The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These
forward-looking statements include statements, which involve risks and
uncertainties, regarding, among other things, (a) our projected revenue,
profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs
for, and use of, working capital. They are generally identifiable by use of the
words "may," "will," "should," "anticipate," "estimate," "plan," "potential,"
"project," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," or the negative of these words or other variations on
these words or comparable terminology. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. You should not place undue reliance
on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the
occurrence of unanticipated events.
The "Company", "we," "us," and "our," refer to (i) NanoFlex Power Corporation
and (ii) Global Photonic Energy Corporation.
Overview
NanoFlex Power Corporation is engaged in the research, development, and
commercialization of advanced photovoltaic technologies that enable thin film
solar products with what the Company believes can be industry-leading
efficiencies, light weight, flexibility, and low total system cost. The
Company's sponsored research programs at the University of Southern California
("USC"), the University of Michigan ("Michigan"), and Princeton University
("Princeton") have resulted in an extensive portfolio of issued and pending
patents worldwide covering flexible, thin-film photovoltaic technologies.
Pursuant to the Company's license agreement with our university research
partners, they have obtained the exclusive worldwide license and right to
sublicense any and all intellectual property which resulted from sponsored
research programs with the universities. While each patent is issued in the name
of the respective university that developed the subject technology, the Company
has exclusive commercial license rights to all of the patents and their
attendant technologies, and the patents are referred to herein as being the
Company's patents.
These patented and patent-pending technologies fall into two general categories
- (1) cost reducing and performance-enhancing fabrication processes and device
architectures for ultra-high efficiency Gallium Arsenide ("GaAs")-based solar
thin films and (2) organic photovoltaic ("OPV") materials, architectures, and
fabrication processes for low cost, ultra-thin solar films offering high quality
aesthetics, such as semi-transparency and tinting, and highly flexible form
factors. The technologies are targeted at certain broad applications that
require high power conversion efficiency, flexibility, and light weight. These
applications include: (a) mobile and off-grid solar power generation, (b) BAPV,
(c) BIPV, (d) space vehicles and UAVs, (e) semi-transparent solar power
generating glazing or windows, (f) ultra-thin solar films for automobiles or
other consumer applications and sensors and other devices for the Internet of
Things ("IoT"). The Company believes these technologies have been demonstrated
in a laboratory environment with our research partners.
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The Company currently holds exclusive rights to an extensive portfolio of issued
and pending U.S. patents, plus their foreign counterparts, which cover
architecture, processes and materials for flexible, thin-film organic
photovoltaic ("OPV") and Gallium Arsenide ("GaAs")-based solar technologies. In
addition, we have an extensive collection of patents in process. Some of our
technology holdings include foundational concepts in the following areas.
? Tandem organic solar cell
? Fullerene acceptors
? Blocking layers
? New materials for visible and infrared sensitivity
? Scalable growth technologies
? Inverted solar cells
? Materials for enhanced light collection via multi-exciton generation
? Mixed layer and nanocrystalline cells
? Solar films, coatings, or paints
? Semi-transparent cells
? Ultra-low cost, ultra-high efficiency, flexible thin film GaAs cells
? Accelerated and recyclable liftoff process
? Cold-weld bonding of GaAs solar cells to plastic substrates and metal foils
? Micro-inverters monolithically integrated into GaAs solar cells
? Low cost, thermo-formed plastic mini-compound parabolic concentrator arrays
Plan of Operation and Liquidity and Capital Resources
Overall Operating Plan
Our business model is now shifting to focus on developing, manufacturing and
marketing complete NanoFlex products which have a competitive advantage due to
our intellectual property. NanoFlex has developed energy harvesting internet of
things (IoT) complete sensor systems that utilize both our Organic Photovoltaic
(OPV) and, in the future, our III-V semiconductor non-destructive lift off (ND
ELO) intellectual property. These sensor systems are totally wireless with
higher energy budgets for their size than any other cloud connecting wireless
sensors. This high energy harvesting capability (indoor and outdoor) will enable
completely wireless, "place and forget" sensor systems for many vertical IoT
sensor markets to include agriculture, ecology, building automation, medical,
energy infrastructure, military, wearables, and other applications. Nanoflex
will launch its first line of energy harvesting sensors in 2020. NanoFlex will
manufacture and market these IoT sensors direct to customers and with partners.
We expect to work with well-positioned commercial partners who can support
manufacturing and marketing capabilities to enable rapid commercial growth.
In addition to the wireless IoT sensors NanoFlex has received support from the
DOE to develop building integrated OPV. On May 20, 2019 the Company and its
development partner, True Metal Solutions (TMS) were awarded an SBIR (Small
Business Innovative Research) Phase 1 grant for $200,000. The overall scope of
the program is to design, develop, manufacture, and market the first U.S
building integrated organic solar modules for building facades. Our company
brings with it 20+ years of critical intellectual property development on thin
film organic solar cells and combined with TMS' leadership in designing and
manufacturing building facade technology, we together will drive towards the
first U.S. building integrated organic solar modules. With the anticipated award
of Phase II ~ ($1.0M) in 2020 our team will complete the overall system design
and scale this technology to assemble demonstration façade systems on buildings
in the Phoenix area where our subcontractor already has the architectural,
building owner, and general contractor relationships.
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To support this work, our OPV and III-V solar engineering team operates out of
our development and prototyping center in Ann Arbor, Michigan. We are enhancing
and expanding this development facility with the support of the recently won
phase I DOE funding. OPV modules to support both our sensor systems and building
integrated designs will be manufactured in NanoFlex manufacturing facility
planned for construction in the 2020- 2021 timeframe in Arizona. NanoFlex is
completing the IoT electronics hardware and software designs and expects to
outsource the system assembly and packaging to contract assemblers. NanoFlex
will sell and market its IoT sensors under a new brand name and through an
enhanced website.
We are also pursuing sponsored development funding to generate revenue in the
near-term as well as subsidize our product development with non-dilutive
financing. In connection with our focus on potential government-sponsored
research projects, on June 19, 2017, the Company announced that that it is part
of a consortium that was awarded a $6.3 million contract from the Army Research
Laboratory's Army Research Office to develop high power, flexible, and
lightweight solar panels for portable power applications. The consortium
consists of NanoFlex, SolAero, the University of Michigan, and the University of
Wisconsin. Pursuant to the foregoing and as part of the consortium, SolAero was
awarded a 4-year contract amounting to $6.3 million with the Army Research Lab
(ARL) to develop solar power mats. SolAero has engaged the Company as a
subcontractor for $3.3 million over 4 years of which $1.6 million will be
provided to the University of Michigan as a subcontractor to the Company. The
Company's contract with SolAero provides for direct reimbursement of the
Company's costs, including indirect overhead. On February 1, 2019 we were
informed by SolAero that the Army had suspended funding to support other
priorities but kept the contract in place with the intention of refunding and
proceeding ahead with the program. The Company was reimbursed for all costs
incurred through that date.
Having an established technical team enables us to more effectively pursue and
execute sponsored research projects from the Department of Defense ("DoD"), the
Department of Energy ("DOE"), and the National Aeronautics and Space
Administration ("NASA"), each of which has interests in businesses that can
deliver ultra-lightweight, high-efficiency solar technologies for demanding
applications. However, there can be no assurance that the Company can
effectively pursue such research projects, nor if it can, that such pursuit will
be successful.
As reported in the Company's Form 8-K filed with the SEC on February 7, 2017, on
February 2, 2017, the Company entered into a License Agreement with SolAero
Technologies Corp. ("SolAero"), pursuant to which the Company agreed to grant
SolAero a non-exclusive worldwide license to use, sell, offer for sale, import
or otherwise dispose of certain products (the "Licensed Products") using the
Company's patented proprietary manufacturing processes relating to Gallium
Arsenide-based photovoltaic cells (the "Licensed Patents") within the space and
near-space fields of use (the "License Field"). SolAero is to pay the Company a
royalty based on sales of the Licensed Products within the Licensed Field. The
agreement does not provide SolAero with the right to sublicense the Licensed
Patents. The term of the agreement runs from February 2, 2017 through the
expiration date of the last expiring patent included in the Licensed Technology.
However, each party may terminate the agreement upon a material breach by the
other party. On February 1, 2019 this agreement was terminated along with the
ARL contract suspension.
There can be no assurance that our overall term operating plan will be
successful or that the capital needed to fulfill it can be raised.
Results of Operations
For the years ended December 31, 2019 and 2018
Revenue
Revenue was $293,278 and $905,443 for the year ended December 31, 2019 and 2018,
respectively. Revenue through January 31, 2019 relates to engineering services
provided under the ARL contract. On February 1, 2019 we were informed by SolAero
that Mantech had terminated the contract as provided for in the agreement.
Revenue for the third and fourth quarter of 2019 relates to the engineering
services provided under the SBIR contract.
We do not believe that inflation or changing prices have had a material effect
on our business, financial condition, or results of operations.
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Cost of Services
Cost of services was $259,203 and $905,443 for the year ended December 31, 2019
and 2018, respectively. The decrease was due to less spending on the ARL
contract during the 2019 period due to the termination of the contract.
Research and Development Expenses
Research and development expenses were $1,537,576 for the year ended December
31, 2019, a 64% increase from $936,789 for the year ended December 31, 2018. The
increase is attributable to increased costs in building prototypes and
developing applications for our commercialization efforts.
Patent Application and Prosecution Fees
Patent application and prosecution fees consist of the fees due for prosecuting
and maintaining the patents resulting from the research program sponsored by the
Company and were $1,037,459 for the year ended December 31, 2019, a 15% decrease
from $1,225,912 for the year ended December 31, 2018. The year-over-year
decrease is attributable to the timing of application and prosecution of patents
and the result of decreased patent activity by our engineering team in
commercializing and developing our technologies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,027,740 for the year ended
December 31, 2019, a 48% decrease from $1,985,388 for the year ended December
31, 2018. The decrease is primarily attributable to a reduction in non-cash
expenses associated with warrants issued to employees during the year of
$790,667.
Other Expense
Other expense for the year ended December 31, 2019 was $9,953,496 as compared to
$13,428,682 for the year ended December 31, 2018. These changes are primarily
due to a decrease of loss on extinguishment of debt, offset by an increase in
interest expense.
Net Loss
The net loss for the year ended December 31, 2019 was $13,522,196, a 23%
increase from $17,576,771 for the year ended December 31, 2018. The decrease in
net loss is primarily related to non-cash expenses, including interest expense
and loss on extinguishment of debt, and changes in research and development,
each of which is described above.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2019, we had cash and cash equivalents of $229,554 and a
working capital deficit of $13,819,381, as compared to cash and cash equivalents
of $27,213 and a working capital deficit of $11,991,857 as of December 31, 2018.
The increase in working capital is attributable to an increase in accounts
payable and a share issuance obligation in 2018.
The Company needs to raise additional capital and is in the process of raising
additional funds in order to continue to finance our research and development,
service existing liabilities and commercialize photonic energy conversion
technologies utilizing organic and GaAs semiconductor-based solar cells. In the
next 12 months, the Company needs to raise approximately $13 million in
additional capital in order to continue our operations as described above and
support our corporate functions. We anticipate that the additional funding can
result from private sales of our equity securities. However, there can be no
assurance that the additional funds will be available to us when needed, or if
available, on terms that will be acceptable to us or our shareholders. If we are
unable to raise sufficient funds, the Company may have to cease its operations.
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Analysis of Cash Flows
Net cash used in operating activities increased by $613,407 to $4,229,169 for
the year ended December 31, 2019, compared to $3,615,762 for the year ended
December 31, 2018. The increase in cash used in operating activities was
primarily attributable to the increased net loss, an increase in amortization of
debt discounts offset by non-cash charges for decreases in the loss on
extinguishment of debt and the loss on induced conversion of debt.
Net cash used in investing activities was $116,010 and $248,956 during the years
ended December 31, 2019, and 2018, respectively. This amount represents
purchases of property and equipment.
Net cash provided by financing activities was $4,547,520 and $3,830,472 during
the years ended December 31, 2019 and 2018, respectively. For the year ended
December 31, 2019, this includes borrowings on convertible and non-convertible
debt of $7,099,521, offset by repayments on convertible and non-convertible debt
of $2,552,001. For the year ended December 31, 2018, this includes proceeds from
sale of common shares and warrants of $723,780, proceeds from exercise of
warrants of $1,084,536, borrowings on convertible and non-convertible debt of
$4,075,960, offset by repayments on convertible and non-convertible debt of
$2,053,804.
Going Concern
The Company has only generated limited revenues to date. The Company has a
working capital deficit of $13,819,381 and an accumulated deficit of
$247,644,087 as of December 31, 2019. The ability of the Company to continue as
a going concern is dependent on raising capital to fund ongoing operations and
carry out its business plan and ultimately to attain profitable operations.
Accordingly, these factors raise substantial doubt as to the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect our reported assets and liabilities, expenses, and other financial
information. Actual results may differ significantly from our estimates under
other assumptions and conditions. We believe that our accounting policies
related to revenue recognition, stock-based compensation, research and
development, impairment of long-lived assets, research and development and
property plant and equipment as described below, are our "critical accounting
policies" as contemplated by the SEC.
Basis of Accounting
The Company' policy is to maintain its books and prepare its consolidated
financial statements on the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of combined financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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Revenue Recognition
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, we adopted Topic 606 using the modified retrospective method
applied to those contracts which were not completed as of January 1, 2018.
Results for reporting periods beginning after January 1, 2018 are presented
under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under Topic 605.
There was no impact to the opening balance of accumulated deficit or revenues
for the year ended December 31, 2018 as a result of applying Topic 606.
The Company applies a five-step approach in determining the amount and timing of
revenue to be recognized: (1) identifying the contract with a customer, (2)
identifying the performance obligations in the contract, (3) determining the
transaction price, (4) allocating the transaction price to the performance
obligations in the contract and (5) recognizing revenue when the performance
obligation is satisfied. Substantially all of the Company's revenue is
recognized at the time control of the products transfers to the customer.
The Company primarily generates revenue by providing R&D engineering services,
primarily through its ARL contract and SBIR government grant. R&D engineering
services is a core component of the Company's operations and business model,
since they are a necessary prerequisite to obtaining intellectual property
licensing agreements with customers. As such, R&D engineering services are
expected to be a sustained revenue stream for the Company as it works with
additional customers and the services constitute a portion of the Company's
ongoing central operations. The Company has identified the promise to provide
engineering services as its performance obligation, which is satisfied over
time. The Company has a right to consideration from its customer an amount that
corresponds directly with the value to the customer of the Company's performance
completed to date. As allowed by a practical expedient in Topic 606, the entity
recognizes revenue in the amount to which the entity has a right to invoice. The
term between invoicing and when payment is due is not significant.
Due to the fact that the client only has one type of service and only a few
customers, disaggregation is deemed unnecessary.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB ASC 718 which
requires companies to measure the cost of employee services received in exchange
for an award of an equity instrument based on the grant-date fair value of the
award. For stock-based awards granted on or after January 1, 2006, stock-based
compensation expense is recognized on a straight-line basis over the requisite
service period. In prior years, we accounted for stock-based awards under APB
No. 25, "Accounting for Stock Issued to Employees."
Research and Development
Research and development costs are expensed in the period they are incurred in
accordance with ASC 730, Research and Development unless they meet specific
criteria related to technical, market and financial feasibility, as determined
by management, including but not limited to the establishment of a clearly
defined future market for the product, and the availability of adequate
resources to complete the project. If all criteria are met, the costs are
deferred and amortized over the expected useful life or written off if a product
is abandoned. At December 31, 2019 and 2018, the Company had no deferred
development costs.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets annually or
whenever events or changes in circumstances indicate that the historical-cost
carrying value of an asset may no longer be appropriate. The Company assesses
recoverability of the asset by comparing the undiscounted future net cash flows
expected to result from the asset to its' carrying value. If the carrying value
exceeds the undiscounted future net cash flows of the asset, an impairment loss
is measured and recognized. An impairment loss is measured as the difference
between the net book value and the fair value of the long-lived asset. Fair
value is estimated based upon either discounted cash flow analysis or estimated
salvage value.
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Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes at rates based on the estimated useful lives of the assets. Estimated
useful lives range from three to eight years.
Off Balance Sheet Arrangements:
We do not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
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NANOFLEX POWER CORPORATION 
