Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - POWIN ENERGY CORP | Financial_Report.xls |
| EX-32 - EXHIBIT 32 - POWIN ENERGY CORP | ex32.htm |
| EX-31.1 - EXHIBIT 31.1 - POWIN ENERGY CORP | ex31_1.htm |
| EX-31.2 - EXHIBIT 31.2 - POWIN ENERGY CORP | ex31_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-54015
POWIN CORPORATION
(Exact name of registrant as specified in its charter)
|
NEVADA
|
87-0455378
|
|
(State or other jurisdiction of incorporation or
organization)
|
(IRS Employer Identification Number)
|
20550 SW 115th Ave
Tualatin, OR 97062
(Address of principal executive offices)
T: (503) 598-6659
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report) N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one) Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 14, 2014, there were 16,240,839 shares of Common Stock, $0.001 par value, outstanding and 8,577 shares of Preferred Stock, $100 face value, outstanding.
POWIN CORPORATION
Index
PART I. FINANCIAL INFORMATION
|
Item 1.
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Financial Statements.
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3
|
|
Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013 (audited)
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3
|
|
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Condensed Consolidated Statements of Operations (unaudited)
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4
|
|
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Condensed Consolidated Statements of Comprehensive Loss (unaudited)
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5
|
|
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Condensed Consolidated Statements of Cash Flows (unaudited)
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6
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|
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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|
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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16
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Note Regarding Forward Looking Statements
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16
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|
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Overview
|
||
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Critical Accounting Policies
|
||
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Results of Operations
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17
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Liquidity and Capital Resources
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19
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|
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Off-Balance Sheet Arrangements
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21
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|
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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21
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Item 4.
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Controls and Procedures.
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21
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PART II. OTHER INFORMATION
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||
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Item 1.
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Legal Proceedings.
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21
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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21
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Item 3.
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Defaults Upon Senior Securities.
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22
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Item 4.
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Mine Safety Disclosures.
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22
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Item 5.
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Other Information.
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22
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Item 6.
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Exhibits.
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22
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2
PART I. FINANCIAL INFORMATION
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
Assets
|
(unaudited)
|
(audited)
|
||||||
|
Current Assets
|
||||||||
|
Cash
|
$ | 2,494,081 | $ | 964,039 | ||||
|
Accounts receivable, net
|
1,855,183 | 1,784,358 | ||||||
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Notes and other receivables, net
|
162,185 | 151,580 | ||||||
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Inventories, net
|
2,107,383 | 1,831,453 | ||||||
|
Prepaid expenses and deposits
|
549,417 | 316,268 | ||||||
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Total current assets
|
7,168,249 | 5,047,698 | ||||||
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Property and equipment, net
|
1,635,750 | 1,991,688 | ||||||
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Intangible assets, net
|
59,531 | 87,793 | ||||||
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Total assets
|
$ | 8,863,530 | $ | 7,127,179 | ||||
|
Liabilities and shareholders' deficit
|
||||||||
|
Current Liabilities
|
||||||||
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Accounts payable
|
$ | 2,400,543 | $ | 1,652,238 | ||||
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Accrued payroll and other accrued liabilities
|
4,173,986 | 1,016,277 | ||||||
|
Notes payables and current portion of long-term debt
|
2,709,152 | 2,503,761 | ||||||
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Payable to related parties - current
|
4,856,541 | 2,603,727 | ||||||
|
Total current liabilities
|
14,140,222 | 7,776,003 | ||||||
|
Non-Current Liabilities
|
||||||||
|
Notes payables and long-term debt - non current
|
29,952 | 236,482 | ||||||
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Payble to related parties - non current
|
- | - | ||||||
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Total non-current Liabilities
|
29,952 | 236,482 | ||||||
|
Total liabilities
|
14,170,174 | 8,012,485 | ||||||
|
Stockholders' deficit
|
||||||||
|
Preferred stock, $100 face value, 25,000,000 shares Authorized;
|
||||||||
|
8,577 and 8,084 shares issued and outstanding, respectively
|
857,700 | 808,400 | ||||||
|
Common stock, $0.001 par value, 575,000,000 shares Authorized;
|
||||||||
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16,240,839 and 16,232,755 shares issued and outstanding, respectively
|
16,241 | 16,233 | ||||||
|
Additional paid-in capital
|
10,556,789 | 10,460,896 | ||||||
|
Accumulated other comprehensive loss
|
(21,328 | ) | (22,109 | ) | ||||
|
Accumulated deficit
|
(16,151,771 | ) | (11,725,904 | ) | ||||
|
Non-controlling interest
|
(564,275 | ) | (422,822 | ) | ||||
|
Total stockholders' deficit
|
(5,306,644 | ) | (885,306 | ) | ||||
|
Total liabilities and shareholders' deficit
|
$ | 8,863,530 | $ | 7,127,179 | ||||
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
|
3
|
POWIN CORPORATION
|
|||||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
||||||||||||||||
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
Net sales
|
$ | 3,245,037 | $ | 3,397,720 | $ | 8,249,464 | $ | 14,894,731 | ||||||||
|
Cost of sales
|
2,430,737 | 2,888,414 | 6,885,498 | 13,180,389 | ||||||||||||
|
Gross profit
|
814,300 | 509,306 | 1,363,966 | 1,714,342 | ||||||||||||
|
Operating expenses
|
1,909,181 | 1,634,038 | 5,667,092 | 4,795,265 | ||||||||||||
|
Loss from operations
|
(1,094,881 | ) | (1,124,732 | ) | (4,303,126 | ) | (3,080,923 | ) | ||||||||
|
Other income (expense)
|
||||||||||||||||
|
Other income
|
4,306 | 27,710 | 14,888 | 72,553 | ||||||||||||
|
Interest expense
|
(104,291 | ) | (51,256 | ) | (275,532 | ) | (136,522 | ) | ||||||||
|
Loss on sales of assets
|
(7,300 | ) | (4,977 | ) | (7,300 | ) | (4,977 | ) | ||||||||
|
Other expenses
|
- | - | - | (339,182 | ) | |||||||||||
|
Other expenses
|
(107,285 | ) | (28,523 | ) | (267,944 | ) | (408,128 | ) | ||||||||
|
Loss before income taxes
|
(1,202,166 | ) | (1,153,255 | ) | (4,571,070 | ) | (3,489,051 | ) | ||||||||
|
Provision for income taxes
|
(11,250 | ) | 1,962 | (3,750 | ) | 17,962 | ||||||||||
|
Net loss
|
(1,190,916 | ) | (1,155,217 | ) | (4,567,320 | ) | (3,507,013 | ) | ||||||||
|
Net loss attributable to non-controlling interest in subsidiaries
|
(45,145 | ) | (49,119 | ) | (141,453 | ) | (101,103 | ) | ||||||||
|
Net loss attributable to Powin Corporation
|
(1,145,771 | ) | (1,106,098 | ) | (4,425,867 | ) | (3,405,910 | ) | ||||||||
|
Loss per share:
|
||||||||||||||||
|
Basic
|
$ | (0.08 | ) | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.22 | ) | ||||
|
Diluted
|
$ | (0.08 | ) | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.22 | ) | ||||
|
Weighted average shares outstanding:
|
||||||||||||||||
|
Basic
|
16,237,839 | 16,228,851 | 16,235,357 | 16,226,851 | ||||||||||||
|
Diluted
|
16,237,839 | 16,228,851 | 16,235,357 | 16,226,851 | ||||||||||||
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
|
4
|
POWIN CORPORATION
|
|||||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|||||||||
|
(Unaudited)
|
|
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
|
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||
|
Net loss
|
$ | (1,190,916 | ) | $ | (1,155,217 | ) | $ | (4,567,320 | ) | $ | (3,507,013 | ) | |||||
|
Other comprehensive loss
|
|
|
|
|
|||||||||||||
|
Foreign currency translation adjustment
|
85 | 1,198 | 781 | 460 | |||||||||||||
|
Comprehensive loss
|
(1,190,831 | ) | (1,154,019 | ) | (4,566,539 | ) | (3,506,553 | ) | |||||||||
|
|
|
|
|
|
|
||||||||||||
|
Comprehensive loss attributable to non-controlling
interest in subsidiaries
|
(45,249 | ) | (48,939 | ) | (141,453 | ) | (101,033 | ) | |||||||||
|
Comprehensive loss attributable to Powin
Corporation
|
$ | (1,145,582 | ) | $ | (1,105,080 | ) | $ | (4,425,086 | ) | $ | (3,405,520 | ) | |||||
|
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
|
||||||||
5
|
POWIN CORPORATION
|
||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||
|
(Unaudited)
|
|
Nine months ended September 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
OPERATING ACTIVITIES
|
||||||||
|
Net loss attributable to Powin Corporation
|
$ | (4,425,867 | ) | $ | (3,405,910 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||
|
Net loss attributable to non-controlling interest in subsidiary
|
(141,453 | ) | (101,103 | ) | ||||
|
Depreciation and amortization
|
388,269 | 187,083 | ||||||
|
Reserve for slow moving and obsolete inventory
|
304,786 | 336,537 | ||||||
|
Share based compensation
|
145,201 | 217,201 | ||||||
|
Warrants expenses
|
- | 244,845 | ||||||
|
Loss on disposal of equipment
|
7,300 | 4,977 | ||||||
|
Provision for (recovery of) doubtful accounts receivable
|
1,002 | (12,475 | ) | |||||
|
Provision for doubtful other receivable
|
63,231 | 8,354 | ||||||
|
Interest expenses for loans from related parties
|
163,846 | |||||||
|
Interest expenses for notes payable
|
104,369 | - | ||||||
|
Changes in operating assets and liabilities
|
||||||||
|
Accounts receivable
|
(71,827 | ) | 336,622 | |||||
|
Due from related parties
|
- | 282,251 | ||||||
|
Notes and other receivables
|
(73,836 | ) | 550,658 | |||||
|
Inventories
|
(580,716 | ) | (825,285 | ) | ||||
|
Prepaid expenses and deposits
|
(233,149 | ) | 150,384 | |||||
|
Accounts payable
|
748,306 | (158,196 | ) | |||||
|
Accrued payroll and other liabilities
|
3,157,709 | (124,621 | ) | |||||
|
Net cash used in operating activities
|
(442,829 | ) | (2,308,678 | ) | ||||
|
INVESTING ACTIVITIES
|
||||||||
|
Notes receivable
|
- | (121,854 | ) | |||||
|
Acquisition of intangible assets
|
- | (93,306 | ) | |||||
|
Capital expenditures
|
(11,369 | ) | (191,971 | ) | ||||
|
Proceeds from disposal of equipment
|
- | 2,000 | ||||||
|
Total cash used in investing activities
|
(11,369 | ) | (405,131 | ) | ||||
|
FINANCING ACTIVITIES
|
||||||||
|
Net repayments under line-of-credit
|
- | (1,600,000 | ) | |||||
|
Proceeds from notes payables and debt
|
200,000 | - | ||||||
|
Repayments to notes payables and debt
|
(305,508 | ) | (125,667 | ) | ||||
|
Net proceeds from payable to related parties
|
2,088,967 | 4,129,205 | ||||||
|
Net cash provided by financing activities
|
1,983,459 | 2,403,538 | ||||||
|
Impact of foreign exchange on cash
|
781 | 460 | ||||||
|
Net increase (decrease) in cash
|
1,530,042 | (309,811 | ) | |||||
|
Cash at beginning of period
|
964,039 | 1,220,014 | ||||||
|
Cash at end of period
|
$ | 2,494,081 | $ | 910,203 | ||||
|
SUPPLEMENTAL DISCLOURSE OF CASH FLOW INFORMATION
|
||||||||
|
Interest paid
|
$ | 7,401 | $ | 21,403 | ||||
|
Income taxes paid
|
$ | 11,250 | $ | 23,851 | ||||
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
|
6
POWIN CORPORATION
Note 1 – Summary of Significant Accounting Policies
Basis of preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.
In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the nine-month period ended September 30, 2014, are not necessarily indicative of the results to be expected for other interim periods or for the full year ended December 31, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities Exchange Commission.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Powin Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
Cash and cash equivalents
The Company considers all highly liquid investments with maturity of three months or less to be cash equivalents. The cash deposits in U.S. financial institutions exceed the amounts insured by the U.S. government. The standard insurance amount is $250,000 per depositor, per insured bank. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. At September 30, 2014 and December 31, 2013, the Company’s bank balances exceeded insurances balances by $1,548,733 and $161,774, respectively. At September 30, 2014 and December 31, 2013, the Company had no cash equivalents.
Inventories
Inventories consist of parts and equipment including electronic parts and components, furniture, rubber products, plastic products and exercise equipment. Inventory is valued at the lower of cost (first-in, first-out method) or market. The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state. For the nine months ended September 30, 2014 and 2013, the Company recorded (recovery) and provision for inventory obsolescence of 304,786 and $336,537, respectively, which is included in cost of sales. The components of inventories were as follows:
7
|
September 30, 2014
(Unaudited)
|
December 31, 2013
(Audited)
|
|||||||
|
Raw materials
|
$
|
430,055
|
$
|
249,289
|
||||
|
Work in progress
|
109,595
|
35,601
|
||||||
|
Finished goods
|
2,746,987
|
2,421,031
|
||||||
|
Reserve for slow moving and obsolete inventory
|
(1,179,254
|
)
|
$
|
(874,468
|
)
|
|||
|
Inventories, net
|
$
|
2,107,383
|
$
|
1,831,453
|
||||
Foreign currencies
Assets and liabilities recorded in foreign currencies are translated to U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated to U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).
Use of estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires the use of management’s estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.
Segment reporting
ASC 280, Segment Reporting, formerly known as Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, requires use of the “management approach” model for segment reporting. Under this model, segment reporting is consistent with the manner that the Company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management disaggregates a company.
Note 2: Going concern
The Company sustained operating losses during the nine months ended September 30, 2014 and 2013 and for the years ended December 31, 2013 and 2012 and incurred negative cash flows from operations in those same periods. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
8
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Note 3: Loss per share
Basic loss per share is based on the weighted-average effect of all common shares issued and outstanding, and is calculated by dividing net loss by the weighted-average shares outstanding during the year. Diluted loss per share is calculated by dividing net income by the weighted-average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive.
The components of basic and diluted loss per share are as follows:
|
For the three months ended September 30,
|
For the nine months ended September 30,
|
|||||||||||||||
|
2014
(Unaudited)
|
2013
(Unaudited) )
|
2014
(Unaudited)
|
2013
(Unaudited)
|
|||||||||||||
|
Net loss attributable to common shareholders
|
$ |
(1,190,916
|
)
|
$ |
(1,155,217
|
)
|
$ |
(4,567,320
|
)
|
$ |
(3,507,013
|
)
|
||||
|
Less preferred share dividends
|
(49,300)
|
-
|
(49,300)
|
-
|
||||||||||||
|
Net loss available to common shareholders (A)
|
(1,240,216
|
)
|
(1,155,217
|
)
|
(4,616,620
|
)
|
(3,507,013
|
)
|
||||||||
|
Weighted average outstanding shares of
common stock (B)
|
16,237,839
|
16,228,85
|
1
|
16,235,357
|
16,226,851
|
|||||||||||
|
Dilutive effect of securities
|
-
|
-
|
-
|
-
|
||||||||||||
|
Common stock and common stock equivalents (C)
|
16,237,839
|
16,228,85
|
1
|
16,235,357
|
16,226,851
|
|||||||||||
|
Loss per share
|
||||||||||||||||
|
Basic (A/B)
|
$
|
(0.08
|
)
|
$
|
(0.07
|
)
|
$
|
(0.28
|
)
|
$
|
(0.22
|
)
|
||||
|
Diluted (A/C)
|
$
|
(0.08
|
)
|
$
|
(0.07
|
)
|
$
|
(0.28
|
)
|
$
|
(0.22
|
)
|
||||
For the three and nine months ended September 30, 2014 and 2013, the effect of warrants, stock options and convertible preferred stock are excluded from loss per share because their impact is considered to be anti-dilutive.
9
Note 4: Notes Payable and Long Term Debt
Due to the extension of the promissory notes, the current and non current portions has been reclassed on December 31, 2013.
The total carrying value of notes payables and long-term debt, including current and long-term portions, was as follows:
|
September 30, 2014
|
December 31, 2013
|
|||||||||||||||
|
(Unaudited)
|
(Audited)
|
|||||||||||||||
|
Current
|
Non
Current
|
Current
|
Non
Current
|
|||||||||||||
|
Equipment loan starting September 20, 2011, due September 21, 2016, with 3.05%
interest rate, with no collateral，fully paid back on August 29, 2014
|
$ | - | $ | - | $ | 100,000 | $ | 175,000 | ||||||||
|
Equipment loan starting December 18, 2012, due June 1, 2016, with 3.05% interest
rate, with no collateral
|
41,867 | 29,952 | 40,845 | 61,482 | ||||||||||||
|
Loan from a third party, starting December 20, 2013, due December 31, 2014, with
6% interest rate, with no collateral
|
270,000 | - | 270,000 | - | ||||||||||||
|
Loan from a third party, starting March 26, 2013, due June 30, 2015, with 6%
interest rate, with no collateral
|
2,000,000 | - | 2,000,000 | - | ||||||||||||
|
Loan from a third party, starting July 16, 2014, due July 31, 2015, with 6%
interest rate, with no collateral
|
200,000 | - | - | - | ||||||||||||
|
Accrued interest
|
197,285 | - | 92,916 | - | ||||||||||||
|
Total long-term debt, including current portion and accrued
interest
|
$ | 2,709,152 | $ | 29,952 | $ | 2,503,761 | $ | 236,482 | ||||||||
Interest expenses related to notes payables and long-term debt amounted to $104,369 and $73,467 for the nine months ended September 30, 2014 and 2013, respectively. Interest expenses related to notes payables and long-term debt amounted to $31,218 and $33,774 for the three months ended September 30, 2014 and 2013, respectively.
Note 5: Capital stock
For the nine months ended September 30, 2014 the Company issued 8,000 shares of common stock to five board members as compensation for their services.
For the three months ended March 31, 2014 each of five directors received 500 shares of Common Stock valued at $2.00 per share for their services.
For the three months ended June 30, 2014 each of five directors received 500 shares of Common Stock valued at $2.00 per share for their services.
For the three months ended September 30, 2014 each of six directors received 500 shares of Common Stock valued at $1.65 per share for their service.
Note 6: Payable To Related parties
Rent From Related Parties
All of the Company’s facilities are owned by Lu Pacific Properties LLC, (“Lu Pacific”) formerly named Powin Pacific Properties LLC, a company owned by Joseph Lu (“Mr. Lu”), CEO and Chairman of the Board. Rent expenses were $152,304 for the three months ended September 30, 2014 and 2013. Rent expenses were $529,746 for the nine months ended September 30, 2014 and 2013. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.
Notes Payable To Related Parties
As of September 30, 2014, notes payable to Lu Pacific amounted to $508,475. The Company borrowed $508,475 and paid back $0 during the nine months ended September 30, 2014.
Mr. Lu previously owned 45% of Logan Outdoor Products, LLC, though he sold his ownership in 2013. The Company made sales to Logan Outdoor Products in the amount of $0 and $0 for the three months ended September 30, 2014 and 2013, respectively. The Company made sales to Logan Outdoor Products in the amount of $0 and $3,977,854 for the nine months ended September 30, 2014 and 2013, respectively. There were no amounts due from or payable to Logan Outdoor Products at September 30, 2014 and December 31, 2013, respectively.
Mr. Lu, previously owned a 50% ownership interest in CoSource USA, LLC (“CoSource”) and was its managing member. Effective April 26, 2013, the Company’s wholly-owned subsidiary, Powin Manufacturing Corporation (“Powin Manufacturing”) and Quality Bending & Fabrication, Inc., (“QBF”) entered into an Asset Acquisition Agreement with CoSource to acquire all of the latter’s assets. The purchase price was $493,095. Other expense of $339,181 was booked in relation to this acquisition in 2013.
10
As of September 30, 2014, notes payable to Mr. Lu amounted to $2,970,493. The Company borrowed $470,493 and paid back $0 during the nine months ended September 30, 2014.
Peter Lu is Mr. Lu’s son. As of September 30, 2014, notes payable to Peter Lu amounted to $555,000. The Company borrowed $555,000 and paid back $0 during the nine months ended September 30, 2014.
Danny Lu is Mr. Lu’s son. Danny Lu is also a director of the Company. As of September 30, 2014, notes payable to Danny Lu amounted to $555,000. The Company borrowed $555,000 and paid back $0 during the nine months ended September 30, 2014.
Danny Lu and Peter Lu together own 20% of PEI MFG, LLC (“PEI”). The Company made sales to PEI in the amount of $299,796 and $84,771 for the three months ended September 30, 2014 and 2013, respectively. The Company made sales to PEI in the amount of $562,876 and $274,568 for the nine months ended September 30, 2014 and 2013, respectively. There were no amounts payable to PEI at September 30, 2014 and December 31, 2013, respectively. Amounts due from PEI amounted to $171,684 and $45,521 at September 30, 2014 and December 31, 2013, respectively.
Due to the extension of the promissory notes, the current and non current portions has been reclassed on December 31, 2013.
The total carrying value of payable to related parties, including current and long-term portions, was as follows:
|
September 30, 2014
|
December 31, 2013
|
|||||||||||||||
|
(Unaudited)
|
(Audited)
|
|||||||||||||||
|
Current
|
Non Current
|
Current
|
Non Current
|
|||||||||||||
|
Loan from Mr. Lu, starting March 11, 2013, due June 30, 2015, with 6% interest
rate, with no collateral
|
$ | 2,000,000 | $ | - | $ | 2,000,000 | $ | - | ||||||||
|
Loan from Mr. Lu, starting October 15, 2013, due June 30, 2015, with 6% interest
rate, with no collateral
|
500,000 | - | 500,000 | - | ||||||||||||
|
Loan from Mr. Lu, starting May 15, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
200,000 | - | - | - | ||||||||||||
|
Loan from Mr. Lu, starting June 11, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
70,492 | - | - | - | ||||||||||||
|
Loan from Mr. Lu, starting June 25, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
200,000 | - | - | - | ||||||||||||
|
Loan from Lu Pacific, starting April 29, 2014, due July 31, 2015, with 6% interest
rate, with no collateral
|
300,000 | - | - | - | ||||||||||||
|
Loan from Lu Pacific, starting August 29, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
208,475 | - | - | - | ||||||||||||
|
Loan from Danny, starting January 27, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
250,000 | - | - | - | ||||||||||||
|
Loan from Danny, starting February 24, 2014, due July 31, 2015, with 6% interest
rate, with no collateral
|
100,000 | - | - | - | ||||||||||||
|
Loan from Danny, starting March 28, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
100,000 | - | - | - | ||||||||||||
|
Loan from Danny, starting August 4, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
80,000 | - | - | - | ||||||||||||
|
Loan from Danny, starting August 15, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
25,000 | - | - | - | ||||||||||||
|
Loan from Peter, starting February 11, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
250,000 | - | - | - | ||||||||||||
|
Loan from Peter, starting March 28, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
200,000 | - | - | - | ||||||||||||
|
Loan from Peter, starting August 4, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
80,000 | - | - | - | ||||||||||||
|
Loan from Peter, starting August 15, 2014, due June 30, 2015, with 6% interest
rate, with no collateral
|
25,000 | - | - | - | ||||||||||||
|
Accrued interest
|
267,574 | - | 103,727 | - | ||||||||||||
|
Total payable related parties, including current portion and accrued interest
|
$ | 4,856,541 | $ | - | $ | 2,603,727 | $ | |||||||||
11
Interest expenses related to payable to related parties amounted to $163,846 and $67,068 for the nine months ended September 30, 2014 and 2013, respectively. Interest expenses related to payables to related parties amounted to $65,609 and $30,246 for the three months ended September 30, 2014 and 2013, respectively.
Proceeds during the nine months ended September 30, 2014
Proceeds from payables to related parties include the following for the nine months ended September 30, 2014:
On January 27, 2014, the Company borrowed an additional $250,000 from Danny Lu. The note is due September 30, 2014 and accrues interest at 6%. Danny Lu is the son of Mr. Lu. The note is extended to June 30, 2015, with interest rate of 6%.
On February 11, 2014, the Company borrowed an additional $250,000 from Peter Lu. The note is due September 30, 2014 and accrues interest at 6%. Peter Lu is the son of Mr. Lu. The note is extended to June 30, 2015, with interest rate of 6%.
On February 24, 2014, the Company borrowed an additional $100,000 from Danny Lu. The note is due July 31, 2015 and accrues interest at 6%.
On March 28, 2014, the Company borrowed an additional $100,000 from Danny Lu. The note is due September 30, 2014 and accrues interest at 6%. The note is extended to June 30, 2015, with interest rate of 6%.
On March 28, 2014, the Company borrowed an additional $200,000 from Peter Lu. The note is due September 30, 2014 and accrues interest at 6%. The note is extended to June 30, 2015, with interest rate of 6%.
On April 29, 2014, the Company issued a promissory note in the amount of $300,000 to Lu Pacific. The note is due July 31, 2015 and accrues interest at 6%.
On May 15, 2014, the Company borrowed an additional $200,000 from Mr. Lu. The note is due September 30, 2014 and accrues interest at 6%. The note is extended to June 30, 2015, with interest rate of 6%.
On June 11, 2014, the Company borrowed an additional $70,492 from Mr. Lu. The note is due July 15, 2014 and accrues interest at 6%. The note is extended to June 30, 2015, with interest rate of 6%.
On June 25, 2014, the Company borrowed an additional $200,000 from Mr. Lu. The note is due July 1st, 2014 and accrues interest at 5%. The note is extended to June 30, 2015, with interest rate of 6%.
On August 4, 2014, the Company issued a promissory note in the amount of $80,000 to Danny Lu. The note is due June 30, 2015, is with no collateral, and accrues interest at 6%.
On August 4, 2014, the Company issued a promissory note in the amount of $80,000 to Peter Lu. The note is due June 30, 2015, is with no collateral, and accrues interest at 6%.
12
On August 15, 2014, the Company issued a promissory note in the amount of $25,000 to Danny Lu . The note is due June 30, 2015, is with no collateral, and accrues interest at 6%.
On August 15, 2014, the Company issued a promissory note in the amount of $25,000 to Peter Lu. The note is due June 30, 2015, is with no collateral, and accrues interest at 6%.
On August 29, 2014, the Company issued a promissory note in the amount of $208,475 to Lu Pacific. The note is due June 30, 2015 and accrues interest at 6%.
Note 7: Business segment reporting
Basis for Presentation
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1.
Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment’s payroll, inventory sourcing and overall operations when each segment has working capital requirements. Corporate overhead costs are allocated to segments based on management’s estimates of the consumption of such services by each segment.
A description of our operating segments as of September 30, 2014 and September 30, 2013, follows.
Contract manufacturing (formerly OEM):
Outsourced manufacturing for North American companies, including senior citizen safety products; steel gun safes; outdoor cooking equipment; trampolines; plastic products and small electronic appliances. Contract manufacturing also offers logistic services and a qualified engineer team to support and provide in-house design.
Manufacturing (formerly QBF):
Our manufacturing segment, Powin Manufacturing formerly named Quality Bending and Fabrication (“QBF”), manufactures various truck parts and components primarily for Freightliner Trucks, a division of Daimler Trucks North America, the largest manufacturer of heavy-duty vehicles in North America. Daimler Trucks North America designs, builds and markets a wide range of Class 3-8 vehicles including long-haul highway tractors, heavy-duty construction and vocational trucks, mid-range trucks for distribution and service, school and transit buses, fire and emergency service apparatus, and chassis for step vans, school and shuttle buses, and motor homes. Freightliner Trucks is headquartered in Portland, Oregon, with truck manufacturing facilities located in Portland and throughout the United States and Mexico.
Manufacturing is completed at the Company’s leased facility in Tualatin, Oregon as well as arranging the outsourced manufacturing at a third-party factory in Qingdao, China.
13
Energy:
Powin Energy has developed market leading architecture that utilizes proprietary patent-pending energy storage technology for scalable grid energy storage systems, power supply units for electric vehicles, and transportation applications. Through December 31, 2013, the Energy segment has focused on identifying target markets and applications and finalizing the development of products to serve those markets and applications. The Company expects increased operations from this segment in 2014.
Product & Service (formerly Channel Partner Program, Warehousing and Wooden)
The Product & Service segment contains the legacy operations of Channel Partner Program, a distribution channel for North American companies to sell their products in China as well as selling certain consumer products through U.S.-based retailers and marketplaces, including online; and Warehousing, which provides warehousing services in support of the Company’s customers across all segments. The segment will be used for future products and services that are not related to an existing segment and haven’t reach a level to require separate management and segmentation.
Powin Mexico is a manufacturing segment, currently manufacturing gun safes, but also capable of manufacturing heavy truck parts. Operations began in 2013, but are expected to increase in 2014.
Revenues and net loss before income taxes of each of the Company’s segments are as follows:
|
Three months ended September 30,
|
||||||||
|
2014 (Unaudited)
|
2013 (Unaudited)
|
|||||||
|
Revenue
|
||||||||
|
Contract manufacturing
|
$
|
1,592,210
|
$
|
2,172,945
|
||||
|
Manufacturing
|
1,383,112
|
1,131,574
|
||||||
|
Energy
|
241,854
|
37,290
|
||||||
|
Mexico
|
20,383
|
23,637
|
||||||
|
Product & Service
|
7,478
|
32,274
|
||||||
|
Consolidated
|
$
|
3,245,037
|
$
|
3,397,720
|
||||
14
|
Three months ended September 30,
|
||||||||
|
2014 (Unaudited)
|
2013 (Unaudited)
|
|||||||
|
Net loss before income taxes
|
||||||||
|
Contract manufacturing
|
$
|
62,819
|
$
|
(28,748
|
)
|
|||
|
Manufacturing
|
101,432
|
55,510
|
||||||
|
Energy
|
(973,154
|
)
|
(828,613
|
)
|
||||
|
Mexico
|
(300,964
|
)
|
(327,458
|
)
|
||||
|
Product & Service
|
5,891
|
(23,946
|
)
|
|||||
|
Corporate
|
(98,190
|
)
|
-
|
|||||
|
Consolidated
|
$
|
(1,202,166
|
)
|
$
|
(1,153,255
|
)
|
||
|
Nine months ended September 30,
|
||||||||
|
2014 (Unaudited)
|
2013 (Unaudited)
|
|||||||
|
Revenue
|
||||||||
|
Contract manufacturing
|
$
|
4,006,373
|
$
|
11,106,730
|
||||
|
Manufacturing
|
3,718,091
|
3,348,595
|
||||||
|
Energy
|
451,504
|
191,216
|
||||||
|
Mexico
|
59,576
|
71,519
|
||||||
|
Product & Service
|
13,920
|
176,671
|
||||||
|
Consolidated
|
$
|
8,249,464
|
$
|
14,894,731
|
||||
15
|
Nine months ended September 30,
|
||||||||
|
2014 (Unaudited)
|
2013 (Unaudited)
|
|||||||
|
Net loss before income taxes
|
||||||||
|
Contract manufacturing
|
$
|
(260,828
|
)
|
$
|
(383,309
|
)
|
||
|
Manufacturing
|
(89,084
|
)
|
(329,206
|
)
|
||||
|
Energy
|
(3,022,664
|
)
|
(2,043,803
|
)
|
||||
|
Mexico
|
(943,017
|
)
|
(674,018
|
)
|
||||
|
Product & Service
|
5,116
|
(58,715
|
)
|
|||||
|
Corporate
|
(260,593
|
)
|
-
|
|||||
|
Consolidated
|
$
|
(4,571,070
|
)
|
$
|
(3,489,051
|
)
|
||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Note Regarding Forward Looking Statements
This information should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on April 15, 2014, and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.
References to “Powin,” the “Company,” “we,” “our” and “us” refer to Powin Corporation and its wholly owned and majority-owned subsidiaries, unless the context specifically states otherwise.
Basis of presentation
Effective January 1, 2014, the Company reorganized and renamed certain segments and changed the methodology for allocating corporate overhead costs. The below table lists legal entities and corresponding business segments as defined in the 10-Q compared to those described in previous filings.
|
As described in previous filings
|
|||||
|
Legal entity name
|
Business segment
name
|
Legal entity name
|
Business
segment
name
|
||
|
Powin Corporation
|
Holding company and Corporate
|
Powin Corporation
|
Holding company
|
||
|
Powin Contract Manufacturing Corporation
|
Contract manufacturing
|
Powin Contract Manufacturing Corporation
|
Contract manufacturing
|
||
|
Powin Manufacturing Corporation
|
Manufacturing
|
Powin Manufacturing Corporation
|
Manufacturing
|
||
|
Powin Energy Corporation
|
Energy
|
Powin Energy Corporation
|
Energy
|
||
|
Powin Product and Service Corporation
|
Product and service
|
Powin Wooden Product Service, Inc.
|
Warehousing
|
(a)
|
|
|
Channel Partner Program
|
CPP
|
(a)
|
|||
|
Powin Industries S.A. de C.V.
|
Mexico
|
Powin Industries S.A. de C.V.
|
Mexico
|
||
16
|
(a)
|
Effective January 1, 2014, the business segments formerly known as Warehousing and CPP were combined into a legal entity that was renamed Powin Product and Service Corporation. The corresponding business segment is named Product and Service and currently has limited operations and no employees.
|
The following table presents the Company’s revenues by business segment, for the three months ended September 30, 2014 and 2013:
|
Three months ended September 30,
|
||||||||||||||||
|
2014(Unaudited)
|
2013 (Unaudited)
|
$ Change
|
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
Contract manufacturing
|
$
|
1,592,210
|
$
|
2,172,945
|
(580,735
|
)
|
(26.7
|
)%
|
||||||||
|
Manufacturing
|
1,383,112
|
1,131,574
|
251,538
|
22.2
|
%
|
|||||||||||
|
Energy
|
241,854
|
37,290
|
204,564
|
548.6
|
%
|
|||||||||||
|
Mexico
|
20,383
|
23,637
|
(3,254
|
)
|
(13.8)
|
%
|
||||||||||
|
Product & Service
|
7,478
|
32,274
|
(24,796
|
)
|
(76.8)
|
%
|
||||||||||
|
Consolidated
|
$
|
3,245,037
|
$
|
3,397,720
|
(152,683
|
)
|
(4.5
|
)%
|
||||||||
Consolidated net sales for the three months ended September 30, 2014, decreased approximately $200 thousand or 4.5% from the same period of 2013. The decrease was substantially all in the contract manufacturing segment, which experienced a revenue decline of approximately $600 thousand or 26.7% compared to the third quarter of 2013. The primary reason for the decrease was the loss of two customers that began purchasing directly from the manufacturers. On a sequential basis, Contract manufacturing revenues for the third quarter of 2014 were up $474 thousand or 42.4% from the second quarter of 2014.
17
For the three months ended September 30, 2014, compared to the same period last year, all other segments performed as expected. Manufacturing sales increased approximately $252 thousand or 22% due to sales to the segment’s primary customer, Daimler Trucks North America, decreased during the three months ended September 30, 2014 compared to the same period last year. Energy sales increased approximately $205 thousand or 549% due to continued investment being made by the Company in this segment’s sales and new product development. Mexico sales decreased approximately $3 thousand or 14% primary due to the truck parts sold to Daimler by Mexico last year were moved back to supply by Powin Manufacturing in 2014. Mexico segment is ramping production and expects to see revenues increase in 2015. Product and Service revenue decreased approximately $25 thousand or 77% as the Company phased out the legacy businesses within this segment.
Consolidated operating expenses for the three months ended September 30, 2014, increased approximately $275 thousand dollars or 16.8%, from $1.6 million in the same period of 2013 to $1.9 million. The increase is primarily in salaries and professional fees in Energy to prepare the segment for the launch of new products in the third half of 2014.
For the three months ended September 30, 2014, the Company had net loss of approximately $1.19 million or $0.08 per share, compared to net loss of approximately $1.16 million or $0.07 per share for the same period of 2013. The net loss increased is primarily due to increased operating expenses.
The following table presents the Company’s revenues by business segment, for the nine months ended September 30, 2014 and 2013:
|
Nine months ended September 30,
|
||||||||||||||||
|
2014 (Unaudited)
|
2013 (Unaudited)
|
$ Change
|
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
Contract manufacturing
|
$
|
4,006,373
|
$
|
11,106,730
|
(7,100,357
|
)
|
(63.9
|
)%
|
||||||||
|
Manufacturing
|
3,718,091
|
3,348,595
|
369,496
|
11.0
|
%
|
|||||||||||
|
Energy
|
451,504
|
191,216
|
260,288
|
136.1
|
%
|
|||||||||||
|
Mexico
|
59,576
|
71,519
|
(11,943
|
)
|
(16.7)
|
%
|
||||||||||
|
Product & Service
|
13,920
|
176,671
|
(162,751
|
)
|
(92.1)
|
%
|
||||||||||
|
Consolidated
|
$
|
8,249,464
|
$
|
14,894,731
|
(6,645,267
|
)
|
(44.6
|
)%
|
||||||||
Consolidated net sales for the nine months ended September 30, 2014, decreased approximately $6.6 million or 44.6% from the same period of 2013. The decrease was substantially all in the contract manufacturing segment, which experienced a revenue decline of approximately $7.1 million or 63.9% compared to the first three quarters of 2013. The primary reason for the decrease was the loss of two customers that began purchasing directly from the manufacturers. On a sequential basis, Contract manufacturing revenues for the third quarter of 2014 were down $178 thousand or 13.7% from the first quarter of 2014.
18
For the nine months ended September 30, 2014, compared to the same period last year, all other segments performed as expected. Manufacturing sales increased approximately $369 thousand or 11% as the relationship with the segment’s primary customer, Daimler Trucks North America, improved during the nine months ended September 30, 2014 compare to the same period last year. The Energy sales increased approximately $260 thousand or 136% primarily due to continued investment being made by the company in this segment’s sales and new product development. The Energy segment is finalizing its product offerings and expects to book orders in 2015. Likewise, the Mexico segment is ramping production and expects to see revenues increase in the second half of the year.
Mexico sales decreased approximately $12 thousand or 17% primary due to the truck parts sold to Daimler by Mexico last year were moved back to supply by Powin Manufacturing in 2014. Product and Service revenue decreased $163 thousand or 92% as the Company phased out the legacy businesses within this segment.
Consolidated operating expenses for the nine months ended September 30, 2014, increased approximately $872 thousand dollars or 18.2%, from $4.8 million in the same period of 2013 to $5.7 million. The increase is primarily in salaries and professional fees in Energy to prepare the segment for the launch of new products in the third quarters of 2014.
For the nine months ended September 30, 2014, the Company had net loss of approximately $4.6 million or $0.28 per share, compared to net loss of approximately $3.5 million or $0.22 per share for the same period of 2013. As reported above the net loss increased is primarily due to increased operating expenses.
Liquidity and Capital Resources
Cash used in operating activities were approximately $0.44 million for the nine months ended September 30, 2014, compared to $2.31 million for the same period in 2013. The decrease of cash used in operating activities is mainly due to more increase in accrued payroll and other liabilities, more increase of accounts payable, less purchase of inventories, offset by decreased net income, and more increase of notes and other receivable.
Cash used in investing activities was $11 thousand and $405 thousand during the nine months ended September 30, 2014 and 2013, respectively, as the Company has eliminated all non-critical capital expenditures and did not acquire any intangible assets during the nine months ended September 30, 2014.
Net cash provided from financing activities was $2.0 million and $2.4 million during the nine months ended September 30, 2014 and 2013, respectively. The decrease is due to less proceeds from payables from related parties offset by decreased payments to line of credit.
19
During the nine months ended September 30, 2014, the Company borrowed $2,088,967 from related parties for operating cash flows as follows:
|
Lender
|
Due Date
|
Interest rate
|
Amount
|
|
|
January 27, 2014
|
Danny Lu
|
June 30, 2015
|
6%
|
$ 250,000
|
|
February 11, 2014
|
Peter Lu
|
June 30, 2015
|
6%
|
$ 250,000
|
|
February 24, 2014
|
Danny Lu
|
July 31, 2015
|
6%
|
$ 100,000
|
|
March 28, 2014
|
Peter Lu
|
June 30, 2015
|
6%
|
$ 200,000
|
|
March 28, 2014
|
Danny Lu
|
June 30, 2015
|
6%
|
$ 100,000
|
|
April 29, 2014
|
Lu Pacific Properties, LLC
|
July 31, 2015
|
6%
|
$ 300,000
|
|
May 15, 2014
|
Joseph Lu
|
June 30, 2015
|
6%
|
$ 200,000
|
|
June10, 2014
|
Joseph Lu
|
June 30, 2015
|
6%
|
$ 70,492
|
|
June 24, 2014
|
Joseph Lu
|
June 30, 2015
|
6%
|
$ 200,000
|
|
August 4, 2014
|
Danny Lu
|
June 30, 2015
|
6%
|
$ 80,000
|
|
August 4, 2014
|
Peter Lu
|
June 30, 2015
|
6%
|
$ 80,000
|
|
August 15, 2014
|
Danny Lu
|
June 30, 2015
|
6%
|
$ 25,000
|
|
August 15, 2014
|
Peter Lu
|
June 30, 2015
|
6%
|
$ 25,000
|
|
August 29, 2014
|
Lu Pacific Properties, LLC
|
June 30, 2015
|
6%
|
$ 208,474
|
On August 7, 2014, the Company’s subsidiary Powin Energy Corporation (“Powin Energy”) signed a Share Subscription Agreement (“the Agreement”) for an investment of $25,000,000 from SF Suntech, Inc., a Delaware corporation (“SF Suntech”), a wholly-owned subsidiary of Shunfeng Photovoltaic International Limited (“Shunfeng”). Pursuant to the terms of the Agreement, $5,200,000 of the $25,000,000 will be used by Powin Energy to pay off a loan owing to the Company and the balance will be used by Powin Energy for working capital and other purposes. The Agreement also granted SF Suntech an option to acquire an additional 30% of Powin Energy for $37,500,000 which options are exercisable within two years from the grant date. Pursuant to a related Shareholder Agreement, SF Suntech will appoint four directors from a seven-person board of Powin Energy upon completing the $25,000,000 investment. The Company will pay a 6% finder’s fee to an unrelated party in connection with this transaction. The transaction has not closed as of this report and is expected to close at the end of November 2014. SF Suntech paid $3,000,000 good faith deposit under the Agreement on August 29, 2014.
The Company’s management does not believe the current cash and cash flow from operations will be sufficient to meet anticipated cash needs, including cash for working capital and capital expenditures in the foreseeable future. The Company will likely require additional cash resources that will require the Company to sell additional equity securities or debt securities. The sale of convertible debt securities or additional equity securities could result in additional dilution to the company’s stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
20
The Company’s ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties including: investors’ perception of, and demand for, securities of alternative manufacturing companies; conditions of the United States and other capital markets in which we may seek to raise funds; and future results of operations, financial condition and cash flow. Therefore, the Company’s management cannot assure that financing will be available in amounts or on terms acceptable to the Company, if at all. Any failure by the Company’s management to raise additional funds on terms favorable to the Company could have a material adverse effect on the Company’s liquidity and financial condition.
Off Balance Sheet Arrangements
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our principal executive and financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None
Equity Compensation Plan Information
21
In nine months ended September 30, 2014, we issued a total of 8,000 shares of Common Stock to our directors for their services on the Board of Director. The shares were issued pursuant to the exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended ( “1933 Act”) , provided by Section 4(a)(2) of the 1933 Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not repurchase any of our Common Stock or other securities during the nine-month period ended September 30, 2014.
None
Not Applicable.
None
|
Certification of the Chief Executive Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of the Principal Financial Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934, , as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.
|
Dated: November 14, 2014
|
By:
|
/s/ Joseph Lu
|
|
Joseph Lu
|
||
|
Chief Executive Officer and Interim Chief Financial Officer
|
||
|
(Principal Executive Officer and Principal Financial Officer)
|
23