Attached files
file | filename |
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EX-32 - EXHIBIT 32 - POWIN ENERGY CORP | ex32.htm |
EX-31.2 - EXHIBIT 31.2 - POWIN ENERGY CORP | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - POWIN ENERGY CORP | ex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-54015
POWIN CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA
|
87-0455378
|
(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification Number)
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20550 SW 115th Ave
Tualatin, OR 97062
(Address of principal executive offices)
T: (503) 598-6659
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report) N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 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 smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one) Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ 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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August15, 2016, there were 16,261,839 shares of Common Stock, $0.001 par value, outstanding.
THIS AMENDED REPORT CORRECTS CERTAIN DISCLOSURES IN NOTES 5 AND 9 TO THE UNAUDITED FINANCIAL STATEMENTS CONCERNING OUTSTANDING STOCK OPTIONS TO ACCOUNT FOR THE COMPANY’S 10-FOR-1 REVERSE STOCK SPLIT IN OCTOBER 2013
POWIN CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1.
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Financial Statements.
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3
|
|
Condensed Consolidated Balance Sheets as of June 30, 2016
(unaudited) and December 31, 2015 (audited)
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3
|
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Condensed Consolidated Statements of Operations for the Three and Six months ended June 30,2016 and 2015 (unaudited)
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4
|
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Condensed Consolidated Statements of Comprehensive Loss for the
Three and Six months ended June 30, 2016 and 2015 (unaudited)
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5
|
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Condensed Consolidated Statements of Cash Flows for the Six months ended June 30,2016 and 2015 (unaudited)
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6
|
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Notes to Unaudited Condensed Consolidated Financial Statements
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7
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|
|
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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29
|
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Note Regarding Forward Looking Statements
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29
|
|
Overview
|
|
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Critical Accounting Policies
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34
|
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Results of Operations
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30
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Liquidity and Capital Resources
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32
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Off-Balance Sheet Arrangements
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34
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|
|
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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34
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|
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Item 4.
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Controls and Procedures.
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34
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|
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|
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PART II. OTHER INFORMATION
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||
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|
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Item 1.
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Legal Proceedings.
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34
|
|
|
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Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
34
|
|
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Item 3.
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Defaults Upon Senior Securities.
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35
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|
|
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Item 4.
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Mine Safety Disclosures.
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35
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|
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Item 5.
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Other Information.
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35
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|
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Item 6.
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Exhibits.
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35
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
POWIN CORPORATION
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
June 30,
|
December 31,
|
|||||||
2016
|
2015
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current Assets
|
||||||||
Cash
|
$
|
595,694
|
$
|
3,561,153
|
||||
Accounts receivable, net
|
1,825,517
|
1,851,096
|
||||||
Notes and other receivables, net
|
150,032
|
132,454
|
||||||
Inventories, net
|
2,239,311
|
2,153,316
|
||||||
Prepaid expenses and deposits
|
611,624
|
391,291
|
||||||
Total current assets
|
5,422,178
|
8,089,310
|
||||||
Property and equipment, net
|
1,124,688
|
1,233,716
|
||||||
Intangible assets, net
|
184,523
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185,845
|
||||||
Total assets
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$
|
6,731,389
|
$
|
9,508,871
|
||||
Liabilities and shareholders' deficit
|
||||||||
Current Liabilities
|
||||||||
Accounts payable
|
$
|
1,099,653
|
$
|
1,545,137
|
||||
Accrued payroll and other accrued liabilities
|
729,480
|
620,697
|
||||||
Notes payable - current portion of long-term debt and accrued interest
|
-
|
19,271
|
||||||
Payable to related parties - current
|
268,512
|
-
|
||||||
Total current liabilities
|
2,097,645
|
2,185,105
|
||||||
Total liabilities
|
2,097,645
|
2,185,105
|
||||||
Stockholders' deficit
|
||||||||
Preferred stock, 25,000,000 shares authorized:
|
||||||||
Series A stock: $100 par value, Conversion rate 1 to 20, 10,855 and 10,237 shares issued and outstanding, respectively
|
1,085,500
|
1,023,700
|
||||||
2015 August stock: $0.56 par value, Conversion rate 1 to 1, 13,625,826 and 13,625,826 shares issued and outstanding, respectively
|
7,630,464
|
7,630,464
|
||||||
Common stock, $0.001 par value, 575,000,000 shares
|
||||||||
Authorized; 16,261,839 and 16,243,839 shares
issued and outstanding, respectively
|
16,262
|
16,256
|
||||||
Additional paid-in capital
|
23,094,943
|
23,909,992
|
||||||
Accumulated other comprehensive loss
|
(58,745
|
)
|
(56,176
|
)
|
||||
Accumulated deficit
|
(24,447,776
|
)
|
(22,060,870
|
)
|
||||
Total Powin Corporation stockholders' deficit
|
7,320,648
|
10,463,366
|
||||||
Non-controlling interest
|
(2,686,904
|
)
|
(3,139,600
|
)
|
||||
Total liabilities and shareholders' deficit
|
$
|
6,731,389
|
$
|
9,508,871
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
POWIN CORPORATION
|
||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
||||||||||||||||
Net sales to unrelated parties
|
$
|
2,623,984
|
$
|
3,053,391
|
$
|
4,827,225
|
$
|
5,736,968
|
||||||||
Net sales to related parties
|
22,607
|
91,307
|
82,727
|
117,998
|
||||||||||||
Total net sales
|
2,646,591
|
3,144,698
|
4,909,952
|
5,854,966
|
||||||||||||
Cost of sales
|
2,314,767
|
2,808,464
|
4,244,637
|
4,980,799
|
||||||||||||
Gross profit
|
331,824
|
336,234
|
665,315
|
874,167
|
||||||||||||
Operating Expenses
|
||||||||||||||||
Payroll expenses
|
584,074
|
280,327
|
1,187,663
|
1,005,040
|
||||||||||||
Professional expenses
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543,398
|
544,950
|
1,089,917
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954,089
|
||||||||||||
Rent expenses
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152,110
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188,702
|
340,831
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377,423
|
||||||||||||
General and administrative expenses
|
407,284
|
623,094
|
788,357
|
1,251,087
|
||||||||||||
Total operating expenses
|
1,686,866
|
1,637,073
|
3,406,768
|
3,587,639
|
||||||||||||
Loss from operations
|
(1,355,042
|
)
|
(1,300,839
|
)
|
(2,741,453
|
)
|
(2,713,472
|
)
|
||||||||
Other income (expense)
|
||||||||||||||||
Other income
|
3,899
|
8,433
|
13,428
|
41,680
|
||||||||||||
Interest expense
|
(3,553
|
)
|
(111,870
|
)
|
(3,684
|
)
|
(220,348
|
)
|
||||||||
Loss on sales of assets
|
2,423
|
-
|
2,423
|
-
|
||||||||||||
Other income (expense)
|
-
|
125,912
|
-
|
125,767
|
||||||||||||
Other expenses
|
2,769
|
22,475
|
12,167
|
(52,901
|
)
|
|||||||||||
Loss before income taxes
|
(1,352,273
|
)
|
(1,278,364
|
)
|
(2,729,286
|
)
|
(2,766,373
|
)
|
||||||||
Provision for income
taxes |
-
|
-
|
7,500
|
-
|
||||||||||||
Net loss
|
(1,352,273
|
)
|
(1,278,364
|
)
|
(2,736,786
|
)
|
(2,766,373
|
)
|
||||||||
Net loss attributable to non-controlling interest
|
(177,995
|
)
|
(462,828
|
)
|
(349,880
|
)
|
(511,511
|
)
|
||||||||
Net loss attributable to Powin Corporation
|
(1,174,278
|
)
|
(815,536
|
)
|
$
|
(2,386,906
|
)
|
$
|
(2,254,862
|
)
|
||||||
Loss per share:
|
||||||||||||||||
Basic
|
$
|
(0.08
|
)
|
$
|
(0.05
|
)
|
$
|
(0.15
|
)
|
$
|
(0.14
|
)
|
||||
Diluted
|
$
|
(0.08
|
)
|
$
|
(0.05
|
)
|
$
|
(0.15
|
)
|
$
|
(0.14
|
)
|
||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic and Diluted
|
16,258,641
|
16,246,839
|
16,257,240
|
16,245,347
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
POWIN CORPORATION
|
||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net loss
|
$
|
(1,352,273
|
)
|
$
|
(1,278,364
|
)
|
$
|
(2,736,786
|
)
|
$
|
(2,766,373
|
)
|
||||
Other comprehensive loss
|
||||||||||||||||
Foreign currency translation adjustment
|
10,424
|
(27,319
|
)
|
7,344
|
(22,273
|
)
|
||||||||||
Comprehensive loss
|
(1,341,849
|
)
|
(1,305,683
|
)
|
(2,729,442
|
)
|
(2,788,646
|
)
|
||||||||
Comprehensive loss attributable to non-controlling interest
|
(177,995
|
)
|
(462,828
|
)
|
(349,880
|
)
|
(511,511
|
)
|
||||||||
Comprehensive loss attributable to Powin Corporation
|
$
|
(1,163,854
|
)
|
$
|
(842,855
|
)
|
$
|
(2,379,562
|
)
|
$
|
(2,277,135
|
)
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
POWIN CORPORATION
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited)
|
||||||||
Six Months ended June 30,
|
||||||||
2016
|
2015
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net loss
|
$
|
(2,736,786
|
)
|
$
|
(2,766,373
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||
Depreciation and amortization
|
179,746
|
250,917
|
||||||
Reserve for slow moving and obsolete inventory
|
-
|
(100,180
|
)
|
|||||
Share based compensation
|
65,081
|
86,675
|
||||||
Provision for doubtful accounts receivable
|
-
|
(9,362
|
)
|
|||||
Provision for doubtful other receivable
|
3,279
|
7,802
|
||||||
Changes in operating assets and liabilities
|
||||||||
Accounts receivable
|
25,579
|
480,212
|
||||||
Notes and other receivables
|
(20,857
|
)
|
24,044
|
|||||
Inventories
|
(85,995
|
)
|
(324,814
|
)
|
||||
Prepaid expenses and deposits
|
(220,333
|
)
|
41,547
|
|||||
Accounts payable
|
(445,485
|
)
|
(610,718
|
)
|
||||
Accrued payroll and other liabilities
|
108,783
|
(296,258
|
)
|
|||||
Net cash used in operating activities
|
(3,126,988
|
)
|
(3,216,508
|
)
|
||||
INVESTING ACTIVITIES
|
||||||||
Acquisition of intangible assets
|
(10,896
|
)
|
-
|
|||||
Cash paid to acquire non controlling interest
|
(15,747
|
)
|
-
|
|||||
Purchase of equipment and leasehold improvements
|
(58,500
|
)
|
(119,876
|
)
|
||||
Total cash used in investing activities
|
(85,143
|
)
|
(119,876
|
)
|
||||
FINANCING ACTIVITIES
|
||||||||
Proceeds from notes payables and debt
|
-
|
73,491
|
||||||
Repayments to notes payables and debt
|
(19,271
|
)
|
(136,395
|
)
|
||||
Proceeds from stock issuance
|
-
|
8,930,000
|
||||||
Proceeds from payable to related parties
|
268,512
|
346,137
|
||||||
Payments to payable to related parties
|
-
|
(433,013
|
)
|
|||||
Net cash provided by financing activities
|
249,241
|
8,780,220
|
||||||
Impact of foreign exchange on cash
|
(2,569
|
)
|
(22,273
|
)
|
||||
Net (decrease) increase in cash
|
(2,965,459
|
)
|
5,421,563
|
|||||
Cash at beginning of period
|
3,561,153
|
757,074
|
||||||
Cash at end of period
|
$
|
595,694
|
$
|
6,178,637
|
||||
SUPPLEMENTAL DISCLOURSE OF CASH FLOW INFORMATION
|
||||||||
Interest paid
|
$
|
171
|
$
|
549,344
|
||||
Income taxes paid
|
$
|
7,500
|
$
|
-
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
POWIN CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Description of Business and History And Summary of Significant Accounting Policies
Description of Business and History
Powin Corporation (“Company”, “we”, “us”) was founded in 1989 in Oregon by Joseph Lu, who developed a strategy of manufacturing a number of diverse products for leading North American retailers, with careful attention to quality and value-added service. As a contract manufacturer, the Company provides manufacturing coordination, design and logistics services for companies to outsource its manufacturing needs. Manufacturing is provided through the Company’s subsidiary, Q Pacific Manufacturing Corporation (“Q Pacific Manufacturing”), with a leased metal fabrication plant in Tualatin, Oregon; its 100% owned subsidiary in Mexico, with a leased metal fabrication plant in Saltillo; or through very strong relationships with factories located in The People’s Republic of China and in Taiwan.
Throughout its life-cycle, the Company has expanded into additional lines of business, all based on the values of delivering customers a high quality product and value-added service. For the periods presented the Company have the following subsidiaries:
As described in this Form 10Q and 2015 Form 10K
|
|
|
As described in previously filings
|
||
|
|
|
|
|
|
Legal entity name
|
Business
segment name
|
|
|
Legal entity name
|
Business
segment name
|
Powin
Corporation
|
Holding
company
|
|
|
Powin Corporation
|
Holding
company
|
Q Pacific
Contract
Manufacturing
Corporation
|
Contract
manufacturing
|
|
|
Powin Contract
Manufacturing
Corporation
|
Contract
manufacturing
|
Q Pacific
Manufacturing
Corporation
|
Manufacturing
|
|
|
Powin
Manufacturing
Corporation
|
Manufacturing
|
Powin Energy
Corporation
|
Energy
|
|
|
Powin Energy
Corporation
|
Energy
|
|
|
|
|
|
|
Powin Industries
S.A. de C.V.
|
Mexico
|
|
|
Powin Industries
S.A. de C.V.
|
Mexico
|
Powin Product
Service, Inc.
|
Contract
Manufacturing
|
|
|
Powin Product
service, Inc.
|
Warehousing
|
The Company’s client base includes distributors in the transportation, medical, sports, camping, fitness, and packaging and furniture industries. Operations outside the United States of America are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.
7
Basis of preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.
In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the six-month period ended June 30, 2016, are not necessarily indicative of the results to be expected for other interim periods or for the full year ended December 31, 2016. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities Exchange Commission.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Powin Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
Foreign currencies
Assets and liabilities recorded in foreign currencies are translated to U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated to U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).
The reporting currency of the Company is the U.S. dollars. The Company’s Mexico subsidiary Powin Industries S.A. de C.V uses Mexican Peso as its functional currency. The results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rates at the balance sheet dates, and equity is translated at the historical exchange rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding accounts on the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statements of stockholders’ equity. Translation adjustments for the six months ended June 30, 2016 and 2015 were $7,344 and $(22,273), respectively. Translation adjustments for the three months ended June 30, 2016 and 2015 were $10,424 and $(27,319), respectively. The cumulative translation adjustment and effect of exchange rate changes on cash as of June 30, 2016 and December 31, 2015 were $(58,745) and $(56,176), respectively. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Assets and liabilities were translated at 18.56 PESO and 17.34 PESO to $1.00 at June 30, 2016 and December 31, 2015, respectively. The equity accounts were stated at their historical rates. The average translation rates applied to income statements for the six months ended June 30, 2016 and 2015 were 18.56 PESO and 15.66 PESO to $1.00, respectively. Cash flows are also translated at average translation rates for the period; therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
8
Use of estimates
The preparation of consolidated financial statements in accordance with GAAP requires the use of management’s estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.
We maintain allowances for accounts receivable for estimated uncollectable accounts receivable due to the inability of our customers to make required payments. We maintain impairment for inventory for estimated inventory loss. We maintain allowances for returns for estimated losses resulting from product returns. These estimates have historically been within our expectations and the provisions established.
Revenue recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, the service is performed or delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured.
For product shipped directly from the Company’s warehouse or manufactured by the Company in the United States and then shipped to the customer, revenue is recognized at time of shipment as it is determined that ownership and title has passed to the customer at shipment and revenue is recognized. Amounts billed to customers for freight and shipping are classified as revenue.
Products imported from China and shipped directly to the customer may be either FOB Port of Origin or FOB Shipping Destination United States. If the product is shipped FOB Port of Origin revenue is recognized at time of delivery to the Company’s representative in China, when the proper bills-of-lading have been signed by the customer’s agent and ownership passed to the customer. For product shipped FOB Shipping Destination U.S., revenue is recognized when product is off-loaded at the United States Port of Entry and delivered to the customer, when all delivery documents have been signed by the receiving customer, and ownership has passed to the customer.
For orders placed requiring customized manufacturing, the Company requires the customer to issue its signed purchase order with documentation identifying the specifics of the product to be manufactured. Revenue is recognized on customized manufactured products upon delivery of the product. If the customer cancels the purchase order after the manufacturing process has begun, the Company invoices the customer for any manufacturing costs incurred and revenue is recognized. Orders canceled after delivery has occurred are fully invoiced to the customer and revenue is recognized, provided all other revenue recognition criteria are met.
Cost of goods sold
Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.
Advertising
The Company expenses the cost of advertising as incurred. For the six months ended June 30, 2016 and 2015, the amount charged to advertising expense was $18,299 and $68,215, respectively. For the three months ended June 30, 2016 and 2015, the amount charged to advertising expense was $11,384 and $47,912, respectively.
Research and development
Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to manufacturing. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.
9
Loss Per Share
Basic loss per share is based on the weighted-average effect of all common shares issued and outstanding, and is calculated by dividing net loss by the weighted-average shares outstanding during the year. Diluted loss per share is calculated by dividing net income by the weighted-average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive. Please refer to Note 6 for further discussion.
Comprehensive loss
Comprehensive loss is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive loss requires that all items that are required to be recognized under current accounting standards as components of comprehensive loss be reported in a financial statement that is displayed with the same prominence as other financial statements. For the years presented, the Company’s comprehensive loss includes net loss and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive loss.
Cash
The Company considers all highly liquid investments with maturity of six months or less to be cash equivalents. The cash deposits in U.S. financial institutions exceed the amounts insured by the U.S. government. The standard insurance amount is $250,000 per depositor, per insured bank. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. At June 30, 2016 and December 31, 2015, the Company’s bank balances exceeded insurances balances by $0 and $2,634,252, respectively. At June 30, 2016 and December 31, 2015, the Company had no cash equivalents.
Accounts receivable
Accounts receivable are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus, accounts receivable do not bear interest. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Balances outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Bad debt expense for the six months ended June 30, 2016 and 2015 was $0 and $9,362, respectively.
Inventories, net
Inventories consist of parts and equipment including electronic parts and components, furniture, rubber products, plastic products and exercise equipment. Inventory is valued at the lower of cost (first-in, first-out method) or market. The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state. For the six months ended June 30, 2016 and 2015, the Company recorded an inventory obsolescence recovery of $0 and provision for inventory obsolescence of $100,180, respectively, which is included in cost of sales. The components of inventories were as follows:
10
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||
Raw materials
|
$
|
889,031
|
$
|
561,246
|
||||
Work in progress
|
242,321
|
196,668
|
||||||
Finished goods
|
1,881,127
|
2,168,570
|
||||||
Reserve for slow moving
and obsolete inventory
|
(773,168
|
)
|
(773,168
|
)
|
||||
Inventories, net
|
$
|
2,239,311
|
$
|
2,153,316
|
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. For financial reporting and income tax purposes, the costs of property and equipment are depreciated and amortized over the assets estimated useful lives, using principally the straight-line method for financial reporting purposes and an accelerated method for income tax purposes. Costs associated with repair and maintenance of property and equipment are expensed as incurred. Changes in circumstances, such as technological advances, changes to the Company’s business model or capital strategy could result in actual useful lives differing from the Company’s estimates. In those cases where the Company determines that the useful life of property and equipment should be shortened, the Company would depreciate the asset over its revised remaining useful life thereby increasing depreciation expense.
The Company depreciates property and equipment over the following estimated useful lives:
Equipment
|
7-15 years
|
Leasehold improvements
|
39 years
|
Computers
|
3-5 years
|
Vehicles
|
5-7 years
|
Furniture and fixtures
|
3-5 years
|
The Company reviews the carrying value of property, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, and equipment was recorded in operating expenses during the six months ended June 30, 2016 and 2015.
Intangible Assets
All of our intangible assets include websites and also patents that are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from 3 to 5 years. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicates the asset may be impaired.
Non-controlling interests
As of June 30, 2016, Non-controlling interests on the consolidated financial statements represented the minority stockholders’ proportionate share of the net income/losses of Powin Energy, an 82.35% owned subsidiary from April 2, 2015.
On August 8, 2014, Powin Corporation and its wholly-owned subsidiary, Powin Energy Corporation (collectively “Powin”) and SF Suntech, Inc. (“Suntech”) signed a Share Subscription Agreement (“Subscription Agreement”) for an investment of $12,500,000 from Suntech. On April 1, 2015 and April 2, 2015, Powin Energy issued 1,765 shares and 378 shares of Powin Energy Common Stock to Suntech, respectively. Professional expenses of $750,000 related to the issuances were deducted from the proceeds received. After the shares issuance, the Company owns 82.35% of Powin Energy.
11
Non-controlling interests on the consolidated financial statements as of December 31, 2015 includes minority interest of Mexico, an 85% owned subsidiary from February 2011 to January 2016. On January 2016, the company spent $15,747 and bought the 15% minority interest in the company’s Mexico subsidiary. The Company now owns 100% of the Mexico subsidiary.
Income taxes
Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the consolidated financial statements or tax returns, judgment and interpretation of statutes is required. Additionally, the Company uses tax planning strategies as a part of its tax compliance program. Judgments and interpretation of statutes are inherent in this process.
The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit from an uncertain tax position in the consolidated financial statements only when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s widely understood administrative practices and precedents.
Prior to July 8, 2008, the Company had elected under the Internal Revenue Code to be taxed as an S Corporation. In lieu of corporation income taxes, the stockholder of an S Corporation is taxed on his proportionate share of the Company’s taxable income. Due to the merger on July 8, 2008, the Company is now subject to Federal income tax.
Fair Value Measurements
The fair value accounting guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:
• | Level 1: Observable inputs such as quoted prices in active markets; |
• | Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
• | Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The carrying value of the Company’s equipment borrowing and short term line of credit borrowing at June 30, 2016 and December 31, 2015, is considered to approximate fair market value, as the interest rates of these instruments are based predominantly on variable reference rates. The carrying value of accounts receivable, trade payables and accrued liabilities approximates the fair value due to their short-term maturities.
12
Stock-Based Compensation
The Company measures stock-based compensation expense for all share-based awards granted to employees based on the estimated fair value of those awards at grant-date under ASC 718. The cost of restricted stock awards is determined using the fair market value of our common stock on the date of grant. The fair values of stock option awards are estimated using a Black-Scholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period. Forfeiture rates are estimated at grant-date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.
Recently Issued Accounting Pronouncements –Not Adopted
The FASB has issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.
Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.
Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.
This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.
The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.
The FASB and IASB (the Boards) have issued converged standards on revenue recognition. Specifically, the Boards have issued the following documents:
• | FASB Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606 ; and |
• | IFRS 15, Revenue from Contracts with Customers. |
The issuance of these documents completes the joint effort by the Boards to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS.
ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.
13
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
• | Step 1: Identify the contract(s) with a customer. |
• | Step 2: Identify the performance obligations in the contract. |
• | Step 3: Determine the transaction price. |
• | Step 4: Allocate the transaction price to the performance obligations in the contract. |
• | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. |
For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.
Segment reporting
ASC 280, Segment Reporting, formerly known as Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, requires use of the “management approach” model for segment reporting. Under this model, segment reporting is consistent with the manner that the Company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management disaggregates a company.
A description of our operating segments as of June 30, 2016 and December 31, 2015, follows.
Contract manufacturing (formerly OEM):
Outsourced manufacturing for North American companies, including senior citizen safety products; steel gun safes; outdoor cooking equipment; trampolines; plastic products and small electronic appliances. Contract manufacturing also offers logistic services and a qualified engineer team to support and provide in-house design.
Manufacturing (formerly QBF):
Our manufacturing segment, Powin Manufacturing formerly named Quality Bending and Fabrication (“QBF”), manufactures various truck parts and components primarily for Freightliner Trucks, a division of Daimler Trucks North America, the largest manufacturer of heavy-duty vehicles in North America. Daimler Trucks North America designs, builds and markets a wide range of Class 3-8 vehicles including long-haul highway tractors, heavy-duty construction and vocational trucks, mid-range trucks for distribution and service, school and transit buses, fire and emergency service apparatus, and chassis for step vans, school and shuttle buses, and motor homes. Freightliner Trucks is headquartered in Portland, Oregon, with truck manufacturing facilities located in Portland and throughout the United States and Mexico.
Manufacturing is completed at the Company’s leased facility in Tualatin, Oregon as well as arranging the outsourced manufacturing at a third-party factory in Qingdao, China.
14
Energy:
Powin Energy has developed market leading architecture that utilizes proprietary patent-pending energy storage technology for scalable grid energy storage systems, power supply units for electric vehicles, and transportation applications. Through December 31, 2014, the Energy segment has focused on identifying target markets and applications and finalizing the development of products to serve those markets and applications. In 2015, The Company has continued to develop products and marketing strategies for this operating entity.
Product & Service (formerly Channel Partner Program, Warehousing and Wooden)
The Product & Service segment contains the legacy operations of Channel Partner Program, a distribution channel for North American companies to sell their products in China as well as selling certain consumer products through U.S.-based retailers and marketplaces, including online; and Warehousing, which provides warehousing services in support of the Company’s customers across all segments. On January 1, 2015, the Product & Service segment had been incorporated into our contract manufacturing segment.
Powin Mexico:
Powin Mexico is a manufacturing segment, currently manufacturing gun safes, but also capable of manufacturing heavy truck parts. Operations began in 2013.
Note 2: Going concern
The Company sustained net loss attributable to Powin Corporation of $2,736,786 and $2,766,373 during the six months ended June 30, 2016 and 2015. The Company has accumulated deficit of$24,447,776 as of June 30, 2016. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
In recent months, the Company has taken significant steps toward restoration of operating profits and financial stability. Cost cutting measures, including reductions to staff, have been implemented within the Contract Manufacturing and Manufacturing segments. The Mexican segment is working on getting additional sales volume with several US manufacturers and distributors of commercial safes.
Note 3: Notes and other receivables
Notes and other receivables consist of the following:
|
June 30,2016
(unaudited)
|
December
31,2015
|
||||||
VAT receivable, Mexico
|
$
|
457,339
|
$
|
454,424
|
||||
Notes receivable from third parties
|
132,199
|
125,618
|
||||||
Other
|
17,833
|
6,836
|
||||||
Reserve for uncollectible VAT receivable
|
(457,339
|
)
|
(454,424
|
)
|
||||
Notes and other receivables, net
|
$
|
150,032
|
$
|
132,454
|
The Company has fully reserved for its Mexico VAT tax receivable as there is no expectation of collection.
15
On August 5, 2013, the Company lent $120,000 to Electro. On January 31, 2014 and March 19, 2014 together, Electro paid back $10,000. The principal balances as of June 30, 2016and December 31, 2015 were both $110,000. The note was originally due November 30, 2013, which was extended to due on August 31, 2015. Powin Corporation is currently negotiating for a payment plan. The note has no collateral and has accrued interest at 12% per annum. Interest income from this note receivable amounted to$6,582 and $6,546 the six months ended June 30, 2016 and 2015, respectively. Interest income from this note receivable amounted to$3,291 and $3,291 the three months ended June 30, 2016 and 2015, respectively. The outstanding note receivable includes accrued interest were $132,199 June 30, 2016.
Note 4: Property and equipment, net
The components of property and equipment were as follows:
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||
Equipment
|
$
|
2,918,999
|
$
|
2,918,999
|
||||
Leasehold improvements
|
394,352
|
394,352
|
||||||
Computers
|
375,211
|
316,711
|
||||||
Vehicles
|
70,714
|
70,714
|
||||||
Furniture and fixtures
|
83,560
|
83,560
|
||||||
|
3,842,836
|
3,784,336
|
||||||
Accumulation depreciation
|
(2,718,148
|
)
|
(2,550,620
|
)
|
||||
Property and equipment - net
|
$
|
1,124,688
|
$
|
1,233,716
|
For the six months ended June 30, 2016 and 2015, depreciation of property and equipment amounted $167,528 and $233,444, respectively. For the three months ended June 30, 2016 and 2015, depreciation of property and equipment amounted $82,716 and $113,618, respectively.
Note 5: Loss per share
Basic loss per share is based on the weighted-average effect of all common shares issued and outstanding, and is calculated by dividing net loss by the weighted-average shares outstanding during the year. Diluted loss per share is calculated by dividing net income by the weighted-average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive.
The components of basic and diluted loss per share are as follows:
|
For the three months ended
June 30, |
For the six months ended June
30, |
||||||||||||||
|
2016
(Unaudited)
|
2015
(Unaudited)
|
2016
(Unaudited)
|
2015
(Unaudited)
|
||||||||||||
|
||||||||||||||||
Net loss attributable to Powin Corporation(A)
|
(1,174,278
|
)
|
(815,536
|
)
|
(2,386,906
|
)
|
(2,254,862
|
)
|
||||||||
Less preferred share dividends
|
(61,800
|
)
|
(55,000
|
)
|
(61,800
|
)
|
(55,000
|
)
|
||||||||
Net loss available to Powin Corporation (B)
|
(1,236,078
|
)
|
(870,536
|
)
|
(2,448,706
|
)
|
(2,309,862
|
)
|
||||||||
|
||||||||||||||||
Weighted average outstanding shares of
common stock (C)
|
16,258,641
|
16,246,839
|
16,257,240
|
16,245,347
|
||||||||||||
Dilutive effect of securities
|
-
|
-
|
-
|
-
|
||||||||||||
Common stock and common stock equivalents (D)
|
16,258,641
|
16,246,839
|
16,257,240
|
16,245,347
|
||||||||||||
|
||||||||||||||||
Loss per share
|
||||||||||||||||
Basic (B/D)
|
$
|
(0.08
|
)
|
$
|
(0.05
|
)
|
$
|
(0.15
|
)
|
$
|
(0.14
|
)
|
||||
Diluted (B/D)
|
$
|
(0.08
|
)
|
$
|
(0.05
|
)
|
$
|
(0.15
|
)
|
$
|
(0.14
|
)
|
16
The Company has 10,855 and 10,237 shares of outstanding Series A preferred stock as of June 30, 2016 and December 31, 2015, respectively. These Series A share has par value of $100 and is convertible at 1 to 20 rate. The Company has 13,625,826 and 13,625,826 shares of outstanding August 2015 preferred stock as of June 30, 2016 and December 31, 2015, respectively. These August 2015 share has par value of $0.56 and is convertible at 1 to 1 rate.
On June 15, 2011, the Company granted awards in the form of incentive stock options to its key employees for 117,000 shares of common stock. There were no stock options granted in 2012. On August 6, 2013, the Company granted another 164,000 stock options under the same plan to all employees. The Company has 140,000 and 158,000 shares of outstanding stock options as of June 30, 2016 and December 31, 2015, respectively.
On April 15, 2013, The Company issued a Warrant to Purchase Common Stock to Global Storage Group, LLC for 70,000 shares of the Company’s common stock at an exercise price of $25.00; and a Warrant to Purchase Common Stock to Virgil L. Beast on for 30,000 shares of the Company’s common Stock at an exercise price of $25.00. The exercise period of each Warrant is 60 months from the date of issuance and may be exercised in whole or in part at any time prior to April 15, 2018. As of June 30, 2016 and December 31, 2015, all 100,000 warrants remain outstanding.
The following sets forth the number of shares of common stock underlying if all outstanding options, warrants, and convertible debt were converted as of June 30, 2016 and December 31, 2015:
|
||||||||
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||
Series A preferred stock
|
217,100
|
204,740
|
||||||
Warrants
|
100,000
|
100,000
|
||||||
Stock options
|
140,000
|
158,000
|
||||||
August 2015 preferred stock
|
13,625,826
|
13,625,826
|
||||||
|
14,082,926
|
14,088,566
|
For the six months ended June 30, 2016 and 2015, the effect of warrants, stock options and convertible preferred stock and preferred stock dividends are excluded from loss per share because their impact is considered to be anti-dilutive.
Note 6: Notes Payable and Long Term Debt
The total carrying value of notes payable and long-term debt, including current and long-term portions, was as follows:
17
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||||||||||
|
||||||||||||||||
|
Current
|
Non
Current
|
Current
|
Non
Current
|
||||||||||||
Equipment loan starting December 18, 2012, due January 1,
2017, with 3.05% interest rate, with no collateral
|
$
|
-
|
$
|
-
|
$
|
19,271
|
$
|
-
|
||||||||
Total long-term debt, including current portion
And accrued interest
|
$
|
-
|
$
|
-
|
$
|
19,271
|
-
|
Interest expenses related to notes payables and long-term debt amounted to $171 and $74,359 for the six months ended June 30, 2016 and 2015, respectively. Interest expenses related to notes payables and long-term debt amounted to $40 and $37,344 for the three months ended June 30, 2016 and 2015, respectively.
During the year ended December 31, 2015, the Company issued its preferred stock designed as “August 2015 Preferred Stock”, in satisfaction of certain notes payable (Note 8).There are no gain or loss related to the issuance of the preferred stock.
Note 7: Commitments
Operating Leases
The Company leases a facility from Lu Pacific Properties, LLC(“Lu Pacific)(formerly, Powin Pacific Properties, LLC, a company owned by Joseph Lu, the Company’s largest shareholder, Chairman of the Board and CEO, which serves as the Company’s corporate headquarters as well as the base of all operations, except Q Pacific Manufacturing and Powin Mexico. This lease is through June 30, 2021 and requires the Company to pay for all property taxes, utilities and facility maintenance.
Effective January 1, 2016, the Company entered into a lease amendment. The Company’s subsidiary, Powin Energy leased 35,048 square feet of the building. The new lease term is through June 30, 2021 and all property taxes, utilities and facility maintenance were charge at $0.15 per square foot per month by Lu Pacific Properties, LLC. The monthly rental expense is $18,303.
Effective January 1, 2016, the Company’s affiliate, Q Pacific Contract Manufacturing, entered into a lease agreement. The Company leased 9,500 square feet of the building. The lease term is through June 30, 2021.This lease required the Company to pay for all property taxes, utilities and facility maintenance (“fees”). The monthly rental expense and fees is $5,518.
The Company leased a facility to Q Pacific Manufacturing, which is owned by Lu Pacific Properties, LLC, which lease expired on October 31, 2014 and which was extended to October 31, 2019. This lease required the Company to pay for all property taxes, utilities and facility maintenance. The monthly rental expense is $15,594.
The Powin Mexico leases a manufacturing facility owned by Lu Pacific Properties, LLC in Saltillo Coahuila Mexico. This lease is through May 31, 2021 and requires the Company to pay for all property taxes, utilities and facility maintenance. The monthly rental expense is $12,133.
Minimum future lease payments under non-cancelable operating leases are as follows:
Year ending June 30,
|
||||
2017
|
$
|
681,662
|
||
2018
|
681,662
|
|||
2019
|
681,662
|
|||
2020
|
556,910
|
|||
2021
|
482,401
|
|||
Thereafter
|
-
|
|||
Total
|
$
|
3,084,297
|
18
For the six months ended June 30, 2016 and 2015, total lease expense paid for all operating rents and leases was $340,831 and $377,423, respectively. For the three months ended June 30, 2016 and 2015, total lease expense paid for all operating rents and leases was $170,416 and $188,721, respectively. These leases are also disclosed in Note 10, related party transactions.
Note 8: Capital stock
The Company has two classes of preferred stock and one class of common stock. The Series A Preferred Stock has a $100 face value per share with a conversion rate of one (1) share of Preferred Stock for twenty (20) shares of Common Stock. The 2015 August Preferred Stock carries a par value of $0.56 per shares and is convertible into Common Stock at the rate of 1for1.
Preferred Stock
The Series A Preferred Stock is convertible at a rate of one (1) preferred share to twenty (20) shares of Powin Corporation common stock. The Series A Preferred Stock calls for dividends of 12%, declared semi-annually, and paid in additional Series A Preferred Stock. In 2014 and 2015, we issued 1,018 and 1,135shares of Series A Preferred Stock as dividends respectively, increasing the Series A Preferred Stock by $101,800 and $113,500 and decreasing additional paid in capital.
Common Stock
For the three months ended March 31, 2015 the Company issued 3,000 shares of common stock to six members of its Board of Directors as compensation for their services based on the fair value of the shares valued at $1.95 per share for their service. For the three months ended June 30, 2015 the Company issued 3,000 shares of common stock to six members of its Board of Directors as compensation for their services based on the fair value of the shares valued at $0.56 per share for their service. For the three months ended September 30, 2015 the Company issued 3,000 shares of common stock to six members of its Board of Directors as compensation for their services based on the fair value of the shares valued at $0.90 per share for their service. For the three months ended December 31, 2015 the Company issued 3,000 shares of common stock to six members of its Board of Directors as compensation for their services based on the fair value of the shares valued at $0.65 per share for their service.
For the three months ended June 30, 2016 the Company issued 6,000 shares of common stock to the six members of its Board of Directors as compensation for their services based on the fair value of the shares valued at $0.30 per share.
The Company issued its August 2015 Preferred Stock (“Preferred Stock”) in August 2015 in satisfaction of the notes payable described in the table below. The holders of the Preferred Stock do not have a dividend preference over the Company’s common stock and have the same voting rights as the holders of common stock. The Preferred Stock is convertible into the Company’s common stock at the rate of one (1) share of Preferred Stock for one (1) share of common stock. The holders of the Preferred Stock are entitled to a liquidation preference over the holders of common stock equal to $0.56 per share. The full rights, preferences and privileges of the Preferred Stock are set forth in the Certificate of Designation which was filed in the 8K report on August 6, 2015.
Lender
|
Borrower
|
Amount
|
Number of Shares of
Preferred Stock
|
3U Trading Co., Limited
|
Powin Corporation
|
$2,451,195
|
4,377,133
|
3U Trading Co., Limited
|
Powin Industries S.A. DE C.V.
|
$211,474
|
377,631
|
Joseph Lu
|
Powin Corporation
|
$3,333,091
|
5,951,947
|
Danny Lu
|
Powin Corporation
|
$560,565
|
1,001,009
|
Peter Lu
|
Powin Corporation
|
$560,565
|
1,001,009
|
Lu Pacific Properties, LLC
|
Powin Corporation
|
$513,574
|
917,097
|
Total
|
$7,630,464
|
13,625,826
|
19
In addition, on April 15, 2013, the Company issued a Warrant to Purchase Common Stock to Global Storage Group, LLC for 70,000 shares of the Company’s common stock at an exercise price of $25.00; and a Warrant to Purchase Common Stock to Virgil L. Beast on for 30,000 shares of the Company’s common Stock at an exercise price of $25.00. The exercise period of each Warrant is 60 months from the date of issuance and may be exercised in whole or in part at any time prior to April 15, 2018. As of June 30, 2016 and December 31, 2015, all 100,000 warrants remain outstanding.
|
Average
|
|||||||||||||||
|
Weighted
|
Remaining
|
||||||||||||||
|
average
exercise
|
Contractual
Life
|
Aggregate
|
|||||||||||||
|
Warrants
|
price
|
(Years)
|
Intrinsic
Value
|
||||||||||||
Outstanding at
December 31, 2015
|
100,000
|
$
|
25
|
2.4
|
$
|
-
|
||||||||||
|
||||||||||||||||
Exercisable at
December 31, 2015
|
100,000
|
$
|
25
|
2.4
|
$
|
-
|
||||||||||
|
||||||||||||||||
|
||||||||||||||||
Warrants granted
|
-
|
-
|
-
|
-
|
||||||||||||
Warrants exercised
|
-
|
-
|
-
|
-
|
||||||||||||
Warrants forfeited
|
-
|
-
|
-
|
-
|
||||||||||||
Outstanding at
June 30, 2016
|
100,000
|
$
|
25
|
1.90
|
$
|
-
|
||||||||||
Exercisable at
June 30, 2016
|
100,000
|
$
|
25
|
1.90
|
$
|
-
|
Note 9: Stock options
In February 2011, the Company’s Board of Directors approved the adoption of the Powin Corporation 2011 Stock Option Plan (“the Plan”) and submitted its ratification to the shareholders at the shareholders’ meeting held June 15, 2011, where the shareholders approved the Plan.
The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, “Compensation – Stock Compensation”.
On June 15, 2011, the Company granted awards in the form of incentive stock options to its key employees for 1,170,000 shares of common stock. There were no stock options granted in 2012. On August 6, 2013, the Company granted another 1,640,000 stock options under the same plan to all employees. Awards are granted with an exercise price that approximates the market price of the Company’s common stock at the date of grant. The 2013 grant included immediate vesting of 20% of the options resulting in greater expense recognized than in previous years.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model using. The following assumptions were used to determine the fair value of the options at date of original issuance on August 6, 2013:
20
Dividend Yield
|
|
|
0%
|
|
Expected volatility
|
|
|
161.80%
|
|
Risk-free interest rate
|
|
|
1.39%
|
|
Term in years
|
|
|
9.92
|
|
The Company has never paid a cash dividend and does not intend to pay cash dividends in the foreseeable future, so the dividend yield used in the calculation is 0%.The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option. The risk-free rate is based on the implied yield on a United States Treasury zero-coupon issue with a remaining term closest to the expected term of the option. The term of the option is the expiration as there is no ready market for employees to exercise and sell shares and to date no option has been exercised on the 2011 plan.
A summary of option activity as is presented below:
Average
|
||||||||||||||||
Weighted
|
Remaining
|
|||||||||||||||
average
exercise
|
Contractual
Life
|
Aggregate
|
||||||||||||||
Options
|
price
|
(Years)
|
Intrinsic
Value
|
|||||||||||||
Outstanding at December 31, 2015
|
158,000
|
$
|
5.80
|
5.84
|
$
|
312,000
|
||||||||||
Exercisable at December 31, 2015
|
99,095
|
$
|
6.80
|
5.05
|
$
|
149,931
|
||||||||||
Options granted
|
-
|
-
|
-
|
-
|
||||||||||||
Options exercised
|
-
|
-
|
-
|
-
|
||||||||||||
Options forfeited
|
(18,000
|
)
|
5.73
|
-
|
-
|
|||||||||||
Outstanding at June 30, 2016
|
140,000
|
$
|
5.80
|
5.33
|
$
|
-
|
||||||||||
Exercisable at June 30, 2016
|
101,832
|
$
|
6.69
|
4.65
|
$
|
-
|
Stock option expense included in operating expense for the six months ended June 30, 2016 and 2015 is $63,281 and $86,675, respectively. Stock option expense included in operating expense for the three months ended June 30, 2016 and 2015 is $28,541 and $37,649, respectively. As of June 30, 2016 and December 31, 2015, remaining unvested stock expenses amounted to $130,336 and $225,017, respectively.
Note 10: Related party transactions
Rent From Related Parties
All of the Company’s facilities are owned by Lu Pacific Properties, LLC, an Oregon limited liability company, controlled by Joseph Lu (“Mr. Lu”), CEO and Chairman of the Board. Rent expenses were $340,831 and $377,423 for the six months ended June 30, 2016 and 2015, respectively. Rent expenses were $170,416 and $188,721 for the three months ended June 30, 2016 and 2015, respectively. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.
Purchase from Related Parties
Mr. Lu’s sons, Danny Lu owns 49% of Yangzhou Finway Energy Tech Co. since May 2016. The Company made purchase from Yangzhou Finway Energy Tech Co. in the amount of $64,390 and $0for the six months ended June 30, 2016 and 2015, respectively. Amounts due to Yangzhou Finway Energy Tech Co. amounted to $66,976 and $43,156 at June 30, 2016 and December 31, 2015, respectively.
21
The Company made purchase from Quailhurst Vineyard Estates, an Oregon company, controlled by Joseph Lu (“Mr. Lu”), CEO and Chairman of the Board, in the amount of $1,155 and $0 for the six months ended June 30, 2016 and 2015, respectively. Amounts due to Quailhurst Vineyard Estates amounted to $1,155 and $0 at June 30, 2016 and December 31, 2015, respectively.
Sales to Related Parties
Mr. Lu’s sons, Danny Lu and Peter Lu, together own 20% of PEI MFG, LLC (“PEI”). The Company made sales to PEI in the amount of $82,727 and $117,998 for the six months ended June 30, 2016 and 2015, respectively. There were no amounts payable to PEI at June 30, 2016 and December 31, 2015, respectively. Amounts due from PEI amounted to $25,036 and $98,303 at June 30, 2016 and December 31, 2015, respectively.
Notes Payable To Related Parties
The total carrying value of payable to related parties, including current and long-term portions, was as follows:
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||||||||||
|
||||||||||||||||
|
Current
|
Non
Current
|
Current
|
Non
Current
|
||||||||||||
Loan from Mr. Lu, starting March 1, 2016, due
January31, 2017, with 6% annual interest rate, with no
collateral
|
$
|
115,000
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Loan from Lu Pacific Properties, LLC, starting May 18, 2016,
due May 31, 2017, with 6% interest rate, with no collateral
|
$
|
50,000
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Loan from Lu Pacific Properties, LLC, starting May 18, 2016,
due May 31, 2017, with 6% interest rate, with no collateral
|
100,000
|
-
|
-
|
-
|
||||||||||||
Accrued interest
|
3,512
|
-
|
-
|
-
|
||||||||||||
Total payable related parties, including current
portion and accrued interest
|
$
|
268,512
|
$
|
-
|
$
|
-
|
$
|
-
|
Interest expenses related to payable to related parties amounted to $3,512 and $146,137 for the six months ended June 30, 2016 and 2015, respectively. Interest expenses related to payable to related parties amounted to $3,512 and $74,629 for the three months ended June 30, 2016 and 2015, respectively.
Proceeds from and no payment to related parties amounted to for the six months ended June 30, 2016.
On March 1, 2016, the Company issued a promissory note in the amount of $115,000 to Mr. Lu. The note is due January 31, 2017, is with no collateral, and accrues interest at 6% per annum.
On May 18, 2016, the Company issued an unsecured promissory note in the amount of $50,000 to Lu Pacific Properties, LLC. The note is due May 31, 2017 and accrues interest at 6% per annum.
On May 18, 2016, the Company issued an unsecured promissory note in the amount of $100,000 to Lu Pacific Properties, LLC. The note is due May 31, 2017, and accrues interest at 6% per annum.
22
Note 11: Business segment reporting
Basis for Presentation
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1.
Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment’s payroll, inventory sourcing and overall operations when each segment has working capital requirements. Corporate overhead costs are allocated to segments based on management’s estimates of the consumption of such services by each segment.
A description of our operating segments as of June 30, 2016 and December 31, 2015, follows.
Contract manufacturing (formerly OEM):
Outsourced manufacturing for North American companies, including senior citizen safety products; steel gun safes; outdoor cooking equipment; trampolines; plastic products and small electronic appliances. Contract manufacturing also offers logistic services and a qualified engineer team to support and provide in-house design.
Manufacturing (formerly QBF):
Our manufacturing segment, Powin Manufacturing formerly named Quality Bending and Fabrication (“QBF”), manufactures various truck parts and components primarily for Freightliner Trucks, a division of Daimler Trucks North America, the largest manufacturer of heavy-duty vehicles in North America. Daimler Trucks North America designs, builds and markets a wide range of Class 3-8 vehicles including long-haul highway tractors, heavy-duty construction and vocational trucks, mid-range trucks for distribution and service, school and transit buses, fire and emergency service apparatus, and chassis for step vans, school and shuttle buses, and motor homes. Freightliner Trucks is headquartered in Portland, Oregon, with truck manufacturing facilities located in Portland and throughout the United States and Mexico.
Manufacturing is completed at the Company’s leased facility in Tualatin, Oregon as well as arranging the outsourced manufacturing at a third-party factory in Qingdao, China.
Energy:
Powin Energy has developed market leading architecture that utilizes proprietary patent-pending energy storage technology for scalable grid energy storage systems, power supply units for electric vehicles, and transportation applications. Through December 31, 2014, the Energy segment has focused on identifying target markets and applications and finalizing the development of products to serve those markets and applications. In 2015, The Company has continued to develop products and marketing strategies for this operating entity.
Product & Service (formerly Channel Partner Program, Warehousing and Wooden)
The Product & Service segment contains the legacy operations of Channel Partner Program, a distribution channel for North American companies to sell their products in China as well as selling certain consumer products through U.S.-based retailers and marketplaces, including online; and Warehousing, which provides warehousing services in support of the Company’s customers across all segments. On January 1, 2015, the Product & Service segment had been incorporated into our contract manufacturing segment.
23
Powin Mexico:
Powin Mexico is a manufacturing segment, currently manufacturing gun safes, but also capable of manufacturing heavy truck parts. Operations began in 2013.
Revenues and net loss before income taxes of each of the Company’s segments are as follows:
Six months ended June 30,
|
||||||||
2016
(unaudited)
|
2015
(unaudited)
|
|||||||
Revenue
|
||||||||
Contract manufacturing
|
$
|
3,167,445
|
$
|
2,990,964
|
||||
Manufacturing
|
1,579,052
|
2,609,963
|
||||||
Energy
|
24,344
|
86,658
|
||||||
Mexico
|
139,111
|
167,381
|
||||||
Consolidated
|
$
|
4,909,952
|
$
|
5,854,966
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Revenue
|
||||||||
Contract manufacturing
|
$
|
1,810,063
|
$
|
1,598,263
|
||||
Manufacturing
|
761,671
|
1,354,020
|
||||||
Energy
|
13,007
|
63,912
|
||||||
Mexico
|
61,850
|
128,503
|
||||||
Consolidated
|
$
|
2,646,591
|
$
|
3,144,698
|
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Cost of goods sold
|
||||||||
Contract manufacturing
|
$
|
2,711,555
|
$
|
2,500,936
|
||||
Manufacturing
|
1,291,077
|
1,942,229
|
||||||
Energy
|
43,772
|
151,957
|
||||||
Mexico
|
198,233
|
385,677
|
||||||
Consolidated
|
$
|
4,244,637
|
$
|
4,980,799
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Cost of goods sold
|
||||||||
Contract manufacturing
|
$
|
1,559,860
|
$
|
1,390,123
|
||||
Manufacturing
|
627,585
|
1,118,498
|
||||||
Energy
|
17,743
|
91,256
|
||||||
Mexico
|
109,579
|
208,587
|
||||||
Consolidated
|
$
|
2,314,767
|
$
|
2,808,464
|
24
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Gross profit
|
||||||||
Contract manufacturing
|
$
|
455,890
|
$
|
490,028
|
||||
Manufacturing
|
287,975
|
667,734
|
||||||
Energy
|
(19,428
|
)
|
(65,299
|
)
|
||||
Mexico
|
(59,122
|
)
|
(218,296
|
)
|
||||
Consolidated
|
$
|
665,315
|
$
|
874,167
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Gross profit
|
||||||||
Contract manufacturing
|
$
|
250,203
|
$
|
208,140
|
||||
Manufacturing
|
134,086
|
235,522
|
||||||
Energy
|
(4,736
|
)
|
(27,344
|
)
|
||||
Mexico
|
(47,729
|
)
|
(80,084
|
)
|
||||
Consolidated
|
$
|
331,824
|
$
|
336,234
|
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
(Loss) before income taxes
|
||||||||
Contract manufacturing
|
$
|
(205,222
|
)
|
$
|
(159,839
|
)
|
||
Manufacturing
|
(136,406
|
)
|
267,099
|
|||||
Energy
|
(1,982,547
|
)
|
(2,372,809
|
)
|
||||
Mexico
|
(412,610
|
)
|
(618,381
|
)
|
||||
Corporate
|
7,499
|
117,557
|
)
|
|||||
Consolidated
|
$
|
(2,729,286
|
)
|
$
|
(2,766,373
|
)
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
(Loss) before income taxes
|
||||||||
Contract manufacturing
|
$
|
(48,607
|
)
|
$
|
(62,267
|
)
|
||
Manufacturing
|
(69,794
|
)
|
60,105
|
|||||
Energy
|
(1,008,588
|
)
|
(1,324,448
|
)
|
||||
Mexico
|
(225,261
|
)
|
(293,826
|
)
|
||||
Corporate
|
(23
|
)
|
342,072
|
)
|
||||
Consolidated
|
$
|
(1,352,273
|
)
|
$
|
(1,278,364
|
)
|
25
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Net income(loss)
|
||||||||
Contract manufacturing
|
$
|
(205,222
|
)
|
$
|
(159,839
|
)
|
||
Manufacturing
|
(136,406
|
)
|
267,099
|
|||||
Energy
|
(1,982,547
|
)
|
(2,372,809
|
)
|
||||
Mexico
|
(412,610
|
)
|
(618,381
|
)
|
||||
Corporate
|
(1
|
)
|
117,557
|
)
|
||||
Consolidated
|
$
|
(2,736,786
|
)
|
$
|
(2,766,373
|
)
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Net income(loss)
|
||||||||
Contract manufacturing
|
$
|
(48,607
|
)
|
$
|
(62,267
|
)
|
||
Manufacturing
|
(69,794
|
)
|
60,105
|
|||||
Energy
|
(1,008,588
|
)
|
(1,324,448
|
)
|
||||
Mexico
|
(225,261
|
)
|
(293,826
|
)
|
||||
Corporate
|
(23
|
)
|
342,072
|
)
|
||||
Consolidated
|
$
|
(1,352,273
|
)
|
$
|
(1,278,364
|
)
|
Total assets of each of the Company’s segments are as follows:
|
||||||||
|
June 30, 2016
(unaudited)
|
December 31, 2015
|
||||||
Total assets
|
||||||||
Contract manufacturing
|
$
|
2,431,890
|
$
|
2,678,575
|
||||
Manufacturing
|
1,276,780
|
1,841,610
|
||||||
Energy
|
2,194,693
|
4,075,476
|
||||||
Mexico
|
812,852
|
874,378
|
||||||
Corporate
|
15,174
|
38,832
|
||||||
Consolidated
|
$
|
6,731,389
|
$
|
9,508,871
|
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Depreciation and amortization
|
||||||||
Contract manufacturing
|
$
|
10,799
|
$
|
44,240
|
||||
Manufacturing
|
66,612
|
68,260
|
||||||
Energy
|
26,278
|
27,518
|
||||||
Mexico
|
76,057
|
110,899
|
||||||
Consolidated
|
$
|
179,746
|
$
|
250,917
|
26
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Depreciation and amortization
|
||||||||
Contract manufacturing
|
$
|
3,880
|
$
|
18,977
|
||||
Manufacturing
|
32,975
|
33,611
|
||||||
Energy
|
14,959
|
13,760
|
||||||
Mexico
|
37,855
|
55,675
|
||||||
Consolidated
|
$
|
89,669
|
$
|
122,023
|
Six months ended June 30,
|
||||||||
2016
(unaudited)
|
2015
(unaudited)
|
|||||||
Acquisition of intangible assets
|
||||||||
Energy
|
10,896
|
-
|
||||||
Consolidated
|
$
|
10,896
|
$
|
-
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Acquisition of intangible assets
|
||||||||
Energy
|
7,908
|
-
|
||||||
Mexico
|
-
|
-
|
||||||
Consolidated
|
$
|
7,908
|
$
|
-
|
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Acquisition of property and equipment
|
||||||||
Manufacturing
|
$
|
-
|
$
|
81,850
|
||||
Energy
|
58,500
|
-
|
||||||
Mexico
|
-
|
38,026
|
||||||
Consolidated
|
$
|
58,500
|
$
|
119,876
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Acquisition of property and equipment
|
||||||||
Manufacturing
|
$
|
-
|
$
|
20,850
|
||||
Energy
|
58,500
|
-
|
||||||
Mexico
|
-
|
-
|
||||||
Consolidated
|
$
|
58,500
|
$
|
20,850
|
27
A description of our geographic segments as of June 30, 2016 and 2015 as follows.
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Revenue
|
||||||||
US
|
$
|
4,770,841
|
$
|
5,687,585
|
||||
Mexico
|
139,111
|
167,381
|
||||||
Consolidated
|
$
|
4,909,952
|
$
|
5,854,966
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
Revenue
|
||||||||
US
|
$
|
2,584,741
|
$
|
3,016,195
|
||||
Mexico
|
61,850
|
128,503
|
||||||
Consolidated
|
$
|
2,646,591
|
$
|
3,144,698
|
|
Six months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
(Loss) before income taxes
|
||||||||
US
|
$
|
(2,316,676
|
)
|
$
|
(2,147,992
|
)
|
||
Mexico
|
(412,610
|
)
|
(618,381
|
)
|
||||
Consolidated
|
$
|
(2,729,286
|
)
|
$
|
(2,766,373
|
)
|
|
Three months ended June 30,
|
|||||||
|
2016
(unaudited)
|
2015
(unaudited)
|
||||||
(Loss) before income taxes
|
||||||||
US
|
$
|
(1,127,012
|
)
|
$
|
(984,538
|
)
|
||
Mexico
|
(225,261
|
)
|
(293,826
|
)
|
||||
Consolidated
|
$
|
(1,352,273
|
)
|
$
|
(1,278,364
|
)
|
Note 12: Non-Controlling Interest
On August 8, 2014, Powin Corporation and its wholly-owned subsidiary, Powin Energy Corporation (collectively “Powin”) and SF Suntech, Inc. (“Suntech”) signed a Share Subscription Agreement (“Subscription Agreement”) for an investment of $25,000,000 from Suntech. Suntech is a third party.
Effective April 2, 2015, Powin and Suntech signed the Fourth Supplemental Agreement (“Supplement”).Under the Supplement, the First Closing Date of the Subscription Agreement was April 2, 2015 (“First Closing”) at which time Suntech made a payment to Powin in the amount of $7,450,000. That payment plus the previous payments of $3,000,000 on August 29, 2014; $2,000,000 on January 15, 2015 and $50,000 on March 2, 2015 represent a total $12,500,000 paid toward the full $25,000,000 owing under the Subscription Agreement. On April 1, 2015 and April 2, 2015, Powin Energy issued 1,765 shares and 378 shares of Powin Energy Common Stock to Suntech, respectively for $12,500,000 received. Professional expenses of $750,000 were recorded as deduction of the cash received.
28
Per ASC 810-10-45-22, Powin Corporation’s ownership interest in Powin Energy has changed as Powin Corporation sold 2,143 shares (approximately 17.65% of outstanding shares after the sales of 2,143 shares) of Powin Energy’s common shares to Suntech. After this transaction, Powin Corporation's ownership interest in Powin Energy is 82.35%. Since, Powin Corporation retained its controlling financial interest in Powin Energy after the shares issuance for cash to Suntech; the sale of the subsidiary shares was accounted for as an equity transaction in accordance with ASC 810-10-45-23. Specifically, the proceeds received from the sale $12,500,000 offset by professional expenses of $750,000 are reflected as an increase to additional paid in capital and the net asset value associated with this sold interest $1,552,272 was reclassified from additional paid in capital to no controlling interests.
The Supplement further established the Second Closing Date of the Subscription Agreement as May 31, 2015 (“Second Closing”) when the balance of $12,500,000 was to be paid. If that payment was made, Powin would issue to Suntech an additional 2,143 shares of Powin Energy Common Stock. In the event Suntech was unable or unwilling to pay the remaining subscription balance, Powin would be free to sell the 2,143 shares to another purchaser for the same price per share as paid by Suntech. Suntech failed to make the required payment on May 31, 2015. Accordingly, the Company elected to terminate the Subscription Agreement, as it pertained to the remaining $12,500,000 owing thereunder.
On January 2016, the company paid $15,747 and bought the 15% interest in the company’s Mexico subsidiary. The Company now owns 100% of the Mexico subsidiary. As of the purchase date, the non-controlling interest of Mexico amounted to $802,577. The difference of purchase price and balance of non-controlling interest is booked as additional paid in capital.
Note 13: Subsequent events
On July 5, 2016, the Company’s subsidiary, Powin Energy Corporation issued an unsecured promissory note in the amount of $1,484,118.06 to 3U (HK) Trading Co. Limited. The note is due on or before July 4, 2017, is and accrues interest at 6% per annum.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Note Regarding Forward Looking Statements
This information should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 4, 2016, and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.
References to “Powin,” the “Company,” “we,” “our” and “us” refer to Powin Corporation and its wholly owned and majority-owned subsidiaries, unless the context specifically states otherwise.
Basis of presentation
Effective Octorber1, 2015, the Company reorganized and renamed certain segments and changed the methodology for allocating corporate overhead costs. The below table lists legal entities and corresponding business segments as defined in the 10-Q compared to those described in previous filings.
29
As described in this Form 10Q and 2015 Form 10K
|
|
As described in previously filings
|
||||
|
|
|
|
|
|
|
Legal entity name
|
|
Business
segment name
|
|
Legal entity name
|
|
Business
segment name
|
Powin
Corporation
|
|
Holding
company
|
|
Powin Corporation
|
|
Holding
company
|
Q Pacific
Contract
Manufacturing
Corporation
|
|
Contract
manufacturing
|
|
Powin Contract
Manufacturing
Corporation
|
|
Contract
manufacturing
|
Q Pacific
Manufacturing
Corporation
|
|
Manufacturing
|
|
Powin
Manufacturing
Corporation
|
|
Manufacturing
|
Powin Energy
Corporation
|
|
Energy
|
|
Powin Energy
Corporation
|
|
Energy
|
|
|
|
|
|
|
|
Powin Industries
S.A. de C.V.
|
|
Mexico
|
|
Powin Industries
S.A. de C.V.
|
|
Mexico
|
Powin Product
Service, Inc.
|
|
Contract
Manufacturing
|
|
Powin Product
service, Inc.
|
|
Warehousing(a)
|
(a) | Effective January 1, 2014, the business segments formerly known as Warehousing and CPP were combined into a legal entity that was renamed Powin Product and Service Corporation. Effective January 1, 2015, the Powin Product and Service Corporation was merged into Contract Manufacturing. |
Results of Operations
The following table presents the Company’s revenues by business segment, for the three months ended June 30, 2016 and 2015:
|
Three months ended June 30,
|
|||||||||||||||
|
2016(Unaudited)
|
2015(Unaudited)
|
$ Change
|
%
Change
|
||||||||||||
Revenue
|
||||||||||||||||
Contract manufacturing
|
$
|
1,810,063
|
$
|
1,598,263
|
211,800
|
13.3
|
%
|
|||||||||
Manufacturing
|
761,671
|
1,354,020
|
(532,349
|
)
|
(43.7
|
)%
|
||||||||||
Energy
|
13,007
|
63,912
|
(50,905
|
)
|
(79.6
|
)%
|
||||||||||
Mexico
|
61,850
|
128,503
|
(66,653
|
)
|
(51.9
|
)%
|
||||||||||
Consolidated
|
$
|
2,646,591
|
$
|
3,144,698
|
(498,107
|
)
|
(15.8
|
)%
|
Consolidated net sales for the three months ended June 30, 2016, decreased approximately $498,000 or 15.8% from the same period of 2015. The decrease was substantially in the contract manufacturing segment, which experienced a revenue increase of approximately $212,000 or 13.3%, in the manufacturing segment, which experienced a revenue decrease of approximately $532,000 or 43.7% compared to the same period of 2015and in the energy segment, which experienced a revenue decrease of approximately $51,000 or 79.6% compared to the same period of 2015.
Manufacturing sales decreased approximately $532,000 or 44% primarily due to reduced demand from Daimler Trucks North America.
30
The Powin Energy sales decreased approximately $51,000 or 80% primarily due to a pause in sales of our electrical vehicle charge stations. Powin Energy has been focusing on the commercialization of its electricity storage products and expects to book orders in 2016.
Mexico sales decreased approximately $67,000 or 52% as Powin Mexico begins ramping its contracted manufacturing business for local customers. We expect Powin Mexico continue to sign up more local customers and substantially increase its operating income in 2016.
Consolidated operating expenses for the three months ended June 30, 2016, increased approximately $50,000 or 3.0%, from $1.64 million in the same period of 2015 to $1.69 million.
For the three months ended June 30, 2016, the Company had net loss of approximately $1.4 million or $0.07 per share, compared to net loss of approximately $1.3 million or $0.05 per share for the same period of 2015.
The following table presents the Company’s revenues by business segment, for the six months ended June 30, 2016 and 2015:
|
Six months ended June 30,
|
|||||||||||||||
|
2016(Unaudited)
|
2015(Unaudited)
|
$ Change
|
%
Change
|
||||||||||||
Revenue
|
||||||||||||||||
Contract manufacturing
|
$
|
3,167,445
|
$
|
2,990,964
|
176,481
|
5.9
|
%
|
|||||||||
Manufacturing
|
1,579,052
|
2,609,963
|
(1,030,911
|
)
|
(39.5
|
)%
|
||||||||||
Energy
|
24,344
|
86,658
|
(62,314
|
)
|
(71.9
|
)%
|
||||||||||
Mexico
|
139,111
|
167,381
|
(28,270
|
)
|
(16.9
|
)%
|
||||||||||
Consolidated
|
$
|
4,909,952
|
$
|
5,854,966
|
(945,014
|
)
|
(16.1
|
)%
|
Consolidated net sales for the six months ended June 30, 2016, decreased approximately $945,000 or 16.1% from the same period of 2015. The decrease was substantially in the contract manufacturing segment, which experienced a revenue increase of approximately $176,000 or 5.9%, in the manufacturing segment, which experienced a revenue decrease of approximately $1,030,000 or 39.5% compared to the same period of 2015and in the energy segment, which experienced a revenue decrease of approximately $62,000 or71.9% compared to the same period of 2015.
Manufacturing sales decreased approximately $1,030,000 or 39% primarily due to reduced demand from Daimler Trucks North America.
The Energy sales decreased approximately $62,000 or 72% primarily due to a pause in sales of our electrical vehicle charge stations. Powin Energy has been focusing on the commercialization of its electricity storage products and expects to book orders in 2016.
Mexico sales decreased approximately $28,000 or 17% as Powin Mexico begins ramping its contracted manufacturing business for local customers. We expect Powin Mexico continue to sign up more local customers and substantially increase its operating income in 2016.
Consolidated operating expenses for the six months ended June 30, 2016, decreased approximately $181,000 or 5.0%, from $3.59 million in the same period of 2015 to $3.41 million.
For the six months ended June 30, 2016, the Company had net loss of approximately $2.74 million or $0.15 per share, compared to net loss of approximately $2.77 million or $0.14 per share for the same period of 2015.
31
2016 Outlook
We expected 2016 to be a transitional year for Powin Corporation, with the traditional manufacturing segment stabilized in 2015 and poised to return to growth in 2016, and the energy segment entering commercialization stage. In addition, we have established a new strategic direction for Powin Mexico factory and aligned its cost structure with the new strategy. We believe our investment made in the past several years in Powin Energy has paved a solid foundation for us in the fast growing energy storage market, with competitive products and a growing sales pipeline. For 2016, Powin management has identified following expectations for each business segment:
(i) Powin OEM business revenue in 2015 reached expected sales goal. Huntsman is our brand product to be the growth drivers for 2016. Also we are expecting the growth of the products that Powin has exclusive manufacturing rights.
(ii) Powin manufacturing business experienced dramatic improvement in the quality and on-time-delivery for our key accounts including Daimler. We continue the efforts in seeking additional key accounts to diversify client bases.
(iii) In 2015 Powin Energy obtained strategic investment from outside investors to help advance its technology. We expect Powin Energy to enter its commercialization stage in 2016 based on our existing sales pipeline. We have established a hardware research & development center in Yangzhou China and a software development team in Taiwan. Both teams are fully ramped by the end of 2015 and executing well on their R&D roadmap. We expect several new products or functions to be released in 2016, to increase Powin Energy's competitiveness in the energy storage market.
(iv) Powin Mexico has undergone some operational and strategy changes in preparation for 2016. Our previous strategy was not as synergistic with our other divisions as we had previously hoped. We are confident in our direction for 2016, increased efficiencies, lean operations, strategic customer partnerships and new management will be the foundation for our success.
Liquidity and Capital Resources
Cash used in operating activities were approximately $3,126,988 for the six months ended June 30, 2016, compared to $3,216,508 provided from operating activities for the same period in 2015. The decrease of cash used in operating activities is mainly due to more increase in accounts receivable, more increase in prepaid expenses and deposits, less increased accrued payroll and other liabilities, less increase of accounts payable, offset by less purchase of inventories.
Cash used in investing activities was $85,137 and $119,876 during the six months ended June 30, 2016 and 2015, respectively, as the Company acquired less properties and equipment during the six months ended June 30, 2016.
Cash provided by financing activities were approximately $249,241 for the six months ended June 30, 2016, compared to $8,780,220 provided by financing activities for the same period in 2015. The decrease of cash provided from financing activities is due to net proceeds received from stock issuance for Energy.
The Company issued Preferred Stock in August 2015 to settle the following notes payable:
Lender
|
Borrower
|
Amount
|
Number of Shares of
Preferred Stock
|
3U Trading Co., Limited
|
Powin Corporation
|
$2,451,195
|
4,377,133
|
3U Trading Co., Limited
|
Powin Industries S.A. DE C.V.
|
$211,474
|
377,631
|
Joseph Lu
|
Powin Corporation
|
$3,333,091
|
5,951,947
|
Danny Lu
|
Powin Corporation
|
$560,565
|
1,001,009
|
Peter Lu
|
Powin Corporation
|
$560,565
|
1,001,009
|
Lu Pacific Properties, LLC
|
Powin Corporation
|
$513,574
|
917,097
|
Total
|
$7,630,464
|
13,625,826
|
32
During the six months ended June 30, 2016, the Company borrowed $265,000 from related parties for operating cash flows as follows:
Date of borrowing
|
Lender
|
Due Date
|
Interest rate
|
Amount
|
|||
|
|
|
|||||
March 1, 2016
|
Joseph Lu
|
January 31, 2017
|
6%
|
|
$
|
115,000
|
|
May 18, 2016
|
Lu Pacific Properties, LLC
|
May 31, 2017
|
6%
|
|
$
|
50,000
|
|
May 18, 2016
|
Lu Pacific Properties, LLC
|
May 31, 2017
|
6%
|
|
$
|
100,000
|
The Company’s management does not believe the current cash and cash flow from operations will be sufficient to meet anticipated cash needs, including cash for working capital and capital expenditures in the foreseeable future. The Company will likely require additional cash resources that will require the Company to sell additional equity securities or debt securities. The sale of convertible debt securities or additional equity securities could result in additional dilution to the company’s stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
The Company’s ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties including: investors’ perception of, and demand for, securities of alternative manufacturing companies; conditions of the United States and other capital markets in which we may seek to raise funds; and future results of operations, financial condition and cash flow. Therefore, the Company’s management cannot assure that financing will be available in amounts or on terms acceptable to the Company, if at all. Any failure by the Company’s management to raise additional funds on terms favorable to the Company could have a material adverse effect on the Company’s liquidity and financial condition.
On August 8, 2014, Powin Corporation and its wholly-owned subsidiary, Powin Energy Corporation (collectively “Powin”) and SF Suntech, Inc. (“Suntech”) signed a Share Subscription Agreement (“Subscription Agreement”) for an investment of $25,000,000 from Suntech.
Effective April 2, 2015, Powin and Suntech signed the Fourth Supplemental Agreement (“Supplement”).Under the Supplement, the First Closing Date of the Subscription Agreement was April 2, 2015 (“First Closing”) at which time Suntech made a payment to Powin in the amount of $7,450,000. That payment plus the previous payments of $3,000,000 on August 29, 2014; $2,000,000 on January 15, 2015 and $50,000 on March 2, 2015 represent a total $12,500,000 paid toward the full $25,000,000 owing under the Subscription Agreement. On April 1, 2015 and April 2, 2015, Powin Energy issued 1,765 shares and 378 shares of Powin Energy Common Stock to Suntech, respectively.
After the shares issuance, the Company owns 82.35% of Powin Energy.
The Supplement further establishes the Second Closing Date of the Subscription Agreement as May 31, 2015 (“Second Closing”) when the balance of $12,500,000 is to be paid. If that payment is made, Powin will issue to Suntech an additional 2,143 shares of Powin Energy Common Stock. In the event Suntech is unable or unwilling to pay the remaining subscription balance, Powin will be free to sell the 2,143 shares to another purchaser for the same price per share as paid by Suntech. Suntech failed to make the required payment on May 31, 2015. Accordingly, the Company has elected to terminate the Subscription Agreement, as it pertains to the remaining $12,500,000 owing thereunder.
33
On January 2016, the Company paid $15,747 and bought the 15% interest in the company’s Mexico subsidiary. The Company now owns 100% of the Mexico subsidiary. As of the purchase date, the non-controlling interest of Mexico amounted to $625,750. The difference of purchase price and balance of non-controlling interest is booked as additional paid in capital.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 of our consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our principal executive and financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Equity Compensation Plan Information
34
In six months ended June 30, 2016, we issued a total of 6,000 shares of Common Stock to our directors for their services on the Board of Director. The shares were issued pursuant to the exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended ( “1933 Act”) , provided by Section 4(a)(2) of the 1933 Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not repurchase any of our Common Stock or other securities during the six-month period ended June 30, 2016.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
31.1
|
Certification of the Chief Executive Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of the Principal Financial Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934, , as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32
|
Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amended quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 23, 2016
|
|
|
By:/s/ Joseph Lu
|
Chief Executive Officer and Interim Chief Financial Officer
|
(Principal Executive Officer and Principal Financial Officer)
|
36