Company Quick10K Filing
Quick10K
Powin Energy
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-10-05 Amend Bylaw
8-K 2018-08-10 Off-BS Arrangement, Officers, Shareholder Vote
8-K 2018-08-09 Regulation FD, Exhibits
8-K 2018-04-13 Off-BS Arrangement
8-K 2018-03-13 Off-BS Arrangement
8-K 2018-02-22 Regulation FD, Exhibits
8-K 2018-01-11 Regulation FD, Exhibits
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UCC Union Carbide 0
MAGAA Magna Lab 0
PRSI Portsmouth Square 0
FEPI First Equity Properties 0
CFSC Caterpillar Financial Services 0
C765 Global Macro Trust 0
PWON 2018-09-30
Part I. Financial Information
Item 1. Financial Statements.
Note 1 - Description of Business and History and Summary of Significant Accounting Policies
Note 2: Going Concern
Note 3: Project Assets
Note 4: Tax Payable
Note 5: Notes Receivable
Note 6: Property and Equipment, Net
Note 7: Land Use Rights, Net
Note 8: Other Receivable
Note 9: Loss per Share
Note 10: Long-Term Debt
Note 11: Commitments
Note 12: Capital Stock
Note 13: Stock Options
Note 14: Related Party Transactions
Note 15: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32 ex32.htm

Powin Energy Earnings 2018-09-30

PWON 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 r11918010q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:  September 30, 2018

 

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 ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

NEVADA 87-0455378

(State or other jurisdiction of incorporation or

organization)

(IRS Employer Identification Number)

 

20550 SW 115th Ave

Tualatin, OR 97062

(Address of principal executive offices)

 

T: (503) 598-6659

(Issuer’s telephone number)

 

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

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No    

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

Large accelerated filer    Accelerated filer 
Non-accelerated filer 
 

Smaller reporting company 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

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 November 13, 2018, there were 45,251,600 shares of Common Stock, $0.001 par value, outstanding.

 

 

 1 
 

 

POWIN ENERGY CORPORATION

 


 

Index


 

 

PART I.        FINANCIAL INFORMATION

 

 

Item 1. Condensed Financial Statements 3
  Consolidated Balance Sheets as of September 30, 2018
(unaudited) and December 31, 2017
3
  Consolidated Statements of Operations for the three and nine months ended September 30, 2018
and 2017 (unaudited)
4
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
(unaudited)
5
  Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
20
  Note Regarding Forward Looking Statements  
  Overview 20
  Critical Accounting Policies 20
  Results of Operations 21
  Liquidity and Capital Resources 22
  Off-Balance Sheet Arrangements 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 22
Item 4. Controls and Procedures. 23
     
     
PART II.  OTHER INFORMATION
Item 1. Legal Proceedings. 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 23
Item 3. Defaults Upon Senior Securities. 23
Item 4. Mine Safety Disclosures. 23
Item 5. Other Information. 23
Item 6. Exhibits. 23

 

 2 
 

  

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements. 

   
POWIN ENERGY CORPORATION  
CONSOLIDATED BALANCE SHEETS  

 

   September 30,   December 31, 
   2018   2017 
    (Unaudited)      
ASSETS          
Current assets:          
Cash and cash equivalents  $456,484   $3,496,629 
Restricted cash   -    27,400 
Accounts receivable, net   38,216    11,270 
Inventories, net   2,423,184    310,564 
Project assets, current   -    8,018,076 
Tax receivable   18,151    294,862 
Notes receivable   131,250    131,250 
Prepaid expenses and other current assets   432,138    232,230 
Total current assets   3,499,423    12,522,281 
           
Project assets, non-current   -    8,018,076 
Property and equipment, net   79,394    71,877 
Investments in unconsolidated affiliates   8,372,575    475,263 
Land use right, net   3,028,260    - 
Intangible assets, net   310,424    236,754 
Notes receivable   612,335    677,574 
Total assets  $15,902,411   $22,001,825 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $6,147,525   $9,580,700 
Accounts payable, related party   3,326,927    1,309,946 
Tax payable   75,696    - 
Deferred revenue   1,111,380    24,621 
Accrued expenses   386,679    391,125 
Current portion of interest payable   512,104    42,045 
Current portion of long-term debt   3,651,250    1,350,472 
Current portion of long-term debt, related party   5,891,328    3,159,516 
Total current liabilities   21,102,889    15,858,425 
           
Long-term debt   -    4,953,926 
Long-term debt, related party   -    742,215 
Interest payable   -    108,767 
Other liabilities   671,382    58,500 
Total liabilities   21,774,271    21,721,833 
Stockholders' equity          
Common stock, $0.001 par value, 575,000,000 shares          
Authorized; 45,263,070 and 45,263,070 shares
issued and outstanding as of September 30, 2018 and
December 31, 2017, respectively
   45,264    45,264 
Additional paid-in capital   45,284,991    44,524,683 
Accumulated deficit   (51,280,405)   (44,274,990)
Accumulated other comprehensive income (loss)   78,290    (14,965)
Total stockholders' (deficit) equity   (5,871,860)   279,992 
           
Total liabilities and stockholders' equity  $15,902,411   $22,001,825 

  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 3 
 

 

POWIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

  

Three Months ended

September 30,

  

Nine Months ended

September 30,

 
   2018   2017   2018   2017 
                 
Sales                    
  Product sales  $4,290,864   $240   $5,973,208   $42,432 
  Revenue from energy storage assets   -    104,643    8,460,538    259,738 
Sales total   4,290,864    104,883    14,433,746    302,170 
Cost of sales                    
  Product sales   3,514,895    534    5,232,799    877,469 
  Cost from energy storage assets   -    67,633    8,716,233    184,354 
Cost of sales total   3,514,895    68,167    13,949,032    1,061,823 
Gross profit (loss)   775,969    36,716    484,714    (759,653)
                     
Operating Expenses                    
  Research and development   235,717    94,945    721,513    252,598 
  Selling, general and administrative   2,211,913    1,424,867    5,890,722    3,960,907 
Total operating expenses   2,447,630    1,519,812    6,612,235    4,213,505 
Operating loss   (1,671,661)   (1,483,096)   (6,127,521)   (4,973,158)
                     
Other income (expenses)                    
Interest expense, net   (224,681)   (236,463)   (558,398)   (421,179)
Other income   (6,126)   51,452    (3,883)   57,952 
Equity in loss of unconsolidated affiliates   (107,324)   -    (315,613)   - 
Other expenses   (338,131)   (185,011)   (877,894)   (363,227)
Loss before taxes   (2,009,792)   (1,668,107)   (7,005,415)   (5,336,385)
Provision for income taxes   -    4,655    -    8,405 
Net loss   (2,009,792)   (1,672,762)   (7,005,415)   (5,344,790)
                     
                     
                     
Basic and diluted net loss per share   (0.04)   (0.05)   (0.15)   (0.14)
                     
Weighted-average number of shares used on per share
calculations:
                    
  Basic and diluted   45,263,070    37,107,924    45,263,070    37,104,551 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 4 
 

 

POWIN ENERGY CORPORATION  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  

 

   Nine Months ended
September 30,
 
   2018   2017 
         
Cash flows from operating activities:          
Net loss  $(7,005,415)  $(5,344,790)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation   760,308    132,455 
Depreciation and amortization   68,175    177,921 
Non-cash interest expense   -    341,254 
Impairment of inventory   -    851,206 
Equity in loss of unconsolidated affiliate   315,613    - 
Changes in operating assets and liabilities:          
Accounts receivable   (26,946)   2,527 
Notes and other receivables   -    (378,157)
Project assets   3,727,536    - 
Inventories   (2,112,620)   95,822 
Tax receivable   276,711    - 
Prepaid expenses and other current assets   (199,908)   (329,802)
Accounts payable   (3,433,175)   (451,529)
Accounts payable, related party   2,016,981    (951,937)
Tax payable   75,696    - 
Deferred revenue   1,086,759    - 
Accrued expenses   969,728    240,859 
Net cash used in operating activities   (3,480,557)   (5,614,171)
           
Cash flows from investing activities:          
Proceeds of notes receivable   65,239    - 
Cash paid for purchase of intangible assets   (90,193)   (28,835)
Cash paid for purchase of property and equipment   (33,722)   - 
Cash paid for purchase of land use rights   (3,053,707)   - 
Purchase of energy storage assets and equipment   -    (4,738,691)
Net cash used in investing activities   (3,112,383)   (4,767,526)
           
Cash flows from financing activities:          
Proceeds from third party borrowings   3,030,838    6,596,213 
Payment on third party borrowings   (1,588,295)   - 
Proceeds from related party borrowings   3,099,113    6,159,321 
Payment on related party borrowings   (1,109,516)   (202,071)
Net cash provided by financing activities   3,432,140    12,553,463 
Effect of foreign exchange on cash   93,255    - 
Net increase (decrease) in cash, cash equivalents and restricted cash   (3,067,545)   2,171,766 
           
Cash, cash equivalents and restricted cash, beginning of period   3,524,029    432,044 
           
Cash, cash equivalents and restricted cash, end of period  $456,484   $2,603,810 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Interest paid  $224,500   $130,000 
Income taxes paid  $-   $3,750 
           
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
          
Preferred stock converted to common stock  $-   $1,150,900 
Property and equipment increase by accounts payable  $-   $10,384,605 
Deconsolidation of third party debt  $4,095,691   $- 
Equity method investment retained upon sale of 50% of subsidiary  $8,212,925   $- 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 5 
 

 

POWIN ENERGY 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 Energy Corporation (“Powin”, “Company”, “we”, “us”) is a leading producer, designer and developer of commercially proven, cost-competitive, safe and scalable lithium-ion based energy storage solutions for utilities and microgrid. We are incorporated in the State of Nevada and were founded in 1989 in Oregon.  Our primary product is the Stack140 (“Stack”), a modular, flexible, purpose-built battery string that is easily and cost-effectively scalable from a single unit to multiple megawatts of capacity.  We are focused on the rapidly growing advanced energy storage industry and deploying our Stack modular battery system which features our patented Battery Pack Operating System (“bp-OS”) software that provides critical insight into system functions and lifespan via our proprietary Battery Odometer and Warranty Tracker™ controls.

 

For the periods presented the Company has the following subsidiaries:

 

As described in this Report   As described in 2017 Form 10K  
Legal entity name 

Business

segment name

Legal entity name

Business segment

Name

Powin Energy

Corporation

Energy

Powin Energy

Corporation

Energy
       
       
Powin China Holdings 1, LLC Energy    
Powin Energy (Ningbo) Co., Ltd. Energy    
Powin Canada B.C. Ltd (2) Energy Powin Canada B.C. Ltd Energy
  Energy PPA Grand Johanna, LLC (1) Energy
  Energy Powin SBI, LLC (1) Energy
  Energy Don Lee BESS, LLC (1) Energy
Powin Energy Ontario Storage II,
LP (2)
Energy Powin Energy Ontario Storage II,
LP
Energy
Powin Energy Storage 2, Inc. (2) Energy Powin Energy Storage 2, Inc. Energy
Powin Energy Ontario Storage, 
LLC
Energy Powin Energy Ontario Storage, 
LLC
Energy

 

  (1) Sold in December 2017.
  (2) Sold 50% interest in March 2018.

 

In 2017, as part of the sale of our projects and pipelines, we acquired a 10% ownership stake in esVolta, LP (“esVolta”) a developer, owner and operator of utility-scale energy storage projects across North America. esVolta has entered a strategic long-term agreement with us under which we will be esVolta’s exclusive provider of battery storage systems. We did not record any impairment losses related to our equity method investment during the years ended December 31, 2017. For the nine months ended September 30, 2018, we recorded equity in loss of unconsolidated affiliates of $276,884 for our ownership percentage in the investee’s net loss and reduced our investment in equity method investee by this amount. As of September 30, 2018, the balance of investment in unconsolidated affiliates for esVolta is $198,379.

 

In December 2017 the Company entered into a purchase and sale agreement with esVolta for the sale of Powin Canada B.C. Ltd., the sole limited partner of Powin Energy Ontario Storage II, LP and sole shareholder of Powin Energy Storage 2, Inc.  Powin Canada B.C. Ltd through its subsidiaries holds the assets of an 8.8 MW / 40.8 MWh energy storage project located in Stratford, Ontario. Pursuant to the agreement, at closing esVolta paid to Powin an aggregate amount equal to 50.0% of the sum of $20,681,000 adjusted for working capital and debt balances at the time of closing for 50% of the ownership interests in Powin Canada B.C. Ltd.  Additionally, the purchase agreement has an option whereby esVolta, may purchase the remaining 50% ownership interests in Powin Canada B.C. Ltd. within one year of the original closing date of March 2018.  On March 29, 2018, we sold the 50% ownership stake in this previously consolidated entity, Powin Canada BC, Ltd to esVolta. We now account for our remaining 50% ownership in Powin Canada B.C., Ltd using the equity method.  In 2018 we recorded our investment in unconsolidated affiliates of $8,212,925 for our 50% ownership in Powin Canada B.C., Ltd. For the period from the date of deconsolidation to September 30, 2018 we recorded equity in loss of unconsolidated affiliates of $38,729 for our ownership percentage in the investee’s net loss and reduced our investment in equity method investee by this amount. As of September 30, 2018, the balance of investment in unconsolidated affiliates for Powin Canada B.C. Ltd. is $8,174,196.

 

 6 
 

 

In January 2018, the Company formed Powin China Holdings 1, LLC, an Oregon limited liability company (“Powin China”).  In March 2018, Powin Energy (Ningbo) Co., Ltd (“Powin Ningbo”) was established in the People’s Republic of China as a subsidiary of Powin China. In April 2018, Powin Ningbo purchased land in Ningbo Yuyao, China for 19,192,246 RMB ($3,053,707 USD) plus a performance deposit of 1,852,000 RMB ($295,083 USD). The land will be the site for the planned construction of a battery manufacturing facility.

 

The Company’s client base includes developers, utilities and providers in the energy storage industry sector.  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.

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Powin Energy Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated during consolidation. Investments in unconsolidated affiliates 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.

 

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.

 

The reporting currency of the Company is the U.S. dollars. The results of operations and cash flows conducted in foreign currency 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 nine months ended September 30, 2018 and 2017 were $93,255 and $0, respectively. The cumulative translation adjustment and effect of exchange rate changes on cash, which was recorded as accumulated other comprehensive income (loss) on the balance sheet, as of September 30, 2018 and December 31, 2017 were $78,290 and $(14,965), 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.


Unaudited interim financial statements

 

The accompanying unaudited consolidated balance sheet as of September 30, 2018, the consolidated statements of operations and condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2018 and 2017 of cash flows for the nine months ended September 30, 2018 and 2017, and other information disclosed in the related notes are unaudited. The consolidated balance sheet as of December 31, 2017, was derived from our audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission. The accompanying interim condensed consolidated financial statements and related disclosures have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement of the results of operations for the periods presented. The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or any other future year or interim period.

 

Advertising

 

The Company expenses the cost of advertising as incurred.  For the nine months ended September 30, 2018 and 2017, the amount charged to advertising expense was $118,590 and $24,175, respectively.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents. The cash deposits in U.S. financial institutions exceed the amounts insured by the U.S. government. The standard insurance amount is $250,000 per depositor, per insured bank. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. At September 30, 2018 and December 31, 2017, the Company’s bank balances exceeded insurances balances by $194,672 and $2,862,505, respectively. At September 30, 2018 and December 31, 2017, the Company had no cash equivalents.

 

 7 
 

 

Inventories

 

Inventory is reported at the lower of cost (first-in, first-out method) or net realizable value.  The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state. These costs include direct material, direct labor, and indirect manufacturing costs, including depreciation and amortization. Inventories consist primarily of containers with partially or fully completed energy storage components, including batteries, inverters and battery management hardware and software.

 

As of September 30, 2018 and December 31, 2017, the components of inventories were as follows:

 

 

   September 30,
2018
   December 31,
2017
 
Raw materials  $2,837,485   $543,373 
Finished goods   1,126,489    1,307,981 
Reserve for slow moving and obsolete inventory   (1,540,790)   (1,540,790)
Inventories, net  $2,423,184   $310,564 

 

We regularly review the cost of inventories against their estimated net realizable value and record write-downs if any inventories have costs in excess of their net realizable values. We also regularly evaluate the quantities and values of our inventories in light of current market conditions and trends, among other factors, and record write-downs for any quantities in excess of demand or for any obsolescence. This evaluation considers the use of Stacks in our systems business, expected demand, anticipated sales prices, strategic raw material requirements, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, product merchantability, and other factors. Market conditions are subject to change, and actual consumption of our inventory could differ from forecasted demand.

 

Included in raw materials as of September 30, 2018 is $1,113,720 of inventory located at Yangzhou Finway manufacturing facility which will be used in production of Stack equipment for planned shipments to our customers.

 

Based on our assessment, $0 and $851,206 impairment expenses for inventories were recorded in cost of sales during the nine months ended September 30, 2018 and 2017, respectively.

 

Intangible Assets

 

Our intangible assets include websites, patents, and trademarks. Intangible assets that are subject to amortization 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. Based on this assessment, no impairment expenses for intangible assets were recorded in operating expenses during the nine months ended September 30, 2018 and 2017. Intangible assets amounted $310,424 and $236,754 as of September 30, 2018 and December 31, 2017, respectively. Amortization expenses amounted to $16,523 and $2,041 for the nine months ended September 30, 2018 and 2017, respectively.

 

Equity Method Investments

 

We account for our unconsolidated venture using the equity method of accounting. As part of this evaluation, we consider our participating and protective rights in the venture as well as its legal form. We use the equity method of accounting for our investments when we have the ability to significantly influence, but not control, the operations or financial activities of the investee. We record our equity method investments at cost and subsequently adjust their carrying amount each period for our share of the earnings or losses of the investee and other adjustments required by the equity method of accounting. Distributions received from our equity method investments are recorded as reductions in the carrying value of such investments and are classified on the consolidated statements of cash flows pursuant to the cumulative earnings approach. Under this approach, distributions received are considered returns on investment and are classified as cash inflows from operating activities unless our cumulative distributions received, less distributions received in prior periods that were determined to be returns of investment, exceed our cumulative equity in earnings recognized from the investment. When such an excess occurs, the current period distributions up to this excess are considered returns of investment and are classified as cash inflows from investing activities.

 

 8 
 

 

We monitor our equity method investments, which are included in “Investment in unconsolidated affiliate” in the accompanying consolidated balance sheets, for impairment and record reductions in their carrying values if the carrying amount of an investment exceeds its fair value. An impairment charge is recorded when such impairment is deemed to be other-than-temporary. To determine whether impairment is other-than temporary, we consider our ability and intent to hold the investment until the carrying amount is fully recovered. Circumstances that indicate an other-than temporary impairment may have occurred include factors such as decreases in quoted market prices or declines in the operations of the investee. The evaluation of an investment for potential impairment requires us to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions.

 

In 2017, as part of our sale of our projects and pipeline, we acquired a 10% ownership stake in esVolta, As a result, our investment in unconsolidated affiliates has balance of $475,263 as of December 31, 2017. We did not record any impairment losses related to our equity method investment during the years ended December 31, 2017. In March 2018, we sold a 50% ownership stake in a previously consolidated entity, Powin Canada B.C., Ltd. to esVolta. We now account for our remaining 50% ownership in Powin Canada B.C., Ltd. using the equity method.  In 2018 we recorded our investment in unconsolidated affiliates of $8,212,925 for our 50% ownership in Powin Canada B.C., Ltd.

 

For the nine months ended September 30, 2018 we recorded equity in loss of unconsolidated affiliates of $315,613 for our ownership percentage in the investee’s net loss and reduced our investment in equity method investee by this amount. As of September 30, 2018, the balance of investment in unconsolidated affiliates is $8,372,575.

 

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.

 

The Powin Energy Corporation 2017 Equity Incentive Plan (“2017 Plan”) stipulates how directors, officers, employees, and consultants of Powin Energy Corp (including any of its subsidiaries) are eligible to participate in various forms of share-based compensation.  The 2017 Plan is administered by the compensation committee of our board of directors (or any other committee designated by our board of directors), which is authorized to, among other things, determine recipients of grants, exercise price and vesting schedule of the awards made under the 2017 Plan. The 2017 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, restricted stock units, performance units, cash incentive awards, performance compensation awards, and other equity-based and equity-related awards. In addition, the shares underlying any forfeited, expired, terminated, or canceled awards, or shares surrendered as payment for taxes required to be withheld, become available for new award grants. We may not grant awards under the 2017 Plan after 2027, which is the tenth anniversary of the 2017 Plan’s approval by our stockholders. As of September 30, 2018, we had 4,134,079 shares available for future issuance under the 2017 Plan.

 

Land Use Rights

 

All urban land in China is owned by the State. Pursuant to Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas, which became effective on May 19, 1990, individuals and companies are permitted to acquire rights to use urban land or land use rights for specific purposes, including residential, industrial and commercial purposes. The land use rights are granted for a period of 70 years for residential purposes, 50 years for industrial purposes and 40 years for commercial purposes. These periods may be renewed at the expiration of the initial and any subsequent terms. Upon approval by both the land administrative authorities and city planning authorities, industrial parcel uses may be converted to other uses, and the duration and other clauses in the land use right granting agreement will be revised to match the new use. Granted land use rights are transferable and may be used as security for borrowings and other obligations. We have received the necessary land use right certificates for the properties described under Note 7.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no impact on our consolidated net earnings, financial position or cash flows.

 

 9 
 

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. The new guidance provides a new model to determine when and over what period revenue is recognized. Under this new model, revenue is recognized as goods or services are delivered in an amount that reflects the consideration we expect to collect. In March 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the principal versus agent guidance in the new revenue recognition standard. In April 2016, the FASB issued another ASU, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the guidance on accounting for licenses of intellectual property and identifying performance obligations in the new revenue recognition standard. In May 2016, the FASB issued another ASU, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedient, which clarifies the transition, collectability, noncash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. As an emerging growth company, the guidance is effective for fiscal years beginning after December 15, 2018; early adoption is permitted for periods beginning after December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method and are evaluating the impact of adopting this guidance.

 

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow entities to reclassify the income tax effects of the Tax Act on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact ASU 2018-02 will have on our consolidated financial statements and associated disclosures. 

 

Note 2: Going Concern

 

The Company sustained a net loss $7,005,415 and $5,344,790 during the nine months ended September 30, 2018 and 2017. The Company has accumulated deficit of $51,280,405 and $44,274,990 as of September 30, 2018 and December 31, 2017, respectively. The company has working capital deficit of $17,603,466 and working capital of $3,336,144 as of September 30, 2018 and December 31, 2017, respectively. The Company also has notes payable to unrelated parties due within 12 months amounting $3,651,250 and $1,350,472 as of September 30, 2018 and December 31, 2017, respectively. 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 above conditions raise substantial doubt about the Company’s ability to continue as going concern.

 

The accompanying condensed 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 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.

 

Management has assessed the Company’s ability to continue as a going concern as of the balance sheet date, and up to and including the financial statement issuance date. The assessment of a company’s ability to meet its obligations is inherently judgmental. Without additional funding, the company may not have sufficient available cash to meet its obligations coming due in the ordinary course of business within one year of the financial statement issuance date. However, the Company has historically been able to successfully secure funding to meet its obligations as they become due. The following conditions were considered in management’s evaluation of going concern:

 

·In March 2018, the Company completed a 8.8 MW / 40.8 MWh Battery Energy Storage System connected to a Canadian utility and sold a 50% interest in the project to esVolta. The project is the largest battery facility in Canada and illustrates the state of lithium-ion as a grid-scale technology.  esVolta has an option to purchase the remaining 50% interest in the project by March 29, 2019.

 

·Management is actively in discussions with several parties regarding various forms of funding, which if successful, would mitigate any going concern risks within one year from the date of issuance of its financial statements for the nine months ended September 30, 2018.

 

Note 3: Project Assets

 

Project assets primarily consist of costs related to battery energy storage projects in various stages of development that are capitalized prior to the completion of the sale of the project, including projects that may have begun commercial operation under power purchase agreements and are actively marketed and intended to be sold. These project related costs include costs for land, development, and construction of a battery energy storage system. Development costs may include legal, consulting, permitting, transmission upgrade, interconnection, and other similar costs. Once we enter into a definitive sales agreement, we classify such project assets as current, or non-current if the purchase option is greater than one year, until the sale is completed, and we have met all of the criteria to recognize the sale as revenue. If a project is completed and begins commercial operation prior to the closing of a sales arrangement, the completed project will remain in project assets until closing of sale. We present all expenditures related to the development and construction of project assets, whether fully or partially owned, as a component of cash flows from operating activities.

 

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project is expected to be recoverable, including whether there are any changes in environmental, ecological, permitting, market pricing, or regulatory conditions that may impact the project. Such changes could cause the costs of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assets and adjust the carrying value to the estimated fair value, with the resulting impairment recorded within “Selling, general and administrative” expense.

 

 10 
 

 

Energy storage systems business sales arrangements in which we construct a battery power system for a customer on land that is controlled by the customer and has not been previously controlled by Powin, are accounted for under ASC 605-35. For such sales arrangements, we use the completed contract method as our standard accounting policy since we are unable to reliably estimate the costs to complete the services or the total amount of the contract during construction.  Under the completed contract method we recognize all of the revenue and profit associated with a project only after the project has been completed and collectability is reasonably assured under the terms of the sales contract.  In applying the completed contract method, we recognize income only when a contract is completed or substantially completed, such as when the remaining costs to be incurred are not significant.  Under this method costs incurred are reflected on the balance sheet under project assets.

 

Project Assets  September 30,
2018
   December
31, 2017
 
Powin Energy Ontario Storage II - 8.8 MW / 40.8 MWh energy storage project located in Stratford,
Ontario
  $—     $16,036,152 
Total project assets  $—     $16,036,152 

 

On December 4, 2017 the Company entered into a purchase and sale agreement with esVolta for the sale of Powin Canada B.C. Ltd., the sole limited partner of Powin Energy Ontario Storage II, LP and sole shareholder of Powin Energy Storage 2, Inc.  At closing, esVolta paid to Powin an aggregate amount equal to 50.0% of the sum of $20,681,000 adjusted for working capital and debt balances at the time of closing for 50% of the ownership interests in Powin Canada B.C. Ltd.  Closing occurred March 29, 2018, subsequent to date of project completion and commissioning. The Company lost control of Powin Canada B.C. Ltd upon closing and accounted for this transaction as deconsolidation of a subsidiary during the quarter ended September 30, 2018. Powin Canada B.C. Ltd through its subsidiaries holds the assets of an 8.8 MW / 40.8 MWh energy storage project located in Stratford, Ontario under development and included in project assets as of December 31, 2017.  Based on this, the 50% of the total project asset is presented as current asset, and the remaining 50% is presented as non-current asset as of December 31, 2017. Additionally, the purchase agreement has an option whereby esVolta may purchase the remaining 50% ownership interests in Powin Canada B.C. Ltd. within one year of the original closing date of March 29, 2018.

 

In March 2018, the Company recognized a net loss of $428,001 related to the deconsolidation of the subsidiary Powin Canada B.C., Ltd.   There was no gain or loss recognized related to the remeasurement of our 50% retained investment in the former subsidiary Powin Canada B.C., Ltd.  The $428,001 net loss related to deconsolidation is shown as a component of gross margin, equals to revenue from energy storage assets in the amount of $8,288,232, net of cost from energy storage assets in the amount of $8,716,233.  The valuation used to measure the fair value of our direct retained 50% investment in Powin Canada B.C., Ltd was based on the market approach.  Estimating the fair value of the noncontrolling interest we obtain begins with the valuation of the entire energy storage project being sold to the customer net of any associated debt.  Such valuation generally uses a market based valuation technique.  Under the market approach the cash received of $8,288,232 for the 50% interest sold approximates the retained 50% equity method investment of $8,212,925.  The Company retained a 50% ownership interest in the deconsolidated entity and will continue to have involvement in the operations of the entity with the acquiring entity esVolta, a related party in which Powin Energy Corporation holds a 10% ownership interest in.  The deconsolidated entity Powin Canada B.C., Ltd will continue to be a related party due to our remaining 50% ownership interest which is accounted for under the equity method of accounting. Since the transaction resulted in a loss, the Company recognized the total loss of $428,001 and did not defer the 10% loss from related party.

 

In June 2018, the Company recognized revenue of $172,306 from proceeds received from esVolta after including final working capital adjustments related to the Stratford, Ontario project and the resulting impact on the final sales price.

 

Note 4: Tax Payable

 

Tax payable as of September 30, 2018 is the GST/HST tax payable of $75,696. The GST/HST tax payable represents net amounts due from the Canada Revenue Agency (CRA) for Goods and Services Tax / Harmonized Sales Tax (GST/HST) on taxable goods and services purchased or sold in Canada.  The Company is registered for GST/HST with the CRA and files periodic tax returns for each reporting period listing the amount of GST/HST collected during the reporting period along with the amount of input tax credits claimed.  The net tax for each reporting period is the difference between the GST/HST charged on taxable supplies and the GST/HST paid on business purchases and expenses (input tax credits). This resulted in a GST/HST payable as of September 30, 2018, which occurs when the Company has collected more GST/HST than we paid. GST/HST tax payable at September 30, 2018 and December 31, 2017 is $75,696 and $0, respectively. 

 

 11 
 

 

Note 5: Notes Receivable

 

Notes receivable consist of the following:

 

   September 30, 2018   December 31, 2017 
   Current   Non Current   Current   Non Current 
On October 3, 2016, the Company issued a promissory note to Rolland Holding Company LLC, an unrelated party. The principal amount is $800,000 and the interest rate is 5%, due on November 21, 2024.  $100,000   $549,835   $100,000   $615,074 
                     
On October 3, 2016, the Company issued a promissory note to Powin Mexico, an unrelated party. The principal amount is $125,000 with no interest rate, due on December 3, 2020.   31,250    62,500    31,250    62,500 
                     
   $131,250   $612,335   $131,250   $677,574 

 

Effective October 3, 2016 (see Note 15), the Company entered into a Stock Purchase Agreement with Powin Industries, SA de CV (“Powin Mexico”) and Rolland Holding Company, LLC (“Rolland”).  At Closing, Rolland made a cash payment of $99,000 and delivered to the Company (i) its promissory note in the principal amount $100,000 bearing interest at 4% per annum with principal and interest payable in twelve (12) equal monthly installments (“Short Term Note”); and (ii) its promissory note in the principal amount of $800,000 bearing interest at 5% per annum with principal and interest payable in ninety-nine (96) equal monthly installments (“Long Term Note”). The interest rate on the Long Term Note will be renegotiated if and when the Prime Rate for the U.S reaches 5%. In addition, Powin Mexico delivered to the Company a non-interest bearing promissory note in the amount of $125,000 (“Powin Mexico Note”) which calls for four (4) equal monthly installments of $31,250 on each of December 31, 2017, December 31, 2018, December 31, 2019 and December 31, 2020. The Powin Mexico Note represents a compromised amount representing the difference between the amount of the Powin Mexico accounts receivable and the amount of the Powin Mexico accounts payable owing to the Company. Amounts due under the Short Term Note, the Long Term Note and the Powin Mexico Note, respectively, may be accelerated upon a failure to pay amounts due thereunder when due, unless waived or cured. The total amount collected under these notes receivable during 2017 is $202,703. The Company recognized interest income of $39,566 for the year ended December 31, 2017.  The total amount collected under these notes receivable for the nine months ended September 30, 2018 is $75,000. The Company recognized interest income of $25,735 for the nine months ended September 30, 2018.

 

The Company has performed an analysis of the notes receivable balance under ASC 810-10 guidance with respect to accounting for variable interest entities (“VIE”), and has determined the Company lacks the power to make key operating decisions considered to be most significant to the VIE, and is therefore not considered to be the primary beneficiary in this transaction.

 

Note 6: Property and Equipment, net

 

The components of property and equipment were as follows:

 

   September 30,
2018
   December
31, 2017
 
         
Equipment  $76,662   $50,385 
Leasehold improvements   7,564    7,564 
Construction in progress   7,445    - 
Computers   99,365    99,365 
Vehicles   32,983    32,983 
Accumulation depreciation   (144,625)   (118,420)
Property and equipment, net  $79,394   $71,877 

  

For the three months ended September 30, 2018 and 2017, depreciation of property and equipment amounted $8,482 and $64,790, respectively. For the nine months ended September 30, 2018 and 2017, depreciation of property and equipment amounted $26,205 and $175,880, respectively.

 

Note 7: Land Use Rights, net

 

The Company’s land use rights consist of the following:

 

   September 30,
2018
   December
31, 2017
 
         
Cost of land use rights  $3,053,707   $- 
Accumulation amortization   (25,447)   - 
Land use rights, net  $3,028,260   $- 

 

 12 
 

 

 In April 2018, Powin Ningbo purchased land in Ningbo Yuyao, China for 19,192,246 RMB ($3,053,707 USD). The land will be the site for the planned construction of a battery manufacturing facility for industrial use. Land use rights are stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of the lease of 50 years obtained from the relevant PRC land authority.

 

For the three months ended September 30, 2018 and 2017, amortization of land use rights amounted $5,872 and $0, respectively. For the nine months ended September 30, 2018 and 2017, amortization of land use rights amounted $25,447 and $0, respectively

 

Note 8: Other Receivable

 

The Stock Purchase Agreement for the sale of Q Pacific Corporation (“QPM”) in 2016 contains a provision whereby Powin is due 35% of the annual EBITDA of QPM for fiscal years 2017, 2018 and 2019.  The amount calculated under this agreement and due to Powin is $0 for nine months ended September 30, 2018.  The Company records amounts earned under this agreement to other income and other current assets. The amount due of $109,074 as of December 31, 2017 was collected in March 2018.

 

The Company has performed an analysis of the notes receivable balance under ASC 810-10 guidance with respect to accounting for variable interest entities (“VIE”), and has determined the Company lacks the power to make key operating decisions considered to be most significant to the VIE, and is therefore not considered to be the primary beneficiary in this transaction.

 

Note 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. 

 

The components of basic and diluted loss per share are as follows:

 

   For the nine months ended
September 30,
 
   2018   2017 
         
Net loss attributable to Powin Energy Corporation (A)  $(7,005,415)  $(5,344,790)
           
Weighted average outstanding shares of 
common stock (B)
   45,263,070    37,104,551 
Dilutive effect of securities   -    - 
Common stock and common stock equivalents (C)   45,263,070    37,104,551 
           
Loss per share          
Basic (A/B)  $(0.15)  $(0.14)
Diluted (A/C)  $(0.15)  $(0.14)

 

The Company has 2,318,921 shares and 2,128,603 shares of outstanding stock options as of September 30, 2018 and December 31, 2017, respectively.

 

On April 15, 2013, the Company entered into a Settlement Agreement and Mutual Release to settle a previously disclosed action as noted in our 8K filed on April 17, 2013. Pursuant to the Settlement Agreement, 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. Beaston 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 the expiration date of April 15, 2018 none of the warrants have been exercised and have now expired.

 

The following sets forth the number of shares of common stock underlying if all outstanding options, warrants, and convertible debt were converted as of September 30, 2018 and December 31, 2017:

 

   September 30,
2018
   December
31, 2017
 
Warrants   -    100,000 
Stock options   2,318,921    2,128,603 
    2,318,921    2,228,603 

 

 13 
 

 

For the nine months ended September 30, 2018 and 2017, the effect of warrants and stock options are excluded from loss per share because their impact is anti-dilutive since the company has a net loss both years.

 

Note 10: Long-term Debt

 

The total carrying value of long-term debt, including current and non-current classifications, was as follows:

 

   September 30, 2018   December 31, 2017 
   Current   Non Current   Current   Non Current 
Loan from a third party, originating March 16, 2017, due March 16, 2019, at 6% interest, with a security interest in the Company’s ownership stake in Powin Canada B.C. Ltd and a $1 million personal guarantee from Joseph Lu. Subject to meeting the requirements of a qualified financing event within 24 months of the date of this note, the note holder will have the right to convert the note balance into offered securities. The first $1 million of the note balance is eligible to be converted at 90% of the price paid per share under the qualified financing, and the remaining balance at the same price per share paid by the other participants.  $2,000,000   $-   $-   $2,000,000 
                     
Loan from a third party, originating September 13, 2017, due September 14, 2018, at 10% interest, with no collateral.  The loan was extended on September 14, 2018 with a new maturity date of June 14, 2019.   150,000    -    150,000    - 
                     
Loan from a third party, originating September 26, 2017, due September 27, 2020 at 8.75% interest. The loan is secured by Powin Energy Ontario Storage II, LP and guaranteed by Powin Canada B.C.
Ltd. (a)
   -    -    1,200,472    2,953,926 
                     
Loan from a third party, originating July 17, 2018, due September 16, 2018, at 18% interest, with personal guarantee from Joseph Lu. The loan was extended on September 16, 2018 with a new maturity date of December 31, 2018.   746,891    -    -    - 
                     
Loan from a third party, originating July 17, 2018, due September 16, 2018, at 18% interest, with personal guarantee from Joseph Lu. The loan was extended on September 16, 2018 with a new maturity date of December 31, 2018.   306,225    -    -    - 
                     
Loan from a third party, originating July 17, 2018, due September 16, 2018, at 18% interest, with personal guarantee from Joseph Lu. The loan was extended on September 16, 2018 with a new maturity date of December 31, 2018.   448,134    -    -    - 
                     
Total long-term debt  $3,651,250   $-   $1,350,472   $4,953,926 

 

For the three months ended September 30, 2018 and 2017, interest expense related to short-term and long-term debt amounted to $102,278 and $52,858 respectively.  For the nine months ended September 30, 2018 and 2017, interest expense related to long-term debt amounted to $277,261 and $80,075, respectively.  Additionally, $92,052 was capitalized in project assets in 2018 prior to the deconsolidation of Powin Canada B.C., Ltd. 

 

(a) As discussed in note 3, Powin Energy Ontario Storage II, LP is no longer consolidated due to the sale to esVolta and as a result the loan balance is shown as $0 as of September 30, 2018.

 

 14 
 

 Long-term debt related party

 

   September 30, 2018   December 31, 2017 
   Current   Non Current   Current   Non Current 
On May 31, 2017, the Company renewed two loans from Lu Pacific Properties, LLC. The principal amount is $150,000 and the annual interest rate is 6%, due on May 31, 2018, with no collateral. As of September 30, 2018, accrued interest is $22,101. Interest expense amounted to $7,149 for the nine months ended September 30, 2018.  The loan was renewed on May 31, 2018 with a new maturity date of May 31, 2019.  $150,000   $-   $150,000   $- 
                     
Loan originating July 5, 2016, due July 4, 2017, at a 6% annual interest rate, with no collateral On October 31, 2017, 3U Trading note transfer to Joseph Lu per agreement Principal and accrued interest may be converted into preferred stock. As of September 30, 2018, accrued interest is $0.  Interest expense amounted to $2,987 for the nine months ended September 30, 2018. The loan was paid off on January 19, 2018.   -    -    1,009,516    - 
                     
On October 26, 2016, the Company secured a loan from Lu Pacific Properties, LLC. The principal amount is $2,000,000, and the annual interest rate is 7%, due on October 26, 2018, secured by Company’s intellectual property. As of September 30, 2018, accrued interest is $71,694. Interest expense amounted to $104,713 for the nine months ended September 30, 2018. The loan was renewed on October 25, 2018, with a new maturity date of November 30, 2018.   2,000,000    -    2,000,000    - 
                     
On January 26, 2017, the Company borrowed the sum of $1,000,000 from Joseph Lu, and issued its note in the principal amount of $1,000,000, with an annual interest rate is 7%, due on January 26, 2019. The note is secured by the Company’s intellectual property. As of September 30, 2018, accrued interest is $51,955. Interest expense amounted to $38,860 for the nine months ended September 30, 2018. Partial of the Note, $247,785 principal was converted to common stock on October 16, 2017.   742,215    -    -    742,215 
                     
On March 14, 2018, the Company secured a loan from Joseph Lu. The principal amount is $585,730 and the annual interest rate is 12%, due in May 14, 2018, secured by 100% of equity of Powin China. As of September 30, 2018, accrued interest is $37,169. Interest expense amounted to $37,169 for the nine months ended September 30, 2018.  The loan was renewed with a new maturity date of December 31, 2018.   585,730    -    -    - 
                     
On April 13, 2018, the Company secured a loan from Mei-yi Lu due June 12, 2018 at 36% interest, with no collateral. The loan was renewed and due upon holder request, at 12% interest. As of September 30, 2018, accrued interest is $59,573. Interest expense amounted to $59,573 for the nine months ended September 30, 2018.   400,000    -    -    - 
                     
On April 13, 2018, the Company secured a loan from Lu Pacific Properties, LLC due June 12, 2018 at 36% interest, with no collateral. The loan was renewed and is due November 30, 2018, at 12% interest. As of September 30, 2018, accrued interest is $43,190.  Interest expense amounted to $43,190 for the nine months ended September 30, 2018.   290,000    -    -    - 
                     
On July 13, 2018, the Company secured a loan from J. Lu Investment, LLC due August 1, 2018 at 36% interest, with no collateral. On August 1, 2018 the loan was renewed and due upon holder request, at 7% interest. As of September 30, 2018, accrued interest is $10,605.  Interest expense amounted to $10,605 for the nine months ended September 30, 2018.   700,000    -    -    - 

 

 15 
 

 

On August 13, 2018, the Company secured a loan from Danny Lu due August 9, 2019 at 12% interest, with no collateral. As of September 30, 2018, accrued interest is $1,611.  Interest expense amounted to $1,611 for the nine months ended September 30, 2018.   100,000    -    -    - 
                     
On August 14, 2018, the Company secured a loan from Geoffrey Brown due August 9, 2019 at 12% interest, with no collateral. As of September 30, 2018, accrued interest is $1,578.  Interest expense amounted to $1,578 for the nine months ended September 30, 2018.   100,000    -    -    - 
                     
On September 10, 2018, the Company secured a loan from Joseph Lu due March 10, 2019 at 6% interest, secured by 100% of equity of Powin China. As of September 30, 2018, accrued interest is $77.  Interest expense amounted to $77 for the nine months ended September 30, 2018.   23,383    -    -    - 
                     
On September 28, 2018, the Company secured a loan from Meiyi Lu due upon holder request at 12% interest, with no collateral. As of September 30, 2018, accrued interest is $789.  Interest expense amounted to $789 for the nine months ended September 30, 2018.   800,000    -    -    - 
                     
                     
Total  $5,891,328   $-   $3,159,516   $742,215 

 

Interest expense related to loans from related parties amounted to $130,811 and $72,686 for the three months ended September 30, 2018 and 2017, respectively. Interest expense related to loans from related parties amounted to $308,531 and $130,250 for the nine months ended September 30, 2018 and 2017, respectively. 

 

 

Schedule of long term debt:

 

   December
31, 2017
Balance
   Borrowed   Paid   Deconsolidated   Converted   September 30, 2018
Balance
 
Third party note, March 16, 2017  $2,000,000   $-    -   $-   $-   $2,000,000 
Third party note, September 26,
2017
   4,154,398    -    (58,707)   (4,095,691)   -    - 
Third party note, June 13, 2017   150,000    -    -    -    -    150,000 
Third party note, April 17, 2018        1,529,588    (1,529,588)   -    -    - 
Third party note, July 17, 2018        746,891    -    -    -    746,891 
Third party note, July 17, 2018        306,225    -    -    -    306,225 
Third party note, July 17, 2018        448,134    -    -    -    448,134 
Renewal of two notes from Lu
Pacific Properties, LLC, May 31,
2017
   150,000    -    -    -    -    150,000 
3U Trading note transfer to Joseph
Lu, October 31, 2017
   1,009,516    -    (1,009,516)   -    -    - 
Lu Pacific Properties, LLC note, 
October 26, 2016
   2,000,000    -    -    -    -    2,000,000 
Joseph Lu note, January 26, 2017,   742,215    -    -    -    -    742,215 
Joseph Lu note, March 14, 2018,   -    585,730    -    -    -    585,730 
Joseph Lu note, September 10, 2018,   -    23,383    -    -    -    23,383 
J. Lu Investments note, June 20, 2018   -    100,000    (100,000)   -    -    - 
J. Lu Investments note, July 13, 2018   -    700,000    -    -    -    700,000 
Mei-yi Lu note, April 13, 2018   -    400,000    -    -    -    400,000 
Mei-yi Lu note, April 13, 2018   -    800,000    -    -    -    800,000 
Danny Lu note, August 13, 2018   -    100,000    -    -    -    100,000 
Geoff Brown note, August 14, 2018   -    100,000    -    -    -    100,000 
Lu Pacific Properties, LLC note,
April 13, 2018
   -    290,000    -    -    -    290,000 
Total  $10,206,129   $6,129,951   $(2,697,811)  $(4,095,691)  $-   $9,542,578 

 

 16 
 

 

Note 11: Commitments

 

Operating Leases

 

The Company leases the Company headquarters facility in Tualatin, Oregon from Lu Pacific Properties, LLC, a related party controlled by the Lu family. This lease is through September 30, 2021 and requires the Company to pay for all property taxes, utilities and facility maintenance.

 

Effective January 1, 2017, the Company entered into a lease amendment. The Company leased 28,275 square feet of the building. The lease term is through September 30, 2021 and all property taxes, utilities and facility maintenance were charged at $0.15 per square foot per month by Lu Pacific Properties, LLC. The monthly rental expense is $17,989.

 

The Company leases a facility from 3U Millikan, LLC, a company owned by Xilong Zhu, a member of the Company’s Board of Directors. The lease is for its Southern California Edison Project at Irvine, California location. This lease commenced on October 10, 2016 and will terminate on January 9, 2027 and requires the Company to pay for all property taxes, utilities and facility maintenance. The monthly base rental expense in 2018 is $18,077.  The Company subleases a portion of this facility to PPA Grand Johanna, LLC, a subsidiary sold to esVolta on December 4, 2017.  Rental income to Powin under the terms of the sublease is $4,120 per month in 2018 with annual rent increases through the lease term ending in 2027.  Under the terms of the sublease, Powin has the right to increase the base rent by an amount in proportion to the amount of added battery energy storage capacity relative to the existing battery energy storage capacity at then current market rates.

 

On September 27, 2017, the Company entered into a lease agreement for its project located in Stratford, Ontario. The Company leased 1 acre of land from an unrelated party. The lease term is for three years commenced upon commissioning and acceptance of the project, which occurred in March 2018. The annual rental expense is $30,100. The lease has term to renew two additional terms of 5 years each with nine months’ notice.  As discussed in note 3 Powin Energy Ontario Storage II, LP is no longer consolidated due to the sale to esVolta and as a result the lease is not included in the future minimum lease payment schedule below as of September 30, 2018.

 

Minimum future lease payments under non-cancelable operating leases are as follows:

 

Year ending September 30,    
2019  $437,673 
2020   444,321 
2021   397,211 
2022   242,364 
2023   249,639 
Thereafter   863,448 
Total  $2,634,656 

 

For the three months ended September 30, 2018 and 2017, total lease expense for all operating rents and leases was $62,160 and $130,481, respectively. For the nine months ended September 30, 2018 and 2017, total lease expense for all operating rents and leases was $278,558 and $354,092, respectively. These leases are also disclosed in Note 13, related party transactions.

 

Note 12:  Capital stock

 

The Company has one class of common stock.

 

Common Stock

 

On October 16, 2017, the Company issued an aggregate of 8,155,146 shares of common stock in satisfaction of certain outstanding indebtedness in the aggregate principal and accrued interest balance of $6,151,233. The fair market value of the common stock at time of conversion was $14,353,057. The $8,201,824 difference between the fair market value of the common stock and the balance of the principal and accrued interest was booked as loss on extinguishment of debt.

 

 17 
 

 

Warrants

 

On April 15, 2013, the Company entered into a Settlement Agreement and Mutual Release to settle a previously disclosed action as noted in our 8K filed on April 17, 2013. Pursuant to the Settlement Agreement, 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. Beaston 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 the expiration date of April 15, 2018 none of the warrants have been exercised and have now expired.

 

           Average     
       Weighted   Remaining     
       average
exercise
   Contractual
Life
   Aggregate
Intrinsic
 
   Warrants   price   (Years)   Value 
Outstanding at
December 31, 2017
   100,000   $25.00    0.4   $- 
                     
Exercisable at December 31, 2017   100,000   $25.00    0.4   $- 
                     
Warrants granted   -    -    -    - 
Warrants exercised   -    -    -    - 
Warrants expired   100,000    25.00    -    - 
Warrants forfeited   -    -    -    - 
Outstanding at
September 30, 2018
   -   $25.00    -   $- 
Exercisable at September 30, 2018   -   $25.00    -   $- 

 

Note 13: Stock Options

 

The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, “Compensation – Stock Compensation”.

 

In February 2011, the Company’s Board of Directors approved the adoption of the Powin Energy Corporation 2011 Stock Option Plan (“2011 Plan”) and submitted its ratification to the shareholders at the shareholders’ meeting held September 15, 2011, where the shareholders approved the 2011 Plan.  On September 15, 2011, the Company granted awards under the 2011 Plan in the form of incentive stock options to its key employees for 1,170,000 shares of common stock.  On August 6, 2013, the Company granted 1,640,000 stock options under the 2011 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 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:

 

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 under the 2011 Plan.

 

In June 2017, the Company’s Board of Directors approved the adoption of the Powin Energy Corporation 2017 Stock Option Plan (“2017 Plan”). During the year ended December 31, 2017 the Company granted awards under the 2017 Plan in the form of incentive stock options to its employees for a total of 2,041,603 shares of common stock.  Awards were granted with an exercise price ranging from $1.18 to $2.00, approximating the market price of the Company’s common stock at the date of each grant.  The stock options vesting provisions have various terms:1). Most 1/4 immediately, then 1/4 each of next 12 months, or 2). 1/3 immediately, then 1/3 each of next 12 months. or 3) fully vested immediately.

 

During the nine months ended September 30, 2018 the Company granted awards under the 2017 Plan in the form of incentive stock options to its employees for a total of 324,318 shares of common stock.  Awards were granted with an exercise price ranging from $2.01 to $3.00, approximating the market price of the Company’s common stock at the date of each grant.  The stock options vesting has various terms:1). Most 1/4 immediately, then 1/4 each of next 12 months, or 2). 1/3 immediately, then 1/3 each of next 12 months. or 3) fully vested immediately.

 

 18 
 

 

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:


 

Dividend Yield     0 %
Expected volatility     140.10%-146.80 %
Risk-free interest rate     1.90%-2.92 %
Term in years     5.04-5.62  

 

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, 2013 Plan and 2017 Plan.

 

A summary of option activity as is presented below:

 

   Number of
Options
   Wtd Avg.
Exercise
Price
   Wtd Avg.
Remaining
Term
   Exercisable   Intrinsic
Value of
Options
 
Outstanding at December 31, 2016   102,000   $5.70    4.88    84,059   $- 
Granted   2,041,603    1.42    9.82           
Forfeited/Expired   (15,000)   3.50              - 
Outstanding at December 31, 2017   2,128,603    1.61    9.54    674,432    1,338,418 
Granted   324,318    2.10    9.44           
Forfeited/Expired   (134,000)   -              - 
Outstanding at September 30, 2018   2,318,921   $1.56    9.02    764,810   $560,319 

 

Stock option expense included in operating expense for the three months ended September 30, 2018 and 2017 is $212,300 and $108,894, respectively. Stock option expense included in operating expense for the nine months ended September 30, 2018 and 2017 is $760,308 and $132,454, respectively. As of September 30, 2018 and December 31, 2017, remaining unvested stock expenses amounted to $2,483,880 and $1,743,208, respectively.

 

Note 14:  Related Party Transactions

 

Rent expense related parties

 

The Company headquarter facilities located in Tualatin, Oregon are owned by Lu Pacific Properties, LLC, a related party controlled by the Lu family. Rent expenses were $53,968 and $53,120 for the three months ended September 30, 2018 and 2017, respectively. Rent expenses were $161,903 and $106,240 for the nine months ended September 30, 2018 and 2017, respectively. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.

 

The Company’s facility in Irvine, California is owned by 3U Millikan, LLC, controlled by Xilong Zhu, a director of the Company. Rent expenses were $54,231 and $52,650 for the three months ended September 30, 2018 and 2017, respectively. Rent expenses were $122,337 and $157,950 for the nine months ended September 30, 2018 and 2017, respectively. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.  The Company subleases a portion of this facility to PPA Grand Johanna, LLC, a subsidiary sold to esVolta on December 4, 2017.  Rental income to the Company under the terms of the sublease is $4,120 per month in 2018 with annual rent increases through the lease term ending in 2027.  Such rental income is recognized as net to rent expense.  Under the terms of the sublease, the Company has the right to increase the base rent by an amount in proportion to the amount of added battery energy storage capacity relative to the existing battery energy storage capacity at then current market rates.

 

Long-term debt related parties

 

The Company has long-term debt from related parties as disclosed in note 9.

 

Purchase from Related Parties

 

Yangzhou Finway Energy Tech Co. is owned 49% by the family of Joseph Lu, our CEO and a director of the Company, and 51% by Xilong Zhu, a director of the Company. The Company purchased equipment and parts from Yangzhou Finway Energy Tech Co. in the amount of $2,436,009 and $3,583 for the three months ended September 30, 2018 and 2017, respectively. The Company purchased equipment and parts from Yangzhou Finway Energy Tech Co. in the amount of $3,820,126 and $9,843 for the nine months ended September 30, 2018 and 2017, respectively. Amounts due to Yangzhou Finway Energy Tech Co. amounted to $3,315,527 and $1,309,946 at September 30, 2018 and December 31, 2017, respectively.

 

 19 
 

 

Included in raw materials as of September 30, 2018 is $1,113,720 of inventory located at Yangzhou Finway manufacturing facility which will be used in production of Stack equipment for planned shipments to our customers.

 

Quailhurst Vineyard Estates, LLC an Oregon limited liability company, is controlled by the Joseph Lu family. The Company purchased product from Quailhurst Vineyard Estates in the amount of $4,600 and $220 for the three months ended September 30, 2018 and 2017, respectively. The Company purchased product from Quailhurst Vineyard Estates in the amount of $15,100 and $3,177 for the nine months ended September 30, 2018 and 2017, respectively. Amounts due to Quailhurst Vineyard Estates amounted of $11,400 and $0 at September 30, 2018 and December 31, 2017, respectively.

 

Note 15: Subsequent events

 

 On October 10, 2018 the Company filed Schedule 13E-3 Amendment No. 4.  This Amendment No. 4 to the Issuer’s Rule 13E-3 Transaction Statement (“Transaction Statement”) is filed in connection with the Issuer’s going private transaction wherein the Issuer effected a 1-for-100 reverse stock split of its common stock, effective October 5, 2018.

 

Effective October 5, 2018, the Issuer completed a 1-for-100 reverse stock split of its outstanding common stock. In the reverse stock split, each 100 shares of the Issuer’s common stock was converted into one (1) share of common stock and holders thereafter of fractional shares became entitled to and received a cash payment in lieu of fractional shares in the amount of $176.00 for each pre-split share that became a fractional share.  As a result of the reverse stock split, shareholders who prior to the reverse stock split held less than 100 shares are no longer shareholders of the Issuer.

 

Immediately following the reverse stock split, the Issuer effected a 100-for-1 forward stock split for those shareholders who, following the reverse stock split, held at least one (1) whole share of common stock.

 

The reverse stock split resulted in the Issuer having 175 shareholders of record of its outstanding common stock. Accordingly, the Issuer has filed Form 15 contemporaneously with this amended Transaction Statement which immediately suspended the Issuer’s obligation to file periodic reports pursuant to Section 13 of the Securities Act of 1934, as amended, (“1934 Act”) and terminating the registration of the Issuer’s common stock under the 1934 Act.

 

Due to the above transactions, the Company’s total outstanding common shares decreased from 45,263,070 to 45,251,600. 

 

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

 

The following discussion and analysis 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, 2017 as filed with the Securities and Exchange Commission on April 16, 2018 and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.

 

Overview

 

Incorporated in the State of Nevada, Powin Energy Corporation is a leading designer and developer of scalable battery energy storage solutions for utility-scale, commercial and industrial, and microgrid applications. We are focused on the rapidly growing advanced energy storage industry, and our Stack140 modular battery system features our patented Battery Pack Operating System (bp-OS) that provides critical insight into system functions and lifespan.  Our primary source of revenues derive from sales of our Stacks and energy storage systems.

 

Management Opportunities, Challenges and Risks

 

Industry experts project the energy market to grow an average of 60% per year over the next five years.  During the same five-year period, Powin Energy forecasts securing 4% to 7% of the contracts in that market.  The conservative contract acquisition rate allows Powin Energy to grow at a manageable rate and achieve profitability.  Management continues to pursue strategic investments which will allow for more aggressive growth in future years.

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Note 2 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.

 

 20 
 

 

Results of Operations For the Three Months Ended September 30, 2018 and 2017

 

Revenues

 

Revenue for the three months ended September 30, 2018, increased $4,185,981 or 3,991.10% from $104,883 in the same period of 2017 to $4,290,864. The increase was due to the sale of energy storage products.

 

Cost of Sales and Gross Loss

 

Cost of sales for the three months ended September 30, 2018, increased $3,446,728 or 5,056.30%, from $68,167 in the same period of 2017 to $3,514,895 due to the reasons noted above.

 

Gross profit for the three months ended September 30, 2018, increased $739,253 or 2,013.43%, from a profit of $36,716 in the same period of 2017 to the profit of $775,969 due to the reasons noted above. 

 

Research and Development Expenses

 

Research and development expense for the three months ended September 30, 2018, increased $140,772 or 148.27%, from $94,945 in the same period of 2017 to $235,717. The change is due to the increase in the number of employees and Company resources in 2018 focused on Stack software and hardware technology research and development for the energy storage market.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended September 30, 2018, increased $787,046 or 55.24%, from $1,424,867 in the same period of 2017 to $2,211,913. Increase is primarily due to increased staffing costs for hiring new personnel and stock options granted to in 2018.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2018, decreased $11,782 or 4.98%, from $236,463 in the same period of 2017 to $224,681. The decrease is due to some of the Company’s debt converted to common stock in October 2017.   

 

Provision for income taxes

 

Provision for income taxes for the three months ended September 30, 2018, decreased $4,655 or 100.00%, from $4,655 in the same period of 2017 to $0.

 

Net Loss

 

For the three months ended September 30, 2018, the Company had a net loss of $2,009,792 or $0.04 per share, compared to net loss of $1,672,762 or $0.05 per share for the same period of 2017.

 

Results of Operations For the Nine Months Ended September 30, 2018 and 2017

 

Revenues

 

Revenue for the nine months ended September 30, 2018, increased $14,131,576 or 4,676.70% from $302,170 in the same period of 2017 to $14,433,746. This increase was due to the sale of the energy storage product.

 

Cost of Sales and Gross Profit

 

Cost of sales for the nine months ended September 30, 2018, increased $12,887,210 or 1,213.69%, from $1,061,823 in the same period of 2017 to $13,949,032 due the reasons noted above. 

 

Gross profit for the nine months ended September 30, 2018, increased $1,244,367 or 163.81%, from the loss of $759,653 in the same period of 2017 to profit of $484,714 due the reasons noted above. 

 

 21 
 

 

Research and Development Expenses

 

Research and development expense for the nine months ended September 30, 2018, increased $468,915 or 185.64%, from $252,598 in the same period of 2017 to $721,513. The change is due to the increase in the number of employees and Company resources in 2018 focused on Stack software and hardware technology research and development for the energy storage market.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the nine months ended September 30, 2018, increased $1,929,815 or 48.72%, from $3,960,907 in the same period of 2017 to $5,890,722. Increase is primarily due to increased staffing costs for hiring new personnel and stock options granted in 2018.

 

Interest Expense

 

Interest expenses for the nine months ended September 30, 2018, increased $137,219 or 32.58%, from $421,179 in the same period of 2017 to $558,398. The increase is due to interest on the Company’s debt.   

 

Provision for income taxes

 

Provision for income taxes for the nine months ended September 30, 2018, decreased $8,405 or 100.00%, from $8,405 in the same period of 2017 to $0.

 

Net Loss

 

For the nine months ended September 30, 2018, the Company had a net loss of $7,005,415 or $0.15 per share, compared to net loss of $5,344,790 or $0.14 per share for the same period of 2017.

 

Liquidity and Capital Resources

 

Cash used in operating activities was $3,480,557 for the nine months ended September 30, 2018 compared to $5,614,171 used in operating activities for the same period in 2017. The decrease of cash used in operating activities is mainly due to the sale of project assets and increased deferred revenue offset by repayment of accounts payable in 2018.

 

Cash used investing activities was $3,112,383 compared to cash used in investing activities of $4,767,526 during the nine months ended September 30, 2018 and 2017, respectively.  The decrease in cash used investing activities was due to the purchase of energy storage assets and equipment in 2017.

 

Cash provided by financing activities was approximately $3,432,140 for the nine months ended September 30, 2018, compared to $12,553,463 provided by financing activities for the same period in 2017. The decrease of cash provided by financing activities is due to reduction of debt borrowings in 2018.

 

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.

 

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.

 

 22 
 

 

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 not 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

 

During the period covered by this Report, the Company did not issue any shares of Common Stock in the form of equity compensation.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

We did not repurchase any of our Common Stock or other securities during the three-month period ended September 30, 2018.

 

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.

 

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SIGNATURES

 

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


 

 

Dated: November 13, 2018
 
 
 

By:/s/ Joseph Lu

Chief Executive Officer

(Principal Executive Officer)

 

 

By:/s/ Geoffrey Brown
President

 

 

By:/s/ Joseph Lu
Chief Financial Officer
(Principal Financial Officer)

 

 

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