Attached files
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EXCEL - IDEA: XBRL DOCUMENT - POWIN ENERGY CORP | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - POWIN ENERGY CORP | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - POWIN ENERGY CORP | ex31_1.htm |
EX-32.1 - EXHIBIT 32.1 - POWIN ENERGY CORP | ex32.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-54015
POWIN CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA
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87-0455378
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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20550 SW 115th Ave
Tualatin, OR 97062
(Address of principal executive offices)
T: (503) 598-6659
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report) N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one) Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 20, 2014, there were 16,235,339 shares of Common Stock, $0.001 par value, outstanding and 8,084 shares of Preferred Stock, $100 face value, outstanding.
POWIN CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1.
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Financial Statements.
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3
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Condensed Consolidated Balance Sheets
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3
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Condensed Consolidated Statements of Operations (unaudited)
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4
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Condensed Consolidated Statements of Comprehensive Loss (unaudited)
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5
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Condensed Consolidated Statements of Cash Flows (unaudited)
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6
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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12
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Note Regarding Forward Looking Statements
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12
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Overview
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|
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Critical Accounting Policies
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|
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Results of Operations
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13
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Liquidity and Capital Resources
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14
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Off-Balance Sheet Arrangements
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15
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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15
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Item 4.
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Controls and Procedures.
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15
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PART II. OTHER INFORMATION
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||
Item 1.
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Legal Proceedings.
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15
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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15
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Item 3.
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Defaults Upon Senior Securities.
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16
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Item 4.
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[REMOVED AND RESERVED]
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16
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Item 5.
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Other Information.
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16
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Item 6.
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Exhibits.
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16
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
POWIN CORPORATION
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CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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|||||||
2014
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2013
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|||||||
Assets
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(unaudited)
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(audited)
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||||||
Current Assets
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||||||||
Cash
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$ | 668,438 | $ | 964,039 | ||||
Accounts receivable, net of allowance for doubtful accounts of $442,672 and $435,492
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1,625,089 | 1,784,358 | ||||||
Notes and other receivables, net
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132,491 | 151,580 | ||||||
Inventories, net
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1,708,807 | 1,831,453 | ||||||
Prepaid expenses
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283,340 | 316,268 | ||||||
Total current assets
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4,418,165 | 5,047,698 | ||||||
Property and equipment, net
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1,871,097 | 1,991,688 | ||||||
Intangible assets, net
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78,372 | 87,793 | ||||||
Total assets
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$ | 6,367,634 | $ | 7,127,179 | ||||
Liabilities and shareholders' deficit
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||||||||
Current Liabilities
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||||||||
Accounts payable
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$ | 1,267,946 | $ | 1,652,238 | ||||
Accrued payroll and other accrued liabilities
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1,121,390 | 1,016,277 | ||||||
Notes payables and current portion of long-term debt
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1,730,938 | 917,789 | ||||||
Total current liabilities
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4,120,274 | 3,586,304 | ||||||
Long-term debt
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4,550,522 | 4,426,181 | ||||||
Total liabilities
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8,670,796 | 8,012,485 | ||||||
Stockholders' deficit
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||||||||
Preferred stock, $100 face value, 25,000,000 shares
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||||||||
Authorized; 8,084 and 8,084 shares issued and outstanding, respectively
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808,400 | 808,400 | ||||||
Common stock, $0.001 par value, 575,000,000 shares
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||||||||
Authorized; 16,235,255 and 16,232,755 shares issued and outstanding, respectively
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16,235 | 16,233 | ||||||
Additional paid-in capital
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10,513,748 | 10,460,896 | ||||||
Accumulated other comprehensive loss
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(21,705 | ) | (22,109 | ) | ||||
Accumulated deficit
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(13,149,704 | ) | (11,725,904 | ) | ||||
Minority interest in subsidiary
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(470,136 | ) | (422,822 | ) | ||||
Total stockholders' deficit
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(2,303,162 | ) | (885,306 | ) | ||||
Total liabilities and shareholders' deficit
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$ | 6,367,634 | $ | 7,127,179 |
See Accompanying Notes to Condensed Consolidated Financial Statements
3
POWIN CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three months ended March 31,
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||||||||
2014
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2013
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|||||||
Net sales
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$ | 2,534,759 | $ | 6,842,231 | ||||
Cost of sales
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2,019,404 | 5,922,170 | ||||||
Gross profit
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515,355 | 920,061 | ||||||
Operating expenses
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1,914,724 | 1,585,802 | ||||||
Loss from operations
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(1,399,369 | ) | (665,741 | ) | ||||
Other expenses
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(71,816 | ) | (12,972 | ) | ||||
Loss before income taxes
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(1,471,185 | ) | (678,713 | ) | ||||
Provision for income taxes
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0 | 8,000 | ||||||
Net loss
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(1,471,185 | ) | (686,713 | ) | ||||
Net loss attributable to non-controlling interest in subsidiaries
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(47,385 | ) | (17,762 | ) | ||||
Net loss attributable to Powin Corporation
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(1,423,800 | ) | (668,951 | ) | ||||
Loss per share:
|
||||||||
Basic and diluted
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$ | (0.09 | ) | $ | (0.04 | ) | ||
Weighted average shares outstanding:
|
||||||||
Basic and diluted
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16,232,755 | 16,217,255 |
See Accompanying Notes to Condensed Consolidated Financial Statements
4
POWIN CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
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Three months ended March 31,
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||||||||
2014
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2013
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|||||||
Net loss
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$ | (1,471,185 | ) | $ | (686,713 | ) | ||
Other comprehensive loss
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||||||||
Foreign currency translation adjustment
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475 | (330 | ) | |||||
Comprehensive loss
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(1,470,710 | ) | (687,043 | ) | ||||
Comprehensive loss attributable to non-controlling interest in subsidiaries
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(466,306 | ) | (17,810 | ) | ||||
Comprehensive loss attributable to Powin Corporation
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$ | (1,004,404 | ) | $ | (669,233 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
5
POWIN CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Three months ended March 31,
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||||||||
2014
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2013
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|||||||
OPERATING ACTIVITIES
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||||||||
Net loss attributable to Powin Corporation
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$ | (1,423,800 | ) | $ | (668,951 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities
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||||||||
Net loss attributable to non-controlling interest in subsidiary
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(47,385 | ) | (17,762 | ) | ||||
Depreciation and amortization
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130,012 | 75,008 | ||||||
Reserve for slow moving and obsolete inventory
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31,481 | 153,235 | ||||||
Share based compensation
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52,854 | 28,600 | ||||||
Provision for (recovery of) doubtful accounts receivable
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7,180 | 93,419 | ||||||
Provision for doubtful other receivable
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13,663 | - | ||||||
Changes in operating assets and liabilities
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||||||||
Accounts receivable
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152,089 | (1,428,701 | ) | |||||
Notes and other receivables
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5,426 | 2,288 | ||||||
Inventories
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91,165 | (65,811 | ) | |||||
Prepaid expenses
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32,928 | 57,192 | ||||||
Accounts payable
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(384,293 | ) | 604,248 | |||||
Accrued payroll and other liabilities
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184,173 | (229,879 | ) | |||||
Net cash used in operating activities
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(1,154,507 | ) | (1,397,114 | ) | ||||
INVESTING ACTIVITIES
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||||||||
Acquisition of intangible assets
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- | (9,609 | ) | |||||
Total cash used in investing activities
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- | (9,609 | ) | |||||
FINANCING ACTIVITIES
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||||||||
Net repayments under line-of-credit
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- | (1,600,000 | ) | |||||
Repayments on equipment leases
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(41,569 | ) | (34,394 | ) | ||||
Net proceeds from note holders
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900,000 | 4,008,877 | ||||||
Net cash provided by financing activities
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858,431 | 2,374,483 | ||||||
Impact of foreign exchange on cash
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475 | (330 | ) | |||||
Net increase (decrease) in cash
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(295,601 | ) | 967,430 | |||||
Cash at beginning of period
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964,039 | 1,220,014 | ||||||
Cash at end of period
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$ | 668,438 | $ | 2,187,444 | ||||
SUPPLEMENTAL DISCLOURSE OF CASH FLOW INFORMATION
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||||||||
Interest paid
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$ | 3,098 | $ | 21,352 | ||||
Income taxes paid
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$ | - | $ | 8,000 |
See Accompanying Notes to Condensed Consolidated Financial Statements
6
POWIN CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.
In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the three-month period ended March 31, 2014, are not necessarily indicative of the results to be expected for other interim periods or for the full year ended December 31, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities Exchange Commission.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Powin Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
Foreign currencies
Assets and liabilities recorded in foreign currencies are translated to U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated to U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).
Use of estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires the use of management’s estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.
7
Note 2: Going concern
The Company sustained operating losses during the three months ended March 31, 2014 and 2013 and for the years ended December 31, 2013 and 2012 and incurred negative cash flows from operations in those same periods. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Note 3: 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:
Three months ended March 31,
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||||||||
2014
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2013
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|||||||
Net loss attributable to common shareholders
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(1,423,800 | ) | (668,951 | ) | ||||
Less preferred share dividends
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- | - | ||||||
Net loss available to common shareholders (A)
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(1,423,800 | ) | (668,951 | ) | ||||
Weighted average outstanding shares of common stock (B)
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16,232,755 | 16,217,255 | ||||||
Dilutive effect of securities
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- | - | ||||||
Common stock and common stock equivalents (C)
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16,232,755 | 16,217,255 | ||||||
Loss per share
|
||||||||
Basic (A/B)
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$ | (0.09 | ) | $ | (0.04 | ) | ||
Diluted (A/C)
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$ | (0.09 | ) | $ | (0.04 | ) |
8
For the three months ended March 31, 2014 and 2013, the effect of warrants, stock options and convertible preferred stock are excluded from loss per share because their impact is considered to be anti-dilutive.
Note 4: Debt
The total carrying value of debt, including current and long-term portions, was as follows:
March 31, 2014
|
December 31, 2013
|
|||||||
Equipment loan due September 21, 2016
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$ | 250,000 | $ | 275,000 | ||||
Equipment loan due June 1, 2016
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88,856 | 102,327 | ||||||
Loan from Shareholder due July 31, 2014
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500,000 | 500,000 | ||||||
Loan from Shareholder due June 30, 2015
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2,000,000 | 2,000,000 | ||||||
Loan from third party due July 31, 2014
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270,000 | 270,000 | ||||||
Loan from third party due June 30, 2015
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2,000,000 | 2,000,000 | ||||||
Loans from shareholders due June 30, 2014
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800,000 | - | ||||||
Loan from shareholder due July 31, 2015
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100,000 | - | ||||||
Accrued interest
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272,604 | 196,643 | ||||||
Total long-term debt, including current portion and accrued interest
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$ | 6,281,460 | $ | 5,343,970 |
During the three months ended March 31, 2014, the Company borrowed an additional $900,000 from two related parties at 6% interest, with various maturity dates ranging from June 30, 2014 through July 31, 2015.
Note 5: Capital stock
For the three months ended March 31, 2014 the Company issued 2,500 shares of common stock to each of the 5 board members as compensation for their services.
Note 6: Related party transactions
All of the Company’s facilities are owned by Lu Pacific Properties LLC, formerly named Powin Pacific Properties LLC, a company owned by Joseph Lu, CEO and Chairman of the Board. Rent expenses were $188,721 for the three months ended March 31, 2014 and 2013. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.
Mr. Lu previously owned 45% of Logan Outdoor Products, LLC, though he sold his ownership in 2013. The Company made sales to Logan Outdoor Products in the amount of $0 and $3,221,923 for the three months ended March 31, 2014 and 2013, respectively. There were not amounts due from or payable to Logan Outdoor Products at March 31, 2014 and December 31, 2013.
9
Mr. Lu, previously owned a 50% ownership interest in CoSource USA, LLC (“CoSource”) and was its managing member. Effective April 26, 2013, the Company’s wholly-owned subsidiary, Powin Manufacturing Corporation (“Powin Manufacturing”) dba Quality Bending & Fabrication, Inc., (“QBF”) entered into an Asset Acquisition Agreement with CoSource to acquire all of the latter’s assets. The purchase price was $493,095.27.
Note 7: Business segment reporting
Basis for Presentation
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1.
Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment’s payroll, inventory sourcing and overall operations when each segment has working capital requirements. Corporate overhead costs are allocated to segments based on management’s estimates of the consumption of such services by each segment.
A description of our operating segments as of March 31, 2014 and March 31, 2013, follows.
Contract manufacturing (formerly OEM):
Outsourced manufacturing for North American companies, including senior citizen safety products; steel gun safes; outdoor cooking equipment; trampolines; plastic products and small electronic appliances. Contract manufacturing also offers logistic services and a qualified engineer team to support and provide in-house design.
Manufacturing (formerly QBF):
Our manufacturing segment, Powin Manufacturing formerly named Quality Bending and Fabrication (“QBF”), manufactures various truck parts and components primarily for Freightliner Trucks, a division of Daimler Trucks North America, the largest manufacturer of heavy-duty vehicles in North America. Daimler Trucks North America designs, builds and markets a wide range of Class 3-8 vehicles including long-haul highway tractors, heavy-duty construction and vocational trucks, mid-range trucks for distribution and service, school and transit buses, fire and emergency service apparatus, and chassis for step vans, school and shuttle buses, and motor homes. Freightliner Trucks is headquartered in Portland, Oregon, with truck manufacturing facilities located in Portland and throughout the United States and Mexico.
Manufacturing is completed at the Company’s leased facility in Tualatin, Oregon as well as arranging the outsourced manufacturing at a third-party factory in Qingdao, China.
Energy:
Powin Energy has developed market leading architecture that utilizes proprietary patent-pending energy storage technology for scalable grid energy storage systems, power supply units for electric vehicles, and transportation applications. Through December 31, 2013, the Energy segment has focused on identifying target markets and applications and finalizing the development of products to serve those markets and applications. The Company expects increase operations from this segment in 2014.
10
Product & Service (formerly Channel Partner Program, Warehousing and Wooden)
The Product & Service segment contains the legacy operations of Channel Partner Program, a distribution channel for North American companies to sell their products in China as well selling certain consumer products through U.S.-based retailers and marketplaces, including online; and Warehousing, which provides warehousing services in support of the Company’s customers across all segments. The segment will be used for future products and services that are not related to an existing segment and haven’t reach a level to require separate management and segmentation.
Powin Mexico:
Powin Mexico is a manufacturing segment, currently manufacturing gun safes, but also capable of manufacturing heavy truck parts. Operations began in 2013, but are expected to increase in 2014.
Revenues and net loss before income taxes of each of the Company’s segments are as follows:
Month ended March, 31
|
||||||||
2014
|
2013
|
|||||||
Revenue
|
||||||||
Contract manufacturing
|
$ | 1,296,158 | $ | 5,678,797 | ||||
Manufacturing
|
1,129,688 | 990,600 | ||||||
Energy
|
72,360 | 68,352 | ||||||
Mexico
|
33,588 | 30,802 | ||||||
Product & Service
|
2,965 | 73,680 | ||||||
Consolidated
|
$ | 2,534,759 | $ | 6,842,231 |
Month ended March, 31
|
||||||||
2014
|
2013
|
|||||||
Net loss before income taxes
|
||||||||
Contract manufacturing
|
$ | (147,670 | ) | $ | (76,691 | ) | ||
Manufacturing
|
(179,505 | ) | 62,001 | |||||
Energy
|
(746,330 | ) | (537,605 | ) | ||||
Mexico
|
(315,903 | ) | (118,410 | ) | ||||
Product & Service
|
(2,717 | ) | (8,008 | ) | ||||
Corporate
|
(79,060 | ) | ||||||
Consolidated
|
$ | (1,471,185 | ) | $ | (678,713 | ) |
11
Note 8: Subsequent events
On April 29, 2014, the Company issued a promissory note in the amount of $300,000 to Lu Pacific LLC, Formerly Powin Pacific LLC, a Company owned by Joseph Lu, CEO and Chairman of Powin Corporation. The note is due July 31, 2015 and accrues interest at 6%.
On May 15, 2014, the Company borrowed an additional $200,000 from Joseph Lu. The note is due June 30, 2014 and accrues interest at 6%.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Note Regarding Forward Looking Statements
This information should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on April 15, 2014, and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.
References to “Powin,” the “Company,” “we,” “our” and “us” refer to Powin Corporation and its wholly owned and majority-owned subsidiaries, unless the context otherwise specifically defines.
Basis of presentation
Effective January 1, 2014, the Company reorganized and renamed certain segments and changed the methodology for allocating corporate overhead costs. The below table lists legal entities and corresponding business segments as defined in the 10-Q compared to those described in previous filings.
As described in this Form 10-Q
|
As described in previous filings
|
||||
Legal entity name
|
Business segment name
|
Legal entity name
|
Business segment name
|
||
Powin Corporation
|
Holding company and Corporate
|
Powin Corporation
|
Holding company
|
||
Powin Contract Manufacturing Corporation
|
Contract manufacturing
|
Powin Contract Manufacturing Corporation
|
Contract manufacturing
|
||
Powin Manufacturing Corporation
|
Manufacturing
|
Powin Manufacturing Corporation
|
Manufacturing
|
||
Powin Energy Corporation
|
Energy
|
Powin Energy Corporation
|
Energy
|
||
Powin Product and Service Corporation
|
Product and service
|
Powin Wooden Product Service, Inc.
|
Warehousing
|
(a)
|
|
Channel Partner Program
|
CPP
|
(a)
|
|||
Powin Industries S.A. de C.V.
|
Mexico
|
Powin Industries S.A. de C.V.
|
Mexico
|
|
(a)
|
Effective January 1, 2014, the business segments formerly known as Warehousing and CPP were combined into a legal entity that was renamed Powin Product and Service Corporation. The corresponding business segment is named Product and Service and currently has limited operations and no employees.
|
12
Results of Operations
The following table presents the Company’s revenues by business segment, for the three months ended March 31, 2014 and 2013:
Month ended March, 31
|
||||||||||||||||
2014
|
2013
|
$ Change
|
% Change
|
|||||||||||||
Revenue
|
||||||||||||||||
Contract manufacturing
|
$ | 1,296,158 | $ | 5,678,797 | (4,382,639 | ) | -77.2 | % | ||||||||
Manufacturing
|
1,129,688 | 990,600 | 139,088 | 14.0 | % | |||||||||||
Energy
|
72,360 | 68,352 | 4,008 | 5.9 | % | |||||||||||
Mexico
|
33,588 | 30,802 | 2,786 | 9.0 | % | |||||||||||
Product & Service
|
2,965 | 73,680 | (70,715 | ) | -96.0 | % | ||||||||||
Consolidated
|
$ | 2,534,759 | $ | 6,842,231 | (4,307,472 | ) | -63.0 | % |
Consolidated net sales for the three months ended March 31, 2014, decreased approximately $4.3 million or 63% from the same period of 2013. The decrease was substantially all in the contract manufacturing segment, which experienced a revenue decline of $4.4 million or 77.2% compared to the first quarter of 2013. The primary reason for the decrease was the loss of two customers that began purchasing directly from the manufacturers. On a sequential basis, Contract manufacturing revenues were down $258 thousand or 16.6% from the fourth quarter of 2013. The Company expects modest increases in Contract manufacturing revenues for the full year 2014.
All other segments performed as expected with Manufacturing sales increasing $139 thousand or 14%; Energy and Mexico remaining flat; and Product and Service revenue decreasing $70 thousand or 96% as the Company phased out the legacy businesses within this segment.
Manufacturing realized an increase in revenues as the relationship with the segment’s primary customer, Daimler Trucks North America, continues to improve.
The Energy segment is finalizing its product offerings and expects to book orders in the second half of 2014. Likewise, the Mexico segment is ramping production and expects see revenues increase in the second half of the year.
Consolidated operating expenses for the three months ended March 31, 2014, increased approximately $331 thousand dollars or 20.9%, from $1.6 million in the same period of 2013 to $1.9 million. The increase is primarily in salaries and professional fees in Energy to prepare the segment for the launch of new products in the second half of 2014.
For the three months ended March 31, 2014, the Company had net loss of approximately $1.4 million or $0.09 per share, compared to net loss of approximately $669 thousand or $0.04 per share for the same period of 2013.
13
Liquidity and Capital Resources
Cash used in operating activities were approximately $1.2 million for the three months ended March 31, 2014, compared to $1.4 million for the same period in 2013.
Cash used in investing activities was $0 and $9.6 thousand during the three months ended March 31, 2014 and 2013, respectively, as the Company has eliminated all non-critical capital expenditures.
Net cash provided from financing activities was $858 thousand and $2.4 million during the three months ended March 31, 2014 and 2013, respectively.
During the three months ended March 31, 2014, the Company borrowed $900,000 from shareholders for operating cash flows as follows:
Date of borrowing
|
Lender
|
Due Date
|
Interest rate
|
Amount
|
January 27, 2014
|
Danny Lu
|
June 30, 2014
|
6%
|
250,000
|
February 11, 2014
|
Peter Lu
|
June 30, 2014
|
6%
|
250,000
|
February 24, 2014
|
Danny Lu
|
July 31, 2015
|
6%
|
100,000
|
March 28, 2014
|
Peter Lu
|
June 30, 2014
|
6%
|
200,000
|
March 28, 2014
|
Danny Lu
|
June 30, 2014
|
6%
|
100,000
|
Subsequent to March 31, 2014, the Company has borrowed an additional $500,000 from related parties as follows:
Borrowings subsequent to March 31, 2014:
|
||||
Date of borrowing
|
Lender
|
Due Date
|
Interest rate
|
Amount
|
April 29, 2014
|
Lu Pacific Properties, LLC
|
July 31, 2014
|
6%
|
300,000
|
May 15, 2014
|
Joseph Lu
|
June 30, 2014
|
6%
|
200,000
|
The Company’s management does not believe the current cash and cash flow from operations will be sufficient to meet anticipated cash needs, including cash for working capital and capital expenditures in the foreseeable future. The Company will likely require additional cash resources which 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.
14
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our principal executive and financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Equity Compensation Plan Information
In March 2014, we issued a total of 2,500 shares of Common Stock to our five directors for their services on the Board of Director. Each director received 500 shares of Common Stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of Common Stock or other securities during the three-month period ended March 31, 2014.
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Item 3. Defaults Upon Senior Securities.
None
Item 4. [REMOVED AND RESERVED]
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.
By /s/ Joseph Lu
|
||
Joseph Lu
|
||
Chief Executive Officer
|
||
and Interim Chief Financial Officer
|
||
(Principal Executive Officer and Principal Financial Officer)
|
||
By /s/ Jeffrey Grumbling
|
||
Jeffrey Grumbling
|
||
President
|
||
Date: May 20, 2014
|
17