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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2015

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 000-49655

NAC GLOBAL TECHNOLOGIES, INC.

(Exact Name of registrant as specified in its charter)

 

Nevada   87-0678927
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

  

4720 Salisbury Road

Jacksonville, FL 32256

(Address of principal executive offices)

 

(904) 493-6496

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, par value $0.001

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐  No ☒ 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☒  No ☐ 

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company: 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if smaller reporting company)    

 

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

As of May 13, 2016, the registrant had 35,662,014 shares of common stock issued and outstanding. 

DOCUMENTS INCORPORATED BY REFERENCE 

None. 

 

 

 

 

 

NAC GLOBAL TECHNOLOGIES, INC.

ANNUAL REPORT

For the Fiscal Year Ended December 31, 2015

 

TABLE OF CONTENTS

 

    Page
PART I    
Item 1. Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 5
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Mine Safety Disclosures 6
PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 6
Item 6. Selected Financial Data 7
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12
Item 9A. Controls and Procedures 12
Item 9B. Other Information 12
PART III  
Item 10. Directors, Executive Officers and Corporate Governance 13
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 19
Item 13. Certain Relationships and Related Transactions, and Director Independence 20
Item 14. Principal Accounting Fees and Services 21
PART IV  
Item 15. Exhibits, Financial Statement Schedules 21
SIGNATURES 24
FINANCIAL STATEMENTS F-1

  

 

 

 

FORWARD-LOOKING INFORMATION

 

This Annual Report on Form 10-K (the “Report”) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar words and phrases are intended to identify forward-looking statements. However, this is not an all-inclusive list of words or phrases that identify forward-looking statements in this Report. Also, all statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and circumstances currently known by us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed elsewhere in this Report.

 

We file reports with the Securities and Exchange Commission (“SEC”), and those reports are available free of charge on our Web site www.nacglobaltechnologies.com under “Investor Relations/SEC Filings.” The reports available include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, which are available as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800- SEC-0330. The SEC also maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Report. We urge you to carefully review and consider all of the disclosures made in this Report.

 

 

 

 

PART I

 

Item 1. Business

 

Overview

 

NAC Global Technologies, Inc. (referred to herein as the “Company,” “we”, “our”, and “NAC Global”) is an engineering services, R&D, and manufacturing company. We have one wholly owned subsidiary, NAC Drive Systems, Inc. (“NAC”), a manufacturer and supplier of harmonic gearing technology (“HGT”) that operates in the robotics, automation, and medical industries amongst others. HGT is a premier technology in industries where very high precision, long-life, compactness, light weight, and reliability are important factors. In additional to robotics applications, we see HGT use expanding across multiple industries and geographies including aerospace, energy, and defense. Pursuant to a long-term agreement (described below), we have partnered with CTKM Beijing Harmonic Drive, LTD. (“CTKM”), who supplies HGT to the China Space Agency. We manufacture our HGT components in Beijing, China, and perform final assembly and quality control in Port Jervis, New York. Beyond our HGT platform, we are executing a plan to bring additional, synergistic subsidiary business into NAC via strategic acquisition with a focus on the energy markets. Our corporate headquarters is located in Jacksonville, Florida.

 

Business Opportunity

 

Harmonic gearing, is a space age gearing technology that is fulfilling aerospace and industrial requirements for minimal mass and highest precision in robotic and automation applications. The design offers several advantageous properties that have made HGT advantageous in many applications.

 

Industrial gearing & servo actuation are core elements of nearly all industrial automation. Factory automation and process automation are both large and closely related markets, and we estimate they exceed $250 billion for component and equipment purchases annually. We believe the world-wide industrial gear market is a $165 billion market, and that demand for gears will grow an estimated 6.0 percent per annum through 2019 to $221 billion.

 

We believe that the global industrial robotics market is expected to grow at a Compounded Annual Growth Rate, (CAGR) of 5.4% during the forecast period, reaching a market size of $41.17 billion in 2020. We believe that world demand for machine tools will rise 5.5 percent yearly to $181 billion in 2019, and in Computer Numerically Control (CNC) and robotics, 60% of the machine cost is the gearing & actuation.

 

We believe that there are very high barriers to entry in the market, including proprietary designs and engineering, company history, product validation, customer access, metallurgical processing, work holding and tooling, vendor access, manufacturing know how and quality and testing know how. Our prime competitor in this market is Harmonic Drive Systems, Inc. (“HDS”), a Japanese corporation, which commands a substantial market share on HGT and reports in excess of $200 million revenues now but addresses less than 1.5% of the industrial gearing market. While we believe that our growth opportunity comes less from attacking HDS’ market share, but rather from building our own market share, achieving a 10% penetration into the competitor’s market and less than 1% penetration in the industrial gear market results in $20 million in revenues. We are now engaged with companies requiring high volumes of our HGT drives that exceed our initial revenue targets in applications ranging from aerospace, to robotics, to automotive.

 

The customer base for HGT is quite broad and includes companies producing robots, communication systems, security systems, printing machinery, industrial machinery, defense systems, oil & gas exploration systems, semi-conductor manufacturing, flat panel display manufacturing equipment, medical machinery, automation systems, and electronics manufacturing. The aerospace and defense market is another key market. Most, if not all, spacecraft use harmonics. Any machine requiring precision motion is a candidate for HGT.

 

 1 
 

 

Industry Overview

 

Historically, the HGT industry has been associated with precision motion control. Leading industry segments for HGT include: robotics; machine tools; defense; semi-conductor; aerospace; printing; corrugated products; and communications. Harmonic gearing, also known as strain wave gearing, was first invented in the late 1950’s. Since its inception, HGT has been considered at the leading edge of motion control technology for its precision, light weight, compact size and reliability. The market for HGT is expanding both in size and scope, as the drives are being utilized more in existing markets and are making entry into new industries.

 

Military applications are increasing as the government and its contractors continue to develop more remote weapons systems, unmanned vehicles, probes, humanoid robotics, and exoskeleton systems.

 

We expect continual strong growth in the demand for our technology, particularly in robotics and remote systems applications. Recent industrial reports include in part:

 

  Industrial Robots (factory automation) — 139,300 units (2011) to 166,700 units (2014) per The World Robotics Report.
     
  Personal Robots (cleaning, lawn mowing, entertainment, education and research robots) — 1,000,000 units in (2009) to 9,800,000 units (2014) per The World Robotics Report.
     
  Medical Robots (MRI, CAT, Surgical, Assistive and Telemedicine) — $790 million (2011) to nearly $1.3 billion (2016) per ABI Research.
     
  Unmanned Aerial Vehicles (UAVs) — $8 billion (2010) to $15 billion (2015) per Market Info Group.
     
  Unmanned Ground Vehicles (UGVs) — $354.4 million (2011) to $497.5 million (2017) per Market Info Group.
     
  Unmanned Underwater Vehicles (UUV’s) — Expected to more than double between 2010 and 2020 per Market Info Group.
     
  Imaging Sensors — $275 million (2011) to $400 million (2017) Markets Info Group.

 

We expect increased market demand from surveillance and security cameras and remote weapons systems.

 

The automotive industry represents a new market for our drives, and it is expanding. Lexus and Audi have integrated harmonic gears into variable pitch steering systems. Other automotive industry participants are beginning to test electronic cam shaft phasing (to replace hydraulic phasing) to assist in meeting upcoming, federally mandated, efficiency standards.

 

New HGT applications are being presented to the automotive industry that expands the potential market from its traditional base. These new applications include: electric vehicle drives and steering actuators, electric bicycles, oil rig shut off actuators and deep water drilling drives.

 

Another potential new market is the toy industry. Toy robots, dolls, and animated stuffed animals with artificial intelligence are currently under development, all of which can utilize small, plastic, drives. 

 

 2 
 

 

The wind turbine industry offers a new potential market for HGT. For decades the industry has been plagued with gearbox failures, with the average life of a gearbox being about four (4) years. For the most part, the industry has accepted the repair and replacement costs as the norm for geared turbines. However, the historical problems with standard gearing have caused a push towards the development and implementation of gearless turbines. Effective gearless turbines use permanent magnets that require rare earth materials, the majority of which are deposited in China and Russia. Therefore, the potential for wind turbines to alleviate the dependence on foreign oil is mitigated by a new dependence on foreign rare earth material, mostly from China.

 

 

 

We, along with our primary competitor, manufacture harmonics up to a 3,500 Nm/30,997 in-lb capacity or about a 13 inch diameter. Whereas our competitor has chosen to develop smaller harmonics and electric actuators, we intend to cover the most common areas of that market but also to scale up our designs for the production of large drives in diameters of about five (5) feet, suitable for 6 to 10 megawatt wind turbines. The new, larger units will be used in a speed increasing fashion and can also be used in other high power speed increasing applications outside of the renewable energy market. We believe that these new applications have tremendous potential, and with a scale-up of our current designs, offer a multi-billion dollar market potential. 

 

Competition

 

Our primary competition is the leading Japanese industry supplier, HDS. HDS has subsidiaries, Harmonic Drive LLC and Harmonic Drive AG, operating in the United States and Germany, respectively.

 

While HDS is the dominant worldwide supplier of harmonic technologies, there are other manufacturers we believe are striving to enter the market. Given the market scope and size, and growth, this new competition is expected. We believe we have positioned ourselves strongly in anticipation of new competitors having established and validated production and proven product performance in demanding applications and in multiple market segments, having established validated ISO 9001 quality certified manufacturing off shore with expected cost advantages, being one of only two manufacturers to have their technology validated and utilized on multiple space flight missions and robots utilized in nuclear reactor inspection systems, and having commenced on new designs and intellectual property focused on emerging markets.

 

 3 
 

 

Our Strategy

 

Our strategy is to expand our sales revenues through increased sales of our HGT platform, leveraging our partnership with CTKM. and via strategic acquisitions of synergistic companies and technologies. We believe this strategy accelerates our growth, reduces risk, improves cash flows, and make NAC stronger as a whole in all of its markets. 

Our initial revenue target is $20 million for our HGT. Existing customer demand exceeds our $20 million target. CTKM is currently expanding its existing factory in Beijing and also expects to commence expanded manufacturing operations in a new 86,000 square foot factory in late 2016 in anticipation of HGT demand. 

We have increased our efforts for the second part of our strategy, expansion via acquisition of synergistic companies and technologies. In executing this strategy, we identified a synergistic technology company serving the energy and industrial gas markets that we believe is an excellent fit to our business. We anticipate a definitive agreement to be executed within the second quarter of 2016, and project our expanded, combined revenues will exceed $30 million in 2016. 

Intellectual Property 

We currently rely on trade secrets, know-how, nondisclosure, confidentiality and other contractual arrangements to protect our technology and intellectual property. Through 2015, our product offerings total over 100 designs. The Company and CTKM share some intellectual property and our existing contract includes some provisions for access to intellectual property, manufacturing know-how, patents, designs, materials and processes. We have agreed with CTKM in principal to draft a formal contract specific to engineering collaboration and mutual use of intellectual property within legal limits. We anticipate that agreement to be drafted in second quarter 2016. 

Government Regulation 

The U.S. government requires us to follow International Traffic in Arms Regulations (“ITAR”) compliant procedures for defense articles, defense services or related technical data. ITAR is a set of U.S. regulations that control the export and import of defense-related articles and services. The principal products that we manufacture do not require any government approval. However, ITAR mandates that information and materials pertaining to defense and military related technologies only be shared with U.S. persons, unless authorization from the U.S. Department of State is received or a special exemption is used. For example, if we receive drawings from a defense contractor, it is prohibited from sharing those drawings and related information with a non-U.S. citizen without receiving prior approval from the U.S. Department of State. Due to ITAR, we cannot easily manufacture specialized drives for military and defense applications outside of the United States or share technical information regarding these applications with non-U.S. citizens, and as such, the Company continues to manufacture defense related products in the United States.

Employees 

As a development and holding company, NAC Global has only one direct employee is our Chief Executive Officer, Vincent Genovese. We have a total of 106 contractors, subcontractors,, full time and part-time employees including engineering, production, and management, with 10 of them in the U.S.. 

Our Corporate History and Background 

NAC Drive Systems, Inc. (formerly NAC Harmonic Drive, Inc.), our operating subsidiary, was formed in 2007 with a lineage dating to 1968. An affiliated company of the Company is Conic Systems, Inc. (“Conic”), which was formed in 1968 and introduced harmonic gearing to the printing industry and invented the harmonic differential, harmonic differential electronic tension control system, and the patented right angle harmonic differential. Vincent Genovese, the Company’s President and Chief Executive Officer, is also President and Chief Executive Officer of Conic but no longer runs its day to day operations. 

 

 4 
 

 

We entered the market by developing a relationship with CTKM Harmonic Drive In October 2012, we entered into a long term agreement with CTKM that extends until 2022. The agreement is for a period of ten (10) years with a 5-year cancellation notice. If the agreement is not terminated within five (5) years, the term extends for an additional ten (10) years. Our harmonic gearing is manufactured at the CTKM Beijing factory with final assembly and quality inspection in the U.S.  

Conic was established in 1968 to bring harmonic differential gearboxes to the converting and printing markets. Overtime Conic developed closed loop tension control systems and tension transducers. Management believes that Conic developed an excellent reputation for having expertise in control of light materials in continuous web processing, and as a result, derived a significant portion of its income from the medical industry where light materials like gauze is prevalent. In addition to manufacturing harmonic gearboxes and controls, Conic designed and manufactured custom machinery, with a particular focus on the medical industry. Strategically in 1994, Conic chose to focus on building out its line of harmonic differentials and controls. It successfully introduced multiple harmonic gearbox product lines and tension control systems becoming the recognized industry leader in the printing industry.

 

In 2000, Conic operated as a consolidated subsidiary to Nireco Corporation, a publically traded company of Japan (“Nireco”), which held a twenty-five percent (25%) ownership interest in Conic. During such ownership, Nireco had significant influence on Conic’s activities.

 

Conic expanded sales of the Nireco line of industrial controls in North and South America and collaborated in engineering, product design and global market development planning. In 2004 Conic fully acquired Datatran Labs (“Datatran”), a co-located vendor. Conic and Datatran had collaborated since 1991 on electronic controls design that were integrated with Conic’s harmonic differential. In 2009, Conic repurchased the twenty-five percent (25%) ownership interest from Nireco and thereafter, neither company had any ownership interest in the other. Additionally, Conic retained distribution rights for portions of the NIRECO product line.

 

Since the acquisition from Nireco, Conic has been owned by Vincent Genovese, Conic’s Chief Executive Officer, and has operated on a parallel but legal stand-alone basis. Mr. Genovese is also Chief Executive Officer of the Company. Co-managed and located in the same place, the Company and Conic share resources including but not limited to personnel, plant and equipment, quality inspection, engineering, accounting and information system platforms. In the fourth quarter of 2010, our board of directors decided to attempt to fully acquire Conic and merge the two companies in order to provide us with uninhibited access to Conic’s harmonic gearbox manufacturing expertise and equipment. Today, the Company and Conic share facilities and equipment in Port Jervis, New York where small scale, specialized gearbox and electronic controls production are in place.

 

On May 6, 2014, NAC Harmonic Drive, Inc. changed its name to NAC Drive Systems, Inc.

 

After acquiring NAC Drive Systems, Inc. in April 2014, on July 15, 2014, we changed our name from LipidViro Tech, Inc. to NAC Global Technologies, Inc. to be more consistent with our wholly-owned subsidiary that conducts 100% of our operations.

 

Recent Developments

 

Public Offering

 

On October 9, 2015, we closed a public offering of Units (“Units” or each a “Unit”), each Unit consisting of one share of common stock, par value $0.001 per share, two Series A Warrants each to purchase one share of common stock and one Series B warrant to purchase one share of common stock. We offered 9,500,000 Units at a price to the public of $0.05 per Unit, and received gross proceeds from the offering, before deducting placement agent fees and expenses payable by the Company, of approximately $475,000. Alexander Capital, L.P. acted as the placement agent for the offering.

 

Letter of Intent

 

On April 23, 2016, we entered into a binding Letter of Intent (the “LOI”), whereby we agreed, subject to the terms and conditions set forth therein, to consummate a business combination (the “Proposed Transaction”) with Bellelli Engineering S.p.A (“Bellelli”) and Swiss Heights Engineering S.A. (“Swiss Heights”), or an entity to be formed by Bellelli and Swiss Heights (referred to as “SHE Holdings Co.,” and together with Bellelli and Swiss Heights, the “SHE Parties”). As a result of the Proposed Transaction, the SHE Parties will become wholly-owned subsidiaries of the Company, and the shareholders of the SHE Parties will receive equity interests of the Company representing 95.75% of the capital stock of the combined company, on a fully-diluted basis.

 

Pursuant to the LOI, upon closing of the Proposed Transaction, the holders of the Company’s capital stock and other equity interests, including certain options and warrants granted by the Company, shall be entitled to retain 4.25% of the capital stock of the combined company, on a fully-diluted basis.

 

In the LOI, the Company agreed to an exclusivity period of 60 days after the LOI, where it will not solicit, initiate, encourage or provide information to any third party with respect to any competing transaction. The Company also agreed during such exclusivity period to conduct its business in the ordinary course of business consistent with past practice.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

 5 
 

 

Item 2. Properties

 

The Company operates out of Jacksonville, Florida and Port Jervis, New York, where it is co-located with Conic. The Port Jervis facility is 12,000 sq. ft., consisting of manufacturing, warehouse, assembly, and office space. It is owned by the Company’s Chief Executive Officer, Vincent Genovese, through an entity known as Skylands Real Estate Holdings and Development, LLC. The property is leased by Conic for a base amount of $85,800 per year. Taxes, insurance, utilities, and maintenance are borne by Conic. The lease term is 180 months and is set to expire on September 30, 2024. There is an option to renew for an additional 60 months at the then prevailing market rates.

 

Item 3. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. From time to time, we may become involved legal proceedings, lawsuits, claims and regulations in the ordinary course of our business.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Maters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock trades on the OTCBB under the symbol “NACG”. Prior to April 29, 2014 our common stock traded on the OTCBB under the symbol “LPVO”. The OTCBB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTC equity security generally is any equity security that is not listed or traded on a national securities exchange.

 

Price Range of Common Stock

 

The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

 

   2015 
   High   Low 
First Quarter (January 1 – March 31)  $0.48    0.33 
Second Quarter (April 1 – June 30)  $0.43    0.15 
Third Quarter (July 1 – September 30)  $0.045    0.15 
Fourth Quarter (October 1 – December 31)  $0.07    0.02 

 

   2014 
   High   Low 
First Quarter (January 1 – March 31)  $0.55    0.30 
Second Quarter (April 1 – June 30)  $3.00    0.55 
Third Quarter (July 1 – September 30)  $2.00    1.20 
Fourth Quarter (October 1 – December 31)  $1.20    0.41 

 

Holders

 

As of December 31, 2015, there were approximately 1661 holders of record of our common stock. However, we believe that there are significantly more beneficial holders of our common stock as many beneficial holders hold their stock in “street” name through brokerage clearing houses, depositories or others in unregistered form.

 

Dividends

 

We have never declared or paid dividends on our common stock, and our board of directors does not intend to declare or pay any dividends on the common stock in the foreseeable future. Our earnings are expected to be retained for use in expanding our business. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our board of directors and will depend upon a variety of factors, including our future earnings, capital requirements, financial condition and such other factors as our board of directors may consider to be relevant from time to time.

 

 6 
 

 

Recent Sales of Unregistered Securities

 

On January 8, 2015, the Company issued a 3% original issue discount convertible note to an accredited investor in the amount of $109,000 with a term of one (1) year and a conversion price equal to the lower of $0.50 or 80% of the share price that will be used by the Company in its next share issuance. In connection with the issuance of the note, the Company also issued warrants to purchase 21,800 shares of common stock at an exercise price of $0.63 per share and a term of two (2) years. The note is subject to annual interest of 12% and the Company was required to prepay six (6) months of interest amounting to $6,000 which is included in the principal amount. Due to the variable conversion rate on the note, the embedded conversion feature and the warrants issued with the note qualified for derivative accounting. The fair value of the embedded conversion option and the warrants including the original issue discount of $3,000 totaled $95,322 was recognized as a discount to the note. The Company also paid deferring financing fees of $9,000. The debt discount and deferred financing fees were amortized over the term of the note. In August 2015, we amended and restated this note to modify the aggregate principal amount to $100,000. A portion of the interest on this debt was repaid from the proceeds of the public offering described above. On April 26, 2016  the Note was further amended to provide a new maturity date of December 8, 2018. 

 

On January 13, 2015, the Company amended two of its existing 12% notes totaling $100,000 to increase the interest rate from 12% to 15% and 25,000 additional shares of common stock were issued in connection with the modification. The modification was deemed substantial and was accounted for as a debt extinguishment under ASC 470. The fair value of the additional shares issued, including the unamortized debt discount and deferred financing fees, at the date of modification totaling to $34,878 was recognized as a loss on debt extinguishment. These two notes also became convertible during the three months ended March 31, 2015. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $88,419 was recognized as a debt discount and amortized over the term of the note. On October 6, 2015, these same notes converted on a dollar for dollar basis into the company’s register public offering.

 

During the twelve months ended December 31, 2015, three notes issued in 2014 became convertible. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $89,375 was recognized as a discount to the notes and were amortized over the term of the notes.

 

On May  5, 2015, we issued a revolving note  to a third party for the principal amount of $30,000 (the “May 5, 2015 15% Secured Promissory Note”) for inventory financing. The May 5, 2015 15% Secured Promissory Note was due on the earlier of one hundred twenty (120) days from the issuance date or within seven (7) days of the Company’s receipt of payment on receivables as described in the May 5, 2015 15% Secured Promissory Notes and accrue interest at an annual rate of 15%. In 2015 the Company borrowed $23,664 on the May 5, 2015 15% Secured Promissory Note and it has been paid in full. 

 

On May 5, 2015, a portion of a convertible note amounting to $10,000 was converted in exchange for 57,143 shares of common stock. The Company compared the fair value of the shares issued with the carrying value of the note converted which includes the corresponding unamortized debt discount and the derivative liability at the date of conversion and recognized a loss on debt extinguishment upon conversion amounting to $9,047.

 

On August 16, 2015, a portion of a convertible note amounting to $10,000 was converted in exchange for 129,870 shares of common stock. The Company compared the fair value of the shares issued with the carrying value of the note converted which includes the corresponding unamortized debt discount and the derivative liability at the date of conversion and recognized a gain on debt extinguishment upon conversion amounting to $5,261.

 

On September 23, 2015, the Company amended the existing loan with a principal balance of $375,000. As a result of the amendment, unpaid interest of $63,123 was added as debt principal and the maturity date on the note was extended to March 23, 2016.

 

On October 14, 2015, the Company paid $85,000 as full repayment two convertible notes including interest of $12,000 and principle amounts of $46,500 and $26,500.

 

For additional information on the above transaction, see “Management Discussion and Analysis of Financial Condition and Results of Operations”.

 

Item 6. Selected Financial Data

 

We are not required to provide the information required by this Item as we are a smaller reporting company.

 

 7 
 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations

 

The following information should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report.

 

Overview

 

NAC Global Technologies, Inc. (referred to herein as the “Company,” “we”, “our”, and “NAC Global”) is an engineering services, R&D, and manufacturing company. We have one wholly owned subsidiary, NAC Drive Systems, Inc. (“NAC”), a manufacturer and supplier of harmonic gearing technology (“HGT”) that operates in the robotics, automation, and medical industries amongst others. HGT is a premier technology in industries where very high precision, long-life, compactness, light weight, and reliability are important factors. In additional to robotics applications, we see HGT use expanding across multiple industries and geographies including aerospace, energy, and defense. Pursuant to a long-term agreement (described below), we have partnered with CTKM Beijing Harmonic Drive, LTD. (“CTKM”), who supplies HGT to the China Space Agency. We manufacture our HGT components in Beijing, China, and perform final assembly and quality control in Port Jervis, New York. Beyond our HGT platform, we are executing a plan to bring additional, synergistic subsidiary business into NAC via strategic acquisition with a focus on the energy markets. Our corporate headquarters is located in Jacksonville, Florida.

 

Results of Operations

 

Year ended December 31, 2015, compared with year ended December 31, 2014

 

Revenue. Sales revenues for the year ended December 31, 2015 totaled $697,606 as compared to $651,641 for the year ended December 31, 2014. NAC Drive Systems, Inc., our wholly owned operating subsidiary, generated all of our revenues via HGT product sales.

 

Cost of Goods - Gross Margins. Gross margins were $213,430 or 30% for the year ended December 31, 2015 as compared to $161,685 or 25% for the year ended December 31, 2014. Gross margins are expected to improve as revenues increase due to the economies of scale, reduced concentrations, and as we bring on more expensive, higher margin gearheads into our product mix.

 

Operating Expenses. Operating expenses for the year ended December 31, 2015 totaled $ 685,936 which included $210,000  in non-cash stock compensation expenses to consultants.

 

Operating expenses for the year ended December 31, 2014 totaled $1,069,611, which included $240,375 in non-cash stock compensation expenses. Of this amount, $86,000 was given to an investor relations firm, $71,875 to a board member, and $82,500 for financial consulting.

 

Net Loss. The net loss for the year ended December 31, 2015 was $1,752,896 including $210,000 in non-cash stock compensation expenses, $440,840  in debt extinguishment expenses in connection with convertible notes, $585,135 in interest expenses, and $254,969  in derivative losses.

 

The net loss for the year ended December 31, 2014 was $1,529,563, including $240,375 in non-cash stock compensation expenses, $275,000 in acquisition expenses for the acquisition of a public shell company, $391,319 in interest expenses, and $44,682 in derivative income.

 

 8 
 

 

Liquidity & Capital Resources

 

Cash and Working Capital

 

The Company incurred an operating loss of $1,752,896 for the year ended December, 31, 2015. As of December 31, 2015, the Company had cash and a stockholders’ deficit of $16,674 and $3,684,766 respectively. As of December 31, 2014, the Company had a working capital deficit of $3,164,571.

 

Cash Used in Operating Activities

 

During the year ended December 31, 2015, net cash provided by operating activities amounted to $19,699 comprised of net loss of $1,752,896 with positive adjustments to reconcile net loss to net cash used in operating activities of $1,408,522 and changes in operating assets and liabilities of $364,073, compared to net cash used in operating activities for the year ended December 31, 2014 of $364,073 comprised of net loss of $1,529,563 positive adjustments to reconcile net loss to net cash used in operating activities of $540,542 and changes in operating assets and liabilities of $289,119.

 

Cash Used in Investing Activities

 

During the year ended December 31, 2015, net cash used in investing activities amounted to $63,800, which comprised of a deposit repayment. During the year ended December 31, 2014, net cash used in investing activities amounted to $15,176, which comprised of deposits of $13,500 and cash paid for fixed assets of $1,676.

 

Cash Provided by Financing Activities

 

During the year ended December 31, 2015, the Company used net cash of $75,049, which comprised of proceeds of $81,000 from convertible debt,$23,664 proceeds from short-term debt. 25,000 proceeds from related party short-term debt, and proceeds of $102,875 from the issuance of common stock. The Company also made payments of $191,068 for deferred offering costs, $50,520 for short-term debt, and $66,000 for short-term debt from related parties. During the year ended December 31, 2014, the Company received net cash of $363,082, which comprised of proceeds of $160,000 from short-term debt of related parties and proceeds of $292,000 from the issuance of convertible debt. The Company also made payments of $24,790 for a secured bank note, $19,818 for short-term debt of related parties, and $44,310 for deferred offering and financing costs.

 

Sources of Liquidity

 

Our cumulative net loss since our founding as of December 31, 2015 and December 31, 2014 was $4,010,320  and $2,257,424, respectively. A combination of short-term and long-term debt and private equity sales have assisted in funding our operations and expansion. Management’s strategy to achieve growth includes making investments in plant equipment, personnel, and intellectual property development. In order to execute this strategy, we will need to raise additional capital through public or private equity offerings, debt financings or other means. Without additional funding, the Company may not have sufficient cash resources to meet its needs over the next 12 months. The Company can give no assurance that such additional funds will be available on reasonable terms, or available at all, or that it will generate sufficient revenue to alleviate the going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

Private Placements

 

12% Convertible Promissory Notes

 

Overview. On April 29, 2014, we completed a private offering of $375,000 aggregate principal amount of 12% Convertible Promissory Notes (the 12% Convertible Notes”) by an institutional investor for total net proceeds to the Company of $365,000 after deducting placement agent fees and other expenses. On September 23, 2015, the Note was amended and restated with an aggregate principal amount $438,123, included accrued interest, of $438,123. As of December 31, 2015, the aggregate principal amount of the outstanding 12% convertible Note was $423,123.

 

Maturity and Interest. On April 25, 2016 the Note maturity date was amended from March 23, 2015 to December 31, 2018. No payments are required until July 23, 2017; therefore, the Company is required to make monthly payments of $5,000.

 

Conversion. The 12% Convertible Notes may be not be converted through December 31, 2017. Beginning January 1, 2018, the Note may converted, in whole or in part, into shares of common stock at the option of the holder at any time and from time to time. The shares of common stock issuable upon conversion of the 12% Convertible Notes equal: (i) the outstanding principal amount of the convertible note divided by (ii) a conversion price is equal to 60% of the lowest VWAP for the 30 consecutive trading days immediately prior to such payment date. The 12% Convertible Note is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. Additionally, subject to certain limited exceptions, if the Company issues any common stock or warrants or convertible debt entitling any person to acquire common stock at a per share purchase price that is less than the conversion price for the notes, such conversion price will be adjusted to that lower purchase price with certain limited exceptions.

 

Prepayments. The 12% Convertible Notes may be prepaid in whole or in part at any time upon ten (10) days notice without penalty through maturity.

 

 9 
 

 

15% Convertible Notes

 

Overview. On September 9, 2014, October 3, 2014 and December 23, 2014, we completed private offerings of $150,000 aggregate principal amount of 15% Convertible Promissory Notes, as amended, (the 15% Convertible Notes”) and 150,000 shares of the Company’s common stock with accredited investors for total net proceeds to the Company of $132,000 after deducting placement agent fees and other expenses.

 

On October 9. 2015, the Notes were converted on a dollar for dollar basis into the Company’s registered public offering. As of December 31, 2015, the aggregate principal amount of the 15% convertible Notes was $0.00.

 

8% Convertible Notes

 

Overview. On October 20, 2014, and December 16, 2014, we completed private offerings of $93,000 aggregate principal amount of 8% Original Issue Discount Convertible Promissory Notes (the 8% Convertible Notes”) with accredited investors for total net proceeds to the Company of $70,000 after deducting placement agent fees and other expenses. The Notes were repaid in full on October 14, 2015 and as of December 31, 2015, the aggregate principal balance was $0.00.

 

January 2015 12% Convertible Notes

 

Overview. On January 8, 2015, we completed a private offering of $109,000 aggregate principal amount of 3% Original Issue Discount Convertible Promissory Notes (the “January 2015 12% Convertible Notes”) and warrants to purchase shares of the Company’s common stock with accredited investors for total net proceeds to us of $91,000 after deducting placement agent fees and expenses. As of December 31, 2015, the aggregate principal amount of the outstanding January 2015 12% Convertible Notes was $100,000. In August 2015, we amended and restated this note to modify the aggregate principal amount to $100,000. A portion of the interest on this debt was repaid from the proceeds of the public offering described above.

 

Maturity and Interest. The January 2015 12% Convertible Note was originally due on January 8, 2016 and was extended to July 8, 2016. On April 26, 2106 the Note was further amended to provide a new maturity date of December 8, 2018. The Company is responsible for making monthly interest payment of $1,000.00.

 

Conversion. The January 2015 12% Convertible Notes may not be converted through December 31, 2017. Beginning January 1, 2018, the Note in whole or in part, may be converted into shares of common stock at the option of the holder at any time and from time to time. The shares of common stock issuable upon conversion of the January 2015 12% Convertible Notes equal: (i) the outstanding principal amount of the convertible note divided by (ii) the lesser of (a) $0.50 or (b) 80% of the price at which the Company next issues shares of common stock or common stock equivalents, as adjusted from time to time. The January 2015 12% Convertible Notes is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. Additionally, subject to certain limited exceptions, if the Company issues any common stock or warrants or convertible debt entitling any person to acquire common stock at a per share purchase price that is less than the conversion price for the notes, such conversion price will be adjusted to that lower purchase price with certain limited exceptions.

 

Warrants. The warrants issued in the offering are exercisable for an aggregate of 21,800 shares of the Company’s Common Stock. The warrants are exercisable for a period of two years from the original issue date. The exercise price with respect to the warrants is $0.63 per share. The exercise price for the warrants is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change.

 

Prepayments. The January 2015 12% Convertible Notes may be prepaid in whole or in part at any time upon ten (10) days notice up without penalty.

 

 10 
 

 

May 2015 15% Secured Promissory Notes

 

Overview. On May 5, 2015, we issued a term note to a third party for the principal amount of $30,000 (the “May 2015 15% Secured Promissory Note”) for inventory financing. As of December 31, 2015, the aggregate principal amount of the outstanding May 2015 15% Secured Promissory Note was $0.

 

Maturity and Interest. The May 2015 15% Secured Promissory Notes are due on the earlier of one hundred twenty (120) days from the issuance date or within seven (7) days of the Company’s receipt of payment on receivables as described in the May 2015 15% Secured Promissory Notes and accrue interest at an annual rate of 15%.

 

Prepayments. The May 2015 15% Secured Promissory Notes may be prepaid in whole or in part at any time without penalty.

  

Security. The May 2015 15% Secured Promissory Notes are secured by certain receivables identified by purchase orders provided by the Company to a third party prior to the funding of the May 2015 15% Secured Promissory Notes.

  

Going Concern

 

The financial conditions evidenced by the accompanying financial statements raise substantial doubt as to our ability to continue as a going concern. Our plans include obtaining additional capital through debt or equity financing. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue from product sales is recognized when products are shipped to customers. The Company’s revenues include sales to customers domiciled outside of the U.S. Generally, these sales are denominated in U.S. dollars.

 

Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods when the applicable revenue recognition criteria have been met.

 

All amounts billed to customers for shipping and handling costs are included in revenues in the statements of operations.

 

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Accounts Receivable

 

Accounts receivable arise from the sale of products on trade credit terms and are stated net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers which may result in the requirement of a deposit before fulfillment of the terms of the sales orders. Accounts are generally considered past due after thirty (30) days. Past due receivables do not accrue interest. An allowance for doubtful accounts is provided for those accounts receivables considered to be uncollectable based on historical experience and management’s evaluation of outstanding receivable amounts at the end of the period. The Company has determined that no allowance for doubtful accounts is required as of December 31, 2015 and December 31, 2014.

 

Inventory

 

Inventory consists primarily of purchased finished goods and packaging materials. Inventory costs are determined using the average method and are carried at the lower of cost or net realizable value. Inventory is reviewed periodically for slow-moving and obsolete items.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

We are not required to provide the information required by this Item as we are a smaller reporting company.

 

Item 8. Financial Statements and Supplementary Data

 

The financial statements, notes to the financial statements and report of the Company’s independent registered accountant required to be filed in response to this Item 8 begin on page F-1.

 

ITEM 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2015. As discussed below, based on this evaluation, our management concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. This is due to the existence of material weaknesses described below:

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015, based on the criteria set forth in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2015.

 

As of December 31, 2015, we have identified certain matters that constituted material weaknesses in our internal control over financial reporting. Specifically, we have difficulty in accounting for complex accounting transactions due to a lack of qualified personnel and have limited segregation of duties and a lack of multiple levels of supervision and review within our accounting and financial reporting functions. Segregation of duties within our Company is limited due to the small number of employees that are assigned to positions that involve the processing of financial information. Additional time is required to expand our staff, fully document our systems, implement control procedures and test their operating effectiveness before we can definitively conclude that we have remediated our material weaknesses.

 

 12 
 

  

This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm as we are a smaller reporting company and not required to provide the report.

 

Limitations of the Effectiveness of Internal Control

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting in the Company’s fourth quarter of the fiscal year ended December 31, 2015 covered by this Annual Report on Form 10-K, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Our executive officers, directors and other significant employees and their ages and positions are as follows:

 

Name   Age   Position   Date First Elected
or Appointed
Vincent Genovese   50   Chief Executive Officer, Chief Financial Officer, President and Director   April 29, 2014
Rita M. O’Connor   45   Director   May 22, 2014
Edward C. Haversang   50   Director   May 22, 2014

 

Vincent Genovese has more than 20 years of executive management experience and has worked for over 30 years in the field of harmonic gearing technology and industrial controls. His leadership experience includes international business development, high-tech industrial product line development, new product launches, engineering management, research and development management, domestic and international sales and marketing management, electronics manufacturing, high precision mechanical manufacturing, financial management and reporting. In 1990 he purchased Conic Systems, Inc. (“Conic”), a small harmonic gearbox manufacturer, and expanded its product line and market to become the leading supplier of harmonic differentials and automated differential control systems in North America. Successful Conic product launches included multiple lines of harmonic phase shifting and speed changing precision gearboxes, analog and digital drive controls, semi-conductor strain gauge force sensors, digital print register systems, as well as customized machinery for web printing and converting, rechargeable battery material production, and various bio-medical applications for leading multi-national corporations. In 2000, he restructured Conic in a joint venture with Nireco Corporation of Japan, a publically traded company, forming Nireco America Corporation as a consolidated subsidiary of Nireco. As President and Chief Executive Officer of Nireco America, Mr. Genovese led operations in North and South America and worked extensively on international market development. He successfully established sales engineering offices in Brazil, managing large steel manufacturing process control projects with international steel companies. New product launches and systems development projects included high speed, automated, print inspection systems and automatic, color monitoring camera systems for which the company won the FTA Technical Achievement Award. In 2007 he co-founded NAC Drive Systems, Inc. to introduce product lines of harmonic gearing components, gearheads, actuators, and controls. Mr. Genovese has extensive experience and know-how in tooling, manufacturing, and special techniques in harmonic gearbox manufacturing and has a patent (US) for a harmonic gearbox design and several patents pending. He has published numerous articles on harmonic gearing and industrial control technology. He has presented at national technical conferences. He holds a BS in Engineering from the New Jersey Institute of Technology. Mr. Genovese’s volunteer positions have included Chair for the TLMI Print Quality Improvement Committee; Board Director for a 501(c)-3 charity, volunteer firefighter and line officer, emergency medical technician, and youth sports coach.

 

 13 
 

 

Mr. Genovese is qualified to serve on our board of directors because of his experience in the harmonic gearing industry and as co-founder of NAC Drive Systems, Inc.

 

Rita O’Connor has more than 20 years of experience including successful initial public offerings, private equity raises, debt restructurings and mergers, acquisitions and divestitures as well as strong skills in the areas of SEC reporting, financial modeling, investor relations, strategic planning and cash management.

 

Since 2013, Ms. O’Connor has served as the Chief Financial Officer of Kent Place School, an independent, nonsectarian, college-preparatory day school and is responsible for directing and controlling all phases of business and financial operations. Prior to her role at Kent Place School, from 2009 to 2012, Ms. O’Connor was with Xanodyne Pharmaceuticals, Inc., a specialty pharmaceutical company specializing in pain management and women’s health, as Chief Financial and Information Officer where she facilitated the sale of the assets of the company to provide a return of capital to investors. Ms. O’Connor spent nearly five years at Adams Respiratory Therapeutics (“Adams”), a publicly-held specialty pharmaceutical company where she served most recently as Chief Financial Officer and Treasurer until its acquisition in January 2008. Before she joined Adams, Ms. O’Connor spent seven years at Schering-Plough Corporation in a series of positions of increasing responsibility within the corporate global finance department. Ms. O’Connor began her career in the audit department at Deloitte, where she progressed to audit manager, including a two-year program in Deloitte’s national office in the technical accounting research department. Ms. O’Connor has a B.S. degree in accounting from Rutgers University and is a Certified Public Accountant.

 

Ms. O’Connor is qualified to serve on our board of directors because of her business and financial experience in the start-up sector.

 

Edward Haversang has served as an independent director since December 2008 following the Company’s inception serving in various advisory roles including initial website design, company direction and partnering with key members. He has worked with large prospects of the Company that have significant business value to the Company.

 

At Praxair (NYSE: PX), he has worked as Director of Distributor Sales and Bulk Products for Praxair Distribution Inc. (PDI) since September 2010 to present selling to significant global accounts as well as providing business development support to regional sales teams. From 2001 to 2008, Mr. Haversang was with Praxair Services Inc. working with Fortune 500 top tier energy companies throughout North America in plant turnaround, inspection and technical services. From 2009 to 2010, he worked with Techcorr USA to startup northeast US sales and services in Non Destructive Testing and Engineering Services for the Energy and Power industries. In 2010, he was Business Development Manager for Mistras Group (NYSE: MG) in their Non-Destructive Testing and Engineering Group. Mr. Haversang served as an account executive with Teleran Technologies from 2000 to 2001 where he successfully introduced Data Warehouse and Business Intelligence software and services to top tier pharmaceutical, banking, brokerage firms throughout North America. From 1994 to 2000, he served in various sales roles in Liquid Carbonic prior to merger with Praxair in the Packaged Gases business throughout northeast US and in the company’s Merchant Gases business in New York City and New Jersey.

 

With Control Instruments from 1987 to 1994 in key roles of Product Manager and ultimately Marketing and Sales Manager, Mr. Haversang led the company’s sales efforts for Hazardous Gases Detection and Monitoring Equipment throughout the US and Europe. He also worked with Shelby Jones Company (Upper Darby, PA) as New York City Area Manager offering pressure, temperature and process monitoring equipment to the power and energy markets from 1990 to 1993.

 

Mr. Haversang received his B.A. in Business Administration from William Paterson University in 1987. He is involved in several charitable organizations including Board of Deacons at First Presbyterian Church of Caldwell, Church Life Committee, Children’s Mission Golf Committee, Treasurer and Board Member of FCSA Children’s and Disabled American’s Fund 501-(c)3.

 

Mr. Haversang is qualified to serve on our board of directors because of his management experience and as co-founder of the NAC Drive Systems, Inc.

 

Board Committees

 

Our Board of Directors currently has no committees.

 

 14 
 

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

  been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and- desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions with Related Parties, and Director Independence,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Securities and Exchange Commission.

 

Family Relationships

 

There are no relationships between any of the officers or directors of the Company.

 

Director Nomination Procedures

 

There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

 

Code of Ethics

 

We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under the securities laws of the United States, our directors, executive (and certain other) officers, and any persons holding ten percent or more of our common stock must report on their ownership of the common stock and any changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established. During the fiscal year ended December 31, 2015, we believe that all reports required to be filed by such persons pursuant to Section 16(a) were filed on a timely basis.

 

 15 
 

 

Item 11. Executive Compensation

 

Summary Compensation Table for Fiscal Years 2015 and 2014

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2015, and 2014 in all capacities for the accounts of our executives, including the Chief Executive Officer and Chief Financial Officer.

 

Name and Principal Position   Year     Salary     Stock     Option     Bonus     Non-Equity Incentive Plan     Nonqualified Deferred Compensation     All Other     Total  
Vincent Genovese, Chief Executive Officer,     2015       200,000       0       0       0       0       0       0       200,000  
Chief Financial Officer (1)     2014       164,178       0       0       0       0       0       0       164,178  
Jose Pujol, Former Secretary (2)     2014       0       0       0       0       0       0       0       0  
Thomas J. Howells (3)     2014       0       0       0       0       0       0       0       0  
Shelley Goff (4)     2014       0       0       0       0       0       0       0       0  

 

(1) Mr. Genovese was appointed as our Chief Executive Officer and President on April 29, 2014.
(2) Mr. Pujol was appointed as our Secretary and Director of Operations and Finance on April 29, 2014. Mr. Pujol from his position as Secretary on September 3, 2015.
(3) Mr. Howells resigned from his position as President on April 29, 2014.
(4) Ms. Goff resigned from her position as Secretary on April 29, 2014.

 

Employment Agreements

 

We entered into an employment agreement, dated April 21, 2014 with Vincent Genovese, our Chief Executive Officer. The employment agreement has an initial term of three (3) years beginning on April 21, 2014. In addition the employment agreement provides Mr. Genovese with a base salary of $200,000 per year. The employment agreement also provides for:

 

  Payment of all properly documented and approved expenses for travel.
     
  Eligibility to participate in equity-based compensation plans that may be established by the board of directors from time to time applicable to the executive’s services.

 

For a discussion of payments that we would be obligated to make to Mr. Genovese upon his termination or a change in control, see “Potential Payments upon Termination or Change in Control” on page 13.

 

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Outstanding Equity Awards at 2015 Fiscal Year End

 

The following table presents information regarding outstanding options held by our named executive officers as of December 31, 2015:

 

    Option Awards     Stock Awards  
                                                    Equity  
                                              Equity     Incentive  
                                              Incentive     Plan  
                                              Plan     Awards:  
                                              wards:     Market  
                Equity                        Market     Number     or Payout  
                incentive                 Number     Value     of     Value of  
                plan                 of     of     Unearned     Unearned  
                awards:                 Shares     Shares     Shares,     Shares,  
    Number of     Number of     number of                 or Units     or     Units or     Units Or  
    securities     securities     securities                 of     Units of     Other     Other  
    underlying     underlying     underlying                 Stock     Stock     Rights     Rights  
    unexercised     unexercised     unexercised     Option           That     That     That     That  
    options     options     unearned     exercise     Option     Have Not     Have Not     Have Not     Have Not  
    (#)     (#)     options     price     expiration     Vested     Vested     Vested     Vested  
Name   exercisable     unexercisable     (#)     ($)     date     (#)     ($)     (#)     ($)  
                                                                         
Vincent Genovese     -       -       -       -       -       -       -       -       -  

 

Director Compensation for Fiscal 2015

 

The Company compensates our non-employee directors on a negotiated basis including expenses for their service. The table below summarizes the compensation earned by our non-employee directors for the fiscal year ended December 31, 2015.

 

                            Change in              
                            pension              
    Fees                       value and              
    earned                 Non-equity     nonqualified              
    or                 incentive     deferred              
    paid in     Stock     Option     plan     compensation     All Other        
    cash     Awards     Awards     compensation     earnings     Compensation     Total  
Name   ($)     ($)     ($)     ($)     ($)     ($)     ($)  
Rita M. O’Connor          0             0           0        0         0         0       0  
Edward Haversang     0       0       0       0       0       0       0  
Brian St. Denis     0       0       0       0       0       0       0  

 

Pension Benefits

 

We do not have any defined pension plans

 

Potential Payments upon Termination or Change in Control

 

In the event that Mr. Genovese is terminated without cause or there is a change in control, we would be obligated to pay Mr. Genovese:

 

  (1) His accrued and unpaid base salary (his base salary is currently $200,000);

 

  (2) the product of (x) any annual bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the termination date and the denominator of which is 365;

 

  (3) Any accrued and unpaid vacation;

 

  (4) And amount equal to the sum of an amount equal to thirty six (36) months of his base salary and (b) the annual bonus multiplied by three (3).

 

 17 
 

 

Additionally, all stock options, stock appreciate rights, restricted stock, and performance shares (i.e., all equity based compensation ) would immediately vest. Currently, Mr. Genovese does not have or have the right to any stock options, stock appreciate rights, or performance shares. Further, we would be obligated to pay Mr. Genovese, on a grossed-up basis, the amount of any excise and income taxes payable by Mr. Genovese as a result of any payments in shares of common stock triggered by his employment agreement, or other agreements between Mr. Genovese and the Company, or any of its subsidiaries. We would also be required to pay to Mr. Genovese any other amounts or benefits required to be paid or provided or which the Mr. Genovese is eligible to receive under any plan, program, policy, practice or arrangement or contract or agreement of the Company and any of its affiliated companies (the “Other Benefits”).

 

In the event that Mr. Genovese is terminated for cause, we would be obligated to pay Mr. Genovese his base salary through the date of termination plus the amount of any compensation previously deferred by Mr. Genovese and any accrued vacation or other pay pursuant to the Company’s vacation policy, in each case to the extent unpaid.

 

In the event that Mr. Genovese is terminated due to death or disability, we would be obligated to pay Mr. Genovese’s beneficiaries or legal representatives:

 

  (1) That portion of his base salary that was not previously paid to him from the last payment date through the date of termination and an amount equal twenty four (24) month’s salary at the level of his base salary then in effect; and

 

  (2) The Other Benefits and treatment of all other compensation under existing plans as provided by the terms and rules of those plans.

 

In the event that Mr. Genovese voluntarily terminates his employment, then we would be obligated to pay to Mr. Genovese that portion of his base salary that was not previously paid from the last payment date through the effective date of his voluntary termination, any accrued vacation or other pay pursuant to the Company’s vacation policy, and the Other Benefits.

 

 18 
 

 

Item 12. Security Ownership of Certain Beneficial Owners and management and Related Stockholder Matters

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of May 13, 2016 by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding common stock; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of common stock.

 

For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of May 13, 2016. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares of common stock that such person or persons has the right to acquire within 60 days of May 13, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares of common stock listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors and officers is c/o NAC Global Technologies, Inc., 4720 Salisbury Road, Jacksonville, FL 32256.

 

   Shares owned (1) 
Name of beneficial owner  Number   Percent 
5% Shareholders        
Brian St. Denis   5,243,942    14.7%
Molly Hsu   4,800,000    13.5%
           
Directors and Executive Officers          
Vincent Genovese   16,013,589    44.9%
Rita M. O’Connor   360,032    1.0%
Edward C. Haversang   673,103    1.9%
All directors and officers as a group (3 people)   27,090,666    47.8%

 

(1) Based on 35,662,014 shares of common stock issued and outstanding as of May 13, 2016. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.

 

Equity Compensation Plan Information as of December 31, 2015

 

                Number of  
                Securities  
                Remaining  
                Available  
                for  
                Future  
                Issuance  
                under  
    Number of     Weighted     equity  
    Securities     Average     compensation  
    to Be     Exercise     plans  
    Issued upon     Price     (excluding  
    Exercise of     of     securities  
    Outstanding     Outstanding     reflected in  
Plan Category   Options     Options     column (a))  
    (a)     (b)     (c)  
Equity compensation plans approved by security holders               -     $          -                   -  
Equity compensation plans not approved by security holders     -       -       -  
Total     -     $ -       -  

 

 19 
 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Transactions with Related Parties

 

On August 24, 2011, the Company entered into a Shareholder Option Sale Agreement (the “Purchase Agreement”) with Mr. Genovese, the Company’s Chief Executive Officer, to acquire all of his shares in Conic at an agreed consideration of $1,200,000, which increases at a rate of 4.875% per year. In connection with the Purchase Agreement, the Company has paid to Mr. Genovese $63,800 as of December 31, 2015.

 

On August 25, 2014, the Company and Mr. Genovese entered into a side letter agreement (the “Side Letter”) to the Purchase Agreement to confirm certain prior oral agreements and memorialize certain understandings, which was deemed effective as of May 15, 2014. Pursuant to the Side Letter, the parties agreed that: (1) the Company is not required to make installment payments to Mr. Genovese; (2) the Company shall not be obligated to purchase the Conic shares from Mr. Genovese until (a) it has received financing in the collective minimum amount of $1,500,000 or it has accumulated through organic operations an equivalent amount readily available in cash and (b) it is more probable than not that the Company will not operate at a loss during the fiscal quarter following the purchase of the Conic shares; (3) when the Company is able to purchase the Conic shares, it will purchase all of such Conic shares at the same time and not in increments; (4) the ten-year payout which was previously agreed to as an oral modification to the Purchase Agreement is now void; (5) the Company’s previous payments to Mr. Genovese with respect to the Conic shares shall be treated as a deposit towards the purchase price of the Conic shares, and in the event that the Company has not purchased the Conic shares by the fourth quarter of fiscal year 2015, Mr. Genovese shall return the deposit to the Company; and (6) the Company shall have the right to terminate the Purchase Agreement on or before the last business day of the fourth quarter of fiscal year 2015. In such event, Mr. Genovese shall return the deposit to the Company and neither party shall have any remaining obligations to the other party.

 

Mr. Genovese refunded the aforementioned deposit on May 5, 2015 and the Company has no current plans or means to consummate the acquisition of Conic.

 

The Company recognized revenues for products sold to Conic amounting to $13,332 and $36,195 for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, outstanding accounts receivable from Conic for such sales were $0 and $24,449, respectively.

 

Conic also bills the Company for certain expenses related to warehousing, shipping and receiving, packing, quality control, drafting, testing, machining, equipment use, payroll and employee benefits, rent and occupancy costs, advertising, travel expenses and other expenses paid for by Conic on behalf of the Company. Payroll and employee benefits billed to the Company were for personnel who spend a percentage of their time on the Company’s operations. The administrative and warehouse facilities used by the Company are owned by the majority shareholder and the allocable cost related to the use of these facilities are likewise charged to the Company by Conic. For the year ended December 31, 2015, Conic billed the Company a monthly fee of $7,548. The outstanding amount payable to Conic related to the above expenses amounted to $111,358 as of December 31, 2015.

 

Director Independence

 

Because our common stock is not currently listed on a national securities exchange, we do not have a requirement that a majority of our directors are not independent. We have, however, reviewed and determined that our board of directors does consist of a majority of independent board members. We have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

  the director is, or at any time during the past three years was, an employee of the company;
     
  the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
     
  a family member of the director is, or at any time during the past three years was, an executive officer of the company;

 

  the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); and

 

  the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

 

We have determined that Rita O’Connor, Edward Haversang are independent directors. We do not have an audit committee, compensation committee or nominating committee.

 

 20 
 

 

Item 14. Principal Accounting Fees and Services

 

Audit Fees

 

The aggregate fees billed and expected to be billed by MaloneBailey LLP for professional services rendered for the audit of our annual consolidated financial statements for the fiscal year ended December 31, 2015 and for the review of our consolidated financial statements for the fiscal year ended December 31, 2015 as well as services associated with the Form S-1 Registration Statement are $53,000. The aggregate fees billed by MaloneBailey LLP for professional services rendered for the audit of our annual consolidated financial statements for the fiscal year ended December 31, 2014 were approximately $52,000.

 

Audit Related Fees

 

There were no fees for audit related services for the years ended December 31, 2015.

 

Tax Fees

 

For the Company’s fiscal years ended December 31, 2015 and 2014, we were billed by MaloneBailey LLP, $0.00 and $0.00, respectively for professional services rendered for tax compliance, tax advice, and tax planning. The billings received by the Company in 2015 for professional services rendered for tax compliance, tax advice, and tax planning pertain to tax years 2015 and prior.

 

All Other Fees

 

The Company did not incur any other fees related to services rendered by our principal accountants for the fiscal years ended December 31, 2015 and 2014.

 

We do not have an audit committee. Our entire Board approves in advance audit and non-audit services to be provided by our independent accounting firms. No audit-related services were approved by the Board of Directors in accordance with Item 2-01(c)(7)(i)(C) of Regulation S-X during the fiscal years ended December 31, 2015 and December 31, 2014.

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) The following documents are filed as part of this report:

 

  (1) Financial Statements:

 

The audited consolidated balance sheets of the Company as of December 31, 2015 and, 2014, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended, the footnotes thereto, and the respective reports of MaloneBailey LLP, an independent registered public accounting firm, is filed herewith.

 

  (2) Financial Schedules:

 

None.

 

Financial statement schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial statements or notes hereto.

 

  (3) Exhibits:

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

 

(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

 

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
     
  may apply standards of materiality that differ from those of a reasonable investor; and
     
  were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

 21 
 

 

Exhibit No.   Description of Exhibit
2.1   Share Exchange Agreement by and between NAC Global Technologies, Inc. (formerly known as LipidViro Tech, Inc.), NAC Harmonic Drive, Inc., the principal shareholders of LipidViro Tech, Inc. and the shareholders of NAC Harmonic Drive, Inc., dated April 29, 2014(1)
3.1(i)(a)   Articles of Incorporation(1)
3.1(i)(b)   Articles of Merger filed with the States of Nevada and California, October 4, 2001(1)
3.1(i)(c)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada September 9, 2003(6)
3.1(i)(d)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada February 5, 2004(6)
3.1(i)(e)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada August 18, 2008(6)
3.1(i)(f)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada July 15, 2014(2)
3.1(ii)   By-Laws(1)
4.1   12% Convertible Promissory Note, dated April 29, 2014(4)
4.2   Form of 15% Convertible Promissory Note(8)
4.3   Form of 8% Convertible Promissory Note(6)
4.4   Form of 3% Convertible Promissory Note(7)
4.5   Form of Warrant dated January 8, 2015(7)
4.6   Form of 15% Secured Promissory Note dated May 1, 2015(9)
4.7   Form of Series A Warrant included in the Unit in this offering(9)
4.8   Form of Series B Warrant included in the Unit in this offering(9)
4.9   Form of Placement Agent’s Warrant (8)
10.1   Securities Purchase Agreement, dated April 29, 2014(4)
10.2   Registration Rights Agreement, dated April 29, 2014(4)
10.3   Form of Securities Purchase Agreement, 15% Convertible Note Offerings(8)
10.4   Form of Securities Purchase Agreement, 8% Convertible Note Offerings(6)
10.5   Securities Purchase Agreement, dated January 8, 2015(7)
10.8   Exclusive Manufacturing and Sales Representative and Distributor Agreement, by and between Beijing CTKM Harmonic Drive Co. LTD and NAC Harmonic Drive, Inc.(5)
10.9   New York Lease Agreement(4)
10.10   Florida Lease Agreement(4)
10.11   Agreement by and between NAC Global Technologies, Inc. and Conic Systems, Inc., dated August 25, 2014(3)
10.12†   Employment Agreement — Vincent Genovese(3)
10.13†   Agreement with Chief Executive Officer of Conic Systems Inc.(5)
10.14   Form of Placement Agent Agreement(9)
10.15   Form of Subscription Agreement(9)
21.1   List of Subsidiaries(6)
23.1*   Consent of MaloneBailey LLP
31.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 22 
 

 

101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.
Management Contract or compensatory plan or arrangement
   
(1) Filed as an Exhibit on 10-SB12G Registration Statement filed with the SEC on March 1, 2002.
(2) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on July 16, 2014
(3) Filed as an Exhibit on Amendment No. 3 to Current Report to Form 8-K filed with the SEC on August 26, 2014.
(4) Filed as an Exhibit on Amendment No. 2 to Current Report to Form 8-K filed with the SEC on July 21, 2014
(5) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on May 5, 2014.
(6) Filed as an Exhibit on Form S-1 filed with the SEC on December 15, 2014.
(7) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on January 12, 2015.
(8) Filed as an Exhibit on Form S-1/A filed with the SEC on January 20, 2015.
(9) Filed as an Exhibit on Form S-1/A filed with the SEC on June 23, 2015.

 

 23 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NAC Global Technologies, Inc.
     
Date: May 16, 2016 By: /s/ Vincent Genovese
    Vincent Genovese
    Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

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

 

Date: May 16, 2016 By: /s/ Vincent Genovese
   

Vincent Genovese

Chief Executive Officer,
Chief Financial Officer and Director

(Principal Executive Officer,
Principal Financial Officer and
Accounting Officer)

     
Date: May 16, 2016 By: /s/ Rita M. O’Connor
   

Rita M. O’Connor

Director

     
Date: May 16, 2016 By: /s/ Edward Haversang
   

Edward Haversang

Director

 

 24 
 

 

EXHIBIT INDEX

  

Exhibit No.   Description of Exhibit
2.1   Share Exchange Agreement by and between NAC Global Technologies, Inc. (formerly known as LipidViro Tech, Inc.), NAC Harmonic Drive, Inc., the principal shareholders of LipidViro Tech, Inc. and the shareholders of NAC Harmonic Drive, Inc., dated April 29, 2014(1)
3.1(i)(a)   Articles of Incorporation(1)
3.1(i)(b)   Articles of Merger filed with the States of Nevada and California, October 4, 2001(1)
3.1(i)(c)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada September 9, 2003(6)
3.1(i)(d)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada February 5, 2004(6)
3.1(i)(e)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada August 18, 2008(6)
3.1(i)(f)   Certificate of Amendment to Articles of Incorporation, filed with the States of Nevada July 15, 2014(2)
3.1(ii)   By-Laws(1)
4.1   12% Convertible Promissory Note, dated April 29, 2014(4)
4.2   Form of 15% Convertible Promissory Note(8)
4.3   Form of 8% Convertible Promissory Note(6)
4.4   Form of 3% Convertible Promissory Note(7)
4.5   Form of Warrant dated January 8, 2015(7)
4.6   Form of 15% Secured Promissory Note dated May 1, 2015(9)
4.7   Form of Series A Warrant included in the Unit in this offering(9)
4.8   Form of Series B Warrant included in the Unit in this offering(9)
4.9   Form of Placement Agent’s Warrant (8)
10.1   Securities Purchase Agreement, dated April 29, 2014(4)
10.2   Registration Rights Agreement, dated April 29, 2014(4)
10.3   Form of Securities Purchase Agreement, 15% Convertible Note Offerings(8)
10.4   Form of Securities Purchase Agreement, 8% Convertible Note Offerings(6)
10.5   Securities Purchase Agreement, dated January 8, 2015(7)
10.8   Exclusive Manufacturing and Sales Representative and Distributor Agreement, by and between Beijing CTKM Harmonic Drive Co. LTD and NAC Harmonic Drive, Inc.(5)
10.9   New York Lease Agreement(4)
10.10   Florida Lease Agreement(4)
10.11   Agreement by and between NAC Global Technologies, Inc. and Conic Systems, Inc., dated August 25, 2014(3)
10.12†   Employment Agreement — Vincent Genovese(3)
10.13†   Agreement with Chief Executive Officer of Conic Systems Inc.(5)
10.14   Form of Placement Agent Agreement(9)
10.15   Form of Subscription Agreement(9)
21.1   List of Subsidiaries(6)
23.1*   Consent of MaloneBailey LLP
31.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 25 
 

 

101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.
Management Contract or compensatory plan or arrangement
   
(1) Filed as an Exhibit on 10-SB12G Registration Statement filed with the SEC on March 1, 2002.
(2) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on July 16, 2014
(3) Filed as an Exhibit on Amendment No. 3 to Current Report to Form 8-K filed with the SEC on August 26, 2014.
(4) Filed as an Exhibit on Amendment No. 2 to Current Report to Form 8-K filed with the SEC on July 21, 2014
(5) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on May 5, 2014.
(6) Filed as an Exhibit on Form S-1 filed with the SEC on December 15, 2014.
(7) Filed as an Exhibit on Current Report to Form 8-K filed with the SEC on January 12, 2015.
(8) Filed as an Exhibit on Form S-1/A filed with the SEC on January 20, 2015.
(9) Filed as an Exhibit on Form S-1/A filed with the SEC on June 23, 2015.

 

26 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

December 31, 2015 and December 31, 2014

 

  Page
Financial Statements  
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders’ Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7

 

F-1 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

NAC Global Technologies, Inc.

Port Jervis, NY

 

We have audited the accompanying consolidated balance sheets of NAC Global Technologies, Inc. and its subsidiary (collectively, the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NAC Global Technologies, Inc. and its subsidiary as of December 31, 2015 and 2014 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ MaloneBailey, LLP  

www.malone-bailey.com

Houston, Texas

May 16, 2016

 

F-2 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

 

   December 31   December 31 
   2015   2014 
         
ASSETS
         
Current assets:        
Cash  $16,674   $8,224 
Accounts receivable   88,150    67,031 
Accounts receivable - related party   -    24,449 
Inventories   33,348    35,168 
Prepaid expenses   -    10,500 
Other current assets   1,500    - 
Deferred financing costs   -    48,725 
Total current assets   139,672    194,097 
           
Equipment net   838    1,397 
Deposits   -    63,800 
           
Total assets  $140,510   $259,294 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT
           
Current Liabilities:          
Accounts payable  $648,983   $390,578 
Accounts payable - related party   111,358    144,646 
Customer deposits   29,552    - 
Accrued expenses   99,103    129,145 
Short term debt   57,844    84,700 
Convertible notes, net of debt discount of $0 and $164,421   -    453,579 
Short-term debt - related parties   339,500    380,500 
Derivative liability   2,017,903    297,215 
Total current liabilities   3,304,243    1,880,363 
           
Long-term convertible debt, net of discount of $2,090 and $0   521,033    - 
Total liabilities   3,825,276    1,880,363 
           
Stockholders' deficit          
Common stock, $0.001 par value; 150,000,000 shares authorized; 35,662,014 and 25,250,001 shares issued and outstanding   35,662    25,250 
Additional paid in capital   289,892    611,105 
Accumulated deficit   (4,010,320)   (2,257,424)
           
Total stockholders' deficit   (3,684,766)   (1,621,069)
           
Total liabilities and stockholders' deficit  $140,510   $259,294 

  

See accompanying notes to consolidated financial statements

 

F-3 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year ended
December 31
 
   2015   2014 
         
Revenues   $684,274   $615,446 
Revenues - related party   13,332    36,195 
           
Cost of goods sold   484,176    489,956 
Gross profit   213,430    161,685 
           
Operating expenses          
Selling, general and administrative expenses   685,936    1,069,611 
           
Net loss from operations   (472,506)   (907,926)
           
Other income (expense)                         
Interest expense       (585,135)   (391,319)
Loss on debt extinguishment   (440,840)   - 
Other income   554    - 
Acquisition expenses   -    (275,000)
Unrealized derivative gain (loss)   (254,969)   44,682 
           
Net loss  $(1,752,896)  $(1,529,563)
           
Net loss per share - Basic and diluted  $(0.06)  $(0.06)
           
Weighted average shares outstanding - Basic and diluted   27,985,373    24,351,705 

 

See accompanying notes to consolidated financial statements

 

F-4 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT 

YEARS ENDED DECEMBER 31, 2015 AND 2014

 

           Additional       Total 
   Common stock   Paid-in   Accumulated   Stockholders' 
   Shares   Amount   Capital   Deficit   Deficit 
                     
Balance – December 31, 2013   22,764,969    22,765    334,110    (727,861)   (370,986)
                          
Reverse merger adjustment   1,875,000    1,875    (1,875)   -    - 
                          
Shares issued for services   555,032    555    239,820    -    240,375 
                          
Shares issued with debt   50,000    50    34,530    -    34,580 
                          
Shares issued as financing fees   5,000    5    4,520    -    4,525 
                          
Net loss                  (1,529,563)   (1,529,563)
                          
Balance - December 31, 2014   25,250,001    25,250    611,105    (2,257,424)   (1,621,069)
                          
Shares and warrants issued for cash, net of stock issuance costs   5,000,000    5,000    20,807    -    25,807 
                          
Shares issued for services   700,000    700    209,300    -    210,000 
                          
Shares and warrants issued for debt conversions and interest   4,687,013    4,687    1,059,009    -    1,063,696 
                          
Shares issued with debt   25,000    25    8,725    -    8,750 
                          
Warrant derivatives   -    -    (1,619,054)   -    (1,619,054)
                          
Net loss   -    -    -    (1,752,896)   (1,752,896)
                          
Balance - December 31, 2015   35,662,014   $35,662   $289,892   $(4,010,320)  $(3,684,766)

 

See accompanying notes to consolidated financial statements

 

F-5 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Years ended
December 31
 
   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(1,752,896)  $(1,529,563)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation   559    279 
Bad debt expense   -    586 
Stock compensation expense   210,000    240,375 
Shares issued for interest expense   75,000    - 
Write- off of intangible asset   -    33,369 
Write-off of deferred offering costs        47,449 
Unrealized derivative loss (gain)   254,969    (44,682)
Loss on extinguishment of debt   440,840    - 
Amortization of debt discounts and deferred financing fees   427,154    263,166 
Changes in operating assets and liabilities          
Accounts receivable   3,330    1,788 
Inventory   1,820    15,865 
Prepaid expenses and other current assets   15,000   (10,500)
Accounts payable   294,405    426,455 
Accounts payable - related party   (33,288)   82,073 
Customer deposits   29,552    - 
Accrued expenses   53,254    123,389 
Net cash provided by (used in) operating activities   19,699    (349,951)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of equipment   -    (1,676)
Deposits   63,800    (13,500)
           
Net cash provided by (used in) investing activities   63,800    (15,176)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from short-term debt   23,664    - 
Payments of short-term debt   (50,520)   (24,790)
Proceeds from short-term debt - related parties   25,000    160,000 
Payments of short-term debt - related parties   (66,000)   (19,818)
Proceeds from sale of common stock and warrants   102,875    - 
Proceeds from convertible debt   81,000    292,000 
Payment of stock issuance costs   (191,068)   (44,310)
           
Net cash provided by (used in) financing activities   (75,049)   363,082 
           
NET INCREASE (DECREASE) IN CASH   8,450    (2,045)
           
CASH AT BEGINNING OF PERIOD   8,224    10,269 
CASH AT END OF PERIOD  $16,674   $8,224 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Interest paid  $104,543   $23,785 
Income taxes paid   -    - 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES          
Deferred financing fees paid through issuance of notes   9,000    - 
Prepaid interest paid through issuance of note   6,000    - 
Legal fees paid through issuance of note   10,000    - 
Convertible debt and fees paid with proceeds from units offering   114,000    - 
Convertible debt converted to equity   170,000    - 
Accrued interest added to debt principal   63,123    - 
Shares issued with debt   -    34,580 
Shares issued with deferred financing costs   -    4,525 
Debt discount resulting from derivative liability   270,116    341,897 
Warrant derivatives issued   1,619,054    - 
Acquisition expenses paid out of convertible debt proceeds   -    275,000 

   

See accompanying notes to consolidated financial statements

 

F-6 
 

 

NAC GLOBAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Operations

NAC Global Technologies, Inc. (referred to herein as the “Company,” “we” and “our”) is an engineering services, R&D, and manufacturing company. We have one wholly owned subsidiary, NAC Drive Systems, Inc., a manufacturer and supplier harmonic gearing technology (“HGT”) that operates in the robotics, automation, and medical industries amongst others. HGT is a premier technology in industries where very high precision, long-life, compactness, light weight, and reliability are important factors. In additional to robotics applications, we see HGT use expanding across multiple industries and geographies including aerospace, energy, and defense. We are partnered with CTKM Beijing Harmonic Drive, LTD., the national supplier of HGT to the China Space Agency. We manufacture our HGT components in Beijing, China, and perform final assembly and quality control in Port Jervis, New York. Our corporate headquarters is located in Jacksonville, Florida.

 

Basis of Presentation

The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

 

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and cash equivalents

For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less.

 

Revenue recognition

All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue from product sales is generally recognized when products are shipped to customers. The Company’s revenues include sales to customers domiciled outside of the United States. Generally, these sales are denominated in U.S. dollars.

 

Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods when the applicable revenue recognition criteria have been met.

 

All amounts billed to customers for shipping and handling costs are included in revenues in the consolidated statements of operations.

 

Accounts receivable

Accounts receivable arise from the sale of products on trade credit terms and are stated net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers which may result in the requirement of a deposit before fulfillment of the terms of the sales orders. Accounts are generally considered past due after 30 days. Past due receivables do not accrue interest. An allowance for doubtful accounts is provided for those accounts receivables considered to be uncollectable based on historical experience and management’s evaluation of outstanding receivable amounts at the end of the period. The Company has determined that no allowance for doubtful accounts is required as of December 31, 2015 and 2014.

 

Inventory

Inventory consists primarily of purchased finished goods and packaging materials. Inventory costs are determined using the average method and are carried at the lower of cost or net realizable value. Inventory is reviewed periodically for slow-moving and obsolete items.

 

F-7 
 

 

Deferred offering costs

Deferred offering costs at December 31, 2015 and 2014 include costs incurred from third parties in connection with the Company’s planned equity offering. Such costs will be offset against future proceeds from the sale of shares of common stock arising from such equity offering. At December 31, 2014, deferred offering costs were written off to zero based on management’s assessment that the planned equity offering is not likely to occur.

 

Property and equipment, net

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets of 2 years. Maintenance and repairs are charged to expense as incurred. Depreciation expense was $559 and $279 for the years ended December 31, 2015 and 2014, respectively.

 

Intangible assets

The Company elects to capitalize intangible assets associated with legal costs and fees incurred by the Company in connection with patent applications. Intangible assets were fully written off as of December 31, 2014.

 

Long-lived assets

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. When such events or changes in circumstances occur, the Company recognizes an impairment loss if the undiscounted future cash flows expected to be generated by the asset is less than the carrying value of the related asset. In those circumstances an impairment loss is recorded to adjust the asset to its fair value. Management has determined that no impairment exists as of December 31, 2015 and 2014.

 

Advertising costs

Advertising costs are expensed as incurred. Advertising expense was $1,717 and $6,584 for the years ended December 31, 2015 and 2014, respectively.

 

Warranty costs

Provisions for estimated warranty and other related costs are recorded in cost of sales at the time of sale and are periodically adjusted to reflect actual experience. The amount of warranty liability accrued reflects management’s best estimate of the expected future cost of honoring Company obligations under the warranty plan. The Company’s estimates are based on historical experience. At December 31, 2015 and 2014 there was no warranty liability accrued.

 

Stock-Based Compensation

The Company accounts for share-based awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Awards given to nonemployees are accounted for under ASC 505 where the awards are valued at earlier of commitment date or completion of services.

 

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

 

F-8 
 

 

The Company follows the provisions of uncertain tax positions as addressed in FASB Accounting Standards Codification (FASB ASC) 740-10-65. These standards require management to perform evaluation of all income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed to all open tax years, as defined by the various statutes of limitations, for federal and state purposes.

 

The Company is required to file federal and state income tax returns. With limited exceptions, NAC is no longer subject to U.S. federal income tax and state income tax examinations for years before 2009.

 

Management has performed its evaluation of all other income tax positions taken on all open income tax returns and has determined that there were no positions taken that do not meet the “more likely than not” standard. Accordingly, there are no provisions for income taxes, penalties or interest receivable or payable relating to uncertain income tax provisions in the accompanying financial statements.

 

From time to time, NAC may be subject to interest and penalties assessed by various taxing authorities. These amounts have historically been insignificant and are classified as income taxes when they occur.

 

Principles of consolidation

The consolidated financial statements include the accounts of NAC Global Technologies, Inc. and its wholly-owned subsidiary, NAC Drive Systems, Inc. All intercompany accounts and transactions are eliminated in consolidation.

 

Concentration of risks

The Company maintains its cash primarily in one financial institution. The balance, at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk to cash.

 

Three customers accounted for approximately 24%, 16% and 11%, respectively, of the Company’s revenues for the year ended December 31, 2015. Three customers accounted for approximately 34%, 17% and 10%, respectively, of the Company’s revenues for the year ended December 31, 2014. In addition, these customers accounted for 49% and 46% of the Company’s accounts receivable balance at December 31, 2015 and 2014, respectively.

 

                    Accounts        
        Customer     % of Total     Receivable        
Year Ended December 31, 2015   Customer   Sales     Revenue     (AR)     % of AR  
    1   $ 172,019       24 %   $ 14,256       16 %
    2   $ 114,360       16 %   $ -       - %
    3   $ 75,816       11 %   $ 29,592       33 %
        $ 362,195       51 %   $ 43,848       49 %

 

                    Accounts        
        Customer     % of Total     Receivable        
Year Ended December 31, 2014   Customer   Sales     Revenue     (AR)     % of AR  
    1   $ 222,264       34 %     21,708       24 %
    2   $ 111,200       17 %     -       - %
    3   $ 67,392       10 %   $ 20,592       22 %
        $ 400,856       61 %   $ 42,300       46 %

  

The Company sells to both domestic and international customers. For the years ended December 31, 2015 and 2014, revenues generated through transactions with international customers amounted to approximately 30% (16% Hong Kong, 5% Switzerland, 5% Brazil, 4% other) and 25% (17 % Hong Kong, 3% India, 3% Canada, 2% other) of the Company’s total revenues respectively.

 

NAC currently purchases all of its drive components from one supplier. The loss of this supplier could cause delays and a possible loss of sales which would affect operating results adversely.

 

F-9 
 

 

Fair value measurements

The carrying amounts reported in the consolidated balance sheets for accounts receivable and payables, inventory and debt are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, the stated rate of interest is equivalent to rates currently available.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:

 

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value.

 

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2015 and 2014.

 

As of December 31, 2015  Amount   Level 1   Level 2   Level 3 
Embedded conversion derivative liability  $791,563    -    -   $791,563 
Warrant derivatives   1,226,340    -    -    1,226,340 
   $2,017,903   $-   $-   $2,017,903 

 

As of December 31, 2014  Amount   Level 1   Level 2   Level 3 
Embedded conversion derivative liability  $$297,215                $$297,215 

 

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2015 and 2014:

 

Balance at December 31, 2013  $- 
Fair value of embedded conversion derivative liability at issuance   341,897 
Unrealized derivative gain included in other expenses   44,682 
Balance at December 31, 2014  $297,215 
Fair value of embedded conversion derivative liability at issuance   1,889,170 
Unrealized derivative loss included in other income (expense)   254,969 
Fair value of derivative liability associated with debt converted and settled   (423,451)
Balance at December 31, 2015  $2,017,903 

 

The fair value of the derivative liability is calculated at the time of issuance and the Company records a derivative liability for the calculated value. The derivative liability is marked to market at each reporting period and changes in the fair value of the derivative liability are recorded in other income (expense) in the consolidated statements of operations.

 

The following are the assumptions used for derivative instruments valued using the Black-Scholes option pricing model:

 

       At
December 31,
   At
December 31,
 
   At issuance    2015   2014 
Market value of stock on measurement date   $0.06 – 0.41   $0.04   $0.48 
Risk-free interest rate   0.08-1.41%   0.65-1.76 %   0.04%
Dividend yield   0%   0%   0%
Volatility factor   89-160%   174-228%   151%
Term   0.51-5 years    0.02 - 4.78 years   0.33 years 

 

 

Recently adopted accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

F-10 
 

 

NOTE 2 - REVERSE MERGER

 

Effective April 29, 2014, NAC entered into a share exchange agreement with LipidViro Tech, Inc. (“LipidViro”), pursuant to which NAC agreed to exchange the outstanding common stock of NAC held by NAC’s shareholders for 23,125,001 shares of common stock (92.5% interest) of LipidViro.

 

For accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of LipidViro. NAC is considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements of the registrant. The historical consolidated financial statements include the operations of the accounting acquirer for all periods presented.

 

The share exchange agreement also required NAC to pay LipidViro’s shareholders additional consideration of $275,000 which was recognized as acquisition expenses in the consolidated statements of operations.

 

On July 15, 2014, LipidViro changed its name to NAC Global Technologies, Inc.

 

NOTE 3 - GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, during the year December 31, 2015, the Company incurred net losses of $1,752,896  and has a working capital deficit of $3,164,571 If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The consolidated financial statements do not include any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company is taking certain steps to provide the necessary capital to continue its operations. These steps include, but are not limited to: (1) focus on sales to minimize the need for capital at this stage; (2) raise additional equity or debt financing; and (3) continue focus on reductions in cost where possible.

 

NOTE 4 - INVENTORIES

 

Inventories at December 31 consist of the following:

 

   2015   2014 
Finished goods  $29,057   $30,375 
Packaging materials   4,291    4,793 
   $33,348   $35,168 

 

NOTE 5 - DEBT

 

Short-term debt

 

As of December 31, 2015, the Company had a term loan with a third party financial institution for $124,000 with an outstanding balance of $57,844. The note is subject to annual interest of 4.5%. The note is collateralized by all of the assets of NAC and Conic Systems Inc. (“Conic”), an entity owned by the Company’s CEO, and a guarantee issued by the Company’s CEO. $26,856 was repaid on this note during the year ended December 31, 2015. The outstanding balance under this note was $84,700 as of December 31, 2014.

 

On May 1, 2015, the Company issued a revolving $30,000 note for inventory financing. The note is subject to a 15% annual interest rate and has a term of 120 days. Aggregate borrowings and repayments under this revolving note during the year ended December 31, 2015 were $23,664 and $23,664, respectively. 

 

Debt with related parties

As of December 31, 2015 and 2014, the Company has an outstanding non-interest bearing loans from its CEO and majority shareholder, amounting to $14,500 and $20,500 respectively. The Company also obtained a loan from a family member of the CEO amounting to $200,000 which is subject to annual interest of 3% and $140,000 and $200,000 is outstanding as of December 31, 2015 and 2014 respectively. Both loans have no stated maturity dates.

 

On January 20, 2014, the Company obtained a non-interest bearing loan from the CEO amounting to $115,000. The loan matured on May 30, 2014 and is currently past due. In May, 2015 the CEO assigned the note to Conic . The outstanding balance under this note was $115,000 as of December 31, 2015 and 2014.

 

In January and April 2014, the Company obtained non-interest bearing loans from a director each amounting to $10,000. The loans have a term of 6 months and the outstanding balance on these loans as of December 31, 2015  and 2014 amounted to $20,000 and are currently past due.

 

In April 2014, the Company issued a note to a director amounting to $25,000. The note is subject to annual interest of 12.5% and a minimum interest of $1,562. The note shall be paid at the earlier of the Company’s receipt of $50,000 in debt or equity funding or 365 days. The outstanding balance on this note as of December 31, 2015  and 2014 amounted to $25,000 and is currently past due.

 

In August 2015, Conic loaned NAC Global Technologies, Inc. $25,000 at zero interest with a maturity date of December 31, 2015. As of December 31, 2015, the full principal amount of the note remains outstanding and is currently past due.

 

Convertible debt

The Company issued a 12% convertible note in 2014 for a total amount of $375,000 to a third party which had a term of 1 year and a conversion price of $0.30. On September 23, 2015 the note was amended and restated to a total amount of $438,123 which included accrued interest with a due date of March, 23, 2016. Beginning on October 15, 2015 and on each of the following 6 successive months thereafter, the Company is obligated payments of $5,000 per month. All overdue accrued and unpaid interest is subject to a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law. The Company may prepay the note for the sum of the then outstanding principal amount of the convertible note and guaranteed interest multiplied by 125%. The note includes a reset provision in the conversion price in the event the Company subsequently sells shares at a price lower than $0.30. As a result, the Company determined that the conversion feature of the note qualified for derivative accounting. The fair value of the embedded conversion feature as determined using the Black-Scholes option pricing model amounted to $341,987 which was recognized as a debt discount and amortized over the term of the note. The Company also paid fees to the lender amounting to $10,000 which was also recognized as a debt discount at the note’s 2014 inception and was amortized over the term of the note. Principal payments of $15,000 were made in 2015 and as of December 31, 2015, the note has an outstanding balance of $423,123. In April 2016, the note was further amended to extend the maturity date to December 31, 2018 with monthly payments of $5,000 to start in July 2017.

 

F-11 
 

 

During 2014, the Company issued two 12% notes for a total amount of $100,000 to third parties, which have a one year term and are convertible to common stock beginning four months from the issuance date of the notes or upon an event of default. The conversion price on the notes is equivalent to 70% of the lowest daily VWAP (volume weighted average price) during the 10 day trading period immediately prior to conversion. The notes contain an embedded derivative but are not recognized until the notes become convertible. Based on the above terms, the Company determined that the conversion feature of the notes do not qualify for derivative accounting as of December 31, 2014. The Company is obligated to pay the principal amount and accrued interest on the date of its planned public offering. In connection with the notes, the Company issued 25,000 common shares to the note holders with a relative fair value of $24,421 which was recognized as a discount to the notes. The Company also issued 2,500 common shares with a fair value of $3,250 and paid $12,000 fees both of which were recognized as deferred financing fees. The debt discount and deferred financing fees were amortized over the term of the note. On January 13, 2015, these notes were amended to increase the interest rate from 12% to 15% and 25,000 additional shares of common stock were issued in connection with the modification. The modification was deemed substantial and was accounted for as a debt extinguishment under ASC 470. The fair value of the additional shares issued, including the unamortized debt discount and deferred financing fees, at the date of modification totaling to $34,878 was recognized as a loss on debt extinguishment. These two notes also became convertible in 2015. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $88,419 was recognized as a debt discount and amortized over the term of the note. These notes were converted to equity in 2015 and as December 31, 2015 have zero outstanding balances. See also Note 6.

 

During 2014, the Company issued two 8% convertible notes to a third party for a total amount of $93,000 with a term of one year and are convertible to common stock beginning six months from the issuance of the date of the notes or upon event of default. The conversion price is equivalent to 70% of the averages of the lowest five (5) closing bid prices during the 10 day trading period immediately prior to conversion. In the event of default, the Company is obligated to pay 150% of the sum of the then due outstanding principal plus any unpaid and outstanding interest. The notes contain an embedded derivative but are not recognized until the notes become convertible. Based on the above terms, the Company determined the conversion feature of the note do not qualify for derivative accounting as of December 31, 2014. The Company paid debt discount of $23,000 that was amortized over the term of the notes. These notes became convertible in 2015. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $54,517 was recognized as a debt discount and amortized over the term of the note. During the year ended December 31, 2015, $20,000 of these notes were converted to equity (see Note 6) while the balance of $73,000 was repaid. As December 31, 2015 these notes have zero outstanding balances.

 

On December 22, 2014 the Company issued a 15% note in the amount of $50,000 to a third party, which has a one year term and is convertible to common stock beginning four months from the issuance date of the note or upon an event of default. The conversion price is equivalent to 70% of the lowest daily VWAP (volume weighted average price) during the 10 day trading period immediately prior to conversion. The note contains an embedded derivative but is not recognized until the note becomes convertible. Based on the above terms, the Company determined that the conversion feature of the note does not qualify for derivative accounting as of December 31, 2014. The Company is obligated to pay the principal amount and accrued interest on the date of its planned public offering. In connection with the note, the Company issued 25,000 common shares to the note holder with a relative fair value of $10,159 which was recognized as a discount to the note. The Company also issued 2,500 common shares with a fair value of $1,275 and paid $6,000 fees both of which were recognized as deferred financing fees. The debt discount and deferred financing fees were amortized over the term of the note. This note became convertible in 2015. Due to the variable conversion rate on the note, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $34,858 was recognized as a debt discount and amortized over the term of the note. The note was converted to equity in 2015 and as December 31, 2015 has an outstanding balance of zero. See also Note 6.

 

On January 8, 2015, the Company issued a 3% original issue discount convertible note to an accredited investor in the amount of $109,000 with a term of one (1) year and a conversion price equal to the lower of $0.50 or 80% of the share price that will be used by the Company in its next share issuance. In connection with the issuance of the note, the Company also issued warrants to purchase 21,800 shares of common stock at an exercise price of $0.63 per share and a term of two (2) years. The note is subject to annual interest of 12% and the Company was required to prepay six (6) months of interest amounting to $6,000 which is included in the principal amount. Due to the variable conversion rate on the note, the embedded conversion feature and the warrants issued with the note qualified for derivative accounting. The fair value of the embedded conversion option and the warrants including the original issue discount of $3,000 totaled $95,322 was recognized as a discount to the note. The Company also paid deferring financing fees of $9,000. The debt discount and deferred financing fees were amortized over the term of the note. In April 2016, the note was amended to extend the maturity date to December 8, 2018 with monthly interest payments of $1,000 to start in July 2016. 

 

In connection with the above notes, the Company also incurred legal costs in 2014 of $44,310 which were deferred and amortized over the term of the notes. Amortization expense during the years ended December 31, 2015 and 2014 for both the debt discount and deferred financing fees amounted to $427,154 and $263,166, respectively. As of December 31, 2015 and 2014, the unamortized discount amounted to $$2,090 and $164,421, respectively.

 

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NOTE 6 - EQUITY

 

Common stock

 

During the year ended December 31, 2015, the Company issued 700,000 shares of common stock for consulting services. The fair value of the shares amounting to $210,000 was recognized as stock-based compensation expense.

 

On January 13, 2015, the Company issued 25,000 shares of common stock in connection with the modification of two existing convertible notes. The fair value of the shares amounting to $8,750 was recognized as a loss on debt extinguishment. See Note 4.

 

During the year ended December 31, 2015, the Company issued 187,013 shares of common stock in connection with the conversion of $20,000 principal amount of convertible debt. The Company compared the fair value of the shares issued with the carrying value of the notes converted which includes the corresponding unamortized debt discount and the derivative liability at the date of conversion and recognized a loss on debt extinguishment upon conversion amounting to $3,786.

 

On October 9, 2015, the Company closed its previously announced public offering of Units (“Units” or each a “Unit”), each Unit consisting of one share of common stock, par value $0.001 per share, two Series A Warrants each to purchase one share of common stock and one Series B warrant to purchase one share of common stock. The Company offered 9,500,000 Units at a price to the public of $0.05 per Unit, and received gross proceeds from the offering, before deducting placement agent fees and expenses payable by the Company, of approximately $475,000 which such amount consisting of $250,000 of cash from certain investors, $150,000 of convertible notes and $75,000 of unpaid interest that are being exchanged for the Units in this Offering. The Company issued 5,000,000 Units for cash and 4,500,000 Units with the convertible notes and unpaid interest exchanged in this Offering. The Company compared the fair value of the shares and warrants issued with the carrying value of the liabilities converted which includes the corresponding unamortized debt discount and the derivative liability at the date of conversion and recognized a loss on debt extinguishment upon conversion amounting to $402,176. The Company also issued incurred stock issuance costs of $224,193 which were charged to additional paid in capital.

 

On March 14, 2013, the Company awarded of 360,032 post merger common shares to a director which will vest upon completion of the Company’s planned equity raise. Management determined that the performance condition is probable as of December 31, 2013 and the shares were subsequently issued in April 2014. The shares were valued at $287,500 based on the Company’s stock price, and $215,625 was recognized for the year ended December 31, 2013. The remaining stock compensation expense of $71,875 was recognized during the year ended December 31, 2014.

  

During the year ended December 31, 2014, the Company issued fully vested 195,000 common shares with a fair value of $168,500, to consultants for investor relation and consulting services.

 

During the year ended December 31, 2014, the Company issued 50,000 common shares with the convertible notes and 5,000 common shares as financing fees (see Note 5

 

During the year ended December 31, 2014, the Company issued 1,875,000 common shares in connection with a reverse merger. (see Note 2). 

  

Warrants

 

During the year ended December 31, 2015, the Company issued the following warrants:

 

·21,800 warrants with its 3% convertible note. The warrants have an exercise price of $0.50 per share and a term of two years
   
·19,000,000 Series A and 9,500,000 Series B warrants in connection with the Company’s Units offering. The Series A warrants have an exercise price of $0.05 per share and a term of five years. The Series B warrants have an exercise price equivalent to 75% of the lowest volume weighted average price (“VWAP”) during the twenty (20) trading days immediately prior to the applicable exercise date and a term of five years. The Series B warrants may only be exercised once all Series A warrants have been exercised.
   
·250,000 warrants to the placement agent in connection with the Company’s Units offering. The warrants have an exercise price of $0.06 per share and term of five years.

 

The warrants qualified for derivative accounting and the fair value of the warrants at the date of issuance were either recognized as debt discount or as a charge to additional paid in capital with a corresponding credit to derivative liability (see Note 1). As of December 31, 2015, outstanding warrants totaling to 28,771,800 have a weighted average exercise price of $0.04, a weighted average remaining term of 4.78 years and intrinsic value of $142,500.

 

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NOTE 7 - RELATED PARTY TRANSACTIONS

 

On August 24, 2011, the Company entered into a Shareholder Option Sale Agreement (the “Purchase Agreement”) with Mr. Genovese, the Company’s Chief Executive Officer, to acquire all of his shares in Conic at an agreed consideration of $1,200,000, which increases at a rate of 4.875% per year. In connection with the Purchase Agreement, the Company has paid to Mr. Genovese $63,800 as of December 31, 2014. Mr. Genovese refunded the deposit in May 5, 2015 and the Company has no current plans or means to consummate the acquisition of Conic.

 

The Company recognized revenues for products sold to Conic amounting to $13,332 on income statement and $36,195 for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, outstanding accounts receivable from Conic for such sales were $0 and $24,449, respectively.

 

Conic also bills the Company for certain expenses related to warehousing, shipping and receiving, packing, quality control, drafting, testing, machining, equipment use, payroll and employee benefits, rent and occupancy costs, advertising, travel expenses and other expenses paid for by Conic on behalf of the Company. Payroll and employee benefits billed to the Company were for personnel who spend a percentage of their time on the Company’s operations. The administrative and warehouse facilities used by the Company are owned by the majority shareholder and the allocable cost related to the use of these facilities are likewise charged to the Company by Conic. For the years ended December 31, 2015 and December 31, 2014, Conic billed the Company fees of $90,576 and 137,548, respectively. The outstanding amount payable to Conic related to the above expenses amounted to $111,358 and $144,646 as of December 31, 2015 and 2014, respectively.

 

NOTE 8 - INCOME TAXES

 

Income taxes for the years ended December 31, 2015 and 2014 are summarized as follows:

 

   2015   2014 
Current:        
Federal  $-   $- 
State  $-   $- 
Deferred benefit  $(167,973)  $(428,282)
Change in valuation allowance  $167,973  $428,282 
Income tax expense  $-   $- 

 

Components of the deferred tax assets are presented in the table below. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry forward cannot reasonably be assured.

 

   2015   2014 
         
Net operating loss carry forwards  $895,543   $727,765 
Valuation allowance   (895,543)   (727,765)
Net deferred tax assets  $-   $- 

 

As of December 31, 2015, NAC has cumulative net operating loss carryforwards (“NOLs”) amounting to $2,238,858  which will begin to expire in 2022. The availability of the Company’s NOLs is subject to limitation if there is a 50% or more positive change in the ownership of the Company’s stock.

 

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NOTE 9 - SUBSEQUENT EVENTS

 

On April 21, 2016 the Company issued 750,000 shares of common stock to a business consultant in connection with a 90 day consulting agreement that commenced on March 17, 2016.

 

On April 25, 2016 the Company amended a 12% Convertible Note originally dated April 29, 2014 with a principal balance of $423,123. The amended terms extend the due date to December 31, 2018; no payments are required until July 23, 2017; therefore, the Company is required to make monthly payments of $5,000; the Note Holder waived voluntary conversion rights until January 1, 2018, and the Note may be repaid in part of in full without any prepayment penalties or fee.

 

On April 26, 2016 the Company a 3% Original Issue Discount Convertible Promissory Notes originally dated January 8, 2015 with a principal balance of $100,000. The amended terms extend the due date to December 8, 2018; the Company is required to make monthly payments of $1,000; the Note Holder waived voluntary conversion rights until January 1, 2018, and the Note may be repaid in part of in full without any prepayment penalties or fee.

 

 

 

F-15