UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A-2

(Amendment No. 2)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 [X]  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 [X]

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

 

Outstanding Shares

There were 270,175,957, shares of common stock outstanding as of November 20, 2015.

There were 272,451,382 shares of common stock outstanding as of July 8, 2016.

EXPLANATORY NOTE

The Company is filing this amendment to the Company's Form 10-Q Quarterly Report for the period ended September 30, 2015 (the "Original Filing"), to correct the accounting treatment previously accorded for certain transactions and to restate the related financial statements, including items addressed by SEC Staff comments.

This Amendment No. 2 should be read in conjunction with our periodic filings made with the Securities and Exchange Commission ("SEC") subsequent to the date of the Original Filing, including any amendments to those filings, as well as any Current Reports filed on Form 8-K subsequent to the date of the Original Filing.  For the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended, our Original Filing and previous amendments. This report on Form 10-Q/A is presented as of the filing date of the Original Filing and does not reflect events occurring after that date.

The restatements are being made to correct the previous accounting treatment to:

·

Correctly account for the Brent-Tronics valuation, which resulted in a difference of $12,668,375.

·

Expand on the Company's footnote disclosures related to the acquisition of Brent-Tronics transaction completed in first quarter of 2015.

·

Expand the Company's footnote disclosures related to share-based payments.

·

Expand the Company's footnote disclosures related to warrants issued to various employees and consultants.

·

Revise and expand the Company's disclosures regarding its material weakness controls and procedures.

·

Revise and expand our management discussion and analysis.

·

Provide certifications required by Item 601(b)(31) of Regulation S-K.

NAME REFERENCES

In this Quarterly Report on Form 10-Q, references to "Oakridge," the "Company," "we," "us," "our" and words of similar import refer to Oakridge Global Energy Solutions, Inc., a Colorado corporation and its subsidiary, Oak Ridge Micro-Energy, Inc., a Nevada corporation ("Oak Ridge Nevada"). Our former wholly-owned subsidiary, Carbon Strategic Pte Ltd, a Singapore corporation ("Carbon Strategic"), was inactive and had no assets; it was dissolved in July, 2015.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  In some cases, you can identify forward-looking statements by the following words: "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "ongoing," "plan," "potential," "predict," "project," "should," "will," "would," or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. These factors include, but are not limited to, economic conditions generally in the United States and internationally, and in the industry and markets in which we have and may participate in the future; competition within our chosen industry; our current and intended business; our assets and plans; the effect of applicable United States and foreign laws, rules and regulations; and our failure to successfully develop, compete in and finance our current and intended business operations.

 

You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward- looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely, and it should be considered in light of all other information contained in the reports or registration statements that we file with the Securities and Exchange Commission (the "SEC"), including all risk factors outlined therein (see Item 1A of our 10-K Annual Report for the year ended December 31, 2014, which was filed with the SEC on May 8, 2015, and which is referenced in Part II, Item 1A, below. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

PART I –FINANCIAL INFORMATION

Item 1.  Financial Statements

The Condensed Consolidated Financial Statements of the Company required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, these Condensed Consolidated Financial Statements fairly present the financial position of the Company.

Oakridge Global Energy Solutions, Inc.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

 

	Page(s)
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	4
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2015, and 2014	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	6
Notes to the Condensed Consolidated Financial Statements	7 - 13

 

Oakridge Global Energy Solutions, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

See Accompanying Notes to the Financial Statements

Oakridge Global Energy Solutions, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See Accompanying Notes to the Financial Statements

Oakridge Global Energy Solutions, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

See Accompanying Notes to the Financial Statements.

Oakridge Global Energy Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America ("GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission (the "SEC"). The information furnished in the interim Condensed Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim Condensed Consolidated Financial Statements be read in conjunction with the Company's most recent audited consolidated financial statements and notes thereto included in its December 31, 2014, financial statements, which accompanied its 10-K Annual Report filed with the SEC on May 8, 2015. Operating results for the nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Note 2 – Revenue Recognition and Receivables

Revenue is only recognized on product sales once the product has been shipped to the customers, persuasive evidence of an agreement exists, the price is fixed or determinable and collectability is reasonably assured.

The Company writes off trade receivables when deemed uncollectible. The Company estimates allowance for doubtful accounts based on the aged receivable balances and historical losses. The Company charges off uncollectible accounts when management determines there is no possibility of collecting the related receivable. The Company considers accounts receivable to be past due or delinquent based on contractual terms, which is generally net 30   days.

The Company charged $0 to bad debt expense for the nine months ended September 30, 2015. An analysis of the allowance for doubtful accounts balance at September 30, 2015, determined that no reserve was required.

Note 3 – Use of Estimates

The preparation of Condensed Consolidated Financial Statements under GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Note 4 – Going Concern

The Company has dedicated substantial resources required to research and development and marketing of the Company's products which include general and administrative expenses associated with its organization and product development. We expect operating losses to continue, due to the anticipated costs to develop products. These conditions raise substantial doubt about the Company's ability to continue as a going concern. We require financing for our plan of operations.  Current cash on hand is not sufficient to maintain our current operations and there is no assurance that future sales and marketing efforts will be successful enough to achieve the level of revenue sufficient to provide cash to sustain operations. To the extent such revenues and corresponding cash flows do not materialize, we will attempt to fund working capital requirements through third party financing, including a private placement of our securities. In the absence of revenues, we currently believe we require a minimum of $10 million to maintain our current operations through the next 12 months and up to $5 million to continue our research and development. We cannot provide any assurances that required capital will be obtained or that the terms of such required capital may be acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities until sufficient funding is secured or revenues are generated to support operating activities.

The Company has operating losses since inception and has not yet been able to generate profits from operations. Operating capital has been raised through convertible debt from a shareholder and sale of our common stock and subscriptions from a related party. These factors raise substantial doubt about the Company's ability to continue as a going concern.

Note 4 – Going Concern (continued)

The Company is presently building working samples for a wide range of energy storage products that are expected to result in commercial orders for a number of these products and for which additional funding will be required to manufacture and deliver any commercial orders received. We have commenced implementing, and will continue to implement, various measures to address our financial condition, including but not limited to continuing to seek debt and equity financing. However, there can be no assurances that the Company will be able to raise additional capital on favorable terms, or at all. Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern.  The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and carrying amount or classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Note 5 – Acquisition of Brent-Tronics

In October 2014, the Company acquired substantially all assets of Brent-Tronics Inc. for cash consideration of $155,000. The Company initially measures the separately recognizable identifiable assets acquired and the liabilities assumed as of the acquisition date in accordance with the requirements of Accounting Standards Codification ("ASC") 805, Business combination. The actual delivery of the equipment arrived during first quarter of 2015 and accordingly the Company's management received an independent appraisal for the equipment and has evaluated the fair market value of the inventory. Based on the appraisal report and inventory value, the purchase price was allocated as follows:

For the nine months ended September 30, 2015, the Company recognized gain on bargain purchase of $17,579,887 on the consolidated statements of operations.

Note 6 - Property and equipment

Property and equipment, recorded at cost, consists of the production equipment acquired for the manufacture of Lithium ion battery cells and systems and assets used in the research and development of the thin film lithium battery.  The assets are being depreciated over seven and ten years using the straight-line method of depreciation. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounting records, and any resulting gain or loss is reflected in the Statement of Operations for the period. The cost of maintenance and repairs is expensed as incurred. renewals and betterments are capitalized and depreciated over their estimated useful lives.

At September 30, 2015 and December 31, 2014, property and equipment consisted of the following:

 

Depreciation expenses for the nine months ended September 30, 2015 and 2014 was $1,454,234, and $239,889.

 

Note 7 – New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.

Note 8 – Income Taxes

The Company accounts for income taxes under ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized.

The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its condensed balance sheet.

Income tax expense reflects the expense or benefit only on the Company's domestic taxable income. Income tax expense and benefit from the Company's foreign operations are not recognized, as they have been fully reserved

Note 9 – Net Income (Loss) Per Common Share

Basic net income (loss) per common share is based on the net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. In the computation of diluted earnings per share, excess tax benefits that would be created upon the assumed vesting of unvested restricted shares or the assumed exercise of stock options (i.e., hypothetical excess tax benefits) are included in the assumed proceeds component of the treasury stock method to the extent that such excess tax benefits are more likely than not to be realized. When a loss from continuing operations exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. As the Company had losses for the nine month periods ended September 30, 2015, and 2014, the potentially dilutive shares were anti-dilutive and were thus not included in the net loss per share calculation.

Note 10 – Inventories

Significant components of inventory at September 30, 2015 and December 31, 2014 consist primarily of:

 

Note 11. – Equity

Common Stock Sold Privately

During the third quarter of 2015, the Company sold common stock to 3 qualified non U.S. investors as governed by Regulation S at a purchase price of $0.25 per share and the exemption provided under Section 4(a)(2) of the Securities Act. The Company has paid commissions of $61,711 related to the stock issuance. The shares issued contain restrictive legends.

The following table summarizes transactions under the private offering as follows:

 

During the third quarter of 2015, the Company issued 4,554,000 shares for services provided by various employees and consultants valued at $0.71 per share, which resulted in an expense of $3,218,104.

On May 22, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 2,000,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a six months term and expire on November 30, 2015.  The Company valued the 2,000,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.40 market price, $0.25 exercise price, .5 years expected life, 303.5% volatility, 0.09% risk free rate.

On June 3, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 3,000,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on June 30, 2018.  The Company valued the 3,000,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.38 market price, $0.25 exercise price, 3 years expected life, 302.4% volatility, 0.96% risk free rate.

On June 10, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 1,000,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on June 30, 2018.  The Company valued the 1,000,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.44 market price, $0.25 exercise price, 3 years expected life, 303.1% volatility, 0.96% risk free rate.

On June 10, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 5,000,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on June 30, 2018.  The Company valued the 5,000,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.44 market price, $0.25 exercise price, 3 years expected life, 303.1% volatility, 0.96% risk free rate.

On June 22, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 25,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on June 30, 2018.  The Company valued the 25,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.37 market price, $0.25 exercise price, 3 years expected life, 301.4% volatility, 0.96% risk free rate.

On July 8, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 3,000,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on July 16, 2018.  The Company valued the 3,000,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.37 market price, $0.25 exercise price, 3 years expected life, 301.4% volatility, 0.96% risk free rate.

On July 16, 2015, the Company executed a Stock Option Agreement for services rendered, granting an option to purchase 500,000 shares of the Company's common stock at $0.25 per share for services rendered.  These options are for a 3 year term and expire on July 16, 2018.  The Company valued the 500,000 options using the Black-Scholes option pricing model applying the simplified method under the following assumptions:  $0.55 market price, $0.25 exercise price, 3 years expected life, 301.4% volatility, 0.96% risk free rate.

The Company has recorded stock-based compensation expense of $1,975,000 related to the options issued during the quarter ended September 30, 2015.

 

Note 12 – Investments

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. The Company's valuation techniques used to measure the fair value of money market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of the Company's debt instruments and all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has elected the fair value option for investments in securities.

The following tables show the Company's cash and available-for-sale securities' adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term marketable securities as of September 30, 2015 and December 31, 2014:

September 30, 2015

 

December 31, 2014

 

 

Note 13 - Convertible secured debt

The Company borrowed $2 million to finance business operations from Newmark Investment Limited; a Hong Kong organized company ("Newmark"), a former principal shareholder of the Company. The terms of the notes included interest at 6% per annum; interest to be paid quarterly on the principal then outstanding; the initial term of the loan was 12 months from the date of first advance or November 2, 2012; the loan could be extended for another 12 months with a maximum period of 24 months from the date of first advance; the total loan or part of the loan could be converted to fully paid shares of common stock of the Company at Newmark's request at the end of loan period; and shares issued on conversion would be issued at a 50% discount of the volume weighted average price ("VWAP") of the common stock of the Company on the OTCBB or the principal nationally recognized U.S. market on which such shares of common stock publicly traded, for the 50 day VWAP prior to any such conversion, provided however, notwithstanding the foregoing, the minimum conversion price shall not be less than $0.20 per share, which was the approximate current trading price of such common stock on the date of the initial advance by Newmark. The loan was extended and subsequently assigned to Expedia Holdings Limited, a Hong Kong organized company ("Expedia"). The Company had also agreed to grant a lien to Newmark on all of the Company's equipment and intellectual property to secure payment of the loan and accrued interest. The lien was approved on March 31, 2014, under an amended Loan Agreement dated February 24, 2014, reflecting the assignment of the Newmark Loan and the granting of the security interests to Expedia. Expedia is a founder and the sole owner of Newmark and assignee of Newmark Loan, which is currently referenced as the "Expedia Loan." The loan maturity date has been extended by Expedia to December 31, 2015. Accrued interest payable on the convertible notes was $160,182 and $70,428 at September 30, 2015 and December 31, 2014, respectively.

Note 14 - Related party note

The Company has received a short-term loan from Silveron Capital Partners, which is controlled, by one of the Company's former directors for $231,201. The total liability includes accrued interest of $14,201. This note is due on demand and bears annual interest of 10%.

Note 15 - Leclanché

On June 3, 2014 the Company entered into a Convertible Loan and Investment Agreement with Leclanché SA for CHF 3,000,000 or approximately $3,090,000, which was subsequently amended and increased to CHF 5,000,000 or approximately $5,150,000 on August 2, 2014

Note 16 – Subsequent Events

The Company has evaluated subsequent events through November 23, 2015 and determined the following subsequent events.

The Company has accepted subscriptions to issue shares of its common stock to 11 accredited investors at an average of $0.90 per share as follows:

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

Plan of Operation

The Company is continuing the research and development of its patented, proprietary energy cells technology for lithium-ion batteries for military, civilian and medical applications. It plans to begin commercialization of its products in 2016.

Our Plan of Operation for 2016 consists of the following objectives:

(3) Arrange for the private sale of our non-controlling interest in Leclanché shares to monetize that purchase and to assist in the funding of our expansion plans for 2016 and beyond.

Management believes it will have a range of commercially saleable products large format golf car batteries and small format remote control ("R/C") market batteries), which it will produce in commercially viable quantities. Our focus is on developing and marketing these commercial products for which there is a substantial market. We are also presently building working samples for a wide range of energy storage products that are expected to result in commercial orders for a number of these products and for which additional funding will be required to manufacture and deliver any commercial orders received.

Results of Operations

For the three month period ended September 30, 2015, compared to the three month period ended September 30, 2014

During the three months ended September 30, 2015, we had $704 in revenue, with $21,196 in cost of sales, for $20,492 in gross loss.  

We had general and administrative expenses of $4,536,564 during the third quarter of 2015 as compared to $4,105,578 in the third quarter 2014, an increase of $431,076 or 10%. General and administrative expenses consist of salaries, overhead expenses, non-cash stock based compensation expenses, related expenses for our executives, finance, administrative personnel and facilities. In addition, general and administrative expenses include legal, accounting service and general corporate expenses. The increases in general and administrative were primarily due to increase in payroll and stock compensation expenses to executives and consultants.

We had $2,812,891 in research and development during the third quarter of 2015 as compared to $0 in the third quarter of 2014, an increase of $2,812,891 or 100%. The increase in research and development was primarily due to stock based compensation expenses paid to personnel responsible for the research and development of new products as well as improvements to existing products. We expense research and development costs as they are incurred.

We expect that research and development expenses will increase in dollar amount in future periods because we expect to continue to invest in building the necessary employee and systems infrastructures required to support the development of new, and improve existing, products.

The increases in research and development expenses in the third quarter of fiscal year 2015 were due to the following:

• $130,193 for rent as a result of increases in renewal terms for the lease on our headquarters.

• $484,745 for depreciation.

• $855,245 for personnel costs of our US operations and manufacture facility.

• $108,840 for travel expenses.

• $1,069,884 for research and development materials.

• $59,582 for insurance.

• $60,537 for moving expense.

• $43,865 for utilities.

 

Our total operating expenses were $7,495,071 during third quarter 2015 as compared to $4,105,578 during third quarter 2014, an increase of 3,409,985 or 84%. The increase was primarily due to the expenses disclosed above.

We had interest expense of $30,246 for the three months ended September 30, 2015, for a net loss of $7,545,809, and a total comprehensive loss of $18,814,209.

For the nine month period ended September 30, 2015, compared to the nine month period ended September 30, 2014

 

During the nine months ended September 30, 2015, we had $1,814 in revenue, with $22,075 in cost of sales, for $20,261 in gross loss.  We had general and administrative expenses of $7,203,225 and $12,085,292 in research and development.  These charges consisted of rent, utilities, moving expense, building repairs & maintenance, taxes & licenses, legal and professional charges and other miscellaneous charges related to general business operations. Our total operating expenses were $19,527,256. We had interest expense of $89,753 and other income related to acquisition of Brent-Tronics of $17,579,887 for the nine months ended September 30, 2015, for a net loss of $2,057,383, with $13,235,244 unrealized loss on available for sale securities and $444,356 loss in foreign currency conversion a for a total comprehensive loss of $15,736,983. The increase in research and development costs in 2015 as compared to 2014 was a reclassification of expense accounts and how the amounts relate to research & development opposed to general & administrative.

 

During the nine months ended September 30, 2014, we had $52,200 in revenues, with $28,736 in cost of sales, for $23,464 in gross profit. We had $5,390,615 attributable to general and administrative expenses, $899,184 in research and development costs and $80,243 in interest expense, for a net loss of $6,346,578, with $27,500 in foreign currency conversion for a total comprehensive loss of $6,319,078.

 

General and Administrative Expenses – General and administrative expenses consist of salaries, overhead expenses, non-cash stock based compensation expenses, related expenses for our executives, finance and administrative personnel, facilities and allowance for doubtful accounts. In addition, general and administrative expenses include legal, accounting services and general corporate expenses.

 

The increase in general and administrative expenses costs during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014 was the result of increased salaries and overhead expenses, increased consulting expenses and increased expenses in the development of new products as well as the classification in the first quarter 2015, and second quarter 2015 of research and development expenses as general and administrative expense.

 

We expect that research and development expenses will increase in dollar amount in future periods because we expect to continue to invest in building the necessary employee and systems infrastructures required to support the development of new, and improve existing, products.

 

For the nine months ended September 30, 2015 research and development expenses were $ 12,085,292 compared to $899,184 or an increase of $11,186,108 or 1,200% over the nine months ended September 30, 2015. The increase was driven by increased stock compensation, depreciation, professional fees related to research and development, increased salaries and overhead expenses, increased consulting expenses and increased expenses in the development of new products. We have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings.

The increases in research and development expenses in the nine months ended September 30, 2015 were due to the following.

• $ 269,524 for rent as a result of increases in renewal terms for the lease on our headquarters,

• $ 1,454,235 for depreciation,

• $ 70,924 for moving expense,

• $ 471,639 for personnel costs of our operations and manufacture facility,

• $ 181,688 for travel expenses,

• $ 1,509,371 for professional fees,

• $ 1,754,573 for research and development materials,

• $ 5,357,750 for stock based compensation

• $ 45,455 for insurance, and

• $ 70,950 for utilities.

Liquidity and Capital Resources

We had cash of $33,611 and had working capital of $32,512,251 on September 30, 2015. Our operating and capital requirements in connection with supporting our expanding operations and introducing new products have been and will continue to be significant to us. Since inception, our losses from operations and working capital required to grow our business were satisfied primarily through the private sales of our common stock and by credit financing.

Until we commence sales of our products and reach breakeven from our manufacturing and sales efforts, we are dependent on equity financing from external sources and investors who in part, have been arranged for us by our major shareholder, Precept, which has undertaken to continue to support us financially, either directly or indirectly, through fund raising efforts for us from Precept's contact base in the investment community. Our primary source of funding since July 2013 has been Precept, our major shareholder. Its ownership and control of approximately 82% of our outstanding voting securities include 7,250,000 shares owned by Stephen J. Barber, our Executive Chairman, CEO, and a director, who has voting control of approximately 221,717,613 shares through Precept.

Despite our losses since inception, we continue to explore the sale of our non-controlling interest in Leclanché, a publicly traded company on the Swiss Exchange. In addition, we are continuing to seek debt and equity financing; however, there can be no assurances that the Company will be able to raise additional capital on favorable terms, or at all. The sale of additional equity or convertible debt securities will result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and may also result in covenants that would restrict our operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The Company has dedicated substantial resources required to research and development and marketing of the Company's products which included the general and administrative expenses associated with its organization and product development. We expect operating losses to continue, due to the anticipated costs to develop products. These conditions raise substantial doubt about the Company's ability to continue as a going concern. We require financing for our plan of operations.  Current cash on hand is not sufficient to maintain our current operations and there is no assurance that future sales and marketing efforts will be successful enough to achieve the level of revenue sufficient to provide cash to sustain operations. To the extent such revenues and corresponding cash flows do not materialize, we will attempt to fund working capital requirements through third party financing, including a private placement of our securities. In the absence of revenues, we currently believe we require a minimum of $10 million to maintain our current operations through the next 12 months and up to $5 million to continue our research and development. We cannot provide any assurances that required capital will be obtained or that the terms of such required capital may be acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities until sufficient funding is secured or revenues are generated to support operating activities.

The Company has operating losses since inception and has not yet been able to generate profits from operations. Operating capital has been raised through convertible debt from a shareholder and subscriptions from a related party. These factors raise substantial doubt about the Company's ability to continue as a going concern.

The Company is presently building working samples for a wide range of energy storage products that are expected to result in commercial orders for a number of these products and for which additional funding will be required to manufacture and deliver any commercial orders received.

We have commenced implementing, and will continue to implement, various measures to address our financial condition, including but not limited to continuing to seek debt and equity financing. However, there can be no assurances that the Company will be able to raise additional capital on favorable terms, or at all.  Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern.  The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and carrying amount or classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The Company borrowed $2 million to finance business operations from Newmark Investment Limited, a Hong Kong organized company ("Newmark"), a former principal shareholder of the Company and the former owner of Carbon Strategic, the Company's inactive wholly-owned subsidiary (the "Newmark Loan"). The terms of the notes included interest at 6% per annum; interest to be paid quarterly on the principal then outstanding; the initial term of the loan was 12 months from the date of first advance or November 2, 2012; the loan could be extended for another 12 months with a maximum period of 24 months from the date of first advance; the total loan or part of the loan could be converted to fully paid shares of common stock of the Company at Newmark's request at the end of loan period; and shares issued on conversion would be issued at a 50% discount of the volume weighted average price ("VWAP") of the common stock of the Company on the OTCBB or the principal nationally recognized U.S. market on which such shares of common stock publicly traded, for the 50 day VWAP prior to any such conversion, provided however, notwithstanding the foregoing, the minimum conversion price shall not be less than $0.20 per share, which was the approximate current trading price of such common stock on the date of the initial advance by Newmark. Any shares acquired in conversion of the notes would be comprised of "restricted securities" as defined in Rule 144 of the SEC. The loan was extended and subsequently assigned to Expedia Holdings Limited, a Hong Kong organized company ("Expedia"). The Company had also agreed to grant a lien to Newmark on all of the Company's equipment and intellectual property to secure payment of the loan and accrued interest, which lien was approved on March 31, 2014, under an amended Loan Agreement dated February 24, 2014, reflecting the assignment of the Newmark Loan and the granting of the security interests to Expedia. Expedia is a founder and the sole owner of Newmark and assignee of Newmark Loan, which is currently referenced as the "Expedia Loan." The loan maturity date has been extended by Expedia to December 31, 2015. Accrued interest payable on the convertible notes comprising the loan was $ $160,182.

 

Cash Flows for the Nine Months Ended September 30, 2015

Cash Flows from Operating Activities

Operating activities used net cash for the nine months ended September 30, 2015 of $3,832,693. Our net loss of 2,057,383, when adjusted by various non-cash items aggregating $1,644,063 which impact net loss but do not impact cash during the period, such as stock issued for services or depreciation and amortization, resulted in a net cash used of $3,832,693.  In addition, changes in operating assets and liabilities necessary to support our operations used cash of $131,247 as follows:

·

$5,844 used for increased inventory levels which is not considered significant,

·

$52,920 used for increased prepaid expenses and other current assets which is not considered significant,

·

$201,793 used for increase in security deposit related to office building lease.

·

$129,310 provided by increase in accounts payable and other accrued expenses.

Cash Flows from Investing Activities

Our investing activities used $82,222 in net cash during the nine months ended September 30, 2015 as a result of $62,297 from the purchase of fixed assets and $19,925 due to purchase of investments.

Cash Flows from Financing Activities

Our financing activities contributed $3,929,434 in net cash during the nine months ended September 30, 2015 as a result of $3,828,492 proceeds from the sale of common stock and $100,942 in proceeds from loans and notes.

Off-Balance Sheet Arrangements

None

Financial Position

Total Assets – Our total assets increased by $42,870,851 or 663% from $6,467,445 as of December 31, 2014 to $49,338,296 as of September 30, 2015 as a result of a net increase in current assets of $34,871,495 partially offset with a net decrease in non-current assets.  The components of the net increases in current assets are discussed below.  The net increase in non-current assets was a result of acquisition of assets related to Brent-Tronics.

Current Assets – The net increase in current assets of $34,871,495 was due to increases in investment in Leclanché of $31,660,325, inventories of $3,343,731 and prepaid of $52,920. Partially offsetting these increases was a decrease in subscription receivable of $200,000.

 

Inventory – Inventory levels increased 2,745% from December 31, 2014 to September 30, 2015. The increase was mainly due to acquisition of Brent-Tronics transaction.

Total Liabilities – Our total liabilities increased by $230,250 or 9% from $2,473,895 as of December 31, 2014 to $2,704,145 as of September 30, 2015 primarily as a result of a net increase in accounts payables and accrual of $129,308.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Under supervision and with the participation of our management, we conducted an evaluation of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation identified a material weakness in the Company's internal control over financial reporting.

We are actively engaged in developing a remediation plan designed to address this material weakness. If material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements, and we could be required to restate our financial results.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d–15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the SEC and that such information is accumulated and communicated to management, including the CEO and CFO, in a manner to allow timely decisions regarding required disclosures.

In connection with the preparation of this Form 10–Q, our management, including the CEO and CFO, updated its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015. As described below, management has identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. As a result of those material weaknesses, our management has concluded that, as of September 30, 2015 our disclosure controls and procedures were not effective, as a result of certain material weaknesses. We did not maintain a fully automated financial consolidation and reporting system and as a result, extensive manual analysis, reconciliations and adjustments were required in order to produce financial statements for external reporting purposes.

The specific material weaknesses that management identified in our internal controls as of September 30, 2015 that persist are as follows:

·

We did not have a sufficient number of adequately trained technical accounting and external reporting personnel to support standalone external financial reporting under SEC requirements.

·

We did not have personnel with sufficient experience with United States generally accepted accounting principles to address complex transactions.

 

These deficiencies resulted in the following:

 

Plans for Remediation of Material Weaknesses

·

Simplifying and consolidation of our accounting systems;

·

Hiring of additional staff;

·

Segregation and defining duties so no one person has control over the entire process;

·

Enhancing our training program for accounting personnel;

·

Providing online, real-time access to accounting personnel;

·

Establishing more comprehensive review procedures; and

·

Implementing procedures to improve the reconciliation of accounts in a timely matter

 

We have begun implementing changes to strengthen our internal controls and will continue to implement remediation plans for the identified material weaknesses and expect the work on the plan will continue through 2016. We continue to search for qualified management staff. Where appropriate, the Company is receiving advice and assistance from third-party experts as it implements and refines its remediation plan.

Additional measures may be necessary, and the measures we expect to take to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that such material weakness or other material weaknesses would not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or significant deficiencies may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

Changes in Internal Control over Financial Reporting

Except as otherwise stated above, there were no changes in our internal control over financial reporting or in other factors during the quarter ended September 30, 2015 that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are not the subject of any pending legal proceedings; and to the knowledge of management, no proceedings are presently contemplated against us by any federal, state or local governmental agency.

To the knowledge of management, no director or executive officer is party to any action in which any has an interest adverse to us.

Item 1A.  Risk Factors.

 

Not required; however, see Item 1A of our 10-K Annual Report for the year ended December 31, 2014, which was filed with the SEC on May 8, 2015 and amended on March 3, 2016.

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

Sales of Unregistered Equity Securities

During the third quarter of 2015, the Company sold common stock to 3 qualified non U.S. investors as governed by Regulation S at a purchase price of $0.25 per share and the exemption provided under Section 4(a)(2) of the Securities Act. The Company has paid commissions of $61,711 related to the stock issuance. The shares issued contain restrictive legends.

The following table summarizes the stock sold under the private offering as follows:

 

Item 3. Mine Safety Disclosures.

None, not applicable.

Item 4. Other Information.

None.

 

Item 5 Exhibits.

 

Exhibit No.	Identification of Exhibit
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Chief Executive Officer
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Chief Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 proved by Stephen J. Barber, CEO, and Director, David Phillips, Chief Financial Officer
101.INS	XBRL Instance Document
101.PRE.	XBRL Taxonomy Extension Presentation Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.SCH	XBRL Taxonomy Extension Schema

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 this Quarterly Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.