UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2011
|
or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
|
To
|
Commission File Number :
|
333-67174
|
|
GEOBIO ENERGY, Inc.
|
|
(Exact name of registrant as specified
in its charter)
|
Colorado
|
|
84-1153946
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
13110 NE 177
th
Place # 169, Woodinville, WA
|
|
98072
|
(Address of principal executive offices)
|
|
(Zip Code)
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|
206-838-9715
|
|
(Registrant’s telephone number, including area code)
|
|
Not Applicable
|
|
(Former name, former address and former fiscal year, if changed since last report)
|
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 ninety (90) days. Yes
S
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 during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
S
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 definition of “accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check One):
|
Large accelerated filer
£
|
Accelerated filer
£
|
Non-accelerated filer
£
|
Smaller reporting company
S
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
£
No
S
|
As of February 14, 2012, approximately 19,001,240 shares of the registrant’s common stock were outstanding.
|
GEOBIO ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FORM 10-Q
INDEX
Part I
|
Financial Information
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Page
|
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Item 1.
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Unaudited Financial Statements:
|
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Condensed Consolidated Balance Sheets as of December 31, 2011 (unaudited) and September 30, 2011
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Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2011 and 2010 and for the period from inception to December 31, 2011
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Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited) for the period from inception to December 31, 2011
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|
|
|
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|
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Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2011 and 2010 and for the period from inception to December 31, 2011
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|
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Notes to Condensed Consolidated Financial Statements (unaudited)
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 4.
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Controls and Procedures
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Part II
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Other Information
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|
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|
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Item 1.
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Legal Proceedings
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|
|
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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|
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Item 3.
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Defaults Upon Senior Securities
|
|
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Item 4.
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REMOVED AND RESERVED
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Item 5.
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Other Information
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Item 6.
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Exhibits
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|
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Signatures
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|
GEOBIO ENERGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2011
|
|
|
|
(in thousands, except share and per share amounts)
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8
|
|
|
$
|
5
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
6
|
|
Total current assets
|
|
|
8
|
|
|
|
11
|
|
Exclusive Distribution Agreement
|
|
|
175
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
183
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,194
|
|
|
$
|
1,221
|
|
Accrued payroll
|
|
|
797
|
|
|
|
597
|
|
Convertible notes payable, net of discount of $0 and $2, respectively
|
|
|
38
|
|
|
|
36
|
|
Convertible notes payable to related parties
|
|
|
975
|
|
|
|
1,143
|
|
Notes payable to related parties, net of discount of $51 and $48, respectively
|
|
|
1,074
|
|
|
|
533
|
|
Advances
|
|
|
267
|
|
|
|
262
|
|
Total current liabilities
|
|
|
4,345
|
|
|
|
3,792
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock and additional paid-in capital, $0.001 par
value: 100,000,000 shares authorized; 30,000,000 shares designated as Series A at both December 31, 2011 and September
30, 2011; 17,775,000 and 20,775,000 issued and outstanding at December 31, 2011 and September 30, 2011,
respectively
|
|
|
71
|
|
|
|
83
|
|
Common stock and additional paid-in capital, $0.001 par
value:1,000,000,000 shares authorized; 19,001,240 and 13,451,240 issued and outstanding at December 31, 2011 and
September 30, 2011, respectively
|
|
|
24,405
|
|
|
|
24,309
|
|
Deficit accumulated during the development stage
|
|
|
(28,638
|
)
|
|
|
(28,173
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity (deficit)
|
|
|
(4,162
|
)
|
|
|
(3,781
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
183
|
|
|
$
|
11
|
|
See notes to condensed consolidated financial
statements
GEOBIO
ENERGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
For the three months ended December 31
|
|
|
(November
|
|
|
|
|
|
|
|
|
|
1, 2004)
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands, except share and per share amounts)
|
|
Sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
—
|
|
|
|
—
|
|
|
|
193
|
|
Research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
103
|
|
General and administrative
|
|
|
398
|
|
|
|
1,437
|
|
|
|
25,032
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
185
|
|
Impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
1,585
|
|
Total operating expenses
|
|
|
398
|
|
|
|
1,437
|
|
|
|
27,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(398
|
)
|
|
|
(1,437
|
)
|
|
|
(27,140
|
)
|
Interest expense
|
|
|
(67
|
)
|
|
|
(80
|
)
|
|
|
(1,668
|
)
|
Net gain on extinguishment of liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
170
|
|
Net loss
|
|
$
|
(465
|
)
|
|
$
|
(1,517
|
)
|
|
$
|
(28,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share - basic and diluted
|
|
|
15,669,718
|
|
|
|
2,958,967
|
|
|
|
|
|
See notes to condensed consolidated financial
statements
GEOBIO ENERGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
|
|
|
Preferred
Stock and Additional Paid-In Capital
|
|
|
|
Common
Stock and Additional Paid-In Capital
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Stage
|
|
|
|
Total
|
|
|
|
|
(in
thousands, except share and per share amounts)
|
|
|
At inception November
1, 2004
|
|
|
—
|
|
|
$
|
—
|
|
|
|
364
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Sale of common stock at $0.50 per pre-split share
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Balance December 31, 2004
|
|
|
—
|
|
|
|
—
|
|
|
|
378
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Sale of common stock at $0.50 per pre-split share
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
Balance December 31, 2005
|
|
|
—
|
|
|
|
—
|
|
|
|
392
|
|
|
|
—
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Sale of common stock at $0.50 per pre-split share
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Return and cancellation of common stock in exchange
for two former subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock share from reverse split
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock upon conversion of note
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
273
|
|
|
|
507
|
|
|
|
—
|
|
|
|
507
|
|
Common stock issued to former Member of
Domestic Energy Partners LLC (DEP)
contributed to DEP in exchange for cash and
property
|
|
|
—
|
|
|
|
—
|
|
|
|
955
|
|
|
|
291
|
|
|
|
—
|
|
|
|
291
|
|
Issuance of common stock in merger
|
|
|
—
|
|
|
|
—
|
|
|
|
3,955
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(422
|
)
|
|
|
(422
|
)
|
Balance September 30, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
5,549
|
|
|
|
798
|
|
|
|
(474
|
)
|
|
|
324
|
|
Issuance of common stock warrants and related repricing
per agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
|
|
48
|
|
Discount for beneficial conversion feature
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
Sale of units in private placement, net
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
|
|
679
|
|
|
|
—
|
|
|
|
679
|
|
Issuance of units in exchange for goods and services
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
135
|
|
|
|
—
|
|
|
|
135
|
|
Issuance of warrants for consulting services and
director compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
576
|
|
|
|
—
|
|
|
|
576
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,367
|
)
|
|
|
(2,367
|
)
|
Balance September 30, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
5,631
|
|
|
|
2,250
|
|
|
|
(2,841
|
)
|
|
|
(591
|
)
|
Issuance of common stock on conversion of note payable
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
220
|
|
|
|
—
|
|
|
|
220
|
|
Common stock received from DEP in exchange for property
and liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,592
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock and warrants to consultants
for services
|
|
|
—
|
|
|
|
—
|
|
|
|
3,223
|
|
|
|
15,821
|
|
|
|
—
|
|
|
|
15,821
|
|
Issuance of common stock for extension of due-date
for note payable
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
Issuance of common stock to an employee for amounts
owed
|
|
|
—
|
|
|
|
—
|
|
|
|
37
|
|
|
|
60
|
|
|
|
—
|
|
|
|
60
|
|
Issuance of common stock to a former note holder
in settlement of a dispute
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
|
|
135
|
|
|
|
—
|
|
|
|
135
|
|
Issuance of common stock for acquisition of GeoAlgae
Technology Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
1,069
|
|
|
|
1,469
|
|
|
|
—
|
|
|
|
1469
|
|
Issuance of warrants to officer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
130
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,481
|
)
|
|
|
(18,481
|
)
|
Balance September 30, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
7,481
|
|
|
|
20,160
|
|
|
|
(21,322
|
)
|
|
|
(1,162
|
)
|
Issuance of common stock and warrants to consultant
for services
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
|
|
53
|
|
|
|
—
|
|
|
|
53
|
|
Beneficial conversion feature of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
733
|
|
|
|
—
|
|
|
|
733
|
|
Stockholder payment of expenses on behalf of the
Company
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
24
|
|
Issuance of preferred stock in settlement of accounts
payable
|
|
|
5,000,000
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Issuance of common stock on conversion of convertible
liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
254,946
|
|
|
|
199
|
|
|
|
—
|
|
|
|
199
|
|
Issuance of common stock pursuant to cashless exercise
of warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
819
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,188
|
)
|
|
|
(1,188
|
)
|
Balance September 30, 2009
|
|
|
5,000,000
|
|
|
|
20
|
|
|
|
263,428
|
|
|
|
21,169
|
|
|
|
(22,510
|
)
|
|
|
(1,321
|
)
|
Issuance of common stock on conversion of convertible
liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
114,546
|
|
|
|
118
|
|
|
|
—
|
|
|
|
118
|
|
Issuance of preferred stock to officer and consultant
for services
|
|
|
22,500,000
|
|
|
|
90
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90
|
|
Issuance of common stock to board member and consultant
for services
|
|
|
—
|
|
|
|
—
|
|
|
|
113,637
|
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
Issuance of common stock upon conversion of notes
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,812,809
|
|
|
|
801
|
|
|
|
|
|
|
|
801
|
|
Stockholder contributions and payment of expenses
on behalf of the Company
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
401
|
|
|
|
—
|
|
|
|
401
|
|
Beneficial conversion feature of convertible liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173
|
|
|
|
—
|
|
|
|
173
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,752
|
)
|
|
|
(2,752
|
)
|
Balance September 30, 2010
|
|
|
27,500,000
|
|
|
|
110
|
|
|
|
2,304,420
|
|
|
|
22,724
|
|
|
|
(25,262
|
)
|
|
|
(2,428
|
)
|
Issuance of common stock on conversion of convertible
liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,081,820
|
|
|
|
118
|
|
|
|
—
|
|
|
|
118
|
|
Beneficial conversion feature of convertible liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
162
|
|
Conversion of preferred stock to common stock
|
|
|
(6,725,000
|
)
|
|
|
(27
|
)
|
|
|
6,725,000
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
Stockholder contributions and payment of expenses
on behalf of the Company
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
68
|
|
Issuance of common stock in connection with termination
of Collins acq. agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
Issuance of common stock for forebearance related
to advances payable
|
|
|
—
|
|
|
|
—
|
|
|
|
140,000
|
|
|
|
77
|
|
|
|
—
|
|
|
|
77
|
|
Options and warrants issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
Warrants issued in connection with notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
|
|
48
|
|
Issuance of common stock to officer and consultant
for services
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000,000
|
|
|
|
940
|
|
|
|
—
|
|
|
|
940
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,911
|
)
|
|
|
(2,911
|
)
|
Balance September 30, 2011
|
|
|
20,775,000
|
|
|
|
83
|
|
|
|
13,451,240
|
|
|
|
24,309
|
|
|
|
(28,173
|
)
|
|
|
(3,781
|
)
|
Conversion of preferred stock to common stock
|
|
|
(3,000,000
|
)
|
|
|
(12
|
)
|
|
|
3,000,000
|
|
|
|
12
|
|
|
|
|
|
|
|
—
|
|
Common stock issued in connection with acquisition
of exclusive distribution agreement
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Common stock issued for services
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Warrants issued in connection with notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
(465
|
)
|
Balance
December 31, 2011
|
|
|
17,775,000
|
|
|
$
|
71
|
|
|
|
19,001,240
|
|
|
$
|
24,405
|
|
|
$
|
(28,638
|
)
|
|
$
|
(4,162
|
)
|
See notes to condensed consolidated financial
statements
GEOBIO ENERGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
|
|
|
For the Three Months Ended
December 31, 2011
|
|
|
|
For the Three Months Ended
December 31, 2010
|
|
|
|
From Inception (November
1, 2004) through December 31, 2011
|
|
|
|
|
(in thousands)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(465
|
)
|
|
$
|
(1,517
|
)
|
|
$
|
(28,638
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
193
|
|
Amortization of debt discount
|
|
|
7
|
|
|
|
65
|
|
|
|
1,147
|
|
Non-cash stock-based compensation for consulting, director fees and other expenses
|
|
|
1
|
|
|
|
940
|
|
|
|
18,051
|
|
Issuance of note payable as consideration for executive search services and expenses
|
|
|
11
|
|
|
|
—
|
|
|
|
336
|
|
Non-cash expense for bad debt reserve and write-down of inventory
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
Loss of assets due to fire
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Non-cash extension or forebearance fee on note or advances payable
|
|
|
—
|
|
|
|
—
|
|
|
|
152
|
|
Impairment of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
1,585
|
|
Change in value of embedded fair value derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net gain on extinguishment of liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
(170
|
)
|
Changes in operating assets and liabilities, excluding assets
and liabilities from acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
Inventory
|
|
|
—
|
|
|
|
—
|
|
|
|
(79
|
)
|
Prepaid expenses
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Employee advances
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
Deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
Accounts payable and accrued expenses and accrued payroll
|
|
|
410
|
|
|
|
459
|
|
|
|
4,790
|
|
Net cash used in operating activities
|
|
|
(30
|
)
|
|
|
(53
|
)
|
|
|
(2,535
|
)
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
(477
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
(477
|
)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances for company expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
542
|
|
Repayment of advances
|
|
|
—
|
|
|
|
—
|
|
|
|
(67
|
)
|
Stockholder contributions and payment of expenses on behalf of the Company
|
|
|
—
|
|
|
|
53
|
|
|
|
493
|
|
Borrowings on notes payable
|
|
|
33
|
|
|
|
—
|
|
|
|
746
|
|
Proceeds from sale of units in private placement
|
|
|
—
|
|
|
|
—
|
|
|
|
755
|
|
Borrowings on related party notes
|
|
|
—
|
|
|
|
—
|
|
|
|
551
|
|
Net cash provided by financing activities
|
|
|
33
|
|
|
|
53
|
|
|
|
3,020
|
|
Net Change In Cash
|
|
|
3
|
|
|
|
—
|
|
|
|
8
|
|
Cash, beginning of period
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
Cash, end of period
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for Exclusive Distribution Agreement
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
75
|
|
Issuance of note payable for Exclusive Distribution Agreement
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Conversion of advances payable to related party to accounts payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
Common and preferred shares issued on conversion of liabilities
|
|
$
|
—
|
|
|
$
|
65
|
|
|
$
|
1,526
|
|
Conversion of accounts payable to notes payable
|
|
$
|
232
|
|
|
$
|
1,120
|
|
|
$
|
1,959
|
|
Debt discount related to warrants
issued with debt or beneficial conversion feature of convertible liabilities
|
|
$
|
8
|
|
|
$
|
75
|
|
|
$
|
1,124
|
|
Contribution of airplane and other assets by related party
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
139
|
|
Conversion of contributions of cash and airplane by related party to common stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
291
|
|
Accrued financing fees for private placement
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(76
|
)
|
Issuance of warrants as financing fee on private placement
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(66
|
)
|
Contribution of inventory and assets in exchange for units
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47
|
|
Non-cash adjustment of assets and liabilities due to disposition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition of inventory
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36
|
|
Disposition of advances
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Disposition of deposits
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Disposition of property and equipment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
409
|
|
Settlement of payroll obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(261
|
)
|
Settlement of related party payable and interest payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(80
|
)
|
Issuance of common stock for note and advances payable extension or forebearance fee
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(75
|
)
|
See notes to condensed consolidated financial
statements
GEOBIO ENERGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the three and nine months ended
December 31, 2011
Note 1. Business and Organization
GeoBio Energy, Inc. (“GeoBio” or the “Company”)
formerly known as Better Biodiesel, Inc., was incorporated in Colorado in November 1990. The Company was known as Mountain
State Holdings, Inc., (“MSH”) until September 2006, when it was renamed in anticipation of a merger in September
2006, when it acquired all of the Member Units of Domestic Energy Partners, LLC, (“DEP”), a Utah limited liability
corporation. The previous assets and liabilities of MSH were spun off to two stockholders in August 2006 in exchange for
the return of common shares. At the time of the acquisition of DEP, the Company had no assets and no liabilities and 2,000,001
shares of common stock issued and outstanding carried at nil.
The merger of the Company and DEP was accounted for
as a reverse merger. The assets and liabilities of DEP were presented in the condensed consolidated balance sheet at book value.
The historical operations presented in our consolidated statements of operations are those of DEP. On December 20, 2007, the Company
entered into and closed an Asset Purchase, Settlement and Mutual Release Agreement with the former Members of DEP and effectively
disposed of their interest in DEP.
In March 2008, we completed our Share Exchange with GeoAlgae
Technologies, Inc. (“GeoAlgae”) and acquired GeoAlgae as a wholly owned subsidiary. GeoAlgae was a recently formed
company and its net assets at the date of acquisition were nil. The entire purchase price was allocated to intangible assets which
in total constituted a business plan. The intangible assets were subsequently deemed to be impaired. GeoAlgae is not currently
an operating company.
Acquisitions in Process
In October 2011, the Company and
Lary
Archer & Associates, Inc., Archer Equipment Rental, Inc., The Archer Company Inc., and Archer Testing Services, Inc., each
a Texas corporation (together referred to as “Archer”),
terminated our April 2011
equity
purchase agreement to purchase 100% of the issued and outstanding equity interests of Archer. There were no material penalties
to either the Company or Archer in connection with the termination.
On November 14, 2011, we closed an equity purchase agreement
with El Gas North America, Inc., a Washington limited liability company (“El Gas NA”), under which El Gas NA agreed
to sell 100% of the issued and outstanding equity interests of El Gas NA for 2.5 million shares of common stock of the Company
and a $100,000 promissory note. El Gas NA is a fully licensed and exclusive distributor of El Gas s.r.o’s natural gas volume
monitoring and correcting equipment and data recorder products in the territories including the United States, Canada, Mexico and
the Caribbean Islands. El Gas NA was only recently incorporated and its only asset is its exclusive distributer contract to distribute
El Gas s.r.o’s natural gas volume monitoring and correcting equipment and data recorder products in territories previously
listed. Given this, the Company has determined that this transaction is not a business combination for accounting purposes and
has accounted for the transaction as the acquisition of an asset, i.e. the exclusive distribution agreement. See further discussion
on the accounting in Note 3.
Note 2. Going Concern
We have prepared our condensed consolidated financial statements
assuming that we will continue as a going concern, which contemplate the realization of assets and liquidation of liabilities in
the normal course of business. As of December 31, 2011, we had a deficit accumulated during the development stage of approximately
$28.6 million and expect to incur additional losses in the future. Our working capital deficit was approximately $4.3 million as
of December 31, 2011. These conditions raise substantial doubt about our ability to continue as a going concern.
We have funded our losses primarily through sales of common
stock and warrants in private placements and borrowings from related parties and other investors. The further development of our
business will require capital. Our current cash levels are not sufficient to enable us to execute our business strategy. We require
additional financing to satisfy our near-term working capital requirements. Our operating expenses will also consume a material
amount of our cash resources. Company management intends to raise additional debt and equity financing to fund future operations
and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts
necessary to meet our needs. In the event that we cannot obtain additional funds, on a timely basis or our operations do not generate
sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of
all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares
of our capital stock to institutional investors and through strategic investments, including convertible bridge loans. If management
deems necessary, we might also seek additional loans from related parties or others. However, there can be no assurance that we
will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms
favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
from the outcome of this uncertainty.
Note 3. Summary of Critical Accounting Policies and Recently
Issued Accounting Standards
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of the Company and our wholly-owned subsidiaries, DEP (through the date of disposition in December
2007), GeoAlgae and El Gas NA, and all intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim
financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete
financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, as of and for the year ended September 30, 2011, included in our 2011 Annual
Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). The information furnished in this
report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary
for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results
of operations for the interim periods ended December 31, 2011 are not necessarily indicative of the results for the year ending
September 30, 2012 or for any future period.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net Loss Per Share
Basic and diluted net loss per common share is computed by
dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share excludes
the effect of common stock equivalents (stock options, convertible debentures and warrants) since such inclusion in the computation
would be anti-dilutive.
The
following numbers of potential common shares have been excluded (as of December 31), in thousands:
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
|
|
|
17,775
|
|
|
|
27,100
|
|
Convertible debentures
|
|
|
4,100
|
|
|
|
500
|
|
Warrants
|
|
|
5,075
|
|
|
|
—
|
|
Options
|
|
|
3,807
|
|
|
|
—
|
|
Total
|
|
|
30,757
|
|
|
|
27,600
|
|
In March 2008, we entered into a note payable with Tatum,
LLC (“Tatum”) in settlement of approximately $28,000 then owed to Tatum for employment related consulting services
previously recorded in accounts payable. The note payable is convertible at any time into shares of our common stock at the lesser
of $4,125 per share or the 10-day volume weighted average of the closing bid and ask prices of our common stock. We have stated
the amount in the table above at a conversion price of $4,125 per share.
The shares potentially issuable under our convertible promissory
notes with Ray Purdon are not included in the table above as the number of shares issuable on conversion is not determinable as
of the date of this filing. The notes are convertible into shares of our common stock at a conversion rate to be mutually agreed
upon by the holder and the Company on the date the holder elects to convert.
The shares potentially issuable under our convertible bridge
loan agreement with CKNS Capital Group LLC, as amended in January 2011, are included in the table above at December 31, 2010 at
the conversion price of $0.10.
See further discussion regarding notes payable at Note 5.
Exclusive Distribution Agreement
As discussed in Note 1, in November 2011,
the Company acquired the exclusive distribution rights to
El Gas NA’s exclusive distributer contract to distribute
El Gas s.r.o’s natural gas volume monitoring and correcting equipment and data recorder products in territories including
the United States, Canada, Mexico and the Caribbean Islands.
The term of the Exclusive Distribution
Agreement is
through December 31, 2013, with automatic, annual renewals unless cancelled by either party upon three month
notice prior to the end of each term. The Company has estimated the useful life of the agreement to be five years.
The
Company issued 2,500,000 shares of its restricted common stock to acquire the exclusive distribution rights and an 8% promissory
note with original principal value of $100,000. The distribution rights were recorded at the fair value of the promissory note
of $100,000 plus the market value of the Company’s common stock on November 14, 2011 (closing date of the agreement) of $0.03
per share or $75,000, for a total of $175,000. The Company has not begun amortizing the exclusive distribution agreement because
product sales have not yet commenced. The Company anticipates that product sales will commence in the third fiscal quarter of 2012.
The Company expects that amortization expense will approximate $17,500 and $37,500 in the fiscal years 2012 and 2013, respectively.
Fair Value of Financial Instruments
Our
financial instruments consist of cash, accounts payable and accrued expenses, accrued payroll, convertible notes payable, notes
payable to related parties, notes payable and advances. We consider fair value to be an exit price representing the amount
that would be received upon the sale of an asset or the transfer of a liability. The fair value of financial instruments
other than notes payable to related parties approximate the recorded value based on the short-term nature of these financial instruments.
The fair value of notes payable to related parties is presently undeterminable due to the related party nature of the obligations.
Note 4. Related Party Transactions
Also see Note 5,
Related Party Promissory Notes
for related party notes payable.
Martin Davis Law Group and David M. Otto
David M. Otto, a principal at The Martin Davis Law Group
(formerly The Otto Law Group), is a stockholder of the Company, a former director and our current Vice President of Finance. We
recorded approximately $142,000 and $272,000 in legal fees to The Martin Davis Law Group for the three months ended December 31,
2011 and 2010, respectively, and $2,855,000 in legal fees to the Martin Davis Law Group for the period from inception to December
31, 2011 as general and administrative expenses.
In October 2010, accounts payable due to Martin Davis Law
Group were assigned to another party and we entered into convertible promissory notes in aggregate principal amount of $25,000. The
intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion)
of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial
conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature
recorded was $25,000. These promissory notes were converted in October 2010 into 181,820 shares at their stated conversion rate
of $0.14. During the three months ended December 31, 2010, we recorded amortization of the beneficial conversion feature of $25,000
as interest expense.
On December 13, 2010, Mr. Otto converted
400,000 shares of Series A Preferred stock to 400,000 shares of our common stock on a 1:1 basis. On January 12, 2011, David M.
Otto converted 400,000 shares of Series A Preferred Stock in exchange for 400,000 shares of common stock issued to Mr. Otto. Also
on January 12, 2011, Mr. Otto assigned a total of 450,000 shares of Series A Preferred Stock to unrelated parties, which was immediately
converted into 450,000 shares of our common stock.
In December 2010, accounts payable due to Otto Law Group
were assigned to a company owned by a stockholder of the Company and we entered into convertible promissory notes in principal
amount of $50,000. The intrinsic value (the market value of the stock less the conversion price multiplied by the number
of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However,
the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the
beneficial conversion feature recorded was $50,000. In December 2010, $40,000 in principal amount of the convertible promissory
note was converted into 400,000 shares of common stock at the stated conversion rate of $0.10. During the three months ended December
31, 2010, we recorded amortization of the beneficial conversion feature of $40,000 as interest expense.
In October 2011, 12% convertible notes in the amount of $151,257
and $79,998 previously issued to Ray Purdon in July 2011 were transferred to Martin Davis Law Group and reissued as 8% convertible
promissory notes in the amounts of $167,717 and $63,538. Along with the new $167,717, 8% convertible promissory note, due September
1, 2012, accounts payable to Martin Davis Law Group in the amount of $232,283 were immediately transferred as payable to Sausalito
Capital Partners I, LLC (“Sausalito”) in the form of a new 8% Promissory Note in the amount of $400,000 with a maturity
date of September 30, 2012. No gain or loss was recognized on the transaction.
As of December 31, 2011 and September 30, 2011, approximately
$303,000 and $393,000, respectively, in fees to The Martin Davis Law Group were unpaid.
Lance Miyatovich
On October 8, 2010, Mr. Miyatovich submitted his resignation
from our board of directors and resigned as President and Chief Executive Officer, having previously served in those capacities
since his appointment on September 23, 2009. At both December 31, 2011 and September 30, 2011, we owed Mr. Miyatovich approximately
$200,000 in accrued salary, which was included in accrued payroll in the condensed consolidated balance sheets.
In October 2011, Mr. Miyatovich assigned
a total of 100,000 shares of Series A Preferred Stock to an unrelated party, which was immediately converted into 100,000 shares
of our common stock. In December 2011, Mr. Miyatovich assigned a total of 2,900,000 shares of Series A Preferred Stock to an unrelated
party, which was immediately converted into 2,900,000 shares of our common stock.
Related Party and Other Advances
As of December 31, 2011 and September 30, 2011, advances
and accrued interest totaled approximately $267,000 and $262,000, respectively. All of these advances bear interest at 8% per annum.
Of these advances, related party advances and accrued interest totaled approximately $83,000 and $81,000, respectively at December
31, 2011 and September 30, 2011.
We intend to repay the advances.
Employment Agreements
On April 18, 2011, the Company named Laurence Shelver as
Chief Executive Officer (CEO) and to our board of directors. In addition, Clayton Shelver was appointed Secretary and Interim Chief
Financial Officer of the Company effective April 18, 2011 having previously served as a director and as Secretary of the Company
since his appointment on September 18, 2009.
Laurence
Shelver
–
At
December 31, 2011 and September 30, 2011, we owed Mr. Shelver (our CEO and a director of the Company) approximately $195,000 and
$120,000, respectively, in accrued salary, which was included in accounts payable and accrued expenses in the condensed consolidated
balance sheet.
Clayton
Shelver
–
At
December 31, 2011 and September 30, 2011, we owed Mr. Shelver (our Secretary, CFO and a director of the Company) approximately
$162,000 and $99,000, respectively, in accrued salary, which was included in accounts payable and accrued expenses in the condensed
consolidated balance sheet.
David
Otto
–
At December 31, 2011 and September 30, 2011,
we owed Mr. Otto (our Vice President of Finance) approximately $162,000 and $99,000, respectively, in accrued salary, which was
included in accounts payable and accrued expenses in the condensed consolidated balance sheet.
Related Party Common Stock Issuances
In December 2010, we issued 1,000,000 shares of our common
stock to each of John Sams and David Coloris for executive consulting services valued at $940,000 based on the closing price of
our common stock on the date of grant and the expense was recorded to general and administrative expense in the three months ended
December 31, 2010 as the shares were fully vested as of the issuance date and not forfeitable.
Note 5. Notes Payable
At December 31, 2011 and September 30, 2011, notes payable
were comprised of the following (in thousands):
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2011
|
|
Convertible note payable due to Tatum, 13.5% per annum, in default
|
|
$
|
28
|
|
|
$
|
28
|
|
18% Convertible note payable to ValueCorp, Inc., in default net of discount of $0 and $2, respectively
|
|
|
10
|
|
|
|
8
|
|
Related Party Convertible Notes
|
|
|
|
|
|
|
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
86
|
|
|
|
86
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
—
|
|
|
|
80
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
53
|
|
|
|
53
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
348
|
|
|
|
348
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
—
|
|
|
|
151
|
|
12% Convertible note payable to Ray Purdon, in default
|
|
|
25
|
|
|
|
25
|
|
8% Convertible Promissory note payable to Saratoga Capital Partners, LLC, due 6/1/12
|
|
|
400
|
|
|
|
400
|
|
8% Convertible note payable to Otto Law Group, due 9/1/2012
|
|
|
63
|
|
|
|
—
|
|
Related Party Promissory Notes
|
|
|
|
|
|
|
|
|
6% Note payable to Baer (formerly Sausalito), in default
|
|
|
106
|
|
|
|
106
|
|
18% Promissory note payable to Grandview Capital, in default
|
|
|
15
|
|
|
|
15
|
|
18% Promissory note payable to Otto Capital, LLC, in default
|
|
|
15
|
|
|
|
15
|
|
18% Promissory note payable to David M. Otto, in default
|
|
|
20
|
|
|
|
20
|
|
18% Promissory note payable to Otto Capital, LLC, in default
|
|
|
1
|
|
|
|
1
|
|
8% Promissory note payable to David M. Otto, due 1/7/12
|
|
|
7
|
|
|
|
7
|
|
22% Promissory note payable to Otto Capital, LLC, in default
|
|
|
2
|
|
|
|
2
|
|
22% Promissory note payable to Martin Davis Law Group, PLLC, in default
|
|
|
289
|
|
|
|
289
|
|
10% Promissory note payable to Otto Capital, LLC, due 4/15/12
|
|
|
3
|
|
|
|
3
|
|
10% Promissory note payable to Otto Capital, LLC, due 5/3/12
|
|
|
10
|
|
|
|
10
|
|
10% Promissory note payable to Otto Capital, LLC, due 5/12/12
|
|
|
5
|
|
|
|
5
|
|
10% note payable to Saratoga Capital Partners, LLC, net of discount of $13 and $15, respectively
|
|
|
12
|
|
|
|
10
|
|
10% Promissory note payable to David M. Otto, due 5/20/12
|
|
|
8
|
|
|
|
8
|
|
10% Promissory note payable to Laurence Shelver, net of discount of $30 and $33, respectively
|
|
|
45
|
|
|
|
42
|
|
10% Promissory note payable to Laurence Shelver, net of discount of $2 and $0, respectively
|
|
|
9
|
|
|
|
—
|
|
8% Note payable to Mark Cagany
|
|
|
100
|
|
|
|
—
|
|
8% Note payable to Sausalito Capital Partners I, LLC, due September 30, 2012
|
|
|
400
|
|
|
|
—
|
|
10% Note payable to Jack Walkley, net of discount of $4 and $0, respectively
|
|
|
21
|
|
|
|
—
|
|
8% Note payable to Otto Capital, LLC
|
|
|
4
|
|
|
|
—
|
|
8% Note payable to Otto Capital, LLC, net of discount of $2 and $0, respectively
|
|
|
2
|
|
|
|
—
|
|
|
|
$
|
2,087
|
|
|
$
|
1,712
|
|
Related Party Promissory Notes
As previously discussed in Note 4, Related Parties, in October
2011, 12% convertible notes in the amount of $151,257 and $79,998 previously issued to Ray Purdon in July 2011 were transferred
to Martin Davis Law Group and reissued as 8% convertible promissory notes in the amounts of $167,717 and $63,538. Along with the
new $167,717, 8% convertible promissory note, due September 1, 2012, accounts payable to Martin Davis Law Group in the amount of
$232,283 were immediately transferred as payable to Sausalito Capital Partners I, LLC (“Sausalito”) in the form of
a new 8% Promissory Note in the amount of $400,000 with a maturity date of September 30, 2012.
In November 2011, we entered into a 10% promissory note with
Otto Capital, LLC in an aggregate principal amount of $4,000, due within five (5) days following the Company’s receipt of
a capital financing
(or cumulative financings) in the amount of $750,000
. The default rate of
interest is 22%. The promissory note was issued together with a warrant to purchase up to 133,333 shares of our common stock at
an exercise price of $0.03 per share.
The value of the warrants was estimated on the date of grant using
the Black-Scholes option pricing model and the following assumptions: stock price of $0.004, volatility of 192%, expected term
of 3 years, risk free rate of 0.39% and dividend yield of 0.0%. The value of the warrants was immaterial.
The warrant expires
in three years.
In December 2011, we entered into a 10% promissory note with
Otto Capital, LLC in an aggregate principal amount of $4,000, due within five (5) days following the Company’s receipt of
a capital financing
(or cumulative financings) in the amount of $750,000
. The default rate of
interest is 22%. The promissory note was issued together with a warrant to purchase up to 133,333 shares of our common stock at
an exercise price of $0.03 per share.
The value of the warrants was estimated on the date of grant using
the Black-Scholes option pricing model and the following assumptions: stock price of $0.02, volatility of 192%, expected term of
3 years, risk free rate of 0.41% and dividend yield of 0.0%. The value of the warrants of approximately $2,000 was recorded as
a discount to the note payable and will be amortized to interest expense over the term of the note payable.
The warrant
expires in three years.
On December 20, 2011, we entered into a 10% promissory note
with Jack Walkely in an aggregate principal amount of $25,000, due the earlier of within five (5) days following the Company’s
receipt of a capital financing
(or cumulative financings) in the amount of $725,000 or June 1, 2012
.
The default rate of interest is 22%. The promissory note was issued together with a warrant to purchase up to 833,334 shares of
our common stock at an exercise price of $0.03 per share.
The value of the warrants was estimated on
the date of grant using the Black-Scholes option pricing model and the following assumptions: stock price of $0.006, volatility
of 192%, expected term of 3 years, risk free rate of 0.39% and dividend yield of 0.0%. The value of the warrants of approximately
$4,000 was recorded as a discount to the note payable and will be amortized to interest expense over the term of the note payable.
The warrant expires in three years.
In December 2011, we entered into a 10% promissory note with
Laurence Shelver, our CEO and President and a director of the Company in an aggregate principal amount of $11,175, due within five
(5) days following the Company’s receipt of a capital financing
(or cumulative financings) in
the amount of $750,000
. The promissory note was issued together with a warrant to purchase up to 372,498 shares of our common
stock at an exercise price of $0.03 per share.
The value of the warrants was estimated on the date of
grant using the Black-Scholes option pricing model and the following assumptions: stock price of $0.006, volatility of 192%, expected
term of 3 years, risk free rate of 0.36% and dividend yield of 0.0%. The value of the warrants of approximately $1,600 was recorded
as a discount to the note payable and will be amortized to interest expense over the term of the note payable.
The warrant
expires in three years.
Note 6. Stockholders’ Equity (Deficit)
Preferred Stock
On December 13, 2010, Mr. Otto converted
400,000 shares of Series A Preferred stock to 400,000 shares of our common stock on a 1:1 basis.
In October 2011, Lance
Miyatovich assigned a total of 100,000 shares of Series A Preferred Stock to an unrelated party, which was immediately converted
into 100,000 shares of our common stock.
In December 2011, Lance Miyatovich assigned
2,900,000 shares of Series A Preferred Stock to an unrelated party, which was immediately converted into 2,900,000 shares of our
common stock.
Common Stock Issuances
In October 2010, accounts payable due
to Otto Law Group, a related party, were assigned to another party and we entered into convertible promissory notes in aggregate
principal amount of $25,000. The intrinsic value (the market value of the stock less the conversion price multiplied by the number
of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However,
the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the
beneficial conversion feature recorded related to the convertible liability of $25,000 was recorded as interest expense in the
three months ended December 31, 2010. These promissory notes were converted in October 2010 into 181,820 shares at their stated
conversion rate of $0.14.
As discussed in Note 5, in December 2010,
accounts payable due to Otto Law Group, a related party, were assigned to a company owned by a stockholder of the Company (Value
Corp., Inc.) and we entered into convertible promissory notes in principal amount of $50,000. In December 2010, $40,000 in principal
amount of the convertible promissory note was converted into 400,000 shares of common stock at the stated conversion rate of $0.10.
In December 2010, we issued 1,000,000
shares of our common stock to each of John Sams and David Coloris for executive consulting services valued at $940,000 based on
the closing price of our common stock on the date of grant and the expense was recorded to general and administrative expense in
the three months ended December 31, 2010 as the shares were fully vested as of that date and not forfeitable.
In October 2011, we entered into a consulting
agreement with AGAPA Holdings, LLC. Under the agreement, we agreed to pay a non-refundable consulting fee of $5,500 and 50,000
shares of our common stock. The value of the shares of $500 based on the closing price of our common stock of $0.01 on the date
of issuance was recorded to general and administrative expense during the three months ended December 31, 2011.
As discussed in Note 3, in November
2011, we issued 2,500,000 shares of our common to the principals of El Gas North America, LLC, pursuant to our acquisition of El
Gas NA. The value of the shares of $75,000 based on the closing price of our common stock of $0.03 on the date of issuance was
recorded to the Exclusive Distribution Agreement in the three months ended December 31, 2011.
Stock Options
—In 2011,
we granted options outside of our 2002 Equity Incentive Plan to purchase an aggregate of 3,807,368 shares of our common stock at
$0.03 per share to our CEO and CFO under the terms of their employment contract. The option grants represented not less
than 5.0% of the issued and outstanding capital stock of the Company on a non-dilutive basis, and the terms of the employment contract
require adjustment of the actual number of options upward or downward in the event of an increase or decrease in the issued and
outstanding capital stock of the Company following the grant date, during the period commencing upon the grant date
through and including the issuance of any securities in financing obtained subsequent to the grant date in excess of $5.0 million.
The options were immediately vested at grant date, but forfeitable to the Company prior to their exercise in the event that the
CEO and CFO terminate employment without cause during the term of the employment agreements. The options have a five
year term. The intrinsic value of stock options outstanding and exercisable of nil at December 31, 2011 is based
on the $0.006 closing market price of our common stock on that date, and is calculated by aggregating the difference between $0.006
and the exercise price of each of the outstanding vested stock options which have an exercise price less than $0.006.
Warrants
—
As discussed in Note 5, under our promissory note agreement with Laurence
Shelver, on December 31, 2011, we issued a three-year warrant to purchase 372,498 shares of our common stock at an exercise price
of $0.03 per share. The warrants expire on December 31, 2014.
As discussed in Note 5, under our promissory
note agreement with Otto Capital, LLC, on December 20, 2011, we issued a three-year warrant to purchase 133,333 shares of our common
stock at an exercise price of $0.03 per share. The warrants expire on December 20, 2014.
As discussed in Note 5, under our promissory
note agreement with John Walkely, on December 20, 2011, we issued a three-year warrant to purchase 833,334 shares of our common
stock at an exercise price of $0.03 per share. The warrants expire on December 20, 2014.
As discussed in Note 5, under our promissory
note agreement with Otto Capital, LLC, on November 8, 2011, we issued a three-year warrant to purchase 133,333 shares of our common
stock at an exercise price of $0.03 per share. The warrants expire on November 8, 2014.
At December 31, 2011 and September 30,
2011, there were warrants outstanding for the purchase of 5,075,495 and 3,602,997 shares, respectively, of our common stock with
a weighted average exercise price of $0.58 and $0.42, respectively.
Note 7. Commitments and Contingencies
Stanton Chase International
In October 2010, Stanton Chase International
(“Stanton Chase”), an executive search firm, served notice of its action filed against the Company in the Supreme Court
State of New York, New York Count, Index No. 112613/10, seeking $65,250 in executive consulting fees, which Stanton Chase claims
is owed pursuant to a contract between the parties for an executive management search. The Company disputes the demand
based on the fact the Company (i) never entered into a contract with Stanton Chase, (ii) Stanton Chase did not during the period
it claimed to provide services ever make the Company aware of any work actually performed or provided and (iii) during the period
that Stanton Chase claimed to provide services to Stanton Chase never identified any management personnel for the Company. As
the Company has no nexus to Stanton Chance in New York State, it has not responded to the filed complaint in the State of New York,
and has no intention of responding in New York State, at this point. Therefore, it is not possible to evaluate the likelihood of
success in this matter at this time, and we have not included any part of the asserted claim in our accounts payable and accrued
expenses on the condensed consolidated balance sheets as of December 31, 2011 and September 30, 2011.
TanOak Litigation
On May 11, 2010, the Company filed a
complaint against its former accountants, TanOak Partners, LLC, Chris Wain and Paul Spencer (collectively, “TanOak”),
in King County Superior Court (
Geobio Energy, Inc. v. TanOak Partners, LLC, Chris Wain and Paul Spencer
, Case
Number 10-2-17135-5 SEA), for breach of TanOak’s engagement contract, breach of the covenant of good faith and fair dealing,
violation of fiduciary duties, self-dealing and fraudulent misrepresentation/inducement. TanOak filed an answer and
counterclaim on June 3, 2010 seeking damages for work accounting services actually performed and claiming fraud, breach of contract
and breach of the covenant of good faith and fair dealing. In September 2011, the Company and TanOak settled and dismissed
the case, under which settlement the Company agreed to pay $50,000 in cash for the services provided upon the Company’s receipt
of capital financing not less than $5,000,000 (whether in a single event or cumulatively over multiple financing events). We have
included the $50,000 in accounts payable and accrued expenses on the condensed consolidated balance sheets as of December 31, 2011
and September 30, 2011.
Goodrich Capital, LLC
In January 2010, we entered into an agreement with Goodrich
Capital, LLC, for strategic planning, financial and management consulting services in exchange for a non-refundable cash fee of
$50,000, creditable against cash fees earned upon closing a transaction as follows: a cash fee of $1.6 million based upon the total
capital raise with respect to all financing transactions of $20 million, with the minimum amount payable for all financing transactions
being $400,000 (assuming a $5.0 million capital raise). In addition, warrants are issuable to Goodrich Capital in the form of an
equity closing fee, fully vested at the time of issuance, to purchase a number of shares of our common stock equal to 5% of the
equity issued in such transaction, determined on an as-converted basis. The strike price of the warrants will be equal to the share
price of the instruments issued in the transaction and have a term of 10 years from the date of issuance. Under the terms of the
agreement, we paid Goodrich Capital $30,000 in the second quarter of 2010. In March 2010, the agreement with Goodrich Capital,
LLC was amended. The remaining obligation under the amended agreement, which was terminated pursuant to the amendment, represents
$13,500 in fees and expenses and is included in accounts payable and accrued expenses as of December 31, 2011 and September 30,
2011 in the accompanying consolidated balance sheets.
Mosaic Capital Agreement
In April 2011, we entered into an agreement with Mosaic Capital
LLC, for strategic financial consulting services in exchange for a non-refundable cash fee of $35,000 and non-creditable against
the payment of success fees. Success fees to be paid under the terms of the agreement are as follows: i) upon the closing
of a senior credit financing facility, a cash success fee of 1.5% of the amount committed, ii) upon the closing of a mezzanine
credit facility, a cash success fee of 4.0% of the amount committed, iii) upon the closing of an equity financing, a cash success
fee of 4.0% of the amount committed, with the minimum amount payable for all financing transactions being $700,000. In addition,
warrants are issuable to Mosaic Capital in the form of an equity closing fee, fully vested at the time of issuance, to purchase
a number of shares of our common stock equal to 3% of the equity issued in such transaction, determined on an as-converted basis,
with anti-dilution protection for 12-months from date of issuance. The strike price of the warrants will be $0.01 per unit
and have a term of equivalent to that of the equity instruments issued in the financing. Upon signing the agreement, we paid
Mosaic Capital $35,000 and five-year warrants to purchase 269,230 shares of our common stock at an exercise price of $0.01 per
share.
First Capital Resources
On June 27, 2011, we entered into an agreement with First
Capital Resources, for investor relations management consulting in exchange for the issuance of 1,000,000 shares of our common
stock at signing, for the first month of service. The shares were issued in July 2011 pursuant to the assignment of a convertible
note payable originally payable to Ray Purdon and the immediate conversion by First Capital Resources into shares of our common
stock. See Note 5. Under the terms of the agreement, additional monthly fees of either cash or stock as follows: (a) 250,000 shares
of the Company’s common stock for each week the campaign is engaged and running if the closing price for the preceding trading
days as reported by Yahoo Finance is at or below $0.05 per share; (b) 100,000 shares of the Company’s common stock for each
week the campaign is engaged and running if the closing price for the preceding 10 trading days as reported by Yahoo Finance is
between $0.051 and $0.10 per share; (c) 75,000 shares of the Company’s common stock for each week the campaign is engaged
and running if the closing price for the Company’s common stock for the preceding 10 trading days as reported by Yahoo Finance
is over $0.10 per share; or (d) $3,000 per week of the campaign and continuing for each week the campaign is engaged and running;
or (e) 100,000 shares of common stock of the Company and $1,500 per week beginning in the 5
th
week of the campaign and
continuing for each week the campaign is engaged and running. The agreement terminated on December 27, 2011. We have not made any
additional payments under the agreement and we have included $30,000 in accounts payable and accrued expenses as of December 31,
2011 and September 30, 2011 in the accompanying condensed consolidated balance sheets.
Strategic Tactical Asset Trading, LLC
In July 2011, we entered into a one-year agreement with Strategic
Tactical Asset Trading, LLC, for financial services and investor relations management consulting in exchange for an initial setup
cash fee of $5,000, monthly fees of $5,000 which are payable at the option of the Company either in cash or in shares of the Company’s
common stock at a per share price based upon the Volume Weighted Average Price (VWAP) for the month prior to the month in which
the monthly payment is to be made or in some combination of cash or stock in total value of $5,000. The common stock issued is
to be entitled to piggyback registration rights on all registrations of the Company except for registrations filed on Form S-4
or Form S-8, or on any demand registrations of any other investor. The agreement, which auto-renews on a month-to-month basis upon
its expiration, may be terminated by either party upon 10 days written notice during its original term or within 15 calendar days
within the renewal term. We have not made any payments under the agreement and we have included $30,000 and $15,000 in accounts
payable and accrued expenses as of December 31, 2011 and September 30, 2011, respectively, in the accompanying condensed consolidated
balance sheets.
Note 8. Subsequent Events
In January 2012, we entered into a 10% promissory note with
Otto Capital, LLC in an aggregate principal amount of $4,000, due within five (5) days following the Company’s receipt of
a capital financing
(or cumulative financings) in the amount of $750,000
. The default rate of
interest is 22%. The promissory note was issued together with a warrant to purchase up to 133,333 shares of our common stock at
an exercise price of $0.03 per share. The warrant expires in three years.
In February 2012, we entered into a 12% convertible promissory
note with Ronald Tate in an aggregate principal amount of $25,000, due February 9, 2013 if not previously converted at the option
of the holder into shares of the Company’s common stock at a price per share equal to a 35% discount to the volume-weighted
average closing per share price of the Company’s common stock on the OTC:QB or OTC:BB market for the 10 trading days immediately
prior to either the maturity date or the conversion date, as applicable.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained herein may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, an amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking
statements reflect our current views with respect to future events or our financial performance, and involve certain known
and unknown risks, uncertainties and other factors, including those identified below, which may cause our or our
industry’s actual or future results, levels of activity, performance or achievements to differ materially from those
expressed or implied by any forward-looking statements or from historical results. We intend such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The following factors, among others, could cause our or our
industry’s future results to differ materially from historical results or those anticipated: 1) our limited
operating history; (2) our ability to pay down existing debt; (3) our ability to protect and defend our proprietary
technology; (4) our ability to secure and retain management capable of managing growth; (5) our ability to raise necessary
financing to execute our business plan; (6) potential litigation with our shareholders, creditors and/or former or current
investors; (7) our ability to comply with all applicable federal, state and local government and international rules and
regulations; and (8) other factors over which we have little or no control. As a result of these and other
factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could
materially and adversely affect our business, financial condition, operating results and stock price. As a result
of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect our business, financial condition, operating results and stock price.
Additional factors that would cause actual results to differ materially from those projected or suggested in any
forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors
discussed under the caption “Forward-Looking Statements” in our most recent Annual Report on Form 10-K, as may be
supplemented or amended from time to time, which we urge investors to consider. We have no duty to update, supplement or
revise any forward-looking statements after the date of this report or to conform them to actual results, new information,
future events or otherwise. The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and notes appearing elsewhere in this Report.
Overview
GeoBio Energy, Inc. (“GeoBio” or the “Company”)
formerly known as Better Biodiesel, Inc., was incorporated in Colorado in November 1990. The Company was known as Mountain
State Holdings, Inc., (“MSH”) until September 2006, when it was renamed in anticipation of a merger in September
2006, when it acquired all of the Member Units of Domestic Energy Partners, LLC, (“DEP”), a Utah limited liability
corporation. The previous assets and liabilities of MSH were spun off to two stockholders in August 2006 in exchange for
the return of common shares. At the time of the acquisition of DEP, the Company had no assets and no liabilities and 2,000,001
shares of common stock issued and outstanding carried at nil.
The merger of the Company and DEP was accounted
for as a reverse merger. The assets and liabilities of DEP are presented in the consolidated balance sheet at book value.
The historical operations presented in our consolidated statements of operations are those of DEP. On December 20, 2007,
the Company entered into and closed an Asset Purchase, Settlement and Mutual Release Agreement with the former Members of DEP and
effectively disposed of their interest in DEP.
In March 2008, we completed our Share Exchange with GeoAlgae
Technologies, Inc. (“GeoAlgae”) and acquired GeoAlgae as a wholly owned subsidiary. GeoAlgae was a recently formed
company and its net assets at the date of acquisition were nil. The entire purchase price was allocated to intangible assets which
in total constituted a business plan. The intangible assets were subsequently deemed to be impaired. GeoAlgae is not currently
an operating company.
Recent Developments
In October 2011, the Company and
Lary
Archer & Associates, Inc., Archer Equipment Rental, Inc., The Archer Company Inc., and Archer Testing Services, Inc., each
a Texas corporation (together referred to as “Archer”),
terminated our April 2011
equity
purchase agreement to purchase 100% of the issued and outstanding equity interests of Archer. There were no material penalties
to either the Company or Archer in connection with the termination.
On November 14, 2011, we closed an equity purchase agreement
with El Gas North America, Inc., a Washington limited liability company (“El Gas NA”), under which El Gas NA agreed
to sell 100% of the issued and outstanding equity interests of El Gas NA for 2.5 million shares of common stock of the Company
and a $100,000 promissory note. El Gas NA is a fully licensed and exclusive distributor of El Gas s.r.o’s natural gas volume
monitoring and correcting equipment and data recorder products in the territories including the United States, Canada, Mexico and
the Caribbean Islands. El Gas NA was only recently incorporated and its only asset is its exclusive distributer contract to distribute
El Gas s.r.o’s natural gas volume monitoring and correcting equipment and data recorder products in territories previously
listed. Given this, the Company has determined that this transaction is not a business combination for accounting purposes and
has accounted for the transaction as the acquisition of an asset, i.e. the exclusive distribution agreement.
Liquidity, Going Concern and Capital Resources
We have prepared our condensed consolidated financial statements
assuming that we will continue as a going concern, which contemplate the realization of assets and liquidation of liabilities in
the normal course of business. As of December 31, 2011, we had a deficit accumulated during the development stage of approximately
$28.6 million and expect to incur additional losses in the future. Our working capital deficit was approximately $4.3 million as
of December 31, 2011. These conditions raise substantial doubt about our ability to continue as a going concern.
We have funded our losses primarily through sales of common
stock and warrants in private placements and borrowings from related parties and other investors. The further development of our
business will require capital. Our current cash levels are not sufficient to enable us to execute our business strategy. We require
additional financing to satisfy our near-term working capital requirements. Our operating expenses will also consume a material
amount of our cash resources. Company management intends to raise additional debt and equity financing to fund future operations
and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts
necessary to meet our needs. In the event that we cannot obtain additional funds, on a timely basis or our operations do not generate
sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of
all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares
of our capital stock to institutional investors and through strategic investments, including convertible bridge loans. If management
deems necessary, we might also seek additional loans from related parties or others. However, there can be no assurance that we
will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms
favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
from the outcome of this uncertainty.
Discussion of Cash Flows
We used cash of approximately $30,000 and $53,000 in our
operating activities in the three months ended December 31, 2011 and 2010, respectively. Cash used in operating activities relates
primarily to funding net losses, partially offset by share-based payments of consulting fees, director fees, and other expenses
and the net change in operating assets and liabilities. We expect to use cash for operating activities in the foreseeable
future as we continue our operating activities.
Our investing activities used no cash in the three months
ended December 31, 2011 and 2010, respectively.
Our financing activities provided cash of approximately $33,000
and $53,000 in the three months ended December 31, 2011 and 2010, respectively, due to stockholder contributions and payment of
expenses on behalf of the Company, as well as proceeds from notes payable.
Notes in Default
Our principal sources of funding to-date have been private
placements of our common stock and warrants and notes payable. As of the date of this filing, our $100,000 note payable
from Sausalito Capital Partners (a shareholder of the Company) which we originally executed in February 2007 is in default. The
interest rate on the note payable is 6% per annum. Principal and accrued interest were due at the earlier of November
14, 2008 or within two days of the Company completing a private placement of at least $3.0 million. A warrant to purchase
1 share of our common stock was issued to the investor in connection with the execution of the note. The warrant was
granted with an initial exercise price of $27,500 per share, valued at $17,000 and expensed over the life of the note payable
as interest expense. The warrant expired in February 2009.
As of the date of this filing, our note payable agreement
with Tatum, LLC (“Tatum”) is in default and carries a default interest rate of 13.5% per annum. The note payable was
due at the earlier of one year or a financing of at least $1.5 million. At the election of Tatum, the note payable is convertible
at any time into shares of our common stock at the lesser of $4,125 per share or the 10 day volume weighted average of the closing
bid and ask prices.
Our note payable agreement with Otto Capital, in the
principal amount of $15,000, which was due on or before January 22, 2011, is in default and carries a default rate of interest
of 18%.
Our note payable agreement with Grandview Capital, a
stockholder, in the principal amount of $15,000, which was due on or before January 22, 2011, is in default and carries a default
rate of interest of 18%.
Our note payable agreement with, in the principal amount
of $15,000, which was due on or before January 22, 2011, is currently in default and carries a default rate of interest of 18%.
Our note payable agreement with David M. Otto, a former director
of the Company, in the principal amount of $20,000, which was due on or before March 23, 2011 is also currently in default and
carries a default rate of interest of 18%.
Our convertible note payable with Value Corp, Inc., in remaining
principal amount of $10,000, convertible into shares of our common stock at $0.10 per share, bearing interest at 10% per annum
from the interest accrual date of the notes, which were dated December 1, 2010, is also in default as the note was due December
1, 2011 unless previously converted. The default rate of interest is 18%.
Convertible notes in aggregate remaining principal amount
of approximately $512,000 to Ray Purdon (Managing Director of Grandview Capital, a stockholder of the Company) are in default and
carry an interest rate of 12%
.
The notes are convertible into shares of our common stock at a
conversion rate to be mutually agreed upon by the holder and the Company on the date the holder elects to convert.
Our note payable agreement with Otto Capital, a related party,
in the principal amount of $1,000, which was due on or before September 30, 2011, is currently in default and carries a default
rate of interest of 18%.
Our note payable agreements with Otto Capital, a related
party in the principal amount of $125 and $2,315 are in default and carry a default rate of interest o f 18%.
Our note payable due to Martin Davis Law Group (formerly
Otto Law Group), a related party, which was originally due on or before December 22, 2011, in the principal amount of $289,480,
is currently in default. The default rate of interest is 22%.
Recent Financing Activities
In November 2011, we entered into a 10% promissory note with
Otto Capital, LLC in an aggregate principal amount of $4,000, due within five (5) days following the Company’s receipt of
a capital financing
(or cumulative financings) in the amount of $750,000
. The default rate of
interest is 22%. The promissory note was issued together with a warrant to purchase up to 133,333 shares of our common stock at
an exercise price of $0.03 per share. The warrant expires in three years.
In December 2011, we entered into a 10% promissory note with
Otto Capital, LLC in an aggregate principal amount of $4,000, due within five (5) days following the Company’s receipt of
a capital financing
(or cumulative financings) in the amount of $750,000
. The default rate of
interest is 22%. The promissory note was issued together with a warrant to purchase up to 133,333 shares of our common stock at
an exercise price of $0.03 per share. The warrant expires in three years.
On December 20, 2011, we entered into a 10% promissory note
with Jack Walkely in an aggregate principal amount of $25,000, due the earlier of within five (5) days following the Company’s
receipt of a capital financing
(or cumulative financings) in the amount of $725,000 or June 1, 2012
.
The default rate of interest is 22%. The promissory note was issued together with a warrant to purchase up to 833,334 shares of
our common stock at an exercise price of $0.03 per share. The warrant expires in three years.
In December 2011, we entered into a 10% promissory note with
Laurence Shelver, our CEO and President and a director of the Company in an aggregate principal amount of $11,175, due within five
(5) days following the Company’s receipt of a capital financing
(or cumulative financings) in
the amount of $750,000
. The promissory note was issued together with a warrant to purchase up to 372,498 shares of our common
stock at an exercise price of $0.03 per share. The warrant expires in three years.
Summary
We are dependent on existing cash resources and external
sources of financing to meet our working capital needs. Current sources of liquidity are insufficient to provide for
budgeted and anticipated working capital requirements. We will therefore be required to seek additional financing to
satisfy our working capital requirements. No assurances can be given that such capital will be available to us on acceptable
terms, if at all. In addition to equity financing and strategic investments, we may seek additional related party loans. If
we are unable to obtain any such additional financing or if such financing cannot be obtained on terms acceptable to us, we may
be required to delay or scale back our operations, which would adversely affect our ability to generate future revenues and may
force us to curtail or cease our operating activities. These conditions give rise to substantial doubt about our ability to continue
as a going concern. Our ability to expand operations and generate additional revenue and our ability to obtain additional
funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Results of Operations
In the three months ended December 31,
2011 and 2010, we incurred net losses of approximately $465,000 and $1,517,000, respectively.
Revenues and Cost of Sales.
We
had no revenues or cost of sales in the three months ended December 31, 2011 and 2010.
Operating Expenses.
Operating
expenses decreased to $398,000 in the three months ended December 31, 2011, from $1,437,000 in the three months ended December
31, 2010, due primarily to a decrease in current year executive compensation and management consulting in the current three month
period. Executive compensation and management consulting expense was approximately $1,153,400 in the prior year three month period
compared to $229,000 in the current three month period. In December 2010, we issued 1,000,000 shares of our common stock to each
of John Sams and David Coloris for executive consulting services valued at $940,000 based on the closing price of our common stock
at the date of grant and the expense was recorded to general and administrative expense in the three months ended December 31,
2010 as the shares were fully vested as of that date and not forfeitable. In addition, in the prior year, legal expenses were approximately
$272,000 due to acquisition-related activities and financing efforts. In the current three month period, legal fees were approximately
$142,000.
Interest Expense.
Interest
expense decreased from $80,000 in the prior year three month period to $67,000 in the current year, respectively, due primarily
to decreased amortization of the beneficial conversion feature related to convertible liabilities.
Off-Balance Sheet Arrangements
As of December 31, 2011, we did not have
any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. As
of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision
and with the participation of senior management, including Mr. Laurence Shelver, our Chief Executive Officer (“CEO”)
and Mr. Clayton Shelver, our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our CEO and CFO concluded that our disclosure
controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by us in the reports that we file or submit under the Exchange Act. As previously reported under Item
9A in our Annual Report on Form 10-K for the year ended September 30, 2011 (the “Annual Report”), we had numerous deficiencies
in our disclosures controls as of September 30, 2011. In the Annual Report we described the remediation efforts we have begun to
undertake in order to correct such deficiencies. As of December 31, 2011, the deficiencies described in the Annual Report still
existed since the remediation efforts had not yet been fully implemented as of such date.
(b) Internal Control over Financial
Reporting. There have been no changes in our internal controls over financial reporting or in other factors during the
fiscal quarter ended December 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting subsequent to the date we carried out our most recent evaluation. As previously reported in Item 9A of
the Annual Report, we had numerous material weaknesses in our internal control over financial reporting as of September 30, 2011.
In the Annual Report we described the remediation efforts we have begun to undertake in order to correct such material weaknesses.
As of December 31, 2011, the material weaknesses described in the Annual Report still existed since the remediation efforts had
not yet been fully implemented as of such date.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 2010, Stanton Chase International
(“Stanton Chase”), an executive search firm, served notice of its action filed against the Company in the Supreme Court
State of New York, New York Count, Index No. 112613/10, seeking $65,250 in executive consulting fees, which Stanton Chase claims
is owed pursuant to a contract between the parties for an executive management search. The Company disputes the demand
based on the fact the Company (i) never entered into a contract with Stanton Chase, (ii) Stanton Chase did not during the period
it claimed to provide services ever make the Company aware of any work actually performed or provided and (iii) during the period
that Stanton Chase claimed to provide services to Stanton Chase never identified any management personnel for the Company. As
the Company has no nexus to Stanton Chance in New York State, it has not responded to the filed complaint in the State of New York,
and has no intention of responding in New York State, at this point. Therefore, it is not possible to evaluate the likelihood of
success in this matter at this time, and we have not included any part of the asserted claim in our accounts payable and accrued
expenses on the condensed consolidated balance sheets as of December 31, 2011 and September 30, 2011.
On May 11, 2010, the Company filed a
complaint against its former accountants, TanOak Partners, LLC, Chris Wain and Paul Spencer (collectively, “TanOak”),
in King County Superior Court (
Geobio Energy, Inc. v. TanOak Partners, LLC, Chris Wain and Paul Spencer
, Case
Number 10-2-17135-5 SEA), for breach of TanOak’s engagement contract, breach of the covenant of good faith and fair dealing,
violation of fiduciary duties, self-dealing and fraudulent misrepresentation/inducement. TanOak filed an answer and
counterclaim on June 3, 2010 seeking damages for work accounting services actually performed and claiming fraud, breach of contract
and breach of the covenant of good faith and fair dealing. In September 2011, the Company and TanOak settled and dismissed
the case, under which settlement the Company agreed to pay $50,000 in cash for the services provided upon the Company’s receipt
of capital financing not less than $5,000,000 (whether in a single event or cumulatively over multiple financing events). We have
included the $50,000 in accounts payable and accrued expenses on the condensed consolidated balance sheets as of December 31, 2011
and September 30, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
The following sets forth certain information for all securities
we sold during the quarter ended December 31, 2011 without registration under the Securities Act of 1933, as amended (the “Securities
Act”), other than those sales previously reported in a Current Report on Form 8-K:
Under our promissory note agreement
with Laurence Shelver, on December 31, 2011, we issued a three-year warrant to purchase 372,498 shares of our common stock at an
exercise price of $0.03 per share. The warrants expire on December 31, 2014.
Under our promissory note agreement with
Otto Capital, LLC, on December 20, 2011, we issued a three-year warrant to purchase 133,333 shares of our common stock at an exercise
price of $0.03 per share. The warrants expire on December 20, 2014.
Under our promissory note agreement with
John Walkely, on December 20, 2011, we issued a three-year warrant to purchase 833,334 shares of our common stock at an exercise
price of $0.03 per share. The warrants expire on December 20, 2014.
Under our promissory note agreement with
Otto Capital, LLC, on November 8, 2011, we issued a three-year warrant to purchase 133,333 shares of our common stock at an exercise
price of $0.03 per share. The warrants expire on November 8, 2014.
In October 2011, we entered into a consulting
agreement with AGAPA Holdings, LLC. Under the agreement, we agreed to pay a non-refundable consulting fee of $5,500 and 50,000
shares of our common stock.
In November 2011, we issued 2,500,000
shares of our common to the principals of El Gas North America, LLC, pursuant to our acquisition of El Gas North America.
In October 2011, Lance
Miyatovich assigned a total of 100,000 shares of Series A Preferred Stock to an unrelated party, which was immediately converted
into 100,000 shares of our common stock.
In December 2011, Lance Miyatovich assigned
2,900,000 shares of Series A Preferred Stock to an unrelated party, which was immediately converted into 2,900,000 shares of our
common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
Subsequent to the quarter ended December 31, 2011, we sold
the following securities without registration under the Securities Act of 1933, as amended:
Under our promissory note agreement with
Otto Capital, LLC, on January 9, 2012, we issued a three-year warrant to purchase 133,333 shares of our common stock at an exercise
price of $0.03 per share. The warrants expire on November 8, 2014.
In February 2012, we entered into a 12%
convertible promissory note with Ronald Tate in an aggregate principal amount of $25,000, due February 9, 2013 if not previously
converted at the option of the holder into shares of the Company’s common stock at a price per share equal to a 35% discount
to the volume-weighted average closing per share price of the Company’s common stock on the OTC:QB or OTC:BB market for the
10 trading days immediately prior to either the maturity date or the conversion date, as applicable.
ITEM 6. EXHIBITS
The exhibits required by this item are listed on the Exhibit
Index attached hereto.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 17, 2012
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GEOBIO ENERGY, INC.
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By:
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/s/ Laurence Shelver
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Chief Executive Officer and Director
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EXHIBIT INDEX
Exhibit No.
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Description of Exhibit
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10.38
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Equity Purchase Agreement of El Gas North America, LLC
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Incorporated by reference to the Company’s Form 8-K filed November 16, 2011
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31.1
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Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302
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Filed herewith
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32.1
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Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906
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Filed herewith
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99.15
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Press Release Dated November 16, 2011
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Incorporated by reference to the Company’s Form 8-K filed November 16, 2011
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