Item
1. Financial Statements
ALPHA-EN
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share and per share data)
(Unaudited)
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
132
|
|
|
$
|
442
|
|
|
Prepaid expenses
|
|
|
69
|
|
|
|
91
|
|
|
Restricted
cash
|
|
|
100
|
|
|
|
100
|
|
|
Total current assets
|
|
|
301
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deposit
|
|
|
50
|
|
|
|
50
|
|
|
Property and
equipment, net
|
|
|
536
|
|
|
|
541
|
|
|
Total
assets
|
|
$
|
887
|
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
1,013
|
|
|
$
|
964
|
|
|
Advances
from related parties
|
|
|
178
|
|
|
|
78
|
|
|
Total current
liabilities
|
|
|
1,191
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,191
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (deficit) equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock
par value 0.01: 2,000,000 shares authorized; none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Class B common stock
no par value: 1,000,000 shares authorized; none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock par value 0.01: 35,000,000
shares authorized; 33,282,089 shares issued and outstanding at March 31, 2017 and December 31, 2016
|
|
|
333
|
|
|
|
333
|
|
|
Additional paid-in
capital
|
|
|
15,112
|
|
|
|
13,987
|
|
|
Treasury stock at cost: 714,750 shares
as of March 31, 2017 and December 31, 2016
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
Accumulated
deficit
|
|
|
(15,269
|
)
|
|
|
(13,749
|
)
|
|
Stockholders' equity
attributed to alpha-En Corporation stockholders
|
|
|
107
|
|
|
|
502
|
|
|
Non-controlling
interest
|
|
|
(411
|
)
|
|
|
(320
|
)
|
|
Total
stockholders' (deficit) equity
|
|
|
(304
|
)
|
|
|
182
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
|
|
$
|
887
|
|
|
$
|
1,224
|
|
See
notes to condensed consolidated financial statements.
ALPHA-EN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except share and per share data)
(Unaudited)
|
|
|
For
the Three Months Ended
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
920
|
|
|
$
|
583
|
|
|
Legal and professional
fees
|
|
|
170
|
|
|
|
49
|
|
|
Research
and development
|
|
|
521
|
|
|
|
394
|
|
|
Total operating
expenses
|
|
|
1,611
|
|
|
|
1,026
|
|
|
Net loss
|
|
|
(1,611
|
)
|
|
|
(1,026
|
)
|
|
Less: net loss
attributable to non-controlling interest
|
|
|
(91
|
)
|
|
|
(61
|
)
|
|
Net
loss attributable to alpha-En Corporation common stockholders
|
|
$
|
(1,520
|
)
|
|
$
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to alpha-En
Corporation common stockholders
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
33,282,089
|
|
|
|
32,448,987
|
|
See
notes to condensed consolidated financial statements.
ALPHA-EN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY
(in
thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
Balance
at December 31, 2016
|
|
|
33,282,089
|
|
|
$
|
333
|
|
|
$
|
13,987
|
|
|
|
714,750
|
|
|
$
|
(69
|
)
|
|
$
|
(13,749
|
)
|
|
$
|
(320
|
)
|
|
$
|
182
|
|
|
Stock
based compensation (options)
|
|
|
-
|
|
|
|
-
|
|
|
|
877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
877
|
|
|
Warrant
issued for service
|
|
|
-
|
|
|
|
-
|
|
|
|
248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,520
|
)
|
|
|
(91
|
)
|
|
|
(1,611
|
)
|
|
Balance
at March 31, 2017
|
|
|
33,282,089
|
|
|
$
|
333
|
|
|
$
|
15,112
|
|
|
|
714,750
|
|
|
$
|
(69
|
)
|
|
$
|
(15,269
|
)
|
|
$
|
(411
|
)
|
|
$
|
(304
|
)
|
See
notes to condensed consolidated financial statements.
ALPHA-EN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
|
|
|
For
the Three Months Ended
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,611
|
)
|
|
$
|
(1,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
5
|
|
|
|
1
|
|
|
Stock-based compensation
|
|
|
877
|
|
|
|
627
|
|
|
Warrant issued for
service
|
|
|
248
|
|
|
|
-
|
|
|
Issuance of subsidiary
common stock for service
|
|
|
-
|
|
|
|
75
|
|
|
Changes in operating
assets and liabilities of business, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
22
|
|
|
|
(39
|
)
|
|
Due from related
parties
|
|
|
-
|
|
|
|
61
|
|
|
Accounts
payable and accrued expenses
|
|
|
49
|
|
|
|
(22
|
)
|
|
Net cash used in operating activities
|
|
|
(410
|
)
|
|
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
Purchase of fixed
assets
|
|
|
-
|
|
|
|
(35
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of common stock and warrants in private placements
|
|
|
-
|
|
|
|
280
|
|
|
Non-employee options
exercised for cash
|
|
|
-
|
|
|
|
11
|
|
|
Advances from related
parties
|
|
|
100
|
|
|
|
50
|
|
|
Repayments
of advances from related parties
|
|
|
-
|
|
|
|
(20
|
)
|
|
Net cash provided by financing activities
|
|
|
100
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(310
|
)
|
|
|
(37
|
)
|
|
Cash at beginning of period
|
|
|
442
|
|
|
|
730
|
|
|
Cash at end of period
|
|
$
|
132
|
|
|
$
|
693
|
|
See
notes to condensed consolidated financial statements.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - Organization and Operations
alpha-En
Corporation (together with its subsidiaries, the “Company”) was incorporated in Delaware on March 7, 1997.
On
February 25, 2009, alpha-En Corporation was granted a license for an exclusive, worldwide, transferable, perpetual license to
use certain proprietary technology for the processing of lithium for use in batteries. After much effort, it was determined the
process was not commercially feasible and efforts surrounding this technology were abandoned in 2011. The Company negotiated an
amendment and release related to this license. (See Note 7)
During
the period from 2013 to the present, alpha-En Corporation has been exclusively focused on developing its own technology for the
production of highly pure lithium metal, from the bench scale through multiple demonstrations, with the end goal of commercialization.
During this time, alpha-En Corporation has also been pursuing strategic partnerships both commercially and with research institutions.
Formation
of Majority-Owned Subsidiary
In
September 2014, alpha-En Corporation formed Clean Lithium Corporation (“CLC”) under the laws of New York State as
a wholly owned subsidiary with a nominal share capital of $100,000.
Following
the sale of CLC’s shares, the ownership is as follows:
|
Stockholder
|
|
Shares
|
|
|
Percentage
|
|
|
alpha-En Corporation
|
|
|
9,095,000
|
|
|
|
90.95
|
%
|
|
Non-controlling
interests
|
|
|
905,000
|
|
|
|
9.05
|
%
|
|
Total:
|
|
|
10,000,000
|
|
|
|
100.00
|
%
|
Amended
and Restated Certificate of Incorporation
On
March 29, 2017 the Board of Directors of the Company and a subset of the Company’s stockholders representing in excess of
75% of the Company’s currently issued and outstanding voting stock approved of the amendment and restatement of the Company’s
Certificate of Incorporation (the “Restated Certificate”) to make certain corporate governance updates and to increase
the authorized capital stock of the Company to 60,000,000 shares, of which 57,000,000 will be shares of Common Stock, par value
$0.01 per share, 1,000,000 will be shares of Class B Common Stock, par value $0.01 per share and 2,000,000 will be shares of preferred
stock, par value $0.01 per share. Pursuant to applicable law, the Restated Certificate will not become effective until twenty
days after the mailing of an Information Statement to all of the Company’s stockholders and after the filing of the Restated
Certificate with the Delaware Secretary of State. On May 12, 2017 the Company filed the preliminary Information Statement on Schedule
14C with the Securities and Exchange Commission.
Note
2 - Going Concern and Liquidity
The
Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $15.3 million
at March 31, 2017, a net loss of approximately $1.6 million and approximately $410,000 net cash used in operating activities for
the three months ended March 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
The
Company is attempting to further develop the intellectual property associated with its technology; broaden its patent portfolio;
scale up production of various products; and begin generating revenue; however, the Company’s cash position is not sufficient
to support its daily operations. While the Company believes in the viability of its technology and in its ability to raise additional
funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon its ability to raise additional funds by way of a public or private offering and its ability
to further develop its technology and generate sufficient revenue.
The
condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
3 - Significant and Critical Accounting Policies and Practices
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. For
consolidated entities where the Company owns less than 100% of the subsidiary, the Company records net loss attributable to non-controlling
interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained
in such entities by the respective non-controlling parties.
The
unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring
adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results
for the interim periods presented.
Certain
information in footnote disclosures normally included in the financial statements prepared in conformity with accounting principles
generally accepted in the United States of America have been condensed or omitted pursuant to the SEC rules and regulations for
interim reporting. The financial results for the periods presented may not be indicative of the full year’s results.
These
unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated
financial statements and the notes thereto for the fiscal year ended December 31, 2016 included in the Company’s Annual
Report on Form 10-K filed on March 31, 2017.
The
Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.
All intercompany balances and transactions have been eliminated.
Use
of Estimates
The
Company’s unaudited condensed consolidated financial statements include certain amounts that are based on management’s
best estimates and judgments. The Company’s significant estimates include, but are not limited to, useful lives assigned
to long-lived assets, fair value measurements, stock-based compensation, accrued expenses, provisions for income taxes and contingencies.
Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.
Cash
As
of March 31, 2017 and December 31, 2016, substantially all of the Company’s cash was held by major financial institutions
and the balance at certain times may exceed the maximum amount insured by the Federal Deposits Insurance Corporation. However,
the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant
risks on such accounts.
Property
and Equipment
Lab
equipment, leasehold improvements and office equipment are recorded at cost and depreciated using the straight-line method over
the estimated useful life of each asset, generally three years.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when
to perform an impairment review include significant underperformance of the business in relation to expectations, significant
negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review
is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected
to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The
impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value. There was no impairments
of long-lived assets during the period ended March 31, 2017.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Research
and Development
Research
and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and
development activities are expensed when the activity has been performed or when the goods have been received rather than when
the payment is made. Upfront and milestone payments due to third parties that perform research and development services on the
Company’s behalf will be expensed as services are rendered or when the milestone is achieved.
Research
and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related
expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products
and technology, payments made to third party contract research organizations, consultants, the cost of acquiring and manufacturing
research trial materials, and costs associated with regulatory filings, laboratory costs and other supplies.
In
accordance with ASC 730-10-25-1,
Research and Development
, costs incurred in obtaining technology licenses are charged
to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future
use. Certain licenses purchased by the Company require substantial completion of research and development and regulatory and marketing
approval efforts in order to reach commercial feasibility and have no alternative future use.
Contingencies
The
Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency
when it is probable that a liability has been incurred and the amount can be reasonably estimated.
If
a loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Stock-Based
Compensation
The
Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair
value of the awards. For stock-based compensation awards to non-employees, the Company remeasures the fair value of the non-employee
awards at each reporting period prior to vesting and finally at the vesting date of the award. Changes in the estimated fair value
of these non-employee awards are recognized as compensation expense in the period of change.
The
Company estimates the fair value of stock options grants using the Black-Scholes option pricing model and the assumptions used
in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties
and the application of management’s judgment.
Income
Taxes
The
Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for
the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes
a valuation allowance if it is more likely than not that the deferred tax assets will not be recovered based on an evaluation
of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes
the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely
than not of being sustained upon audit, the Company does not recognize any portion of the benefit.
Loss
Per Share
Basic
loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number
of shares of common stock outstanding for the period. Diluted loss per share excludes the potential impact of common stock options,
unvested shares of restricted stock and outstanding common stock purchase warrants because their effect would be anti-dilutive.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Securities
that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share
at March 31, 2017 and 2016 are as follows:
|
|
|
As
of March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Warrants to purchase common
stock
|
|
|
3,771,875
|
|
|
|
2,025,000
|
|
|
Options to purchase
common stock
|
|
|
5,030,000
|
|
|
|
4,170,000
|
|
|
Total
|
|
|
8,801,875
|
|
|
|
6,195,000
|
|
Non-Controlling
Interests
Non-controlling
interests in consolidated entities represent the component of equity in consolidated entities held by third parties. Any change
in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between
the controlling and non-controlling interests.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
(“ASU 2016-02”). ASU 2016-02 requires an entity
to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.
Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user
of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The
Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements
and related disclosures.
In
March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based
Payment Accounting
(“ASU 2016-09”). Under ASU 2016-09, companies will no longer record excess tax benefits and
certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits
and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition,
ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also
requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing
activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still
qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding
obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair
value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s).
ASU 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory
income tax withholding obligation as a financing activity on the statement of cash flows. Under current GAAP, it was not specified
how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on
share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to
be forfeited and adjusting the estimate when it is likely to change, as is currently required. These aspects of ASU 2016-09 are
effective for reporting periods beginning after December 15, 2016, with early adoption permitted provided that all of the guidance
is adopted in the same period. The Company adopted the standard as of January 1, 2017 and adoption did not have a material impact
on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
,
which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its consolidated statements
of cash flows.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
4 - Property and Equipment
The
components of property and equipment as of March 31, 2017 and December 31, 2016, at cost are (dollars in thousands):
|
($
in thousands)
|
|
Useful
Life (Years)
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
Lab equipment
|
|
|
3
|
|
|
|
173
|
|
|
|
173
|
|
|
Office furniture and equipment
|
|
|
3
|
|
|
|
12
|
|
|
|
12
|
|
|
Leasehold improvement
|
|
|
|
|
|
|
368
|
|
|
|
368
|
|
|
Gross property and equipment
|
|
|
|
|
|
|
553
|
|
|
|
553
|
|
|
Less: Accumulated
depreciation
|
|
|
|
|
|
|
(17
|
)
|
|
|
(12
|
)
|
|
Property and
equipment, net
|
|
|
|
|
|
$
|
536
|
|
|
$
|
541
|
|
The
Company’s depreciation expense for the three months ended March 31, 2017 and 2016 was $5,000 and $1,000, respectively.
Note
5 - Related Party Transactions
Advances
from Stockholders
From
time to time, stockholders of the Company advance funds to the Company for working capital purposes. Those advances are unsecured,
non-interest bearing and due on demand.
As
of March 31, 2017 and December 31, 2016, the outstanding amount of the advances from related parties was approximately $178,000
and $78,000, respectively. During the three months ended March 31, 2017, Steven M. Payne advanced $50,000 and Jerome I. Feldman
advanced $50,000 to the Company and the Company did not repay any amounts to related parties.
Free
Office Space
During
2015 and through September 2016, the Company was provided office space by its Chairman of the Board at no cost. Management determined
that such cost was nominal and did not recognize the rent expense in its financial statements.
Restricted
Stock Grant to Chief Executive Officer and Associated Withholding Payments
During
three months ended March 31, 2016, Steven M. Fludder, Chief Executive Officer, paid the Company a withholding tax obligation of
$198,000 related to the grant of restricted stock in 2015.
Appointment
of Chief Financial Officer
On
February 23, 2017, the Board of Directors of the Company appointed Nathan Wasserman to become Chief Financial Officer of the Company,
effective as of March 1, 2017. Pursuant to a term sheet dated February 27, 2017, Mr. Wasserman agreed to serve as our Chief Financial
Officer for an initial term of three years. The Company granted Mr. Wasserman stock options to purchase a total of 500,000 shares
of common stock at an exercise price of $1.10 per share, of which 150,000 vested immediately, 150,000 will vest in his second
year of service and 200,000 will vest in his third year of service. Mr. Wasserman will also receive a starting salary of $5,000
per month.
Note
6 - Stockholders’ Equity
Common
Stock
As
of March 31, 2017 and 2016, there were warrants to purchase 3,771,875 and 2,025,000 shares of common stock issued and outstanding,
respectively.
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock
Options
The
grant date fair value of stock options granted during the three months ended March 31, 2017 was $611,000. The fair value of the
Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained.
The Company does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected
term for stock options granted with service conditions represents the average period the stock options are expected to remain
outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission’s
Staff Accounting Bulletin for “plain vanilla” options. The expected term for stock options granted with performance
and/or market conditions represents the estimated period estimated by management by which the performance conditions will be met.
The Company obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The Company uses
a methodology in estimating its volatility percentage from a computation that was based on a comparison of average volatility
rates of similar companies to a computation based on the standard deviation of the Company’s own underlying stock price’s
daily logarithmic returns. The fair value of options granted in the three months ended March 31, 2017 and 2016 were estimated
using the following weighted-average assumptions:
|
|
|
As
of March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Exercise price
|
|
$
|
1.10
|
|
|
$
|
0.90
|
|
|
Expected stock price volatility
|
|
|
79
|
%
|
|
|
80
|
%
|
|
Risk-free rate of interest
|
|
|
1.49
|
%
|
|
|
1.34
|
%
|
|
Term (years)
|
|
|
3.0
|
|
|
|
4.6
|
|
A
summary of option activity under the Company’s employee stock option plan for the three months ended March 31, 2017 is presented
below:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Total
Intrinsic Value
|
|
|
Weighted
Average Remaining Contractual
Life (in years)
|
|
|
Outstanding as of December
31, 2016
|
|
|
1,575,000
|
|
|
$
|
0.50
|
|
|
$
|
1,264,000
|
|
|
|
4.7
|
|
|
Employee
options granted
|
|
|
500,000
|
|
|
|
1.10
|
|
|
|
450,000
|
|
|
|
4.8
|
|
|
Outstanding as
of March 31, 2017
|
|
|
2,075,000
|
|
|
$
|
0.65
|
|
|
$
|
2,805,000
|
|
|
|
4.5
|
|
|
Options vested and expected
to vest as of March 31, 2017
|
|
|
2,075,000
|
|
|
$
|
0.65
|
|
|
$
|
2,805,000
|
|
|
|
4.5
|
|
|
Options vested and exercisable as of March 31,
2017
|
|
|
900,000
|
|
|
$
|
0.46
|
|
|
$
|
1,382,000
|
|
|
|
3.6
|
|
Estimated
future stock-based compensation expense relating to unvested employee stock options is approximately $599,000 as of March 31,
2017 and will be amortized over 3.5 years.
A
summary of activity of options granted to non-employees for the three months ended March 31, 2017 is presented below:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Total
Intrinsic Value
|
|
|
Weighted
Average Remaining Contractual
Life (in years)
|
|
|
Outstanding
as of December 31, 2016
|
|
|
2,955,000
|
|
|
$
|
0.27
|
|
|
$
|
3,053,000
|
|
|
|
3.2
|
|
|
Outstanding as
of March 31, 2017
|
|
|
2,955,000
|
|
|
$
|
0.27
|
|
|
$
|
5,110,000
|
|
|
|
3.0
|
|
|
Options vested and expected
to vest as of March 31, 2017
|
|
|
2,955,000
|
|
|
$
|
0.27
|
|
|
$
|
5,110,000
|
|
|
|
3.0
|
|
|
Options vested and exercisable as of March 31,
2017
|
|
|
1,767,500
|
|
|
$
|
0.30
|
|
|
$
|
3,012,000
|
|
|
|
3.0
|
|
Warrants
A
summary of the status of the Company’s outstanding warrants as of March 31, 2017 and changes during the three months then
ended is presented below:
|
|
|
Number
of Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Total
Intrinsic Value
|
|
|
Weighted
Average Remaining Contractual
Life (in years)
|
|
|
Outstanding
as of December 31, 2016
|
|
|
3,271,875
|
|
|
$
|
1.02
|
|
|
$
|
2,000,000
|
|
|
|
3.9
|
|
|
Issued
|
|
|
500,000
|
|
|
|
1.20
|
|
|
|
400,000
|
|
|
|
6.9
|
|
|
Outstanding
as of March 31, 2017
|
|
|
3,771,875
|
|
|
$
|
1.05
|
|
|
$
|
4,290,000
|
|
|
|
4.1
|
|
|
Warrants exercisable
as of March 31, 2017
|
|
|
3,521,875
|
|
|
$
|
1.04
|
|
|
$
|
4,090,000
|
|
|
|
3.9
|
|
ALPHA-EN
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock-based
Compensation Expense
Stock-based
compensation expense for the three months ended March 31, 2017 and 2016 was comprised of the following (dollars in thousands):
|
|
|
For
the Three Months Ended
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Employee
restricted stock awards
|
|
$
|
-
|
|
|
$
|
136
|
|
|
Employee stock option
awards
|
|
|
237
|
|
|
|
31
|
|
|
Non-employee
option awards
|
|
|
640
|
|
|
|
460
|
|
|
Total
compensation expense
|
|
$
|
877
|
|
|
$
|
627
|
|
Note
7 - Contingencies and Commitments
On
March 22, 2016, the Company entered into a lease (the “Lease”) with Hudson View Building #3, LLC (“the “Landlord”),
for office and laboratory space located in Yonkers, New York (the “Leased Premise”). The Leased Premise consists of
approximately 8,000 square feet. The Lease has a term of 87 months from the lease commencement date, which is the date upon which
the Landlord has substantially completed certain interior leasehold improvements to the Leased Premise. The annual rent of the
first year of the lease is approximately $208,000, increasing by 1.5% on each anniversary of the lease commencement date. In the
event of a termination of the lease following a default by the Company, the Company will be obligated to pay the sum of the rent
payable for the remainder of the lease term.
In
connection with this lease, the Company obtained an Irrevocable Standby Letter of Credit (the “Letter of Credit”)
from Chase Bank for a sum not exceeding $150,000. The Company has deposited this amount with Chase Bank as collateral for the
Letter of Credit and recorded the amount as restricted cash and long term deposit in the consolidated balance sheets as of March
31, 2017.
As
of March 31, 2017, contractual minimal lease payments are as follows (in thousands):
|
2017
|
|
|
$
|
104
|
|
|
2018
|
|
|
|
209
|
|
|
2019
|
|
|
|
213
|
|
|
2020
|
|
|
|
216
|
|
|
2021
|
|
|
|
219
|
|
|
Thereafter
|
|
|
|
562
|
|
|
Total
|
|
|
$
|
1,523
|
|
On
February 25, 2009, the Company was granted an exclusive, worldwide, transferable, perpetual license to use certain proprietary
technology for the processing of lithium for use in batteries and other fields. Commencing in October 2010, working through a
third party, the Company conducted a series of tests to determine if the process worked and, based on the results, initially believed
that the process produced lithium, however it did not prove to be commercially feasible and research and development efforts involving
this license were abandoned. In exchange for the license, the Company had certain financial, share issuance and royalty obligations
if certain sale thresholds were met. However, since contractually agreed thresholds were not met and the technology was not used,
the Company negotiated an amendment and release which was finalized in January 2017. Pursuant to the amendment and release, the
third party retained two million of the three million total shares from the original license and forfeited the remaining one million
shares. The two million shares retained by the third party are subject to customary transfer restrictions for restricted shares.
The
Company maintains an executive office in Tarrytown, New York. This space was previously provided to the Company without charge
by our Executive Chairman, Jerome I. Feldman. Beginning in September 2016 the Company began incurring rent for this space of approximately
$5,000 per month, plus taxes and utilities to the current owner Cushman & Wakefield of Pennsylvania, Inc. The lease commenced
on May 1, 2016 and terminates on April 30, 2018. The Company has the option to terminate the lease at any time upon two months’
notice.
Note
8 - Subsequent Events
The
Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were
issued to determine if they must be reported.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
For
over six years, we have been focused exclusively on efforts to develop a business centered around the commercial manufacturing
of highly pure lithium metal, a raw material for use in lightweight, high energy density batteries, in an environmentally friendly
manner. Additionally, we have broadened our focus to include lithium products and processes derived from our core technology.
This includes battery components such as protected anodes and compounds of lithium, among other things.
Lithium
is the lightest metal with the highest electrochemical potential, making it a clear choice for batteries. There is a substantial
existing market for lithium metal in primary (non-rechargeable) batteries, and rechargeable batteries, including many future opportunities
which exist for next-generation batteries under development.
We
have no revenues and our business is in the development stage. Our operations primarily include activities related to developing
our technology and maintaining our public company status.
Results
of Operations
Three
Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
General
and administrative expenses were approximately $920,000 for the three months ended March 31, 2017 as compared to approximately
$583,000 for the three months ended March 31, 2016. The increase in general and administrative expenses mostly relates to increased
stock based compensation and warrants issued for services which were approximately $643,000 and $369,000 for the three months
ended March 31, 2017 and 2016, respectively.
Legal
and professional fees were approximately $170,000 for the three months ended March 31, 2017 as compared to approximately $49,000
for the three months ended March 31, 2016. The increase in legal and professional fees was due to accounting and legal services
incurred in relation to the filing of our annual financials.
Research
and development expenses were approximately $521,000 for the three months ended March 31, 2017 as compared to approximately $394,000
for the three months ended March 31, 2016. The increase in research and development expenses mostly relates to increased stock
based compensation which was approximately $483,000 and $258,000 for the three months ended March 31, 2017 and 2016, respectively.
Net
loss attributable to non-controlling interest was approximately $91,000 for the three months ended March 31, 2017 as compared
to approximately $61,000 for the three months ended March 31, 2016. The increase was mostly due to the increased loss of CLC.
Going
Concern
The
Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $15.3 million
at March 31, 2017, a net loss of approximately $1.6 million and approximately $410,000 net cash used in operating activities for
the three months ended March 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
The
Company is attempting to further develop the intellectual property associated with its technology; broaden its patent portfolio;
scale up production of various products; and begin generating revenue; however, the Company’s cash position is not sufficient
to support its daily operations. While the Company believes in the viability of its technology and in its ability to raise additional
funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon its ability to raise additional funds by way of a public or private offering and its ability
to further develop its technology and generate sufficient revenue.
The
condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
Liquidity
and Capital Resources
Restricted
cash and long-term deposit at March 31, 2017 includes $150,000 of cash deposited with Chase Bank (“Chase”) as collateral
for an irrevocable standby letter of credit associated with the lease of our Yonkers lease.
As
of March 31. 2017, we had an accumulated deficit of approximately $15.3 million and working capital deficit of approximately $890,000.
We
have limited funds to continue our operating activities. Future operating activities are expected to be funded by loans and investments
from officers, directors and stockholders, until we begin to generate cash flows from operations.
The
table below sets forth selected cash flow data for the periods presented (dollars in thousands):
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net cash used in operating
activities
|
|
$
|
(410
|
)
|
|
$
|
(323
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(35
|
)
|
|
Net cash provided
by financing activities
|
|
|
100
|
|
|
|
321
|
|
|
Net decrease
in cash and cash equivalents
|
|
$
|
(310
|
)
|
|
$
|
(37
|
)
|
The
success of our business plan during the next 12 months and beyond is contingent upon us generating sufficient revenue to cover
our costs of operations, or upon us obtaining additional financing. We believe that our current capital resources are not sufficient
to support our operations for the next 12 months. We intend to finance our operations through debt and/or equity financings. There
can be no assurance that such additional financing will be available to us on acceptable terms, or at all. We intend to use all
commercially-reasonable efforts at our disposal to raise sufficient capital to run our operations on a go forward basis.
Off
Balance Sheet Arrangements
As
of the date of this report, we have not entered into any transactions with unconsolidated entities in which we have financial
guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material
continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides
us with financing, liquidity, market risk or credit risk support.
Commitments
On
March 22, 2016, the Company entered into a lease (the “Lease”) with Hudson View Building #3, LLC (“the “Landlord”),
for office and laboratory space located in Yonkers, New York (the “Leased Premise”). The Leased Premise consists of
approximately 8,000 square feet. The Lease has a term of 87 months from the lease commencement date, which is the date upon which
the Landlord has substantially completed certain interior leasehold improvements to the Leased Premise. The annual rent of the
first year of the lease is approximately $208,000, increasing by 1.5% on each anniversary of the lease commencement date. In the
event of a termination of the lease following a default by the Company, the Company will be obligated to pay the sum of the rent
payable for the remainder of the lease term.
In
connection with this lease, the Company obtained an Irrevocable Standby Letter of Credit (the “Letter of Credit”)
from Chase Bank for a sum not exceeding $150,000. The Company has deposited this amount with Chase Bank as collateral for the
Letter of Credit and recorded the amount as restricted cash and long-term deposits in the consolidated balance sheets as of March
31, 2017.
As
of March 31, 2017, contractual minimal lease payments are as follows (in thousands):
|
2017
|
|
|
$
|
104
|
|
|
2018
|
|
|
|
209
|
|
|
2019
|
|
|
|
213
|
|
|
2020
|
|
|
|
216
|
|
|
2021
|
|
|
|
219
|
|
|
Thereafter
|
|
|
|
562
|
|
|
Total
|
|
|
$
|
1,523
|
|
