
1,378,605
|
9.57
|
%
|
0
|
0
|
%
|
||||||||||
|
Ariana
Inc.(7)
c/o
Sheila Newth
16
Rowena Rd.
Newton,
MA 02459
|
1,405,652
|
9.76
|
%
|
0
|
0
|
%
|
||||||||||
|
Total
Beneficial Ownership of Officers,
Directors,
and Principal Stockholders
|
10,165,390
|
72.64
|
%
|
666,666
|
100
|
%
|
||||||||||
|
(1)
|
The
common stock of the indicated beneficial owner is not being registered
hereunder.
|
|
(2)
|
Excludes
a total of 4,301,304 shares before the offering issued in the aggregate to
Kabul Foundation Trust, the Aslami Childrens’ Trust, and Ariana Inc. with
respect to which Mr. Aslami disclaims beneficial
interest.
|
|
(3)
|
Excludes
a total of 1,161,050 shares issued to in the aggregate to Michael DeLuca,
and Dawn Safton, Mr. DeLuca’s children, and the Dawn foundation with
respect to which Mr. DeLuca disclaims beneficial interest, but includes
the 1,000,000 shares owned by his spouse, Betty DeLuca with respect to
which Mr. DeLuca claims beneficial
interest.
|
|
(4)
|
Includes
a total of 2,403,374 shares issued to CSP Associates LLC with respect to
which Mr. Phillips claims beneficial ownership. The Company has been
informed that Mr. Phillips and his wife Ingrid hold voting and investment
power over our shares owned by CSP Associates
LLC.
|
|
(5)
|
The
Company has been informed that the beneficial owners of the Kabul
Foundation Trust are Sheila Newth, the trustee and a beneficiary who holds
sole voting and dispositive power over the shares of our common stock held
by the Kabul Foundation Trust, Angela Aslami, and Nadia Aslami. The named beneficiaries
are daughters of Dr. A s lami. Sheila
Newth holds voting and investment power over shares of our common stock
held by Kabul Foundation Trust. Dr. Aslami has informed the
Company that he exercises no direct or indirect voting or investment power
with respect to Kabul Foundation
Trust.
|
|
(6)
|
The
Company has been informed that the beneficial owners of the Aslami
Children Trust are Sheila Newth, Angela Aslami, and Nadia Aslami, each a
daughter of Dr. Aslami. Each of the foregoing individuals is a daughter of
Dr. Aslami. The trustee who holds sole voting and dispositive power over
the shares of our common stock held by Aslami Children Trust is Homa
Rastgooy who is Dr. Aslami’s sister in law. Dr. Aslami has informed the
Company that he exercises no direct or indirect voting or investment power
with respect to the Aslami Children’s
Trust.
|
|
(7)
|
The
Company has been informed that Ariana Inc. is beneficially owned by 50% by
the Aslami Children Trust and 50% by the Kabul Foundation
Trust. Voting and dispositive power over the shares of
our common stock held by Ariana, Inc . are held
by a board of directors comprised of Angela Aslami, Nadia Aslami, and
Sheila Newth. Dr. Aslami has informed the Company that he exercises no
direct or indirect voting or investment power with respect to the Ariana
Inc.
|
RELATED
PARTY TRANSACTIONS
Outstanding
Payables to Officers
Under the
terms of Silica Tech, LLC’S Operating Agreement, Silica Tech, which was the sole
manager and majority owner of Silica Tech, LLC is entitled to $300,000 in annual
fees, and 10% of operating income. Silica Tech Holdings, had also been entitled
to receive a fee equal to 10% of the financing raised by Silica Tech. Prior to
our conversion to a corporation, Silica Tech Holdings waived past fees otherwise
payable and the right to receive that fee in the future. Accordingly, the
$413,750 fee otherwise payable in connection with raising $4,137,500 is not
included on our financials. In addition, the managing directors of Silica Tech
Holdings, LLC, Messrs. Aslami, DeLuca and Phillips, were entitled to expense
reimbursement, including reimbursement for personal health insurance premiums.
As of December 31, 2008 and December 31, 2007, Silica Tech, LLC owed Silica Tech
Holdings, LLC Holdings, $1,006,000 and $686,000, respectively, in fees and the
managing directors were owed approximately $56,000 and $57,000, respectively, in
insurance premiums and $130,000 and $90,000, respectively, in expenses, net of a
$20,000 offset in expenses, and $0 and $25,000 respectively in expenses related
to the Tyco transaction.
Satisfied
Obligations Pursuant to Related Party Transactions
In
connection with the Tyco transaction, we assumed $95,000 in obligations Tyco
owed Messrs. Aslami, DeLuca and Phillips with respect to out-of pocket expenses
paid by Messrs. Aslami, DeLuca and Phillips for legal fees and annual annuity
payments in connection with the intellectual property we later acquired from
FiberCore under the Asset Purchase and Settlement Agreement. As of December 31,
2008, the $95,000 was paid and Messrs. Aslami, DeLuca and Phillips received
$44,000, $29,000 and $22,000, respectively. Of the $95,000, approximately,
$55,400 was related to international filings for the optical fiber patent
related to optical fiber preform using inside and outside deposition, Patent No.
6769/275; $12,000 was to the preparation and filing of patent application for
the improved plasma torch, Patent No. 6793/775; $4,250 was related to
international patent filings for making tubular member using plasma outside
vapor deposition, Patent No. 6253/580; $2,870 was related to international
filing fees for optical fiber patent for the method of making optical fiber
preforms, Patent No.6536/240; $14,600 was related to annuity payments and $5,300
was for other costs. These costs were incurred during the twelve (12) months
ended August 2005.
Silica
Tech Holdings assigned its rights to fees to our executive officers, then
officers of Silica Tech Holdings, and was dissolved as of December 31, 2008. Our
conversion into a Delaware corporation as of January 1, 2009 replaces our prior
operating agreements. Obligations which had been payable to Silica Tech
Holdings, LLC, have been signed to the executive officers and, accordingly, they
are now payable to our executive officers.
Upon the
conversion of Silica Tech, LLC into US SolarTech, Inc, on January 1, 2009,
Messrs. DeLuca and Phillips received 1,079,335 shares and 24,276 shares,
respectively. Dr. Aslami did not receive any shares. Messrs. Aslami, DeLuca and
Phillips did not receive any warrants. See “Principal
Stockholders.”
In
December 2006, two of our three then managing directors, Messrs. DeLuca and
Phillips agreed to lend the Company $23,000 and $17,000 respectively, a total of
$50,000 in exchange for a 10% secured promissory note, payable on demand;
however, only $40,000 was advanced. Of the $40,000, $25,000 was advanced in
December 2006 and $15,000 in January 2007. These loans and $4,000 of accrued
interest are included in notes payable to managing directors on the Company’s
balance sheets at December 31, 2007 and were repaid together with additional
accrued interest in December 2008.
In June
2008, while engaged by us and by Solec, Dr. Aslami personally filed, at his own
cost, a patent application for a thin-film MJ-Si based integrated solar cell and
module using plasma. Although currently held in Dr. Aslami’s name, the patent is
beneficially owned by us and Solec equally and Dr. Aslami, pursuant to an oral
agreement with the Company, disclaims any beneficial ownership in the patent.
Solec has since ceased operations and we are considering purchasing Solec’s
interest in the patent. Patent counsel is presently amending previous patent
filings in order to reflect Solec’s joint ownership with us. As part of these
amendments, Dr. Aslami will assign his ownership interest to Solec and
us.
We maintain our corporate offices at 199 Main Street,
Suite 706, White Plains, NY 10601. Currently, Mr. Phillips, our Chief Financial
Officer, occupies this space under a sub-lease which expires on October 31,
2009. Since inception, our usage of this space has increased from about 50% to
95%. We reimburse Mr. Phillips for our allocable share of lease costs. For the
period, August 2005 until September 2008, the monthly sub-lease rental was $900.
The monthly sublease rental increased to $950 for the one year period ending
September 30, 2009. For 2005, 2006, 2007 and 2008, the amount of rental expense
subject to reimbursement is approximately $2,000, $6,500, 9,000, and $10,000,
respectively.
Sale of
our 7.5% Convertible Subordinated Notes
On September 30, 2009 we sold $250,000 in aggregate principal amount of our
convertible subordinated notes to Mr. Abdulaziz Alnamlah. See “Recent
Developments.” Mr. Alnamlah is the holder of our Series A Preferred Stock
and beneficially owns over 5% of our equity. See “Principal
Stockholders.”
The
following table sets forth certain information regarding beneficial ownership of
13,940,115 shares of the common stock as of August 31, 2009 by the Selling
Stockholders, as adjusted to reflect the sale by each Selling Stockholder of the
common stock offered hereby. Ownership percentages of less than 1% percent are
depicted by an asterisk.
Of the
13,940,115 shares of common stock, 6,932,122 shares of beneficially owned common
stock are included in this offering and are comprised of the shares below, as
more fully described in the table that follows.
Except as
set forth in the footnotes to the table, we believe that each selling
stockholder has sole voting power and investment power with respect to the
shares of common stock indicated.
|
Number
of
Shares
Offered
|
Shares
Held Before Offering
|
Shares
Held After Offering
|
||||||||||||||||||
|
Name
of Selling Stockholder
|
Amount
|
Percent
|
Amount
|
Percent***
|
||||||||||||||||
|
Mohd
Aref Aslami(1)(a)
|
16,700
|
16,700
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Ariana,
Inc.(2)
|
1,405,652
|
1,405,652
|
9.76
|
0
|
0
|
%
|
||||||||||||||
|
Aslami
Children Trust(3)
|
1,378,605
|
1,378,605
|
9.57
|
%
|
0
|
0
|
%
|
|||||||||||||
|
Kabul
Foundation(4)
|
205,867
|
1,517,047
|
10.53
|
%
|
1,311,180
|
9.10
|
%
|
|||||||||||||
|
Josef
Quaderer(5)(c)
|
66,700
|
66,700
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Hafiza
Aslami(6)(c)
|
200
|
200
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Mazar
IRRV TR(7)(c)
|
200
|
200
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Balkh
IRRV TR(8)(c)
|
13,333
|
13,333
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Herwig
Huyck(9)(c)
|
50,050
|
50,050
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Mohammad
Yassin Musleh(10)(c)
|
12,500
|
12,500
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Mohammad
Nassim Musleh(11)(c)
|
12,500
|
12,500
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Lorenze
Hart(12)(a)
|
69,167
|
69,167
|
*
|
0
|
0
|
%
|
||||||||||||||
|
The
Rashidi Family Trust(13)(a)
|
200,000
|
200,000
|
1.39
|
%
|
0
|
0
|
%
|
|||||||||||||
|
Abdul
Saboor Rashidi(14)(a)
|
1,450
|
1,450
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Shafiqa
Rashidi(15)(a)
|
2,870
|
2,870
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Ali
Rashidi(16)(a)
|
1,450
|
1,450
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Waleed
Rashidi(17)(a)
|
1,450
|
1,450
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Qassem
Aslami(18)(c)
|
16,740
|
16,740
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Shaima
Aslami(19)(c)
|
16,200
|
16,200
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Benazir
Aslami(20)(a)
|
620
|
620
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Angela
Aslami(21)(b)
|
13,366
|
13,366
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Landon
Pinnix(22)(b)
|
13,366
|
13,366
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Sheila
Newth(23)(b)
|
13,366
|
13,366
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Terrence
Newth(24)c(b)
|
13,366
|
13,366
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Nadia
Aslami(25)(b)
|
13,366
|
13,366
|
*
|
0
|
0
|
%
|
||||||||||||||
|
Charles
DeLuca(26)
|
163,737
|
1,206,585
|
8.37
|
%
|
1,042,848
|
7.24
|
%
|
|||||||||||||
|
Michael
DeLuca(27)
|
422,200
|
422,200
|
2.93
|
%
|
0
|
0
|
%
|
|||||||||||||
|
Dawn
Safton(28)
|
422,200
|
422,200
|
2.93
|
%
|
0
|
0
|
%
|
|||||||||||||
|
Dawn
Foundation(29)
|
316,650
|
316,650
|
2.20
|
%
|
0
|
0
|
%
|
|||||||||||||
|
Betty
DeLuca(30)
|
135,703
|
1,000,000
|
6.94
|
%
|
864,297
|
6.00
|
%
|
|||||||||||||
|
Steven
Phillips(31)
|
34,235
|
252,283
|
1.75
|
218,048
|
1.51
|
%
|
||||||||||||||
|
CSP
Associates LLC(32)
|
326,144
|
2,403,374
|
16.68
|
%
|
2,077,230
|
14.42
|
%
|
|||||||||||||
|
Jacob
and Susan Alpert(33)
|
83,333
|
117,187
|
*
|
33,854
|
0
|
%
|
||||||||||||||
|
Hedayat
Amin-Arsala(34)
|
66,667
|
99,438
|
*
|
32,771
|
0
|
%
|
||||||||||||||
|
Gene
Langan(35)
|
50,000
|
74,578
|
*
|
24,578
|
*%
|
|||||||||||||||
|
Glenn
Langan(36)
|
50,000
|
74,578
|
*
|
24,578
|
*%
|
|||||||||||||||
|
Daniel
Phillips Legacy Trust 1, dated March 1, 1991(37)
|
505,000
|
717,164
|
4.98
|
%
|
212,164
|
1.47
|
%
|
|||||||||||||
|
Rita
Quaderer(38)
|
66,667
|
99,438
|
*
|
32,771
|
%
|
|||||||||||||||
|
Number
of
Shares
Offered
|
Shares
Held Before Offering
|
Shares
Held After Offering
|
||||||||||||||||||
|
Name
of Selling Stockholder
|
Amount
|
Percent
|
Amount
|
Percent***
|
||||||||||||||||
|
Abdul
Rahim Wardak(39)
|
33,333
|
49,718
|
*
|
16,385
|
*%
|
|||||||||||||||
|
Homa
Rastgooy(40)
|
16,667
|
24,859
|
*
|
8,192
|
*%
|
|||||||||||||||
|
Donald
Ritter(41)
|
33,333
|
49,718
|
*
|
16,385
|
*%
|
|||||||||||||||
|
Farid
Siddig(42)
|
16,667
|
24,859
|
*
|
8,192
|
*%
|
|||||||||||||||
|
Mohammad
Siddig Siddig**(43)(b)/(c)
|
33,366
|
41,558
|
*
|
8,192
|
*%
|
|||||||||||||||
|
Zaid
Siddig(44)
|
26,667
|
39,775
|
*
|
13,108
|
*%
|
|||||||||||||||
|
First
Regional Bank Custodian FBO James Stanko IRA**(45)
|
66,667
|
99,438
|
*
|
32,771
|
*%
x
|
|||||||||||||||
|
Temkin
Investments, L.P.**(46)
|
66,667
|
99,438
|
*
|
32,771
|
*%
|
|||||||||||||||
|
Helen
Wang(47)
|
40,000
|
59,662
|
*
|
19,662
|
*%
|
|||||||||||||||
|
Frank
Megargel(48)
|
33,333
|
46,165
|
*
|
12,832
|
*%
|
|||||||||||||||
|
David
M. Peeples, MD, Revocable Living Trust, dated
November
4, 1993(49)
|
66,667
|
92,329
|
*
|
25,662
|
*%
|
|||||||||||||||
|
Wang
Hong(50)
|
133,333
|
184,658
|
1.28
|
%
|
51,325
|
*%
|
||||||||||||||
|
James
Frenzel(51)
|
33,333
|
40,833
|
*
|
7,500
|
*%
|
|||||||||||||||
|
Robert
Lajoie(52)
|
10,000
|
12,250
|
*
|
2,250
|
*%
|
|||||||||||||||
|
Outside
Counsel Solutions, Inc.**(53)
|
10,000
|
12,250
|
*
|
2,250
|
*%
|
|||||||||||||||
|
Abdulaziz
M. Alnamlah(54)
|
90,468
|
966,667
|
6.71
|
%
|
876,199
|
6.08
|
%
|
|||||||||||||
|
Dau
Wu(55)
|
20,000
|
20,000
|
*
|
0
|
*%
|
|||||||||||||||
|
Bari
and Homa Sherzai(56)(b)
|
16,667
|
16,667
|
*
|
0
|
*%
|
|||||||||||||||
|
Mohammad
Mostafa Sherzai(57)(b)
|
3,333
|
3,333
|
|
0
|
*%
|
|||||||||||||||
|
Total
Number of Shares
|
6,932,123
|
13,940,116
|
|
7,007,993
|
||||||||||||||||
Note: Prior to the conversion
of Silica Tech, LLC to US SolarTech, Inc. effective January 1, 2009, Silica Tech
Holdings held 79.2% of Silica Tech, LLC. The beneficial owners of Silica Tech
Holdings were (i) the Aslami Children Trust, Ariana Inc, and the Kabul
Foundation Trust with respect to which Mohd Aslami disclaims beneficial
ownership, (ii) Charles DeLuca, his wife Betty, his children Michael DeLuca and
Dawn Safton and the Dawn Foundation. Mr. DeLuca disclaims beneficial ownership
over the shares held by his children and the Dawn Foundation, and (iii) Steven
Phillips and CSP Associates LLC with respect to which he claims beneficial
ownership. The shares listed include the shares issued in exchange for member
interest pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009.
The
Selling Stockholder table presented above excludes the following shares which
are not being registered for resale pursuant to the registration statement of
which this prospectus is a part, but which were used in the calculation of
ownership percentages in the table.
|
|
|
|
||
|
Dr.
Mohd Aslami +/++
|
-
|
308,677 – conversion
of A/P into common as of January 1, 2009
|
||
|
John
Ronnquist +
|
-
|
6,500 – shares
of common stock issued by the Company as of May 15,
2009
|
||
|
Vinod
Sareen +
|
-
|
20,000 – 10,000
shares and 10,000 options issued by the Company as of June 30,
2009
|
||
|
Richard
Rozzi
|
-
|
100,000 – options
issued by the Company as of June 30, 2009
|
||
|
Willie
Van Hoeks
|
-
|
33,333 – shares
of common stock transferred by Mr. DeLuca on May 6,
2009
|
||
|
Abdulaziz
M. Alnamlah +
|
|
666,666 – shares
of common stock issuable by the Company upon conversion of 666,666 shares
of Series A Preferred Stock
|
||
|
Total
|
|
1,135,176
|
|
+
|
See
Principal Stockholder Table
|
|
++
|
308,677
shares of common stock issuable upon converting $463,015 in amounts owed
to Dr. Aslami at $1.50 per share, pursuant to his Employment Agreements,
amended as of June 15, 2009. The June 15th amendment extended the due date
to August 2010 from July 2010 and provided the Company certain automatic
trigger rights.
|
The
foregoing represents the difference between the number of outstanding shares on
common stock, on a fully diluted basis, 15,075,292, and the number of
outstanding shares of common stock shown in the Selling Stockholder Table
presented above. However, the percentages of ownership interest both in the
Principal Stockholder Table and in the Selling Stockholder Table are determined
without including the conversion of the 666,666 shares of Series A Preferred
Stock. Accordingly, the percentages are based on 14,408,626 shares of common
stock outstanding.
|
(1)
|
Consisting
of 16,700 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, Dr. Aslami’s brother, as a
gift.
|
|
(2)
|
Consisting
of 1,405,652 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a
corporation. Ariana Inc. was a member of SilicaTech Holdings, LLC since
its inception. Ariana Inc. transferred membership interests to the Selling
Stockholders indicated by “(a)” in the table. The Company has been
informed that Ariana Inc. is beneficially owned by 50% by the Aslami
Children Trust ( see note (3)) and 50% by the
Kabul Foundation Trust (see note
(4)). Voting and dispositive power over the shares of our
common stock held by Ariana, Inc. are held by a board of directors
comprised of Angela Aslami, Nadia Aslami, and Sheila
Newth. Dr. Aslami has informed the Company that he
exercises no direct or indirect voting or investment power with respect to
the Ariana Inc.
|
|
(3)
|
Consisting
of 1,378,605 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Aslami
Children Trust was a member of SilicaTech Holdings, LLC since its
inception. The Aslami Children Trust transferred membership interests the
Selling Stockholders indicated by “(b)” in the table. The Company has been
informed that the beneficial owners of the Aslami Children Trust are
Sheila Newth, Angela Aslami, and Nadia Aslami, each a daughter of Dr.
Aslami. Each of the foregoing individuals is a daughter of Dr. Aslami. The
trustee who holds sole voting and dispositive power over the shares of our
common stock held by Aslami Children Trust is Homa Rastgooy who is Dr.
Aslami’s sister in law. Dr. Aslami has informed the Company that he
exercises no direct or indirect voting or investment power with respect to
the Aslami Children’s Trust.
|
|
(4)
|
Consisting
of 1,517,047 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Kabul
Foundation Trust was a member of SilicaTech Holdings, LLC January 2008.
The Kabul Foundation Trust transferred membership interests to the Selling
Stockholders indicated by “(c)” in the table. The Company has been
informed that the beneficial owners of the Kabul Foundation Trust are
Sheila Newth, the trustee and a beneficiary who holds sole voting and
dispositive power over the shares of our common stock held by the Kabul
Foundation Trust, Angela Aslami, and Nadia
Aslami. The named beneficiaries are daughters of Dr. Alami. Sheila Newth
holds voting and investment power over shares of our common stock held by
Kabul Foundation Trust. Dr. Aslami has informed the Company that he
exercises no direct or indirect voting or investment power with respect to
Kabul Foundation Trust.
|
|
(5)
|
Consisting
of 66,700 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder, who has a business relationship with Dr. Aslami, as a
gift.
|
|
(6)
|
Consisting
of 200 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, the Kabul
Foundation Trust transferred the membership to the Selling Stockholder,
Dr. Aslami’s sister-in-law, as a
gift.
|
|
(7)
|
Consisting
of 200 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, the Kabul
Foundation Trust transferred the membership to the Selling Stockholder,
which represents a trust fund for the benefit of Dr. Aslami’s nephew, as a
gift.
|
|
(8)
|
Consisting
of 13,333 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder, which represents a trust fund for the benefit of Dr. Aslami’s
nephew, as a gift.
|
|
(9)
|
Consisting
of 33,350 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder and in May 2009 transferred 16,700 shares to the Selling
Stockholder, who has a business relationship with Dr. Aslami, as a
gift.
|
|
|
(10)
|
Consisting
of 12,500 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder who is related to a sister-in law of Dr. Aslami, as a
gift.
|
|
(11)
|
Consisting
of 12,500 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder, a relative of Dr. Aslami’s sister-in law, as a
gift.
|
|
(12)
|
Consisting
of 69,167 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
Ariana Inc. transferred the membership to the Selling Stockholder who has
a business relationship with Dr. Aslami, as a
gift.
|
|
(13)
|
Consisting
of 200,000 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
Ariana Inc. transferred the membership to the Selling Stockholder, a trust
founded by a friend of Dr. Aslami, as a
gift.
|
|
(14)
|
Consisting
of 1,450 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, Ariana
Inc. transferred the membership to the Selling Stockholder, a friend of
Dr. Aslami, as a gift.
|
|
(15)
|
Consisting
of 2,870 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, Ariana
Inc. transferred the membership to the Selling Stockholder a friend of Dr.
Aslami, as a gift.
|
|
(16)
|
Consisting
of 1,450 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, Ariana
Inc. transferred the membership to the Selling Stockholder, a friend of
Dr. Aslami, as a gift.
|
|
(17)
|
Consisting
of 1,450 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, Ariana
Inc. transferred the membership to the Selling Stockholder, a friend of
Dr. Aslami, as a gift.
|
|
(18)
|
Consisting
of 16,740 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder who is the brother of Dr.
Aslami.
|
|
(19)
|
Consisting
of 16,200 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Kabul Foundation Trust transferred the membership to the Selling
Stockholder who is a sister-in-law of Dr.
Aslami.
|
|
(20)
|
Consisting
of 620 shares of common stock issued in exchange for membership interest
pursuant to our conversion into a corporation. In January 2008, Ariana,
Inc. transferred the membership to the Selling Stockholder, a
sister-in-law of Dr. Aslami, as a
gift.
|
|
(21)
|
Consisting
of 13,366 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, a daughter of Dr. Aslami, as a
gift.
|
|
(22)
|
Consisting
of 13,366 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, a son-in-law of Dr. Aslami, as a
gift.
|
|
(23)
|
Consisting
of 13,366 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, a daughter of Dr. Aslami, as a
gift.
|
|
(24)
|
Consisting
of 13,366 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, a son-in-law of Dr. Aslami, as a
gift.
|
|
(25)
|
Consisting
of 13,366 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
the Aslami Children Trust transferred the membership to the Selling
Stockholder, a daughter of Dr. Aslami, as a
gift.
|
|
(26)
|
Consisting
of 1,046,002 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. As a co-founder of
the business, the Selling Stockholder had held his membership interest
since inception. In addition, the shares consist of 160,583 shares of
common stock issuable upon converting $240,875 in amounts owed to the
Selling Stockholder at $1.50 per share, pursuant to his Employment
Agreements, amended as of June 15, 2009. The June 15th
amendment extended the due date to August 2010 from July 2010 and provided
the Company certain automatic trigger
rights.
|
|
(27)
|
Consisting
of 422,200 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Selling
Stockholder, Mr. DeLuca’s son, was a member of SilicaTech Holdings, LLC
since its inception and received such shares as a
gift.
|
|
(28)
|
Consisting
of 422,200 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Selling
Stockholder, Mr. DeLuca’s daughter was a member of SilicaTech Holdings,
LLC since its inception, received such shares as a
gift.
|
|
(29)
|
Consisting
of 316,650 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Selling
Stockholder represents a DeLuca family foundation was a member of
SilicaTech Holdings, LLC since its inception and received such shares as a
gift. Mr. DeLuca disclaims beneficial ownership over such shares. The
Company has been informed that Dawn Safton holds voting and investment
power over the shares held by the Dawn Foundation. Mr. DeLuca has informed
the Company that he exercises no direct or indirect voting or investment
power with respect to the Dawn
Foundation.
|
|
(30)
|
Consisting
of 1,000,000 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. In January 2008,
Mr. DeLuca transferred a membership representing 1,000,000 shares to his
spouse, the Selling Stockholder, as a
gift.
|
|
(31)
|
Consisting
of 24,276 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. As a co-founder of
the business, the Selling Stockholder had held his membership interest
since inception. In addition, they consist of 228,007 shares of common
stock issuable upon converting $342,010 in amounts owed to the Selling
Stockholder at $1.50 per share, pursuant to his Employment Agreements,
amended as of June 15, 2009. The June 15th
amendment extended the due date to August 2010 from July 2010 and provided
the Company certain automatic trigger
rights.
|
|
(32)
|
Consisting
of 2,403,374 shares of common stock issued in exchange for membership
interest pursuant to our conversion into a corporation. The Selling
Stockholder, which is a family limited liability company, has held its
membership interest since inception. Mr. Phillips claims beneficial
ownership to the common stock held by the Selling Stockholder. The Company
has been informed that Mr. Phillips and his wife Ingrid hold voting and
investment power over our shares owned by CSP Associates
LLC.
|
|
(33)
|
Consisting
of 83,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 22,049 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 11,805 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(34)
|
Consisting
of 66,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 18,882 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 13,889 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(35)
|
Consisting
of 50,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 14,161 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion and 10,417 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(36)
|
Consisting
of 50,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 14,161 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant
|
|
issued
in connection with the conversion and 10,417 shares of common stock (the
resale of which is not being registered hereunder) issued as of June 30,
2009 pursuant to conversion of an outstanding payable into shares of our
common stock.
|
||
|
(37)
|
Consisting
of 505,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 135,149 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 77,015 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(38)
|
Consisting
of 66,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 18,882 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 13,889 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(39)
|
Consisting
of 33,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 9,441 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 6,944 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(40)
|
Consisting
of 16,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 4,720 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant on issued in connection with the conversion, 3,472 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(41)
|
Consisting
of 33,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 9,441 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 6,944 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(42)
|
Consisting
of 16,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 4,720 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 3,472 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(43)
|
Consisting
of 16,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 4,720 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant to issued in connection with the conversion, 3,333 shares of
common stock transferred from the Kabul Foundation Trust and 13,366 from
Bereshkai Aslami, both on February 6, 2009, and 3,472 shares of common
stock (the resale of which is not being registered hereunder) issued as of
June 30, 2009 pursuant to conversion of an outstanding payable into shares
of our common stock.
|
|
(44)
|
Consisting
of 26,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 7,553 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 5,555 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(45)
|
Consisting
of 66,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 18,882 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant
|
|
issued
in connection with the conversion, 13,889 shares of common stock (the
resale of which is not being registered hereunder) issued as of June 30,
2009 pursuant to conversion of an outstanding payable into shares of our
common stock.
|
||
|
(46)
|
Consisting
of 66,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 18,882 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 13,889 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(47)
|
Consisting
of 40,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 11,329 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 8,333 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(48)
|
Consisting
of 33,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 8,665 shares of our common stock (the resale of
which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 4,167 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(49)
|
Consisting
of 66,667 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 17,329 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 8,333 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(50)
|
Consisting
of 133,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009, 34,658 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the conversion, and 16,667 shares of
common stock (the resale of which is not being registered hereunder)
issued as of June 30, 2009 pursuant to conversion of an outstanding
payable into shares of our common
stock.
|
|
(51)
|
Consisting
of 33,333 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009 and 7,500 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the
conversion.
|
|
(52)
|
Consisting
of 10,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009 and 2,250 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the
conversion.
|
|
(53)
|
Consisting
of 10,000 shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009 and 2,250 shares of our common stock (the resale
of which is not being registered hereunder) issuable upon exercise of a
warrant issued in connection with the
conversion.
|
|
(54)
|
Consisting
of 666,667 shares of common stock in exchange for membership interest
pursuant to the conversion of Silica Tech LLC to US SolarTech, LLC. Inc.,
666,666 shares of common stock upon the conversion of Series A Preferred
stock issued in accordance with the Certificate of Incorporation and
300,000 shares of our common stock (the resale of which is not being
registered hereunder) issuable upon exercise of a warrant issued in
connection therewith. As of June 15, 2009, we entered into a letter
agreement with Mr. Alnamlah pursuant to which Mr. Alnamlah agreed to
convert his shares of our Series A Preferred Stock earlier than otherwise
required under certain terms and conditions. In the event that prior to
August 31, 2009, the holder of our Series A Preferred Stock converts all
such shares into shares of our common stock, the holder shall an
additional 125,000 shares of our common Stock, (the resale of which is not
being registered hereunder.). The warrants were not converted as of August
31, 2009. Accordingly, the offer to issue the additional 125,000 shares
has expired.
|
|
(55)
|
Consisting
of the shares of common stock issued in exchange for member interest
pursuant to the conversion of Silica Tech, LLC to US SolarTech, Inc.,
effective January 1, 2009.
|
|
(56)
|
Consisting
of 16,667 shares of common stock transferred from Ariana, Inc. on May 5,
2009.
|
|
(57)
|
Consisting
of 3,333 shares of common stock transferred from Ariana, Inc. on May 5,
2009.
|
Shares
Covered by this Prospectus
All of
the 6,932,123, shares of common stock being registered in this offering may be
sold without restriction under the Securities Act, so long as the registration
statement of which this prospectus is a part is, and remains, effective under
applicable rules of the Securities and Exchange Commission.
Rule
144
A person
who has beneficially owned restricted shares of our common stock for at least
six months will be entitled to sell his or her securities provided that (i) such
person is not deemed to have been one of our affiliates at the time of, or at
any time during the three months preceding, a sale and (ii) there is available
current public information about us. Specifically, we, for a period of at least
90 days immediately before the sale, must have been subject to the reporting
requirements of section 13 or 15(d) of the Exchange Act and we have filed all
the required reports under section 13 or 15(d) of the Exchange Act, as
applicable, during the 12 months preceding such sale (or for such shorter period
that the issuer was required to file such reports), other than Form 8-K
reports.
Persons
who have beneficially owned restricted shares of our common stock for at least
six months but who are our affiliates at the time of, or at any time during the
three months preceding, a sale, would be subject to additional restrictions, by
which such person would be entitled to sell within any three-month period only a
number of securities that does not exceed the greater of either of the
following:
|
•
|
1%
of the total number of securities of the same class then
outstanding;
|
|
•
|
provided,
in each case, that there is available current public information about us;
or
|
|
•
|
Such
sales by affiliates must also comply with the manner of sale and notice
provisions of Rule 144.
|
We are
registering the shares of common stock issued to the selling stockholders from
time to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.
The
selling stockholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The selling stockholders may sell shares of common stock at
a fixed price of $1.50 until such time that our common stock is quoted on the
OTC Bulletin Board. Thereafter, shares of common stock may be sold in one or
more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be affected in transactions, which may involve crosses
or block transactions. The selling stockholders may use any one or more of the
following methods when selling shares:
|
•
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
|
•
|
in
the over-the-counter market;
|
|
•
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
|
•
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
•
|
privately
negotiated transactions;
|
|
•
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
•
|
a
combination of any such methods of sale;
and
|
|
•
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Notwithstanding
any provision herein, Charles DeLuca, Betty DeLuca, Steven Phillips, CSP
Associates, LLC and Mohd Aslami have represented to us that in connection with
their status as insiders under applicable securities laws, they intend to
execute broker instructions triggering the sale of stock at various intervals or
based on various conditions beyond their control, pursuant to the safe harbor
set forth in Rule 10(b)(5)-1 promulgated under the Exchange Act. Moreover, the
Company will only include shares of our common stock in the final prospectus of
selling stockholders who represent to the Company that they will not sell any
shares of our common stock until such shares are quoted on the OTC Bulletin
Board.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. If the selling stockholders effect such transactions by
selling shares of common stock to or through underwriters, broker-dealers or
agents, such underwriters, broker-dealers or agents may receive commissions
in
the form
of discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal. Such commissions will be in
amounts to be negotiated, but, except as set forth in a supplement to this
prospectus, in the case of an agency transaction will not be in excess of a
customary brokerage commission in compliance with FINRA Rule 2440; and in the
case of a principal transaction a markup or markdown in compliance with FINRA
IM-2440. In connection with sales of the shares of common stock or otherwise,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
shares of common stock in the course of hedging in positions they assume. The
selling stockholders may also sell shares of common stock short and if such
short sale shall take place after the date that this registration statement is
declared effective by the Securities and Exchange Commission, the selling
stockholders may deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders may pledge or grant a security interest in some or all of
the shares of common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, amending, if necessary, the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus. The selling stockholders
also may transfer and donate the shares of common stock in other circumstances
in which case the transferees, donees, pledgees, or other successors in interest
will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the
shares of common stock is made, a prospectus supplement, if required, will be
distributed which will set forth (i) the name of each such selling stockholder
and of the participating broker-dealer(s), (ii) the number of shares involved,
(iii) the price at which such the shares of common stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In no event
shall any broker-dealer receive fees, commission and markups which, in the
aggregate, would exceed eight percent (8%). In addition, upon being notified in
writing by a selling stockholder that a donee or pledgee intends to sell more
than 500 shares of common stock, a supplement to this prospectus will be filed
if then required in accordance with applicable securities law.
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
some states the shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and complied with.
Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value $0.0001 and 10,000,000 shares of preferred stock, par value $0.0001
(“Preferred Stock”). Immediately prior to this Offering, 12,915,735 shares of
common stock were issued and outstanding and 666,666 shares of Series A
Preferred Stock were issued and outstanding. Assuming all convertible securities
are either exercised or converted, there will be 15,075,292 shares of common
stock outstanding after the Offering.
Common
Stock
The
holders of common stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders. There is no cumulative voting with respect
to the election of directors. Accordingly, holders of a majority of the shares
entitled to vote in any election of directors may elect all of the directors
standing for election.
Subject
to preferences that may be applicable to any then outstanding preferred stock,
the holders of our common stock are entitled to receive such dividends, if any,
as may be declared by the board of directors from time to time out of legally
available funds. Upon our liquidation, dissolution or winding, the holders of
common stock are entitled to share ratably in all our assets that are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of holders of any preferred stock then outstanding.
The holders of our common stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of shares of any series of
preferred stock that we may issue in the future.
Preferred
Stock
We are
authorized to issue up to an additional 9,333,334 million shares of preferred
stock from time to time. Our board of directors, without further approval of the
stockholders, is authorized to issue the preferred stock in one or more series
and to fix the rights and terms relating to dividends, conversion, voting,
redemption, liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each such series of
preferred stock which could adversely affect the voting power or other rights of
holders of the common stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of us. Such actions could have the effect of
discouraging bids for our common stock and, thereby, preventing stockholders
from receiving the maximum value for their shares. Although we have no present
intention to issue any additional shares of preferred stock, there can be no
assurance that we will not do so in the future.
We issued
666,666 of our Series A Preferred Stock, par value $.0001 per share, to Mr.
Abdulaziz M. Alnamlah, dated January 1, 2009. The following terms and conditions
in our certificate of incorporation govern the rights associated with our Series
A Preferred Stock:
| Automatic Conversion: |
In
the event that our equity is publicly traded and our total public market
capital, based on a previous 30-day weighted average price, is greater
than $30 million, each share of Series A Preferred Stock shall
automatically convert into shares of common stock. “Publicly Traded” means
that our securities that have been registered under the Exchange Act and
are validly trading on the Pink Sheets, Over the Counter Bulletin Board,
NASDAQ Capital Market, NASDAQ National Market, New York Stock Exchange,
American Stock Exchange, or another recognized U.S. national
market.
|
| Conversion Rate: |
Each
share of Series A Preferred Stock shall convert into one share of common
stock pursuant to the terms and conditions set forth
herein.
|
|
Optional
Conversion:
|
In
the event that (i) we are Publicly Traded, and (ii) our market capital
based on a previous 30 day weighted average closing price is at least $20
million, the holder of the Series A Preferred Stock shall have the right
to convert such shares into common stock
on
|
|
the
first business day of each calendar quarter, provided, that the
aggregate conversion price of the shares of Series A Preferred Stock being
converted shall equal at least $500,000, and shall be in additional
incremental equal to at least $200,000. See the
description of the Letter Agreement
below.
|
|
Dividends:
|
The
Series A Preferred Stock shall accrue dividends at a rate per share of 5%
of the conversion price annually, provided that such dividends shall only
become payable upon the automatic conversion, optional conversion, or
optional redemption of the Series A Preferred
Stock.
|
|
We
have the discretion to elect whether to pay such dividends when payable in
cash or in shares of our common stock with each share valued, for purposes
of such payment, at the conversion
price.
|
|
Redemption by
the Company:
|
We
have the right but not the obligation to redeem the Series A Preferred
Stock at any time on or after March 30, 2009 through September 30, 2010 by
paying to the holders of the Series A Preferred Stock the value of such
stock plus a 30% annualized premium calculated in accordance with this
provision or 2.5% per month. To so redeem we shall pay an amount equal to
the sum of:
|
|
(i)
the aggregate conversion price of the Series A Preferred Stock being
redeemed, plus
|
|
(ii)
a premium equal to the product of (x) the number of completed months
elapsed between September 30, 2008 and the time of redemption and (y) the
product of the aggregate conversion price of the Series A Preferred Stock
being redeemed and 2.5%.
|
|
In
the event we elect to so redeem, we are obligated to provide the Holders
of the Series A Preferred Stock with a notice delivered at least 30
calendar days prior to the proposed redemption date. Upon receipt of the
Redemption Notice, Holders of our Series A Preferred Stock may, within 15
calendar days of receipt of a redemption notice (which shall include
receipt by a representative), elect to convert their Shares of Series A
Preferred Stock into common stock.
|
|
We
are obligated to redeem on September 30, 2010 all shares of Series A
Preferred Stock then outstanding. See the
description of the Letter Agreement
below.
|
| Board Membership: |
The
holder of our Series A Preferred Stock, currently Mr. Abdulaziz M.
Alnamlah, is entitled to elect one director to our Board of Directors, and
shall have the right to replace such director upon his or her resignation
or incapacity, in each case subject to the approval of the majority of the
Board of Directors which approval shall not unreasonably be withheld,
provided that such right shall expire at such time when such holders
membership interest represents less than 5% of our equity on a fully
diluted basis. In exercise of this right, as holder of our Series A
Preferred Stock, Mr. Alnamlah has elected Mr. Vinod Sareen to our board of
directors.
|
|
Transfer
Restrictions
|
The
holder of our Series A Preferred Stock is prohibited from transferring
such shares without our express written consent
other
|
|
than
with respect to transfers to Affiliates of such initial holder.
“Affiliates” of a person or entity means persons or entities controlled by
such person or entity, which control such person or entity, or under
common control with such person or
entity.
|
|
Preference
|
In
the event of a liquidation, dissolution, or winding up, holders of the
Series A Preferred Stock shall be entitled to a per share preference equal
to Conversion Price plus accrued and unpaid dividends to be paid to
holders of the Series A Preferred Stock prior to payment due to the
holders of common stock.
|
Letter
Agreement with Holder of Series A Preferred Stock
As of
June 15, 2009, we entered into a letter agreement with Mr. Alnamlah pursuant to
which Mr. Alnamlah agreed to convert his shares of our Series A Preferred Stock
earlier than otherwise required upon the following terms and
conditions:
|
•
|
In
the event that prior to August 31, 2009, the holder of our Series A
Preferred Stock converts all such shares into shares of our common stock,
we shall pay such holder an additional 125,000 shares of our common
Stock.
|
|
•
|
The
holder agreed to convert any unconverted shares of our Series A Preferred
Stock into shares of our common stock pro rata in proportion
to the portion of the $1,045,900 in unpaid compensation and unreimbursed
expenses payable collectively to Dr. Mohd Aslami, Mr. Steven Phillips and
Mr. Charles DeLuca actually converted by such individuals into shares of
common stock in accordance with their agreements with
us.
|
The
foregoing decreases, though does not eliminate, the likelihood of our being
required to redeem shares of Series A Preferred Stock on September 30,
2010.
Warrants
In
connection with the conversion and under the terms of the Operating Agreement,
members of Silica Tech, LLC received warrants on a pro-rata basis, determined on
the amount of their original investment. The issued warrants to purchase shares
of common stock are exercisable at a price of $1.50 and expire three years from
the warrants’ issuance date. The warrants contain customary anti-dilution
provisions which adjust the number of shares issuable proportionately in the
event of a recapitalization.
A total
of 685,624 shares of our common stock are issuable upon exercise of the
Warrants, subject to adjustment in certain circumstances, including in the event
of a stock dividend, payment of a cash dividend from other than an earned
surplus, recapitalization, reorganization, merger or consolidation.
Sale
of 7.5% Convertible Subordinated Notes
Private
Placement. On September 30, 2009, we sold $525,000in aggregate
principal amount of convertible subordinated notes together with related
warrants in a private placement to existing investors. We are
privately offering up to $2,000,000 in aggregate principal amount of notes to
investors we have identified through means other than any public offering,
seeking primarily investors having pre-existing relationships with
us. We anticipate that the offering will remain open to qualified
investors until November 15, 2009, unless extended. We are not
registering the resale of the notes, or any of shares of our common stock
issuable upon conversion of the notes or exercise of the warrants.
Interest. The notes are
due on September 30, 2011 and bear interest at a rate of 7.5% per annum,
provided that the interest rate on any notes which remain outstanding and are
not converted into our equity by September 30, 2010 will be retroactively
adjusted as of the issue date of the notes to have accrued interest at a rate
equal to 15% per annum, thereby increasing the amount of interest we are
obligated to repay. Furthermore, upon conversion of the notes into shares
of our common stock, for purposes of calculating the number of shares issuable
upon conversion, the notes shall be deemed to retroactively have accrued
interest since the issue date at a rate equal to 25% per annum .
Conversion. Subject to the terms of the
note, a holder may convert a note into our common stock beginning at such time
at which the Company’s common stock has been publicly traded for one full
calendar month, through September 30, 2010. During such period, a holder of
Notes shall, acting in its sole discretion, be entitled to convert any portion
or all of the principal sum and unpaid interest accrued under a note into shares
of the Company’s common stock, at a price per share of equal to the weighted
average trading price of our common stock on the exchange or quotation system on
which it is publicly traded over the preceeding 20 trading days, provided that
notwithstanding any provision in the Note, such price shall not be less than
$1.50 per share .
If at any time on or after the beginning of the period during
which the holder may convert, the calculated conversion price equals or exceeds
$2.00 per share for 20 consecutive trading days, we are required to provide the
Holder with a written notice stating that the requirements for conversion at our
option have been met, whereupon on the 5th business day following the holder’s
receipt of such notice, we shall have the right, at our sole discretion, to
convert all of the principal sum of the notes and unpaid interest accrued
thereon into shares of our common stock at such price .
Warrants. Each
purchaser of notes will receive a warrant to purchase the number shares of our
common stock calculated as follows:
|
·
|
Where
the Company receives the purchase price for the notes prior to or on
September 30, 2009, the number of shares issuable upon exercise shall
equal 50% of the principal of the note purchased divided by $1.50 provided
that Mr. Alnamlah shall be entitled to such percentage with respect to up
to his purchase of an additional 200,000 in aggregate principal amount of
notes on or prior to November 15,
2009.
|
|
·
|
Where
the Company receives the purchase price for the notes between October 1,
2009 and October 31, 2009, the number of shares issuable upon exercise
shall equal 33% of the principal of the note purchased divided by
$1.50.
|
|
·
|
Where
the Company receives the purchase price for the notes between November 1,
2009 and the expiration of the offering, the number of shares issuable
upon exercise shall equal 15% of the principal of the note purchased
divided by $1.50.
|
The
warrants become exercisable at such time at which the Company’s common stock has
been publicly traded for one full calendar month, and entitle the
holder to purchase the number of shares of our common stock calculated above at
$1.50 per share. The warrants expire September 30,
2011.
Subordination. The notes shall
rank pari passu with
respect to each other and shall be subordinated to all other indebtedness
reflected on our financial statements as of September 30,
2009.
Use of Proceeds. We intend to use
the proceeds of our sales of notes and exercise of warrants, if any, to purchase
equipment in connection with our planned expansion, for research and
development, working capital, and general corporate
purposes.
Funding
Commitment. As of September 30, 2009, we
received $525,000 proceeds from the sale of our notes, of which $250,000
was received from Mr. Alnamlah, the holder of our Series A Preferred Stock.
See “Recent Sales of Unregistered
Securities.” Mr. Alnamlah has committed to purchase up to an
additional $200,000 in principal amount of notes by matching amounts we receive
from the sale of notes to third parties. In consideration of his matching fund
commitment, upon such funding, we have agreed to provide Mr. Alnamlah with
warrants to purchase shares of our common stock calculated as if his
purchase of notes occurred on September 30, 2009; i.e. the number of shares
issuable upon exercise would equal 50% of the principal of the note purchased
divided by $1.50. We have made the same warrant terms available to Mr.
Alnamlah until November 15, 2009 with respect to additional purchases of up to
an additional $500,000 aggregate principal amount of notes .
Legal
Matters
Certain
legal matters, including the validity of the shares of our common stock will be
passed on by Daniel E. Baron, Esq. Outside Counsel Solutions, Inc., with whom
Mr. Baron is affiliated, holds, as of January 1, 2009, 10,000 shares of our
common stock and warrants to purchase an additional 2,250 shares of our common
stock, received upon conversion of an equity interest in Silica Tech, LLC paid
to Outside Counsel Solutions in connection with provision of services to
us.
The
audited financial statements of Silica Tech, LLC as of December 31, 2008 and
2007 and for the years then ended and for the period from inception (September
9, 2004) to December 31, 2008 included in this prospectus have been so included
in reliance on the reports of Stowe & Degon LLC, an independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
We are in
the process of selecting a transfer agent and registrar for our common stock and
expect to do so in the near future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should
be read together with the financial statements and related notes that are
included elsewhere in this prospectus. This discussion may contain
forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under “Risk Factors,” “Disclosure Regarding
Forward-Looking Statements” or in other parts of this prospectus. We
undertake no obligation to update any information in our forward-looking
statements except as required by law.
Overview
We are a
technology company positioned to commercialize our proprietary intellectual
property to manufacture high purity silicon used in the production of silicon
wafers and solar cells. We believe that our unique and versatile approach will
enable us to effectively compete in the rapidly growing solar energy market. As
we are in the initial phase of implementing our business plan, we are a
developmental stage company and have no revenues to date. Our internet website,
currently under construction, will be located at www.ussolartech.com.
We are
currently seeking to raise privately up to $4 million in funds from parties with
whom we have a substantial prior relationship. The funds will be primarily used
to purchase equipment and build system components, as well as for working
capital.
We were
formed as Silica Tech, LLC, a limited liability company, in Connecticut on
September 9, 2004. Since our formation, we have developed our own proprietary
plasma-based technology for use in the solar energy industry. We also purchased
certain assets, including patented intellectual property, associated with the
manufacture of optical fiber from FiberCore, Inc. a Chapter 7 debtor, pursuant
to an Asset Purchase and Settlement Agreement approved by the United States
Bankruptcy Court, District of Massachusetts (Western Division) on February 3,
2006. Silica Tech, LLC was converted into US SolarTech, Inc., a Delaware
corporation, effective January 1, 2009. During calendar 2006 and 2007 we filed
four patent applications, three of which related to our solar technology and the
fourth of which was related to optical fiber, and continued to raise capital to
fund our activities. In April 2008, we filed our fifth application which is the
fourth application related to solar technology.
Our
executive management’s expertise is well-founded in their proficiency in plasma
technology, which gave rise to the issuance of four optical fiber patents that
use plasma processes to FiberCore while FiberCore was under their management. We
purchased these four optical fiber patents from FiberCore, which manufactured
the optical fiber preform from which optical fiber is drawn. Our executive
management was directly involved in the inventing, developing and managing of
this technology.
The
primary cost associated with our intellectual property relates to the filing of
patent applications rather than to technology research. Patent filing costs for
the six months ended June 30, 2009, and for fiscal years 2008 and 2007 amounted
to approximately $95,000, $144,000, and $100,000, respectively.
In late
2007 we began ordering equipment for our pilot facility in order to develop a
silicon prototype sample and in October 2008, we began testing the system and
making modifications. By late February 2009, we produced our first prototype
sample and by late June 2009, we produced high purity solar grade silicon; we
expect to produce semi conductor grade silicon during the fall of 2009.
Independent laboratories are involved in testing our samples and we expect to
begin sending material to potential customers for testing also during the fall
of 2009. As we continue to improve the quality of our silicon, we continue
recruiting additional full-time personnel, including process and chemical
engineers, operating technicians, and administrative staff.
Research and
development. We have made and expect to continue to make
investments in research and development activities in order to further develop
and market our solar technology. Research and development costs consist
primarily of direct expenses for employees and outside consultants related to
research and development activities. We expense research and development costs
as incurred except for property, plant and equipment related to research and
development activity that have an alternative future use. Property, plant
and
equipment
for research and development activity that have an alternative future use are
capitalized and the related depreciation is expensed as research and development
costs.
Comparison
of the Six Months Ended June 30, 2009 and 2008
Research and
development. Expenses increased $332,000 for the six months
ended June 30, 2009 compared to 2008. The increases from 2008 reflect additional
costs incurred in connection with product development. The $332,000 increase
includes employee related expenses of $169,000 related to increasing staff
including $6,000 in non-cash compensation, materials and supplies of $71,000,
rent expense of $24,000, depreciation of $29,000 and miscellaneous expenses of
$39,000.
General and
administrative. General and administrative expenses, which
consist primarily of general and administrative salaries, office expense,
professional services, and other corporate overhead costs, increased by $106,000
for six months ended June 30, 2009 compared to 2008.
Of the
$106,000, approximately $153,000 was attributable to increases in personnel
costs, which includes $87,000 in non-cash compensation, $23,000 for audit fees,
and $14,000 of miscellaneous costs, offset by a net reduction of $84,000 in
legal costs. The $84,000 reduction in legal costs is primarily attributable to a
decrease in litigation activities.
We expect
to continue to experience increases in general and administrative expenses with
respect to business growth. Future administrative expenses will also increase
upon being subject to reporting and compliance obligations applicable to
publicly-held companies. This section needs to be reworked.
Other income
(expense). Other income (expense) includes interest income of
$8,000 and $3,500, respectively, and interest expense of $80,000 in 2009 and
$2,000 in 2008. The $80,000 represents non-cash interest expense in connection
with the accretion of a beneficial conversion feature and the fair value of
warrants associated with the mandatorily redeemable preferred
stock.
Comparison
of Year Ended December 31, 2008 and, 2007
Research and
development. We engage outside consultants to assist in
product development. Outside consultant expenses were $156,000 and $26,000 for
the years ended December 31, 2008 and 2007, respectively, representing an
increase of $130,000. The increase reflects expenses incurred with respect to
setting up the pilot facility. In addition, we purchased approximately $62,000
of parts and supplies related to setting up and testing the equipment, and
recorded depreciation of $14,000. In late February 2009, we made our prototype
sample and expect to begin commercial trials in the second quarter.
General and
administrative. General and administrative expenses were
$899,000 and $662,000 for the years ended December 31, 2008 and 2007,
respectively, representing an increase of $237,000, primarily attributable to a
$40,000 increase in facility rental, $83,000 in legal costs, and $114,000 in a
variety of other general and administrative accounts. General and administrative
expenses consist primarily of management fees, office expense, professional
services, and other corporate overhead costs. We have experienced and expect to
continue to experience increases in general and administrative expenses as a
result of the Company’s on-going growth. Future administrative expenses will
also increase upon being subject to reporting and compliance obligations
applicable to publicly-held companies.
Other
income(expense). Other income (expense) includes interest
income of $14,000 and $3.000 for the years ended December 31, 2008 and 2007,
respectively, and interest expense of $4,000 in 2008 and $12,000 in 2007. In
2007, other income included a gain of $288,000 on the sale of our 7% interest in
Middle East Fiber Company.
Comparison
of the Six Months Ended June 30, 2009 and 2008.
Liquidity
and Capital Resources
Our
principal sources of liquidity are cash and cash equivalents received as a
result of our capital raising activities. Cash requirements through June 30,
2009 were primarily for funding of research and development activities, general
and administrative costs and capital expenditures. We believe we have sufficient
resources to satisfy these costs in 2009. However, to commercialize the product
additional capital is required through the
sale of
equity and debt securities and through collaborative arrangements with partners.
Our continued existence depends on the successful development of our product
technology and our ability to successfully commercialize this
technology.
Since
inception in September 2004 through June 30, 2009, we have financed our
operations through private sales of our equity, totaling net proceeds of
$4,078,000; as of June 30, 2009, we had $656,000 in cash and cash
equivalents.
Cash Flows from Operating
Activities. Net cash and cash equivalents used in operating
activities during the six months ended June 30, 2009 were $837,000 compared to
$336,000 for same period in 2008. The $501,000 increase in cash usage was
primarily the result of higher levels of expenditures in personnel, equipment
and R&D tools and supplies in order to further the state of the technology.
(See comment on Page 31 regarding the successful
productions of high purity silicon)
The
increase in the net loss for six months ended June 30, 2009 of $511,000, which
included $80,000 in non-cash interest expense and $113,000 in stock based
compensation was primarily offset by an increase in payables, net of cash used
to pay $119,000 of accrued management fees.
Cash Flows from Investing
Activities. Cash and cash equivalents used in investing
activities for the six months ended June 30 , 2009 was $224,000 compared to
$145,000 for the same period in 2008 for an increase of $79,000. The $224,000 in
2009 for capital expenditures was broken down as follows: $101,000 was
attributable to the purchase of additional equipment, $95,000 for patent related
costs, $25,000 for office and computer equipment and $3,000 in leasehold
expenditures. We anticipate that our capital expenditures for fiscal 2009 will
continue as we begin to ramp up our business. Planned capital expenditures for
fiscal 2009 will require additional funding.
Through
June 30, 2009, we have spent approximately $499,000 on equipment, $25,000 on
office equipment, and $88,000 on leasehold improvements for a total of $612,000
of property and equipment and $1,144,000 of patent related costs.
Cash Flows from Financing
Activities. Net cash and cash equivalents provided by financing
activities for the six months ended June 30, 2009 was $0 compared to $409,000 in
2008. The $409,000 was a result of a $413,000 private placement financing,
netted with officer loan repayments of $4,000.
Comparison
of Year Ended December 31, 2008 with Year Ended December 31, 2007
Liquidity
and Capital Resources
Our
principal sources of liquidity are cash and cash equivalents received as a
result of our capital raising activities. Cash requirements through the end of
the fiscal year 2008 were primarily for funding of research and development
activities, general and administrative costs and capital expenditures. We
believe we have sufficient resources to meet our working capital and capital
expenditure requirements for at least the next 12 months; however, our continued
existence depends on the successful development of our product technology and
our ability to successfully commercialize this technology.
Since
inception in September 2004 through December 31, 2008, we have financed our
operations through private sales of our equity, totaling net proceeds of
$4,078,000; as of December 31, 2008, we had $1,717,265 in cash and cash
equivalents. For the fiscal year ended December 31, 2008, we raised $2,438,000
and issued membership interests in exchange for services rendered of
$60,000.
Cash Flows from Operating
Activities. Net cash and cash equivalents used in operating
activities during the year ended December 31, 2008 were $668,000 compared to
$152,000 for 2007. The increase in cash usage between 2007 and 2008 of
approximately $516,000 was primarily the result of a $713,000 increase in net
loss for 2008 compared to 2007 net of the $288,000 gain on sale of our interest
in Middle East Fiber Company in 2007. Cash used to pay down accounts payable and
accrued liabilities related to operations decreased by $140,000 in 2008 compared
to 2007. In both 2008 and 2007, management fees were accrued but not paid,
reducing cash used in operations. In 2008, there were noncash expenses of
$60,000 related to member interests exchanged for services.
Cash Flows from Investing
Activities. Cash and cash equivalents used in investing
activities for the year ended December 31, 2008 was $315,000 compared to
$114,000 in 2007 for a difference of $201,000. During the year ended December
31, 2008, we incurred $84,000 of costs for leasehold improvements, $322,000 for
additional equipment (including $214,000 for amounts accrued at December 31,
2007) and $144,000 for intellectual property for a total of $550,000. We
received $235,000 in net proceeds as a final payment from the sale of our 7%
interest in Middle East Fiber Company Limited. We anticipate that our capital
expenditures for fiscal 2009 will continue as we begin to ramp up our business.
Planned capital expenditures for fiscal 2009 will require additional
funding.
Through
December 31, 2008, we spent approximately $400,000 on equipment and $84,000 on
leasehold improvements. For the year ended December 31, 2008, we incurred
approximately $156,000 in expenses related to the set-up of the pilot facility,
including the design, engineering and construction and approximately $57,000 in
parts and supplies for the pilot equipment. These costs are included in research
and development expense in the 2008 financial statements.
Cash Flows from Financing
Activities. Net cash and cash equivalents provided by
financing activities for year ended December 31, 2008 was $2,398,000 compared to
$565,000 in 2007. The cash provided by financing activities in fiscal 2008 was a
result of private placement financing.
Contractual
Obligations
The
Company has a month-to-month lease for its pilot and commercial operating
facility, which includes a right of first refusal to purchase the facility. Rent
expense is currently $4,900 per month and includes a $900 per month expense
reimbursement to Mr. Phillips, our Chief Financial Officer, for maintaining our
New York corporate office, Mr. Phillips currently sub-leases the space for $950
per month pursuant to an arrangement that expires October 2009 and devotes full
time to matters concerning the Company.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We
believe the following critical accounting policies affect our most significant
judgments and estimates used in the preparation of our financial
statements.
Impairment of Long-Lived
Assets. We evaluate our long-lived assets for indicators of
possible impairment by comparison of the carrying amounts to future net
undiscounted cash flows expected to be generated by such assets when events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Should an impairment exist, the impairment loss would be measured
based on the excess carrying value of the asset over the asset’s fair value or
discounted estimates of future cash flows. We also evaluate the capitalized
costs for patents and patent applications filed but not issued for possible
impairments. Patent costs include approximately $500,000 of costs related to
fiber optic patents, which are not expected to be part of the Company’s current
manufacturing operations. Such costs have value from existing and potential
licensing rights. We have not identified any such impairment losses to date. The
evaluation of capitalized costs for patents and patent applications is based on
a subjective cash flow forecast which is subject to change and includes
consideration of the likelihood of favorable resolution to litigation
surrounding fiber optic patents, the Company’s rights in the event of
unfavorable resolution of the litigation, and the market for licensing rights.
We will reassess our cash flow forecast each time there are fundamental changes
in the underlying potential use of the patents or patent applications in terms
of performance, customer acceptance or other factors that may affect such cash
flow forecasts.
Research and
Development. The costs of materials and equipment or
facilities that are acquired or constructed for research and development
activities and that have alternative future uses are capitalized as tangible
assets when acquired or constructed. The cost of such materials consumed in
research and development activities and the depreciation of such equipment or
facilities used in those activities are research and
development
costs. However, the costs of materials, equipment, or facilities acquired or
constructed for research and development activities that have no alternative
future uses are considered research and development costs and are expensed at
the time the costs are incurred.
Income Taxes. We
were formed as a limited liability company and, accordingly, we were exempt from
federal and state taxes. Income was recognized by the members on their
respective tax returns. As of January 1, 2009, we converted from a limited
liability company to a corporation.
Effective
January 1, 2009,the Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial statement and tax basis of
assets and liabilities and net operating loss and credit carry-forwards using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when it is more likely than not that some
portion of the deferred tax assets will not be realized.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued FAS No. 141(R), “Business Combinations” (“FAS
141(R)”), which requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. FAS 141(R) is prospectively effective to business combinations for
which the acquisition is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The impact of FAS 141(R) on the
Company’s financial statements will be determined in part by the nature and
timing of any future acquisition completed.
In
December 2007, the FASB issued FAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements (as amended)” (“FAS 160”), which
improves the relevance, comparability, and transparency of financial information
provided to investors by requiring all entities to report non-controlling
(minority) interests in subsidiaries within equity, but separate from the
parent’s equity. Moreover, FAS 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and non-controlling
interests by requiring they be treated as equity transactions. FAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008; earlier adoption is prohibited. The
Company does not anticipate that FAS 160 will have a material effect on its
financial statements.
Quantitative
and Qualitative Disclosures about Market Risk
We
believe that we do not have any material exposure to financial market risk and
we do not enter into foreign currency or interest rate
transactions.
US
SolarTech, Inc. (Formerly Silica Tech, LLC)
(A
Development Stage Company)
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
|
(Unaudited)
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
|
|
||||||
|
Cash
and equivalents
|
$
|
656,183
|
$
|
1,717,265
|
||||
|
Prepaid
expenses and other current assets
|
2,635
|
—
|
||||||
|
|
658,818
|
1,717,265
|
||||||
|
FIXED
ASSETS, net
|
569,172
|
468,964
|
||||||
|
OTHER
ASSETS
|
|
|
||||||
|
Intellectual
property, net
|
978,527
|
919,543
|
||||||
|
Other
|
15,000
|
15,000
|
||||||
|
TOTAL
ASSETS
|
$
|
2,221,517
|
$
|
3,120,772
|
||||
|
LIABILITIES
AND STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIENCY)
|
||||||||
|
CURRENT
LIABILITIES:
|
|
|
||||||
|
Accounts
payable and accrued liabilities
|
$
|
497,514
|
$
|
344,974
|
||||
|
Due
to officers
|
28,244
|
1,192,655
|
||||||
|
Total
current liabilities
|
525,758
|
1,537,629
|
||||||
|
Due
to officers, non-current
|
1,045,900
|
—
|
||||||
|
Redeemable
preferred stock, $.0001 par value, 10,000,000 shares authorized; 666,666
shares issued and outstanding, net of unamortized discount (liquidation
preference of $1,037,500 at June 30, 2009)
|
866,533
|
—
|
||||||
|
Total
liabilities
|
2,438,191
|
1,537,629
|
||||||
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
||||||
|
STOCKHOLDERS’/MEMBERS’
EQUITY (DEFICIENCY)
|
|
|||||||
|
Members’
Capital
|
—
|
4,155,000
|
||||||
|
Common
stock, $.0001 par value, 100,000,000 shares authorized; 12,915,735 issued
and outstanding at June 30, 2009
|
1,292
|
—
|
||||||
|
Additional
paid-in capital
|
3,443,063
|
—
|
||||||
|
Deficit
accumulated during the development stage
|
(3,661,029
|
)
|
(2,572,357
|
)
|
||||
|
Total
stockholders’/members’ equity (deficiency)
|
(216,674
|
)
|
†1,583,143
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIENCY)
|
$
|
2,221,517
|
$
|
3,120,772
|
||||
See notes to financial
statements
US
SolarTech, Inc. (Formerly Silica Tech, LLC)
(A
Development Stage Company)
CONDENSED
STATEMENTS OF OPERATIONS (Unaudited)
|
Six
Months Ended June 30,
|
Cumulative
Since
Inception
to
June
30,
2009
|
|||||||||||
|
2009
|
2008
|
|||||||||||
|
REVENUES:
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
COSTS
AND EXPENSES:
|
|
|
|
|||||||||
|
Research
and development
|
392,311
|
60,763
|
673,503
|
|||||||||
|
General
and administrative
|
624,382
|
518,747
|
3,208,855
|
|||||||||
|
Total
costs and expenses
|
1,016,693
|
579,510
|
3,882,358
|
|||||||||
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|||||||||
|
Interest
income
|
8,102
|
3,524
|
29,290
|
|||||||||
|
Interest
expense
|
(80,081
|
)
|
|
(95,749
|
)
|
|||||||
|
Gain
on sale of investment on MEFC
|
—
|
(2,000
|
)
|
287,788
|
||||||||
|
Total
other income (expense)
|
(71,979
|
)
|
1,524
|
221,329
|
||||||||
|
NET
LOSS
|
(1,088,672
|
)
|
(577,986
|
)
|
(3,661,029
|
)
|
||||||
|
Preferred
stock dividends
|
(37,500
|
)
|
—
|
(37,500
|
)
|
|||||||
|
Net
loss attributable to common stockholders
|
$
|
(1,126,172
|
)
|
$
|
(577,986
|
)
|
$
|
(3,698,529
|
)
|
|||
|
Basic
and diluted net loss attributable to common stockholders per
share
|
$
|
(0.09
|
)
|
$
|
—
|
$
|
—
|
|||||
|
Shares
used in computing basic and diluted net loss attributable to common
stockholders per share
|
12,668,318
|
—
|
—
|
|||||||||
|
Proforma
earnings (loss) per share disclosures as if the company had been a
corporation since inception:
|
||||||||||||
|
Basic
and diluted net loss attributable to common stockholders per
share
|
$
|
—
|
$
|
(0.05
|
)
|
$
|
(0.32
|
)
|
||||
|
Shares
used in computing basic and diluted net loss attributable to common
stockholders per share
|
—
|
$
|
11,886,849
|
$
|
11,552,662
|
|||||||
See notes to financial
statements
US
SolarTech, Inc. (Formerly Silica Tech, LLC)
(A
Development Stage Company)
STATEMENT
OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIENCY
FOR
THE SIX MONTHS ENDED JUNE 30, 2009
|
Redeemable
Preferred
Stock
|
Members’
|
Common
Stock
|
Additional
Paid-in Capital
|
Deficit
Accumulated During Development Stage
|
Total
Stockholders’ Deficiency
|
|||||||||||||||||||||||||||
|
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
BALANCE,
JANUARY
1, 2009
|
—
|
$
|
—
|
$
|
4,155,500
|
—
|
$
|
—
|
$
|
—
|
$
|
(2,572,357
|
)
|
$
|
1,583,143
|
|||||||||||||||||
|
Issuance
of common and preferred shares in connection with conversion from Limited
Liability Company to Corporation
|
666,666
|
1,000,000
|
(4,155,500
|
)
|
12,666,666
|
1,267
|
3,154,233
|
—
|
(1,000,000
|
)
|
||||||||||||||||||||||
|
Beneficial
conversion feature of redeemable preferred stock
|
—
|
(112,458
|
)
|
—
|
—
|
—
|
112,458
|
—
|
112,458
|
|||||||||||||||||||||||
|
Fair
value of warrants issued with redeemable preferred stock
|
—
|
(101,090
|
)
|
—
|
—
|
—
|
101,090
|
—
|
101,090
|
|||||||||||||||||||||||
|
Amortization
of beneficial conversion feature and warrants
|
—
|
80,081
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Stock-based
compensation in connection with stock options
|
—
|
—
|
—
|
—
|
—
|
79,807
|
—
|
79,807
|
||||||||||||||||||||||||
|
Issuance
of common stock for services performed
|
—
|
—
|
—
|
16,500
|
2
|
32,998
|
|
33,000
|
||||||||||||||||||||||||
|
Dividends
on preferred stock
|
—
|
—
|
—
|
—
|
—
|
(37,500
|
)
|
—
|
(37,500
|
)
|
||||||||||||||||||||||
|
Conversion
of right to cash payments into common stock
|
—
|
—
|
—
|
232,569
|
23
|
(23
|
)
|
—
|
—
|
|||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,088,672
|
)
|
(1,088,672
|
)
|
||||||||||||||||||||||
|
BALANCE,
JUNE
30, 2009
|
666,666
|
$
|
866,533
|
$
|
—
|
12,915,735
|
$
|
1,292
|
$
|
3,443,063
|
$
|
(3,661,029
|
)
|
$
|
(216,674
|
)
|
||||||||||||||||
See notes to financial
statements
US
SolarTech, Inc. (Formerly Silica Tech, LLC)
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Six
Months Ended June 30,
|
Cumulative
Since
Inception
to
June 30,
2009
|
|||||||||||
|
|
2009
|
2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|||||||||
|
Net
loss
|
$
|
(1,088,672
|
)
|
$
|
(577,986
|
)
|
$
|
(3,661,029
|
)
|
|||
|
Adjustments
to reconcile net loss to cash used for operating
activities:
|
|
|
|
|||||||||
|
Depreciation
and amortization
|
64,920
|
24,292
|
208,486
|
|||||||||
|
Gain
on sale of investment in MEFC
|
—
|
—
|
(287,788
|
)
|
||||||||
|
Non-cash
interest expense
|
80,081
|
—
|
80,081
|
|||||||||
|
Stock
based compensation
|
112,807
|
—
|
182,807
|
|||||||||
|
Increase
(decrease) in cash from:
|
|
|
|
|||||||||
|
Recovery
receivable
|
—
|
235,500
|
—
|
|||||||||
|
Prepaid
expenses and other current assets
|
(2,635
|
)
|
—
|
(27,635
|
)
|
|||||||
|
Accounts
payable and accrued expenses
|
115,040
|
(217,203
|
)
|
469,044
|
||||||||
|
Due
to officers
|
(118,511
|
)
|
199,407
|
977,614
|
||||||||
|
Cash
used for operating activities
|
(836,970
|
)
|
(335,990
|
)
|
(2,058,420
|
)
|
||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|||||||||
|
Purchase
of fixed assets
|
(128,780
|
)
|
(108,228
|
)
|
(612,029
|
)
|
||||||
|
Intellectual
property
|
(95,332
|
)
|
(37,120
|
)
|
(474,156
|
)
|
||||||
|
Proceeds
from sale of investment in MEFC
|
—
|
—
|
297,788
|
|||||||||
|
Loan
receivable
|
—
|
—
|
(575,000
|
)
|
||||||||
|
Cash
used for investing activities
|
(224,112
|
)
|
(145,348
|
)
|
(1,363,397
|
)
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|||||||||
|
Repayment
of notes payable to officers
|
—
|
(3,667
|
)
|
—
|
||||||||
|
Proceeds
from issuance of equity
|
—
|
413,000
|
4,078,000
|
|||||||||
|
Cash
provided by financing activities
|
—
|
409,333
|
4,078,000
|
|||||||||
|
(DECREASE)
INCREASE IN CASH AND EQUIVALENTS
|
(1,061,082
|
)
|
(72,005
|
)
|
656,183
|
|||||||
|
CASH
AND EQUIVALENTS, BEGINNING OF PERIOD
|
1,717,265
|
301,993
|
—
|
|||||||||
|
CASH
AND EQUIVALENTS, END OF PERIOD
|
$
|
656,183
|
$
|
229,988
|
$
|
656,183
|
||||||
|
SUPPLEMENTAL
CASH FLOWS INFORMATION
|
|
|
|
|||||||||
|
Cash
paid for interest
|
$
|
—
|
$
|
—
|
$
|
8,168
|
||||||
See notes to financial
statements
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
1.
Nature of Business, Basis of Presentation, and Going Concern
US
SolarTech, Inc. (the “Company”), formed in September 2004, seeks to
commercialize its Plasma Outside/Inside technology and processes for the making
of silicon used in the production of solar cells and other products for the
rapidly growing solar energy industry. The Company has not recognized any
revenues to date; accordingly, it is classified as a development stage company.
See Note 2 for a description of the Company’s conversion to a corporation and
related name change from Silica Tech LLC, effective January 1,
2009.
The
Company is subject to a number of risks similar to those of other development
stage companies. Principal among these risks are dependence on key individuals,
competition from substitute products and larger companies, the successful
development and marketing of its products and the need to obtain additional
financing necessary to fund future operations.
These
financial statements have been prepared on the basis that the Company will
continue as a going concern. The Company is devoting substantially all of its
efforts toward completing the final testing of its pilot system for the making
of silicon using its patent pending intellectual property and has incurred
operating losses since inception. The Company expects to complete its product
testing during the third quarter of 2009. Final product testing costs together
with general and administrative costs will result in continuing operating losses
for the near term. By late February 2009, we produced our first prototype sample
and by late June, we produced high purity solar grade silicon and expect to
produce semi conductor grade during the fall of 2009. Independent laboratories
and potential customers are involved in testing and we expect to begin sending
material to potential customers for testing also during the fall of 2009. As we
continue to improve the quality of our silicon, we continue recruiting
additional full-time personnel, including process and chemical engineers,
operating technicians, and administrative staff.
The
Company believes that its current resources are sufficient to satisfy these
costs in 2009. However, to commercialize the product and to continue as a going
concern, additional capital is required through the sale of equity and debt
securities and through collaborative arrangements with partners. If the Company
is unable to obtain capital through these sources, it may have to seek other
sources of capital or re-evaluate its operating plans.
The
accompanying unaudited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for the fair presentation of these financial statements
have been included. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Interim
results are not necessarily indicative of results to be expected for other
interim periods or for the entire year ending December 31, 2009. These unaudited
financial statements should be read in conjunction with the audited financial
statements and related notes thereto included in this Form S-1.
2.
Stockholders’ Equity (Deficiency)
Effective
January 1, 2009, the Company converted from Silica Tech, LLC, a Connecticut
limited liability company into US SolarTech, Inc., a Delaware corporation.
Pursuant to the conversion, members of Silica Tech, LLC received common stock of
US SolarTech, Inc. and three year warrants in order to purchase shares of common
stock of US SolarTech, Inc. Pursuant to the conversion, members of Silica Tech,
LLC received a pro rata
portion of 12,666,666 shares of common stock of US SolarTech, Inc.; certain
members received a pro-rata portion of 385,624
warrants and the preferred shareholder received 300,000 warrants. The
warrants
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
2.
Stockholders’ Equity (Deficiency) – (continued)
have an
exercise price of $1.50 per share, expire January 1, 2012 and, if fully
exercised will generate proceeds to the Company in the amount of
$1,028,436.
The fair
value of the warrants issued to the preferred stockholder was estimated using
the Black-Scholes valuation model with the following assumptions: risk-free
interest rate of 1.0%, expected life of 2.75 years, no expected dividend yield,
and an expected volatility of 80%. The value of the warrants was $112,458 and is
being amortized to interest expense over the period from January 1, 2009 through
September 30, 2010, the mandatory redemption date.
After
allocating the proceeds of the preferred stock investment between the preferred
shares and the warrants based on their relative fair values, the conversion
price of the preferred shares was less than the market value of the preferred
shares at 1, 2009. Consequently, the Company determined that there was a
beneficial conversion feature in the amount of $101,090. The beneficial
conversion feature is being accreted into interest expense over the period from
January 1, 2009 through September 30, 2010.
In
connection with the conversion, the terms of the Operating Agreement, and the
Company’s desire to file an S-1 resale registration statement, stockholders
(formerly “members”) who invested $2,137,500, excluding the $2,000,000 September
2008 investment, at the end of October 2008, executed a Waiver and Consent in
connection with the conversion and the filing. Pursuant to the Waiver and
Consent, stockholders received 1,425,000 shares of the Company’s common stock of
the 12,666,666 issued, and warrants to purchase a pro rata portion of 385,625
shares of the common stock, with an exercise price of $1.50 per share, and the
right to receive $418,625, as and when certain events occur.
In June
2009, these stockholders agreed to convert his or her pro-rata interest of the
$418,625 into common stock at a conversion price of $1.80 per share, instead of
the right to receive $418,625. If the private placement price is less than
$2.00, the stockholders’ conversion price will be adjusted accordingly, provided
that the conversion price will not be less than $1.50. Stockholders electing to
convert will be issued shares as of June 30, 2009. The offer to convert expired
on June 30, 2009. Other than this conversion, these stockholders did not have a
conversion right. Accordingly on June 30, 2009, the Company issued 232,569
shares.
Also
during the second quarter of 2009, the Company issued 16,500 shares for services
rendered at a fair market value of $2.00 per share. Specifically, as of May 15,
the Company issued 6,500 shares of common stock to a part-time employee in
exchange for $13,000 in amounts owed for services rendered, and on June 30, the
Company issued 10,000 shares of common stock to its outside director, following
six months of services from appointment to the Board of Directors.
Preferred
Dividends
The
Series A Preferred Stock shall accrue dividends at a rate per share of 5% of the
conversion price annually, provided that such dividends shall only become
payable upon the automatic conversion, optional conversion, or optional
redemption of the Series A Preferred Stock.
At June
30, 2009, preferred dividends totaling $37,500 have been accrued; no preferred
dividends have been paid to date.
Redemption
Provisions
The
Company has the right, but not the obligation, to redeem the Series A Preferred
Stock at any time on or after March 30, 2009 through September 30, 2010 by
paying to the holders of the Series A Preferred Stock the value of such stock
plus a 30% annualized premium calculated in accordance with this provision or
2.5% per month. To so redeem, the Company would pay an amount equal to the sum
of: (i) the aggregate conversion price of the Series A Preferred Stock being
redeemed, plus (ii) a premium equal to the product of (x) the
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
2.
Stockholders’ Equity (Deficiency) – (continued)
number of
completed months elapsed between the Issue Date and (y) the product of the
aggregate conversion price of the Series A Preferred Stock being redeemed at
2.5%.
In the
event the Company so redeems, the Company is required to provide the Holders of
the Series A Preferred Stock with a notice delivered at least 30 calendar days
prior to the proposed redemption date (the “Redemption Notice”). Upon receipt of
the Redemption Notice, Holders of the Series A Preferred Stock may, within 15
calendar days of receipt of a Redemption Notice, elect to convert their Shares
of Series A Preferred Stock into Common Stock.
Notwithstanding
the Company’s right to redeem the Series A Preferred Stock, the Company shall be
obligated to redeem at the end of the two year redemption period the then amount
of outstanding Series A Preferred Stock.
Conversion
Provisions
In the
event that the equity of the Company is publicly traded and the Company’s market
capital based on a previous 30 day weighted average closing price is greater
than USD $30 million (based on $2.15 multiplied by 13,998,956, the number of
fully diluted shares as of September 30, 2008), each share of Series A Preferred
Stock shall automatically convert into one share of common stock. “Publicly
Traded” means that the securities of the Company have been registered under the
Securities Exchange Act of 1934 and are validly trading on the Pink Sheets, OTC
Bulletin Board, NASDAQ Capital Market, NASDAQ National Market, New York Stock
Exchange, NYSE Amex Equities or another recognized U.S. national
market.
In the
event that (i) the Company is publicly traded, and (ii) the Company’s market
capital based on a previous 30 day weighted average price is at least USD $20
million, the holder of the Series A Preferred Stock (the “Series A Holder”)
shall have the right to convert such shares into common stock on the first
business day of each calendar quarter, provided, that the aggregate conversion
price of the shares of Series A Preferred Stock being converted shall equal at
least $500,000, and shall be in additional increments equal to at least
$200,000.
The
preferred holder, in a separate consent letter, agreed to convert 100% of his
preferred share holdings into common stock, as follows:
|
1.
|
At
the same time as the Executives convert the amounts owed into common stock
under (a), above,
|
|
2.
|
The
Company shall, as an inducement to the preferred holder to convert earlier
than as otherwise covered under the terms of the preferred stock,
compensate the preferred holder with an additional 125,000 shares of
common stock — if the preferred holder elects to convert on or
before August 31, 2009.
|
Liquidation
Preference
In the
event of a liquidation, dissolution, or winding up, holders of the Series A
Preferred Stock shall be entitled to a per share preference equal to Conversion
Price plus accrued and unpaid dividends to be paid to holders of the Series A
Preferred Stock prior to payment due to the holders of common
stock.
Other
Provisions
The
holder of the Series A preferred stock shall be entitled to appoint one director
to the Company’s Board of Directors, provided that such right shall expire at
such time when the holder’s equity interest in the Company represents less than
5% of the Company’s equity on a fully diluted basis.
Earnings
(loss) per Share
Basic net
loss per share is computed by dividing net loss attributable to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
2.
Stockholders’ Equity (Deficiency) – (continued)
is
computed by dividing net loss attributable to common stockholders by the
weighted average number of shares of common stock and the dilutive potential
common stock equivalents then outstanding. Potential common stock equivalents
consist of warrants and convertible preferred stock. Since the Company has a net
loss for the six months ended June 30, 2009, the inclusion of convertible
preferred stock and warrants in the computation would be anti-dilutive.
Accordingly, basic and diluted net loss per share are the same for the six
months ended June 30, 2009. For the six months ended June 30, 2008 and
cumulative for the period from inception to June 30, 2009, proforma earnings
(loss) per share is presented as if the Company had been a corporation since its
inception.
3.
Long-term Payables and Related Party Transactions
In June
2009, each officer signed a consent in which the officer agreed to defer payment
of his pro-rata interest in $1,045,900 until August 1,
2010, and later extended the date until February 1, 2011 . The $1,045,900
represents compensation and expenses owed as of September 30, 2008. In addition
the letter provides that the officer will have the right to convert all or part
of his pro-rata interest at $1.50, the last sales price at September 30, 2008,
at any time and that the Company will have automatic conversion
rights.
Specifically,
the consent letter provides that
1. If the
Company pays the executives 10% of the proceeds of a closing(s) up to a maximum
of $200,000, the Company has the right to convert the amount owed as follows.
The first $115,000 will be applied to expenses with the remaining $85,000
applied to compensation. The remaining $845,900 in compensation will be
converted at $1.50 into 563,933 of common shares. If less than $200,000 is paid
to the executives, shares will be converted pro-rata.
and/or
2. To the
extent amounts owed have not been converted under (a) above, the executive has
the right to convert 100% of the amount owed at anytime, in his sole discretion,
subject to the Company’s automatic right to convert if and when the weighted
average price of the company’s stock for thirty (30) consecutive trading days is
at least $2.00. The executives plan to establish a trading program under Rule
10(b)(5) of the ’34 Act to sell 15% of the converted shares at not less than
$2.00/share.
4.
Stock Options
In 2009,
a total of 155,000 stock options were issued, the fair market value of which was
estimated using the Black-Scholes valuation model with the following
assumptions:
Options
to purchase 45,000 shares of common stock were granted with an exercise price of
$1.75 per share and a fair value of $0.78 per share, based on a risk-free
interest rate of 1.0%, an expected life of 3.5 years, no expected dividend
yield, and an expected volatility of 80%. Stock-based compensation will be
recognized over the three year vesting period and amounted to $5,800 for the six
months ended June 30, 2009.
On May
15, 2009, the Company entered into a three year financial services agreement,
pursuant to which the Company will issue a total of 300,000 options, subject to
specific performance, during the term of the agreement. The first 100,000 were
issued on June 30, 2009, pursuant to the agreement, exercisable at $2.00.
Thereafter, 50,000 warrants, exercisable at $3.00, will be issued at months 18
and 24 and 50,000, exercisable at $4.00, will be issued at months 30 and 36, all
subject to specific performance. The options expire three (3) years from the
issuance date and fully vest upon issuance. Based on a risk-free interest rate
of 1.0%, an expected life of 3 years, no expected dividend yield, and an
expected volatility of 80%, the fair market value was $67,000.
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
4.
Stock Options – (continued)
On June
30, 2009, the Company issued 10,000 stock options, exercisable at $2.00 per
share for a period of three (3) years from the issuance date to its outside
director, following six months of services from appointment to the Board of
Directors. Based on a risk-free interest rate of 1.0%, an expected life of 3
years, no expected dividend yield, and an expected volatility of 80%, the fair
market value was $6,700.
The
options fully vest upon issuance. The Company also issued 10,000 shares to the
outside director with an estimated fair market value of $20,000.
Stock-based
compensation totaled approximately $80,000 for the six months ended June 30,
2009.
5.
Income Taxes
Effective
January 1, 2009, the Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial statement and tax basis of
assets and liabilities and net operating loss and credit carry-forwards using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when it is more likely than not
that some portion of the deferred tax assets will not be realized. At June 30,
2009, any deferred asset relating to the net operating loss is fully
reserved.
The
United States Tax Reform Act of 1986 (the Act) contains provisions that may
limit the Company’s net operating loss and tax credit carry-forwards available
to be used in any given year in the event of changes in ownership of the
Company. Any ownership changes, as defined in the Act, which may occur could
impact the Company’s ability to utilize its net operating loss and tax credit
carry-forwards.
6.
Commitments
The
Company has a month-to-month lease for its pilot facility, which provides for a
right of first refusal to purchase the facility, and a sublease for its
corporate office which expires in October 2009. Total rent expense was $29,400
for the six months ended June 30, 2009, of which pilot facility and corporate
office rentals were $24,000 and $5,400, respectively, compared to total rent
expense of $21,650 for the six months ended June 30, 2008, of which pilot
facility and corporate office rentals were $16,750 and $4,900,
respectively.
7.
Litigation
On
February 17, 2006, the Company filed a declaratory-judgment action against
J-Fiber GmbH, (“J-Fiber”), in the United States District Court for the District
of Massachusetts. The action is captioned Silica Tech, L.L.C. v. J-Fiber,
GmbH, 06-CV-10293 (D. Mass.). The action seeks to establish that the
Company owns free and clear of any claims of J-Fiber, all right, title and
interest in and to patents and patent applications (together, “Patent Assets”)
of FiberCore, Inc. (“FiberCore”). The Company acquired the Patent Assets in
FiberCore’s bankruptcy proceedings. J-Fiber is the successor-in-interest of
FiberCore’s former subsidiary, FiberCore Jena AG (“FC Jena”).
The
Company’s acquisition of the Patent Assets from FiberCore was approved by a
February 3, 2006 order of the United States Bankruptcy Court for the District of
Massachusetts In re:
FiberCore, Inc. , No. 03-46551 (the “Bankruptcy Court Order”). The
Bankruptcy Court Order permitted the sale to the Company subject to certain
“Surviving Claims” retained by J-Fiber. According to the Bankruptcy Court Order,
the Surviving Claims were limited to in rem claims against the
Patent Assets and “shall not in any manner constitute claims against [the
Company]” (emphasis added).
On August
28, 2006, J-Fiber filed an Amended Answer, Counterclaim, and Jury Demand
claiming that it is the rightful owner of the Patent Assets. On September 25,
2006, the Company filed its answer to J-Fiber’s Counterclaim. Discovery
commenced in the summer of 2007. On July 2, 2007, the court ordered J-Fiber
to
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
7.
Litigation – (continued)
file a
statement concerning its contention that German law applies to the case, and
gave the Company an opportunity to respond. J-Fiber filed its statement on July
25, 2007, largely relying on a Preliminary Statement Regarding Applicable
Principles of German and European Union Law, which it had filed on March 23,
2007. The Company filed its response on September 17, 2007 (followed by a
corrected copy on October 2, 2007), arguing that Massachusetts law should govern
the case and that German law is inapplicable. On November 9, 2007, the court
referred the case to Magistrate Judge Marianne B. Bowler for determination of
the applicability of German law.
On
December 31, 2007, the Company filed a motion for judgment on the pleadings
seeking dismissal of J-Fiber’s counterclaims pursuant to Federal Rule of Civil
Procedure 12(c) (the “12(c) Motion”). The Company argued that none of the
counterclaims qualifies as a “Surviving Claim” permitted by the Bankruptcy Court
Order and that each counterclaim fails as a matter of law on independent
grounds.
On
January 4, 2008, the Company filed a stay motion requesting, among other things,
that the court stay depositions, and its determination of the applicability of
German law, pending disposition of the 12(c) Motion. On January 8 and 9, 2008,
the court referred the stay motion and case management to Magistrate Judge
Bowler. On January 10, 2008, J-Fiber filed its opposition to the Company’s stay
motion. At a conference on January 15, 2008, Magistrate Judge Bowler granted the
Company’s request to stay depositions pending resolution of the 12(c) Motion,
but denied the request to stay the determination of the applicability of German
law.
On
January 16, 2008, the court referred the 12(c) Motion to Magistrate Judge
Bowler. On February 16, 2008, J-Fiber filed its opposition to the 12(c) Motion.
On April 1, 2008, Magistrate Judge Bowler heard argument on the 12(c) Motion,
but not on the applicability of German law. During the hearing, J-Fiber’s
counsel clarified that J-Fiber’s counterclaims are in rem claims against the
Patent Assets and are not damages claims against the Company. At the end of
hearing, Judge Bowler took the motion under advisement. The motion remains
pending.
On March
12, 2009, Judge Lindsay, the initial district judge assigned to the case,
unfortunately passed away. The motion remains pending and the action was
reassigned to Judge William G. Young after Judge Lindsay unfortunately passed
away.
On May
19, 2009, Magistrate Judge Bowler issued her Report and Recommendation regarding
the applicability of German law and the 12(c) Motion (the “Report”). The Report
finds that Massachusetts law should govern the action, though it does not
foreclose the possibility of a later determination, based on a more developed
factual record, that German law applies, “particularly with respect to the
assignments of the ’775 and ’275 patents.”
On the
12(c) Motion, the Report finds that, based on statements of prior counsel to the
Bankruptcy Court in connection with the Bankruptcy Court Order, the Company is
“judicially estopped” from arguing that J-Fiber’s claims are not Surviving
Claims permitted by the Order. However, the Report finds that much of J-Fiber’s
Counterclaim should be dismissed on independent grounds. The Report finds that
Count II of J-Fiber’s Counterclaim fails to state a valid fraudulent-conveyance
claim under the Massachusetts Uniform Fraudulent Transfer Act, though it does
state an equitable fraudulent-conveyance claim. Yet that equitable claim is
time-barred under the statute of limitations as to the ’580 Patent, the ’775
Patent, the ’275 Patent, and the ’207 Patent Application. The Report concludes
that Count II survives only as an equitable fraudulent-conveyance claim with
respect to the ’240 Patent. Similarly, the Report finds that J-Fiber’s
conversion claim, Count I, is time-barred as to the ’580, ’775, and ’275
Patents, as well as the ’207 Patent Application. Count I survives only as to the
’240 Patent. Furthermore, the Report concludes that since portions of J-Fiber’s
conversion and fraudulent-conveyance claims (Counts I and II) survive
dismissal — as to the ’240 Patent — Counts
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
7.
Litigation – (continued)
III and
IV, for declaratory judgment, also survive. Finally, as to the portions of
Counts I and II that are to be dismissed, the Report indicates that J-Fiber may
file a motion for leave to amend its Counterclaim to replead those
claims.
Magistrate
Judge Bowler’s Report is not a final, binding decision of the district court but
rather a Report and Recommendation that must be adopted, modified, or rejected
by the new district judge assigned to the case. The parties are allowed to
submit objections to the Report and the time for objections was extended to
August 3, 2009. Although the Report finds in the Company’s favor for the most
part, the Company presently intends to submit objections to certain aspects of
the Report unfavorable to the Company. The parties submitted objections to the
Report on August 3, 2009; responses to each parties objections are due about
August 17, 2009.
This
action is at an early stage, as discovery has not been completed and depositions
have not been taken, and legal counsel cannot predict its outcome. The Company
intends to vigorously prosecute the Company’s case against J-Fiber and defend
against J-Fiber’s counterclaims. In the event that the Company does not prevail,
management believes that pursuant to the Asset Purchase and Settlement Agreement
between the Company and FiberCore’s Trustee, the Company would retain a
$7,500,000 claim against J-Fiber secured by the Patent Assets.
In a
separate litigation, on January 20, 2009, the Company filed a complaint against
J-Fiber in the United States District Court for the Southern District of New
York asserting claims in excess of 2,000,000 Euros for breach of contract with
respect to a license agreement that the Company acquired as part of the Asset
Purchase and Settlement Agreement, along with two tort claims for the
misappropriation of trade secrets and unjust enrichment.
Litigation
against the Company’s Executive Officers
In or
about March 2004, FC Jena filed for receivership in Germany. Approximately two
months later, J-Fiber, which is controlled and managed by parties who were
employed by and associated with FC Jena, GmbH acquired the assets of FC Jena. In
December 2005, J-Fiber filed an action in Gera, Germany, reference number 1HKO
296/05 against Messrs. Aslami and DeLuca, two of Silica Tech Holdings’ managing
members, with respect to a multi-party transaction among a subsidiary of Tyco
International, Ltd, FiberCore, FC Jena, and Xtal Fibras Opticas S.A. Brazil, a
company 90% owned by FiberCore. As part of the transaction, Tyco loaned
$1,500,000 to a wholly-owned subsidiary of FiberCore, collateralized by a
secured lien on $3,000,000 of newly purchased specialized equipment used in the
making of preforms, the raw material for making optical fiber. Title to the
equipment was transferred to the subsidiary from Xtal in consideration of Xtal
being discharged from certain obligations both to FiberCore as well as to FC
Jena. FC Jena received a 16% interest in the subsidiary as well as other
consideration.
J-Fiber
claims that defendants Aslami and DeLuca, who served as members of FCJ’s
supervisory and executive boards, respectively, breached their fiduciary duties
to FC Jena in the transaction, in that the equipment had no value and,
accordingly, the 16% interest that FC Jena received did not have any value;
FiberCore held the remaining 84%.
Defendants
Aslami and DeLuca filed a brief challenging the claim and submitted supporting
documentation as to the then $3,000,000 valuation, a Bill of Sale, as well as FC
Jena’s valid approval for the transaction.
In
December 2006, J-Fiber filed a second suit in Gera, Germany, reference number
1HKO-242/06, claiming that in 2001, Messrs. Aslami, DeLuca, and Phillips,
through the use of service, sales and other agreements, improperly transferred
funds from FCJ to FiberCore, Inc. for services J-Fiber claims were never
rendered to FC Jena.
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
7.
Litigation – (continued)
Defendants
Aslami, DeLuca, and Phillips filed several briefs challenging the claim and
submitted supporting documentation, including a Management Report from FC Jena’s
auditors, Deloitte & Touche, confirming FiberCore’s rendering of the
services in question.
On
November 12, 2007, a court hearing was held in Gera, Germany for both cases. The
defendants, including Mr. Phillips, who was added as a defendant, presented
their supporting documentation and responded to numerous questions from the
judge. Mr. Phillips served as a director, Chief Financial Officer (July 2000 to
July 2001) and a consultant to FiberCore and as a member of FC Jena’s
supervisory board. The judge provided a summary of the proceedings and allowed
both parties to submit follow-up briefs. The judge also informed both parties
that a new judge would be assigned to both cases, as she would be taking a
personal leave.
At the
hearing, J-Fiber served upon Messrs. Aslami, DeLuca and Phillips an amended
complaint in case 1HKO-250/06 that extended J-Fiber’s claims to cover years 2002
and 2003, in addition to 2001.
In April
2007, a new judge was assigned and called for a second hearing for both cases to
be held in Germany on September 7, 2008.
At the
September 7, 2008 hearing, the judge stated for the 296/05 case that he was
going to solicit an independent equipment valuation in order to determine the
value of the specialized equipment at the time of the transaction. In the 295/06
case, the court indicated its inclination to dismiss the case, but agreed to
allow J-Fiber to introduce an additional witness, the Deloitte & Touche
audit partner, at a future hearing. A new hearing date has not been
set.
To date,
the executives have only sought and received from the Company reimbursement for
their trips to Germany for the two hearings. The executives and their German law
counsel intend to vigorously defend against the claims against them and believe
that the claims are without merit.
The
Company believes that the lawsuits were brought against the executives on
account of their current executive positions with the Company and as leverage
against the Company in the POVD patent litigation and other pending actions
against J-Fiber, as confirmed by the testimony of J-Fiber’s own counsel during
the first hearing. Accordingly, the executives would be entitled to
indemnification from the Company with respect to legal fees and liability, if
any, arising from the German lawsuits pursuant to the Company’s existing
indemnification obligations as the suit was specifically brought against our
executive officers “by reason of the fact” that they are the Company’s executive
officers. The Company’s by-laws provide in Article VIII that the Company will
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a director or officer of the Corporation, or is or was a director or
officer of the Corporation serving at the request of the Corporation as a
director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding unless such liability.
Know-How
Litigation
On
January 20, 2009, the Company filed a complaint against J-Fiber in the United
States District Court for the Southern District of New York. The action is
captioned US SolarTech, Inc.
v. J-fiber, GmbH, 09-CV-00527 (S.D.N.Y.). The action was assigned to
Judge Cathy Seibel and Magistrate Judge Paul Davison.
The
complaint asserts claims of breach-of-contract, misappropriation of trade
secrets, and unjust enrichment against J-Fiber. The Company alleges that
FiberCore and FC Jena entered into a Patent and Technology Information License
Agreement, dated May 22, 2003 (the “License Agreement”). In the License
Agreement,
US
SOLARTECH, INC. (formerly Silica Tech LLC)
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
(Unaudited)
7.
Litigation – (continued)
FiberCore
agreed to license to FC Jena its patents, patent applications, and technical
information — including know-how and trade secrets relating to
fiber-optic preform manufacturing. The License Agreement provides for FC Jena to
pay certain research-and-development fees to FiberCore. It also contains a
change-in-control provision that provides that if certain conditions are met,
two million Euros would be due and payable to FiberCore.
The
complaint alleges that (i) the Company we have succeeded to FiberCore’s interest
in the License Agreement pursuant to the Bankruptcy Court Order, and that
J-Fiber has succeeded to FC Jena’s interest (ii) J-Fiber acquired FC Jena’s
assets in receivership proceedings in Germany and thereby triggered the
change-in-control provision in the License Agreement and a two million Euro
obligation to the Company, and (iii) J-Fiber has continuously used, in its
day-to-day operations, the trade secrets and know-how that FiberCore disclosed
to FC Jena and that are now intellectual property belonging to the
Company — but never paid any compensation to the Company for that
intellectual property under the License Agreement or otherwise.
The
Company further alleges that J-Fiber’s use of the Company’s trade secrets
constitutes a misappropriation of trade secrets in violation of Massachusetts
law (Mass. Gen. Laws ch. 93, § 42) and that J-Fiber has been unjustly enriched
by profiting from the Company’s trade secrets and know-how. Among other relief,
the complaint seeks damages for J-Fiber’s breaches of the License Agreement —
including the 2,000,000 Euros the Company claims are due and owing; double
damages for misappropriation of trade secrets under Massachusetts law; and
restitution of J-Fiber’s profits attributable to the Company’s trade secrets and
know-how.
On
January 28, 2009, we filed an amended complaint that added one paragraph to our
original complaint. On July 15, 2009, J-Fiber was served with the amended
complaint pursuant to the procedures of the Hague Convention. J-Fiber’s deadline
for responding to the complaint has been extended to September 18,
2009.
This
action is at an early stage and we cannot predict its outcome. We intend to
vigorously prosecute our case against J-Fiber.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Members of
Silica
Tech, LLC:
We have
audited the accompanying balance sheets of Silica Tech, LLC (the Company) (a
development stage company) as of December 31, 2008 and 2007 and the related
statements of operations, members’ equity and cash flows for years then ended
and cumulative since inception (September 9, 2004) through December 31, 2008.
These financial statements are the responsibility of the Company’s management.
Our responsi- bility is to express an opinion on these financial statements
based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal controls over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Silica Tech, LLC as of December 31,
2008 and 2007 and the results of its operations and its cash flows for the years
then ended and cumulative since inception (September 9, 2004) to December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Stowe
& Degon LLC
Westborough,
Massachusetts
April 8,
2009
SILICA
TECH, LLC
(A
Development Stage Company)
BALANCE
SHEETS
December
31, 2008 and 2007
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
|
|
||||||
|
Cash
and equivalents
|
$
|
1,717,265
|
$
|
301,993
|
||||
|
Accounts
receivable – other
|
—
|
235,500
|
||||||
|
Total
current assets
|
1,717,265
|
537,493
|
||||||
|
FIXED
ASSETS, net
|
468,964
|
291,475
|
||||||
|
OTHER
ASSETS
|
|
|
||||||
|
Intellectual
property, net
|
919,543
|
823,301
|
||||||
|
Other
|
15,000
|
15,000
|
||||||
|
TOTAL
ASSETS
|
$
|
3,120,772
|
$
|
1,667,269
|
||||
|
LIABILITIES
AND MEMBERS’ EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
|
|
||||||
|
Accounts
payable and accrued liabilities
|
$
|
344,974
|
$
|
557,586
|
||||
|
Amounts
payable to managing directors
|
1,192,655
|
857,886
|
||||||
|
Notes
payable to managing directors
|
—
|
44,000
|
||||||
|
Total
current liabilities
|
1,537,629
|
1,459,472
|
||||||
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
||||||
|
MEMBERS’
EQUITY:
|
|
|
||||||
|
Members’
capital
|
4,155,500
|
1,657,500
|
||||||
|
Deficit
accumulated during development stage
|
(2,572,357
|
)
|
(1,449,703
|
)
|
||||
|
Total
members’ equity
|
1,583,143
|
207,797
|
||||||
|
TOTAL
LIABILITIES AND MEMBERS' EQUITY
|
$
|
3,120,772
|
$
|
1,667,269
|
||||
See
notes to financial statements
SILICA
TECH, LLC
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
Years
Ended December 31, 2008 and 2007
and
Cumulative Since Inception (September 9, 2004) to December 31, 2008
|
Year
Ended December 31,
|
Cumulative
Since
Inception
To
December
31, 2008
|
|||||||||||
|
|
2008
|
2007
|
||||||||||
|
REVENUES:
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
COSTS
AND EXPENSES:
|
|
|
|
|||||||||
|
Research
and development
|
233,167
|
26,125
|
281,192
|
|||||||||
|
General
and administrative
|
899,095
|
661,971
|
2,584,473
|
|||||||||
|
Total
costs and expenses
|
1,132,262
|
688,096
|
2,865,665
|
|||||||||
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|||||||||
|
Interest
income
|
13,776
|
2,557
|
21,188
|
|||||||||
|
Interest
expense
|
(4,168
|
)
|
(11,500
|
)
|
(15,668
|
)
|
||||||
|
Gain
on sale of investment
|
—
|
287,788
|
287,788
|
|||||||||
|
Total
other income
|
9,608
|
278,845
|
293,308
|
|||||||||
|
NET
LOSS
|
$
|
(1,122,654
|
)
|
$
|
(409,251
|
)
|
$
|
(2,572,357
|
)
|
|||
See
notes to financial statements
SILICA
TECH, LLC
(A
Development Stage Company)
STATEMENTS
OF MEMBERS' EQUITY
Years
Ended December 31, 2008 and 2007
and
Cumulative Since Inception (September 9, 2004) to December 31, 2008
|
Members’
Capital
|
Deficit
Accumulated
During
Development
Stage
|
Total
Members’
Equity
|
||||||||||
|
INCEPTION
SEPTEMBER 9, 2004
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Issuances
of membership interests - (August/September 2005)
|
1,090,000
|
—
|
1,090,000
|
|||||||||
|
Issuances
of membership interests for services
|
10,000
|
—
|
10,000
|
|||||||||
|
Net
loss
|
—
|
(282,060
|
)
|
(282,060
|
)
|
|||||||
|
BALANCE,
DECEMBER 31, 2005
|
1,100,000
|
(282,060
|
)
|
817,940
|
||||||||
|
Net
loss
|
—
|
(758,392
|
)
|
(758,392
|
)
|
|||||||
|
BALANCE,
DECEMBER 31, 2006
|
1,100,000
|
(1,040,452
|
)
|
59,548
|
||||||||
|
Issuances
of membership interests
|
557,500
|
—
|
557,500
|
|||||||||
|
Net
loss
|
—
|
(409,251
|
)
|
(409,251
|
)
|
|||||||
|
BALANCE,
DECEMBER 31, 2007
|
1,657,500
|
(1,449,703
|
)
|
207,797
|
||||||||
|
Issuances
of membership interests
|
2,438,000
|
—
|
2,438,000
|
|||||||||
|
Issuances
of membership interests for services
|
60,000
|
—
|
60,000
|
|||||||||
|
Net
loss
|
—
|
(1,122,654
|
)
|
(1,122,654
|
)
|
|||||||
|
BALANCE,
DECEMBER 31, 2008
|
$
|
4,155,500
|
$
|
(2,572,357
|
)
|
$
|
1,583,143
|
|||||
See
notes to financial statements
SILICA
TECH, LLC
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
Years
Ended December 31, 2008 and 2007
and
Cumulative Since Inception (September 9, 2004) to December 31, 2008
|
Year
Ended December 31,
|
Cumulative
Since
Inception
to
December
31,
2008
|
|||||||||||
|
|
2008
|
2007
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|||||||||
|
Net
loss
|
$
|
(1,122,654
|
)
|
$
|
(409,251
|
)
|
$
|
(2,572,357
|
)
|
|||
|
Adjustments
to reconcile net loss to cash used for operating
activities:
|
|
|
|
|||||||||
|
Depreciation
and amortization
|
61,973
|
45,325
|
143,566
|
|||||||||
|
Gain
on sale of investment in MEFC
|
—
|
(287,788
|
)
|
(287,788
|
)
|
|||||||
|
Accrued
interest included in note payable to managing directors
|
(4,000
|
)
|
4,000
|
—
|
||||||||
|
Issuance
of members' equity in exchange for service
|
60,000
|
—
|
70,000
|
|||||||||
|
Increase
(decrease) in cash from:
|
|
|
|
|||||||||
|
Prepaid
expenses and other current assets
|
—
|
—
|
(25,000
|
)
|
||||||||
|
Accounts
payable and accrued liabilities
|
1,713
|
141,794
|
352,474
|
|||||||||
|
Amounts
payable to managing directors
|
334,769
|
353,388
|
1,097,655
|
|||||||||
|
Cash
used for operating activities
|
(668,199
|
)
|
(152,532
|
)
|
(1,221,450
|
)
|
||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|||||||||
|
Purchase
of fixed assets
|
(406,099
|
)
|
(77,150
|
)
|
(483,249
|
)
|
||||||
|
Investments
in intellectual property
|
(143,930
|
)
|
(99,427
|
)
|
(378,824
|
)
|
||||||
|
Proceeds
from sale of investment in MEFC
|
235,500
|
62,288
|
297,788
|
|||||||||
|
Loan
receivable
|
—
|
—
|
(575,000
|
)
|
||||||||
|
Cash
used for investing activities
|
(314,529
|
)
|
(114,289
|
)
|
(1,139,285
|
)
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|||||||||
|
Proceeds
from issuance of membership interests
|
2,438,000
|
550,000
|
4,078,000
|
|||||||||
|
Advances
(repayments) on notes payable to managing directors
|
(40,000
|
)
|
15,000
|
—
|
||||||||
|
Cash
provided by financing activities
|
2,398,000
|
565,000
|
4,078,000
|
|||||||||
|
INCREASE
IN CASH AND EQUIVALENTS
|
1,415,272
|
298,179
|
1,717,265
|
|||||||||
|
CASH
AND EQUIVALENTS, BEGINNING OF PERIOD
|
301,993
|
3,814
|
—
|
|||||||||
|
CASH
AND EQUIVALENTS, END OF PERIOD
|
$
|
1,717,265
|
$
|
301,993
|
$
|
1,717,265
|
||||||
|
SUPPLEMENTAL
CASH FLOWS INFORMATION
|
|
|
|
|||||||||
|
Cash
paid for interest
|
$
|
8,168
|
$
|
—
|
$
|
8,168
|
||||||
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING
TRANSACTIONS
|
|
|
|
|||||||||
|
Loan
receivable exchanged for intellectual property
|
$
|
—
|
$
|
—
|
$
|
670,000
|
||||||
|
Liability
to managing directors assumed in purchase of loan
receivable
|
$
|
—
|
$
|
—
|
$
|
95,000
|
||||||
|
Membership
interest issued in exchange for accrued interest
|
$
|
—
|
$
|
7,500
|
$
|
7,500
|
||||||
|
Property
deposits included in accounts payable and accrued
liabilities
|
$
|
(214,325
|
)
|
$
|
214,325
|
$
|
—
|
|||||
See
notes to financial statements
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
1.
Nature of Business, Organization and Going Concern
Silica
Tech, LLC ( the “Company”), formed in September 2004, seeks to commercialize its
Plasma Outside/Inside technology and processes for the making of silicon used in
the production of solar cells and other products for the rapidly growing solar
energy industry. The Company has not recognized any revenues to date;
accordingly, it is classified as a development stage company. See Note 5 for a
description of the Company’s conversion to a corporation and related name change
to US SolarTech, Inc., effective January 1, 2009.
The
Company is subject to a number of risks similar to those of other development
stage companies. Principal among these risks are dependence on key individuals,
competition from substitute products and larger companies, the successful
development and marketing of its products and the need to obtain additional
financing necessary to fund future operations.
These
financial statements have been prepared on the basis that the Company will
continue as a going concern. The Company is devoting substantially all of its
efforts toward completing the final testing of its pilot system for the making
of silicon using its patent pending intellectual property and has incurred
operating losses since inception. The Company expects to complete its product
testing during the second quarter of 2009. Final product testing costs together
with general and administrative costs will result in continuing operating losses
for the near term. The Company believes that its current resources are
sufficient to satisfy these costs in 2009. However, to commercialize the product
and to continue as a going concern, additional capital is required through the
sale of equity and debt securities and through collaborative arrangements with
partners. If the Company is unable to obtain capital through these sources, it
may have to seek other sources of capital or reevaluate its operating plans.
Because of the shortage of silicon for the foreseeable future, the Company has
already identified potential customers that have agreed to test sample product
upon its availability. The accompanying financial statements do not include any
adjustments that might be necessary in the event that the Company cannot
continue as a going concern.
2.
Summary of Significant Accounting Policies
The
accompanying financial statements reflect the application of certain accounting
policies, as described in this note and elsewhere in the accompanying notes to
the financial statements.
Use of
Estimates — The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
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 reported revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
Equivalents — The Company considers all short-term investments
purchased with original maturities of three months or less to be cash
equivalents.
Fixed
Assets — Property and equipment are stated at cost.
Depreciation on property and equipment is provided using the straight-line
method over the estimated useful lives of the assets, which range from seven to
ten years. Leasehold improvements are depreciated over the lesser of the
estimated useful lives of the assets or the remaining lease term. Depreciation
starts when the asset is placed into service.
Intangible
Assets — Intangible assets subject to amortization primarily
include the optical fiber related patents acquired from FiberCore (which may be
licensed if not used for manufacturing) and solar related patents pending for
the making of silicon and thin-film for solar cells. Patent costs were
$1,048,824 and $904,894 at December 31, 2008 and 2007, respectively. These costs
are presented net of accumulated amortization of $129,281 and $81,593 at
December 31, 2008 and 2007, respectively. The Company amortizes patented
technology over its estimated remaining useful life, which is estimated at 13.5
years. The Company recorded amortization expense of $47,688 and $45,325 related
to intangible assets with finite lives during
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
2.
Summary of Significant Accounting Policies – (continued)
2008 and
2007, respectively. In each of the next five years amortization expense is
projected to remain consistent with that reported during 2008 and 2007, and
except for the capitalization of additional patent related costs, no adjustments
were made during fiscal years 2008 and 2007 to intangible assets related to
patents other than normal amortization. In April 2008, the Company filed its
second thin-film patent application that relates to the use of plasma inside
vapor deposition apparatus and method for making a multi-junction silicon-based
integrated solar cell/module.
Impairment of Long-Lived
Assets — Long-lived assets are evaluated for indicators of
possible impairment by comparison of the carrying amounts to future net
undiscounted cash flows expected to be generated by such assets when events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Should an impairment exist, the impairment loss would be measured
based on the excess carrying value of the asset over the asset’s fair value or
discounted estimates of future cash flows. The Company also evaluates the
capitalized costs for patents and patent applications filed but not issued for
possible impairments. No such impairment losses have been identified to date.
The evaluation of capitalized costs for patents and patent applications is based
on a subjective cash flow forecast which is subject to change. The cash flow
forecast will be assessed each time there are fundamental changes in the
underlying potential use of the patents or patent applications in terms of
performance, customer acceptance or other factors that may affect such cash flow
forecasts.
Revenue
Recognition — Revenue is recognized when persuasive evidence of
an arrangement exists, the price is fixed and determinable, delivery has
occurred, and there is reasonable assurance of collection.
Research and
Development — Research and development costs are expensed as
incurred except for property, plant and equipment related to research and
development activity that have an alternative future use. Property, plant and
equipment for research and development activity that have an alternative future
use are capitalized and the related depreciation is expensed as research and
development costs.
Income Taxes — The
Company is organized as a limited liability company. As such, it is exempt from
federal and state income taxes. Income of the Company is recognized by the
members in their respective tax returns. Effective January 1, 2009, the Company
was converted to a taxable corporation.
Comprehensive Income
(Loss) — The Company had no components of comprehensive income
other than net loss in all of the periods presented.
Fair Value of Financial
Instruments — SFAS No. 107 Disclosures about Fair Value of
Financial Instruments, requires disclosure of the fair value of certain
financial instruments. The Company’s financial instruments consist of cash
equivalents, accounts payable and accrued expenses. The estimated fair value of
these financial instruments approximates their carrying value due to their
short-term nature.
Concentration of Credit
Risk — Financial instruments that subject the Company to credit
risk consist of cash and equivalents on deposit with financial institutions,
which may exceed federally insured limits. The Company’s excess cash is invested
in a money market account.
New Accounting
Pronouncements — In September of 2006, the Financial Accounting
Standards Board (“FASB”) issued FAS No. 157, “Fair Value Measurement” (“FAS
157”), which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (“GAAP”) and expands
disclosures about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement does
not require any new fair value measurements. This statement is effective for
fiscal years beginning after November 15, 2007, except for non-financial assets
and liabilities measured at fair value on a non-recurring basis for which the
effective date will be for fiscal years beginning after November 15, 2008, and
is not expected to have a material impact on the Company's financial
statements.
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
2.
Summary of Significant Accounting Policies – (continued)
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities — Including an amendment of
FASB Statement No.
115” (“FAS 159”), which permits entities to choose to measure many
financial instruments and certain other items at fair value at specified
election dates. A business entity is required to report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. This statement is expected to expand the use of
fair value measurement. FAS 159 was effective for financial statements issued
for fiscal years beginning after November 15, 2007. The adoption of FAS 159 as
of January 1, 2008 did not have a material effect on our results of operations,
cash flows or financial position.
In
December 2007, the FASB issued FAS No. 141(R), “Business Combinations” (“FAS
141(R)”), which requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. FAS 141(R) is prospectively effective to business combinations for
which the acquisition is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The impact of FAS 141(R) on the
Company's financial statements will be determined in part by the nature and
timing of any future acquisition completed.
In
December 2007, the FASB issued FAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements (as amended)” (“FAS 160”), which
improves the relevance, comparability, and transparency of financial information
provided to investors by requiring all entities to report non-controlling
(minority) interests in subsidiaries within equity, but separate from the
parent’s equity. Moreover, FAS 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and non-controlling
interests by requiring they be treated as equity transactions. FAS 60 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008; earlier adoption is prohibited. The
Company does not anticipate that FAS 160 will have a material effect on its
financial statements.
In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133,” which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. SFAS No. 161 is
effective beginning January 1, 2009. The Company is currently assessing the
potential impact that adoption of SFAS No. 161 may have on its financial
statements.
In May
2008, the FASB issued FAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” which identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States of America (the GAAP hierarchy). This statement is effective
November 15, 2008, which is 60 days following the SEC’S approval of the Public
Company Accounting Oversight Board amendments of AU Section 411, The Meaning of Presents Fairly in
Conformity with Generally Accepted Accounting Principles.” The Company is
currently evaluating the impact that FAS 162 will have on its financial
statements.
3.
Tyco Agreement and Asset Purchase and Settlement Agreement
Between
September 2004 and June 2005, the Company negotiated with Tyco International
Ltd. (“Tyco”) in order to acquire Tyco’s loan and equity in FiberCore, Inc. In
late August 2005, the Company raised approximately $1,100,000 from accredited
investors and purchased from Tyco secured claims against FiberCore, Inc. of
approximately $8,800,000, $1,500,000 in secured claims against FiberCore USA,
Inc. and all
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
3.
Tyco Agreement and Asset Purchase and Settlement Agreement
– (continued)
rights,
title, and interest in Tyco’s equity interests in FiberCore, Inc. (collectively
the “Tyco Claims”). The Tyco Claims included security interests in intellectual
property and other assets. Silica paid a total of $670,000 for the Tyco Claims.
Of the $670,000, the Company paid $575,000 in cash and assumed Tyco’s obligation
to pay $95,000 to the Company’s three executive officers. Of the $95,000,
$24,820 remained as a liability of the Company at December 31, 2007 and is
included in “Due to managing directors.” This amount was paid during
2008.
In March
2006, the Company and FiberCore’s bankruptcy court-appointed trustee closed on
an Asset Purchase and Settlement Agreement (the “Agreement”). Under the
Agreement, the Company purchased substantially all of FiberCore’s assets for
$1.1 million, which amount was credit bid, thereby reducing the Company’s
$8,800,000 loan receivable to the lower of the deficiency claim of $7,700,000
($8,800,000 less $1,100,000) and $7,500,000. FiberCore is currently in Chapter
7; accordingly, the Company has fully reserved for the $7,500,000 loan. As noted
above, the Company had acquired the $8,800,000 loan at a cost of $670,000. The
purchase price of that receivable therefore is the net cost exchanged for the
acquisition of the FiberCore assets. The allocation of this net purchase price
of $670,000 consists of intellectual property of $570,000, an amount due from
CommScope, Inc. (“CommScope”) of $75,000, a non-trade account receivable of
$14,000, a 7% equity interest in Middle East Fiber Company (MEFC) of $10,000 and
various other assets for $1,000. The $75,000 due from CommScope was received by
the Company shortly after the closing.
The
Company sold its interest in MEFC in December 2007 for net proceeds of $298,000
of which $62,000 was received in 2007 and $235,500 was received in 2008. The
$235,500 of proceeds received in January 2008 is included in “Accounts
receivable — other” on the balance sheet at December 31, 2007. The
purchaser, Mr. Abdulaziz M. Alnamlah, is the same individual who invested
$2,000,000 into the Company in September 2008. See Note 5 — Member
Interests.
4.
Fixed Assets
Fixed
assets consisted of the following at December 31:
|
2008
|
2007
|
|||||||
|
Pilot
system equipment
|
$
|
398,694
|
$
|
291,475
|
||||
|
Leasehold
improvements
|
84,555
|
—
|
||||||
|
|
483,249
|
291,475
|
||||||
|
Less
accumulated depreciation
|
14,285
|
—
|
||||||
|
Fixed
assets, net
|
$
|
468,964
|
$
|
291,475
|
||||
The
Company began depreciating the pilot system equipment in October
2008.
5.
Member Interests
From
inception until December 31, 2008, the Company, as a limited liability company,
received a total of $4,155,500 in capital contributions, as
follows:
|
Amount
|
%
of
Ownership
|
|||||||
|
2005
|
$
|
1,100,000
|
5.50
|
%
|
||||
|
2006
|
$
|
—
|
N/A
|
|||||
|
2007
|
$
|
557,500
|
2.79
|
%
|
||||
|
2008
|
$
|
2,498,000
*
|
12.55
|
%
|
||||
|
*
|
includes $60,000 with respect
to the issuance of membership interests for
services
|
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
5.
Member Interests – (continued)
The
Company received a $2,000,000 investment in September 2008 pursuant to a
subscription agreement dated September 30, 2008. This agreement anticipated the
conversion of the Company from a limited liability company to a corporation
within 120 days of the investment, which conversion occurred on December 11,
2008, effective January 1, 2009. As part of the conversion, the Company changed
its name to US SolarTech, Inc. and, among other terms of the subscription
agreement executed between the Company and the investor, $1,000,000 was invested
in common stock and the other $1,000,000 was invested in 5% convertible,
redeemable Series A Preferred Stock. The preferred stock is convertible into
common stock at a price of $1.50 per share entitling the holder to a total of
666,666 shares. In addition, the investor received 300,000 warrants to purchase
shares of the Company’s common stock, with an exercise price of $1.50 per share,
and expiring September 30, 2011.
Effective
January 1, 2009, the Company’s equity will be presented as follows:
|
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized; 666,666 shares
issued and outstanding
|
$
|
1,000,000
|
||
|
Stockholders’
equity:
|
|
|||
|
Common
stock, $0.0001 par value, 100,000,000 shares authorized; 12,666,666 shares
issued and outstanding
|
$
|
1,267
|
||
|
Additional
paid in capital
|
3,154,233
|
|||
|
Deficit
accumulated during development stage
|
(2,572,357
|
)
|
||
|
Total
stockholders’ equity
|
$
|
583,143
|
The
Company has the right, but not the obligation, to redeem the Series A Preferred
Stock at any time on or after March 30, 2009 through September 30, 2010 by
paying to the holders of the Series A Preferred Stock the value of such stock
plus a 30% annualized premium calculated in accordance with this provision or
2.5% per month. To so redeem, the Company would pay an amount equal to the sum
of: (i) the aggregate conversion price of the Series A Preferred Stock being
redeemed, plus (ii) a premium equal to the product of (x) the number of
completed months elapsed between the Issue Date and (y) the product of the
aggregate conversion price of the Series A Preferred Stock being redeemed at
2.5%.
In the
event the Company so redeems, the Company is required to provide the Holders of
the Series A Preferred Stock with a notice delivered at least 30 calendar days
prior to the proposed redemption date (the “Redemption Notice”). Upon receipt of
the Redemption Notice, Holders of the Series A Preferred Stock may, within 15
calendar days of receipt of a Redemption Notice, elect to convert their Shares
of Series A Preferred Stock into Common Stock.
Notwithstanding
the Company’s right to redeem the Series A Preferred Stock, the Company shall be
obligated to redeem at the end of the two year redemption period the then amount
of outstanding Series A Preferred Stock.
In the
event that the equity of the Company is publicly traded and the Company’s market
capital based on a previous 30 day weighted average closing price is greater
than USD $30 million, each share of Series A Preferred Stock shall automatically
convert into shares of common stock. “Publicly Traded” means that the securities
of the Company have been registered under the Exchange Act and are validly
trading on the Pink Sheets, OTC Bulletin Board, NASDAQ Capital Market, NASDAQ
National Market, New York Stock Exchange, American Stock Exchange or another
recognized U.S. national market.
In the
event that (i) the Company is publicly traded, and (ii) the Company’s market
capital based on a previous 30 day weighted average price is at least USD $20
million, the holder of the Series A Preferred Stock (the “Series A Holder”)
shall have the right to convert such shares into common stock on the
first
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
5.
Member Interests – (continued)
business
day of each calendar quarter, provided, that the aggregate conversion price of
the shares of Series A Preferred Stock being converted shall equal at least
$500,000, and shall be in additional increments equal to at least
$200,000.
In
connection with the Company’s plans to be publicly traded, the Company converted
from a Connecticut limited liability company to a Delaware corporation and
changed its name to US SolarTech, Inc. effective January 1, 2009.
In
connection with the conversion, the Company issued to the investor warrants to
purchase 45,000 shares of the Company’s common stock with an exercise price of
$1.75 per share, expiring January 1, 2012.
The
holder of the Series A preferred stock shall be entitled to elect one director
to the Company’s Board of Directors, provided that such right shall expire at
such time when the holder’s equity interest in the Company represents less than
5% of the Company’s equity on a fully diluted basis.
In
connection with the conversion, the terms of the Operating Agreement, and the
Company’s desire to file an S-1 resale registration statement, members that
invested $2,137,500, excluding the $2,000,000 September 2008 investment,
executed a Waiver and Consent in connection with the conversion and the filing.
Pursuant to the Waiver and Consent, members received 1,425,000 shares of the
Company’s common stock, and warrants to purchase a pro rata portion of 385,625
shares of the common stock, with an exercise price of $1.50 per share, and the
right to receive $418,250 as set forth below.
The
Company will pay the $418,250 to such members, pro-rata, in accordance with the
terms of their respective Subscription Agreements, as follows:
|
|
|
|
|
$275,000
|
Upon
receipt by the Company of the next $6 million of equity investment,
estimated by June 2009.
|
|
|
$113,250
|
At
such time as the first 3 silicon producing systems are operational and
producing commercially saleable product, estimated by October
2009.
|
|
|
$30,000
|
At
such time as the first 9 silicon producing systems are operational and
producing commercially saleable product, estimated by February
2010.
|
Pro-forma
earnings (loss) per share
The
following presents earnings (loss) per share as if the Company had been a
corporation since its inception. Basic net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the period. Diluted net loss
per share is computed by dividing net loss attributable to common stockholders
by the weighted average number of shares of common stock and the dilutive
potential common stock equivalents then outstanding. Potential common stock
equivalents consist of warrants and convertible preferred stock. Since the
Company has a net loss for all periods presented, the inclusion of convertible
preferred stock and warrants in the computation would be anti-dilutive.
Accordingly, basic and diluted net loss per share are the same for the years
ended December 31, 2008 and 2007 and cumulative for the period from inception to
December 31, 2008.
|
2008
|
2007
|
Cumulative
|
||||||||||
|
Net
loss as presented
|
$
|
(1,122,654
|
)
|
$
|
(409,251
|
)
|
$
|
(2,572,357
|
)
|
|||
|
Proforma
shares used in computing basic and fully diluted loss per
share
|
12,105,990
|
11,684,050
|
11,424,369
|
|||||||||
|
Proforma
loss per share
|
$
|
(0.09
|
)
|
$
|
(0.04
|
)
|
$
|
(0.23
|
)
|
|||
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
6.
Related Party Transactions
As of
December 31, 2008, the Company was managed by the three managing directors of
Silica Tech Holdings, LLC (“Holdings”), a company formed in September 2004.
Holdings was the majority owner of the Company, owning approximately 79% of the
Company as of December 31, 2008.
In
December 2006, two of three managing directors agreed to lend the Company up to
a total of $50,000 in exchange for a 10% secured promissory note, payable on
demand; however, only $40,000 was advanced. Of the $40,000, $25,000 was advanced
in December 2006 and $15,000 in January 2007. These loans and $4,000 of accrued
interest are included in notes payable to managing directors on the Company’s
balance sheets at December 31, 2007 and were repaid together with additional
accrued interest in December 2008.
Under the
terms of the Company’s operating agreement then in effect, Holdings was entitled
to $300,000 in annual management fees, 10% of operating income and a 10%
placement fee. However, Holdings waived its right to such placement fee. In
addition, the managing directors are entitled to expense reimbursement,
including reimbursement for personal health insurance premiums. Included in Due
to Managing Directors on the balance sheet at December 31, 2008 are amounts due
to Holdings totaling approximately $1,192,000, including management fees of
$986,000, $56,000 in insurance premiums, and $150,000 in expenses.
In
connection with the Company’s conversion to a Delaware corporation and its
seeking to have its stock publicly traded, the Company plans to re-structure the
compensation arrangement by increasing the $300,000 base fee, reducing the 10%
incentive fee and issuing restricted stock to the three managing directors.
Holdings has elected to waive the 10% placement fee otherwise payable to
Holdings and assignable to the executive officers, and, accordingly, the
$415,550 fee for the raising of $4,155,500 is not included in the Company’s
financial statements at December 31, 2008.
7.
Commitments
The
Company has a month-to-month lease for its pilot facility, which provides for a
right of first refusal to purchase the facility, and a sublease for its
corporate office which expires in October 2009. Rent expense was $48,000 and
$8,000 in 2008 and 2007, respectively.
8.
Litigation
On
February 17, 2006, the Company filed a declaratory-judgment action against
J-Fiber GmbH, (“J-Fiber”), in the United States District Court for the District
of Massachusetts. The action is captioned Silica Tech, L.L.C. v. J-Fiber,
GmbH, 06-CV-10293 (D. Mass.). The action seeks to establish that the
Company owns free and clear of any claims of J-Fiber, all right, title and
interest in and to patents and patent applications (together, “Patent Assets”)
of FiberCore, Inc. (“FiberCore”). The Company acquired the Patent Assets in
FiberCore’s bankruptcy proceedings. J-Fiber is the successor-in-interest of
FiberCore’s former subsidiary, FiberCore Jena AG (“FC Jena”).
The
Company’s acquisition of the Patent Assets from FiberCore was approved by a
February 3, 2006 order of the United States Bankruptcy Court for the District of
Massachusetts In re:
FiberCore, Inc., No. 03-46551 (the “Bankruptcy Court Order”). The
Bankruptcy Court Order permitted the sale to the Company subject to certain
“Surviving Claims” retained by J-Fiber. According to the Bankruptcy Court Order,
the Surviving Claims were limited to in rem claims against the
Patent Assets and “shall not
in any manner constitute claims against [the Company]” (emphasis
added).
On August
28, 2006, J-Fiber filed an Amended Answer, Counterclaim, and Jury Demand
claiming that it is the rightful owner of the Patent Assets. On September 25,
2006, the Company filed its answer to J-Fiber’s Counterclaim. Discovery
commenced in the summer of 2007. On July 2, 2007, the court ordered J-Fiber to
file a statement concerning its contention that German law applies to the case,
and gave the Company an opportunity to respond. J-Fiber filed its statement on
July 25, 2007, largely relying on a Preliminary Statement Regarding
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
8.
Litigation – (continued)
Applicable
Principles of German and European Union Law, which it had filed on March 23,
2007. The Company filed its response on September 17, 2007 (followed by a
corrected copy on October 2, 2007), arguing that Massachusetts law should govern
the case and that German law is inapplicable. On November 9, 2007, the court
referred the case to Magistrate Judge Marianne B. Bowler for determination of
the applicability of German law.
On
December 31, 2007, the Company filed a motion for judgment on the pleadings
seeking dismissal of J-Fiber’s counterclaims pursuant to Federal Rule of Civil
Procedure 12(c) (the “12(c) Motion”). The Company argued that none of the
counterclaims qualifies as a “Surviving Claim” permitted by the Bankruptcy Court
Order and that each counterclaim fails as a matter of law on independent
grounds.
On
January 4, 2008, the Company filed a stay motion requesting, among other things,
that the court stay depositions, and its determination of the applicability of
German law, pending disposition of the 12(c) Motion. On January 8 and 9, 2008,
the court referred the stay motion and case management to Magistrate Judge
Bowler. On January 10, 2008, J-Fiber filed its opposition to the Company’s stay
motion. At a conference on January 15, 2008, Magistrate Judge Bowler granted the
Company’s request to stay depositions pending resolution of the 12(c) Motion,
but denied the request to stay the determination of the applicability of German
law.
On
January 16, 2008, the court referred the 12(c) Motion to Magistrate Judge
Bowler. On February 16, 2008, J-Fiber filed its opposition to the 12(c) Motion.
On April 1, 2008, Magistrate Judge Bowler heard argument on the 12(c) Motion,
but not on the applicability of German law. During the hearing, J-Fiber’s
counsel clarified that J-Fiber’s counterclaims are in rem claims against the
Patent Assets and are not damages claims against the Company. At the end of
hearing, Judge Bowler took the motion under advisement. The motion remains
pending.
This
action is at an early stage, as discovery has not been completed and depositions
have not been taken, and management and the Company’s legal counsel cannot
predict its outcome. Management intends to vigorously prosecute the case against
J-Fiber and defend against J- Fiber’s counterclaims. In the event that the
Company does not prevail, management believes that pursuant to the Agreement
between the Company and FiberCore’s Trustee, the Company would retain a
$7,500,000 claim against J-Fiber secured by the Patent Assets.
On
January 20, 2009, the Company filed a complaint against J-Fiber in the United
States District Court for the Southern District of New York asserting claims in
excess of 2,000,000 Euros for breach of contract with respect to a license
agreement that the Company acquired as part of the Asset Purchase and Settlement
Agreement, along with two tort claims for the misappropriation of trade secrets
and unjust enrichment.
Litigation
Against the Company’s Executive Officers
In or
about March 2004, FC Jena filed for receivership in Germany. Approximately two
months later, J-Fiber, which is controlled and managed by parties who were
employed by and associated with FC Jena, GmbH acquired the assets of FC Jena. In
December 2005, J-Fiber filed an action in Gera, Germany, reference number 1HKO
296/05 against Messrs. Aslami and DeLuca, two of Silica Tech Holdings’ managing
members, with respect to a multi-party transaction among a subsidiary of Tyco
International, Ltd, FiberCore, FC Jena, and Xtal Fibras Opticas S.A. Brazil, a
company 90% owned by FiberCore. As part of the transaction, Tyco loaned
$1,500,000 to a wholly-owned subsidiary of FiberCore, collateralized by a
secured lien on $3,000,000 of newly purchased specialized equipment used in the
making of preforms, the raw material for making optical fiber. Title to the
equipment was transferred to the subsidiary from Xtal in consideration of Xtal
being discharged from certain obligations both to FiberCore as well as to FC
Jena. FC Jena received a 16% interest in the subsidiary as well as other
consideration.
J-Fiber
claims that defendants Aslami and DeLuca, who served as members of FCJ’s
supervisory and executive boards, respectively, breached their fiduciary duties
to FC Jena in the transaction, in that the equipment had no value and,
accordingly, the 16% interest that FC Jena received did not have any value;
FiberCore held the remaining 84%.
SILICA
TECH, LLC
(A
Development Stage Company)
NOTES
TO THE FINANCIAL STATEMENTS
8.
Litigation – (continued)
Defendants
Aslami and DeLuca filed a brief challenging the claim and submitted supporting
documentation as to the then $3,000,000 valuation, a Bill of Sale, as well as FC
Jena’s valid approval for the transaction.
In
December 2006, J-Fiber filed a second suit in Gera, Germany, reference number
1HKO-242/06, claiming that in 2001, Messrs. Aslami, DeLuca, and Phillips,
through the use of service, sales and other agreements, improperly transferred
funds from FCJ to FiberCore, Inc. for services J-Fiber claims were never
rendered to FC Jena.
Defendants
Aslami, DeLuca, and Phillips filed several briefs challenging the claim and
submitted supporting documentation, including a Management Report from FC Jena’s
auditors, Deloitte & Touche, confirming FiberCore’s rendering of the
services in question.
On
November 12, 2007, a court hearing was held in Gera, Germany for both cases. The
defendants, including Mr. Phillips, who was added as a defendant, presented
their supporting documentation and responded to numerous questions from the
judge. Mr. Phillips served as a director, Chief Financial Officer (July 2000 to
July 2001) and a consultant to FiberCore and as a member of FC Jena’s
supervisory board. The judge provided a summary of the proceedings and allowed
both parties to submit follow-up briefs. The judge also informed both parties
that a new judge would be assigned to both cases, as she would be taking a
personal leave.
At the
hearing, J-Fiber served upon Messrs. Aslami, DeLuca and Phillips an amended
complaint in case 1HKO-250/06 that extended J-Fiber’s claims to cover years 2002
and 2003, in addition to 2001.
In April
2007, a new judge was assigned and called for a second hearing for both cases to
be held in Germany on September 7, 2008.
At the
September 7, 2008 hearing, the judge stated for the 296/05 case that he was
going to solicit an independent equipment valuation in order to determine the
value of the specialized equipment at the time of the transaction. In the 295/06
case, the court indicated its inclination to dismiss the case, but agreed to
allow J-Fiber to introduce an additional witness, the Deloitte & Touche
audit partner, at a future hearing. A new hearing date has not been
set.
To date,
the executives have only sought and received from the Company reimbursement for
their trips to Germany for the two hearings. The executives and their German law
counsel intend to vigorously defend against the claims against them and believe
that the claims are without merit.
The
Company believes that the lawsuits were brought against the executives on
account of their current executive positions with the Company and as leverage
against the Company in the POVD patent litigation and other pending actions
against J-Fiber, as confirmed by the testimony of J-Fiber’s own counsel during
the first hearing. Accordingly, the executives would be entitled to
indemnification from the Company with respect to legal fees and liability, if
any, arising from the German lawsuits pursuant to the Company’s existing
indemnification obligations.
9.
Subsequent Events
In March
2009, the Company filed an S-1 registration statement with the SEC in order to
register 14,018,956 shares of $.0001 par value common stock comprised of:
12,666,666 shares of common stock held by stockholders, 666,666 shares of common
stock issuable upon the conversion of Series A Preferred Stock, par value
$.0001, issued to the $2,000,000 investor and 685,624 shares of common stock
issuable upon the exercise of warrants to purchase common stock held by certain
stockholders. See Note 5 — Member Interests.
This
prospectus is part of a registration statement we filed with the SEC. You should
rely on the information or representations provided in this prospectus. We have
authorized no one to provide you with different information. The selling
security holders described in this prospectus are not making an offer in any
jurisdiction where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date of
this prospectus.
6,932,123
Shares
US
SolarTech, Inc.
Common
Stock
PROSPECTUS
US
SolarTech, Inc.
199
Main Street Suite 706
White
Plains, New York 10601
(914)
287-2423
October
, 2009
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
In May
2008 we paid $12,000 to Philip Yu constituting 6% of a $200,000 investment in us
by Wang Hong. Both Messrs. Hong and Yu reside outside of the United States and
the transaction took place outside of the United States.
Item
14. Indemnification of Directors and Officers.
Indemnification
of Directors and Executive Officers and Limitation of Liability
Our
bylaws provide for the indemnification of our present and prior directors and
officers or any person who may have served at our request as a director or
officer of another corporation in which we own shares of capital stock or of
which we are a creditor, against expenses actually and necessarily incurred by
them in connection with the defense of any actions, suits or proceedings in
which they, or any of them, are made parties, or a party, by reason of being or
having been director(s) or officer(s) of us or of such other corporation, in the
absence of negligence or misconduct in the performance of their duties. This
indemnification policy could result in substantial expenditure by us, which we
may be unable to recoup.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
At the
present time, except as disclosed above in “Litigation,”
there is no pending litigation or proceeding involving a director, officer,
employee, or other agent of ours in which indemnification would be required or
permitted. Except as disclosed above in “Litigation,”
we are not aware of any threatened litigation or proceeding which may result in
a claim for such indemnification. See “Litigation.”
Notwithstanding the bylaws, each executive officer and director will enter into
a separate indemnification agreement with us.
Item
15. Recent Sales and Issuances of Unregistered Securities.
We
engaged in the following unregistered sales of securities during the past three
years:
|
•
|
On
January 1, 2009, in connection with our conversion from Silica Tech, LLC,
a Connecticut limited liability company into US SolarTech, Inc., a
Delaware corporation we issued to members of Silica Tech, LLC a total of
12,666,666 shares of common stock of US SolarTech, Inc.; and warrants to
purchase up to 685,624 shares of our common stock, in each case,
distributed pro
rata.
|
|
•
|
On
March 5, 2007, we sold a membership interest in Silica Tech, LLC to Jacob
and Susan Alpert for proceeds of $100,000. Such membership interest was
converted into 66,667 shares of our common stock as of January 1, 2009.
Jacob and Susan Alpert also received warrants to purchase 17,329 shares of
our common stock in connection with the conversion, and 11,805 shares of
common stock, as of June 30, 2009, pursuant to their conversion of their
right to receive a contingent cash payment upon the occurrence of certain
of events into shares of our common stock. The resale of shares of common
stock issuable upon the warrant conversion and the shares issued on June
30, 2009 is not being registered
hereunder.
|
|
•
|
On
March 25, 2007, we sold a membership interest in Silica Tech, LLC to David
M. Peeples, MD Trust of David M. Peeples MD U/A, dated November 4, 1993
for proceeds of $100,000. Such membership interest was converted into
66,667 shares of our common stock as of January 1, 2009. The trust also
received warrants to purchase 17,329 shares of our common stock in
connection with the conversion, and 8,333 shares of common stock, as of
June 30, 2009, pursuant to its conversion of its right to receive a
contingent cash payment upon the occurrence of certain of events into
shares of our common stock. The resale of shares of common stock issuable
upon the warrant conversion and the shares issued on June 30, 2009 is not
being registered hereunder.
|
|
•
|
On
March 25, 2007, we sold a membership interest in Silica Tech, LLC to
Daniel Phillips Legacy Trust, dated March 1, 1991, for proceeds of
$500,000 and the conversion of $7,500 of accrued interest into equity, for
a total of $507,500. Of that amount, $300,000 was received in 2007
($100,000 of which was a nine month loan that was converted into equity),
$200,000 in January 2008 and $7,500 of interest was converted in 2007.
Such membership interest converted into 338,333 shares of our common stock
as of January 1, 2009. The trust also received warrants to purchase
135,149 shares of our common stock in connection with the conversion, and
77,015 shares of common stock, as of June 30, 2009, pursuant to its
conversion of its right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common stock. The
resale of shares of common stock issuable upon the warrant conversion and
the shares issued on June 30, 2009 is not being registered
hereunder.
|
|
•
|
On
March 28, 2007, we sold a membership interest in Silica Tech, LLC to Frank
Megargel for proceeds of $50,000. Such membership interest was converted
into 33,333 shares of our common stock as of January 1, 2009. Frank
Megargel also received warrants to purchase 8,665 shares of our common
stock in connection with the conversion, and 4,167 shares of common stock,
as of June 30, 2009, pursuant to his conversion of his right to receive a
contingent cash payment upon the occurrence of certain of events into
shares of our common stock. The resale of shares of common stock issuable
upon the warrant conversion and the shares issued on June 30, 2009 is not
being registered hereunder.
|
|
•
|
On
March 6, 2008, we sold a membership interest in Silica Tech, LLC to Wang
Hong for proceeds of $200,000. Such membership interest was converted into
133,333 shares of our common stock as of January 1, 2009. Wang Hong also
received warrants to purchase 34,658 shares of our common stock in
connection with the conversion, and 16,667 shares of common stock, as of
June 30, 2009, pursuant to his conversion of his right to receive a
contingent cash payment upon the occurrence of certain of events into
shares of our common stock. The resale of shares of common stock issuable
upon the warrant conversion and the shares issued on June 30, 2009 is not
being registered hereunder.
|
|
•
|
On
May 9, 2008 we granted a membership interest in Silica Tech, LLC to Robert
Lajoie in connection with his signing an offer letter from us. Such
membership interest was converted into 10,000 shares of our common stock
as of January 1, 2009. Robert Lajoie also received warrants to purchase
2,250 shares of our common stock in connection with the conversion. The
resale of shares of common stock issuable upon the warrant conversion is
not being registered hereunder.
|
|
•
|
On
May 30, 2008 we sold a membership interest in Silica Tech, LLC to James
Frenzel for proceeds of $50,000. Such membership interest was converted
into 33,333 shares of our common stock as of January 1, 2009. James
Frenzel also received warrants to purchase 7,500 shares of our common
stock in connection with the conversion. The resale of shares of common
stock issuable upon the warrant conversion is not being registered
hereunder.
|
|
•
|
On
June 30, 2008 we granted a membership interest in Silica Tech, LLC to
Outside Counsel Solutions, Inc. in exchange for the providing of services.
Such membership interest was converted into 10,000 shares of our common
stock as of January 1, 2009. Outside Counsel Solutions also received
warrants to purchase 2,250 shares of our common stock in connection with
the conversion. The resale of shares of common stock issuable upon the
warrant conversion is not being registered
hereunder.
|
|
•
|
On
September 30, 2008, we sold a membership interest in Silica Tech, LLC to
Abdulaziz M. Alnamlah for total proceeds of $2,000,000. Specifically,
pursuant to the terms and conditions of the investment, such membership
interest was converted into 666,667 shares of our common stock and 666,666
of shares our Series A Preferred Stock as of January 1, 2009. Abdulaziz M.
Alnamlah also received warrants to purchase 300,000 shares of our common
stock in connection with the
conversion.
|
|
•
|
On
October 21, 2008, we granted a membership interest in Silica Tech, LLC to
Dau Wu, in exchange for the providing of services. Such membership
interest was converted into 20,000 shares of our common stock as of
January 1, 2009. There were no warrants
given.
|
|
•
|
On
May 15, 2009, we issued 6,500 shares of common stock, the resale of which
shares are not being registered hereunder, to John Ronnquist, our
controller, in exchange for payment of $13,000 in services
rendered.
|
|
•
|
On
June 30, 2009, we issued option to Richard Rozzi in connection with a
Financial Services Agreement, dated May 15, 2009. The options are
exercisable at $2.00 per share and expire in three (3) years. The resale
of shares of common stock issuable upon exercise of the option is not
being registered hereunder.
|
|
•
|
On
June 30, 2009, as part of our compensation package to outside directors,
we issued 10,000 shares of common stock and 10,000, three (3) options,
exercisable a $2.00, to Vinod K. Sareen, our outside director. The resale
of the common stock and common stock issuable upon exercise of the options
is not being registered hereunder.
|
|
•
|
On
June 30, 2009, we issued 13,889 shares of common stock, which shares are
not being registered hereunder, to Hedayat Amin-Arsala pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 10,417 shares of our common stock, which shares
are not being registered hereunder, to Gene Langan, pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 13,889 shares of our common stock, which shares
are not included in this offering, to Rita Quaderer, pursuant to her
conversion of her right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 6,944 shares of common stock, which shares are
not being registered hereunder, to Abdul Rahim Wardak, pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 3,472 shares of common stock, which shares are
not being registered hereunder, to Homa Rastgooy, pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 6,944 shares of common stock, which shares are
not being registered hereunder, to Donald Ritter, pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 3,472 shares of common stock, which shares are
not being registered hereunder, to Farid Siddig, pursuant to his
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 5,555 shares of common stock, which shares are
not being registered hereunder, to Zaid Siddig, pursuant to his conversion
of his right to receive a contingent cash payment upon the occurrence of
certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 13,889 shares of common stock, which shares are
not being registered hereunder, to First Regional Bank Custodian F/B/O
James Stanko IRA, pursuant to its conversion of its right to receive a
contingent cash payment upon the occurrence of certain of events into
shares of our common stock.
|
|
•
|
On
June 30, 2009, we issued 13,889 shares of common stock, which shares are
not being registered hereunder, to Temkin Investment LP pursuant to its
conversion of his right to receive a contingent cash payment upon the
occurrence of certain of events into shares of our common
stock.
|
|
•
|
On
June 30, 2009, we issued 8,333 shares of common stock, which shares are
not being registered hereunder, to Helen Wang, pursuant to her conversion
of her right to receive a contingent cash payment upon the occurrence of
certain of events into shares of our common stock.
|
|
| ▪ |
On
September 30, 2009, we sold 250,000 in principal amount of subordinated
7.5% convertible notes due to September 30, 2011 to Daniel Phillips Legacy
Trust 1, dated March 1, 1991.
|
|
| ▪ |
On
September 30, 2009, we sold 250,000 in principal amount of subordinated
7.5% convertible notes due to September 30, 2011 to Abdulaziz M.
Alnamlah.
|
|
| ▪ |
On
September 30, 2009, we sold $25,000 of subordinated 7.5% convertible notes
due to September 30, 2011 to Jacob and Susan
Alpert.
|
The sales
and issuances of securities in the transactions described above were exempt from
registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act, Regulation D promulgated there under or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving any public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each transaction represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the securities issued in these transactions. All recipients had adequate access,
through their relationship with the company, to information about
us.
We
engaged in no underwritten offerings in connection with any of the transactions
set forth in Item herein or any other offering during the past three
years.
Item
16. Exhibits and Financial Statement Schedules
|
Exhibit
Number
|
Description
|
|
|
3.1**
|
Certificate
of Incorporation of US SolarTech, Inc.
|
|
|
3.2**
|
Bylaws
of US SolarTech, Inc.
|
|
|
3.3**
|
Operating
Agreement of Silica Tech, LLC, dated August 25, 2005.
|
|
|
4.1**
|
Subscription
Agreement, dated September 30, 2008 entered into between Silica Tech, LLC
and Abdulaziz M. Alnamlah.
|
|
|
4.2**
|
Letter
Agreement, dated September 30, 2008 between Silica Tech, LLC and Abdulaziz
M. Alnamlah.
|
|
|
4.3**
|
Form
of Consent and Waiver Executed by Members of Silica Tech,
LLC
|
|
|
4.4**
|
Form
of Consent and Conversion Executed by Shareholders of US SolarTech,
Inc.
|
|
|
4.5**
|
Form
of Company Warrant issued in connection with Consent and
Waiver.
|
|
|
4.6**
|
Form
of Warrant issued to Abdulaziz Alnamlah.
|
|
|
4.7**
|
Form
of Option issued to Richard Rozzi.
|
|
|
4.8**
|
Letter
Agreement between the Company and Mohd Aslami regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.9**
|
Letter
Agreement between the Company and Charles DeLuca regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.10**
|
Letter
Agreement between the Company and Steven Phillips regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.11**
|
Letter
Agreement between the Company and Abdulaziz M. Alnamlah regarding
Conversion of Preferred Stock, dated June 15, 2009.
|
|
| 4.12 |
Form
of 7.5% Convertible Subordinated Note.
|
|
| 4.13 |
Form
of Warrant issued in connection With Convertible Subordinated
Notes.
|
|
|
5.1*
|
Legality
Opinion of Daniel E. Baron, Esq.
|
|
|
10.1**
|
Stock
Purchase Agreement, between Silica Tech, LLC and Abdulaziz Alnamlah, dated
October 21, 2007.
|
|
|
10.2* **
|
Asset
Purchase Agreement and Settlement Agreement, between Silica Tech, LLC and
Steve Weiss, in his capacity as Chapter 7 Trustee for the estate of
FiberCore, Inc. pursuant to the Order of the United States Bankruptcy
Court, District of Massachusetts, dated February 3,
2006.
|
|
|
10.3**
|
Lease
Agreement, dated February 15, 2008.
|
|
|
10.4**
|
Employment
Agreement between the Company and Mohd Aslami, dated January 1,
2009.
|
|
|
10.5**
|
Employment
Agreement between the Company and Charles DeLuca, dated January 1,
2009.
|
|
|
10.6**
|
Employment
Agreement between the Company and Steven Phillips, dated January 1,
2009.
|
|
|
10.7**
|
Employment
Agreement between the Company and John Ronnquist, dated May 15,
2009.
|
|
|
10.8**
|
Employment
Agreement between the Company and Dr. Chaun Li, dated May 19,
2009.
|
|
|
10.9**
|
Employment
Agreement between the Silica Tech, LLC and Peter Hansen, dated November
24, 2008.
|
|
|
10.10**
|
Consulting
Agreement between the Company and Dr. Dan Wu, dated June 30,
2009.
|
|
|
10.11**
|
Consulting
Agreement between the Company and Richard Rozzi, dated May 15,
2009.
|
|
|
10.12
|
Form
of Securities Purchase Agreement.
|
|
|
10.13
|
Letter
Agreement between the Company and Abdulaziz Alnamlah, dated as of
September 30, 2009, regarding the Company’s Convertible Subordinated
Notes.
|
|
| 10.14 | Letter Agreement Extending Executive Payable. | |
|
23.1*
|
Consent
of Daniel E. Baron, Esq.
|
|
|
23.2
|
Consent
of Stowe & Degon LLC
|
|
*
|
to
be provided by amendment.
|
|
**
|
previously
filed with Pre-Effective Amendment No. 2 on August 10,
2009.
|
|
| *** |
previously
filed with Pre-Effective Amendment No. 3 on September 10,
2009.
|
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement.
|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
That, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this amended registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of White Plains, State of
New York on October 13 , 2009.
|
US
SOLARTECH, INC.
|
|||
|
|
By:
|
/s/
Mohd Aslami
|
|
|
Name:
Mohd Aslami
|
|||
|
Title:
Chief Executive Officer, President
and
Chief Technology Officer
|
|||
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
|
|
|
|
||
|
Signature
|
Title
|
Date
|
||
|
/s/
Mohd Aslami
Mohd
Aslami
|
Director,
CEO, President, and CTO
|
October 13 , 2009
|
||
|
/s/
Charles DeLuca
Charles
DeLuca
|
Director,
Executive Vice President, Business Development
|
October 13 , 2009
|
||
|
/s/
Steven Phillips
Steven
Phillips
|
Director,
Executive Vice President, Chief Financial Officer
|
October 13 , 2009
|
||
|
/s/
Vinod K. Sareen
Vinod
K. Sareen
|
Director
|
October 13 , 2009
|
||
|
/s/
John Ronnquist
John
Ronnquist
|
Controller
|
October 13,
2009
|
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
3.1**
|
Certificate
of Incorporation of US SolarTech, Inc.
|
|
|
3.2**
|
Bylaws
of US SolarTech, Inc.
|
|
|
3.3**
|
Operating
Agreement of Silica Tech, LLC, dated August 25, 2005.
|
|
|
4.1**
|
Subscription
Agreement, dated September 30, 2008 entered into between Silica Tech, LLC
and Abdulaziz M. Alnamlah.
|
|
|
4.2**
|
Letter
Agreement, dated September 30, 2008 between Silica Tech, LLC and Abdulaziz
M. Alnamlah.
|
|
|
4.3**
|
Form
of Consent and Waiver Executed by Members of Silica Tech,
LLC
|
|
|
4.4**
|
Form
of Consent and Conversion Executed by Shareholders of US SolarTech,
Inc.
|
|
|
4.5**
|
Form
of Company Warrant issued in connection with Consent and
Waiver.
|
|
|
4.6**
|
Form
of Warrant issued to Abdulaziz Alnamlah.
|
|
|
4.7**
|
Form
of Option issued to Richard Rozzi.
|
|
|
4.8**
|
Letter
Agreement between the Company and Mohd Aslami regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.9**
|
Letter
Agreement between the Company and Charles DeLuca regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.10**
|
Letter
Agreement between the Company and Steven Phillips regarding Conversion of
Unpaid Compensation and Unreimbursed Expenses, dated June 15,
2009.
|
|
|
4.11**
|
Letter
Agreement between the Company and Abdulaziz M. Alnamlah regarding
Conversion of Preferred Stock, dated June 15, 2009.
|
|
| 4.12 |
Form
of 7.5% Convertible Subordinated Note.
|
|
| 4.13 |
Form
of Warrant issued in connection With Convertible Subordinated
Notes.
|
|
|
5.1*
|
Legality
Opinion of Daniel E. Baron, Esq.
|
|
|
10.1**
|
Stock
Purchase Agreement, between Silica Tech, LLC and Abdulaziz Alnamlah, dated
October 21, 2007.
|
|
|
10.2* **
|
Asset
Purchase Agreement and Settlement Agreement, between Silica Tech, LLC and
Steve Weiss, in his capacity as Chapter 7 Trustee for the estate of
FiberCore, Inc. pursuant to the Order of the United States Bankruptcy
Court, District of Massachusetts, dated February 3,
2006.
|
|
|
10.3**
|
Lease
Agreement, dated February 15, 2008.
|
|
|
10.4**
|
Employment
Agreement between the Company and Mohd Aslami, dated January 1,
2009.
|
|
|
10.5**
|
Employment
Agreement between the Company and Charles DeLuca, dated January 1,
2009.
|
|
|
10.6**
|
Employment
Agreement between the Company and Steven Phillips, dated January 1,
2009.
|
|
|
10.7**
|
Employment
Agreement between the Company and John Ronnquist, dated May 15,
2009.
|
|
|
10.8**
|
Employment
Agreement between the Company and Dr. Chaun Li, dated May 19,
2009.
|
|
|
10.9**
|
Employment
Agreement between the Silica Tech, LLC and Peter Hansen, dated November
24, 2008.
|
|
|
10.10**
|
Consulting
Agreement between the Company and Dr. Dan Wu, dated June 30,
2009.
|
|
|
10.11**
|
Consulting
Agreement between the Company and Richard Rozzi, dated May 15,
2009.
|
|
|
10.12
|
Form
of Securities Purchase Agreement.
|
|
|
10.13
|
Letter
Agreement between the Company and Abdulaziz Alnamlah, dated as of
September 30, 2009, regarding the Company’s Convertible Subordinated
Notes.
|
|
| 10.14 | Letter Agreement Extending Executive Payable. | |
|
23.1*
|
Consent
of Daniel E. Baron, Esq.
|
|
|
23.2
|
Consent
of Stowe & Degon LLC
|
|
*
|
to
be provided by amendment.
|
|
**
|
previously
filed with Pre-Effective Amendment No. 2 on August 10,
2009.
|
|
| *** |
previously
filed with Pre-Effective Amendment No. 3 on September 10,
2009.
|