NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A Basis of Presentation
The condensed consolidated financial statements of Global Earth Energy, Inc. (the Company) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Companys Form 10-K, and other reports filed with the SEC.
The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted.
The Company has changed its primary business objective from advisory services to the Renewable and Recoverable Energy Markets. Consequently, the Company changed their name on February 5, 2008 to Global Earth Energy, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of Global Earth Energy, Inc., and its wholly owned subsidiary; Knightsbridge Corp. (the Company). All significant inter-company balances have been eliminated in consolidation.
Note B -
Summary of Significant Accounting Policies
All significant accounting policies can be viewed on the Companys annual report filed with the Securities and Exchange Commission.
Note C -
Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
-
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income
- but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
- continued -
- 8 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C -
Recently Issued Accounting Standards - continued
-
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of
accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, (FASB) issued ASU 2012-04, Technical Corrections and Improvements in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
- continued -
- 9-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C -
Recently Issued Accounting Standards - continued
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08,
Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30,
Intangibles - Goodwill and Other - General Intangibles Other than Goodwill
. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 Balance Sheet: Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
Note D - Going Concern
The Companys consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations. As a result, there is an accumulated deficit of $45,120,921 at May 31, 2013.
The Companys continued existence is dependent upon its ability to raise capital or acquire a marketable company. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Note E - Share Activity
Stock Awards
On October 18, 2008, Ed Gorman (member of the Board of Directors) was granted as compensation for services options to buy 40,000 shares of the Companys preferred stock at the last quoted common stock offering price as of that day. A total of 40,000 options were granted at a price of $105. These options were issued in error but were subsequently issued as preferred class A shares (see below).
- continued -
-10-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity - continued
Stock Awards
On November 8, 2009, the Companys attorney was granted as compensation for services options to buy 667 shares of the Companys common stock at the last quoted common stock offering price as of that day. A total of 667 options were granted at a price of $40.50.
On May 26, 2010, the Board of Directors were each granted as compensation for services options to buy 667 shares of the Companys common stock at the last quoted common stock offering price as of that day. A total of 4,000 options were granted at a price of $114.
On May 26, 2010 the Companys Chief Financial Officer was granted as compensation for services options to buy 40,000 shares of the Companys preferred class A stock at the last quoted common stock offering price as of that day times 200. A total of 40,000 options were granted at a price of $15.20.
On July 26, 2010, the Companys President was granted as compensation for services options to buy 325,000 shares of the Companys preferred class A stock at the last quoted common stock offering price as of that day times 200. A total of 325,000 options were granted at a price of $8.60.
On August 2, 2010, the Companys attorney was granted as compensation for services warrants to buy 1,333 shares of the Companys common stock at $52.50. On April 5, 2011 these shares were cancelled and 1,333 shares were issued for relief of $11,000 of accrued amounts owed. The grant date fair value of the shares was equal to the liability relieved.
On August 11, 2011 the four board members were granted as compensation for services options to buy common stock at the last quoted common stock offering price as of that day. A total of 22,000 options were granted at a price of $4.20. These options vested immediately and have a ten year contractual term.
On December 27, 2012, the Companys attorney was granted as compensation for services options to buy 20,000,000 shares of the Companys common stock at the last quoted common stock offering price as of that day. A total of 20,000,000 options were granted at an exercise price of $0.001. These options vested immediately, have a five year contractual life and were expensed utilizing the Black Scholes method in the amount of $107,862. The following assumptions were utilized in the Black Scholes calculation; a 0.00% dividend yield, 264.49% expected volatility and a 0.72% discount rate.
|
|
|
|
|
Common Stock
|
Shares Under
Option
|
Weighted
Average
Exercise
Price
|
|
Exercisable
|
|
|
|
|
|
2012
|
|
|
|
|
Balance - September 1, 2011
|
28,000
|
$40.50 - $114
|
|
28,000
|
Options Granted
|
|
|
|
|
Options Exercised
|
|
|
|
|
Options Forfeited
|
|
|
|
|
Balance May 31, 2012
|
28,000
|
|
|
28,000
|
|
|
|
|
|
2013
|
|
|
|
|
Balance - September 1, 2012
|
28,000
|
$40.50 - $114
|
|
28,000
|
Options Granted
|
20,000,000
|
$0.001
|
|
20,000,000
|
Options Exercised
|
|
|
|
|
Options Forfeited
|
|
|
|
|
Balance May 31, 2013
|
20,028,000
|
|
|
20,028,000
|
- continued -
- 11 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
Stock Awards
|
|
|
|
|
Stock Options - Preferred
Stock
|
Shares Under
Option
|
Weighted
Average
Exercise
Price
|
|
Exercisable
|
|
|
|
|
|
2013
|
|
|
|
|
Balance - September 1, 2012
|
365,000
|
$8.60 - $15.20
|
|
365,000
|
Options Granted
|
|
|
|
|
Options Exercised
|
|
|
|
|
Options Forfeited
|
|
|
|
|
Balance May 31, 2013
|
365,000
|
|
|
365,000
|
Common Stock
On March 2, 2010, a stockholder that is closely related to Betty-Ann and Sydney Harland (Chairman, and President, CEO and Director, respectively) converted 1,000,000 Preferred Class C shares to 667 common shares.
On April 30, 2010, the Company entered into an agreement with Richard Proulx (Director) as a Contractor. Pursuant to the agreement the Contractor agrees to assist the Company in Sales for the Company in Quebec, Canada. The term of the contract is for one year, expiring on April 30, 2011. In consideration for his services, the Contractor received 1,333 common shares on April 30, 2010. These shares were valued at $28,000 based on the closing price on the date of the grant.
On May 10, 2010, the Company and its wholly owned subsidiary, Global Earth Energy Acquisition Company, entered into an agreement to merge with 688239 B.C. Ltd., a British Columbia Corporation (688239 B.C.). Pursuant to the agreement the Company issued 43,334 common shares to the sole stockholder of 688239 B.C. in exchange for the fair market value of certain assets and liabilities of 688239 B.C. On December 2, 2010 the merger with 688239 B.C. was rescinded and accounted for in the year ended August 31, 2010.
On June 22, 2010 the Company agreed to issue Sydney Harland (CEO and Director) 15,667 shares common stock in lieu of payment by the Company of $350,435 owed to Mr. Harland, included in due to directors. The agreement was effective as of May 14, 2010.
On August 31, 2010, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2010. The purpose of the Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 1,333 shares of common stock are registered to this plan at an offering price of $39. The Plan shall expire on August 31, 2020.
- continued -
- 12 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
Common Stock
On September 9, 2010 Robert Levitt converted 30,000 Preferred Class A shares to 6,000,000 common shares.
In September of 2010 Norman Reynolds was issued 1,333 shares common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $54,000 based on the value of the shares on the date of grant.
On September 27, 2010 Arthur Kelly and Gloria Leung were granted 1,333 and 667 shares of common stock, respectively for rewriting and updating the Companys business plan. These shares were valued at $78,000 based on the closing price on the date of the grant.
On September 27, 2010 Carolyn Merrill was granted 667 shares common stock from the Company as compensation as the Companys accountant. These shares were valued at $16,500 based on the closing price on the date of the grant.
On October 1, 2010 the Company entered into an agreement with Geoffrey Eiten (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in various industrial relations and marketing services. The term of the contract is for three months expiring on January 1, 2011. In consideration for his services, the Contractor was granted 2,000 common shares on September 27, 2010. These shares were valued at $49,500 based on the fair value of the shares on the grant date.
On October 5, 2010, 16,927 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock Held in Escrow account at a value of $253,907 based on the grant date fair value of the shares.
During the fiscal year ended August 31, 2011 Robert Levitt agreed to accept 120,000 shares in lieu of payment of an accrued balance owed to him of $180,000. The value of the shares to be issued on the date of the agreement was $360,000 causing a loss of $180,000 for the conversion. This stock payable was later re-classed to the derivative liability due to the tainted equity environment and potential inability of the Company to share settle the instrument. As a result, the related value of the stock payable and issuances were re-valued at each issuance date and balance sheet date due to the mark to market requirements for the derivative liability.
On October 12, 2010 Robert Levitt was granted 6,000 shares of common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $73,800. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On November 8, 2010, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2010 No. 2. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 33,333 shares of common stock are registered to this plan at an offering price of $.0029. The Plan shall expire on November 8, 2020.
- continued -
- 13-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
Common Stock
On November 8, 2010 Norman Reynolds was granted 4,000 shares common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $16,200 based on the value of the shares on the date of grant.
On November 23, 2010, 48,095 shares of common stock were granted to five shareholders to acquire 40% of the joint venture as determined pursuant to the joint venture agreement signed November 22, 2010 see Note G. Strategic Alliance, George Sinnis, Glenn Sturm, Atlantic Station and Raymond F. Barbush III received 41,762; 1,333; 333; 1,333 and 3,334 shares respectively. The fair value of the shares based on the agreement date was $324,643 and was capitalized as a part of the joint venture asset.
On October 11, 2010 AGS was granted 6,667 shares common stock valued at $110,000 as part of their investment agreement executed October 5, 2010. The shares were expensed upon grant and the agreement was later dissolved.
On December 3, 2010 Robert Levitt received 6,667 shares common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $179,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On December 9, 2010, 51,467 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $772,002 based on the grant date fair value of the shares.
On December 21, 2010, Norman Reynolds was granted 4,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $30,000 based on the closing price on the date of the grant.
On December 21, 2010 Spiros Sinnis was granted 2,400 shares of common stock for his consultant work pertaining to the Joint Venture agreement between the Company and Reflora do Brasil. These shares were valued at $15,120 based on the closing price on the date of the grant.
On January 11, 2011 Robert Levitt was granted 14,667 shares of common stock of the 120,000 shares owed. The value of the shares issued was $154,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On January 31, 2011 Norman Reynolds was granted 2,000 shares common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $10,500 based on the closing price on the date of the grant.
On January 26, 2011 the Company entered into an agreement with Spiros Sinnis (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in connection with strategic transactions. The term of the contract is for twelve months expiring on January 26, 2012. In consideration for his services, the Contractor was granted 4,000 common shares on January 31, 2011. These shares were valued at $19,200 based on the closing price on the date of the grant. The shares were expensed upon grant due to being fully vested.
- continued -
- 14 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
Common Stock
On January 26, 2011 the Company entered into an agreement with Andrew Madenberg (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in connection with strategic transactions. The term of the contract is for twelve months expiring on January 26, 2012. In consideration for his services, the Contractor was granted 4,000 common shares on January 26, 2011. These shares were valued at $19,200 based on the closing price on the date of the grant. The shares were expensed upon grant due to being fully vested.
On February 9, 2011 GFC 2005 was granted 5,000 shares common stock valued at $34,500 as part of their joint venture agreement executed February 9, 2011. The shares were expensed on the grant date based on the agreement being terminated shortly thereafter.
On February 10, 2011 Robert Levitt received 10,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $315,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On February 25, 2011 Norman Reynolds was granted 2,000 shares common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $30,000 based on the closing price on the date of the grant.
On February 25, 2011 Carolyn Merrill was granted 2,000 shares of common stock in lieu of payment by the Company for compensation as the Companys accountant. These shares were valued at $60,000 based on the closing price on the date of the grant.
On March 2, 2011 Marie Fay was granted 867 shares common stock for services rendered. These shares were valued at $13,000 based on the closing price on the date of the grant.
For the quarter ended May 31, 2011 Spiros Sinnis was granted 11,333 shares for services rendered in connection with his consultant contract. These shares were valued at $92,000 based on the closing price on the date of the grants.
For the quarter ended May 31, 2011 Andrew Madenberg was granted 11,333 shares for services rendered in connection with his consultant contract. These shares were valued at $92,000 based on the closing price on the date of the grants.
On February 1, 2011 the Company entered into an agreement with Geoffrey Eiten (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in various industrial relations and marketing services. The term of the contract is for six months expiring on August 1, 2011. In consideration for his services, the Contractor was granted 1,333 common shares on February 1, 2011. These shares were valued at $9,200 based on the value of the shares on the grant date.
On May 13, 2011 Norman Reynolds was granted 8,000 shares common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $57,600 based on the closing price on the date of the grant.
On April 27, 2011, 32,475 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $219,208 based on the grant date fair value of the shares.
- continued -
- 15 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
Common Stock
On August 2, 2010, the Companys attorney was granted as compensation for services warrants to buy 1,333 shares of the Companys common stock at $0.035. On April 5, 2011 these shares were cancelled and 1,333 shares were issued for relief of $11,000 of accrued amounts owed. The grant date fair value of the shares was equal to the liability relieved.
For the quarter ended May 31, 2011 Robert Levitt received 30,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $318,500. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On May 24, 2011, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2011. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 66,667 shares of common stock are registered to this plan at an offering price of $.004. The Plan shall expire on May 24, 2021.
During June and July, 2011 Andrew Madenberg was granted a total of 16,667 shares for services rendered in connection with his consultant contract. These shares were valued at $90,000 based on the closing price on the date of the grants.
During June and July, 2011 Spiros Sinnis was granted a total of 16,667 shares for services rendered in connection with his consultant contract. These shares were valued at $90,000 based on the closing price on the date of the grants.
During June and July, 2011 Robert Levitt received a total of 20,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $84,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On June 8, 2011 Norman Reynolds was granted 8,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $49,200 based on the closing price on the date of the grant.
On June 8, 2011 Carolyn Merrill was granted 1,333 shares of common stock in lieu of payment by the Company for compensation as the Companys accountant. These shares were valued at $6,400 based on the closing price on the date of the grant.
On July 18, 2011 the Company entered into an agreement with Daniel Chase (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in its coal, oil and gas procedures and protocols. The term of the contract is for six months expiring on January 18, 2012. In consideration for his services, the Contractor received 32,667 common shares on July 18, 2011. These shares were valued at $147,000 based on the grant date of the shares.
On September 22, 2011, the Company amended their authorized Common Stock Class B to 5,171,013 shares from 50,000,000 shares. The 44,828,987 Class B shares were transferred to Common Stock Class A thereby increasing Common Stock Class A authorized to 844,828,987.
- continued -
- 16-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
On September 5, 2011 the Company entered into an agreement with Makaha Media Corporation (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in developing and implementing appropriate plans and means for presenting the Company and its product(s) to the proper industries, establishing an image for the Company and its product(s) and creating the foundation for subsequent marketing efforts. The term of the contract is for two months expiring on October 31, 2011. In consideration for their services, the Contractor received 33,333 common shares. These shares were valued at $130,000 based on the grant date of the shares.
On September 20, 2011 the Company entered into an agreement with Strategic Alliance Consulting Group (Contractor). Pursuant to the agreement the Contractor agreed to return the 21,762 shares Common Stock Class A that they were holding, for consideration of the Company reauthorizing the same amount of shares sometime in the future. The Company recorded the shares as treasury stock based on the value of the shares owed of $47,500 with the offsetting credit to stock payable. The treasury stock was immediately returned to the authorized and unissued pool of shares for the Company. The treasury amount was relieved against common stock and APIC with this retirement. The stock payable was considered a part of the tainted equity environment as a common stock equivalent and re-classed to derivative liability upon being owed. The value of the shares was marked to market on the balance sheet date, see footnote I.
On September 20, 2011, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2011, No. 2. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 26,667 shares of common stock are registered to this plan at an offering price of $2.10. The Plan shall expire on September 20, 2021.
On May 21, 2012 the Company approved a 1 to 1,500 reverse stock split on its common stock. All share activity has been retroactively adjusted for the split.
On June 7, 2012, the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2012. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 5,000,000 shares of common stock are registered to this plan at an offering price of $0.20. The Plan shall expire on June 7, 2022.
On June 15, 2012 six board members were granted as compensation for services 10,000,000 shares each of common stock for services rendered. These shares were valued at $22,800,000 based on the closing price on the date of the grant.
On June 15, 2012 Norman Reynolds was granted 20,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $7,600 based on the closing price on the date of the grant.
- continued -
- 17 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
On June 21, 2012 Betty and Sydney Harland were each granted 600,000 shares of common stock for services rendered to the company. These shares were valued at $72,000 based on the closing price on the date of the grant.
On June 25, 2012 Betty and Sydney Harland were each granted 1,500,000 shares of common stock for services rendered to the company. These shares were valued at $366,000 based on the closing price on the date of the grant.
On June 26, 2012 Norman Reynolds was granted 150,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $18,300 based on the closing price on the date of the grant.
On June 27, 2012, 48,700,963 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $5,941,517 based on the grant date fair value of the shares.
On July 11, 2012, Robert Levitt was issued the final 32,667 common shares related to the original agreement he had with the Company to repay his loan of $180,000 with 120,000 common shares. The value of the shares issued was $3,593. The related portion of the derivative liability was marked to this value and relieved to additional paid in capital upon issuance. Mr. Levitt was also issued on July 11, 2012, 2,967,333 common shares in lieu of payment for services he rendered to the Company. These shares were valued at $326,406 based on the closing price on the date of the grant.
On July 20, 2012 Norman Reynolds was granted 250,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $27,500 based on the closing price on the date of the grant.
On August 6, 2012 the Company entered into an agreement with Christian Hansen (Contractor). Pursuant to the agreement the Contractor agrees to assist the Company in developing and implementing appropriate plans and means for presenting the Company and its product(s) to the proper industries, establishing an image for the Company and its product(s) and creating the foundation for subsequent marketing efforts. The term of the contract is for six months expiring on February 6 2013. In consideration for their services, the Contractor received 3,000,000 common shares. These shares were valued at $90,000 based on the grant date of the shares.
On August 21, 2012 Norman Reynolds was granted 1,000,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $20,000 based on the closing price on the date of the grant.
On September 12, 2012 Norman Reynolds cancelled 423,618 shares of common stock he was given by the Company in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were deducted from common stock issued for the par value of the shares $426 with the cancellation.
On September 21, 2012, 120,000,000 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $1,680,000 based on the grant date fair value of the shares.
- continued -
-18-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Share Activity continued
On September 12, 2012 Norman Reynolds cancelled 2,000 shares of common stock he was given by the Company in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were deducted from common stock issued for the par value of the shares $2 with cancellation.
On November 12, 2012 Sydney Harland was granted 100,000,000 shares of common stock for services rendered to the company. These shares were valued at $200,000 based on the closing price on the date of the grant.
On December 4, 2012, 104,411,290 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $479,500 based on the grant date fair value of the shares.
On April 15, 2013 the Company resolved to adopt the Non-Employee Consultants Retainer Stock Plan for the Year 2013. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining non-employee consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Companys stockholders, by paying their retainer or fees in the form of shares of the Companys common stock. 250,000,000 shares of common stock are registered to this plan at an offering price of $0.0008. The Plan shall expire on April 15, 2023.
On April 15, 2013 Norman Reynolds was granted 15,000,000 shares of common stock in lieu of payment by the Company for legal services he provided as the Companys attorney. These shares were valued at $13,500 based on the closing price on the date of the grant.
On April 15, 2013 Carolyn Merrill was granted 18,400,000 shares of common stock in lieu of payment by the Company for compensation as the Companys accountant. These shares were valued at $16,560 based on the closing price on the date of the grant.
On April 22, 2013, 183,944,906 shares of common stock were placed into escrow pursuant to the convertible note agreement made with Asher Enterprises, Inc. These shares were recorded in Stock
Held in Escrow account at a value of $128,761 based on the grant date fair value of the shares.
On May 7, 2013 Rich Kaiser was granted 6,000,000 shares of common stock in lieu of payment by the Company for compensation as the Companys consultant. These shares were valued at $5,400 based on the closing price on the date of the grant.
See debt footnote H for shares issued for conversions of debt.
Preferred Stock
On January 28, 2011, the Company amended their Preferred Stock Class A authorized shares from 1,000,000 shares to 10,000 shares.
- continued -
-19-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E -
Share Activity continued
Preferred Stock
On February 28, 2011 the Board of Directors approved the issuance of 2,000,000 Preferred Stock Class B to Betty Harland. These shares carry 500 to 1 voting rights and are not convertible into common stock. These shares also carry a liquidation preference over common shares. These shares were valued at $600,000 and were expensed upon. The shares were valued by a valuation expert on the date of grant. The key inputs in the valuation were related to assigning a value to the control associated with the preferred shares issued. No value was assigned to the liquidation preference of the securities based on the net deficit position of the Company. The valuation expert used industry studies for similar companies which estimated a premium on control equal to 10.05% of the Companys respective market cap. The other inputs involved in calculating the market cap on the date of grant which was calculated as the shares outstanding multiplied by the shares price on the date of grant. The market cap on the date of grant was found to be approximately $5,969,380 based on this calculation.
Note F Related Party Transactions
Certain disbursements of the Company have been paid by two directors of the Company therefore; a Due to Directors account has been established. The balance at May 31, 2013 and August 31, 2012 was $19,649 and $-0-, respectively.
In October 2004, the Company entered into a consulting agreement with its Chairman, Betty-Ann Harland for a five year term, with annual compensation of $220,000 and auto allowance of $12,000. The accrued consulting fees are accruing interest at 8.75% annually. On March 24, 2011, the Company extended Ms Harlands consulting agreement effective October 1, 2009 through October 1, 2011. On December 5, 2011, Mrs. Harlands contract was extended through October 1, 2015. At May 31, 2013 and August 31, 2012 accrued compensation due to Mrs. Harland was $1,186,874 and $1,021,389, respectively. At May 31, 2013 and August 31, 2012 accrued interest on accrued compensation was $215,122 and $150,123 respectively.
On February 28, 2011 Betty Harland was issued 2,000,000 Preferred Stock Class B (See Note E Preferred Stock).
On August 25, 2007, the Company entered into a consulting agreement with its CEO, Sydney Harland for a five year term, with annual compensation of $220,000, health benefits of $15,000 and $12,000 auto allowance. The agreement agrees to pay all accrued compensation from April 2006 and is accruing interest at 8.75% annually. At May 31, 2013 and August 31, 2012 accrued compensation due to Mr. Harland was $1,560,759 and $1,399,786, respectively. At May 31, 2013 and August 31, 2012 accrued interest on accrued compensation was $360,083 and $270,223, respectively. As of the date of this report, Mr. Harland and the Company are negotiating renewal of his contract.
- continued -
- 20 -
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F Related Party Transactions continued
On August 25, 2007, the Company entered into a consulting agreement with its CFO, Edmund Gorman for a two year term, with annual compensation of $150,000, health benefits of $7,500. The agreement agrees to pay all accrued compensation from April 2006 and is accruing interest at 8.75% annually.
On March 24, 2011, the Company extended Mr. Gormans consulting agreement effective August 25, 2009 through August 25, 2011. On December 5, 2011, Mr Gormans contract was extended through August 27, 2015. At May 31, 2013 and August 31, 2012 accrued compensation due to Mr. Gorman was $1,128,544 and $1,010,419, respectively. At May 31, 2013 and August 31, 2012 accrued interest on accrued compensation was $313,774 and $243,590, respectively.
On September 9, 2010 Robert Levitt converted 30,000 Preferred Class A shares to 4,000 common shares.
During the fiscal year ended August 31, 2011 Robert Levitt agreed to accept 120,000 shares in lieu of payment of an accrued balance owed to him of $180,000. The value of the shares to be issued on the date of the agreement was $360,000 causing a loss of $180,000 for the conversion. This stock payable was later re-classed to the derivative liability due to the tainted equity environment and potential inability of the Company to share settle the instrument. As a result, the related value of the stock payable and issuances were re-valued at each issuance date and balance sheet date due to the mark to market requirements for the derivative liability.
On October 12, 2010 Robert Levitt was granted 6,000 shares of common stock in partial satisfaction of the 180,000,000 shares owed to him for prior consulting services. The value of the shares issued was $73,800. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
For the quarter ended February 28, 2011 Robert Levitt received 31,333 shares common stock in partial satisfaction of the 120,000 shares owed to him for prior consulting services. The value of the shares issued was $648,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
For the quarter ended May 31, 2011 Robert Levitt received 30,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $318,500. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
For the quarter ended August 31, 2011 Robert Levitt received 20,000 shares common stock in partial satisfaction of 120,000 shares owed. The value of the shares issued was $84,000. The related portion of the derivative liability was marked to this value and relieved to APIC upon issuance.
On June 15, 2012 Betty Harland, Sydney Harland and Edmund Gorman as board members were granted as compensation for services 10,000,000 shares each of common stock for services rendered. These shares were valued at $11,400,000 based on the closing price on the date of the grant.
On June 21, 2012 Betty and Sydney Harland were each granted 600,000 shares of common stock for services rendered to the company. These shares were valued at $72,000 based on the closing price on the date of the grant.
- continued -
-21-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F Related Party Transactions continued
On June 25, 2012 Betty and Sydney Harland were each granted 1,500,000 shares of common stock for services rendered to the company. These shares were valued at $366,000 based on the closing price on the date of the grant.
On July 11, 2012, Robert Levitt was issued the final 32,667 common shares related to the original agreement he had with the Company to repay his loan. Mr. Levitt was also issued on July 11, 2012, 2,967,333 common shares in lieu of payment for services he rendered to the Company. These shares were valued at $326,406 based on the closing price on the date of the grant.
On November 12, 2012 Sydney Harland was granted 100,000,000 shares of common stock for services rendered to the company. These shares were valued at $200,000 based on the closing price on the date of the grant.
On December 22, 2012 an agreement was signed with Robert Levitt concerning a portion of his debt equal to $303,250. The agreement modified the debt to make it convertible into common stock of the Company at $0.001 per share. The Company compared the value of the debt modified of $303,250 before and after modification to calculate the loss on modification of $909,750. This value was calculated by comparing the value of the shares if the note was conveted on the modifiaiton date to the face value of the note. The value of the shares was $1,213,000 which after deducting the face value of the note of $303,250 resulted in the loss on modification of $909,750. The value of the shares the note was convertible into was calculated by using the closing price of the stock on the modification date. The note payable is convertible into common stock at the discretion of Mr. Levitt. Mr. Levitt will be entitled to a maximum of 303,250,000 shares but at no time will Mr. Levitt be able to own more than 4.99% of the outstanding shares of the Companys common stock. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.
For the quarter ended February 28, 2013 Robert Levitt received 29,000,000 shares common stock in partial satisfaction of 303,250,000 shares owed. The value of the shares issued was $29,000. The conversion was in accordance with the modified note agreement therefore no gain or loss was recorded with the conversion.
For the quarter ended May 31, 2013 Robert Levitt received 22,000,000 shares common stock in partial satisfaction of 303,250,000 shares owed. The value of the shares issued was $22,000. The conversion was in accordance with the modified note agreement therefore no gain or loss was recorded with the conversion.
Convertible Note Payable Related Party balance was $252,250 and $303,250 at May 31, 2013 and August 31, 2012, respectively. Amounts due are to Robert Levitt for monies loaned to the Company. Imputed interest in the amount of $16,709 was recorded for the nine months ended May 31, 2013 due to the note being non-interest bearing.
Note payable related party balance was $6,818 and $-0- at May 31, 2013 and August 31, 2012 respectively.
Interest expense charged to operations was $325,736 and $238,834 for the nine months ended May 31, 2013 and 2012, respectively. Related parties interest expense was $257,302 and $215,657 for the nine months ended May 31, 2013 and 2012, respectively.
- continued
-22-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F Related Party Transactions continued
Due to directors was $19,649 and $-0- at May31, 2013 and August 31, 2012, respectively.
Note G Joint Ventures
Reflora do Brasil
On November 22, 2010, the Company and Reflora do Brasil, a Brazilian company (RDB) executed a Joint Venture Agreement with respect to sale by RDB of carbon credits relating to certain property located in Brazil. Proceeds from the sale of the Credits brokered by the Company for RDB shall be split as follows: sixty percent (60%) of the proceeds shall be distributed to the owners of the Para
Property, who are represented by RDB, and forty percent (40%) to the Company. Pursuant to the agreement, the Company issued 6,333 shares of common stock valued at $6.75 per share on November 22, 2010 in addition to those shares listed below.
(a)
Strategic Alliance Consulting Group, Ltd. is entitled to compensation from the Company pursuant to the Joint Venture Agreement, as follows:41,762 shares of the common stock valued at $6.75 per share of the Company and
(b)
The sum of $30,000 per month for four months totaling $120,000 which has been recorded as due to joint venture on the balance sheet. This payment to the Strategic Alliance is compensation to run the business lines to be brought in, (carbon credit deals, soybean, asset backed bonds, Lifecycle partnership) which includes legal costs and other costs involving the stated deals. The Cash Compensation will be paid by the Company as and when it is able to raise sufficient funds through a private placement of shares of the Global Earth Common Stock pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. The Company shall immediately begin the preparation of a private placement memorandum for the purpose of raising the cash compensation.
The total paid for the joint venture is $444,643 which is composed of $324,643 in common stock issued and $120,000 in cash to be paid. The Company evaluated these capitalized costs as of August 31, 2011 for impairment and determined at that time that there was no certainty that these costs would be recovered with future cash flows from the joint ventures. As a result, the costs were fully valued with an impairment of $444,643. Since the impairment on August 31, 2011, there has been no activity on this joint venture. All amounts still owed as of May 31, 2013 were fully accrued related to this arrangement.
-23-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H Convertible Debentures and Note Payable
The Company had convertible debentures outstanding as follows:
|
|
|
|
|
May 31, 2013
|
|
Outstanding Balance of Convertible Debenture
|
Unamortized
Discount
|
Net of Principal and Unamortized Discount
|
|
|
|
|
|
December 4, 2012 Debenture
|
|
$ 2,500
|
$ 888
|
$ 1,612
|
December 5, 2012 Debenture
|
|
16,000
|
5,739
|
10,261
|
April 22, 2013 Debenture
|
|
12,500
|
10,740
|
1,760
|
|
|
|
|
|
Total Convertible Debentures
|
|
$ 31,000
|
$ 17,367
|
$ 13,633
|
|
|
|
|
|
Convertible Debentures Related Party
|
|
|
December 22, 2012
|
|
$ 252,250
|
$
|
$ 252,250
|
|
|
|
|
|
|
|
|
|
|
August 31, 2012
|
|
Outstanding Balance of Convertible Debenture
|
Unamortized
Discount
|
Net of Principal and Unamortized Discount
|
|
|
|
|
|
April 27, 2011 Debenture
|
|
$ 5,600
|
$
|
$ 5,600
|
June 26,2012 Debenture
|
|
27,500
|
18,333
|
9,167
|
|
|
|
|
|
Total Convertible Debentures
|
|
$ 33,100
|
$ 18,333
|
$ 14,767
|
On April 27, 2011, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $27,500 in a convertible debenture bearing interest at 8% per annum, payable on or before January 31, 2012. $27,500 was disbursed to the Company on May 13, 2011.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 58% of the average price for the lowest three trading prices for the common stock for ten trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company.
On November 14, 2011, Asher Enterprises elected to convert $8,000 of their note payable into 12,698 common shares of the Company. Ashers remaining note payable at November 14, 2011 is therefore $19,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.
On December 14, 2011, Asher Enterprises elected to convert $6,000 of their note payable into 22,222 common shares of the Company. Ashers remaining note payable at December 14, 2011 is therefore $13,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.
- continued
-24-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H Convertible Debentures and Note Payable - continued
On December 21, 2011, Asher Enterprises elected to convert $6,500 of their note payable into 22,807 common shares of the Company. Ashers remaining note payable at December 21, 2011 is therefore $7,000. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.
On June 12, 2012, Asher Enterprises elected to convert $1,400 of their note payable into 24,138 common shares of the Company. Ashers remaining note payable at June 12, 2012 is therefore $5,600. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital.
On June 26, 2012, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $27,500 in a convertible debenture bearing interest at 8% per annum, payable on or before March 28, 2013. $27,500 was disbursed to the Company on June 29, 2012.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 51% of the average price for the lowest three trading prices for the common stock for ten trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company.
On September 21, 2012, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $32,500 in a convertible debenture bearing interest at 8% per annum, payable on or before June 25, 2013. $32,500 was disbursed to the Company on September 28, 2012.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 51% of the lowest trading price for the common stock for forty-five trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company.
On October 17, 2012, Asher Enterprises elected to convert $5,600 of their note payable and $1,100 of accrued interest into 2,161,290 common shares of the Company. Ashers remaining note payable at October 17, 2012 is therefore $60,000. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital. The related derivative liability was also marked to market and relieved to additional paid in capital for $8,529.
On December 1, 2012 Asher and the Company agreed to modify all convertible debt agreements outstanding. The modification entailed a floor conversion price of $0.00005 and also removed ratchet provisions on the conversion price which previously provided anti-diliutive protection against future diliutive equity or debt issuances. The modification effectively alleviated the embedded derivative liabilities resulting from the previously floating conversion price and ratchet provision on the conversion price. It also relieved the derivative liability related to all tainted equity items previously outstanding as a result of the embedded derivative liability on this convertible note. The related derivative liabilities were marked to market on the settlement date using the Black-Scholes model and relieved to additional paid in capital for $162,065.
-25-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H Convertible Debentures and Note Payable - continued
On December 4, 2012, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $2,500 in a convertible debenture bearing interest at 8% per annum, payable on or before September 6, 2013. $2,500 was disbursed to the Company on December 4, 2012.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 50% of the lowest trading price for the common stock for forty-five trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company. The conversion price has a floor of $0.00005 per share. The difference between the market price on the date the note was executed and the conversion price was recorded as a beneficial conversion feature at $2,500. This amount is discounted against the debt balance and is being amortized over the term of the note using the effective interest method.
On December 5, 2012, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $16,000 in a convertible debenture bearing interest at 8% per annum, payable on or before September 7, 2013. $16,000 was disbursed to the Company on December 5, 2012.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 50% of the lowest trading price for the common stock for forty-five trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company. The conversion price has a floor of $0.00005 per share. The difference between the market price on the date the note was executed and the conversion price was recorded as a beneficial conversion feature at $16,000. This amount is discounted against the debt balance and is being amortized over the term of the note using the effective interest method.
On April 22, 2013, the Company entered into a securities purchase agreement with Asher Enterprises Inc. for the sale of a $12,500 in a convertible debenture bearing interest at 8% per annum, payable on or before January 29, 2014. $12,500 was disbursed to the Company on April 22, 2013.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price of 50% of the lowest trading price for the common stock for forty-five trading days ending one trading day prior to the date of conversion notice sent by the holder to the Company. The conversion price has a floor of $0.00005 per share. The difference between the market price on the date the note was executed and the conversion price was recorded as a beneficial conversion feature at $12,500. This amount is discounted against the debt balance and is being amortized over the term of the note using the effective interest method.
Amortization expense for debt discounts was $64,466 and $20,703 for the nine months ended May 31, 2013 and 2012, respectively. The net discount on all convertible debt outstanding was $17,367 and $18,333 at May 31, 2013 and August 31, 2012, respectively.
Accrued interest was $683 and $1,426 at May 31, 2013 and August 31, 2012, respectively.
On December 31, 2012, Asher Enterprises elected to convert $10,000 of their note payable into 7,142,857 common shares of the Company. Ashers remaining note payable at December 31, 2012 is therefore $68,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital for $10,000.
- continued -
-26-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H Convertible Debentures and Note Payable continued
On February 14, 2013, Asher Enterprises elected to convert $11,500 of their note payable into 9,583,333 common shares of the Company. Ashers remaining note payable at February 14, 2013 is therefore $57,000. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital for $11,500.
On February 20, 2013, Asher Enterprises elected to convert $5,500 of their note payable into 8,333,333 common shares of the Company. Ashers remaining note payable at February 20, 2013 is therefore $51,500. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital for $5,500.
During the three months ended May 31, 2013, Asher Enterprises elected to convert $33,000 of their note payable and $2,400 into 97,491,041 common shares of the Company. Ashers remaining note payable at May 31, 2013 is therefore $31,000. The conversion was in accordance with the convertible note agreement therefore no gain or loss was recorded on the conversion and the converted amount was relieved to common stock and additional paid in capital for $33,000.
Convertible note payable related party at May 31, 2013 and August 31, 2012 consisted of $252,250 and $-0- due and payable to Robert Levitt.
Notes payable at May 31, 2013 and August 31, 2012 consisted of $30,000 and $15,000 due and payable to Marie Fay upon demand and $2,000 and $-0- due and payable to Warwick Tranter upon demand, and $6,818 and $-0-, owed to Robert Levitt due upon demand. Imputed interest expense for the nine months ended May 31, 2013 and 2012 was $18,621 and $17,693, respectively.
Note I
Derivative Liability
The Company evaluated their convertible note agreements pursuant to ASC 815 and due to there being no minimum or fixed conversion price resulting in an indeterminate number of shares to be issued in the future, the Company determined an embedded derivative existed and ASC 815 applied for their convertible note with a balance of $51,500 and $33,100 as of November 30, 2012 and August 31, 2012, respectively. Due to the modification of all outstanding convertible debt as previously described at December 1, 2012 all embedded derivative liabilities were marked to market and the derivative liabilities were eliminated as of February 28, 2013.
The Company valued the embedded derivative within the convertible note using the Black-Scholes valuation model. The result of the valuation is a derivative liability in the amount of $161,987 as of November 30, 2012. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.50 to 0.58 years; (2) a computed volatility rate of 458% (3) a discount rate of 0.13% and (4) zero dividends. The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.
The Company valued the embedded derivative within the convertible note using the Black-Scholes valuation model. The result of the valuation is a derivative liability in the amount of $55,683 as of August 31, 2012. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.25 to 0.75 years; (2) a computed volatility rate of 345.29% (3) a discount rate of 0.01% and (4) zero dividends. The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.
-27-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I
Derivative Liability - continued
The Company evaluated all convertible debt and outstanding warrants to determine whether these instruments may be tainted from the aforementioned derivative. All warrants outstanding were considered tainted as a result of the tainted equity environment and potential inability of the Company to share settle the instruments. The Company valued these warrants using the Black-Scholes valuation
model. The result of the valuation is a derivative liability in the amount of $2 as of November 30, 2012. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 1.9 years; (2) a computed volatility rate of 644.69% (3) a discount rate of 0.25% and (4) zero dividends. The valuation of these warrants was recorded with an offsetting gain/loss on the derivative liability.
For the year ended August 31, 2012, the Company evaluated all convertible debt and outstanding warrants to determine whether these instruments may be tainted from the aforementioned derivative. All warrants outstanding were considered tainted as a result of the tainted equity environment and potential inability of the Company to share settle the instruments. The Company valued these warrants using the Black-Scholes valuation model. The result of the valuation is a derivative liability in the amount of $5.
We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 2.2 years; (2) a computed volatility rate of 345.29% (3) a discount rate of 0.41% and (4) zero dividends. The valuation of these warrants was recorded with an offsetting loss on the derivative liability.
On October 17, 2012 the remaining balance of $5,600 on the Asher note issued on April 27, 2011 for $27,500 and accrued interest of $1,100 was converted for 2,161,290 shares of common stock. The imbedded derivative liability within this note was settled with this conversion. The derivative was marked to market on the settlement date and the value of the derivative of $8,529 was reclassed to additional paid in capital with the derivative settlement.
For the three months ended November 30, 2012 and 2011, $13,333 and 12,266 was amortized and is included in interest expense, respectively. Debt discount at November 30, 2012 and August 31, 2012 was $37,500 and $18,333, respectively. All discounts were fully amortized upon conversion where applicable. The instruments were revalued at each settlement and at year end, and the resulting change was included in the statement of operations and netted with other gains and losses on the Statement of Operations.
For the periods ended November 30, 2012 and August 31, 2012 the Company had 22,429 shares owed that were recorded as a part of the derivative liability due to the tainted equity environment. The related portion of the derivative liability was marked to market according to the value of the shares owed on the balance sheet date, November 30, 2012 and August 31, 2012 was $76 and $225, respectively.
In August 2012, the 32,667 shares that were issued to Robert Levitt were marked to market for $3,593 and relieved to additional paid in capital with the settlement.
-- continued -
-28-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I
Derivative Liability - continued
On December 1, 2012 Asher and the Company agreed to modify all convertible debt agreements outstanding. The modification entailed a floor conversion price and also removed ratchet provisions on the conversion price which previously provided anti-dilutive protection against future dilutive equity or debt issuances. The modification related to the previous debt outstanding relieved the embedded derivative liability associated with this note as well as the derivative liabilities associated with all tainted equity instruments.
All outstanding debt and tainted equity were marked to market at December 1, 2012 and relieved to additional paid in capital for $162,065 based on the modification.
|
|
|
|
|
|
|
|
|
Derivative Liability at
August 31, 2012
|
|
Discount on debt
with initial
valuation
|
(Gain) Loss
on Derivative
for the
Nine Months
Ended May 31, 2013
|
Settled to Additional
Paid in
Capital
|
Derivative
Balances
At
May 31,
2013
|
|
|
|
|
|
|
|
Asher Debentures
|
$ 55,683
|
|
$ 32,500
|
$ 82,333
|
$ (170,516)
|
$
|
|
|
|
|
|
|
|
Tainted Equity Stock Payable
|
225
|
|
|
(149)
|
(76)
|
|
|
|
|
|
|
|
|
Tainted Equity Warrants Outstanding
|
5
|
|
|
(3)
|
(2)
|
|
|
|
|
|
|
|
|
Total
|
$ 55,913
|
|
$ 32,500
|
$ 82,181
|
$ (170,594)
|
$
|
|
|
|
|
|
|
|
Note J Commitments and Contingencies
The Company is aware of one lawsuit filed against its wholly owned subsidiary Knightsbridge Corp. The case is pending in the Superior Court of the State of California. It was filed on October 4, 2012. It is probable that the Company will have to repay the fees given it for unperformed services in the amount of $52,800 and has therefore accrued this as a liability at August 31, 2012 and May 31, 2013.
- 29-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K Fair Value
The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP. All assets and liabilities, aside from those shown in the table below, are recorded at historical cost which approximates fair value, and therefore, no items were valued according to these inputs.
The levels of fair value hierarchy are as follows:
·
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;
·
Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and
·
Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. All assets and liabilities are at cost which approximates fair value and there are not items that were required to be valued on a non-recurring basis.
Note K Fair Value
The following liability was valued at fair value as of May 31, 2013 and August 31, 2012. No other items were valued at fair value on a recurring basis as of May 31, 2013 or August 31, 2012.
|
|
|
|
|
|
May 31, 2013
|
|
Fair Value Measurements Using
|
|
Carrying
|
|
|
|
|
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
|
|
|
|
|
Derivative Liabilities
|
$
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
Total
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
August 31, 2012
|
|
Fair Value Measurements Using
|
|
Carrying
|
|
|
|
|
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
|
|
|
|
|
Derivative Liabilities
|
$ 55,913
|
$
|
$
|
$ 55,913
|
$ 55,913
|
|
|
|
|
|
|
Total
|
|
$
|
$
|
$ 55,913
|
$ 55,913
|
-30-
GLOBAL EARTH ENERGY, INC.
(A Development Stage Company)
Wilmington, North Carolina
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L Subsequent Events
During the months of June and July 2013 the Company issued 34,699,999 shares of common stock.
30,000,000 and 18,900,000 shares were issued to the Companys attorney and accountant, respectively in payment of services. Sydney Harland cancelled 81,100,001 shares of common stock and 66,900,000 shares were placed into escrow in anticipation of repayment of Robert Levitts convertible note.
-31-
Item 2.