Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

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Commitments and Contingencies
9 Months Ended
Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 18 – COMMITMENTS AND CONTINGENCIES

 

Legal

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. Except as disclosed below, the Company is currently not aware of any such legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s business, financial conditions or operating results.

 

On May 28, 2015, a former employee filed a complaint in U.S. District Court against the Company to recover unpaid wages, unreimbursed expenses, liquidated damages, attorney’s fees and costs under the provisions of the Fair Labor Standards Act of 1938. The Company filed an answer to the complaint on July 27, 2015. The wages and unreimbursed business expenses have always been accrued in the Company’s financial statements since those obligations arose in accordance with generally accepted accounting principles. The two parties do not appear to disagree on the unpaid wages and unreimbursed expenses due the former employee. Counsels for the parties continue to be in discussion to attempt to work out a settlement in order to avoid the costs of pursuing and defending this matter in court. The next step for this action is a settlement conference with the magistrate and the various parties tentatively scheduled for early December 2015. Depositions may start just before or just after that conference, if not resolution is reached. The Company believes that this case is too early in its development for the Company to recognize any additional liabilities except those the Company has already recognized.

 

While incapable of estimation, in the opinion of management, the individual regulatory and legal matters in which it might involve in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

 

Leases

 

The Company leased various facilities under a non-cancelable operating lease which expired on September 30, 2013. That lease required minimum monthly rental payments of $4,750 plus various expenses incidental to use of the property. The Company had an option to extend the lease for one twelve month period.

 

Effective October 1, 2014, the Company entered into a new lease agreement for this facility with a term of twenty-four months with an option for another twelve months. Rent in the first twenty-four months is $7,800 per month plus various expenses incidental to use of the property. If the Company exercises its option for another twelve months, the rent during that period will be $8,500 per month plus various expenses incidental to use of the property.

 

In 2014, WET leased office, approximately 9,500 square feet, and manufacturing space, approximately 50,000 square feet, in India in connection with expanding its operations. The office space lease is a month to month lease with annual rent of approximately $24,000 and was occupied in December 2014. The manufacturing facility lease is a six year lease with annual rent of approximately $120,000. The manufacturing space lease commenced on April 1, 2015 when WET occupied the space.

 

Rent expense for the nine months ended September 30, 2015 and 2014 was $188,534 and $55,915, respectively.

 

Sales

 

During the second quarter of 2014, the Company received two signed purchase orders from one customer, Jamaica’s national utility company, Jamaica Public Service Co., for the delivery of the Company’s clean energy products as well as related energy storage, back-up emergency power equipment and custom energy monitoring, data collection and system analysis over the next eighteen to twenty four months. The purchase orders contain the Company’s customary terms regarding payment terms, return of products and are consistent with the Company’s terms with other customers.

 

Sales and Distribution Agreements

 

In the ordinary course of business, the Company enters into sales and distribution agreements with various parties in defined geographic areas around the world. The agreements are usually non-exclusive and contain general commercial terms, but no specific financial terms. It is the Company’s practice that such agreements do not contain performance related terms or favorable payment terms. These agreements are usually cancellable with written notice by either party and do not have terms greater than one year.

 

Investment Advisory Services

 

WestPark Capital Inc.

 

During 2014, the Company entered into multiple agreements with the same investment banking firm, as follows:

 

  Side letter agreement, dated May 1, 2014, which among other terms, for the first $2 million raised required fees of 1.25% of fully diluted equity of the Company and for each $1.5 million raised thereafter, 500,000 shares of the Company’s common stock. No funds were raised under this side letter agreement;

  

  Institutional Financing Engagement agreement, dated July 30, 2014, which among other terms, had a term of nine months, required the completion of an institutional financing offering, and if successful, the Company was to pay a fee in cash of 10% of the qualifying investments at closing as well as issue warrants to the investment banking firm with a five year term equal to 10% amount raised in the institutional offering. No funds have been raised under the terms of this agreement and this agreement has expired and was not renewed; and
     
  Investment Banking Engagement agreement, dated September 11, 2014, which among other terms, had a term of one year, with an option to terminate the agreement after nine months, the investment banking firm will provide advisory services in the area of corporate development, corporate finance and/or capital placement transactions. The Agreement specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no obligation under the terms of this agreement other than a monthly fee of $10,000 per month. The value of the services, and the amount due to the investment banker under this agreement, have not been agreed to by the two parties.

 

In connection with the various agreements with WestPark and in settlement of various disputes between the Company and WestPark, between May 1, and May 12, 2015, the Company issued warrants to purchase 522,983 shares of the Company’s common stock at a price of $0.40 per share with a term of five years from the date of the original investments by investors which came to the Company through WestPark in August through October 2014. The warrants were made effective as of those dates of investments. None of the warrants have been exercised at September 30, 2015.

 

Carter Terry

 

On August 18, 2014, the Company entered into a private placement offering agreement with an investment banking firm for advisory services in the areas of corporate development, corporate finance and/or capital placement transactions. The agreement was on an exclusive basis for sixty days from the date of the agreement and then reverted to a non-exclusive basis, expiring one year from the date the agreement was signed, with an option to extend the agreement after nine months, or either party can terminate in writing to the other party. The agreement specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no obligation under the terms of this agreement.

 

In the event of a successful transaction, the investment banking firm will earn fees, 8% of the amount of any equity or hybrid equity raised up to $5 million, and 6% over $5 million, payable when the Company receives proceeds from the transaction.

 

In addition, the Company agreed to grant the investment banking firm warrants to purchase that number of shares of the Company’s common stock equal to 6% of the value of successful common stock equity raised at 100% of the price at closing of a transaction for a period of two years and/or grant investment banking firm warrants to purchase that number of shares of the Company’s common stock equal to 6% of the value of a successful preferred stock, debt, hybrid debt of any kind (convertibles, warrants, etc.) or debt and equity combination common stock equity raised at 100% of the price at closing of a transaction for a period of two years. These shares shall be delivered in a cashless exercise and issuable from the investment closing date up to no more than five years from the date and upon exercise shall be fully paid and non-assessable. The Company’s common stock obtainable upon exercise of such warrants shall carry unlimited “piggyback” registration rights of the Company.

 

The investment firm was successful in completing a debt transaction with the Company and will be paid a combination of cash and receive warrants as the proceeds from the debt transaction are received by the Company. In connection with their successful completion of a number of investment transactions, the investment banker was paid $136,000 during the nine months ended September 30, 2015 and $15,000 during the nine months ended September 30, 2014. Under the terms of the agreement, Carter Terry was to receive warrants in connection with various fundings. As discussed in Note 14, on April 10, 2015, the Company and Carter Terry agreed to issue 300,000 shares of the Company’s stock to Carter Terry to eliminate the issuance of warrants to Carter Terry.

 

Employment Contracts

 

During 2014, the Company entered into employment contracts with three key executives with initial terms of between two and five years and automatic renewals for successive one year terms. The contracts cover such items as compensation, salary deferrals, termination for cause and change in control features. In addition, these contracts included the granting of 13,500,000 in options for three individuals to acquire the Company’s common stock which vested immediately upon the signing of the employment contracts. See Note 15 for related options.

 

On January 1, 2015, the Company entered into an employment contract with a key executive with an initial term of three years and automatic renewals for successive one year terms. The contract covers such items as compensation, salary deferrals, termination for cause and change in control features. In addition, this contract included the granting of 250,000 in options for the individual to acquire the Company’s common stock, which vested immediately upon the signing of the employment contract.