Attached files

file filename
EX-32.2 - CERTIFICATION - BE INDUSTRIES INC.f10q0316ex32ii_nacglobal.htm
EX-32.1 - CERTIFICATION - BE INDUSTRIES INC.f10q0316ex32i_nacglobal.htm
EX-31.2 - CERTIFICATION - BE INDUSTRIES INC.f10q0316ex31ii_nacglobal.htm
EX-31.1 - CERTIFICATION - BE INDUSTRIES INC.f10q0316ex31i_nacglobal.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2016

 

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

 

For the transition period from ____________ to____________

 

Commission File No. 000-49655

 

NAC GLOBAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   87-0678927
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

4720 Salisbury Road

Jacksonville, FL 32256

(Address of principal executive offices)

 

(904) 493-6496

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐.

 

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

As of June 9, 2016, there were 36,412,014 shares of common stock, $0.001 par value, of the registrant issued and outstanding.

 

 

 

  

 

 

NAC GLOBAL TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2016

 

 

Page

Number

PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 15
Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Mine Safety Disclosures 15
Item 5. Other Information 15
Item 6. Exhibits 16
SIGNATURES 17

 

 2 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 31,   December 31, 
   2016   2015 
         
ASSETS
           
Current assets:          
Cash  $29,135   $16,674 
Accounts receivable, net of allowance of doubtful accounts of $11,003 and $0    71,627    88,150 
Inventories   31,029    33,348 
Other current assets   -    1,500 
Total current assets   131,791    139,672 
           
Property and equipment, net   699    838 
           
Total assets  $132,490   $140,510 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT
           
Current Liabilities:          
Accounts payable  $652,340   $648,983 
Accounts payable - related party   133,771    111,358 
Accrued expenses   166,530    99,103 
Customer deposits   30,413    29,552 
Short term debt   51,646    57,844 
Short-term debt - related parties   335,500    339,500 
Derivative liability   1,413,116    2,017,903 
Total current liabilities   2,783,316    3,304,243 
           
Long-term convertible debt, net of discount of $0 and $2,090   520,794    521,033 
Total liabilities   3,304,110    3,825,276 
           
Stockholders' deficit          
Common stock, $0.001 par value; 150,000,000 shares authorized; 36,412,014 and 35,662,014 shares issued and outstanding   36,412    35,662 
Additional paid in capital   310,892    289,892 
Accumulated deficit   (3,518,924)   (4,010,320)
           
Total stockholders' deficit   (3,171,620)   (3,684,766)
           
Total liabilities and stockholders' deficit  $132,490   $140,510 

 

See accompanying notes to unaudited consolidated financial statements.

 

 3 

 

  

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended
March 31
 
   2016   2015 
         
Revenues        
Revenues - third parties  $104,148   $114,436 
Revenues - related parties   -    8,645 
Total Revenues  $104,148   $123,081 
Cost of goods sold   66,244    91,397 
Gross profit   37,904    31,684 
           
Operating expenses          
Selling, general and administrative expenses   125,060    263,874 
           
Net loss from operations   (87,156)   (232,190)
           
Interest expense   (26,235)   (167,175)
Loss on debt extinguishment   -    (34,878)
Unrealized derivative gain   604,787    289,511 
           
Net income (loss)  $491,396   $(144,732)
           
Net income (loss) per share - Basic and Diluted  $0.01   $(0.01)
           
Weighted average shares outstanding - Basic   35,777,399    25,272,779 
Weighted average shares outstanding - Diluted   65,803,806    25,272,779 

 

See accompanying notes to unaudited consolidated financial statements.

 

 4 

 

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three months ended
March 31
 
   2016   2015 
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income (loss)  $491,396   $(144,732)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities          
Bad debt expense   11,003    - 
Stock compensation expense   21,750    - 
Unrealized derivative gain   (604,787)   (289,511)
Loss on debt extinguishment   -    34,878 
Amortization of debt discount and deferred financing   2,090    160,453 
Depreciation expense   139    140 
Changes in operating assets and liabilities          
Accounts receivable   5,520    21,437 
Inventory   2,319    (9,159)
Prepaid expenses   1,500    13,196 
Accounts payable   3,357    147,192 
Accounts payable - related party   22,413    (4,655)
Accrued expenses   67,427    (9,401)
Customer deposits   861    8,169 
           
Net cash provided by (used in) operating activities   24,988    (71,993)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Net cash used in investing activities   -    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Payments of the line of credit, net   (6,198)   (8,263)
Payments of convertible debt   (2,329)   - 
Payments of short-term debt - related parties   (4,000)   - 
Proceeds from convertible debt   -    81,000 
           
Net cash provided by (used in) financing activities   (12,527)   72,737 
           
NET INCREASE IN CASH   12,461    744 
           
CASH AT BEGINNING OF PERIOD   16,674    8,224 
CASH AT END OF PERIOD  $29,135   $8,968 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Interest paid  $8,474   $6,722 
Income taxes paid   660    - 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES          
Deferred financing fees paid through issuance of note  $-   $9,000 
Prepaid interest paid through issuance of note   -    6,000 
Legal fees paid through issuance of note   -    10,000 
Debt discount resulting from derivative liability   -    180,741 

 

See accompanying notes to unaudited consolidated financial statements.

 

 5 

 

 

NAC GLOBAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Operations

 

NAC Global Technologies, Inc. (referred to herein as “we”, “our”, and “NAC Global”) is an engineering services, R&D, and manufacturing company. We have one wholly-owned subsidiary, NAC Drive Systems, Inc. (“NAC”; and together with NAC Global, the “Company”), a manufacturer and supplier of harmonic gearing technology (“HGT”) that operates in the robotics, automation, and medical industries amongst others. HGT is a premier technology in industries where very high precision, long-life, compactness, light weight, and reliability are important factors. In additional to robotics applications, we see HGT use expanding across multiple industries and geographies including aerospace, energy, and defense. We are partnered with CTKM Beijing Harmonic Drive, LTD., the national supplier of HGT to the China Space Agency. We manufacture our HGT components in Beijing, China, and perform final assembly and quality control in Port Jervis, New York. Our corporate headquarters is located in Jacksonville, Florida.

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission on May 16, 2016. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2015 as reported in the Form 10-K have been omitted. 

 

Principles of consolidation

 

The consolidated financial statements include the accounts of NAC Global and its wholly-owned subsidiary, NAC. All intercompany accounts and transactions are eliminated in consolidation.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Concentration of risks

 

The Company maintains its cash primarily in one financial institution. The balance, at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk to cash.

 

Four customers accounted for approximately 23%, 14%, 12% and 11%, respectively, of the Company’s revenues for the three months ended March 31, 2016. Three customers accounted for approximately 39%, 16% and 12%, respectively, of the Company’s revenues for the three months ended March 31, 2015. In addition, these customers accounted for 40% and 68% of the Company’s accounts receivable balance at March 31, 2016 and March 31, 2015, respectively.

 

 6 

 

 

              Accounts     
      Customer   % of Total   Receivable     
Three Months Ended March 31, 2016  Customer  Sales   Revenue   (AR)   % of AR 
   1  $24,300    23%  $12,960    16%
   2  $14,842    14%  $3,620    4%
   3  $12,050    12%  $8,030    10%
   4  $11,822    11   $7,881    10%
      $63,014    60%  $32,491    40%

 

              Accounts     
      Customer   % of Total   Receivable     
Three Months Ended March 31, 2015  Customer  Sales   Revenue   (AR)   % of AR 
  1  $47,952    39%   22,680    32%
   2  $20,100    16%   8,040    11%
   3  $14,976    12%  $17,784    25%
      $83,028    67%  $48,504    68%

 

NAC currently purchases all of its drive components from one supplier. The loss of this supplier could cause delays and a possible loss of sales which would affect operating results adversely.

 

Fair value measurements

 

The carrying amounts reported in the consolidated balance sheets for accounts receivable and payables, inventory and debt are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, the stated rate of interest is equivalent to rates currently available.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:

 

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value.

 

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of March 31, 2016 and December 31, 2015.

 

As of March 31, 2016  Amount   Level 1   Level 2   Level 3 
Embedded conversion derivative liability  $754,122    -    -   $754,122 
Warrant derivatives   658,994    -    -    658,994 
   $1,413,116   $-   $-   $1,413,116 

 

 7 

 

 

As of December 31, 2015  Amount   Level 1   Level 2   Level 3 
Embedded conversion derivative liability  $791,563    -    -   $791,563 
Warrant derivatives   1,226,340    -    -    1,226,340 
   $2,017,903   $-   $-   $2,017,903 

 

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

 

Balance at December 31, 2015  $2,017,903 
Unrealized derivative gain included in other expenses   (604,787)
Balance at March 31, 2016  $1,413,116 

 

The fair value of the derivative liability is calculated at the time of issuance and the Company records a derivative liability for the calculated value. The derivative liability is marked to market at each reporting period and changes in the fair value of the derivative liability are recorded in other income (expense) in the consolidated statements of operations.

 

The following are the assumptions used for derivative instruments valued using the Black-Scholes option pricing model:

 

    At
March 31,
    At
December 31,
 
    2016     2015  
Market value of stock on measurement date   $ 0.025     $ 0.04  
Risk-free interest rate     0.59 - 1.21 %     0.65 - 1.76 %
Dividend yield     0 %     0 %
Volatility factor     170 - 260 %     174 - 228 %
Term     0.78 - 4.53 years       0.02 - 4.78 years  

 

Basic and diluted net income (loss) per share

 

Net income (loss) per share is calculated by dividing the net income (loss) available to common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. Diluted income per share reflects the potential dilution that would occur if outstanding stock options and warrants were exercised utilizing the treasury stock method. In a loss year, dilutive common equivalent shares are excluded from the loss per share calculation as the effect would be anti-dilutive. 

 

A reconciliation of the components of basic and diluted net income (loss) per common share for the three months ended March 31, 2016 and March 31, 2015 is presented in the tables below:

 

   2016   2015 
   Income
(Loss)
$
   Weighted Average Common Shares Outstanding   Per Share
$
   Income
(Loss)
$
   Weighted Average Common Shares Outstanding   Per Share
$
 
Basic:                        
Income (loss) attributable to common stock   491,396    35,777,399    0.01    (144,732)   25,272,729    (0.01)
                               
Effective of Dilutive Securities:                              

Convertible debt

   (19,692)   30,026,407                 
                               
Diluted:                              
Income (loss) attributable to common stock, including assumed conversions   471,704    65,803,806    0.01    (144,732)   25,272,729    (0.01)

 

 8 

 

 

Reclassifications

 

Certain amounts in the consolidated financial statements of the prior period were reclassified to conform with the current period financial statement presentation.

 

Recently adopted accounting pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

NOTE 2 - GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, during the three months ended March 31, 2016, the Company incurred operating losses of $87,156 and has a working capital deficit of $2,651,525. If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The consolidated financial statements do not include any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company is taking certain steps to provide the necessary capital to continue its operations. These steps include, but are not limited to: (1) focus on sales to minimize the need for capital at this stage; (2) raise additional equity or debt financing; (3) merger and/or acquire a larger operating company to increase revenues and improve cash flow; and (4) continue focus on reductions in cost where possible.

 

NOTE 3 - DEBT

 

Short-term debt

 

As of March 31, 2016, and December 31, 2015, the Company had a term loan with a third party financial institution for $124,000, with an outstanding balance of $51,646 and $57,844, respectively. The note is subject to annual interest of 4.5%. The term loan is collateralized by all of the assets of NAC and Conic Systems, Inc. (“Conic”), an entity owned by Vincent Genovese, the Company’s Chief Executive Officer (“CEO”), and a guarantee issued by Mr. Genovese. The Company made repayments on the term loan amounting to $6,198 during the three months ended March 31, 2016.

 

Debt with related parties

 

As of March 31, 2016 and December 31, 2015, the Company has an outstanding non-interest bearing loan from Mr. Genovese, its CEO, amounting to $10,500 and $14,500 respectively. The Company also obtained a loan from a family member of Mr. Genovese amounting to $200,000, which is subject to annual interest of 3% and has an outstanding balance of $140,000 as of March 31, 2016 and December 31, 2015. Both loans have no stated maturity dates.

  

As of both March 31, 2016 and December 31, 2015, the Company has outstanding loans with Conic and a director of the Company amounting to $140,000 and $25,000, respectively. The loan with Conic is non-interest bearing while the loan with the director is subject to annual interest of 12%. Both loans are currently past due.

 

In January and April 2014, the Company obtained two non-interest bearing loans from a shareholder of the Company, each amounting to $10,000. The loans are currently past due and have an outstanding aggregate balance of $20,000 as of March 31, 2016 and December 31, 2015. 

 

 9 

 

 

 

Convertible debt

 

A summary of the activity of our convertible notes for the three months ended March 31, 2016, is shown below:

 

Balance at December 31, 2015  $521,033 
Repayments of convertible debt   (2,329)
Amortization of debt discount   2,090 
Balance at March 31, 2016  $520,794 

 

On April 29, 2014, we completed a private offering of a 12% Convertible Promissory Note in the principal amount of $375,000 (the "12% Convertible Note") with an institutional investor for total net proceeds to the Company of $365,000, after deducting placement agent fees and other expenses. On September 23, 2015, the 12% Convertible Note was amended and restated to reflect certain modifications, including a modified principal amount of $438,123. As of March 31, 2016, the principal amount outstanding on the 12% Convertible Note was $420,794. In April 2016, the 12% Convertible Note was further amended to extend the maturity date to December 31, 2018, with monthly payments of $5,000, commencing in July 2017. Additionally, the note holder waived voluntary conversion rights through January 1, 2018 and the 12% Convertible Promissory Note was amended to allow prepayment in part or whole at any time without penalty.

 

On January 8, 2015, we completed a private offering of a 3% Original Issue Discount Convertible Promissory Note in the principal amount of $109,000 (the "January 2015 12% Convertible Note") and 21,800 warrants to purchase shares of the Company's common stock with an accredited investor, for total net proceeds to us of $91,000 after deducting placement agent fees and expenses. The January 2015 12% Convertible Note was amended and restated to modify the aggregate principal amount to $100,000.  As of March 31, 2016, the principal amount outstanding on the January 2015 12% Convertible Note was $100,000. In April 2016, the January 2015 12% Convertible Note was further amended to extend the maturity date to December 8, 2018, with monthly payments of $1,000, commencing in July 2016. Additionally, the note holder waived voluntary conversion rights through January 1, 2018 and the January 2015 12% Convertible Note was amended to allow prepayment in part or whole at any time without penalty.

 

NOTE 4 - EQUITY

 

Common stock

 

On March 17, 2016, the Company issued 750,000 common shares to a consultant for management advisory services. The fair value of these shares amounted to $21,750 and was recognized as stock compensation expense for the three months ended March 31, 2016.

 

Warrants

 

During the three months ended March 31, 2016, the Company granted no new warrants and no warrants expired.

 

As of March 31, 2016, the Company had outstanding warrants to purchase an aggregate of 28,771,800 shares of the Company’s common stock, which have a weighted average exercise price of $0.04, a weighted average remaining term of 4.53 years, and an intrinsic value of $47,500.

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

The Company recognized revenues for products sold to Conic amounting to $0 and $8,645 for the three months ended March 31, 2016 and March 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, outstanding accounts receivable from Conic for such sales were $0. 

 

Conic also bills the Company for certain expenses related to warehousing, shipping and receiving, packing, quality control, drafting, testing, machining, equipment use, payroll and employee benefits, rent and occupancy costs, advertising, travel expenses and other expenses paid for by Conic on behalf of the Company. Payroll and employee benefits billed to the Company were for personnel who spend a percentage of their time on the Company’s operations. The administrative and warehouse facilities used by the Company are owned by Mr. Genovese and the allocable cost related to the use of these facilities are likewise charged to the Company by Conic. For the three months ended March 31, 2016 and March 31, 2015, Conic billed the Company fees of $23,306 and $51,460, respectively. The outstanding amount payable to Conic related to the above expenses amounted to $133,771 and $111,358 as of March 31, 2016 and December 31, 2015, respectively.

 

NOTE 6 - SUBSEQUENT EVENTS

 

In April 2016, the Company amended its two outstanding convertible notes to extend their maturity dates to December 31, 2018 with monthly payments of $5,000 and $1,000 to start in July 2017 and July 2016, respectively. The note holders waived voluntary conversion rights until January 1, 2018, and the notes may be repaid in part of in full without any prepayment penalties or fee. See Note. 3. 

 

 10 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-looking Statements

 

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2016 should be read together with our consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.

 

Overview

 

NAC Global Technologies, Inc. (referred to herein as “we”, “our”, and “NAC Global”) is an engineering services, R&D, and manufacturing company. We have one wholly-owned subsidiary, NAC Drive Systems, Inc. (“NAC”; and together with NAC Global, the “Company”), a manufacturer and supplier of harmonic gearing technology (“HGT”) that operates in the robotics, automation, and medical industries amongst others. HGT is a premier technology in industries where very high precision, long-life, compactness, light weight, and reliability are important factors. In additional to robotics applications, we see HGT use expanding across multiple industries and geographies including aerospace, energy, and defense. Pursuant to a long-term agreement (described below), we have partnered with CTKM Beijing Harmonic Drive, LTD., who supplies HGT to the China Space Agency. We manufacture our HGT components in Beijing, China, and perform final assembly and quality control in Port Jervis, New York. Beyond our HGT platform, we are executing a plan to bring additional, synergistic subsidiary business into NAC via strategic acquisition with a focus on the energy markets. Our corporate headquarters is located in Jacksonville, Florida.

  

Results of Operations

 

Comparison of Three Months Ended March 31, 2016 and March 31, 2015

 

Revenues

 

Sales revenues for the three months ended March 31, 2016 totaled $104,148 as compared to $123,081 for the three months ended March 31, 2015. NAC generated all of our revenues through sales of our harmonic gearing product. 

 

Cost of Goods - Gross Margin

 

Gross margin was 36% for the three months ended March 31, 2016 as compared to 26% for the three months ended March 31, 2015.

 

Operating Expenses

 

Operating expenses for the three months ended March 31, 2016 totaled $125,060. This amount included $21,750 in stock compensation expense to a business consultant, $11,003 in bad debt expense and $8,300 for Securities and Exchange Commission compliance.

 

Operating expenses for the three months ended March 31, 2015 totaled $263,874. This amount included $105,064 for fund raising activities, $45,781 for accounting, $16,316 for Securities and Exchange Commission compliance, and $6,153 for investor relations.

 

Net Income (Loss)

 

The net income for the three months ended March 31, 2016 was $491,396, including $604,787 in derivative gains and $24,145 in interest expenses.

 

The net loss for the three months ended March 31, 2015 was $144,732, including $142,283 in debt discount expenses in connection with convertible notes, $18,170 in amortized financing costs, $6,722 in interest expenses, and $289,511 in derivative gain.

 

 11 

 

 

Liquidity and Capital Resources

 

Cash and Working Capital. The Company incurred operating losses of $87,156 for the three months ended March 31, 2016. The Company had a net income of $491,396 for the three months ended March 31, 2016. As of March 31, 2016, the Company had cash and a stockholders’ deficit of $29,135 and $3,171,620, respectively. As of March 31, 2016, the Company had a working capital deficit of $2,651,525 

 

Cash Used in Operating Activities. During the three months ended March 31, 2016, net cash generated in operating activities amounted to $24,988 comprised of net income of $491,396, adjustments to reconcile net loss to net cash used in operating activities of $569,805, and changes in operating assets and liabilities of $103,397, compared to net cash used in operating activities for the three months ended March 31, 2015 of $71,993, comprised of net loss of $144,732, adjustments to reconcile net loss to net cash used in operating activities of $94,040, and changes in operating assets and liabilities of $166,779.

 

Cash Used in Investing Activities. During the three months ended March 31, 2016 and March 31, 2015, no cash was used in investing activities. 

 

Cash Provided by Financing Activities. During the three months ended March 31, 2016, the Company made payments of $6,198 for a secured bank note, $2,329 for a convertible note, and $4,000 for related party debt.

 

Sources of Liquidity. Our cumulative net loss since inception is $3,518,924 as of March 31, 2016 and $4,010,320 as of December 31, 2015. A combination of short-term and long-term debt and private equity sales have assisted in funding our operations and expansion. Management’s strategy to achieve growth includes making investments in plant equipment, personnel, and intellectual property development. In order to execute this strategy, we will need to raise additional capital through public or private equity offerings, debt financings or other means.

 

Without additional funding, the Company may not have sufficient cash resources to meet its needs over the next twelve (12) months. The Company can give no assurance that such additional funds will be available on reasonable terms, or available at all, or that it will generate sufficient revenue to alleviate the going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

Subsequent Events

 

On April 23, 2016, NAC Global entered into a binding Letter of Intent (the “LOI”), whereby NAC Global agreed,  subject to the terms and conditions set forth therein, to consummate a business combination (the “Proposed Transaction”) with Bellelli Engineering S.p.A (“Bellelli”) and Swiss Heights Engineering S.A. (“Swiss Heights”), or an entity to be formed by Bellelli and Swiss Heights (referred to as “SHE Holdings Co.,” and together with Bellelli and Swiss Heights, the “SHE Parties”). As a result of the Proposed Transaction, the SHE Parties will become wholly-owned subsidiaries of NAC Global, and the shareholders of the SHE Parties will receive equity interests of NAC Global representing 95.75% of the capital stock of the combined company, on a fully-diluted basis.

 

Pursuant to the LOI, upon closing of the Proposed Transaction, the holders of NAC Global capital stock and other equity interests, including certain options and warrants granted by NAC Global, shall be entitled to retain 4.25% of the capital stock of the combined company, on a fully-diluted basis.

 

In the LOI, NAC Global agreed to an exclusivity period of sixty (60) days after the LOI, where it will not solicit, initiate, encourage or provide information to any third party with respect to any competing transaction. NAC Global also agreed during such exclusivity period to conduct its business in the ordinary course of business consistent with past practice.

 

As a condition to the Proposed Transaction, NAC Global and the SHE Parties agreed, pursuant to the LOI, that NAC Global may not have more than a total of $1,200,000 in debt that is due and payable within twelve months after the closing of the Proposed Transaction. Any debt exceeding such $1,200,000 limit that is due and payable within twelve months after the closing of the Proposed Transaction will be extended or refinanced for at least an additional twelve months after the closing of the Proposed Transaction, at terms mutually agreed upon by NAC Global and the SHE Parties. The obligations of NAC Global and the SHE Parties to enter into the Proposed Transaction are also subject to, among other customary conditions, the following closing conditions:

 

  Completion by both sets of parties and their representatives of all business, tax, accounting, legal and other due diligence review, with results satisfactory to each;
     
  The negotiation of a definitive agreements memorializing the final terms of the Proposed Transaction; and
     
  No material adverse changes in the Company’s business operations between the time of the LOI and the Proposed Transaction.

 

After the closing, Mr. Genovese shall remain as CEO of the combined company.

 

Going Concern

 

The financial conditions evidenced by the accompanying financial statements raise substantial doubt as to our ability to continue as a going concern. Our plans include obtaining additional capital through debt or equity financing. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 12 

 

 

Revenue Recognition

 

All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue from product sales is recognized when products are shipped to customers. The Company’s revenues include sales to customers domiciled outside of the U.S. Generally, these sales are denominated in U.S. dollars.

 

Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods when the applicable revenue recognition criteria have been met.

 

All amounts billed to customers for shipping and handling costs are included in revenues in the consolidated statements of operations.

 

Accounts Receivable

 

Accounts receivable arise from the sale of products on trade credit terms and are stated net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers which may result in the requirement of a deposit before fulfillment of the terms of the sales orders. Accounts are generally considered past due after thirty (30) days. Past due receivables do not accrue interest. An allowance for doubtful accounts is provided for those accounts receivables considered to be uncollectable based on historical experience and management’s evaluation of outstanding receivable amounts at the end of the period. The Company has determined that $11,003 and $0 allowance for doubtful accounts is required as of March 31, 2016 and December 31, 2015 respectively.

 

Inventory

 

Inventory consists primarily of purchased finished goods and packaging materials. Inventory costs are determined using the average method and are carried at the lower of cost or net realizable value. Inventory is reviewed periodically for slow-moving and obsolete items.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2016, the Company carried out an evaluation by the Company’s Chief Executive Officer, who is also our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. As discussed below, management has concluded that as of March 31, 2016, our disclosure controls and procedures were not effective.

 

As of March 31, 2016, we identified certain matters that constituted a material weakness in our internal controls over financial reporting. Specifically, we have difficulty in accounting for complex accounting transactions and have limited segregation of duties within our accounting and financial reporting functions. Segregation of duties within our Company is limited due to the small number of employees that are assigned to positions that involve the processing of financial information. Although we are aware that segregation of duties within our Company is limited, we believe (based on our current roster of employees and certain control mechanisms we have in place) that the risks associated with having limited segregation of duties are currently insignificant. Additional time is required to expand our staff, fully document our systems, implement control procedures and test their operating effectiveness before we can definitively conclude that we have remediated our material weakness.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting that occurred during the period ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations of the Effectiveness of Control

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

 

 14 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company is subject to legal proceedings arising in the ordinary course of business. Such matters are subject to uncertainties and outcomes are not predictable with assurance. Management believes at this time that there are no ongoing matters that will have a material adverse effect on the Company's business, financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

  (a) None.

 

  (b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

 

 15 

 

 

Item 6. Exhibits.

 

Exhibit No.   Identification of Exhibit
31.1   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
     
31.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
     
32.1   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
     
32.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Schema
     
101.CAL   XBRL Taxonomy Calculation Linkbase
     
101.DEF   XBRL Taxonomy Definition Linkbase
     
101.LAB   XBRL Taxonomy Label Linkbase
     
101.PRE   XBRL Taxonomy Presentation Linkbase

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 16 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      NAC GLOBAL TECHNOLOGIES, INC.
         
Date: June 10, 2016   By: /s/ Vincent Genovese
       

Vincent Genovese

President and Chief Executive Officer

         
Date: June 10, 2016   By: /s/ Vincent Genovese
       

Vincent Genovese

Principal Financial Officer

 

 17 

 

 

EXHIBIT INDEX

 

Exhibit No.   Identification of Exhibit
31.1   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
     
31.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
     
32.1   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
     
32.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Schema
     
101.CAL   XBRL Taxonomy Calculation Linkbase
     
101.DEF   XBRL Taxonomy Definition Linkbase
     
101.LAB   XBRL Taxonomy Label Linkbase
     
101.PRE   XBRL Taxonomy Presentation Linkbase

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 

18