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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

☒

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

For the fiscal year ended December 31, 2019

or

 

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from             to             

Commission File No. 001-32919

 

Ascent Solar Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-3672603

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

12300 Grant Street, Thornton, CO

 

80241

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number including area code: 720-872-5000  

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

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, $0.0001 par value per share

 

OTCBB Market

 

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

None

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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☐     No   ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

☐

  

Accelerated filer

 

☐

 

 

 

 

 

 

 

Non-accelerated filer

 

☐

  

Smaller reporting company

 

☒

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

☐

 

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

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 June 28, 2019 , the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $696,000 based upon the last reported sale price of the registrant’s common stock on that date as reported by OTCBB Market, operated by OTC Markets Group Inc.

As of January 29, 2021, there were 18,102,583,471 shares of our common stock issued and outstanding.

 

 

 

 

ASCENT SOLAR TECHNOLOGIES, INC.

Form 10-K Annual Report

for the Fiscal Year ended December 31, 2019

Table of Contents

 

 

 

Page

PART I

 

Item 1.

Business

1

Item 1A.

Risk Factors

11

Item 1B.

Unresolved Staff Comments

20

Item 2.

Properties

20

Item 3.

Legal Proceedings

20

Item 4.

Mine Safety Disclosures

20

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

21

Item 6.

Selected Financial Data

21

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 8.

Financial Statements and Supplementary Data

28

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

28

Item 9A.

Controls and Procedures

28

Item 9B.

Other Information

30

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

31

Item 11.

Executive Compensation

37

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

38

Item 13.

Certain Relationships and Related Transactions, and Director Independence

39

Item 14.

Principal Accounting Fees and Services

41

PART IV

 

Item 15.

Exhibits, Financial Statement Schedules

42

Item 16.

Form 10-K Summary

45

 

Signatures

46

 

 

 

 

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes “forward-looking statements” that involve risks and uncertainties. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future net sales or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information and, in particular, appear under headings including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” When used in this Annual Report, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “foresees,” “likely,” “may,” “should,” “goal,” “target,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this Annual Report.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this Annual Report in the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Factors you should consider that could cause these differences are:

 

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Our limited operating history and lack of profitability;

 

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Our ability to develop demand for, and sales of, our products;

 

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Our ability to attract and retain qualified personnel to implement our business plan and corporate growth strategies;

 

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Our ability to develop sales, marketing and distribution capabilities;

 

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Our ability to successfully develop and maintain strategic relationships with key partners, including OEMs, system integrators, distributors, retailers and e-commerce companies, who deal directly with end users in our target markets;

 

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The accuracy of our estimates and projections;

 

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Our ability to secure additional financing to fund our short-term and long-term financial needs;

 

•

Our ability to maintain the listing of our common stock on the OTCBB Market;

 

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The commencement, or outcome, of legal proceedings against us, or by us, including ongoing ligation proceedings;

 

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Changes in our business plan or corporate strategies;

 

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The extent to which we are able to manage the growth of our operations effectively, both domestically and abroad, whether directly owned or indirectly through licenses;

 

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The supply, availability and price of equipment, components and raw materials, including the elements needed to produce our photovoltaic modules;

 

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Our ability to expand and protect the intellectual property portfolio that relates to our consumer electronics, photovoltaic modules and processes;

 

•

Our ability to implement remediation measures to address material weaknesses in internal control;

 

•

General economic and business conditions, and in particular, conditions specific to consumer electronics and the solar power industry; and

 

•

Other risks and uncertainties discussed in greater detail in the section captioned "Risk Factors."

There may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect subsequent events or circumstances after the date made, or to reflect the occurrence of unanticipated events, except as required by law.

References to “we,” “us,” “our,” “Ascent,” “Ascent Solar” or the “Company” in this Annual Report mean Ascent Solar Technologies, Inc.

 

 

 

PART I

Item 1. Business

Business Overview

Ascent Solar was formed in October 2005 as a spinoff from technology incubator, ITN Energy Systems, Inc. (“ITN”), of its Advanced Photovoltaic Division and all of that division’s key personnel and core technologies to commercialize flexible photovoltaic (“PV”) modules using our proprietary monolithic integration thin film technology. The technology was initially developed at ITN beginning in 1994 and subsequently assigned and licensed to us at formation in 2005. Our proprietary manufacturing process deposits multiple layers of materials, including a thin film of highly efficient copper-indium-gallium-diselenide (“CIGS”) semiconductor material, on a flexible, lightweight, high tech plastic substrate using a roll-to-roll manufacturing process followed by laser patterning the layers to create interconnected PV cells, or PV modules, in a process known as monolithic integration. We believe that our unique technology and manufacturing process, which results in a much lighter, flexible yet durable module package, provides us with unique market opportunities relative to both the crystalline silicon (“c-Si”) based PV manufacturers that currently lead the PV market, as well as other thin film PV manufacturers that use substrate materials such as glass, stainless steel or other metals that can be heavier and more rigid than plastics.

We believe that the use of CIGS on a flexible, durable, lightweight, high tech plastic substrate will allow for unique and seamless integration of our PV modules into a variety of applications such as aerospace, defense, transportation, electronic products, off-grid structures and building integrated, as well as other products and applications that may emerge. For markets that place a high premium on weight, such as defense, space, near space, and aeronautic markets, we believe our materials provide attractive increases in power-to-weight ratio (specific power), and that our materials have superior specific power and voltage-to-area ratios than competing flexible PV thin film technologies. These metrics will be critical as we position ourselves to compete in challenging high value markets such as aerospace where Ascent Solar products can be integrated into satellites, near earth orbiting vehicles, airships and fixed wing unmanned aerial vehicles ("UAV").

Product History

In March 2008, we demonstrated initial operating capacity of our first production line by beginning production trials as an end-to-end integrated process. Initial operating capacity production trials resulted in average thin film device efficiencies of 9.5% and small area monolithically integrated module efficiencies of over 7.0%. During 2008, optimization trials resulted in thin film device efficiencies in the 9.5% to 11.5% range and corresponding module efficiencies in the 7.0% to 9.0% range. The test modules measured approximately 15 centimeters wide by 30 centimeters long. During the first quarter of 2009, we began limited production of monolithically integrated flexible CIGS modules in our initial production line. Our primary business model, at that time, was based upon mass production of solar modules of varying lengths, sizes and configurations. We provided sample modules to potential customers and development partners in various industries to explore integration of our products into new applications.

In July 2009, we obtained independent verification by the U.S. Department of Energy’s National Renewable Energy Laboratory (“NREL”) that our modules of approximately 15 centimeters wide by 30 centimeters long measured 10.4% in conversion efficiency. The modules tested at NREL were approximately 15 centimeters wide by 30 centimeters long. In October 2009, NREL further verified our achievement of a manufacturing milestone of 14.0% cell efficiency as well as a peak efficiency of 11.4% for CIGS modules. Later, in December 2010, we achieved 12.1% module efficiency on the same form factor. In October 2010, we completed internal qualification testing of a flexible packaging solution which successfully passed the rigorous standard of one thousand (1,000) hours of damp heat testing (85% relative humidity and 85° C temperature) guideline set forth by International Electrotechnical Commission (“IEC”) 61646 standards for performance and long-term reliability of thin film solar modules.

In February 2010, three of our product configurations were certified by an independent laboratory on a variety of U.S. Department of Defense (“DOD”) rugged standards known as MIL-STD-810G. In October 2010, we completed full external certification under IEC 61646 at an independent laboratory of a two-meter module. Achieving this certification is required for building integrated photovoltaic ("BIPV") and building applied photovoltaic ("BAPV") applications used in commercial, industrial and residential rooftop markets. Certification activities will continue as required as we introduce new products and make changes or improvements to our already certified products.

In 2010, we received an award from R&D Magazine and were recognized as one of the 100 Most Innovative Technologies based on our process of monolithic integration on polyimide substrate. In 2011, Time Magazine selected us as one of the 50

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Best Inventions of the year. In 2015 Ascent Solar won its second R&D 100 Award. The 2015 award was given for the development of the MilPak™ platform, a military-grade (MIL-STD-810G tested) and fully integrated solar power generation and storage unit incorporated with a Maximum Peak Power Tracking (MPPT) management system. The MilPak platform is one of the most rugged, yet lightweight, power generation and storage solutions available, both attributes enabled by the use of Ascent’s CIGS technology.

In 2012, we evolved our business model to include B2C, solution based, PV integrated consumer electronics to complement our off grid high value solar power generation strategy. In June of 2012, we launched our new line of consumer products under the EnerPlex™ brand, and introduced our first product, the Surfr™; a battery and solar case for the Apple® iPhone® 4/4S smart phone featuring our ultra-light CIGS thin film technology integrated directly into the case. The case incorporates our ultra-light and thin PV module into a sleek, protective iPhone 4/4S case, along with a thin, life extending, lithium-polymer battery. The case adds minimal weight and size to an iPhone smartphone, yet provides supplemental charging when needed. In August of 2012, we announced the launch of the second version of the Surfr for the Samsung® Galaxy S® III, which provides 85% additional battery life.

In December 2012, we launched the EnerPlex Kickr™ and EnerPlex Jumpr™ product series. The Kickr IV was an extremely portable, compact and durable solar charging device, approximately seven inches by seven inches when folded, and weighs less than half a pound. The Kickr IV provides 6.5 watts of regulated power that can help charge phones, digital cameras, and other small USB enabled devices. The Kickr IV is ideal for outdoor activities such as camping, hiking and mountain climbing as well as daily city use. To complement the Kickr IV, we also released the Jumpr series of portable power banks in December of 2012. The Jumpr series provides a compact power storage solution for those who need to recharge their portable electronics while on the go.

During 2013, the EnerPlex brand rapidly expanded with the addition of two new product series as well as over fifteen new products. In 2013, we introduced further additions to the Jumpr line of portable power banks; releasing the Jumpr Mini and Jumpr Stack in August and the Jumpr Max in September. The latest additions to the Kickr line of portable solar chargers, the Kickr I and Kickr II, were introduced in August at the Outdoor Retailer show. In October 2013, we released our first series of solar integrated backpacks, the EnerPlex Packr™. The Packr is a functional backpack ideal for charging mobile electronic devices while on the go. Also, in October of 2013, we introduced the Surfr battery and solar case for the Samsung Galaxy S® 4, and in December 2013, we introduced the Surfr battery and solar case for Apple’s iPhone® 5. To complement our flagship product lines, we added an assortment of accessories, all of which can be integrated into the EnerPlex ecosystem of products; the LED wand, which can be easily plugged into a Jumpr power bank to provide hours of light, or the Travel Adaptor, which enables consumers to charge up their Jumpr power banks from a traditional outlet anywhere in the world.

Beginning in 2013, we aggressively pursued new distribution channels for the EnerPlex brand; these activities led to placement in a variety of high-traffic ecommerce venues such as www.amazon.com, www.walmart.com, www.brookstone.com, www.newegg.com, as well as many others including our own e-commerce platform at www.goenerplex.com. The April 2013 placement of EnerPlex products at Fry’s Electronics, a US West Coast consumer electronics retailer, represented the company’s first domestic retail presence; EnerPlex products were carried in all of Fry’s 34 superstores across 9 states.

Throughout 2014, EnerPlex released multiple additions to the Jumpr line of products: including the Jumpr Stack 3, 6 and 9; innovative batteries equipped with tethered micro-USB and Apple Lightning cables with a revolutionary Stack and Charge design, enabling batteries to be charged simultaneously when they are placed on top of one another. Also released in 2014 were the Jumpr Slate series, products which push the boundaries of how thin batteries can be; the Jumpr Slate 10k, at less than 7mm thick was the thinnest lithium polymer battery available when it was released. The Jumpr Slate 5k and 5k Lightning each come with a tethered micro-USB and Lightning cable respectively; freeing consumers from worrying about toting extra cables with them while on the move.

At Outdoor Retailer 2014, EnerPlex debuted the Generatr Series. The Generatr 1200 and Generatr 100 are lithium-ion based, large format batteries. Lighter and smaller than competitors, the Generatr Series are targeted for consumers who require high-capacity, high-output batteries which remain ultra-portable. Also debuted at Outdoor Retailer was the Commandr 20, a high output solar charger designed specifically to integrate with and charge the Generatr series, allowing consumers to stay out longer without needing to charge their Generatr batteries from a traditional power source. In August 2014, the Kickr II+ and IV+ were also announced, these products represent another evolution in the EnerPlex line of solar products; integrated with a 500mAh battery the Kickr II+ and IV+ are able to provide a constant flow of power even when there are intermittent disruptions in sunlight.

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During 2015, we reached an agreement with EVINE Live, one of the premier home shopping networks with TV programming that reaches over 87 million US homes to begin selling EnerPlex products during their broadcasts. EnerPlex launched the Generatr S100 and select other products exclusively with EVINE, EnerPlex also launched the Generatr 1200 launched exclusively with EVINE for a limited period. Also during 2015, EnerPlex expanded its relationship with The Cellular Connection to include over 450 Verizon Wireless Premium Retail Stores; launched its products with two world recognized retailers; The Sports Authority and Cabela’s; and launched its products with GovX; the premier online shopping destination for Military, Law Enforcement and Government agencies. Internationally, EnerPlex products became available in the United Kingdom via the brand’s launch with 172 Maplin’s stores throughout the country.

In 2016, EnerPlex launched the new emergency sales vertical, partnering with Emergency Preparedness eCommerce leader, Emergency Essentials, and we announced new breakthroughs in the Company’s line of high-voltage solar products, designed specifically for high-altitude and space markets. Also during the first quarter of 2016, the Company announced the launch of select products on the GSA Advantage website; allowing Federal employees, including members of all branches of the US Military, to directly purchase Ascent and EnerPlex products including: the MilPak E, Commandr 20, Kickr 4 and WaveSol™ solar modules.

In January 2017, Ascent was awarded a contract to supply high-voltage SuperLight thin-film CIGS PV blankets. These 50W, fully laminated, flexible blankets were manufactured using a new process that was optimized for high performance in near-space conditions at elevated temperatures, and are custom designed for easy modular integration into series and parallel configurations to achieve the desired voltage and current required for such application.

In February 2017 Ascent announced the discontinuation of our EnerPlex consumer business by disposing of the EnerPlex brand, and related intellectual properties and trademarks, to our battery product supplier, Sun Pleasure Co. Limited (“SPCL”). This transaction was completed in an effort to better allocate our resources and to continue to focus on our core strength in the high-value specialty PV market. Following the transfer, Ascent will no longer be producing or selling Enerplex-branded consumer products. Ascent will focus on its photovoltaic business and will supply solar PV products to SPCL, supporting the continuous growth of EnerPlex with Ascent’s proprietary and award-winning thin-film solar technologies and products.

During the third quarter of 2017, Ascent Solar was selected by Energizer Solar Inc. to develop and supply solar panels for their PowerKeep line of solar products, and in November 2017, Ascent introduced the next generation of our USB-based portable power systems with the XD™ series. The first product introduced was the XD-12 which, like previous products, is a folding, lightweight, easily stowable, PV system with USB power regulation. Unique to this generation of PV portable power is more PV power (12 Watts) and a 2.0 Amp smart USB output to enable the XD-12 to charge most smartphones, tablets, and USB-enabled devices as fast as a wall outlet. The enhanced smart USB circuit works with the device to be charged so that the device can determine the maximum power it is able to receive from the XD-12 and ensures the best possible charging performance directly from the sun.

Also, in 2017, for a space customer, Ascent manufactured a new micro-module, approximately 12.8mm x 50mm (0.5in x 2.0in) in size that is ideal for both laboratory-scale environmental testing, and for subsequent integration into flight experiments.

In February 2018, the Company introduced the second product in our XD series. Delivering up to 48 Watts of solar power, the durable and compact Ascent XD-48 Solar Charger is the ideal solution for charging many portable electronics and off-grid power systems. The XD-48’s versatility allows it to charge both military and consumer electronics directly from the sun wherever needed. Like the XD-12, the XD-48 has a compact and portable design, and its rugged, weather-resistant construction withstands shocks, drops, damage and even minor punctures to power through the harshest conditions.

In March 2018, Ascent successfully shipped to a European based customer for a lighter-than-air, helium-filled airship project based on our newly developed ultra-light modules with substrate material than half of the thickness of our standard modules. In 2019, Ascent completed a repeat order from the same customer who had since established its airship development operation in the US. In 2020, Ascent received a third and enlarged order from the same customer and is scheduled to complete the order in January 2021.

We continue to design and manufacture PV integrated portable power applications for commercial and military users. Due to the high durability enabled by the monolithic integration employed by our technology, the capability to customize modules into different form factors and the industry leading light weight and flexibility provided by our modules, we believe that the potential applications for our products are extensive.

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Commercialization and Manufacturing Strategy

We manufacture our products by affixing a thin CIGS layer to a flexible, plastic substrate using a large format, roll-to-roll process that permits us to fabricate our flexible PV modules in an integrated sequential operation. We use proprietary monolithic integration techniques which enable us to form complete PV modules with little to no costly back end assembly of inter cell connections. Traditional PV manufacturers assemble PV modules by bonding or soldering discrete PV cells together. This manufacturing step typically increases manufacturing costs and at times proves detrimental to the overall yield and reliability of the finished product. By reducing or eliminating this added step using our proprietary monolithic integration techniques, we believe we can achieve cost savings in, and increase the reliability of, our PV modules. All tooling necessary for us to meet our near-term production requirements is installed in our Thornton, Colorado plant. In 2012, we further revised our strategy to focus on applications for emerging and high-value specialty PV markets, including off grid, aerospace, military and defense and consumer-oriented products.

We plan to continue the development of our current PV technology to increase module efficiency, improve our manufacturing tooling and process capabilities and reduce manufacturing costs. We also plan to continue to take advantage of research and development contracts to fund a portion of this development.

Advantages of CIGS on a Flexible Plastic Substrate

Thin film PV solutions differ based on the type of semiconductor material chosen to act as a sunlight absorbing layer, and also on the type of substrate on which the sunlight absorbing layer is affixed. To the best of our knowledge, we believe we are the only company in the world currently focused on commercial scale production of PV modules using CIGS on a flexible, plastic substrate with monolithic integration. We utilize CIGS as a semiconductor material because, at the laboratory level, it has a higher demonstrated cell conversion efficiency than amorphous silicon (“a-Si”) and cadmium telluride (“CdTe”). We also believe CIGS offers other compelling advantages over both a-Si and CdTe, including:

 

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CIGS versus a-Si:  Although a-Si, like CIGS, can be deposited on a flexible substrate, its conversion efficiency, which already is generally much lower than that of CIGS, measurably degrades when it is exposed to ultraviolet light, including natural sunlight. To mitigate such degradation, manufacturers of a-Si solar cells are required to implement measures that add cost and complexity to their manufacturing processes.

 

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CIGS versus CdTe:  Although CdTe modules have achieved conversion efficiencies that are generally comparable to CIGS in production, we believe CdTe has never been successfully applied to a flexible substrate on a commercial scale. We believe the use of CdTe on a rigid, transparent substrate, such as glass, makes CdTe unsuitable for a number of the applications. We also believe CIGS can achieve higher conversion efficiencies than CdTe in production.

Our choice of substrate material further differentiates us from other thin film PV manufacturers. We believe the use of a flexible, lightweight, insulating substrate that is easier to install provides clear advantages for our target markets, especially where rigid substrates are unsuitable. We also believe our use of a flexible, plastic substrate provides us significant cost advantages because it enables us to employ monolithic integration techniques on larger components, which we believe are unavailable to manufacturers who use flexible, metal substrates. Accordingly, we are able to significantly reduce part count, thereby reducing the need for costly back end assembly of inter cell connections. As the only company, to our knowledge, focused on the commercial production of PV modules using CIGS on a flexible, plastic substrate with monolithic integration, we believe we have the opportunity to address the consumer electronics, defense, aerospace, transportation, off grid, portable power and other weight-sensitive markets with transformational high quality, value added product applications. It is these same unique features and our overall manufacturing process that enables us to produce consumer products that enables our consumer products to be extremely robust, light and flexible.

Competitive Strengths

We believe we possess a number of competitive strengths that provide us with an advantage over our competitors.

 

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We are a pioneer in CIGS technology with a proprietary, flexible, lightweight, high efficiency PV thin film product that positions us to penetrate a wide range of attractive high value added markets such as consumer products, off grid, portable power, transportation, defense, aerial, and other markets. By applying CIGS to a flexible plastic substrate, we have developed a PV module that is efficient, lightweight and flexible; with the highest power-to-weight ratio in at-scale commercially available solar. The market for electronic components, such as electronic packages, casings and accessories, as well as defense portable power systems, transportation integrated applications and space

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and near-space solar power application solutions represent a significant premium market for the company. Relative to our thin film competitors, we believe our advantage in thin film CIGS on plastic technology provides us with a superior product offering for these strategic market segments.

 

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We have the ability to manufacture PV modules for different markets and for customized applications without altering our production processes.  Our ability to produce PV modules in customized shapes and sizes, or in a variety of shapes and sizes simultaneously, without interrupting production flow, provides us with flexibility in addressing target markets and product applications, and allows us to respond quickly to changing market conditions. Many of our competitors are limited by their technology and/or their manufacturing processes to a more restricted set of product opportunities.

 

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Our integrated, roll-to-roll manufacturing process and proprietary monolithic integration techniques provide us a potential cost advantage over our competitors.  Historically, manufacturers have formed PV modules by manufacturing individual solar cells and then interconnecting them. Our large format, roll-to-roll manufacturing process allows for integrated continuous production. In addition, our proprietary monolithic integration techniques allow us to utilize laser patterning to create interconnects, thereby creating PV modules at the same time we create PV cells. In so doing, we are able to reduce or eliminate an entire back end processing step, saving time as well as labor and manufacturing costs relative to our competitors.

 

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Our lightweight, powerful, and durable solar panels provide a performance advantage over our competitors.  For consumer applications where a premium is placed on the weight and profile of the product, our ability to integrate our PV modules into portable packages and cases offers the customer a lightweight and durable solution for all their portable electronics.

 

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Our proven research and development capabilities position us to continue the development of next generation PV modules and technologies. Our ability to produce CIGS based PV modules on a flexible plastic substrate is the result of a concerted research and development effort that began more than twenty years ago. We continue to pursue research and development in an effort to drive efficiency improvements in our current PV modules and to work toward next generation technologies and additional applications.

 

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Our manufacturing process can be differentiated into two distinct functions; a front-end module manufacturing process and a back-end packaging process.  Our ability to produce finished unpackaged rolls of CIGS material for shipment worldwide to customers for encapsulation and integration into various products enhances our ability to work with partners internationally and domestically.

Markets and Marketing Strategy

In 2012, we pivoted our strategic focus away from large scale utility projects and rooftop applications to consumer products and high-value specialty solar markets. This new strategy enables us to fully leverage the unique advantages of our technology including flexibility, durability and attractive power to weight and power to area performance. It further enables us to offer unique, differentiated solutions in large markets with less competition, and more attractive pricing. In the second half of 2012, we launched our EnerPlex line of personal power, portable solar solutions and accessories. This represented a significant paradigm shift for us and moved us into the realm of supplying complete consumer product solutions as opposed to strictly commercial solar modules. We also remain focused on specialty solar applications which can fully leverage the unique properties of our award-winning CIGS technology. These include aerospace, defense, emergency management and consumer/OEM applications.

In February 2017 Ascent announced the discontinuation of our EnerPlex consumer business by disposing of the EnerPlex brand, and related intellectual properties and trademarks, to our battery product supplier, in an effort to better allocate our resources and to continue to focus on our core strength in the high-value specialty PV market. Ascent no longer produces or sells Enerplex-branded consumer products and we are instead focused on our photovoltaic business.

Ascent’s strategic marketing efforts going forward will be focused on commercializing our proprietary solar technology in three highest-value PV verticals:

I. Aerospace: Space, Near-space and Fixed Wing UAV

II. Public Sector: Defense and Emergency Management

III. Commercial Off-grid and Portable Power

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The value proposition of Ascent’s proprietary solar technology not only aligns with the needs of customers in these verticals, but also overcomes many of the obstacles other solar technologies face in these unique markets. Ascent has the capability to design and develop finished products for end users in these areas as well as collaborate with strategic partners to design and develop custom integrated solutions for products like airships and fixed-wing UAVs. Ascent sees significant overlap in the needs of end users across some of these verticals and can achieve economies of scale in sourcing, development, and production in commercializing products for these customers.

The integration of Ascent's solar modules into space, near space, and aeronautic vehicles with ultra-lightweight and flexible solar modules is an important market opportunity for the Company. Customers in this market have historically required a high level of durability, high voltage and conversion efficiency from solar module suppliers, and we believe our products are well suited to compete in this premium market. In May 2014, together with our partners, Silent Falcon UAS Technologies and Bye Aerospace, we announced the successful first flight of a production version of the Silent Falcon™ Unmanned Aircraft Systems, powered by Ascent’s ultra-lightweight, flexible PV modules. In July 2014, our ultra-lightweight, flexible PV modules were selected by Vanguard Space Technologies for their NASA Small Business Innovative Research program. The NASA program is intended to develop an economical, lightweight alternative to existing and emerging high-cost solar arrays for high-power space applications. We expect opportunities in this segment to develop rapidly due to customers' extensive development, testing and evaluation processes.

In March 2016, the Company announced a major breakthrough of our high-voltage superlight modules, achieving a power-to-weight ratio of 1,700 watts per kilogram at AM0 environment. In December 2016, Ascent was selected by the Japan Aerospace Exploration Agency ("JAXA") as part of their next round of evaluations for providing solar technology for an upcoming mission to Jupiter, as well as to address additional missions. This decision followed an earlier round of investigation with promising results, during which the Company's flexible, monolithically integrated CIGS solar module was subjected to environmental extremes and continued to operate well. During the first phase of JAXA's evaluation, Ascent's PV was successfully tested below -146°C (-231°F) and up to +190°C (+374 °F), and to only 4% of the sunlight generally received in earth's orbit. In addition, JAXA has subjected Ascent's PV to radiation and mechanical testing.

In 2017 we continued to solidify our position in the space and near-space markets; these challenging requirements and environments allow for the full utilization of the unique nature and advantages of our lightweight, flexible monolithically integrated CIGS PV. Through continued work in the PV-powered drone field, Ascent made significant strides in providing PV power to high-altitude airships and next-generation space applications.

In January 2017, Ascent was awarded a contract to supply high-voltage SuperLight thin-film CIGS PV blankets. These 50W, fully laminated, flexible blankets were manufactured using a new process that was optimized for high performance in near-space conditions at elevated temperatures, and are custom designed for easy modular integration into series and parallel configurations to achieve the desired voltage and current required for such application.

In November 2017, Ascent fulfilled a third order from JAXA for custom PV products designed specifically for their upcoming solar sail deployment demonstration project.  This project was comprised of small area test cells and large, 19.5cm x 30cm monolithically integrated modules, all on a very thin, 25-micron (0.001 inch) plastic substrate which is half the thickness of Ascent’s production substrate for a standard product. In space, near-space, and drone applications, the PV substrate accounts for a significant portion of the product’s overall mass; the PV construction on the new 25-micron substrates represents a major breakthrough for these markets. JAXA placed this order after achieving the desired experimental results from the previous shipments and subsequent electrical, mechanical and environmental testing. The 19.5cm x 30cm module is a custom design to match the anticipated deployment mechanism and PV layout for the final Jovian spacecraft.

Also in 2017, Ascent fulfilled a new order, with another repeat space customer, to manufacture a new micro-module, approximately 12.8mm x 50mm (0.5in x 2.0in) in size that is ideal for both laboratory-scale environmental testing, and for subsequent integration into flight experiments.

In 2015 Ascent Solar won its second R&D 100 Award, the 2015 award was given for the development of the MilPak platform, a military-grade solar power generation and storage unit. The MilPak platform is one of the most rugged, yet lightweight, power generation and storage solutions available, both attributes enabled by the use of Ascent’s CIGS technology.

The military market has a unique set of requirements we believe are well suited to our products. When integrated with fabric to form re-deployable arrays, our highly efficient, rugged, lightweight modules may allow soldiers to minimize battery loads, reduce the use of conventional fuels, and increase safety through the streamlining of fuel transport operations, providing the front-line units with maximum resilience and helping to increase operational efficiency. We are also working to expand our foldable line of outdoor solar chargers, such as the XD-12 and the XD-48, which are well suited for the individual soldier or

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for the bigger power needs of a platoon with the ability of several chargers to be strung together. Our modules can also provide a reliable source of renewable power in remote areas, regardless of local infrastructure. We will continue to reach the military market through partnerships with top systems providers, by providing Government Service Administration Letters of Supply, and through direct sales and other blanket purchase agreements with the government.

Transportation integrated PV, or integration of our flexible solar modules with vehicles such as commercial trucks, buses, trains and passenger cars, is another market segment that represents a significant opportunity. Due to their flexible form and durable, lightweight properties, our modules can be fitted to the exterior of various vehicles to provide supplemental power without significantly affecting the aerodynamics, weight or aesthetics of the vehicle. We are currently working with multiple integrators and OEMs to develop effective value-added solutions for this market.

During the third quarter of 2017, Ascent Solar demonstrated its breadth of capabilities at the US Special Operations Command ("SOCOM") exclusive Technical Experimentation ("TE") 17-3 Event in Washington, DC. SOCOM is tasked, by the Department of Defense ("DoD"), with providing Special Operations Forces ("SOF") with the latest war fighting technology available; in support of this effort, SOCOM sponsors an annual TE event.   In July of 2017 SOCOM requested the participation of companies who have proficiency in the areas of Satellite Communication ("SATCOM") and Unattended Ground Sensors ("UGS") for a TE event.   Over 30 companies were selected to participate, and Ascent Solar was one of only 2 companies selected to participate who didn’t actually make SATCOM or UGS products.  Ascent Solar was selected on the basis and recognition that one of the primary issues facing the DoD today is the ability to power all of their war fighting technology.   Ascent’s diverse line-up of rugged and lightweight portable solar products offers the potential for the DoD to generate unattended ongoing power, which could save lives and increase the efficiency of the war fighting effort.  Ascent was honored to be chosen to participate, and the assessed score we received is indicative of a capability that has “high potential for SOF use with few limitations”. 

During the third quarter of 2018, Ascent Solar was once again selected to demonstrate its breadth of capabilities at the SOCOM exclusive TE 18-3 Event in Washington, DC. In July of 2018, SOCOM requested the participation of companies who have proficiency in the areas of Intelligence, Surveillance and Reconnaissance (ISR), Small Unmanned Aerial Systems (SUAS) and Mobility for the TE event.  Over 50 companies were selected to participate, and Ascent Solar was one of only 2 companies selected for a second straight year. 

We continue to supply our strategic partners with PV modules to support their development, testing and certification of new integrated PV products, including product testing by several branches of the U.S. military. We believe that our high-power density flexible solar modules enable new applications for solar power. By creating mutually beneficial partnerships and strategically penetrating the markets discussed above, we plan to transform the landscape of solar power generation with truly innovative end products.

Competition

We have pivoted our strategic focus away from large scale utility projects of the traditional solar markets. We believe our thin film, monolithically integrated CIGS technology enables us to deliver sleek, lightweight, rugged, high performance solutions to serve these markets as competitors from other thin film and c-Si companies emerge. The landscape of thin film manufacturers encompasses a broad mix of technology platforms at various stages of development and consists of a number of medium and small companies.

The market for traditional, grid connected PV products is dominated by large manufacturers of c-Si technology, although thin film technology on glass has begun to emerge among the major players. We anticipate that while these large manufacturers may continue to dominate the market with their silicon-based products, thin film manufacturers will likely capture an increasingly larger share of the market, as is evident from the success of First Solar (CdTe) and Solar Frontier (CIGS), both among the top 20 producers worldwide. In 2019, crystalline silicon PV technology represented over 90% of global market revenue and production, with the balance captured by thin film. Approximately half of thin film production is CdTe production, with the other half being split between CIGS and a-Si.

We believe that our modules offer unique advantages. Their flexibility, low areal density (mass per unit area), and high specific power (power per unit mass) enable use on weight-sensitive applications, such as portable power, conformal aircraft surfaces, high altitude long endurance (HALE) fixed wing and lighter than air (LTA) vehicles, and space applications that are unsuitable for glass-based modules. Innovative product design, customer focused development, and our rapid prototyping capability yield modules that could be integrated into virtually any product to create a source of renewable energy. Whether compared to glass based or other flexible modules, our products offer competitive advantages making them unique in comparison to competing products.

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Research and Development and Intellectual Property

We intend to continue to invest in research and development in order to provide near term improvements to our manufacturing process and products, as well as to identify next generation technologies relevant to both our existing and potential new markets. During 2019 and 2018 we incurred approximately $1,310,948 and $2,794,641, respectively, in research and development costs, which include research and development incurred in relation to our government contracts, as well as manufacturing costs incurred while developing our product lines and manufacturing process.

Our technology was initially developed at ITN beginning in 1994. In early 2006, ITN assigned to us certain CIGS PV-specific technologies, and granted to us a perpetual, exclusive, royalty free, worldwide license to use these technologies in connection with the manufacture, development, marketing and commercialization of CIGS PV to produce solar power. In addition, certain of ITN’s existing and future proprietary process and control technologies, although nonspecific to CIGS PV, were assigned to us. ITN retained the right to conduct research and development activities in connection with PV materials, and we agreed to grant a license back to ITN for improvements to the licensed technologies and intellectual property outside of the CIGS PV field.

We protect our intellectual property through a combination of trade secrets and patent protections. We own the following patents and published patent applications:

Issued Patents and Registrations

1.

US Patent No. 8,426,725 entitled “Apparatus and Method for Hybrid Photovoltaic Device Having Multiple, Stacked, Heterogeneous, Semiconductor Junctions” (issued April 23, 2013)

2.

US Patent No. 8,465,589 entitled “Machine and Process for Sequential Multi-Sublayer Deposition of Copper Indium Gallium Diselenide Compound Semiconductors” (issued June 18, 2013)

3.

US Patent No. D697,502 entitled "Mobile Electronic Device Case” (issued January 14, 2014)

4.

US Patent No. 8,648,253 entitled “Machine and Process for Continuous, Sequential, Deposition of Semiconductor Solar Absorbers Having Variable Semiconductor Composition Deposited in Multiple Sublayers” (issued February 11, 2014)

5.

US Patent No. D781,228 entitled Pocket-Sized Photovoltaic Based Fully Integrated Portable Power System (issued March 14, 2017)

6.

US Patent No. 9601650 entitled Machine and Process for Continuous, Sequential, Deposition of Semiconductor Solar Absorbers Having Variable Semiconductor Composition Deposited in Multiple Sublayers (issued March 21, 2017)

7.

US Patent No. 9634175 entitled Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates (issued April 25, 2017)

8.

US Patent No. 9640706 entitled Hybrid Multi-Junction Photovoltaic Cells and Associated Methods (issued May 2, 2017)

9.

US Patent No. 9640692 entitled Flexible Photovoltaic Array with Integrated Wiring and Control Circuitry, and Associated Methods (issued May 2, 2017)

10.

US Patent No. 9653635 entitled Flexible High-Voltage Adaptable Current Photovoltaic Modules and Associated Methods (issued May 16, 2017)

11.

US Patent No. 9780242 entitled “Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (issued October 3, 2017)

Published Patent Applications

1.

"Flexible Photovoltaic Array with Integrated Wiring and Control Circuitry, and Associated Methods" (US 12/901,963) (filed October 11, 2010) (co-owned with PermaCity Corporation)

2.

“Cd-Free, Oxide Buffer Layers for Thin Film CIGS Solar Cells by Chemical Solution Deposition Methods” (US 13/227,935) (filed September 8, 2011)

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3.

“Systems and Processes for Bifacial Collection and Tandem Junctions Using a Thin film Photovoltaic Device” (US 13/406,376) (filed February 27, 2012)

4.

“Multilayer Thin Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (US 13/572,387) (filed August 10, 2012)

5.

“Multilayer Thin Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (PCT/US2012/050398) (filed August 10, 2012)

6.

“Multilayer Thin Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (CN 201280047345.1) (filed August 10, 2012)

7.

“Apparatus and Method for Hybrid Photovoltaic Device Having Multiple, Stacked, Heterogeneous, Semiconductor Junctions” (EP 11804861.0) (filed December 13, 2011)

8.

“Apparatus and Method for Hybrid Photovoltaic Device Having Multiple, Stacked, Heterogeneous, Semiconductor Junctions” (CN 201180067131.6) (filed December 13, 2011)

9.

“Subtractive Hinge and Associated Methods (US 13/783,336) (filed March 3, 2013)

10.

“Subtractive Hinge and Associated Methods (PCT/US 2013/28,929) (filed March 4, 2013)

11.

“Subtractive Hinge and Associated Methods (CN 201380012566.X) (filed March 4, 2013)

12.

“Subtractive Hinge and Associated Methods (EP 13758462.9) (filed March 4, 2013)

13.

“System for Housing and Powering A Battery-Operated Device and Associated Methods” (US 13/802,713) (filed March 14, 2013)

14.

“System for Housing and Powering A Battery-Operated Device and Associated Methods” (US 13/802,719) (filed March 14, 2013)

15.

“System for Housing and Powering A Battery-Operated Device and Associated Methods” (PCT/US2013/34988) (filed April 2, 2013)

16.

“Photovoltaic Assembly and Associated Methods” (US 14/038096) (filed September 26, 2013)

17.

“Photovoltaic Assembly and Associated Methods” (PCT/US2013/62355) (filed September 27, 2013)

18.

“Photovoltaic Assembly and Associated Methods” (CN 201380060351.5) (filed September 27, 2013)

19.

“Photovoltaic Assembly and Associated Methods” (EP 13840976.8) (filed September 27, 2013)

20.

“Flexible High-Voltage Adaptable Current Photovoltaic Modules and Associated Methods” (US 14/041,886) (filed September 30, 2013)

21.

“Hybrid Multi-Junction Photovoltaic Cells and Associated Methods” (US 14/100,960) (filed December 9, 2013)

22.

“System for Housing and Powering A Battery-Operated Device and Associated Methods” (PCT/US2013/74936) (filed December 13, 2013)

23.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (US 14/150,376) (filed January 8, 2014)

24.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (PCT/US2014/10867) (filed January 8, 2014)

25.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (CN 201480004408.4) (filed January 8, 2014)

26.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (EP 14738271.7) (filed January 8, 2014)

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27.

“Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (PCT/US15/20184) (filed March 12, 2015)

28.

“Array of Monolithically Integrated Thin Film Photovoltaic Cells and Associated Methods” (14/252,485) (filed April 14, 2014)

29.

“Subtractive Hinge and Associated Methods” (EP 13758462.9) (filed March 4, 2013)

30.

“Photovoltaic Assembly and Associated Methods” (EP 13840976.8) (filed September 27, 2013)

31.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (CN 201480004408.4) (filed January 9, 2014)

32.

“Systems and Methods for Thermally Managing High-Temperature Processes on Temperature Sensitive Substrates” (EP 14738271.7) (filed January 9, 2014)

33.

“Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (US 14/932,933) (filed November 4, 2015)

34.

“Photovoltaic-Based Fully Integrated Portable Power Systems” (PCT/US16/12047) (filed January 4, 2016)

35.

“Photovoltaic-Based Fully Integrated Portable Power System” (US 14/987,214) (filed January 4, 2016)

36.

“Systems and Processes for Bifacial Collection and Tandem Junctions Using a Thin-Film Photovoltaic Device” (US 15/099,835) (filed April 15, 2016)

37.

“Photovoltaic-Based Fully Integrated Portable Power Management and Networking System” (PCT/US16/25647) (filed April 1, 2016)

38.

“Photovoltaic-Based Fully Integrated Portable Power Management and Networking System” (US 15/089,028) (filed April 1, 2016)

39.

“Photovoltaic Device and Method of Manufacturing Same” (CN 201610416638.2) (filed December 13, 2011)

40.

“Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (US 15/258,169) (filed September 7, 2016)

41.

“Hybrid Multi-Junction Photovoltaic Cells and Associated Methods” (US 15/137,696) (filed April 25, 2016)

42.

“Machine and Process for Continuous, Sequential, Deposition Of Semiconductor Solar Absorbers Having Variable Semiconductor Composition Deposited In Multiple Sublayers” (US 15/584,241) (filed May 2, 2017)

43.

“Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (GB 12759843.1) (Filed August 10, 2012)

44.

“Multilayer Thin-Film Back Contact System for Flexible Photovoltaic Devices on Polymer Substrates” (WO PCT/US16/58933) (Filed October 26, 2016)

45.

“Subtractive Hinge and Associated Methods” (US 15/673,283) (Filed August 9, 2017)

Ascent Solar has trademark applications and registrations in the United States and worldwide for slogans and product family names such as WaveSol, MilPak, and Transforming Everyday Life.

Depending on country laws, the marks listed above may include the ™ or ® symbols.

Suppliers

We rely on several unaffiliated companies to supply certain raw materials used during the fabrication of our PV modules and PV integrated electronics. We acquire these materials on a purchase order basis and do not have long term purchase quantity commitments with the suppliers, although we may enter into such contracts in the future. We currently acquire all of our high temperature plastic from one supplier, although alternative suppliers of similar materials exist. We purchase component

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molybdenum, copper, indium, gallium, selenium and indium tin oxides from a variety of suppliers. We also currently are in the process of identifying and negotiating arrangements with alternative suppliers of materials in the United States and Asia.

The manufacturing equipment and tools used in our production process have been purchased from various suppliers in Europe, the United States and Asia. Although we have had good relations with our existing equipment and tools suppliers, we monitor and explore opportunities for developing alternative sources to drive our manufacturing costs down.

Employees

As of December 31, 2019, we had 12 full-time and 9 part-time employees.

Company History

We were formed in October 2005 from the separation by ITN of its Advanced Photovoltaic Division and all of that division’s key personnel and core technologies. ITN, a private company incorporated in 1994, is an incubator dedicated to the development of thin film, PV, battery, fuel cell and nanotechnologies. Through its work on research and development contracts for private and government entities, ITN developed proprietary processing and manufacturing know-how applicable to PV products generally, and to CIGS PV products in particular. Our company was established by ITN to commercialize its investment in CIGS PV technologies. In January 2006, ITN assigned to us all its CIGS PV technologies and trade secrets and granted to us a perpetual, exclusive, royalty free worldwide license to use certain of ITN’s proprietary process, control and design technologies in the production of CIGS PV modules. Upon receipt of the necessary government approvals in January 2007, ITN assigned government funded research and development contracts to us and also transferred the key personnel working on the contracts to us.

Corporate Information

We were incorporated under the laws of Delaware in October 2005. Our principal business office is located at 12300 Grant Street, Thornton, Colorado 80241, and our telephone number is (720) 872-5000. Our website address is www.AscentSolar.com. Information contained on our website or any other website does not constitute, and should not be considered, part of this Annual Report.

Available Information

We file with the Securities and Exchange Commission (“SEC”) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, proxy statements and registration statements. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically. We make available free of charge on, or through, our website at www.ascentsolar.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) as soon as reasonably practicable after we file these materials with the SEC.

Item 1A. Risk Factors

The risks included here are not exhaustive or exclusive. Other sections of this Annual Report may include additional factors which could adversely affect our business, results of operations and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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Risks Relating to Our Business

We have a limited history of operations, have not generated significant revenue from operations and have had limited production of our products.  We have a limited operating history and have generated limited revenue from operations. Currently we are producing products in quantities necessary to meet current demand. Under our current business plan, we expect losses to continue until annual revenues and gross margins reach a high enough level to cover operating expenses. Our ability to achieve our business, commercialization and expansion objectives will depend on a number of factors, including whether:

 

•

We can generate customer acceptance of and demand for our products;

 

•

We successfully ramp up commercial production on the equipment installed;

 

•

Our products are successfully and timely certified for use in our target markets;

 

•

We successfully operate production tools to achieve the efficiencies, throughput and yield necessary to reach our cost targets;

 

•

The products we design are saleable at a price sufficient to generate profits;

 

•

We raise sufficient capital to enable us to reach a level of sales sufficient to achieve profitability on terms favorable to us;

 

•

We are able to successfully design, manufacture, market, distribute and sell our products;

 

•

We effectively manage the planned ramp up of our operations;

 

•

We successfully develop and maintain strategic relationships with key partners, including OEMs, system integrators and distributors, retailers and e-commerce companies, who deal directly with end users in our target markets;

 

•

Our ability to maintain the listing of our common stock on the OTCBB Market;

 

•

Our ability to achieve projected operational performance and cost metrics;

 

•

Our ability to enter into commercially viable licensing, joint venture, or other commercial arrangements; and

 

•

The availability of raw materials.

Each of these factors is critical to our success and accomplishing each of these tasks may take longer or cost more than expected or may never be accomplished. It also is likely that problems we cannot now anticipate will arise. If we cannot overcome these problems, our business, results of operations and financial condition could be materially and adversely affected.

We have to date incurred net losses and may be unable to generate sufficient sales in the future to become profitable.  We incurred a net loss of $4,868,261 for the year ended December 31, 2019 and reported an accumulated deficit of $423,400,229 as of December 31, 2019. We expect to incur net losses in the near term. Our ability to achieve profitability depends on a number of factors, including market acceptance of our specialty PV products at competitive prices. If we are unable to raise additional capital and generate sufficient revenue to achieve profitability and positive cash flows, we may be unable to satisfy our commitments and may have to discontinue operations.

Our business is based on a new technology, and if our PV modules or processes fail to achieve the performance and cost metrics that we expect, then we may be unable to develop demand for our PV modules and generate sufficient revenue to support our operations.  Our CIGS on flexible plastic substrate technology is a relatively new technology. Our business plan and strategies assume that we will be able to achieve certain milestones and metrics in terms of throughput, uniformity of cell efficiencies, yield, encapsulation, packaging, cost and other production parameters. We cannot assure you that our technology will prove to be commercially viable in accordance with our plan and strategies. Further, we or our strategic partners and licensees may experience operational problems with such technology after its commercial introduction that could delay or defeat the ability of such technology to generate revenue or operating profits. If we are unable to achieve our targets on time and within our planned budget, then we may not be able to develop adequate demand for our PV modules, and our business, results of operations and financial condition could be materially and adversely affected.

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Our failure to further refine our technology and develop and introduce improved PV products could render our PV modules uncompetitive or obsolete and reduce our net sales and market share.  Our success requires us to invest significant financial resources in research and development to keep pace with technological advances in the solar energy industry. However, research and development activities are inherently uncertain, and we could encounter practical difficulties in commercializing our research results. Our expenditures on research and development may not be sufficient to produce the desired technological advances, or they may not produce corresponding benefits. Our PV modules may be rendered obsolete by the technological advances of our competitors, which could harm our results of operations and adversely impact our net sales and market share.

Failure to expand our manufacturing capability successfully at our facilities would adversely impact our ability to sell our products into our target markets and would materially and adversely affect our business, results of operations and financial condition.  Our growth plan calls for production and operation at our facility. Successful operations will require substantial engineering and manufacturing resources and are subject to significant risks, including risks of cost overruns, delays and other risks, such as geopolitical unrest that may cause us not to be able to successfully operate in other countries. Furthermore, we may never be able to operate our production processes in high volume or at the volumes projected, make planned process and equipment improvements, attain projected manufacturing yields or desired annual capacity, obtain timely delivery of components, or hire and train the additional employees and management needed to scale our operations. Failure to meet these objectives on time and within our planned budget could materially and adversely affect our business, results of operations and financial condition.

We may be unable to manage the expansion of our operations and strategic alliances effectively.  We will need to significantly expand our operations and form beneficial strategic alliances in order to reduce manufacturing costs through economies of scale and partnerships, secure contracts of commercially material amounts with reputable customers and capture a meaningful share of our target markets. To manage the expansion of our operations and alliances, we will be required to improve our operational and financial systems, oversight, procedures and controls and expand, train and manage our growing employee base. Our management team will also be required to maintain and cultivate our relationships with partners, customers, suppliers and other third parties and attract new partners, customers and suppliers. In addition, our current and planned operations, personnel, facility size and configuration, systems and internal procedures and controls, even when augmented through strategic alliances, might be inadequate or insufficient to support our future growth. If we cannot manage our growth effectively, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures, resulting in a material and adverse effect to our business, results of operations and financial condition.

We depend on a limited number of third-party suppliers for key raw materials, and their failure to perform could cause manufacturing delays and impair our ability to deliver PV modules to customers in the required quality and quantity and at a price that is profitable to us. Our failure to obtain raw materials and components that meet our quality, quantity and cost requirements in a timely manner could interrupt or impair our ability to manufacture our products or increase our manufacturing cost. Most of our key raw materials are either sole sourced or sourced by a limited number of third-party suppliers. As a result, the failure of any of our suppliers to perform could disrupt our supply chain and impair our operations. Many of our suppliers are small companies that may be unable to supply our increasing demand for raw materials as we implement our planned expansion. We may be unable to identify new suppliers in a timely manner or on commercially reasonable terms. Raw materials from new suppliers may also be less suited for our technology and yield PV modules with lower conversion efficiencies, higher failure rates and higher rates of degradation than PV modules manufactured with the raw materials from our current suppliers.

Our continuing operations will require additional capital which we may not be able to obtain on favorable terms, if at all, or without dilution to our stockholders.  Since inception, we have incurred significant losses. We expect to continue to incur net losses in the near term. For the year ended December 31, 2019, our cash used in operations was $2,715,418. At December 31, 2019, we had no cash on hand.

Although we have commenced production at our manufacturing facility, we do not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until we have fully implemented our new strategy of focusing on high value PV products. Product revenues did not result in a positive cash flow for the 2019 year or the 2020 year. The Company will need to raise additional capital in order to continue our current level of operations throughout 2021.

To the extent that we may need to raise additional capital in the future there is no assurance that we will be able to raise additional capital on acceptable terms or at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds through

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debt financing, which may involve restrictive covenants, our ability to operate our business may be restricted. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, expand capacity or otherwise respond to competitive pressures could be significantly limited, and our business, results of operations and financial condition could be materially and adversely affected.

Our products may never gain sufficient market acceptance, in which case we would be unable to sell our products or achieve profitability.  Demand for our products may never develop sufficiently, and our products may never gain market acceptance, if we fail to produce products that compare favorably against competing products on the basis of cost, quality, weight, efficiency and performance. Demand for our products also will depend on our ability to develop and maintain successful relationships with key partners, including distributors, retailers, OEMs, system integrators and value-added resellers. If our products fail to gain market acceptance as quickly as we envision or at all, our business, results of operations and financial condition could be materially and adversely affected.

We are targeting emerging markets for a significant portion of our planned product sales. These markets are new and may not develop as rapidly as we expect or may not develop at all.  Our target markets include portable power, defense, transportation, space and near space markets. Although certain areas of these markets have started to develop, some of them are in their infancy. We believe these markets have significant long-term potential; however, some or all of these markets may not develop and emerge as we expect. If the markets do develop as expected, there may be other products that could provide a superior product or a comparable product at lower prices than our products. If these markets do not develop as we expect, or if competitors are better able to capitalize on these markets our revenues and product margins may be negatively affected.

Failure to consummate strategic relationships with key partners in our various target market segments, such as defense and portable power, transportation, space and near space, and the respective implementations of the right strategic partnerships to enter these various specified markets, could adversely affect our projected sales, growth and revenues.  We intend to sell thin-film PV modules for use in portable power systems, defense and portable power systems, transportation, space and near space solar panel applications. Our marketing and distribution strategy is to form strategic relationships with distributors, value added resellers and e-commerce to provide a foothold in these target markets. If we are unable to successfully establish working relationships with such market participants or if, due to cost, technical or other factors, our products prove unsuitable for use in such applications; our projected revenues and operating results could be adversely affected.

If sufficient demand for our products does not develop or takes longer to develop than we anticipate, we may be unable to grow our business, generate sufficient revenue to attain profitability or continue operations.  The solar energy industry is at a relatively early stage of development, and the extent to which PV modules, including our own, will be widely adopted is uncertain. While pure PV solutions is not our short-term primary market, if PV technology proves unsuitable for widespread adoption or if demand for PV modules fails to develop sufficiently, long term we may be unable to grow our business, generate sufficient sales to attain profitability or continue operations. Many factors, of which several are outside of our control, may affect the viability of widespread adoption of PV technology and demand for PV modules.

We face intense competition from other manufacturers of thin-film PV modules and other companies in the solar energy industry.  The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with the larger electric power industry. We believe our main sources of competition are other thin film PV manufacturers and companies developing other solar solutions, such as solar thermal and concentrated PV technologies.

Many of our existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. A competitor’s greater size provides them with a competitive advantage because they often can realize economies of scale and purchase certain raw materials at lower prices. Many of our competitors also have greater brand name recognition, established distribution networks and large customer bases. In addition, many of our competitors have well-established relationships with our current and potential partners and distributors and have extensive knowledge of our target markets. As a result of their greater size, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Our failure to adapt to changing market conditions and to compete successfully with existing or future competitors could materially and adversely affect our business, results of operations and financial condition.

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Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation and prevent us from maintaining or increasing our market share. If our products fail to perform as expected while under warranty, or if we are unable to support the warranties, sales of our products may be adversely affected or our costs may increase, and our business, results of operations and financial condition could be materially and adversely affected.

We may also be subject to warranty or product liability claims against us that are not covered by insurance or are in excess of our available insurance limits. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation. The possibility of future product failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share causing sales to decline.

Currency translation risk may negatively affect our net sales, cost of equipment, cost of sales, gross margin or profitability and could result in exchange losses.  Although our reporting currency is the U.S. dollar, we may conduct business and incur costs in the local currencies of other countries in which we operate, make sales or buy equipment or materials. As a result, we are subject to currency translation risk. Our future contracts and obligations may be exposed to fluctuations in currency exchange rates, and, as a result, our capital expenditures or other costs may exceed what we have budgeted. Further, changes in exchange rates between foreign currencies and the U.S. dollar could affect our net sales and cost of sales and could result in exchange losses. We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition.

A significant increase in the price of our raw materials could lead to higher overall costs of production, which would negatively affect our planned product margins, or make our products uncompetitive in the PV market.  Our raw materials include high temperature plastics and various metals. Significant increases in the costs of these raw materials may impact our ability to compete in our target markets at a price sufficient to produce a profit.

Our intellectual property rights or our means of enforcing those rights may be inadequate to protect our business, which may result in the unauthorized use of our products or reduced sales or otherwise reduce our ability to compete.  Our business and competitive position depends upon our ability to protect our intellectual property rights and proprietary technology, including any PV modules that we develop. We attempt to protect our intellectual property rights, primarily in the United States, through a combination of patent, trade secret and other intellectual property laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign patent and other laws concerning intellectual property rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. Our failure to obtain or maintain adequate protection of our intellectual property rights, for any reason, could have a materially adverse effect on our business, results of operations and financial condition. Further, any patents issued in connection with our efforts to develop new technology for PV modules may not be broad enough to protect all of the potential uses of our technology.

We also rely on unpatented proprietary technology. It is possible others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require our employees, consultants and advisors to execute proprietary information and invention assignment agreements when they begin working for us. We cannot assure these agreements will provide meaningful protection of our trade secrets, unauthorized use, misappropriation or disclosure of trade secrets, know how or other proprietary information. Despite our efforts to protect this information, unauthorized parties may attempt to obtain and use information that we regard as proprietary. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

In addition, when others control the prosecution, maintenance and enforcement of certain important intellectual property, such as technology licensed to us, the protection and enforcement of the intellectual property rights may be outside of our control. If the entity that controls intellectual property rights that are licensed to us does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize our products. Further, if we breach the terms of any license agreement pursuant to which a third party licenses us intellectual property rights, our rights under that license may be affected and we may not be able to continue to use the licensed intellectual property rights, which could adversely affect our ability to develop, market and commercialize our products.

If third parties claim we are infringing or misappropriating their intellectual property rights, we could be prohibited from selling our PV products, be required to obtain licenses from third parties or be forced to develop non-infringing alternatives, and we could be subject to substantial monetary damages and injunctive relief.  The PV industry

15

is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We are aware of numerous issued patents and pending patent applications owned by third parties that may relate to current and future generations of solar energy. The owners of these patents may assert the manufacture, use or sale of any of our products infringes one or more claims of their patents. Moreover, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that materially and adversely affect our business. Third parties could also assert claims against us that we have infringed or misappropriated their intellectual property rights. Whether or not such claims are valid, we cannot be certain we have not infringed the intellectual property rights of such third parties. Any infringement or misappropriation claim could result in significant costs or substantial damages to our business or an inability to manufacture, market or sell any of our PV modules found to infringe or misappropriate. Even if we were to prevail in any such action, the litigation could result in substantial cost and diversion of resources that could materially and adversely affect our business. The large number of patents, the rapid rate of new patent issuances, the complexities of the technology involved, and uncertainty of litigation increase the risk of business assets and management’s attention being diverted to patent litigation. Even if obtaining a license were feasible, it could be costly and time consuming. We might be forced to obtain additional licenses from our existing licensors in the event the scope of the intellectual property we have licensed is too narrow to cover our activities, or in the event the licensor did not have sufficient rights to grant us the license(s) purportedly granted. Also, some of our licenses may restrict or limit our ability to grant sub-licenses and/or assign rights under the licenses to third parties, which may limit our ability to pursue business opportunities.

Our future success depends on retaining our Chief Executive Officer and existing management team and hiring and assimilating new key employees and our inability to attract or retain key personnel would materially harm our business and results of operations.  Our success depends on the continuing efforts and abilities of our executive officers, including Mr. Victor Lee, our President and Chief Executive Officer, our other executive officers, and key technical personnel. Our future success also will depend on our ability to attract and retain highly skilled employees, including management, technical and sales personnel. The loss of any of our key personnel, the inability to attract, retain or assimilate key personnel in the future, or delays in hiring required personnel could materially harm our business, results of operations and financial condition.

Our PV modules contain limited amounts of cadmium sulfide and claims of human exposure or future regulations could have a material adverse effect on our business, results of operations and financial condition.  Our PV modules contain limited amounts of cadmium sulfide, which is regulated as a hazardous material due to the adverse health effects that may arise from human exposure and is banned in certain countries. We cannot assure you that human or environmental exposure to cadmium sulfide used in our PV modules will not occur. Any such exposure could result in third party claims against us, damage to our reputation and heightened regulatory scrutiny of our PV modules. Future regulation relating to the use of cadmium in various products could force us to seek regulatory exemptions or impact the manufacture and sale of our PV modules and could require us to incur unforeseen environmental related costs. The occurrence of future events such as these could limit our ability to sell and distribute our PV modules, and could have a material adverse effect on our business, results of operations and financial condition.

Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability.  We are subject to a variety of federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the use, handling, generation, processing, storage, transportation and disposal of, or human exposure to, hazardous and toxic materials (such as the cadmium used in our products), the discharge of pollutants into the air and water, and occupational health and safety. We are also subject to environmental laws which allow regulatory authorities to compel, or seek reimbursement for, cleanup of environmental contamination at sites now or formerly owned or operated by us and at facilities where our waste is or has been disposed. We may incur significant costs and capital expenditures in complying with these laws and regulations. In addition, violations of, or liabilities under, environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims, cleanup costs or other costs. Also, future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of presently unknown environmental conditions or noncompliance may require expenditures that could have a material adverse effect on our business, results of operations and financial condition. Further, greenhouse gas emissions have increasingly become the subject of international, national, state and local attention. Although future regulations could potentially lead to an increased use of alternative energy, there can be no guarantee that such future regulations will encourage solar technology. Given our limited history of operations, it is difficult to predict future environmental expenses.

16

We currently anticipate having substantial international operations that will subject us to a number of risks, including potential unfavorable political, regulatory, labor and tax conditions in foreign countries.  We expect to expand our operations abroad in the future and, as a result, we may be subject to the legal, political, social and regulatory requirements and economic conditions of foreign jurisdictions. Risks inherent to international operations, include, but are not limited to, the following:

 

•

Difficulty in procuring supplies and supply contracts abroad;

 

•

Difficulty in enforcing agreements in foreign legal systems;

 

•

Foreign countries imposing additional withholding taxes or otherwise taxing our foreign income, imposing tariffs or adopting other restrictions on foreign trade and investment, including currency exchange controls;

 

•

Inability to obtain, maintain or enforce intellectual property rights;

 

•

Risk of nationalization;

 

•

Changes in general economic and political conditions in the countries in which we may operate, including changes in the government incentives we might rely on;

 

•

Unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export duties and quotas;

 

•

Difficulty with staffing and managing widespread operations;

 

•

Trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries; and

 

•

Difficulty of, and costs relating to, compliance with the different commercial and legal requirements of the international markets in which we plan to offer and sell our PV products.

Our business in foreign markets will require us to respond to rapid changes in market conditions in these countries. Our overall success as an international business depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. If we are not able to develop and implement policies and strategies that are effective in each location where we will do business, then our business, results of operations and financial condition could be materially and adversely affected.

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of PV products, which may significantly reduce demand for our PV products.  The market for electricity generation products is heavily influenced by foreign, U.S., state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end user purchases of PV products and investment in the research and development of PV technology. For example, without a mandated regulatory exception for PV systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. These fees could increase the cost to our end users of using PV systems and make them less desirable, thereby harming our business, prospects, results of operations and financial condition. In addition, electricity generated by PV systems mostly competes with expensive peak hour electricity, rather than the less expensive average price of electricity. Modifications to the peak hour pricing policies of utilities, such as to a flat rate, would require PV systems to achieve lower prices in order to compete with the price of electricity from other sources.

We anticipate that our PV modules and their use in installations will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to PV modules may result in significant additional expenses to us, our business partners and their customers and, as a result, could cause a significant reduction in demand for our PV modules.

17

We have identified material weaknesses in our internal control over financial reporting. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, which could adversely affect our stock price and could negatively impact our results of operations.  At December 31, 2019, we concluded that there were material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. See Item 9A in Part II of this Annual Report on Form 10-K for details.

Risks Relating to our Securities and an Investment in our Common Stock

As a public company we are subject to complex legal and accounting requirements that require us to incur substantial expenses, and our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price and listing on the OTCBB.  As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is substantial, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Failure to comply with these requirements can have numerous adverse consequences including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence, delisting of our securities and/or governmental or private actions against us. We cannot assure you we will be able to comply with all of these requirements or the cost of such compliance will not prove to be a substantial competitive disadvantage vis-à-vis our privately held and larger public competitors.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. Our compliance with Section 404 of Sarbanes-Oxley will require we incur substantial accounting expense and expend significant management efforts. The effectiveness of our controls and procedures may, in the future, be limited by a variety of factors, including:

 

•

Faulty human judgment and simple errors, omissions or mistakes;

 

•

Fraudulent action of an individual or collusion of two or more people;

 

•

Inappropriate management override of procedures; and

 

•

The possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.

If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm, identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we may be subject to OTCBB delisting, investigations by the SEC and civil or criminal sanctions.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect we will need to continue to improve existing, and implement new operational, financial and accounting systems, procedures and controls to manage our business effectively.

Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls may cause our operations to suffer, and we may be unable to conclude that our internal control over financial reporting is effective as required under Section 404 of Sarbanes-Oxley. If we are unable to complete the required Section 404 assessment as to the adequacy of our internal control over financial reporting, if we fail to maintain or implement adequate controls, our ability to obtain additional financing could be impaired. In addition, investors could lose confidence in the reliability of our internal control over financial reporting and in the accuracy of our periodic reports filed under the Exchange Act. A lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock price to decline.

The price of our common stock may continue to be volatile.  Our common stock is currently traded on the OTCBB Market. The trading price of our common stock from time to time has fluctuated widely and may be subject to similar volatility in the future. For example, during most of the calendar year ended December 31, 2019, our common stock traded below $0.01. The trading price of our common stock in the future may be affected by a number of factors, including events described in

18

these “Risk Factors.” In recent years, broad stock market indices, in general, and smaller capitalization and PV companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources and could have a material adverse effect on our financial condition.

Our stockholders may experience significant dilution as a result of shares of our common stock issued pursuant to our currently outstanding securities and existing agreements, and pursuant to new securities that we may issue in the future.  We are likely to issue substantial amounts of additional common stock in connection with most of our outstanding convertible preferred stock and convertible notes. We may also issue additional common stock or securities convertible into or exchangeable or exercisable for common stock, in connection with future capital raising transactions.

Most of our outstanding convertible preferred stock and convertible notes contain variable pricing mechanisms. The number of shares that we will issue pursuant to the aforementioned financial instruments will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares into the market may cause the trading price of our common stock to fall.

The issuance of material amounts of common stock by us would cause our existing stockholders to experience significant dilution in their investment in our Company. Also, if we obtain additional financing involving the issuance of equity securities or securities convertible into equity securities, our existing stockholders’ investment would be further diluted. Such dilution could cause the market price of our common stock to decline, which could impair our ability to raise additional financing.

Sales of a significant number of shares of our common stock in the public markets or significant short sales of our stock, or the perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital.  Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets could depress the market price of our common stock. If there are significant short sales of our stock, the price decline that could result from this activity may cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares, thereby contributing to sales of stock in the market. Such sales also may impair our ability to raise capital through the sale of additional equity securities in the future at a time and price that our management deems acceptable, if at all. In addition, a large number of our outstanding shares are not registered under the Securities Act. If and when these shares are registered or become eligible for sale to the public market, the market price of our common stock could also decline.

Our common stock has been delisted from the NASDAQ Capital Market and the OTCQB Venture Market.   Our inability to maintain our prior listings on NASDAQ and OTCQB may limit the liquidity of our stock, increase its volatility and hinder our ability to raise capital.  On February 25, 2016, our common stock was delisted from the NASDAQ Capital Market and began trading on the OTCQB Venture Market. On May 20, 2017 our common stock was delisted from the OTCQB Venture Market and began trading on the OTCBB.

Upon such delisting from NASDAQ, our common stock became subject to the regulations of the SEC relating to the market for penny stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit the ability of shareholders to sell securities in the secondary market. Accordingly, investors in our common stock may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and there can be no assurance that our common stock will be continue to be eligible for trading or quotation on the OTCBB or any other alternative exchanges or markets.

The delisting of our common stock from the NASDAQ Capital Market and the OTCQB Venture Market may adversely affect our ability to raise additional financing through public or private sales of equity securities, may significantly affect the ability of investors to trade our securities, and may negatively affect the value and liquidity of our common stock.   Such delisting from the NASDAQ Capital Market and the OTCQB Venture Market may also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.  Provisions in our Amended and Restated Certificate

19

of Incorporation and Second Amended and Restated Bylaws, each as amended, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, or for a change in the composition of our Board of Directors (our “Board”) or management to occur, even if doing so would benefit our stockholders. These provisions include:

 

•

Authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

 

•

Dividing our Board into three classes;

 

•

Limiting the removal of directors by the stockholders; and

 

•

Limiting the ability of stockholders to call a special meeting of stockholders.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our stockholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We currently lease an approximately 100,000 square foot manufacturing and office facility in Thornton, Colorado.

In May 2019, the Company’s former law firm filed suit against the Company in District Court in Adams County Colorado in an effort to collect approximately $1.2 million of unpaid fees (and related interest charges). On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement”) with its former law firm. Pursuant to the Settlement Agreement, the Company paid $120,000 on September 23, 2020 as the full and final settlement of all amounts owed between the parties. Following such payment, a satisfaction of an existing judgment in favor of such law firm was filed in Adams County Colorado.

On July 29, 2020, the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by the Building’s first lien holder (“Mortgage Holder”) and sold at public auction. The successful bidder for the Building was the Mortgage Holder, at the price of $7.193 million. As a result, the Company’s obligations to Mortgage Holder and all of the Company’s outstanding real property taxes on the Building were considered fully repaid.

Item 4. Mine Safety Disclosures

Not applicable.

20

PART II

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

Market Information

Our stock previously traded on the NASDAQ Capital Market. On February 23, 2016 the Company received notice from NASDAQ stating that NASDAQ had determined to delist the Company's common stock. On May 20, 2017 our common stock was delisted from the OTCQB Venture Market and began trading on the OTCBB. Our trading symbol is “ASTI.” The following table sets forth the high and low-sales price information per share for our common stock for the last two completed fiscal years, as adjusted for reverse stock splits.

Price Range of Common Stock  

 

 

 

High

 

 

Low

 

Fiscal 2018

 

 

 

 

 

 

 

 

First Quarter

 

$

0.9000

 

 

$

0.4000

 

Second Quarter

 

 

0.5000

 

 

 

0.2000

 

Third Quarter

 

 

0.3000

 

 

 

0.0465

 

Fourth Quarter

 

 

0.0570

 

 

 

0.0082

 

Fiscal 2019

 

 

 

 

 

 

 

 

First Quarter

 

 

0.0170

 

 

 

0.0013

 

Second Quarter

 

 

0.0021

 

 

 

0.0010

 

Third Quarter

 

 

0.0010

 

 

 

0.0001

 

Fourth Quarter

 

 

0.0002

 

 

 

0.0001

 

 

Holders

As of December 31, 2019, the number of record holders of our common stock was 41. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividends

The holders of common stock are entitled to receive such dividends as may be declared by our Board of Directors. During the years ended December 31, 2019 and 2018, we did not pay any common stock dividends, and we do not expect to declare or pay any dividends in the foreseeable future. Payment of future dividends will be within the discretion of our Board of Directors and will depend on, among other factors, our retained earnings, capital requirements, and operating and financial condition.

Item 6. Selected Financial Data

Smaller reporting companies are not required to provide the information required by this Item.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion and analysis contain statements of a forward-looking nature relating to future events or our future financial performance. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Overview

We are a company formed to commercialize flexible PV modules using our proprietary technology. For the year ended December 31, 2019, we generated $638,380 of revenue. Product sales accounted for 100% of total revenue. As of December 31, 2019, we had an accumulated deficit of approximately $423,400,229.

In January 2017, Ascent was awarded a contract to supply high-voltage SuperLight thin-film CIGS PV blankets. These 50W, fully laminated, flexible blankets were manufactured using a new process that was optimized for high performance in near-space conditions at elevated temperatures, and are custom designed for easy modular integration into series and parallel configurations to achieve the desired voltage and current required for such application.

In February 2017 Ascent announced the discontinuation of our EnerPlex consumer business by disposing of the EnerPlex brand, and related intellectual properties and trademarks, to our battery product supplier, Sun Pleasure Co. Limited (“SPCL”). This transaction was completed in an effort to better allocate our resources and to continue to focus on our core strength in the high-value specialty PV market. Following the transfer, Ascent no longer produces or sells Enerplex-branded consumer products. In November 2017, Ascent introduced the next generation of our USB-based portable power systems with the XD™ series. The first product introduced was the XD-12 which, like previous products, is a folding, lightweight, easily stowable, PV system with USB power regulation. Unique to this generation of PV portable power is more PV power (12 Watts) and a 2.0 Amp smart USB output to enable the XD-12 to charge most smartphones, tablets, and USB-enabled devices as fast as a wall outlet. The enhanced smart USB circuit works with the device to be charged so that the device can determine the maximum power it is able to receive from the XD-12 and ensures the best possible charging performance directly from the sun.

Also, in 2017, for a space customer, Ascent manufactured a new micro-module, approximately 12.8mm x 50mm (0.5in x 2.0in) in size that is ideal for both laboratory-scale environmental testing, and for subsequent integration into flight experiments.

In February 2018, the Company introduced the second product in our XD series. Delivering up to 48 Watts of solar power, the durable and compact Ascent XD-48 Solar Charger is the ideal solution for charging many portable electronics and off-grid power systems. The XD-48’s versatility allows it to charge both military and consumer electronics directly from the sun wherever needed. Like the XD-12, the XD-48 has a compact and portable design, and its rugged, weather-resistant construction withstands shocks, drops, damage and even minor punctures to power through the harshest conditions.

In March 2018, Ascent successfully shipped to a European based customer for a lighter-than-air, helium-filled airship project based on our newly developed ultra-light modules with substrate material than half of the thickness of our standard modules. In 2019, Ascent completed a repeat order from the same customer who had since established its airship development operation in the US. In 2020, Ascent received a third and enlarged order from the same customer and is scheduled to complete the order in January 2021.

We continue to design and manufacture PV integrated portable power applications for commercial and military users. Due to the high durability enabled by the monolithic integration employed by our technology, the capability to customize modules into different form factors and the industry leading light weight and flexibility provided by our modules, we believe that the potential applications for our products are extensive.

Commercialization and Manufacturing Strategy

We manufacture our products by affixing a thin CIGS layer to a flexible, plastic substrate using a large format, roll-to-roll process that permits us to fabricate our flexible PV modules in an integrated sequential operation. We use proprietary monolithic integration techniques which enable us to form complete PV modules with little to no costly back end assembly of inter cell connections. Traditional PV manufacturers assemble PV modules by bonding or soldering discrete PV cells together. This

22

manufacturing step typically increases manufacturing costs and at times proves detrimental to the overall yield and reliability of the finished product. By reducing or eliminating this added step using our proprietary monolithic integration techniques, we believe we can achieve cost savings in, and increase the reliability of, our PV modules. All tooling necessary for us to meet our near-term production requirements is installed in our Thornton, Colorado plant. In 2012, we further revised our strategy to focus on applications for emerging and high-value specialty PV markets, including off grid, aerospace, military and defense and consumer-oriented products.

We plan to continue the development of our current PV technology to increase module efficiency, improve our manufacturing tooling and process capabilities and reduce manufacturing costs. We also plan to continue to take advantage of research and development contracts to fund a portion of this development.

Significant Trends, Uncertainties and Challenges

We believe the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include:

 

•

Our ability to generate customer acceptance of and demand for our products;

 

•

Successful ramping up of commercial production on the equipment installed;

 

•

Our products are successfully and timely certified for use in our target markets;

 

•

Successful operating of production tools to achieve the efficiencies, throughput and yield necessary to reach our cost targets;

 

•

The products we design are saleable at a price sufficient to generate profits;

 

•

Our ability to raise sufficient capital to enable us to reach a level of sales sufficient to achieve profitability on terms favorable to us;

 

•

Effective management of the planned ramp up of our domestic and international operations;

 

•

Our ability to successfully develop and maintain strategic relationships with key partners, including OEMs, system integrators, distributors, retailers and e-commerce companies, who deal directly with end users in our target markets;

 

•

Our ability to maintain the listing of our common stock on the OTCBB Market;

 

•

Our ability to implement remediation measures to address material weaknesses in internal control;

 

•

Our ability to achieve projected operational performance and cost metrics;

 

•

Our ability to enter into commercially viable licensing, joint venture, or other commercial arrangements; and

 

•

Availability of raw materials.

Basis of Presentation: The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the policies below as critical to our business operations and to the understanding of our financial results:

Significant Accounting Policies

Inventories: All inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average method. Inventory balances are frequently evaluated to ensure they do not exceed net realizable value. The computation

23

for net realizable value takes into account many factors, including expected demand, product life cycle and development plans, module efficiency, quality issues, obsolescence and others. Management's judgment is required to determine reserves for obsolete or excess inventory. As of December 31, 2019 and 2018, the Company had inventory reserve balances of $584,269 and $745,927, respectively. If actual demand and market conditions are less favorable than those estimated by management, additional inventory write downs may be required.

Impairment of Long-lived assets: We analyze our long-lived assets (property, plant and equipment) and definitive-lived intangible assets (patents) for impairment, both individually and as a group, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Events that might cause impairment would include significant current period operating or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. An undiscounted cash flow analysis is calculated to determine if an impairment exists. If an impairment is determined to exist, any related loss is calculated using the difference between the fair value and the carrying value of the assets. During the years ended December 31, 2019 and 2018, we did not incur impairments of our manufacturing facilities and equipment.

Convertible Preferred Stock: The Company evaluates its preferred stock instruments under FASB ASC 480, "Distinguishing Liabilities from Equity" to determine the classification, and thereby the accounting treatment, of the instruments. Please refer to Note 13 for further discussion on the classification of each instrument.

Derivatives: The Company evaluates its financial instruments under FASB ASC 815, "Derivatives and Hedging" to determine whether the instruments contain an embedded derivative. When an embedded derivative is present, the instrument is evaluated for a fair value adjustment upon issuance and at the end of every period. Any adjustments to fair value are treated as gains and losses in fair values of derivatives and are recorded on the Statement of Operations. Please refer to Notes 10 and 12 for further discussion on the embedded derivatives of each instrument.

Revenue Recognition:

Product revenue. We recognize revenue for module and other equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For module and other equipment sales contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.

During the years ended December 31, 2019 and 2018, the company recognized product revenue of $638,380 and $813,512, respectively.

Government contract revenue. Revenue from government research and development contracts is generated under terms that are cost plus fee or firm fixed price. We generally recognize this revenue over time using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract. In applying cost-based input methods of revenue recognition, we use the actual costs incurred relative to the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Cost based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy long-term government research and development contracts and therefore reflect the performance obligations under such contracts. Costs incurred that do not contribute to satisfying our performance obligations are excluded from our input methods of revenue recognition as the amounts are not reflective of our transferring control under the contract. Costs incurred towards contract completion may include direct costs plus allowable indirect costs and an allocable portion of the fixed fee. If actual and estimated costs to complete a contract indicate a loss, provision is made currently for the loss anticipated on the contract.

Research, Development and Manufacturing Operations Costs: Research, development and manufacturing operations expenses were approximately $1,310,948 and $2,794,641 for the years ended December 31, 2019 and 2018, respectively.  Research, development and manufacturing operations expenses include: 1) technology development costs, which include expenses incurred in researching new technology, improving existing technology and performing federal government research and development contracts, 2) product development costs, which include expenses incurred in developing new products and lowering product design costs, and 3) pre-production and production costs, which include engineering efforts to improve production processes, material yields and equipment utilization, and manufacturing efforts to produce saleable

24

product. Research, development and manufacturing operations costs are expensed as incurred, with the exception of costs related to inventoried raw materials, work-in-process and finished goods, which are expensed as Cost of revenue as products are sold. 

Share-Based Compensation:  We measure and recognize compensation expense for all share-based payment awards made to employees, officers, directors, and consultants based on estimated fair values. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in our statements of operations included herein. Share-based compensation is based on awards ultimately expected to vest, reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. For purposes of determining estimated fair value of share-based payment awards on the date of grant, we use the Black-Scholes option-pricing model (“Black-Scholes Model”) for option awards. The Black-Scholes Model requires the input of highly subjective assumptions. Because our employee stock options may have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of our employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, which could materially impact our fair value determination. We estimate the fair value of our restricted stock awards at our stock price on the grant date.

The accounting guidance for share-based compensation may be subject to further interpretation and refinement over time. There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions. If factors change and we employ different assumptions in the accounting for share-based compensation in future periods, or if we decide to use a different valuation model, the compensation expense we record in the future may differ significantly from what we have recorded in the current period and could materially affect our loss from operations, net loss and net loss per share.

Use of Estimates:  The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2019, and early application is permitted. The implementation of ASU 2016-02 did not have a material effect on the Company’s consolidated financial statements, as the Company was not a party to any leases.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. This standard is effective for the Company in the first quarter of 2020, and early adoption is permitted. The Company is currently evaluating the impact of the effect adoption of this standard will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15,

25

2020, including interim periods within those fiscal years. Management has not yet evaluated the effect that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures subsequent to its adoption.

Other new pronouncements issued but not effective as of December 31, 2019 are not expected to have a material impact on the Company’s consolidated financial statements.

Results of Operations

Comparison of the Years Ended December 31, 2019 and 2018

Revenues. Our revenues were $638,380 for the year ended December 31, 2019 compared to $862,412 for the year ended December 31, 2018, a decrease of $224,032. The following factors contributed to this decrease:

 

1.

Net product revenues were $638,380 for the year ended December 31, 2019 compared to $813,512 for the year ended December 31, 2018, a decrease of 22%. The decrease in product sales is the result of our limited operations during the year ended 2019.

 

2.

Revenues generated from government research and development contracts were $48,900 during the year ended December 31, 2018, the Company did not have any revenues attributable to government research and development contracts during the year ended December 31, 2019.

Cost of revenues. Our Cost of revenues for the year ended December 31, 2019 was $490,755 compared to $1,015,796 for the year ended December 31, 2018, a decrease of 52%. The decrease in cost of revenues is mainly due to the decrease in materials and labor costs as a result of a decrease in production for the year ended December 31, 2019 compared to 2018. Cost of revenues for the year ended December 31, 2019 is comprised primarily of materials and, direct labor, and overhead.

Research, development and manufacturing operations. Research, development and manufacturing operations costs were $1,310,948 for the year ended December 31, 2019, compared to $2,794,641 for the year ended December 31, 2018, a decrease of 53%. Research, development and manufacturing operations costs include costs incurred for product development, pre-production and production activities in our manufacturing facility. Research, development and manufacturing operations costs also include costs related to technology development and governmental contracts.

Selling, general and administrative. Selling, general and administrative expenses were $1,846,944 for the year ended December 31, 2019, compared to $3,244,793 for the year ended December 31, 2018, a decrease of 43%.

Other Expense, net. Other expense was $1,615,213 for the year ended December 31, 2019, compared to $9,466,368 for the year ended December 31, 2018, a decrease of $83%.

Net Loss.  Our Net Loss was $4,868,261 for the year ended December 31, 2019, compared to a Net Loss of $16,036,492 for the year ended December 31, 2018, an improvement of 70%.

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The decrease in Net Loss for the year ended December 31, 2019 can be summarized in variances in significant account activity as follows:

 

 

 

Decrease (Increase)

to Net Loss For

the Year Ended

December, 2019

Compared to the

Year Ended

December 31, 2018

 

Revenues

 

 

(224,032

)

Cost of Revenue

 

 

525,041

 

Research, development and manufacturing operations

 

 

1,483,693

 

Selling, general and administrative expenses

 

 

1,397,849

 

Depreciation and Amortization Expense

 

 

134,525

 

Other Income / Expense

 

 

 

 

Other income

 

 

829,356

 

Interest Expense

 

 

(1,498,321

)

Non-Cash Change in Fair Value of Derivatives and Gain/Loss on Extinguishment of Liabilities, net

 

 

8,520,120

 

Decrease (Increase) to Net Loss

 

 

11,168,231

 

 

Liquidity and Capital Resources

The Company has continued limited PV production at its manufacturing facility. The Company does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until it has fully implemented its product strategy. During the year ended December 31, 2019 the Company used $2,715,418 in cash for operations.

Additional projected product revenues are not anticipated to result in a positive cash flow position for the years 2020 and 2021 overall and, as of December 31, 2019, the Company has negative working capital. As such, cash liquidity sufficient for the year ending December 31, 2019 will require additional financing.

The Company continues to accelerate sales and marketing efforts related to its military solar products and specialty PV application strategies through expansion of its sales and distribution channels. The Company has begun activities related to securing additional financing through strategic or financial investors, but there is no assurance the Company will be able to raise additional capital on acceptable terms or at all. If the Company's revenues do not increase rapidly, and/or additional financing is not obtained, the Company will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on the Company's future operations.

As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. The Company has scaled down its operations, due to cash flow issues, and does not expect to ramp up until significant financing is obtained.

Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Statements of Cash Flows Comparison of the Years Ended December 31, 2019 and 2018

For the year ended December 31, 2019, our cash used in operations was $2,715,418 compared to $4,015,846 for the year ended December 31, 2018, a decrease of $1,300,428. The decrease is primarily the result of reduced expenses from operations during the current year. For the year ended December 31, 2019, cash provided by investing activities was $827,491 compared to cash used in investing activities of $2,447 for the year ended December 31, 2018. This change was primarily the result of an increase in proceeds from the sale of assets. During the year ended December 31, 2019, negative operating cash flows of $2,715,418 were funded through $1,887,268 in debt issuances.

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Off Balance Sheet Transactions

As of December 31, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

We hold no significant funds and have no future obligations denominated in foreign currencies as of December 31, 2019.

Although our reporting currency is the U.S. Dollar, we may conduct business and incur costs in the local currencies of other countries in which we may operate, make sales and buy materials. As a result, we are subject to currency translation risk. Further, changes in exchange rates between foreign currencies and the U.S. Dollar could affect our future net sales and cost of sales and could result in exchange losses.

Interest Rate Risk

Our exposure to market risks for changes in interest rates relates primarily to our cash equivalents and investment portfolio. As of December 31, 2019, our cash equivalents consisted only of operating accounts held with financial institutions. From time to time, we hold restricted funds, money market funds, investments in U.S. government securities and high-quality corporate securities. The primary objective of our investment activities is to preserve principal and provide liquidity on demand, while at the same time maximizing the income we receive from our investments without significantly increasing risk. The direct risk to us associated with fluctuating interest rates is limited to our investment portfolio, and we do not believe a change in interest rates will have a significant impact on our financial position, results of operations, or cash flows.

 

Item 8. Financial Statements and Supplementary Data

The Financial Statements and Supplementary Data required by this item are included in Part IV, Item 15(a)(1) and are presented beginning on Page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Our management conducted an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act as of December 31, 2019. Based on this evaluation, our management concluded the design and operation of our disclosure controls and procedures were not effective as of December 31, 2019.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

28

statements for external purposes in accordance with generally accepted accounting principles ("GAAP") in the United States of America and includes those policies and procedures that:

 

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

•

provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on this evaluation, our management concluded our internal control over financial reporting were not effective as of December 31, 2019. Our management reviewed the results of its assessment with the Audit Committee.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material Weakness Identified in 2019

Based on our assessment and the criteria used, management concluded that our internal control over financial reporting as of December 31, 2019 and December 31, 2018 was not effective due to the material weaknesses described as follows:

 

•

The Company was understaffed and did not have sufficiently trained resources with the technical expertise to ensure that all company transactions were accounted for in accordance with GAAP. This deficiency arose primarily from staff turnover and the inability of the Company to devote sufficient replacement resources in a timely manner, as a result of the Company's financial situation

As a consequence, the Company did not have effective process level control activities over the following:

 

•

Accounting for the Company's inventory and cost of revenue was lacking for the preparation of the December 31, 2019 financial statements.  Miscalculations in these areas could impact the Company's current assets, revenues, operating results, and cash flows.

 

•

Accounting for the Company’s debt and equity securities was lacking for preparation of the December 31, 2019 and December 31, 2018 financial statements. Miscalculations in this area could impact the Company’s liability, equity, and other expenses.

The control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis for the fiscal years ended December 31, 2019 and 2018.  

Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting

The Company’s financial challenges continued during most of the year ended December 31, 2020, however, as discussed in Note 19 – Subsequent Events, the Company received funding during the second half of 2020 and began to bring the Company

29

back into operating status. The Company plans to execute the following steps, going forward, to remediate the aforementioned material weaknesses in its internal control over financial reporting:

 

•

During the fourth quarter of 2020, the Company hired a new Chief Financial Officer

 

•

The company significantly reduced the complexity of the debt structure through consolidation and simplifying of terms thereby lowering the associated administration and cost burden.

 

•

The Company plans to engage a resource, either as internal staff or an external contractor, with the technical expertise to track and report on inventory transactions and cost of revenue calculations.

 

•

The Company will design and implement additional procedures in order to assure that the resources mentioned above and other audit/accounting personnel are more involved with the Company’s inventory activities, cost of revenue allocations, and debt and equity securities to monitor and earlier identify accounting issues that may be raised by the Company’s ongoing activities.

Changes in Internal Control Over Financial Reporting

Except for the identification and mitigation of the material weaknesses noted above, there were no other changes in internal control over financial reporting during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers, continuing directors and director nominees, their ages and positions with us as of January 29, 2021, are as follows:

 

Name

 

Age

 

 

Position

Victor Lee

 

 

53

 

 

President and Chief Executive Officer, Director

Michael Gilbreth

 

 

44

 

 

Chief Financial Officer

Amit Kumar, Ph.D.

 

 

56

 

 

Chairman of the Board, Director

David Peterson

 

 

51

 

 

Director

Kim Huntley

 

 

66

 

 

Director

Will Clarke

 

 

53

 

 

Director

 

Victor Lee (Lee Kong Hian) has been the President and Chief Executive Officer of Ascent Solar Technologies Inc. since February 1, 2012 and as a member of our Board since November 2011. Mr. Lee is the managing director of Tertius Financial Group Pte Ltd, a boutique corporate advisory and private investment firm he founded in February 2009. He brings more than 25 years of experience in strategic planning, sales & marketing, corporate finance, real estate finance and investment management, and corporate advisory services at leading worldwide financial institutions. Mr. Lee began his career at Citibank N.A., in 1993, handling small-and medium-sized corporate finance and progressed to a vice president position in the International Personal Banking Division. In 1999 he moved to Deutsche Bank AG as Vice President and in 2004 was promoted to managing director Singapore Market Head in the Private Wealth Management Division, where he was responsible for management of approximately $1 Billion in assets. From 2007 until 2009, he was with Morgan Stanley Private Wealth Management, most recently as executive director and head of Singapore/Malaysia markets. Mr. Lee holds a Bachelor's degree in Accounting from the University of Wisconsin and a Master's in Wealth Management from the Singapore Management University.

 

Michael Gilbreth has been Chief Financial Officer of Ascent Solar Technologies Inc. since October 2020. Mr. Gilbreth is a financial executive with more than 15 years of experience in accounting and business management, consumer packaged goods, e-commerce, and financial consulting. In April 2020, Mr. Gilbreth formed a financial consulting company, PVMG Advisors, Inc., which provides financial and business consulting services. While at PVMG, Mr. Gilbreth provided consulting services to Crowdex Investment, LLC in connection with the Company’s recent restructuring and recapitalization process. Previously, from 2015 to January 2020, Mr. Gilbreth was Vice President of Finance at Candy Club Holding Limited (ASX: CLB) headquartered in Los Angeles, California. Candy Club is a leading specialty market confectionery company which operates in the business-to-business (B2B) and business-to-customer (B2C) segments in the United States. In this lead finance role at Candy Club, Mr. Gilbreth supported the company’s capital raising activities, including a successful initial public offering on the Australian Stock Exchange (ASX) in February 2019. From 2013 to 2015, Mr. Gilbreth operated Gilbreth Consulting, which provides financial and operational management consulting services, and strategic and operational planning services. From 2010 to 2013, Mr. Gilbreth was VP/Finance at MediaTrust, a performance marketing company based in southern California. From 2005 to 2010, Mr. Gilbreth was a business manager at Duban Sattler and Associates LLP, a boutique tax accounting and business management firm based in southern California which represents high net worth individuals. Mr. Gilbreth holds a Bachelor’s degree in Business Administration from California State University, Chico.  Mr. Gilbreth and David Peterson are cousins.

Amit Kumar, Ph.D. has served on our Board of Directors since June 2007 and as Chairman since January 2011. Dr. Kumar is currently Chairman, President and CEO of Anixa Biosciences (NASDAQ:ANIX), a publicly held biotechnology company. From December 2010 to June 2015, Dr. Kumar was President and CEO of Geo Fossil Fuels, a privately held energy company. From September 2001 until June 30, 2010, Dr. Kumar was President and CEO of CombiMatrix Corporation (NASDAQ: CBMX). Previously, Dr. Kumar was Vice President of Life Sciences of Acacia Research Corp (NASDAQ: ACTG). From January 1999 to February 2000, Dr. Kumar was the founding President and Chief Executive Officer of Signature BioSciences, Inc., a life science company developing technology for advanced research in genomics, proteomics and drug discovery. From January 1998 to December 1999, Dr. Kumar was an Entrepreneur in Residence with Oak Investment Partners, a venture capital firm. From October 1996 to January 1998, Dr. Kumar was a Senior Manager at IDEXX Laboratories, Inc., a biotechnology company. From October 1993 to September 1996, Dr. Kumar was Head of Research & Development for Idetek Corporation,

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which was later acquired by IDEXX Laboratories, Inc. Dr. Kumar received his B.S. degree in chemistry from Occidental College. After joint studies at Stanford University and the California Institute of Technology, he received his Ph.D. in Chemistry from Caltech in 1991. He also completed a post-doctoral fellowship at Harvard University in 1993. Dr. Kumar has authored and co-authored over 40 peer-reviewed publications and holds a dozen patents. Dr. Kumar brings significant leadership experience as well as experience in photovoltaic research including work on energy conversion using cells made from silicon (single crystal, polycrystalline, and amorphous), gallium arsenide, indium phosphide, metal oxides and other materials. Dr. Kumar is a member of the Board of Directors of Actym Therapeutics, a private biotechnology company.

Kim J. Huntley has served on our Board of Directors since June 2010. Mr. Huntley served in the Defense Logistics Agency (DLA) of the U.S. Department of Defense (DOD) for more than 32 years in positions of increasing responsibility. Most recently, from July 2008 until his retirement in January 2010, Mr. Huntley served as Director of the Defense Energy Support Center (DESC) in Fort Belvoir, Virginia. The DESC operates as part of the DLA and is responsible for providing energy solutions to the DOD and federal civilian agencies. As Director of the DESC, Mr. Huntley was the principal executive officer in charge of approximately 1,100 employees worldwide and over $25 billion in annual appropriations involving energy infrastructure and products. From March 2006 and immediately prior to becoming Director of the DESC, Mr. Huntley served in leadership roles involving supply chain management, including Deputy Commander for the Defense Supply Center in Richmond, Virginia and Columbus, Ohio, and as Executive Director of Customer Support and Readiness. From December 2003 to March 2006, Mr. Huntley served as Chief of the Customer Support Office in Fort Belvoir, Virginia. Mr. Huntley chaired the Inter Agency Working Group for Alternative Fuels and Renewable Energy from January 2009 to January 2010. The Group included senior energy representatives from DOD, DOE, EPA, and other major Federal Agencies. Mr. Huntley holds a B.A. degree in Economics from Golden Gate University and attended post-graduate courses in economics at California State University, Hayward. Mr. Huntley brings extensive supply chain, budget and defense industry experience to our Board.

David Peterson has served on our Board of Directors since December 2020. Mr. Peterson has over 25 years of business management experience, including 8 years as a private equity investor, 5 years as a manager at an engineering consulting firm, and over 20 years of board experience. From April 2015 to present, Mr. Peterson has worked for EPD Consultants, Inc., a privately held engineering firm headquartered in Carson, California, where he serves as Senior Project Manager. From 2010 to 2015, Mr. Peterson was President and Co-Founder of Great Circle Industries, Inc., a water recycling company in southern California.  His past experience includes being a board member at AIR-serv, LLC, a tire inflation vending machine manufacturer, where Mr. Peterson managed the acquisition process, including obtaining expansion of the company's credit facility, as that company completed 10 acquisitions and grew from $10 million of EBITDA to $20 million of EBITDA in the year prior to its sale for $151 million to WindPoint Partners.  Mr. Peterson has an MBA degree from the Marshall School of Business at the University of Southern California, and a B.A. from the University of California, Santa Cruz.  Mr. Peterson is currently the Manager of Crowdex Investment, LLC, a significant equity investor in the Company.  Mr. Peterson and Michael Gilbreth are cousins.

Will Clarke has served on our Board of Directors since December 2020. Since 2020, Mr. Clarke has been the Founder and President of Clarke Growth and Sustainment Strategies, an advisory firm specializing in guiding startup and early stage companies’ business expansion. From 2018 to 2020, Mr. Clarke was Head of Global Supply Chain Management and Technical Procurement for Atlas Airlines Worldwide Holdings, Inc. (NASDAQ: AAWW), a leading global provider of outsourced aircraft and aviation operating services headquartered in Purchase, NY. From 2015 to 2017, Mr. Clarke was Director of Procurement at Best Buy Co., Inc. (NYSE: BBY), a provider of technology products, services and solutions to its customers through over 1,400 retail stores, and also through its websites and mobile applications. Best Buy is headquartered in Richfield, MN and has operations in the United States, Canada and Mexico.  Prior to launching his second career in 2015, Mr. Clarke served 25 years as an Officer in the U.S. Navy, where he completed 10 deployments in support of war and peacetime operations on two aircraft carriers, one submarine, one warship and one on land. Mr. Clarke served in a number of senior finance, supply chain, procurement and logistics assignments across East Africa, Asia/Pacific, and the United States while serving in the U.S. Navy, where he attained the rank of Captain (O6). Mr. Clarke earned a B.S. in Mathematics from the U.S. Naval Academy, an M.S. in Finance and Contracts Management from the Naval Postgraduate School and has completed the Executive Development Program at Wharton Business School and the Corporate Governance Program at Columbia Business School.

CORPORATE GOVERNANCE

Overview

Our Bylaws provide that the size of our Board of Directors is to be determined from time to time by resolution of the Board of Directors, but shall consist of at least two and no more than nine members. Our Board of Directors currently consists of five members. The Board has determined that the following directors are “independent” as required by the listing standards of the OTC Market and by our corporate governance guidelines: Dr. Kumar, Mr. Huntley and Mr. Clarke.

32

Our Certificate of Incorporation provides that the Board of Directors will be divided into three classes. Our Class 1 director is Dr. Amit Kumar. Our Class 2 directors are Kim J. Huntley and Will Clarke. Our Class 3 directors are David Peterson and Victor Lee.

Board Leadership Structure and Role in Risk Oversight

We currently separate the roles of Chairman of the Board and Chief Executive Officer. We believe that Dr. Kumar possesses the strategic, technical and industry knowledge and expertise to serve as our Chairman. As President and Chief Executive Officer, Mr. Lee is responsible for day-to-day oversight of our operations and personnel. Notwithstanding the foregoing, our Board does not have a formal policy regarding separation of the Chairman and Chief Executive Officer roles, and the Board may in the future decide to implement such a policy if it deems it in the best interests of us and our stockholders. The Board does not have a lead independent director.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of risks we face, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, the Chairman of the Board meets regularly with management to discuss strategy and the risks we face. In addition, the Audit Committee regularly monitors our enterprise risk, including financial risks, through reports from management. Senior management attends the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters. The Chairman of the Board and independent members of the Board work together to provide strong, independent oversight of our management and affairs through the Board’s standing committees and, when necessary, executive sessions of the independent directors.

Committees of the Board of Directors

Our Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. Each committee operates pursuant to a charter. The charters of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee can be found on our website www.ascentsolar.com.

Audit Committee. Our Audit Committee oversees our accounting and financial reporting processes, internal systems of accounting and financial controls, relationships with independent auditors, and audits of financial statements. Specific responsibilities include the following:

 

•

selecting, hiring and terminating our independent auditors;

 

•

evaluating the qualifications, independence and performance of our independent auditors;

 

•

approving the audit and non-audit services to be performed by our independent auditors;

 

•

reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies;

 

•

reviewing and monitoring the enterprise risk management process;

 

•

overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

 

•

reviewing, with management and our independent auditors, any earnings announcements and other public announcements regarding our results of operations; and

 

•

preparing the report that the SEC requires in our annual proxy statement.

Our Audit Committee is comprised of Mr. Huntley, Dr. Kumar and Mr. Clarke. Mr. Huntley serves as Chairman of the Audit Committee. The Board has determined that all members of the Audit Committee are independent under the rules of the OTC Market, and that Mr. Huntley qualifies as an “audit committee financial expert,” as defined by the rules of the SEC.

33

Compensation Committee. Our Compensation Committee assists our Board in determining the development plans and compensation of our officers, directors and employees. Specific responsibilities include the following:

 

•

approving the compensation and benefits of our executive officers;

 

•

reviewing the performance objectives and actual performance of our officers; and

 

•

administering our stock option and other equity compensation plans.

The Compensation Committee reviews all components of compensation including base salary, bonus, equity compensation, benefits and other perquisites. In addition to reviewing competitive market values, the Compensation Committee also examines the total compensation mix, pay-for-performance relationship and how all elements, in the aggregate, comprise the executives’ total compensation package. The CEO makes recommendations to the Compensation Committee from time to time regarding the appropriate mix and level of compensation for other officers. Those recommendations consider the objectives of our compensation philosophy and the range of compensation programs authorized by the Compensation Committee. The Compensation Committee may determine director compensation by reviewing peer group data. Although the Compensation Committee has the authority to retain outside third parties, it does not currently utilize any outside consultants. The Compensation Committee may delegate certain of its responsibilities, as it deems appropriate, to other committees or officers.

Our Compensation Committee is comprised of Mr. Clarke, Mr. Huntley and Dr. Kumar. Mr. Clarke serves as Chairman of the Compensation Committee.

Our Board has determined that all members of the Compensation Committee are independent under the rules of the OTC Market.

Nominating and Governance Committee. Our Nominating and Governance Committee assists our Board by identifying and recommending individuals qualified to become members of our Board, reviewing correspondence from our stockholders, and establishing, evaluating and overseeing our corporate governance guidelines. Specific responsibilities include the following:

 

•

evaluating the composition, size and governance of our Board and its committees and making recommendations regarding future planning and the appointment of directors to our committees;

 

•

establishing a policy for considering stockholder nominees for election to our Board; and

 

•

evaluating and recommending candidates for election to our Board.

Our Nominating and Governance Committee is comprised of Dr. Kumar, Mr. Huntley, and Mr. Clarke. Dr. Kumar serves as Chairman of our Nominating and Governance Committee. Our Board has determined that all members of the Nominating and Governance Committee are independent under the rules of OTC Market.

When considering potential director candidates for nomination or election, the following characteristics are considered in accordance with our

Nominating and Governance Committee Charter:

 

•

high standard of personal and professional ethics, integrity and values;

 

•

training, experience and ability at making and overseeing policy in business, government and/or education sectors;

 

•

willingness and ability to keep an open mind when considering matters affecting interests of us and our constituents;

 

•

willingness and ability to devote the time and effort required to effectively fulfill the duties and responsibilities related to the Board and its committees;

 

•

willingness and ability to serve on the Board for multiple terms, if nominated and elected, to enable development of a deeper understanding of our business affairs;

34

 

•

willingness not to engage in activities or interests that may create a conflict of interest with a director’s responsibilities and duties to us and our constituents; and

 

•

willingness to act in the best interests of us and our constituents, and objectively assess Board, committee and management performances.

In addition, in order to maintain an effective mix of skills and backgrounds among the members of our Board, the following characteristics also may be considered when filling vacancies or identifying candidates:

 

•

diversity (e.g., age, geography, professional, other);

 

•

professional experience;

 

•

industry knowledge (e.g., relevant industry or trade association participation);

 

•

skills and expertise (e.g., accounting or financial);

 

•

leadership qualities;

 

•

public company board and committee experience;

 

•

non-business-related activities and experience (e.g., academic, civic, public interest);

 

•

continuity (including succession planning);

 

•

size of the Board;

 

•

number and type of committees, and committee sizes; and

 

•

legal and other applicable requirements and recommendations, and other corporate governance-related guidance regarding Board and committee composition.

The Nominating and Governance Committee will consider candidates recommended by stockholders who follow the nomination procedures in our bylaws. The Nominating and Governance Committee does not have a formal policy with respect to diversity; however, as noted above, the Board and the Nominating and Governance Committee believe that it is essential that Board members represent diverse viewpoints.

Number of Meetings

The Board held a total of 3 meetings in 2019. Our Audit Committee held 2 meetings, our Compensation Committee held 0 meetings, and our Nominating and Governance Committee held 0 meetings in 2019. Each director attended at least 75% of the aggregate of the total number of meetings of the Board and the Board committees on which he served.

Board Member Attendance at Annual Stockholder Meetings

Although we do not have a formal policy regarding director attendance at annual stockholder meetings, directors are encouraged to attend these annual meetings absent extenuating circumstances. We did not hold our annual meeting during 2019.

Stockholder Nominations

In accordance with our Bylaws, a stockholder wishing to nominate a director for election at an annual or special meeting of stockholders must timely submit a written proposal of nomination to us at our executive offices. To be timely, a written proposal of nomination for an annual meeting of stockholders must be received at least 90 calendar days but no more than 120 calendar days before the first anniversary of the date on which we held our annual meeting of stockholders in the immediately preceding year; provided, however, that in the event that the date of the annual meeting is advanced or delayed more than 30 calendar days from the anniversary of the annual meeting of stockholders in the immediately preceding year, the written proposal must be received: (i) at least 90 calendar days but no more than 120 calendar days prior to the date of the annual meeting; or (ii) no more than 10 days after the date we first publicly announce the date of the annual meeting. A written proposal

35

of nomination for a special meeting of stockholders must be received no earlier than 120 calendar days prior to the date of the special meeting nor any later than the later of: (i) 90 calendar days prior to the date of the special meeting; and (ii) 10 days after the date we first publicly announce the date of the special meeting.

Each written proposal for a nominee must contain: (i) the name, age, business address and telephone number, and residence address and telephone number of the nominee; (ii) the current principal occupation or employment of each nominee, and the principal occupation or employment of each nominee for the prior ten (10) years; (iii) a complete list of companies, whether publicly traded or privately held, on which the nominee serves (or, during any of the prior ten (10) years, has served) as a member of the board of directors; (iv) the number of shares of our common stock that are owned of record and beneficially by each nominee; (v) a statement whether the nominee, if elected, intends to tender, promptly following such person’s failure to receive the required vote for election or reelection at the next meeting at which the nominee would face election or reelection, an irrevocable resignation effective upon acceptance of such resignation by the Board; (vi) a completed and signed questionnaire, representation and agreement relating to voting agreements or commitments to which the nominee is a party; (vii) other information concerning the nominee that would be required in a proxy statement soliciting the nominee’s election; and (viii) information about, and representations from, the stockholder making the nomination.

A stockholder interested in submitting a nominee for election to the Board of Directors should refer to our Bylaws for additional requirements. Upon receipt of a written proposal of nomination meeting these requirements, the Nominating and Governance Committee of the Board will evaluate the nominee in accordance with its charter and the characteristics listed above.

Director Compensation

In 2019, our independent directors each agreed to serve without any cash or equity compensation (except for the compensation shown in the table below) until such time as the Company’s financial and cash position improved.

The following Director Compensation Table summarizes the compensation of each of our non-employee directors for services rendered to us during the year ended December 31, 2019:

2019 Director Compensation Table

 

Name

 

Fees Earned

or Paid in

Cash ($)

 

 

Stock

Awards ($)

 

 

All Other

Comp ($)

 

 

Total ($)

 

Amit Kumar

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Kim Huntley

 

 

35,000

 

 

 

-

 

 

 

-

 

 

 

35,000

 

G. Thomas Marsh (former Director)

 

 

35,000

 

 

 

-

 

 

 

-

 

 

 

35,000

 

Victor Lee

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

In addition to the fees listed above, we reimburse the directors for travel expenses submitted to us related to their attendance at meetings of the Board or its committees. The directors did not receive any other compensation or personal benefits.

Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and other senior finance and accounting staff. The code is designed to, among other things, deter wrongdoing and to promote the honest and ethical conduct of our officers and employees. The text of our code of ethics can be found on our Internet website at www.ascentsolar.com. If we effect an amendment to, or waiver from, a provision of our code of ethics, we intend to satisfy our disclosure requirements by posting a description of such amendment or waiver on that Internet website or via a current report on Form 8-K.

Communication with the Board of Directors

Stockholders may communicate with the Board by sending correspondence to our Chairman, c/o the Corporate Secretary, at our corporate address on the cover of this Form 10-K. It is our practice to forward all such correspondence to our Chairman, who is responsible for determining whether to relay the correspondence to the other members of the Board.

36

Item 11. Executive Compensation

Compensation of Executive Officers in 2019

The following Summary Compensation Table sets forth certain information regarding the compensation of our principal executive officer for services rendered in all capacities to us during the years ended December 31, 2019 and 2018.

Summary Compensation Table

 

Name and Principal Position

 

Year

 

 

Salary ($)

 

 

Bonus ($)

 

 

Stock

Awards ($)

 

 

Option

Awards ($)

 

 

All Other

Comp ($)

 

 

Total ($)

 

Victor Lee - Chief Executive Officer

 

 

2019

 

 

 

184,052

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

184,052

 

Victor Lee - Chief Executive Officer

 

 

2018

 

 

 

307,154

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

307,154

 

 

Executive Employment Agreements

On April 4, 2014, we entered into an employment agreement with Mr. Lee. The employment agreement provides that Mr. Lee will receive an annual base salary of $300,000, subject to annual adjustments as determined by our board. Mr. Lee will also be eligible for an annual bonus of up to 100% of his base salary as determined at the sole discretion of our board or compensation committee. Under this agreement, if the Company terminates Mr. Lee without cause, Mr. Lee is entitled to receive twelve months of base salary from the date of termination. In addition, if Mr. Lee is terminated without Cause, an additional portion of his stock options will become vested. In addition, the employment agreement provides that Mr. Lee is eligible to participate in the Company’s standard benefit plans and programs.

As provided in the employment agreement, Mr. Lee was granted stock options to purchase 1 shares of the Company’s common stock. These options vest in four equal annual installments on the first, second, third and fourth anniversaries of the employment agreement date, with an exercise price of $110,000 per share. These options expire on April 4, 2024.

The following table sets forth information concerning the outstanding equity awards granted to the named executive officers as of January 29, 2021.

Outstanding Equity Awards at Fiscal Year-End 2019

 

 

 

Option Awards

 

Stock Awards

 

 

 

Number of Securities

Underlying Unexercised

Options (#)

 

 

Option

Exercise

 

 

Option

Expiration

 

Numer of

Shares or

Units of

Stock That

Have Not

 

 

Market Value

of Shares or

Units of

Stock That

Have Not

 

Name

 

Exerciseable

 

 

Unexerciseable

 

 

Price ($/sh)

 

 

Date

 

Vested

 

 

Vested

 

Victor Lee (1)

 

 

1

 

 

 

-

 

 

 

130,000

 

 

3/1/2023

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

110,000

 

 

4/4/2024

 

 

-

 

 

 

-

 

 

 

 

10

 

 

 

-

 

 

 

20,200

 

 

2/11/2025

 

 

-

 

 

 

-

 

 

 

 

5

 

 

 

-

 

 

 

12,200

 

 

6/18/2025

 

 

-

 

 

 

-

 

 

 

 

10

 

 

 

-

 

 

 

1,200

 

 

3/10/2026

 

 

-

 

 

 

-

 

 

Vesting dates of securities underlying unexercised options and stock awards not yet vested as of January 29, 2021:

 

(1)

$130,000.00 options - vested on 3/1/15. $110,000.00 Options - vested on 4/4/18. $20,200.20 Options - vested on 2/11/17. $12,200 Options - vested on 6/18/18. $1,200 options - vested on 3/10/18.

37

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of December 31, 2019 relating to all of our equity compensation plans:

 

 

 

Number of

securities to

be issued upon

exercise of

outstanding

options,

warrants and

rights

 

 

Weighted

average

exercise price

of outstanding

options,

warrants and

rights

 

 

Number of

securities

remaining

available

for future

issuance under

equity

compensation

plans

 

Equity compensation plans approved by security

   holders

 

 

110

 

 

$

132,147.00

 

 

 

107

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows information regarding the beneficial ownership of our common stock by our directors, executive officers, former executive officers and greater than 5% beneficial owners as of January 29, 2021.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power and all shares issuable upon exercise of options or the vesting of restricted stock within 60 days of January 29, 2021. For purposes of calculating the percentage of our common stock beneficially owned, the number of shares of our common stock includes 18,102,583,471 shares of our common stock outstanding as of January 29, 2021.

Unless otherwise indicated, each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned.

The address for each director or named executive officer is c/o Ascent Solar Technologies, Inc., 12300 North Grant Street, Thornton, Colorado 80241.

 

Name of Beneficial Owner

 

No. of Shares

Beneficially

Owned

 

 

Percentage

 

5% Stockholders:

 

 

 

 

 

 

 

 

Crowdex Investments, LLC (1)

 

 

25,000,000,000

 

 

 

80.38

%

BD 1 Investment Holding, LLC (2)

 

 

105,000,000,000

 

 

 

85.29

%

TubeSolar AG (3)

 

 

25,000,000,000

 

 

 

58.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officers and Directors:

 

 

 

 

 

 

 

 

Victor Lee (4)

 

 

62

 

 

*

 

Michael J. Gilbreth

 

 

-

 

 

*

 

Amit Kumar, Ph.D.

 

 

47

 

 

*

 

Kim J. Huntley

 

 

30

 

 

*

 

Will Clarke

 

 

-

 

 

*

 

David Peterson (5)

 

 

-

 

 

*

 

All directors and executive officers as a group (6 persons)

 

 

139

 

 

*

 

 

 

*

Less than 1.0%

 

(1)

The address of Crowdex Investments, LLC ("Crowdex") is 1675 South State Street, Suite B, Kent County, Delaware 19901. Consists of (i) 12,000,000,000 shares of common stock owned as of January 29, 2021, and (ii) 13,000,000,000 additional shares of common stock issuable, within sixty days of such date, upon the conversion 1,300 shares of Series 1A preferred stock.  Includes 2,500,000,000 shares of common stock issuable upon the conversion of a certain

38

 

convertible note.  Such convertible note, however, contains a conversion limitation providing that Crowdex may not be issued shares of common stock upon conversion if, after giving effect to such issuance, Crowdex would beneficially own in excess of 4.99% of the Company's outstanding shares of common stock. Such convertible note would convert into an additional 2,500,000,000 shares of common stock only if such 4.99% limitation were deemed not to apply.  Bernd Förtsch is the 100% indirect beneficial owner of Crowdex.

 

(2)

The address of BD 1 Investment Holdings, LLC (“BD 1”) is 1675 South State Street, Suite B, Kent County, Delaware 19901. Consists of shares of common stock issuable, within sixty days of January 29, 2021, upon the conversion of certain convertible notes.  Johannes Kuhn is the indirect beneficial owner of BD 1.

 

(3)

The address for TubeSolar AG (“TubeSolar”) is Berliner Allee 65, D – 86153 Augsburg, Germany. Consists of shares of common stock issuable, within sixty days of January 29, 2021, upon the conversion 2,500 shares of Series 1A preferred stock.  Bernd Förtsch indirectly owns a controlling interest in TubeSolar.

 

(4)

Does not include 333,334 shares of common stock held by Tertius Financial Group Pte. Ltd. (“Tertius”). Mr. Lee is managing director and a 100% owner of Tertius. Mr. Lee disclaims beneficial ownership of our securities held by Tertius except to the extent of his pecuniary interest.

 

(5)

Mr. Peterson is the manager of Crowdex.  Mr. Peterson disclaims beneficial ownership of any securities owned by Crowdex.

 

RELATED PARTY TRANSACTIONS

Relationship with Crowdex and TubeSolar

Pursuant to their ownership of Common Stock and Series 1A Preferred Stock, Crowdex and TubeSolar together would be entitled to cast a majority of the votes on any matter to be considered by stockholders for approval at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Crowdex and Tube, therefore, currently can control all matters requiring stockholder approval, including the election of directors and other significant corporate transactions.  

Crowdex and TubeSolar are both indirectly beneficially owned and controlled by Bernd Förtsch.  

On September 22, 2020, we entered into a securities purchase agreement (“Series 1A SPA”) with Crowdex for the private placement of the Company’s newly designated Series 1A Convertible Preferred Stock (“Series 1A Preferred Stock”).  We sold 2,000 shares of Series 1A Preferred Stock to Crowdex in exchange for $2,000,000 of gross proceeds at an initial closing under the Series 1A SPA on September 22, 2020.

In November 2020, Crowdex converted 1,200 shares of outstanding Series 1A Preferred Stock into 12,000,000,000 shares of Common Stock.

On November 27, 2020, we issued to Crowdex a $500,000 unsecured convertible promissory note in a private placement and received $500,000 of gross proceeds from the offering.  On December 31, 2020, we sold 500 shares of Series 1A Preferred Stock to Crowdex in exchange for the cancellation of the note issued on November 27, 2020. There were no additional cash proceeds from this closing.

Crowdex owns a $250,000 aggregate principal amount convertible promissory note of the Company.  Crowdex acquired this note from the original noteholder in September 2020.  The aggregate principal amount of this note (together with accrued interest) will mature on June 9, 2021.  The note bears interest at a rate of 6% per annum. The interest rate increases to 18% in the event of a default under the Note.  The note is convertible, at the holder’s option, into shares of the Company’s Common Stock at a conversion price equal to $0.0001 per share. However, the holder of the notes will not have the right to convert any portion of the note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its conversion.

39

Relationship with BD 1

On December 18, 2020, the Company entered into a securities exchange agreement (“BD 1 Exchange Agreement”) with BD 1. BD 1 had previously acquired all of the Company’s existing outstanding unsecured notes (other than notes held by Global Ichiban and Crowdex described elsewhere in this Item 13) from the original note holders.  Pursuant to the terms of the BD 1 Exchange Agreement, BD 1 agreed to surrender and exchange all of its outstanding promissory notes with principal balances of approximately $10.4 million (including accrued interest and default penalties). In exchange and without the payment of any additional consideration, the Company issued to BD 1 two unsecured convertible notes with an aggregate principal amount of $10,500,000 (“BD 1 Exchange Notes”).

Johannes Kuhn is the indirect beneficial owner of BD 1.

The BD 1 Exchange Notes will mature on December 18, 2025.  BD 1 has the right, at any time until the BD 1 Exchange Notes are fully paid, to convert any outstanding and unpaid principal and interest into shares of Common Stock at a fixed conversion price equal to $0.0001 per share.  Accordingly, the Company would issue 105,000,000,000 shares of Common Stock upon a full conversion of the BD 1 Exchange Notes.

Relationship with Global Ichiban

On September 9, 2020, the Company entered into a securities exchange agreement (“GI Exchange Agreement”) with Global Ichiban Limited, a British Virgin Islands corporation (“GI”).

Pursuant to the terms of the GI Exchange Agreement, GI agreed to surrender and exchange all of its existing outstanding promissory notes with an aggregate principal balance of $6,374,666.57 (including accrued interest). In exchange, the Company issued to GI a secured convertible promissory note with a principal amount of $6,400,000.00 (“GI Exchange Note”).

The GI Exchange Note will mature on September 30, 2022. Principal on the GI Exchange Note, if not converted will be payable in a lump sum on September 30, 2022. The GI Exchange Note will not bear any accrued interest but bears a default interest rate of 18% in the event of a default under the GI Exchange Note.

GI shall have the right, from and after 6 months from the date of issuance of the GI Exchange Note and then at any time until the GI Exchange Note is fully paid, to convert any outstanding and unpaid principal and interest into shares of Common Stock at a variable conversion price equal to 80% of the average closing bid price for the shares over the prior five trading days.

Conversion into shares of Common Stock may not be issued pursuant to the GI Exchange Note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the Company’s outstanding shares of Common Stock.

The GI Exchange Note is secured by a lien on substantially all of the Company’s assets pursuant to the Security Agreement dated November 30, 2017 (the “Security Agreement”) entered into between the Company and GI.

Policies and Procedures with Respect to Transactions with Related Persons

The Board recognizes that related person transactions can present a heightened risk of potential or actual conflicts of interest. Accordingly, our Audit Committee charter requires that all such transactions will be reviewed and subject to approval by members of our Audit Committee, which will have access, at our expense, to our or independent legal counsel. Future transactions with our officers, directors or greater than five percent stockholders will be on terms no less favorable to us than could be obtained from independent third parties.

Director Independence

Our Board of Directors has determined that three out of our five directors are independent directors, as defined under the applicable rules of the OTC Market listing standards. The independent directors are Messrs. Kumar, Huntley and Clarke.

40

Item 14. Principal Accounting Fees and Services

PRINCIPAL ACCOUNTANTS

Fees for audit and related services by our accounting firm, Haynie & Company, for the years ended December 31, 2019 and 2018 were as follows:

 

 

 

2019

 

 

2018

 

Audit fees

 

$

230,000

 

 

$

223,000

 

Audit related fees

 

 

39,000

 

 

 

 

 

Total audit and audit related fees

 

 

269,000

 

 

 

223,000

 

Tax fees

 

 

8,000

 

 

 

20,400

 

All other fees

 

 

-

 

 

 

2,000

 

Total Fees

 

$

277,000

 

 

$

245,400

 

 

Audit fees for Haynie & Company for fiscal year 2019 and 2018 represents aggregate fees for the 2019 and 2018 annual audit of the financial statements.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee charter provides that the Audit Committee will pre-approve all audit services and non-audit services to be provided by our independent auditors before the accountant is engaged to render these services. The Audit Committee may consult with management in the decision making process, but may not delegate this authority to management. The Audit Committee may delegate its authority to pre-approve services to one or more committee members, provided that the designees present the pre-approvals to the full committee at the next committee meeting. All audit and non-audit services performed by our independent accountants have been pre-approved by our Audit Committee to assure that such services do not impair the auditors’ independence from us.

41

PART IV

Item 15. Exhibits and Financial Statement Schedules

 

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

 

(1)

Financial Statements—See Index to Financial Statements at Item 8 of the Annual Report on Form 10-K.

 

(2)

Financial Statement Schedules—Supplemental schedules are not provided because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.

 

(3)

Exhibits: See Item 15(b) below.

 

(b)

Exhibits: The exhibits listed on the accompanying Index to Exhibits on this Form 10-K are filed or incorporated into this Form 10-K by reference.

42

INDEX TO EXHIBITS

Set forth below is a list of exhibits that are being filed or incorporated by reference into this Annual Report on Form 10-K:

 

Exhibit No.

 

Description

 

 

 

  3.1

 

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form SB-2 filed on January 23, 2006 (Reg. No. 333-131216))

  3.2

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011)

  3.3

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed February 11, 2014)

  3.4

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated August 26, 2014. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed September 2, 2014)

  3.5

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated October 27, 2014 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated October 28, 2014)

  3.6

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated December 22, 2014. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated December 23, 2014)

  3.7

 

Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on February 17, 2009)

  3.8

 

First Amendment to Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)

  3.9

 

Second Amendment to Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed January 25, 2013)

  3.10

 

Third Amendment to Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed December 18, 2015)

  3.11

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated May 26, 2016 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed June 2, 2016)

  3.12

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated September 15, 2016 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed September 16, 2016)

  3.13

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated March 16, 2017 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed March 17, 2017)

  3.14

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 19, 2018 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed July 23, 2018)

  3.15

 

Certificate of Designations of Preferences, Rights, and Limitations of Series 1A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed September 30, 2020)

  4.1

 

Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form SB-2/A filed on June 6, 2006 (Reg. No. 333-131216))

  4.2

 

Certificate of Designations of Series A Preferred Stock (filed as Exhibit 4.2 to our Registration Statement on Form S-3 filed July 1, 2013 (Reg. No. 333-189739))

10.1

 

Securities Purchase Agreement, dated January 17, 2006, between the Company and ITN Energy Systems, Inc. (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form SB-2 filed on January 23, 2006 (Reg. No. 333-131216))CTR

10.2

 

Invention and Trade Secret Assignment Agreement, dated January 17, 2006, between the Company and ITN Energy Systems, Inc. (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form SB-2 filed on January 23, 2006 (Reg. No. 333-131216))CTR

10.3

 

Patent Application Assignment Agreement, dated January 17, 2006, between the Company and ITN Energy Systems, Inc. (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form SB-2 filed on January 23, 2006 (Reg. No. 333-131216))

10.4

 

License Agreement, dated January 17, 2006, between the Company and ITN Energy Systems, Inc. (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form SB-2 filed on January 23, 2006 (Reg. No. 333-131216))CTR

43

10.5

 

Letter Agreement, dated November 23, 2005, among the Company, ITN Energy Systems, Inc. and the University of Delaware (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form SB-2/A filed on May 26, 2006 (Reg. No. 333-131216))

10.6

 

License Agreement, dated November 21, 2006, between the Company and UD Technology Corporation (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 29, 2006)CTR

10.7

 

Novation Agreement, dated January 1, 2007, among the Company, ITN Energy Systems, Inc. and the United States Government (incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10-KSB for the year ended December 31, 2006)

10.8†

 

Executive Employment Agreement, dated April 4, 2014, between the Company and Victor Lee (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on April 9, 2014) †

10.9†

 

Seventh Amended and Restated 2005 Stock Option Plan (incorporated by reference to Annex B of our definitive proxy statement dated April 22, 2016)†

10.10†

 

Seventh Amended and Restated 2008 Restricted Stock Plan Stock Option Plan Plan (incorporated by reference to Annex A of our definitive proxy statement dated April 22, 2016)†

10.11

 

Security Agreement dated November 30, 2017 (incorporated by reference to Exhibit 10.65 to our Annual Report on Form 10-K filed March 29, 2018)

10.12

 

Securities Purchase Agreement dated February 14, 2019 (incorporated by reference to Exhibit 10.98 to our Annual Report on Form 10-K filed on April 16, 2019)

10.13

 

Convertible Promissory Note dated February 14, 2019 (incorporated by reference to Exhibit 10.99 to our Annual Report on Form 10-K filed on April 16, 2019)

10.14

 

GS Capital Partners Convertible Redeemable Note dated February 22, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 28, 2019)

10.15

 

GS Capital Partners Securities Purchase Agreement dated February 22, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on February 28, 2019)

10.16

 

Securities Purchase Agreement dated March 7, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 13, 2019)

10.17

 

Convertible Promissory Note dated March 7, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 13, 2019)

10.18

 

Exchange Agreement I dated March 11, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 15, 2019)

10.19

 

Convertible Promissory Note dated March 11, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 15, 2019)

10.20

 

Exchange Agreement II dated March 11, 2019 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 15, 2019)

10.21

 

Convertible Promissory Note dated March 11, 2019 (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 15, 2019)

10.22

 

Non-Convertible Promissory Note dated March 11, 2019 (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on March 15, 2019)

10.23

 

Securities Purchase Agreement dated March 13, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 22, 2019)

10.24

 

Secured Convertible Promissory Note dated March 13, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 22, 2019)

10.25

 

Purchase and Sale Agreement dated April 12, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 18, 2019)

10.26

 

Securities Purchase Agreement dated May 2, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 8, 2019)

10.27

 

Convertible Promissory Note dated May 2, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 8, 2019)

10.28

 

Exchange Agreement dated May 2, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 8, 2019)

10.29

 

Convertible Promissory Note dated May 2, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 8, 2019)

10.30

 

Non-Convertible Promissory Note dated May 14, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 17, 2019)

10.31

 

Non-Convertible Promissory Note dated July 8, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 12, 2019)

10.32

 

Exchange Agreement dated August 22, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 28, 2019)

44

10.33

 

Convertible Exchange Promissory Note dated August 22, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 28, 2019)

10.34

 

Non-Convertible Promissory Note dated August 22, 2019 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on August 28, 2019)

10.35

 

Securities Purchase Agreement dated August 26, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 30, 2019)

10.36

 

Convertible Promissory Note dated August 26, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 30, 2019)

10.37

 

Non-Convertible Promissory Note dated September 9, 2019 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on September 13, 2019)

10.38

 

Exchange Agreement dated October 22, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 12, 2019)

10.39

 

Convertible Exchange Promissory Note dated October 22, 2019 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on November 12, 2019)

10.40

 

Convertible Promissory Note dated June 9, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 22, 2020)

10.41

 

Unsecured Convertible Note dated November 27, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 4, 2020)

10.42

 

GI Exchange Agreement dated September 9, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 28, 2020)

10.43

 

GI Exchange Note dated September 9, 2020 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on December 28, 2020)

10.44

 

Series 1A Securities Purchase Agreement dated September 22, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 30, 2020)

10.45

 

BD1 Exchange Agreement dated December 18, 2020 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on December 28, 2020)

10.46

 

BD1 Exchange Note dated December 18, 2020 ($160,000 principal) (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on December 28, 2020)

10.47

 

BD1 Exchange Note dated December 18, 2020 ($10,340,000 principal) (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on December 28, 2020)

10.48

 

Amendment to Series 1A Securities Purchase Agreement dated December 31, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed January 6, 2021

10.49

 

Tranche 2 Series 1A Securities Purchase Agreement dated January 4, 2021 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed January 6, 2021)

10.50

 

Industrial Lease for 12300 Grant Street, Thornton, Colorado dated September 21, 2020*

23.1

 

Consent of Haynie & Company*

31.1

 

Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*

31.2

 

Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*

32.1

 

Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

32.2

 

Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

*

 

Filed herewith

CTR

 

Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

†

 

Denotes management contract or compensatory plan or arrangement.

 

 

Item 16. Form 10-K Summary

None.

45

ASCENT SOLAR TECHNOLOGIES, INC.

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 on the 29th day of January, 2021.

 

ASCENT SOLAR TECHNOLOGIES, INC.

 

By:

 

/S/    VICTOR LEE

 

 

 

Lee Kong Hian (aka Victor Lee)

President and Chief Executive 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 in the capacities and on the dates indicated.

 

Signature

 

Capacities

 

Date

/S/    VICTOR LEE

  

President & Chief Executive Officer and a Director

(Principal Executive Officer)

  

January 29, 2020

Lee Kong Hian (aka Victor Lee)

 

 

 

 

 

 

Chief Financial Officer 

 

 

/S/    MICHAEL J. GILBRETH

 

(Principal Financial and Accounting Officer)

 

January 29, 2020

Michael J. Gilbreth

 

 

 

 

 

 

 

 

 

/S/    AMIT KUMAR

  

Chairman of the Board of Directors

  

January 29, 2020

Amit Kumar, Ph.D.

 

 

 

 

 

 

 

 

 

/S/   WILL CLARKE

  

Director

  

January 29, 2020

Will Clarke

 

 

 

 

 

 

 

 

 

/S/    KIM J. HUNTLEY

  

Director

  

January 29, 2020

Kim J. Huntley

 

 

 

 

 

 

 

 

 

/S/    DAVID PETERSON

 

Director

 

January 29, 2020

David Peterson

 

 

 

 

 

 

 

46

 

Ascent Solar Technologies, Inc.

Index to Consolidated Financial Statements

 

 

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Ascent Solar Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ascent Solar Technologies, Inc. (the Company) as of December 31, 2019 and 2018,and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 4 to the financial statements, the Company has recurring losses, negative working capital and negative cash flows from operations. These factors 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 4 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain financing or increase sales, there could be a material adverse effect on the Company.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Haynie and Company

We have served as the Company's auditor since 2017

Salt Lake City, Utah

January 29, 2021

F-2

ASCENT SOLAR TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

-

 

 

$

18,159

 

Trade receivables, net of allowance of $46,023 and $45,664, respectively

 

 

-

 

 

 

165,160

 

Inventories

 

 

533,892

 

 

 

660,791

 

Prepaid and other current assets

 

 

51,598

 

 

 

138,369

 

Total current assets

 

 

585,490

 

 

 

982,479

 

Property, Plant and Equipment:

 

 

32,911,969

 

 

 

36,621,187

 

Accumulated depreciation

 

 

(28,677,350

)

 

 

(32,207,829

)

 

 

 

4,234,619

 

 

 

4,413,358

 

Other Assets:

 

 

 

 

 

 

 

 

Patents, net of accumulated amortization of $421,182 and $363,533, respectively

 

 

813,397

 

 

 

862,429

 

Other non-current assets

 

 

-

 

 

 

34,061

 

 

 

 

813,397

 

 

 

896,490

 

Total Assets

 

 

5,633,506

 

 

 

6,292,327

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,663,316

 

 

$

2,318,655

 

Related party payables

 

 

460,173

 

 

 

270,740

 

Accrued expenses

 

 

1,624,564

 

 

 

1,562,435

 

Accrued Interest

 

 

2,107,401

 

 

 

1,198,279

 

Notes Payable

 

 

1,506,530

 

 

 

1,516,530

 

Current portion of long-term debt

 

 

6,075,307

 

 

 

349,093

 

Secured promissory notes, net of discount of $837,242 and $2,824,365, respectively

 

 

6,335,655

 

 

 

3,447,380

 

Promissory notes, net of discount of $16,666 and $104,583, respectively

 

 

1,092,771

 

 

 

1,239,854

 

Convertible notes, net of discount of $861,567 and $394,011, respectively

 

 

2,129,016

 

 

 

1,852,722

 

Embedded Derivative Liability

 

 

7,717,150

 

 

 

10,114,452

 

Total current liabilities

 

 

30,711,883

 

 

 

23,870,140

 

Long-Term Debt

 

 

-

 

 

 

5,028,969

 

Accrued Warranty Liability

 

 

28,404

 

 

 

29,114

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Series A preferred stock, $.0001 par value; 750,000 shares authorized; 48,100 and 60,756 shares issued and outstanding, respectively ($703,863 and $822,620 Liquidation Preference, respectively)

 

 

5

 

 

 

6

 

Common stock, $0.0001 par value, 20,000,000,000 authorized; 4,759,161,650 and 63,537,885 shares issued and outstanding, respectively

 

 

475,917

 

 

 

6,354

 

Additional paid in capital

 

 

397,817,526

 

 

 

395,889,712

 

Accumulated Deficit

 

 

(423,400,229

)

 

 

(418,531,968

)

Total stockholders’ deficit

 

 

(25,106,781

)

 

 

(22,635,896

)

Total Liabilities and Stockholders’ Deficit

 

$

5,633,506

 

 

$

6,292,327

 

 

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

F-3

ASCENT SOLAR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Year Ended

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Products

 

$

638,380

 

 

$

813,512

 

Government contracts

 

 

-

 

 

 

48,900

 

Total Revenues

 

 

638,380

 

 

 

862,412

 

Costs and Expenses

 

 

 

 

 

 

 

 

Costs of Revenue

 

 

490,755

 

 

 

1,015,796

 

Research and development

 

 

1,310,948

 

 

 

2,794,641

 

Selling, general and administrative

 

 

1,846,944

 

 

 

3,244,793

 

Depreciation and Amortization

 

 

242,781

 

 

 

377,306

 

Total Costs and Expenses

 

 

3,891,428

 

 

 

7,432,536

 

Loss from Operations

 

 

(3,253,048

)

 

 

(6,570,124

)

Other Income/(Expense)

 

 

 

 

 

 

 

 

Other Income/(Expense), net

 

 

842,500

 

 

 

13,144

 

Interest Expense

 

 

(8,850,002

)

 

 

(7,351,681

)

Change in fair value of derivatives and loss on extinguishment of liabilities, net

 

 

6,392,289

 

 

 

(2,127,831

)

Total Other Income/(Expense)

 

 

(1,615,213

)

 

 

(9,466,368

)

Net Loss

 

$

(4,868,261

)

 

$

(16,036,492

)

 

 

 

 

 

 

 

 

 

Net Loss Per Share (Basic and Diluted)

 

$

(0.003

)

 

$

(0.69

)

Weighted Average Common Shares Outstanding (Basic and Diluted)

 

 

1,537,643,750

 

 

 

23,157,607

 

 

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

F-4

ASCENT SOLAR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

 

 

Series A Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

(Deficit)

 

Balance, December 31, 2017

 

 

60,756

 

 

$

6

 

 

 

9,606,677

 

 

$

961

 

 

$

387,292,174

 

 

$

(402,495,476

)

 

$

(15,202,335

)

Interest and Dividend Expense paid with Common Stock

 

 

-

 

 

 

-

 

 

 

1,137,349

 

 

 

114

 

 

 

62,800

 

 

 

-

 

 

 

62,914

 

Conversion of St.George Note into Common Shares

 

 

-

 

 

 

-

 

 

 

15,849,656

 

 

 

1,585

 

 

 

605,015

 

 

 

-

 

 

 

606,600

 

Conversion of Global Ichiban Note into Common Shares

 

 

-

 

 

 

-

 

 

 

3,486,274

 

 

 

349

 

 

 

1,425,651

 

 

 

-

 

 

 

1,426,000

 

Conversion of BayBridge Note into Common Shares

 

 

-

 

 

 

-

 

 

 

19,838,979

 

 

 

1,984

 

 

 

770,517

 

 

 

-

 

 

 

772,501

 

Conversion of Bellridge Note into Common Shares

 

 

-

 

 

 

-

 

 

 

10,912,281

 

 

 

1,091

 

 

 

243,909

 

 

 

-

 

 

 

245,000

 

Conversion of Note Payable into Common Shares

 

 

-

 

 

 

-

 

 

 

2,004,169

 

 

 

200

 

 

 

356,542

 

 

 

-

 

 

 

356,742

 

Conversion of Series K Preferred Stock into Common Shares

 

 

-

 

 

 

-

 

 

 

702,500

 

 

 

70

 

 

 

2,809,930

 

 

 

-

 

 

 

2,810,000

 

Loss on Extinguishment of Liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,293,909

 

 

 

-

 

 

 

2,293,909

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,265

 

 

 

-

 

 

 

29,265

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,036,492

)

 

 

(16,036,492

)

Balance at December 31, 2018

 

 

60,756

 

 

 

6

 

 

 

63,537,885

 

 

 

6,354

 

 

 

395,889,712

 

 

 

(418,531,968

)

 

 

(22,635,896

)

Interest and Dividend Expense paid with Common Stock

 

 

-

 

 

 

-

 

 

 

187,649,473

 

 

 

18,766

 

 

 

98,488

 

 

 

-

 

 

 

117,254

 

Stock issued for fees

 

 

-

 

 

 

-

 

 

 

399,336,751

 

 

 

39,934

 

 

 

39,931

 

 

 

-

 

 

 

79,865

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,750

 

 

 

-

 

 

 

20,750

 

Loss on Extinguishment of Liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

878,788

 

 

 

-

 

 

 

878,788

 

Conversion of BayBridge Note into Common Shares

 

 

-

 

 

 

-

 

 

 

959,692,046

 

 

 

95,969

 

 

 

185,931

 

 

 

-

 

 

 

281,900

 

Conversion of Bellridge Note into Common Shares

 

 

-

 

 

 

-

 

 

 

983,601,030

 

 

 

98,360

 

 

 

144,640

 

 

 

-

 

 

 

243,000

 

Conversion of Global Ichiban Note into Common Shares

 

 

-

 

 

 

-

 

 

 

9,595,327

 

 

 

960

 

 

 

114,040

 

 

 

-

 

 

 

115,000

 

Conversion of GS Capital Note into Common Shares

 

 

-

 

 

 

-

 

 

 

441,155,770

 

 

 

44,116

 

 

 

39,953

 

 

 

-

 

 

 

84,068

 

Conversion of Power Up Note into Common Shares

 

 

-

 

 

 

-

 

 

 

572,231,537

 

 

 

57,223

 

 

 

210,457

 

 

 

-

 

 

 

267,680

 

Conversion of St.George Note into Common Shares

 

 

-

 

 

 

-

 

 

 

1,142,361,830

 

 

 

114,236

 

 

 

194,834

 

 

 

-

 

 

 

309,070

 

Conversion of Series A Preferred Stock into Common Stock

 

 

(12,656

)

 

 

(1

)

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,868,261

)

 

 

(4,868,261

)

Balance at December 31, 2019

 

 

48,100

 

 

$

5

 

 

 

4,759,161,650

 

 

$

475,917

 

 

$

397,817,526

 

 

$

(423,400,229

)

 

$

(25,106,781

)

 

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

F-5

ASCENT SOLAR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the Years Ended

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(4,868,261

)

 

$

(16,036,492

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

242,780

 

 

 

381,056

 

Stock based compensation

 

 

20,750

 

 

 

29,265

 

Realized loss (gain) on sale of assets

 

 

(842,500

)

 

 

(14,000

)

Amortization of deferred financing costs

 

 

24,639

 

 

 

29,167

 

Non-cash interest expense

 

 

2,579,674

 

 

 

704,968

 

Amortization of debt discount

 

 

4,735,907

 

 

 

5,198,003

 

Bad debt expense

 

 

359

 

 

 

(2,536

)

Write off of Enerplex Patents

 

 

-

 

 

 

467,005

 

Warranty reserve

 

 

(710

)

 

 

(28,589

)

Change in fair value of derivatives and loss on extinguishment of liabilities, net

 

 

(6,392,289

)

 

 

2,127,831

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

164,801

 

 

 

(155,966

)

Inventories

 

 

126,899

 

 

 

377,063

 

Prepaid expenses and other current assets

 

 

114,493

 

 

 

383,475

 

Accounts payable

 

 

(288,945

)

 

 

994,418

 

Related party payable

 

 

189,433

 

 

 

67,913

 

Accrued expenses

 

 

1,415,423

 

 

 

1,083,727

 

Accrued Interest

 

 

62,129

 

 

 

377,846

 

Net cash used in operating activities

 

 

(2,715,418

)

 

 

(4,015,846

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(6,393

)

 

 

-

 

Proceeds on sale of Assets

 

 

842,500

 

 

 

14,000

 

Patent activity costs

 

 

(8,616

)

 

 

(16,447

)

Net cash provided by (used in) investing activities

 

 

827,491

 

 

 

(2,447

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt issuance

 

 

1,887,268

 

 

 

4,103,500

 

Repayment of debt

 

 

(10,000

)

 

 

(145,666

)

Payment of debt financing costs

 

 

(7,500

)

 

 

(11,000

)

Net cash provided by (used in) financing activities

 

 

1,869,768

 

 

 

3,946,834

 

Net change in cash and cash equivalents

 

 

(18,159

)

 

 

(71,459

)

Cash and cash equivalents at beginning of period

 

 

18,159

 

 

 

89,618

 

Cash and cash equivalents at end of period

 

$

-

 

 

$

18,159

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,698

 

 

$

237,681

 

Non-Cash Transactions:

 

 

 

 

 

 

 

 

Non-cash conversions of preferred stock and convertible notes to equity

 

$

1,417,976

 

 

$

6,216,842

 

Non-cash financing costs

 

$

10,800

 

 

$

45,000

 

Debt converted to accounts payable

 

$

-

 

 

$

-

 

Accounts payable converted to notes payable

 

$

-

 

 

$

308,041

 

Accounts payable forgiven related to sale of EnerPlex

 

$

-

 

 

$

-

 

Interest converted to principal

 

$

171,152

 

 

$

140,518

 

Common shares issued for fees

 

$

49,622

 

 

$

-

 

Initial embedded derivative liabilities

 

$

4,507,381

 

 

$

3,873,697

 

Promissory notes exchanged for convertible notes

 

$

850,000

 

 

$

475,000

 

 

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

F-6

ASCENT SOLAR TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Ascent Solar Technologies, Inc. (“Ascent”) was incorporated on October 18, 2005 from the separation by ITN Energy Systems, Inc. (“ITN”) of its Advanced Photovoltaic Division and all of that division’s key personnel and core technologies. ITN, a private company incorporated in 1994, is an incubator dedicated to the development of thin film, photovoltaic (“PV”), battery, fuel cell and nano technologies. Through its work on research and development contracts for private and governmental entities, ITN developed proprietary processing and manufacturing know how applicable to PV products generally, and to Copper-Indium-Gallium-diSelenide (“CIGS”) PV products in particular. ITN formed Ascent to commercialize its investment in CIGS PV technologies. In January 2006, in exchange for 102,800 shares of common stock of Ascent, ITN assigned to Ascent certain CIGS PV technologies and trade secrets and granted to Ascent a perpetual, exclusive, royalty free worldwide license to use, in connection with the manufacture, development, marketing and commercialization of CIGS PV to produce solar power, certain of ITN’s existing and future proprietary and control technologies that, although non-specific to CIGS PV, Ascent believes will be useful in its production of PV modules for its target markets. Upon receipt of the necessary government approvals and pursuant to novation in early 2007, ITN assigned government funded research and development contracts to Ascent and also transferred the key personnel working on the contracts to Ascent.

Currently, the Company is focusing on integrating its PV products into high value markets such as aerospace, satellites, near earth orbiting vehicles, and fixed wing unmanned aerial vehicles (UAV). The value proposition of Ascent’s proprietary solar technology not only aligns with the needs of customers in these industries, but also overcomes many of the obstacles other solar technologies face in these unique markets. Ascent has the capability to design and develop finished products for end users in these areas as well as collaborate with strategic partners to design and develop custom integrated solutions for products like fixed-wing UAVs. Ascent sees significant overlap of the needs of end users across some of these industries and can achieve economies of scale in sourcing, development, and production in commercializing products for these customers.

NOTE 2. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been derived from the accounting records of Ascent Solar Technologies, Inc., Ascent Solar (Asia) Pte. Ltd., and Ascent Solar (Shenzhen) Co., Ltd. (collectively, "the Company") as of December 31, 2019 and December 31, 2018 , and the results of operations for the years ended December 31, 2019 and 2018. Ascent Solar (Shenzhen) Co., Ltd. is wholly owned by Ascent Solar (Asia) Pte. Ltd., which is wholly owned by Ascent Solar Technologies, Inc. All significant inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents: The Company classifies all short-term investments in interest bearing bank accounts and highly liquid debt securities purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances which may exceed federally insured limits. The Company does not believe this results in significant credit risk.

Foreign Currencies: Bank account balances held in foreign currencies are translated to U.S. dollars utilizing the period end exchange rate. Gains or losses incurred in connection with the Company’s accounts held in foreign currency were not material for the years ended December 31, 2019 and 2018 and were recorded in “Other Income/(Expense)” in the Consolidated Statements of Operations.

Receivables and Allowance for Doubtful Accounts: Trade accounts receivable are recorded at the invoiced amount as the result of transactions with customers. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates the collectability of accounts receivable using analysis of historical bad debts, customer creditworthiness and current economic trends. Reserves are established on an account-by-account basis. Account balances are written off against the allowance in the period in which the

F-7

Company determines that is it probable that the receivable will not be recovered. As of December 31, 2019, and December 31, 2018, the Company had an allowance for doubtful accounts of $46,023 and $45,664 respectively.

Inventories: All inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average method. Inventory balances are frequently evaluated to ensure they do not exceed net realizable value. The computation for net realizable value takes into account many factors, including expected demand, product life cycle and development plans, module efficiency, quality issues, obsolescence and others. Management's judgment is required to determine reserves for obsolete or excess inventory. As of December 31, 2019, and 2018, the Company had inventory reserve balances of $584,269 and $745,927 respectively. In response to management's estimate of current market conditions, the Company has reserved all of its finished goods inventory as of December 31, 2019. If actual demand and market conditions are less favorable than those estimated by management, additional inventory write downs may be required.

Property, Plant and Equipment: Property, plant and equipment are recorded at the original cost to the Company. Assets are being depreciated over estimated useful lives of three to forty years using the straight-line method, as presented in the table below, commencing when the asset is placed in service. Leasehold improvements are depreciated over the shorter of the remainder of the lease term or the life of the improvements. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repairs and maintenance are expensed as incurred.

 

 

 

Useful Lives

 

 

in Years

Buildings

 

40

Manufacturing machinery and equipment

 

5 - 10

Furniture, fixtures, computer hardware/software

 

3 - 7

Leasehold improvements

 

life of lease

 

Patents: At such time as the Company is awarded patents, patent costs are amortized on a straight-line basis over the legal life on the patents, or over their estimated useful lives, whichever is shorter. During the year ended December 31, 2018, the Company wrote down the remaining international EnerPlex IP, which was not part of the 2017 sale of the EnerPlex IP. This write down consisted of $692,000 in capitalized patent costs, reduced by $225,000 in accumulated amortization, resulting in an expense of $467,000. As of December 31, 2019, and 2018, the Company had $813,396 and $862,429 of net patent costs, respectively. Of these amounts $149,660 and $207,308 represent costs net of amortization incurred for awarded patents, and the remaining $663,737 and $655,121 represents costs incurred for patent applications to be filed as of December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, the Company capitalized $8,616 and $16,447 in patent costs, respectively, as it worked to secure design rights and trademarks for newly developed products. Amortization expense was $57,649 and $158,488 for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, future amortization of patents is expected as follows:

 

2020

 

$

45,920

 

2021

 

 

37,429

 

2022

 

 

33,924

 

2023

 

 

25,154

 

2024

 

 

7,233

 

 

 

$

149,660

 

 

Impairment of Long-lived Assets: The Company analyzes its long-lived assets (property, plant and equipment) and definitive-lived intangible assets (patents) for impairment, both individually and as a group, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Events that might cause impairment would include significant current period operating or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. An undiscounted cash flow analysis is calculated to determine if impairment exists. If impairment is determined to exist, any related loss is calculated using the difference between the fair value and the carrying value of the assets. During the years ended December 31, 2019 and 2018, the Company did not incur impairments of its manufacturing facilities and equipment.

F-8

Interest Capitalization: Historically the Company has capitalized interest cost as part of the cost of acquiring or constructing certain assets during the period of time required to get the asset ready for its intended use. The Company capitalized interest to the extent that expenditures to acquire or construct an asset have occurred and interest cost has been incurred.

Convertible Notes: The Company issues, from time to time, convertible notes. Refer to Notes 10 and 12 for further information.

Convertible Preferred Stock: The Company evaluates its preferred stock instruments under FASB ASC 480, "Distinguishing Liabilities from Equity" to determine the classification, and thereby the accounting treatment, of the instruments. Refer to Notes 13 and 19 for further discussion on the classification of each instrument.

Derivatives: The Company evaluates its financial instruments under FASB ASC 815, "Derivatives and Hedging" to determine whether the instruments contain an embedded derivative. When an embedded derivative is present, the instrument is evaluated for a fair value adjustment upon issuance and at the end of every reporting period. Any adjustments to fair value are treated as gains and losses in fair values of derivatives and are recorded in the Consolidated Statements of Operations.

The following table is a summary of the derivative liability activity for the years ended December 31, 2019 and 2018:

 

Derivative Liability Balance as of December 31, 2017

 

$

6,406,833

 

Additional derivative liability on new notes

 

 

3,873,697

 

Change in fair value of derivative liability

 

 

(27,686

)

Liability extinguished

 

 

(138,392

)

Derivative Liability Balance as of December 31, 2018

 

 

10,114,452

 

Liability assigned

 

 

-

 

Additional derivative liability on new notes

 

 

4,507,380

 

Change in fair value of derivative liability

 

 

(6,196,026

)

Liability extinguished

 

 

(708,656

)

Derivative Liability Balance as of December 31, 2019

 

$

7,717,150

 

 

Refer to Notes 10 and 12 for further discussion on the embedded derivatives of each instrument.

Product Warranties: The Company provides a limited warranty to the original purchaser of products against defective materials and workmanship. The Company also guarantees that standalone modules and PV integrated consumer electronics will achieve and maintain the stated conversion efficiency rating for certain products. Warranty accruals are recorded at the time of sale and are estimated based upon product warranty terms, historical experience and analysis of peer company product returns. The Company assesses the adequacy of its liabilities and makes adjustments as necessary based on known or anticipated warranty claims, or as new information becomes available.

Warrant Liability:  Warrants to purchase the Company's common stock with nonstandard anti-dilution provisions, regardless of the probability or likelihood that may conditionally obligate the issuer to ultimately transfer assets, are classified as liabilities and are recorded at their estimated fair value at each reporting period. Any change in fair value of these warrants is recorded at each reporting period in Other income/(expense) on the Company's statement of operations.

Revenue Recognition:

Product revenue. We recognize revenue for module and other equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For module and other equipment sales contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.

During the years ended December 31, 2019 and 2018, the company recognized product revenue of $638,380 and $813,512, respectively.

Government contracts revenue. Revenue from government research and development contracts is generated under terms that are cost plus fee or firm fixed price. We generally recognize this revenue over time using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to

F-9

the total estimated costs of the contract. In applying cost-based input methods of revenue recognition, we use the actual costs incurred relative to the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Cost based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy long-term government research and development contracts and therefore reflect the performance obligations under such contracts. Costs incurred that do not contribute to satisfying our performance obligations are excluded from our input methods of revenue recognition as the amounts are not reflective of our transferring control under the contract. Costs incurred towards contract completion may include direct costs plus allowable indirect costs and an allocable portion of the fixed fee. If actual and estimated costs to complete a contract indicate a loss, provision is made currently for the loss anticipated on the contract.

During the year ended December 31, 2018, the Company recognized government contract revenue of $48,900. No government contract revenue was recognized for the year ended December 31, 2019.

Shipping and Handling Costs: The Company classifies shipping and handling costs for products shipped to customers as a component of “Cost of revenues” on the Company’s Consolidated Statements of Operations. Customer payments of shipping and handling costs are recorded as a component of Revenues.

Research, Development and Manufacturing Operations Costs: Research, development and manufacturing operations expenses were $1.3 million and $2.8 million for the years ended December 31, 2019 and 2018, respectively.  Research, development and manufacturing operations expenses include: 1) technology development costs, which include expenses incurred in researching new technology, improving existing technology and performing federal government research and development contracts, 2) product development costs, which include expenses incurred in developing new products and lowering product design costs, and 3) pre-production and production costs, which include engineering efforts to improve production processes, material yields and equipment utilization, and manufacturing efforts to produce saleable product. Research, development and manufacturing operations costs are expensed as incurred, with the exception of costs related to inventoried raw materials, work-in-process and finished goods, which are expensed as cost of revenue as products are sold. 

Marketing and Advertising Costs:  The Company advertises in print, television, online and through social media.  The Company will also authorize customers to run advertising campaigns on its behalf through various media outlets. Marketing and advertising costs are expensed as incurred. Marketing and advertising expenses were $2,465 and $23,560 for the years ended December 31, 2019 and 2018, respectively.

Share-Based Compensation: The Company measures and recognizes compensation expense for all share-based payment awards made to employees, officers, directors, and consultants based on estimated fair values. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s Statements of Operations. Share-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. For purposes of determining estimated fair value of share-based payment awards on the date of grant the Company uses the Black-Scholes option-pricing model (“Black-Scholes Model”) for option awards. The Black-Scholes Model requires the input of highly subjective assumptions. Because the Company’s employee stock options may have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of the Company’s employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, which could materially impact the Company’s fair value determination. The Company estimates the fair value of its restricted stock awards as its stock price on the grant date.

The accounting guidance for share-based compensation may be subject to further interpretation and refinement over time. There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions. If factors change and the Company employs different assumptions in the accounting for share-based compensation in future periods, or if the Company decides to use a different valuation model, the compensation expense the Company records in the future may differ significantly from the amount recorded in the current period and could materially affect its loss from operations, net loss and net loss per share.

Income Taxes: Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it

F-10

is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates as of the date of enactment. Interest and penalties, if applicable, would be recorded in operations.

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years (2016-2019) in these jurisdictions. The Company believes its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.

Net Loss per Common Share: Basic loss per share does not include dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect the potential securities that could share in the earnings of the Company, similar to fully diluted earnings per share. Common stock equivalents outstanding as of December 31, 2019 and 2018 of approximately 5.9 billion and 834 million shares, respectively, have been omitted from loss per share because they are anti-dilutive. Common stock equivalents consist of preferred stock, preferred stock dividend liability amounts (assuming the make-whole dividend liability is paid in common stock in lieu of cash), and convertible notes (assuming the amortization payments are paid in common stock in lieu of cash). Net loss per common share was the same for both basic and diluted methods for the periods ended December 31, 2019 and 2018.

Fair Value Estimates: 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses fair value hierarchy based on three levels of inputs, of which, the first two are considered observable and the last unobservable, to measure fair value:

 

 

•

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

•

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Certain long-lived assets and current liabilities have been measured at fair value on a recurring and non-recurring basis. See Note 6. Property, Plant and Equipment, Note 10. Secured Promissory Notes, and Note 12. Convertible Notes. The carrying amount of our long-term debt outstanding approximates fair value because our current borrowing rate does not materially differ from market rates for similar bank borrowings. The carrying value for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other assets and liabilities approximate their fair values due to their short maturities.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. The Company has evaluated the adoption of this guidance and has determined there is no material impact on its consolidate financial statements because the Company does not have any leases at the date of the adoption.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting , which simplifies the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with specified exceptions. This standard is effective

F-11

for the Company in the first quarter of 2020, and early adoption is permitted. The implementation of ASU 2018-07 did not have a material effect on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. This standard is effective for the Company in the first quarter of 2020, and early adoption is permitted. The Company is currently evaluating the impact of the effect adoption of this standard will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures.

Other new pronouncements issued but not effective as of December 31, 2019 are not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 4. LIQUIDITY, CONTINUED OPERATIONS, AND GOING CONCERN    

During the years ended December 31, 2019 and 2018, the Company entered into multiple financing agreements to fund operations. Further discussion of these transactions can be found in Notes 8, 9, 10, 11, 12, and 19.

The Company has continued limited PV production at its manufacturing facility. The Company does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until it has fully implemented its product strategy. During the year ended December 31, 2019 the Company used $2,715,418 in cash for operations. As of December 31, 2019, the Company had $17,139,279 in debt and 2,123,489 in payables, all of which were in default.  Also as of December 31, 2019, the Company owed $2,107,401 in interest.

Additional projected product revenues are not anticipated to result in a positive cash flow position for the year 2020 overall and, as of December 31, 2019, the Company has a working capital deficit of $30,126,393 million. As such, cash liquidity sufficient for the year ending December 31, 2020 will require additional financing.

The Company continues to accelerate sales and marketing efforts related to its consumer and military solar products and specialty PV application strategies through expansion of its sales and distribution channels. The Company has begun activities related to securing additional financing through strategic or financial investors, but there is no assurance the Company will be able to raise additional capital on acceptable terms or at all. If the Company's revenues do not increase rapidly, and/or additional financing is not obtained, the Company will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on the Company's future operations.

As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. The Company has scaled down its operations, due to cash flow issues, and does not expect to ramp up until significant financing is obtained.

Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

F-12

NOTE 5. TRADE RECEIVABLES

Trade receivables, net consist of amounts generated from product sales and government contracts. Accounts receivable totaled zero and $165,160 as of December 31, 2019 and 2018, respectively.

Provisional Indirect Cost Rates - The Company bills the government under cost-based research and development contracts at provisional billing rates which permit the recovery of indirect costs. These rates are subject to audit on an annual basis by the government agencies’ cognizant audit agency. The cost audit may result in the negotiation and determination of the final indirect cost rates. In the opinion of management, re-determination of any cost-based contracts will not have a material effect on the Company’s financial position or results of operations.

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

The following table summarizes property, plant and equipment as of December 31, 2019 and December 31, 2018:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Building

 

$

5,828,960

 

 

$

5,828,960

 

Furniture, fixtures, computer hardware and computer software

 

 

489,421

 

 

 

489,421

 

Manufacturing machinery and equipment

 

 

26,593,588

 

 

 

30,302,806

 

Depreciable property, plant and equipment

 

 

32,911,969

 

 

 

36,621,187

 

Less: Accumulated depreciation and amortization

 

 

(28,677,350

)

 

 

(32,207,829

)

Net property, plant and equipment

 

$

4,234,619

 

 

$

4,413,358

 

 

The Company analyzes its long-lived assets for impairment, both individually and as a group, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Depreciation expense for the years ended December 31, 2019 and 2018 was $185,132 and $218,818, respectively. Depreciation expense is recorded under “Depreciation and amortization expense” in the Consolidated Statements of Operations.

NOTE 7. INVENTORIES

Inventories consisted of the following at December 31, 2019 and December 31, 2018:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

503,832

 

 

$

660,791

 

Work in process

 

 

30,060

 

 

 

-

 

Finished goods

 

 

—

 

 

 

-

 

Total

 

$

533,892

 

 

$

660,791

 

 

 

F-13

NOTE 8. NOTES PAYABLE

On February 24, 2017, the Company entered into an agreement with a vendor to convert the balance of their account into three notes payable in the aggregate amount of $765,784. The notes bear interest of 6% per annum and matured on February 24, 2018; all outstanding principal and accrued interest is due and payable upon maturity. On June 5, 2018, the Company entered into another agreement with the same vendor to convert the balance of their account into a fourth note payable with a principal amount of $308,041, this note also bears interest at a rate of 6% per annum, and matured on July 31, 2018. As of December 31, 2019, the Company had not made any payments on these notes; the total outstanding principal and accrued interest were $1,073,825 and $162,205, respectively; the notes are in default and due upon demand. Subsequent to the date of this report, this debt was settled in full. See Note 19, Subsequent Events, for further discussion.

On June 30, 2017, the Company entered into an agreement with a vendor to convert the balance of their account into a note payable in the amount of $250,000. The note bears interest of 5% per annum and matured on February 28, 2018. As of December 31, 2019, the Company had not made any payments on this note, the accrued interest was $31,301, and the note is in default and due upon demand.

On September 30, 2017, the Company entered into a settlement agreement with a customer to convert the credit balance of their account into a note payable in the amount of approximately $215,234. The note bears interest of 5% per annum and matured on September 30, 2018. The Company has not made the monthly payments of $18,000 that were to commence on October 30, 2017; as of December 31, 2019, the company had paid principal of $32,529 and interest of $897. The remaining principal and interest balances, as of December 31, 2019, were $182,705 and $21,933, respectively. Subsequent to the date of this report, this debt was settled in full. See Note 19, Subsequent Events, for further discussion.

NOTE 9. DEBT

On August 2, 2019, CHFA entered into an agreement to assign the note to Iliad Research and Trading, L.P., a Utah limited liability partnership ("IRT"). This agreement closed on September 11, 2019, and IRT paid a total of $5,885,148 to CHFA to assume the note. The payment amount consisted of $5,405,666 of principal and $479,482 of interest and fees. Interest will accrue on the note at the default interest rate of 10.5%.

The outstanding principal balance of the note was $6,075,306 and $5,378,062 as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, the Company had not made any payments to IRT and the accrued interest on the note was $190,158. Since the loan is in default, the entire outstanding balance is classified as a current liability on the Company's December 31, 2019 Balance Sheet. Subsequent to the date of this report, this debt was settled in full. See Sale and Leaseback of Facility section of Note. 19, Subsequent Events, for further discussion.

F-14

NOTE 10. SECURED PROMISSORY NOTE

The following table provides a summary of the activity of the Company's secured notes:

 

 

 

Global

Ichiban

 

 

St. George

 

 

Total

 

Secured Notes Principal Balance at December 31, 2017

 

$

4,557,227

 

 

$

-

 

 

$

4,557,227

 

New notes

 

 

1,935,000

 

 

 

1,315,000

 

 

 

3,250,000

 

Note conversions

 

 

(1,426,000

)

 

 

-

 

 

 

(1,426,000

)

Interest converted to principal

 

 

140,518

 

 

 

-

 

 

 

140,518

 

Note assignments

 

 

(250,000

)

 

 

-

 

 

 

(250,000

)

Secured Notes Principal Balance at December 31, 2018

 

 

4,956,745

 

 

 

1,315,000

 

 

 

6,271,745

 

Less: remaining discount

 

 

(2,012,698

)

 

 

(811,667

)

 

 

(2,824,365

)

Secured Notes, net of discount, at December 31, 2018

 

 

2,944,047

 

 

 

503,333

 

 

 

3,447,380

 

New notes

 

 

-

 

 

 

845,000

 

 

 

845,000

 

Note conversions

 

 

(115,000

)

 

 

-

 

 

 

(115,000

)

Interest converted to principal

 

 

171,152

 

 

 

-

 

 

 

171,152

 

Secured Notes Principal Balance at December 31, 2019

 

 

5,012,897

 

 

 

2,160,000

 

 

 

7,172,897

 

Less: remaining discount

 

 

(765,576

)

 

 

(71,666

)

 

 

(837,242

)

Secured Notes, net of discount, at December 31, 2019

 

$

4,247,321

 

 

$

2,088,334

 

 

$

6,335,655

 

 

Global Ichiban Secured Promissory Notes

During 2018, the company issued to Global $1.9 million aggregate principal amount in notes, in exchange for additional proceeds of $1.9 million. The aggregate original issue discounts of $65,000 will be allocated to interest expense, ratably, over the life of the note. These notes matured between January 11, 2019 and October 22, 2019.

All principal and accrued interest on the notes are redeemable at any time, in whole or in part, at the option of Global. The redemption amount may be paid in cash or converted into shares of common stock at a variable conversion price equal to the lowest of (i) 85% of the average VWAP for the shares over the prior 5 trading days, (ii) the closing bid price for the shares on the prior trading day, or (iii) $2.00 per share, at the option of the Company.

The notes may not be converted, and shares of common stock may not be issued pursuant to the notes, if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of common stock.

On October 22, 2018, Global sold one of its notes to another investor. As a result of this sale, $250,000 in principal and $26,000 of accrued interest were assigned to the new investor and is no longer considered secured debt. Please refer to Note 12 for further discussion of the assignment. This note is redeemable in stock, at the discretion of the Company, under the same conversion terms described above.

The following table summarizes the conversion activity of this note:

 

Conversion Period

 

Principal

Converted

 

 

Interest

Converted

 

 

Common Shares

Issued

 

Q1 2018

 

$

1,250,000

 

 

$

-

 

 

 

2,450,981

 

Q2 2018

 

 

176,000

 

 

 

-

 

 

 

1,035,295

 

Q1 2019

 

 

115,000

 

 

 

-

 

 

 

9,595,327

 

 

 

$

1,541,000

 

 

$

-

 

 

 

13,081,603

 

 

F-15

 

Since conversions began in the first quarter of 2018, the interest associated with conversions has been added back into the principal of the notes. The following table summarizes the activity of adding the interest to principal:

 

Period

 

Interest converted to

Principal

 

Q1 2018

 

$

96,281

 

Q2 2018

 

 

44,237

 

Q1 2019

 

 

171,152

 

 

 

$

311,670

 

 

All the notes issued in accordance with the note purchase and exchange agreement dated November 30, 2017 are secured by a security interest on substantially all of the Company’s assets, bear interest at a rate of 12% per annum and contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the notes, and (ii) bankruptcy or insolvency of the Company. There are no registration rights applicable to the notes.

Payments on these notes have not occurred in accordance with the agreement and, as of the date of this filing, these notes are due upon demand. As of December 31, 2019, the aggregate principal and interest balance of the Notes were $5.0 million and $734,000, respectively.

Subsequent to the period of this report, the amounts owed to Global were exchanged for a new note. Refer to the Global Exchange Agreement section of Note 19. Subsequent Events for further discussion

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for these notes:

 

Derivative Liability Balance as of December 31, 2017

 

$

4,897,178

 

Additional derivative liability on new notes

 

 

1,446,156

 

Derivative Liability assigned to another investor

 

 

(119,039

)

Change in fair value of derivative liability

 

 

(2,690,434

)

Derivative Liability Balance as of December 31, 2018

 

 

3,533,861

 

Change in fair value of derivative liability

 

 

(1,522,886

)

Derivative Liability Balance as of December 31, 2019

 

$

2,010,975

 

 

The aggregate derivative value of the notes was $3.5 million as of December 31, 2018. This value was derived from Management's fair value assessment using the following assumptions: annual volatility range between of 56% to 65%, present value discount rate of 12%, and a dividend yield of 0%.

The derivative liability associated with the notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 42% to 72%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $1.5 million for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $2.0 million as of December 31, 2019.

F-16

St. George Secured Convertible Notes

On May 8, 2018, the Company, entered into a note purchase agreement with St. George Investments LLC ("St. George"), for the private placement of a $575,000 secured convertible promissory note. The Company received $500,000 in aggregate proceeds for the note in two tranches and recorded an original issue discount of $50,000 and debt financing costs of $25,000. The original issue discount and the financing costs will be recognized as interest expense, ratably, over the life of the note.

On November 5, 2018, the Company entered into a second securities purchase agreement with St. George, for the private placement of a $1.2 million secured convertible promissory note ("Company Note"). On November 7, 2018, the Company received $200,000 of gross proceeds from the offering of the Company Note. The Company may receive additional cash proceeds of up to an aggregate of $800,000 through cash payments made from time to time by St George of principal and interest under the eight Investor Notes. The aggregate principal amount of the Company Note is divided into nine tranches, which tranches correspond to (i) the cash funding received on November 5, 2018 and (ii) the principal amounts of the eight Investor Notes. As of December 2019, the Company had received an additional $800,000 in proceeds and had recorded $1,220,000 in principal related to the Company and Investor Notes. The Company recorded original issue discounts of $200,000 and debt financing costs of $20,000, which will be recognized as interest expense, ratably, over the life of the note. As of December 31, 2019, the closing dates, closing amounts, and proceeds on completed Note tranches are as follows:

 

Closing Date

Closing Amount

 

Proceeds

 

11/7/2018

$

260,000

 

$

200,000

 

11/19/2018

 

120,000

 

 

100,000

 

11/30/2018

 

120,000

 

 

100,000

 

12/7/2018

 

120,000

 

 

100,000

 

12/17/2018

 

120,000

 

 

100,000

 

1/3/2019

 

120,000

 

 

100,000

 

1/17/2019

 

120,000

 

 

100,000

 

1/30/2019

 

120,000

 

 

100,000

 

2/8/2019

 

120,000

 

 

100,000

 

 

On March 13, 2019, the Company entered into a third securities purchase agreement with St. George, for the private placement of a $365,000 secured convertible promissory note ("Third Note"). The Company recorded original issue discounts of $60,000 and debt financing costs of $5,000, which will be recognized as interest expense, ratably, over the life of the note. As of December 31, 2019, the closing dates, closing amounts, and proceeds on completed Note tranches are as follows:

 

Closing Date

Closing Amount

 

Proceeds

 

3/15/2019

$

125,000

 

$

100,000

 

3/22/2019

 

120,000

 

 

100,000

 

4/4/2019

 

120,000

 

 

100,000

 

 

Beginning six months from the date of issuance, St. George shall have the option to redeem all or a portion of the amounts outstanding under the Company Note. At St. George's option, redemption amounts are payable by the Company in cash or in the form of shares of the common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 60% of the average of the two lowest closing bid prices for the shares over the prior 10-day trading period immediately preceding the conversion.

Shares of common stock may not be issued pursuant to these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of common stock.

As of December 31, 2019, no principal or interest had been paid or converted, and the aggregate principal and interest balance of the Notes were $2.2 million and $307,000, respectively.

Subsequent to the date of this report, the debt with St. George was settled by the assignment of the debt to another investor.  Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company

F-17

ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for these notes:

 

Derivative Liability Balance as of December 31, 2017

$

-

 

Additional derivative liability on new notes

 

1,664,553

 

Change in fair value of derivative liability

 

1,628,139

 

Derivative Liability Balance as of December 31, 2018

 

3,292,692

 

Additional derivative liability on new notes

 

1,752,197

 

Change in fair value of derivative liability

 

(2,592,138

)

Derivative Liability Balance as of December 31, 2019

$

2,452,751

 

 

The aggregate derivative value of the notes was $3.3 million as of December 31, 2018. This value was derived from Management's fair value assessment using the following assumptions: annual volatility range between of 56% to 71%, present value discount rate of 12%, and a dividend yield of 0%.

The aggregate derivative value, at issuance, of the $845,000 notes issued during the year ended December 31, 2019 was $2.5 million. This value was derived from Management's fair value assessment using the following assumptions: annual volatility range between of 35% to 82%, present value discount rate of 12%, and a dividend yield of 0%.

The derivative liability associated with the notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 35% to 82%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded a net loss of $305,000 for three months ended December 31, 2019, and an aggregate net gain of $2.6 million for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $2.5 million  as of December 31, 2019.

NOTE 11. PROMISSORY NOTES

The following table provides a summary of the activity of the Company's non-convertible, unsecured, promissory notes:

 

 

 

Investor 1

 

 

Investor 2

 

 

Total

 

Promissory Notes Principal Balance at December 31, 2017

 

$

494,437

 

 

$

200,000

 

 

$

694,437

 

New principal

 

 

-

 

 

 

850,000

 

 

 

850,000

 

Notes exchanged

 

 

-

 

 

 

(200,000

)

 

 

(200,000

)

Promissory Notes Principal Balance at December 31, 2018

 

 

494,437

 

 

 

850,000

 

 

 

1,344,437

 

Less: remaining discount

 

 

-

 

 

 

(104,583

)

 

 

(104,583

)

Promissory Notes, net of discount, at December 31, 2018

 

 

494,437

 

 

 

745,417

 

 

 

1,239,854

 

New principal

 

 

-

 

 

 

615,000

 

 

 

615,000

 

Notes exchanged

 

 

-

 

 

 

(850,000

)

 

 

(850,000

)

Promissory Notes Principal Balance at December 31, 2019

 

 

494,437

 

 

 

615,000

 

 

 

1,109,437

 

Less: remaining discount

 

 

-

 

 

 

(16,666

)

 

 

(16,666

)

Promissory Notes, net of discount, at December 31, 2019

 

$

494,437

 

 

$

598,334

 

 

$

1,092,771

 

 

F-18

 

Offering of Unsecured, Non-Convertible Notes to Investor 1

During October 2016, the Company received $420,000 from a private investor "Investor 1". These funds, along with $250,000 of additional funding, were rolled into a promissory note, executed on January 17, 2017, in the amount of $700,000 issued with a discount of $30,000 which was charged to interest expense ratably over the term of the note. The note bears interest at 12% per annum and matured on July 17, 2017. Principal and interest on this note were payable at maturity. This note is not convertible into equity shares of the Company and is unsecured.

On June 30, 2017, the Company and Investor 1 agreed to a 12-month payment plan on the balance of this promissory note. Interest will continue to accrue on this note at 12% per annum and payments of approximately $62,000 were to be made monthly beginning in July 2017. The Company has not made the payments according to this payment plan, and the note is payable upon demand.

As of December 31, 2019, $206,000 of principal and $45,000 of interest had been paid on this note. The outstanding principal and accrued interest balances on the note as of December 31, 2019 were $494,000 and $146,000, respectively.

Offering of Unsecured, Non-Convertible Notes to Investor 2

On June 6, 2018, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $315,000. The promissory note was issued with an original issue discount of $55,000, which was recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $260,000, that was received in several tranches between February 2018 and April 2018. This note had an interest rate of 12% per annum and matured on June 6, 2019. On May 2, 2019, the Company entered into a securities exchange agreement with Investor 2 to surrender and exchange this promissory note in exchange for a convertible note. The promissory note had a principal balance of $315,000 and an accrued interest balance of $40,000. See Note 12 for further discussion on the new convertible notes.

On July 24, 2018, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $115,000. The promissory note was issued with an original issue discount of $28,000, which was recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $87,000, which was received in several tranches between May 2018 and June 2018. This note had an interest rate of 12% per annum and matured on January 24, 2019. On March 11, 2019, the Company entered into a securities exchange agreement with Investor 2 to surrender and exchange this promissory note in exchange for a convertible note. The promissory note had a principal balance of $115,000 and an accrued interest balance of $11,000. See Note 12 for further discussion on the new convertible notes.

On September 10, 2018, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $120,000. The promissory note was issued with an original issue discount of $20,000, which was recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $100,000, which was received in several tranches between June 2018 and September 2018. This note had an interest rate of 12% per annum and matured on March 10, 2019. March 11, 2019, the Company entered into a securities exchange agreement with Investor 2 to surrender and exchange this promissory note in exchange for a convertible note. The promissory note had a principal balance of $120,000 and an accrued interest balance of $8,000. See Note 12 for further discussion on the new convertible notes.

On December 31, 2018, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $300,000. The promissory note was issued with an original issue discount of $75,000, which was recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $225,000, which was received in several tranches between September 2018 and December 2018. This note had an interest rate of 12% per annum and matured on June 30, 2019. On August 22, 2019, the Company entered into a securities exchange agreement with Investor 2 to surrender and exchange this promissory note in exchange for a convertible note. The promissory note had a principal balance of $300,000 and an accrued interest balance of $28,000. See Note 12 for further discussion on the new convertible notes

On March 11, 2019, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $60,000. The promissory note was issued with an original issue discount of $10,000, which was recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $50,000, which was received in several tranches between January 2019 and March 2019. This note bears interest at 12% per annum and matured on September 11, 2019. All principal and interest was payable upon maturity. As of December 31, 2019, the remaining principal and interest on this note were $60,000 and $6,000, respectively.

F-19

On May 14, 2019, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $100,000. The promissory note was issued with an original issue discount of $25,000, which will be recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $75,000, which was received in several tranches between March 2019 and May 2019. This note bears interest at 12% per annum and matured on October 11, 2019. All principal and interest was payable upon maturity. As of December 31, 2019, the remaining principal and interest on this note were $100,000 and $8,000, respectively.

On July 8, 2019, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $125,000. The promissory note was issued with an original issue discount of $25,000, which will be recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $100,000. This note bears interest at 12% per annum and matures on January 8, 2020. All principal and interest is payable upon maturity. As of December 31, 2019, the remaining principal and interest on this note were $125,000 and $7,000, respectively.

On August 8, 2019, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $65,000. The promissory note was issued with an original issue discount of $20,000, which will be recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $45,000. This note bears interest at 12% per annum and matures on February 8, 2020. All principal and interest is payable upon maturity. As of December 31, 2019, the remaining principal and interest on this note were $65,000 and $3,000, respectively.

On September 9, 2019, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $150,000. The promissory note was issued with an original issue discount of $40,000, which will be recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $110,000, which was received in several tranches during September 2019. This note bears interest at 12% per annum and matures on March 9, 2020. All principal and interest is payable upon maturity. As of December 31, 2019, the remaining principal and interest on this note were $120,000 and $5,000, respectively.

Between August 22, 2019 and November 4, 2019, the Company received $115,000 proceeds from Investor 2, which had not yet been documented into a note. The Company is accruing interest on these funds at a rate of 12% per annum and has accrued $3,000 as of December 31, 2019.  Subsequent to the date of this report, these funds were documented into a note.  Refer to Note 19. Subsequent Events for further information.

As of December 31, 2019, the aggregate outstanding principal and interest for Investor 2 was $615,000 and $28,000, respectively.

Subsequent to the date of this report, the debt with Investor 2 was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

NOTE 12. CONVERTIBLE NOTES

The following table provides a summary of the activity of the Company's unsecured, convertible, promissory notes:

 

 

Principal

Balance

12/31/2017

 

New

Notes

 

Notes

assigned or

exchanged

 

Notes

converted

 

Principal

Balance

12/31/2018

 

Less:

Discount

Balance

 

Net

Principal

Balance

12/31/2018

 

October 2016 Notes

$

330,000

 

$

-

 

$

-

 

$

-

 

$

330,000

 

$

-

 

$

330,000

 

St. George Notes

 

1,705,833

 

 

-

 

 

-

 

 

(606,600

)

 

1,099,233

 

 

(96,177

)

 

1,003,056

 

BayBridge Notes

 

565,000

 

 

-

 

 

270,000

 

 

(772,500

)

 

62,500

 

 

(62,100

)

 

400

 

Bellridge Notes

 

-

 

 

150,000

 

 

550,000

 

 

(245,000

)

 

455,000

 

 

(123,360

)

 

331,640

 

Power Up Notes

 

-

 

 

225,000

 

 

-

 

 

-

 

 

225,000

 

 

(110,621

)

 

114,379

 

EMA Note

 

-

 

 

75,000

 

 

-

 

 

-

 

 

75,000

 

 

(1,753

)

 

73,247

 

 

$

2,600,833

 

$

450,000

 

$

820,000

 

$

(1,624,100

)

$

2,246,733

 

$

(394,011

)

$

1,852,722

 

F-20

 

 

 

Principal

Balance

12/31/2018

 

New

Notes/Adjustments

 

Notes

assigned

or

exchanged

 

Notes

converted

 

Principal

Balance

12/31/2019

 

Less:

Discount

Balance

 

Net

Principal

Balance

12/31/2019

 

October 2016 Notes

$

330,000

 

$

-

 

$

-

 

$

-

 

$

330,000

 

$

-

 

$

330,000

 

St. George Notes

 

1,099,233

 

 

(172,500

)

 

-

 

 

(309,070

)

 

617,663

 

 

-

 

 

617,663

 

BayBridge Notes

 

62,500

 

 

-

 

 

1,160,000

 

 

(281,900

)

 

940,600

 

 

(408,333

)

 

532,267

 

Bellridge Notes

 

455,000

 

 

510,000

 

 

(226,000

)

 

(243,000

)

 

496,000

 

 

(382,500

)

 

113,500

 

Power Up Notes

 

225,000

 

 

149,500

 

 

-

 

 

(267,680

)

 

106,820

 

 

(26,566

)

 

80,254

 

EMA Note

 

75,000

 

 

-

 

 

(75,000

)

 

-

 

 

-

 

 

-

 

 

-

 

Widjaja Note

 

-

 

 

330,000

 

 

-

 

 

-

 

 

330,000

 

 

(1

)

 

329,999

 

GS Capital Notes

 

-

 

 

178,568

 

 

75,000

 

 

(84,068

)

 

169,500

 

 

(44,167

)

 

125,333

 

 

$

2,246,733

 

$

995,568

 

$

934,000

 

$

(1,185,718

)

$

2,990,583

 

$

(861,567

)

$

2,129,016

 

 

October 2016 Convertible Notes

On October 5, 2016, the Company entered into a securities purchase agreement with a private investor for the private placement of $330,000 principal amount of convertible notes. At Closing, the Company sold and issued $330,000 principal amount of convertible notes in exchange for $330,000 of gross proceeds.

The convertible notes matured on December 31, 2018 and had an interest rate of 6% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default. Principal and accrued interest on the convertible notes is payable upon demand, the default interest rate has not been designated by the investor.

All principal and accrued interest on the convertible notes is convertible at any time, in whole or in part, at the option of the investor, into shares of common stock at a variable conversion price equal to 80% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date. After the six-month anniversary of the issuance of any convertible note, the conversion price for such note shall thereafter be equal to 50% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date.

The convertible notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the convertible notes; and (ii) bankruptcy or insolvency of the Company.

Outstanding principal and accrued interest on the convertible notes were $330,000 and $65,000, respectively as of December 31, 2019.

F-21

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2017

$

572,643

 

Additional derivative liability on new notes

 

-

 

Change in fair value of derivative liability

 

303,838

 

Derivative Liability Balance as of December 31, 2018

 

876,481

 

Change in fair value of derivative liability

 

(317,987

)

Derivative Liability Balance as of December, 2019

$

558,494

 

 

As of December 31, 2018, the fair value of the derivative liability was $876,481. This value was derived from Management's fair value assessment using the following assumptions: annual volatility of 63%, present value discount rate of 12%, and a dividend yield of 0%.

The derivative liability associated with the note is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 44% to 72%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $318,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $558,000 as of December 31, 2019.

St. George Convertible Note

On September 8, 2017, the Company entered into a securities purchase agreement with St. George Investments, LLC ("St. George") for the private placement of $1,725,000 principal amount of the Company’s original issue discount convertible notes.

On September 11, 2017, the Company sold and issued a $1.7 million principal convertible note to St. George in exchange for $1.5 million of gross proceeds and paid $20,000 in financing costs. The original issue discount of $225,000, and the financing costs, were charged to interest expense, ratably, over the life of the note.

This note matured on March 11, 2019. The note does not bear interest in the absence of an event of default. The note is due upon demand and an interest rate has not been designated by St. George.

For the first six months after the issuance of the convertible note, the Company was to make monthly cash repayment on the note of approximately $96,000. Thereafter, St. George may request that the Company make monthly partial redemptions of the note up to $150,000 per month. If St. George does not request the full $150,000 redemption amount in any one month, the unused portion of such monthly redemption amount can be added to future monthly redemption amounts; however, in no event, can the amount requested for any one month exceed $275,000.

Redemption amounts are payable by the Company in cash. Beginning ten months after the issuance of the convertible note, cash redemption payments by the Company will be subject to a 15% redemption premium. The Company recorded an estimated cash premium of $173,000, at inception, which has been charged to interest, ratably, over the life of the note. During the year ended December 31,2019, the Company reversed the estimated cash payment premium of $173,000, due to the possibility of payment in cash being extremely unlikely.

Beginning six months after the issuance of the convertible note, the Company also has the option (subject to customary equity conditions) to pay redemption amounts in the form of shares of common stock. Payments in the form of shares would

F-22

be calculated using a variable conversion price equal to the lower of (i) 85% of the average VWAP for the shares over the prior five trading days or (ii) the closing bid price for the shares on the prior trading day.

On May 1, 2018, effective as of April 3, 2018, in lieu of making the December 2017 through March 2018 cash payments, the Company agreed to amend the variable conversion price formula outlined in the securities purchase agreement. As amended, payments in the form of shares would be calculated using a variable conversion price equal to the lower of (i) 60% of the lowest VWAP for the shares during the prior five trading days or (ii) the closing bid price for the shares on the prior trading day.

All principal and accrued interest on the convertible note is convertible at any time, in whole or in part, at the option of St. George into shares of common stock at a fixed conversion price of $4.00 per share.

The convertible note contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the Note; and (ii) bankruptcy or insolvency of the Company. Upon the occurrence of an event of default, the convertible note will begin to bear interest at the rate of 22% per annum. In addition, upon the occurrence of an event of default, St. George has the option to increase the outstanding balance of the convertible note by 25%. The default provisions have not been designated by St. George.

In connection with the closing under the securities purchase agreement, the Company issued 37,500 unregistered shares of common stock to St. George as an origination fee. The closing stock price on the date of close was $1.70 resulting in an interest expense of $64,000 being recorded as of the date of close.

The convertible note may not be converted, and shares of common stock may not be issued pursuant to the convertible note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of common stock.

As of December 31, 2019, cash payments of $192,000 had been made on the convertible note, and $916,000 had been converted into 3.4 billion shares of the Company's common stock. The remaining balance on the note was $618,000 as of December 31, 2019.

The following table summarizes the conversion activity of this note:

 

Conversion Period

Principal Converted

 

Interest Converted

 

Common Shares

Issued

 

Q1 2018

$

75,000

 

$

-

 

 

187,500

 

Q2 2018

 

316,600

 

 

-

 

 

2,082,778

 

Q3 2018

 

102,500

 

 

-

 

 

3,142,333

 

Q4 2018

 

112,500

 

 

-

 

 

10,437,046

 

Q1 2019

 

106,750

 

 

-

 

 

58,503,244

 

Q2 2019

 

59,320

 

 

-

 

 

86,636,364

 

Q3 2019

 

89,000

 

 

-

 

 

457,222,222

 

Q4 2019

 

54,000

 

 

-

 

 

540,000,000

 

 

$

915,670

 

$

-

 

 

1,158,211,487

 

 

Subsequent to the date of this report, the debt with St. George was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

 

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

F-23

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2017

$

394,280

 

Change in fair value of derivative liability

 

665,720

 

Derivative Liability Balance as of December 31, 2018

 

1,060,000

 

Change in fair value of derivative liability

 

(507,223

)

Derivative Liability Balance as of December 31, 2019

$

552,777

 

 

As of December 31, 2018, the derivative liability was $1.1 million. This value was derived from Management's fair value assessment using the following assumptions: annual volatility of 52%, present value discount rate of 12%, and a dividend yield of 0%.

The derivative liability associated with the note is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 44% to 52%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $507,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $553,000 as of December 31, 2019.

Baybridge Convertible Note

On September 7, 2018, the Company, entered into a securities exchange agreement (“Exchange Agreement 2”) Baybridge Capital Fund LP ("Baybridge).

Pursuant to the terms of Exchange Agreement 2, Baybridge agreed to surrender and exchange an outstanding promissory note with a principal balance of $200,000, plus accrued interest of $17,000, for a convertible note with an aggregate principal amount of $270,000 and an original issue discount of $53,000 (“Exchange Note 2”).

Exchange Note 2 is unsecured, has no applicable registration rights, has an interest rate of 12% per annum, matured on September 7, 2019 and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the Exchange Note, and (ii) bankruptcy or insolvency of the Company. Principal and interest are payable upon maturity.

Baybridge shall have the right, from and after the date of issuance of Exchange Note 2, and then at any time until Exchange Note 2 is fully paid, to convert any outstanding and unpaid principal and interest into shares of common stock at a variable conversion price equal to the lesser of (i) a price equal to $0.15, or (ii) 70% of the lowest traded price for the shares over the prior five trading days.

As of December 31, 2019, Exchange Note 2 had been converted in full; 32.2 million shares of common stock had been issued.

On March 11, 2019, as described in Note 10, the Company, entered into two additional securities exchange agreements (“Exchange Agreements 3 & 4”) with Baybridge.

Pursuant to the terms of Exchange Agreement 3, Baybridge agreed to surrender and exchange an outstanding promissory notes with a principal balance of $115,000, plus accrued interest of $11,000, for a convertible note with an aggregate principal amount of $150,000 and an original issue discount of $24,000 (“Exchange Note 3”).

As of December 31, 2019, the principal and interest balances on Exchange Note 3 were $150,000 and $15,000, respectively.

Pursuant to the terms of Exchange Agreement 4, Baybridge agreed to surrender and exchange an outstanding promissory notes with a principal balance of $120,000, plus accrued interest of $8,000, for a convertible note with an aggregate principal amount of $160,000 and an original issue discount of $32,000 (“Exchange Note 4”).

F-24

 

On May 2, 2019, as described in Note 10, the Company, entered into an additional securities exchange agreement (“Exchange Agreement 5”) with Baybridge.

Pursuant to the terms of Exchange Agreement 5, Baybridge agreed to surrender and exchange an outstanding promissory notes with a principal balance of $315,000, plus accrued interest of $38,000, for a convertible note with an aggregate principal amount of $450,000 and an original issue discount of $97,000 (“Exchange Note 5”).

As of December 31, 2019, the principal and interest balances on Exchange Note 5 were $450,000 and $36,000, respectively.

 

F-25

 

On August 22, 2019, as described in Note 10, the Company, entered into an additional securities exchange agreement (“Exchange Agreement 6”) with Baybridge.

Pursuant to the terms of Exchange Agreement 6, Baybridge agreed to surrender and exchange an outstanding promissory notes with a principal balance of $300,000, plus accrued interest of $23,000, for a convertible note with an aggregate principal amount of $400,000 and an original issue discount of $77,000 (“Exchange Note 6”).

The Exchange Notes are unsecured, have no applicable registration rights, bear interest at a rate of 12% per annum, mature twelve months from the date of issuance, and contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Exchange Note, and (ii) bankruptcy or insolvency of the Company. Principal and interest are payable upon maturity.

 

Baybridge shall have the right, from the date of issuance of the Exchange Notes, and then at any time until the Exchange Notes are fully paid, to convert any outstanding and unpaid principal and interest into shares of common stock at a variable conversion price equal to the lesser of (i) a price equal to $0.0005, or (ii) 65% of the lowest traded price for the shares over the prior five trading days.

Conversion to shares of common stock may not be issued pursuant to the Exchange Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of common stock.

During the years ended December 31, 2019 and 2018, aggregate principal of $489,400 and interest of $12,710 had been converted into 998.4 million shares of common stock and no cash payments of principal or interest had been made on these exchange notes. As of December 31, 2019, Exchange Notes 2 and 4 had been converted in full and the aggregate remaining principal and accrued interest balances on Exchange Notes 3, 5, and 6 was $941,000 and $68,000, respectively.

The following table summarizes the conversion activity of these notes:

 

Conversion Period

Principal Converted

 

Interest Converted

 

Common Shares

Issued

 

Q4 2017

$

275,000

 

$

-

 

 

404,412

 

Q1 2018

 

105,000

 

 

20,717

 

 

493,007

 

Q2 2018

 

408,000

 

 

6,090

 

 

2,435,823

 

Q3 2018

 

52,000

 

 

4,428

 

 

1,547,452

 

Q4 2018

 

207,500

 

 

4,303

 

 

16,008,198

 

Q1 2019

 

90,500

 

 

3,278

 

 

47,400,806

 

Q2 2019

 

88,500

 

 

2,079

 

 

141,822,223

 

Q3 2019

 

86,000

 

 

2,261

 

 

616,247,346

 

Q4 2019

 

16,900

 

 

789

 

 

176,886,700

 

 

$

1,329,400

 

$

43,945

 

 

1,003,245,967

 

 

Subsequent to the date of this report, the debt with Baybridge was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

 

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

F-26

The following table summarizes the derivative liability transactions for these notes:

 

Derivative Liability Balance as of December 31, 2017

$

542,733

 

Additional derivative liability on new notes

 

276,179

 

Change in fair value of derivative liability

 

(677,380

)

Liability extinguished

 

(27,686

)

Derivative Liability Balance as of December 31, 2018

 

113,846

 

Additional derivative liability on new notes

 

1,376,670

 

Change in fair value of derivative liability

 

(406,077

)

Liability extinguished

 

(152,301

)

Derivative Liability Balance as of December 31, 2019

$

932,138

 

 

At December 31, 2018, the derivative liability associated with Exchange Note 2 was $114,000. This value was derived from Management's fair value assessment using the following assumptions: annual volatility of 74%, present value discount rate of 12%, and a dividend yield of 0%. During the first quarter of 2019, Exchange Note 2 was converted in full and the derivative liability balance of $114,000 was written off as a gain as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations.

The conversion options in Exchange Notes 3 & 4 were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 67%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At March 11, 2019, the derivative liability associated with Exchange Notes 3 & 4 was $311,000. The fair value of the derivative was greater than the face value at issuance and the difference of $57,000 was charged to interest expense at issuance. The remaining debt discount of $254,000 will be charged to interest expense ratably over the life of the note.  During the second and third quarters of 2019, Exchange Note 4 was converted in full and the remaining derivative liability balance of $38,000 was written off as a gain as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations.

The conversion option in Exchange Note 5 was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 68% present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At May 2, 2019, the derivative liability associated with Exchange Note 5 was $500,000. The fair value of the derivative was greater than the face value at issuance and the difference of $150,000 was charged to interest expense at issuance. The remaining debt discount of $350,000 will be charged to interest expense ratably over the life of the note.

The conversion option in Exchange Note 6 was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 64% present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At May 2, 2019, the derivative liability associated with Exchange Note 6 was $566,000. The fair value of the derivative was greater than the face value at issuance and the difference of $323,000 was charged to interest expense at issuance. The remaining debt discount of $243,000 will be charged to interest expense ratably over the life of the note.

The derivative liabilities associated with the Exchange Notes are subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 46% and 69%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $406,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivatives associated with Exchange Notes 3, 5, and 6 of $932,000 as of December 31, 2019.

F-27

Bellridge Convertible Notes

On July 25, 2018, the Company, entered into a securities exchange agreement (the “Exchange Agreement”) with Bellridge Capital, LP ("Bellridge"). Pursuant to the terms of the Exchange Agreement, the investor agreed to surrender and exchange a promissory note with a principal balance of $275,000 and accrued interest of $20,000. In exchange, the Company issued to the investor an unsecured convertible note with an aggregate principal amount of $300,000 (the “Exchange Note”). The original issue discount of $5,000 was charged to interest expense upon issuance. The Exchange Note is not secured, has an interest rate of 12% per annum, and matured on January 25, 2019. From and after the date of issuance of this note and then at any time until the note is fully paid, the investor had the right to convert any outstanding and unpaid principal into shares of the Company's common stock at a variable conversion price equal to the lesser of (i) a price equal to $0.20, or (ii) 80% of the lowest traded price for the shares over the prior ten trading days. This Exchange Note was fully converted during the year ended December 31, 2019.

On September 14, 2018, the Company, issued a new $150,000 convertible note in a private placement to Bellridge. The note is not secured, contains no registration rights, has an interest rate of 12% per annum, matured on September 14, 2019, and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. All principal and interest on the note are due upon maturity. Bellridge shall have the option to convert all or a portion of the amounts outstanding under the note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to the lesser of (i) $0.20 or (ii) 70% of the lowest closing bid price for the shares over the prior five-day trading period immediately preceding the conversion.

On October 18, 2018, as discussed in Note 10, Global assigned one of its notes to Bellridge. The note had an outstanding principal balance of $250,000 and an accrued interest balance of $26,000. The note matured on October 18, 2019, and all principal and interest is due upon demand. The principal and accrued interest on the note are redeemable at any time, in whole or in part, at the option of Bellridge. The redemption amount may be paid in cash or converted into shares of common stock at a variable conversion price equal to the lowest of (i) 85% of the average VWAP for the shares over the prior five trading days, (ii) the closing bid price for the shares on the prior trading day, or (iii) $0.20 per share, at the option of the Company.

On October 22, 2019, the Company and Bellridge entered into an exchange agreement to convert the remaining principal and interest of $226,000 and $51,000, respectively, on the Bellridge notes, into a new note with a principal balance of $450,000. The note is not secured, contains no registration rights, has an interest rate of 10% per annum, matures on October 22, 2020, and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. All principal and interest on the note are due upon maturity. Bellridge shall have the option to convert all or a portion of the amounts outstanding under the note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to the lesser of (i) $0.0005 or (ii) 70% of the lowest traded price for the shares over the prior ten-day trading period immediately preceding the conversion. The original issue discount of $173,000 will be charged to interest, ratably, over the life of the note.

On October 22, 2019, the Company and Bellridge entered into a convertible promissory note with a principal balance of $60,000, in exchange for proceeds of $40,000. The note is not secured, contains no registration rights, has an interest rate of 10% per annum, matures on October 22, 2020, and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. All principal and interest on the note are due upon maturity. Bellridge shall have the option to convert all or a portion of the amounts outstanding under the note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to the lesser of (i) $0.0005 or (ii) 70% of the lowest traded price for the shares over the prior ten-day trading period immediately preceding the conversion. The original issue discount of $20,000 will be charged to interest, ratably, over the life of the note.

Shares of common stock may not be issued pursuant to any of these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common Stock.

During the years ended December 31, 2019 and 2018, an aggregate principal of $488,000 and interest of $29,668, on the Bellridge convertible notes had been converted into 1.1 billion shares of common stock and no cash payments of principal or interest had been made. The aggregate principal and accrued interest balances as of December 31, 2019 were $496,000 and $63,000, respectively.

F-28

The following table summarizes the conversion activity of these notes:

 

Conversion Period

Principal Converted

 

Interest Converted

 

Common Shares

Issued

 

Q3 2018

$

137,500

 

$

2,104

 

 

3,716,105

 

Q4 2018

 

107,500

 

 

4,000

 

 

7,554,399

 

Q1 2019

 

65,615

 

 

4,507

 

 

38,696,339

 

Q2 2019

 

47,385

 

 

3,874

 

 

68,142,087

 

Q3 2019

 

89,000

 

 

9,779

 

 

529,061,862

 

Q4 2019

 

41,000

 

 

5,404

 

 

464,037,300

 

 

$

488,000

 

$

29,668

 

 

1,111,208,092

 

 

Subsequent to the date of this report, the debt with Bellridge was partially converted into common stock and the remainder was settled by the assignment of the debt to another investor. Refer to the Note Conversions and Debt Assignments sections of Note 19. Subsequent Events for further discussion.

 

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2017

$

-

 

Additional derivative liability on new notes

 

236,004

 

Derivative liability assigned

 

119,039

 

Change in fair value of derivative liability

 

131,236

 

Derivative Liability Balance as of December 31, 2018

 

486,279

 

Additional derivative liability on new notes

 

726,195

 

Liability extinguished

 

(45,218

)

Change in fair value of derivative liability

 

(422,645

)

Derivative Liability Balance as of December 31, 2019

$

744,611

 

 

At December 31, 2018, the derivative liability associated with these notes was $486,000. This value was derived from Management's fair value assessment using the following assumptions: annual volatility range between 40% and 74%, present value discount rate of 12%, and a dividend yield of 0%. During 2019, the exchange note and the note issued in September 2018 had been converted in full and the derivative liability balances of $44,000 and $1,000 were written off as a gain as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations.

The conversion option in Exchange Note issued on October 22, 2019 was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 50% present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At October 22, 2019, the derivative liability associated with the Exchange Note was $651,000. The fair value of the derivative was greater than the face value at issuance and the difference of $374,000 was charged to interest expense at issuance. The remaining debt discount of $277,000 will be charged to interest expense ratably over the life of the note.

The conversion option in the Convertible Promissory Note issued on October 22, 2019 was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion

F-29

option as if separate from the convertible issuance based on the following assumptions: annual volatility of 50% present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At October 22, 2019, the derivative liability associated with the Convertible Promissory Note was $75,000. The fair value of the derivative was greater than the face value at issuance and the difference of $35,000 was charged to interest expense at issuance. The remaining debt discount of $40,000 will be charged to interest expense ratably over the life of the note.

The derivative liability associated with these notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 42% and 72%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net loss of $422,645 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $744,611 as of December 31, 2019.

Power Up Convertible Notes

During 2018, the Company entered into three securities purchase agreements with Power Up Lending Group, LTD ("Power Up"), for the private placement of three convertible notes with an aggregate principal amount of $225,000.

On February 14, 2019, the Company entered into a fourth securities purchase agreement with Power Up, for the private placement of a fourth convertible note with a principal value of $55,000.

On March 7, 2019, the Company entered into a fifth securities purchase agreement with Power Up, for the private placement of a fifth convertible note with a principal value of $53,000.

On May 3, 2019, the Company entered into a sixth securities purchase agreement with Power Up, for the private placement of a sixth convertible note with a principal value of $43,000.

These notes are unsecured, bear interest at a rate of 8% per annum and mature on twelve months following the date of issuance; principal and interest is due upon maturity. In the event of default, the interest rate per annum increases to 22%.

Beginning in six months after issuance, Power Up shall have the option to convert all or a portion of the amounts outstanding under the convertible note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 65% of the average of the three lowest closing bid prices for the shares over the prior ten-day trading period immediately preceding the conversion.

Shares of common stock may not be issued pursuant to any of these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common Stock.

As of December 31, 2019, the three 2018 notes had been converted in full. The aggregate principal and interest converted was $267,680 and $9,000, respectively, into 578.8 million shares of common stock. No cash payments of principal or interest had been made. The aggregate principal and accrued interest balances as of December 31, 2019 were $106,820 and $9,347, respectively.

F-30

The following table summarizes the conversion activity of these notes:

 

Conversion Period

Principal Converted

 

Interest Converted

 

Common Shares

Issued

 

Q1 2019

$

182,500

 

$

7,300

 

 

95,014,902

 

Q2 2019

 

42,500

 

 

1,700

 

 

47,155,556

 

Q3 2019

 

14,600

 

 

-

 

 

155,824,176

 

Q4 2019

 

28,080

 

 

-

 

 

280,800,000

 

 

$

267,680

 

$

9,000

 

 

578,794,634

 

Subsequent to the date of this report, the debt with Power Up was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

 

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2017

$

-

 

Additional derivative liability on new notes

 

246,860

 

Change in fair value of derivative liability

 

264,277

 

Derivative Liability Balance as of December 31, 2018

 

511,137

 

Additional derivative liability on new notes

 

222,593

 

Liability extinguishment

 

(511,137

)

Change in fair value of derivative liability

 

(105,893

)

Derivative Liability Balance as of December 31, 2019

$

116,700

 

 

At December 31, 2018, the derivative liability associated with these notes was $511,137. This value was derived from Management's fair value assessment using the following assumptions: annual volatility range between 70% to 76%, present value discount rate of 12%, and a dividend yield of 0%. During the first half of 2019, the three December 2018 notes were converted in full and the derivative liability balance of $511,137 was written off as a gain as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations.

The conversion option in the fourth note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 65%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At February 14, 2019, the derivative liability associated with the fourth note was $44,000. The debt discount will be charged to interest expense ratably over the life of the note.

 

The conversion option in the fifth note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 67%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At March 7, 2019, the derivative liability associated with the fifth note was $87,000. The fair value of the derivative was greater than the face value at issuance and the difference

F-31

of $34,000 was charged to interest expense at issuance. The remaining debt discount of $53,000 will be charged to interest expense ratably over the life of the note.

The conversion option in the sixth note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 69%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At May 3, 2019, the derivative liability associated with the sixth note was $92,000. The fair value of the derivative was greater than the face value at issuance and the difference of $49,000 was charged to interest expense at issuance. The remaining debt discount of $43,000 will be charged to interest expense ratably over the life of the note.

The derivative liability associated with these notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 46% to 71%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $106,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $116,700 as of  December 31, 2019.

EMA Convertible Note

On August 29, 2018, the Company, entered into a securities purchase agreement with EMA Financial, LLC, for the private placement of a $75,000 convertible note. The note is unsecured, bears interest at a rate of 8% per annum, and matured on May 29, 2019; principal and interest was due upon maturity. In the event of default, the interest rate per annum increases to 22%.

Beginning in March 2019, EMA shall have the option to convert all or a portion of the amounts outstanding under the note, into shares of the Company's Common Stock. Conversions into Common Stock shall be calculated using a variable conversion price equal to 65% of the average of the three lowest closing bid prices for the shares over the prior ten-day trading period immediately preceding the conversion.

Shares of common stock may not be issued pursuant to the note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of common stock.

On February 22, 2019, EMA assigned this note to GS Capital (see below). Per the terms of this agreement, $75,000 of principal and $3,000 of accrued interest were sold to the new investor and the Company paid $27,000 to EMA as a pre-payment penalty.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

At December 31, 2018, the derivative liability associated with the note was $240,156. This value was derived from Managements fair value assessment using the following assumptions: annual volatility of 87%, present value discount rate of 12%, and a dividend yield of 0%. On February 22, 2019, this derivative value was assigned to GS Capital (see below).

F-32

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2017

$

-

 

Additional derivative liability on new notes

 

3,945

 

Change in fair value of derivative liability

 

236,211

 

Derivative Liability Balance as of December 31, 2018

 

240,156

 

Liability assigned

 

(240,156

)

Derivative Liability Balance as of December 31, 2019

$

-

 

 

Widjaja Convertible Note

On January 11, 2019, the Company entered into a note purchase with Jason Widjaja (“Widjaja”), for the private placement of a $330,000 convertible promissory note, in exchange for $330,000 of gross proceeds. The note is unsecured, bears interest at 12% per annum, matures on January 11, 2020, and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. Principal and interest on the note will be payable upon maturity.

At any time after inception of the note, until fully paid, Widjaja shall have the option to convert all or a portion of amounts outstanding under the note into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 80% of the lowest closing bid price for the shares over the prior five trading days immediately preceding the conversion date.

There are no registration rights applicable to the note. Shares of common stock may not be issued pursuant to the note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 19.99% of the outstanding shares of the Company's common stock.

As of December 31, 2019, no principal and no interest had been converted into shares of common stock and no cash payments of principal or interest had been made. The aggregate principal and accrued interest balances as of December 31, 2019 were $330,000 and $38,000, respectively.

Subsequent to the date of this report, the debt with Widjaja was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2018

$

-

 

Additional derivative liability on new notes

 

219,634

 

Change in fair value of derivative liability

 

(52,792

)

Derivative Liability Balance as of December 31, 2019

$

166,842

 

 

F-33

 

The conversion option in the Widjaja note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 64%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At January 11, 2019, the derivative liability associated with the Widjaja note was $220,000.

The derivative liability associated with this note is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 43% to 73%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $53,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $166,842 as of December 31, 2019.

GS Capital Convertible Note

On February 22, 2019, the Company sold and issued to GS Capital Partners, LLC (“GS”) a $108,000 aggregate principal amount unsecured convertible promissory note in exchange for $75,000 of gross proceeds, $6,000 in financing costs, and $27,000 of premium associated with the assignment of the EMA note (see above). On August 26, 2019, the Company sold and issued to GS, an additional unsecured convertible promissory note in the amount of $71,000.

These notes are unsecured, bear interest at 8% per annum, matures twelve months from the date of issuance, and contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. Principal and interest on the note will be payable upon maturity. There are no registration rights applicable to the note.

At any time after inception of the note until fully paid, GS shall have the option to convert all or a portion of amounts outstanding under the note into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 65% of the average of the three lowest closing bid prices for the shares over the prior ten day trading period immediately preceding the conversion.

Shares of common stock may not be issued pursuant to the note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company's common stock.

 

As of December 31, 2019, principal of $84,068 and interest of $5,766 had been converted into 473.4 million shares of common stock and no cash payments of principal or interest had been made. The aggregate principal and accrued interest balances as of December 31, 2019 were $170,000 and $9,000, respectively.

The following table summarizes the conversion activity of these notes:

 

Conversion Period

Principal Converted

 

Interest Converted

 

Common Shares

Issued

 

Q2 2019

$

15,000

 

$

763

 

 

17,321,692

 

Q3 2019

 

57,718

 

 

4,284

 

 

335,425,736

 

Q4 2019

 

11,350

 

 

719

 

 

120,697,800

 

 

$

84,068

 

$

5,766

 

 

473,445,228

 

 

Subsequent to the date of this report, the debt with GS Capital was settled by the assignment of the debt to another investor. Refer to the Debt Assignments section of Note 19. Subsequent Events for further discussion.

 

F-34

 

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.

The following table summarizes the derivative liability transactions for this note:

 

Derivative Liability Balance as of December 31, 2018

$

-

 

Liability assigned

 

240,156

 

Additional derivative liability on new notes

 

210,092

 

Change in fair value of derivative liability

 

(268,385

)

Derivative Liability Balance as of December 31, 2019

$

181,863

 

 

The derivative liability assigned to GS from EMA, at February 22, 2019, was $240,000.

The conversion option in the February 22, 2019 GS note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 66%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At February 22, 2019, the derivative liability associated with the GS note was $101,000. The fair value of the derivative was greater than the face value at issuance and the difference of $26,000 was charged to interest expense at issuance. The remaining debt discount of $75,000 will be charged to interest expense ratably over the life of the note.

.The conversion option in the August 2019 GS note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 64%, present value discount rate of 12%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At August 26, 2019, the derivative liability associated with the GS note was $109,000. The fair value of the derivative was greater than the face value at issuance and the difference of $44,000 was charged to interest expense at issuance. The remaining debt discount of $65,000 will be charged to interest expense ratably over the life of the note.

The derivative liability associated with these notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. During 2019, Management conducted quarterly fair value assessment of the embedded derivative associated with the notes using the following assumptions: annual volatility range of 35% and 70%, present value discount rate of 12%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net gain of $268,000 for the year ended December 31, 2019, as "Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $182,000 as of December 31, 2019.

NOTE 13. SERIES A PREFERRED STOCK

In June 2013, the Company entered into a Securities Purchase Agreement with an investor to sell an aggregate of $750,000 shares of Series A Preferred Stock at a price of $8.00 per share, resulting in gross proceeds of $6.0 million. This purchase agreement included warrants to purchase up to 13,125 shares of common stock of the Company. The transfer of cash and securities took place incrementally, the first closing occurring on June 17, 2013 with the transfer of 125,000 shares of Series A Preferred Stock and a warrant to purchase 2,187 shares of common stock for $1.0 million. The final closings took place in August 2013, with the transfer of 625,000 shares of Series A Preferred Stock and a warrant to purchase 10,938 shares of common stock for $5.0 million.

F-35

Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of 8% per annum when and if declared by the Board of Directors in its sole discretion. The dividends may be paid in cash or in the form of common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period), at the discretion of the Board of Directors. The dividend rate on the Series A Preferred Stock is indexed to the Company's stock price and subject to adjustment. In addition, the Series A Preferred Stock contains a make-whole provision whereby, conversion or redemption of the preferred stock within 4 years of issuance will require dividends for the full four year period to be paid by the Company in cash or common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period). This make-whole provision expired in June 2017.

The Series A Preferred Stock may be converted into shares of common stock at the option of the Company if the closing price of the common stock exceeds $232, as adjusted, for twenty consecutive trading days, or by the holder at any time. The Company has the right to redeem the Series A Preferred Stock at a price of $8.00 per share, plus any accrued and unpaid dividends, plus the make-whole amount (if applicable). At December 31, 2019, the preferred shares were not eligible for conversion to common shares at the option of the Company. The holder of the preferred shares may convert to common shares at any time, at no cost, at a ratio of 1 preferred share into 1 common share (subject to standard ratable anti-dilution adjustments). Upon any conversion (whether at the option of the Company or the holder), the holder is entitled to receive any accrued but unpaid dividends.

On October 6, 2016, the Series A Holder entered into an exchange agreement with a private investor. Pursuant to the exchange agreement, beginning December 5, 2016, the investor has the option to exchange, from time to time, all or any portion of the October 2016 Convertible Notes (see Note 12) for outstanding shares of Series A Preferred Stock from the Series A Holder.

Except as otherwise required by law (or with respect to approval of certain actions), the Series A Preferred Stock shall have no voting rights. Upon any liquidation, dissolution or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Preferred Stock shall be entitled to receive, pari passu with any distribution to the holders of common stock of the Company, an amount equal to $8.00 per share of Series A Preferred Stock plus any accrued and unpaid dividends.

During the year ended December 31, 2019, 12,656 shares of Series A Preferred Stock, plus $71,000 of accrued dividends, were converted into 9.8 million shares of common stock at a conversion rate of $0.0072. As of December 31, 2019, there were 48,100 shares of Series A Preferred Stock outstanding and accrued and unpaid dividends of $319,000.

NOTE 14. STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

At December 31, 2019, the Company had 20.0 billion shares of common stock, $0.0001 par value, authorized for issuance. Each share of common stock has the right to one vote. As of December 31, 2019, the Company had 4,759,161,650 shares of common stock outstanding. The Company has not declared or paid any dividends related to the common stock through December 31, 2019.

F-36

Preferred Stock

At December 31, 2019, the Company had 25,000,000 shares of preferred stock, $0.0001 par value, authorized for issuance. Preferred stock may be issued in classes or series. Designations, powers, preferences, rights, qualifications, limitations and restrictions are determined by the Company’s Board of Directors.  The following table summarizes the designations, shares authorized, and shares outstanding for the Company's Preferred Stock:

 

Preferred Stock Series Designation

 

Shares

Authorized

 

 

Shares

Outstanding

 

Series A

 

 

750,000

 

 

 

48,100

 

Series B-1

 

 

2,000

 

 

 

-

 

Series B-2

 

 

1,000

 

 

 

-

 

Series C

 

 

1,000

 

 

 

-

 

Series D

 

 

3,000

 

 

 

-

 

Series D-1

 

 

2,500

 

 

 

-

 

Series E

 

 

2,800

 

 

 

-

 

Series F

 

 

7,000

 

 

 

-

 

Series G

 

 

2,000

 

 

 

-

 

Series H

 

 

2,500

 

 

 

-

 

Series I

 

 

1,000

 

 

 

-

 

Series J

 

 

1,350

 

 

 

-

 

Series J-1

 

 

1,000

 

 

 

-

 

Series K

 

 

20,000

 

 

 

-

 

 

Series A Preferred Stock

Refer to Note 13 for Series A Preferred Stock activity.

Series B-1, B-2, C, D, D-1, E, F, G, H, I, J, J-1, and K Preferred Stock

There were no transactions involving the Series B-1, B-2, C, D, D-1, H, I, J, J-1, or K during the years ended December 31, 2019 and 2018.

NOTE 15. EQUITY PLANS AND SHARE-BASED COMPENSATION

Share-Based Compensation: The Company measures share-based compensation cost at the grant date based on the fair value of the award and recognizes this cost as an expense over the grant recipients’ requisite service periods for all awards made to employees, officers, directors and consultants.

The share-based compensation expense recognized in the Consolidated Statements of Operations was as follows: 

 

 

 

For the Year Ended

December 31,

 

 

 

 

2019

 

 

 

2018

 

Research and development

 

$

-

 

 

$

1,000

 

Selling, general and administrative

 

 

21,000

 

 

 

24,000

 

Total share-based compensation cost

 

$

21,000

 

 

$

25,000

 

 

Stock Options: The Company recognized share-based compensation expense for stock options of $21,000 to officers, directors and employees for the year ended December 31, 2019 related to stock option awards, reduced for estimated forfeitures; there was no expense recorded for the year ended December 31, 2019. There were no option grants during the years ended December 31, 2019 and 2018.

As of December 31, 2019, there were no unvested stock options. As of December 31, 2019, 97 shares were vested, and 120 shares remained available for future grants under the Option Plan.

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The following table summarizes stock option activity within the Stock Option Plan

 

 

 

Stock

Option

Shares

 

 

Weighted

Average

Remaining

Contractual

Life in Years

Outstanding at December 31, 2017

 

 

195

 

 

7.32

Granted

 

 

-

 

 

 

Exercised

 

 

-

 

 

 

Canceled

 

 

(85

)

 

 

Outstanding at December 31, 2018

 

 

110

 

 

5.18

Granted

 

 

-

 

 

 

Exercised

 

 

-

 

 

 

Canceled

 

 

(13

)

 

4.68

Outstanding and Exercisable at December 31, 2019

 

 

97

 

 

4.68

 

Restricted Stock: The Company did not recognize share-based compensation expense related to restricted stock grants for the years ended December 31, 2019 and 2018. There were no restricted stock grants for the years ended December 31, 2019 and 2018.

As of December 31, 2019, there was no unrecognized share-based compensation expense from unvested restricted stock, no shares were expected to vest in the future, and 496 shares remained available for future grants under the Restricted Stock Plan.

NOTE 16. INCOME TAXES

The company records income taxes using the liability method. Under this method, deferred tax assets and are computed for the expected future impact of temporary differences between the financial statement and income tax bases of assets and liabilities using current income tax rates and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold before a benefit is recognized in the financial statements.

At December 31, 2019, the Company had $233.6 million of cumulative net operating loss carryforwards for federal income tax purposes that were available to offset future taxable income through the year 2037. At December 31, 2019, the Company had $42.6 million of cumulative net operating loss carryforwards for federal income tax purposes that were available to offset future taxable income indefinitely. Under the Internal Revenue Code, the future utilization of net operating losses may be limited in certain circumstances where there is a significant ownership change. The Company prepared an analysis for the year ended December 31, 2012 and determined that a significant change in ownership had occurred as a result of the cumulative effect of the sales of common stock through its offerings. Such change limited the Company's utilizable net operating loss carryforwards to $276.1 million for the year ended December 31, 2019. Available net operating loss carryforwards may be further limited in the event of another significant ownership change.

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Deferred income taxes reflect an estimate of the cumulative temporary differences recognized for financial reporting purposes from that recognized for income tax reporting purposes. At December 31, 2019 and 2018, the components of these temporary differences and the deferred tax asset were as follows:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Deferred Tax Asset

 

 

 

 

 

 

 

 

Accrued Expenses

 

$

14,000

 

 

$

30,000

 

Inventory Allowance

 

 

134,000

 

 

 

184,000

 

Other

 

 

11,000

 

 

 

11,000

 

Stock Based Compensation-Stock Options and Restricted Stock

 

 

951,000

 

 

 

1,021,000

 

Tax effect of NOL carryforward

 

 

68,886,000

 

 

 

64,519,000

 

Depreciation

 

 

3,736,000

 

 

 

5,957,000

 

Amortization

 

 

(186,000

)

 

 

(213,000

)

Disallowed interest expense

 

 

-

 

 

 

452,000

 

Warranty reserve

 

 

6,000

 

 

 

7,000

 

Net deferred tax asset

 

 

73,552,000

 

 

 

71,968,000

 

Less valuation allowance

 

 

(73,552,000

)

 

 

(71,968,000

)

Net deferred tax asset

 

$

-

 

 

$

-

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical losses and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is not more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2019. The Company's deferred tax valuation allowance of $73.6 million reflected above is an increase of $1.6 million from the valuation allowance reflected as of December 31, 2018 of $72.0 million.

As of December 31, 2019, the Company has not recorded a liability for uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2019.

The Company's effective tax rate for the years ended December 31, 2019 and 2018 differs from the statutory rate due to the following (expressed as a percentage of pre-tax income):

 

 

 

2019

 

 

 

2018

 

 

Federal statutory rate

 

 

21.0

 

%

 

 

21.0

 

%

State statutory rate

 

 

4.1

 

%

 

 

3.6

 

%

Change in rate

 

 

(11.0

)

%

 

 

(0.8

)

%

Permanent tax differences

 

 

(0.3

)

%

 

 

(0.1

)

%

Derivative/Warrant Revaluation

 

 

26.7

 

%

 

 

-

 

%

Debt Discount

 

 

(0.7

)

%

 

 

-

 

%

Loss on Extinguishment of Liabilities

 

 

-

 

%

 

 

(3.5

)

%

Deferred true-ups

 

 

(7.3

)

%

 

 

(54.2

)

%

Other

 

 

-

 

%

 

 

-

 

%

Change in valuation allowance

 

 

(32.5

)

%

 

 

34.0

 

%

 

 

 

-

 

%

 

 

-

 

%

 

 

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NOTE 17. COMMITMENTS AND CONTINGENCIES

In May 2019, the Company’s former law firm filed suit against the Company in District Court in Adams County Colorado in an effort to collect approximately $1.2 million of unpaid fees (and related interest charges). On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement”) with its former law firm. Pursuant to the Settlement Agreement, the Company paid $120,000 on September 23, 2020 as the full and final settlement of all amounts owed between the parties. Following such payment, a satisfaction of an existing judgment in favor of such law firm was filed in Adams County Colorado.

On July 29, 2020, the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by the Building’s first lien holder (“Mortgage Holder”) and sold at public auction. The successful bidder for the Building was the Mortgage Holder, at the price of $7.193 million. As a result, the Company’s obligations to Mortgage Holder and all of the Company’s outstanding real property taxes on the Building were considered fully repaid.

The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial position or results of operations in particular quarterly or annual periods.

NOTE 18. RETIREMENT PLAN

On July 1, 2006, the Company adopted a qualified 401(k) plan which provides retirement benefits for all of its eligible employees. Under the plan, employees become eligible to participate at the first entry date, provided they are at least 21 years of age. The participants may elect through salary reduction to contribute up to ceilings established in the Internal Revenue Code. The Company will match 100% of the first six percent of employee contributions. In addition, the Company may make discretionary contributions to the Plan as determined by the Board of Directors. Employees are immediately vested in all salary reduction contributions. Rights to benefits provided by the Company’s discretionary and matching contributions vest 100% after the first year of service for all employees hired before January 1, 2010. For employees hired after December 31, 2009, matching contributions vest over a three-year period, one-third per year. Payments for 401(k) matching totaled $37,000 and $109,000 for the years ended December 31, 2019 and 2018, respectively. Payments for 401(k) matching are recorded under “Research, development and manufacturing operations" expense and “Selling, general and administrative" expense in the Consolidated Statements of Operations.

NOTE 19. SUBSEQUENT EVENTS

The Company has been in a dormant status for most of 2020 due to financial constraints as well as delays in reorganization and fund-raising efforts due to the impact of COVID-19. Below is the sequence of January 29 events subsequent to December 31, 2019:

 

Note Conversions

 

On April 7, 2020, Bellridge (refer to Note 12. Convertible Notes) converted $23,000 of principal and $1,000 of interest into 235.4 million shares of common stock.

 

On April 17, 2020, Bellridge (refer to Note 12. Convertible Notes) converted $23,000 of principal and $1,000 of interest into 236.0 million shares of common stock.

 

Baybridge Capital Promissory Note

 

On May 1, 2020, $115,000 of proceeds received between September and November of 2019 were documented into a non-convertible promissory note. The promissory note was issued with an original issue discount of $35,000, which will be recorded as interest expense ratably over the term of the note, resulting in a principal balance of $150,000. This note bears interest at 12% per annum and matures on May 1, 2021. All principal and interest is payable upon maturity. Refer to Note 11. Promissory Notes for further discussion on the funds received. This note was settled by the assignment of the debt to another investor. Please refer to the Debt Assignments section below for further information.

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Penumbra Note

On June 9, 2020, the Company issued to Penumbra Solar Technologies, Inc. (“Penumbra”) a $250,000 aggregate principal amount convertible promissory note (“Penumbra Note”). The Company has received $250,000 of gross proceeds from the offering of the Penumbra Note. The aggregate principal amount of the Penumbra Note (together with accrued interest) will mature on June 9, 2021. The Penumbra Note bears interest at a rate of 6% per annum. The interest rate increases to 18% in the event of a default under the Penumbra Note.  The Penumbra Note is convertible, at the holder’s option, into shares of the Company’s Common Stock at a conversion price equal to $0.0001 per share. However, the holder of the Penumbra Note will not have the right to convert any portion of the Penumbra Note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its conversion.

Sale and Leaseback of Facility

On July 29, 2020, the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by the Building’s first lien holder (“Mortgage Holder”) and sold at public auction. The successful bidder for the Building was the Mortgage Holder, at the price of $7.193 million. As a result, the Company’s obligations to Mortgage Holder and all of the Company’s outstanding real property taxes on the Building were considered fully repaid.

On September 21, 2020, the Company entered into a lease agreement with 12300 Grant LLC (“Landlord”), an affiliated company of the Mortgage Holder, for approximately 100,000 rentable square feet of the Building (the “Lease”). The Lease term is for 88 months commencing on September 21, 2020 at a rent of $50,000 per month including taxes, insurance and common area maintenance until December 31, 2020. Beginning January 1, 2021, the rent shall adjust to $80,000 per month on a triple net basis and shall increase at an annual rate of 3% per annum until December 31, 2027.

Debt Assignments

 

During September 2020, a number of the Company’s investors entered into assignment agreements to sell their existing debt to a new investor, BD 1 Investment Holding, LLC (“BD 1”). The assignments transferred ownership of the following debts:

 

 

•

The outstanding principal and interest of $2.16 million and $417,000, respectively, related to the St. George Secured Promissory Notes discussed in Note 10. was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal and interest of $650,000 and $86,000, respectively, related to the Investor 2 Promissory Notes discussed in Note 11 was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal of $618,000, related to the St. George Convertible Note discussed in Note 12 was assigned to BD 1. The terms of the note remained the same.

 

•

The outstanding principal and interest of $941,000 and $152,000, respectively, related to the Baybridge Convertible Notes discussed in Note 12 was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal and interest of $677,000 and 121,000, respectively, related to the Bellridge Convertible Notes discussed in Note 12 was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal and interest of $107,000 and $16,000, respectively, related to the Power Up Convertible Notes discussed in Note 12 was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal and interest of $330,000 and $68,000, respectively, related to the Widjaja Convertible Notes discussed in Note 12 was assigned to BD 1. The terms of the notes remained the same.

 

•

The outstanding principal and interest of $170,000 and $19,000, respectively, related to the GS Capital Convertible Notes discussed in Note 12 was assigned to BD 1. The terms of the notes remained the same.

 

On December 18, 2020, the notes assigned to BD 1 were exchanged into new notes. Please refer to the BD 1 Exchange Agreement section below for further information.

GI Exchange Agreement

F-41

On September 9, 2020, the Company entered into a securities exchange agreement (“GI Exchange Agreement”) with Global Ichiban Limited (“GI”). Pursuant to the terms of the GI Exchange Agreement, GI agreed to surrender and exchange all of its existing outstanding promissory notes with an aggregate principal balance of$6,313,387 (including accrued interest). In exchange, the Company issued to GI a secured convertible promissory note with a principal amount of $6,400,000.00 (“GI Exchange Note”).

The GI Exchange Note will mature on September 30, 2022. Principal on the GI Exchange Note, if not converted will be payable in a lump sum on September 30, 2022. The GI Exchange Note will not bear any accrued interest but bears a default interest rate of 18% in the event of a default under the GI Exchange Note.

GI shall have the right, from and after 6 months from the date of issuance of the GI Exchange Note and then at any time until the GI Exchange Note is fully paid, to convert any outstanding and unpaid principal and interest into shares of Common Stock at a variable conversion price equal to 80% of the average closing bid price for the shares over the prior five trading days.

Conversion into shares of Common Stock may not be issued pursuant to the GI Exchange Note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the Company’s outstanding shares of Common Stock.

The GI Exchange Note is secured by a lien on substantially all of the Company’s assets pursuant to the Security Agreement dated November 30, 2017 (the “Security Agreement”) entered into between the Company and GI.

Settlement Agreements

On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement A”) with a vendor, discussed further in Note 8 Notes Payable. Pursuant to the Settlement Agreement, the Company paid $120,000 on September 23, 2020 as the full and final settlement of all amounts owed between the parties. Following such payment, a satisfaction of an existing judgment in favor of such law firm was filed in Adams County Colorado. The Company will book a gain of approximately $1.1 million relating to the Settlement Agreement.

 

On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement B”) with a creditor holding a Note Payable, discussed further in Note 8. Notes Payable. Pursuant to the Settlement Agreement, the Company paid $20,000 on September 18, 2020 as the full and final settlement of all amounts owed between the parties. The Company will book a gain of approximately $200,000 relating to the Settlement Agreement.

Series 1A Preferred Stock – Tranche 1 Closing

On September 22, 2020, the Company entered into a securities purchase agreement (“Series 1A SPA”) with Crowdex Investments, LLC (“Crowdex”), for the private placement of up to $5,000,000 of the Company’s newly designated Series 1A Convertible Preferred Stock (“Series 1A Preferred Stock”).

The Company sold 2,000 shares of Series 1A Preferred Stock to Crowdex in exchange for $2,000,000 of gross proceeds at an initial closing under the Series 1A SPA on September 22, 2020.

In November 2020, Crowdex converted 1,200 shares of outstanding Series 1A Preferred Stock into 12,000,000,000 shares of Common Stock.

Crowdex Note

On November 27, 2020, the Company issued to Crowdex a $500,000 unsecured convertible promissory note (“Crowdex Note”) and received $500,000 of gross proceeds from the offering of the Crowdex Note.

BD 1 Exchange Agreement

On December 18, 2020, the Company entered into a securities exchange agreement (“BD1 Exchange Agreement”) with BD 1 Investment Holding LLC (“BD1”). BD1 had previously acquired all of the Company’s existing outstanding unsecured notes (other than notes held by GI and Crowdex) from the original note holders.

F-42

Pursuant to the terms of the BD1 Exchange Agreement, BD1 agreed to surrender and exchange all of its outstanding promissory notes with principal balances of approximately $10.4 million (including accrued interest and default penalties).  In exchange, the Company issued to BD1 two unsecured convertible notes with an aggregate principal amount of $10,500,000 (“BD1 Exchange Notes”). The BD1 Exchange Notes will mature on December 18, 2025. BD1 has the right, at any time until the BD1 Exchange Notes are fully paid, to convert any outstanding and unpaid principal and interest into shares of Common Stock at a fixed conversion price equal to $0.0001 per share. Accordingly, the Company would issue 105,000,000,000 shares of Common Stock upon a full conversion of the BD 1 Exchange Notes.

Series 1A Preferred Stock – Tranche 2 Closing

On December 31, the Company sold 500 shares of Series 1A Preferred Stock to Crowdex in exchange for the cancellation of the above-mentioned Crowdex Note issued on November 27, 2020. There were no additional cash proceeds from this closing.

On January 4, 2021, the Company entered into a securities purchase agreement (“Series 1ATranche 2 SPA”) with TubeSolar AG, a developer of photovoltaic thin-film tubes to enable additional application opportunities in solar power generation compared to conventional solar modules (“TubeSolar”). Pursuant to the Series 1A Tranche 2 SPA, the Company sold 2,500 shares of Series 1A Preferred Stock to TubeSolar and received $2,500,000 of gross proceeds on January 5, 2021. There are no registration rights applicable to the Series 1A Preferred Stock.

 

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